Mises Institute: Recent Episodes
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Few Marxists admit to being Marxists. Instead, they are true believers in the creation of the utopian society—if only the rest of us will give them the power they deserve.
This fall, students from across the US are participating in Mises Book Clubs led by scholars at various universities and colleges. These student groups promote deep reading in Austrian economics.
Mainstream economists believe that central banks can “control” inflation, which they believe actually boosts the economy. The only thing inflation boosts is more inflation.
Economic, political, and academic elites have declared gold to be a “barbarous relic,” but in the end gold always is the best choice for money. More than a century of the Fed's paper-based inflation is all the proof we need.
California’s proposed billionaire wealth tax is being sold to voters as a way to replenish the state’s tax coffers with billions of new dollars. What it actually will do is to end the vital capital investment that has driven California’s economy for decades.
Mark Thornton explains how ideology can break the uniparty, why blocked realignment risks revolution, and why Austrian economics helps young Americans see through the crisis.
For the past few years, we have seen claims that the BRICS countries were going to develop a gold-based trading currency and push the dollar from its reserve currency perch. However, none of the economies of these countries can operate with a currency as good as gold.
When government becomes involved in finance, interest groups abound, each one seeking wealth transfers to the detriment of others. This has been the case since the founding of this country, and AI is just a new chapter.
In this week's Friday Philosophy, Dr. David Gordon takes issue with the DEI movement in higher education, pointing to the utterly absurd case of Jason Arday, a professor of the sociology of education at Cambridge University, as DEI's poster child.
Dinesh D’Souza—a self-proclaimed opponent of “revisionist history”—reinterprets the Declaration of Independence through anachronism and equivocation, reading modern concepts of nationhood and equality back into 1776.
Dinesh D’Souza—a self-proclaimed opponent of “revisionist history”—reinterprets the Declaration of Independence through anachronism and equivocation, reading modern concepts of nationhood and equality back into 1776.
Fauci is back in the limelight after the release of his diary before a Senate hearing last week. And that’s good, because the career of Anthony Fauci can teach us a lot about where power actually resides in America and how our system really works.
A man told the police he feared being "swatted" by scammers. The cops ignored this and attacked the innocent man instead.
Much of the discussion around American healthcare ignores the fact that most of the American healthcare system is already a government healthcare system.
An article of faith with modern progressives is that all social problems can be solved with the growth and application of the administrative state. They have faith in the wrong thing.
In spite of the GOP's feigned dismay over Morocco's weaponization of migrants against Spanish exclaves in North Africa, US policy supports Moroccan expansionism in the region.
Mutual aid societies once were an important part of the US social landscape. Africans can benefit from the same movements—provided their governments get out of the way.
Bob returns to the fractional reserve banking debate to clarify a point the critics keep missing: in the Mises-Hayek-Rothbard framework, it's fractional reserve banking itself that sets the boom-bust cycle in motion, not merely central banks.
By convincing Congress to permit the government to take equity positions in private firms, Donald Trump has completed the transition of the economy from free markets to political capitalism.
On this episode of Power and Market, Ryan, Connor, and Tho discuss the social debate this week focused on Gen Z economic anxiety.
Mutual aid societies once were an important part of the US social landscape. Africans can benefit from the same movements—provided their governments get out of the way.
In 1871, Carl Menger gave what still is the best explanation of diminishing marginal utility. What was true in 1871 is true today.
Statistics can be interesting and informative, but only if one can properly understand them through sound economic theory.
It is not enough to treat property as a default state of nature that will eventually assert itself and merely needs to be intellectually explained. We must continually be ready to defend private property.
Dr. Mark Thornton joins David Lin to discuss the AI investment surge, tariffs, inflation, the Fed’s interest-rate dilemma, and the broader risks facing the economy.
Fauci is back in the limelight after the release of his diary before a Senate hearing last week. And that’s good, because the career of Anthony Fauci can teach us a lot about where power actually resides in America and how our system really works.
More 5-D chess from Trump: U.S. crude oil supplies have fallen to their lowest level in 45 years as President Donald Trump continues to wage war against Iran.
In spite of the GOP's feigned dismay over Morocco's weaponization of migrants against Spanish exclaves in North Africa, US policy supports Moroccan expansionism in the region.
Quinn Slobodian’s Hayek’s Bastards suggests a connection between Austrian economics and a new wave of authoritarianism and racism.
Last week, more than 50,000 people illegally entered the Spanish exclave city of Ceuta, which normally has a population of only 80,000. Why not just open the border permanently?
Why are there economic disparities between racial groups? A popular explanation is that they are caused by racial discrimination. Wanjiru Njoya takes a closer look at these claims.
In September 2026, the Mises Institute will hold its next Mises Book Clubs, a program that promotes deep reading in Austrian economics.
amp;amp; CEO of Miles Franklin Precious Metals, interviews Mark Thornton, Senior Fellow at the Mises Institute, to discuss why he believes the global economy is approaching a critical turning point driven by mounting debt, declining trust, and years of monetary distortion.
Mainstream economists tend to think of cash balances as the heart of new savings. Actually, real savings involves much more than that.
The federal government aid program in one part of the economy creates a problem. Washington policymakers see a new problem. They believe the federal government should create a new aid program to solve the problem created by the earlier government aid program.
If we wish to be honest, the Federal Reserve System needs to be put out of its—and our—misery.
Last week, more than 50,000 people illegally entered the Spanish exclave city of Ceuta, which normally has a population of only 80,000. Why not just open the border permanently?
The background: Japan is selling U.S. bonds and that's not great for the U.S. because it lowers bond prices and raises yields. In other words: higher interest rates for you and me.
To celebrate The Year of Rothbard, we’re giving away some of his most radicalizing and influential books. Get your copy of our August offering, The Case for a 100 Percent Gold Dollar, before August 31.
Mark Thornton explains how inflation drives the K-shaped economy, why gold and silver remain central to the debt crisis, and why socialism appeals to young Americans left behind by government failure.
The beauty of Austrian economics is that it springs from real human action and does not depend upon the construction of abstract mathematical models meant to parallel reality.
Statistics can be interesting and informative, but only if one can properly understand them through sound economic theory.
In this week’s Friday Philosophy, Dr. David Gordon reviews Cronyism: Rise of the Corporate State 1849–1929 by Patrick Newman.
Modern mass democracy, especially when coupled with bureaucracy, creates uniquely powerful incentives for the production, consumption, and institutionalization of unreality.
The locals still have some control over their own borders, unlike in the USA where the central government dictates border policy for all.
As socialists gain increasing power in this country, their first target is private property. We need to push back against this wave of legalized theft.
More than a decade ago, Zimbabwe became synonymous with hyperinflation. While that era has mercifully passed, the nation’s central bank still is following inflationary policies.
The sure way to destroy a prosperous nation is to debase the currency. History is full of examples—from ancient Rome to the nascent French Republic to Weimar Germany. The US and the West, fiat currency regimes all, are irrevocably destined to join this sorry club.
The Trump government is expanding its ownership of the means of production. Marx would approve.
Some claim that if socialists understood economics they wouldn't be socialists. This is doubtful since the larger motivation is often political control.
“ Polymarket and Palantir are partners... The goal is not just … mass surveillance ... It’s predictive policing. ...This is the privatized panopticon.”
While governments charge fees for just about everything, suddenly governments have decided that private fees are harmful. Illinois has been especially aggressive in trying to make certain transaction fees illegal, but the results are different than what politicians there anticipated.
Murray Rothbard realized the present system of punishment for committing crimes is both inadequate and unjust. We need to move to a system of restitution.
Two US government interventions are impacting global aluminum’s supply, demand, and prices.
It is one thing to understand socialism on an abstract basis but quite another to spend an extended amount of time in a socialist country, this one being the former USSR. The failures of socialism become obvious when seen on the ground.
The claim that the US attacks on "drug runners" in the Caribbean has not affected the drug trade at all.
The number of Japanese residents fell by 916,744, or 0.76%, to 119,736,483, marking the 17th consecutive year of decline, and the sharpest drop on record.
The evolution of the US government into a powerful cartelizer of the economy required special interests persistently lobbying to reduce competitive market pressures. It required cronyism: government intervention that benefits special interests at the expense of public interest.
The Universal Basic Income (UBI) is a bad idea that just won't die. Time to throw it on the ash heap of bad policies.
Murray Rothbard realized the present system of punishment for committing crimes is both inadequate and unjust. We need to move to a system of restitution.
No matter how legitimate the reasons might seem for going to war, the results are always horrific, and wars rarely, if ever, accomplish their stated purposes.
Bob reviews Murray Rothbard's 1988 essay "The Myth of Free Banking in Scotland," his sharp response to Larry White's influential account of Scottish free banking.
The Israeli president joins Milei in pushing a pro-Israel axis of states in the Americas. (With the US leading the way, of course.)
Despite opposition from the Trump administration and the backlash against its implementation, DEI still has not disappeared from our body politic. It takes on other names, but not other forms.
"Conservative leader Fujimori was sworn in as Peru’s president Tuesday after winning the June election by fewer than 50,000 votes."
Fauci hid key facts from Congress and the public in order to relentlessly promote himself.
In attempts to rectify what are seen as historical wrongs against certain groups of people, western governments have embarked on programs to engage in wrongs against other groups of people. The universal principles of liberalism are supplanted by policies sure to make matters worse.
The Federal Reserve claims that its policies are aimed a keeping prices stable. However, these policies actually undermine the economy and make it unstable.
The democratization of urban planning, the politicization of the environmental movement, and the no-growth movement came together to erect enormous barriers to housing construction in California.
The up and down experience with free markets in Eastern Europe following the fall of the Iron Curtain shows that free markets, while undermining the state, do not operate apart from state interference.
After defeating the British in the American Revolution, Americans had the opportunity to set the country on a long path of freedom. They chose to empower government, instead.
In 1962, despite professional and institutional obstacles, Man, Economy, and State was finally published. With it, Rothbard greatly advanced the Austrian tradition and firmly positioned himself as Mises’s heir.
With advances in the Austrian theory of the business cycle, Rothbard finally completed the monumental task of deducing the entire corpus of economic theory using the praxeological method.
Murray Rothbard’s project drastically changed in mid-1953. Unable to rely on Mises’s sparse treatment of production theory, Rothbard adopted his old Marshallian approach, focusing on an individual firm that faced fixed prices and restricted investment decisions.
Murray Rothbard’s economic perspective changed significantly in 1949 when he met Ludwig von Mises and read his magnum opus, Human Action.
Murray Rothbard started his career with a foundational training in neoclassical economics.
No matter how legitimate the reasons might seem for going to war, the results are always horrific, and wars rarely, if ever, accomplish their stated purposes.
Murray N . Rothbard: The Making of an Austrian Economist is written for everyone interested in Rothbard’s economic theory and Austrian economics in general.
After defeating the British in the American Revolution, Americans had the opportunity to set the country on a long path of freedom. They chose to empower government, instead.
This book has been several years in the making. Originally we envisioned it as a collection of letters and unpublished monographs from the Rothbard Papers at the Mises Institute.
Like his friend Trump, Milei supports stronger spy agencies, granting them more power to spy domestically and expanding state secrecy.
For many years, some economists and politicians have painted income equality as a major threat to our economy and well-being. As usual, they understand neither inequality nor economics.
We remember the Declaration's first paragraph and forget its last—the one where thirteen separate states declare themselves free and independent. Larsen Plyler on a legacy that got lost.
Egalitarians mock Adam Smith's invisible hand as free-market superstition, then explain every billionaire with an invisible hand of their own. Joshua Mawhorter on the luck argument for redistribution.
The standard argument for government services is that only government can build enough roads to meet transportation needs. However, the disconnect between production and consumer choice ensures misallocation of resources under government roads, including traffic congestion.
Bernie Sanders and Alexandria Ocasio-Cortez have toured the country calling for massive government takeover of the economy and other socialist initiatives. For socialists, Sanders and AOC have become the new “Keepers of the Secret” of making socialism viable.
Bernie Sanders and Alexandria Ocasio-Cortez have toured the country calling for massive government takeover of the economy and other socialist initiatives. For socialists, Sanders and AOC have become the new “Keepers of the Secret” of making socialism viable.
Sen. Ted Cruz was recently interviewed by Tucker Carlson, with Cruz advocating “regime change” in Iran. However, Cruz doesn‘t know enough Iranian history to make any qualified judgment on Iran or its people.
Mr. Milei fancies himself to be a great monetary theorist in the Austrian tradition. To illustrate his unrivalled brilliance here are two revealing exhibits.
Surveillance technology along with expanded telecommunications erodes our ability to keep private things private. However, the growth of collectivist ideology makes this worse, since collectivists believe that all of life is political.
Dreams about “sound management” and “a return to fiscal responsibility” do little more than propagate the idea that central banks will do a good job so long as the right people are in charge.
Sen. Ted Cruz was recently interviewed by Tucker Carlson, with Cruz advocating “regime change” in Iran. However, Cruz doesn‘t know enough Iranian history to make any qualified judgment on Iran or its people.
Real estate investor and Mises Institute contributor Artis Shepherd joins Ryan to talk about how our stagnating economy is affecting multifamily housing and other commercial real estate. Banks and investors are using "extend and pretend" tactics to cover up the true state of the industry.
Why is the Trump administration levying tariffs? Are they for tax purposes? Protecting domestic industries? Bargaining chips for international deal making? The administration and its supporters have floated mutually-exclusive reasons for these policies, making the confusion worse.
The language of “de-dollarization” conceals an authoritarian ambition: to replace one fiat empire with another.
Most supporters of the free market when Murray wrote MES supported a limited state, but Murray wanted to get rid of the state altogether. This was too much for the Cold Warriors.
The United States is dangerously close to entering yet another war in the Middle East. But this one has the potential to be a lot costlier for the American people while remaining just as unlikely to bring about peace and stability in the region.
The US assessment goes against claims from Israeli PM Netanyahu, who launched the war under the pretext of preventing Iran from obtaining a nuclear weapon.
During 2024 taxpayers were on the hook for $1.13 trillion in interest on the debt. That’s nearly $7,400 for each of the 153 million people who file tax returns.
During 2024 taxpayers were on the hook for $1.13 trillion in interest on the debt. That’s nearly $7,400 for each of the 153 million people who file tax returns.
Amtrak subsidies keep many of Amtrak‘s routes alive despite the fact that ridership is down on many of them. These subsidies guarantee that Amtrak will be a second-rate, undercapitalized passenger railroad system.
Thanks to the sort of inflationary policy Trump prefers, it will take years to rebuild the economy on a stable foundation of saving and investment, rather than on mountains of easy-money-fueled bubbles.
Year-over-year drops in passenger traffic is well correlated with changes in the employment level, and passenger traffic fell for two months in a row.
The United States is dangerously close to entering yet another war in the Middle East. But this one has the potential to be a lot costlier for the American people while remaining just as unlikely to bring about peace and stability in the region.
The Israeli state and its supporters view the American taxpayers as people to be exploited and defrauded for the benefit of a regime that offers Americans nothing in return.
If wealth could be created out of scraps of paper or their digital equivalent, world poverty would be a thing of the past. Remember, the commodity money takes care of itself—and us too, if we let it.
Why is the Trump administration levying tariffs? Are they for tax purposes? Protecting domestic industries? Bargaining chips for international deal making? The administration and its supporters have floated mutually-exclusive reasons for these policies, making the confusion worse.
Despite Trump‘s campaign promises and despite DOGE‘s so-called reputation of cutting government waste, the new administration is spending money faster than the supposed spendthrift Biden administration. This is Machiavellianism at its best.
Trump says he wants the US central bank to be more like the European Central Bank which has been more aggressively forcing down interest rates in recent months.
Amtrak subsidies keep many of Amtrak‘s routes alive despite the fact that ridership is down on many of them. These subsidies guarantee that Amtrak will be a second-rate, undercapitalized passenger railroad system.
Despite Trump‘s campaign promises and despite DOGE‘s so-called reputation of cutting government waste, the new administration is spending money faster than the supposed spendthrift Biden administration. This is Machiavellianism at its best.
Trump is now weighing sending in the US military. This presidency looks like an extension of George W. Bush's.
Tucker Carlson opposes Trump's new war, so Trump claims to have invented "America First" and repeats banal slogans about weapons of mass destruction.
The abandonment of liberty because fear drives people to trust government promises of safety is a phenomenon we have witnessed several times this century.
Before he revolutionized economics, Rothbard mastered the mainstream. Salerno traces Rothbard's path from neoclassical insider to Austrian iconoclast.
Hunter DeRensis writes at The American Conservative, "Israel is a rogue nuclear state that is aggressive abroad and despotic at home."
In a true free market economy, credentials would not matter, and certainly not to the extent that they matter today. Credentialism, unfortunately, is a product of government interventionism.
We speak of the “economy” as though it produces goods. Yet, the term really is a fiction, as purposeful individuals working in cooperation with each other are the real producers.
Japan's economy contracted at a higher pace than expected in the first quarter of 2025, according to official data for the January to March period released on Friday.
The deployment of California National Guard troops and active-duty U.S. Marines onto the streets of Los Angeles without local approval is an assault on federalism.
Because keeping the US involved in only 2 hot wars isn't enough to please the war party.
Arbitrary and undefined terms like “fair wage” and “living wage” fundamentally misunderstand the nature of work how wages are determined.
" The IC continues to assess that Iran is not building a nuclear weapon and Supreme Leader Khamenei has not authorized the nuclear weapons program."
Bitcoin and gold are now playing the essential role that central banks should be enforcing.
Following the overtly anti-capitalist papacy of Pope Francis, one asks if Pope Leo XIV will follow his predecessor or steer the Roman Catholic Church‘s leadership back toward economic liberty and natural law. One hopes it is the latter.
With Fathers Day approaching, fatherhood is one more casualty of American progressivism, resulting in many social pathologies. Unfortunately, many conservatives and progressives seem united in the belief that the situation requires more government intervention.
Daniel Lacalle joins Bob to tout the BBB as a pro-growth piece of legislation that is as good as libertarians are going to get.
Mark Thornton breaks down Murray Rothbard’s theory of interventionism: why free markets lift all boats, and government meddling sinks them.
We cannot allow the establishment to write the history of 2000–2025. To that end, consider this non-exhaustive bibliography for understanding this turbulent period.
The negotiations weren’t going anywhere thanks to Trump’s maximalism, but Netanyahu didn’t want to take the chance that there might be a diplomatic breakthrough.
Industrial policy was once a relic of the 1980s, part of the failed presidential campaigns of Walter Mondale and Michael Dukakis. Unfortunately, it has reappeared in the form of policies being put forth by Donald Trump and the MAGA movement.
Israel’s airstrikes on Iran and US involvement shatter the illusion that America First guides President Trump’s Middle East policy. Article by Brandan Buck.
In this week‘s Friday Philosophy, Dr. David Gordon looks at the methodology of Timothy Williamson. While Williamson might not like the implication, Dr. Gordon notes that Williamson‘s methodology can be used to defend the epistemological views of Murray Rothbard.
On this episode of Power and Market, the group discusses the fallout from Israel's strikes on Iran and the Trump Administration's (changing?) position on immigration enforcement.
HIPAA was enacted in 1996 to protect the privacy of patient health information. In practice, HIPAA’s stringent requirements may harm patients, create a chilling effect on medical researchers and healthcare providers, and significantly increase medical costs.
"By this time next week, the U.S. and Iran could be at war." From Andrew Day of The American Conservative.
Critics decried the "retirement" of the previous 17-member ACIP, fearing the committee would make new vaccine recommendations not favored by Big Pharma.
So long as the unchecked army of bureaucrats, technocrats, and deep-state operatives is allowed free rein, it will be impossible to make progress in limiting the state’s power over individuals.
The administration’s best-case scenario would mean the administration has few hopes of deporting even a quarter of the existing population of illegal immigrants.
It could be that deporting private sector workers isn't quite as popular as deporting violent criminals on the dole.
Mises said that MES made an “epochal” contribution to economics and that it made many important theoretical innovations.
Influenced by the writings of the great Frederic Bastiat, Vilfredo Pareto promoted free markets and economic liberalism in 19th-century Europe. Pareto also made a number of important contributions to economic theory and practice.
Nobel-winning economist Claudia Goldin claims that WNBA players are vastly “underpaid” relative to their male counterparts in the NBA. Economic analysis, however, tells us a different story.
Its intent may be to sabotage whatever peace deal trump might have pursued. But US taxpayers will pay either way.
Trump's now-infamous “Big, Beautiful Bill” has become the classic bait-and-switch, in which the president promises fiscal responsibility as a candidate but delivers profligacy when he reaches the White House.
Ordinary people are likely to experience stagnation in real wages, or worse, face rising unemployment.
The US Bancorp tower in downtown Portland is now half empty, with the bank, while leaving its name on the building, relocating most of its employees.
Joshua Mawhorter joins us to talk about how the fiat-money theories of Modern Monetary Theory and chartalism aren't supported by the historical facts.
Bitcoin’s power lies not in being wielded by geopolitical superpowers. Turning it into a “national strategic asset” undermines its very essence. If bitcoin is to remain a tool of freedom, it must resist becoming a tool of empire.
One of the most pernicious legacies of Hitler, Stalin, and Mao is that any political leader responsible for less than, say, three or four million deaths is let off the hook. This hardly seems right, and it was not always so.
What the “legacy” media is trying to present as a brand-new authoritarian crackdown on the press is only a more visible version of how the federal government has attempted to control public opinion for nearly a century.
Myanmar has been a textbook case of the tragedies of socialism. While people are familiar with Nobel Peace Prize winner Aung San Suu Kyi, who tried to lead the nation to democracy and a market economy, the nation is better known for military dictatorship and political and economic repression.
On your computer monitor, your table lamp, or the label on your hair dryer, you will see the symbol "UL" with a circle around it. It stands for Underwriters Laboratories, a firm headquartered in Northbrook, Ill., and an unsung hero of the market economy.
The old Dutch republic was a case of commerce producing tolerance, producing harmony, producing a willingness to interact for the mutual benefit.
It’s the master of public health awardees who are running public health. An MPH is a two-year degree which does not require you to have any prior training in health, in biology, or in medicine. It’s primarily focused on the use of big data and statistical analysis.
I became interested in the question of whether a true market in healthcare can work. I think it is a fantastically interesting subject. It has been the focus of my PhD work.
Bishop sees in the rise of the Republican Party, culminating in Lincoln’s election, the beginning of a Marxist revolution.
We can run society according to the rules of private property and freedom, or we can run it by bureaucratic decree, and the covid episode reminded us of just how important that choice is.
Governments at all levels play the same game—always threatening to eliminate school buses, police departments, ambulances, garbage collection—whatever can succeed in bringing the voters or appropriation committee members to their senses and increasing taxes and spending.
The federal bureaucracy has been called a “headless fourth branch of government.” So long as this unchecked army of bureaucrats, technocrats, and deep-state operatives is allowed free rein, it will be impossible to make progress in limiting the state’s power over individuals.
What the “legacy” media is trying to present as a brand-new authoritarian crackdown on the press is only a more visible version of how the federal government has attempted to control public opinion for nearly a century.
Bob hosts economists Vincent Geloso and Chandler Reilly to discuss their new paper, which applies Rothbard's "Private Product Remaining" to rethink how national output is measured.
Protectionism really isn‘t a theory of betterment for all but a claim that certain people in certain occupations are special. They must be paid more handsomely than the market—meaning you and me—wishes to pay. It will be big business and big labor who will be the beneficiaries of tariffs.
Marxism has seeped into politics, education, and religion—reducing human action to class and race. Mises offers a more accurate understanding of how humans act.
With US Government bonds being downgraded, another sign that Washington's borrowing and spending is out of control, not that anyone in power is listening. Think of the downgrade as a canary in a coal mine.
The American Revolution was fought to free American colonists from an overbearing British government. Yet, only a few years after independence, Americans had created a constitutional government that would wield much power than anything the British had.
The 19th century saw the creation and expansion of railroads in the United States, which hauled freight and carried paying passengers. One offshoot from privately-owned railroads was the creation of company-built and -operated hospitals to treat their employees in remote locations.
Freddie Mac’s delinquency report shows delinquencies above the Great-Recession peak. April's delinquency rate was the highest in 14 years.
Our author went to St. Croix in the US Virgin Islands, expecting a vacation in paradise. Unfortunately, thanks to the USVI government‘s laws “protecting” the taxi industry, he had to spend a tidy sum of money just getting around.
Modern macroeconomic theory claims that government spending, taxation, and monetary creation is essential for economic growth. Austrian Economists, however, note that government stifles the economy.
Critics of the Free State Project should direct animosity, not at those moving to their state, but to the other 49 states for failing to be freer. The Free State Project migrants are not moving to New Hampshire to exert coercion on the existing population, but to live under less coercion.
While China has made great strides economically since the days of Mao, nonetheless, there remain a number of weaknesses in the economy. While we should recognize its economic strengths, we should not be tempted to portray China as an economic superpower.
Why is gold at a record high? How does modern mercantilism fuel today’s tensions? Are we all just pawns in a much bigger game?
Was Paul Heyne an ethicist who thought like an economist or was he instead an economist who thought like an ethicist? It was a bit of both. Heyne‘s popular text, The Economic Way of Thinking, educated a lot of students about how economics really works.
At first glance, it might seem extreme—even offensive—to compare anti-fossil fuel climate policies to Stalin’s deliberate starvation of millions during the Holodomor. But in truth, the comparison may be unfair— to Stalin.
As a bookend to last week‘s critical article on Thomistic Aristotelianism of Alasdair MacIntyre, Dr. David Gordon in Friday Philosophy scrutinizes the libertarian-tolerant philosopher Henry B. Veatch. Dr. Gordon finds Veatch‘s arguments much more tolerable.
On this episode of Power and Market, the group discusses the fallout from Musk's fight with Trump, recent reporting on Palantir contracts, and how the courts are not interested in protecting rights.
Traffic jams are so frequent that many Costa Ricans have adjusted their routines to deal with this phenomenon, treating it like a chronic illness.
Modern neoclassical economics is based upon the physical sciences, which Austrian economists recognize is an inappropriate way to explain economic phenomena. Ludwig von Mises recognized this fraudulence, calling it “scientism.”
Jonathan Newman joins Ryan McMaken to talk about the history behind the myth of "Fed independence." The Fed has never been politically independent of the US government, and it has enthusiastically helped fund the US government both in wartime and in peacetime.
Nigeria has large oil deposits, educated people, and much economic potential. However, thanks to government intervention, Nigeria‘s promising economy is in shambles and no relief is in sight.
Unfortunately, we find that today's MAGA economics is in many ways a retread of the failed supply-side economics of old.
Totalitarianism is not compatible with a functioning economic system based upon free exchange and private property. Such regimes depend upon historicism and logical relativism.
This might sound radical or extreme, but the US somehow managed to get along for more than 225 years before this Department was created.
Elections can have important impacts on the economy, but the most important ones are preceded by some kind of revolution in the world of ideas, for good or bad.
Ryan and Tho examine the role that ideology and interest groups will have on Trump's administration and on his political appointees.
Episodes that made a difference involved an ideological and philosophical battle about policy and the role of government. That’s what the Mises Institute is all about–we’re in the business of idea bombs.
Our troubles don't stem from quotas, set-asides, and the like. They stem from the presumption that the government should be monitoring discrimination in the first place.
While it is often framed in the media as a battle between principled conservatives and an angry, non-ideological movement focused solely on personal loyalty to Trump, the current civil war on the American right is only the latest chapter in a much older story.
Even though DEI (Diversity, Equity, and Inclusion) has been taking a beating with some state legislatures, it still has a corrupting influence, especially in higher education. As Murray Rothbard pointed out, egalitarians are “at war with nature.”
Trump is far from ideal, and we need to do all we can to work against the policies he favors that are inimical to a free society.
The transition team is rapidly revealing that Trump never had any intention of fundamentally changing how the American Empire functions.
The original Mont Pelerin Society meeting in 1947 featured Ludwig von Mises, whose warnings about the dangers of socialism and totalitarianism had gone unheeded. In the wreckage of World War II, the truth of his message should have been obvious. It wasn't.
Even if whole regions of the country vote overwhelmingly against a president, they are still forced to submit to four years of that president’s rule-by-decree.
Mainstream economists often base their analysis upon assumptions that do not square with reality. Austrian economics, on the other hand, is built upon realistic assumptions and the acknowledgement that good economics must reflect human action.
Modern American culture is statist to the core. The typical school curriculum tells students that capitalism is evil and socialism is good. This only gets worse in college.
On this day 106 years ago, the warring parties of World War I agreed to an armistice, ending more than four years of slaughter in the trenches. As Ludwig von Mises recalled, governments also slaughtered their own currencies to pay for the bloodshed.
John Maynard Keynes is the best-known economist from the 20th Century, that not being a good thing. At least he was more famous for his success in promoting his views than for his lack of success as an investor. His failures were an extension of his lack of economic understanding.
With Europe moving toward conflict in 1938, a number of economists and other intellectuals met in Paris to try to revitalize liberalism. Ludwig von Mises also was there as a lonely voice defending laissez-faire and the free market economy.
Contra Marx, the laws of economics are immutable and are the same no matter what historical epoch exists. Economies cannot flourish unless market prices, private property rights, and profits and losses are unhampered.
While the US Constitution made the US a large free trade zone, prohibiting states from erecting trade barriers against each other, it also empowered the central government to erect tariffs on goods imported from outside the country.
When the bankers called for a central bank in the US, they claimed to only want a way to stop bank runs. It turns out that they wanted—and got—much more. The permanent regime of inflation and asset bubbles is the result.
A common belief among economists is that the central bank determines what interest rates should be. But is that accurate? Indeed, there is more to the story.
One sign of a fraying society is that its laws increasingly become political tools. The latest round involves Democrats trying to use criminal law in a very questionable way to try to put Donald Trump in prison, while Trump promises to retaliate if he is elected.
Contra Marx, the laws of economics are immutable and are the same no matter what historical epoch exists. Economies cannot flourish unless market prices, private property rights, and profits and losses are unhampered.
While most of us know George Orwell as an authoritative critic of totalitarianism, few people know he was a committed socialist and a lifelong defender of communist Leon Trotsky. While he understood totalitarianism, he never understood socialism.
Historical revisionism is nothing new, and recent attempts to label an “antiracist” approach to history have wrongly been called “revisionist.” To better understand revisionism, one must first be grounded in reality, then apply reality-based thought to studying the past.
Most economists are political apologists masquerading as economists. They are Rothbard’s “court historians” with degrees in economics instead of history.
While many are busy offering intellectually-deficient reasons as to why Kamala Harris lost—sexism, racism, Nazism, hatred of democracy—Lipton Matthews explains some simple truths as to why Harris lost.
This article investigates the veracity of three claims made by current and former government officials in the context of the 2023 debt-ceiling debates.
Birkin bags are pricey and the producer restricts its potential buyers. Unfortunately, disgruntled customers who don’t want to follow the company’s rules are now appealing to US antitrust law.
The Fed wants independence so it can serve the interests of the banker class. There is no higher principle here. There is only power.
Congress ought to at least teach Powell, the Fed, and its banker friends a few much-needed lessons.
Wage differences between men and women often are automatically attributed to sex discrimination against women. However, as research has shown time and again, other factors are at work.
Buchanan and Tullock‘s The Calculus of Consent influentially applies economic ideas to politics, focusing on methodological individual. However, there are a few pitfalls about which readers should be aware.
Is the price premium proposed by Irving Fisher an incoherent concept, as Rothbard argued? Hansen suggests a Mises-Rothbard premium based on the Cantillon effect to explain persistently low interest rates.
Men like Murray Rothbard, John Hospers, and David Brudnoy are just a few of the libertarian names who aimed to bring film criticism to the readers of libertarian literature.
Bob explains how future inflow of extraterrestrial riches could boost the standard of living on Earth in the near term.
Ryan and Tho talk about what Donald Trump must do if he wants to actually fix our mounting economic problems of stagnation, debt, and inflation.
Progressives blame the free market for insulin prices and want to impose price controls. But, government regulation is to blame.
Even if whole regions of the country vote overwhelmingly against a president, they are still forced to submit to four years of that president’s rule-by-decree.
For the second time in eight years, Donald Trump defied the expectations of the “experts” and the ambitions of the ruling classes of Washington, DC.
The Fed claims things are going very well, but Fed Chairman Jerome Powell got three questions at the press conference that he had trouble answering honestly.
The watchword among progressives this election season is: “Nothing less than our democracy is at stake.” In truth, democracy itself is not in danger, but one can accurately say that “democracy,” as practiced in the US, endangers our lives.
Donald Trump's win last night is arguably an even bigger repudiation of the establishment than his win in 2016. And that's worth celebrating. But there is much the electorate still needs to understand about how those in power are ripping us off if we’re ever going to see an end to it.
Donald Trump says he has enlisted Elon Musk to cut the federal government by one-third. However, most of the budget cannot be touched.
Employing the Labor Theory of Value, Marx claimed that entrepreneurial profits arise from exploitation of workers. In reality, entrepreneurs earn profits when they correctly gauge markets. Exploitation has nothing to do with it.
Government education is a self-perpetuating monster and has been for a long time. While parents and organizations seek accountability, the dynamics driving government education point to a powerful and unaccountable bureaucracy that serves its own interests.
In its so-called war against “hate,” the state determines who are the villains and then instructs everyone else to hate the “haters.” As one might expect, the state then engages in a campaign of vilification and intimidation against the newly-designated enemy.
As American culture becomes dominated by militant feminism, a new voting group of dissenters is arising: young male voters. These are young men that believe that the system is stacked against them, which is why Trump's populism appeals to them.
In its so-called war against “hate,” the state determines who are the villains and then instructs everyone else to hate the “haters.” As one might expect, the state then engages in a campaign of vilification and intimidation against the newly-designated enemy.
As Murray Rothbard often noted, freedom of association is a fundamental right, what he called a “subset of private property rights.” Unfortunately, our modern cancel culture has taken aim at this right, taking away the voluntary nature of human interaction.
Democracy, or at least the “democracy” that ensures the “right people” are elected, is the religion of American progressives. Despite its obvious failures, however, progressives claim that democracy is the Holy Grail of governance. Why people believe this is another question.
Legal philosopher Jeremy Waldron in his book The Rule of Law and the Measure of Property challenges the Lockean view of legitimate property ownership. David Gordon sheds light on Waldron's confusing positions.
There is much the electorate still needs to understand about how those in power are ripping us off if we’re ever going to see an end to it.
Unfortunately, Trump has no plans to cut government spending, and this means there is little chance that ordinary taxpayers are going to experience any real tax relief.
Modern progressives are obsessed with collective guilt, demanding that Americans pay reparations for slavery even though it ended in the US 160 years ago. However, by employing collective guilt and collective punishment, those seeking reparations violate natural law.
The election is upon us. We wonder whether we have to have war, tariffs, and deficit spending, regardless of whom we support. What are we to do?
The 2024 election will provide few solutions to the underlying pressures eroding American political norms. Regardless of the outcome, half the country will feel like they live under an occupational government.
Not all news from the gold and monetary fronts is bad. In fact, gold made a number of advancements in seven states, including exemptions from taxes and attempts by states to restrict Federal Reserve behavior. Gold is alive and well.
Faced with the intractable problems of misgovernment, we need to look deeper than short-term distractions like elections.
The 2024 election will provide few solutions to the underlying pressures eroding American political norms. Regardless of the outcome, half the country will feel like they live under an occupational government.
We're often told that submission to government edicts is "voluntary" because we have "representative" government. The evidence suggests, however, that politicians don't represent their constituents. Nor could they, even if they wanted to.
The University of Vienna is now too "woke" to permit additional monuments to dead, white males.
Tariffs don‘t just raise consumer prices. They also affect capital flows and, on numerous occasions, have triggered stock market crises. What tariffs don‘t bring is prosperity.
What would Mises say about election predictions like "Donald Trump has a 53% chance of winning"?
For nearly 30 years, the Fed has pursued an easy-money policy that has made the economy increasingly dependent upon the next round of “stimulus.” Reversing that policy will mean, at least in the short run, a stiff recession before the economy rebounds, which is a non-starter today.
Job growth was only positive in October because of government jobs, funded by huge federal deficits.
The Fed lowers interest rates ostensibly to “stimulate” the economy. But while the Fed claims it is strengthening the economy, it actually weakens it through its easy-money policies.
While fine with calling Trump “Hitler” and a “threat to democracy” are apparently acceptable epithets for Facebook, a memory of Bovard‘s article “Dictatorial Democracy” was deemed unacceptable by Facebook.
Interventionists often claim that market economies naturally lead to monopolies, which mean there is no more economic competition. However, within market processes, there always is competition unless government authorties themselves block it.
Private-sector employment fell by 28,000 jobs in October. Overall job growth was only positive because of government jobs, funded by runaway federal deficits.
Using state power to enforce social orthodoxy is always a recipe for disaster. Radical Republican governments in the post-war South attempted to do just that, sowing seeds of hatred and discord in the process.
The sweep of history shows that there are two main dangers to liberty, one that comes from the left and the other that comes from the right.
While people who “prep” for disaster (called preppers) are ridiculed by political elites and their media, their actions are perfectly rational. In this article, economist Mark Thornton explains why prepping for natural disasters makes economic sense.
The political theorist Anthony de Jasay takes on the left‘s ideas of equality, and David Gordon is there to agree—and disagree. Jasay likens the left‘s view of equality to the Indian Rope Trick.
Mises Fellow Kristoffer Hansen joins Bob to discuss the controversy surrounding Mises' perspective on fractional reserve banking and free banking.
The darling of America‘s political elites, Ukrainian President Volodymyr Zelensky, now touts a “Five-Point Plan” that surely will extend the war and ultimately make his country even worse off. It is time to end this farce.
Despite claims from the Keynesian “experts” that gold is a “barbarous relic,” the markets are saying that gold is more valuable than ever.
On this episode of Radio Rothbard, Ryan and Tho talk about the possibilities after next week's election.
Supporters of intellectual property laws claim that people will not innovate unless they are protected by such legislation. In reality, people are more likely to be innovative when they encounter real free markets, not markets characterized by artificial scarcity.
The freedom of speech is today threatened in the West to a degree not seen since the nineteenth-century classical liberals battled the censorious police states of the old conservative regimes.
In less than a week, the voters allegedly will choose a new president. However, will the process have integrity or just be a sham in which ballot boxes in key precincts are stuffed? If the voting numbers are like the fake statistics the Biden-Harris administration produces, we might wonder.
Lincoln, FDR, and Wilson were by far America’s worst presidents because of their shared penchant for dictatorship, corruption, lawlessness, attacking constitutional liberties, warmongering, and imprisoning dissenters and political opponents, as well as economic fascism and federal interventionism.
Capitalism is characterized by the private ownership of capital, coming from Lockean homesteading principles, and not from state coercion and force.
Wanjiru Njoya tells Charles Malet how she sees a truly free market as the route by which all societies are improved.
The true aim of our political system is to transfer wealth to the government and the politically-connected.
In recent years we have repeatedly seen how the Federal Reserve's much-touted two-percent price-inflation goal is little more than a political slogan.
Critics of Austrian Economics often claim that real economic events are too complex to be dealt with via free markets. However, because Austrian economics is based upon understanding human action, it better explains why economic intervention routinely fails.
Tuesday night’s Vice-Presidential Debate was remarkable not for what was said (which was forgettable), but for what was not asked: What should be the proper role of government in what purports to be a free society? Neither candidates nor the moderators were interested in that question.
Einstein's name is synonymous with brilliance, yet his great intelligence did not translate to logical economic thinking. Instead, Einstein embraced socialism, thinking that one could guide an economy like one guides a mathematical equation.
The conservative activists who tell us to turn in local business owners for "price gouging," are on the same moral plane as the Soviet anti-capitalist snitches of old.
The so-called great minds in economics and finance claim that gold is a “barbarous relic” or a “shiny,” worthless rock. Gold is neither. Despite the steady attacks on its integrity, gold remains a good place to put one's money.
Western governments are keen on pursuing “hate crimes” and criminalizing what it calls “hate symbols.” However, these governments reserve to themselves just how one defines “hate,” which is nothing more than an attack upon free speech.
Pursuit of tax cuts without spending cuts leads to continuous debt accumulation, which is really just as bad as higher than necessary tax rates.
Vegas expected Renato "Sound Money" Moicano to lose his UFC fight against Benoit Saint Denis. Instead, he won and used the opportunity to promote the work of another Austrian economist. This time, it was Hans-Hermann Hoppe.
Tom Luongo explains the different factions among bankers, including rivalries between New York and San Francisco, and the US versus Europe.
Thanks to all of our generous donors who are participating in our 2024 Fall Campaign. Your continued support is vital and much appreciated.
The Ukraine war rages on and while the media and political classes repeat the “Putin started it” mantra, the evidence points elsewhere. The US government and its European allies have provoked Russia for years, hoping it would lead to an outbreak of war.
Many “mainstream” economists are bothered by the popularity of economically-flawed policy proposals like tariffs and price controls. It’s their own fault.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop are joined by Aaron Sobczak of the Quincy Institute for Responsible Statecraft.
What does ChatGPT know about money? More than one might think. George Ford Smith asks the AI program some questions about money and gets some surprising answers.
The standard belief is that slavery was about obtaining “cheap labor,“ yet nothing could be further from the truth. Slavery comes with high opportunity costs, which is why American slave owners depended upon several government regulations to subsidize their “peculiar institution.”
Politicians have long claimed that states are like big families, and that political regimes rule in ways similar to how parents raise their families. This is nonsense.
It is understood that Marx's theories stand entirely upon his Labor Theory of Value. If that theory is discredited, so is the scenario that leads to the inevitable triumph of communism. That fact, however, doesn't stop Marx's disciples from employing other fallacies.
The Perfect Market Hypothesis claims that all movements in the market can be considered as random, as market players and prices adjust immediately to new information. However, market players do seek new information and seek to use it.
Governing elites believe that the fiat money system is the height of “sophisticated” finance. In reality, fiat money sucks the life out of the economy like a vampire.
Progressive and even many mainstream economists believe that cash is a relic from the past and should be replaced with digital money. There are many good reasons why not to follow this course, and no good reasons to replace cash.
Progressive and even many mainstream economists believe that cash is a relic from the past and should be replaced with digital money. There are many good reasons why not to follow this course, and no good reasons to replace cash.
Are the bans on DEI training and job discrimination in line with the Constitution of the United States, let alone being attacks on free speech? Wanjiru Njoya tries to answer those questions.
The TSA's record for incompetence is astounding, even for a government agency. Unfortunately, on this government holiday when air travel is in great demand, TSA ineptitude and callousness will be on display. Any complaints, as this article shows, will be seen as subversion.
How do we guard against misinformation when business firms join with government to promote things that simply are false? As Murray Rothbard noted, people still have reason and the free will to make decisions for themselves.
While Bitcoin and other cryptocurrencies can boggle the mind with their complex relationships, nonetheless, we are witnessing the development of a parallel economy that has sprung up in the wake of harmful government intervention.
Price inflation is never caused by greed. It's always caused by a growing money supply. The money supply has grown big-time since 2020, and now we pay a lot more for food and housing.
Modern egalitarians play down the idea of free will, claiming that free will is relevant only if individuals have no interference with their choices. Murray Rothbard, on the other hand, recognized that self-ownership and one's ability to engage in reason is enough to recognize free will.
While recent European Parliament elections have raised questions about Ireland’s role in the EU, the truth is that Ireland’s historical role in civilizing Europe reminds us that Ireland is more European than the EU itself.
The phrase, old school economics, is often used approvingly by many, but it's rarely explained. What is it?
Dr. Jonathan Newman joins Bob to analyze Kamala Harris's proposals against price gouging, and how some mainstream economists defend Government price controls.
Politicians and hedge funds that push “Environmental, Social, and Governance” (ESG) scores and investing do so with the notion of improving social welfare. What they fail to realize is that these concerns are accounted for in human action already.
In previous centuries there were the defenders of liberty we now call “classical liberals,” “radical liberals,” or “libertarians.” For them, the fight for freedom was synonymous with the fight for peace, opposition to imperialism, colonialism, and standing armies.
Price inflation is never caused by greed. It's always caused by a growing money supply. The money supply has grown big-time since 2020, and now we pay a lot more for food and housing.
Like Murray Rothbard, Solis-Mullen is fully aware of the dangers posed by court intellectuals, who defend positions that will give them power and wealth. China is simply the new trough.
Mearsheimer and Rosato make an interesting case for dictators, however evil we may consider them, that they are in fact acting in a rational way.
If the government can conscript you into its army, can cause your death or mutilation in some war that has nothing to do with national defense, and can execute you if you resist, then it can do anything to you at any time, for any reason — or without bothering to give a reason.
From its earliest decades, the defenders of freedom — known historically as “classical liberals,” “radicals,” and “libertarians,” have sought to reduce and limit the war-making powers of the state. Here is a sampling of thoughts from these liberals.
The growth of the state through war included not only developing new technologies for making war, but also coming up with new financial techniques such as inflation and other wealth transfers to the government, which made the increasingly expensive wars possible.
Ukraine and Israel are current boutique wars of choice, connected to and very much like those the U.S. government pursued for profit and show in Iraq, Yugoslavia, Syria, Afghanistan, Libya and elsewhere. It is imperative to understand why the U.S. fights these wars.
The federal government uses wars as excuses to eviscerate American freedoms, spend trillions of dollars and rack up gargantuan deficits that will impose a heavy financial burden for decades to come. We oppose this, root and branch.
Herbert Butterfield, who taught history at Cambridge, had many insights on the sea changes brought about by World War I and the collapse of the Old World Order. The new order that followed, he realized, was not an improvement over what previously existed.
Mises’s 'Human Action' is the antidote to the real and immediate threat to human liberty and society represented by the modern-day progressives.
Socialist regimes tend to follow the same playbook: promise much, deliver little, and, in the end, blame capitalism. Venezuela is the latest socialist entity to enter the Failed State Hall of Fame.
David Gordon reviews J.W. Rich's new book, Praxeological Ethics: An Inquiry into the Nature and Foundation of Ethics and finds much to like about this volume.
The Nigerian government has passed a new minimum wage law, and the usual suspects are happy because the country "is getting a raise." Economic reality, however, will set in soon enough as people find that government edicts do not create wealth.
A recurring myth among progressives is that the state can enforce "fairness." However, given that government cannot even effectively define fairness, one doubts that the state can "enforce" what it doesn't know.
With the US government engaged in out-of-control spending, we are looking at tax increases in the coming years. And even if Congress does not pass official tax hikes, we will see the government seizing wealth via inflation.
Trump has taken to calling Kamala Harris a "communist." But a real communist president would be hemmed in by the political class, who wants to keep the profits they’re extracting from us, and limited by a commitment to principles. Harris will not have that problem.
Krugman-the-textbook-author says price ceilings have terrible consequences. Krugman-the-columnist says they're "reasonable."
Keynesian economists claim that the economy needs at least 2-3% inflation in order to avoid business cycles. But these inflation rates over time are economically ruinous and they actually harm economic growth.
One of the excuses for levying protective tariffs is to protect emerging domestic industries. However, this kind of protectionism, contrary to popular opinion, leaves an economy worse off every time.
Contrary to popular belief, China's economy depends much less on central planning than in the past. China is strong in EV development, and the success is due not to government subsidies and direction but to plain good economics.
The U.S. government is spending trillions of dollars to prop up military ventures around the world. This kind of spending and exhausting of military resources cannot be sustained much longer.
While many are celebrating the Chevron decision that limits the power of federal bureaucracies to interpret federal law, it also may provide an opportunity to change federal policies regarding land ownership in the West.
While Kamala Harris accuses Republicans of censoring books and library materials, her press secretary, Brian Fallon, tried to censor opinion articles critical of Eric Holder and the Department of Justice during the Obama years.
While F.A. Hayek was a promoter of liberty, his work nonetheless often failed to acknowledge just how predatory the state really is. Murray Rothbard understood that the real enemy is the predatory state.
As the Federal Reserve manipulates the money supply and interest rates, the yield curve becomes a less reliable indicator of economic activity. The more the Fed plays havoc with the system, the more we see the boom-and-bust syndrome.
While many people currently are likely to view the rule of law as simply a collection of arbitrary rules, it involves private property rights and limits on state power.
Legislating against unfairness in order to achieve "equal" outcomes is like legislating against the wind. While government has little control over outcomes, its predations can make those outcomes worse.
In September 2024, undergraduate students will have an opportunity to participate in the Fall Mises Book Club, a program that promotes deep reading in Austrian economics.
The Fed for many years has manipulated the money supply in order to attempt to keep interest rates below market levels. At some point, however, the market prevails in one way or another.
Murray Rothbard once wrote that egalitarianism is a "revolt against nature." Egalitarianism also can be likened to a superstition, a belief that has no basis in truth.
Texas politicians have decided their political "wisdom" can replace a market pricing system in production and distribution of electricity. Failure looms.
Rate cuts do not signal a healthy economy but a slowing one, so equities slump despite the promise of a rate cut because investors continue to see lower buying pressure.
The Labor Party's recent triumph over the intellectually-spent Tories finds the political regime wanting to bring back full-blown socialism. There is little to stop the British left from pushing a disastrous agenda.
Inequality is inevitable and there are many reasons it exists. However, by declaring that racial discrimination is the primary cause of inequality is to substitute egalitarian ideology for economic reality.
Is the United States on the fast track to ruination? Or, could a so-called Democratic Socialist government be a role model for the US?
Professor Tara Smith tries to set the record straight regarding Ayn Rand, Objectivism, and reason. Unfortunately, as David Gordon demonstrates, Smith's analysis misses the mark.
Most Americans have no idea of the damage that the Federal Reserve system has done to their daily lives. Unfortunately, most Americans are not particularly interested in finding out either.
In September 26, 2022, seven months after the Russian invasion of Ukraine, saboteurs destroyed the Nordstream pipeline which was a major conduit of natural gas to Germany and western Europe.
Harris's advisors must know price controls drive up prices. They just don't care. Price controls are a political policy. They help politicians get elected.
Meanwhile at the EU, the censorship and anti-free speech regime marches on. The current target is Elon Musk's X. It won't stop there.
War, Economy, and State merges with Radio Rothbard on this episode, with Zachary Yost joining Ryan and Tho for a look at the draft.
Antitrust regulators claim that antritrust law and enforcement is necessary to preserve competition and foster economic innovation. In truth, antitrust law is anti-innovation and anti-competition.
Kamala Harris is reportedly set to unveil her economic platform after an event with Joe Biden where the two plan to celebrate their administration’s economic accomplishments. But those accomplishments are not real.
It is no surprise that "inflation" is one of the major political issues this election cycle, but few know what inflation really is, let alone what causes it.
Libertarians have no problem dealing with how private property should be policed, but what about those areas we call public spaces? Murray Rothbard, not surprisingly, examined the issue thoroughly and had some insightful ideas.
With its focus on dismantling the administrative state, Project 2025 represents a refreshingly serious turn for the American right. However, its policy prescriptions remain frustratingly moderate.
Following the release of today’s jobs report, it seems serious cracks are now appearing in the media's narrative on our "strong" economy.
When municipalities embrace new technologies, people often refer to them as “smart cities.” However, all too often these technological “revenue enhancers” are nothing more than shakedowns of local citizens.
Rachel Maddow, the leftwing broadcaster, tries her hand at rewriting history. Unfortunately, her tendency to see a fascist hiding behind every bush and tree clouds her writing judgment.
By appealing to the self-interest of buyers and sellers, capitalism foils attempts by lawmakers to create racially constructed limits on voluntary exchange. Capitalism undermines racism.
The United States abolished its first three central banks, and this was followed by a period of immense economic growth. End the Fed? We did it before and can do it again.
With the European economy remaining relatively stagnant and government debt levels climbing to disturbing levels, it's possible that some of these countries will see another debt crisis like we saw in Greece more than a decade ago.
In their Space, Elon Musk spoke with Donald Trump about the cause of inflation being government overspending.
American politicians today are attacking free economic exchange, claiming it is lowering our standards of living. In reality, trade and exchange is the real golden goose.
While we see UK authorities jailing people for their social media posts, we should not kid ourselves. Silencing dissent can happen here and it is happening here.
Mises's vision of democracy must be understood in light of his support for unlimited secession as a tool against majoritarian rule.
The late Walter Williams was a clear thinker when it came to issues of race and economics. While some socio-economic differences in society can be attributed to racism in society, most of it cannot, and Williams was not shy in pointing out that fact.
Socialists claim that any work done in a market economy is oppressive because labor in that situation cannot be adequately compensated. However, workers in a market system freely choose among many alternatives in order provide the best opportunities for themselves.
Mises was right: “It is obvious that this new-fangled connotation of the terms inflation and deflation is utterly confusing and misleading and must be unconditionally rejected.”
Taxing "the rich" won't make life more affordable for ordinary people. The true cause of the affordability crisis is inflation caused by central banks.
We might say that self-determination and secession—and self-determination’s opposite, imperialism—are three ways of looking at the same object.
The socialist case against capitalism is not based upon facts of history, yet socialism is still seen as the superior moral system. Over time, capitalism creates wealth across society while socialism creates poverty.
By appealing to tariffs and other forms of economic regulation, Republicans have tossed aside any commitment to free market economics. Unfortunately, their program will lead to more economic stagnation, inflation, and runaway government spending.
If you would like to help next year's students have their "best week of the year," please consider donating to Mises University 2025 today. You can donate here.
Bob goes solo to give the historical context and true meaning behind "Say's Law," as well as the caricature presented by Keynesian critics.
So-called fair trade is the rage among elites who believe that it protects people in poor nations who would like higher prices for their exports. In reality, fair trade distorts prices and provides disincentives for consumers.
The simple tautology that individuals act is not trivial, despite what critics of Austrian economics might say. As Mises noted, human action is directly related to the ability of humans to reason.
The Fed has owned no gold since 1934, when the Fed handed over all its gold in exchange for gold certificates.
As the Federal Reserve manipulates the money supply and interest rates, the yield curve becomes a less reliable indicator of economic activity. The more the Fed plays havoc with the system, the more we see the boom-and-bust syndrome.
The current trend in money-supply growth is a big turnaround from the many months of depression-level contractions we saw in 2022 and 2023.
Published in July 1974, Murray Rothbard provides elite theory analysis of Watergate after the selection of Nelson Rockefeller as Gerald Ford's Vice President.
The Lessons for the Young Economist video series is the antidote to public school economics education.
The problem for most Americans is that it is increasingly difficult to make ends meet despite record government spending, or because of its negative impact on inflation and taxes.
Today is the 50th anniversary of the resignation of President Richard Nixon, who left office because of his involvement in the Watergate scandal. Ryan McMaken has found some published thoughts from Murray Rothbard on the Watergate affair.
On this episode of Radio Rothbard, Ryan and Tho are joined by friend of the show, Peter St. Onge.
The Watergate scandal spurred a number of “reforms” that were allegedly designed to make the federal government “more responsive.” Yet, these reforms did little other than increase federal power.
Contrary to popular belief, China's economy depends much less on central planning than in the past. China is strong in EV development, and the success is due not to government subsidies and direction but to plain good economics.
During a campaign stop in Nevada early last month, Republican presidential candidate Donald Trump promised that if elected, there would be no more federal tax on tips. But why limit just certain income from taxation?
Surprisingly, Project 2025 blames the Fed for exacerbating the cycle of booms and busts, inflating away the value of the dollar, enabling exorbitant deficit spending.
Kamala Harris is more than a continuation of the Obama-Biden progressive interventionism at home and abroad. She's an acceleration.
What we may call the “spending illusion” is perhaps the gravest error in the history of economic thought and has been deeply embedded in economics since the early twentieth century.
In the wake of the Labor Party's huge win in Great Britain, one is reminded that Labor and Conservatives are far more united in their economic and policy viewpoints than they pretend to be.
The president's latest episode of "transparency" was the same deceitful behavior that has characterized his administration for the past four years. This time, it is employing deceit to "save democracy."
While defenders of democracy claim to hold fealty to the U.S. Constitution, they are quick to jettison it when they claim that democracy itself is in peril. David Gordon disagrees.
Social justice is a nonsensical term that interferes with the attempts to find authentic justice. It is not about equality so much as it is about imposing outcomes incompatible with a free society.
For all the regime's talk about "democracy," it is clear at this point that the White House is run by unelected personnel who are accountable only to technocratic elites.
In the context of decades-long regional and foreign policy conflicts regarding Iran, the new Iranian president might signal a shift toward more peaceful alternatives.
After a dramatic couple of days in the markets, economists and political figures are calling for the Fed to cut interest rates. But if we ever want to see an end to all this economic chaos, what we need are not lower rates or higher rates, but accurate interest rates.
Live at Mises University in Auburn Alabama, Ryan and Tho look at the methods of radical libertarians in light of Rothbard's essay on revolution.
Accusations are aimed at the fashion industry of "exploiting" their models and other workers. Yet, it is much easier to accuse an industry of exploitation than it is to define what exploitation might be.
While many people currently are likely to view the rule of law as simply a collection of arbitrary rules, it involves private property rights and limits on state power.
Critics of capitalism claim that private enterprise gives workers the unhappy choice of either working difficult, low-paying jobs or outright starving. The claim is false and the history of capitalism tells a different story.
The 1866 civil rights law was historical not because it promised racial equality but because it changed the legal relationship between the states and the federal government.
One of the reasons for the hard-left turn in higher education has been the increasing radicalization of accreditation agencies. It is important for colleges and universities to break away from these agencies and rethink the accreditation process.
The degrowth movement seeks to mitigate climate change by ending economic growth, which is really a move to engage in large-scale depopulation.
Following the release of today’s jobs report, it seems serious cracks are now appearing in the media's narrative on our "strong" economy.
While many are celebrating the Chevron decision that limits the power of federal bureaucracies to interpret federal law, it also may provide an opportunity to change federal policies regarding land ownership in the West.
Even if we were to agree with the MMT advocates that MMT allows the economy to easily shift from privately-produced to government-produced goods and services, we still ask why people should be forced to purchase inferior goods.
The Supreme Court recently handed down three decisions of particular interest to defenders of individual liberty and limited, constitutional government.
Austrian economists understand how we can apply economic laws and concepts to what we see in the real world.
US sanctions against Venezuela are barbaric and immoral. But, they are not responsible for the economic collapse that has transpired in Venezuela over the past twenty years.
Austrian economists have a particular way of thinking about competition and the absence of competition in the form of monopoly.
Thanks to state propagandists in our education systems, people have been told that free markets create poverty while state control of economic exchange produces abundant wealth and effectively distributes it. The truth is that free markets reduce poverty and liberate humanity.
Libertarians have no problem dealing with how private property should be policed, but what about those areas we call public spaces? Murray Rothbard, not surprisingly, examined the issue thoroughly and had some insightful ideas.
Prompted by a listener request, Bob gives the standard economic analysis of tariffs and other types of taxes.
By appealing to the self-interest of buyers and sellers, capitalism foils attempts by lawmakers to create racially constructed limits on voluntary exchange. Capitalism undermines racism.
Paul Krugman once claimed that inflation was necessary for relative income equality. The truth is that inflation, by creating winners and losers, increases and exacerbates income inequality.
The great train wreck seems to be happening. Mark Thornton shares his latest guesses and outlook.
What changed? Justin Trudeau's campaign to convert Canada from a US-style mixed economy into a state-dominated economy like the sick men of the EU.
While defenders of democracy claim to hold fealty to the U.S. Constitution, they are quick to jettison it when they claim that democracy itself is in peril. David Gordon disagrees.
On this episode of Radio Rothbard, Ryan and Tho discuss America's new chapter of late-stage Soviet politics.
Surprisingly, Project 2025 blames the Fed for exacerbating the cycle of booms and busts, inflating away the value of the dollar, enabling exorbitant deficit spending.
The student loan program not only is saddling young people with huge debts, but it also encourages colleges and universities to charge higher tuition. When President Obama nationalized the program, it was supposed to end students indebtedness, not increase it.
Critics of capitalism claim that private enterprise gives workers the unhappy choice of either working difficult, low-paying jobs or outright starving. The claim is false and the history of capitalism tells a different story.
Social justice is a nonsensical term that interferes with the attempts to find authentic justice. It is not about equality so much as it is about imposing outcomes incompatible with a free society.
When municipalities embrace new technologies, people often refer to them as “smart cities.” However, all too often these technological “revenue enhancers” are nothing more than shakedowns of local citizens.
Last week, Julian Assange was freed and the Chevron doctrine was overturned. These are huge wins for liberty. Not long ago, they felt completely out of reach.
Academic elites claim that there is no objective truth, only social constructs. Thus, people can create their own reality in many areas, and everyone else is expected to accept whatever “reality” is presented—or face serious consequences.
For all of the claims that governments “create jobs,” in reality, government jobs come at a greater cost than any value those jobs may create. Government jobs are a burden to the economy.
As the progressive Left expands its occupation of our institutions, the concept of truth itself becomes little more than a weapon to utilize to achieve political goals.
While F.A. Hayek saw human ignorance as the basis for what he called spontaneous order, Ludwig von Mises saw human reason as the basis for praxeology.
Many small colleges are shutting their doors, and it is largely the fault of overexpansion, government protectionism, and bureaucratic infiltration.
It has been nearly eighty years since the US used atomic warfare on Japan as a way to end World War II. The legacy of that event is not one of peace but of outright madness.
Javier Milei’s recent “snub” of Spain's political establishment during a recent visit there may have been a “violation” of diplomatic protocol, but it also was a statement that Spain’s socialism itself is uncivilized.
Issues of immigration are complex. The current system of open borders, detention and expanding access to welfare is destructive to our body politic. We need to come up with a better system that protects the rights of all.
It's an odd turn of events when a libertarian party finds itself defending the uncensored right to say "chicken." This circumstance serves as a clear reminder of the difficulties and ridiculousness of modern woke politics spread across social media.
On this episode of Radio Rothbard, Ryan and Tho discuss the attempted assassination of Donald Trump.
With your support, the Mises Institute can send Mises U students home with a stack of Austrian classics. Help our students further their radical education before they have to return to their democratic socialist classrooms!
Elites portray CBDC currency as a high-tech alternative to cash and current electronic money. There is a huge difference, however, as implementation of CBDC currency will give government total control over individual purchases.
When governments seize private firms in the name of nationalization, the moves are usually politically popular. However, it doesn't take long for the nationalized firms to turn into a financial black hole.
The Washington political establishment's uniform condemnation of the assassination attempt against Donald Trump does not square with the apocalyptic rhetoric they have used to describe him over the past eight years.
Should Trump’s call for “unity” result in further moderation of his politics, the result could ultimately still provide a win for the regime that either desired his death or was at least disinterested in preventing it.
Commonsense safety measures are being replaced in our working culture by an impossible “no risk” standard. A culture of “can do” is replaced by the culture of fear.
Progressives promote civil rights viewpoints as being “good for the whole” of society. Yet most of the modern civil rights movements and accompanying legislation simply promote the "good" of one group at the expense of others.
Whether it is their shocking turn on supporting President Biden’s candidacy or covering the shooting of Donald Trump, the American mainstream news media is more concerned with preserving progressive narratives than telling the truth.
Instead of the usual claptrap that characterizes most graduation speeches, someone needs to give a speech that defends liberty and tells the truth about government and capitalism.
Continued bailouts undermine the entire economy by rewarding financial failure and discouraging productive economic activity.
While protecting "intellectual property" has a good sound to it — even among libertarians — such policies are harmful to authentic property rights. We need to pursue another path.
Economic laws represent the real world. They are not ideologies or objects of worship. These laws are not the product of an ideological wish list but rather explain production and exchange.
For all of the media ballyhoo about the CHIPS Act, it really is a page out of the old five-year plans from the Soviet Union. The CHIPS Act will have the same success as befell the Soviets.
For all of his freedom-loving rhetoric, it is clear that Woodrow Wilson was one of the most antifreedom presidents in U.S. history.
The Biden administration’s immigration “policy” is not simply bad governance. It is insane governance.
The Biden administration is determined to do an end run around the courts and ram through yet another student loan forgiveness plan. It is not real “loan forgiveness” but just a massive wealth transfer from lower-income to higher-income groups.
On this episode of Radio Rothbard, Connor O'Keeffe fills in for Ryan for a conversation with Tho and William Yarwood about last week's British election.
People joke about doctors thinking of themselves as God, but over a century of government control of medical care, the distance between physicians and those they serve has become increasingly large.
With political turmoil creating anxiety in Great Britain, The Economist chose to describe the political situation as “anarchy.” In reality, this is political chaos, not anarchy, since anarchy is based upon social cooperation and peaceful resolution of conflicts.
It’s finally clear to everyone that President Biden is not running the federal government. Yet the government is carrying on as it always has. It’s important to understand why.
By separating the producer-consumer relationship that is applied to private goods and services, government regulations and "oversight" has transformed higher education for the worst. It's time to restore that proper relationship.
Human action is not a figment of our imaginations, nor is it a social construct. Praxeology describes real and purposeful actions by people who act on what they know or what they believe to be true.
In this review of The Birth of the Transfer Society, by economists Terry Anderson and Peter Hill, Eduard Bucher looks at the origins of transfer policies in the US and how they developed into the monster they are today.
Economics textbooks describe monetary policy as though it were administered by experts who know how to fix problems in the economy. In truth, there is no such thing as “monetary policy”; what we have if the Federal Reserve engaging in wealth transfers.
A state without money or a state that must tax its citizens to raise money for its wars is necessarily limited in its imperial ambitions. Keep in mind that this is only a problem for the state.
Both environmental groups and governments are suing energy companies for allegedly causing climate change. One doubts their legal efforts will result in better weather.
Utopians are not satisfied with imposing DEI on humans. They also want the state to treat animals as “oppressed” minorities with positive rights.
If we could abolish public schools and compulsory schooling laws, we would have better schools at half the price—and be freer too.
Are wealthy people getting wealthier because they work harder? Dr. Jonathan Newman is back on the show to discuss Robert Reich's latest video about debunking economic myths.
Javier Milei’s recent “snub” of Spain's political establishment during a recent visit there may have been a “violation” of diplomatic protocol, but it also was a statement that Spain’s socialism itself is uncivilized.
In his latest book, Late Admissions: Confessions of a Black Conservative, Glenn Loury engages in what David Gordon calls an argument by fiat. While Loury makes a good faith effort to explain his points, his logic is nonetheless lacking.
Many small colleges are shutting their doors, and it is largely the fault of overexpansion, government protectionism, and bureaucratic infiltration.
While capitalism gives rise to prosperity and freedom, the state thrives on an economically ignorant public.
On this episode of Radio Rothbard, Ryan and Tho celebrate Independence Day, respond to the revolution's critics, and explain why Rothbard viewed it as an example for libertarian strategy.
Bryan Malinowski, a hobbyist gun collector with no criminal record or intent, was killed in his home by ATF agents in a surprise predawn raid.
How a person uses the right to associate (and to not associate) is a matter of individual choice profoundly influenced by the cultural context.
Reich, Elizabeth Warren, and other leftists never address the root cause of what they correctly diagnose as excessive corporate power: the Federal Reserve.
For all of the claims that governments “create jobs,” in reality, government jobs come at a greater cost than any value those jobs may create. Government jobs are a burden to the economy.
Responding to economist Juan Ramón Rallo's critique of Ludwig von Mises's The Theory of Money and Credit in Una crítica a la teoría monetaria de Mises, Bagus demonstrates that Mises's supposed errors are not errors at all.
Last week, Julian Assange was freed and the Chevron doctrine was overturned. These are huge wins for liberty. Not long ago, they felt completely out of reach.
It has been nearly eighty years since the US used atomic warfare on Japan as a way to end World War II. The legacy of that event is not one of peace but of outright madness.
Is charity a right held by everyone or should charity be confined to private, voluntary action within a free market? David Gordon argues for the latter.
The expansion of "civil rights" places emphasis upon "positive rights" that apply to specific groups with political privilege. This is a far cry from the concept of rights that helped build a free society in the United States.
The US and Iran have been mortal enemies since 1979. It is clear that the belligerent approach to dealing with Iran has failed. We need to engage policies that promote peace, not warfare.
Philosopher Harry Frankfurt definitely was not a product of modern academe, where wokeness and outright humbug rule. He understood that the equal-outcomes portion of DEI was neither possible nor desirable.
Caitlin Clark, with her array of basketball skills, has filled arenas in her inaugural WNBA season. However, the idea of merit clashes with the leftist, egalitarian mindset that dominates in the league, and the early reaction to her success has been discouraging.
Lysander Spooner was one of this country’s most important libertarians. His views on economics, while flawed, are free market in principle and have some insights Austrians can appreciate.
The tainted blood scandal in the UK should be a warning to people about the dangers of the National Health Service. Instead, we hear endless promises of reform that never will happen.
Stephanie Kelton, the most visible promoter of MMT, is being derelict in her academic duties by not replying to Per Bylund’s critique of her theories in the Quarterly Journal of Austrian Economics.
As the progressive Left expands its occupation of our institutions, the concept of truth itself becomes little more than a weapon to utilize to achieve political goals.
Roosevelt stands for the national government as we know it today, a vast, unfathomable bureaucratic apparatus that recognizes no limits whatsoever to its power, either at home or abroad.
French credit default swaps have soared to a post-2020 record of 39 points. Many commentators blame the rise of the National Front for market turmoil. However, none of this would have happened if France’s debt was low, finances were strong, and the euro area enjoyed healthy economic growth.
For all of the media ballyhoo about the CHIPS Act, it really is a page out of the old five-year plans from the Soviet Union. The CHIPS Act will have the same success as befell the Soviets.
"If you hate war, oppose the Fed. If you hate violations of your liberties, oppose the Fed. If you want to secure freedom for yourself and your descendants, abolish the Fed."
We have a unique opening to strike at the root of the most pressing issue facing Americans: the forces making us poorer and stealing away our future.
While F.A. Hayek saw human ignorance as the basis for what he called spontaneous order, Ludwig von Mises saw human reason as the basis for praxeology.
If you hail deficit spending, you are embracing impoverishment. If you defend this kind of deficit spending, you are actively supporting stagnation.
Academic elites claim that there is no objective truth, only social constructs. Thus, people can create their own reality in many areas, and everyone else is expected to accept whatever “reality” is presented—or face serious consequences.
Do we have a market situation primed for everyone to head for the exits? What would ignite such a problem?
Even as the Federal Reserve continues to manipulate interest rates to “fight” the results of the business cycle, Austrian economics teaches that business cycles occur because of the manipulation. They never learn.
Kyle Anzalone from AntiWar.com joins Bob to discuss the timeline of Wikileaks and why the US government disliked Julian Assange.
The executive power in the United States is no longer a coequal power; it is the dominant power in the land, as Empire requires.
It could very well be the case that the best chance Democrats have remains rallying behind Biden, the candidate that almost all of them now admit is not mentally fit to be in office.
The current explosion in rental and home prices is the direct result of government intervention aimed at making it easier to buy a house. Mises wrote that government intervention into the market tends to make things worse. He was right.
A common complaint is that the 1964 Civil Rights Act started in the “right direction,” valuing so-called equality of opportunity, but then went off the rails with “equality of result.” In truth, the act cannot be reconciled with a libertarian society.
The budget surpluses under Milei should be a cause for further cutting government revenue and deflating the money supply. But that's not happening.
Murray Rothbard noted that the culture wars are not the result of conservative intransigence but rather of progressive elites’ insistence on forcing new cultural rules on people who don’t want to be coerced.
What does the state do when in a financial fix? Unlike the rest of us, it legally counterfeits. By so doing, it transfers wealth to those who are politically connected—and then lies about it.
In its attempt to claim that the concept of free trade is full of fallacies, The American Compass builds its anti-free trade case upon...fallacies.
As if the government has not done enough destruction in the housing market, there now is a scheme to have the government nationalize second mortgages. Given the previous disaster with primary mortgages, we do not anxiously await the outcome of this proposal.
The abolition of chattel slavery was a great advancement for human liberty. But many of those celebrating Juneteenth today still accept the core assumptions that underlie slavery.
President Biden’s student loan forgiveness scheme is really Robin Hood in reverse, transferring wealth from people from lower-income groups to those who are relatively affluent.
The socialist elites that dominate our institutions insist that private property is nothing more than a social construct held together by violence. As usual, they misunderstand that scarcity itself, which is the basis for economics, is also the basis for private property.
Commercial real estate in the USA is facing a major crisis which could not have been possible without the enabling of the Fed and the draconian restrictions imposed during covid. As commercial real estate prices collapse, the usual suspects call for even more bailouts.
What began as supposedly a free trade union has been turning into an authoritarian, interventionist nightmare. A recent speech by a top European Union commissioner shows the sad direction the EU is heading.
Sixteen Nobel prize-winning economists are declaring Bidenomics to be a huge success, and predicting economic disaster if Trump is elected. It's all further evidence of the pathetic, politicized state of “mainstream” academic economics.
Stephanie Kelton, the most visible promoter of MMT, is being derelict in her academic duties by not replying to Per Bylund’s critique of her theories in Quarterly Journal of Austrian Economics.
Contrary to Milton Friedman’s thesis that the decline in the money supply caused the Great Depression, the real reason was the collapse of real savings, which was due to loose monetary policies by the Federal Reserve.
While President Biden’s inflationary economy continues to falter, the president proposes to outlaw bank overdraft fees, ostensibly to help lower-income Americans. Bank fees, however, are not the biggest threat consumers face; inflation and intervention are the real threats.
Environmentalists insist on banning fossil fuels and refrigerant gasses in order to end heat waves. That means people will face future heat waves (which will always be with us) without air conditioning, bringing even more heat-related deaths.
The expansion of "civil rights" places emphasis upon "positive rights" that apply to specific groups with political privilege. This is a far cry from the concept of rights that helped build a free society in the United States.
Lysander Spooner was one of this country’s most important libertarians. His views on economics, while flawed, are free market in principle and have some insights Austrians can appreciate.
The tainted blood scandal in the UK should be a warning to people about the dangers of the National Health Service. Instead, we hear endless promises of reform that never will happen.
The FDIC added 11 new banks to its Problem List in the first quarter of 2024, bringing the total to 63.
In a recent episode of the Money Metals Podcast, Mike Maharrey interviewed Tom DiLorenzo.
Caitlin Clark, with her array of basketball skills, has filled arenas in her inaugural WNBA season. However, the idea of merit clashes with the leftist, egalitarian mindset that dominates in the league, and the early reaction to her success has been discouraging.
The Fed claims—always without evidence—that everything “would have been worse” without the Fed. Yet history has shown otherwise.
The Roman Empire never doubted that it was the defender of civilization. Americans have added freedom and democracy. Yet the more that may be added to it the more it is the same language still. A language of power.
The US consumer has been adding debt to maintain consumption, and credit card debt has reached new record levels. This is not a strong economy.
Philosopher Harry Frankfurt definitely was not a product of modern academe, where wokeness and outright humbug rule. He understood that the equal-outcomes portion of DEI was neither possible nor desirable.
The ruling classes insist that a country with a democratic government is also a free country. However, democracies also can be tyrannical and despotic. After all, in the final analysis, a democracy is two wolves and a sheep voting on what's for dinner.
Is charity a right held by everyone or should charity be confined to private, voluntary action within a free market? David Gordon argues for the latter.
As if the government has not done enough destruction in the housing market, there now is a scheme to have the government nationalize second mortgages. Given the previous disaster with primary mortgages, we do not anxiously await the outcome of this proposal.
Those who push the "wage slave" narrative claim that workers are "forced by hunger" to work ceaselessly without an opportunity to bid up wages. History has shown this is not the case.
If one does not stop in time the pernicious policy of increasing the quantity of money and fiduciary media, the nation's currency system collapses entirely.
President Biden’s student loan forgiveness scheme is really Robin Hood in reverse, transferring wealth from people from lower-income groups to those who are relatively affluent.
Ryan and Tho discuss recent European elections, the apparent collapse of the British Conservative Party, and how inflation and immigration are influencing a new generation of voters.
What does the state do when in a financial fix? Unlike the rest of us, it legally counterfeits. By so doing, it transfers wealth to those who are politically connected—and then lies about it.
With the world moving more and more in the direction of trade protectionism and war, it is worth remembering the origin of the fallacies upon which this movement is based.
"Caius Gracchus" Babeuf came to Paris in 1790 and imbibed the revolutionary atmosphere. Five years later, he founded the secret Conspiracy of the Equals.
Commercial real estate in the USA is facing a major crisis which could not have been possible without the enabling of the Fed and the draconian restrictions imposed during covid. As commercial real estate prices collapse, the usual suspects call for even more bailouts.
Saudi Arabia considers de-dollarization as closer relations with Russia, Iran, and China create new incentives to break with old alliances and deals with Washington.
The decolonization movement seeks to destroy both economics and science, all in the name of social justice. In the end, however, what they get is not justice and certainly not order, but rather chaos, and deadly chaos at that.
As AI continues to develop, the prophets of doom claim that it will “take over” and create a dystopian society. Far from being an “existential threat,” AI is a tool that can be used for good or ill.
Mark Thornton joins Ryan McMaken and Tho Bishop on Radio Rothbard to discuss the current state of the economy and what to expect as we near the election.
The Ron Paul Scholars Seminar is a one-day, interactive foreign policy and civil liberties “boot camp,” with lectures from some of the most thoughtful pro-liberty/pro-peace experts.
Thanks to the war uniparty that controls Washington, Americans are mired in endless wars and military and political intervention. As Washington creates legions of new enemies, the future for average Americans grows uncertain.
In his 2006 book The Wages of Destruction, Columbia University historian Adam Tooze explains Hitler’s policy of seeking lebensraum (living room). However, Ludwig von Mises (whom Tooze ignores) already explained that policy in his 1944 Omnipotent Government.
Various indexes are used to determine the ease of doing business in countries around the world. Not surprisingly, the nations that allow for protection of private property and have economic freedom also are the most prosperous.
As total (mostly part-time) "jobs" rose 273,000 in May—thanks largely to made-up numbers—total employed workers fell by 408,000 people.
Keynesian economists have no good explanation for stagflation, rising rates of both inflation and unemployment. However, the Austrian School has long pointed out that sustained inflation has a predictable pattern that leads ultimately to stagflation.
Contra Keynesians, who believe that government spending and bureaucracy are the keys to economic growth, it is the bureaucratic state that swallows resources and stifles entrepreneurs. The more powerful the bureaucracy, the lower the standard of living.
State-sponsored fiat money has been the norm for more than ninety years, but its very instability makes it vulnerable to a regime of sound money.
Socialism does not infect our body politic just through economic measures. The current obessession with implementing DEI policies has all of the hallmarks of how socialist measures undermine a private property order.
Oil prices have weakened in recent weeks despite the war in Gaza and rising geopolitical risk. This points to overall economic contraction.
The endless bubble economy has a new lending craze: loans backed by AI chips. The problem is that while the chips serve as collateral, companies right now cannot make enough revenue to cover their costs.
Economics researcher Joakim Book joins Bob to discuss his recent article on the dollar's international dominance.
Just because a politician says he believes X doesn't mean he actually believes it. Then, even if he believes it right now, we can't know that he'll believe it next week.
In the aftermath of Donald Trump's conviction in Manhattan—a political show trial, to be sure—David Gordon reviews Danilo Zolo’s, Victor’s Justice, which examined the Nuremberg Trials following World War II.
Because of interest rate increases, the true market value of the Fed’s assets is far less than their book value—a shortfall of about $1 trillion.
Minimum wage laws don't have to be politically divisive. Can minimum wage policy achieve shared goals and values?
In order to vastly expand the regulatory state, the Biden administration is using fake cost-benefit ratios to make its regulations seem less costly and more beneficial. This is clearly fraudulent, but no bureaucrat will be charged with any crimes.
Ryan and Tho are joined by Mises Institute Senior Editor Bill Anderson to discuss Donald Trump's conviction.
While our political “leaders” insist that the government is “protecting” us, it offers the same kind of “protection” that mobsters offer: pay us to “protect” you, or we burn down your place with you in it.
"This is the ninth straight quarter of unusually high unrealized losses since the Federal Reserve began to raise interest rates in the first quarter of 2022.“
Long before government mandates and pressure infected businesses and universities with the DEI virus, Ludwig von Mises explained how bureaucracies infect the decision-making process.
The Fed is running giant losses: it has lost the staggering sum of $169 billion since September 2022, and it continues to lose money at the rate of more than $1 billion a week.
Ordinary people cannot stop the Fed and the government from inflating the currency, but they can take measures to shield themselves from some of its harmful effects. Mark Thornton presents a few ideas on how it can be done.
The Tennessee Board of Regents for higher education is finding that their DEI efforts are not successful, and the Tennessee legislature has become skeptical. It might be better to scrap the DEI collectivist “solutions” altogether.
The only true solution is to get rid of all “civil rights” laws. As the great Murray Rothbard has explained, in a libertarian society all exchanges with people are voluntary.
Robert Reich is an economic fallacy machine, and he has begun a ten-week series in which he claims to debunk economic myths. Of course, to do so, he has to create economic myths and present them as factual.
Asset forfeiture is another term for state-sponsored theft. Reform of this pernicious policy is almost impossible because of the incentives set up by governments at all levels.
What makes a libertarian society libertarian? Certainly, one must begin—as did Murray Rothbard—not only with the nonaggression principle, but also with the unequivocal protection of private property rights.
Even the CBO’s wildly optimistic budget estimates predict deficits and interest expenses will soar, even without a recession. That means in the real world, the disastrous debt trend will be far worse than the estimates.
One of the problems in presenting economic concepts to a public audience is that too many people in the academic world do not comprehend the simple presence of opportunity cost.
Keynesian economists believe that the key to increasing economic growth is increasing the supply of money in circulation. Money, however, is a means of exchange, not a means of payments. The difference is vital to understanding economics.
Jonathan Newman returns to help Bob dissect a Twitter thread melting down about Rep. Massie's new bill to End the Fed.
Political and academic elites claim that economic freedom is the antithesis of civilization. They claim that functioning civilization can come only from a welfare state, a nonsensical proposition
As the world heads further down the road to trade protectionism and war, Mark takes a look at what Ludwig von Mises dubbed the "Montaigne Fallacy."
Across the country, more young people are realizing that learning a trade is a better path than going to college.
The current population dearth in China, Japan, and the West has somewhat cooled the demand by elites that governments "control population." However, past population control efforts by governments already have created serious consequences for the future.
David Gordon reviews How to Run Wars, by Christopher J. Coyne and Abigail R. Hall. Their tone is satirical, aimed at showing the folly and corruption that marks the policies of the foreign policy elites.
Even though our legal authorities treat smugglers as criminals, smugglers actually are promoters of liberty who usually break unjust laws. The US was practically founded on smuggling.
Mises is on the march, and the elites are terrified. We already have the support of some of the Fed’s greatest critics, and we need your help.
Switzerland has been a neutral country for about five hundred years. Sweden also has a tradition of neutrality, but it has recently changed its position, to its own detriment.
The neoconservatives are prime examples of what happens when the temptation to empire and hegemony, far from being resisted, is eagerly embraced by conservatives.
Fallout, the dystopian series on Prime, hardly is free market in its caricature of business. However, the show lends itself to being analyzed through the lens of Austrian Economics.
According to an article in The Atlantic, Washington is turning away from its previous commitment to “free trade.” However, there never was a “free trade consensus” because Washington always has sought state-managed trade.
Even though the US had a semilibertarian revolution, there are few libertarians in representative governance.
The failure of mainstream economics to teach real economics, as opposed to contrived “models” of market failure and central macroeconomic planning, is why Mises University has been so successful and so helpful in the war of ideas and the battle for freedom.
Central banks intervene in order to “create demand,” and then they intervene in order to try to mitigate the damage they caused earlier. This is a never-ending scenario of economic destruction.
Mainstream economists insist that data alone can explain economic events, permitting them to test economic theories. In truth, without sound theory, data is meaningless.
While her record is hardly perfect, Judy Shelton has been a rarity among monetary economists: an advocate for gold and sound money.
The estimated unfunded Social Security and Medicare liability is $175.3 trillion If you think that will be financed with taxes “on the rich,” you have a problem with basic math.
Contra critical theorists, who claim human reason is nothing more than a social construct, reason is both understandable and universal. We cannot abandon it, for if we do, we abandon liberty itself.
Government schooling advocates are demanding that homeschoolers be regulated by public school authorities. Perhaps homeschooling advocates should be monitoring the government.
Professor Garett Jones joins Bob to discuss his book, detailing the impact that immigrants' culture has on the institutions of their new home.
Supporters of the new California minimum wage law for fast-food restaurants claim it will bolster economic opportunity for lower-income people. It actually will be a wealth transfer from the poor to the rich.
The watchword in higher education today is decolonization, which depends upon what Ludwig von Mises called racial polylogism. Mises understood that polylogism undermines the very foundations of scientific thought.
Praxeology is the key to understanding economic relationships. While Ludwig von Mises emphasized human action while making economic observations, Christian philosopher Francis Schaeffer emphasized the importance of how individuals view the world.
Ryan and Zach talk about how the realities of expensive industrial warfare are still relevant.
The mentality of Build Back Better is not just confined to the US. Around the world, governments are resorting to the ancient tradition of using massive amounts of resources to build things that glorify the state, not add to the economy.
Israel’s defenders act like Netanyahu and his allies have had no choice but to react to October 7 in the manner that they have. But that isn’t true.
International politics is a struggle between nations with conflicting interests, not a struggle between good and evil powers.
Politicians will invoke the venerable just war theory when they believe they can manipulate the facts in their favor. In truth, it is the rare government that engages in a justified conflict.
Contrary to popular belief, regulatory agencies do not improve the quality of our lives, nor do they provide safety or security. They need to be abolished, as free markets provide their own effective forms of regulation.
Ludwig von Mises was ridiculed for his assertion that “middle of the road” leads to socialism in the end. As the federal government swallows increasing amounts of the economy, we see that Mises was right.
Most people believe that the state is a necessary entity for securing private property rights. However, a study of the American West before the territories became states shows us a different reality where communities protected their property without state intervention.
Human Action and Mises' New York University seminar had a huge impact. It's the reason that we have a modern Austrian school.
Guido Hülsmann on why Human Action embodies the research paradigm of praxeological realism.
The rage among academic elites and multiculturalists is the insistence that one cannot apply Western economic analysis to different cultures. However, Ludwig von Mises insisted that economics is a universal science.
The Americans who went off to fight in World War I—and the politicians who sent them there—were no less imperialistic than the Germans were.
Month-to-month money-supply growth turned positive in March, and money growth hit a two-year high. The Fed clearly has no appetite for more monetary "tightening."
As the US economy falters and people continue to fall behind, the Austrian business cycle theory provides the best explanation for what is happening, even if the elites don't want to hear it.
For most Americans, the debate is about what size the welfare state should be. But why is there a welfare state at all?
Despite the media definitions of the Trump trial as a “hush money trial,” the actual criminal charges are contrived and legally unprecedented. This is a show trial.
Many people are selling their gold to make ends meet. Others are buying gold as insurance against mounting price inflation.
Despite statements from Biden and other progressives, profits in a market economy are not a form of plunder. Instead, they represent entrepreneurial gains that mostly benefit consumers.
The Fed doesn't want to admit that new federal debt is significantly higher than private sector demand, and the Fed is more concerned about a bond market meltdown than price inflation.
Will the commercial real estate market become a casualty of the Federal Reserve's tsunamic monetary and interest rate policy?
What are property rights and how do we define them? The late Butler Schaffer argued that they come from natural rights and our “will to own.”
The decades of American and European intervention in Africa are coming to an end, and things are even worse for American interests there. Perhaps overthrowing governments and trying to dictate political outcomes wasn’t a good idea.
Murphy gives a comprehensive critique of Stephanie Kelton's new Modern Monetary Theory documentary, covering the flaws in its theory, history, and policy recommendations
Despite the accusations that Javier Milei is a fascist in libertarian clothes, many of his reforms have been successful in reversing some of the damage done to Argentina's economy by real fascists.
In a recent symposium on Murray Rothbard's For a New Liberty, philosopher Matt Zwolinski takes issue with Rothbard on Murray’s views of freedom and property rights.
Somalia is an artificial country that was created by European intervention. Somaliland, however, is an entity that should be recognized as a real nation.
When people think of anarchy, they picture violence and rioting in the streets. However, real anarchy is simply people voluntarily organizing their time and activities without being coerced by state authorities.
As federal prosecutors expand the government's definition of crime, more and more people are swept up despite the fact they have harmed no one.
The Free Market Medical Revolution by Dr. G. Keith Smith Political Freedom vs. Personal Freedom by Stephan Livera Book Review by David Gordon News From the Mises Institute
Inflation: How Economists, Politicians, and Central Bankers Got It Wrong by Robert P. Murphy A Conversation with Famed Investor Jim Rogers Liberalism and Illilberalism in the Twenty-First Century by Peyton Gouzien Book Review by David Gordon News From the Mises Institute
Progressive historians, journalists, and politicians claim that the Industrial Revolution and the growth of industry brought poverty and exploitation to American workers. The truth is much different, even if it is rarely heard.
Donald Trump’s leaked plan for the Fed has sparked a panic. But the real risk, from the establishment’s perspective, is not that Trump will turn the Fed into a political organization but that he will expose the fact that it already is one.
The time is ripe to deliver Rothbard’s message about the government’s destruction of our money. Help us spread the word!
Like the Biden administration, the European Union elites are seeking to crush free speech on the Internet in the name of preventing “hate speech” and “disinformation.” Of course, the EU ruling classes won’t have to worry about being censored.
Mainstream economists believe that economic theory is valid when it “predicts” economic actions or trends. Austrian economists, however, say that the purpose of economic theory is to explain economic events.
Although mainstream economists hold that Adam Smith is the father of modern economics, it was Richard Cantillon that recognized the centrality of entrepreneurship in economic development.
The attempt by the mainstream economics profession to create economic literacy has turned into a movement to promote economic illiteracy.
Why have some Americans opposed this nation’s involvement in foreign wars? According to Jacob Heilbrunn of The National Interest, it is because those Americans love bloody dictators like Adolph Hitler.
In 1959, Ludwig von Mises gave lectures on economics in Argentina, where the economy was in steep decline. In the 1920s, Argentina was one of the world's wealthiest countries, but decades of Peronism and inflation started the country on the long road to poverty.
While these students are right to oppose the horrific Israeli attacks on Gaza, many of the protests reflect leftist groupthink and typical higher education collectivism.
Animal control officers are supposed to, well, control animals in a municipal area. But thanks to animal control policies, it's the stray animals that are in control of our author’s town.
YouTube Suspends Mises Media Channel for Dr. McCullough Video The Wrong Way and the Right Way to Fix the Fed by Joseph T. Salerno Selections from the End of the Dollar Era Book Reviews by David Gordon News From the Mises Institute
While Austrian and feminist critiques of neoclassical economics have some similarities, they also differ strongly on important points. Feminist critiques are based upon what Mises called polylogism, while Austrian critiques are based upon praxeology.
Many economists argue that the economy is growing, and that inflation is a secondary problem. Not for the average American. Citizens are poorer in absolute and relative terms.
Remember when inflation was “transitory”? Or when Paul Krugman claimed inflation was “under control”? The numbers keep telling us a different story.
As progressives attempt to redefine racism to fit modern political fantasies, we need to look at historical examples of ethnic discrimination to better understand our current situation.
Private property rights are under fire by progressive elites — even as those same elites protect their own property fiercely. But without these rights, a functioning economy is not possible.
It was a fundamental mistake . . . to interpret economics as the characterization of the behavior of an ideal type, the homo oeconomicus. According to this doctrine economics does not deal with the behavior of man as he really is.
Connor O'Keeffe joins Bob to discuss the recent antisemitism bill and why we should be defunding universities.
Vast sums are spent on “reforming” government schools, only to end up with the same lousy product. Thinking outside the box means abandoning public schools altogether.
In publicly opposing Apartheid, William H. Hutt saw how legal segregation deprived black South Africans from pursuing legitimate economic goals. To Hutt, Apartheid deprived people of equality of economic opportunity, which kept them in poverty.
Congress claims to have targeted TikTok because China's government allegedly uses it to spy on Americans. Besides dealing with a nonexistent threat, the bill gives the federal government vast new powers to misuse.
"The state is the greatest monopoly of all; it can brook no rival or colleague in its domain; it is necessarily sole and supreme."
Robert Kagan of the Brookings Institute clearly does not like anyone to challenge his pro-war beliefs. In his view, any opposition to the all-powerful American state is opposition to everything good and true.
As much as its proponents brandish accounting tautologies and purely descriptive claims about government finance, in the end it is 100% political. Their framework is about giving the State maximum power—power to expropriate and power to override what would prevail in unhampered markets.
Since early 2023, full-time jobs have flatlined while part-time jobs have grown. Meanwhile, total number of employed workers has flatlined, too.
What better way to explain the relationship between higher-order and lower-order goods than with food? Here, we look at the falafel sandwich.
Biden has embraced the trade war. But, if protectionism actually produced competitiveness, American steel manufacturers would have become world leaders long ago.
The Fed presumably has an “implied guaranty” from the Treasury, but it seems certain that Congress never dreamed that the Fed could experience the losses and the negative capital that are now reality.
Progressives claim that profits are an unjust transfer of wealth from the poor to the rich. In reality, entrepreneurs earn profits by directing resources from less valued to more valued uses to satisfy consumer needs.
Many police traffic stops are not about safety or protecting the public. They are about siphoning cash from motorists to state and local governments.
The government can end today's high price-inflation rates any time by ending deficit spending. But the state won't even acknowledge deficit spending is a cause of today's price-inflation cycle.
Feminist theorist Judith Butler is calling for mandatory education to confront children with modern gender theory. As David Gordon points out, she wants to use coercion to force people to accept her theories.
Animal control officers are supposed to, well, control animals in a municipal area. But thanks to animal control policies, it's the stray animals that are in control of our author’s town.
While these students are right to oppose the horrific Israeli attacks on Gaza, many of the protests reflect leftist groupthink and typical higher education collectivism.
Washington Post conservative George Will trots out every tired slogan and bromide in the book to claim that Putin is Hitler and the Ukraine war is a fight for civilization.
Although mainstream economists hold that Adam Smith is the father of modern economics, it was Richard Cantillon that recognized the centrality of entrepreneurship in economic development.
The enemies of individual liberty are numerous, from leftists who see freedom as interfering with the “positive freedoms” offered by the state to conservatives that believe too much freedom destroys community relationships.
Apply now: The thirty-eighth annual Mises University, where I have lectured for more than thirty of those years, will be held from July 28th to August 3rd.
In 1959, Ludwig von Mises gave lectures on economics in Argentina, where the economy was in steep decline. In the 1920s, Argentina was one of the world's wealthiest countries, but decades of Peronism and inflation started the country on the long road to poverty.
Conservatives and utilitarian classical liberals support freedom of contract because they deem it "useful" to society. However, Murray Rothbard believed that contractual freedom should be based upon the natural right of self-ownership.
Central Bank's control of interest rates cripples economic growth. Yet central banks will not give up power because it is central to financing huge government deficits.
The attempt by the mainstream economics profession to create economic literacy has turned into a movement to promote economic illiteracy.
Did Stephanie Kelton correctly predict that government debt would be benign back in May of 2020? Bob and guest Jonathan Newman discuss.
Help us bring crucial truths about economics and history to laymen by supporting our publication efforts this year!
Economists use time preference to explain the existence of interest, but the ability of people to postpone some present consumption in order to save for the future has much broader social ramifications.
Why have some Americans opposed this nation’s involvement in foreign wars? According to Jacob Heilbrunn of The National Interest, it is because those Americans love bloody dictators like Adolph Hitler.
Mainstream economists believe that economic theory is valid when it “predicts” economic actions or trends. Austrian economists, however, say that the purpose of economic theory is to explain economic events.
Unsurprisingly, Javier Milei’s free-market and antistate initiatives face opposition in Argentina. Whether he is successful depends on his being able to politically outlast his collectivist opposition.
Individual rights originated in Western thinking. Today, it is the West that produces the ruling class that disdains individual rights and replaces them with collectivism.
Ryan and Tho discuss Tucker Carlson's recent interview with Joe Rogan, and why he's right about America's dangerous "security" agencies.
Tom Woods has put his considerable skills to work exposing the dangers caused by the Federal Reserve System. George Ford Smith reviews his latest book that gives intellectual ammunition to his case.
People often stubbornly hold to false beliefs, one of them being that government regulation of driving prevents chaos. However, the opposite seems to be true: government involvement in anything, including driving a car, creates the chaos we claim we want to avoid.
Chapter 18 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Foreword to Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 1 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Introduction to Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 3 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 4 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 7 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 10 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 13 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 16 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 19 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Preface to Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 2 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 5 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 8 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 11 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 14 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 17 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 20 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 6 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 9 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 12 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Chapter 15 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Postscript to Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities.
Ryan McMaken's Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities in audiobook format. Narrated by John Quattrucci.
A common knock on libertarianism is that it is so individualistic that it rejects the concept of community. (Think of the political cartoon in which the libertarian lifeguard let people drown.) In truth, strong communities also need free individuals.
The New York Times recently characterized House Republicans that voted to extend government domestic spying and continue to fund wars in the Middle East and Ukraine as “the adults in the room.” This is ironic, as real adults would not spend the country into oblivion.
California’s draconian fast-food minimum wage law is bad enough, but it turns out a company can avoid the trouble if it has ties to the governor.
Recent Iranian missile strikes on Israel in response to its earlier attack on the Iranian consulate in Syria have escalated the prospects of all-out war in the Middle East. There is an alternative to expanding the war: de-escalation.
Robert Nozick’s Anarchy, State and Utopia turns fifty this year, and this libertarian classic has stood the test of time.
While conservatives and followers of Austrian economics often have much in common, many conservatives are against free trade and free exchange. Austrians need to carefully explain why those beliefs are harmful.
The only answer lies in eviscerating their budgets, abolishing their enabling legislation, and encouraging aggressive lawfare against the regime in retribution for these agencies' many crimes.
Great Britain are shifting back toward railway nationalization. Of course, the vaunted railway privatization of the 1990s wasn’t real privatization at all.
Not surprisingly, neoconservatives have tried to rehabilitate the British Empire, calling it benign and a civilizing force in Africa and Asia. Like all other empires, however, it was held together by violence and subjugation.
People have come to believe that only the state is morally qualified to create and maintain a system of justice. However, given that the state itself acts unjustly, perhaps it is time to look outside of the state.
While chattel slavery exists in some parts of the world, it mostly has been abolished. Perhaps we should do the same thing to the state.
More units of public debt mean weaker productive growth, higher taxes, and more inflation in the future. All three are manifestations of a slow-burn default.
Libertarianism is criticized on all sides, but a new criticism has emerged that claims libertarianism is little more than another form of critical theory. Like the other complaints, this one is based on fallacious thinking.
Mark Thornton explores basic concepts of the world, humanity, and the disagreeableness in society.
The academic world is supposed to serve as a beacon of enlightenment. Instead, as Wanjiru Njoya demonstrates, it promotes a failed liberalism.
Seditious conspiracy—like all conspiracy charges in American law—is essentially a thought crime and a speech crime.
Biden has embraced the trade war. But, if protectionism actually produced competitiveness, American steel manufacturers would have become world leaders long ago.
Ingrid Robeyns doesn't want to abolish markets and replace them with central planning. However, as David Gordon points out, her ideas on reducing inequality reflect the belief that progressives can create a fantasy world, state control without the consequences.
Historian David Beito joins Bob to discuss issues such as the Japanese concentration camps and the government's mass surveillance of telegrams.
Contra Joe Biden, this is not about pay “discrimination” or equity or a nefarious plot by team owners to cheat women. This is just consumer sovereignty in action.
How can an economy be stagnant with 2.5% GDP growth? Here we see the failure of Keynesianism in all its glory.
Almost all of the climate hysteria is driven by the “luxury beliefs” held by Western elites. Only the wealthiest can afford the effects of climate policy.
Ryan and Tho discuss Renato Moicano's viral Mises moment and the backlash it received from pundit Sohrab Ahmari.
Tariffs are nothing more than taxes, which means that protectionists believe high taxes create prosperity. This is an absurd claim.
Lying between Taiwan and Mainland China, Kinmen Island would almost surely be the first place Chinese armies would land if they were to invade Taiwan. Kinmen also serves as the tripwire to bring the US into a China-Taiwan conflict.
George Ford Smith reviews Robert Murphy’s book Understanding Money Mechanics. Murphy, he writes, both explains money and why fiat money is such a dangerous thing in the hands of governments bent on grabbing power and abusing citizens.
Calhoun’s 173-year-old treatise is not just a diagnosis of how we got here, but a roadmap for escaping from this tyranny and being rid of the “woke” totalitarians among us.
"There is no doubt that when a fractional reserve bank discounts commercial paper (real bills) it creates money (perfect monetary substitutes)."
While Social Security is not exactly a pension system, it has had a negative effect on private pension plans and has discouraged people from engaging in long-term savings. In the end, its negative effects outweigh the positive ones.
Thomas Woods has reminded us more than once that “no matter who you vote for, you get John McCain.” House Speaker Mike Johnson is the latest example.
Few ideas are as closely associated with Marxism, writes Ralph Raico, as the concepts of class and class conflict. But the concept itself, with a more realistic understanding, originates in liberal theory.
As Murray Rothbard noted, reason is a powerful tool to help us discern how to thrive in our world. Government, through propaganda and interference with education, seeks to stifle reason and replace it with obedience to the state.
How many people in our history―a couple hundred years―took the oath of office, and how many times did they violate the oath of office?
In return for power, positions, and money, intellectuals persuade the majority that their government is good, wise, and at least inevitable.
Many policymakers and economists believe that they are smart enough to manipulate all the rest of us, in a consistent and reliable manner.
When UFC fighter Renato Moicano urged people to read Mises's Economic Policy: Thoughts for Today and Tomorrow, it led to a surge in popularity for the book, which is a transcription of lectures he gave in Argentina in 1959. Let's see what Mises says in these lectures.
Recent Iranian missile strikes on Israel in response to its earlier attack on the Iranian consulate in Syria have escalated the prospects of all-out war in the Middle East. There is an alternative to expanding the war: de-escalation.
Today we are featuring the winning essays in the Student Essay Contest for undergraduates at the Austrian Economics Research Conference.
Today we are featuring the winning essays in the Student Essay Contest for undergraduates at the Austrian Economics Research Conference.
One of the great myths of US history is that Herbert Hoover was a laissez-faire president. In truth, he intervened in the economy more than any of his predecessors, creating the crisis known as the Great Depression. His successor made things even worse.
Today we are featuring the winning essays in the Student Essay Contest for undergraduates at the Austrian Economics Research Conference.
Bastiat sought to abolish "the entire army" with the exception of "some specialized divisions" which would have to be staffed with volunteers since Bastiat also sought to abolish conscription.
In a more reasonable world, people like Cheney, Rice, Bolton, et al., would all be forgotten, shamed, and disgraced for overseeing multiple disastrous wars abroad and the creation of a police state at home. Unfortunately, we don't live in a more reasonable world.
Original Article: "America Since 9/11: 22 Years of Lies and Despotism"
On Friday, September 8, Michelle Lujan Grisham, the governor of New Mexico, announced a new public health order suspending the right to carry firearms in Albuquerque and Bernalillo County for at least thirty days.
The New Mexico governor announced the thirty-day suspension at a press conference. Citing the shooting deaths of three children in Albuquerque this summer, Grisham declared “a public health emergency,” which she says gives her the authority to suspend the right to carry firearms in the surrounding county for thirty days.
In front of reporters, Grisham was quick to acknowledge some obvious problems with the order. She admits that the order will not have much of an effect on the level of gun violence in Albuquerque. She instead stressed the symbolism of the measure.
When asked if she really thought that criminals—like those who committed the shootings she cited—would comply and not carry a gun in Albuquerque, Governor Grisham said that she didn’t but thought the motion was a “pretty resounding message.”
Grisham also repeatedly said she expected the motion to be challenged in court. Her demeanor suggested that the entire purpose of the executive order was to spur a legal fight. The governor spent much of the press conference pontificating about a constitutional right to be safe and presented the Second Amendment as incompatible with that right.
Grisham is distorting how rights work to justify her program. She frames rights as a handful of unrelated positive freedoms granted to citizens by the government, which can revoke them during emergencies or when they conflict with rights that government officials deem more important.
In reality, rights are derived from self-ownership. We alone have the highest claim to our own bodies. That right is absolute, so any aggression against our bodies is a rights violation that can be justly resisted or punished proportionately.
And from self-ownership, we can derive the just ownership of property. Self-ownership gives you the highest claim to the fruits of your labor. Unowned resources can justly become owned through homesteading—mixing your labor with unowned natural resources. Once these resources are owned, they can be justly transferred as gifts or through voluntary exchange. Because they are derived from self-ownership, property rights are absolute, meaning any violation can be justly resisted or punished proportionately.
We can see, then, that the right not to be harmed and the right to own property do not conflict—they are variations of the same fundamental right. This is especially evident when the property in question equips us to better protect ourselves and our other property. That’s the case with firearms. The debate Grisham calls for is built on a lie.
The governor is trying to account for the government’s failures to protect people, a service it monopolizes, by violating the property rights of Bernalillo County citizens. She understands this is probably illegal and at the press conference even called herself courageous for moving ahead anyway. Even though, unlike the rest of us outside of government, she wouldn’t face consequences if it were determined that what she’s doing is illegal. She’d, at most, be told to stop.
Or so she thought. Instead, over the weekend, the gun owners of Bernalillo County took to the streets, carrying their weapons peacefully in protest. And the Albuquerque police chief and Bernalillo County sheriff issued statements saying they would not enforce the governor’s order. Because it violates the rights of citizens and draws resources away from preventing real crimes.
That’s real courage.
By the middle of 2022, it was already become apparent that the US military was having problems meeting recruitment goals. In August last year, The AP reported that the Army would have to cut force size, and an army spokesman admitted the Army was facing "'unprecedented challenges' in bringing in recruits." This came even with new larger enlistment bonuses. The problem, however, wasn't as acute for the Air Force, Navy, or Marine Corps.
Since then, things haven't gotten any better for recruiters. Now, recruitment shortfalls have spread well beyond the Army. The New York Post reported last week:
Much of the military will fall short of recruitment goals by as much as 25% this year ...
The Army, Navy, Air Force, and Coast Guard are all expected to fall short of their recruitment goals this year, they told The Post. ...
A spokesperson for the Air Force said they will likely miss their goal of 26,877 new recruits by 10%. The Coast Guard said they will likely only fill 75% of the number of full-time, non-commissioned recruits they need.
And as of April, the Navy, which has over 300,000 active duty personnel, was behind by 6,000 new recruits this year, and the Army by 10,000 out of their 65,000 goal.
2023 is the first time the Air Force has missed its recruiting goals since 1999.
Apparently, potential recruits aren't buying whatever it is the military is selling these days as reasons for signing away one's freedom to federal bureaucrats for a period of years. After all, the military is the only job that one can't quit at any time, so any intelligent person will think long and hard before signing up.
There are many reasons for the recruitment problem. The decline in mental and physical fitness is real, and many young people are disqualified from a military job even before applying. Many others are put off by what appears to be an overtly politicized and partisan military. Pentagon leaders appear to be doubling down on ideological crusades more and more. Even while it faces a recruiting crisis, the military still refuses to provide back pay to service members who were forced out for declining the experimental covid vaccines. Unquestioning compliance with vaccine mandates, of course, is a cause near and dear to the current administration. Then there are the "woke" crusades in which military brass use drag queens as Navy recruiters and create recruitment ads tailor-made for LGBT personnel. The military wants to let you know they'll affirm your gender transition—unless, of course, that gets in way of conscription. (The Pentagon claims the "woke" issue isn't having much effect on recruitment.)
But there are other more deep-seated problems as well. There is growing evidence that the American public no longer reveres the military as it once did. Moreover, it is more abundantly clear than ever that military service has nothing to do with defending the United States or its people. And then there is the often-seen "problem" of low unemployment and the fact the private sector is drawing the best workers away from military careers.
The Public Is Losing Faith in the Military Compared to institutions like public education, public health, and Congress, the military remains quite popular. However, the historical trend in public views of the military is clearly downward. In 2021, "About 56 percent of Americans surveyed said they have 'a great deal of trust and confidence' in the military, down from 70 percent in 2018." The trend hasn't changed since 2018. According to a Gallup poll, people who say they have a "great deal/quite a lot" of confidence in the military fell from 69 percent in 2021 to 60 percent in 2023. The all-time low, accoriding to Gallup was in 1981 in the wake of the Vietnam War and Watergate.
The dwindling regard for the military is certainly not alien to young potential recruits, and talk of the recruiting crisis regularly features concerns about current young men and women being insufficiently "patriotic" or willing to "serve their country."
This presents a real economic problem for recruiters. A potential recruit who regards military service as ideologically distasteful cannot be easily enticed with a few offers of recruiting bonuses or a GI Bill. After all, the military has long relied on convincing recruits they will gain psychic profits on top of whatever monetary pay they receive. To capitalize on this, recruiters will say things like "you're serving your country" or "you're fighting the bad guys" or "you'll make your father proud." But what if people stop believing that stuff? It's going to take a lot of money to sweeten the deal for potential recruits who are smart enough or well-educated enough to have other options.
Moreover, it's easy to see why many young people don't find military service especially enticing. The US military lost in Iraq and Afghanistan, and hasn't won a major war since 1945. More clever potential recruits are likely to notice that the US invasion of Iraq was no more morally justified than the Russian invasion of Ukraine. Potential recruits with critical thinking skills might also notice the military is itching to turn American soldiers into fodder for Russian artillery. In previous ages, the usual regime propaganda might have worked to convince potential recruits that "we're fighting the Russians in Ukraine so we don't have to fight them in Kansas City." It's a variation on a common lie that warmongers tell Americans. But now, the military can't even take for granted that conservatives—historically a key demographic for recruiters—will believe it anymore. Thanks to a shift in foreign policy views among conservative populists, many young men in middle America see a disconnect between the regime's latest wars and actual defense of the "homeland."
National Guard Troops Are Exploited by the Regime This brings us to another problem recruiters face. Even those who doubt the regime's latest imperial adventures oversea might nonetheless be convinced to join the National Guard. But even there, better-informed potential recruits are learning that the National Guard has degenerated into a reserve force for the regular military. The old "two weeks every summer" slogan about the National Guard has been exposed as a lie, and potential recruits seeking to "serve the community" now know that they may end up fighting wars 10,000 miles from home. In 2021, National Public Radio reported on how the National guard exploits recruits. One Idaho National Guardsman described the new reality:
My entire life, the recruiting National Guard message has been one weekend a month, two weeks in the summer. And when we served, we used to say one weekend a month, two weeks in the summer, my ass. You know, when we went to Afghanistan, we were gone for 18 months...
NPR further noted:
There has been a lot going on that the National Guard has been brought in for—hurricanes, floods, protests, Iraq, Afghanistan. Last year, more than a third of the National Guard was on active duty. That's the highest utilization we've seen since World War II, and some service members are getting fed up.
Once upon a time, National Guard forces could not legally serve overseas at all. This was why many young men in the 1960s managed to avoid a pointless death in Vietnam by signing up for the National Guard. Then, it was established they would not serve overseas without a declaration of war. Then the Pentagon and Congress decided it can do whatever it wants with National Guard members. A young many or women would have to be pretty desperate to sign up for that sort of treatment.
Unemployment Is Low And that's the thing. Workers right now aren't desperate. The United States is currently in the middle of an employment bubble. Billions of dollars in new money created since 2020 has flooded the economy, driving up demand and producing countless malinvestments in the labor markets. Monetary inflation has driven increases in wages, and workers—for now—simply don't need a military job. This relationship between low unemployment and low recruitment, of course, has been known for a long time. As a 2010 report from the Department of Defense noted:
Recruiting and retention are sensitive to the state of the economy. Studies indicate that a 10 percent decrease in the civilian unemployment rate will reduce high-quality enlisted recruiting by 2–4 percent. Retention also declines when unemployment decreases, but appears to be less sensitive to the state of the economy than recruiting. The recent economic downturn has improved recruiting and retention and has allowed the services to reduce use of enlistment and reenlistment bonuses. However, this improvement is expected to diminish as civilian economic conditions improve.
We'll only know how truly severe the recruiting crisis is for the Pentagon once the unemployment rate starts to head up again. We likely won't have to wait long. We can point to half a dozen economic indicators right now that point to a thoroughly slowing economy in the next year. As we see in the survey data, however, it is likely that views of military service have changed considerably in recent years. That means older relationships between joblessness and recruitment may no longer apply to the same extent. It may be that rising unemployment may not drive as many new recruits as may have been the case a decade ago. Recruiters may find that members of Gen Z are not enthusiastic about losing yet another war—regardless of the size of the enlistment bonus. We'll find out soon enough.
The Federal Reserve has officially reported a loss of $57 billion for the first six months of 2023. Quite a number! So the “Federal Reserve Banks Combined Quarterly Financial Report as of June 30, 2023” (CQFR)—a little-known document—is especially notable for its red ink. We can anticipate an annual loss of over $100 billion for 2023 and for the losses to continue into 2024. 1
How does a central bank, especially the world’s greatest and most important central bank, lose tens of billions of dollars in six months? An average person, influenced by the mystique of the Fed, might understandably be baffled by this fact.
To understand what is happening, we need to recall that in addition to being a media star as the manipulator of the world’s dominant currency, the Federal Reserve is a bank—well, actually 12 Federal Reserve Banks (FRBs), covering districts across the United States. Added together they are huge, with total assets of $8.3 trillion (with a T). The FRBs have loans, investments, deposits and borrowings, interest income and interest expense, and profit or loss like other banks do. They also have private shareholders: the commercial banks which are “Fed member banks,” and the FRBs have over them the Washington Federal Reserve Board, which charges them for its expenses.
The combined FRBs are intended to always be profitable because of their unique monopoly in issuing U.S. dollar paper currency. This is a very lucrative privilege which means together they have $2.3 trillion of zero interest cost funding from the dollar bills circulating around the country and the world, which they can invest in interest earning assets. (They print up some money and use it to buy Treasury bonds, simply said.) But instead of making profits, as the combined Fed reliably did for more than 100 years, it is now making giant losses, a historic reversal.
The CQFR shows that in the first six months of 2023 the combined Fed had $88 billion in interest income, but $141 billion in interest expense. So it paid out in interest $53 billion more than it received, and also had to pay its overhead expenses of over $4 billion.
Why doesn’t it have more interest income? Because the Fed engaged to the tune of about $5 trillion in one of the most classic of financial risks: borrowing short and lending long, and now interest rates have gone very far against it and the risk has turned into real losses.
The CQFR shows on page 22 that on June 30 the combined Fed owned $5.5 trillion in Treasury Securities with an average yield of 1.96%, and $2.6 trillion of mortgage-backed securities yielding on average 2.20%. In short, it invested in massive amounts of very long-term fixed rate assets and locked in for years a historically low yield of about 2%. Meanwhile, it was funding $5 trillion of these assets with floating rate deposits from banks and borrowings in the form of repurchase agreements, the cost of which rose to over 5%.
You don’t need a degree in banking or a Ph.D. in economics to know that lending money at 2% while you are borrowing money at 5% is a losing proposition. That is what our Federal Reserve Banks did and continue to do.
On top of this, as disclosed in the footnotes of the CQFR on page 7, when the combined Fed’s investments were marked to market on June 30, they had a market value loss of over $1 trillion, or a market value loss of 23 times the Fed’s stated capital.
The CQFR reports a total capital of about $42 billion ($35.6 billion of paid-in capital from the member commercial banks and $6.8 billion of retained earnings, called “surplus”). But note: This total capital is much less than the $57 billion reported loss for the six months of 2023, to which must be added the loss for the later months of 2022 of $17 billion. This total $74 billion of accumulated losses by June 30 must be subtracted from the retained earnings and thus from total capital. But the Fed does not do this—it misleadingly books its losses as an asset (!), which it calls a “deferred asset”-- a practice highly surprising to anyone who passed Accounting 101. Why does the Fed do this? Presumably it does not wish to show itself with negative capital. However, negative capital is the reality.
Here are the combined Fed’s correct capital accounts as of June 30, based on Generally Accepted Accounting Principles. They result in a capital of negative $32 billion:
Paid-in capital $36 billion Retained earnings ($68 billion) Total capital ($32 billion) The Fed wants you to believe that neither its negative capital nor its giant losses matter because it is the Fed and can print money. Many economists agree.
But does it matter that the Fed’s losses will cost not only it, but also the Treasury and the taxpayers, over $100 billion this year and more in the future? Does it matter that on a combined basis its accumulated losses are greater than its private stockholders’ paid-in capital? Does it matter that with negative equity under standard accounting, it is technically insolvent? All of these can be debated, but the numbers certainly do get one’s attention.
We conclude with a simple question: Did the leaders of the Fed intend to lose $57 billion in six months? Did they intend to be looking at a loss of more than $100 billion for this year? Did they intend to have a mark to market loss of more than $1 trillion? It is impossible to believe they did. The liberal supply of red ink they have delivered certainly does not help the Fed’s reputation for knowing what it is doing.
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- Note: I have used very rounded numbers throughout to make the mental arithmetic easier for the reader.
Being large doesn't make a country wealthy, nor does being small shrink a country's economy.
Original Article: "No, Small Countries Are Not at an Economic Disadvantage"
Many historians labeled the twentieth century as the American century, with many metrics used. The end of the Cold War in 1989 and the fall of the Union of Soviet Socialist Republics in December 1991 changed world affairs: several new countries formed, the Warsaw Pact dissolved, the economy of China rose, and many US military bases shut down. The twentieth century wound down with the US as the world superpower, and yet the vision of the 1990s was not clear for our political and military leaders going into the twenty-first century.
One definition of bankruptcy is “utter ruin, failure, depletion, or the like.” Entering the third decade of the twenty-first century with the perspective to see what has occurred since 2000 reveals this century is becoming the American bankruptcy. One US view of bankruptcy is when a private business, person, bank, government, or other nonprofit entity is financially unsound. Institutions, ethics, government, spirituality, education, etc. can also be bankrupt. Part of a prior Mises Wire article addressed two counties, one major metropolitan city and one territory, that went through and emerged from federal bankruptcy.
Many individuals, leaders in areas of public life, and foreign nations look to America for clarity and influence on culture, ethics, finance, governing, and public policy. The examples of ethical, financial, and governing bankruptcy show America is a shining example of utter failure.
Some of the largest bankruptcies of private businesses in federal courts since 2000 started with Pacific Gas and Electric in April 2001, $36 billion; Enron in December 2001, $65 billion; WorldCom in July 2002, $102 billion; Lehman Brothers in September 2008, $691 billion; General Motors in June 2009 (largest ever US automaker bankruptcy), $82 billion; and Lyondell Chemical in June 2009 (largest US petrochemical producer bankruptcy), $27 billion.
Four banks have filed for receivership by US bank regulators: Washington Mutual in September 2008, $327 billion; First Republic Bank in May 2023, $229 billion; Silicon Valley Bank in March 2023, $209 billion; and Signature Bank in March 2023, $110 billion. Of the 566 bank failures since the year 2000, Signature Bank is the only one to fail on a Sunday. Over 95 percent of bank failures occurred on Fridays.
Some famous US retailers have filed for bankruptcy since 2000 with some going out of business, like A&P supermarkets, Bed Bath & Beyond, Blockbuster, Borders, Compaq, Dressbarn, Family Christian Stores, Kmart, Lord and Taylor, Luby’s (Texas cafeteria chain), Modell’s Sporting Goods, Montgomery Ward, Payless ShoeSource, Pier 1 Imports, Radio Shack, Ringling Bros. and Barnum & Bailey, Sears, Solyndra (solar panels), Sports Authority, Stein Mart, Theranos, Toys “R” Us, Tuesday Morning, and the Weinstein Company.
The coronavirus outbreak and the subsequent lockdowns brought about educational, financial, governing, medical, and policy bankruptcies at the local, state, and federal levels on a public scale not seen in many years. The results in each area will be felt for many years in children, education, families, finance, business, government, etc. with incredible unintended results too numerous to mention.
Fiat as a noun is defined by dictionary.com as “an authoritative decree, sanction, or order.” This word describes the currency issued by many central banks today. Fiat currency was issued to fund the federal government–authorized coronavirus financial relief programs on a breathtaking scale, showing the economic and governing bankruptcy on clear display. Two books written by Peter Schweizer, titled Clinton Cash and Secret Empires, detail the business, ethical, financial, and governing bankruptcy at the federal level on a scale where one should have trouble sleeping at night.
Boy Scouts of America filed for federal Chapter 11 bankruptcy in February 2020, amid the ongoing payouts of claims to victims tied to many years of child sexual abuse allegations, legal battles with insurance companies, and declining membership. They emerged from federal bankruptcy in March 2023, a greatly reduced organization with substantive reforms in place.
Many US Roman Catholic dioceses filed and emerged from federal Chapter 11 bankruptcy due to overwhelming monetary compensation paid to many victims of priest sexual abuse claims and diocesan cover ups. An Illinois Law Review paper published in 2013 reviewed Roman Catholic and Protestant churches that filed for federal Chapter 11 bankruptcy between 2006 and 2013.
Chapter 11 bankruptcy described in the Illinois Law Review shows it has the potential to offer religious organizations an avenue to rehabilitate their operations following economic downturns, failures and transitions in leadership, and standstills in negotiating with creditors.
Some common themes among these bankruptcies include poor leadership disconnected from their customers, followers, and members; leaders letting the power of their position go to their heads; using the group’s treasury as an unending source of money to fulfill their selfish desires; boards of directors, staff, and leaders who lacked courage to say the truth to their group’s leaders about what ailed their group; and lack of applying sound principles of budgeting.
Some outcomes from these federal Chapter 11 bankruptcies led to debt holders losing value, debt repayments being renegotiated with each lender, new renegotiated loans with a repayment plan being issued, some property liquidations occurring, etc. We must not forget the scale and depth of bankruptcy in its many forms which greatly infects the people and workings of the federal government and public policy in Washington, DC.
Many people in the US have come or are coming to the reality that many businesses, educational, government, nonprofit, and spiritual entities are bankrupt to their very core, financially and spiritually. The length, depth, and width of the twenty-first century American bankruptcy pierces deeply into most private and public institutions we see.
The sooner this bankruptcy reality is accepted, assessed, and addressed is where real healing and progress can begin, with some entities being retired and new ones formed to benefit the people they serve. Hopefully for some of these entities, this new post-bankruptcy reality will result in a newly created board of directors and staff who are more focused on those they serve. Some solutions will be initiated at the local level where situational understanding is best. The direction of each entity when it emerges from federal bankruptcy is hopefully humility, which hammers home the perspective that mistakes are made and can be learned from, moving forward with a focus to benefit families and communities.
When Mises wrote that the fascists had "saved European civilization," he could have been describing Francisco Franco of Spain, who kept Spain from becoming a communist dictatorship.
Original Article: "What Mises Really Thought about Fascism"
No one today talks about the death penalty for debasing gold or silver coins as established by section 19 of the Coinage Act of 1792, nor do they usually bring up Article 1, Section 10 of the Constitution, which authorizes only “gold and silver Coin a Tender in Payment of Debts.” Instead, we’ve come so far as to establish a “gold standard” for the monetary policy of inflating currency at roughly two percent per annum to be carried out solely by the Federal Open Market Committee of the Federal Reserve System.
When we glance between the lines, we see that the Fed holds a monopoly of money creation. And since the government no longer regards gold or silver as money but instead issues paper bills or their electronic equivalent (not as substitutes for real money but as money itself), the United States is in the strange position of being a counterfeiter, and a monopoly counterfeiter at that.
Without the enforced promise of note redemption, the currency exposes itself to multiplication without restraint. An economy needs a generally accepted medium of exchange, and one would arise naturally over the course of trade. A state, given its nature as a predatory institution since it funds itself by force, needs a monetary unit it controls exclusively, with the ability to increase its quantity quickly to deal with its perpetual crises.
Debasement Reaches Fruition One of the great “achievements” of modern states is their ability to hide the debasement of their currency. Before the printing press made its debut, tyrants had to debase actual money by diluting the precious metal content or falsifying the imprint of a coin. Modern technology, along with elaborate legerdemain, has hidden the counterfeiting process from the public. The rest are bought off or ignored.
We’ve heard a lot about the pharmaceutical industry’s corruption of public health. The Fed is in the same league, having virtually bought the economics profession.
The Fed employs hundreds of PhD economists and a host of researchers and support staff. It also
doles out millions of dollars in contracts to economists for consulting assignments, papers, presentations, workshops, and that plum gig known as a “visiting scholarship.” . . .
Being on the Fed payroll isn’t just about the money, either. A relationship with the Fed carries prestige; invitations to Fed conferences and offers of visiting scholarships with the bank signal a rising star or an economist who has arrived.
Fortunately, not everyone is an economist in that sense.
One of the appeals of cryptocurrency is the limit on the number of monetary units. Not only is inflation impossible, but deflation, a gradual lowering of prices, naturally results from market productivity. The theory that a growing economy needs a constant influx of dollars was blown up by the unprecedented prosperity of the late nineteenth century in which prices dropped. In today’s debt-based economies, “deflation” is a dirty word, the “it” to be avoided at all costs lest the house of cards collapses.
The Fed in a Fight for Its Life Today, the Fed is in the unenviable position of dealing with government’s latest war on the economy during the orchestrated covid vax onslaught and its sorry attempt to rebuild the economy by means of a Woke agenda that places ideology above everything.
Apparently, the Fed’s goal is reducing the inflation seen at the gas pumps and grocery stores. And it would be nice if housing were affordable again too. The metric everyone watches is the federal funds rate, which the “best and brightest” of the Federal Open Market Committee influences with guesses about the money supply. The Fed will do whatever it takes to stop people from talking about inflation.
The Fed’s fight against inflation is akin to a drunk trying to get back on the wagon with a full commitment to get off again. Worst of all, the drunkard is driving the vehicle in which we’re all passengers.
Inflation, here defined as an imposed increase in the money supply, common to all counterfeiting and common to all states, will eventually bring an economy to its knees. Here are a few reasons why:
- More dollars mean each one buys less, putting upward pressure on prices. Because of the dollar’s loss of purchasing power, fewer people can afford admission to the market’s bounty.
- A depreciating dollar discourages savings. Millions of investment neophytes take to the stock market trying to protect themselves against the Fed’s printing presses.
- As prices rise a semantic shift takes place. Inflation becomes price inflation. As businesses raise prices, the government can step in as the avenging angel and place ceilings on increases. The public doesn’t understand the shortages that result, or how the ceilings encourage consumption and retard production. Shortages lead to quotas which foster black markets and violent crime.
- Higher prices mean some industries find themselves at a disadvantage with foreign competitors, sending them to Washington for relief. Tariffs and quotas spark retaliation—the Smoot-Hawley Tariff of 1930 being a poster child for President Herbert Hoover’s failing, worsening already bad economic conditions worldwide.
- Inflation raises nominal incomes, putting people in higher tax brackets. Wealth is lost through depreciating dollars, and what remains is taxed away at a higher rate.
- Fed monetary policies keep people working much later in their careers because they can’t afford to live off their deteriorating pensions.
- Because the government often gets the new money first, it can fund controversial measures such as wars and bailouts. Government puts the funding on its charge card, prompting the alchemy of debt monetization. We get the bill, of course, but we never see it itemized because it’s spread over everything else that we buy.
- Government may pose as the savior of a group of voters they’ve impoverished, such as the elderly, by subsidizing their medical expenses. New entitlements create the need for more revenue, which fuels more inflation.
- As Ludwig von Mises observed, “Under inflationary conditions, people acquire the habit of looking upon the government as an institution with limitless means at its disposal: the state, the government, can do anything.” Through deficit spending the state will devour limited resources trying to maintain this illusion.
- Inflation is undemocratic by a wide margin:
The American economist Frank Fetter once observed that the unhampered market economy resembles a grass-roots democratic process. One penny, one market vote. From this point of view, the imposition of fractional-reserve notes through legal-tender laws creates market votes out of nothing. The bankers and their clients (usually the government in the first place) have many more votes than they would have had in a free society.
- Inflation creates the dreaded business cycle. Murray Rothbard notes that with the publication of Wesley Mitchell’s book Business Cycles in 1913, attention was brought to the occurrence of business cycles but not their explanation. But Mitchell, along with Karl Marx, had an enormous influence on business cycle studies. Earlier, David Ricardo and the Currency School “first realized that boom-bust cycles are caused by disturbances of the free market economy by inflationary injections of bank credit, propelled by government. These booms themselves bring about a later depression, which is really an adjustment of the economy to correct the interferences of the boom.”
Economic booms created distortions that were later corrected by the depressions. This was deeply disappointing to detractors of capitalism who thought boom-bust was “a sickness of the free market.”
Governments have of necessity been experts in the art of stealing. Inflation (counterfeiting) is their highest art form because it is insidious. Fortunately, it is not sustainable.
One sees many flags at half-mast across the country today. And rightly so. Thanks in part to the negligence and incompetence of the CIA and FBI, the Federal government failed disastrously at what it tells us is the regime's number-one priority: public safety.
[Read More: "9/11 Was a Day of Unforgivable Government Failure" by Ryan McMaken]
More than 2,900 human beings died that day, the overwhelming majority of which were civilians working in ordinary private-sector jobs. Most of them paid taxes for many years to the government which told them that the government keeps them safe. Many victims continue to die to this day from illnesses caused by inhalation of building debris.
But the response to 9/11 has done far more damage to the republic than the perpetrators of 9/11 ever could. Even worse, the regime's architects of the countless assaults on freedom and human rights that have come in the wake of 9/11 have never been punished.
After 9/11 we were forced to endure nearly two decades of major wars. The Iraq war relied on post-9/11 fears to push the narrative that Saddam Hussein had weapons that could be used to attack Americans. US regime mouthpieces repeatedly hinted that Saddam maybe had planned or funded the 9/11 attacks. The Taliban in Afghanistan were essentially blamed for training the terrorists said to have perpetrated 9/11. (The fact that the Saudis were likely bankrolling the terrorists was carefully avoided.) In the end, the wars did absolutely nothing to enhance either the freedom or the safety of Americans. Thousands of American families have paid for these pointless wars with their own blood or with the blood of their sons and brothers and fathers. Hundreds of millions of Americans continue to pay for the wars through higher taxes to service war debts, and through the inevitable price inflation that has come after two decades of runaway spending. All this, of course, ignores the hundreds of thousands of innocent foreign victims of the regime.
On the domestic front, we've also fallen victim to 20 years of the federal government shredding the rights supposedly protected by the Bill of Rights. Between the Patriot act, the TSA, countless abuses of the FISA court, and non-stop spying on peaceful Americans, the federal government's "war on terror" has largely been a war on Americans. Or as Patrick Eddington put it in 2021:
From the creation of the sprawling, privacy invading Department of Homeland Security (2002) to the passage of the FISA Amendments Act (2008, required to make portions of the previously illegal Stellarwind program legal) to the Transportation Security Agency’s (TSA) Quiet Skies passenger surveillance programs (2012) to the burgeoning use of facial recognition by law enforcement at all levels, we now live in an age where our buying habits, web browsing history, air travel records, social media posts and more can be collected, analyzed and weaponized against us — often with little or no pretext or true, valid criminal predicate. ... In all the ways that matter, Americans are now viewed by their government as suspects first, citizens second.
Ridiculously, all of this has been justified by George W. Bush's slogan purporting to explain why terrorists target the US: "They hate us because we're free." (If too much freedom in America is the cause of terrorism, surely the problem has now been eliminated.)
Yet, none of the policymakers and technocrats who pushed the failed wars and the assaults on freedom have ever been called to account. As far as the regime and its friends in the media are concerned, it doesn't matter that the regime was wrong about "weapons of mass destruction" in Iraq. It doesn't matter that the US invaded Afghanistan to oust the Taliban—and then failed to do so after two decades of war. It doesn't matter that US wars paved the way for al-Qaeda in Iraq and for slavery in Libya. It doesn't matter that the US invaded a sovereign nation under false pretexts and leveled entire cities—doing nearly everything for which Washington now condemns Moscow.
Many of those behind these fits of foreign and domestic imperialism—i.e, Dick Cheney and Bush and Hillary Clinton—retired in comfort. Some are still in office like Joe Biden, Mitch McConnell, Chuck Schumer, and Diane Feinstein. And many of them continue to push their agendas at Washington think tanks where these "advisors" continue to be hailed as "experts" on foreign policy and "democracy." These people wrote memoirs. They appear on talk shows.
My older readers may recall names like Paul Wolfowitz, John Bolton, Condoleezza Rice, and Judith Miller. All of these people still enjoy positions of respect and status within the central circles of Washington establishment politics. There is no accountability. There aren't even half-hearted apologies.
So unrepentant are these people that they even emerge from their universities, country clubs, and luxury homes to lecture the public about freedom and democracy every now and then. Just last week, Dick Cheney took to social media to condemn Donald Trump as a threat "to our republic." This video echoes a similar condemnation from George W. Bush in 2021.
In a more reasonable world, people like Cheney, Rice, Bolton, et al, would all be forgotten, shamed, disgraced politicians. They all would have been forced into retirement and shunned years ago after overseeing multiple disastrous wars abroad and the creation of a surveillance state at home. Many of them would just now be emerging from prison for their crimes against both international law and the US Constitution.
Unfortunately, we don't live in a more reasonable world. In twenty-first century America (so far) it doesn't matter how many trillions are wasted on lost wars, how many Americans are sent to die in vain, or how many innocent foreigners are incinerated by American bombs. For the regime, all that matters is that the public keeps buying the lie that the regime "keeps us safe" and that the government experts "know better." It doesn't matter that the Fourth Amendment is now a dead letter, or that "anti-terrorism" legislation is now largely used to target ordinary American citizens who are now deemed terrorists or insurrectionists for trespassing in government buildings.
In recent years, when 9/11 is commemorated, we are told only to remember regime-approved sentiments such as "freedom isn't free" and "support the troops." We are not supposed to remember how the regime used the deaths of janitors, receptionists, and firefighters on that day to justify wholesale attacks on privacy, private property, and the Bill of Rights.
We're all now just supposed to pretend it never happened. Yet, if we wish to make even a start at undoing some of the damage, Americans have to stop listening to the despots and liars who used the pain and fear of 9/11 to advance their long-planned dreams of empire and a police state. Any politician or bureaucrat who supported or supports the post-9/11 wars, the Patriot Act, or today's federal spying regime should be assumed to have worthless and dangerous opinions. These people have already proven their inability to make lawful or prudent decisions. Even worse are the despicable charlatans who cynically claim "hindsight is 20/20" when anyone with any respect for freedom or the rule of law could see the evils that would follow the frenzy of new laws and wars that followed 9/11. Candidates or policymakers who insist the wars and the despotism have all sprung from "good intentions" or that the likes of Cheney and Bush "did their best" are not worth hearing from. Unfortunately, as the Dick Cheney video last week reminded us, these people still haven't gone away.
Many people believe that the board game Monopoly, developed during the Great Depression, mimics a real-world capitalist economy. Monopoly is a game, not real life.
Original Article: "Is the Monopoly Board Game Like Real Markets?"
It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.
—Murray Rothbard, “The Death Wish of the Anarcho-Communists”
The Austrian school of economics stands as a beacon, illuminating the path to economic understanding through a perspective that diverges markedly from the methodologies of controlled experimentation and empirical observation that define the natural sciences. Instead, Austrian economics lays bare the timeless truths of economic phenomena through the art of deductive reasoning, drawing its power from self-evident axioms that underpin the intricate tapestry of economic life.
This departure from conventional scientific norms rests upon two foundational pillars. At its core, economics is concerned with deciphering the elaborate choreography of human action, driven not by the linear certainties that govern the physical realm but by the intricate nuances of subjective desires. In contrast to the predictability of matter and motion, the canvas upon which purposeful human behavior is painted defies attempts at segmentation or manipulation within controlled settings.
The symphony of the economy crescendos from the myriad notes struck by individuals, each weaving their unique dynamic narrative through the fabric of personal circumstances, knowledge, expectations, and values. No levers of control exist to adjust or experiment within this realm.
This foundational distinction is further exemplified by history’s reluctance to yield controlled experiments for the validation of economic theories. Historical events such as the Great Depression are compositions woven from a complex interplay of countless causal threads, allowing rival schools of thought to draw divergent interpretations from shared moments in time.
Unlike the empirical journey of the natural sciences, the bedrock of economic principles finds its roots in the fertile ground of deductive logic, springing forth from self-evident axioms about human action: that individuals act with purpose and subjectively value goods. The principles of supply and demand, marginal utility, opportunity cost, and incentive dynamics are not mere observations but meticulously derived implications of these fundamental axioms.
Empirical data, while shedding light on economic laws, does not wield the power to offer definitive proof or refutation of these laws. Rival economic frameworks can coexist despite drawing from the same empirical wellspring. Deductions that remain impervious to contrary historical data stand firm as the bedrock of economic science.
Detractors have been known to contend that the Austrian school’s deductions lack relevance without empirical verification. However, the core axioms upon which these deductions rest are immune to the limitations of empirical data. Moreover, Austrian economic analysis has demonstrated its predictive prowess time and again. For instance, consider Ludwig von Mises’s theory of business cycles.
Decades before the 2008 financial crisis, Mises elucidated how unsustainable booms sow the seeds of their own undoing, driven by distorted interest rates and production signals due to credit expansion. His prediction of an eventual recession due to central bank inflationary policies rang true when the crisis eventually unfolded. While others stumbled over statistical models, those who embraced deduction understood the essence of the crisis.
Critics have also questioned the realism of the Austrian school’s approach, contrasting the rational actors of economic models with the irrationality of the real world. However, the deductive laws of economics do not seek to predict specific outcomes but instead offer interpretive frameworks. As Mises aptly explained, “Economics, as a branch of the more general theory of human action, deals with all human action, i.e., with man’s purposive aiming at the attainment of ends chosen, whatever these ends may be.”
Through deducing implications from the bedrock of purposeful human action, economics achieves a level of universality and permanence that empirical analysis cannot match. While empirical observation can illuminate specific instances, it is the realm of deduction that unveils the timeless mechanisms governing economic phenomena.
Microeconomics serves as a prime example. While reality may deviate from theoretical postulates, deductions such as those governing supply and demand provide insights into enduring mechanisms that transcend the confines of time and place. It is here that deduction triumphs over data mining in revealing the essential dynamics of price coordination.
In essence, empirical testing and deductive reasoning are not diametrically opposed. Rather, they can harmoniously complement each other, enhancing the understanding of both the timeless and the contingent aspects of economic science. The Austrian school thus stands as a foundational pillar of economic knowledge, offering pure deductive theory as a complement to empirical observation.
The Spreading of Economic Enlightenment: A Civic Duty The true potency of these economic ideas unfurls when they permeate the collective consciousness. When economic myths and fallacies infiltrate the societal psyche, politicians harness these misconceptions to advance policies driven by faulty logic.
Even in the face of centuries of intellectual endorsement for the virtues of free trade, the specter of interventionism continues to loom, a testament to the persistence of enduring mercantilist delusions that trade corrodes domestic jobs. These misconceptions grant governments the power to sway public sentiment, paving the way for policies that hinder rather than facilitate societal advancement.
In this light, economists shoulder a dual responsibility—to enlighten the layperson and foster in him an appreciation for market dynamics, as well as to arm citizens with the intellectual tools to ward off the allure of misguided interventions. With the Austrian school’s emphasis on deduction, a significant responsibility falls upon economists to make these foundational economic ideas accessible and intelligible to the broader public. Intellectuals and writers, too, have a role to play in disseminating these critical insights to a wider audience. By spreading the wisdom that unveils the hidden harmony within the realm of voluntary exchange, we pave the path to societal emancipation.
Ludwig von Mises eloquently emphasized that this duty of sharing economic knowledge is inescapable. Those who fail to engage with economic issues and instead place blind trust in so-called experts surrender their agency and submit to the domination of others. In our present age, Mises asserted, there is nothing more crucial than economics, as the destinies of both the present and future generations hang in the balance. To quote Mises directly:
There is no means by which anyone can evade his personal responsibility. Whoever neglects to examine to the best of his abilities all the problems involved voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters blind reliance upon “experts” and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people’s domination. As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake.
Very few are capable of contributing any consequential idea to the body of economic thought. But all reasonable men are called upon to familiarize themselves with the teachings of economics. This is, in our age, the primary civic duty.
Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.
While only a select few may be able to contribute original ideas to the field of economics, the duty to acquaint oneself with economic teachings is incumbent upon every rational citizen. This, Mises underscored, is the primary civic responsibility in our modern society and becomes the proper pursuit of every citizen.
Economics, Mises pointed out, is too vital to be confined to the esoteric realms of academia. It grapples with the fundamental issues of society and belongs to all. By empowering the public with a deep understanding of economics, economists equip individuals with the ability to critically evaluate market mechanisms, expose economic myths, and resist the lure of misguided policy interventions. Far-reaching economic education fortifies society against the destructive influence of coercive utopianism, fostering a culture that values individual liberty, entrepreneurship, and long-term prosperity. As such, it is our shared responsibility to vigorously disseminate the light of economic reasoning, banishing the fog of fallacy and unlocking humanity’s boundless potential.
Young people often get their first jobs in fast food or in some sort of retail customer service. Young and not so young adults are aware that fast food jobs will equip them with the skills needed to acquire future employment. Some choose to make a career in fast food, while for others it is a means of developing skills and earning money to satisfy their needs and wants.
In the past, people could easily find employment making burgers and French fries, but soon enough it won’t be so easy. Artificial intelligence–generated robots can make burgers and fries, too, and many companies are turning to robotic kitchens staffed by “McRobots.” But McRobots are not competing with humans for employment the way one might think.
The good news is that recent industry projections show that fast food and retail jobs are rising in many parts of the country. These jobs are vital to our economy and to people seeking entry-level work. A Gitnux market data report states, “In 2021, there were over 3.8 million fast food employees in the United States alone and this number is projected to grow 14 percent by 2026.” Is the bad news that the expected growth in the fast food industry might be through the heavy use of AI-powered McRobots?
That would be understandable, given that McRobots will stay with their employer and not seek higher wages elsewhere. Conversely, a comparative disadvantage of McRobots is their need for costly maintenance and upgrading to operate correctly and consistently. Would AI-powered McRobots give longer tenure and provide a cost advantage to the employer? Because fast food kitchen robotics are efficient and cost less in the short run than humans, are humans now the least preferred workers in the fast food industry? Said another way, do employers prefer to hire a McRobot instead of you? If McRobots cost less, then yes. If McRobots cost more, then no.
Is a McRobot as effective in serving people as humans are? No. Not at all. There are downsides when a McRobot serves you burgers and fries. A 2022 Business Insider article points out that “technology isn’t always reliable—if the electricity supply for the kitchen cuts out, then it’s not able to operate. . . . [I]n the pizza kitchen, there’s only one cutting machine so if that breaks, then that poses an issue. It could take an hour or two before someone fixes the problem.”
So would you hire an AI-powered robot instead of a human worker? There are clear reasons for employers to hire a robot to do work that a human would otherwise do. Here is the deal: Robots do not call out of work. Robots do not slow down production when they are disgruntled. Robots do not text or go on social media while working. Let us be honest: humans do.
But overall, humans provide employers with more value than a robot can produce. Humans can be empathetic toward others, serve their fellow man, solve complex problems, and form relationships that machines cannot. Human workers are inventive and, at times, seek out new ways to gain efficiency. Robots can assist employees in achieving efficiency, but they cannot conceptualize and articulate new ideas. Therefore, they can never match the abilities of humans.
With the advent of robotic, AI-powered fast food kitchens, the question is: What price are employers willing to pay for McRobot employees? In his writing on labor discrimination, economist Walter E. Williams makes a highly compelling example of the compensating differences given back to the employer through hiring the least preferred worker:
Some people consider chuck steak less preferable than filet mignon. That puts chuck steak at a competitive disadvantage with filet mignon. The way that chuck steak offsets its disadvantage is by “compensating” the buyer. The chuck may sell at $2 a pound, while the filet mignon sells for $5. The compensation that chuck steak makes to the purchaser is $3 a pound (the difference in price). Therefore, if one indulges one’s preference for filet mignon, there is a price to pay.
Professor Williams’s analysis concludes that employers can indulge in their preferences, but it will cost them dearly to do so. In a free market, a less preferred option at a lower cost constantly competes with the preferred choice. Robotic kitchens are said to provide services at a lower cost—but what price will companies have to pay? This is where the difference between a socialist and a capitalist market economy comes into play.
Only in a socialist economy can fast food managers indulge in their personal preferences despite the economic costs, because the costs of their decisions do not come out of their own pockets. In a true market economy, managers always seek the least preferred over their preferred option. Effectively, if human fast food workers seek wage increases, it encourages fast food companies to turn to their preferred source of labor, McRobots, as any other choice would not give cost savings.
The critical fact is that fast food companies can hire McRobots by indulging their preference scales, which comes with associated costs in a market economy. Are the costs of this decision connected with the higher and minimum wages? Yes. If government ordered fast food companies to raise their wages to $100.00 an hour for all workers, would a McRobot bid lower than a human and get the job? Probably. Furthermore, while fast food management might prefer robotic kitchens and checkout clerks in the short run, it would cost them in the long run more to indulge in this preference for the AI-powered McRobot. Employing AI-powered cooks, McRobot drive-through cashiers, and service-oriented robotic kitchens would no doubt ultimately increase the prices of burgers and fries due to the breakdown of robotic machinery, AI software upgrades, cooking coding errors, natural disasters causing electricity shutdowns, and so forth.
While a McRobot would never consider moving to another employer and would be a loyal and trusty employee ad infinitum, unlike some humans who seek greener pastures, the fast food industry sees three times as much human turnover as other service-oriented industries. This is because humans learn and develop over time through work experiences. Employees also decide to move to other sectors using their skills to try to increase their earnings. Once skilled and experienced, they can take advantage of market opportunities in other industries. The ability to start work in fast food at a lower price to an employer will be hindered given the increasing use of McRobots where in some cases humans might bid lower in the short run.
Economist Art Carden points out the vitality of fast food employment for humans in his recent article “America Needs More McJobs”: “‘McJobs’ aren’t just worth having. They’re vital. They make it easier for the people who have them to accumulate valuable skills and labor market experience, which research has shown leads to higher future earnings.” McRobots do not have to think about future market opportunities, seek to develop their human skills to become marketable, or seek rewards for their efforts.
The main thrust currently driving the increase in fast food employment is the ability to hire the least preferred worker—who, as of now, is the human employee. That means the skilled or unskilled person seeking work can find it in the fast food industry at a lower cost to the employer. Will this change? Yes. Has this changed? Change is on its way. If fast food workers’ wages steadily increase in comparison to productivity, the least preferred employee—McRobot—will substitute for human employees. Will fast food management self-indulge and hire humans at the higher bid? Human employees will be the new filet mignon and McRobots the chuck steak. So who will you hire?
Can a government regulatory system be reformed? In a word, no. The free market is always the best regulator of quality and safety.
Original Article: "Regulation in the Free Market: It’s Not What Most People Believe"
When I was at the university, I once objected to a classmate’s lazy use of “public goods.” He had used it to favor his policy position, as a shorthand synonym of what’s good for society—only a thinly veiled euphemism for what I want to happen.
“Public goods are things that are nonrivalrous and nonexcludable,” I said, almost sputtering off a nearby economics textbook. “The ones you’re talking about are neither.”
He rolled his eyes in boredom. “Yes, yes, but that’s not what people mean when they say, ‘public goods.’”
Strangely, I think he’s right. These days, the economist’s clear and rather demanding criteria of so-called public goods are largely swept aside in favor of something like “What I think would be good for the public.” And that little linguistic slip opens up a world of economic policymaking from which we still haven’t recovered.
Everything these days are public goods. In a New York Review of Books piece by Helen Epstein we learn that money printing isn’t just important for government spending but “for improvements in health care, education, transportation, the power grid, and other public goods that might foster development.”
To proponents of government services, everything that carries even a whiff of external benefits to someone, somewhere, is therefore transformed into a “public good”—which must be provided by government. We might have excused such convictions, chalking them up to ignorance, if it weren’t for economists at the pinnacle of the profession embracing those views; Nobel Prize winner William Nordhaus is a case in point.
We have to dig about three hundred pages into Nordhaus’s book The Spirit of Green before we get an admission that government failures can be worse than the failures that ostensibly run amok in private markets. Otherwise they’re just technocratic solutions: rainbows and unicorns, public goods this, public goods that. Everything is an uncorrected externality—from the keyboards we write on to gas stations, hospitals, landlords, and the English language.
If all you wield are government solutions, everything looks like a private-sector nail in desperate need of a hammering. In his book, Nordhaus argues over the merits of internalizing external effects from pollution and then extends the logic to sin taxes on gambling, smoking, drinking, and firearms use. Like pollution, they impact other people too, and so a benign social planner must intervene. Having already convinced his audience of the need for governmental correction for an invisible gas with invisible future damages, the rest follows as a matter of course.
What’s clear is that despite holding the most prestigious award in the economics profession and being the author of a long-standing economics textbook, Professor Nordhaus doesn’t understand even the basic economics of property and rivalrousness. For public good’s two criteria, it’s the competing use of rivalrousness that has societal (and thereby economical) implications.
Property and ownership, not in their legal concepts but in their economic functions, come about only under conditions of scarcity. Scarcity means that goods and services have secondary use—opportunity costs. With unlimited abundance, property and ownership (perhaps apart from your own self) play no role: There is enough to satisfy everyone’s wants at any given time. In everyday life we don’t price oxygen in the air because there’s enough for everyone all the time, and Earth’s natural processes make more of it. It’s a nonscarce resource; therefore, its price is zero, and it makes no sense to try to establish ownership over this or that air molecule. (While the use of a breath of air is rivalrous in that nobody else can use the lungful of air I have just inhaled, the ever-present amount around is enough so that the good “air” becomes nonrivalrous.)
Another misunderstanding of nonrivalrousness is the anti-intellectual charge of cultural appropriation. Cultural traits, ranging from fashion to music, art, language, innovations, or traditions, are unowned and intangible things. Yet the unenlightened wokesters of the world have decided that all traits belong (in perpetuity?) to whichever group historically wielded them.
What they overlook is the basic economic concept of rivalrousness. My use of English—a language that isn’t my mother tongue and that I have thereby thoroughly “appropriated”—does in no way prevent another person from using English, or changing English in any which way they prefer (think teenager neologisms). My applying a decades-old recipe for tonight’s dinner in no way strips someone else from the pleasure of using that same recipe. My use of some far-away tribe’s dance, song, or belief system in no way prevents them from dancing, singing, or believing that same thing.
Cultural expressions are unowned, unownable, and more importantly, unlimited. They are nonrivalrous in the public-goods sense in that anyone can don a Mexican hat, grow dreads, pray to a foreign God, play the traditional instruments of some faraway tribe, or, closer to my own heart, practice yoga.
It repeatedly happens that—entirely hypothetical, of course—a young, woke, anticapitalistic woman complains about some feature in modern-day yoga as practiced in the West. We all know the character (and if not, the recent outburst by Anita Chaudhuri in the British newspaper The Guardian can serve as a decent approximation).
Sweaty from a class with dozens of other like-minded and culturally sensitive students, this hypothetical woman’s commitment to not culturally appropriate something that other humans have once made is undermined no less than three times by her own very actions. First, she’s speaking English, a language that culturally appropriated words from everything from Old Norse to Frisian, Norman, and Germanic languages (not to mention its exportation across the world in the last century or more). Second, she just came out of a physical, aerobics-like sequence of fast-paced flows that many people in the West treat as a physical workout; that is emphatically not what yoga was like for most of its five-thousand-year history. Third, she’s a woman (women feature only scantly in the historic records of yoga), and her practicing of this ancient art would have been looked down upon by most of the very cultures she seeks to uphold.
Performative contradictions are powerful, but the lesson goes wider: a practice—like yoga or food recipes or fashion or songs—made in whichever time, place, or people, belongs to nobody. They are nonrivalrous goods. They can change and incorporate different things from anything else in humanity’s vast array of emergent, cultural, and artistic traditions. Mozart’s symphonies may not only be performed by white Europeans in the splendid halls of Vienna; cars and car culture are not only wielded by those demographics that contributed to its invention. Nobody owns cultures; nobody rules cultures; and nobody can shut you out from wielding them. Therefore, you can mix them and change them any way you like.
One would think that the sort of person attuned to celebrating diversity, praising tolerance for one another’s differences, and embracing melting pots should understand that. Alas not.
Despite what many elites believe, AI can do many things, but it cannot successfully plan an economy. It lacks the intelligence of an entrepreneur.
Original Article: "AI Lacks the Entrepreneurial Intelligence to Plan an Economy"
While progressives blame climate change for the deadly Lahaina fire, government created the conditions for the blaze and then helped set it.
Original Article: "Thanks to Government, Maui's Lahaina Fire Became a Deadly Conflagration"
Contrary to the government's line that "inflation hurts everyone," inflation really is a wealth transfer from those without political power to the politically connected.
Original Article: "Inflation Is a Giant "Skim" on the American People"
In this week's episode, Mark looks at PPI—the Producer Price Index—which provides evidence of the costs for suppliers in various industries, macroeconomic instability, and the potential for economic recovery. Here, very low prices provide the potential for recovery; and rising prices can indicate both recovery in the economy, as well as inflationary pressures moving forward. The Covid Bubble and restrictions caused a 50% increase in producer prices, and since the peak in 2022, PPI has only corrected about 10%.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
"Producer Price Index by Commodity: All Commodities" (PPIACO): Mises.org/Minor_PPI
Our country is beset by a large number of economic myths that distort public thinking on important problems and lead us to accept unsound and dangerous government policies. Here are ten of the most dangerous of these myths and an analysis of what is wrong with them.
Myth #1Deficits are the cause of inflation; deficits have nothing to do with inflation.
In recent decades we always have had federal deficits. The invariable response of the party out of power, whichever it may be, is to denounce those deficits as being the cause of our chronic inflation. And the invariable response of whatever party is in power has been to claim that deficits have nothing to do with inflation. Both opposing statements are myths.
Deficits mean that the federal government is spending more than it is taking in taxes. Those deficits can be financed in two ways. If they are financed by selling Treasury bonds to the public, then the deficits are not inflationary. No new money is created; people and institutions simply draw down their bank deposits to pay for the bonds, and the Treasury spends that money. Money has simply been transferred from the public to the Treasury, and then the money is spent on other members of the public.
On the other hand, the deficit may be financed by selling bonds to the banking system. If that occurs, the banks create new money by creating new bank deposits and using them to buy the bonds. The new money, in the form of bank deposits, is then spent by the Treasury, and thereby enters permanently into the spending stream of the economy, raising prices and causing inflation. By a complex process, the Federal Reserve enables the banks to create the new money by generating bank reserves of one-tenth that amount. Thus, if banks are to buy $100 billion of new bonds to finance the deficit, the Fed buys approximately $10 billion of old treasury bonds. This purchase increases bank reserves by $10 billion, allowing the banks to pyramid the creation of new bank deposits or money by ten times that amount. In short, the government and the banking system it controls in effect "print" new money to pay for the federal deficit.
Thus, deficits are inflationary to the extent that they are financed by the banking system; they are not inflationary to the extent they are underwritten by the public.
Some policymakers point to the 1982–83 period, when deficits were accelerating and inflation was abating, as a statistical "proof" that deficits and inflation have no relation to each other. This is no proof at all. General price changes are determined by two factors: the supply of, and the demand for, money. During 1982–83 the Fed created new money at a very high rate, approximately at 15 percent per annum. Much of this went to finance the expanding deficit. But on the other hand, the severe depression of those two years increased the demand for money (i.e. lowered the desire to spend money on goods), in response to the severe business losses. This temporarily compensating increase in the demand for money does not make deficits any the less inflationary. In fact, as recovery proceeds, spending will pick up and the demand for money will fall, and the spending of the new money will accelerate inflation.
Myth #2Deficits do not have a crowding-out effect on private investment.
In recent years there has been an understandable worry over the low rate of saving and investment in the United States. One worry is that the enormous federal deficits will divert savings to unproductive government spending and thereby crowd out productive investment, generating ever, greater long-run problems in advancing or even maintaining the living standards of the public.
Some policymakers have once again attempted to rebut this charge by statistics. In 1982–83, they declare, deficits were high and increasing, while interest rates fell, thereby indicating that deficits have no crowding,out effect.
This argument once again shows the fallacy of trying to refute logic with statistics. Interest rates fell because of the drop of business borrowing in a recession. "Real" interest rates (interest rates minus the inflation rate) stayed unprecedentedly high, however — partly because most of us expect renewed heavy inflation, partly because of the crowding,out effect. In any case, statistics cannot refute logic; and logic tells us that if savings go into government bonds, there will necessarily be less savings available for productive investment than there would have been, and interest rates will be higher than they would have been without the deficits. If deficits are financed by the public, then this diversion of savings into government projects is direct and palpable. If the deficits are financed by bank inflation, then the diversion is indirect, the crowding-out now taking place by the new money "printed" by the government competing for resources with old money saved by the public.
Milton Friedman tries to rebut the crowding-out effect of deficits by claiming that all government spending, not just deficits, equally crowds out private savings and investment. It is true that money siphoned off by taxes could also have gone into private savings and investment. But deficits have a far greater crowding,out effect than overall spending, since deficits financed by the public obviously tap savings and savings alone, whereas taxes reduce the public's consumption as well as savings.
Thus, deficits, whichever way you look at them, cause. grave economic problems. If they are financed by the banking system, they are inflationary. But even if they are financed by the public, they will still cause severe crowding-out effects, diverting much-needed savings from productive private investment to wasteful government projects. And, furthermore, the greater the deficits the greater the permanent income tax burden on the American people to pay for the mounting interest payments, a problem aggravated by the high interest rates brought about by inflationary deficits.
Myth #3Tax increases are a cure for deficits.
Those people who are properly worried about the deficit unfortunately offer an unacceptable solution: increasing taxes. Curing deficits by raising taxes is equivalent to curing someone's bronchitis by shooting him. The "cure" is far worse than the disease.
For one reason, as many critics have pointed out, raising taxes simply gives the government more money, and so the politicians and bureaucrats are likely to react by raising expenditures still further. Parkinson said it all in his famous "Law": "Expenditures rise to meet income:' If the government is willing to have, say, a 20 percent deficit, it will handle high revenues by raising spending still more to maintain the same proportion of deficit.
But even apart from this shrewd judgment in political psychology, why should anyone believe that a tax is better than a higher price? It is true that inflation is a form of taxation, in which the government and other early receivers of new money are able to expropriate the members of the public whose income rises later in the process of inflation. But, at least with inflation, people are still reaping some of the benefits of exchange. If bread rises to $10 a loaf, this is unfortunate, but at least you can still eat the bread. But if taxes go up, your money is expropriated for the benefit of politicians and bureaucrats, and you are left with no service or benefit. The only result is that the producers' money is confiscated for the benefit of a bureaucracy that adds insult to injury by using part of that confiscated money to push the public around.
No, the only sound cure for deficits is a simple but virtually unmentioned one: cut the federal budget. How and where? Anywhere and everywhere.
Myth #4Every time the Fed tightens the money supply, interest rates rise (or fall); every time the Fed expands the money supply, interest rates rise (or fall).
The financial press now knows enough economics to watch weekly money supply figures like hawks; but they inevitably interpret these figures in a chaotic fashion. If the money supply rises, this is interpreted as lowering interest rates and inflationary; it is also interpreted, often in the very same article, as raising interest rates. And vice versa. If the Fed tightens the growth of money, it is interpreted as both raising interest rates and lowering them. Sometimes it seems that all Fed actions, no matter how contradictory, must result in raising interest rates. Clearly something is very wrong here.
The problem here is that, as in the case of price levels, there are several causal factors operating on interest rates and in different directions. If the Fed expands the money supply, it does so by generating more bank reserves and thereby expanding the supply of bank credit and bank deposits. The expansion of credit necessarily means an increased supply in the credit market and hence a lowering of the price of credit, or the rate of interest. On the other : hand, if the Fed restricts the supply of credit and the growth of the money supply, this means that the supply in the credit market declines, and this should mean a rise in interest rates.
And this is precisely what happens in the first decade or two of chronic inflation. Fed expansion lowers interest rates; Fed tightening raises them. But after this period, the public and the market begin to catch on to what is happening. They begin to realize that inflation is chronic because of the systemic expansion of the money supply. When they realize this fact of life, they will also realize that inflation wipes out the creditor for the benefit of the debtor. Thus, if someone grants a loan at 5% for one year, and there is 7% inflation for that year, the creditor loses, not gains. He loses 2%, since he gets paid back in dollars that are now worth 7% less in purchasing power. Correspondingly, the debtor gains by inflation. As creditors begin to catch on, they place an inflation premium on the interest rate, and debtors will be willing to pay. Hence, in the long-run anything which fuels the expectations of inflation will raise inflation premiums on interest rates; and anything which dampens those expectations will lower those premiums. Therefore, a Fed tightening will now tend to dampen inflationary expectations and lower interest rates; a Fed expansion will whip up those expectations again and raise them. There are two, opposite causal chains at work. And so Fed expansion or contraction can either raise or lower interest rates, depending on which causal chain is stronger.
Which will be stronger? There is no way to know for sure. In the early decades of inflation, there is no inflation premium; in the later decades, such as we are now in, there is. The relative strength and reaction times depend on the subjective expectations of the public, and these cannot be forecast with certainty. And this is one reason why economic forecasts can never be made with certainty.
Myth #5Economists, using charts or high speed computer models, can accurately forecast the future.
The problem of forecasting interest rates illustrates the pitfalls of forecasting in general. People are contrary cusses whose behavior, thank goodness, cannot be forecast precisely in advance. Their values, ideas, expectations, and knowledge change all the time, and change in an unpredictable manner. What economist, for example, could have forecast (or did forecast) the Cabbage Patch Kid craze of the Christmas season of 1983? Every economic quantity, every price, purchase, or income figure is the embodiment of thousands, even millions, of unpredictable choices by individuals.
Many studies, formal and informal, have been made of the record of forecasting by economists, and it has been consistently abysmal. Forecasters often complain that they can do well enough as long as current trends continue; what they have difficulty in doing is catching changes in trend. But of course there is no trick in extrapolating current trends into the near future. You don't need sophisticated computer models for that; you can do it better and far more cheaply by using a ruler. The real trick is precisely to forecast when and how trends will change, and forecasters have been notoriously bad at that. No economist forecast the depth of the 1981–82 depression, and none predicted the strength of the 1983 boom.
The next time you are swayed by the jargon or seeming expertise of the economic forecaster, ask yourself this question: If he can really predict the future so well, why is he wasting his time putting out newsletters or doing consulting when he himself could be making trillions of dollars in the stock and commodity markets?
Myth #6There is a tradeoff between unemployment and inflation.
Every time someone calls for the government to abandon its inflationary policies, Establishment economists and politicians warn that the result can only be severe unemployment. We are trapped, therefore, into playing off inflation against high unemployment, and become persuaded that we must therefore accept some of both.
This doctrine is the fallback position for Keynesians. Originally, the Keynesians promised us that by manipulating and fine-tuning deficits and government spending, they could and would bring us permanent prosperity and full employment without inflation. Then, when inflation became chronic and ever-greater, they changed their tune to warn of the alleged tradeoff, so as to weaken any possible pressure upon the government to stop its inflationary creation of new money.
The tradeoff doctrine is based on the alleged "Phillips curve," a curve invented many years ago by the British economist A. W. Phillips. Phillips correlated wage rate increases with unemployment, and claimed that the two move inversely: the higher the increases in wage rates, the lower the unemployment. On its face, this is a peculiar doctrine, since it flies in the face of logical, commonsense theory. Theory tells us that the higher the wage rates, the greater the unemployment, and vice versa. If everyone went to their employer tomorrow and insisted on double or triple the wage rate, many of us would be promptly out of a job. Yet this bizarre finding was accepted as gospel by the Keynesian economic establishment.
By now, it should be clear that this statistical finding violates the facts as well as logical theory. For during the 1950s, inflation was only about one to two percent per year, and unemployment hovered around three or four percent, whereas nowadays unemployment ranges between eight and 11 percent, and inflation between five and 13 percent. In the last two or three decades, in short, both inflation and unemployment have increased sharply and severely. If anything, we have had a reverse Phillips curve. There has been anything but an inflation-unemployment tradeoff.
But ideologues seldom give way to the facts, even as they continually claim to "test" their theories by facts. To save the concept, they have simply concluded that the Phillips curve still remains as an inflation-unemployment tradeoff, except that the curve has unaccountably "shifted" to a new set of alleged tradeoffs. On this sort of mind-set, of course, no one could ever refute any theory.
In fact, inflation now, even if it reduces unemployment in the short-run by inducing prices to spurt ahead of wage rates (thereby reducing real wage rates), will only create more unemployment in the long run. Eventually, wage rates catch up with inflation, and inflation brings recession and unemployment inevitably in its wake. After more than two decades of inflation, we are all now living in that "long run."
Myth #7Deflation — falling prices — is unthinkable, and would cause a catastrophic depression.
The public memory is short. We forget that, from the beginning of the Industrial Revolution in the mid-18th century until the beginning of World War II, prices generally went down, year after year. That's because continually increasing productivity and output of goods generated by free markets caused prices to fall. There was no depression, however, because costs fell along with selling prices. Usually, wage rates remained constant while the cost of living fell, so that "real" wages, or everyone's standard of living, rose steadily.
Virtually the only time when prices rose over those two centuries were periods of war (War of 1812, Civil War, World War I), when the warring governments inflated the money supply so heavily to pay for the war as to more than offset continuing gains in productivity.
We can see how free market capitalism, unburdened by governmental or central bank inflation, works if we look at what has happened in the last few years to the prices of computers. A computer used to have to be enormous, costing millions of dollars. Now, in a remarkable surge of productivity brought about by the microchip revolution, computers are falling in price even as I write. Computer firms are successful despite the falling prices because their costs have been falling, and productivity rising. In fact, these falling costs and prices have enabled them to tap a mass market characteristic of the dynamic growth of free market capitalism. "Deflation" has brought no disaster to this industry.
The same is true of other high-growth industries, such as electronic calculators, plastics, TV sets, and VCRs. Deflation, far from bringing catastrophe, is the hallmark of sound and dynamic economic growth.
Myth #8The best tax is a "flat" income tax, proportionate to income across the board, with no exemptions or deductions.
It is usually added by flat-tax proponents, that eliminating such exemptions would enable the federal government to cut the current tax rate substantially.
But this view assumes, for one thing, that present deductions from the income tax are immoral subsidies or "loopholes" that should be closed for the benefit of all. A deduction or exemption is only a "loophole" if you assume that the government owns 100 percent of everyone's income and that allowing some of that income to remain untaxed constitutes an irritating "loophole." Allowing someone to keep some of his own income is neither a loophole nor a subsidy. Lowering the overall tax by abolishing deductions for medical care, for interest payments, or for uninsured losses, is simply lowering the taxes of one set of people (those that have little interest to pay, or medical expenses, or uninsured losses) at the expense of raising them for those who have incurred such expenses.
There is furthermore neither any guarantee nor even likelihood that, once the exemptions and deductions are safely out of the way, the government would keep its tax rate at the lower level. Looking at the record of governments, past and present, there is every reason to assume that more of our money would be taken by the government as it raised the tax rate back up (at least) to the old level, with a consequently greater overall drain from the producers to the bureaucracy.
It is supposed that the tax system should be roughly that of pricing or incomes on the market. But market pricing is not. proportional to incomes. It would be a peculiar world, for example, if Rockefeller were forced to pay $1,000 for a loaf of bread — that is, a payment proportionate to his income relative to the average man. That would mean a world in which equality of incomes was enforced in a particularly bizarre and inefficient manner. If a tax were levied like a market price, it would be equal to every "customer," not proportionate to each customer's income.
Myth #9Cutting income tax rates result in higher tax revenues
An income tax cut helps everyone because not only the taxpayer but also the government will benefit, since tax revenues will rise when the rate is cut.
This is the so-called "Laffer curve; set forth by California economist Arthur Laffer. It was advanced as a means of allowing politicians to square the circle; to come out for tax cuts, keeping spending at the current level, and balance the budget all at the same time. In that way, the public would enjoy their tax cuts, be happy at the balanced budget, and still receive the same level of subsidies from the government.
It is true that if tax rates are 99 percent, and they are cut to 95 percent, tax revenue will go up. But there is no reason to assume such simple connections at any other time. In fact, this relationship works much better for a local excise tax than for a national income tax. A few years ago, the government of the District of Columbia decided to procure some revenue by sharply raising the District's gasoline tax. But, then, drivers could simply nip over the border to Virginia or Maryland and fill up at a much cheaper price. D.C. gasoline tax revenues fell, and much to their chagrin and confusion, they had to repeal the tax.
But this is not likely to happen with the income tax. People are not going to stop working or leave the country because of a relatively small tax hike, or do the reverse because of a tax cut.
There are some problems with the Laffer curve. The amount of time it is supposed to take for the Laffer effect to work is never specified. But still more important: Laffer assumes that what all of us want is to maximize tax revenue to the government. If — a big if — we are really at the upper half of the Laffer Curve, we should then all want to set tax rates at that "optimum" point. But why? Why should it be the objective of every one of us to maximize government revenue? To push to the maximum, in short, the share of private product that gets siphoned off to the activities of government? I should think we would be more interested in minimizing government revenue by pushing tax rates far, far below whatever the Laffer Optimum might happen to be.
Myth #10Imports from countries where labor is cheap cause unemployment in the United States.
One of the many problems with this doctrine is that it ignores the question: why are wages low in a foreign country and high in the United States? It starts with these wage rates as ultimate givens, and doesn't pursue the question why they are what they are. Basically, they are high in the United States because labor productivity is high — because workers here are aided by large amounts of technologically advanced capital equipment. Wage rates are low in many foreign countries because capital equipment is small and technologically primitive. Unaided by much capital, worker productivity is far lower than in the U.S. Wage rates in every country are determined by the productivity of the workers in that country. Hence, high wages in the United States are not a standing threat to American prosperity; they are the result of that prosperity.
But what of certain industries in the U.S. that complain loudly and chronically about the "unfair" competition of products from low-wage countries? Here, we must realize that wages in each country are interconnected from one industry and occupation and region to another. All workers compete with each other, and if wages in industry A are far lower than in other industries, workers — spearheaded by young workers starting their careers — would leave or refuse to enter industry A and move to other firms or industries where the wage rate is higher.
Wages in the complaining industries, then, are high because they have been bid high by all industries in the United States. If the steel or textile industries in the United States find it difficult to compete with their counterparts abroad, it is not because foreign firms are paying low wages, but because other American industries have bid up American wage rates to such a high level that steel and textile cannot afford to pay. In short, what's really happening is that steel, textile, and other such firms are using labor inefficiently as compared to other American industries. Tariffs or import quotas to keep inefficient firms or industries in operation hurt everyone, in every country, who is not in that industry. They injure all American consumers by keeping up prices, keeping down quality and competition, and distorting production. A tariff or an import quota is equivalent to chopping up a railroad or destroying an airline — for its point is to make international transportation artificially expensive.
Tariffs and import quotas also injure other, efficient American industries by tying up resources that would otherwise move to more efficient uses. And, in the long run, the tariffs and quotas, like any sort of monopoly privilege conferred by government, are no bonanza even for the firms being protected and subsidized. For, as we have seen in the cases of railroads and airlines, industries enjoying government monopoly (whether through tariffs or regulation) eventually become so inefficient that they lose money anyway, and can only call for more and more bailouts, for even more of a privileged shelter from free competition.
Originally published in The Free Market Special Issue (1984)
How to Nurture Truth and Authenticity: A Metamodern Economic Reform Proposal
by Justin Carmien
Manticore Press, 2022; 272 pp.
Neither I nor Justin Carmien, the author of How to Nurture Truth and Authenticity, is an economist. Carmien’s book, however, is not a work of economics but a philosophical attempt to apply Heideggerian metaphysics to practical statesmanship and political economy. Nor is it an academic book: it is written with naïve yet deep insight, a result of the author’s self-taught knowledge of philosophy, years of experience in the creative industry, and work in political consultancy. As such, even if serious scholars of political economy do not find value in this book, statesmen who apply proposals in local government may be inspired by its ideas.
Carmien begins with a long and confusing explanation of esoteric philosophy, focusing on Greek concepts and their equivalents in Latin and Germanic languages, but eventually the argument comes together as both a critique of modern, liberal governance (and its consequences in our economy) and a proposal for reform. He applies first principles, combining classical philosophy (his references to Plato and Aristotle are numerous but not overwhelming) and modern ideas that seem drawn from the German Conservative Revolution but are more subtle and nuanced than expected.
His opuscule, as Carmien calls his work, is arranged in two roughly equal divisions, one devoted almost exclusively to his theoretical perspective on what he christens the “economy of truth,” a concept that uses the word economy, in the original Greek sense of administration, and that delves into how a metaphysics of truth underlies the forms and objectives of each successive model of governance in the West. He explores in particular the Greek polis and the Roman Republic and Empire in contrast with the post–New Deal United States and the current state of the Western world.
If it is not clear from this summary, Carmien is not a libertarian in his politics or his economics. His book tends to view harshly the political and economic consequences of liberalism, which he argues lost its proper essence due to the expansion of materialism that came with the advent of the Enlightenment and liberal modernity.
However, a reader educated in Austrian economics might be inclined to compare the interesting ideas proposed in this book to the work of Murray Rothbard—not because of their complexity or their allusions to organizational forms that would allow for a greater expression of human individuality, but because in their naïveté they might form an unexpected bridge that connects Austrolibertarianism with other schools of thought on the contemporary right.
This may, of course, be wishful thinking. Carmien tends to be more interested in using Heidegger’s concept of Dasein to propose practical reforms for reorganizing the American government and economy, much as the Russian ideologue Aleksandr Dugin did in The Fourth Political Theory. But as Carmien elaborates his “first economics” theory by exploring issues of rootlessness and alienation from philosophical, social, political and, ultimately, economic perspectives, he combines ideas proposed by other Western thinkers and pushes his approach closer to the unexplored realm of metamodernism.
Carmien’s work is Heideggerian: it reincorporates classical Greek philosophy into contemporary metaphysics and treats the idea of being as truth as the central object of first economics. But it is also libertarian, albeit naïvely, insofar as it does not reject the idea of individual freedoms and alternative forms of political organization when it reframes the current political system as one better suited to the human experience of truth and being.
This is also what makes How to Nurture Truth and Authenticity an interesting read for anyone who is neither a philosopher nor an economist: Carmien does not shy away from exploring topics outside the normal scopes of metaphysics, political philosophy, and political economy. He tries to make sense of the current problems of modern society from his own first economics framework, linking some of the messier aspects of political economy to more abstract areas of philosophy, such as aesthetics and epistemology.
The naïve libertarianism, however, is entangled in a mix of eclectic ideas that cannot be ideologically categorized. While the aesthetics derived from Heideggerian metaphysics places Carmien closer to traditional conservatives like Roger Scruton (the word truth in the book’s subtitle is a dead giveaway), Carmien’s ideas on political and economic reform could put him anywhere on the political spectrum.
I define Carmien’s particular stance as Heideggerian libertarianism. Many of his concerns are close to those held by figures associated with Austrolibertarianism, such that the book could be part of this canon if it were explicitly inspired by the tenets of Mises, Rothbard, and, to a lesser extent, Hoppe.
Take, for instance, the last three chapters of the first half, “Epistemology, the Metaphysics of Colonialism,” “Fallen Empires,” and “The Liberal Solution, Metamodernism”: in these, Carmien approaches, from his Heideggerian perspective, ideas expressed by Ron Paul, Rothbard, and Hoppe in foreign policy and reactionary politics. Or take chapters eleven to thirteen, “Societas as the Barometer of Truth,” “Drawing New Definitions for Governance,” and “Localizing the Horizons of Projection,” where he channels ideas similar to those of Erik von Kuehnelt-Leddihn (minus the Catholicism) and again of Rothbard and Hoppe, with extreme localism as an endgame.
In a little less than three hundred pages, Carmien takes shots at the failures of a diverted doctrine and tries to correct it by returning it to its classical roots, all the while taking our current circumstances into account. The endgame he proposes is a form of localism, with reduced government intervention, under which communities can develop and thrive organically without being hindered by an artificially inflated state. He also argues that without the dishonesties of “corporate neoliberalism,” society could become “authentic” once again.
I think many readers in libertarian circles would agree with such a goal, but few seem willing to explore ideas and authors outside their purview. I am not claiming that Carmien is a libertarian, but I recommend reading him for the same reasons I would Joseph Schumacher’s Small Is Beautiful (one of the influences behind this book): Carmien is close enough to be read with the interest and enthusiasm one would grant a fellow traveler.
The summit of the so-called BRICS (Brazil, Russia, India, China, and South Africa) has closed with an invitation to join the group extended to the Emirates, Egypt, Iran, Saudi Arabia, Argentina, and Ethiopia.
The summit has generated a lot of headlines about the impact of this widespread group of nations, including speculation about the end of the U.S. dollar as a global reserve currency if this group is perceived as a threat to the United States or even the International Monetary Fund.
Several things need to be clarified.
Many political analysts believe that China lends, invests, or supports in return for nothing. China is a major economic power, but it has no interest in being a global reserve currency. Its currency is currently used in only 5% of global transactions, according to the Bank of International Settlements.
China and Russia have capital controls. It is impossible to have a global reserve currency without freedom of capital movement. More requirements are needed than solid gold reserves to have a stable fiat currency. It is essential to guarantee economic freedom, investment, legal security, and the free movement of capital, as well as an open, transparent, and diversified financial system.
China and Russia are much more demanding and rigorous lenders than many politicians think. It seems that some emerging market politicians think that joining China and Russia will be a kind of free money panacea.
Another problem with creating a BRICS currency is that, logically, neither China nor Russia has the slightest intention of losing their national currency to dilute it alongside a group of issuers who have a doubtful track record in controlling their monetary imbalances. Over the past ten years, the currencies of the BRICS guest countries have depreciated significantly against the U.S. dollar. The Argentine peso has fallen by 98%, the Egyptian pound by 78%, the Indian rupee by 35%, the Ethiopian birr by 68%, the Brazilian real by 55%, according to Bloomberg, and the Iranian rial has collapsed by 90%, according to The Economist. Putting together weak currencies does not create a strong currency.
We must not forget that the performance of the Russian ruble (-68% against the U.S. dollar, according to Bloomberg) in the last decade has also been poor despite having a relatively prudent central bank.
The best “BRICS and guests” currency against the U.S. dollar in the last 10 years is the Chinese yuan, with a depreciation of only 14%.
For a fiat currency to be stable, it is necessary that the issuer defend it as a reserve of value, a generally accepted payment method, and a unit of measure. Freedom of capital and independent institutions that provide legal security to domestic and international investors are needed. Having a strong military power does not guarantee a currency accepted as a reserve of value, as demonstrated by the disastrous Soviet kopek, despite the USSR’s influence on half the world.
Joining countries with governments that advocate monetizing uncontrolled public spending and massively increasing monetary imbalances cannot create a stable currency unless they implement the example of the euro. In the euro, Germany, the country with the most prudent and responsible fiscal policy, dictated the main lines of the monetary and fiscal rules for the rest. Unfortunately, the eurozone and the ECB, in trying to play to be the US and the Federal Reserve, have lost most of their options to be a real alternative to the U.S. dollar. And the euro is the greatest fiat monetary success in the post-Bretton Woods era; let us not deprive it of its merit.
The BRICS alternative starts with a major Achilles heel. China and Russia are going to have major difficulties imposing fiscal and monetary policy restrictions on their partners. Let us not forget that several of these partners have joined the group, thinking that from now on they will be able to continue printing money and spending without control, but their monetary imbalances will be distributed to other nations.
The euro has been a success because liberal democracies with independent institutions and broad economic freedom and legal certainty agreed to align their policies for the common good, creating a solid currency that avoided the debacle created by the inflationary spirals that were the norm in Europe historically when governments devoted themselves to transferring their imbalances to citizens’ wages and savings through monetary destruction. This does not seem easily replicable with BRICS and guests.
China, however, can increase its control over all these countries by implementing rigorous monetary and fiscal policies. It is the strongest lender of all the BRICS, but it is unlikely to take on the role of the euro’s Germany, willing to absorb the excesses of others in exchange for a common project. China is going to increase its control over the countries in the group, but it is not likely to jeopardize the stability and security of its enormous population by sinking the currency. The Chinese government is probably analyzing how the euro is losing monetary prudence and reaching the conclusion that it cannot take that same risk with some of these new partners. However, China will probably make the most of its financial strength to lend, increase their domestic and international growth options, and access abundant and cheap commodities.
China is the big winner of the BRICS summit. The Chinese government probably knows that many of its partners are going to continue increasing their imbalances, and this may allow China to strengthen its leadership position. However, I find it hard to believe that China will agree to the creation of a currency that others can use to trigger inflationary imbalances.
Meanwhile, in the U.S., the government may jeopardize the credibility of the U.S. dollar if it continues to generate deficits of two trillion dollars a year, more than a $14 billion estimated deficit by 2030, and with an increasing number of irresponsible advisers saying that it can create all the money it wants without risk. The fiscal credibility, institutional independence, and economic freedom of the U.S. dollar, the most widely used currency in the world, cement its leadership. If the government undermines these strengths, the dollar will lose its reserve status.
The end of the U.S. dollar, if it comes, will not arrive through competition from another fiat currency, as the temptation of governments to destroy the purchasing power of the issued currency is too strong. It will probably come from independent currencies.
Ryan McMaken joins Bob to discuss the surprisingly negative reaction (from a Reason writer and Tyler Cowen) to Oliver Anthony's hit song, "Rich Men North of Richmond." Ryan and Bob defend the lyrics, arguing that Anthony doesn't say anything objectionable from either a libertarian or economic perspective.
Listen to Oliver Anthony's "Rich Men North of Richmond": Mises.org/HAP412aChristian Britschgi's article in Reason on Oliver Anthony: Mises.org/HAP412bTyler Cowan's Bloomberg Editorial: Mises.org/HAP412c
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime. Use Code "HA23" for $45 off admission: Mises.org/Nashville23
Most contemporary political philosophers view free market capitalism with suspicion, if not outright loathing, but one exception is Gerald Gaus, who taught for many years at the University of Arizona. Gaus was by no means a Rothbardian but rather worked within the framework of “public reason” set forward by John Rawls, though Gaus greatly modified it. In this week’s column, I’d like to discuss some of the arguments about property that Gaus makes in Public Reason and Diversity: Reinterpretations of Liberalism (Cambridge University Press, 2022), a posthumous collection of his essays edited by his student Kevin Vallier.
The arguments about property that I’m going to discuss don’t depend on the “public reason” approach and are of great value to those who take other standpoints. Two of these arguments share a common feature. They illustrate Gaus’s contention that a great deal of contemporary political philosophy suffers from neglect of empirical facts. For example, philosophers assume that
under the guise of doing “ideal theory” according to which we assume perfect compliance with our preferred distributive principles, we are licensed to ignore the fact that, say, market socialist regimes would almost surely employ a great deal of coercion to prevent people from starting and expanding businesses, or that governments of such states, controlling all sources of investment, would almost certainly have tremendous political power that would endanger the basic rights of their citizens.
Gaus argues that Rawls is entirely right to give priority to liberty but that he fails to realize that manifest facts about the world show that a liberal political system requires strong private property rights and a free market. In brief, if you care about civil liberties, you must support the free market:
There is powerful evidence that extensive private ownership—including private ownership of capital goods and financial instruments and institutions—is for all practical purposes a requirement for a functioning and free social order that protects civil liberties. It is, I think, astounding that Rawls never appreciates this, and simply assumes . . . that well-functioning markets can be divorced from “private ownership in the means of production.” There has never been a political order characterized by deep respect for personal freedom that was not based on a market order with widespread private ownership in the means of production.
In support of this, Gaus relies on James Gwartney, Robert Lawson, and Seth Norton’s Economic Freedom of the World: 2008 Annual Survey, which includes tables that show a strong correlation between protection of economic freedom and protection of civil rights.
Gaus considers and rejects a rejoinder to this argument that opponents of the free market might offer. This is that the free market allows, and indeed makes likely, the existence of great inequalities in wealth and income. Even if you don’t share the egalitarian view that there is something inherently bad about these inequalities, it’s claimed, you still have good reason to restrict the extent to which inequality is allowed. This is because very wealthy people have undue influence over the political system. They use the government to get money and power for themselves and by doing so reduce the value of the civil liberties of the less well off.
In response, Gaus again appeals to empirical evidence:
But while it may seem obvious to some that large inequalities of income and wealth undermine the worth of the “least advantaged” citizens’ political liberties, this claim is in fact conjectural. Whether citizens have real input—whether their political rights actually have “fair value”—is a matter of complex sociology.
Gaus proceeds to cite a study by the Organisation for Economic Co-operation and Development (OECD) that “offers little ground for accepting a strong relation between income inequality and a lesser value of political rights.”
Gaus concludes that
it is dubious indeed that there is any powerful empirical evidence for a strong correlation in wealthy countries between economic inequalities and less than a fair value of political liberty. . . . There is good reason to think that, in the countries of the OECD, the most important variable explaining high political rights scores is simply high levels of wealth and income, and that the degree of equality is a relatively minor factor.
It would be mistaken to adduce against Gaus here the manifest evils of “crony capitalism.” These depend on alliances between particular businesses and corrupt politicians. Large inequalities do not suffice to generate crony capitalism.
Some philosophers may be inclined to answer Gaus, “Even if what you say is right, it isn’t part of philosophy to use data in this way. If you want to be an economist or political scientist, fine; but philosophy is an a priori discipline and the empirical considerations you bring up don’t have a place in it.” But this is precisely what Gaus contests, and his point of view has this to be said in its favor. If you don’t study the evidence, relying instead on what you take to be commonsense beliefs about what’s plausible, your arguments may depend on factually false premises.
Gaus again uses empirical material in an interesting way to answer a point raised by Will Wilkinson, who raises a difficulty for the claim that high marginal tax rates are coercive. Wilkinson doesn’t challenge the claim that taxation is coercive but asks why high taxes are more coercive than low taxes. He argues that there aren’t degrees of coercion: a tax is either coercive or it isn’t. This contention appears at first sight counterintuitive, but Wilkinson offers an analogy in support of it. A robber who mugs five people, forcing them to give him their money, is not guilty of a greater degree of coercion if the people he robs have a lot of money in their wallets than if they don’t.
The answer that Gaus gives again shows his penchant for the empirical. He does not offer an a priori argument that there indeed are degrees of coercion. Instead, he appeals to empirical reasons that high taxes are likely to result in greater coercion than low taxes:
As tax rates rise, noncompliance will also rise; it is hopelessly utopian not to expect increased noncompliance as tax rates increase. . . . As noncompliance increases, the state will increasingly turn its attention to identifying and coercing noncompliers. The amount of money involved will be enormous, and we can expect states increasingly to turn to the criminal law.
Further, high tax rates reduce the number of eligible options a person has and are in that way coercive. If the tax rate is 80 percent,
the state essentially demands that one pay 80 percent to take up an option and threatens one’s person if one does not. . . . If we adopt a metaphor of [Joel] Feinberg’s and think of one’s options as a series of railroad tracks that one might follow, high tax rates make it very difficult to follow a great many routes; given the costs involved in taking those routes, they are effectively closed. Of course once can still engage in these activities if one is willing to pay the 80 percent, but it is equally true that one can still engage in criminal activities if one is willing to pay the penalties.
Gerald Gaus is a major classical liberal thinker who merits carful study.
If Staten Island is allowed to secede, our national technocrats fear that might open up countless similar demands for self-determination across the nation. For the elites, the current status quo works quite well and they want to keep it that way.
Original Article: "Let Staten Island Secede!"
Traveling was once a luxury for the rich, but today even working-class people enjoy vacations. In America, people have gotten so wealthy that planning summer vacations is a priority for many families. Living standards have improved so tremendously that elite amenities are now commonplace. Nearly 90 percent of American homes rely on air-conditioning, and 92 percent of households have access to at least one vehicle.
Relative to the globe, most Americans are high-income people. People who are considered poor in America would be rich in developing countries. Compared to other rich countries in Europe, America is also doing remarkably well. A 2019 study published by the think tank Just Facts shows that after accounting for all income, philanthropy, and noncash welfare benefits, the bottom 20 percent of Americans have a higher level of material consumption than all citizens in most rich countries. From 1990 to 2015, consumption per capita in America increased by 65 percent, whereas Europe registered a paltry growth of 35 percent.
Some worry that consumption inequality is on the rise, but such fears have been allayed by research observing that the rise in overall consumption inequality has been rather small. Rising income inequality is a frequent complaint of the Left; however, the consumption of poor Americans exceeds their incomes by over 5 percent. Despite their social class, Americans live so lavishly that analysts are imploring them to shop like Europeans, and poor Americans are not different.
Poverty is relative to the development of a country, so poor Americans are seen as such because the country is so affluent. Further, poor Americans have seen major increases in income when compared to their counterparts. In fact, income inequality in America has been stabilizing due to the surge in wage growth for the lowest-paying jobs. Poor Americans are getting richer faster as the rich become more prosperous.
Moreover, notwithstanding the uproar about plummeting income growth and a declining middle class, incomes have been growing steadily in America since the 1970s. Americans of all classes now have greater access to wealth-creating opportunities and superior social amenities. The real median incomes of Americans are higher than they were in 1980, and millions of Americans have encountered social mobility. Indeed, the American middle class is shrinking, but this is because people are getting richer.
Additionally, empirical evidence contradicts the argument that America is systemically racist, observing that black adults made the greatest progress up the income ladder from 1971 to 2021. Black Americans have been recording significant gains in employment and income, especially in the Midwest. Between 2010 and 2019, the median black household income increased in all Midwest states. Trends are also looking favorable for Hispanic Americans, whose total economic output is estimated to be over $2 trillion.
On the other hand, East Asians surpass white Americans in income and professional success. The Asian American and Pacific Islander community accounts for 7 percent of the American population but represents 10 percent of the country’s affluent population. Americans are doing well by global metrics, and many assert that its economic prospects are favorable. Therefore, it’s possible that American pessimism is being driven by social comparisons. People care more about relative status than absolute status; hence, Americans might feel that they are regressing if they drive an old car and their friends are traveling in a Benz.
But such inadequacies can only be remedied through self-improvement. Complaining is fashionable in America, but doing so only leads to stress and anger. Americans are better off than most people on the globe and should seize opportunities available to them instead of complaining about the struggles of life.
Pope Francis made headlines last week when he described the Russian Empire as "enlightened" and invoked the names of two expansionist Russian czars as examples of Russia's "great culture." In impromptu remarks, Francis said to a group of Russian Catholics, “You are the heirs of the great Russia: the great Russia of saints, of kings, the great Russia of Peter the Great, of Catherine II, of that great, enlightened Russian empire, of great culture and great humanity.”
Francis was quickly savaged among pro-Ukraine groups for these remarks, but for very superficial reasons. Essentially, Francis's comments were evaluated almost totally in terms of how they related to the current Russian regime and the ongoing Russo-Ukraine war. Few specifics were mentioned about either Peter I or Catherine II—both often sharing the epithet "the Great"—except that they reigned during a time of Russian military conquests, and some of those conquests included lands later incorporated into modern Ukraine.
But the real offense committed by these long-dead rulers is that Russian president Vladimir Putin is said to view them as examples of laudable Russian rulers of the past. Putin has explicitly praised Peter I while various Putin critics maintain he has similar affinities for Catherine II.
Consequently, Francis—in making what appeared to be little more than words of encouragement to a small Russian religious minority—was accused by Ukrainian state spokesmen of repeating "Russian nationalist talking points." Moreover, Francis has long been a target for the Ukrainian state and its supporters, as Francis has long avoided—to his credit—jumping on the NATO bandwagon which pushes a protracted war in Ukraine while condemning all things Russian.
But what are we to think of the legacy of Peter I, Catherine II, and the Russian Empire in general? Certainly, we should not take our cues from NATO's useful idiots in Ukraine like Volodymyr Zelensky who would have us believe that almost everything can be understood via the sentiment "Ukraine good, Russia bad." Similarly, it would also be absurd to judge episodes of Russian history by the standard of what Putin thinks of them.
Many Wars against "Ukraine" Were Really Wars against Poles and Turks The limitations of reading everything through the lens of "what did Russia do to Ukraine?" can be seen in the fact that by doing so, countless relevant facts are lost in the process. For example, portraying the conquests of Peter I and Catherine II as wars primarily against ethnic Ukrainians is stretching the truth beyond recognition. Their wars in the region were primarily wars targeting the Ottoman Turks with much of the focus being on regions that are today the Crimea and southeast Ukraine. Yet, at the time, these lands were not "Ukraine," but were under the rule of Islamic princes in a polity known as the Crimean Khanate. Moreover, the Crimean Khanate and its allies—in the centuries before their final elimination by Catherine II— carried out a vicious slave trade against neighboring areas. Tens of thousands of ethnic Ukrainians were victims of this slave trade, thus it can hardly be said that war against the Crimeans in the eighteenth century was a "war against Ukrainians."
On the other hand, both Peter I and Catherine II carried out wars of conquest in what is today northern and central Ukraine. Unlike Crimea and neighboring areas, these more northerly areas could more accurately be described as a type of Ukrainian heartland. But again, we must note that the Russian gains in these regions under Peter and Catherine did not abolish Ukrainian independence. Indeed, no such independence existed. Rather, Russian conquests largely came at the expense of the Polish-Lithuanian Commonwealth which held much of northern and western Ukraine under a Polish ruling class.
On this, one could certainly argue that rule by Poles was preferable to rule by Russians. The Commonwealth was far more decentralized than the Russian state and allowed more local independence. Moreover, it appears that in many areas, the Polish ruling class did not "Polonize" the local Ukrainians as aggressively as the Russian state sought Russification. Nonetheless, many Ukrainian nationalists would disagree with the notion that rule by the Poles was kind and gentle. By the twentieth century, some believed "four centuries of Polish rule had left particularly destructive effects" on many areas that were populated by the Ukrainian minority within the Commonwealth. In the words of Ukrainian historian Mykhailo Hrushevsky, the Polish rulers "assiduously skimmed everything that could be considered the cream of the nation, leaving it in a state of oppression and helplessness."
Many similarly oppressive acts against the Ukrainian minority by the Russian state could be listed as well, of course. But the facts also illustrate the shallowness of trying to cast Russia's war on its western frontier as a simple matter of Russia against independent Ukrainian communities. Precious few communities existed, and many of these wars "against Ukraine" would just as accurately be called wars "against Poland and the Turks."
The "Enlightened" Rule of Catherine II and Peter I Nonetheless, even a stopped clock is right twice a day, and Francis's Ukrainian critics aren't exactly wrong about the realities of rule under the "great" czars of old. While efforts to craft the legacies of Catherine and Peter around Ukraine are ham-fisted, to say the least, there are plenty of other reasons why Francis's efforts to shower praise on these past czars are highly suspect. Where did Francis even get these ideas? Francis has admitted that his comments praising Catherine II and Peter I came from little more than some lessons he received in school many years ago. That is, it is likely that Francis was simply repeating stale talking points that were popular in the mid-twentieth century which maintained that political rulers who "modernized" their countries were great examples of enlightened government. For modern day totalitarians and social democrats, this may seem reasonable. These people love "modernization" which often means secularization, centralization, and creating a more "efficient" state bureaucracy.
From the point of view of promoting human rights (i.e., natural rights such as life, liberty, and property) however, there's very little good that can be said about the type of modernization or enlightenment that occurred under Catherine II or Peter I.
It is true that Catherine II was briefly converted to the idea of free trade, but she soon abandoned such efforts. What better characterizes Catherine's rule are her efforts to rob countless peasants of their few political and economic rights, thus reducing them to the level of serfs. As Roger Bartlett noted, "The middle decades of the eighteenth century and the reign of Catherine II are often said to be the apogee of the Russian servile regime: as the peasants lost juridical status, the power and privilege of the nobility grew." Catherine enserfed whole classes of the population which had previously been free. It's hard to see what's so modern or enlightened about that.
Catherine, however, was following in the footsteps of Peter I who perhaps invented the idea of "modernizing" Russia to be more like western Europe. As Ralph Raico has put it, "Every once in a while, a ruler comes along and says, 'heavens, we’re so far behind Europe, we have to do something about it, let’s modernize.'" Raico noted, however, that since Peter had no appreciation for the western institutions of private property, he could not possibly re-create the most important aspects of what made Europe modern. Understandably, Peter was very impressed with the high standard of living enjoyed by the Dutch. Yet, Dutch prosperity had been built on relatively free trade, on stable property rights, and political decentralization. Peter introduced none of these things in Russia.
Rather, much of Peter's modernization was purely ornamental in nature. He was impressed with the French court and sought to copy the trappings of French absolutism in many ways. He taxed beards, for instance, in an effort to get Russian nobles to look more like French nobles. He pursued European-inspired building projects as well, but in the process of building his new "modern" capital in St. Petersburg, he relied primarily on slave labor.
Francis's comments on these czars display his ignorance of historical realities. On the other hand, Francis is right to refuse to vilify Russians in general. As Raico noted in the process of describing the despotism of the Russian state, "the Russian people are one of the great peoples of Europe." Yet, "Everybody, in a way, is a victim of the history of the society he's born into." If rulers like Catherine and Peter are great representatives of Russian "enlightenment," the Russian people are victims, indeed.
Members of Congress claim to be "concerned" over the proposed merger between LIV Golf and the PGA Tour. They should be supporting it or, even better, backing off completely.
Original Article: "Golf Merger Is Opposed by Congress. This Is Misguided"
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop look at county and city-level secession movements and what it means for political self-determination. In a recent article, Ryan McMaken highlighted renewed calls for Staten Island to secede from New York City, but other recent examples include attempts by taxpayers in areas of Georgia and Alabama to break away from the control of mismanagement of local governments. Tho and Ryan look at the value these initiatives have, and the arguments used to try to stop them.
Recommended Reading"Let Staten Island Secede!" by Ryan McMaken: Mises.org/RR_150_A
Download Anatomy of the State for free at Mises.org/Anatomy
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A literal power vacuum—that’s what California Senate Bill 233 proposes.
And what is to be sucked? Your electric car.
The bill—which has passed the Senate and is now winding its way through the Assembly—states that all new electric vehicles to be sold in California after 2030 be “bidirectional.”
Because the state has decided to essentially go all electric without having the ability to actually provide enough electricity, the climate warriors have gotten a bit creative and now see the millions of electric vehicles (EVs) in the state as tiny batteries to make up for their incompetence.
Currently, not every EV can send power back to the grid (like home solar panels that ship excess power to their local utility.) The bill—almost certain to pass because this is California—would change that.
The bill, however, is only the first step in the process of being able to drain your EV, as the technology to get the electricity back onto the grid does not actually exist. As with so many other Golden State climate-related projects, it is based on being able to do it someday . . . probably . . . maybe.
While this approach allows solons and nabobs to tout their green-a-fides, set even more absurd future goals by assuming things will work eventually, increase state spending to fund such projects, and create an excuse to not actually do anything practical—like build natural gas generators—to shore up the state’s extremely wobbly grid, it does nothing to address California’s self-imposed “energy insecurity.”
The idea becomes even more absurd when one considers that shortly after announcing all new vehicles sold in the state by 2035 must be electric, the state asked the public to not charge their EVs after work because the grid couldn’t handle it. In theory, this bill raises the specter of electricity being drained out of your full Tesla to power your neighbor’s empty Volt.
Furthermore, the concept is extremely dangerous. Imagine an emergency situation in which you have to leave your home immediately but you cannot because the state drained your car. The implications for fire evacuations, earthquake response, etc. are terrifying.
And its not terribly clear if you would get paid for your power and/or if you would have to buy it back.
Beyond the impracticalities, the concept does shine a light, as it were, on how easily the electrical power supply can be controlled and—if the grid is your only power option (no gas cars, no gas stoves, no propane, etc.)—how easily the public can be controlled through it.
From “The Psychology of Electricity”:
Now, a person can go to a gas station, put solar panels on their roof, buy propane at the hardware store, use natural gas in their home, even cut down trees to burn for heat. In other words, there are options other than electricity; there are literally millions of ways to not need to use electricity.
But imagine a literally all-electric world—you are reduced, confined, required to get the energy you need to live from one source, one centrally (by necessity) controlled source that everything you own runs on, one centrally controlled source that can cut the power to your specific home anytime it wants.
Conceivably—see China/social credit systems/central bank digital currency/“you’ll own nothing and be happy” and smart city concepts—[the] reasons for the power being cut will move beyond just being bill-related but conduct-related.
The power of energy as a social control lever is nearly limitless.
And that’s another reason why this legislative initiative is a very bad idea.
We should not just be concerned about problems in the American banking system, but also about the proliferation of Eurodollars.
Original Article: "Eurodollars as a Fractional Reserve Market"
To me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target.
—Janet Yellen
We have sighted the enemy and he is us.
—Pogo
On July 26, 2023, the Federal Reserve raised interest rates by a quarter of a percentage point. By the time you read this, your credit card interest rate will probably have increased for your September statement. When headlines talk about the Fed raising interest rates, the annual percentage rate (APR) used to calculate your credit card interest is likely to increase by the same amount. The Federal Open Market Committee (FOMC) is signaling another increase this fall. This is a cost that will go unnoticed since it is expressed as a fractional increase in the monthly interest rate. But the charge raises costs for those who own at least one credit card, which is 82 percent of the adult population.
The federal funds rate—the Fed’s key benchmark interest rate—is set eight times a year. The underlying interest rate for credit cards is the US prime rate. In March 2022, the prime rate was 3.5 percent. As of July 2023, it was 8.5 percent.
To create the floating APR, banks take into account processing charges, costs to borrow funds, the risk premium for future defaults, and bankruptcies. Your specific APR is also determined by your credit rating.
The average American has 3.8 credit cards. Credit cards are used for 21 percent of all payments nationally (debit cards are used for 27 percent), and 76 percent of credit cards are active (40 percent are active and carry a balance that accrues interest).
These numbers represent an important and large share of daily commerce. At the end of 2022, the average US family owed $6,270 in credit card debt. According to an analysis by Experian in 2022, Generation X (roughly, those born between the 1960s and the early 1980s) owed $8,134 on average—the highest per person relative to other generations. Baby boomers (born between the 1940s and the 1960s) owed $6,245. Total credit card balances grew 13.2 percent in 2022. Younger debtors, eighteen to twenty-nine years old, have the highest delinquency rate, at 9.36 percent.
The credit market’s undertow is worsening. A quarter of participants in the June 2023 Credit Access Survey conducted by the Federal Reserve Bank of New York sought additional credit of some kind. Over one-fifth of new credit card applications were rejected, as were over 30 percent of credit limit increase requests. Rejections were most common for people with credit scores of 680 and below. Experian suggests seven hundred and above is a good score.
Inflation is prompting greater use of credit, and advocates even suggest using credit for grocery purchases. In a Forbes mid-2022 survey, 40 percent of the respondents who had credit cards were increasingly depending on them, and 26 percent had started carrying a balance. Credit card debt in the first quarter of 2023 neared $1 trillion and has now exceeded that.
Banks are hedging for a recession and setting aside funds for more loan losses. Both Capital One and American Express are increasing their contingency funds. Other US banks are setting aside $7.6 billion ahead of earnings reports for the second quarter of 2023. In the third quarter of 2022, six of the largest banks planned to set aside $4.5 billion for loan losses.
Consumer optimism, as measured by inflation expectations, has recently fallen to its lowest level in two years, which indicates some confidence in the future of the economy. Small business optimism increased in May but was below its historical average for the seventeenth month in a row. The consumer is poised to add more debt with student loan repayments and back-to-school spending coming up.
Government spending continues, the causes of inflation continue, and the cost of credit increases as real wages decline. Leviathan offers palliatives that sound earnest and responsive but do nothing for the street-level economy, which is being slowly tortured into default.
Crack-Up Capitalism will be of interest to many readers of The Austrian because of what it says about Murray Rothbard; and for the most part, I shall limit my review to discussing this. The main point of the book is easy to grasp. In recent decades, the notion of a centralized state has come under fire in various ways, including attempts to secede, to create “enterprise zones” within states, and to establish societies without a state at all. Quinn Slobodian, a professor of the history of ideas at Wesleyan University, does not approve of these developments. They replace democracy with control by capitalists, who exploit workers by offering them low wages and suppressing labor unions and civil liberties.
Although Slobodian teaches the history of ideas, his own ideas lack analytical sharpness. He thinks in pictures, and indeed is very good at giving readers a vivid sense of place. He is particularly effective in describing architecture and has read a great deal. But that is about all I can say in his favor.
Let’s begin with a minor example of his lack of rigor to illustrate the problem. He notes that there are two sorts of libertarians. “Although libertarianism contains many schools and tendencies, they are united by the belief that the state’s role is to protect the market, not to own property, manage resources, direct companies, or deliver services like health care, housing, utilities, or infrastructure. Maintenance of inner and outer security, the protection of private property, and the sanctity of contract, these should be the main role of the government. The main difference . . . is between those who believe in a minimal state (sometimes called minarchists) and those who believe in no state at all (known as anarcho-capitalists.).” Slobodian doesn’t notice that he has said both that libertarians are united by the belief that the state has limited functions and that some libertarians don’t believe in a state at all. And if these limited functions should be “the main role of the government,” does this mean you can be a libertarian and think the government can do other things as well?
Now let’s see how he deals with Rothbard. According to Rothbard, everyone is a self-owner and can acquire property through a Lockean process of appropriation. But, says Slobodian, Rothbard thought it was all right to take away land from Indians. “Rothbard gave a special status to the pioneer and the settler, whom he saw as the ultimate libertarian actor—‘the first user and transformer’ of territory. He placed the ownership of ‘virgin land’ seized and made valuable by labor at the core of ‘the new libertarian creed.’ To the objection that settlers never found any land truly empty of humans, Rothbard had a rebuttal. North America’s indigenous people, even if they did have a right to the land they cultivated under natural law, had lost this right through their failure to hold it as individuals. Indigenous people, he claimed, ‘lived under a collectivistic regime.’ Because they were proto-communists, their claim to the land was moot.”
Where does Rothbard say this? Slobodian refers us to a page in the first volume of Conceived in Liberty, but the book is strikingly at variance with Slobodian’s account of it. The cited passage is about the attempt of Roger Williams to buy land from Indians in Rhode Island. A few pages before, Rothbard says, “Williams proceeded to strike another fundamental blow at the social structure of Massachusetts Bay. He denied the right of the king to make arbitrary grants of the land of Massachusetts to the colonists. The Indians, he maintained, properly owned the land and therefore the settlers should purchase the land from them. This doctrine attacked the entire quasi-feudal origin of American colonization in arbitrary land grants in the royal charters, and it also hit at the policy of ruthlessly expelling the Indians from their land. Williams, indeed, was the rare white colonist courageous enough to say that full title to the soil rested in the Indian natives, and that white title could only be validly obtained by purchase from its true owners.”
Rothbard agrees with Williams’s doctrine. He says that individual Indians owned the land that they cultivated first, exactly the opposite of the view that Slobodian imputes to him, that these Indians lost this right because they ceased to cultivate the land individually. In the passage that Slobodian relies on, Rothbard also says, “While Williams’ heart was in the right place in insisting on purchasing all land voluntarily from the Indians, there were important aspects of the land problem that he had not thought through. While the Indians were certainly entitled to the land they cultivated, they also (1) laid claim to vast reaches of land which they hunted but which they did not transform by cultivation, and (2) owned the land not as individual Indians, but as collective tribal entities. In many cases the Indian tribes could not alienate or sell the lands, but only lease the use of their ancestral domains. As a result, the Indians also lived under a collectivistic regime that, for land allocation, was scarcely more just than the English governmental land grab against which Williams was properly rebelling. Under both regimes, the actual settler—the first transformer of the land, whether white or Indian—had to fight his way past a nest of arbitrary land claims by others, and pay their exactions until he could formally own the land.” Rothbard in the passage consistently maintains his libertarian position that individuals acquire land by bringing it into use. If someone does this, he can’t be deprived of his land, and there are no exceptions for Indians or members of any other group.
Slobodian also offers a misleading account of Rothbard’s position on the Civil War, in this case carrying out distortion through omission. Slobodian says that “Rothbard held a revisionist interpretation of the Civil War. He compared the Union cause to the adventurist foreign policy of the United States in the 1990s: America roved the world looking for monsters to slay in the name of democracy and human rights, a perverse campaign whose outcome was death and destruction rather than any of the stated aims.” A few pages later, Slobodian says, “One of the last talks Rothbard gave before his death took place on a plantation outside Atlanta and envisioned the day when the statues of Union generals and presidents would be ‘toppled and melted down’ like the statue of Lenin in East Berlin, and monuments to Confederate heroes be erected in their place.”
From Slobodian’s account, a reader would get the impression that Rothbard was a neo-Confederate who did not like statues that honored those opposed to slavery. He in fact opposed statues that honored those guilty of war crimes. He said in the talk, “We remember the care with which the civilized nations had developed classical international law. Above all, civilians must not be targeted; wars must be limited. But the North insisted on creating a conscript army, a nation in arms, and broke the 19th-century rules of war by specifically plundering and slaughtering civilians, by destroying civilian life and institutions so as to reduce the South to submission. Sherman’s infamous March through Georgia was one of the great war crimes, and crimes against humanity, of the past century-and-a-half. Because by targeting and butchering civilians, Lincoln and Grant and Sherman paved the way for all the genocidal honors of the monstrous 20th century. There has been a lot of talk in recent years about memory, about never forgetting about history as retroactive punishment for crimes of war and mass murder. As Lord Acton, the great libertarian historian, put it, the historian, in the last analysis, must be a moral judge. The muse of the historian, he wrote, is not Clio, but Rhadamanthus, the legendary avenger of innocent blood. In that spirit, we must always remember, we must never forget, we must put in the dock and hang higher than Haman, those who, in modern times, opened the Pandora’s Box of genocide and the extermination of civilians: Sherman, Grant, and Lincoln. Perhaps, some day, their statues, like Lenin’s in Russia, will be toppled and melted down; their insignias and battle flags will be desecrated, their war songs tossed into the fire. And then Davis and Lee and Jackson and Forrest, and all the heroes of the South, ‘Dixie’ and the Stars and Bars, will once again be truly honored and remembered” (emphasis original).
Slobodian also does not tell his readers that Rothbard strongly opposed slavery. Far from agreeing with attempts to make excuses for the “peculiar institution,” he wrote this in a memorandum to the Volker Fund in 1961, and his position did not change after that: “The road to Civil War must be divided into two parts: 1. the causes of the controversy over slavery leading to secession, and 2. the immediate causes of the war itself. The reason for such a split is that secession need not have led to Civil War, despite the assumption to the contrary by most historians. The basic root of the controversy over slavery to secession, in my opinion, was the aggressive, expansionist aims of the Southern ‘slavocracy.’ Very few Northerners proposed to abolish slavery in the Southern states by aggressive war; the objection—and certainly a proper one—was to the attempt of the Southern slavocracy to extend the slave system to the Western territories. The apologia that the Southerners feared that eventually they might be outnumbered and that federal abolition might ensue is no excuse; it is the age-old alibi for ‘preventive war.’ Not only did the expansionist aim of the slavocracy to protect slavery by federal fiat in the territories as ‘property’ aim to foist the immoral system of slavery on Western territories; it even violated the principles of states’ rights to which the South was supposedly devoted—and which would logically have led to a ‘popular sovereignty’ doctrine. It is here that we must split our analysis of the ‘causes of the Civil War’; for, while this analysis leads, in my view, to a ‘pro- Northern’ position in the slavery-in-the-territories struggles of the 1850s, it leads, paradoxically, to a ‘pro-Southern’ position in the Civil War itself. For secession need not, and should not, have been combated by the North; and so we must pin the blame on the North for aggressive war against the seceding South. The war was launched in the shift from the original Northern position (by Garrison included) to ‘let our erring sisters depart in peace’ to the determination to crush the South to save that mythical abstraction known as the ‘Union’ —and in this shift, we must put a large portion of the blame upon the maneuvering of Lincoln to induce the Southerners to fire the first shot on Fort Sumter—after which point, flagwaving could and did take over.”
Slobodian’s book has elicited praise from some eminent leftist worthies, but it isn’t what it is cracked up to be.
The possible bankruptcy of Thames Water Company in Great Britain brings to mind the heady days 40 years ago when Margaret Thatcher's government was privatizing state-owned enterprises, including TW. Not all privatization stories have happy endings.
Original Article: "Thatcher's New Style of Government"
People cavil much about Ricardo’s law of association, better known under the name law of comparative cost. The reason is obvious. This law is an offense to all those eager to justify protection and national economic isolation from any point of view other than the selfish interests of some producers or the issues of war-preparedness.
—Ludwig von Mises, Human Action
Alexander Macris of the Substack blog Contemplations on the Tree of Woe has called attention to Ian Fletcher’s arguments against free trade in the little-known book Free Trade Doesn’t Work: What Should Replace It and Why. Repudiating his youth as a “doctrinaire free trader” under the sway of “Austrian economics,” when he considered free trade to be “more than just an economic belief,” Macris has left behind his youthful naïveté and embraced Fletcher’s criticisms of several theoretical assumptions made by Ricardo that render questionable the relevance of Ricardo’s discovery for real-world government policy decisions.
Macris follows Fletcher in framing the arguments against free trade doctrine specifically against the prevailing mathematical economics orthodoxy. However, as a self-described student of Austrian economics, Macris should be aware of Ludwig von Mises’s generalization of Ricardian comparative advantage in Human Action, which either eludes many of the criticisms put forth by Fletcher or renders them irrelevant within the scope of economic science.
It would be an overly ambitious task to correct all misunderstandings or clarify how many of their criticisms apply narrowly to mathematical economics, but for the sake of this article, it must suffice to show that properly understanding the scope and implications of the Misesian law of association sheds light on what precisely is (and is not) the economic case for free trade, allowing us to at least distinguish economic considerations from political considerations.
Mises and the Law of AssociationMises situates his discussion of the Ricardian “law of comparative cost,” or the “law of association” in Mises’s terminology, in part 2 of Human Action. In just over five pages, Mises describes and defends the fact that specialization and exchange are more physically productive than isolated action, resulting in mutual gains to all who participate in the division of labor even when one individual or group of individuals is productively superior in every conceivable line of production. Thus, Mises recognizes society itself to be “concerted action,” or put more technically, “division of labor and combination of labor.”
Mises brilliantly draws attention to the fact that if it were not true that all can benefit by participation in specialization and exchange, then society itself would hardly be possible to any meaningful extent, as there would be no selective advantage to engaging in cooperation rather than violence. It is because the Ricardian notion of comparative advantage is true, understood more broadly by Mises to apply universally outside the confines of Ricardo’s particular model, that human societies ever had the chance to develop at all.
Recognizing the universal truth of the law of association does not prescribe particular actions. We know through economic reasoning that partaking in the extended division of labor according to relative efficiency is beneficial to all participants, given the existence of inequalities in human ability and nonhuman factors of production, but this analytical fact tells us little about what concrete lines of production each person should specialize in within their lifetimes or where the best opportunities are located. Whether a business unit is in fact specializing according to comparative advantage at any given time is a matter of entrepreneurial judgement and cannot be empirically identified the same way we can work through the logic of comparative advantage on the blackboard.
Knowledge of economic laws also does not require the necessity to maximize physical productivity of goods above all other considerations. The teachings of economic science simply help us to understand, at least in a qualitative sense, what we are giving up by pursuing alternative goals, such as a national industrial policy that restricts the voluntary business decisions of entrepreneurs in support of a domestic industry that would not have otherwise been profitable enough to attract investment expenditure.
Fletcher and Macris err when they believe they must take aim at Ricardian comparative advantage to make a case for trade restrictions. They simply must state their goals and admit their willingness to support coercion to achieve them, which takes us outside the realm of economic theory and into politics.
Economics versus PoliticsFletcher and Macris focus their attention entirely on the “nation” as the unit of analysis. Fletcher’s book is filled with references to how the “nation” acquires skills, the “nation” grows, the “nation” specializes, certain industries have “value to the national economy,” and so on. Rarely mentioned are the individual entrepreneurs who actually make the decisions to pursue certain lines of production instead of others. As a student of Austrian economics, Macris should know that the “nation” is not the relevant unit of analysis when it comes to understanding the mutually beneficial nature of exchange.
You can certainly draw lines around geographical regions and then claim a “nation” specializes in certain lines of production. However, fixing attention on such a “nation” is a political matter, not a matter of economic theory. While Ricardo himself refers to nations in his original exposition of comparative advantage, Mises’s clarification of the law of association makes clear that the logic applies universally to any exchange. Since nations do not engage in exchange as a singular unit, confusion results when critics of free trade attempt to rebut Ricardian logic on the basis that it is possible for a geographical region to be comparatively poorer following an opening to trade.
If labor and capital are mobile to any extent, it is possible that the land or productive opportunities in certain regions are deemed inferior to alternative feasible opportunities abroad. Migration or foreign investment may then leave one region relatively unoccupied and poorer than would have been the case absent free movement of labor and capital. One may bemoan this situation, but there is nothing that can be done unless one is willing to forcibly prevent individuals from physically moving or from investing their capital abroad according to what they deem their most preferred opportunities.
It is irrelevant from an economic viewpoint whether critics of free trade seek ends they believe can only be achieved through industrial policy or care about individuals being free to make their own decisions about which lines of production and exchanges to pursue. However, it would be refreshing if such value judgements were openly expressed.
Who Decides: Entrepreneurs or Bureaucrats?Since we have left the realm of a priori economic theory, a relevant question is who should decide what a person or group will specialize in during any time range: entrepreneurs or government planners? Fletcher blames free trade for many aspects of modernity that he finds alarming, ignoring the effects of central banking, particularly in the United States, where global reserve currency status and demand for dollars has contributed to both the large current account deficit and rising inequality as early receivers of the new money benefit at the expense of everyone else.
Fletcher then asserts that government intervention can fix many of the problems. For example, he claims that path dependencies produce lockout effects, in which a potentially more efficient producer of a good can never capture potential market share. Fletcher’s “solution” is a “rational industrial policy” with a flat tariff of 30 percent, but he fails to explain how that ensures that more efficient lines of production aren’t overlooked. In fact, such a “rational industrial policy” would likely push domestic producers toward even less efficient lines of production than in the baseline case of free trade.
Both Fletcher and Macris impute to “Ricardians” the bizarre policy advice of specialization according to short-term comparative advantage at the expense of long-term comparative advantage, even when nonrenewable resources might be depleted or highly advanced industries may be forsaken due to insufficient investment. They leave unexplained why they presume that government planners are more capable than entrepreneurs at identifying future profit opportunities or carefully utilizing nonrenewable resources.
Fletcher and Marcis offer no comparative analysis of the nature and quality of production decisions undertaken by political planners versus private entrepreneurs. Trade restrictions are presented as deus ex machina to correct perceived failures of free trade. Meanwhile, the careful planning of entrepreneurs, who put their own capital on the line to satisfy customers and thereby earn profit, is ignored. Their plans and aspirations, no doubt, are deemed less important than the needs of “the nation.”
ConclusionUltimately, disputes about free trade take place in the realms of politics and ethics, not economics. If US consumers prefer to import goods or entrepreneurs prefer to organize production abroad, those advocating protectionism should admit that they advocate stifling voluntary exchanges via state-sponsored coercion to pursue goals they deem more important.
Although one can construct examples where an industry would not exist absent government intervention, one cannot observe counterfactuals to know if that absence would be preferable to what already exists. Since one cannot aggregate preferences, claims that certain policies are “better” for a nation have no economic basis and merely reflect the personal value judgements of those promoting government intervention.
This is not an overall criticism of Macris, whose blog usually is worth reading. However, the post being discussed is part of a genre in which “new right” authors repudiate their libertarian heritage to address what they claim to be the culturally insensitive and intellectually limited scope of Austrian economics.
However, Austrian school economists seek causal laws of human action, which are separate from consideration of what one should value. “Austrians” are found on all sides of modern political and cultural issues and may disagree on certain points.
The law of association declares that bureaucratic restrictions on the division of labor in pursuit of other goals reduce productivity. However, human society itself is only possible to any meaningful extent if the law of association holds true. There is no middle ground.
The real effects of the atomic bomb on Hiroshima were hidden from Americans until the New Yorker published an exposé in 1946. Americans finally were confronted with the truth—even if they didn't want to believe it.
Original Article: "The Bombing of Hiroshima: The Crime and the Cover-Up"
Former president Donald Trump is facing ninety-one criminal charges as he seeks to win back the White House in 2024. The indictments are the latest battle in a roughly six-year crusade against Trump that first sought to remove him from power through the Twenty-Fifth Amendment, then with espionage charges and impeachments, and that now aims to block him from becoming president again. The mantra we hear from those in politics and media who support these efforts is that nobody is above the law.
But there’s an entire class of people above the law. Or who at least act like they’re above the law—the political class. The hypocrisies of their effort to convict Trump and block him from holding office again reveal that the motivations are purely political—not born of some commitment to a higher moral or legal principle.
Two broad schools of thought make up Western legal philosophy. They are natural law theory and legal positivism. Natural law theory says that law exists regardless of the dictates of states. That justice is derived from nature and common to all humans. Simply put, natural law theorists argue that a crime is a crime regardless of what the state says. That makes killing another human with malice aforethought murder, for example, even when it’s done with the blessings of government officials.
Many libertarians, such as Murray Rothbard, ground their moral opposition to state power in appeals to natural law. There is no special status that someone can attain that allows them to commit crimes.
The idea that nobody, not even the president, is above the law is right in line with this view. But, taken to its logical Rothbardian conclusion, equality under the law is a denial of political authority. So, it’s bizarre to hear the political class use this slogan as a rallying cry when all their wealth, power, and status is built on political privilege. And they can’t rightfully go after Trump for how he used his political authority because that’s not unique to Trump.
The political class prefers legal positivism, which separates law from morality. According to legal positivists, law is what the sovereign political authority says it is. There may be just laws and unjust laws. But they are all valid laws in this view. Legal positivism enshrines the political class’s privileged legal status above the rest of us.
Therefore, the way to get Trump is not to show he did anything immoral or wrong but to prove he technically broke some rule made up by members of an earlier political class. That way he can be driven out of public life without threatening the regime’s authority. But the problem hasn’t been finding crimes committed by Trump but finding crimes unique to Trump. Because all recent presidents have broken the law.
President George H. W. Bush launched a war on Iraq without congressional authorization. That is illegal according to Article 1, Section 8, Clause 11 of the Constitution, the set of rules Bush swore an oath to uphold. President Bill Clinton did the same, overseeing illegal military operations in Somalia, Serbia, and Iraq.
President George W. Bush conducted warrantless surveillance on American citizens, which is illegal according to the Fourth Amendment, and committed torture, which is prohibited by Section 2340A of Title 18 of the United States Code. His administration also launched undeclared, and therefore illegal, wars in Afghanistan, Somalia, and Iraq.
President Barack Obama conducted more illegal wars in Libya, Syria, Pakistan, Mali, and Yemen. In many of those wars, Obama expanded George W. Bush’s policy of giving support to al-Qaeda, which is treason according to Article 3, Section 3 of the Constitution. Obama also ordered the assassination of an American citizen in Yemen who had not been tried or even convicted of a crime. The Sixth Amendment makes that illegal.
Combined, these illegal wars have killed millions of people. They are appalling crimes of which Trump is also guilty. His administration continued the wars in Syria, Iraq, Afghanistan, Somalia, and Yemen despite his running on a more isolationist foreign policy. Yet he’s not being charged for any of that. The crimes he’s facing charges for are far less serious, but they are more unique to Trump.
In New York, Trump is charged with mislabeling some business expenses during the 2016 election. In Georgia, he’s charged with conspiring to overturn an election prosecutors claim he knew he’d lost. Federally, he’s charged with claiming to have won an election he allegedly knew he’d lost, which prosecutors say incited the riot at the Capitol on January 6, 2021. He’s also charged with keeping classified documents after leaving office and conducting a “scheme to conceal” them from the federal government.
By refusing to bring charges against Trump that could also be brought against the presidents they like, the political class has shown that its aims are political. If they were committed to the rules that they swore an oath to uphold, they’d have to indict many of their own. And if they genuinely believed that nobody exists above the law, they’d have to give up a whole lot more.
Much of government-owned transportation destroys rather than adds to wealth. The lack of a sound system of economic calculation is to blame.
Original Article: "The Problem with Public Transit"
It’s likely that many readers of The Austrian support the free market and also support “traditional” social values, but in Patrick Deneen’s opinion, this is an unstable amalgam. Deneen, a political theorist who teaches at Notre Dame, thinks that the market undermines tradition and that those of us who resist the “woke” Left and want to preserve tradition ought to abandon what he sees as an uncritical devotion to the market.
Deneen says that classical and medieval political philosophy recognized that an objective good exists and posited that a political system must take account of the interests of both the few and the many. Liberalism, which comes in classical and progressive varieties, by contrast aims primarily to advance the interests of the elite, and, put into practice, it destabilizes the lives of the masses. As Deneen puts it, “how to reconcile ‘the few’ and ‘the many, is one of the oldest questions of the Western political tradition. . . . By this telling, the aim was a kind of balance and equilibrium between the two classes, and the good political order . . . secured the ‘common good,’ the widespread prospect for human flourishing regardless of one’s class status. The classical solution was rejected by the architects of liberalism, who believed that this seemingly political divide could be solved by advances in a ‘new science of politics’.”
A problem with Deneen’s contention is apparent at once. According to him, classical liberalism doesn’t seek to balance the interests of the few and the many. But he says himself that “the first liberals—‘classical liberals’—believed especially that economic progress through an ever-freer and more expansive market could fuel a transformative social and political order in which growing prosperity would always outstrip economic discontents. . . . It was held to be an article of faith that the inequality and resulting discontents generated by the new capitalist system would be compensated by a ‘rising tide’ of prosperity.”
If this is what classical liberals thought, they did aim to advance the interests of the masses, not just the interests of the rich. Deneen would respond that the premise the classical liberals relied on is false, or at least dubious, as his reference to an “article of faith” suggests. They deluded themselves into believing that the market would help the poor, but it didn’t, I take him to be saying.
But isn’t it evident that the free market has in fact led to an enormous increase in the lifespans, health, and prosperity of the masses? Does Deneen deny this? He acknowledges that “a rapid increase in economic prosperity” has occurred in the past three hundred years but says that “what classical liberals hope to ‘conserve’ is a revolutionary doctrine that aims at the constant transformation of all aspects of human social organization.”
It is difficult to pin Deneen down. Is his contention that the free market helped the poor economically but that this is outweighed by the disruptive effects of the market on human social organization? Or is it that although economic prosperity increased under the free market, many poor people suffered because they lost their jobs and the gains went mainly to the rich, who viewed those unable to work as idlers who ought to fall by the wayside? I suspect he means both.
If these are his contentions, we can respond to them with an objection that Deneen is likely to take as a compliment. He does not think like an economist. He does not, that is to say, think in terms of changes at the margin. Which people were displaced by which market innovations? How many of those who were displaced found other jobs, and under what conditions? If, as Deneen contends in his praise for the Tory democracy of Benjamin Disraeli, support for the traditional family and for religion remained strong among the masses, to what extent did the free market disrupt human social organization? Deneen does not ask such questions.
It is odd that although Deneen criticizes supporters of the market for their stress on material gain as opposed to classical virtue— with what justice we shall shortly examine—his prescriptions for contemporary social distempers include a substantial number of measures that he thinks will lead to material gains for the masses. He says, “Domestic manufacturing in certain sectors should simply be mandated. . . . America (and any nation) should seek to improve its competitiveness and productivity by supporting several vital sectors that in turn are vital to a vibrant manufacturing base: infrastructure, manufacturing and R&D innovation, and related forms of education.” Again, he fails to ask what the benefits and costs are of particular amounts of the changes he wants to mandate. Under a completely free market, there would be no such mandates at all. What would happen then? Deneen doesn’t tell us. (In a note, he refers readers to a book by Oren Cass for more details about the sort of programs he wants, but this does not answer the relevant questions.)
There are some other ill-thought-out aspects of Deneen’s economic nostrums. He wants more manufacturing jobs, but he also bemoans the deadening effects of assembly line work. “The great prophet of division of labor—Adam Smith . . . noted that the worker on the assembly line would know a great deal about the limited task to which he had been assigned, but would likely know little about the actual product, much less its greater purpose, nor its sources or likely destination. The assembly-line worker would need to be purposefully limited in understanding, knowledge, and even curiosity.” We could ask, as before, To what extent are Smith’s claims true and, to the extent they are, how are these effects to be weighed against advantages that result from increases in the division of labor?
But the biggest problem for Deneen is that he endorses Smith’s view of the bad effects of the division of labor yet also favors a policy that will increase assembly line work. Or is manufacturing supposed to take place in some other way?
Here is another internal problem for Deneen. As you would expect, he praises Alexander Hamilton for his proposals to promote national manufacturing. According to Deneen, Hamilton “rightly regarded a strong manufacturing base as a basic feature of national security, stability, and prosperity, a view that has been forgotten especially by today’s libertarian cheerleaders of free-market globalism. . . . Hamilton emphasized especially the role played by manufacturing in achieving national independence, and the corresponding freedom from the debasement and servitude that inevitably accompany economic reliance upon foreign powers.” Three cheers for Hamilton! But less than fifty pages later, when Deneen is criticizing Progressive Era thinkers such as Herbert Croly, he looks at Hamilton rather differently: “Such thinkers were especially suspicious of the more immediate and, in their view, limiting and parochial identities of people as members of towns, communities, states, and regions. In this regard, [these thinkers] were . . . inheritors of the views of at least some of our Founding Fathers, especially Alexander Hamilton . . . who was explicit in The Federalist Papers about his hopes that people would ultimately transfer their allegiance from their localities and states to the nation, and identify far more with the political entity that made it possible for them to enjoy their natural rights.” Deneen is commendably in favor of the local and the particular but does not attempt to reconcile this position with his support for economic nationalism.
Deneen seems hazy on John Stuart Mill, and this is true also of what he says about Karl Marx. I am puzzled by this comment of Deneen’s: “We can think today of the disdain of Bernie Sanders toward the likes of Hilary Clinton, or, earlier, Karl Marx toward Eduard Bernstein.” I’m unaware of any negative comment by Marx about Bernstein, who was for many years a friend and disciple of Friedrich Engels. It was not until long after Marx’s death that Engels and Bernstein quarreled.
I have saved for last Deneen’s biggest mistake about libertarian support for the free market. He thinks that such support rests on denying that morality is objective. John Stuart Mill, hardly a consistent classical liberal, is the principal intellectual culprit because he “famously sought to replace justifications for the exercise of political power based upon appeal to objective standards of justice and right with more minimalist justifications of perceived harm done by one person to another.” Not only is this a gross distortion of Mill, who thought that his own utilitarianism was objectively justifiable, but libertarianism can be defended by an appeal to natural law, albeit in a version that Deneen wouldn’t accept. The most comprehensive defense of such a view is to be found in a number of books by Douglas Rasmussen and Douglas Den Uyl, including The Perfectionist Turn and The Realist Turn. These books show how the free market provides a metanormative framework within which individuals can pursue their Aristotelian flourishing, a task which by its nature is agent relative and not amenable to direction from the state. An Aristotelian ethics of this sort lies at the basis of Murray Rothbard’s Ethics of Liberty, and numerous papers by Eric Mack take a position in the same neighborhood. Of all of this Deneen appears entirely unaware.
Despite its origin in Marxist-syndicalist thought, “fascism” has long been used as a derogatory label for practically anyone on the right wing of the political spectrum. Sometimes the label is warranted, but other times it is used against those who have virtually nothing in common with fascists, such as libertarian capitalists. Progressives are quick to label any kind of economic deregulation and reduction in federal overreach as “fascist.”
Want to have a free market? Fascist. Want to get the federal government out of education? Fascist.
The history of projecting fascism’s crimes onto capitalism and capitalists is very long. The Communist International in 1935 declared fascism the result of monopoly capitalism. In the 1960s and ’70s, many Marxist intellectuals like Kurt Gossweiler and Jürgen Kuczynski tried to tie the emergence of fascism with business interests. In the late ’90s Marxist political scientist Michael Parenti called fascism “all-out government support for business” while also claiming Nazis and Italian Fascists were “privatizing” the state-owned businesses.
A more recent brutalization of fascist history and thought comes from Jason Stanley’s 2018 book How Fascism Works, which was appropriately described by Paul Gottfried as being a collection of “unverified historical statements.” Stanley seemingly didn’t do any thorough reading into fascist thought before making the claims, “In fascism, the state is an enemy; it is to be replaced by the nation, which consists of self-sufficient individuals,” and, “The fascist vision of individual freedom is similar to the libertarian notion of individual rights.”
The leftist social media mob is even worse than the intellectuals. Last year when Betsy DeVos proclaimed, “I personally think the Department of Education should not exist,” the mob met her with thousands of accusations of fascism. Thomas Massie and Marjorie Taylor Greene received similar treatment when they introduced a one-sentence bill to abolish the Department of Education.
Fascism, however, emerged as an explicitly anticapitalist ideology. Giovanni Gentile and Georges Valois stressed that the “intellectual father” of fascism was the French Marxist Georges Sorel, the same Sorel who helped inspire other anticapitalist movements, such as Bolshevism. Ludwig von Mises noted in Marxism Unmasked, “It was the idea of French Syndicalism that influenced the most important movement of the twentieth century. Lenin, Mussolini, and Hitler were all influenced by Sorel, by the idea of action, by the idea not to talk but to kill.”
The actions and policies of the Fascists further verified their anticapitalism. The state fundamentally switched roles with the capitalists as the wielders of economic power. Political scientist Franklin Hugh Adler noted that “the [Italian] state had more latitude for control over the economy than in any other nation at the time except for the Soviet Union.” Mussolini mandated union membership, harshly regulated industries, and socialized more than eighty firms. The Fascist government confiscated stock holdings of banks and took over near-bankrupt companies. As a result, the Italian government held substantial positions in numerous other businesses as well as controlling interests in others, including iron production, naval building, and shipping.
Historian A. James Gregor correctly observed, “Fascism never served the interests of Italian businesses,” and that the businessmen “welcomed the disappearance of Fascism.” Mussolini’s philosophy had no room for the individual rights and preferences of entrepreneurs and capitalists.
Fascism was not about individual rights but, instead, was fundamentally anti-individualistic. Benito Mussolini wrote, “The Fascist conception of life stresses the importance of the State and accepts the individual only in so far as his interests coincide with those of the State.” Far from viewing the state as an enemy (as Jason Stanley claimed), fascism placed the state upon the highest pedestal.
Fascists were certainly not believers in decentralized education. Mussolini wanted to “reaffirm a principle in an explicit way: that the state does not simply have the right, but rather the obligation to educate the people and not only to train the people.” Mussolini renamed the Ministry of Public Instruction the Ministry of National Education and set out to establish national curriculums to educate and indoctrinate the youth.
According to historian Eden K. McLean, the Fascist state had a “relentless desire for more control over the rural population” and put much emphasis into dominating decentralized rural schools. Mussolini’s goal to “centralize and politicize the education system” was the opposite of DeVos’s advocacy against the Department of Education.
Despite the mislabeling and misconceptions surrounding fascism’s association with capitalism, historical evidence shows that fascism was fundamentally anticapitalist, emphasizing the primacy of the state over individual rights and interests. It promoted state intervention in the economy and centralized control over education, debunking the notion that fascism aligned with libertarian capitalism or advocated for economic deregulation. Understanding these historical nuances is crucial for accurate political discourse and avoiding the misuse of labels and ideologies.
Ludwig von Mises and F.A. Hayek, two of the best-known Austrian school economists in the twentieth century, may have followed the same school of thought, but they greatly differed in their work. In consideration of human action, the two men differed in their methodology: Mises advocated for a pure use of reason through praxeology, and Hayek, alternatively, defended the compositive method.
In regard to the market process and entrepreneurship, Mises’s and Hayek’s views are not just different, but opposed. Hayek, in his articles “Economics and Knowledge“ and “The Use of Knowledge in Society,” highlighted the role of knowledge in the social process and how the price system is an institution that spreads information over the markets. Mises, on the other hand, asserted what matters is not past realized prices but future prices that will orient decisions, plans of action, and the allocation of resources.
Evidently, the discrepancies in Mises’s and Hayek’s views on the market guided their different positions on socialism. Hayek stressed the problem with knowledge, pointing out that there is a kind of knowledge related to particular circumstances that cannot be centralized. In contrast, Mises, as Joseph T. Salerno presented in his articles “Ludwig von Mises as a Social Rationalist” and “Reply to Leland B. Yeager on ‘Mises and Hayek on Calculation and Knowledge,’” conceived that even if all knowledge could be centralized, a problem would persist in economic calculation as human action is future-oriented and the social world is built through individual sovereign and subjective actions looking to the future.
While Hayek considered price changes and gaps to be the guiding force behind economic changes and behavior, Mises spotlighted the role of entrepreneurial calculation. With Hayek, individuals are not actors but reactors to the information dictated by prices. Mises, however, wrote that entrepreneurs are the driving force of the economy. Without property rights and entrepreneurship, it is impossible to allocate resources efficiently. In a centrally planned economy, all decisions are arbitrary and do not follow economic criteria.
Differences exist further when looking at how Mises and Hayek examined institutions. For Hayek, institutions (or spontaneous orders) are developed in a long barely understandable process as a result of human action but not of human design; people accept and follow institutions in an automatic, nonreflexive way. Mises, however, believed that institutions come from human understanding, reflection, and deliberation. Institutions do not emerge magically and without human comprehension. Individuals are a part of institutional development, and each action will be a part of institutional change.
As Salerno pointed out, when Mises explained the emergence of the modern family, he asserted a perspective of action. Individuals see other families, their benefits, and decide to form their own families with their partners. They do not passively assert families as a given institution that emerged over time and thus must be followed. To Mises, individuals are active actors; to Hayek, individuals are passive reactors.
For Mises, ideology plays a huge role in any social aspect. Individuals do not just react to price changes as arbitrators but, with their values, create the future. Beliefs, values, biases, and understandings guide human decisions and actions. For Mises, the wrong social perspectives can lead to malicious effects, hindering liberty, property, and economic development. And that is precisely the relevance of the spread of good ideas which guide ethical actions, respect for other people’s property and liberty, and, subsequently, the evolution of society and a nation’s economy.
Emerging without deliberation, institutions are not spontaneous orders. Institutions are organic orders, being bottom-up constructions over time depending upon human decisions, upon human reflection about the social process, upon thymological comprehension of other people’s behavior. An erroneous set of beliefs would not just hinder economic and social development but may, indeed, also destroy social coordination.
That’s the situation Western society faces now. Postmodernism, relativism, and progressivism are erroneous beliefs (as explained in my past articles) that are disturbing the social process and coordination. They are a set of beliefs that distort the interpretation of social phenomena, assuming a constructivist approach to reality. Individuals with such beliefs are not individuals but weapons for a pretend revolution through the clash of genders, races, classes, and the like.
In this scenario, Ludwig von Mises’s position must be highlighted. These contemporary ideologies which hinder ethical actions have been destroying institutions for decades. People are making erroneous choices, and we must not stay seated, waiting for a long-term correction of plans. People are reflecting on the facts and purposefully choosing the wrong directions as they follow their framework of analysis.
Civilization should not trust in a long-term Hayekian process of selection in which plans and actions are magically and passively corrected. It won’t happen and all the while progress will be hampered as entrepreneurship and the market process are under attack.
To save Western civilization from a tragic fate, individuals should defend ideas that support individual freedom, individual property rights, and individual entrepreneurship. Individuals must be involved in the social process, reporting and fighting the malicious effects of contemporary ideologies.
Individuals must leave their safe spaces in which they keep to only their private lives and become a part of a process in which collectivism, interventionism, and socialism are fought. Mises’s motto, from Virgil’s Aeneid, perfectly expresses this, Tu ne cede malis, sed contra audentior ito, meaning “Do not give into evil but proceed ever more boldly against it.”
Many conservatives, in trying to steer the USA away from "wokeism," fail to understand that their “national greatness” schemes are just as harmful.
Original Article: ""National Greatness" Is Not the Appropriate Response to "Wokeism""
Technology is the main reason why so many of us are still alive to complain about technology.
—Garry Kasparov
If I take 30 steps linearly, I get to 30. If I take 30 steps exponentially, I get to a billion.
—Ray Kurzweil
While world leaders try to decide whether their interests are best served by World War III or some other imposed atrocity, various forces have states targeted for extinction. Chief among these forces is the exponential nature of evolution and technology, working together to advance human life. The other threat to the state’s existence is untreated self-inflicted wounds, which I’ll discuss later.
Let’s start with evolution. Shortly after the big bang, atoms started forming, then later, atoms combined into molecules. Carbon in particular gave rise to more complicated structures. As renowned inventor, entrepreneur, and futurist Ray Kurzweil writes in his magnum opus, The Singularity Is Near: When Humans Transcend Biology,
It’s clear that the physical laws of our universe are precisely what they need to be to allow for the evolution of increasing levels of order and complexity . . . carbon-based compounds became more and more intricate until complex aggregations of molecules formed self-replicating mechanisms, and life originated. Ultimately, biological systems evolved a precise digital mechanism (DNA) to store information describing a larger society of molecules.
DNA-guided evolution led to organisms that could detect and process information and store it in their brains and nervous systems. Eventually early life forms began to detect patterns, then later, humans evolved the ability to form abstractions about the world. When man developed an opposable thumb, he began creating methods that improved his chances of survival, such as using a long stick to reach high-hanging fruit.
He also learned that he could drive off competitors for the fruit by threatening them with the stick. Technology evolved as something with more than one edge.
The Law of Accelerating ReturnsWhat is not often understood about evolutionary processes is that they progress along an exponential curve. The exponential nature of the progression is not obvious in its early stages, and even in advanced stages such as information technology today, progress doesn’t seem all that profound. The reason is that even an exponential will seem linear over a short-enough time span—even after it reaches the knee of the curve, defined as the point where y-axis values begin to rapidly increase.
Figure 1: Linear versus exponential growth
The subtle power of the exponential is revealed in a 2013 Mother Jones article, as I discussed in my book The Fall of Tyranny, the Rise of Liberty:
Imagine if Lake Michigan were drained in 1940, and your task was to fill it by doubling the amount of water you add every 18 months, beginning with one ounce. So, after 18 months you add two ounces, 18 months later you add four ounces, and so on. Coincidentally, as you were adding your first ounce to the dry lake, the first programmable computer in fact made its debut.
You continue. By 1960 you’ve added 150 gallons. By 1970, 16,000 gallons. You’re getting nowhere. Even if you stay with it to 2010, all you can see is a bit of water here and there. In the 47 18-month periods that have passed since 1940, you’ve added about 140.7 trillion ounces of water. You’ve done a lot of work but made almost no progress. You break out a calculator and find that you need 144 quadrillion more ounces to fill the lake.
You’ll never finish, right? Wrong. You keep filling it as you always have, doubling the amount you add every 18 months, and by 2025 the lake is full.
In the first 70 years, almost nothing. Then 15 years later the job is finished.
A famous quote from Ernest Hemingway’s The Sun Also Rises suggests an exponential process when one of the characters was asked how he went bankrupt: “Two ways. Gradually and then suddenly.”
In his book The Age of Intelligent Machines: When Computers Exceed Human Intelligence, Kurzweil makes the same point with a real-world example: “Consider Garry Kasparov [World Chess Champion (1985–2000)], who scorned the pathetic state of computer chess in 1992. Yet the relentless doubling of computer power every year enabled a computer to defeat him only five years later.”
In 2020 Kasparov put his loss in perspective, saying his defeat was sobering and that artificial intelligence (AI) development is moving too slow rather than too fast. Yet many (though not, as you might expect, Ray Kurzweil) believe we’re being replaced by machines. Speaking at the Council on Foreign Relations five years ago, Kurzweil said: “AI will benefit us in the same way that previous technologies have. My view is not that AI is going to displace us. It’s going to enhance us. It does already.”
Those fearful of tech innovation want to know if anything can stop it. According to Kurzweil, there is:
When I started my optical character recognition (OCR) and speech-synthesis company (Kurzweil Computer Products) in 1974, high-tech venture deals in the United States totaled less than thirty million dollars (in 1974 dollars). Even during the recent high-tech recession (2000–2003), the figure was almost one hundred times greater. We would have to repeal capitalism and every vestige of economic competition to stop this progression. [my emphasis]
The World Economic Forum Has Big Plans for UsCatchphrases like “the Green New Deal,” “the Great Reset,” “Build Back Better,” “climate change,” “the Fourth Industrial Revolution”—along with the recent covid pandemic—signal an orchestrated attempt to repeal what’s left of capitalism.
It won’t work. Projects need funding, and the inflatable money states are using, which has undergone perpetual debasement since the creation of the Bank of England in 1694 and especially since the Fed opened its doors in late 1914, is nosediving to zero. Switching to central bank digital currencies (CBDCs) might have saved them, but Schwab and company have lost too much trust to pull it off. People will reject CBDCs and the organizations that promote them, and states will die off from their self-inflicted wounds.
As Newsweek author Aubrey Strobel put it, “CBDCs are a wolf in sheep’s clothing, co-opting Bitcoin’s appeal while undermining every one of its underlying principles.”
We’ll still be riding the exponential superjet, with a lot less violent (government) interference.
The Fermi ParadoxYet there’s still a chilling effect from technological advance when we consider earth’s place within the universe. Humans are likely not the only ones driving technology.
If this is true, why haven’t we heard from any other civilization (a question raised by physicist Enrico Fermi in 1950)? Surely on some planet somewhere there are civilizations far more advanced than any on earth, and not just by a few decades. And it’s not as if searches for extraterrestrial intelligence have lacked support, monetarily or otherwise, as the long history of the search for extraterrestrial intelligence makes clear. Kurzweil supposes, “Most of those that are ahead of us would be ahead by millions, if not billions, of years. . . . The skies should be ablaze with intelligent transmissions. Yet the skies are quiet.”
Does the silence mean that at some point intelligent life self-destructs? He thinks not. With so many possible civilizations, “It is not credible to believe that every one of them destroyed itself.”
If Kurzweil is right, then at least one civilization has managed to live without coercion being central to its existence—in contrast to earth’s states where it is their defining characteristic. As Ludwig von Mises made clear in Omnipotent Government: The Rise of the Total State and Total War, “The total complex of the rules according to which those at the helm [of the state] employ compulsion and coercion is called law. Yet the characteristic feature of the state is not these rules, as such, but the application or threat of violence.”
It’s not surprising, then, with states in their death throes, that many people see planet earth approaching some kind of existential disaster. Yet as Steven Pinker has argued at length in his data-rich book The Better Angels of Our Nature, the world is less violent today than ever before. “Across time and space, the more peaceable societies . . . tend to be richer, healthier, better educated, better governed, more respectful of their women, and more likely to engage in trade.”
How did these societies become more peaceable? In various ways. Among the key drivers were
the Age of Reason and the European Enlightenment in the 17th and 18th centuries. [These societies] saw the first organized movements to abolish socially sanctioned forms of violence like despotism, slavery, dueling, judicial torture, superstitious killing, sadistic punishment, and cruelty to animals, together with the first stirrings of systematic pacifism. [my emphasis]
As we’ve seen, Western states have aggressively scuttled their Enlightenment past, since it is anathema to their one-world agenda. People resisting this movement in the name of freedom have exploited the power of the technological exponential to counter their offensive, while states and their private-sector allies struggle to silence them.
ConclusionStates are violence incorporated. They’re an existential violation of the nonaggression axiom. Without their badges and guns, states wouldn’t be threatening global destruction. Contrary to popular opinion, we don’t need them.
Let that sink in: States have no place in a civilized society. The good news is despite their grandiose proclamations, they’re on their last legs, about to go down for the count. Let them go.
Will humanity self-destruct and become a dead planet? Only if we allow states to control us. The free market with its built-in incentives will govern our lives as tech development continues to empower us.
The rioting in France is not due to racism nor is it the logical end of immigration. Instead, it is rooted in France's minimum wage and other labor restrictions that lead to unemployment and resentment.
Original Article: "France's Unrest Has Deep Roots. Proposed Immigration Restrictions Will Make Things Worse"
Homeless foreign nationals (i.e., "illegal aliens") began arriving last week at a makeshift shelter in a Staten Island neighborhood. The arrivals come after New York City Mayor Eric Adams decided that a shuttered Catholic school on Staten Island would be used to house some of the more than 100,000 migrants who have arrived in New York City since the spring of 2022.
Staten Islanders, however, were given no veto and no role in determining the location of the shelter or what policies might be implemented there. As a result, hundreds of protestors this week assembled to express their opposition to the plan which was apparently hatched in secret and only revealed to Staten Island residents when the plan was already fait accompli. As the New York Post reported this week, "Local GOP state Assemblyman Michael Tannousis told The Post the area was 'blindsided' by the new shelter, leading to stronger opposition. 'I found out about this location when it was already out in the newspaper,' he said, adding the city previously denied to him they were going to house migrants there."
It's easy to see why the policymakers who run New York City haven't bothered to ask neighborhood representatives if they want a migrant shelter in their neighborhood. The residents of Staten Island, who tend to lean more politically conservative than other in other regions of the city, are easily outnumbered by hardline social-democrat residents of Manhattan, Brooklyn, and other boroughs. When it comes to city-wide politics, in other words, Staten Islanders don't matter, so the city government in Manhattan does what it wants with Staten Island's resources, and to Staten Island's residents.
How one feels about migrants, however, is irrelevant in answering the question of whether or not the half-million residents of Staten Island ought to be allowed self-determination in matters that clearly and deeply affect matters in their own neighborhoods and businesses. The New York Post reports:
Staten Islanders are renewing calls for a breakaway from the Big Apple — with Mayor Eric Adams’ controversial call to bus migrants to a local shuttered Catholic school proving to be the latest breaking point.
One local pol even has an idea for the independent borough’s new slogan: “Nonsicut tu quoque,” City Councilman Joe Borelli told The Post.
It roughly translates to, “We don’t like you either.”
Staten Island has always been an odd fit within the five boroughs, sitting on the outskirts of New York City with a predominantly conservative Republican population that butts heads with the rest of the city.
Unfortunately, the borough faces many uphill challenges in seceding. Both the NYC City Council and the state legislature would need to approve the move.
The Post continues:
According to locals, now is the time.
“Let’s do it!” said resident Joseph Milkie, 41. “We should get a bigger percentage of the Verrazano tolls to subsidize what it costs us to break away. What the city is doing to our neighborhood stinks.”
Anthony Antico, a 56-year-old contractor and lifelong Staten Islander, said he’s behind secession “100%.”
“Our values do not line up with the other boroughs,” Antico said Wednesday. “We do not believe in woke politics. Right is right, and wrong is wrong.”
This isn't the first time Staten Islanders have seriously talked about secession. As (Queens resident) Gregory Bresiger reminded mises.org readers in 2021, Staten Islanders in 1993 voted to secede from the city:
In 1993, they voted about two-to-one in a nonbinding referendum to secede and become the independent city of Staten Island. The measure was sent to the state legislature. But the referendum was later invalidated. Staten Island advocates hadn’t received “a home rule” approval message from the New York City Council.
In other words, the "democracy" loving overlords of New York City decided that the lopsided vote in favor of separation would not be honored because of a technicality.
The outcome, of course, should surprise no one. As with so many cities, the more suburban, more crime-free parts of the city serve as low-maintenance areas of the city that also generate tax revenue that are useful to the ruling class in Manhattan. If we add to this the typical control-freakism harbored by most policymakers, it is easy to see why few in New York City's government have any intention of ever letting Staten Islanders rule themselves. There is also the contempt with which the urban elite generally regards their "constituents." Bresiger continues:
Ultimately, Staten Island and some other overtaxed New Yorkers in this mismanaged sprawling city hate being governed by a Manhattan ruling class that often scorns and misunderstands “outer borough” residents. (i.e., those not living in Manhattan). This Manhattan ruling class quietly regards most of us as bunch of Guidos, Archie Bunkers, or local Babbitts. We are the New York City version of “deplorables.”
For reasonable people not committed to exploiting the business owners and residents of Staten Island, the right to secession in this case should be abundantly clear. There is absolutely no respectable political "principle" which tells us that Staten Islanders must remain part of New York City, or even New York State. With nearly 500,000 residents, there is no reason why that's "too small." It's hard to imagine what criteria renders this population insufficiently large for statehood when numerous US states in the mid-twentieth century (i.e., Vermont, New Hampshire, Montana, Idaho, Wyoming, Utah Nevada) had populations below 500,000. We might also note that Staten Island has a relatively high median household income. Were Staten Island to become its own state, it would have a population about 100,000 people smaller than the next smallest state, Wyoming. Yet, Staten Island's median household income (about $80,000) is 30 percent higher than that of Wyoming—which is itself a middle-income US state. Nor would newly erected state borders mean much of anything to commuters. Hundreds of thousands of people currently commute into New York City across state lines every day.
That Staten Island secession is even controversial at all should strike us as curious. Granting the people of Staten Island their own city or state presents no "problematic" issues related to human rights, international relations, or basic justice. Even if there were reason for "concern" in these areas, that still would not invalidate the right of self-determination long denied to Staten Islanders.
[Read More: "The Right of Self-Determination" by Ludwig von Mises]
Yet, we groan under the boot of an American ruling class that reflexively favors centralization and rule by a technocratic, national elite. If Staten Island is allowed secede, it is feared that might open up countless similar demands for self-determination across the nation. Clearly, that does not fit into the current regime's plan, and they aim to make sure the idea of secession doesn't go anywhere, ever. For the elites, the current status quo works quite well and they want to keep it that way.
According to the American Medical Association, physician burnout “is a long-term stress reaction which can include the following:
- Emotional exhaustion
- Depersonalization (i.e., lack of empathy for or negative attitudes toward patients)
- Feeling of decreased personal achievement”
The article goes on to say:
Physician burnout is an epidemic in the U.S. health care system, with nearly 63% of physicians reporting signs of burnout such as emotional exhaustion and depersonalization at least once per week. While many factors contribute to burnout, the burnout epidemic is often associated with system inefficiencies, administrative burdens and increased regulation and technology requirements.
One expert sums up the primary cause of physician burnout: “It’s been said that people don’t leave their jobs. They leave their bosses. But for physicians, physicians don’t leave their careers. They are leaving their inbox.”
At my own institution, the most common sources of dissatisfaction expressed by physicians are completing the electronic medical records, dealing with insurance companies, and performing other administrative duties that take physicians away from their patients. I will deal with each of these causes and demonstrate why the system—including the burnout created—is working as intended.
Contrary to popular belief, the electronic medical record was not intended to make records easier to read or to improve patient care. It was created so that the Centers for Medicare and Medicaid Services (CMS) could systematically and objectively deny payment for services. “If it wasn’t documented, it didn’t happen” has become the foundation for electronic medical records.
Physicians have been educated through mandatory indoctrination on how to document services to justify billing. Templates have been created to instantiate the mandatory documentation with a few clicks of the mouse. The result is pages of text that nobody ever reads.
However, computers can scan the notes for the documentation, and the failure to detect the documentation provides CMS with an objective basis for denial of payment. Each service has multiple codes, with higher code levels resulting in greater payment. There are requirements to achieve each level of code. What the administrators do not acknowledge, however, is that the value of the time necessary to properly document each level of code (to the physician) far exceeds the increase in payment.
The physician’s time has zero value to the administrator, so the administrators constantly harangue the physicians to spend more time on each record in order to generate higher payments. Some administrators do not understand this phenomenon; some do understand it but do not care. No administrator ever suggests that the solution is for the physician to spend less time on each record in order to see more patients or spend more time interacting with each patient. Physicians are regularly graded by Press Ganey surveys of patient satisfaction. There will NEVER exist a Press Ganey survey for the physician’s satisfaction with CMS.
The insurance companies have merely taken the lead provided by CMS, although the insurance companies have a different twist. They require preauthorization for expensive services, and they deny these authorizations for reasons known only to the insurance company. The stated reason is always that the service is not medically necessary. It does not matter what the physician thinks about the necessity of the service.
An appeal process is available, but the process is made as lengthy and as unpleasant as possible. The goal is obviously to make the process so unpleasant that physicians will not pursue an appeal. The insurance company convinced me a long time ago, so I just document that the insurance company denied the service that I recommended.
Many other physicians have the misconception that the barrier is a lack of education or understanding, so they try to convince the insurance company of the rightness of the request. Their efforts may even work on occasion, but the time and effort required will never be worth the result. If the existing treadmill does not reduce requests for services sufficiently, the insurance treadmill will just spin faster. Many physicians do not understand that the only way to win this game is to refuse to play it. There will NEVER exist a Press Ganey survey for the physician’s satisfaction with insurance companies.
Administrators claim to be very concerned about physician burnout. Their “solution” to physician burnout, ironically, is to increase the administrative burden even further with questionnaires about burnout and mandatory education about burnout. The administrators will never acknowledge that the questionnaires and mandatory training are part of the cause of physician burnout rather than a solution. There will NEVER exist a Press Ganey survey of physician satisfaction regarding the number of mandatory training sessions required.
What are the consequences of physician burnout? Physicians retire earlier, and some have even committed suicide. However, this decrease in the number of physicians solves more problems than it creates for CMS and insurance companies. The United States healthcare system pretends to eliminate the scarcity of medical services, but it is not possible to eliminate this scarcity, so we must pretend that is what’s happening.
Medical services appear to be “free” to the patient, but they are still scarce. Rather than paying for services with money, patients pay for services with inconvenience, time waiting in lines, or time and effort traveling to access services no longer available locally.
Another method of “solving” the imbalance between the actuality and the appearance of the availability of medical services is to decrease the number of physicians who order such services. Fewer physicians translate into fewer services, which translate into lower payments by CMS and insurance companies. Graduates of medical schools are granted the MD degree and are technically physicians. However, a physician has very few opportunities for practice, licensure, and certification by state medical examiner organizations until the physician completes a postgraduate residency training program.
Currently, US medical schools graduate about 10 percent more new physicians than there are residency training slots in the United States. As older physicians who have completed residency programs disappear due to burnout, there is increased demand for new residency training programs or the expansion of existing residency training programs. This could, theoretically, close the gap between the number of medical school graduates and residency training slots. However, more residency training slots means increased administrative requirements, so some experienced physicians supervise residents rather than delivering care to patients.
Furthermore, regulations (and lack of experience) prevent residents from seeing the same number of patients as fully trained post-residency physicians. Thus, replacing older fully trained physicians with residents does not fully replace the capacity for delivering healthcare to patients. In private practice, my workload as a pulmonary specialist was, on average, twenty patients per half-day clinic. A resident at my university sees two to nine patients in a half-day clinic, and regulations require one fully trained physician to supervise three residents (without any other duties), so patient capacity is much lower than the same number of fully trained physicians.
Physician burnout is a problem for physicians, but it is a solution for CMS and other third-party payers of medical care. Given that CMS makes the rules, do not expect physician burnout to go away very soon. Physicians sold CMS the rope by which they are being hanged.
While many economists claim that high overall debt levels can lead to economic recessions, irresponsible government spending and money expansion are the real culprits.
Original Article: "Easy Money Is a Much Bigger Economic Problem than Debt"
On we go, further and further into the era of post-journalism, where outlets survive not on the accuracy and honesty of their reporting but on the appeal of their narrative.
—Fred Skulthorp, The Critic
Nobody has missed that the West suffers from a credibility problem. Its institutions—by which we mean the media, government officials, academia, teachers’ unions and other joint societal “stuff” —hold less and less of our collective trust (business excepted, it seems). We don’t trust the media to convey or display the truth; we don’t trust our governments to tell the truth, to act honorably, or to steward the “commons” in good faith. Speaking of faith, the intellectual elites have broadly replaced God not with Mammon but with Gaia—many worship at the altar of St. Greta these days.
“Live Not by Lies” goes one of Russian literary hero Aleksandr Solzhenitsyn’s prompts. Written in the Soviet Union’s latter days, it’s a text that earned him exile from his homeland. According to scholars Edward Ericson and Daniel Mahoney, the editors of the 2006 Solzhenitsyn Reader, “lies” means something like “ideology”—“the illusion that human nature and society can be reshaped to predetermined specifications.” What is is, and it’s futile and dangerous to contradict it.
Toying with truth is precisely what totalitarian regimes do, I observed last year in a review of psychologist Mattias Desmet’s The Psychology of Totalitarianism —a book that apparently just got banned for use by this esteemed professor’s own university: “The collective hums together and upholds the rules, no matter how insane or ineffective at achieving their supposed aim. Totalitarianism is the blurring of fact and fiction, yet with an aggressive intolerance for diverging opinions. One must toe the line.”
All this philosophical dread and high-flying quarries come to mind when reading astrophysicist and educator Neil deGrasse Tyson’s popular book Starry Messenger: Cosmic Perspectives on Civilization. In a partisan world that expects us to have politically slanted inputs on every darn topic under the congressional sun, writers and thinkers are forced to engage with topics that they know nothing about. As a public figure and educator at New York City’s Hayden Planetarium, deGrasse Tyson sees his own task to be abstaining from all that. Refreshingly, he says that he’s a scientist who only speaks on topics where he has some expertise.
However, what in Starry Messenger began with investigations into the nature of science gradually devolved into a woke manifesto. Objective truth is indeed the overarching theme of the first few chapters, where civilization, the cosmos, and the moon hold center stage. The author holds that “the most beautiful thing about the universe may be that it’s knowable at all. No message written on tablets in the sky pre-required this to be so. It just is.” He also writes that “objective truths of science are not founded in belief systems. They are not established by the authority of leaders or the power of persuasion . . . to deny objective truths is to be scientifically illiterate, not to be ideologically principled.”
So far, so stellar.
Imagine the reader’s shock, then, when the second half of the book strays way off orbit; denying objective reality becomes the guiding star for the diversity chapters.
In fact, deGrasse Tyson had to go straight to the culture war’s third rail by saying that biological sex is a fuzzy, old, and outdated concept. Because color exists on a wavelength spectrum, somehow deGrasse Tyson envisions that sex does as well—the most obviously discernible hardware issue turned into fuzzy software, to use British journalist Douglas Murray’s terminology. Neil deGrasse Tyson is not convincing anybody that “everything is a spectrum” by pointing to colors—which verifiably are—and hurricane categories, which were crafted with history in mind. A child is not an adult just because the exact boundary between the two is fuzzy.
In a memorable account, Tyson plays detective on the New York subway, trying to discern the sexes of fellow passengers while seeing through what he thinks are irrelevant and arbitrary “secondary and tertiary features—all societal constructs.” “Could I identify who presented as male and who presented as female just from their faces?” was the challenge he set for himself. Because everyone was sitting down and because it was winter so body shapes were conveniently covered by thick jackets, he somehow came up with no ability to separate men from women.
Every part of our bodies screams dimorphic sex differences—from our cells and faces to the shapes and sizes of our hands. However, the ruling classes and their ideas demand that sex becomes one big lump of gooey unclarity, so much so that the more erudite of our scientists can no longer define what a woman is. Therefore, deGrasse Tyson (or perhaps his editors) feels compelled to include a story that suggests all gender is fluid and sex irrelevant.
On page 193, we are delivered(!)—if you’ll excuse the pun—the phrase “pregnant people,” no doubt inserted by a semantically challenged publisher.
It was only an unfathomable seven years ago that Jordan Peterson blasted onto the culture war’s stage with his stoic opposition to precisely such compelled speech. Barbara Kay wrote for Reality’s Last Stand: “It is pretty clear by now that the insistence on the universal use of pronouns has nothing to do with kindness, and everything to do with compelled homage to—for many of us—a false and alienating belief system.”
The next frontier is “ableism,” where deGrasse Tyson says it “smacks of sensory and physiological chauvinism” to think of people who lack fingers, arms, legs, or one of their senses as disabled. Doubling down on this woke rallying cry, deGrasse Tyson proceeds to list examples of extraordinary humans who overcame unbelievable obstacles—from Ludwig van Beethoven, who composed while deaf, to Matt Stutzman, the archery champion who excels at shooting arrows with his feet. Are any of these people truly disabled?
Clearly not, argues deGrasse Tyson, because the word “disabled” is bad and because everyone is incredible in their own right, or something like that.
There doesn’t have to be a value judgment at the bottom of every adjective or every description of what the human median or mode is in whichever domain we consider—from height or number of arms to cognitive abilities. To be useful at all, textbooks in medicine and anatomy have to say something about our species; to be able to speak, words must mean something. Redefining everything and turning oneself into a linguistic pretzel before conveying a simple message seems less than useful and as far from scientific as one can get.
It’s almost insulting too. For every extraordinary Stephen Hawking, we have countless others suffering similar afflictions yet falling way short of the achievements of Mr. Hawking. Is it unscientific to say “hang on a minute” when our esteemed elites cherry-pick an extreme value in a distribution and, from there, conclude that there is no distribution, no median, and no mode?
Those statistically illiterate implications aside, what deGrasse Tyson is correct about is that “when you are not good at one thing, you typically try something else. In a free society, there’s lots of ‘something elses’ out there.” Yes, thank God for division of labor and an economic order where my best can supplement that which someone else can’t, won’t, or shouldn’t do— “ableist” controversies and word games be damned.
What’s clear is that bad things happen when others—whether governments or not—compel or bully you into saying things that aren’t true.
So, no, the esteemed Dr. deGrasse Tyson doesn’t quite falter in his commitment to speaking truth. Listening to him speak is much more liberating than judging his words filtered through the censorious woke-speak that is liberal ideology. If we merely chalk up the absurdities in Starry Messenger to the toll fees he must pay to not be canceled by publishers—the magic words he must speak to appease the intelligentsia—he has delivered a decent popular book on how to think about our world.
Even so, I just wished our esteemed scientist would refuse to live by lies.
The open protocols on the internet would seem to create chaos, but it turns out that they produce the opposite results, encouraging a digital spontaneous order.
Original Article: "Breaking Free: How Open Protocols Foster Entrepreneurship, Spontaneous Order, and Individual Sovereignty"
People migrate for many reasons, including moving to a better economy and escaping political persecution. But one thing is certain: people are going to vote with their feet.
Original Article: "Voting with Their Feet: The Lure of Migration"
In this episode, Mark examines Fed Chairman Jay Powell's recent confession that the Fed is "navigating by the stars on a cloudy night." This reveals the fundamental methodological weakness of the Fed's economic policy and mainstream economics in general ("data dependency"). In contrast, it also reveals the strengths of Austrian economics, economic theory, and the self regulation of the free market. Mark suggests that we all be prepared for big negative surprises in the economy and additional Federal Reserve and government power grabs.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Recommended Reading"What the Central Bank Cartel has Planned for You" by Thorsten Polleit: Mises.org/Minor34A
"Transparency or Deception: What the Fed Was Saying in 2007" by Mark Thornton: Mises.org/Minor34B
[Chapter 19 of Rothbard's newly edited and released Conceived in Liberty, vol. 5, The New Republic: 1784–1791.]
The most important battle of the August days of the Constitutional Convention was waged, as had been the battle over the three-fifths clause, between the North and South and had at its heart the institution of slavery. One of the small number of restrictions on Congress in the draft Constitution was a prohibition of any tax on exports, or of any tax or prohibition on the “migration or importation of such persons as the several States shall think proper to admit”; in short, there was to be no restrictions on the slave trade. Furthermore, no navigation act could be passed except by a two-thirds vote in each house of Congress: a hallmark of the southern distrust of the northern merchants, one of whose many goals in the drive for a Constitution was to privilege themselves through a navigation act that would cripple the competition of foreign shippers in the southern foreign trade. All of these provisions were friendly to the South: two (the export tax and navigation clauses) were designed to preserve freedom of southern trade against northern attempts to seize privileges or revenues from the South; one (on the importation of slaves) was designed to preserve the traffic in slaves.
Already, Gouverneur Morris in early August had made an unsuccessful attempt to rescind the three-fifths clause decided upon in July, and Mason and the South were joined by Massachusetts and Connecticut in opposing the prohibition of exploiting the (as existing) minority South through export taxation. Then, on August 21, the slavery issue burst forth once more. Luther Martin of Maryland began proceedings by demonstrating that he was interested in individual liberty as well as states’ rights. Martin flatly proposed a prohibition or a tax on the importation of any slaves, for the encouragement of slavery embodied in the three-fifths clause “was inconsistent with the principles of the revolution and dishonorable to the American character.” John Rutledge replied in an interesting and revealing manner: in defending the slave trade, Rutledge insisted that “Religion & humanity had nothing to do with this question—Interest alone is the governing principle with Nations.” In short, moral principle was to be turned over in favor of vested economic interest; or, rather, vested economic interest was to be elevated to the status of “moral” principle overriding all other considerations. Charles Pinckney used slightly different tactics and upheld empirical evidence and custom over moral principle: “If slavery be wrong, it is justified by the example of all the world…. In all ages one half of mankind have been slaves.” Pinckney, of course, was speaking from the vantage point of the slave-owning “half” rather than the enslaved. His second cousin, Charles Cotesworth Pinckney, added flatly that “S. Carolina & Georgia cannot do without slaves” (i.e., the slave-owners, not the enslaved inhabitants, of these states could not make do). Pinckney also used a primitive Keynesian multiplier analysis to “demonstrate” the benefits of slavery and slave importation for the whole country: “The more slaves, the more produce to employ the carrying trade; The more consumption also, and the more of this, the more revenue for the common treasury.” Both Pinckney, Rutledge, and Abraham Baldwin of Georgia threatened dissolution of the convention if it should interfere in any way with the slave trade.1
One interesting aspect of the decision was George Mason’s eloquent speech denouncing the slave trade and even slavery itself. He insisted that only South Carolina and Georgia still permitted slave imports and denounced the immorality, tyranny, and sins of slavery. Mason denounced northern merchants who had engaged in this traffic and urged that Congress have the power to prevent the slave trade. Charles Cotesworth Pinckney and Oliver Ellsworth of Connecticut, in reply, staunchly pointed to the reason for Virginia’s eloquence in attacking the slave trade. Since the Virginians, despite the eloquence and depth of Mason’s attack, were not after all proposing to proceed against slavery itself, Ellsworth and Pinckney saw in the Virginians’ stand the new makings of a vested economic interest of this aim: slave breeding. As Ellsworth trenchantly pointed out:
If it [slavery] was to be considered in a moral light we ought to go farther and free those already in the Country.—As slaves also multiply so fast in Virginia & Maryland that it is cheaper to raise than import them, whilst in the sickly rice swamps [further South] foreign supplies are necessary, if we go no farther than is urged, we shall be unjust towards S. Carolina and Georgia.
Similarly, Pinckney stated “as to Virginia she will gain by stopping the importations. Her slaves will rise in value, & she has more than she wants.”
Both Ellsworth and his Connecticut colleague Roger Sherman tried to justify their acceptance of the slave trade by lightly and complacently opining that all the states would eventually abolish slavery themselves “by degrees.” Sherman expressed his opinion that such an issue should not obstruct the business of forming a new Constitution. John Dickinson attacked the slave trade as “inadmissible on every principle of honor & safety,” and James Wilson wryly observed that if defenders of the right of the slave trade were maintaining that South Carolina and Georgia would probably soon abolish it themselves, then there was no reason for them to stay out of a Union that might prohibit that trade.
In the midst of this critical rift, however, Gouverneur Morris, who had been one of the loudest talkers against slavery and had deemed it as “a nefarious institution” and “the curse of heaven,” now proposed a “bargain”: the slave trade, export tax, and navigation act clauses should all be recommitted to a special committee, and “these things may form a bargain.” In short, Morris realized that the benefits of special privilege to northern merchants in a navigation act would undoubtedly outweigh in the minds of northern delegates the attraction of an abstract principle.
The export tax and slave trade clauses were then referred to a special committee, one member from each state, by a vote of 7–3. Those who held out against Morris’ corrupt bargain were New Hampshire, Pennsylvania, and Delaware (Massachusetts was absent). On committal of the restrictive clauses in the navigation act, only Connecticut and New Jersey voted nay. In the course of the debate on this committal, Nathaniel Gorham of Massachusetts said very revealingly: “He desired it to be remembered that the Eastern States had no motive to Union but a commercial one.”
Two days later, on August 24, the grand committee returned with its dearly agreed upon bargain: (1) the importation of slaves could not be prohibited until 1800, but Congress could tax such imports at a rate no higher than the average duty on imported goods (the latter concern had already been hinted at by Rutledge and Charles Cotesworth Pinckney); (2) the two-thirds requirement on navigation acts was dropped. The northern (especially New England) merchants had the power to impose navigation acts, and the slave trade was to be tightly insulated for over a decade.
The first move on the committee report was Charles Cotesworth Pinckney’s amendment, which proposed to extend the term of an inviolate slave trade from 1800 to 1808—thus providing the slavers a twenty-year grace. Most significantly, Gorham of Massachusetts, who was the delegate most anxious to impose a navigation law, seconded Pinckney’s motion. Over the strenuous objections of James Madison, the twenty-year term was approved by 7–4 (only New Jersey, Pennsylvania, Delaware, and Virginia voted no). Not only Maryland but all of shipping-oriented New England voted cozily with the hardened slave states of the Deep South. After the maximum duty on imported slaves was changed to ten dollars per person, the slave-trade clause of the bargain was passed by the identical 7–4 vote.
At this point, on August 29, Charles Pinckney dramatically moved to scuttle the bargain with the North by proposing to restore the two-thirds requirement, not only for navigation acts, but for any law “for the purpose of regulating the commerce of the U.S. with foreign powers.” Pinckney eloquently denounced “oppressive regulations” that would be imposed by a tyranny of a majority of the North’s commercial interests. The liberal Luther Martin eagerly seconded the motion, and George Mason backed the proposal as protecting the rights of the southern minority. The North of course opposed Pinckney’s proposal on behalf of freedom of trade. The shocked George Clymer of Pennsylvania protested that “the Northern & middle States will be ruined, if not enabled to defend themselves against foreign regulations.” Gouverneur Morris indignantly protested, in the usual argument from paradox of the ultras, that navigation acts would really benefit the South. First, subsidies to American ships will multiply them and eventually make the shipping trade cheaper than at present—i.e., the southerners should sacrifice the current and foreseeable economy for a purportedly improved one in some distant and indefinite future. Second, only a navigation act subsidizing American shippers and seamen could build an American navy “essential to security, particularly of the S. States,” from some unspecified menace. The fact that the liberal opposition remained unconvinced by these specious arguments did not of course allay the enthusiasm of Morris and the other nationalists for the navigation acts.
The other ultra-nationalists of course objected to any such restriction in national power. James Wilson fumed at the problems of the minority and called for unchecked majority rule. Madison, picking up the sophistry of the proto-Keynesian multiplier from Charles Cotesworth Pinckney, maintained the nationalist paradox: the navigation subsidies would really benefit the South by increasing the wealth of the East and hence the consumption of southern products, and therefore all this would be a “national benefit.” As in all such multiplier paradoxes, the contra-“multiplier” effect of not spending the money seized to pay the subsidy, or the effect of coercively diverting trade from its most efficient and profitable channels, was conveniently overlooked. For his part, the blunt Nathaniel Gorham of Massachusetts was far more candid: to Gorham, the substance was simple and the threat explicit: “If the Government is to be so fettered as to be unable to relieve the Eastern States what motive can they have to join in it.”
Most illuminating were the statements of those southerners who were willing to betray the interests of the traders and the consensus of their sector, and indeed of the consensus of the country, for the sake of the corrupt bargain to save the slave trade. Pierce Butler announced his distaste of navigation acts, but he frankly opposed the motion of his South Carolina colleague in order to “[conciliate] the affections” of the eastern states. And John Rutledge warned that a navigation act was necessary for New England’s desire to secure the West Indies trade. After all, declared Rutledge, taking the grand view, “we are laying the foundation for a great empire.” But it was Charles Cotesworth Pinckney, one of the architects of the bargain, who delivered the fullest rebuttal to his cousin’s motion against navigation acts. He admitted that “it was the true interest of the S. States to have no regulation of commerce.” But the eastern states (New England) had lost much commerce since the Revolution, and “considering … their liberal conduct towards the views of South Carolina” on importing slaves “he thought it proper that no fetters should be imposed in the power of making commercial regulations.” Charles Cotesworth Pinckney ended in a remarkably oleaginous note: prejudiced against the New Englanders before the convention, he now found them good fellows indeed: “as liberal and candid as any men whatever.”
With this arrival of the compact by the leadership of the Deep South, the entire bargain was truly sealed. The bargain essentially benefited New England ship-owners and the southern slave owners at the expense of consumers and other beneficiaries of the freedom of trade. Charles Pinckney’s motion was then voted out of order by a vote of 7–4, and the scuttling of the navigation act clause was then approved unanimously. This scuttling was later reaffirmed again in a desperate attempt to restore the clause by George Mason. It was not, apparently, enough for the northerners to sell their anti-slave principles for the sake of a strong national government and navigation subsidy to eastern ship-owners. In the spirit of happy harmony and good fellowship now permeating the convention, the assembled notables helped fasten far more securely the chains of black slaves in America. The draft Constitution had simply provided that any slave escaping to another state should be extradited to the original state. Pierce Butler of South Carolina moved to add to this clause a fugitive slave (and servant) law, a motion that passed the convention not only unanimously but without one iota of debate. This infamous clause expressly provided that even if slavery had been abolished in the state to which the slave may flee, it must deliver up the slave on demand of his master.
Slavery was now driven into the heart of the Constitution: in the three-fifths clause, in the protection of slave importation for twenty years, in the fugitive slave clause, and even in the congressional power to suppress insurrections within the states. The fact that the words “slave” and “slavery” do not appear explicitly in the Constitution does not change unduly this judgement. Indeed, the habitual use of such terms as “other persons,” “such person,” or “Person held to … labor,” instead of “slave,” were simply shamefaced evasions by men who knew that they were betraying anti-slave principles dominant in their constituencies. To Luther Martin, therefore, the American Constitution was a grave betrayal of the idea of equal rights set forth in the Declaration of Independence. The Revolution, Martin strikingly declared, was grounded in defense of the natural, God-given rights possessed by all mankind, but the Constitution was an “insult to that God … who views with equal eye the poor African slave and his American master” [italics in original].2
Another deep failing of the Constitution from the standpoint of liberty was the failure to include a bill of rights—a prohibition against governmental interference with individual rights. All of the revolutionary state constitutions had included these cherished provisions, and on August 20 Charles Pinckney proposed clauses that amounted to a bill of rights, to a list of prohibitions on national government interference with individual freedom. Pinckney urged that the freedom of the press be “inviolably preserved,” and that soldiers may not be quartered in homes in peacetime without the owners’ consent. During the final act of the convention in mid-September, Elbridge Gerry and Hugh Williamson of North Carolina urged the requirement of jury trials in civil cases as well as criminal, Gerry warning of the “necessity of Juries to guard agst. corrupt judges.” This prompted George Mason, the author of the great Virginia Bill of Rights, backed by Gerry, to move for a committee to propose a bill of rights for the Constitution. But Gorham and Sherman protested that Congress “may be safely trusted,” and the convention, so feeble was its devotion to liberty, voted unanimously against any bill of rights. Pinckney and Gerry soon returned to the attack, moving to insert a clause “that the liberty of the Press should be inviolably observed.” Sherman scornfully asserted that the power was “unnecessary” since Congress had no power over the press, and the convention then voted the freedom of the press clause down by a vote of 4–7 (it was backed by Massachusetts, Maryland, Virginia, and South Carolina).3
[The numbering of the footnotes in this article differs from that in the original book. Please consult the book for all notes.]
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- [Editor’s footnote] For more on South Carolina and Georgia’s views regarding the slave trade, see Conceived in Liberty, vol. 4 (New Rochelle, NY: Arlington House Publishers, 1979), pp. 1293–94; pp. 179–80.
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- Staughton Lynd, “The Abolitionist Critique of the United States Constitution,” in Martin Duberman, ed., The Antislavery Vanguard (Princeton, NJ: Princeton University Press, 1965), pp. 238–39. On the bargain over slavery, also see Merrill Jensen, The Making of the American Constitution (Princeton, NJ: D. Van Nostrand Co., 1964), pp. 90–94.
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- [Editor’s footnote] Max Farrand, The Records of the Federal Convention of 1787, vol. 2, (New Haven, CT: Yale University Press, 1911), pp. 183, 221, 364–74, 449–53, 524, 587, 617.
U.S. presidential candidate Vivek Ramaswamy took aim at the Federal Reserve recently:
The reality is, if the dollar is volatile, it’s as bad as if the number of minutes in an hour fluctuated. None of us would be here at the same time. […] When the number of dollars [in relation] to a unit of gold or an agricultural commodity is wildly fluctuating, money doesn’t go to the right projects. It’s just wild—it doesn’t make any sense. That’s been an impediment to economic growth…
So, what we need to do as the next-step—of course I’d like to end it [the Fed]—is at least get rid of the dual mandate. We’re done managing inflation and unemployment. It’s like trying to hit two targets with one arrow, dramatically missing on both. And restore a single mandate: stabilize the US dollar as a unit of measurement against gold, silver, nickel, agriculture, and farm commodities. That’s it.
Then Paul Krugman took a swipe for no real reason.
twitter_newman.png While Ramaswamy makes some good points, especially about the Fed’s track record in achieving its dual mandate and the potential for monetary policy to cause misallocation of resources, we should recognize that his proposal is nothing but the old stabilization policy idea, this time in populist clothing.
In short, there’s no reason to consider money as a yardstick. We should think about money as a good in its own right, subject to changing demands over a changing supply. I think the people who use the “money as a yardstick” argument realize that prices aren’t arbitrary numbers. But if we manipulate the supply of dollars in an attempt to stabilize the price of a basket of Ramaswamy’s chosen goods, then we reject the importance of allowing prices to change. We substitute the coordinative process by which entrepreneurs arrange production for the sake of consumers’ wants and needs with an arbitrary rule (stable prices) based on an arbitrary basket (in Ramaswamy’s case: gold, silver, nickel, and agricultural commodities, which is itself an arbitrary basket).
It's alright for the purchasing power of money to change, especially in a commodity standard, because we live in a world of change. If people decide to accumulate more money by selling more and by buying less, then prices will decrease accordingly and simultaneously, which is to say the “purchasing power” or value of money will increase just enough to balance out the increased demand for money. As prices decrease, the opportunity cost of holding money increases, so there’s no reason to fear this process getting out of control. The same dynamic applies to any other good, say used cars. If the demand for used cars increases, their prices will increase as a result, and the process of buying and selling used cars ends with the stock of used cars in the driveways of those who have relatively higher demand.
Now, imagine what would happen if the demand for one of the goods in Ramaswamy’s basket increases. Suppose carrots are a part of the agricultural commodities sub-basket and that the demand for carrots increases. Normally, we’d see increased prices offered by consumers and corresponding alterations to production. Fewer factors of production would go toward other goods and more would go toward carrot farming. But if we try to stabilize the price of carrots, it arrests that consumer-directed process. The stock of carrots won’t be economized, and production won’t be shifted accordingly. We’d have a stable carrot price, but it would come at the cost of the market process that coordinates supply and demand.
However, the preceding example assumes that the policy goals are achievable. In practice it would be very difficult to expand and contract the money supply, which can be spent on all sorts of things, to target the price of a particular basket of goods. It would be even more difficult to do so without terrible unintended consequences. If, for example, we retain the traditional channels of monetary policy and increase the supply of money through credit markets, then we risk starting business cycles all for the sake of keeping the price tag of carrots the same. But even if other channels are used, like direct checks to consumers, there’s no way to guarantee that consumers will spend the new money in a way that will achieve the policymaker’s goal of stabilizing the price of the chosen basket.
This is not to say that Paul Krugman was right (heaven forbid). He just wants the Fed to have the discretion it needs to impose a Krugman-flavored policy, meaning he wants people he likes in charge of monetary policy. Krugman wants arbitrary rulers while Ramaswamy wants arbitrary rules.
While there’s probably a good debate to be had over whether rules or discretion makes for better monetary policy, the best policy is no policy. Arbitrary rules and arbitrary rulers are both arbitrary. The only rational, nonarbitrary way forward is to leave money production to the market.
Economic growth in the United States accelerated to a 2.4 percent annualized rate in the second quarter of 2023, picking up from 2.0 percent in the first quarter, and climbing well above the 1.8 percent rate predicted by economists. Many analysts are surprised that the US economy has continued to expand at a robust pace despite the Federal Reserve’s (Fed) aggressive tightening on monetary policy.
The Fed raised interest rates by more than 500 basis points (bps) since March 2022. And yet, the labor market remains tight with a very low unemployment rate at 3.6 percent while the Standard and Poor 500 stock index is up almost 20.0 percent since the beginning of the year. Economists are optimistic that the Fed could deliver a soft landing by reducing inflation close to the 2.0 percent target while avoiding a recession. But will the Fed’s magic really work?
Insufficient Monetary TighteningSince the financial crisis of 2008, the Fed had followed an “easy money” policy, but during the pandemic, the Fed leaned even further into this stance. As Consumer Price Index (CPI) inflation accelerated toward 5.0 percent, Fed Chair Jerome Powell belatedly admitted that inflation wasn’t transitory and shifted course. In March 2022, the Fed started raising interest rates but could not prevent inflation from surging to a peak of 9.1 percent in June 2022.
In 2022, it became apparent that the Fed’s tightening on monetary policy was not hawkish enough and that it was more concerned with avoiding a recession and instability of the financial sector. The interest rate hikes were piecemeal, and largely insufficient, as the real interest rate (the difference between the federal funds rate and the inflation rate) remained negative until April 2023 (figure 1).
The current positive real interest rate of about 2.0 percent is still rather low by historical standards and likely continues to artificially stimulate growth. Headline CPI inflation, helped by declining energy prices, may have decelerated to 3.1 percent in June but remains above the Fed’s 2.0 percent target. Moreover, core inflation—which excludes volatile food and energy prices—was at a sticky 4.8 percent in June as wage increases sustained strong consumer spending and second-round inflationary effects.
*Figure 1: Federal funds rate and CPI*
picture1.png ###### Source: Data from the Board of Governors of the Federal Reserve System and the Bureau of Labor Statistics.
Most important, the Fed cannot rely only on interest rate hikes to tighten monetary policy. It needs to also shrink its balance sheet via quantitative tightening (QT) to reverse its previous quantitative easing, a policy of massive purchases of Treasury and mortgage-backed securities to boost commercial banks’ reserves and liquidity while lowering longer-term interest rates. Quantitative easing made the Fed’s balance sheet explode to a whopping $9 trillion, as of May 2022 (figure 2), and analysts agree that by reducing bank reserves, QT should exert upward pressure on interest rates while curtailing lending.
*Figure 2: Total Fed assets (millions)*
picture2.png ###### Source: Data from the Board of Governors of the Federal Reserve System.
In June 2022, the Fed started implementing its QT policy by shedding its holdings of US Treasuries and mortgaged-backed securities at a rate of $95 billion per month. But this process was undermined by the need to provide liquidity to the banking sector after banks, such as the Silicon Valley Bank, experienced hefty deposit runs. As a result, the Fed’s balance sheet declined by around $600 billion (or about 8.0 percent) from its peak to about $8.3 trillion by the end of July 2023, although the volume of held securities outright dropped by about $900 billion over the same period.
Still Abundant Bank ReservesSome analysts claim that the Fed can use QT while also providing additional liquidity to select banks in distress (i.e., have its cake and eat it too). This is obviously not true. The main purpose of QT is to withdraw bank reserves via asset sales to reduce the banks’ lending capacity. But what we see is that bank reserves remained at historically high levels (figure 3) despite the Fed’s attempts at monetary tightening. Since the Fed’s Board of Governors reduced reserve requirement ratios on net transaction accounts to 0.0 percent as of March 2020, these reserves are de facto excess reserves on top of which banks can multiply credit. This means that banks still have ample room to lend even if the Fed has hiked the federal funds rate, which may also explain the uneven rise of loan interest rates and resilience of credit activity.
Figure 3: Total bank reserves
picture3.png ###### Source: Data from the Board of Governors of the Federal Reserve System.
Impact on Interest Rates and CreditMarket interest rates went up since the Fed started its monetary tightening (but not proportionally), reflecting lending maturities and other credit market specificities. The Fed hiked the federal funds rate by 525 bps between March 2022 and July 2023. The bank prime loan rate, which is one of several base rates used by banks to price short-term business loans, mirrored the increase in the Fed’s key rate almost one to one (figure 4).
On the other hand, although longer-term ten-year US Treasury yields rose above 4.0 percent, they went up by less than 200 bps over the same period. The same goes for other bank loan interest rates such as five-year car loans (which went up on average by 330 bps until May 2023), two-year personal loans (which increased by 210 bps), and fifteen- and thirty-year fixed mortgage rates (which rose by close to 300 bps).
Figure 4: Market interest rates
picture4.png ###### Source: Data on the bank prime loan rate, the federal funds rate, the ten-year Treasury yield, and the finance rate on new auto loans from the Board of Governors of the Federal Reserve System.
This shows that a majority of large and well-capitalized US banks increased loan interest rates much less than the Fed while also paying close to zero interest rates on bank deposits. They can afford it because they have plenty of reserves and liquidity, which the Fed did not mop up, and they continue to lend to the economy. Although the annual growth in total bank credit decelerated from close to 7.0 percent in 2022 to −0.9 percent in the second quarter of 2023, it was primarily driven by the decline in credit to the government, or investment in Treasury securities. At the same time, consumer and real estate loans grew annually by more than 6.0 percent and 5.0 percent respectively in the second quarter of 2023, while commercial and industrial loans recorded a small dip and remained flat in the first half of 2023 (figure 5). As lending to the private sector remained positive, it is unsurprising that economic output also continued to expand.
Figure 5: Private sector credit
picture5.png ###### Source: Data on consumer loans, real estate loans, and commercial and industrial loans from the Board of Governors of the Federal Reserve System.
ConclusionThe Fed’s magic trick to achieve a soft landing while aggressively tackling inflation is only smoke and mirrors. The Fed’s piecemeal interest rate hikes were not only insufficient to slow the economy down, but they also received very little support from quantitative tightening (i.e., the withdrawal of the liquidity that was previously injected into the system). Left with plenty of reserves, banks helped the economy to grow by continuing to lend while also refraining from increasing lending rates as much as the Fed. As a result, taming inflation is not yet a done deal, as core inflation remains sticky and well above the Fed’s target.
The money supply shrinkage signals economic trouble ahead when the monetary overhang is likely to be worked out in earnest. The Fed’s dovishness has just pushed forward a day of reckoning. Moreover, a steady deterioration of fiscal deficits alongside Gargantuan public projects to boost domestic demand and spur high-tech green infrastructure investment magnify recession risks as the Fed may be forced to further tighten to reduce inflation pressures. Fitch’s recent downgrade of the US’s long-term credit rating over rising public debt and deterioration of governance is just another confirmation that macroeconomic policies have been unsound for too long.
While the government promotes CBDCs as tools for "inclusion," it is more likely that they will be another vehicle for federal intrusion.
Original Article: "CBDCs: The Ultimate Tool of Financial Intrusion"
Peter Lewin joins Bob to discuss his work with Nicolás Cachanosky on uniting Austrian capital theory with mainstream finance.
Peter's New Book on Capital and Finance: Mises.org/LewinBook
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime. Use Code "HA23" for $45 off admission: Mises.org/Nashville23
This book offers an account of Hegel that will surprise many readers—at least it surprised me. The political philosopher Leo Strauss often criticized “historicism,” the view that human beings do not have a fixed nature or essence. Instead, as José Ortega y Gasset put it, “Man, in a word, has no nature; what he has is—history.” G.W.F. Hegel was one of the foremost historicists, so you might expect Strauss to attack him. But, although he does suggest that Hegel’s philosophy has problems, his presentation is sympathetic.
In this week’s column, I’m going to comment on a few points of interest, but first I should say something about the book itself. It is a transcript of a seminar on Hegel’s Philosophy of History that Strauss offered at the University of Chicago in 1965, sometimes supplemented with notes from a similar course Strauss gave in 1958.
In his earlier Natural Right and History, Strauss argues that historicism had no adequate defense to the barbarism of Nazism and communism, but here he is keen to acquit Hegel of being a precursor of these evil regimes. Hegel, he says, believed in the rule of law:
Perhaps you are a victim of those people who call Hegel a deifier of the state and a precursor of totalitarianism, which is simply not true. Hegel accepted the constitutional monarchy of the nineteenth century, which was quite authoritarian but the opposite of totalitarian. The freedom of the economic sphere was taken for granted. It had to be protected, of course, by prohibitions against fraud, the protection of property, and so on. That was clear. In this sense, then, Hegel is a liberal.
If Hegel is a historicist, though, doesn’t this mean that he rejects natural rights? Strauss doesn’t think so:
What he would say is, for example, that the principles of property, the principles of the inviolability of the person, all that kind of thing, are things that do not depend on human arbitrariness or legal enactment but are the truly natural, rational principles, which, for Hegel cannot have been known always . . . Hegel is not a relativist; on the contrary, he is a big bogey for all relativists—you know, the absolutist par excellence!
Among the most important of the rights that Hegel defended is freedom of religion. Hegel thinks that the state can require people to join a church but each person is free to decide which one:
In other words, the modern state is tolerant. That is absolutely essential. And therefore in this sense the state is indifferent to the inner life. Whether a man is a philosopher and his peculiar religious philosophy is the philosophy of religion which Hegel presents, or whether he is a nonphilosophic Protestant, Catholic, or Jew, or whatever it may be, this doesn’t make any difference to the state. . . . The recognition of the rights of man, the recognition of the infinite value of the individual, this is much more important than the other things, because, according to Hegel, this is the full realization of Christianity.
Strauss makes clear that he isn’t a Hegelian, despite his defense of Hegel against the common portrayal of him as an amoral precursor of the total state. To understand Strauss’s rejection of Hegel, a good place to start is with a phrase in an earlier quotation. According to Hegel, as Strauss construes him, the rational principles of right “cannot have been known always.” Reason comes to consciousness of itself in the progress of human history. Nature is a creation of mind; it is not, as classical philosophy held it to be, an independent realm or cosmos. “And in Hegel there is no cosmos. You can say there is no cosmos proper. The material universe, as it is called, is of no great importance to Hegel, but the place—I speak now provisionally—of physis or cosmos is taken in Hegel by the historical process.”
You might object to Hegel’s account of the development of reason in this way:
Hegel claims that reason develops historically. But if what he claims is true, how can he know that we have reached the final stage in which the universally true principles of right have been discovered? How do we know that our belief to that effect isn’t just another historical stage?
As Strauss makes clear, Hegel is fully aware of this question. His answer to it is that we can see by looking at the liberal bureaucratic state that it leaves open no fundamentally new possibilities. History has come to an end: events of course will continue to happen, but these won’t require that we transcend the liberal bureaucratic state.
This is a difficult notion to understand, but an analogy may make it clearer. Ludwig von Mises argues that there are only two forms by which a complex economy can be organized: capitalism and socialism. No intermediate system is stable, and socialism will collapse into chaos. In Mises’s view, we can grasp that his list exhausts the possibilities. In like fashion, Hegel says we are in a position to see that the liberal bureaucratic state is final. (I hasten to add that Mises is not a Hegelian—quite the contrary.)
Strauss’s response to Hegel’s contention is striking. He doesn’t argue directly that Hegel is wrong, trying to show that there are possibilities Hegel has overlooked. Instead, he suggests that if Hegel is right, human existence would become unheroic:
In Hegel’s sense, I think we can see that there will no longer be historic individuals. There will be more or less good administrators, but no longer historic individuals. I repeat the sentence [from Hegel] “Science and the corruption of a people are always inseparable from each other.” . . . this is the great problem of Hegel. What is the end of history, and what does this mean? Is it possible to live on that basis? One could say that this was the beginning of Nietzsche’s criticism of Hegel.
I haven’t tried to evaluate Strauss’s account of Hegel’s philosophy of history, just to outline some of its main features. Readers accustomed to very different interpretations might find Leo Strauss on Hegel valuable. I hope that I don’t get messages telling me that there is no need to read the book because Leonard Peikoff has told us in Ominous Parallels all we need to know about Hegel.
The covid restriction machinery is being ramped up in time for fall, despite the fact that covid poses little danger.
Original Article: "The Unwelcome Return of Covid Restrictions and Lockdowns"
It is no coincidence that Nigeria, with a population of over two hundred million, became the first serious global testing ground for central bank digital currencies (CBDC) implementation. Not only is it the wealthiest country on the continent where the globalists are making plans, but Nigeria also possesses significant hydrocarbon and metals reserves and talented citizens. For these reasons, it can serve as a relatively good example for the rest of the poorest continents.
Geopolitical considerations are not insignificant. The Davos globalists, who have been present in Nigeria for some time, feel that if they do not take care of Nigeria, the Russians, present there since the Soviet era, will do it. Political interests in Nigeria are also being sought after by the Chinese, who have been building railways, roads, airports, and mining companies in Nigeria while simultaneously cultivating good relationships with tribal and political leaders.
A CalendarHere is the timeline of the establishment of eNaira, the Nigerian CBDC. Although the attempt to digitize the Nigerian currency ended in failure, it carries a lesson for the rest of the world.
On October 25, 2022, one year after the national referendum on the establishment of CBDC in Nigeria, in which 99.5 percent of the citizens voted against digitalizing the currency, the then president of the country, Muhammadu Buhari from the Fulani tribe, issued a decree that despite the opposition of the majority of the nation, the financial revolution would still take place.
In December 2022, the government in Abuja launched a total attack on cash. The situation resembled events from 2016 in India when the government demonetized the highest denomination banknotes. The governor of the Central Bank of Nigeria (CBN) announced that by the end of January 2023 (later extended to February 10), Nigeria would fully transition from physical cash (naira) to eNaira, the central bank’s digital currency. People were required to transfer their cash holdings to the CBN, which would service them under the new monetary regime. The executive order was carried out by the then governor of the CBN, Godwin Emefiele from the Ibo tribe, a general and the only Christian in the country’s Islamic ruling elite. Well-informed sources claim that the guidelines, both in know-how and digitalization supervision, were provided by circles close to the International Monetary Fund (IMF), the World Economic Forum (WEF), and even the Bureau of Industry and Security.
When February 10, 2023, arrived and about 80 percent of the $7.2 billion, previously in private hands, ended up in digital accounts as CBDC, the poorer segment of the population (over half of the people) still did not have bank accounts. Despite assurances from the CBN that physical cash would not be eliminated until CBDC was fully operational, half of the nation was left with old, worthless banknotes! Commuters to and from the capital were left without cash to pay for their return transportation. Many small businesses, a significant part of the economy that relies on cash payments, closed because their customers had no money to pay.
It is easy to understand why violent riots erupted in the country on February 16, 2023, resulting in casualties. Deprived of their entire wealth, desperate and hungry people took to the streets, demanding the reinstatement of the validity of the old paper currency. Rumors circulated that the Buhari government had issued a new paper currency, “new naira,” to be used temporarily.
By the end of January 2023, transactions using eNaira operated smoothly but were limited to representatives of the middle class—totaling about thirty-five to forty million people in Nigeria. The vast majority of Nigerians who used cash in their daily lives ran around fruitlessly searching to exchange their old money for anything they could eat. The rumor that Buhari’s government issued new currency was confirmed in the last days of January 2023.
The problem was that the new cash was nowhere to be found. Even today, when the central bank has withdrawn from the experiment, the supply of the new cash did not even reach 10 percent of the entire Nigerian currency supply. There is no new money anywhere; even if it were, there is no possibility of mass exchanging the old, invalidated naira for the new. Despite the events of February 16, the government acknowledged that the “newly issued currency is intended to meet the demands of the protesters and restore their purchasing power.”
Even the brightest Nigerians were unable to understand how the government planned to eliminate existing cash and issue new money just a few weeks before the general elections scheduled for February 24, 2023. Didn’t the government risk an obvious defeat amidst the chaos? Well, no! The new cash was the guarantee of electoral victory: it was intended to be distributed to the poor but significant majority, so they would know who to vote for democratically.
As predicted, the new president of Nigeria is a representative of the ruling party, the same one responsible for the chaos. It’s important to note that we’re talking about a country that was already struggling with a currency crisis, soaring inflation, and fuel shortages (despite being Africa’s largest oil producer), where a severe lack of money and never-ending queues at ATMs have been prevalent for years. Even dollars were scarce despite black-market premiums.
End of the ExperimentThe situation of uncertainty and danger persisted for three and a half months until the inauguration of the new president, Bola Ahmed Tinubu from the Yoruba tribe, a former civilian governor of Lagos state. On May 29, 2023, approximately 108 days after the actual cash elimination, President Tinubu restored the validity of the old currency, alongside with the new naira and eNaira.
What led Tinubu to make such a gesture? Was he forced to do so by overseers of the experiment from the IMF, the Fed, or the WEF? If so, why did it take them three and a half months to condemn a hundred million people to starvation?
Political observers in Abuja believe that no one intervened. President Bola Tinubu put an end to the experiment and stuck to his position. Once he invalidated the CBDC, he ordered an investigation into the CBN, resulting in the unprecedented detention of the former CBN governor, Godwin Emefiele, on June 10, 2023. In late July the court released him from custody, but the security service rearrested him and is holding him in custody. The investigation is ongoing. Influential protectors from the IMF, the Fed, and even the White House, which singled out Nigeria as the global debutant of currency digitalization, remain silent.
From the perspective of the start of the monetary experiment in Nigeria, it appears that the government in Abuja had neither the appetite nor a clear plan for this digitalization. The advisors from the World Economic Forum, the IMF, or perhaps even the Bureau of Industry and Security lacked a plan too, despite their strong adherence to digitalization strategies. Why didn’t these overseers react and halt the digitalization? Was there another purpose for it? Depriving one hundred million people of their means to live for three and a half months borders on an act of genocide.
SurvivalYet, a tragedy did not occur. How did poor Nigerians survive for three and a half months without money, reserves, or any help from the state? Nigerians, unlike most residents of the Group of Seven countries, don’t believe a word their government representatives say. Feeling deceived once again, when it became clear that neither the old nor the new naira worked, people took to the streets. Shots were fired, and a few people died.
In response to refusals to accept their old cash, invalidated at the end of January, people without bank accounts, legal cash, or any savings resorted to traditional methods: barter and trade credit. Matchstick holders exchanged them for yams with farmers. Soap producers traded for fuel, and small business owners extended longer credit terms to their contractors. Teachers and cleaners from local schools sought help, mainly food, from the families of their students.
Nigerians’ natural lack of faith in statism, something wealthy citizens of Germany or Canada might consider imprudent, prevented a similar outcome as that of the Canadian Freedom Convoy. It is, after all, due to their country’s monetary policy that German retirees are experiencing difficulties.
According to Nigerians, a weak, small state might not help them, but at least the value-added tax in Nigeria is at most 5 percent and tax collection does not exceed 25 percent. Healthcare may be deficient, but people have more trust in their shamans than the bored and Big Pharma–corrupted doctors. Speeding fines are rare due to a lack of police officers, but there is no labor inspection and no one forces anyone to take an experimental vaccine.
Tribal groups, rural authorities, and neighbors provided assistance. Families, which in African life are the ultimate support, helped. Self-help was the basis of survival for the Nigerians deprived of any assistance. I’m writing this because soon much more statist nations will undergo similar currency digitalization.
EpilogueThe situation in Lagos, Abuja, and Port Harcourt is returning to normal, and eNaira is one of several legal currencies. After the US dollar exchange rate was freed, black-market prices fell to the official level. The Nigerian Exchange Group, expressed in US dollars, has risen by 37 percent so far in 2023. Naira inflation is declining faster than inflation in the US. Since Emefiele’s arrest, the specter of a CBDC monopoly has disappeared. Those who find electronic money more convenient use it. When that convenience is lost, they will switch to cash or its digital alternative. People now know that there wouldn’t have been such chaos if the currency digitalization was voluntary and not accompanied by cash delegalization.
Will Nigeria’s case help other global central bankers and citizens arrive at a similar conclusion? Probably not, so we await the next economic disaster.
Matthew Mohlman joins Good Money with Tho Bishop to discuss his work with Monument Ventures. Matthew and Tho discuss the need to build better alternatives to woke financial institutions, and the limit of political solutions to address the problem.
Join Bob Murphy, Patrick Newman, Jonathan Newman, and Murray Sabrin in November for a Mises Circle in Ft. Meyers, FL on The White House, the Fed, and the Economy. Use promo code Tampa23 for $10 off registration.
Matthew's Article on JPMorgan's Progressive, Anti-Faith Agenda: Mises.org/GM21aOn Politically-Motivated 'De-Banking': Mises.org/GM21bVivek Ramaswamy on ESG: Mises.org/GM21cMonument Ventures: Mises.org/GM21dGood Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
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On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop talk about the Chinese economy. While some of the left see China as a model for governing, those on the right often assume their rise relative to the US is inevitable. Ryan and Tho look at the recent challenges to the Chinese economy.
Recommended Reading"The Chinese Economy: Market Socialism with Chinese Characteristics" by Antonio Graceffo: Mises.org/RR_149_A
"China Enters the Doom Loop" by Peter St. Onge: Mises.org/RR_149_B
Download Anatomy of the State for free at Mises.org/Anatomy
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
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PROMO CODE: RothPod for 20% off
For the past fifty years, the US has not had a military draft. Unfortunately, the end of conscription did not mean US military interventions abroad ended.
Original Article: "How Conscription Ended Fifty Years Ago"
The Austrian(TA): What is the global currency plot, and who benefits most from the success of this effort?
Thorsten Polleit (TP): The global currency plot denotes a rather inconvenient truth: the existence of states (as we know them today) sets into motion a dynamic process toward creating a single world fiat money controlled by a world central bank, and most likely a central world government. The beneficiaries will be the very few—the “elite”—in charge of running the state and those few privileged by the state, such as big business, big banking, Big Pharma, and Big Tech. However, the great majority of the people will suffer a very great disadvantage. In fact, a single world fiat currency would most likely entail tyranny.
TA: The first half of the book is largely focused on economic theory and method. Why is economics so important to understanding the global fiat currency threat?
TP: I would argue that thinking about the method of economic science is actually the most important part of all of this. You know, economics is not an empirical science but must be conceptualized as a science of the logic of human action—or “praxeology,” as Ludwig von Mises called it. The logic of human action allows us to understand that there are regularities in human reality to which we must adapt our actions to succeed. It also makes us understand what will happen if— under certain conditions—actions that are contrary to the logic of human action are taken. For instance, we can know in advance (without having to resort to any kind of testing) that a state—defined as a coercive territorial monopoly—will (other things being equal) continue to expand no matter what; that it will seek control of money, replacing commodity money with its own fiat currency; and that states will form a cartel and strive to eventually establish a world government with its own world fiat currency. The logic of human action reveals these dynamics that many people are most likely unaware of.
TA: What role do central banks such as the Federal Reserve play?
TP: It may be hard to swallow, but central banks were not created for the greater good but to support the state and special interest groups. After World War II, the US became the dominant economic and military power in the world, and the Federal Reserve (the Fed), founded in 1913, became the world’s most powerful central bank, issuing the US dollar, the world’s leading reserve currency. It is fair to say that the Fed does indeed call the shots in the international financial and economic system. The Fed acts as the unofficial world central bank. Central banks play a crucial role in making a fiat currency system possible, and if they form a cartel, they can basically create a single world fiat currency.
TA: The dollar has played a central role in the global economy for decades. Does the dollar’s global hegemony help or hinder efforts to create a single global currency?
TP: The dominance of the US dollar is certainly helping to push the world toward a single fiat currency. Just imagine a major crisis that will eventually hit us. When the worldwide fiat currency regime starts to unravel, the US dollar will likely be the last man standing. In such a situation, it is also very likely that many countries will try to peg their currency to the US dollar (i.e., effectively adopt the US dollar as base money). It may not sound realistic right now, but imagine a scenario in which the United States and China join forces and endorse exchange rate fixing through the International Monetary Fund’s special drawing rights, later declaring the exchange rates irrevocably fixed. The world would be closer to a single world fiat currency than ever.
TA: What would it look like if the dollar were replaced by some sort of new international currency?
TP: Most recently, the BRICS countries (Brazil, Russia, India, China, and South Africa) have openly challenged the hegemony of the US dollar and considered introducing their own currency. What could it look like? It could be a basket consisting of various national fiat currencies or a new gold-backed unit of account. I believe the only challenge to the dominance of the US dollar might come from a gold-backed BRICS money. But even then, the US could also link the US dollar to the Federal Reserve’s theoretical gold holdings (which are actually owned by the Treasury). As you can see, dethroning the US dollar will not be easy under the current conditions. Whatever comes from states pursuing their own monetary interests, we should not get our hopes up that the states will provide sound money to the people. If states monopolize money production, they will use it predominantly to serve their own needs.
TA: You note that the world needs free market money, and you say it could be anything the market accepts—from gold to cryptocurrencies. Why is market-based money better?
TP: There are only two ways human beings can interact: voluntarily or coerced/violently. Voluntary cooperation is economically and ethically acceptable; coercion and violence are not. The free market is voluntary. In a free market in money, people are free to choose the type of money that best suits their needs and people are free to offer a good people may want to use as money. The outcome will be sound money—simply because no one (in their right mind) will demand bad money. For instance, people could decide to use gold as a base money and implement digital gold payment systems. If people want prosperity and freedom, nationally and internationally, they must abandon fiat monies, end the government’s control of money, and embrace a free market in money. The alternative is tyrannical government money, with the unpleasant prospect of eventually ending up with a tyrannical fiat world currency. I hope my book will inform and stimulate discussion on these extremely important issues.
It’s the deposits. Bankers never used to worry about the money customers left in their banks. When deposited, the money was lent out while depositors could come and get their money anytime if it was a demand deposit. Thus, the depositor and the borrower had the use of the same money at the same time. Murray Rothbard called it fraud.
Now it’s 2023 and Scott Hildenbrand, the chief balance sheet strategist at Piper Sandler, tells Joe Weisenthal and Tracy Alloway on Bloomberg’s Odd Lots podcast,
And so if you had told me, Joe, or Tracy five years ago, you had me on here and you said, “There’s a bank and all they’re going to do is buy treasuries and all of their deposits are in checking accounts. And by the way, they’re going to fail,” I would’ve laughed at both of you. I wouldn’t have come back. I would have been like, “You all are crazy.”
Rothbard wasn’t so crazy after all.
Hildenbrand was on Odd Lots to explain how tough things are for small community banks. Jamie Dimon’s JPMorgan has all sorts of revenue streams, but the community bank has to take deposits, lend them out, and live on the difference in interest rates. Silicon Valley Bank was “not like the WAMU days or not It’s a Wonderful Life. It was three hours and $42 billion. That’s what happened.”
Hildenbrand made a point that’s never mentioned: banks don’t make money lending; banks make money because “they don’t pay at market rates on the deposit side.” Banks don’t typically pay anything on checking account deposits. That is where banks earn their spread. It didn’t matter because it used to be that bank customers were very loyal. Bankers could count on that checking account money staying in place. Not so much anymore. Money moves fast for two reasons according to Hildenbrand: technology and demographics.
Back in the day customers were very loyal but had very little trust. Today, “there’s a ton of trust. They’ll move money around on phones. They don’t even know the name of the bank they’re banking at,” Hildenbrand said. “They’ll move it so quickly. But there’s very little loyalty. And therein lies the difference in why we’re struggling with how to determine how to manage and hedge a balance sheet from a deposit perspective.”
Bankers didn’t realize the effects on deposits of technology, social media, and demographic changes from a liquidity perspective in a higher rate environment. A decade or two ago a community bank had almost half of its deposits in CDs. And, as Hildebrand says, “That gave banks time.” Now bankers won’t get that kind of time due to demographics.
Hildebrand interviews lots of young people for Piper Sandler who come to New York to learn about community banking. As smart as these young people are, he quipped, “I always have a question they can’t answer. Do you know what a CD is? And they’ve never heard of it, whether it was banking or music.” A certificate of deposit (CD) is a savings product that earns interest on a lump sum for a fixed period of time. The money must remain untouched for the entirety of their term or penalties or lost interest may apply. As an incentive for lost liquidity, CDs usually have higher interest rates than savings accounts.
Nowadays, “people want CD rates with money market flexibility and operational flexibility,” Hildebrand told Alloway and Weisenthal. “We have no contractual liabilities on most bank balance sheets anymore.”
Since the spring spate of regional bank failures, only one bank has failed—the $139 million Heartland Tri-State Bank in Elkhart, Kansas. But more failures and consolidations are coming. Hildebrand said half the banks in the country are trading at less than book value (assets-liabilities/shares). That means investors don’t trust the loan and investment values on bank balance sheets. He believes from the four thousand banks the United States has now, the number of banks will shrink to two hundred over the next ten to fifteen years.
Rothbard wrote in Making Economic Sense, “The banking system, in short, is a house of cards.” The house of fraud will have fewer cards going forward.
Economic calculation is not an either-or proposition. Even in so-called market economies like that of the USA, there is plenty of government intervention that distorts market processes.
Original Article: "Economic Calculation Is Nonbinary"
Many economists believe that technical knowledge is the key to economic growth. If this is the case, why do third world economies continue to experience poverty, since these economies can access the same technical knowledge as the developed world? Therefore, technical knowledge being the key to economic growth is not the case as economic growth depends upon the pool of consumer goods.
Pooling Consumption GoodsTo maintain life and well-being, man must have at his disposal an adequate amount of final consumer goods. These goods, however, are not readily available—they have to be extracted from nature. Without tools at his disposal, man can only secure from nature the minimum goods for his survival.
The current state of available goods determines the creation of labor-enhancing tools. If the pool of goods can only support one day of work, then creating a tool that requires two days of work will not be undertaken, setting the limit on the projects that can be implemented.
Richard von Strigl writes:
Let us assume that in some country production must be completely rebuilt. The only factors of production available to the population besides labourers are those factors of production provided by nature. Now, if production is to be carried out by a roundabout method, let us assume of one year’s duration, then it is self-evident that production can only begin if, in addition to these originary factors of production, a subsistence fund is available to the population which will secure their nourishment and any other needs for a period of one year. . . . The greater this fund, the longer is the roundabout factor of production that can be undertaken, and the greater the output will be.
It is clear that under these conditions the “correct” length of the roundabout method of production is determined by the size of the subsistence fund or the period of time for which this fund suffices.
Eugen von Böhm-Bawerk writes: “The entire wealth of the economical community serves as subsistence fund, or advances fund, and, from this, society draws its subsistence during the period of production customary in the community.”
Whatever weakens that subsistence pool undermines the prospects for economic growth. People engaged in production require access to final consumer goods, or the subsistence pool, to support themselves. Improving that infrastructure of access enables economic growth, so improving that infrastructure occurs because of an increase in the subsistence pool.
Allocating consumption goods toward maintaining and expanding that infrastructure permits savings. Some people, rather than consuming the goods at their disposal, instead channel these goods to those engaged in the production of tools and machinery, which enable a better infrastructure. Improving the infrastructure permits both an increase in consumer goods and the introduction of services that were not available before.
Economic Growth Needs the Expanding Pool of Consumer GoodsNew ideas can do very little for real economic growth without an expanding pool of consumer goods. In Man, Economy, and State, Murray Rothbard wrote that technology, while important, must always work through the investment of capital in order to generate economic growth. Quoting Ludwig von Mises, Rothbard writes:
What is lacking in these [underdeveloped] countries is not knowledge of Western technological methods (“know-how”); that is learned easily enough. The service of imparting knowledge, in person or in book form, can be paid for readily. What is lacking is the supply of saved capital needed to put the advanced methods into effect.
So, regardless of technological knowledge, real economic growth requires an expansion of savings. An expansion in savings permits an increase in the stock of capital goods, while the increase in capital goods permits an increase in economic growth. Technological knowledge by itself is insufficient.
While knowing how to make a particular tool is obviously important, the information alone is not enough. Parts to make the tool must be produced before they can be assembled into a final product, and people employed to produce these parts in the meantime must have access to final consumer goods in order to be able to live.
Intermediate GoodsIf the subsistence pool comprises final consumer goods, how do producers of intermediate goods—like tools and machinery—contribute to this pool? These producers do not directly supply final consumer goods but, instead, offer a means to secure these goods, as well as time.
According to Rothbard:
Crusoe without the axe is 250 hours away from his desired house; Crusoe with the axe is only 200 hours away. If the logs of wood had been piled up ready-made on his arrival, he would be that much closer to his objective; and if the house were there to begin with, he would achieve his desire immediately. He would be further advanced toward his goal without the necessity of further restriction of consumption.
With the introduction of more advanced tools and machinery, new consumer goods can be produced, which were not available prior to the creation of these new tools. If the acquired tools and equipment turn out to be useless, then the savings of those who purchased these tools and equipment are squandered. Saved final consumer goods that were transferred to the producers of these tools and machinery are therefore simply consumed and make no contribution to the subsistence pool. We can conclude, then, that the production of useless tools and equipment weakens the pool of consumer goods.
How about services such as medical services? What about things such as education or the services offered by music and the arts? Should we include them in the subsistence pool?
Without the availability of final consumer goods, services such as art and medical services cannot be generated. Those providing these services must also be sustained. Once the collection of consumer goods increases, however, the economy can create more services.
ConclusionContrary to popular economics, we suggest that the key for economic growth is not technical knowledge but the expansion of consumer goods, which requires savings. Technology is necessary to know how to create and build capital goods. However, even there, the goods that are created through technological advances must be able to satisfy consumer needs and desires.
Argentina’s problem is not Milei.
The Central Bank of Argentina does not have to devalue the peso due to the victory of Javier Milei in the primaries. The Central Bank of Argentina and the Peronist government have been devaluing the peso and sinking the currency for years. It must devalue because the central bank has run out of reserves.
Argentina is not facing an “anti-system” or “far-right” threat. They already have a far-left and anti-system government. The extractive and confiscatory monetary and fiscal policies of the XXI Century Socialism championed by Peronist Fernandez de Kirchner. The so-called “Inclusive” monetary policy, as Axel Kicilloff, Cristina Fernandez de Kirchner’s ex economy minister, denominated it.
The Peronist policy of maximum interventionism as well as fiscal and monetary irresponsibility has destroyed Argentina and left the central bank without reserves.
The peso has lost more than 90% of its value against the US dollar since Alberto Fernández took office, and inflation in Argentina already exceeds 110% annualized, with 39% of the population living in poverty.
In the years of the “XXI Century Socialism” governments of Cristina Fernández de Kirchner and Alberto Fernández, a completely uncontrolled increase in the monetary base obliterated the local currency. The center-right Macri government, which took office briefly between Kirchner and Fernandez, made the mistake of thinking that gradual and soft measures could curb the inflationary spiral, especially because he did not consider the evidence of the time bomb left by Fernandez de Kirchner in future monetary issuance commitments via short-term debt at very high rates accumulated at the central bank (the Leliq, Lebac, and Pases). This central bank remunerated debt grew by 22 billion equivalent US dollars during the years of Cristina Fernández de Kirchner. The Macri government reduced it by $26 billion. These issuances of “remunerated” central bank debt are future monetary base increases and guaranteed inflation.
The government of Alberto Fernández has left a timebomb of Leliq and Pases that exceed 12% of GDP. Thus, a gigantic devaluation of the peso is guaranteed since the central bank’s liabilities exceed its reserves by several times. This is why the central bank must devalue.
According to data published by the Central Bank of the Argentine Republic in August 2023, Argentina has carried out the largest monetary experiment in the region, second only to Venezuela. The Monetary Base increased by 46.2% annually, 117.2% in two years, and 172% in three years. However, the monetary base, including deposits and the aforementioned Leliq, has soared by 392.6% in three years. This disaster is the legacy left by the Fernandez government.
Peronism embraced “XXI century socialism” and implemented the most damaging “exchange clamps” (cepo cambiario) that drain exporting sectors of reserves and force them to convert their dollars at fictitious exchange rates. This is state-sponsored theft that has destroyed the entry of new reserves to the country. Instead of maximizing reserves, this policy stopped export growth.
With the recent creation of the so-called “soybean dollar” (dólar soja), an artificial rate for agricultural producers to liquidate their foreign currency, in Argentina there are more than ten exchange rates.
How can a country have ten exchange rates against one currency? The answer is simple. All those exchange rates imposed by the government are forms of expropriation of wealth to confiscate the dollars of exporters and citizens at an unrealistic rate.
The government expropriates the recipients of US dollars with an exchange against the peso that the government itself would not find in any transaction on the open market.
This monetary madness finances uncontrolled political spending, as the Argentine state cannot be financed via debt as there is no confidence in its solvency as an issuer since it has defaulted on several occasions.
There is no real local or global demand for pesos, as investors and citizens know that the government will continue to print currency without control.
In Argentina, in 57% of the provinces, state employment is greater than private employment. The state increases public spending more than tax receipts and inflation, financing it by printing more pesos, which creates more poverty and higher inflation. Meanwhile, the taxation implemented by the Peronist governments is one of the most confiscatory in the region, reaching 106% of its profits for a Small and Medium Enterprise that pays all its taxes, according to the Doing Business report.
Thus, the government promises huge subsidies in a currency that is constantly losing value and presents itself as the solution to the problem created by its own fiscal and monetary policies. Peronism “gives away” money that is printed massively and has no value. The result, eighteen million poor citizens.
Many great Argentine economists have analyzed in detail the importance of dollarizing to end this spiral of perverse incentives that leads the government to make citizens more dependent by issuing a currency without value or demand. From Nicolas Cachanosky to Steve Hanke and many others, they remind us that Ecuador, Panama, or El Salvador successfully dollarized.
Argentina’s problem is not dollarization, but the evidence that they have an unviable and failed currency. Argentina is already dollarized in large part because citizens are fleeing the local currency.
Why is the Peso a worthless currency? Because the government and the central bank have been implementing their own Modern Monetary Theory under the idea that the country’s problems can be solved by issuing more currency. After years of monetary destruction, global and national demand for the peso is at historical lows.
The peso is, again in 2023, one of the worst currencies in the world against the US dollar, while the increase in the monetary base of the central bank of Argentina is an insane 46% year-to-date. And some people wonder why inflation is over 100%.
No, Argentina does not face an abyss if Milei becomes president. Argentina, a rich country with enormous potential, is already in the abyss.
Just like Chavismo in Venezuela, the Peronist governments have destroyed the currency and the productive fabric to boost political spending and turn the country into an economic wasteland where the salaries and savings of citizens are confiscated via high direct and indirect taxes as well as the inflationary tax.
Milei wants to end this monetary and fiscal insanity with policies that are not radical but logical. Stop the insane monetization of government spending, end the central bank’s dangerous inflationary measures, dollarize, cut excessive political expenditure, reduce taxes, open the economy, and allow free trade and investment to flow back to Argentina.
Something is very wrong in the developed world when some consider Milei a dangerous radical and say nothing about the radicalism implemented in the Fernandez-Kirchner years.
Argentina must implement serious fiscal and monetary policies to reach its enormous potential. Milei’s proposals are not anti-system, they are pro-logic.
Argentina’s problem is not Milei. The problem is that they have implemented point by point the fiscal and monetary policies that many so-called “progressive” parties demand.
Ryan and Zachary rank the GOP candidates at the debate. They range from "least terrible" (Ramaswamy) to "utterly awful" (Haley and Pence).
Be sure to follow War, Economy, and State at Mises.org/WES.
The "2 percent" inflation target is purely arbitrary, and mainstream economists can't agree on the "right" level. It's all folly, and Austrian economics explains why.
Original Article: "What Is the Right Inflation Target for Central Banks?"
Threats to freedom of speech and efforts to suppress dissenting views and voices have been on the rise over the past decades. They were exponentially intensified since the ascent of social media, and as the political polarization in the West truly took hold of our societies, the powers that be have been using any and all tools at their disposal to “defend” the interests of the establishment against those who might try to publicly question its policies (or even worse, its purpose).
Many of us who have been keeping tabs on restrictions on all kinds of individual freedoms have been aware of this dangerous trend for quite some time already. However, it was during the covid crisis that it became obvious to a lot more people too. Anyone reluctant to fully embrace and follow the state’s edicts and “science-based rules” (which, if you recall, kept changing from week to week) was, at best, branded a “denier” or, at worst, actually arrested in some jurisdictions.
We saw dramatic evidence of that extreme response coming from China, Australia, and the United States, among other places. That’s to say nothing of countless other cases of people who lost their jobs or were denied access to basic public services.
Apart from those “straightforward” scenarios of punishment and retribution, though, there were other instances that were much more subtle and indirect. The story of the Canadian “Freedom Convoy” stands out as a solid example of how the banks themselves can be weaponized in the war on dissent. Individuals who supported the antilockdown convoy with donations found their bank accounts frozen, without any warning or due process. This was (or at least should have been) a serious wake-up call for all freedom-loving citizens, whether they agreed with the protesters’ views at the time or not.
Fast-forward to this July, when the “debanking” scandal of Nigel Farage made international headlines. The story, involving political angles, the banking sector, and the mainstream media, was very illuminating, and it revealed just how far establishment forces are willing to go to silence those who disagree with them. The bank at the heart of the scandal is the 330-year-old private bank Coutts, which is owned by NatWest, which in turn happens to have the United Kingdom government as its biggest shareholder following its taxpayer-funded bailout in 2008.
Mr. Farage’s Coutts account was summarily closed without any explanation. When he publicly insisted that it was due to his political beliefs, the bank shrugged him off, while the BBC went on to publish reports suggesting that the move had nothing to do with his ideology. Instead, according to the public broadcaster, it was the state of his finances that was to blame—his account supposedly had fallen below a certain threshold. Mr. Farage didn’t take long to hit back: he obtained a forty-page dossier from the bank exposing internal communications and proving beyond a shadow of a doubt that his allegations were justified.
The documents showed that Coutts’s reasons for the account closures were his support for Brexit and Donald Trump and his “transphobic” and “xenophobic” views, among many other beliefs that he had expressed that were not “compatible with Coutts.” As Mr. Farage himself highlighted, “This story is not just about me. You could be next . . . if this situation is left unchecked, we will sleepwalk towards a China-style social credit system in which only those with the ‘correct’ views are allowed to fully participate in society.”
Indeed, the story clearly struck a nerve with the general public, and it quickly snowballed into an industry-wide and soon nationwide cause of outrage. The BBC had to apologize, and the CEO of NatWest, Dame Alison Rose, was forced to resign, but that wasn’t enough to appease all those who finally realized the disproportionate and largely illegitimate and unchecked power that banks can have over their customers.
As the Financial Times reported, “It raised wider questions about the ability of banks to remove accounts without explanation, leaving them or their small businesses cut off from the mainstream financial system. In an increasingly cashless world, having a bank account has become an essential service. David Davis, former Brexit secretary, likens closing someone’s bank account to cutting off their water or electricity supply. ‘You should be able to get a bank account regardless of your political views, whether you are a communist or a fascist,’ he says.”
The key takeaway from all this, however, is not this particular story itself. It would not be wise to regard it as an isolated incident or as something that could only ever affect account holders that have a high profile or a large audience. To the contrary, if it can be done to Nigel Farage, it can be done to anyone.
The lesson to be learned is that the threat is posed by the banking system itself, and that is why it is more important than ever to rethink your own financial structure and your plan. Keeping part of your savings outside the baking system and in physical precious metals is the only reliable way to protect yourself against the whims and trespasses of both governments and banks.
The DOJ claims that it has "protected" consumers by standing in the way of a partnership between JetBlue and American Airlines. The only thing the DOJ protected was higher-cost flying.
Original Article: "Flying into Foolishness: The DOJ "Saves" Consumers from Low-Cost Airlines"
Covid restrictions are back. Almost a year after President Joe Biden said “the pandemic is over,” several hospitals, businesses, and universities have reinstated mask mandates and social distancing requirements. Meanwhile, nearly sixty universities have announced that students must take a covid vaccine to attend for the fall 2023 semester.
Although these restrictions are still limited to only a handful of organizations, their implementation demonstrates that the destructive public health dogmas responsible for the devastation of the last three years are still with us. The American people must stop tolerating these ruinous policies and the totalitarian paradigm underlying them.
The current dominant SARS-CoV-2 variant is a subvariant of Omicron called EG.5. Informally, it’s been nicknamed Eris after the Greek goddess of strife. The strain was first identified back in February 2023. It overtook the previous dominant variant at the beginning of August. The symptoms of the Eris variant are those of a cold—a runny nose and a sore throat. There is no evidence that Eris is more contagious or severe than the previous dominant variant.
Another Omicron variant called BA.2.86, nicknamed Pirola, has also been detected, but the few confirmed cases have also been very mild.
In recent weeks, an uptick in covid has been detected in wastewater, indicating a rise in cases. The trend is the familiar “summer wave” in viral spread seen as people move indoors to escape the late-summer heat. Still, the case numbers are extremely low, and the virus has the severity of a cold.
And yet some institutions have reinstated restrictions on their customers and workers in response to Eris. On August 17, two New York hospitals reimposed mandatory face masking and covid testing. Then, on August 20, Morris Brown College in Atlanta reinstated its mask mandate and banned large gatherings. The school also reimplemented contact tracing, symptom monitoring, and general social distancing requirements. The next day, the movie studio Lionsgate instituted a mask mandate for its offices. Two days later, a San Francisco medical center followed suit.
Meanwhile, the Biden administration publicly urged people to get fall booster shots last Monday. Then, last Friday, the president said he was requesting funds for a new covid vaccine that he anticipates will be recommended to everyone. And, as of August 26, fifty-eight universities have notified their students that they are required to take the covid vaccine to attend classes this fall semester.
These developments are disturbing because they indicate that the paradigm underlying the totalitarian pandemic response is still very intact. That paradigm was laid out well by both Dr. Peter McCullough and Dr. Aaron Kheriaty in their lectures at the Mises Institute’s Medical Freedom Summit this year.
Dr. McCullough traced the origin of today’s medical totalitarianism to the Public Readiness and Emergency Preparedness (PREP) Act of 2005, which militarized the protocols for fighting a pandemic. Under this new philosophy, the government would mobilize the population to fend off a pathogen as if it were a foreign invader. War, be it on people or germs, breeds totalitarianism. As Randolph Bourne wrote over a century ago, it’s during times of war that “the State becomes what in peacetimes it has vainly struggled to become—the inexorable arbiter and determinant of men’s business and attitudes and opinions.”
Dr. Kheriaty went a bit further back and identified a national public health conference in 1997 as the origin of the government’s repressive approach to fighting viruses. At the conference, a subtle shift in pandemic policy’s emphasis occurred that led public health away from viewing viruses as the enemy to be combatted and toward viewing human beings as possible vectors of disease, as a danger to be controlled. In other words, the field’s priorities switched from working to care for sick people to the top-down control of entire populations.
This new paradigm of public health led to a “new paradigm of governance,” in the words of Dr. Kheriaty, that was rolled out in early 2020. For the first time in recorded human history, which is full of plagues and pandemics, quarantines were imposed on the entire population, not just the infected or those arriving from infected areas.
An overly sedentary population with concerning levels of mental illness was forced to stay inside and isolated from their friends, coworkers, classmates, and families. And to hide their faces from strangers when forced to go out. Six trillion dollars was quickly printed to try and delay the inevitable pain that results when millions of people stop producing the goods and services we all rely on.
The health and development of millions of young Americans have been harmed in ways that will take decades to fully comprehend. All in the name of halting a virus known early on to pose little risk to the young and healthy. And the virus still moved through nearly three-quarters of the American population anyway.
And yet the new public health paradigm is clearly still with us. It just lies dormant while case numbers remain low. The last few weeks have shown that it will resurface even when officials declare a virus low risk.
The doctrine of totalitarianism is too dangerous to be tolerated again. But unlike a pathogen, all this threat requires is our refusal.
Progressives have distinguished themselves in the past half century by being against progress. That trend is unlikely to change.
Original Article: "Real Progress versus the Progressives"
In 1990, socialism seemed to be done once and for all, but the times have changed. In the last twenty years, socialism has again become fashionable beyond the academic fringes. The covid-19 crisis demonstrated how quickly and thoroughly the traditionally free societies of the West may be transformed by small groups of determined and well-coordinated decisionmakers. Top-down central planning of all aspects of human life is today not merely a theoretical possibility. It seems to be right around the corner.
Now, the renaissance of central planning is an intellectual and practical dead end, for the reasons that Ludwig von Mises explained one hundred years ago. But if Mises was right, then how can we explain the renaissance of socialism as a political ideal? To some extent, this might be explained by the fact that new generations are likely to forget the lessons that were learned, often the hard way, by their ancestors. However, there are also other issues at stake. In what follows, I shall highlight two institutional factors that have played a major role: state apparatuses and ownerless private foundations.
- State Apparatuses An important driving force of the socialist renaissance has been the constant growth of state organizations. This includes all organizations that are largely financed by the state or thanks to state violence. For example, the so-called public service media are state organizations in this sense. In contrast, the so-called social media networks are mixed forms. It is true that they have received significant state support (for their establishment and for the expansion of the internet infrastructure). But they are also financed through advertising.
Socialism is growing out of the already existing state organizations. The crucial importance of this connection has been emphasized again and again by liberal and conservative theorists. A ministry, an authority, or a state-subsidized television station do not fully belong to the competitive life of ordinary society. Special rules apply. They are funded by taxes and other compulsory contributions. They are literally living at the expense of others. This has two important consequences for the renaissance of socialism.
On the one hand, state organizations are constantly forced to justify their privileged existence and therefore have a special need for intellectual services. Good cobblers and good bakers do not need to convince their customers with verbose theories. Their services speak for themselves. But creating and maintaining a government monetary system or a government pension system requires a constant torrent of words to pacify taxpayers, retirees, and the whole gamut of money users.
On the other hand, these intellectual suppliers typically have a personal agenda. State organizations are irresistibly attractive to ideological do-gooders of all stripes. This becomes clear as soon as we realize what doing good things really means.
Every day private companies and private nonprofit organizations create new products and new services—thousands of attempts at improvements. But their achievements fit into the existing social network. They are contributions that take into account the objectives and individual sensitivities of all other people. Private organizations thrive in competition. By contrast, the ideological do-gooder does not want to care about the sensitivities of other people. But that is only possible if his own income does not depend on those others, and if his plans can also be carried out against the will of the others. And that is exactly what the state, especially the republican state, enables him to do.
From the classical liberal point of view, the republican state should not pursue its own agenda. It should not be private, but public, should only provide the framework for free social interaction. But this theory hurts itself with the horror vacui it provokes. Ownerless goods will sooner or later be homesteaded by someone. Even an abandoned “public” state will sooner or later be taken into possession. History over the past two hundred years has shown that this privatization of the public state does not necessarily have to occur by coup or conquest. It can also grow out of the bosom of the state itself. The domestic staff, the servants of the state, can make themselves its masters.
Abandoned goods hold a magical attraction for people. An abandoned state magically attracts ideological do-gooders into the civil service. They are trying to privatize public space, to transform it into an instrument for their agenda. At first there may not be a consensus among them, but at some point the best-organized and best-connected groups gain the upper hand. The sociologist Robert Michels called this process the iron law of oligarchy.
The bureaucratic oligarchy can influence personnel decisions in terms of its ideology. Their ministry becomes “their” ministry (or their school, their university, their broadcasting service, etc.). It becomes an ideological state apparatus as defined by the French Marxist philosopher Louis Althusser. Through commands and prohibitions, an ideological state apparatus can convey its ideology to the outside world.
Notice that the bureaucratic oligarchy is only a small minority. This explains why the oligarchic ideology is typically a socialist ideology. Only where there is private property is it possible for a minority to undertake anything that might displease other people. But the oligarchs of a republican state cannot assert property rights. The state does not belong to them—they just control it. In order to be able to direct it inexpensively, they must avoid inciting the majority to resist them. The easiest way to do this is through a socialist ideology. Slogans like “We govern ourselves” cover up the real power relations.
A classic case is the French ministry of education, which was appropriated by a coalition of Communists and Christian democrats after the Second World War. In those years, Professors Paul Langevin and Henri Wallon (both members of the French Communist Party) pursued a strategy of centralizing and homogenizing all secondary schools, along with a dumbing down of the entry requirements. With the help of their allies, Langevin and Wallon slowly but steadily filled all the key positions of the ministry with their people while greatly expanding it. Thus, they made “their” ministry resistant to reform. No bourgeois minister has ever dared to make it a “public” institution again. So it has remained in the Communist inheritance to this day. The supposed servants of the commonwealth have become the real rulers, against whom the elected representatives can only grind their teeth.
This tendency toward privatization is at work in all public institutions in all countries. President Donald Trump had not understood this before his 2016 election. He is probably wiser now, but the problem remains.
A state apparatus is often the first place where socialist reforms are implemented. In the past, state organizations have served as laboratories for expensive socialist labor-law reforms (quotas for civil servants, vacation regulations, etc.), for the typically socialist control of language (political correctness), and for harmonizing thought and action.
Over the past thirty years, international bureaucracies have played a growing role in making the world a better place for socialism. Intergovernmental organizations such as the European Union, the United Nations, the World Health Organization, and the International Monetary Fund have always served as reservoirs for intelligent radicals who found no place in national politics. But the influence of these people has grown considerably in recent years as they have played a key role in covering up interventionist failures.
This can be explained as follows: The state, which rules over the media and education, can gloss over and explain away its failures. But talk does not help when people see with their own eyes how things are abroad. The competition of political alternatives is ruthless, and the comparisons show time and time again that socialism and interventionism do not work. Hence the urge of all socialists to rule out alternatives as much as possible from the outset. So-called international cooperation and the abolition of the nation-state in favor of international organizations serve the same purpose. By proceeding as uniformly as possible, states aim to prevent the population from realizing that there are political alternatives and perhaps even better alternatives.
Another weapon in the socialists’ arsenal is the use of secret services to further their aims. The importance of these services cannot be overstated. This cloak of secrecy, often funded by substantial off-the-books resources, is particularly favorable for socialist agitation as long as the socialists are in a minority. Secrecy is a weapon often used successfully upon the unwitting citizenry.
It should never be overlooked that the socialists will use any and all areas of society and control of the state to further their aims and agenda.
- Ownerless Foundations The same iron law of oligarchy also applies to the large private law foundations (the Rockefeller Foundation, the Ford Foundation, the Bertelsmann Foundation, the Bill and Melinda Gates Foundation, etc.). Although these organizations are usually not themselves financed by taxpayers’ money, they—and the US foundations in particular—have made decisive contributions to the renaissance of socialism, for three main reasons.
First, the executives of such institutions are in constant search of self-affirmation and self-justification, and are therefore prone to activism.
Self-justification is particularly necessary if the organization does not provide a clear statement of purpose. The large US foundations serve general goals such as “progress” or “humanity.” Words of this kind must of course be backed by concrete content, and this is where the ideological suppliers come into play, just as in the case of the state bureaucracies.
Ideological do-gooders find an ideal playground in the large private foundations, especially when the founders let the supposed “experts” run free and entrust them with the management of the organization’s assets without any strings attached. The executives of such ownerless foundations are then subject to even fewer restrictions than their colleagues in government offices. While the high bureaucratic officials are still responsible to the elected political leadership (even if this responsibility is small for the reasons mentioned above), the directors and supervisory boards of the private foundations are among themselves. Nobody gets in their way—nobody they have not themselves accepted into their illustrious circle. Ownerless private foundations will therefore sooner or later serve those ideologies that are highly valued by the leading experts. As in state institutions, there may be temporary rivalries among the leading forces. In the end, however, the best-organized and best-connected groups prevail with regularity. From then on, their ideas determine the foundation’s direction.
These ideas are often diametrically opposed to those of the founders, as Niall Ferguson explains in “I’m Helping to Start a New College Because Higher Ed Is Broken.” In my opinion, the most important reason for this contrast is to be seen in the fact that the founders no longer have to prove themselves and also reject excessive activism on the part of their foundation for other reasons. They know the importance of free competition. They know that excessive donations from foundation money can seduce the recipients into laziness and frivolity. They want to help others. But above all they want these others to know how to help themselves.
Things are completely different in the case of the supposed experts who run the foundations. In contrast to the donors, many of them have not yet been able to show that they can achieve great things themselves. The decision-making power over the foundation gives them the opportunity to put their stamp on the world. This temptation is just too great for most. Those who have large resources at their disposal can make it their business to improve the world according to their taste.
The history of the US foundation system provides numerous cases of this tendency, well documented by Waldemar Nielsen. The largest American foundations of the twentieth century (Ford and Rockefeller) in particular committed themselves to changing American society in the 1950s and 1960s. Such activism is more or less inevitable if ideological do-gooders have free rein and well-filled treasure chests.
Second, the cooperation between private foundations and state organizations has a very similar effect. Such cooperation concretely means the joint pursuit of goals; the pooling of private and state funds; and the exchange of personnel. The private foundations thus come into the ideological orbit of the state institutions, as Ludwig von Mises explained in Human Action; and state institutions are captured by the “managerial” spirit of private foundations, to use Paul Gottfried’s phrase.
The private foundations like the partnership of the state for reasons of prestige and use it to “leverage” their own activities. One example among many: The Ford Foundation had already developed the basic principles of what would become the American welfare state in the 1950s and financed them on a small scale. But the means were lacking for large-scale application. Things changed when US president Lyndon Johnson adopted the Ford model and used taxpayer money to spread it across the country.
This partnership is also very welcome to the state because its bureaucrats also feel confirmed by the friendly response and the active support from the Potemkin-style world of “civil society” financed by foundation funds.
Third, the combination of grandiose objectives and enormous financial resources entails the tendency to pursue large and highly visible projects. (The tendency also exists for cost reasons. For a private foundation it is usually cheaper to finance a few large projects than thousands of small initiatives.) These large projects must be planned for the long term and centrally managed. The management of large foundations is therefore typically associated with a perspective on the economy and society that is very similar to that of a central planning committee. The case of other large companies is very similar.
Because of this perspective, the executives of large organizations can succumb to a special kind of delusion, which we propose to call the Rathenau delusion in honor of the great German industrialist who flirted with the socialist planned economy at the beginning of the twentieth century. The Rathenau delusion consists in seeing only a difference in scope between the private planning of very large companies and the centrally planned economies of entire nations. In fact, there is a categorical difference here. Rational economic planning always takes place within an order based on private property and monetary exchange. It is this order that orientates the numerous individual plans and coordinates them. Mises taught us that the rationality of economic activity is always and everywhere rooted in a microeconomic perspective and presupposes a social order under private law. By contrast, the basic socialist idea consists precisely in abolishing this superordinate order and replacing it with top-down planning. But whoever does this saws off the branch on which he is sitting. Instead of making rational economic activity easier, he makes it impossible. This is exactly what Mises proved a hundred years ago.
For the past seventy years, the major US foundations have been the main drivers of socialism, even more so than the state bureaucracies. Something similar can be said about the Bertelsmann Foundation and other German foundations. They also apply a saw with great relish to the capitalist branch that carries us all.
My title seems odd. How could Murray Rothbard comment on the Ukraine War, when he died in 1995? Of course, he can’t comment on current events. But the principles this great thinker wrote about tell us what he would say about today’s American foreign policy. He would tell us to stop sending money and arms to the Ukraine and to end all sanctions against Russia. What goes on in that region is none of our business. Getting involved risks a nuclear war that would destroy the world.
Murray made the case for non-intervention in this way:
“The libertarian position, generally, is to minimize state power as much as possible, down to zero, and isolationism is the full expression in foreign affairs of the domestic objective of whittling down state power. In other words, interventionism is the opposite of isolationism, and of course it goes on up to war, as the aggrandizement of state power crosses national boundaries into other states, pushing other people around etc. So this is the foreign counterpart of the domestic aggression against the internal population. I see the two as united.
The responsibility of trying to limit or abolish foreign intervention is avoided by many conservative libertarians in that they are very, very concerned with things like price control—of course I agree with them. They are very, very concerned about eliminating taxes, licensing, and so forth—with which I agree—but somehow when it comes to foreign policy there’s a black out. The libertarian position against the state, the hostility toward expanding government intervention and so forth, goes by the board—all of a sudden you hear those same people who are worried about government intervention in the steel industry cheering every American act of mass murder in Vietnam or bombing or pushing around people all over the world.
This shows, for one thing, that the powers of the state apparatus to bamboozle the public work better in foreign affairs than in domestic. In foreign affairs you still have this mystique that the nation-state is protecting you from a bogeyman on the other side of the mountain. There are “bad” guys out there trying to conquer the world and “our” guys are in there trying to protect us. So not only is isolationism the logical corollary of libertarianism, which many libertarians don’t put into practice; in addition, as Randolph Bourne says, “war is the health of the state.”
The state thrives on war—unless, of course, it is defeated and crushed—expands on it, glories in it. For one thing, when one state attacks another state, it is able through this intellectual bamboozlement of the public to convince them that they must rush to the defense of the state because they think the state is defending them.
In other words, if, let’s say, Paraguay and Brazil are going to get into a war, each state—the Paraguayan government and the Brazilian government—is able to convince their own subjects that the other government is out to get them and loot them and murder them in their beds and so forth, so they are able to induce their own hapless subjects to fight against the other state, whereas in actual practice, of course, it is the states that have the quarrel, not the people. The people are outside the quarrels of the state and yet the state is able to generate this patriotic mass war hysteria and to call everybody up to the colors physically and spiritually and economically and therefore, of course, aggrandize state power permanently.
Most conservatives and libertarians are very familiar with—and deplore—the increase in state power in the American government in the last 50 or 70 years, but what they don’t seem to realize is that most of these increases took place in giant leaps during wartime. It was wartime that provided the crisis situation—the spark—which enabled the states to put on so-called emergency measures, which of course never got lifted, or rarely got lifted.
Even the War of 1812—seemingly a harmless little escapade—was evil, and also in the domestic sense, in that it ruined the Jeffersonian Party for a long time to come, it established federalism, which means monopoly state-capitalism in essence, it imposed a central bank, it imposed high tariffs, it imposed domestic federal taxation, which never existed before, internal taxation, and it took a long time to get rid of it, and we never really did get back to the pre–War of 1812 level of minimal state power.
Then, of course, the Mexican War [Mexican-American War, 1846–48] had consequences of slave expansion and so forth. But the Civil War was, of course, much worse—the Civil War was really the great turning point, one of the great turning points in the increase of state power, because with the Civil War you now have the total introduction of things like railroad land grants, subsidies of big business, permanent high tariffs, which the Jacksonians had been able to whittle away before the Civil War, and a total revolution in the monetary system so that the old pure gold standard was replaced first by greenback paper, and then by the National Banking Act—a controlled banking system. And for the first time we had the imposition in the United states of an income tax and federal conscription. The income tax was reluctantly eliminated after the Civil War as was conscription: all the other things—such as high excise taxes—continued on as a permanent accretion of state power over the American public.
The third huge increase of power came out of World War I. World War I set both the foreign and the domestic policies for the twentieth century. Woodrow Wilson set the entire pattern for foreign policy from 1917 to the present. There is a total continuity between Wilson, Hoover, Roosevelt, Truman, Johnson, and Nixon—the same thing all the way down the line.
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I think the concept of collective security is (1) a disaster and (2) anti-libertarian. Vietnam again brings this thing to the fore, in the sense of masking imperial interventionist policy on the part of the American government in the rhetoric of the cloak of righteousness and moralistic pieties. Let’s take two hypothetical states—this is the technique von Mises used to use, I think, with good effect—take the hypothetical states of Ruritania and Waldavia, somewhere off in the Balkans or whatever. The Ruritanian state invades the Waldavian state. The collective-security view is that this constitutes aggression, it’s evil per se—an evil state attacking a victim state, the Ruritanian state being the aggressor in this case, and then it becomes the duty of every other state in the whole wide world—the United states being somehow the divinely appointed chief and almost sole pourer out of resources in this effort—to step in to defend the so-called victim, and crush the aggressor.
Now this has very many important consequences. One is that every crummy little interstate conflict anywhere in the world becomes escalated and maximized into worldwide global conflict. With this kind of policy it means that no dispute anywhere, however trivial, can ever be kept trivial or kept isolated to the parties of the dispute, as they become globalized and bring everybody else into the holocaust. The second problem is that the whole idea of the aggressor state and the victim state is based on the phony analogy of the individual citizen—individual person—suffering an aggression against him.
You remember the big argument President Truman used about Korea—he said, “We are not engaged in a war, we are engaged in a police action, a UN police action against the North Korean aggressor.” Now when he said that he was not just using peculiar and phony rhetoric. The rhetoric came out of the Wilsonian collective security ideology, which was: if you see armies crossing frontiers somewhere, this constitutes aggression. It means that in the same sense as if he sees Jones beating up Smith on the street, the policeman on the block rushes to his defense, and so therefore the United states and the United Nations become the policemen rushing to defend the victim.
Now there are several problems in this. One is that even in the case of Jones and Smith, the presumption is if you see Jones beating up Smith that you should rush to Smith’s defense. However, there might be certain mitigating circumstances. Smith might have just beaten up Jones’s kid, and Jones might be retaliating; in other words, Smith might have started the fight—you don’t know that without historical investigation, so to speak, of the Smith-Jones relationship.
In the case of states, you have a completely different situation because this ideology assumes that the Waldavian state and Ruritanian state are somehow the rightful owners of all their territory, just as Jones owns his watch and Smith does, too, and then [if] Smith beats Jones up or takes his watch away from him, this is aggression. The analogy then becomes, if Ruritania invades Waldavia, this means that Waldavian territory, Waldavian property, rightful property, has been taken away from them by the Ruritanian aggressor.
Now the point is for the libertarian that none of these states have any rightful property, that the Ruritanian government does not properly and justly own the entire land area of the country—the property should be owned by individual citizens. The state apparatus has then no title, no just claim. So if the Ruritanian state crosses the frontier and fights the Waldavian state, this does not make the Ruritanian state any more of an aggressor than the original Waldavian state. Both of them are aggressors over their subject populations. Considering that and the whole idea that every other government should rush in and defend Waldavia means that not only is every small conflict escalated to a global scale—it also means that every small aggression is maximized in the global scale.
In other words, since all governments aggress against their citizens through taxes, through conscription, through mass murder called war, the more governments that enter into the picture—the more the United states, Britain, or whatever rushes in to defend Waldavia—the more innocent civilians get killed, the more innocent people are forced to pay taxes, the more innocent people are conscripted. So the way to minimize aggression when you are dealing with states is to agitate and press for nobody to enter into any conflict at all—hopefully for no government to go to war with any other government—and if any government does go to war, for the third, fourth, and fifth party to stay the blazes out.
Apart from all this, the boundaries of each state—Waldavian, Ruritanian, American, French, British—since they are not justly owned by any sort of process of capital investment or homesteading or anything else, since all state boundaries have always been the result of previous conquests—so in many cases the so-called aggressor state has a better claim than the so-called victim state.
For example, suppose that Ruritania is “aggressing” and declares war on Waldavia and starts seizing the Northwestern part of Waldavia. Well, it’s very possible that the Northwestern part of Waldavia is ethnically Ruritanian, had Ruritanian customs, and that 100 years ago, the Waldavian state had conquered it and now the Ruritanians were taking it back. This is a perfectly legitimate claim, so the point is, then, that all interstate wars intensify aggression—maximize it—and that some wars are even more unjust than others. In other words, all government wars are unjust, although some governments have less unjust claims in the sense that they might have—well, let’s put it this way: in the case of the Ruritanian-Waldavian thing, when the Ruritanians are simply taking back ethnically Ruritanian territory and the Ruritanian masses were yearning to rejoin their homeland—then libertarians, it seems to me, would say that war would then be just if the following conditions were satisfied: (1) there were no taxes imposed; (2) no innocent civilians got killed; (3) nobody got conscripted—in other words, it was a purely voluntary fight. Obviously to meet these conditions would be almost impossible but there are different gradations—you know, real-life wars—approaching this. A “just war” would be for all these conditions to be met.
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The basic element of any libertarian foreign policy is to pressure the government to do nothing abroad, just to pack up shop and go home. General Smeadly Butler, one of my great heroes, formerly of the Marine Corps, in the late 1930s proposed a constitutional amendment in the Woman’s Home Companion. His article was a sensation for awhile but of course the amendment never was adopted and has now been forgotten. But it was kind of a charming constitutional amendment—I recommend that everybody read it. In essence it says something like this: no American soldier, plane, or ship shall be sent any place outside America. In other words, complete abstinence from any kind of American military intervention and political and economic intervention.”
Murray was especially concerned about nuclear weapons:
“It has often been maintained, and especially by conservatives, that the development of the horrendous modern weapons of mass murder (nuclear weapons, rockets, germ warfare, etc.) is only a difference of degree rather than kind from the simpler weapons of an earlier era. Of course, one answer to this is that when the degree is the number of human lives, the difference is a very big one. But another answer that the libertarian is particularly equipped to give is that while the bow and arrow and even the rifle can be pinpointed, if the will be there, against actual criminals, modern nuclear weapons cannot. Here is a crucial difference in kind. Of course, the bow and arrow could be used for aggressive purposes, but it could also be pinpointed to use only against aggressors. Nuclear weapons, even “conventional” aerial bombs, cannot be. These weapons are ipso facto engines of indiscriminate mass destruction. (The only exception would be the extremely rare case where a mass of people who were all criminals inhabited a vast geographical area.) We must, therefore, conclude that the use of nuclear or similar weapons, or the threat thereof, is a sin and a crime against humanity for which there can be no justification.
This is why the old cliché no longer holds that it is not the arms but the will to use them that is significant in judging matters of war and peace. For it is precisely the characteristic of modern weapons that they cannot be used selectively, cannot be used in a libertarian manner. Therefore, their very existence must be condemned, and nuclear disarmament becomes a good to be pursued for its own sake. And if we will indeed use our strategic intelligence, we will see that such disarmament is not only a good, but the highest political good that we can pursue in the modern world.”
Some people say we have to intervene to help the Ukrainian people, but they are the victims of their own government and of American intervention. As always, Murray put it best. In the context of the 1980 Afghan war, he quoted Canon Sydney Smith — a great classical liberal in early 19th century England thus:
For God’s sake, do not drag me into another war!
I am worn down, and worn out, with crusading and defending Europe, and protecting mankind; I must think a little of myself.
I am sorry for the Spaniards – I am sorry for the Greeks – I deplore the fate of the Jews; the people of the Sandwich Islands are groaning under the most detestable tyranny; Baghdad is oppressed, I do not like the present state of the Delta; Tibet is not comfortable. Am I to fight for all these people?
The world is bursting with sin and sorrow. Am I to be champion of the Decalogue, and to be eternally raising fleets and armies to make all men good and happy?
We have just done saving Europe, and I am afraid the consequence will be, that we shall cut each other’s throats. No war, dear Lady Grey! – No eloquence; but apathy, selfishness, common sense, arithmetic!”
The Chinese have been in Jamaica since the nineteenth century. After emancipation, planters felt that newly freed blacks would be unwilling to toil on plantations, and the exodus of ex-slaves from plantations confirmed their suspicions. So to fill labor gaps, planters resorted to importing workers. Therefore, a formal indentureship scheme was introduced to lure workers from Asia and Africa.
The Chinese entered Jamaican society in 1854 as lowly laborers. Although indentured laborers were not enslaved, working conditions were deplorable and wages were subpar. Many laborers regretted venturing to Jamaica after feeling the lash of exploitation. Language barriers also worsened problems by amplifying feelings of alienation.
Natives considered the Chinese to be weird people with odd beliefs. They were also belittled for opting to work on plantations. Though the Chinese entered Jamaica as an underclass, they did not remain so for long. The Chinese proved to be more assimilable than Indian immigrants and were quicker to send their children to school.
They were aware that without assimilation their hopes of social mobility would be dashed. So they invested in learning English and became members of established churches to unlock opportunities for social advancement. Because of their flexibility, the Chinese surpassed their peers in academic and business endeavors.
Unlike clannish Indian immigrants, the Chinese seized the opportunity to become important players in society. They leveraged their business acumen to develop niche sectors in Jamaica. Due to their ingenuity, the retail sector in Jamaica was revolutionized. Their reputation for merchandizing and offering goods at a reasonable price became legendary.
According to historian James Carnegie, the Chinese dominated Jamaica’s grocery trade and in the process established a Chinatown in Kingston. This success earned them the envy of their peers, and as a result, they became the victims of race riots throughout the first half of the twentieth century. From 1918 to 1919, Chinese shopkeepers incurred damages from arson, especially in the parishes of Saint Catherine, Clarendon, and Saint Mary, and matters would get even worse in the turbulent 1930s. But blacks were not the only group resentful of their ascendancy. White entrepreneurs did not participate in vandalizing their businesses, but to marginalize the Chinese, some argued that Jamaica should be for Jamaicans.
Interestingly, the black nationalist Marcus Garvey criticized local workers for inefficiencies. Few admitted so, but it was evident that the Chinese were displacing natives of all shades because they were competitive. They did exceptional in industry and their children studied science and business at elite schools. Though envious of their success, it became the norm for people to note that the Chinese had an incredible work ethic. Many were also baffled by their simplicity. Notwithstanding their wealth, the Chinese were not ostentatious.
However, with the growing prosperity of China and its increasing investments in Jamaica, some have been arguing that the Chinese are colonizing Jamaica. Critics contend that they are cannibalizing parishes like Saint Ann and Manchester. Further, others complain that they are awarded contracts at the expense of local entrepreneurs. Infrastructurally, they play an instrumental role in Jamaica, and some consider this as an indication of their power.
Though powerful, these assertions are unmerited. China has a noninterference policy, and unlike Western powers, Chinese investments are not tied to good governance policy. The Chinese are strictly doing business, and they are doing so well because Jamaicans are not as productive. Jamaicans admit that the Chinese are more competent at constructing roads than Jamaican workers.
In a Gleaner interview, Bobby Brown, a resident of Yallas, Saint Thomas, told reporters in Jamaican patois that the performance of local workers is unsatisfying:
When you look pon di local part, flagwoman a chat to her friend, di man a siddung a build a spliff. When you go pon di Chinese side, yuh nuh see dat. Yuh wi see 20-man pon di local and five man pon di Chiney and look how di work a gwaan.1
They even say that one Chinese person can do the work of five Jamaicans. One eminent management consultant told me that an employee asked her why Jamaicans are not good at business, as the Chinese have transformed businesses that native Jamaicans could not scale. Furthermore, recently I visited a sugar company owned by the Chinese and a worker expressed shock that despite their affluence, the Chinese drove shabby cars. Evidently, the Chinese are more interested in doing business than showing off.
There is no proof that the Chinese are colonizing Jamaica; however, if Jamaicans don’t become productive then the Chinese will continue to minimize them in their country. Complaining about the Chinese is easy, but locals will remain marginal subjects if they don’t become productive.
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- Translation. When you look at the local part, you will notice the flagwoman chatting to her friend, and the construction man building a spliff (he is going to smoke). But when you go to the Chinese side, you don’t see these things. You will see twenty men on the local side and five men on the Chinese side, but the Chinese are efficient.
Too many economic commentators claim that monopolies are the cause of inflation. Austrian economic analysis shows that this is impossible.
Original Article: "Do Monopolies Cause Inflation?"
In recent decades, the Chinese Communist Party (CCP) has boasted about having lifted hundreds of millions of people out of poverty; however, they were only able to do this because hundreds of millions of people had been living in poverty under its rule. From the founding of the People’s Republic of China (PRC) in 1949 until the economic reforms of the late 1970s, the country’s economy was almost entirely centrally planned. The government controlled the factors of production and determined what products were made, in what quantities they were made, and at what prices they were sold. As a result of these policies, the country remained very poor.
In 1978, China’s gross domestic product (GDP) per capita was $156 per year. In the same year, GDP per capita in the United States was $10,564. Between the economic opening and 2010, China experienced double-digit GDP growth in most years. From 2010 to the present, however, its growth has been trending steadily downward. In 2022, growth was only 3 percent. Although China is the world’s second-largest economy, Chinese people are still relatively poor. The average income in China in 2022 was $12,823, roughly the same as in the US in 1980. China has worked toward reducing wealth disparity and has a Gini coefficient of only 3.8 percent as of 2019, but roughly half the population still survives on an income of less than ten dollars per day.
Until his death in 1976, Mao Zedong held what were the three most important leadership positions in the PRC at the time: chairman of the CCP, chairman of the Central Military Commission (CMC), and chairman of the PRC (head of state). Mao’s tenure was marked by a strict communist economy with almost no profit incentives or private ownership. His economic campaign, the Great Leap Forward, which lasted from 1958 to 1962, resulted in the Great Chinese Famine, which killed tens of millions of people. After Mao’s death, Deng Xiaoping, paramount leader from 1978 to 1989, gradually began opening the economy, launching China’s period of exceptional growth.
During China’s greatest years of economic development, the economy became more liberal each year. However, the Tiananmen Square massacre in 1989 made it clear that the CCP saw economic liberalization and the liberalization of civil society as distinct concepts. That same year, the CCP banned entrepreneurs from joining the party. Although a ruling in 2001 allowed business owners to become members, liberalization peaked around 2012 when Xi Jinping, the current leader, took office. Since then, the country has been reverting to a more restrictive form of market socialism.
Xi holds today’s three highest positions in government: general secretary of the CCP, chairman of the CMC, and president of the PRC. Consequently, he is recognized by the CCP as the nation’s paramount leader. Under Xi’s leadership, presidential term limits were removed, and in 2022 he was given a third term as party secretary, president, and chairman of the CMC. Presumably, he will have the option to rule for life, although the CCP denies this.
Nominally, China is a multiparty democracy, but the eight minor political parties must concede the leading role of the CCP, and it is illegal for them to attempt to win control of the government. Citizens vote for delegates at the village and neighborhood levels, but they have no say at the provincial and national levels of government. The outcomes of elections at the highest party’s congresses are generally determined in advance. In 2013, when the National Party Congress voted to install Xi as president for the first time, his name was the only one on the ballot.
In 2013, Xi launched his vision for a China-led world order with the Belt and Road Initiative (BRI). The BRI is a global infrastructure development program, now encompassing 148 nations. BRI projects include roads, seaports, airports, telecommunications, hospitals, energy, and mineral extraction. Financing for these projects comes from a variety of sources, including loans from Chinese policy banks (such as the China Development Bank and the Export-Import Bank of China), Chinese commercial banks, and investments from Chinese enterprises. The banks financing the BRI are completely or partly owned by the government. Additionally, many of the companies involved with these overseas projects are state-owned enterprises (SOEs).
Socialism with Chinese characteristics can be described as state-led capitalism. While China’s economy has undergone market-oriented reforms, the state maintains significant control. In 1978, Deng Xiaoping established the household responsibility system. Under it, once farmers had met the state quota, they could sell their surpluses at a profit. Private enterprise in nonagricultural sectors began in 1980, the same year the first special economic zone was established in Shenzhen, Guangdong Province. The special economic zone facilitated trade between China and the outside world and began China’s march toward export-oriented growth. China became the world’s factory.
The next phase of development, beginning in about 1999, involved growth driven by government investment. This period was characterized by infrastructure development projects, including the construction of roads, bridges, railways, and airports. These projects accelerated as the population urbanized. In 2007, China implemented its first private property law. Combined with the government’s investment strategy, it led to a boom in the housing sector. Today, real estate accounts directly for 6 to 7 percent of GDP, while related industries and services make up 30 percent of the overall economy.
There are no independent trade unions in China; all unions fall under the CCP-affiliated All-China Federation of Trade Unions. The CCP also maintains SOEs accounting for about 25 percent of GDP. SOEs operate in all industries, including manufacturing, mineral extraction, banking, and even hotels and restaurants. The CCP appoints the managers and supervisors of SOEs and directs their decision-making. In return, SOEs receive a number of benefits, such as state subsidies, easier access to capital from state-owned banks, and raw materials from state-owned mining companies. SOEs also get policy support, tax benefits, and a favorable regulatory framework. With the government providing these advantages, SOEs dominate strategic sectors such as energy, telecommunications, banking, and transportation.
Private companies of a certain size are required to maintain a party cell, a CCP committee responsible for implementing and maintaining party policies, adhering to political ideology, and upholding party discipline. Party committees influence decision-making and strategic planning, as well as the hiring, firing, and promoting of personnel.
Even foreign-owned companies and joint ventures and partnerships with foreign companies are required to maintain a party cell. Furthermore, the CCP maintains lists of sectors that are either closed to foreign companies or only open through a joint venture with a Chinese partner.
China’s entire economy is strategically mapped out through a series of five-year plans. These initiatives set annual growth targets and stipulate how the economy should grow and which sectors to prioritize. Because the CCP controls both domestic and foreign companies, Beijing can thereby influence investment decisions, resource allocation, and business strategies to help the state achieve its goals.
The Fourteenth Five-Year Plan, which runs from 2021 to 2025, focuses on “innovation and leading high-quality development.” With only 1.7 births per family, China is facing an aging crisis. At the same time, it is pricing itself out of the low-end manufacturing labor market. Factory workers now earn three to four times what their counterparts do in Vietnam and Indonesia. The only way the economy can maintain itself under these conditions is by shifting toward higher-value-added manufacturing and services. To this end, the Fourteenth Five-Year Plan aims at an “upgrading of the industrial base and the modernization of industry chains.”
Developing higher-value manufacturing depends on receiving foreign direct investment (FDI), which is trending downward for China. In some sectors, like electronics, FDI was down 56.7 percent between 2019 and 2022. Investors have been scared off by a general economic slowdown, tensions with the US, and the possibility of war with Taiwan. China’s new Counter-Espionage Law, which took effect in July and dramatically increases the possibility of arbitrary detention, is further spooking investors and visitors.
Despite facing economic headwinds, the CCP continues to tighten its grip. The Fourteenth Five-Year Plan promises to “forcefully develop the digital economy,” aiming to use “data-based national governance capabilities and transform the structural advantages of Socialism with Chinese Characteristics into powerful national governance abilities”—a reminder of the party’s power. For all of China’s reforms, the country is still largely socialist and veering toward greater state control, even at the expense of prosperity.
In a free society, political crimes like treason and "seditious libel" are few and far between. Under despotic regimes, on the other hand, political crimes multiply.
Original Article: "Why Governments Love Political "Crimes" Like Treason and Sedition"
Without the erroneous public perception and judgment of the state as just and necessary and without the public’s voluntary cooperation, even the seemingly most powerful government would implode and its powers evaporate. Thus liberated, we would regain our right to self-defense and be able to turn to freed and unregulated insurance agencies for efficient professional assistance in all matters of protection and conflict resolution.
—Hans-Hermann Hoppe, The Production of Defense
In contemporary times, the state has assumed an aura of sacred infallibility, commanding zealous and unquestioning devotion from its citizenry. This blind allegiance mirrors the fervent tribal reverence once conferred upon shamans in ancient societies, where faith and tradition superseded rational inquiry. However, unlike those organic, community-rooted systems of old, the modern state’s claimed supremacy stems not from any factual basis or empirical assessment but rather from pervasive myths surrounding its purported omniscience and benign intentions.
The State as Manmade Myth Despite the prevailing sentiment, the state does not innately possess powers exceeding those held by ordinary individuals. The state is a human invention, devised as an organizational tool to coordinate collective affairs, not as a deity to be worshipped without reservation. And yet the average modern citizen acquiesces without resistance to the state’s declared authority, obeying its often ambiguous dictates as if they were divine commandments inscribed in stone.
Like pagans conducting rituals to appease temperamental spirits, voters today participate in elections and political processes, hoping to shape their nation’s destiny and align it with their own interests. But these efforts primarily serve to perpetuate the mythological legitimacy of the state apparatus, just as pagan rituals functioned to intensify a shaman’s exalted status among the tribe. Neither shamans nor states truly possess the far-reaching powers attributed to them by their faithful adherents. Their authority stems not from empirical facts but from the circulation of persuasive myths and the inculcation of social conditioning.
By recognizing the human origins and agenda-driven mythmaking processes that grant legitimacy to state power, we can begin to fundamentally reevaluate the relationship between the governors and the governed. This shift in perspective empowers us to challenge the sacrosanct prestige of the state and explore alternative organizational forms that prioritize individual autonomy, voluntary cooperation, and spontaneous order.
The Fiction of State Omniscience The misplaced confidence in state authority is often rooted in an inflated notion of its knowledge and capacities. The state is frequently portrayed as an omniscient, omnipotent entity capable of expertly designing and engineering society, as well as benevolently guiding the masses toward enlightenment. In reality, no singular organization or institution, irrespective of the resources and technological prowess at its disposal, can ever hope to attain total insight into the unfathomably intricate and constantly evolving network that is human civilization.
The belief that imperfect and fundamentally limited human institutions can completely understand and manipulate dynamic social systems is a fiction, a delusion of grandeur. And yet millions of people continue to voluntarily relinquish their personal agency to the mythic idol of the state, placing implicit and unquestioning faith in its imagined omniscience and benevolence. They surrender autonomy over their own lives to participate in the spectacle of elections that promise change yet repeatedly fail to deliver meaningful reform to unseat entrenched interests.
The Triumph of Spontaneous Order In stark contrast to the top-down control paradigm, free-market anarchists argue that authentic and enduring social order largely arises spontaneously from the bottom up, not by centralized governance and imposition. The evolutionary emergence of diverse human languages provides a compelling illustration of this basic principle in action.
Language developed gradually over millennia through decentralized networks of voluntary interactions between individuals and groups seeking to communicate, cooperate, and find shared meaning. No central authority or government decreed the proper grammar or vocabulary, yet complex and subtle linguistic structures emerged informally over time through practical usage and the adoption of successful conventions. The structures of language arose spontaneously from human action but not human design.
Similarly, individuals can successfully cooperate to fulfill basic human needs and organize complex societies without reliance on authoritarian oversight or coercion. By leveraging reason, trial and error, reputation, competition, and the universal human capacity for recognizing and pursuing shared interests, people can develop sophisticated consensual social systems far exceeding in complexity and subtlety than any state bureaucracy could hope to articulate through legislation.
Robust extended orders in the form of organic moral codes, common law jurisprudence, sound money, and dynamic markets all evolved through decentralized processes well before the rise of the modern bureaucratic nation-state. Even ecosystem development and the self-organization of nature reveal the remarkable capability of spontaneous orders to achieve symbiosis amongst diverse constituents following simple, localized rules, but there’s no conscious, top-down design.
Decentralized evolutionary processes demonstrate the power to generate functional complexity and harmony that vastly exceeds the boldest designs of even the most well-meaning political planners and social engineers. The pledge of allegiance to centralized authority is philosophically flimsy when contrasted with the beauty of emergent spontaneous order arising freely, unencumbered by parasitic external manipulations. Though the state holds aspirations to achieve and maintain order, it cannot duplicate the dynamic elegance and intricate complexity birthed by decentralized networks of freely cooperating individuals.
Unveiling the Façade On closer and more critical examination, the projected aura of state power and authority unveils itself as a thin façade. The state is comprised of intrinsically imperfect human institutions that remain vulnerable to the same pitfalls and limitations as any other human endeavor. Its weaknesses and failings become rapidly apparent whenever its policies or attempts at social engineering prove unsustainable, provoking unrest and ultimately open resistance from the populace meant to submit to its authority.
When the state aspires to abolish private property ownership and dictate every aspect of economic behavior from the top down, it leads to catastrophe. Totalitarian experiments in social engineering imploded under the weight of their own internal contradictions. No individual or institution, no matter how ambitious, can substitute their limited knowledge and flawed human judgment for billions of dispersed decisions and transactions made by localized actors with direct knowledge of their own unique circumstances and subjective values.
Like a cancer, government bureaucracies grow unrestrained, coalescing into sprawling hierarchies that centralize power. This concentration enables an endless list of egregious civil liberty encroachments—warrantless surveillance, censorship, and prohibitions. These symptoms underscore the diagnosis: unfettered state power threatens freedom.
The Path beyond State Worship When contrasted with the darker aspects of human nature manifested in the predatory state, the decentralized philosophy of voluntaryism and free-market anarchism provides a compelling antidote to the destructive impulse toward state worship exhibited across societies. It seeks to completely dismantle the veneer of legitimacy and pedestal upon which the state stands and restore agency to the sovereign individual as the fundamental unit of ethics and civilization.
Free-market anarchism strips power away from entrenched, coercive, elite institutions and vests it within ordinary people possessing the natural capacity to successfully cooperate through voluntary exchange. In place of the state’s monopoly on legal violence, voluntaryists recognize that rather than attaining power, common people are most fulfilled when empowered to pursue their own diverse values and self-interests harmoniously and noncoercively to the greatest extent possible through economic and social freedom. They realize humanity’s potential through emancipation from domination.
In envisioned anarchic systems, individuals would be liberated to contract with one another on their own terms and by their own consent. Voluntary interaction allows decentralized solutions to emerge based on direct feedback, spontaneously coordinating the needs of the participants involved. Without a coercive centralized authority legally imposing its limited will and ignorant grasp of local knowledge, voluntary decentralized networks can permit an outpouring of diverse bottom-up solutions adapted to a tapestry of local conditions and individual preferences.
Superstition, blind submission, and abandonment of personal responsibility may have dominated premodern tribal communities. But retaining these anachronistic psychological tendencies manifest as irrational faith in state power represents regression, not human advancement. True progress demands skepticism, critical analysis, and debunking of the many myths cloaking the state. Only through emancipation from falsehood can the politics of sociopathic domination be displaced by voluntary civil cooperation grounded in the advanced economics of free choice and sound money.
As the mental shackles and superstitions of obedience-based state worship are cast off, ordinary people regain control over their economic and social destinies, realizing the transformative potential of unrestrained cooperation through the exercise of their natural liberty. Freed from the depraved folly of submitting to human political authority and emboldened by an ethical philosophy of self-determination, we can forge a new path forward toward unprecedented human flourishing. The crucial task before us is clear: we must challenge institutionalized assumptions, shatter existing paradigms of collective identity that diminish individual worth, and evolve society beyond the crippling grip of mysticism, coercion, and unreason. A brighter future awaits those willing to abandon the false prophets of the past while actualizing their own innate power as individuals to shape our shared destiny. But the price of transcendence is eternal vigilance.
In the Gulag, political prisoners were systematically terrorized by ordinary criminals with the encouragement of the authorities. It was hoped this would help the regime liquidate the state's ideological enemies.
Original Article: "How the Soviets Used Common Criminals to Destroy the Regime's Enemies"
America’s federally sanctioned entitlement programs, Medicare, Medicaid, and Social Security, each face bankruptcy in the next few years. Medicare and Medicaid were created in 1965 as part of President Lyndon Johnson’s Great Society legislation. Social Security was created in 1935 to provide retirement income for Americans who reached the age of sixty-five. These three entitlement programs consume about fifty cents of every federal budget dollar, or $2.7 trillion in fiscal year 2023.
Medicare is a federal health-insurance and healthcare program available for enrollment when a person reaches the age of sixty-five. An American who has worked for a minimum of ten years is eligible for enrollment. Employees and employers each pay a minimum Medicare tax of 1.45 percent based on the employees’ wages. Once enrolled in the program, one pays a monthly insurance premium that changes every year. Sixty-five million people are enrolled as of 2022. There is a penalty for late enrollment. The amount of people on Medicare is roughly equal to the estimated state populations of Florida, New York, Pennsylvania, and Illinois combined.
Medicare made net benefit payments of $689 billion in 2021. It comprised 20 percent of national healthcare spending and 12 percent of the federal budget in 2020. Medicare covers about 80 percent of medical costs, but dental and eye procedures are not covered.
Medicaid is a joint federal and state program that, together with the Children’s Health Insurance Program (CHIP), provides health coverage to over 72.5 million Americans, including children, pregnant women, parents, seniors, and individuals with disabilities. Medicaid is the single largest source of health coverage in the United States. Most participants are under the age of sixty-five. The amount of people on Medicaid is roughly equal to the estimated state populations of California and Texas combined.
For a state to participate in Medicaid, federal law requires that state to cover certain groups of individuals. Qualifying low-income families children and pregnant women, and individuals receiving Supplemental Security Income (SSI) are examples of mandatory eligibility groups. The Affordable Care Act of March 2010 (Obamacare) created the opportunity for states to expand Medicaid to cover nearly all low-income Americans under age sixty-five. Roughly twelve million people signed up after 2010.
Medicaid’s costs are swamping state budgets, climbing from 9 percent in 1989 to 20 percent today. A majority of its funding is from every American taxpayer, and a minority of funding is from each participating state’s taxpayer. Medicaid payments were $117 billion in 2000 and $589 billion in 2023. They are projected to be $879 billion in 2033.
Social Security is one of the largest government programs in the world as of 2023, paying out hundreds of billions of dollars each year. In 2021, 179 million people paid taxes into Social Security. The current tax rate for Social Security is 6.2 percent for the employer and employee each, or 12.4 percent total from the employee’s wages.
Sixty-seven million Americans will receive Social Security in 2023. The estimated combined populations of the US states of Ohio, Georgia, North Carolina, Michigan, New Jersey, and Virginia will be equivalent to the amount of Americans on Social Security as of 2023. Social Security provides retirement benefits and disability income to qualified people and their spouses, children, and survivors. Workers must be at least sixty-two years old and have paid taxes into Social Security over a minimum of ten years to qualify for its benefits.
The adult lifespan was about fifty-eight years in 1930 and seventy-nine years in 2020. The number of workers paying payroll taxes was about five for every beneficiary in 1960 compared to about 2.7 for every beneficiary in 2023. America’s population is aging and its families are having fewer children. This poses a problem for Social Security funding.
Some Americans are receiving Medicare and Social Security benefits at the same time: as we say in America, they are double-dipping.
Bankruptcy Reality A Government Accountability Office (GAO) report from 2015 revealed that $60 billion of Medicare’s budget was lost in 2014 to waste. The GAO found 23,400 fake or bad addresses on Medicare’s list of providers.
Medicare has repeatedly suffered vast cost overruns, has been reformed countless times, and has imposed a seemingly endless series of price controls on doctors and hospitals. Price controls reduce competition from the free market, leading to less efficiency and higher prices.
The Medicare board of trustees projected that the reserves of the Hospital Insurance (HI) Trust Fund, which finances Medicare Part A, will be depleted in 2031. The program’s income will be able to cover 89 percent of scheduled benefits after that. How will hospitals and physicians handle an 11 percent shortfall in Medicare reimbursement payments?
Public literature on the future bankruptcy of the Medicaid program is near nil, so predicting a date for bankruptcy is not possible. However, the Social Security board of trustees in its 2023 report forecasts reserves in the Old-Age and Survivors Insurance (OASI) Trust Fund will be depleted in 2033. Ongoing tax revenue will be enough to pay 77 percent of scheduled benefits after that point. Beneficiaries in that year will see their monthly payment reduced by 23 percent. Many American retirees today rely solely on Social Security to pay groceries, home insurance premiums, and utilities. Could you survive a 23 percent reduction in your income year over year?
Possible Solutions America entitlement programs will not become bankrupt overnight but over many decades. Reforms will not solve this problem quickly, but they would be steps toward a more sustainable situation. Some possible reforms to Medicare and Social Security are to allow taxpayers under the age of forty-five to renounce future benefits with no federal tax impact and to live on their 401(k), Roth IRA, or other income, considering all their past tax payments lost. Another option is to allow such people renounce their benefits and to redirect their future tax payments to separate 401(k)-type retiree healthcare and retirement accounts under their oversight. Current and future Medicare and Social Security beneficiaries could also opt to receive reduced benefits based on financial realities before or after the programs’ bankruptcies.
Ryan McMaken, executive editor at the Mises Institute, penned a Mises Wire article in January 2023 titled “Raise the Social Security Age to (at Least) 75,” posing possible reforms. George Reisman penned a lengthy Mises Wire article in April 2011 titled “How to Eliminate Social Security and Medicare” with more detailed solutions.
Medicaid reforms that address fraud are being pursued by many states and the federal government. Some methods of Medicaid fraud are found on the Centers for Medicaid and Medicare Services’ fraud checklist. The current list of people subject to federal enforcement actions can be found on the Office of Inspector General’s website. The enforcement actions shown have yielded fines tied to a fraud conviction.
A one-size-fits-all reform is not possible. Some say to abolish each program right now and let the free market provide guidance out of the chaos. But the logistics of caring for an aging and ailing family member are not easy even when the family is prepared financially, physically, and spiritually. The reality of federal entitlement reform is before us, and the everyday people will bear the brunt of these entitlement programs’ bankruptcies.
Leonard Read's famous "I, Pencil" explained the workings of the market in terms of the creation of a simple pencil. However, we should not forget that the reviled fossil fuels are involved at every turn.
Original Article: "Not Even a Pencil Could Exist without Fossil Fuels"
Yellow Trucking Company has filed for bankruptcy and ceases to exist as a viable firm. Much of the blame is due to the Teamsters Union which has a long a violent history.
Original Article: "Yellow Trucking Goes Bankrupt, Thanks in Part to Onerous Labor Laws"
The seventy-fifth-anniversary celebration of the British National Health Service masked the real failures of this system, one that only can become worse over time.
Original Article: "The British NHS More Resembles a Statist Cult Than Advanced Healthcare"
In this episode, Mark explains why we need a Crash (or very Hard) Landing in the US economy and the world economy. Specifically, why is a crash landing better to resolve the malinvestments caused by the Fed? Why is a crash landing better in many ways for the productive class of workers and savers? And, how would a crash landing place much of the pain and the overall burden on the rich, politically-connected classes?
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Additional Resources "The Fed's Real Mandate": Mises.org/Minor33A
"Black Hole or Shock Absorber: How Does a Free-Market Economy Respond to Crises?": Mises.org/Minor33B
"The REAL Solution to the Coming Economic Crisis": Mises.org/Minor33C
"Eliminating Economic Crises": Mises.org/Minor33D
"Austerity: A Real Solution to Help Heal the US Economy": Mises.org/Minor33E
"US Labor Market: Help Wanted!": Mises.org/Minor33F
"After the Boom Must Come the Bust" (Radio Rothbard): Mises.org/Minor33G
"Here's What Mounting Corporate Layoffs Tell Us about the Economy" (Radio Rothbard): Mises.org/Minor33H
Leaders of the Western democracies are unprepared to deal with forces that will end the fiat dollar’s dominance as the preferred medium of international trade settlement, in place since the end of the Bretton Woods Agreement in 1971.
The BRICS summit, currently taking place in Johannesburg, South Africa, is expected to include an agreement on a first step toward establishing an alternative international trade settlement system based on commodities, which would certainly include gold. Dozens of non-Western and even some Western affiliated nations are attending with great interest. Six new members have been invited to join Brazil, Russia, India, China, and South Africa—Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates.
Although the coming change may be characterized as one between the Western democracies and the BRICS nations, the real battle is one of ideas between Keynesian economic theory and gold. The winner will be gold.
As Murray N. Rothbard explained in What Has Government Done to Our Money?, gold was never proven to be inferior to fiat money. The gold standard was not replaced by a better monetary system. It was suppressed in stages to satisfy the state’s insatiable need for money--first to make war and then to corrupt the people via welfare. The result, of course, has been never-ending wars, creeping expansion of the welfare state, unsustainable public deficits, and accelerating debasement of the currency.
The challenge to the fiat dollar began with its debasement, which lowered its purchasing power to gold by 98% since 1971, and accelerated with introduction of the so-called “Russian Sanctions” of freezing Russian owned assets in the West and denying Russia access to the international dollar trade settlement messaging system known as SWIFT. Russian monetary expert Sergey Glazyev has led the movement toward an alternative system.
Putting “Paid” to Keynesian Fallacies Introducing gold into the trading system will expose the main fallacy of Keynesian economics; i.e., the elevation of aggregate demand to prominence in a nation’s economy rather than production. Keynes shunned Say’s Law of Markets in his General Theory of Employment, Interest and Money in order to hide his theory’s internal contradictions. As put succinctly by Emile Woolf, “Keynes endows the concept of ‘aggregate demand’ with god-like status while disregarding ‘production’-the only means of satisfying it.” Jean-Baptiste Say shows that production is required in order to enjoy the benefits of consumption.
On the face of it, it is hard to believe that anyone would believe that production either isn’t required for consumption or that it magically appears. Yet, this rather upside down theory appealed to politicians for obvious reasons; i.e., it gave them carte blanche to spend, all with money created out of thin air by the central bank. Rather than economize and prioritize spending that was absolutely necessary for the benefit of the entire nation, politicians were told by Keynes that it was their duty to spend if only to pay people to dig holes and others to fill them up.
Basics of a Gold Settlement System The new international trade settlement system will require settlement in gold. A possible mechanism has been outlined by Alasdair Macleod of Goldmoney.com. The benefits of the new system will become obvious to every nation, not just the current BRICS members. The political benefits are that no one nation can control or manipulate the system for its unearned benefit. The economic benefits are that government spending will be minimized so that resources can be allocated to production rather than state aggrandizement. A member can expand imports only by expanding exports. This puts market pressure on member governments to reform their internal economies in order to increase production.
To artificially increasing demand, per Keynesian orthodoxy, would be counterproductive, because gold would drain from the nation’s gold settlement account and imports would be suspended. Therefore, the system encourages sound economic practices within its members’ individual economies. Printing money, excessive and unnecessary regulations, excessive taxation, and excessive government spending do nothing to aid a member’s ability to engage in trade. Nations like the US who have huge welfare obligations and who have politically connected industries that do not add to the nation’s capital base will struggle. Having lots of nuclear weapons will be irrelevant and having bases around the world will be liabilities rather than assets.
An important point made by Macleod is that over time the gold settlement system for international trade will expand into members’ internal monetary systems. In other words, fiat currencies, which can be inflated/debased by governments, will be thrown on the ash heap of history. They will become “barbarous relics” instead of gold, as Keynes predicted in 1924.
Christian conservatives, for the most part, are relatively receptive to free markets, or at least a generalized concept of what used to be called free enterprise. (This is as opposed to a lot of evangelical economists teaching at Christian colleges that embrace socialism in one form or another as THE Christian version of economics.)
World Magazine has been on the relatively conservative side of political affairs, or at least enough so to be scorned by faculty members of more progressives Christian colleges, but it also has the tendency to give into the conservative notion that free market economies need to be regulated for both legal and cultural reasons. In a recent edition, Brad Littlejohn warned Christians to beware of the “tyranny” of free markets, claiming that markets are as tyrannical as governments, a claim that should not go unchallenged.
We should note that for the past few years, conservatives have become increasingly hostile toward private enterprise, some of it corresponding with the rise of Diversity, Equity, and Inclusion (DEI) initiatives within larger companies, a movement that, frankly, has turned into a racket. However, as much hostility is shown toward normal trade, not just free trade overseas but also the outcomes of private exchange within our economy.
For example, Tucker Carlson and other well-known conservatives have attacked private enterprise for a number of alleged sins. As I wrote a few years ago:
Capitalism creates poverty. Capitalism has stolen our future. Capitalism ravages the planet. Capitalism oppresses us. Capitalism needs to be controlled by government or it will throw most of us into poverty and misery and enrich only the well-placed few.
These are not missives from The Nation or the Daily Worker, although no doubt the writers from those publications would share the sentiments. No, these diatribes against the market economy come from the American Conservative. Of course, it is hardly the only conservative publication that rails against the market system, as First Things can also be counted on to speak out against the evils of an economy based on private property, a price system, and profit and loss. For that matter, before it fell to the grim reaper, the Weekly Standard also raised its voice against markets. Pat Buchanan has been railing against free trade and free markets for years.
Thus, Littlejohn’s piece in World hardly falls into a vacuum, as he quotes the strongly anti-capitalist writer Sohrab Ahmari, who writes in Tyranny, Inc., “that private actors can imperil freedom just as much as overweening governments.” Given that governments have engaged in unprecedented massive and murderous atrocities over the past 120 years, private enterprise must meet a very “high” bar, indeed, to match such malevolence.
Littlejohn writes:
Although many on the right may not have noticed until their own core values were threatened, paycheck-to-paycheck workers in many industries find themselves largely at the mercy of powerful employers, who, using convoluted contracts drafted by armies of lawyers, can put their employees in “submission holds” where they have little choice but to comply. Ahmari documents the proliferation of phenomena like mandatory arbitration, noncompete clauses, and more to show the ways in which most workers in America no longer enjoy anything like the “freedom of contract” once celebrated as the hallmark of free-market capitalism.
The solution lies not in seeking either some Marxist or libertarian utopia in which perfect economic balance and harmony is reestablished. Rather, we must recognize, Ahmari contends, that “coercion is inevitable in human affairs, not least the significant portions of our lives we spend as workers and consumers. A political-economic order that would wish away this truth only allows coercion to proliferate unchallenged.”
The problem here should be obvious: Littlejohn (quoting Ahmari) confuses organizational behavior with the give-and-take of market behavior, but even giving him that much still leaves confused thinking. Even if one believes that business organizations engage in coercive behavior toward employees, that so-called coercion is not the same as governmental action. Businesses are not governments.
For one, while a business may set conditions of employment that one may choose to reject – with the consequence being fired from a job – that hardly is the same thing as governmental coercion. A business cannot arrest someone, nor can it imprison or perform executions. In short, a business may limit one’s choices in matters relating to the firm itself, but it cannot limit freedom the way that governments do every day.
While one can decry some of the censorship on social media or a bank refusing an account to someone whose political views are not progressive, one should also see the connection between these businesses and governments with which they are intertwined. Many of these firms simply are carrying out the wishes of progressive governments and their agencies, crony capitalism at work.
For example, the recent ruling against the FBI for its involvement in pressuring social media firms became big new precisely because a federal agency with coercive powers made sure that private firms played ball with the government. Moreover, neither Ahmari nor Littlejohn have addressed the fact that much of American business today is tied in one way to government authorities, either through regulation or by being a vendor.
These relationships make a difference especially when a private firm is carrying out a government diktat, as we saw with the FBI and Twitter. Moreover, there also can be consequences for private firms that make politically-based decisions such as what happened to the CEO of a bank that closed the account of British politician Nigel Farage because she disagreed with his political views. Conversely, no one from the FBI or any other federal agency was tossed into the unemployment lines when news of their misconduct became known.
This isn’t just about firms engaging in politicized behavior. Markets are the best antidote for behavior that consumers might abhor, the boycott of Bud Light because the company’s marketing director tried to use the product to make a political statement being an excellent example.
We cannot boycott the FBI, CIA, IRS, or any other government agency. The FBI didn’t lose authority when the federal judge forbade its agents to pressure social media to speak the government line. Furthermore, government agents can arrest you, torture and even kill someone and not be punished, even if there is no reasonable justification for their actions.
Surely one can be saddened at the rise of woke capitalism, the spread of divisive Diversity, Equity, and Inclusion (DEI) seminars in company workplaces, and the growing symbiotic ties between businesses and the political elites.
But there still is a world of difference between what a private firm can do and what government agencies do on a regular basis when it comes to violating human rights. That popular Christian writers like Littlejohn and Ahmari cannot see the difference is cause for alarm.
In 1900 Churchill began the career he was evidently fated for. His background—the grandson of a duke and son of a famous Tory politician—got him into the House of Commons as a Conservative. At first he seemed to be distinguished only by his restless ambition, remarkable even in parliamentary ranks. But in 1904, he crossed the floor to the Liberals, supposedly on account of his free-trade convictions. However, Robert Rhodes James, one of Churchill's admirers, wrote: "It was believed [at the time], probably rightly, that if Arthur Balfour had given him office in 1902, Churchill would not have developed such a burning interest in free trade and joined the Liberals." Clive Ponting notes that: "as he had already admitted to Rosebery, he was looking for an excuse to defect from a party that seemed reluctant to recognise his talents," and the Liberals would not accept a protectionist.
Tossed by the tides of faddish opinion, with no principles of his own and hungry for power, Churchill soon became an adherent of the "New Liberalism," an updated version of his father's "Tory Democracy." The "new" liberalism differed from the "old" only in the small matter of substituting incessant state activism for laissez-faire.
Although his conservative idolaters seem blithely unaware of the fact—for them it is always 1940—Churchill was one of the chief architects of the welfare state in Britain. The modern welfare state, successor to the welfare state of 18th-century absolutism, began in the 1880s in Germany, under Bismarck. In England, the legislative turning point came when Asquith succeeded Campbell-Bannerman as Prime Minister in 1908; his reorganized cabinet included David Lloyd George at the Exchequer and Churchill at the Board of Trade.
Of course, "the electoral dimension of social policy was well to the fore in Churchill's thinking," writes a sympathetic historian—meaning that Churchill understood it as the way to win votes. He wrote to a friend:
No legislation at present in view interests the democracy. All their minds are turning more and more to the social and economic issue. This revolution is irresistible. They will not tolerate the existing system by which wealth is acquired, shared and employed…. They will set their faces like flint against the money power—heir of all other powers and tyrannies overthrown—and its obvious injustices. And this theoretical repulsion will ultimately extend to any party associated in maintaining the status quo…. Minimum standards of wages and comfort, insurance in some effective form or other against sickness, unemployment, old age, these are the questions and the only questions by which parties are going to live in the future. Woe to Liberalism, if they slip through its fingers.
Churchill "had already announced his conversion to a collectivist social policy" before his move to the Board of Trade. His constant theme became "the just precedence" of public over private interests. He took up the fashionable social-engineering clichés of the time, asserting that: "Science, physical and political alike, revolts at the disorganisation which glares at us in so many aspects of modern life," and that "the nation demands the application of drastic corrective and curative processes." The state was to acquire canals and railroads, develop certain national industries, provide vastly augmented education, introduce the eight-hour work day, levy progressive taxes, and guarantee a national minimum living standard. It is no wonder that Beatrice Webb noted that Churchill was "definitely casting in his lot with the constructive state action."
Following a visit to Germany, Lloyd George and Churchill were both converted to the Bismarckian model of social insurance schemes. As Churchill told his constituents: "My heart was filled with admiration of the patient genius which had added these social bulwarks to the many glories of the German race." He set out, in his words, to "thrust a big slice of Bismarckianism over the whole underside of our industrial system." In 1908, Churchill announced in a speech in Dundee: "I am on the side of those who think that a greater collective sentiment should be introduced into the State and the municipalities. I should like to see the State undertaking new functions." Still, individualism must be respected: "No man can be a collectivist alone or an individualist alone. He must be both an individualist and a collectivist. The nature of man is a dual nature. The character of the organisation of human society is dual." This, by the way, is a good sample of Churchill as political philosopher: it never gets much better.
But while both "collective organisation" and "individual incentive" must be given their due, Churchill was certain which had gained the upper hand:
The whole tendency of civilisation is, however, towards the multiplication of the collective functions of society. The ever-growing complications of civilisation create for us new services which have to be undertaken by the State, and create for us an expansion of existing services…. There is a pretty steady determination … to intercept all future unearned increment which may arise from the increase in the speculative value of the land. There will be an ever-widening area of municipal enterprise.
The statist trend met with Churchill's complete approval. As he added:
I go farther; I should like to see the State embark on various novel and adventurous experiments…. I am very sorry we have not got the railways of this country in our hands. We may do something better with the canals.
This grandson of a duke and glorifier of his ancestor, the arch-corruptionist Marlborough, was not above pandering to lower-class resentments. Churchill claimed that "the cause of the Liberal Party is the cause of the left-out millions," while he attacked the Conservatives as "the Party of the rich against the poor, the classes and their dependents against the masses, of the lucky, the wealthy, the happy, and the strong, against the left-out and the shut-out millions of the weak and poor." Churchill became the perfect hustling political entrepreneur, eager to politicize one area of social life after the other. He berated the Conservatives for lacking even a "single plan of social reform or reconstruction," while boasting that he and his associates intended to propose "a wide, comprehensive, interdependent scheme of social organisation," incorporated in "a massive series of legislative proposals and administrative acts."
At this time, Churchill fell under the influence of Beatrice and Sidney Webb, the leaders of the Fabian Society. At one of her famous strategic dinner parties, Beatrice Webb introduced Churchill to a young protégé, William—later Lord—Beveridge. Churchill brought Beveridge into the Board of Trade as his advisor on social questions, thus starting him on his illustrious career. Besides pushing for a variety of social insurance schemes, Churchill created the system of national labor exchanges: he wrote to Prime Minister Asquith of the need to "spread … a sort of Germanized network of state intervention and regulation" over the British labor market. But Churchill entertained much more ambitious goals for the Board of Trade. He proposed a plan whereby:
The Board of Trade was to act as the "intelligence department" of the Government, forecasting trade and employment in the regions so that the Government could allocate contracts to the most deserving areas. At the summit … would be a Committee of National Organisation, chaired by the Chancellor of the Exchequer to supervise the economy.
Finally, well aware of the electoral potential of organized labor, Churchill became a champion of the labor unions. He was a leading supporter, for instance, of the Trades Disputes Act of 1906. This Act reversed the Taff Vale and other judicial decisions, which had held unions responsible for torts and wrongs committed on their behalf by their agents. The Act outraged the great liberal legal historian and theorist of the rule of law, A.V. Dicey, who charged that it
confers upon a trade union a freedom from civil liability for the commission of even the most heinous wrong by the union or its servants, and in short confers upon every trade union a privilege and protection not possessed by any other person or body of persons, whether corporate or unincorporate, throughout the United Kingdom…. It makes a trade union a privileged body exempted from the ordinary law of the land. No such privileged body has ever before been deliberately created by an English Parliament.
It is ironic that the immense power of the British labor unions, the bête noire of Margaret Thatcher, was brought into being with the enthusiastic help of her great hero, Winston Churchill.
[This article was adapted from "Rethinking Churchill. " See the original for full annotation.
The Ukraine war brings death and destruction with no end in sight. Instead of encouraging more fighting, Western political leaders need to face reality and find a way to end this conflict.
Original Article: "The Killing and Destruction Must Stop: It Is Time to End the Ukraine War"
“A fair, open, and competitive marketplace has long been a cornerstone of the American economy, while excessive market concentration threatens basic economic liberties, democratic accountability, and the welfare of workers, farmers, small businesses, startups, and consumers.”
These words were the opening statement of a White House executive order by Joe Biden to save economic freedom in theory by limiting it in reality through government intervention. Biden is right that competition is the cornerstone to a prosperous economy, but the best way to promote competition is less regulation instead of more of it. When business decisions are up to bureaucrats instead of actual business owners accountable to their customer base, it’s the consumer who will lose the most.
Inefficiency of Efficiency as a Policy Two of the most successful businesses in American history are Standard Oil and Walmart. They became that way because they were relentless at being the most efficient in their businesses. As both companies grew, they expanded their operations into new ventures, but these were services and products whose purpose was to support the main business. This is known as vertical integration.
Standard Oil manufactured their own barrels and railroad tanker cars instead of purchasing through a third party because they were able to make a better product for themselves at a lower cost and were able to save overhead on the markup that a supplier would charge.
Walmart created their own distribution network that was exclusive for their store’s use. They used their own trucks and drivers to deliver stock to and from their stores instead of relying on someone else. This efficiency that they created from being their own distributors also had the compounding effect of improving how they managed their inventory, which meant that not only did they have low prices but also always had stock.
These two examples led to both companies overtaking their competition and increasing their market shares for their industries. Standard Oil acquired many of its smaller competitors in the oil refining industry with the results being that many people working at the acquired firms received jobs with Standard Oil, and the price of oil fell during their growth because they passed their efficiencies on to their customers through the lower prices they charged. Today the company is remembered as the original big bad monopoly, but its negative reputation doesn’t match the facts.
Kmart was America’s largest discount chain as Walmart was growing. Walmart not only went on to become number one through their superior business practices, but Kmart today is now practically out of business. That is how things are supposed to work in a free market, but today’s politicians feel like they have the need to regulate this because it’s not fair to the business owners that ended up losing the game, despite making a lot of money as they played it.
Instead, today there would be calls for Walmart to spin off their distribution centers, and we might later find out that those politicians received donations from Kmart. Or there might have been regulators preventing the Standard Oil drums and cars being used because they weren’t from an approved third party. In each of these hypothetical situations, the government would be promoting competition but through fragmentation, and the cost of this would be greater inefficiency, less innovation, and higher prices for consumers.
Small Businesses Can Compete against Behemoths In Sam Walton’s autobiography Made in America, he acknowledged the criticism that his company, Walmart, was outcompeting smaller businesses which was leading to their closure. Instead of defending himself, he laid out a strategy for smaller businesses to compete with him and enter a specialized market. He knew that he might stock a little bit of everything from every category, but he couldn’t offer it all. So it would be up to the shop down the road to fulfill that need for the customer.
Likewise, Amazon is considered a villain by many for its business practices and the ability of its online store to often outcompete its brick-and-mortar counterparts. But less than forty years ago, the company did not exist. There were much larger chain stores, like Sears, that sold everything under the sun. If they didn’t have what you wanted in the store, they had it in the catalogue. The big businesses of yesterday seemed impossible to compete against when they were at their peak, but the landscape always changes with rises and falls. Today Sears is out of business while Amazon dominates retail. Amazon did this because they sold books online, became the best at it, and then expanded their product lines.
Government Regulations Hurt Competition Government rules and regulations bear heavy costs on businesses in many ways. For example, many states require companies to purchase workers’ compensation insurance even if the business is one employee (the owner) and he pays himself almost nothing. Instead of benefiting the new business, government helps subsidize the larger businesses. Likewise, some areas charge businesses license fees for the privilege of working out of their homes. As the lists and requirements go on, so do the costs and the time to make sure you are in compliance. And if something is out of order, more capital resources are wasted through fines, and time dealing with these issues is time spent away from running the business.
When John D. Rockefeller would visit his competitors that he wanted to acquire, he would bring Standard Oil’s accounting books with him. This was a time before government income taxes and modern accounting procedures, so everything in his books was transparent and easy to understand. And what most of his rivals understood after viewing the books was that Standard Oil was a much more efficient operation than the one they were running. Most business owners tend to relax after the money starts to roll in, but not Rockefeller.
Innovation and a relentless work ethic were John D. Rockefeller’s competitive advantages over his rivals. He made those traits part of his company’s core values, and he was able to outcompete others in his industry. As his company grew, he created new products, new jobs, and drove prices down for consumers while increasing quality.
Imagine how different the world would be today had regulators stepped in and told Rockefeller and the companies he was acquiring that they couldn’t join because everything is better when a lot of small companies compete over a small pie instead of a few large companies making the pie bigger. It wouldn’t be fair to the consumers if the government put their finger on the scale to make sure that the less competent get a bigger advantage over the more competent.
Of course, the fairest way to make sure there is honest competition is through fewer rules and less interference, not more. But the people in Washington setting the policies right now don’t want to hear that.
Peter St. Onge joins Bob to discuss his latest piece at Mises.org on "China's Doom Loop." They cover a wide range of topics, including the contrast in leadership between Xi Jinping and Deng Xiaoping, the dollar as global reserve currency, the Belt and Road Initiative, and Jim Rogers' prediction that the 21st century would belong to the Chinese empire.
Peter's Article on China: Mises.org/HAP410a
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime. Use Code "HA23" for $45 off admission: Mises.org/Nashville23
In this week’s column, I’d like to continue discussing Graham Priest’s unusual book Capitalism: Its Nature and Its Replacement. Priest uses ideas he gets from Marxism and Buddhism to criticize capitalism. Last week, I said that Priest has interesting things to say about Marxism but I avoided Buddhism. This time I won’t avoid it, because the account of human personality he gets from it is crucial to his rejection of libertarianism.
Priest is an eminent logician, and he is quick to cut through nonsense. He says about historical materialism:
Marx and Engels . . . draw a distinction between the base and the superstructure of a society. The base comprises the means and relations of production: the superstructure comprises the consciousness of people. And the base determines the superstructure. . . .
The view is, frankly, incredible. It is clear that ideas can have enormous impact on people. Merely consider the effects of the teachings of Christ, Mohammed, or the Buddha, and their disciples. Moreover, such ideas can have an enormous impact on the economic base itself. . . .
It is unsurprising, then, to find Engels, at least, backtracking. . . .
Engels is clearly prevaricating. He says that the base determines the superstructure “in the last instance,” but he has no explanation of what that means . . . it becomes the banality that the economic activity is necessary for whatever else to happen.
Our author also makes an incisive criticism of Marx’s endorsement of the “dictatorship of the proletariat.” Marx said that after a socialist revolution, a new state controlled by the workers was needed to smash the remnants of capitalism and the bourgeois class that supported it. After doing so, the state was supposed to “wither away,” but for Priest this naively ignores what we know about the psychology of power:
It is clear, however, that Marx endorsed a centralized state in some form after the demise of capitalism: something that had the power to enforce new social relations. True, Marx and Engels claimed it would eventually “wither away.” . . .
However, Marx and Engels gave no reason for, or mechanism for, the disappearance of the state.
The points were forcefully made by [the anarchist Mikhail] Bakunin . . . [who] got it right. Once the Bolsheviks were able to take power away from the relatively democratic soviets and worker’s councils, and place it in their own top-down power structure, the rest was all downhill. . . .
The lesson, then, is a quite general one. Top-down power structures do not dismantle themselves. For whatever reason they arise, they start to run things for their own benefit. Such is the fate of all bureaucracies, be they of the major kind of the Soviet nomenklatura or the minor kind of bureaucracies that have taken over Australian universities.
Why won’t people give up power? Priest answers by invoking Buddhist psychology. The self is transitory, but people cannot accept this and engage in a futile quest for permanence. Getting and holding power is one way some people try to achieve this:
Buddhist psychology provides an acute analysis of what is going on here. There is no such thing as a determinate self, yet we try to construct one. . . .
Everything is impermanent. Moreover, it is clear that we all have a sense of this, much as we might try to suppress it. . . . Now, it is clearly natural to suppose that things like wealth and power are means to control these vicissitudes, and thus protecting ourselves from them. Desires for these things are, therefore, eminently explicable by our inchoate grasp of impermanence.
It is here that I part company with Priest. He is right that people have a sense of impermanence. As the French proverb says, “Tout lasse, tout casse, tout passe.” He is also right that people seek power as a means to cope with this sense of impermanence. But to dismiss the self as an illusion goes too far and is inimical to liberty.
You can retain the wisdom of Priest’s account of power without denying the existence of a determinate self. He says, “As the nineteenth-century British politician Lord Acton noted: Power corrupts, and absolute power corrupts absolutely.” Acton had this insight without taking a Buddhist view of the self. (By the way, Priest has slightly misquoted Acton, though he gives the correct quotation in a footnote; and Acton is much better described as a historian than a politician.)
Why do I claim that Priest’s denial of the self is inimical to liberty? He says:
In short, a post-capitalist society, if it is to work, must be organized in a bottom-up fashion, as endorsed by many anarchists. I note that nearly all those who do or did endorse such a kind of structure, argue for it on the basis of the value of liberty and its role in human flourishing. As is clear, we are approaching matters from a very different direction. It is Buddhist ethics that is driving the picture, not libertarianism.
In Priest’s Buddhist view, if I have understood it, oppression is bad because it is a form of suffering. You might now ask, “Why don’t people try to detach themselves from the suffering that oppression causes?” Priest’s answer is that human evolution has made it very difficult to do this. People should be compassionate and thus try to lessen oppression, but doing this isn’t based on the false view that persons are separate.
Priest has no use for the libertarian account of human rights, which impedes solidarity:
People are essentially interdependent from birth. Society is not a configuration formed to enforce pre-existing interests, but a pre-existing matrix, which forms such interests and provides for the needs of its members. In other words, this aspect of the [capitalist] ideology [i.e., Priest’s claim that supporters of the social contract view people as social atoms] serves to cover over the essential interconnectedness of people. Hence it can deliver those us/them attitudes which undermine solidarity. (emphasis in original)
Libertarians don’t in fact deny that people depend on one another. Priest’s accusation of “social atomism” is misplaced, as he himself seems to recognize elsewhere in the book: “For the most part, those who espoused social contract theory . . . did not regard the situation before the contract as an historical reality. It was simply a conceptual framework aimed at justifying a certain set of social relations.” Libertarians do, though, insist that people have inherent rights that other people cannot override, and this Priest cannot abide.
Priest supports democratic decision-making. People should be able to listen to each other in order to arrive at a common viewpoint, and doing this is especially important at the local level. If you disagree with the group’s decision, the others will certainly listen to you, and take into account the suffering you may undergo because your standpoint hasn’t won approval, but there isn’t a sphere in which the group has to defer to you, where your decision about what is to be done to your person and property is final.
I don’t think it’s a coincidence that Priest takes a favorable view of the “bottom-up democratic decision-making” of Communist Cuba, though, to his credit, he acknowledges that the Cuban Communist Party “wields a good deal of top-down de facto power.” Cuba has in fact been an oppressive dictatorship since 1959, but evidently this does not trouble Priest.
On this episode of Good Money with Tho Bishop, Connor O'Keeffe joins the show to talk about his recent work on the Mises Wire. Tho and Connor discuss the role government incompetency played in the horrific tragedy of the Maui wildfires, as well as the bankruptcy of one of America's largest trucking companies.
Join Bob Murphy, Patrick Newman, Jonathan Newman, and Murray Sabrin in November for a Mises Circle in Ft. Meyers, FL on The White House, the Fed, and the Economy. Use promo code Tampa23 for $10 off registration.
Connor's Article on the Maui Fires: Mises.org/GM20a Connor's Article on Trucking and Labor Laws: Mises.org/GM20b
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
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The regime has increasingly been consumed with paranoia over threats to itself—propagandistically termed "threats to democracy"—while realcrime against private citizens is clearly not a priority at all.
Original Article: "The State Protects Itself While Crime against Ordinary People Surges"
China is taking bold actions and creating a new paradigm on the world stage. For about a decade, Beijing has been responsible for developing new trade networks; the famous Belt and Road Initiative has been analyzed extensively. Their trade networks are growing ever deeper, with new agreements to trade in renminbi as opposed to dollars.
China is developing powerful alternative institutions to those of the West, such as the Shanghai Cooperation Organisation and the BRICS countries (Brazil, Russia, India, China, and South Africa). They have adopted a more confident and assertive security posture in response to the Biden administration’s policies on Taiwan. However, new military measures have been far outweighed by fresh diplomatic overtures, with Beijing striking an impressive deal between Riyadh and Tehran—which, for various reasons, Washington found impossible to secure in the four decades it designated the conflict as intractable.
Washington is mentioned because all these actions taken by Beijing add up to a serious challenge of Washington’s hegemonic status. Washington is undoubtedly a hegemon; chief among the corps of evidence is a map of all its global military bases.
Figure 1: United States military bases abroad, 2015
Source: CNN.com.
This may change. For now, however, America has stationed troops all over the world, and the few territories where it can’t do so (Russia, China, and Iran) are surrounded and unable to project power in the same way. This is the definition of hegemonic power. The actions taken on the world stage by Washington in recent years, when compared to actions it took in previous eras, also prove its current hegemonic status.
Recent interventions in Somalia and Iraq are very different from the conflicts of yesteryear, like the American Revolution or the Mexican War. The American Revolution was fought to secure independence from Britain—the hegemon of the time—and the Mexican War was fought to secure the land and interests of American settlers in the territory adjacent to the legal boundaries of the United States at that time. The conflicts were limited in scope, with specific, tangible goals in the interests of the American population.
The interventions in Somalia and Iraq were fought purely to secure hegemonic status for Washington through the imposition of military force and ideological subversion on far-flung places. These interventions carried no material or psychological benefit for the American population, and the justifications for intervention presented to them don’t accord with reality.
Baghdad wasn’t involved in 9/11, and it would have been far less costly to purchase Iraqi oil than to invade, destroy, and attempt to rebuild the country. It would also have been far less costly to simply send the American navy to protect commerce in the Gulf of Aden (and spread the cost with other interested parties like China), while disregarding the internal politics of barren and unproductive Somalia. Any humanitarian arguments falter against the objectively worse conditions created by US intervention. Like in Iraq, the attempt to bring the political formula of liberal democracy to Somalia was a thin cover for Washington’s attempt to secure political submission from as many nations as possible.
Recent moves by Beijing will not obtain hegemonic status for itself but will take this status away from Washington and lead to a multipolar world order. Washington clearly considers recent developments to be a challenge to its hegemonic status, evidenced by its more aggressive military posture toward Taiwan. President Joe Biden has repeatedly stated that he would defend Taiwan militarily, the US Navy routinely sails through the Taiwan Strait, military aid to Taiwan has increased, and one could use polemic to say that Nancy Pelosi invaded the island last year. Beijing taking over Taiwan, peacefully or otherwise, would decisively remove Washington’s hegemonic status. Washington desperately wishes to hold Taiwan and keep China surrounded.
Other evidence that Washington considers Beijing to be a severe threat to its hegemonic status can be found in the mainstream media throughout the North Atlantic Treaty Organization countries. There is a constant stream of emotionally provocative stories directed against alleged human rights violations by Beijing found not just in America but in the United Kingdom and other “allied” countries as well. Many of these stories are false or misleading and, where true, can hardly be assailed from the moral depths of using depleted uranium bullets against the populations of Iraq and Serbia (among other injustices). Clearly the Western ruling class wants the populations it governs to be hostile to Beijing—as opposed to other less-than-perfect regimes—because Beijing is a threat to their hegemonic status.
China’s ascendancy challenges the real methods of exerting power over the world possessed by Washington. It deprives Washington of the benefits of hegemonic status in wealth, prestige, and military power.
A unipolar, or hegemonic, order has a very negative set of incentives. When one power is unmatched, it possesses total freedom of action without accountability. Regardless of the morality or wisdom of a course of action, the hegemon can enact said course and bring about disastrous consequences for itself and others.
There are no comparable powers to prevent this, and this dynamic only ends when the singular power loses its hegemonic status and a multipolar order develops. The loss of hegemonic status is usually a cataclysm, either domestically for the formerly hegemonic power or internationally in the form of a losing war waged to secure hegemonic status against its challengers.
Politics can be defined as the struggle for power, and only power can restrain power. It is corrupting for a single state to have unmatched power. Hegemony is injurious for peace and liberty even if it is frequently justified with the unrealistic claim that a unipolar world order can put an end to all wars.
However, a balance between competing powers tends toward better outcomes. Since no one power can dominate totally, it is in the interests of all major powers to agree to a set of neutral and objective rules establishing at least a degree of sovereignty and a framework for peace for all. Italian political scientist Gaetano Mosca referred to this as “juridical defense.” Major powers also have to offer benefits to smaller countries to entice them into a sphere of influence, as there are competing powers that they could ally with. War and domination are unavoidable, but a multipolar world leads to more peace and freedom.
These concepts are proven by recent history. Washington has behaved remarkably poorly on the world stage since becoming a hegemon in the early nineties. It is weak internally and will lose its hegemony by internal collapse, a losing war launched against major challengers like Russia and China, or a combination of these factors. As a multipolar world emerges, Russia and China have made deals with other countries on favorable terms as they attempt to carry their support against the competing Washington pole. Vladimir Putin and Sergey Lavrov repeatedly and explicitly reference the multipolar concept as a normative goal.
There is a lot of confusion around the concept of a collapse. A total collapse never occurs as productive human action is a permanent phenomenon. However, something like a chaotic failed countercoup against a 2024 victory for Donald Trump and the subsequent creation of a completely different political system with a different foreign policy worldview would constitute an internal collapse for present Washington.
All of this relates to the ideas of James Burnham and the “Machiavellian” school of political science, as well as the “neorealist” school of international relations. Mosca and Burnham conceived of the “juridical defense” primarily from the standpoint of domestic politics. However, if anything, the theory applies better to the international arena. By definition, if there are multiple claims for sovereign power that cannot defeat each other, there are multiple political units. This is the situation internationally, but not domestically, where one sovereign prevails.
While an international balance of power may tend toward better outcomes, one should not get carried away with a purely process-based or systems-based analysis. Institutions are not people, institutions don’t possess a personality, and they can’t act for themselves.
The most determinative factor is the composition of the ruling class and their character as individuals and as a group, as well as their identity, subculture, worldview, material interests, and moral beliefs. Thus, even a hegemonic Beijing would be better than a hegemonic Washington, as the Chinese ruling class have demonstrated far less willingness to invade countries using maximum force or interfere in other countries’ domestic culture and political affairs than have the current Western ruling class.
As violent crime rates rise and unsolved homicides become more common, Many ordinary voters have noticed that the regime doesn't seem especially interested in investigating and prosecuting actual dangerous criminals. At the same time, the regime appears increasingly paranoid about "antidemocratic" activities and other alleged threats to the state. Gangs of thieves cleaning out the inventory of small businesses? The ruling elite isn't concerned. Meanwhile, if a small business owner fails to report a $700 transaction on Venmo, heavily armed IRS agents may soon show up on his doorstep.
This apparent trend toward ignoring violent criminals while prosecuting hapless middle-class taxpayers has caused many conservative activists—such as Tucker Carlson and Mike Cernovich—to resurrect the thirty-year-old phrase "anarcho-tyranny." Conservative columnist Sam Francis defined the term in the early 1990s as "the combination of oppressive government power against the innocent and the law-abiding and, simultaneously, a grotesque paralysis of the ability or the will to use that power to carry out basic public duties such as protection or public safety."
Francis would likely be among the first to say this isn't true "anarchy," of course. The state remains in full monopolistic control of its judicial, police, and military powers. That's a good thing for the state itself since regimes can't benefit themselves by actually losing control of the ability to suppress street crime. After all, states have long justified their existence with claims that they "keep us safe." One might look to Mexico or El Salvador for examples of how rampant crime is a potential threat to state legitimacy. On the other hand, it is likely that many American policymakers are indeed indifferent to crime endured by their constituents so long as the taxpayers are sufficiently shaken down and the technocrats are well paid.
The Soviet Version of Anarcho-Tyranny The American version of anarchy-tyranny that we presently endure is not the only variant, nor the worst. Francis may have coined the phrase, but the use of anarcho-tyranny as a deliberate policy dates back at least to Stalin's Soviet Union. The Soviet version manifested itself in two ways.
The first was the Soviet regime's habit of imposing the harshest penalties for "political crimes." This isn't to say that the Soviet regime didn't care about ordinary crime. The regime spent large amounts of money and resources on fighting street crime and rounding up the legions of underage criminals who were commonplace on the streets in the 1920s and early 1930s. Moreover, the regime overall sought to establish credibility for itself as the instrument of safety and order.
[READ MORE: "Why Governments Love Political "Crimes" Like Treason and Sedition" by Ryan McMaken]
Yet, it's clear the regime was more concerned with punishing so-called political criminals than with real crime. This certainly wasn't an innovation of the Soviet regime, as political regimes have for millennia considered political crimes like treason, sedition, and "libel" as more dangerous than mere non-political theft and murder. The Soviets were no different, although the Soviet definition of political crime expanded far beyond the usual despotic norm. Any Soviet subject could be found himself accused for political crimes for any number of infractions including theft of "socialist property," shirking work at a state-owned factory, failing to inform on others' anti-Soviet activities, or any number of activities that might be defined as "bourgeois" acts that undermined socialist laws. The nature of the acts mattered less than the assumed motivation. Even petty theft—which might receive scant attention from the regime if deemed non-political—could be severely punished if labeled as a "counterrevolutionary" act.
In his book on crime in the USSR, Valery Chalidze sums up the situation:
[T]he new regime concentrated its pressive efforts on political opponents and class aliens. Amid the crowd of real or supposed enemies of the regime, non-political criminals were still regarded as socially akin; they received shorter terms of imprisonment and served them in less severe conditions.1
Those prosecuted for political crimes, however, might quickly find themselves in a political court where legal procedures were stacked against defendants. If convicted, the "political criminal" would often be sentenced to years at a Gulag camp.
Once he was within the Gulag, the political criminal would then discover the second form of Soviet anarcho-tyranny. This second version was more terrifying than the first. The terror came from the fact that unofficial Soviet policy in the 1930s was to use ordinary criminals as means of eliminating political criminals altogether. Chalidze continues:
In the twenties and thirties ... the regime was conducting a campaign to change the class composition of society, and among the millions of class aliens in the camps were many whom the Bolsheviks wanted to get rid of but preferred to liquidate with the aid of criminals rather than openly. Thus political prisoners were systematically terrorized by criminals in the camps ... with the direct encouragement or connivance of the authorities. The helpless politicals, unused to camp conditions, were robbed of their clothing and allowed to freeze; their meager ration of food was taken from them, and eventually they died of exhaustion. Meanwhile they were constantly tormented and humiliated. Who can say how many perished in Soviet camps as a direct result of this persecution by criminals?2
In her summary of this form of Gulag terror, Elizabeth Klements adds that "the prison administration empowered the criminals in the GULAG by giving them access to the life-saving jobs and goods in the labor camps, while gradually withdrawing the political prisoners’ access to the same."
In the Gulag Archipelago, Aleksandr Solzhenitsyn describes how for all the changes that occurred at the Gulag camps during this period, the gulag administrators never gave up their
encouragement of the hoodlums, the thieves (blatnye). Even more consistently than before, the thieves were given all the “commanding heights” in the camp. Even more consistently than before, the thieves were egged on against the [political prisoners], permitted to plunder them without any obstacles, to beat, to choke.3
Klements goes on the list dozens of events illustrating the regime's relatively mild treatment of common criminals compared to the political prisoners. For example:
To the political prisoners, this theft and violence was constant, senseless, and cruel. Worse still, the GULAG administration tolerated it, and the guards rarely interfered. Gustav Herling recalled an incident in his camp, where a group of blatnye overpowered and raped a young woman at night in the middle of the camp, and once she managed to scream for help, “a sleepy voice called from the nearest watch-tower: ‘Come, come, boys, what are you doing? Have you no shame?’” That was all. The gang simply moved her to a more discreet position, and continued their assault.
This abuse of political prisoners endured in its worst form from the 1930s to shortly after the Second World War. The situation only changed significantly after the war because of a new influx of hundreds of thousands of Soviet war veterans. These veterans had been declared political criminals because they had surrendered to the Germans, served time in German POW camps, and were therefore viewed—in the twisted minds of Soviet agents—as collaborators with the Germans.4 These war veterans, however, were not as helpless against the criminals as earlier arrivals had been. Thus, the new war-hardened political prisoners fought back against the regular criminals. This, according to Klements, disrupted the status quo and forced the Gulag administrators to seek new methods.
The difference in treatment between the regular criminals and the political prisoners had roots in Soviet ideology about re-education and class conflict. The view of the Soviet ideologue was that common criminals could be reformed and converted into productive members of Soviet society with relative ease. Political prisoners, on the other hand, class "aliens" as they were, required far harsher treatment to attain sufficient reeducation. Many political prisoners were perhaps beyond reformation in this view, prompting the guard's indifference to the political prisoners' fate.
To some extent, this is all to be expected; regimes have long inflicted greater cruelty on perceived enemies of the regime than toward ordinary criminals. The Soviet example, however, provides an especially extreme and alarming example of how literally millions of ordinary non-violent "offenders" can be caught up in a legal system that is designed to protect the state instead of protecting the general public.
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- Valery Chalidze, Criminal Russia: Essays on Crime in the Soviet Union, translated by P.S. Falla (New York: Random House, 1977) p. 70. The term "socially akin" is to be contrasted with "class alien." Translated another way, the term is "socially near," a phrase that again contrasts with the idea of counterrevolutionaries as distant or alien from the ideal socialist society.
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- Ibid.
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- Aleksandr Solzhenitsyn, The Gulag Archipelago (Volume 2), translated by Thomas P. Whitney. (New York: Harper & Row, 1974), p. 126.
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- Stéphane Courtois, Nicolas Werth, Jean-Louis Panné, Andrzej Paczkowski, Karel Bartošek, and Jean-Louis Margolin, ed. Mark Kramer, The Black Book of Communism: Crimes, Terror, Repression, translated by Jonathan Murphy and Mark Kramer (Cambridge, Mass., Harvard University Press, 1999) p. 231.
The simplest action of economics—beneficially mutual voluntary exchange—is also its most profound. People serve each other while improving their own lot in life.
Original Article: "The Simplicity and Significance of Mutual Economic Exchange"
Warren Buffett, renowned as the “Oracle of Omaha,” emerges as a towering figure among the most celebrated and accomplished financiers in modern times. Throughout his illustrious career spanning numerous decades, he has accumulated unrivaled wealth, garnering an esteemed reputation in the financial realm. Presently, he holds the prestigious positions of chairman and CEO at Berkshire Hathaway, a conglomerate that mirrors his astute discernment of value and commitment to long-term, judicious investments.
In contrast to his father, Howard (the original Oracle of Omaha), who was a four-term Republican representative for the state of Nebraska and a vocal libertarian aligned with the Old Right, Warren supports expansive government intervention in the American economy. To understand Warren Buffett’s philosophy, it is important to understand Howard’s.
Howard Buffett’s story began in Omaha, Nebraska, in 1903, when he was born to the owners of a grocery business. After attending college at the University of Nebraska in 1925, Howard started a small stock brokerage firm, but as the Great Depression ruined the 1930s economy, Buffet pivoted from his career in business to a career in politics. In his home district, Howard challenged incumbent Democrat Charles F. McLaughlin during the 1942 US House elections. In a stunning upset, Howard emerged victorious as the Republicans flipped forty-seven seats, though they were still unable to take back the House since their blowout ten years earlier.
Buffett went on to win two more terms but could not pass effective agendas in a Democrat-controlled House, Senate, and presidency. In 1948, one term after the Republicans took back the House and Senate, Buffett was dethroned by Democrat Eugene D. O’Sullivan. Buffett used his two years out of Congress to focus fully on his 1950 campaign efforts. In 1950, Howard won back the office by a margin of 27 percent, reclaiming his throne from O’Sullivan.
Buffett’s victory could not have come at a more momentous time, as Harry Truman was sending money to Europe and young men to Korea. The Marshall Plan gave $13.3 billion (the equivalent of $173 billion in 2023) in economic aid to Western Europe after an expensive World War II. The Korean War pushed recent high school graduates and World War II veterans, who were finally reaping the postwar prosperity, into harm’s way. Buffett believed that it was tyrannical for Truman to send soldiers into Korea without a declaration of war by Congress, as required by the Constitution. Buffett, on every decision he voted upon, inwardly asked, “Will this add to, or subtract from, human liberty?”
Howard said:
Even if it were desirable, America is not strong enough to police the world by military force. If that attempt is made, the blessings of liberty will be replaced by coercion and tyranny at home. Our Christian ideals cannot be exported to other lands by dollars and guns. Persuasion and example are the methods taught by the Carpenter of Nazareth, and if we believe in Christianity, we should try to advance our ideals by his methods. We cannot practice might and force abroad and retain freedom at home. We cannot talk world cooperation and practice power politics.
Instead of running for another term in 1952, Buffett campaigned for Senator Robert A. Taft from Ohio to win the Republican nomination. The Republicans had suffered a record five straight presidential election losses, and because of Truman’s unpopularity, the GOP was nearly guaranteed to take the White House for the first time in twenty years. While the Republican Party was divided between Dwight D. Eisenhower, general of the army, and Taft, Buffett knew Taft to be the right choice.
Throughout the Cold War, foreign policy emerged as a significant source of disagreement: Eisenhower adopted an interventionist approach while Taft preferred a more cautious stance, advocating for avoiding entanglement in foreign alliances. While Eisenhower was more receptive to certain social welfare aspects of the New Deal, Taft staunchly opposed them. While Eisenhower believed that the North Atlantic Treaty Organization (NATO) was necessary to defend against communism, Taft opposed its globalist nature. At the Republican National Convention in Chicago, Eisenhower received 595 votes, nine shy of the nomination, which required 604, and Taft got 500. However, the Eastern Establishment members of the Republican Party, like Thomas Dewey and Henry Cabot Lodge Jr., swayed delegates to Eisenhower, who eventually became the nominee. Buffett’s efforts to put Taft in the White House fell short.
At the age of forty-nine, Howard left politics and returned to his investment business, Buffett-Falk, in Omaha, where he worked until shortly before his death in 1964. Buffett’s short tenure in Congress made him an unknown figure to nonscholars. Had Taft won in 1952, Buffett might have been promoted within the Republican Party for being aligned with the paleolibertarian causes that Taft supported. Buffett could have been the perfect candidate to run for Nebraska senator, a more powerful position in Washington. Instead, Buffett faded into the sunset as a career businessperson who’d dabbled in politics. His son, Warren, created an empire of wealth but diverged from the political values that Howard fought for.
A prominent figure in the business and financial realm, Warren Buffett has historically gravitated toward the Democratic Party, finding common ground with their stances on taxation and income inequality. With a strong voice, he advocates for higher taxes on the affluent and expresses deep concern about the increasing wealth gap in the United States. Despite his dedication to investing and overseeing Berkshire Hathaway, Buffett uses his platform to vocalize his views on economic matters, offering praise to Democratic leaders who share his agenda for creating a more equitable society.
Warren Buffett is not a “country club Republican,” like many corporate CEOs, or even a moderate Democrat. Instead, Buffett is a “limousine liberal.” Warren and Howard differ not only in their view of the economy but in their view of foreign policy as well. Although Warren has more in common with Howard on foreign policy, Warren has never shied away from investing massive amount of funds in the defense industry. In 1992, after the Cold War ended, he took a 15 percent stake in General Dynamics.
Warren has also ridiculed the gold standard, which Howard was a major supporter of because Howard believed it would limit the government’s ability to inflate the money supply and spend beyond its means. About gold, Warren has said, “[It] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head”. Even if that were true, gold cannot be printed out of thin air, unlike the dollar.
On the outside, Warren Buffett is a kind, old gentleman. But he treats Berkshire Hathaway with a ruthless and capitalistic nature, like any shrewd businessperson should. Does Warren Buffett really believe that people like him should be paying more taxes that take away from his corporate profits? (Those profits go back to shareholders, by the way.) Or does Warren want to be viewed as someone who did business the “right” way?
When people look back on Warren Buffett’s legacy one hundred years from now, there will be a disconnect between Buffett’s words on pursuing economic equality and his actual pursuit of the bottom line. For example, in 2007, Buffett testified before the Senate, urging them to preserve the estate tax. Some might think that Buffet, at his own sacrifice, was pushing to avoid a situation where the wealthy own all the American homes. But Berkshire Hathaway has historically reaped advantages from the estate tax in previous business ventures and actively marketed insurance policies to shield policyholders from potential estate tax payments in the future.
Also, Buffett is right that lower-income individuals shouldn’t pay a higher tax rate than the wealthy, which is the case under the US income tax code. However, Buffett's $100,000 salary allows for most of his taxes to be in the form of capital gains versus income taxes, saving him a lot in taxes. Buffett has continually supported Democrats’ pursuit of income equality, and even supported Hillary Clinton in her campaign against Donald Trump in 2016. But just before the Trump tax cuts went into effect, Buffett took the same actions to benefit from them as other CEOs, who began slashing their own salaries to pay fewer taxes overall. He makes $100,000 to this day.
With the foundations laid by his father, Howard, Warren Buffett has undoubtedly done a great deal for society. His philosophy of smart investing, success with honor, and philanthropy is something to be admired. However, Warren's economic views can never be seen in the same light as Howard's were. The free market is clearly the way for business executives to maximize their companies' profit. The lack of government intervention that Howard championed was very profit-friendly. Although in politics, Howard had the mind of a true business leader.
Ryan and Tho examine how the US regime is in the midst of its latest panic over public faith in the state's legitimacy. This is why we keep hearing about misinformation, insurrection and "threats to democracy."
Recommended Reading "'Antidemocratic' Just Means 'Something the Regime Doesn't Like.'" by Ryan McMaken: Mises.org/RR_148_A
"Seditious Conspiracy Is Not a Real Crime" by Ryan McMaken: Mises.org/RR_148_B
"The State Protects Itself While Crime against Ordinary People Surges" by Ryan McMaken: Mises.org/RR_148_C
"Fewer than Half of Violent Crimes Are Solved in America" by Ryan McMaken: Mises.org/RR_148_D
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Murray Rothbard wrote that egalitarianism was a war against nature. Statism has become a war against reality.
Original Article: "Statism and the Unmaking of Reality"
Most students in America are introduced to the writings of Upton Sinclair. While they aren’t shown his incredible cover-up of the Holodomor or his other Soviet apologisms, they are presented with his most famous work: The Jungle. This work tells the tale of Sinclair’s investigation into the wretched working conditions of the meat-packers of its age. Between lost limbs and failed inspections, Sinclair writes about the meat being contaminated and barbarously prepared.
This tale is meant to show the supposed failures of laissez-faire capitalism, with its disregard for workers and health. Readers are supposed to walk away with a firm belief in the need for the regulation of these firms. Hurrah! Here comes the mighty state to provide safety to the masses that would otherwise be made sick by crony corporations. That’s far from the truth.
Murray Rothbard himself documents in The Progressive Era the truth of the United States Department of Agriculture (USDA) regulation. Rothbard observed that nearly every inspection passed in any form of legislature or bureaucracy was fueled by protectionism from existing firms. These regulations were not there to provide “safety” to consumers but rather to keep competition out of the marketplace by fiat. Rothbard states that the only meaningful definition of monopoly is an exclusive legal right granted by the state. Perhaps then, the only meaningful definition of so-called monopoly powers is a firm’s ability to push regulation that harms their competition through the state.
Even today, the USDA—and its regulations—threaten to crush small farmers under its heel. A small hobby farm, or even one that simply isn’t a factory farm, can hardly stand up to the regulations.
Meat processing in the United States must be done under the supervision of a USDA inspector if the goal is to sell the animal product to another person. A farmer cannot simply butcher his or her own animal, cut it into the usual meat products, and sell it at a farm stand. That would violate USDA regulations. Regardless of the ability of farmers to inspect and keep their own animals healthy or of their own skill in butchering livestock, they must have a USDA inspector to sell the product on the market.
This inspector is not provided, though, free of charge by the USDA through taxpayer dollars. Rather, the individual meat processor must pay out of pocket for these services. As far as meat processing goes, the USDA charges anywhere from $86 to $238 an hour for inspections. This does not guarantee the quality of the meat; it simply gives a rubber stamp to large processors that can afford to pay the processors.
Bigger is not necessarily better, as one can apply basic logic to the inspection process. Those moving larger volumes of meat are able to afford to pay an inspector hourly. By throwing large volumes of the goods over and over in a constant stream at their workers and the inspectors, mistakes can be made. This method of “inspection” incentivizes for large volumes rather than quality. It’s rare to come across a small farm causing health issues, but it has become increasingly common to come across recalls from large processors like Perdue and Lakeside Refrigerated. These large outlets can certainly afford to pay for an inspector, but that doesn’t guarantee quality.
The solution is, rather than increase the scale of operations, America must decentralize its meat packing and processing. This means opposing bureaucracy that forces family operations to pay for a bureaucrat who guarantees neither safety nor quality.
In a free market, quality and safety can be ensured by a variety of means. An organization like the USDA might arise, but it would be held accountable by profits and losses. Individual processing firms may pay the free-market USDA to verify the health of their product. However, if the free-market USDA fails to stop an illness from arising, through their own inspection failures, they may lose their credibility with both consumers and the producers that pay them. Profit and loss provide greater incentives for success than a bureaucracy that theoretically cannot “go under.”
Even better is the decentralization of the food processing industry altogether. Greater accountability can be held to more local institutions, such as farmers currently barred from processing their own food. Word of mouth spreads quickly among neighbors. Any exchange that a consumer is comfortable making, they should be allowed to, knowing full well the risks. Why should a government get between a farmer and their customer buying meat from them?
This is the entire basis for Thomas Massie’s Processing Revival and Intrastate Meat Exemption Act, or PRIME Act, which would circumvent the USDA’s jurisdiction for exchanges at a community level. The act would exempt custom slaughterhouses from USDA inspector requirements if the exchange occurs within state borders and follows any state-specific laws. It would be an important step toward decentralizing the food system.
If conservatives and libertarians care about competition for small farms, they should support defanging the federal bureaucracy used by large corporations to capture markets. The USDA should have its regulatory powers removed, and the ability to provide safety in food should be returned to the market. Markets provide a far more welcoming place for producers and a far safer result for consumers.
The only real crimes are those that constitute violence against actual, specific persons and property. These are crimes such as theft, assault, rape, homicide, and fraud. States and civil governments of all types have long justified their existence on the grounds that they punish perpetrators of these crimes and thus provide "public safety." (The fact that states themselves often commit these crimes—i.e., through torture, police brutality, taxation, and conscription—is carefully ignored.)
Throughout history, however, states have also created a distinct category of "crimes" known as political crimes. These crimes are described as not just mere attacks on specific persons and property. Rather, these crimes are attacks on "society" or "the social order" or "the nation." These offenses are given names such as "treason" or "seditious libel." In communist societies, they are often labeled "antirevolutionary activities." State propaganda always attempts to portray political crimes as assaults against all of society, but in reality, the state prosecutes political crimes because they are activities that regimes consider to be threats to the regime's interests and legitimacy. As such such activities are often punished more severely than even violent crime committed against private individuals. Political crimes need not even be physical actions taken against a regime or its agents. Political crimes are often also acts that are believed to undermine the state through the spread of anti-regime opinions and research. For this reason, some researchers and state authorities have suggested the term "ideological crime" to denote many political crimes.1
In a free society, political crimes are few and far between, and regimes focus on preventing violations of property rights by either the regime itself or by private "street" criminals. Under despotic regimes, on the other hand, the focus shifts to preventing crimes against the state. Under these regimes, the list of political crimes grows, and private citizens increasingly are in danger of prosecution for activities that in free societies would be considered ordinary crime or non-criminal acts altogether.
The Origins of the Concept of Political Crime Broadly speaking, the idea of political crime is very old, and the roots of political crime can be found in the concept of lèse-majesté which regimes generally viewed as any defamation or offense against the monarch (or other head of state.) What constituted an offense, of course, tended to be very malleable, and was changed to suit the needs of the regime. What was sure, however, was that political crime has been historically treated as more dangerous and requiring more severe punishment than regular crime. Thus, one characteristic of political crime has been—at least prior to the nineteenth century—that it was usually punishable by death. Moreover, political crimes are often subject to fewer regulations protecting the rights of the accused, and are often prosecuted by authorities more directly under the control of the central executive power.
In monarchies, political crimes such as treason and sedition and insurrection were generally regarded as offenses against a specific ruling group or person, whether an ancient Roman Emperor or a feudal king of the ninth century. By the seventeenth century, however, monarchs were increasingly only part of the state apparatus, which increasingly took on a life of its own beyond the control of the monarch. Thus, political crimes increasingly came to be regarded as crimes against "the state" rather than simply against the king or the crown.
These "crimes" were often physical acts, of course, but with the rise of absolutism in the sixteenth and seventeenth centuries, mere criticism of the prince might also bring charges of treason. Merely saying things —or holding "incorrect" opinions—could constitute a political crime. Consider, for example, St. Thomas More's treason conviction for the "crime" of refusing to affirm King Henry's divorce. Many prosecutions for political crime took place under the guise of religious violations, as well. The Spanish Inquisition, for example, was only ostensibly a religious institution and served primarily to root out ideological opponents of the crown. As Martin Van Creveld has noted, “it has been said that no institution was so completely under royal control as the Spanish Inquisition.”2 As state power increased, so did efforts to criminalize ideological threats to the regime. By the seventeenth century, combatting ideological crimes was a common activity of regimes. Entire state bureaucracies arose designed to control the flow of printed documents that might excite resistance to the regime. Violation of a state's censorship laws often brought "severe" penalties, including death. Under English common law, "seditious libel" prosecutions served to silence critics of the regime.
It was during this period that states increasingly used the still-in-use tactic of moving trials of accused political criminals to special courts that were under the direct control of the central government—and where standards of due process were more flexible. Szabo notes that in seventeenth-century France, "central power took precedence over that of the great barons" and "[a]lleged political crimes were removed from the regular courts" and given over the special tribunals. "[First Minister to King Louis XIII] Richelieu defended these special courts by saying that in the regular courts justice required knowledge and evidence of proof, but that this was not the case in the affairs of state since conjecture must often take the place of proof."3 Similar trends took hold in England as early as the sixteenth century when the regime employed the notorious "Star Chamber" trials to more enthusiastically prosecute political crimes by suspected enemies of the regime.
The justification for prosecutions of political crime was soon expanded even beyond the notion of crimes against the state apparatus itself. In the 1640s, the English republicans executed Charles I for treason against "the free people of this nation" establishing the idea that it was possible to commit political crimes against a vaguely defined national group.4 The French revolutionaries took a similar approach, declaring King Louis XVI guilty of treason because he had violated "the sovereignty of the people."
Abolishing monarchs certainly did not abolish prosecutions for political crime, however.Within a year of Charles's execution, the libertarian activist John Lilburne was prosecuted under Cromwell's republican government for supporting royalist causes and criticizing Cromwell. (He was found not guilty by a jury, but later exiled for the ideological crime of "libel.") And, of course, thousands of "traitors" were executed in the early years of the revolutionary French republic. Many were executed for merely being wealthy or members of the clergy. As we will see, this notion that people can be deemed political criminals by virtue of being members of a particular group will become especially important in totalitarian regimes.
The Twentieth-Century Proliferation of Political Crime State crimes proliferated in the twentieth century, as made abundantly clear by the legal histories of the Third Reich and the Soviet Union.
Under the National Socialists, political crime took many forms. Naturally, any sort of physical resistance to the state police or military institutions resulted in draconian reprisals. It surprised no one that the planners of the July plot were executed as political criminals, for example. But peaceful resistance met hysterical responses from the authorities on the grounds that these dissidents were dangerous criminals. The members of the White Rose—i.e., Sophie Scholl, et al—were executed for various ideological crimes after distributing leaflets criticizing the regime. Austrian Farmer—and later Catholic "Blessed"—Franz Jägerstätter was executed for the political crime of conscientious objection.
Some subjects of the regime were handed more severe penalties as political criminals simply for their associations with various groups. Naturally, Jews were found guilty of political crimes known as "race crimes" simply for socializing with non-Jews. Countless communists were declared political criminals for acts that would have been ignored or considered ordinary crime had they been committed by others. For example, Christian Goeschel details the case of petty criminal "Willi H.". "Willi" was handed 15 years for manslaughter although his guilt was established without evidence and based primarily on his loose associations with communists.5 His "communism" earned him a label of political criminal which resulted in him being sent to Buchenwald concentration camp in 1943.
The Soviet Union offers countless similar examples. This was especially true in the days of Stalin, but countless political criminals were prosecuted throughout the life of the USSR for various crimes against the state.
The Soviet propensity for bringing new categories of human behavior under the umbrella of political crime was put firmly in place by the early 1930s. Early Soviet leaders had attempted to bring ordinary crime under control in order to claim that the Soviet state had established order following the coup and civil war that had brought the Bolsheviks to power. Thus, many harsh penalties were handed down to those found guilty of non-political acts of theft and murder. However, it quickly became more and more difficult to avoid charges as a political criminal after the introduction of the new political crime known as theft of "socialist property"—i.e., state property. In a time and place where the socialist state was the primary owner of all property, theft of government property was quite common. Regime supporters thus declared these thefts to be "assault[s] on the basic forms of Soviet society" and as such were punishable as political crimes.6 Naturally, defining the theft of a loaf of "socialist" bread as an attack on "society," made countless Soviet subjects more likely to be branded political criminals.
In the 1930s, many crimes were deemed political if the accused were regarded as being among "anti-Soviet elements."7 During this time,
officials defined crimes as more or less dangerous depending on the class background of those committing criminal acts. Thus, workers caught stealing were not considered dangerous criminals, while former tsarist bureaucrats or kulak land holders caught stealing were punished as counter-revolutionaries.8
After 1935, however, even the "workers" were targeted as political criminals should they steal government property. All such crimes were then labeled counterrevolutionary in nature and the result of tendencies toward "petty bourgeois anarchy"9 which threatened "socialist discipline."10 It's easy to see how under such conditions, virtually anyone could find himself accused of a political crime, as virtually any act might be construed as a type of bourgeois decadence and thus a threat to the entire social order.
The bias against political criminals did not disappear after the death of Stalin. As Soviet defense attorney Dina Kaminskaya noted, the rights of political defendants were far more restricted than those of ordinary criminals. Prosecution was prepared by the KGB which enjoyed unlimited leeway in how it conducted its investigation. Moreover, Soviet attorneys who accepted political cases were themselves subject to more legal restrictions than ordinary attorneys. Writing in 1982, Kaminskaya concluded that while ordinary criminals might reasonably hope for a fair trial based on unbiased consideration of the evidence, in political cases, "the rights of advocates and defendants alike are grossly infringed by the state."11
This dichotomy between ordinary criminal trials and political trials was not unique to the absolute monarchs of old or modern totalitarian regimes. Similar tactics certainly persists in the modern world and are employed today by regimes such as that in Saudi Arabia. Another tactic is to use secret court proceedings as done in the United States. Tribunals such as the Foreign Intelligence Surveillance (FISA) court tilts rules of evidence and other procedural matters against defendants in ways that would not be tolerated for ordinary criminal proceedings.
All Political Crime Is Relative A key characteristic of political crime is that how we define it is largely dependent on the political context in which the acts in question take place. As Szabo notes, whether or not a political act is regarded as truly criminal is "contingent upon the current views and the dominant principles in any society."12 This is true to a certain extent with all crimes, of course. What constitutes justifiable homicide can vary from one society to another. Definitions of ordinary crimes tend to be relatively stable over time, however, while one's status as a political criminal can change rapidly—virtually overnight in many cases. Stephen Schafer notes, for example,
The Hungarian Revolution offers a modem example of abrupt and rapid changes in the norm-making power structure. At the time of the revolution in 1956, criminals turned into heroes and then back into criminals, while law-abiding citizens changed to criminals and then back to conformists—all within eight days."13
This phenomenon was increasingly documented and evident by the nineteenth century in the wake of events such as the American Revolution, the French Revolution, and similar events. Nikos Passas writes, "After the French revolution of 1830 the frequency of revolutions and the ongoing differentiation of political regimes made obvious the relativity of the notion of "political offence."14 Events such as these present a problem for dogmatic supporters of regimes against political criminals—especially of the ideological kind. If one can observe that the same person—without any change in behavior—can be a political criminal on Monday but a non-criminal of Friday, it becomes easier to see how many reasonable people could detect the absurdity of the notion that loyalty or support for any particular political regime is tied to any immutable or universal moral code.
Consequently, as Otto Kirchheimer described it "... the nineteenth century showed increasing indulgence to those who strayed from the accepted political and social norm. This did not happen furtively or underhandedly. Gradually, if fitfully, man's right to cast doubt on the foundations of established political patterns came to be openly recognised."15 In other words, it became increasingly clear to many that one man's political criminal is simply another man's hero. What many regimes labeled political "crimes" were increasingly defined as morally legitimate political protest.16
Classical Liberal Skepticism of Prosecutions of Political Crime This shift was not due simply to historical events, however. The growth of "classical" liberalism as an ideological force throughout western Europe confirmed the moral legitimacy of opposition to one's ruling regime. The American Revolution—which continued to be an inspiration to countless political activists across Europe in the nineteenth century—confirmed that even armed rebellion could be justifiable. This, of course, was expressly endorsed by Thomas Jefferson and other American secessionists in the American Declaration of Independence. An individual example is John Adams, held by the British crown to be a traitor in 1776, yet by 1785 was received at court as a legitimate diplomat by George III.
True to form, the more liberal faction among the Americans—i.e., the "anti-Federalists"—insisted on strict limits on political crimes as listed in the First Amendment to the new constitution. The Amendment prohibits Congress from criminalizing speech, protests, petitions, and other forms of political dissent often labeled as political crimes by other regimes. Unfortunately, the liberals of this era did bow to listing one political crime in the text of the new US Constitution: treason. Even in this case, however, the definition of treason was limited to "levying war" against the United States so as to avoid the common historical problem of regimes defining treason as any number of activities the regime disliked.
Unfortunately, liberal skepticism of the legitimacy of political crimes—increasingly prominent in the nineteenth century across the West—was greatly eclipsed by the twentieth century and into the twenty-first century. This has been true even in the state most known for liberal sentiment—the United States. The growth in the US of secret courts, mounting prosecutions for "seditious conspiracy," attacks on independent journalists, and growing calls for direct state censorship of "misinformation" illustrate several ways the American regime can turn the screws on regime opponents. Efforts to prosecute such "crimes," wherever they take place, represent a direct threat to freedom and political dissent.
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- M. Denis, Szabo, "Political Crimes: A Historical Perspective," Denver Journal of International Law and Policy 2, no. 1 (January, 1972): 10.
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- Martin Van Creveld, The Rise and Decline of the State, (Cambridge: Cambridge University Press, 1999) p. 67.
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- Szabo, "Political Crimes," p. 13.
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- Samuel Rawson Gardiner, ed., The Constitutional Documents of the Puritan Revolution, 1625-1660 (Oxford: Clarendon Press, 1906) p. 373.
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- Christian Goeschel, "The Criminal Underworld in Weimar and Nazi Berlin," History Workshop Journal, no. 75 (Spring 2013): 69-70.
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- David R. Shearer, "Crime and Social Disorder in Stalin's Russia," Cahiers du Monde russe 39, no.1 (January-June 1998): 137
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- Khlevniuk, O. V., The History of the Gulag: From Collectivization to the Great Terror.
Translated by Vadim Staklo. (New Haven: Yale University Press, 2004), p. 145.
- Khlevniuk, O. V., The History of the Gulag: From Collectivization to the Great Terror.
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- Shearer, "Crime and Social Disorder," p. 138.
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- Shearer, "Crime and Social Disorder," p. 138.
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- Ibid.
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- Dina Kaminskaya, Final Judgment: My Life as a Soviet Defense Attorney (New York: Simon and Schuster, 1982) p. 31.
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- Szabo, "Political Crime," p. 10.
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- Stephen Schafer, "The Concept of the Political Criminal," Journal of Criminal Law and Criminology 62, no. 3 (1972): 381.
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- Nikos Passas, "Political Crime and Political Offender: Theory and Practice," Liverpool Law Review (January 1986): 25-26.
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- Otto Kirchheimer, Political Justice: The Use of Legal Procedure for Political Ends (Princeton, NJ: Princeton University Press, 1961), p. 32.
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- In many ways, this signaled a return to medieval political ideology which had limited the powers of princes and had differentiated between treason and legitimate resistance to a tyrant. In fact, the right to revolt against tyrannical rulers is specifically recognized in the Magna Carta of England in 1215, in the Golden Bull of Hungary in 1222, in the Peace of Fexhe of the Principality of Liege, and in the Joyeuse Entrée of Brabant in 1356.
Recorded in Windham, New Hampshire, on August 20, 2023.
Special thanks to Joe and Tracy Matarese for making this event possible.
Imagine fathers at the little league baseball fence. The first brags, “My son is batting 200!” You should be thinking, “That’s not very good.” The second intones, “Oh yea, well my son is batting 175!” “Hold it,” you’re thinking, “this is going backwards.” And your suspicions are confirmed when the third yells out, even louder, “Here comes my son, batting 150!”
As all three dads high-five each other, you look at the name on the uniforms and it reads “Bidenomics.” You think - like Alice - you’ve fallen down a rabbit hole into Wonderland, but soon you realize, this is the economic world the progressives intended. Losers are applauded, the winners chided, and covetousness is the over-arching narrative.
The new Biden plan to reduce student loan payments will be based on income with some payments being zero. It’s called SAVE for “Saving on a Valuable Education.” Who saves? Well, like most socialist plans, this one puts the motivations in all the wrong places by encouraging lower incomes, just as the little league adds were encouraging lower batting averages.
Atlas Shrugged In Atlas Shrugged, Ayn Rand explains how rich folks “shrugged” when taxes got too high. It’s actually an effective explanation of the Laffer Curve, by Arthur Laffer, which shows that at higher levels of taxation, people reduce their contribution. We all “shrug” at some level of taxation. The Biden SAVE plan encourages college graduates to “shrug” as soon as they graduate. Don’t go for a higher paying job, go for the lower one.
Just a few months ago Dallas Mavericks owner Mark Cuban was fined $750,000 by the NBA for purposely losing games. He was encouraged to “shrug” so his team could get a higher draft pick at the end of the season. The Biden SAVE plan does the same thing: It encourages students to lose, by taking lower-paying jobs.
I’ve been told that the poverty mindset goes something like this: “I’m never going to get ahead, so why try?” They think they will always be poor. The Biden plan appeals to those emotions.
The Government has no money! The money paid for student loans was taken from a productive source and given to an unproductive source. Think about it: If the unproductive source was productive, it would have been supported by the market, and wouldn’t need government help in the first place. This is what government always does. The government only taxes productive sectors of the economy. And it only gives to unproductive sectors. The Biden student loan scheme is simply another example.
Julia and Joe The Obama administration famously produced an animated video titled The Life of Julia. It explained how she went through life, moving from one government support program to another. My prediction is that the recent Biden student repayment scheme will produce “Julias and Joes.”
You think people won’t “game” the system? I can hear it now, a conversation taking place in the bowels of a university, where they are calculating the highest loan amounts, relative to the lowest repayment schedules, which creates the biggest government payment for tuition. I would think that the university folks making the calculations are calling these students “Julias” and “Joes,” (Biden). When you simply insert this chapter into the Julia video and determine how long the person must work before they can start claiming unemployment, or disability insurance, or social security, or some other government program, you begin to see how the SAVE plan fits into the broader socialist scheme.
Pay=Worth The Biden plan is called “The SAVE plan” for “Saving on a Valuable Education.” However, if the education were valuable, it would reflect higher, not lower income after graduation. So, the program is mis-titled in the first place. But we should be accustomed to this administration’s use of what George Orwell called “Newspeak” in the dystopian totalitarian state that he described in 1984.
In economic terms, what a person is paid reflects the value they create in a supply and demand market. Construction workers are paid more than elementary teachers because they create more value, according to the market. Burisma pay Hunter Biden $83,000 a month, because he created $83,000 a month in value for access to his father. Simple as that.
However, via the new student-debt plan, President Biden wants US workers to deliver less value to the workplace. I don’t have to explain what that does to GDP and the general wealth of the nation. We all get poorer.
Bring back manufacturing? Oh, now it’s making sense to me. President Biden wants to bring manufacturing back to the US. He intends to do it by lowering Americans wages below those of the Chinese workers. Brilliant!
When my colleagues hear the phrase, When Helping Hurts, they know it’s from the very good book by Brian Fikkert and Steve Corbett by that name. There also is a series of videos from the Acton Institute titled Poverty Cure, which explains how simply giving money does not cure poverty. Acton’s latest video on this topic is titled Poverty Inc. It explains how resources that were intended to alleviate poverty have created an industry that supports poverty. President Biden’s SAVE scheme is part of that industry.
The activists went from "We want to be left alone to live our lives" to "we want to control your lives too." Now the movement has state power on its side and bullies all opponents.
Original Article: "2SLGBTQ+IA and the Law"
Joe Biden recently claimed on Twitter that “Bidenomics” has increased the real wages of low-income workers. A counterclaim was made through Twitter’s Community Notes that wages adjusted for inflation were actually lower at the time of Biden’s claim. But data without theory is unsatisfying, so it is worth asking if conditions of the last few years have been conducive to higher real wages, especially for lower earners.
The Boom First, we need to establish the current situation. As the Fed has raised its benchmark rate, measures of broad money growth in the United States have been trending downward. But this comes at the tail end of an expansionary boom. In 2020–21, Fed and Treasury policies combined to provide broad money growth that was unprecedented during peacetime. While broad money growth under post–financial crisis quantitative easing (QE) was around 3 to 5 percent, this more recent episode, according to YCharts, saw year-over-year M2 growth peak at 26 percent in February 2021.
Unlike the QE that began in 2008, in which new money entered asset markets mainly via the banking system, most new money creation since 2020 has funded Treasury deficit spending. This heavy public spending has added to private and household sector balances and can only be seen as part of a state and federal antiproduction policy.
The resulting price inflation should not have been a surprise to economists at the Fed, who no doubt claim to be empiricists. But their initial fears of deflation and their later portrayal of inflation as “transitory” indicated a failure to understand it. One of the many reasons for this failure is that the quantity of money is not a metric of great interest to the post-Keynesian school, which continues to dominate among policymakers and high-profile academics. Despite all the opinion pieces and excuses, after the empirically well-founded twelve-to-eighteen-month “long and variable lag” described by Milton Friedman, the monetary expansion showed up in consumer prices and has only recently started to weaken.
Creating the Boom: Credit Expansion and Simple Inflation Ludwig von Mises stated that “the essence of monetary theory is the cognition that cash-induced changes in the money relation affect the various prices, wage rates, and interest rates neither at the same time nor to the same extent.” Where new money enters the economy is of great importance in analyzing its perturbing effect on the productive structure.
It is difficult to distinguish the layers of monetary expansion operating right now. Credit expansion is operating through loan markets, thanks to the artificially low interest rates resulting from the Fed’s ongoing activity—its balance sheet has doubled since the start of 2020. There is also what Mises calls simple inflation, whereby the Treasury spends dollars it receives from the banking system, which in turn receives them from the Fed.
Both layers can expand production and bid up factor prices, but the beneficiaries are chosen by different parties. Credit expansion allows those who are most able—most obviously, the big and the financialized—to access loanable funds and expand production. Simple inflation benefits the economic activity of the government and transfers income to whichever parties it wants to contract with. Contra the mainstream view, fiscal spending cannot direct resources from lower- to higher-valued ends. Publicly operated services do not operate under the pressures of profit and loss, so they are value destructive by nature. Transfer payments are won by special interest lobbying rather than market competition.
Forced Saving Whether the boom is affected by an expansion of credit, simple inflation, or both, only one force could possibly result in the increased net saving required to fund investment in more capital goods and increase the marginal productivity of labor. During inflation, all other forces will encourage consumption and discourage saving.
The one force that can increase net saving during inflationary periods is forced saving, a term Mises uses to refer to the reduced consumption of lower earners faced with prices rising faster than wages. According to Mises, “it depends on the particular data of each instance of inflation whether or not the rise in wage rates lags behind the rise in commodity prices.”
The key point is that if wages lag behind prices, higher earners will not be compelled in the same way to restrict their consumption. They may increase their savings and investments, but “it is necessary to remember that the greater propensity of the wealthier classes to save and to accumulate capital is merely a psychological and not a praxeological fact.” In other words, forced saving can overcome the tendency toward reduced net saving and investment during inflationary periods, but it is not a given that everyone will save.
If forced saving did happen during the current inflationary period, would it really be something to celebrate for lower earners? Restricting consumption for lower earners in order to win votes would be like selling a policy of taxing lower earners to pay higher earners as a path toward prosperity.
Looking at the Data Combining the concept of forced saving with a look at the data can help to settle whether Biden’s claim is valid. The FRED database shows the Personal Consumption Expenditures (PCE) Price Index increasing about 13 percent and average hourly earnings (private) up 8 percent since September 2021. There are many issues with price indices, and these earnings numbers say nothing about unemployment, but they are what we have to work with.
Relevant to Biden’s claim about lower-paid workers, a survey of wage growth for hospitality and retail workers shows respective increases of 12 percent and 8 percent. This data is hardly all-encompassing or conclusive. On the saving side, the personal saving rate is down 3.6 percent for the same period. It seems reasonable to posit that consumption has been restricted for lower earners—consider the recent popular cries of a “cost of living crisis.” But net saving has not increased, so the conditions under which forced saving could increase net saving do not seem to have been met.
Credit expansion and simple inflation have been operating since 2020, so it makes sense that prices have led wage increases. Wages have increased more steeply toward the end of the boom in part because of the Treasury’s spending on unproductive ends and thereby bidding up factor prices like wages. But the nominal increases in wage rates have not kept up with the diminished purchasing power of the dollar. With the Fed now in a hiking cycle, the potency of credit expansion is waning for the private sector as funding becomes dearer. Meanwhile, the public sector, funded by simple inflation, does not look like it will be receding any time soon, having no political appetite for surpluses.
Conclusion There does not seem to be any basis for the claim that forced saving has led to a greater capital intensity and higher wages—if this was what Biden’s claim implied. Even if this had occurred, it would be something for higher earners to celebrate more than lower earners. Monetary expansion, operating through both the loan market and the Treasury’s deficit spending, has increased prices ahead of wages and made most people worse off, as usual.
Recorded in Windham, New Hampshire, on August 20, 2023.
Special thanks to Joe and Tracy Matarese for making this event possible.
Recorded in Windham, New Hampshire, on August 20, 2023.
Special thanks to Joe and Tracy Matarese for making this event possible.
Recorded in Windham, New Hampshire, on August 20, 2023.
Special thanks to Joe and Tracy Matarese for making this event possible.
Some are claiming that AI can make socialism workable, but even AI cannot take the place of entrepreneurial economic calculation.
Original Article: "Socialism Cannot Work, Not Even in an AI-Driven Economy"
Earlier this month, CNN published the results of a poll that found that most Americans oppose sending more money and military aid to the Ukrainian government. A closer look reveals that Republican voters are behind the results. Around seven in ten Republicans oppose sending more support to Ukraine.
The poll results have prompted an effort among establishment Republicans and neoconservatives to bring the party’s voters back in line. Days after CNN published the results, Senate minority leader Mitch McConnell called for continued support and made an attempt to speak to what he sees as common Republican concerns.
“People think, increasingly it appears, that we shouldn’t be doing this. Well, let me start by saying we haven’t lost a single American in this war. Most of the money that we spend related to Ukraine is actually spent in the U.S., replenishing weapons, more modern weapons.”
Former Republican congressional staffer Steven Moore has made a similar argument. “If you’re a fiscal conservative, you know this is a great use of taxpayer dollars. And not one single American soldier has had to die.” Defending Democracy Together, founded by neoconservative Bill Kristol, recently launched Republicans for Ukraine, an ad campaign meant to pressure congressional Republicans to ignore their constituents and instead listen to the testimony of fifty handpicked “pro-Ukraine Republican voters.”
These are new attempts to push the same basic lie we have been fed since Russia invaded Ukraine in early 2022: that sending money and weapons to the Ukrainian government is in our national interest. It very well may be in the interest of people in government and their friends at weapons companies. But continuing to send tax dollars and resources to the Ukrainian government is not in the interest of the American people. Or of the Ukrainian people, for that matter.
As outlined in this article by Kyle Anzalone, there were four opportunities before the February 2022 invasion for the American and Ukrainian governments to work out their tensions with the Russian government peacefully. None of these opportunities were taken. And as a result, the region descended into war.
Still, even early in the conflict, there were opportunities for talks. But in April 2022, Western officials expressly told the Ukrainian government not to negotiate with the Russians.
The US government and its North Atlantic Treaty Organization (NATO) allies acted like they could weaken Russia and improve Kyiv’s leverage in negotiations down the road by waging a proxy war through the Ukrainian government. But that did not happen. The Russian forces first took control of much of eastern Ukraine and later declared them part of Russia.
There was a surprising Ukrainian victory in the northern city of Kharkiv last fall. But a nightmarish battle earlier this year to defend the strategically inconsequential city of Bakhmut broke that momentum. Now the failures of the long-hyped Ukrainian counteroffensive have forced some US officials to admit that the best opportunities for Ukraine to negotiate have already passed.
And so, if our government were truly acting in our interest, it would at least push for talks immediately before wasting more of our money and resources. Continuing to encourage fighting, as McConnell, Moore, and Kristol are, will at best delay the necessary negotiations and at worse risk escalating the war beyond Ukraine’s borders.
This is to say nothing of the interests of the Ukrainian people, who have already endured unimaginable suffering. They have lost their lives, livelihoods, and liberties in a brutal war that should have never broken out. It’s sickening to frame this war as being in our interest because “no American soldiers have had to die.”
The war in Ukraine has been fruitful for the weapons industry and the politicians on the receiving end of their lobbying. But it’s been terrible for the American people and catastrophic for their Ukrainian counterparts. If the political leadership of the West does not work to end this conflict, things are guaranteed to get even worse, and no one will suffer more than the Ukrainian people.
The Federal Reserve System as of the end of July 2023 has accumulated operating losses of $83 billion and, with proper, generally accepted accounting principles applied, its consolidated retained earnings are negative $76 billion, and its total capital negative $40 billion. But the System is made up of 12 individual Federal Reserve Banks (FRBs).1 Each is a separate corporation with its own shareholders, board of directors, management and financial statements. The commercial banks that are the shareholders of the Fed actually own shares in the particular FRB of which they are a member, and receive dividends from that FRB. As the System in total puts up shockingly bad numbers, the financial situations of the individual FRBs are seldom, if ever, mentioned. In this article we explore how the individual FRBs are doing.
All 12 FRBs have net accumulated operating losses, but the individual FRB losses range from huge in New York and really big in Richmond and Chicago to almost breakeven in Atlanta. Seven FRBs have accumulated losses of more than $1 billion. The accumulated losses of each FRB as of July 26, 2023 are shown in Table 1.
Table 1: Accumulated Operating Losses of Individual Federal Reserve Banks2
New York ($55.5 billion) Richmond ($11.2 billion ) Chicago ( $6.6 billion ) San Francisco ( $2.6 billion ) Cleveland ( $2.5 billion ) Boston ( $1.6 billion ) Dallas ( $1.4 billion ) Philadelphia ($688 million) Kansas City ($295 million ) Minneapolis ($151 million ) St. Louis ($109 million ) Atlanta ($ 13 million ) The FRBs are of very different sizes. The FRB of New York, for example, has total assets of about half of the entire Federal Reserve System. In other words, it is a big as the other 11 FRBs put together, by far first among equals. The smallest FRB, Minneapolis, has assets of less than 2% of New York. To adjust for the differences in size, Table 2 shows the accumulated losses as a percent of the total capital of each FRB, answering the question, “What percent of its capital has each FRB lost through July 2023?” There is wide variation among the FRBs. It can be seen that New York is also first, the booby prize, in this measure, while Chicago is a notable second, both having already lost more than three times their capital. Two additional FRBs have lost more than 100% of their capital, four others more than half their capital so far, and two nearly half. Two remain relatively untouched.
Table 2: Accumulated Losses as a Percent of Total Capital of Individual FRBs3
New York 373% Chicago 327% Dallas 159% Richmond 133% Boston 87% Kansas City 64% Cleveland 56% Minneapolis 56% San Francisco 48% Philadelphia 46% St. Louis 11% Atlanta 1% Thanks to statutory formulas written by a Congress unable to imagine that the Federal Reserve could ever lose money, let alone lose massive amounts of money, the FRBs maintained only small amounts of retained earnings, only about 16% of their total capital. From the percentages in Table 2 compared to 16%, it may be readily observed that the losses have consumed far more than the retained earnings in all but two FRBs. The GAAP accounting principle to be applied is that operating losses are a subtraction from retained earnings. Unbelievably, the Federal Reserve claims that its losses are instead an intangible asset. But keeping books of the Federal Reserve properly, 10 of the FRBs now have negative retained earnings, so nothing left to pay out in dividends.
On orthodox principles, then, 10 of the 12 FRBs would not be paying dividends to their shareholders. But they continue to do so. Should they?
Much more striking than negative retained earnings is negative total capital. As stated above, properly accounted for, the Federal Reserve in the aggregate has negative capital of $40 billion as of July 2023. This capital deficit is growing at the rate of about $ 2 billion a week, or over $100 billion a year. The Fed urgently wants you to believe that its negative capital does not matter. Whether it does or what negative capital means to the credibility of a central bank can be debated, but the big negative number is there. It is unevenly divided among the individual FRBs, however.
With proper accounting, as is also apparent from Table 2, four of the FRBs already have negative total capital. Their negative capital in dollars shown in Table 3.
Table 3: Federal Reserve Banks with Negative Capital as of July 20234
New York ($40.7 billion) Chicago ($ 4.6 billion ) Richmond ($ 2.8 billion ) Dallas ($514 million ) In these cases, we may even more pointedly ask: With negative capital, why are these banks paying dividends?
In six other FRBs, their already shrunken capital keeps on being depleted by continuing losses. At the current rate, they will have negative capital within a year, and in 2024 will face the same fundamental question.
What explains the notable differences among the various FRBs in the extent of their losses and the damage to their capital? The answer is the large difference in the advantage the various FRBs enjoy by issuing paper currency or dollar bills, formally called “Federal Reserve Notes.” Every dollar bill is issued by and is a liability of a particular FRB, and the FRBs differ widely in the proportion of their balance sheet funded by paper currency.
The zero-interest cost funding provided by Federal Reserve Notes reduces the need for interest-bearing funding. All FRBs are invested in billions of long-term fixed-rate bonds and mortgage securities yielding approximately 2%, while they all pay over 5% for their deposits and borrowed funds—a surefire formula for losing money. But they pay 5% on smaller amounts if they have more zero-cost paper money funding their bank. In general, more paper currency financing reduces an FRB’s operating loss, and a smaller proportion of Federal Reserve Notes in its balance sheet increases its loss. The wide range of Federal Reserve Notes as a percent of various FRBs’ total liabilities, a key factor in Atlanta’s small accumulated losses and New York’s huge ones, is shown in Table 4.
Table 4: Federal Reserve Notes Outstanding as a Percent of Total Liabilities5
Atlanta 64% St. Louis 60% Minneapolis 58% Dallas 51% Kansas City 50% Boston 45% Philadelphia 44% San Francisco 39% Cleveland 38% Chicago 26% Richmond 23% New York 17% The Federal Reserve System was originally conceived not as a unitary central bank, but as 12 regional reserve banks. It has evolved a long way toward being a unitary organization since then, but there are still 12 different banks, with different balance sheets, different shareholders, different losses, and different depletion or exhaustion of their capital. Should it make a difference to a member bank shareholder which particular FRB it owns stock in? The authors of the Federal Reserve Act thought so. Do you?
-
- In order of their district numbers, which go from east to west, the 12 FRBs are Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
-
- Federal Reserve H.4.1 Release, July 27, 2023
-
- Our calculations based on the July 27 H.4.1 Release.
-
- Ibid.
-
- Ibid.
Federal prosecutors and other law enforcement agents are turning blockchain firms into government subsidiaries. The real goal is to criminalize what really are lawful, private exchanges.
Original Article: "The Government Wants to Turn Blockchain Firms into Servants of the State"
Since its founding in 1913, the unelected central planning bureaucrats at the Federal Reserve have been given the incredible privilege of legally creating money out of thin air, which mere mortals like us are not allowed to do. They have also been given the tremendous responsibility of maintaining (1) maximum employment, (2) a stable price level, and (3) low interest rates.
How have they done so far?
Since 1913, the bureaucrats at the Fed have helped cause
- over 20 percent price inflation by printing money for World War I
- the depression in the early 1920s, with over 15 percent price deflation
- the Great Depression of the 1930s, with 25 percent unemployment and over a 10 percent collapse in the gross domestic product (GDP) of the United States
- the “stagflation” of the 1970s, with double-digit inflation and interest rates
- the housing bubble in the first decade of the twenty-first century
- the Great Recession of 2008–9
- a 40 percent increase in the money supply in response to covid
- aggressive interest rate hikes over the past year, which will likely cause the twenty-first recession since the Fed was founded
Of course, there were boom-and-bust business cycles before the Fed was created, due to government laws allowing fractional reserve banks to create money out of thin air, as well as various government interventions in money and banking.
However, we are told the Fed was created to help smooth out the business cycle and create a more stable and prosperous economy.
Below, I review some key economic data before and after the Fed was created to see five important ways the Fed has made the economy worse than it would have been otherwise.
Unemployment Became Much Higher Unfortunately, unemployment data is not available for most of the nineteenth century, but what data is available shows that unemployment was generally very low since everyone who wanted to work could get a job if they were willing to accept market wages.
There were typically no legal restrictions then that prohibited voluntary work transactions. Thus, wages were allowed to fluctuate according to supply and demand, just like any other price on the free market, which generally led to full employment.
The chart below shows US unemployment rates from 1890 to 1988. The key takeaway is that before the Fed was created, unemployment never reached the incredibly high levels seen during the Great Depression of the 1930s, which occurred more than seventeen years after the Fed was created to “smooth out” the business cycle. Let’s also not forget that unemployment rose to 10 percent or more during the Great Recession of 2008–9 and the covid panic of 2020.
Figure 1: Unemployed workers and unemployment rate, United States, 1890–1988
Source: “Annual Number of Unemployed Workers and the Rate of Unemployment in the United States from 1890 to 1988,” Statista, accessed August 8, 2023.
Inflation Has Been Much Higher Inflation is where the Fed’s track record of failure is most obvious.
The chart below shows the US Consumer Price Index of inflation from 1775 to 2012. Outside of brief inflationary spikes driven by money printing to fund wars, inflation was virtually nonexistent prior to the creation of the Fed in 1913. Since then, inflation has skyrocketed, particularly after all ties between the US dollar and gold were severed in 1971. As a result of this inflation due to Fed money creation, the dollar has lost 97 percent of its value since 1913.
Figure 2: Consumer Price Index, United States, 1775–2012 (level, 1775 = 1)
Source: American Economic Association, reprinted in Sam Ro, “CHART: Inflation since 1775 and How It Took Off In 1933,” Business Insider, January 6, 2013.
Interest Rates Became Much Higher The chart below shows US long-term interest rates from 1790 to 2011. While interest rates have always been volatile before the Fed, they never reached the all-time high levels they reached in the early 1980s. Those high interest rates were the market’s reaction to the double-digit inflation of the 1970s caused by the Fed’s aggressive money creation.
Figure 3: Long-term interest rates, United States, 1790–2011
Source: Data from United States Long-Term Interest Rate, 1798 to Present, dataset, MeasuringWorth, accessed August 21, 2023.
Economic Growth Has Been Slower While it is hard to compare the economy in different centuries, the fact is that economic growth was higher before the Fed was created than after. The chart below shows real GDP growth from 1800 to 2020. Growth was higher from 1800 until the Fed was created in 1913, as shown by the steeper slope of real GDP growth before 1913 as compared to after 1913.
Figure 4: Real GDP in 2012 dollars, United States, 1800–2020
Source: Data from United States Real GDP, 1790–Present, and United States Real GDP per Capita, 1790–Present, datasets, MeasuringWorth, accessed August 21, 2023.
During this time of unprecedented economic freedom (except for the obvious evils of slavery) and minimal taxation, the US went from being an economic backwater to perhaps the wealthiest country in the history of the world by 1913.
While other government economic interventions and taxation have contributed to slower growth since 1913, the Fed shares a good deal of the blame. The Fed contributes to slower economic growth by helping cause the boom-and-bust business cycle, which causes the waste of scarce resources on bad investments, lowering worker productivity and real wage growth below what it would have been otherwise.
Government Deficits and Debt Have Skyrocketed By creating money out of thin air to buy the US government’s debt, the Fed enables the federal government to spend much more than it takes in with taxes.
The charts below show US government deficits and debt as a percentage of GDP since 1857. Prior to the Fed’s creation in 1913, sizable budget deficits only occurred during wars such as the Civil War. There were budget surpluses (yes, surpluses!) in most of the other years.
However, since the Fed was created, budget deficits have been the rule, reaching as high as 30 percent of GDP during World War II and 15 percent during the covid panic. Deficits are currently 5.4 percent of GDP. Before 1913, that level was only exceeded during the Civil War.
As a result of all this deficit spending, US debt to GDP has skyrocketed since the Fed was created. Debt to GDP rose to 30 percent during the Civil War, before falling back toward 0 percent before World War I. It has been over 30 percent for most of the years since 1913, even exceeding 112 percent during World War II. Publicly held debt to GDP is currently at 93 percent and rising.
Figure 5: US government budget deficits and surpluses as well as debt held by the public (percentage of GDP), 1857–2023 and projections to 2053
Source: “Debt vs. Deficits: What’s the Difference?,” Peter G. Peterson Foundation, February 24, 2023.
Conclusion Along with the Soviet Union, the Fed has proven that central planning of the economy by a small group of government bureaucrats does not work.
The fact is that the Fed was not created to help the economy. It was created by bankers to help fractional reserve banks create even more money out of thin air and bail them out when they get in trouble.
Money and interest rates are the lifeblood of our economic system, and they provide key signals for consumers and businesses. By constantly manipulating both the money supply and interest rates in the belief that they know more than millions of people, the Fed creates tremendous economic instability, which wastes scarce resources and lowers living standards, particularly for the poorest among us.
Money is just a medium of exchange to make life easier and more productive than barter. The supply of money we have now gets that job done. There is no need to change the money supply.
With 100 percent bank reserves, we would not have to worry about bank runs, a decline in the money supply like in the 1930s, inflation, and the boom-and-bust business cycle. We also wouldn’t need government bureaucrats like Jay Powell pretending they can centrally plan the economy.
If the economy were ever set free of the constant money and interest rate manipulation of the Fed and fractional reserve banks, it would lead to unprecedented economic stability and prosperity.
The weaponization of money is the issue of our time. The politicization of the dollar doesn’t only make us poorer; it empowers the evilest actors in society and undermines the most important foundations of civilization.
As Dr. Ron Paul has noted, “It is no coincidence that the century of total war coincided with the century of central banking.”
This year marks the sixtieth anniversary of Murray Rothbard’s classic work What Has Government Done to Our Money?, and this is still one of the most important questions we can ask today. We need your help getting this book into the hands of a new generation. Our new edition has a preface by Guido Hülsmann, a foreword by Patrick Newman, and an afterword by Joe Salerno.
Your donation will help print and ship 100,000 paperback copies of this important book to new audiences.
The message of What Has Government Done to Our Money? has never been more important. Polls of all kinds show the youngest generation of Americans—on both the left and right—are conflating perverse Fed-fueled financialization, cronyism, bailouts, and the rise of state-backed corporate tyranny with capitalism. This is wrong.
On the left, we have seen that anger against a mistaken view of capitalism translates into a generation of politicians fundraising on reviving socialism as a solution for everything from “global warming” to whatever new “civil rights” agenda has been declared the trendy issue of the moment, preying upon the hysteria pushed in government schools. That these issues are echoed proudly by America’s largest companies, including the most prominent members of the military-industrial complex, is an irony lost on those devouring this content on social media.
On the right, we see appropriate outrage directed at the scourge of “woke capital” but also the Great Reset translated into a new version of the antimarket “conservatism” that Hans-Hermann Hoppe has condemned as modern National Socialism. Just as the conservative movement of the twentieth century was betrayed by former Marxists promoting an authoritarian state at home to defeat communism abroad, an organized anticapitalist intellectual movement is trying to pin our public-private tyranny on “market fundamentalism” rather than the corruption of markets due to the socialization of money and credit by the Federal Reserve and its fellow central banks.
The work of Murray Rothbard, who understood the importance of a populist backlash against the elite, is vital to punching through these false narratives. What Has Government Done to Our Money? is an essential tool in this intellectual battle.
In recent years, the Mises Institute has excelled at distributing important books across the country. Thanks to our generous donors, we unleashed 100,000 copies of Henry Hazlitt’s Economics in One Lesson.
We gave these books to college groups, homeschooling groups, civic clubs, moms, dads, and entrepreneurs. Now it’s time to print and distribute 100,000 copies of What Has Government Done to Our Money?
Stop for a minute and think about the impact of 100,000 young people, students, and professionals reading Murray’s important lessons on money. The information this book holds is heresy at virtually all American colleges. That’s why it’s the Mises Institute’s responsibility to get this book, and others like it, into the hands of as many young people as possible.
What has made Rothbard’s short, easy-to-read book so powerful is how effectively it communicates the importance of money and why the state is so desperate to control it. It’s why What Has Government Done to Our Money? was one of Dr. Paul’s most recommended books during his heroic presidential campaigns and why it remains one of the primary books that draws new minds to the works of the Mises Institute.
A new preface, foreword, and epilogue will frame this classic as essential reading for understanding the modern state. Already we have seen the impact of Rothbard’s timeless work in cultivating a generation of modern economists that have been able to see through the “Fedspeak” and warn individuals, in America and beyond, of the consequences of the state’s control of the dollar.
For example, it was Austrian scholars like Mark Thornton who in the 2000s identified the disastrous housing bubble that resulted from Greenspan’s monetary intervention and helped spark a global financial crisis. Ron Paul used his seat in Congress to condemn Ben Bernanke’s response to that crisis, which sparked the greatest debt bubble the world has ever seen with hyper-low interest rates and a massive expansion of the Fed’s balance sheet. It was Ryan McMaken and others on the Mises Wire who warned of the consequences of covid-era Fed policies, which grew the balance sheet even higher and, coupled with the disastrous Friedmanite idea of “helicopter money,” have resulted in the historic inflation we see today.
The government captured the money, and we are dealing with the consequences: an eroding dollar, zombie companies addicted to low-interest loans, the socialization of the housing market through the Fed’s purchasing of mortgage-backed securities, the consolidation of corporate power in regime-friendly institutions, and a generation of young people that are suffering from lower job prospects and delaying starting families.
What has the government done to our money? It has made the elite and politically connected richer. It has made working Americans poorer. It has made the state more powerful than it has ever been.
The lessons of What Has Government Done to Our Money? have awakened millions around the world to the dangers of central banking. Not only has it been translated around the globe, but it has helped spark tremendous interest in alternatives to state-controlled money like gold and crypto. As the weaponization of the dollar has proven to be the top tool DC uses in foreign policy, we’ve even seen other nations explore dedollarization to protect themselves from the manipulation of the Washington regime.
With your help, we can get this important book to thousands of young people around the country looking for answers to the problems their generation has been left with. A new sixtieth-anniversary edition of this classic will ensure that Rothbard’s analysis of the dollar remains one of the most recommended on the topic and will help continue to grow his legacy as essential reading to understand the true nature of the American empire.
But we need your help. Money raised for this project will not only go to the costs of production and printing but also to the promotion of this book to new audiences not familiar with Austrian economics and the Mises Institute. Every dollar is an investment in a future free of the regime’s capture of our core economic institutions. That’s an investment that the Fed can’t inflate away.
Please contribute today.
Donors who give $500 or more will be listed as Patrons, and every donor will get a copy for themselves.
Mainstream economists are quick to claim that environmental problems are caused by "market failure" that can be "fixed" by government intervention. However, the intervention itself is the problem.
Original Article: "Why Government Pollution Control Fails"
America’s federally sanctioned entitlement programs, Medicare, Medicaid, and Social Security, each face bankruptcy in the next few years. Medicare and Medicaid were created in 1965 as part of President Lyndon Johnson’s Great Society legislation. Social Security was created in 1935 to provide retirement income for Americans who reached the age of sixty-five. These three entitlement programs consume about fifty cents of every federal budget dollar, or $2.7 trillion in fiscal year 2023.
Medicare is a federal health-insurance and healthcare program available for enrollment when a person reaches the age of sixty-five. An American who has worked for a minimum of ten years is eligible for enrollment. Employees and employers each pay a minimum Medicare tax of 1.45 percent based on the employees’ wages. Once enrolled in the program, one pays a monthly insurance premium that changes every year. Sixty-five million people are enrolled as of 2022. There is a penalty for late enrollment. The amount of people on Medicare is roughly equal to the estimated state populations of Florida, New York, Pennsylvania, and Illinois combined.
Medicare made net benefit payments of $689 billion in 2021. It comprised 20 percent of national healthcare spending and 12 percent of the federal budget in 2020. Medicare covers about 80 percent of medical costs, but dental and eye procedures are not covered.
Medicaid is a joint federal and state program that, together with the Children’s Health Insurance Program (CHIP), provides health coverage to over 72.5 million Americans, including children, pregnant women, parents, seniors, and individuals with disabilities. Medicaid is the single largest source of health coverage in the United States. Most participants are under the age of sixty-five. The amount of people on Medicaid is roughly equal to the estimated state populations of California and Texas combined.
For a state to participate in Medicaid, federal law requires that state to cover certain groups of individuals. Qualifying low-income families children and pregnant women, and individuals receiving Supplemental Security Income (SSI) are examples of mandatory eligibility groups. The Affordable Care Act of March 2010 (Obamacare) created the opportunity for states to expand Medicaid to cover nearly all low-income Americans under age sixty-five. Roughly twelve million people signed up after 2010.
Medicaid’s costs are swamping state budgets, climbing from 9 percent in 1989 to 20 percent today. A majority of its funding is from every American taxpayer, and a minority of funding is from each participating state’s taxpayer. Medicaid payments were $117 billion in 2000 and $589 billion in 2023. They are projected to be $879 billion in 2033.
Social Security is one of the largest government programs in the world as of 2023, paying out hundreds of billions of dollars each year. In 2021, 179 million people paid taxes into Social Security. The current tax rate for Social Security is 6.2 percent for the employer and employee each, or 12.4 percent total from the employee’s wages.
Sixty-seven million Americans will receive Social Security in 2023. The estimated combined populations of the US states of Ohio, Georgia, North Carolina, Michigan, New Jersey, and Virginia will be equivalent to the amount of Americans on Social Security as of 2023. Social Security provides retirement benefits and disability income to qualified people and their spouses, children, and survivors. Workers must be at least sixty-two years old and have paid taxes into Social Security over a minimum of ten years to qualify for its benefits.
The adult lifespan was about fifty-eight years in 1930 and seventy-nine years in 2020. The number of workers paying payroll taxes was about five for every beneficiary in 1960 compared to about 2.7 for every beneficiary in 2023. America’s population is aging and its families are having fewer children. This poses a problem for Social Security funding.
Some Americans are receiving Medicare and Social Security benefits at the same time: as we say in America, they are double-dipping.
Bankruptcy Reality A Government Accountability Office (GAO) report from 2015 revealed that $60 billion of Medicare’s budget was lost in 2014 to waste. The GAO found 23,400 fake or bad addresses on Medicare’s list of providers.
Medicare has repeatedly suffered vast cost overruns, has been reformed countless times, and has imposed a seemingly endless series of price controls on doctors and hospitals. Price controls reduce competition from the free market, leading to less efficiency and higher prices.
The Medicare board of trustees projected that the reserves of the Hospital Insurance (HI) Trust Fund, which finances Medicare Part A, will be depleted in 2031. The program’s income will be able to cover 89 percent of scheduled benefits after that. How will hospitals and physicians handle an 11 percent shortfall in Medicare reimbursement payments?
Public literature on the future bankruptcy of the Medicaid program is near nil, so predicting a date for bankruptcy is not possible. However, the Social Security board of trustees in its 2023 report forecasts reserves in the Old-Age and Survivors Insurance (OASI) Trust Fund will be depleted in 2033. Ongoing tax revenue will be enough to pay 77 percent of scheduled benefits after that point. Beneficiaries in that year will see their monthly payment reduced by 23 percent. Many American retirees today rely solely on Social Security to pay groceries, home insurance premiums, and utilities. Could you survive a 23 percent reduction in your income year over year?
Possible Solutions America entitlement programs will not become bankrupt overnight but over many decades. Reforms will not solve this problem quickly, but they would be steps toward a more sustainable situation. Some possible reforms to Medicare and Social Security are to allow taxpayers under the age of forty-five to renounce future benefits with no federal tax impact and to live on their 401(k), Roth IRA, or other income, considering all their past tax payments lost. Another option is to allow such people renounce their benefits and to redirect their future tax payments to separate 401(k)-type retiree healthcare and retirement accounts under their oversight. Current and future Medicare and Social Security beneficiaries could also opt to receive reduced benefits based on financial realities before or after the programs’ bankruptcies.
Ryan McMaken, executive editor at the Mises Institute, penned a Mises Wire article in January 2023 titled “Raise the Social Security Age to (at Least) 75,” posing possible reforms. George Reisman penned a lengthy Mises Wire article in April 2011 titled “How to Eliminate Social Security and Medicare” with more detailed solutions.
Medicaid reforms that address fraud are being pursued by many states and the federal government. Some methods of Medicaid fraud are found on the Centers for Medicaid and Medicare Services’ fraud checklist. The current list of people subject to federal enforcement actions can be found on the Office of Inspector General’s website. The enforcement actions shown have yielded fines tied to a fraud conviction.
A one-size-fits-all reform is not possible. Some say to abolish each program right now and let the free market provide guidance out of the chaos. But the logistics of caring for an aging and ailing family member are not easy even when the family is prepared financially, physically, and spiritually. The reality of federal entitlement reform is before us, and the everyday people will bear the brunt of these entitlement programs’ bankruptcies.
The recent actions of the Federal Reserve are reminiscent of central bank activities in wartime.
Original Article: "Has World War III Already Begun?"
[A selection from For a New Liberty.]
If, as libertarians believe, every individual has the right to own his person and property, it then follows that he has the right to employ violence to defend himself against the violence of criminal aggressors. But for some odd reason, liberals have systematically tried to deprive innocent persons of the means for defending themselves against aggression. Despite the fact that the Second Amendment to the Constitution guarantees that "the right of the people to keep and bear arms shall not be infringed," the government has systematically eroded much of this right. Thus, in New York State, as in most other states, the Sullivan Law prohibits the carrying of "concealed weapons" without a license issued by the authorities. Not only has the carrying of guns been grievously restricted by this unconstitutional edict, but the government has extended this prohibition to almost any object that could possibly serve as a weapon — even those that could only be used for self-defense. As a result, potential victims of crime have been barred from carrying knives, tear-gas pens, or even hat pins, and people who have used such weapons in defending themselves against assault have themselves been prosecuted by the authorities. In the cities, this invasive prohibition against concealed [p. 115] weapons has in effect stripped victims of any possible self-defense against crime. (It is true that there is no official prohibition against carrying an unconcealed weapon, but a man in New York City who, several years ago, tested the law by walking the streets carrying a rifle was promptly arrested for "disturbing the peace.") Furthermore, victims are so hamstrung by provisions against "undue" force in self-defense that the criminal is automatically handed an enormous built-in advantage by the existing legal system.
It should be clear that no physical object is in itself aggressive; any object, whether it be a gun, a knife, or a stick, can be used for aggression, for defense, or for numerous other purposes unconnected with crime. It makes no more sense to outlaw or restrict the purchase and ownership of guns than it does to outlaw the possession of knives, clubs, hatpins, or stones. And how are all of these objects to be outlawed, and if outlawed, how is the prohibition to be enforced? Instead of pursuing innocent people carrying or possessing various objects, then, the law should be concerned with combatting and apprehending real criminals.
There is, moreover, another consideration which reinforces our conclusion. If guns are restricted or outlawed, there is no reason to expect that determined criminals are going to pay much attention to the law. The criminals, then, will always be able to purchase and carry guns; it will only be their innocent victims who will suffer from the solicitous liberalism that imposes laws against guns and other weapons. Just as drugs, gambling, and pornography should be made legal, so too should guns and any other objects that might serve as weapons of self-defense.
In a notable article attacking control of handguns (the type of gun liberals most want to restrict), St. Louis University law professor Don B. Kates, Jr., chides his fellow liberals for not applying the same logic to guns that they use for marijuana laws. Thus, he points out that there are over fifty million handgun owners in America today, and that, based on polls and past experience, from two-thirds to over eighty percent of Americans would fail to comply with a ban on handguns. The inevitable result, as in the case of sex and marijuana laws, would be harsh penalties and yet highly selective enforcement — breeding disrespect for the law and law enforcement agencies. And the law would be enforced selectively against those people whom the authorities didn't like: "Enforcement becomes progressively more haphazard until at last the laws are used only against those who are unpopular with the police. We hardly need to be reminded of the odious search and seizure tactics police and government agents have often resorted to in order to trap [p. 116] violators of these laws." Kates adds that "if these arguments seem familiar, it is probably because they parallel the standard liberal argument against pot laws."
Kates then adds a highly perceptive insight into this curious liberal blind spot. For:
Gun prohibition is the brainchild of white middle-class liberals who are oblivious to the situation of poor and minority people living in areas where the police have given up on crime control. Such liberals weren't upset about marijuana laws, either, in the fifties when the busts were confined to the ghettos. Secure in well-policed suburbs or high-security apartments guarded by Pinkertons (whom no one proposes to disarm), the oblivious liberal derides gun ownership as "an anachronism from the Old West."
Kates further points out the demonstrated empirical value of self-defense armed with guns; in Chicago, for example, armed civilians justifiably killed three times as many violent criminals in the past five years as did the police. And, in a study of several hundred violent confrontations with criminals, Kates found the armed civilians to be more successful than the police: the civilians defending themselves captured, wounded, killed, or scared off criminals in 75% of the confrontations, whereas the police only had a 61% success rate. It is true that victims who resist robbery are more likely to be injured than those who remain passive. But Kates points out neglected qualifiers: (1) that resistance without a gun has been twice as hazardous to the victim than resistance with one, and (2) that the choice of resistance is up to the victim and his circumstances and values.
Avoiding injury will be paramount to a white, liberal academic with a comfortable bank account. It will necessarily be less important to the casual laborer or welfare recipient who is being robbed of the wherewithal to support his family [p. 117] for a month — or to a black shopkeeper who can't get robbery insurance and will be literally run out of business by successive robberies.
And the 1975 national survey of handgun owners by the Decision Making Information organization found that the leading subgroups who own a gun only for self-defense include blacks, the lowest income groups, and senior citizens. "These are the people," Kates eloquently warns, "it is proposed we jail because they insist on keeping the only protection available for their families in areas in which the police have given up."
What of historical experience? Have handgun bans really greatly lowered the degree of violence in society, as liberals claim? The evidence is precisely to the contrary. A massive study done at the University of Wisconsin concluded unequivocally in the fall of 1975 that "gun control laws have no individual or collective effect in reducing the rate of violent crime." The Wisconsin study, for example, tested the theory that ordinarily peaceful people will be irresistibly tempted to shoot their guns if available when tempers are being frayed. The study found no correlation whatever between rates of handgun ownership and rates of homicide when compared, state by state. Moreover, this finding is reinforced by a 1976 Harvard study of a Massachusetts law providing a mandatory minimum year in prison for anyone found possessing a handgun without a government permit. It turns out that, during the year 1975, this 1974 law did indeed considerably reduce the carrying of firearms and the number of assaults with firearms. But, lo and behold! the Harvard researchers found to their surprise that there was no corresponding reduction in any type of violence. That is,
As previous criminological studies have suggested, deprived of a handgun, a momentarily enraged citizen will resort to the far more deadly long gun. Deprived of all firearms, he will prove almost as deadly with knives, hammers, etc.
And clearly, "if reducing handgun ownership does not reduce homicide or other violence, a handgun ban is just one more diversion of police resources from real crime to victimless crime." [p. 118]
Finally, Kates makes another intriguing point: that a society where peaceful citizens are armed is far more likely to be one where Good Samaritans who voluntarily go to the aid of victims of crime will flourish. But take away people's guns, and the public — disastrously for the victims — will tend to leave the matter to the police. Before New York State outlawed handguns, Good Samaritan instances were far more widespread than now. And, in a recent survey of Good Samaritan cases, no less than 81% of the Samaritans were owners of guns. If we wish to encourage a society where citizens come to the aid of neighbors in distress, we must not strip them of the actual power to do something about crime. Surely, it is the height of absurdity to disarm the peaceful public and then, as is quite common, to denounce them for "apathy" for failing to rush to the rescue of victims of criminal assault.
Image credit.
“La commedia è finita!” summarizes where the United States and Europe now stand in the Great Phony Postpandemic Disinflation. Why phony? Reported consumer price index (CPI) inflation has been falling in the US and Europe; but this has little to do with the advertised monetary tightening by the Federal Reserve, European Central Bank (ECB), and Bank of England.
Rather, the decline in reported CPI inflation is consistent with a natural downward rhythm of prices, reflecting fading pandemic restraints on supply. In a good money system, the essence of which is the absence of monetary inflation, average consumer prices (as represented by the CPI) would have long ago returned to their prepandemic levels.
Instead, in the financial marketplace and its surroundings, where the propaganda of the present monetary regime holds considerable sway, celebrations of the Fed’s “victory” are underway. US CPI inflation has fallen to three percent, on the road to two percent by year-end. Never mind that the dollar’s purchasing power will by then have fallen more than 15 percent since the eve of the pandemic.
Historically, when central banks defy—always by monetary inflation—a natural downward rhythm of prices, there follows a combination of asset inflation and a concealed inflation of goods and services. The symptoms of monetary inflation in goods and services markets are partly or wholly muted by a falling of prices stemming from events such as a relaxation of supply restraints, a surge in productivity, and the end of a famine or war.
The apparent reprieve from consumer price inflation dampens popular resentment toward continuing monetary inflation. Hence big government and its cronies from Big Finance and Big Tech, or further afield, have extra scope to reap the benefits of monetary inflation.
The postpandemic period (say mid-2022 to the present) has been consistent with the historical pattern. Well-recognized symptoms of asset inflation continue, such as prosperity in the private equity business or, more generally, the financial engineering industry. At the same time, temperature readings of speculation in important parts of the global equity markets are feverish, with prices rebounding in some home markets.
The brief asset market sell—offs in the summer and autumn of 2022 were a false alarm of disinflation. It seemed to many at the time that the Fed was serious about ending monetary inflation—even though skeptics pointed to how it had spent the winter and spring talking about a hawkish turn without taking any substantive action.
The Fed has raised interest rates by four percentage points since the summer of 2022; but students of monetary economics 101 (as long as they have not been taught by a neo-Keynesian zealot) know that interest rates are highly flawed indicators of whether money is tight or easy. Interest rates can climb without any monetary tightening when, for example, confidence that money will retain purchasing power falls or demand for credit grows. Monetary inflation monitors should instead focus on a monetary aggregate, ideally base money. The problem, however, is that base money no longer has any signaling function or capacity to have a reliable monetary anchor attached to it.
In particular, the payment of interest at the policy rate on reserve deposits at the Fed since the autumn of 2008 has neutered base money. Base money holdings, either as direct holdings or as deposits backed by large reserves, have increased greatly relative to other assets, such that at the margin they no longer yield any special monetary services, the feature which in a good money system sets base money apart from short-term debt securities. Hence change in the supply of the monetary base relative to demand is no longer a powerful monetary force.
It could well be the case now (midsummer 2023) that monetary inflation is still robust. When the natural downward rhythm of prices begins to ease with the maturing of the postpandemic upward adjustment of supply, symptoms of monetary inflation in the goods and services markets could become more troubling. And in the looming election year, who would trust the Fed to respond promptly with any significant action?
That is a mainstream scenario of concern. But it is not the only scenario! In a disanchored monetary system, money works in strange, sometimes surprising, and sometimes hard-to-recognize ways. The big rise in nominal interest rates, which has affected short maturities the most, has caused stress in specific areas. This stress could turn asset inflation into asset deflation.
Such deflation could occur without any obvious monetary disinflation at first because of an endogenous “revulsion.” This could include tiring speculative narratives, credit defaults in highly leveraged areas, disappointing profits and earnings as malinvestments accumulate, cumulative damage wrought by advancing monopoly capitalism, and changes in human spending propensities caused by present liabilities and perceived future opportunities.
The cash flow effects of a big rise in nominal rates, even if the rise is much smaller in real terms, can trigger endogenous revulsion. In highly leveraged areas, borrowers who have taken advantage of inflation to reduce their debts in real terms may be more vulnerable to rate increases. The size of their gains under inflation, as well as their degree of vulnerability to a rise in interest rates, depends in part on their asset composition. The fivefold or more rise in interest expense (once the new rates apply—and there are considerable lags) could cripple a business’s capacity to service its debts. In principle, the business could extend its maturities or replace debt with equity, but those options might not be available in areas where business conditions have weakened.
The big increase in nominal rates—even if it does not come with effective monetary tightening—might unleash credit problems which could set off an endogenous revulsion causing asset inflation to transition to asset deflation. Such catalysts could include problems in banking or near-banking institutions which during asset inflation leveraged themselves on what have since emerged as bad bets, such as big carry trade bets on long-maturity versus short-maturity debts, high-interest versus short-interest currencies, and risky versus safe credit.
Carry trade business is alive and well—especially in the still zero- or negative-interest yen and the near-zero-interest yuan. Huge demand for high-yield and other speculative paper from investors using yuan and yen funds explains in part why asset inflation has so far sustained itself so well in the US and elsewhere, but endogenous revulsion could still set in. Japanese institutional investors scurrying to eke out higher returns by borrowing US dollars to put into high-yield US credit paper might hit a wall in terms of the risk tolerance of their stakeholders (whether equity or pension managers).
Shrinking world trade, climbing geopolitical risk as the US-led proxy war against Russia escalates in Ukraine, and the specter of national bankruptcy add to the risk of endogenous revulsion. In any case, yuan- and yen-based demand cannot sustain global asset inflation all on its own. That “privilege” rests firmly with the Fed.
Following the collapse of the USSR, many socialists pinned their hopes upon the development of a "market socialism" that would be economically efficient and create equality. Marxist philosopher G.A. Cohen wisely dissented.
Original Article: "What Marxists Say about "Market Socialism""
It won’t be long before governments around the world, including the one in Washington, self-destruct.
Strong words, but anything less would be naïve.
As economist Herbert Stein once said, “If something cannot go on forever, it has a tendency to stop.” Case in point: fiat money political regimes. Interventionist economies of the West are in a fatal downward spiral, comparable to that of the Roman Empire in the second century, burdened with unsustainable debt and the antiprosperity policies of governments, especially the Green New Deal.
In the global Ponzi scheme, thin air and deceit substitute for sound money. As hedge-fund manager Mitch Feierstein wrote in Planet Ponzi, “You don’t solve a Ponzi scheme; you end it.” Charles Ponzi and Bernie Madoff
made some of their investors a whole lot poorer, but the world didn’t come crashing down as a result.
For that—for a Ponzi scheme that would threaten to bankrupt capitalism across the entire Western world—you need people much smarter than Ponzi or Madoff. You need time, you need energy, you need motivation. In a word, you need Wall Street.
But Wall Street alone doesn’t have the strength to deliver a truly cataclysmic outcome. If your ambition is to create havoc on the largest possible scale, you need access to a balance sheet running into the tens of trillions. You need power. You need prestige. You need a remarkable willingness to deceive. In a word, you need Washington.
As Gary North wrote in a brief review of Feierstein’s book, “The central banks have colluded with the national governments in order to fund huge increases of national debt, beyond what can ever be paid off. In other words, [Feierstein] has described government promises as part of a gigantic international Ponzi scheme.”
In a recent interview, Peter Schiff, who was laughed at when he predicted the economic meltdown of 2007–9, said interest on the federal debt alone “will be about a trillion by the end of this year. By the end of next year [it will reach] two trillion dollars—and that’s if interest rates don’t go up. . . . This is a huge debt bomb that’s going to explode.”
Ultra-high corporate and credit card debt, along with bank insolvency sustains his argument for a coming collapse, the polar opposite of Biden’s economic dream.
Along with this, Reuters notes that the spread between two- and ten-year Treasurys is at the deepest inversion since 1981. Rarely has an inverted yield curve not signaled a recession.
Can Jerome Powell and his advisors steer the economy into a soft landing? Not this time. “The only landing possible is a crash, where everyone on board dies,” Schiff recently tweeted.
Ponzi and Madoff went to jail for their schemes, but how do you prosecute governments for theirs? Prosecution implies being a part of government. And with rare exceptions such as Ron Paul, those who go into government believe gold is a barbarous relic and the Fed is a good thing that just needs a little government tinkering. So, the guilty will go unpunished, unless public outrage misguidedly turns to nonjudicial violence. The rest will be too busy trying to survive and protect those they care about.
The War on Being Human A study of history, including US monetary history, makes clear that the state is not in the business of securing our liberty. As the previous nine hundred plus days have made clear, any defense of “liberty” would likely be regarded as hate speech. Instead, we are inundated with the feel-good words of diversity, equity, and inclusion along with the fear-driven campaigns of climate change and killer covid. Challenge any of it and you’re demonized—or worse.
But the state can’t do anything significant without monopolizing money, and the Orwellian central bank digital currencies (CBDCs) will be the latest installment to control the monetary system. The new FedNow payment system with its emphasis on user convenience is providing the framework and psychological grooming for CBDCs.
The Shadow Superpower We can stop this from happening. Two states, Florida and Indiana, have effectively banned CBDCs as money in those states. Other states will likely follow. The government will outlaw cash at some point, but those who use it now are casting a vote against CBDCs.
Many people will turn to barter, some using barter metals, and to the shadow economy. If this sounds desperate, consider how the global black market in 2011 was the world’s fastest-growing economy. Sometimes referred to as System D, it features both the usual, small transactions of flea market trades or workers looking for employment in the parking lots of home improvement stores and also larger, international trades. David Obi, a Nigerian, relying on his cell phone and his own initiative, contacted a Chinese firm to have small diesel-powered generators shipped to his home country, where electric power is often scarce: “Like almost all the transactions between Nigerian traders and Chinese manufacturers, it was also sub rosa: under the radar, outside of the view or control of government, part of the unheralded alternative economic universe of System D.”
Friedrich Schneider, research fellow at Johannes Kepler University Linz, Austria, whose expertise is in off-government economies and who coauthored The Shadow Economy, found that System D is growing faster in many countries than the officially recognized gross domestic product. If System D were an independent nation, it would be the second-largest economy in the world.
Conclusion The future is undecided, but we can help determine the outcome if we take responsibility for it. Wikipedia defines System D as “a manner of responding to challenges that require one to have the ability to think quickly, to adapt, and to improvise when getting a job done.” In this sense success has always depended on System D, with or without government.
The American term for it is life hack, “any trick, shortcut, skill, or novelty method that increases productivity and efficiency, in all walks of life.” Whatever you call it, it describes a spirit all of humanity needs to adopt if we are to survive the coming collapse of government Ponzi schemes.
Social democrats are so desperate to cast off limits on government that they'll embrace anything that justifies their ambitions. So they invent theories of money that are very, very wrong.
Original Article: "Progressives Have Corrupted Not Only Money, but Its History as Well"
Even under chattel slavery, inequality was still pervasive. Carpenters, sugar boilers, blacksmiths, cabinetmakers, and rum distillers constituted an elite core of slaves.
Original Article: "Even in Slave Economies, the Division of Labor Was Inescapable"
Speculators are reviled in the media and by politicians and academics. Yet the speculators are the ones taking risks to ensure the rest of us can have more economic certainty.
Original Article: "Hail the Speculators! They Take the Necessary Economic Risks in Our Economy"
Will we get a soft landing or a hard landing in the economy? Or, should we hope for a crash landing? Mark Thornton explains.
See also "Soft Landing? Not Likely" featuring Bob Murphy and Jonathan Newman on the Human Action Podcast: Mises.org/HAP407
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Since the Bretton Woods Agreement in 1944, the dollar has been the world’s preferred reserve currency—the major trading nations of the world were willing to hold dollars in vast amounts to satisfy their need for a readily accepted worldwide payment medium. Even when, in 1971, the United States violated its solemn promise to redeem its dollars for gold at thirty-five dollars per ounce, nations were still willing to hold dollars.
Germany Shies Away from Monetary Leadership In the mid-2010s, I was certain that Germany would abandon the euro and reinstate the deutsche mark. It was clear, especially to some German central bankers, that Germany was being cheated by the European Central Bank. Germany’s TARGET2 surplus represented a vast excess of German exports to other European Union members, who were pledging near-worthless government and corporate bonds in exchange for newly printed euros from the European Central Bank. These bonds would never be redeemed for anything of real value; therefore, it would be simple rational self-interest for Germany to quit the charade.
I predicted that such an action would cause the eurozone to collapse, make Germany’s deutsche mark the preferred unit of trade in Europe, and possibly threaten the dollar for worldwide reserve dominance. Obviously, this never happened. Why?
Germany knew and feared that alarm bells would sound all over the world that, once again, Germany was rising and would dominate Europe. The French, especially, would panic for at least two reasons. One, the collapse of the euro would force France to make a stark choice. Either adopt the deutsche mark—as I expected most northern-tier European countries to do—or try to revert to the French franc, knowing that almost no other nation would be willing to hold francs. France would be cut off from international trade unless it reformed its unsustainable welfare system. However, every time France tried to institute any modicum of welfare reform, the population rioted.
Two, France benefited immensely from internal EU transfer payments—most importantly, farm subsidies. French farmers would be forced to reform or go bankrupt, ending a cushy lifestyle that seemed to be synonymous with France itself. The stark fact was that France had nuclear weapons, and Germany did not. It was unthinkable that either Germany or Japan—the losing Axis powers of World War II, along with Italy—would ever get nuclear weapons. Independent control of one’s own nuclear arsenal was the minimum stake for playing the reserve currency game. Thereafter, the game belonged only to nations with large economies that produced a variety of export goods and services desired throughout the world. That left only America in the game.
The great question is why Germany, even though it eschewed nuclear weapons under its own control, would assent to giving up the deutsche mark and adopting the euro in the first place. At the time, Germany wanted to reunite East and West Germany. The French, who legally held veto power over such a move, made adopting the euro a condition for reunification.
However, why couldn’t Germany just ignore this now-irrelevant agreement in more recent years? The answer is just a theory but probably pertains to some extent to all major European nations. Germany had suffered between six and seven million military losses during the two great wars (World War I losses and World War II losses). Germany’s best and brightest, its future leadership, was lost for all time. These were wars in which the elite of all belligerents fought. Such leadership can never be replaced. The loss of future leadership was equally harsh on the other major European combatants. In the two world wars, the Soviet Union/Russia suffered between nine and thirteen million military dead. France suffered a million and a half dead, the vast majority in World War I. The United Kingdom suffered slightly over one million dead (this number excludes India, Canada, Australia, New Zealand, and South Africa.) As former member of the European Parliament Godfrey Bloom has stated: “The 1914–18 war killed the best of the British Empire. The 1939–45 war killed what remained. Then the welfare state danced on their graves.”
The Event that Changed Everything Then, a great geopolitical event occurred—Deng Xiaoping rose to power in China following the death of Mao Zedong. Deng instituted sweeping, capitalistic economic reforms, and China rose to become a rival to America in terms of economic power. China had obtained nuclear weapons under Mao. Despite the fact that China was and remains a one-party dictatorship, it now had the two ingredients to challenge the US dollar—a large economy and nuclear weapons. China was blackmail proof.
Like China, Russia had thrown off the worst of its Soviet economic policies under Boris Yeltsin and Vladimir Putin, but its small population and relatively backward economy was not in the same league with America and China. Nevertheless, Russia had been a great ally in World War II and had every reason to believe that, now that it had thrown off communism, it could become a vital part of Europe once again. When the US, the North Atlantic Treaty Organization, and the European Union spurned Russia’s attempt to rejoin the old Concert of Europe, it gradually saw its future as aligned with China.
So, what does all this have to do with the end of the dollar hegemony? The answer is that the new Asian nexus saw a way to break the US use of the dollar hegemony as a political tool. The Achilles’ heel of the dollar is that it is a fiat currency. This suits the US political establishment very well since it allows the US to inflate the dollar at will to pay for welfare and warfare. It also allows the US to impose sanctions on its perceived enemies, such as Russia and Iran, by cutting them out of the Swift international trade messaging system.
It is similar to what happened to Brexit advocate Nigel Farage in the UK. For strictly political reasons, his bank closed his accounts, and Farage was unable to find another that would accept his money for deposit. No bank account means no way to exist in a modern economy. Farage feared that he might be forced to leave his own country.
The US-imposed Russian sanctions froze billions of Russian-owned assets. Rather than cause Russia to back down in Ukraine, however, it seems to have sped up the process—started by Russia—to develop a new world reserve currency backed in some measure by gold. The “BRICS” nations—Brazil, Russia, India, China, and South Africa—have been joined by dozens of others who are determined to break away from the fiat dollar hegemony and use an honest, gold-backed trading settlement system. This new BRICS+ group claims that it will announce a first step in pursuing this goal at its meeting in Johannesburg at the end of August.
The US Will Be Forced to Embrace Gold . . . or Become Isolated There are many who dismiss this development. After all, the US and the US dollar have been supreme worldwide for eighty years. These critics fail to understand real economics, real monetary theory, and real international statesmanship. The US has been enthralled by three destructive concepts.
The first is Lord John Maynard Keynes’s economics—which ignores Say’s law of markets—effectively endowing the Keynesian concept of “aggregate demand” with godlike status while disregarding “production”—the only means of satisfying the demand. The second is the so-called modern monetary theory, which posits that sovereign states can never go bankrupt due to their ability to print all the money they need.
The third concept is the out-and-out arrogance of the US since the end of World War II, which deigns to cancel entire nations. All this will come to an end when gold returns as the focal point of the BRICS nations’ monetary reform project. At that point, the US will start losing friends until it, too, reluctantly regains its senses and returns to gold, honest dealing, and honest, respectful statesmanship. America will need new leaders for this task. They are there, waiting to be called by the people. The US and the world will be a much better place as a result.
Some analysts contend that size can be a deterrent to economic prosperity, so as a result, small states are particularly vulnerable to economic and environmental shocks. Usually, small states are discussed in light of their limitations and challenges. Even leaders of small countries earnestly paint size as an obstacle to future progress. The idea that smallness is an impediment to be overcome has become gospel in some quarters.
Caribbean leaders habitually remind the international community that their countries are in a precarious position due to increasing debt levels and liabilities generated by climate change. However, with the assistance of global agencies, small countries have been unlocking funding opportunities. Global players are quite receptive to the lobbying of small states in the Caribbean. Some even endorse calls for debt relief to free up fiscal space in small Caribbean states.
Caribbean countries do face hurdles; after all, they are exposed to severe natural disasters and their economies are still evolving. But obstacles should not preclude them from achieving higher levels of prosperity. There is an unfortunate tendency in the Caribbean to wear suffering as a badge of honor. In fact, Caribbean leaders become highly respected when they attribute regional problems to external shocks.
Rather than learning from the spectacle performance of the Asian Tigers, Caribbean leaders prefer to wallow in pity and complain that geography has given them a raw deal. They will vociferously lobby for aid, but when encouraged to support trade deals, some argue that their countries have little to export. This is a lame excuse because Switzerland and Japan are major exporters of value-added products, despite being resource-poor countries.
Because small countries lack sizeable internal markets, they have no option but to become globalized. Trade comprises a higher share of gross domestic product in small countries, and they do better under a free trade regime. Singapore, Finland, and Ireland are frequently cited as examples of small countries that propelled economic growth by capitalizing on globalization. By adopting key technologies and investing in human capital, several small countries have become major players in the global economy.
Research has even dispelled the notion that small states are more vulnerable to global economic fluctuations due to their greater reliance on foreign trade. By engaging in global trade and developing niche markets, small states become more productive and consequently curtail their exposure to economic fallouts. Small nations can build diverse economies that generate high growth rates, and their per capita incomes on average are not lower than large nations. Many nations with high per capita incomes are exceptionally small countries, and in the developed world some of the richest countries are relatively small, like Sweden and Denmark. Big countries like Germany and America are outlier performers in the rich world.
On the continent of Africa, small states stand out for economic freedom and institutional quality. Based on quality-of-life indicators, the most successful countries in Africa are small, like Mauritius and Botswana, rather than Nigeria and South Africa. Socially, the achievements of small states are equally impressive. The homogeneity of small states cultivates trust—a necessary ingredient for economic growth and the distribution of goods. Since small countries are less populous and not as diverse as bigger countries, they are easier to govern and better managed.
Credit Suisse, in a 2014 report comparing the performance of small and large countries, concludes that small countries perform superior on most metrics. Small countries scored higher on institutional measures, provided stellar social services, and recorded wealthier adults. Small countries consistently do well on international rankings, therefore size cannot be the disadvantage that some countries are claiming.
Caribbean countries are small but politically stable, diplomatically connected to important Western powers, and have resources, so there is no reason for them to be uncompetitive. Their failure to compete is a reflection of lackluster and backward-looking leadership rather than exposure to global shocks or the legacy of colonialism.
In all the media and regime frenzy over the Janaury 6 riots and the Pentagon Leaker in recent months, it is interesting to examine the contrast between how the regime treats "crimes" against its own interests, and real crime committed against ordinary private citizens.
Witness, for example, how the Biden administration and corporate media have treated the January 6 riot as if it were some kind of military coup, demanding that draconian sentences be handed down even to small-time vandals and trespassers. Regime paranoia has led the Justice Department to ask for a 30-year sentence for Enrique Tarrio, a man who was convicted of the non-crime of "seditious conspiracy" even though he wasn't even in Washington on January 6. In recent months, Jacob Chansley, the "QAnon Shaman," received a sentence of three-and-a-half years, even though prosecutors admit he did nothing violent. Riley Williams was given three years for simply trespassing in Nancy Pelosi's office. Members of the Capitol Police force have been lionized in the media as great protectors of "sacred" government buildings, and any threat to the property or persons of Washington politicians has been equated with an assault on "democracy."
Yet, had these supposed insurrectionists inflicted these same actions against an ordinary private individual, there's a good chance the perpetrators would not even be arrested, let alone given years of prison time. Consider, for example, the mobs that ransack private businesses in American cities, stealing tens of thousands of dollars of merchandise while police and prosecutors consider it all to be low priority. Violent crime and property crime surge in many areas of the United States, with violent crime rising 30 percent in New York City in 2022. Unsolved murders in the US are at a record high. Meanwhile, progressives and social democrats are looking for ways to reduce criminal penalties against violent criminals. Police departments often devote only tiny portions of their budgets to homicide investigations, and if your property is stolen, odds are good you can forget about ever seeing it again.
The situation is quite different when it comes to protecting the state, its agents, and its property from any threat. During urban riots, such as those which occurred in Ferguson, Missouri and Minneapolis, Minnesota, the police went to great lengths to protect themselves and government property. If you were just a private shopkeeper or ordinary citizen, however, you were on your own. At the Uvalde School shooting in 2022, hundreds of law enforcement officers from all levels of government chose to protect themselves rather than the children who were being murdered inside. When Uvalde parents demanded the police act, the police attacked the parents.
We find similar phenomena at the federal level. There are, of course, special federal laws against violence perpetrated against federal employees. Ordinary taxpayers receive no such consideration. Note how federal agencies move to arm themselves to the teeth while also seeking to disarm the private-sector. Federal agents will spare no expense finding someone who put his feet up on Nancy Pelosi's desk, but it's another matter entirely when we're talking about serious violent crime against regular people. Federal agents, of course, allowed 9/11 to occur right under their noses, they refused to investigate known rapist Larry Nasser, and shrugged off reports about the man who would end up slaughtering children at a high school in Parkland, Florida. Contrast this with how long the federal government has been conniving to get revenge on Julian Assange for merely telling the truth about US war crimes.
Naturally, law enforcement officers rarely face any sanctions for their failures to bother themselves with private property, life, or limb. The federal courts have made it clear that law enforcement officers are not obligated to actually protect the public. In other words, the taxpayers must always pay taxes to hold up their end of the imagined "social contract" or face fines and imprisonment. But the other side of that "contract," the state, has no legal obligation to make good on its end. This, of course, is not how real contracts work.
The state's fastidious devotion to protecting itself, compared to its casual concern for the safety of mere taxpayers, illustrates an important principle of state behavior. In his essay The Anatomy of the State, Murray Rothbard notes
We may test the hypothesis that the State is largely interested in protecting itself rather than its subjects by asking: which category of crimes does the State pursue and punish most intensely—those against private citizens or those against itself? The gravest crimes in the State's lexicon are almost invariably not invasions of private person or property, but dangers to its own contentment, for example, treason, desertion of a soldier to the enemy, failure to register for the draft, subversion and subversive conspiracy, assassination of rulers and such economic crimes against the State as counterfeiting its money or evasion of its income tax. Or compare the degree of zeal devoted to pursuing the man who assaults a policeman, with the attention that the State pays to the assault of an ordinary citizen. Yet, curiously, the State's openly assigned priority to its own defense against the public strikes few people as inconsistent with its presumed raison d'etre.
This double standard has been repeatedly on display in recent years as the regime has increasingly been consumed with paranoia over threats to itself—propagandistically termed "threats to democracy"—while attention given to real crime against private citizens is apparently not a priority at all.
The Constitution “is not a suicide pact,” said Justice Arthur Goldberg in the court’s opinion in the 1963 Supreme Court case of Kennedy v. Mendoza-Martinez. His statement highlights a fundamental truth: in times of crisis, governments often feel compelled to take extraordinary measures to protect their citizens and maintain order.
However, this desire to act swiftly and decisively can lead down a perilous path where the expansion of government power becomes a seemingly irreversible process. Welcome to the world of the ratchet effect.
What Is the Ratchet Effect? This phenomenon gets its name from the mechanical device called a ratchet, which allows motion in one direction only. Just as a ratchet prevents backward movement, the ratchet effect ensures that government power advances inexorably, never retreating to previous levels.
The ratchet effect theory, as popularized by Robert Higgs in his book Crisis and Leviathan, refers to the tendency of governments to respond to crises by implementing new policies, regulations, and laws that significantly enhance their powers. These measures are typically presented as temporary solutions to address specific problems. However, in history, these measures often outlast their intended purpose and become a permanent part of the legal landscape.
The Ratchet Effect in Action The USA PATRIOT Act, enacted in response to the 9/11 attacks, exemplifies this trend. Intended to enhance national security, it granted sweeping new powers to intelligence agencies, including authorizing “sneak and peek” searches under Section 213. These types of searches allowed delayed notification of search warrants, permitting law enforcement to secretly enter private premises without immediately informing the owner, raising Fourth Amendment concerns.
The act also greatly expanded the definition of “domestic terrorism” to include activities that seem intended to influence government policy through intimidation or coercion, without requiring evidence of actual violence. This broadened definition gave law enforcement enhanced leeway to investigate activist groups engaged in nonviolent advocacy and protest activities.
Yet, despite the lapse of two decades since 9/11, these provisions persist, normalizing extraordinary intrusions into privacy. This illustrates how emergency measures can become entrenched through the ratchet effect, as the ongoing fear of terrorism fossilizes exceptions to civil liberties into standard practice long after the initial crisis has passed.
Similarly, the 2008 global financial crisis prompted governments worldwide to impose rigorous regulatory frameworks on financial institutions. Although conceived as stopgap measures, these restrictions have proven remarkably durable, constraining economic growth and innovation. The specter of another devastating crash continues to justify the existence of these restrictions, disregarding the adverse effects on entrepreneurship and personal autonomy.
More recently, the covid-19 pandemic has brought the ratchet effect back into sharp focus. Governments have instituted a range of controls to contain the virus, from lockdowns and travel restrictions to mask mandates and vaccination requirements. While some of these measures—it could be argued—may have been appropriate in the short term, their prolonged implementation raises concerns about creeping authoritarianism. As fear and uncertainty persist, there is a growing risk that these temporary measures will become permanent features of our lives, further diminishing individual liberties.
It is essential to recognize the subtle yet pernicious nature of the ratchet effect. Each successive crisis creates opportunities for governments to consolidate their powers, often under the guise of protecting its citizens. However, this accretion of authority comes at a profound cost: the gradual relinquishment of fundamental rights and freedoms.
Looming Potential Crises: AI and Climate Change As we reflect on the historical progression of government power during times of crisis, we must also turn our attention to the potential threats on the horizon that could further amplify state control. Two pressing concerns that warrant careful consideration are the rapid advancement of artificial intelligence (AI) and the intensifying calls for action against climate change.
Advancements in AI technology present both extraordinary possibilities and daunting challenges. As AI integrates deeper into various sectors of society, governments might feel pressured to exercise greater authority to ensure public safety, data privacy, and economic stability. Fears surrounding job displacement and unpredictable moral predicaments could serve as justification for heightened supervision. Nonetheless, such interventions risk reinforcing the ratchet effect, culminating in an accumulation of AI-centric regulations that stagnate innovation and hamper economic progress.
The unfolding climate change crisis continues to dominate headlines, with mounting pressure on world leaders to take drastic measures to curtail emissions and transition toward renewable energy sources. Already, governments are responding to this crisis with sweeping policies aimed at mitigating the perceived threat. Yet, there exists a danger that emergency-driven actions will metamorphose into permanent features of the regulatory terrain. Opportunistic special interest groups may capitalize on the situation to promote their agendas, contributing to an enlargement of government influence that transcends the initial response to environmental imperatives.
The Quest for Liberty and Economic Implications When crises strike, the instinctive reach for government intervention may provide fleeting comfort, but it often ignores the long-term consequences of empowering the state at the expense of personal autonomy. As the heavy hand of regulation descends, it smothers the entrepreneurial spirit, strangles innovation, and saps the vitality of once-thriving markets. The result? A sluggish economy, suffocating under the weight of bureaucratic red tape, and a citizenry increasingly beholden to an all-powerful government.
By embracing market-driven solutions, we can tap into the limitless potential of human ingenuity by creating new opportunities, products, and services that drive growth and improve lives. From cutting-edge technologies to innovative business models, the free market has always been the engine of progress, lifting billions out of poverty and connecting people across the globe.
Moreover, the pursuit of individual liberty and property rights is not only a moral imperative, it’s also a key driver of economic success. When individuals are free to pursue their passions and ideas without undue interference, they create value that benefits everyone. Conversely, when governments overstep their bounds, they stifle innovation, suppress entrepreneurship, and ultimately impoverish society.
Therefore, let us remain steadfast in our commitment to the principles of classical liberalism, rejecting the false promises of collectivist ideologies and embracing the spontaneous order of the free market. By trusting in the invisible hand, we can build a brighter future where freedom, innovation, and prosperity flourish.
Conclusion The ratchet effect’s inexorable advance poses a constant threat to individual liberty and economic prosperity. History teaches us that emergency measures, however well-intentioned, tend to metastasize into permanent restrictions on our freedom. As we weather the tempests of crises, we must remain vigilant in defense of our fundamental rights and the engines of economic growth.
To succeed in this endeavor, we must cultivate a deep understanding of the ratchet effect and its insidious workings. We must recognize how seemingly innocuous measures, passed in the heat of the moment, can gradually accumulate and harden into oppressive systems. We must also appreciate the roles that individual initiative and entrepreneurial spirit play in fostering resilience and prosperity.
With this knowledge, we can chart a course that preserves the delicate balance between public safety and personal autonomy. We can design crisis responses that are surgical in their precision, minimizing the impact on our liberties while maximizing their effectiveness in addressing the challenge at hand. We can create regulatory frameworks that enable innovation to flourish rather than suffocating it beneath a blanket of bureaucratic red tape.
Ultimately, our success will depend on our ability to stay true to our core values of protecting property rights and preserving individual and economic freedoms. By remaining vigilant and committed to these principles, we can build societies that are both resilient in the face of crisis and prosperous in the long term. The ratchet effect may continue to exert its influence, but we can ensure that its grip remains loose and that our spirits remain unbroken.
In 1944, F.A. Hayek's best-selling book, The Road to Serfdom, warned the West that the "free" nations would lose their freedom as government expanded. He was right.
Original Article: "They Didn't Listen: The Reality of Hayek’s Bestseller"
On this episode of Good Money with Tho Bishop, Dr. Murray Sabrin joins the show. Dr. Sabrin shares his story of how he became an Austrian economist and discusses his analysis predicting a recession later in the year. Tho and Dr. Sabrin also talk about this week's anniversary of Nixon closing the gold window.
Join Dr. Sabrin in November for a Mises Circle in Ft. Meyers, FL on The White House, the Fed, and the Economy. Use promo code Tampa23 for $10 off registration.
Dr. Sabrin's Article on the Coming Recession: Mises.org/GM19a
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
Receive a free subscription to The Austrian magazine at Mises.org/Magazine
Capitalism—Its Nature and Its Replacement: Buddhist and Marxist Insights
by Graham Priest
Routledge, 2021; 312 pp.
The title of this book seems at first sight puzzling: what has Buddhism to do with Marxism? When we learn that the author accepts Karl Marx’s analysis of capitalism and also wishes to replace capitalism with a type of socialism, we might be tempted to toss the book aside. It would be a mistake to do so. The author is a distinguished logician and the book contains an interesting account of Marxist economics. In this week’s column, I’ll discuss one of Priest’s main arguments. I won’t have anything to say about Buddhism.
Priest tries to rescue Marxist economics from a familiar criticism. His attempt is interesting, but I do not think it succeeds. In the standard Marxist account, workers sell their labor power to capitalist employers but are paid only for their labor. According to the labor theory of value, which Marx accepted, the value of labor, which determines money wages, is determined by the labor costs of the commodities that enable a worker to subsist and to reproduce. These labor costs will add up to a certain number of hours.
But the worker has sold to the employer his labor power, his ability to labor at the employer’s direction, during the hours of the working day, and these hours will be greater than the number of hours needed to cover the labor cost of the worker’s labor. If they weren’t, it would not be profitable for the employer to offer the worker a job. That may sound confusing, but an example will, I hope, make things clearer.
Suppose the worker is hired to work ten hours per day but the value of his labor is only eight hours. The extra two hours are “surplus value,” which is divided between the capitalist employer and the landlord who owns the land where production takes place. Since the worker labors for two hours for which he doesn’t get paid, he is exploited. Thus, according to Marx, capitalism rests on the exploitation of labor.
A major problem with Marx’s analysis is obvious. It rests on the labor theory of value, which after the “marginalist revolution” of the 1870s was rejected by the vast majority of economists. Priest thinks he can get around this problem. He doesn’t say whether he accepts the labor theory of value, but he tries to prove that capitalism is exploitative without using this theory. He writes:
Those who know their Marx will note that I have said nothing about the labour theory of value, which has been taken to be central to Marxian economics, but has been the target of much criticism. This is because nothing I have said depends on this. . . . [The labor theory of value] is an account of quantity. However, it is not necessary to subscribe to the labour theory of value to understand that labour produces surplus value—in other words to understand the quality of the relationship between labour and value. (emphasis in original)
If Priest is right, he has made a major contribution to Marxism, but his argument, though very interesting, is mistaken. He contends that in a capitalist economy, there is a constant pursuit of growth by the owners of capital, driven by competition with other owners. Competition leads them to squeeze workers as much as they can, so long as doing so will expand production. (Squeezing workers to the point that they can’t work would be self-defeating.) Thus there is an increasing tendency for workers to be exploited, and this argument does not rely on the labor theory of value.
Priest’s argument is vulnerable on two counts. First, Priest gives no account of how wages are determined under capitalism. Why, without the labor theory of value, is he entitled to assume that in a competitive market, employers would be able to exploit workers, meaning pay them below the value they add to the product? His defense of this assumption, if I have understood it, is this: “Marx held that labour power was the sole commodity that has the ability to produce surplus value” (emphasis in original).
Suppose that a farmer works a longer number of hours on his farm than needed to feed himself and his family. That is the only way he can expand production beyond subsistence and thus create surplus value. The flaw in Priest’s argument is that once the farmer has worked more hours than subsistence requires, he can create tools that enable him to produce more efficiently than before. In that case, he will be able to feed himself and his family with fewer hours of labor. If he nevertheless continues to work more hours, the “surplus value” is imputable for the most part to the better tools, not to the labor hours beyond subsistence—unless one gratuitously assumes the labor theory of value. Priest is aware of the possibility of mechanization but seems interested only in cases where people lose their jobs because of it. He fails to see mechanization’s consequences for his argument that labor power is the only source of surplus value. His fundamental mistake is to fail to distinguish surplus hours, meaning laboring more than you need to for subsistence, from surplus value.
There is another problem with Priest’s argument, and this problem arises from a correct insight about Marxist economics. Marx argued that in a capitalist economy, “capital is wealth in search of more wealth.” Owners of capital who refused to seek more wealth would be displaced by their competitors and the process would keep going until a crisis was reached. What this overlooks is that the growth of capital responds to the time preference of consumers. If the consumers do not want a growing economy (i.e., they have a high time preference rate), a lengthening of the structure of production won’t happen. Capital growth is not a quasi-automatic process, as Marx thought it was.
Priest’s response to the claim that the owners of capital who expand production are reacting to the time preference of consumers is that consumers don’t “really” want more production. Capitalists manipulate them by advertising to get them to demand products that won’t make them happier. Priest has definite ideas about happiness, and here is where Buddhism comes in. As I mentioned earlier, I will avoid entering this morass. Suffice it to say that his account of manipulation rests on a dogmatic account of what people “should” want. I don’t trust his judgment.
Jonathan Newman joins Bob to discuss the argument being put forth by Alan Blinder, James Galbraith, and other progressive economists, who claim that the Federal Reserve's rate hikes couldn't possibly be responsible for the quelling of consumer price inflation.
Jonathan and Bob stress the important role of expectations as a "transmission mechanism" from Fed policy to impacts on prices.
Galbraith's Article on the Fed's 'Soft Landing': Mises.org/HAP409a The Paper on the Forward Guidance Paradox That Mentions Krugman: Mises.org/HAP409b
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Forcing the minimum wage above the real market wage causes more unemployment. Small businesses suffer from these mandates as do the least productive workers.
Original Article: "A Higher Minimum Wage Won't Improve Life in Pennsylvania"
It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.
—Ludwig von Mises, Liberalism: In the Classical Tradition
Mises controversially stated this quote in his book Liberalism: In the Classical Tradition. This seemingly profascist line is routinely taken out of context and used to justify tremendous amounts of outrage. Previous Mises Wire articles have done a much better job than I ever could at putting these words in their proper context to explain just how misguided these criticisms are. However, the quick answer is to simply read the lines immediately following that quote: “But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error.”
However, even in its fullest context, these words still leave one asking if fascism really could be an acceptable emergency makeshift? After all, most people—especially most classical liberals as Mises describes himself—do not see fascism as even having the ability to be a makeshift option. To understand this better, one of the best possible examples is Spanish Civil War figure Francisco Franco. Franco is described by Warren H. Carroll as
not a tyrant or an oppressor, and certainly no totalitarian. He may have been too severe toward his enemies, but he never enslaved his own people. He was not eager for power, though he came to believe God had chosen him to save Spain from destruction and persecution of his fellow Catholics. He did not allow elections to choose a government or a completely free press, because to him that meant a return to the revolutionary anarchy of the Second Spanish Republic, but during all his years of rule after the Civil War the Spanish people could say what they liked in the cafes and plazas, and regularly did so.
While this description most certainly has its admirable qualities—not enslaving his own people, not eager for power, and devout Catholic—it is striking as a remarkably low bar for admiration, and it has glaring red flags to many readers. Most leaders ideally do not enslave their own people, and very few with a lust for power come out and say it. Not allowing elections or a free press strikes fear in the heart of most libertarians, and it is not all too comforting to them to say that, after wartime ended, people could say what they wanted in the public square. However, the story does not end here. There was one vital accomplishment, as Carroll goes on to explain, that makes Franco the perfect illustration of Mises’s depiction of a dictator who was responsible for saving European civilization:
Franco was short and pudgy and looked insignificant, except for his large and commanding dark brown eyes. But he had a lion’s heart and a steel-hard backbone. More than any other man, he saved Spain from the worst fate that could befall any nation in the twentieth century—conquest by communism—giving his people instead a generation and a half of peace, security, prosperity, and personal—if not political—freedom in which the Catholic Faith was restored and flourished throughout the country. The Valley of the Fallen will stand against the sky as his just monument when all his venomous critics are dust.
This is exactly what Mises was referring to when he claimed that fascism had temporarily saved European civilization. While anyone could comfortably tell you that fascism is bad, at that moment in history, fascism was called for to stand athwart the spread of communism. However, Mises explains that fascism would be at best an emergency makeshift, and to persist in fascism would be a fatal error.
This is true for two reasons. The first is that fascism is an evil in and of itself. The second is, as Mises states, the middle of the road leads to socialism. The worst possible outcome of fascism is even worse than fascism: it is socialism. Fascism is not the cure, and Mises—a genuine victim of fascism—knew this better than anyone. However, this does not mean we cannot appreciate the good that came from stopping the spread of communism exactly when it was needed, as Mises does.
When it comes to matters of money and banking, all practical political issues ultimately hinge on one central question: can one improve or deteriorate the state of an economy by increasing or decreasing the quantity of money?1
Aristotle said that money was no part of the wealth of a nation because it was simply a medium of exchange in inter-regional trade, and the authority of his opinion thoroughly marked medieval thought on money. Scholastic scholars therefore spent no time enquiring about the benefits that changes of the money supply could have for the economy. The relevant issue in their eyes was the legitimacy of debasements, because they saw that this was an important issue of distributive justice.2 And after the birth of economic science in the 18th century, the classical economists too did not deny this essential point. David Hume, Adam Smith, and Étienne de Condillac observed that money is neither a consumers' good nor a producers' good and that, therefore, its quantity is irrelevant for the wealth of a nation.3 This crucial insight would also inspire the intellectual battles of the next four or five generations of economists—men such as Jean-Baptiste Say, David Ricardo, John Stuart Mill, Frédéric Bastiat, and Carl Menger—who constantly made the case for sound money.
As a result, the Western world had much more sound money in the 19th century than in the 20th century. Large strata of the population paid and were paid in coins made out of precious metals, especially out of gold and silver. It was money that made these citizens, however humble their social status, sovereign in monetary affairs. The art of coinage flourished and produced coins that could be authenticated by every market participant.
Some present-day libertarians harbor a romantic picture of these days of the classical gold standard. And it is true that it was the golden age of monetary institutions in the West, especially when we compare them with our own time, in which the monetary equivalent of alchemy has risen to the status of orthodoxy. But it is also true that western monetary institutions in the era of the classical gold standard were far from being perfect. Governments still enjoyed monopoly power in the field of coinage, a remnant of the medieval regalia privileges that prevented the discovery of better coins and coin systems through entrepreneurial competition. Governments frequently intervened in the production of money through price-control schemes, which they camouflaged with the pompous name of bimetallism. They actively promoted fractional-reserve banking, which promised ever-new funds for the public treasury. And they promoted the emergence of central banking through special monopoly charters for a few privileged banks. The overall result of these laws was to facilitate the introduction of inflationary paper currencies and to drive specie out of circulation. At the beginning of the 19th century, most of Europe, insofar as it knew monetary exchange at all, used paper currencies.4 And during the remainder of that century, things did not change much. England alone among the major nations was on the gold standard during the greater part of the 19th century, and banknotes of the Bank of England played a much greater role in monetary exchanges than specie—in fact, the reserve ratio of the Bank seems to have been around 3 percent for most of the time, and occasionally it was even lower.5
In short, the monetary constitutions of the 19th century were not perfect, and neither would the monetary thought of the classical economists satisfy us today.6 David Hume believed that inflation could stimulate production in the short run. Adam Smith believed that inflation in the form of credit expansion was beneficial if it was backed up with a corresponding amount of real goods, and Jean-Baptiste Say similarly endorsed expansions of the quantity of money that accommodated the needs of commerce. Smith and Ricardo suggested increasing the wealth of the nation by substituting inherently valueless paper tickets for metallic money. John Stuart Mill championed the notion that sound money means money of stable value. These errors in the monetary thought of Hume, Smith, Ricardo, and Mill were of course almost negligible in comparison to their central insight, to repeat, that the wealth of a nation does not depend on changes in the quantity of money. But eventually a new generation of students, infected with the virus of statism—worship of the state—brushed over that central insight, and thus the errors of the classical economists, rather than their science, triumphed in the 20th century.
Men such as Irving Fisher, Knut Wicksell, Karl Helfferich, Friedrich Bendixen, Gustav Cassel, and especially John Maynard Keynes set out on a relentless campaign against the gold standard. These champions of inflation conceded the insight of the classical economists that the wealth of a nation did not depend on its money supply, but they argued that this was true only in the long run. In the short run, the printing press could work wonders. It could reduce unemployment and stimulate production and economic growth.
Who could reject such a horn of plenty? And why? Most economists point out the costs of inflation in terms of loss of purchasing power—estimates run as high as a 98 percent reduction of the US dollar's purchasing power since the Federal Reserve took control of the money supply. What is less well known are the concomitant effects of the century-long great dollar inflation. Paper money has produced several great crises, each of which turned out to be more severe than the preceding one. Moreover, paper money has completely transformed the financial structure of the western economies. At the beginning of the 20th century, most firms and industrial corporations were financed out of their revenues, and banks and other financial intermediaries played only a subordinate role. Today, the picture has been reversed, and the most fundamental reason for this reversal is paper money. Paper money has caused an unprecedented increase of debt on all levels: government, corporate, and individual. It has financed the growth of the state on all levels, federal, state, and local. It thus has become the technical foundation for the totalitarian menace of our day.
In the light of these long-term consequences of inflation, its alleged short-run benefits lose much of their attractiveness. But the great irony is that even these short-run benefits in terms of employment and growth are illusory. Sober reflection shows that there are no systematic short-run benefits of inflation at all. In other words, whatever benefits might result from inflation are largely the accidental result of inflation hitting a particularly favorable set of circumstances, and we have no reason to assume that these accidental benefits are more likely to occur than accidental harm—quite to the contrary! The main impact of inflation is to bring about a redistribution of resources. There are therefore short-run benefits for certain members of society, but these benefits are balanced by short-run losses for other citizens.
The great French economist Frédéric Bastiat made the quite general point that the visible blessings that result from government intervention into the market economy are in fact only one set of consequences that follow from this intervention. But there is another set of consequences that the government does not like to talk about because they demonstrate the futility of the intervention. When the government taxes its citizens to give subsidies to a steel producer, the benefits to the steel firm, its employees, and stockholders are patent. But other interests have suffered from the intervention. In particular, the taxpayers have less money to patronize other businesses. And these other businesses and their customers are also harmed by the policy because the steel firm is now able to pay higher wages and higher rents, thus bidding away the factors of production that are also needed in other branches of industry.
And so it is with inflation. There is absolutely no reason why an increase in the quantity of money should create more rather than less growth. It is true that the firms who receive money fresh from the printing press are thereby benefited. But other firms are harmed by the very same fact because they can no longer pay the higher prices for wages and rents that the privileged firm can now pay. And all other owners of money, whether they are entrepreneurs or workers, are harmed too, because their money now has a lower purchasing power than it would otherwise have had.
Similarly, there is no reason why inflation should ever reduce rather than increase unemployment. People become unemployed or remain unemployed when they do not wish to work, or if they are forcibly prevented from working for the wage rate an employer is willing to pay. Inflation does not change this fact. What inflation does is to reduce the purchasing power of each money unit. If the workers anticipate these effects, they will ask for higher nominal wages as a compensation for the loss of purchasing power. In this case, inflation has no effect on unemployment. Quite to the contrary, it can even have negative effects, namely, if the workers overestimate the inflation-induced reduction of their real wages and thus ask for wage-rate increases that bring about even more unemployment. Only if they do not know that the quantity of money has been increased to lure them into business at current wage rates will they consent to work rather than remaining unemployed. All plans to reduce unemployment through inflation therefore boil down to fooling the workers—a childish strategy, to say the least.7
For the same reason, inflation is no remedy for the problem of sticky wages—that is, for the problem of coercive labor unions. Wages are sticky only to the extent that the workers choose not to work. But the crucial question is, how long can they afford not to work? And the answer to this question is that this period is constrained within the very narrow limits of their savings. As soon as a worker's personal savings are exhausted, he willy-nilly starts offering his services even at lower wage rates. It follows that in a free labor market, wages are sufficiently flexible at any point of time. Stickiness comes into play only as a result of government intervention, in particular in the form of (a) tax-financed unemployment relief and of (b) legislation giving the labor unions a monopoly of the labor supply.
"All plans to reduce unemployment through inflation therefore boil down to fooling the workers—a childish strategy, to say the least." Since we are not concerned here with questions of labor economics, we can directly turn to the connection between employment and monetary policy. Does inflation solve the problem of sticky wages? The answer is in the negative, and for the same reasons we pointed out above. Inflation can overcome the problem of sticky wages only to the extent that the paper-money producers can surprise the labor unions. To the extent that the latter anticipate the moves of the masters of the printing press, inflation will either not reduce unemployment at all, or even increase it further.8
[Adapted from Part II of the essay "Deflation and Liberty."]
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- Speaking of an economy we mean the group of persons using the same money. Our analysis therefore concerns both open and closed economies in the usual connotations of the terms, which relates closedness and openness to political borders separating different groups of persons.
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- See Aristotle, Politics, book 2, chap. 9; Nicomachian Ethics, book V, in particular chap. 11; Nicolas Oresme, Traité sur l'origine, la nature, le droit et les mutations des monnaies, Traité des monnaies et autres écrits monétaires du XIV siécle, Claude Dupuy, ed. (Lyon: La Manufacture, 1989); Juan de Mariana, A Treatise on the Alteration of Money, Markets and Morality 5, no. 2 ([1609] 2002).
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- See David Hume, "On Money," Essays (Indianapolis: Liberty Fund, [1752] 1985), p. 288; Adam Smith, Wealth of Nations (New York: Random House, [1776] 1994), book 2, chap. 2, in part. pp. 316f.; Condillac, Le commerce et le gouvernement. 2nd ed. (Paris: Letellier & Maradan, 1795), in part. p. 86; translated as Commerce and Government (Cheltenham, U.K.: Elgar, 1997).
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- At the time John Wheatley observed, "In England, Scotland, and Ireland, in Denmark, and in Austria, scarcely any thing but paper is visible. In Spain, Portugal, Prussia, Sweden, and European Russia, paper has a decisive superiority. And in France, Italy, and Turkey only, the prevalence of specie is apparent." (An Essay on the Theory of Money and Principles of Commerce, p. 287).
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- See Jacob Viner, "International Aspects of the Gold Standard," Gold and Monetary Stabilization, Quincy Wright, ed. (Chicago, Chicago University Press, 1932), pp. 5, 12. Viner emphasizes that the pre–World War I gold standard was not fundamentally different from the interwar gold-exchange standard. It was a managed standard (p. 17). This attenuates the thesis of Jacques Rueff that the gold-exchange standard introduced something like a quantum-leap deterioration into the international monetary system. See Rueff, The Monetary Sin of the West (New York: Macmillan, 1972).
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- For a recent essay criticizing some of the main fallacies of classical monetary thought, see Nikolay Gertchev, "The Case For Gold—Review Essay," Quarterly Journal of Austrian Economics 6, no. 4 (2003).
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- See in particular Mises, Die Ursachen der Wirtschaftskrise (Tübingen: Mohr, 1931); translated as "The Causes of the Economic Crisis," in On the Manipulation of Money and Credit (Dobbs Ferry, N.Y.: Free Market Books, 1978). See also Mises, "Wages, Unemployment, and Inflation," Christian Economics 4 (March 1958); reprinted in Mises, Planning For Freedom, 4th ed. (South Holland, Ill.: Libertarian Press, 1974), pp. 150ff. The long-standing presence of mass unemployment in Germany, France, and other European countries seems to be a smashing refutation of the Keynesian hypothesis. If anything, the labor unions in these countries clearly seem to overestimate the inflation rate.
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- On the entire issue see in particular William Harold Hutt, The Theory of Collective Bargaining (San Francisco: Cato Institute, [1954] 1980); idem, The Strike-Threat System (New Rochelle, N.Y.: Arlington House, 1973); idem, The Keynesian Episode (Indianapolis: Liberty Press, 1979).
Rothbard on the American Revolution: "There was no particular need for the formal trappings and permanent investing of a centralized government, even for victory in war."
Original Article: "The American Revolutionaries Didn't Need a Central Government. Neither Do We."
When the idea of a totally free market is floated in economic discussion, a widely accepted critique of such an idea is often related to the issue of how goods and services could be guaranteed safe for consumption. After all, without a government sending inspectors and decreeing standards of safety for products, it is often assumed companies, in their everlasting quest for profits without mercy, would have no incentive against selling whatever brings in the most cash.
This, however, is well understood by the Austrian school to be untrue, and I do not wish to beat a dead horse by explaining why. Instead, I want to focus on how a true free market would enact regulation in a natural and decentralized fashion and how it could emerge in a real-world situation. So let’s jump out of our Orwellian modern world into a world where laissez-faire reigns supreme.
Let us suppose our imagined free market has survived up until this point without any need for regulation from a centralized power. But now trouble in paradise has arisen, and a company, to keep itself profitable, has resorted to selling a food product inflicting bad stomachaches upon some of its consumers. How could we possibly get out of this mess without conjuring a centralized power to regulate the market in a way not like our governments here in the real world do it?
Well, first we should assume that in a free market at least some forms of media companies exist; after all, they aren’t a product of the government, and there has been a persistent demand for information throughout history. We can also assume that at least some of these media companies would pick up a story about a company that sells goods unfit for consumption, especially if no such thing has ever happened before.
In our hypothetical free market, a company working in a dishonest and harmful way would be a completely novel thing, and such a story would garner considerable amounts of public attention, thus bringing vast amounts of viewership to the media covering it. This in and of itself would act as a regulating mechanism since the bad publicity would bring the consumer opinion of a company acting with inadequate standards down, reducing its profits. Also, if the food producer acted in a dishonest way to save itself from bankruptcy, the drop in demand from bad publicity alone would most likely put the final nail in the coffin for the specific business entity.
At this point in a society where a centralized authority (the state) exists, regulations would be drawn up to try to prevent anything similar from ever happening again. This could happen through the enaction of universal safety standards for food, such as requiring packaging or an expiration date on the package to prevent spoiled food from being sold, or a flat out ban on an additive or a chemical used in production that is believed to have caused the stomachaches. The possibilities are endless as shown by this page from the Food and Drug Administration (FDA).
What I want to point out is there are massive amounts of tax dollars that go into all the administrative functions of regulatory agencies like the FDA, not to mention the user fees from the very industries they regulate, a mechanism destined to generate conflicts of interest. It is safe to assume, in my opinion, that government regulation is at best inefficient and wasteful.
But let’s return to our true free market, where a news story has shaken the public to its very core and has left everyone pondering whether they can trust any food producer in the future. From an economic perspective, this story has generated public attention, and thus, in effect, media companies covering the story have sold their goods to voluntary consumers, generating profit. If the public considers the violation of the food producer to be severe enough, they will stop purchasing goods from said producer, eliminating it from the market. By extension, this will also disincentivize other producers from acting in a similar fashion in the future.
If the act is forgiven or forgotten by consumers, then it should be safe to assume that the stomachaches were not serious enough to stop people from continuing to consume the product. If the inadequacies of the product were severe enough to cause serious harm, such as death or prolonged injury, then consumers would almost certainly abstain from using the product and have the producers held as an unlawful entity, since it has failed to adhere to the principle of not initiating harm on other people. The food producer would thus most likely have to cease its operations and declare bankruptcy.
In any case of a company producing faulty goods and knowledge of this being provided by the media to the public, demand for information about the quality of food products would arise. This would create a market for such information, and companies would exploit this opening to provide supply for this demand. In practice, supply would emerge as independent entities that would sell, for example, their stamp of approval for other businesses and allow competition in the regulatory market. Consumers could pick and choose according to their preferences the products that have been inspected by regulating entities, or choose products that have not been inspected, as they would most likely be a cheaper alternative since the companies producing them would not have to pay for any inspection and research on the safety of their product.
As with all government functions, regulation has simply provided supply to a demand for regulation. And as with all government functions, due to their blind universality, lack of a price mechanism, and an elitist way of thinking, the regulatory state has always been and always will be an inefficient system.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop are joined by Mises Summer Fellow Manuel Garcia Gojon to discuss the recent strong performance by Argentinian libertarian presidential candidate Javier Milei. The three discuss the economic conditions of Argentina fueling the self-proclaimed anarcho-capitalist's political rise, what separates him from other populist figures, and some of his proposed policies - such as abolishing the country's central bank.
Recommended Reading "Will Argentina's Next President Be a Rothbardian?" by Manuel García Gojon: Mises.org/RR_147_A
"An Anarchist’s Pragmatic Plan of Government for Argentina" by Manuel García Gojon: Mises.org/RR_147_B
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
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While FedNow seems benign, there is the larger problem of the entire banking system itself being built on a foundation of sand. FedNow can only make that problem worse.
Original Article: "FedNow Isn't a CBDC, but It Is Dangerous"
China's authoritarian gerontocracy has built a Doom Loop with Chinese characteristics, with over half the economy now crashing.
Chinese exports are now plunging at the fastest pace since the covid lockdowns: Exports fell 14.5% on the year, driven by a 21% drop in exports to Europe and a 23% drop to the US.
Meanwhile, imports to China are also falling -- 12.4% on the year -- as shrinking manufacturing buys fewer inputs and households buy less.
In short, foreigners aren’t buying, and the Chinese aren't spending either.
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This is all a problem for Chinese factories because they’re obscenely overbuilt thanks to cheap central bank money and government subsidies. To give a sense, the FT reported that Chinese automakers can produce 40 million cars a year, but the Chinese only buy 20 to 25 million. China’s now actually throttling new car production -- denying production licenses. Even as the US is pouring hundreds of billions into production, that will soon be swept by cut-rate Chinese EV’s.
Manufacturing makes up over 27% of the Chinese economy and has contracted for four straight months now, bringing quarterly GDP growth nationwide to just 0.8%. The economy just officially entered deflation for the first time since the 2008 crisis.
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Meanwhile, China's comically indebted housing industry — also roughly one-quarter of the Chinese economy — is showing new distress, threatening the life savings of millions who could lose it all on empty apartment buildings. Just last week major homebuilder Country Garden, held up by China’s government as the poster-child of prudence and a model for the rest of the industry, missed two bond payments on their total $200 billion in debt, leading to a debt downgrade from the now ubiquitous Moody’s.
Considering this is all coming with youth employment at record highs — above 20% — it could signal political trouble.
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Can China Reverse the Slide? What’s driving the manufacturing pain is largely out of China’s control: Westerners not buying stuff. Korea's exports also fell 17%, while 5 of 7 Asian countries contracted last month. Just about the only country buying is, ironically, Russia. Which, alas, is a tiny market: Mexico with nukes, as the saying goes.
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China can't do much about Americans and Europeans not buying — that's our recessions talking, and it's getting worse in both the US and Europe. Meaning more plunging exports and falling factory prices in China. Eventually, prices fall to the point that factories shutter, the overcapacity dries up, and prices can recover. Of course, at the expense of potentially millions of jobs and millions of freshly unemployed youth.
As for the property boom, it was driven by cheap money — buying an apartment was a no-lose proposition for millions of Chinese who plowed their life savings into empty cities that, apparently, cannot defy gravity forever.
Meaning the main solution — and China’s go-to whenever the economy slows — is to crank out more cheap money by cutting interest rates and handing tens of billions more to homebuilders.
The problem is that China is now swimming in debt — it has $50 trillion in non-financial debt, even higher than the US as a proportion of GDP. This raises fears of a Japan-style deleveraging, leading to potentially years of slow growth. Deflation, of course, makes those debts even bigger. This limits China’s easy options.
The Overhyped China Story China taking over the world has been the story of the decade.
In reality, President Xi's decade-long rule has been terrible for the Chinese economy, replacing China's free market miracle with regulatory crackdowns to hobble any political threats and channel capital to state-dominated industries. The upshot is growth under Xi has been about 5 to 6 percent — a far cry from the miracle days and pretty standard for a poor country.
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Xi’s covid lockdowns have been monumentally destructive, his post-covid recovery has fizzled, and now China is running straight into a global recession. Xi is probably too careful to, say, invade Taiwan to soak up all those unemployed youth. But then, I thought that about Putin, too, and I was wrong.
As for the US and Europe, expect China's manufacturing problems to flood us with cheap goods. Which is great for consumers and should take some of the edge off inflation short-term, at the expense of what’s left of American and European manufacturing.
Originally published at PeterStOnge.com. The article has been edited for the Mises Wire.
It feels like a silly thing to say, but board games are not real life. Playing a few rounds of Operation does not make you a surgeon. Unlike in Battleship, real-world battleships do not sit still on a ten-by-ten grid.
Similarly, Monopoly does not correlate to “free-market capitalism,” despite anticapitalist claims like this tweet with over a million views:
There’s literally a children’s board game that demonstrates that “free-market capitalism” always leads to one person controlling everything.
— Nina Turner (@ninaturner) July 26, 2023
The rhetorical strategy is obvious: anticapitalists want people to associate capitalism with Monopoly, the game that results in extreme wealth inequality as players bankrupt each other through zero-sum exchanges and often ends with family members storming off. Only one real estate tycoon emerges as the winner after gobbling up the other players’ cash and property.
And yet there are many differences between Monopoly and the operation of real-world markets, many of which have already been documented on the Mises Wire. Ben Powell of the Free Market Institute notes that Monopoly lacks many fundamental features of actual economies, like consumer choice and mutually beneficial, voluntary exchange. If anything, the mechanics of Monopoly more closely resemble those of government intervention, central banking, and central planning.
The Monopoly board game is so divorced from real-world markets that I would suggest the similarities are merely superficial. There is a “real-estate wrapper” around the game mechanics that could be easily replaced by a wrapper of a different theme. In fact, I’ve played one game, called Tiny Epic Galaxies, that is like Monopoly but with a sci-fi theme. Instead of acquiring real estate, players explore space and claim planets by landing on them with spaceships. Instead of money, the resources are energy and culture. Instead of going to jail, you can get ejected from a planet you were trying to conquer and sent back to your home galaxy.
Nevertheless, let’s consider Nina Turner’s suggestion that capitalism always leads to one person controlling everything, just as one person wins the Monopoly board game. Do markets tend toward extreme income and wealth inequality?
Inequality is an inherent feature of market economies. People have different skills, different values, different anticipations of future market conditions, and different endowments. These differences mean that there will always be differences between individuals’ income and wealth. Moreover, every single exchange consists of one person parting with money and another gaining the money spent, so perfect equality of income is impossible.
But there are limits to the extent of inequality. Ludwig von Mises emphasized the importance of the Ricardian law of association, which shows that because of individual differences in productivity, everyone has a spot in the division of labor as the efficient (low opportunity cost) producer of something. It’s the most Hallmark card–worthy conclusion in economics: nobody gets left behind.
Another limiting factor for inequality is the fact that capital goods multiply the productivity of labor. The more savings and capital we accumulate, the more productive we become. For example, consider the difference in agricultural productivity with and without tractors. Mass-produced tools and equipment make it possible for workers to produce much more, once they learn how to use them. This increased productivity translates into higher pay.
Finally, well-developed economies, especially in the past few centuries, have produced an abundance of consumer goods. While we are still subject to scarcity, we have so much that we are able to give freely to those in need. Professor Jörg Guido Hülsmann is working on a book that describes this phenomenon. The book, called Abundance, Generosity, and the State, explores how “only the unhampered capitalist economy allows full and unfettered charity to flourish in society.”
What, then, explains the common observation that current economic inequality is excessive? The answer is that government interventions, and especially the persistent monetary inflation from central banks, exacerbate inequality. New money pours into the economy at a particular point, which means that those who are close to the spigot benefit at the expense of those who are on fixed incomes or who must pay higher prices before their incomes rise. This phenomenon is called the Cantillon effect.
Dr. Karl-Friedrich Israel, in his recent Mises University lecture, “Central Banking and Inflation,” outlined four such “channels of redistribution”:
- From the private sector to the public sector (indeed, this is why governments inflate at all)
- From the poor to the wealthy
- From laborers to capitalists
- From the young to the old
Kay to the mechanisms by which wealth is channeled is the fact that asset prices rise because of inflation, which means that those holding assets become the “winners” and those who haven’t accumulated assets “lose” the Cantillon effect game.
If we look at Monopoly, we see a similarly rigged game. The game is structured in a way that tends toward one player dominating the others, and the outcome is based on luck more than any particular skill—especially not the kinds of skills that would make one a successful entrepreneur in a free market.
Banker and financial expert Caitlin Long believes that fractional reserve banking is closer than ever to collapse, and she has a 100 percent reserve banking solution in progress.
Original Article: "Can Fractional Reserve Banking Survive the Twenty-First Century?"
The price of a McDonald’s hamburger in the United States has inflated 3.75 percent annually over the last seventy years. McDonald’s has grown from a tiny hamburger stand in Des Plaines, Illinois, to the second largest fast-food chain on earth. Scale economies alone (never mind process and productivity improvements) should’ve allowed the price of a burger to decline materially over this period.
Why didn’t it? What forces and institutions have conspired to inflate the cost of a simple meal by more than thirteen times over two generations? Many Mises Wire readers know the answer, but few Americans are economically astute enough to understand or describe what Vladimir Lenin called the “surest means of overturning the existing basis of society.”
Simply put, inflation is a giant “skim”—perpetrated in a symbiosis of money creation by bankers and government-affiliated central bank bureaucrats, the two institutions with the power to create money from nothing. Inflation creates a nice, cushy existence for each group. And the bankers and bureaucrats always get their money.
If steady price deflation were operative—as is the case in a properly functioning consumer economy, where productivity improvements flow into lower consumer prices—the world would be quite different today and far more difficult for bankers and bureaucrats.
With steadily falling prices, bankers must do proper credit analysis. They must set aside ample reserves and generally run their institutions more conservatively. Credit analysis is far more difficult in deflation as borrowers must continuously sell more goods to service their loans rather than relying on boosting prices. Secured loans become problematic as pledged assets devalue. Banking generally becomes a lot more work—and more risky. The period of 1865 to 1910 in the United States was a perfect example of this sort of environment. Record bank failures and enormous financial volatility accompanied steady deflation and one of the greatest periods of economic prosperity and innovation in our nation’s history.
In short, deflation creates risks for banks, so banks conspire with the government to create enough money so they don’t have to deal with it. The “balls to the wall” and “heads I win, tails you lose” practices we’ve become familiar with in banking today are both allowed and inspired by the permanent inflationary regime.
The other major inflation conspirator (and greatest beneficiary) is government. Think of inflation as oxygen for politicians and carbon monoxide as a public vote cast to raise taxes. Steady (2 percent, say?) inflation creates a reliable ratcheting effect on every taxpayer in the land, and a nice, smooth, foamed runway for bureaucrats. And should our benevolent leaders decide the inflation/tax runway isn’t wide enough or smooth enough? They simply borrow the difference (i.e., the deficit) and inflate that away too!
Inflation created by central banks allows government to ALWAYS have the money it wants—and be first in line to get it. If deflation were operative—as would be the case in a properly functioning economy where productivity improvements flow into lower prices—government would have to explicitly tax instead of relying on inflation to drive revenue and devalue debt. Politicians’ careers would be much, much shorter.
In summary, there’s a reason deflation rarely (if ever) happens. Inflation makes bankers’ and bureaucrats’ lives easier and keeps them in power. The cost of a simple hamburger would be far lower without ever expansive government and the willful destruction of our money. But it will never happen as long as bankers and bureaucrats work in perfect symbiosis to execute a massive skim on the American people.
The East German secret police, the Stasi, developed the art of mass surveillance using pre-digital methods. Modern tech now makes the job a lot easier.
Original Article: "How East Germany's Stasi Perfected Mass Surveillance"
The most destructive natural disasters are never 100 percent natural. Human choices, land use, and government policies play a big role in how harmful hurricanes, tornadoes, earthquakes, flash floods, and wildfires are to the affected communities.
And after catastrophes like the wildfire that destroyed much of the historic Hawaiian city of Lahaina last week, it’s worth taking stock of how much of the disaster was the result not of natural or accidental factors, but of policies and institutions that can be changed.
Though details are still emerging, it’s becoming clear that government failure did much to make this disaster worse—and possibly even started it. While the so-called experts are blaming climate change—and in the process demanding that government grab even more power and authority ostensibly to someday give us better weather—the destructiveness this fire was the product of an all-powerful and all-incompetent régime.
The specific origins of the fire are still being investigated, but there is much we already know. The city of Lahaina sits on the west coast of Maui, Hawaii’s second-largest island. It is surrounded by grassland, much of which the state owns.
Nearly a decade ago the Hawaii Wildfire Management Organization, a research nonprofit, warned the Hawaiian government that the area around Lahaina was extremely fire-prone due to frequent downslope winds, steep terrain, and dry grass. Little was done to address these risks. A subsequent report in 2020 added that an invasive species of exceptionally flammable grass was prevalent in the surrounding fields and that passing hurricanes created strong winds known to fuel wildfires on the islands.
Early last week, Hurricane Dora crossed the ocean south of Hawaii. By early Tuesday morning, August 8, winds as fast as sixty miles per hour were blowing down the slopes of the West Maui Mountains into Lahaina. Around sunrise, a large fault was detected in the power grid, indicating a downed power line. Twenty minutes later, the first reports of fire came in from the area around Lahainaluna Road, uphill and upwind from the city.
The area where flames were first spotted is full of electrical infrastructure, mostly operated by Hawaiian Electric, the state’s monopoly electricity supplier. This included a substation and a multitude of power lines. Most of the land in the area is owned by the State of Hawaii except for a parcel belonging to the estate of one of Hawaii’s last princesses. This parcel housed a solar farm supplying electricity to the Hawaiian Electric substation. Early last year, NPR published a glowing article about the solar project, praising it the direct result of government regulation crafted to help transition Hawaii to 100 percent renewable power by 2045.
But on the morning of August 8, as winds hammered the old wooden utility poles, this highly electrified area in the dry grasses above Lahaina was quickly becoming dangerous. Yet no formal procedure was in place to shut off sections of the grid in the face of severe fire risks. As a result, twenty-nine fully energized poles fell across West Maui that day.
But even with downed poles in the way, the first firefighters on the scene met with some early success. Around 9 a.m., the county fire department declared the fire “100 percent contained.” But the message to residents included an ominous request. The county’s water pumps were powered by electricity, much of which was frantically being turned off to deactivate the downed lines. Officials asked the public to conserve water to preserve water pressure.
But by midafternoon, a flare-up brought the fire back to life on the Lahaina Bypass, a major road that heads straight into town. The flames moved swiftly into Lahaina at 4:46 p.m., one minute after the county government finally sent out an alert to warn the city’s population, largely without power, about the flare-up that had occurred over an hour before.
To make matters worse, county officials failed to activate emergency sirens, leaving residents unaware of the danger bearing down on them. And as firefighters heroically rushed toward the flames to try and save their community, they found that there was little to no water pressure in the fire hydrants, which quickly ran dry.
With a single backed-up highway leading out of the city, many residents of Lahaina had nowhere to go. Some scrambled into the ocean to escape the smoke and flames. But in the end, many couldn’t get out. At least ninety-nine people have been confirmed dead at this writing, making this the deadliest American wildfire in over a century. In addition, 2,207 buildings were destroyed, with property damages expected to reach $5.5 billion.
To review, a power company shielded from competition by the state placed electrical infrastructure among highly flammable state-owned grass fields above the historic city of Lahaina, which the government was twice warned were highly susceptible to fire. And once a fire broke out, a combination of defective water infrastructure, terrible communication by government officials, and only one escape route doomed the people of Lahaina to the worst wildfire experienced in this country in over a hundred years.
This was government failure through and through. In Human Action, Ludwig von Mises explains that on the market, the ultimate source of profits is foresight—the ability to anticipate future conditions. And economic loss occurs when market actors fail to anticipate the future. This possibility of riches if one succeeds, and the guarantee of painful failures if one doesn’t, forces producers and service providers on the market to constantly weigh risks and opportunities.
Government immunizes itself from the profit and loss system, and therefore from much of the need to weigh risk. Sure, some county officials may resign because of this. And the share price of Hawaiian Electric may dip. But the people of Maui will be forced to keep compensating the very organizations that have failed them. And there’s nothing natural about that disaster.
Study of business cycles must be based upon a satisfactory cycle theory. Gazing at sheaves of statistics without "pre-judgment" is futile. A cycle takes place in the economic world, and therefore a usable cycle theory must be integrated with general economic theory. And yet, remarkably, such integration, even attempted integration, is the exception, not the rule. Economics, in the last two decades, has fissured badly into a host of airtight compartments—each sphere hardly related to the others. Only in the theories of Schumpeter and Mises has cycle theory been integrated into general economics.1
The bulk of cycle specialists, who spurn any systematic integration as impossibly deductive and overly simplified, are thereby (wittingly or unwittingly) rejecting economics itself. For if one may forge a theory of the cycle with little or no relation to general economics, then general economics must be incorrect, failing as it does to account for such a vital economic phenomenon. For institutionalists—the pure data collectors—if not for others, this is a welcome conclusion. Even institutionalists, however, must use theory sometimes, in analysis and recommendation; in fact, they end by using a concoction of ad hoc hunches, insights, etc., plucked unsystematically from various theoretical gardens. Few, if any, economists have realized that the Mises theory of the trade cycle is not just another theory: that, in fact, it meshes closely with a general theory of the economic system.2 The Mises theory is, in fact, the economic analysis of the necessary consequences of intervention in the free market by bank credit expansion. Followers of the Misesian theory have often displayed excessive modesty in pressing its claims; they have widely protested that the theory is "only one of many possible explanations of business cycles," and that each cycle may fit a different causal theory. In this, as in so many other realms, eclecticism is misplaced. Since the Mises theory is the only one that stems from a general economic theory, it is the only one that can provide a correct explanation. Unless we are prepared to abandon general theory, we must reject all proposed explanations that do not mesh with general economics.
Business Cycles and Business Fluctuations It is important, first, to distinguish between business cycles and ordinary business fluctuations. We live necessarily in a society of continual and unending change, change that can never be precisely charted in advance. People try to forecast and anticipate changes as best they can, but such forecasting can never be reduced to an exact science. Entrepreneurs are in the business of forecasting changes on the market, both for conditions of demand and of supply. The more successful ones make profits pari passus with their accuracy of judgment, while the unsuccessful forecasters fall by the wayside. As a result, the successful entrepreneurs on the free market will be the ones most adept at anticipating future business conditions. Yet, the forecasting can never be perfect, and entrepreneurs will continue to differ in the success of their judgments. If this were not so, no profits or losses would ever be made in business.
Changes, then, take place continually in all spheres of the economy. Consumer tastes shift; time preferences and consequent proportions of investment and consumption change; the labor force changes in quantity, quality, and location; natural resources are discovered and others are used up; technological changes alter production possibilities; vagaries of climate alter crops, etc. All these changes are typical features of any economic system. In fact, we could not truly conceive of a changeless society, in which everyone did exactly the same things day after day, and no economic data ever changed. And even if we could conceive of such a society, it is doubtful whether many people would wish to bring it about.
It is, therefore, absurd to expect every business activity to be "stabilized" as if these changes were not taking place. To stabilize and "iron out" these fluctuations would, in effect, eradicate any rational productive activity. To take a simple, hypothetical case, suppose that a community is visited every seven years by the seven-year locust. Every seven years, therefore, many people launch preparations to deal with the locusts: produce anti-locust equipment, hire trained locust specialists, etc. Obviously, every seven years there is a "boom" in the locust-fighting industry, which, happily, is "depressed" the other six years. Would it help or harm matters if everyone decided to "stabilize" the locust-fighting industry by insisting on producing the machinery evenly every year, only to have it rust and become obsolete? Must people be forced to build machines before they want them; or to hire people before they are needed; or, conversely, to delay building machines they want—all in the name of "stabilization"? If people desire more autos and fewer houses than formerly, should they be forced to keep buying houses and be prevented from buying the autos, all for the sake of stabilization? As Dr. F.A. Harper has stated:
This sort of business fluctuation runs all through our daily lives. There is a violent fluctuation, for instance, in the harvest of strawberries at different times during the year. Should we grow enough strawberries in greenhouses so as to stabilize that part of our economy throughout the year.3
We may, therefore, expect specific business fluctuations all the time. There is no need for any special "cycle theory" to account for them. They are simply the results of changes in economic data and are fully explained by economic theory. Many economists, however, attribute general business depression to "weaknesses" caused by a "depression in building" or a "farm depression." But declines in specific industries can never ignite a general depression. Shifts in data will cause increases in activity in one field, declines in another. There is nothing here to account for a general business depression—a phenomenon of the true "business cycle." Suppose, for example, that a shift in consumer tastes, and technologies, causes a shift in demand from farm products to other goods. It is pointless to say, as many people do, that a farm depression will ignite a general depression, because farmers will buy less goods, the people in industries selling to farmers will buy less, etc. This ignores the fact that people producing the other goods now favored by consumers will prosper; their demands will increase.
The problem of the business cycle is one of general boom and depression; it is not a problem of exploring specific industries and wondering what factors make each one of them relatively prosperous or depressed. Some economists—such as Warren and Pearson or Dewey and Dakin—have believed that there are no such things as general business fluctuations—that general movements are but the results of different cycles that take place, at different specific time-lengths, in the various economic activities. To the extent that such varying cycles (such as the 20-year "building cycle" or the seven-year locust cycle) may exist, however, they are irrelevant to a study of business cycles in general or to business depressions in particular. What we are trying to explain are general booms and busts in business.
In considering general movements in business, then, it is immediately evident that such movements must be transmitted through the general medium of exchange—money. Money forges the connecting link between all economic activities. If one price goes up and another down, we may conclude that demand has shifted from one industry to another; but if all prices move up or down together, some change must have occurred in the monetary sphere. Only changes in the demand for, and/or the supply of, money will cause general price changes. An increase in the supply of money, the demand for money remaining the same, will cause a fall in the purchasing power of each dollar, i.e., a general rise in prices; conversely, a drop in the money supply will cause a general decline in prices. On the other hand, an increase in the general demand for money, the supply remaining given, will bring about a rise in the purchasing power of the dollar (a general fall in prices); while a fall in demand will lead to a general rise in prices. Changes in prices in general, then, are determined by changes in the supply of and demand for money. The supply of money consists of the stock of money existing in the society. The demand for money is, in the final analysis, the willingness of people to hold cash balances, and this can be expressed as eagerness to acquire money in exchange, and as eagerness to retain money in cash balance. The supply of goods in the economy is one component in the social demand for money; an increased supply of goods will, other things being equal, increase the demand for money and therefore tend to lower prices. Demand for money will tend to be lower when the purchasing power of the money-unit is higher, for then each dollar is more effective in cash balance. Conversely, a lower purchasing power (higher prices) means that each dollar is less effective, and more dollars will be needed to carry on the same work.
The purchasing power of the dollar, then, will remain constant when the stock of, and demand for, money are in equilibrium with each other: i.e., when people are willing to hold in their cash balances the exact amount of money in existence. If the demand for money exceeds the stock, the purchasing power of money will rise until the demand is no longer excessive and the market is cleared; conversely, a demand lower than supply will lower the purchasing power of the dollar, i.e., raise prices.
Yet, fluctuations in general business, in the "money relation," do not by themselves provide the clue to the mysterious business cycle. It is true that any cycle in general business must be transmitted through this money relation: the relation between the stock of, and the demand for, money. But these changes in themselves explain little. If the money supply increases or demand falls, for example, prices will rise; but why should this generate a "business cycle"? Specifically, why should it bring about a depression? The early business cycle theorists were correct in focusing their attention on the crisis and depression: for these are the phases that puzzle and shock economists and laymen alike, and these are the phases that most need to be explained.
The Problem: The Cluster of Error The explanation of depressions, then, will not be found by referring to specific or even general business fluctuations per se. The main problem that a theory of depression must explain is: why is there a sudden general cluster of business errors? This is the first question for any cycle theory. Business activity moves along nicely with most business firms making handsome profits. Suddenly, without warning, conditions change and the bulk of business firms are experiencing losses; they are suddenly revealed to have made grievous errors in forecasting.
A general review of entrepreneurship is now in order. Entrepreneurs are largely in the business of forecasting. They must invest and pay costs in the present, in the expectation of recouping a profit by sale either to consumers or to other entrepreneurs further down in the economy's structure of production. The better entrepreneurs, with better judgment in forecasting consumer or other producer demands, make profits; the inefficient entrepreneurs suffer losses. The market, therefore, provides a training ground for the reward and expansion of successful, far-sighted entrepreneurs and the weeding out of inefficient businessmen. As a rule only some businessmen suffer losses at any one time; the bulk either break even or earn profits. How, then, do we explain the curious phenomenon of the crisis when almost all entrepreneurs suffer sudden losses? In short, how did all the country's astute businessmen come to make such errors together, and why were they all suddenly revealed at this particular time? This is the great problem of cycle theory.
It is not legitimate to reply that sudden changes in the data are responsible. It is, after all, the business of entrepreneurs to forecast future changes, some of which are sudden. Why did their forecasts fail so abysmally?
Another common feature of the business cycle also calls for an explanation. It is the well-known fact that capital-goods industries fluctuate more widely than do the consumer-goods industries. The capital-goods industries—especially the industries supplying raw materials, construction, and equipment to other industries—expand much further in the boom, and are hit far more severely in the depression.
A third feature of every boom that needs explaining is the increase in the quantity of money in the economy. Conversely, there is generally, though not universally, a fall in the money supply during the depression.
The Explanation: Boom and Depression In the purely free and unhampered market, there will be no cluster of errors, since trained entrepreneurs will not all make errors at the same time.4 The "boom-bust" cycle is generated by monetary intervention in the market, specifically bank credit expansion to business. Let us suppose an economy with a given supply of money. Some of the money is spent in consumption; the rest is saved and invested in a mighty structure of capital, in various orders of production. The proportion of consumption to saving or investment is determined by people's time preferences—the degree to which they prefer present to future satisfactions. The less they prefer them in the present, the lower will their time preference rate be, and the lower therefore will be the pure interest rate, which is determined by the time preferences of the individuals in society. A lower time-preference rate will be reflected in greater proportions of investment to consumption, a lengthening of the structure of production, and a building-up of capital. Higher time preferences, on the other hand, will be reflected in higher pure interest rates and a lower proportion of investment to consumption. The final market rates of interest reflect the pure interest rate plus or minus entrepreneurial risk and purchasing power components. Varying degrees of entrepreneurial risk bring about a structure of interest rates instead of a single uniform one, and purchasing-power components reflect changes in the purchasing power of the dollar, as well as in the specific position of an entrepreneur in relation to price changes. The crucial factor, however, is the pure interest rate. This interest rate first manifests itself in the "natural rate" or what is generally called the going "rate of profit." This going rate is reflected in the interest rate on the loan market, a rate which is determined by the going profit rate.5
Now what happens when banks print new money (whether as bank notes or bank deposits) and lend it to business?6 The new money pours forth on the loan market and lowers the loan rate of interest. It looks as if the supply of saved funds for investment has increased, for the effect is the same: the supply of funds for investment apparently increases, and the interest rate is lowered. Businessmen, in short, are misled by the bank inflation into believing that the supply of saved funds is greater than it really is. Now, when saved funds increase, businessmen invest in "longer processes of production," i.e., the capital structure is lengthened, especially in the "higher orders" most remote from the consumer. Businessmen take their newly acquired funds and bid up the prices of capital and other producers' goods, and this stimulates a shift of investment from the "lower" (near the consumer) to the "higher" orders of production (furthest from the consumer)—from consumer goods to capital goods industries.7
If this were the effect of a genuine fall in time preferences and an increase in saving, all would be well and good, and the new lengthened structure of production could be indefinitely sustained. But this shift is the product of bank credit expansion. Soon the new money percolates downward from the business borrowers to the factors of production: in wages, rents, interest. Now, unless time preferences have changed, and there is no reason to think that they have, people will rush to spend the higher incomes in the old consumption-investment proportions. In short, people will rush to reestablish the old proportions, and demand will shift back from the higher to the lower orders. Capital goods industries will find that their investments have been in error: that what they thought profitable really fails for lack of demand by their entrepreneurial customers. Higher orders of production have turned out to be wasteful, and the malinvestment must be liquidated.
A favorite explanation of the crisis is that it stems from "underconsumption"—from a failure of consumer demand for goods at prices that could be profitable. But this runs contrary to the commonly known fact that it is capital goods, and not consumer goods, industries that really suffer in a depression. The failure is one of entrepreneurial demand for the higher order goods, and this in turn is caused by the shift of demand back to the old proportions.
In sum, businessmen were misled by bank credit inflation to invest too much in higher-order capital goods, which could only be prosperously sustained through lower time preferences and greater savings and investment; as soon as the inflation permeates to the mass of the people, the old consumption-investment proportion is reestablished, and business investments in the higher orders are seen to have been wasteful.8 Businessmen were led to this error by the credit expansion and its tampering with the free-market rate of interest.
The "boom," then, is actually a period of wasteful misinvestment. It is the time when errors are made, due to bank credit's tampering with the free market. The "crisis" arrives when the consumers come to reestablish their desired proportions. The "depression" is actually the process by which the economy adjusts to the wastes and errors of the boom, and reestablishes efficient service of consumer desires. The adjustment process consists in rapid liquidation of the wasteful investments. Some of these will be abandoned altogether (like the Western ghost towns constructed in the boom of 1816-1818 and deserted during the Panic of 1819); others will be shifted to other uses. Always the principle will be not to mourn past errors, but to make most efficient use of the existing stock of capital. In sum, the free market tends to satisfy voluntarily-expressed consumer desires with maximum efficiency, and this includes the public's relative desires for present and future consumption. The inflationary boom hobbles this efficiency, and distorts the structure of production, which no longer serves consumers properly. The crisis signals the end of this inflationary distortion, and the depression is the process by which the economy returns to the efficient service of consumers. In short, and this is a highly important point to grasp, the depression is the "recovery" process, and the end of the depression heralds the return to normal, and to optimum efficiency. The depression, then, far from being an evil scourge, is the necessary and beneficial return of the economy to normal after the distortions imposed by the boom. The boom, then, requires a "bust."
Since it clearly takes very little time for the new money to filter down from business to factors of production, why don't all booms come quickly to an end? The reason is that the banks come to the rescue. Seeing factors bid away from them by consumer goods industries, finding their costs rising and themselves short of funds, the borrowing firms turn once again to the banks. If the banks expand credit further, they can again keep the borrowers afloat. The new money again pours into business, and they can again bid factors away from the consumer goods industries. In short, continually expanded bank credit can keep the borrowers one step ahead of consumer retribution. For this, we have seen, is what the crisis and depression are: the restoration by consumers of an efficient economy, and the ending of the distortions of the boom. Clearly, the greater the credit expansion and the longer it lasts, the longer will the boom last. The boom will end when bank credit expansion finally stops. Evidently, the longer the boom goes on the more wasteful the errors committed, and the longer and more severe will be the necessary depression readjustment.
Thus, bank credit expansion sets into motion the business cycle in all its phases: the inflationary boom, marked by expansion of the money supply and by malinvestment; the crisis, which arrives when credit expansion ceases and malinvestments become evident; and the depression recovery, the necessary adjustment process by which the economy returns to the most efficient ways of satisfying consumer desires.9
What, specifically, are the essential features of the depression-recovery phase? Wasteful projects, as we have said, must either be abandoned or used as best they can be. Inefficient firms, buoyed up by the artificial boom, must be liquidated or have their debts scaled down or be turned over to their creditors. Prices of producers' goods must fall, particularly in the higher orders of production—this includes capital goods, lands, and wage rates. Just as the boom was marked by a fall in the rate of interest, i.e., of price differentials between stages of production (the "natural rate" or going rate of profit) as well as the loan rate, so the depression-recovery consists of a rise in this interest differential. In practice, this means a fall in the prices of the higher-order goods relative to prices in the consumer goods industries. Not only prices of particular machines must fall, but also the prices of whole aggregates of capital, e.g., stock market and real estate values. In fact, these values must fall more than the earnings from the assets, through reflecting the general rise in the rate of interest return.
Since factors must shift from the higher to the lower orders of production, there is inevitable "frictional" unemployment in a depression, but it need not be greater than unemployment attending any other large shift in production. In practice, unemployment will be aggravated by the numerous bankruptcies, and the large errors revealed, but it still need only be temporary. The speedier the adjustment, the more fleeting will the unemployment be. Unemployment will progress beyond the "frictional" stage and become really severe and lasting only if wage rates are kept artificially high and are prevented from falling. If wage rates are kept above the free-market level that clears the demand for and supply of labor, laborers will remain permanently unemployed. The greater the degree of discrepancy, the more severe will the unemployment be.
Secondary Features of Depression: Deflationary Credit Contraction The above are the essential features of a depression. Other secondary features may also develop. There is no need, for example, for deflation (lowering of the money supply) during a depression. The depression phase begins with the end of inflation, and can proceed without any further changes from the side of money. Deflation has almost always set in, however. In the first place, the inflation took place as an expansion of bank credit; now, the financial difficulties and bankruptcies among borrowers cause banks to pull in their horns and contract credit.10 Under the gold standard, banks have another reason for contracting credit—if they had ended inflation because of a gold drain to foreign countries. The threat of this drain forces them to contract their outstanding loans. Furthermore the rash of business failures may cause questions to be raised about the banks; and banks, being inherently bankrupt anyway, can ill afford such questions.11 Hence, the money supply will contract because of actual bank runs, and because banks will tighten their position in fear of such runs.
Another common secondary feature of depressions is an increase in the demand for money. This "scramble for liquidity" is the result of several factors: (1) people expect falling prices, due to the depression and deflation, and will therefore hold more money and spend less on goods, awaiting the price fall; (2) borrowers will try to pay off their debts, now being called by banks and by business creditors, by liquidating other assets in exchange for money; (3) the rash of business losses and bankruptcies makes businessmen cautious about investing until the liquidation process is over.
With the supply of money falling, and the demand for money increasing, generally falling prices are a consequent feature of most depressions. A general price fall, however, is caused by the secondary, rather than by the inherent, features of depressions. Almost all economists, even those who see that the depression adjustment process should be permitted to function unhampered, take a very gloomy view of the secondary deflation and price fall, and assert that they unnecessarily aggravate the severity of depressions. This view, however, is incorrect. These processes not only do not aggravate the depression, they have positively beneficial effects.
There is, for example, no warrant whatever for the common hostility toward "hoarding." There is no criterion, first of all, to define "hoarding"; the charge inevitably boils down to mean that A thinks that B is keeping more cash balances than A deems appropriate for B. Certainly there is no objective criterion to decide when an increase in cash balance becomes a "hoard." Second, we have seen that the demand for money increases as a result of certain needs and values of the people; in a depression, fears of business liquidation and expectations of price declines particularly spur this rise. By what standards can these valuations be called "illegitimate"? A general price fall is the way that an increase in the demand for money can be satisfied; for lower prices mean that the same total cash balances have greater effectiveness, greater "real" command over goods and services. In short, the desire for increased real cash balances has now been satisfied.
Furthermore, the demand for money will decline again as soon as the liquidation and adjustment processes are finished. For the completion of liquidation removes the uncertainties of impending bankruptcy and ends the borrowers' scramble for cash. A rapid unhampered fall in prices, both in general (adjusting to the changed money-relation), and particularly in goods of higher orders (adjusting to the malinvestments of the boom) will speedily end the realignment processes and remove expectations of further declines. Thus, the sooner the various adjustments, primary and secondary, are carried out, the sooner will the demand for money fall once again. This, of course, is just one part of the general economic "return to normal."
Neither does the increased "hoarding" nor the fall of prices at all interfere with the primary depression-adjustment. The important feature of the primary adjustment is that the prices of producers' goods fall more rapidly than do consumer good prices (or, more accurately, that higher order prices fall more rapidly than do those of lower order goods); it does not interfere with the primary adjustment if all prices are falling to some degree. It is, moreover, a common myth among laymen and economists alike, that falling prices have a depressing effect on business. This is not necessarily true. What matters for business is not the general behavior of prices, but the price differentials between selling prices and costs (the "natural rate of interest"). If wage rates, for example, fall more rapidly than product prices, this stimulates business activity and employment.
Deflation of the money supply (via credit contraction) has fared as badly as hoarding in the eyes of economists. Even the Misesian theorists deplore deflation and have seen no benefits accruing from it.12 Yet, deflationary credit contraction greatly helps to speed up the adjustment process, and hence the completion of business recovery, in ways as yet unrecognized. The adjustment consists, as we know, of a return to the desired consumption-saving pattern. Less adjustment is needed, however, if time preferences themselves change: i.e., if savings increase and consumption relatively declines. In short, what can help a depression is not more consumption, but, on the contrary, less consumption and more savings (and, concomitantly, more investment). Falling prices encourage greater savings and decreased consumption by fostering an accounting illusion. Business accounting records the value of assets at their original cost. It is well known that general price increases distort the accounting-record: what seems to be a large "profit" may only be just sufficient to replace the now higher-priced assets. During an inflation, therefore, business "profits" are greatly overstated, and consumption is greater than it would be if the accounting illusion were not operating—perhaps capital is even consumed without the individual's knowledge. In a time of deflation, the accounting illusion is reversed: what seem like losses and capital consumption, may actually mean profits for the firm, since assets now cost much less to be replaced. This overstatement of losses, however, restricts consumption and encourages saving; a man may merely think he is replacing capital, when he is actually making an added investment in the business.
Credit contraction will have another beneficial effect in promoting recovery. For bank credit expansion, we have seen, distorts the free market by lowering price differentials (the "natural rate of interest" or going rate of profit) on the market. Credit contraction, on the other hand, distorts the free market in the reverse direction. Deflationary credit contraction's first effect is to lower the money supply in the hands of business, particularly in the higher stages of production. This reduces the demand for factors in the higher stages, lowers factor prices and incomes, and increases price differentials and the interest rate. It spurs the shift of factors, in short, from the higher to the lower stages. But this means that credit contraction, when it follows upon credit expansion, speeds the market's adjustment process. Credit contraction returns the economy to free-market proportions much sooner than otherwise.
But, it may be objected, may not credit contraction overcompensate the errors of the boom and itself cause distortions that need correction? It is true that credit contraction may overcompensate, and, while contraction proceeds, it may cause interest rates to be higher than free-market levels, and investment lower than in the free market. But since contraction causes no positive mal-investments, it will not lead to any painful period of depression and adjustment. If businessmen are misled into thinking that less capital is available for investment than is really the case, no lasting damage in the form of wasted investments will ensue.13 Furthermore, in the nature of things, credit contraction is severely limited—it cannot progress beyond the extent of the preceding inflation.14 Credit expansion faces no such limit.
Government Depression Policy: Laissez-Faire If government wishes to see a depression ended as quickly as possible, and the economy returned to normal prosperity, what course should it adopt? The first and clearest injunction is: don't interfere with the market's adjustment process. The more the government intervenes to delay the market's adjustment, the longer and more grueling the depression will be, and the more difficult will be the road to complete recovery. Government hampering aggravates and perpetuates the depression. Yet, government depression policy has always (and would have even more today) aggravated the very evils it has loudly tried to cure. If, in fact, we list logically the various ways that government could hamper market adjustment, we will find that we have precisely listed the favorite "anti-depression" arsenal of government policy. Thus, here are the ways the adjustment process can be hobbled:
- Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.
- Inflate further. Further inflation blocks the necessary fall in prices, thus delaying adjustment and prolonging depression. Further credit expansion creates more malinvestments, which, in their turn, will have to be liquidated in some later depression. A government "easy money" policy prevents the market's return to the necessary higher interest rates.
- Keep wage rates up. Artificial maintenance of wage rates in a depression insures permanent mass unemployment. Furthermore, in a deflation, when prices are falling, keeping the same rate of money wages means that real wage rates have been pushed higher. In the face of falling business demand, this greatly aggravates the unemployment problem.
- Keep prices up. Keeping prices above their free-market levels will create unsalable surpluses, and prevent a return to prosperity.
- Stimulate consumption and discourage saving. We have seen that more saving and less consumption would speed recovery; more consumption and less saving aggravate the shortage of saved-capital even further. Government can encourage consumption by "food stamp plans" and relief payments. It can discourage savings and investment by higher taxes, particularly on the wealthy and on corporations and estates. As a matter of fact, any increase of taxes and government spending will discourage saving and investment and stimulate consumption, since government spending is all consumption. Some of the private funds would have been saved and invested; all of the government funds are consumed.15 Any increase in the relative size of government in the economy, therefore, shifts the societal consumption-investment ratio in favor of consumption, and prolongs the depression.
- Subsidize unemployment. Any subsidization of unemployment (via unemployment "insurance," relief, etc.) will prolong unemployment indefinitely, and delay the shift of workers to the fields where jobs are available.
These, then, are the measures which will delay the recovery process and aggravate the depression. Yet, they are the time-honored favorites of government policy, and, as we shall see, they were the policies adopted in the 1929-1933 depression, by a government known to many historians as a "laissez-faire" administration.
Since deflation also speeds recovery, the government should encourage, rather than interfere with, a credit contraction. In a gold-standard economy, such as we had in 1929, blocking deflation has further unfortunate consequences. For a deflation increases the reserve ratios of the banking system, and generates more confidence in citizen and foreigner alike that the gold standard will be retained. Fear for the gold standard will precipitate the very bank runs that the government is anxious to avoid. There are other values in deflation, even in bank runs, which should not be overlooked. Banks should no more be exempt from paying their obligations than is any other business. Any interference with their comeuppance via bank runs will establish banks as a specially privileged group, not obligated to pay their debts, and will lead to later inflations, credit expansions, and depressions. And if, as we contend, banks are inherently bankrupt and "runs" simply reveal that bankruptcy, it is beneficial for the economy for the banking system to be reformed, once and for all, by a thorough purge of the fractional-reserve banking system. Such a purge would bring home forcefully to the public the dangers of fractional-reserve banking, and, more than any academic theorizing, insure against such banking evils in the future.16
The most important canon of sound government policy in a depression, then, is to keep itself from interfering in the adjustment process. Can it do anything more positive to aid the adjustment? Some economists have advocated a government-decreed wage cut to spur employment, e.g., a 10 percent across-the-board reduction. But free-market adjustment is the reverse of any "across-the-board" policy. Not all wages need to be cut; the degree of required adjustments of prices and wages differs from case to case, and can only be determined on the processes of the free and unhampered market.17 Government intervention can only distort the market further.
There is one thing the government can do positively, however: it can drastically lower its relative role in the economy, slashing its own expenditures and taxes, particularly taxes that interfere with saving and investment. Reducing its tax-spending level will automatically shift the societal saving-investment-consumption ratio in favor of saving and investment, thus greatly lowering the time required for returning to a prosperous economy.18 Reducing taxes that bear most heavily on savings and investment will further lower social time preferences.19 Furthermore, depression is a time of economic strain. Any reduction of taxes, or of any regulations interfering with the free market, will stimulate healthy economic activity; any increase in taxes or other intervention will depress the economy further.
In sum, the proper governmental policy in a depression is strict laissez-faire, including stringent budget slashing, and coupled perhaps with positive encouragement for credit contraction. For decades such a program has been labeled "ignorant," "reactionary," or "Neanderthal" by conventional economists. On the contrary, it is the policy clearly dictated by economic science to those who wish to end the depression as quickly and as cleanly as possible.20
It might be objected that depression only began when credit expansion ceased. Why shouldn't the government continue credit expansion indefinitely? In the first place, the longer the inflationary boom continues, the more painful and severe will be the necessary adjustment process, Second, the boom cannot continue indefinitely, because eventually the public awakens to the governmental policy of permanent inflation, and flees from money into goods, making its purchases while the dollar is worth more than it will be in future. The result will be a "runaway" or hyperinflation, so familiar to history, and particularly to the modern world.21 Hyperinflation, on any count, is far worse than any depression: it destroys the currency—the lifeblood of the economy; it ruins and shatters the middle class and all "fixed income groups"; it wreaks havoc unbounded. And furthermore, it leads finally to unemployment and lower living standards, since there is little point in working when earned income depreciates by the hour. More time is spent hunting goods to buy. To avoid such a calamity, then, credit expansion must stop sometime, and this will bring a depression into being.
Preventing Depressions Preventing a depression is clearly better than having to suffer it. If the government's proper policy during a depression is laissez-faire, what should it do to prevent a depression from beginning? Obviously, since credit expansion necessarily sows the seeds of later depression, the proper course for the government is to stop any inflationary credit expansion from getting under way. This is not a very difficult injunction, for government's most important task is to keep itself from generating inflation. For government is an inherently inflationary institution, and consequently has almost always triggered, encouraged, and directed the inflationary boom. Government is inherently inflationary because it has, over the centuries, acquired control over the monetary system. Having the power to print money (including the "printing" of bank deposits) gives it the power to tap a ready source of revenue. Inflation is a form of taxation, since the government can create new money out of thin air and use it to bid away resources from private individuals, who are barred by heavy penalty from similar "counterfeiting." Inflation therefore makes a pleasant substitute for taxation for the government officials and their favored groups, and it is a subtle substitute which the general public can easily—and can be encouraged to—overlook. The government can also pin the blame for the rising prices, which are the inevitable consequence of inflation, upon the general public or some disliked segments of the public, e.g., business, speculators, foreigners. Only the unlikely adoption of sound economic doctrine could lead the public to pin the responsibility where it belongs: on the government itself.
Private banks, it is true, can themselves inflate the money supply by issuing more claims to standard money (whether gold or government paper) than they could possibly redeem. A bank deposit is equivalent to a warehouse receipt for cash, a receipt which the bank pledges to redeem at any time the customer wishes to take his money out of the bank's vaults. The whole system of "fractional-reserve banking" involves the issuance of receipts which cannot possibly be redeemed. But Mises has shown that, by themselves, private banks could not inflate the money supply by a great deal.22 In the first place, each bank would find its newly issued uncovered, or "pseudo," receipts (uncovered by cash) soon transferred to the clients of other banks, who would call on the bank for redemption. The narrower the clientele of each bank, then, the less scope for its issue of pseudo-receipts. All the banks could join together and agree to expand at the same rate, but such agreement would be difficult to achieve. Second, the banks would be limited by the degree to which the public used bank deposits or notes as against standard cash; and third, they would be limited by the confidence of the clients in their banks, which could be wrecked by runs at any time.
Instead of preventing inflation by prohibiting fractional-reserve banking as fraudulent, governments have uniformly moved in the opposite direction, and have step-by-step removed these free-market checks to bank credit expansion, at the same time putting themselves in a position to direct the inflation. In various ways, they have artificially bolstered public confidence in the banks, encouraged public use of paper and deposits instead of gold (finally outlawing gold), and shepherded all the banks under one roof so that they can all expand together. The main device for accomplishing these aims has been Central Banking, an institution which America finally acquired as the Federal Reserve System in 1913. Central Banking permitted the centralization and absorption of gold into government vaults, greatly enlarging the national base for credit expansion:23 it also insured uniform action by the banks through basing their reserves on deposit accounts at the Central Bank instead of on gold. Upon establishment of a Central Bank, each private bank no longer gauges its policy according to its particular gold reserve; all banks are now tied together and regulated by Central Bank action. The Central Bank, furthermore, by proclaiming its function to be a "lender of last resort" to banks in trouble, enormously increases public confidence in the banking system. For it is tacitly assumed by everyone that the government would never permit its own organ—the Central Bank—to fail. A Central Bank, even when on the gold standard, has little need to worry about demands for gold from its own citizens. Only possible drains of gold to foreign countries (i.e., by non-clients of the Central Bank) may cause worry.
The government assured Federal Reserve control over the banks by (1) granting to the Federal Reserve System (FRS) a monopoly over note issue; (2) compelling all the existing "national banks" to join the Federal Reserve System, and to keep all their legal reserves as deposits at the Federal Reserve24; and (3) fixing the minimum reserve ratio of deposits at the Reserve to bank deposits (money owned by the public). The establishment of the FRS was furthermore inflationary in directly reducing existing reserve-ratio requirements.25 The Reserve could then control the volume of money by governing two things: the volume of bank reserves, and the legal reserve requirements. The Reserve can govern the volume of bank reserves (in ways which will be explained below), and the government sets the legal ratio, but admittedly control over the money supply is not perfect, as banks can keep "excess reserves." Normally, however, reassured by the existence of a lender of last resort, and making profits by maximizing its assets and deposits, a bank will keep fully "loaned up" to its legal ratio.
While unregulated private banking would be checked within narrow limits and would be far less inflationary than Central Bank manipulation,26 the clearest way of preventing inflation is to outlaw fractional-reserve banking, and to impose a 100 percent gold reserve to all notes and deposits. Bank cartels, for example, are not very likely under unregulated, or "free" banking, but they could nevertheless occur. Professor Mises, while recognizing the superior economic merits of 100 percent gold money to free banking, prefers the latter because 100 percent reserves would concede to the government control over banking, and government could easily change these requirements to conform to its inflationist bias.27 But a 100 percent gold reserve requirement would not be just another administrative control by government; it would be part and parcel of the general libertarian legal prohibition against fraud. Everyone except absolute pacifists concedes that violence against person and property should be outlawed, and that agencies, operating under this general law, should defend person and property against attack. Libertarians, advocates of laissez-faire, believe that "governments" should confine themselves to being defense agencies only. Fraud is equivalent to theft, for fraud is committed when one part of an exchange contract is deliberately not fulfilled after the other's property has been taken. Banks that issue receipts to non-existent gold are really committing fraud, because it is then impossible for all property owners (of claims to gold) to claim their rightful property. Therefore, prohibition of such practices would not be an act of government intervention in the free market; it would be part of the general legal defense of property against attack which a free market requires.28, 29
What, then, was the proper government policy during the 1920s? What should government have done to prevent the crash? Its best policy would have been to liquidate the Federal Reserve System, and to erect a 100 percent gold reserve money; failing that, it should have liquidated the FRS and left private banks unregulated, but subject to prompt, rigorous bankruptcy upon failure to redeem their notes and deposits. Failing these drastic measures, and given the existence of the Federal Reserve System, what should its policy have been? The government should have exercised full vigilance in not supporting or permitting any inflationary credit expansion. We have seen that the Fed—the Federal Reserve System—does not have complete control over money because it cannot force banks to lend up to their reserves; but it does have absolute anti-inflationary control over the banking system. For it does have the power to reduce bank reserves at will, and thereby force the banks to cease inflating, or even to contract if necessary. By lowering the volume of bank reserves and/or raising reserve requirements, the federal government, in the 1920s as well as today, has had the absolute power to prevent any increase in the total volume of money and credit. It is true that the FRS has no direct control over such money creators as savings banks, savings and loan associations, and life insurance companies, but any credit expansion from these sources could be offset by deflationary pressure upon the commercial banks. This is especially true because commercial bank deposits (1) form the monetary base for the credit extended by the other financial institutions, and (2) are the most actively circulating part of the money supply. Given the Federal Reserve System and its absolute power over the nation's money, the federal government, since 1913, must bear the complete responsibility for any inflation. The banks cannot inflate on their own; any credit expansion can only take place with the support and acquiescence of the federal government and its Federal Reserve authorities. The banks are virtual pawns of the government, and have been since 1913. Any guilt for credit expansion and the consequent depression must be borne by the federal government and by it alone.30
This excerpt is taken from the first chapters of Murray Rothbard's .America's Great Depression, published in 1963.
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- Various neo-Keynesians have advanced cycle theories. They are integrated, however, not with general economic theory, but with holistic Keynesian systems—systems which are very partial indeed.
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- There is, for example, not a hint of such knowledge in Haberler's well-known discussion. See Gottfried Haberler, Prosperity and Depression (2nd ed., Geneva, Switzerland: League of Nations, 1939).
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- F.A. Harper, Why Wages Rise (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1957), pp. 118–19.
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- Siegfried Budge, Grundzüge der Theoretische Nationalökonomie (Jena, 1925), quoted in Simon S. Kuznets, "Monetary Business Cycle Theory in Germany," Journal of Political Economy (April, 1930): 127–28.
"Under conditions of free competition . . . the market is . . . dependent upon supply and demand . . . there could [not] develop a disproportionality in the production of goods, which could draw in the whole economic system . . . such a disproportionality can arise only when, at some decisive point, the price structure does not base itself upon the play of only free competition, so that some arbitrary influence becomes possible."
Kuznets himself criticizes the Austrian theory from his empiricist, anti-cause and effect-standpoint, and also erroneously considers this theory to be "static."
- Siegfried Budge, Grundzüge der Theoretische Nationalökonomie (Jena, 1925), quoted in Simon S. Kuznets, "Monetary Business Cycle Theory in Germany," Journal of Political Economy (April, 1930): 127–28.
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- This is the "pure time preference theory" of the rate of interest; it can be found in Ludwig von Mises, Human Action (New Haven, Conn.: Yale University Press, 1949); in Frank A. Fetter, Economic Principles (New York: Century, 1915), and idem, "Interest Theories Old and New," American Economic Review (March, 1914): 68–92.
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- "Banks," for many purposes, include also savings and loan associations, and life insurance companies, both of which create new money via credit expansion to business. See below for further discussion of the money and banking question.
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- On the structure of production, and its relation to investment and bank credit, see F.A. Hayek, Prices and Production (2nd ed., London: Routledge and Kegan Paul, 1935); Mises, Human Action; and Eugen von Böhm-Bawerk, "Positive Theory of Capital," in Capital and Interest (South Holland, Ill.: Libertarian Press, 1959), vol. 2.
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- "Inflation" is here defined as an increase in the money supply not consisting of an increase in the money metal.
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- This "Austrian" cycle theory settles the ancient economic controversy on whether or not changes in the quantity of money can affect the rate of interest. It supports the "modern" doctrine that an increase in the quantity of money lowers the rate of interest (if it first enters the loan market); on the other hand, it supports the classical view that, in the long run, quantity of money does not affect the interest rate (or can only do so if time preferences change). In fact, the depression-readjustment is the market's return to the desired free-market rate of interest.
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- It is often maintained that since business firms can find few profitable opportunities in a depression, business demand for loans falls off, and hence loans and money supply will contract. But this argument overlooks the fact that the banks, if they want to, can purchase securities, and thereby sustain the money supply by increasing their investments to compensate for dwindling loans. Contractionist pressure therefore always stems from banks and not from business borrowers.
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- Banks are "inherently bankrupt" because they issue far more warehouse receipts to cash (nowadays in the form of "deposits" redeemable in cash on demand) than they have cash available. Hence, they are always vulnerable to bank runs. These runs are not like any other business failures, because they simply consist of depositors claiming their own rightful property, which the banks do not have. "Inherent bankruptcy," then, is an essential feature of any "fractional reserve" banking system. As Frank Graham stated:
"The attempt of the banks to realize the inconsistent aims of lending cash, or merely multiplied claims to cash, and still to represent that cash is available on demand is even more preposterous than . . . eating one's cake and counting on it for future consumption. . . . The alleged convertibility is a delusion dependent upon the right's not being unduly exercised."
Frank D. Graham, "Partial Reserve Money and the 100% Proposal," American Economic Review (September, 1936): 436.
- Banks are "inherently bankrupt" because they issue far more warehouse receipts to cash (nowadays in the form of "deposits" redeemable in cash on demand) than they have cash available. Hence, they are always vulnerable to bank runs. These runs are not like any other business failures, because they simply consist of depositors claiming their own rightful property, which the banks do not have. "Inherent bankruptcy," then, is an essential feature of any "fractional reserve" banking system. As Frank Graham stated:
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- In a gold standard country (such as America during the 1929 depression), Austrian economists accepted credit contraction as a perhaps necessary price to pay for remaining on gold. But few saw any remedial virtues in the deflation process itself.
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- Some readers may ask: why doesn't credit contraction lead to malinvestment, by causing overinvestment in lower-order goods and underinvestment in higher-order goods, thus reversing the consequences of credit expansion? The answer stems from the Austrian analysis of the structure of production. There is no arbitrary choice of investing in lower or higher-order goods. Any increased investment must be made in the higher-order goods, must lengthen the structure of production. A decreased amount of investment in the economy simply reduces higher-order capital. Thus, credit contraction will cause not excess of investment in the lower orders, but simply a shorter structure than would otherwise have been established.
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- In a gold standard economy, credit contraction is limited by the total size of the gold stock.
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- In recent years, particularly in the literature on the "under-developed countries," there has been a great deal of discussion of government "investment." There can be no such investment, however. "Investment" is defined as expenditures made not for the direct satisfaction of those who make it, but for other, ultimate consumers. Machines are produced not to serve the entrepreneur, but to serve the ultimate consumers, who in turn remunerate the entrepreneurs. But government acquires its funds by seizing them from private individuals; the spending of the funds, therefore, gratifies the desires of government officials. Government officials have forcibly shifted production from satisfying private consumers to satisfying themselves; their spending is therefore pure consumption and can by no stretch of the term be called "investment." (Of course, to the extent that government officials do not realize this, their "consumption" is really waste-spending.)
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- For more on the problems of fractional-reserve banking, see below.
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- See W.H. Hutt, "The Significance of Price Flexibility," in Henry Hazlitt, ed., The Critics of Keynesian Economics (Princeton, N.J.: D. Van Nostrand, 1960), pp. 390–92.
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- I am indebted to Mr. Rae C. Heiple, II, for pointing this out to me.
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- Could government increase the investment-consumption ratio by raising taxes in any way? It could not tax only consumption even if it tried; it can be shown (and Prof. Harry Gunnison Brown has gone a long way to show) that any ostensible tax on "consumption" becomes, on the market, a tax on incomes, hurting saving as well as consumption. If we assume that the poor consume a greater proportion of their income than the rich, we might say that a tax on the poor used to subsidize the rich will raise the saving-consumption ratio and thereby help cure a depression. On the other hand, the poor do not necessarily have higher time preferences than the rich, and the rich might well treat government subsidies as special windfalls to be consumed. Furthermore, Harold Lubell has maintained that the effects of a change in income distribution on social consumption would be negligible, even though the absolute proportion of consumption is greater among the poor. See Harry Gunnison Brown, "The Incidence of a General Output or a General Sales Tax," Journal of Political Economy (April, 1939): 254–62; Harold Lubell, "Effects of Redistribution of Income on Consumers' Expenditures," American Economic Review (March, 1947): 157–70.
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- Advocacy of any governmental policy must rest, in the final analysis, on a system of ethical principles. We do not attempt to discuss ethics in this book. Those who wish to prolong a depression, for whatever reason, will, of course, enthusiastically support these government interventions, as will those whose prime aim is the accretion of power in the hands of the state.
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- For the classic treatment of hyperinflation, see Costantino Bresciani-Turroni, The Economics of Inflation (London: George Allen and Unwin, 1937).
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- See Mises, Human Action, pp. 429–45, and Theory of Money and Credit (New Haven, Conn.: Yale University Press, 1953).
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- When gold—formerly the banks' reserves—is transferred to a newly established Central Bank, the latter keeps only a fractional reserve, and thus the total credit base and potential monetary supply are enlarged. See C.A. Phillips, T.F. McManus, and R.W. Nelson, Banking and the Business Cycle (New York: Macmillan, 1937), pp. 24ff.
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- Many "state banks" were induced to join the FRS by patriotic appeals and offers of free services. Even the banks that did not join, however, are effectively controlled by the System, for, in order to obtain paper money, they must keep reserves in some member bank.
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- The average reserve requirements of all banks before 1913 was estimated at approximately 21 percent. By mid-1917, when the FRS had fully taken shape, the average required ratio was 10 percent. Phillips et al. estimate that the inherent inflationary impact of the FRS (pointed out in footnote 23) increased the expansive power of the banking system three-fold. Thus, the two factors (the inherent impact, and the deliberate lowering of reserve requirements) combined to inflate the monetary potential of the American banking system six-fold as a result of the inauguration of the FRS. See Phillips, et al., Banking and the Business Cycle, pp. 23ff.
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- The horrors of "wildcat banking" in America before the Civil War stemmed from two factors, both due to government rather than free banking: (1) Since the beginnings of banking, in 1814 and then in every ensuing panic, state governments permitted banks to continue operating, making and calling loans, etc. without having to redeem in specie. In short, banks were privileged to operate without paying their obligations. (2) Prohibitions on interstate branch banking (which still exist), coupled with poor transportation, prevented banks from promptly calling on distant banks for redemption of notes.
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- Mises, Human Action, p. 440.
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- A common analogy states that banks simply count on people not redeeming all their property at once, and that engineers who build bridges operate also on the principle that not everyone in a city will wish to cross the bridge at once. But the cases are entirely different. The people crossing a bridge are simply requesting a service; they are not trying to take possession of their lawful property, as are the bank depositors. A more fitting analogy would defend embezzlers who would never have been caught if someone hadn't fortuitously inspected the books. The crime comes when the theft or fraud is committed, not when it is finally revealed.
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- Perhaps a libertarian legal system would consider "general deposit warrants" (which allow a warehouse to return any homogeneous good to the depositor) as "specific deposit warrants," which, like bills of lading, pawn tickets, dock-warrants, etc. establish ownership to specific, earmarked objects. As Jevons stated, "It used to be held as a general rule of law, that any present grant or assignment of goods not in existence is without operation." See W. Stanley Jevons, Money and the Mechanism of Exchange (London: Kegan Paul, 1905), pp. 207–12. For an excellent discussion of the problems of a fractional-reserve money, see Amasa Walker, The Science of Wealth (3rd ed., Boston: Little, Brown, 1867), pp. 126–32, esp. pp. 139–41.
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- Some writers make a great to-do over the legal fiction that the Federal Reserve System is "owned" by its member banks. In practice, this simply means that these banks are taxed to help pay for the support of the Federal Reserve. If the private banks really "own" the Fed, then how can its officials be appointed by the government, and the "owners" compelled to "own" the Federal Reserve Board by force of government statute? The Federal Reserve Banks should simply be regarded as governmental agencies.
The Trump administration doled out $700 million in CARES “loans” to trucking firm Yellow. Now Yellow has gone bankrupt, and the taxpayers may foot the bill.
Original Article: "The Taxpayers Bailed Out Yellow Trucking. It Went Bankrupt Anyway."
The PGA Tour and the Saudi-owned LIV Golf are seeking to move past their cutthroat competition and merge together, but United States regulators are stepping in and framing the potential merger as a threat to US sovereignty and an expansion of Saudi Arabian influence, citing the Saudi regime’s brutality and alleged involvement in the 9/11 attacks.
In questioning representatives of the two companies, Senator Richard Blumenthal stated, “Today’s hearing is about much more than the game of golf. It’s about how a brutal, repressive regime can buy influence—indeed even take over a cherished American institution—to cleanse its public image.”
While the “cleanse its public image” part is not obviously true, does Blumenthal have a point? Senator Rand Paul seems unconvinced, saying that Congress has “no business” involving itself in the merger. Sen. Rand Paul further states that the Constitution affords protections for these kinds of agreements and that Congress should start taking liberty more seriously.
Additionally, Sen. Rand Paul calls out Congress for hypocrisy. Congress is perfectly fine with selling weapons to the Saudis, yet a merger between American and Saudi golf organizations is a cause for concern. The arms deal had no hearing, yet a golf merger does. This is absurd.
Furthermore, Ron Price, chief operating officer of the PGA Tour, gave an excellent argument for the merger. Price responded to questioning by Senator Josh Hawley by saying:
Senator, we faced a choice. One was to allow professional golf to be taken over and operated by the Public Investment Fund of the Kingdom of Saudi Arabia. The second was to allow the PGA Tour to continue to lead it in accordance with our mission and our values, for the benefit of our players and charity.
Essentially, the Saudis could own all of professional golf, if they wanted. This merger is designed to prevent the downfall of the PGA Tour, consequently preserving American influence in the sport as the Saudis dump money into acquiring talent.
The flight of talent away from the PGA Tour is not a minor concern. Massive personalities such as Phil Mickelson left the PGA Tour for LIV last year in 2022. This is part of the competition that LIV brought to the table. The potential merger was met with positive remarks from former PGA Tour personalities like Mickelson perhaps because it might enable Mickelson and others to return to the PGA Tour while also maintaining a relationship with LIV.
LIV should be welcome competition. The PGA Tour, once accused of being a monopoly itself, was brought to its knees by a startup (albeit a well-funded startup). Although LIV may be a foreign company with political backing, it is a company nonetheless and must be allowed to compete as such. To prevent it from doing so would itself necessitate government action on the part of the US. It would also restrict the voluntary trade between the Saudis and American citizens, the very people Congress alleges to represent.
In a system of free trade, foreign governments will undoubtedly have their hands in affairs. That is to be expected, but it gives no basis for US intervention. The Saudis’ actions are equivalent to China subsidizing the production of goods. If another country wants to flood our country with discounted goods, they should be welcomed. In this case, if the Saudis want to provide Americans—and the world for that matter—with an alternative source of golf entertainment, then they should be free to do so.
Defenders of the free market are right to protest government interventions. In fact, the best course of action is for the Saudis to privatize LIV, an action that would constrain LIV’s budget, leading to the PGA Tour regaining some of its dominance. However, to advocate for the government to intervene in this merger necessitates the use of public funds, money that would otherwise be used in different, more productive production processes.
People should choose to patronize LIV in the absence of state intervention. If they really care about the LIV being state-owned, then they should boycott it, but this should be done voluntarily, not coercively by government edict.
Private force against the Saudis may even be permissible, but when the US government takes action, it forces disinterested parties to bear the cost of bringing justice.
Further concern was expressed in how this merger will impact the ability of PGA Tour executives to criticize the Saudi regime, but why is this a concern? The PGA Tour should not be expected to speak against the Saudis.
Sen. Richard Blumenthal said during the hearing that he hopes the PGA Tour can resist the “bucket full of money” and stand up for the families of victims of 9/11. Why should the PGA Tour care about that? Rectifying 9/11 is not the business of the PGA Tour, and they have no obligation to right any injustice for which Saudi Arabia is responsible. It is not the job of business leaders to be political activists. Based on the way Blumenthal spoke about 9/11, you would think that the PGA Tour played some role in the attack as well. How laughable.
This is reminiscent of the “social responsibility” doctrine, which states that businesses have an obligation to forgo profits for the betterment of society. In this case, the betterment of society is justice for victims of the 9/11 attacks. The PGA Tour is expected to forgo the survival of their business for righting a wrong it had no role in committing. As Milton Friedman stated, business is for using “its resources and engag[ing] in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” Essentially, business is for business, not for giving 9/11 attack victims justice.
Ultimately, this merger will help preserve the existence of the PGA Tour despite immense Saudi competition. The competition that LIV brings to the market will enhance the welfare of the consumer, not hinder it.
In the words of Sen. Rand Paul during the hearing on this matter, “I find no grounds for government to be involved in the game of golf.” As the final plans for the merger materialize, Congress should listen to Sen. Rand Paul.
While Americans believe the First Amendment protects their speech, the US government and mainstream media have joined together to suppress speech that does not coincide with government policies.
Original Article: "Censorship through the Centuries: Free Speech Suppression by the Government and the Mainstream Media"
There is little doubt that the institution of the family in the West is in crisis. Birth rates have been declining in the USA, and most Western countries have fertility rates below replacement level. Abortions number over five hundred thousand per year, most of which are concentrated among low-income individuals. Famously, around half of all marriages in the USA end in divorce. Rather than ignoring these problems, it is important for all on the Right (conservatives, traditionalists, libertarians, etc.) to address these issues. But what means should be employed to combat a declining family institution?
Some individuals, especially national conservatives, have called for state intervention to solve these issues. Their proposals range from redistribution and welfare to banning bachelor’s degree requirements as hiring criteria. Rather than seeing the state as an obstacle to family flourishing, national conservatives tend to look to the state as a means of addressing family issues. However, the state is often the very creator of family denigration.
Social Security and Medicare One policy that harms the family is state social insurance. Medicare and Social Security make up approximately one-third of the federal budget, costing around $2 trillion per year. This money is directly taken out of working people’s hands, making it harder to feed, clothe, and house families. State-sponsored social insurance policies create disincentives for individuals to form families. Because of the increased costs, individuals are pushed out of having an additional child, lowering birth rates.
Social insurance also replaces the family with the state in regard to the care of the elderly. Due to Medicare and Social Security, children do not have to aid their elderly parents. This yet again affects fertility. To put it bluntly, why would I have a child who is going to make me sacrifice decades of my own time and cost me hundreds of thousands of dollars only for them to not take care of me in my old age?
A similar case of the state subverting the role of families came with the advent of the welfare state. Historian David Beito writes, “A conservative estimate is that one-third of adult American males belonged to [mutual aid] lodges in 1910.” However, by the 1930s these societies started to fall out of favor due to the rise of the welfare state and American tax code. When it comes to the family, it is unlikely that state welfare programs will fix the problem of a falling birth rate and looser familial bonds. Rather, it is likely that social insurance proposals will subvert the family in the same way that mutual aid societies were subverted.
Trade and Protectionism Another policy that harms families is protectionism. Trade quotas, manufacturing subsidies, and other protectionist measures like tariffs all raise the cost of goods that American families consume. As Scott Lincicome writes, “Protective tariffs force American families and businesses to subsidize—through hidden, regressive taxes—the small share of U.S. manufacturers and workers (and the tiny portion of the total economy and work force) that compete directly with the imports at issue.” Families need goods to thrive, and protectionism makes these goods less affordable.
Take the example of diapers. While many of the most popular brands of diapers are manufactured in the United States, many of their components are not. In 2021, the United States imported over six million tons of wood pulp and over $18 billion of plastic, key components to making disposable diapers. Even if a policy maker could successfully implement protectionist measures while not decreasing the number of diapers or raising their costs, it would be impossible for these policies not to have long-run, unseen effects on other products that American families need, like appliances, pharmaceuticals, vehicles, and food.
One does not have to look far back to remember the baby formula shortage of 2022. Due to tariffs and FDA regulations, the market could not adjust to meet the newfound spike in demand for baby formula. Rather than stealing candy from a baby, the state simply prevented newborns from getting to eat! Needless to say, this puts massive strain on existing families and those planning to have children.
Trade also benefits low-income and middle-class families. Because middle-class and low-income individuals buy more imported goods relative to high-income individuals, the gains from trade are conferred to them as well. For example, the types of goods that are made in Mexico and China are more likely to be bought at Walmart by an office worker than by a top 1 percent income earner at a luxury department store. Of course, these goods make it much easier for poorer families to raise a child and devote more time to their upbringing, thus promoting a flourishing family.
Inflation and Monetary Policy Another avenue by which the state destabilizes the family is through monetary policy. As it stands today (and has for many years), the Federal Reserve targets a 2 percent inflation rate every year. Due to this, the current monetary regime erodes savings for families, making future planning and economic calculation difficult. For example, if two parents decided to put away some of their money every paycheck upon their child’s birth for their college fund, by the time that child graduates high school, that saved money will be worth substantially less.
Family formation is drastically impacted by the Fed’s inflationary policy. As Jeffery Degner writes, “[Inflation] also serves to erode the quantity and quality of marriages while creating distortions in the decision-making processes of those hoping to form marriages and to have children.” In the case of hyperinflation, such as what happened in the Weimar Republic in Germany, so too is the family abused.
The spiritual consequences of inflation upon the family cannot be understated, too, as moral standards and expectations of savings are diminished. To keep the same rate of return as would exist in an unhampered financial system, people are forced to move from saving to more risky financial markets like stocks. The consequences of failed investments on families are obvious and a route by which the current monetary state harms family flourishing.
The system of monetary expansion and currency debasement as it exists today under the Federal Reserve greatly impacts both the number of children and marriages formed as well as the degree to which families thrive.
Conclusion Given the effects of the state on the family, it is highly unlikely that state intervention can fix a dying family. Churches and religion, civic organizations, mutual aid, and charity all must be turned to, not the state, if family flourishing is the goal. An active, managing state does not mean a thriving family. To help families grow and live happier lives, the role of the state must be drastically cut back, allowing families to take back the vital role that they serve.
European natural gas prices soared almost 40 percent on the risk of a global liquefied natural gas shortage. European wholesale power prices remain below the record highs of the energy crisis but have steadily climbed as the volatility in the international commodity spectrum underscores the fragility of the European energy system.
Unfortunately, the European Union bureaucrats declared the end of the energy crisis as if it were the result of decisive policy action, but the reality is that the energy problem in the EU was only diminished by purely external factors: a very mild winter and the decline in global commodity prices due to the central bank rate hikes. Thus, the energy crisis remains, and the problems of security of supply and affordability of the system persist.
The European Union’s dependency on Russian gas has not been solved; it has only been disguised by a massive increase in dependency on coal (lignite) in the case of Germany and expensive liquefied natural gas imported from the rest of the world. At the end of 2022, Germany’s energy mix was the clearest example of its energy policy failure. Hard coal and lignite accounted for 31.2%, natural gas 13.8%, and mineral oil 0.8%, with nuclear at 6.0%. After almost 200 billion euros in renewable subsidies, Germany needs more coal and imported natural gas. What did the government decide after facing the mistake of shutting down almost all its nuclear fleet? You guessed it. Double down and continue with the process of closing the remaining ones. No wonder Germany is in recession. Its industrial model requires abundant and affordable energy, and the different governments have made the cost of energy uncompetitive.
What about Spain? The government decided to implement an “Iberian exception” that eliminates the cost of gas from the wholesale power price only to charge it back to consumers as a surcharge in the bill. The result? The fifth highest electricity bill in Europe sent hundreds of millions of euros to France and Portugal that purchased the subsidized energy while the Spanish consumer paid the bill to natural gas producers, and its imports of Russian liquefied natural gas (LNG) soared, but the government tried to convince citizens that LNG from Novatek is “not Russian gas” because it is not a pipeline Gazprom supply, even when the supplier is a leading Russian energy multinational. You cannot make this up.
Even worse. Consumers have not seen the improvement in commodities in their bills. If we look at the latest reported Eurostat figures of household electricity prices, these increased in all but two EU Member States in the second half of 2022, compared with the second half of 2021, just as commodities slumped in international markets. The average for the EU stands at 252 euros per MWh and 261 euros per MWh for the euro area. This is between 20 and 30% higher than the average residential electricity rate in the U.S., according to data from Energy Sage.
The European energy crisis was not solved. It was disguised thanks to a mild winter and the slowdown in coal and gas imports from China. European governments continue to place all their bets on a misguided energy transition that ignores security of supply and competitiveness and will make the EU depend on China for rare earths and metals as well as the U.S. and OPEC for commodities.
The European Union should have abandoned ideological decisions and allowed technology, competition, and industry to provide the optimal solution that delivers a competitive and secure supply of energy. Deciding to forbid the development of domestic resources and focus on intermittent and volatile sources of energy before the battery technology is fully operational is an enormous mistake that condemns the European Union to suffer higher costs and lower growth. Environmental policies must be considered from a global perspective. The EU accounts for less than 10% of global emissions but almost 100% of the cost. It needs to focus on competitiveness, security of supply, and respect for the environment from an industrial perspective. Ignoring the importance of making the most of nuclear, hydroelectric, gas, and all other available sources is dangerous. In China or the United States, affordability, security of supply, and competitiveness are the drivers of energy policy. In Europe, it is a misguided view of “not in my backyard” that is making the continent more dependent on others, not less. Subsidies are delaying the necessary development of intermittent and volatile energy sources because policymakers reject the importance of creative destruction and competition as driving forces of progress. Interventionism is not delivering better or cheaper energy; it is making the European Union lose in the technology and energy security race.
By corrupting the meaning of inflation, mainstream economists have given a false picture of what happens when monetary authorities expand the money supply. Mises and Rothbard understood.
Original Article: "Taking Back the Meaning of "Inflation""
Austrian economics properly understands the ability of commercial banks to create money by mismatching their depositor liabilities with their issuing of money substitutes (i.e., the creation of credit). One possible place for further exploration is the role that nonbank or foreign financial institutions play in the creation of credit and the broader implications on business-cycle creation.
Let us take the dollar as an example. Say Deutsche Bank operates a branch in the United States. This branch, according to the Federal Reserve’s Regulation D, would be subject to the Fed’s reserve requirements. However, a London branch of Deutsche Bank would not be subject to such a regulation on its US dollar holdings. Similarly, a market mutual fund, acting as a creditor, is not subject to the reserve requirements of a commercial bank entity.
This results in foreign branches of a bank in possession of dollar deposits, and these branches are acting in a purely unregulated manner. The bounds by which they may issue credit are unchecked by law. Thus, nonbank entities (foreign and domestic) and foreign holdings of another country’s currency operate functionally the same in terms of issuing credit.
So, the distinction between the “shadow banking system” and that of “Eurodollar markets” becomes useless when discussed from the perspective of credit creation. A “Eurodollar” simply refers to a deposit of US dollars in a foreign bank.
There is no governmental pressure as to whether these foreign banks hold on to deposits. Thus, they can increase the money supply in the form of credit without any limits. One need only look at the classic money multiplier equation:
Money Multiplier = 1 / Reserve Ratio
Being as it is impossible to divide by zero, we can choose a number close to zero. Let us say that these entities maintain 1 percent of their deposits, having no legal pressure to do so. 1 / 0.01 = 100, of course. If there are $10,000 in dollars deposited at this bank, the money multiplier will result in $1 million being created in the form of credit. The closer this reserve-ratio percentage gets to zero, the closer banks get to being able to expand credit near exponentially. This lays the groundwork for utter economic destruction.
This credit will enter the commercial loans market, and by creating an illusion of supposed new savings, it lowers the market rate of interest artificially. This creates the boom of the “boom-bust cycle,” in which longer forms of production are undertaken that would otherwise be unprofitable. Land, labor, and other resources are malinvested until the cluster of errors is realized. This usually occurs when interest rates rise, prompting liquidation as well as a credit contraction.
The credit created by such a fusion shadow-Eurodollar system is easily able to take off as the reserves are not bound by law. Of course, there may be equivalents of bank runs but not before the damage is done.
This poses a risk to the consumers making use of such a system as well. Lacking Federal Deposit Insurance Corporation backing, there is little to ensure the safety of these institutions in the event of a bank run, or bank-run-like scenario. Often, the nonbanks will also embark in the securitization of risky assets, which are then mismatched and exchanged. As these entities securitize often-risky assets, they use these assets as collateral for their credit expansion. These nonbank entities offered many of the predatory subprime loans of the 2008 financial crisis, only to offload them to domestic banks. As Arkadiusz Sieroń succinctly describes: “Activities of shadow banks were the source of instability for dealer banks in 2008, such as Bear Sterns, Merrill Lynch, and Lehman Brothers.”
The size of such a market cannot be underestimated. At the peak of the Eurodollar system in 2008, it was estimated to be 87 percent of the size of the US banking system. The Financial Stability Board measured the US shadow banking system at $44.72 trillion in 2021, or around 194 percent the size of the gross domestic product of the United States. These numbers are hardly insignificant, especially when combined with the above analysis of the money multiplier effect.
Domestic commercial banks as well as central banks are not the only players in the game of credit creation. Foreign entities, as well as nonbank institutions that make use of the very same fractional reserve process, may exacerbate business cycles. Those in the Austrian school should study and understand the effects of these institutions on the economy more broadly on top of the normal understanding of commercial banking.
The Christian nationalist state is one in which civil rulers—for a time—regard the Church as a convenient ally. Once this comes to an end, however, the "Christian" state transforms into a state hostile to those it was once designed to protect.
Original Article: "The Dead End of Catholic Nationalism"
Recent news reports mention the possible bankruptcy of the privately owned company Thames Water (TW) in the United Kingdom, with a history of very high debt repayments, high dividend payouts to shareholders, mismanagement, and underinvestment of capital spending. TW supplies water and wastewater services to the southeast of England, including London.
The problem for TW is that almost half of their debt is floating rate, in which the interest rate paid increases or decreases with the rate of inflation. The UK’s higher inflation in recent years has impacted TW’s amount of loan repayment. TW was originally owned and operated by the British government and was privatized in 1989.
Some say TW’s woes were caused by the privatization when facts state otherwise. Privatization by itself did not cause TW’s current woes. Looking back in history to the privatization of state industries in the UK and the freedom of choice made by TW’s past and current owners will give insight to TW’s situation.
UK State Privatization History The 1998 book written by Daniel Yergin and Joseph Stanislaw entitled The Commanding Heights: The Battle for the World Economy describes the efforts by British prime minister Margaret Thatcher’s government in the 1980s to privatize almost all state industries. British Aerospace, British Airways, British Gas, British Petroleum, British Rail, British Steel, British Telecommunications, airports, ports, public housing, TW, and a myriad of other industries were evaluated, valued, repaired, and sold on the open market.
The concept of state-owned industries being privatized en masse had never been attempted in history. The name for this mass privatization was “A New Style of Government.” PM Thatcher wanted a state in which people own houses and shares and have a stake in society, in which they have wealth to pass on to future generations.
UK Labour politicians promoted state-owned industries before and after World War II as an altruistic undertaking. The reality over several decades of government ownership was that state-owned industries became an undertaking. The Thatcherites, in practice, believed that the government was not going to be any better in figuring out the future than private business. The Thatcherites did not believe in government knowledge. Also, these state-owned industries had a record of being inflexible in the face of change.
State companies proved in practice to be highly inefficient, inflexible, and poorly performing employers, politically pressured to expand employment beyond the needs of the company, insulated from marketplace competition, and piled up huge losses for which the taxpayer paid the cost. These companies were not able to resist wage pressure from public-sector unions, which generated inflation.
Business decisions ran the risk of becoming politically driven, not by the interests of the company but by the desires of the politicians in power, whether it was new investments in equipment or plant locations. The UK Labour politicians of state-owned industries disliked the discipline of the market. Government ownership meant the products and outputs were not adapted to the free market, and the needs and desires of the consumer—the buyer—did not count for much.
Privatization became a cause for the Thatcherites. Expanded ownership in private property would give people a vested interest in changing the nation’s political culture. This would decisively limit the role of the state. Privatization would make the companies more efficient and deliver more value to consumers. The state’s share of gross national product would be reduced.
The state-owned water system was privatized in the form of regional water companies. TW was one of them. After privatization, employment was reduced in many companies, service quality improved, and operations became more efficient.
The privatization of state-owned industries did not yield perfect results. Some problems with higher unemployment occurred from many employees being laid off from formerly state-owned industries, and government regulation changed. However, one of the positive changes from state responsibility to individual responsibility was that initiative, incentives, and wealth generation were rewarded.
The privatization program carried out was much bigger than anyone expected at the start, and it pushed back the frontiers of the state. Looking back in time shows that getting the state out of owning and managing specific industries and putting the ownership of these industries into the hands of people in the free market yielded positive results.
By 1992, about two-thirds of state-owned industries moved into the private sector. Approximately forty-six major businesses with about nine hundred thousand employees were privatized. The government treasury received over $30 billion from industry sales. A drain on the treasury instead became a major source of tax revenue. Roughly nine million adults, or 20 percent of the UK population, were shareholders even when the number of shares owned was small. The number of days lost to union strikes was greatly reduced from 1979.
Thames Water Situation The Australian bank Macquarie acquired ownership of TW in 2006. It was widely criticized for its stewardship of the water company between 2006 and 2017. Macquarie has faced accusations of asset stripping and ripping off the taxpayer by not paying corporation taxes. It is estimated that Macquarie left TW with an extra £2.2 billion ($2.8 billion) in loans, and £2.7 billion ($3.5 billion) was taken out in dividends, while the water company’s debts rose sharply from £3.4 billion ($4.5 billion) to £10.8 billion ($14.1 billion) under Macquarie’s ownership.
In March 2017, Macquarie Group sold its remaining stake in TW’s holding company to a consortium of pension funds and sovereign wealth funds, with the largest shareholder being the Ontario Municipal Employees Retirement System.
TW’s prior owners made these business decisions that are now impacting their current owners. Good decisions yield good results. Bad decisions yield bad results. This natural law applies to private companies, governments, individuals, and families. TW’s owners have the choice of either accepting responsibility for their decisions or blaming someone else for their bad choices. Privatization did not cause TW’s problems. One hopes TW’s woes are washed away soon.
The fall of the Pac-12 is an unfortunate end to a proud collegiate institution. But its death isn’t the fault of uncurable greed but of the conference’s own inability to be competitive in the game.
Original Article: ""Greed" Didn't Kill the Pac-12. Entrepreneurial Failure Did"
The usual answer is that secondhand smoke is bad. But if value is subjective, perhaps secondhand smoke also can be seen as a public good.
Original Article: "Is Secondhand Smoke Bad, or Is It a Public Good? It’s Complicated"
In contrast to the imaginary way that mainstream economists present value, Austrian economists properly use ordinal rankings to determine value.
Original Article: "How People Determine the Value of a Good"
After ninety-nine years in business, Yellow, one of the nation’s biggest trucking companies, shut down. The company has more than twelve thousand trucks and employed thirty thousand, with twenty-two thousand of those jobs held by Teamsters.
If you are a taxpayer, you know all this, your government being a 29.6 percent shareholder of Yellow and all. The Trump administration’s Coronavirus, Aid, Relief, and Economic Security (CARES) Act dished out $500 billion to businesses, states and municipalities as a result of the coronavirus. Yellow Corporation received $700 million of the $735.9 million set aside for national security loans.
The loan had two tranches, tranche A was $300 million to cover union healthcare and pension liabilities, plus lease and interest payments. Tranche B was for tractors and trailers. Interest for tranche A was the London interbank offered rate (LIBOR) plus 3.5 percent (1.5 percent of it to be paid in cash and 2.0 percent in kind) and interest for tranche B was LIBOR plus 3.5 percent (all cash). These attractive terms are the reason the government required equity in the firm as a condition of the loan.
“Since the CARES Act did not define the term ‘business critical to maintaining national security,’ the Treasury had virtually unfettered discretion to define this term,” says a special report of the Congressional Oversight Commission that investigated the loan.
Back in 2020, the Defense Department figured other trucking companies could replace Yellow’s government work should the company go out of business, so the department was going to recommend a no to issuing the loan. But “one day after Defense Department officials notified the Treasury that the Defense Department would likely not certify Yellow as critical to maintaining national security, the Treasury requested an urgent call with Secretary Esper, which took place on June 26, 2020.” After Treasury secretary Steven Mnuchin called the defense secretary, “Esper certified Yellow as critical to maintaining national security the same day as the call, June 26, 2020, and the Treasury finalized the loan to Yellow on July 7, 2020.”
According to the Wall Street Journal, “Esper declined to comment. He has previously said he made the certification at the recommendation of Pentagon staff.”
According to the special report, Yellow spent $570,000 on lobbying in 2020 but nothing the year before. The company had been in close touch with the White House and “had discussed how the company employs 24,000 drivers who are part of the International Brotherhood of Teamsters (“Teamsters”) union.”
Teamsters president Jimmy Hoffa allegedly “had reached out to the Trump administration and . . . was seeking a meeting with the Secretary of Defense to advocate for Yellow’s national security loan application.”
Once the loan was funded, Yellow executive officers and directors received stock options and Yellow stock went up ten times in price from the bailout to the end of 2021.
The Teamsters benefited from Yellow’s ability to pay millions in deferred pension and healthcare benefits. Also, the special report pointed out that “the Teamsters hold a direct interest in Yellow as a result of the Teamsters’ ownership of Series A Preferred Stock. Yellow issued one share of Yellow’s Series A Preferred stock on July 22, 2011 to the Teamsters ‘to confer certain board representation rights.’ This share is valuable to the Teamsters because as the holder of this share the Teamsters are permitted to appoint two directors to Yellow’s board of directors.”
Despite having two board seats, the Teamsters accept no blame in Yellow’s downfall. “Teamsters have kept this company afloat for more than a decade through billions of dollars in wage, pension and work-rule concessions,” a union spokesman said. “Yellow couldn’t manage itself, and it wasn’t up to Teamsters to do it for them.”
“I’m actually quite proud of the fact that we did YRC [Yellow’s previous name],” Mnuchin said in 2020. “It saved lots and lots and lots of jobs. I’ve received calls from the company, from truckers, from other people who appreciate this.”
Taxpayers don’t appreciate it at all.
In this episode, Mark updates his early March 2023 episode (Mises.org/Minor11) on the high price of toilet paper. He shows how economic changes, so far, in 2023 seem to have vindicated his forecast of lower toilet paper and paper towel prices. It also demonstrates how the market process works on a minor scale, even when large determinants like Amazon, Covid, and the US home construction industry get tangled up with politicians and bureaucrats.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Can computers plan a socialist economy? The idea is not new; it first appeared in the debate over economic calculation, which began in 1920 with Ludwig von Mises’s first article on the topic and continued until 1949. This was a time when computers had recently emerged. Computers were not widespread, but their possibilities were evident. Oskar Lange considered the market economy to be a “crude and soon to be obsolete computing machine.” More recently, rapid advances in artificial intelligence (AI) may have tilted the balance of power toward computers.
It was accepted by all sides that, in a complex economy, there is a near infinity of possibilities for both what to produce and what production methods to use. It was also accepted that the aim of production is to produce more of the goods that consumers prefer at the cost of fewer goods of lesser importance. Mises explained:
Hence the economic problem arises: to employ [capital goods] in such a way that only those goods should be produced which are fit to satisfy the most urgent demands of the consumers. No good should remain unproduced on account of the fact that the factors required for its production were used—wasted—for the production of another good for which the demand of the public is less intense.
The possibilities of producing more of the same goods already in stores as well as new products that are not currently available must be considered. The variability among goods along aspects of product quality creates even more choices. Production methods are constrained by the scarcity of existing capital goods and labor. Other variables such as the location of existing plants and workers, the distribution of these goods, and the necessary production time require even more decisions.
Mises’s major insight was the necessity of calculation using money prices to compare alternatives. Decisions must be reduced to a number in order to compare alternatives. Consumers determine prices of consumption goods through their decisions to buy or not to buy. Producers are also concerned with the prices of intermediate factors in earlier stages of production. In the market, these prices are set by competition among entrepreneurs to use the available productive resources.
In the debate, Lange and other “market socialists” suggested that computers could make these decisions by solving a large system of equations. The equations would have to incorporate consumer demand curves for all products as well as labor supply curves. The combinations of required inputs to produce some quantity of outputs would be represented by a production function.
There are multiple problems with this idea. If, as Lange suggested, a computer could solve the equations, then does the solution constitute a “plan” for economic production? The solutions of the equations provide the quantities of inputs, outputs, and production functions. The normal meaning of “plan” is closer to the word “recipe.” A list of quantities and inputs that could produce certain outputs does not constitute a plan.
The solutions of the equations play the role of ingredients in a recipe. What is also needed are the steps for combining them. A plan includes the steps to reach the goal. F.A. Hayek explained that, even if the equations could be formulated and solved, “This would be only the first step in the solution of the main task. Once the material is collected, it would still be necessary to work out the concrete decisions which it implies.”
Economist Joseph Salerno has identified another problem with the equation-solving solution. The equation computations have no relevance to the real world because they state an equilibrium condition at a single point in time. However, the real world is constantly changing. The equilibrium prices would not be stable during the period of production. Every change would create a new set of equilibrium conditions.
A business starts out with a plan for what they intend to sell—an estimate of the required inputs and expected outputs. The entrepreneur has a view of the prices that will be paid for inputs, prices at which outputs can be sold, and how he plans to manage the process. This includes which production methods are appropriate, who to hire, how much to do within the firm, what parts or auxiliary services to obtain on the market, what employment policies to have, how to manage risks, and how to solve problems that come up along the way. The ability to make all these decisions is represented by the production function in the equation.
The prices used in the advance calculation must be “good enough” to consider all the unknowns and allow the firm to make a profit. Business plans—which may be approximate or précis—are based largely on estimated prices. Some prices may be paid up front such as a long-term lease. Because production takes time, many inputs must be purchased multiple times before the products are completed—for example, wages paid each week or month. For each purchase, the prices prevailing at the time are paid. The quantities of inputs needed are also estimates. Some production processes are more predictable than others. The amount of spoilage and accidental loss is not known in advance. The efficiency of a particular process may be greater or less than anticipated. Finally, the selling prices of finished goods depend on customer acceptance of the product, which is not a sure thing.
If one business were to receive a detailed set of instructions from a different firm in the same industry, could the two firms deliver the same product for the same cost and quality? No more than two cooks could realize the same dish from the same recipe or two musicians playing the same score could sound the same. A considerable amount of skill and experience, as well as a multitude of individual decisions, are required. Hayek wrote that, within a specialized industry, “Most [of what we call knowledge] consists in a technique of thought which enables the individual engineer to find new solutions rapidly as soon as he is confronted with new constellations of circumstances.”
Even something as straightforward as holding the desirable level of inventory for sale requires economic calculation. How long does the inventory last? Inventory for a clothing store could expire due to spoilage, seasonal garments losing value out of season, or fast-moving fashion trends leaving one style behind. What alternative uses exist for scarce resources such as warehouse space? What are the costs of tracking, heating, cooling, and securing the inventory? W.H. Hutt has written about the economics of availability. Some businesses intentionally manage their pricing to ensure that they never sell out. A convenience store would consider it a failure if they ran out of beer. In that type of business, some additional stocks that are not sold are part of the cost of never running out.
As Hayek explains, even the concept of the cost of production involves economic calculation. Yes, there are monetary costs of the inputs that were needed to produce goods. However, every business has durable assets that are used up over time through wear and tear. Assets should be valued at the greater of their resale price or replacement cost. In the mining industry, it is common for a deposit to be purchased before the mine has been fully excavated because another mine developer may have a better ability to mine it than the owner.
Businesses have a range of shared costs such as payroll processing, insurance, utility bills, legal and compliance costs, rent paid for headquarters, and others that bear some relationship to the cost of producing their product. Other downstream value-chain activities such as marketing and advertising are also costs that contribute to revenues. The relationship of these costs to specific revenues is less clear.
Economic calculation, the choice of production methods, and the execution of the plan are not independent steps. Economic calculation does not stop when production begins. Economic calculation informs nearly every decision that is made over the course of a day at work. The motivation for profit and avoidance of loss incentivizes the use of economic calculation at all levels of the firm. Even frontline workers require a general awareness of how much resources cost the business in order to make tradeoffs in their use of the company’s assets. A sous chef in a kitchen must take care not to overcook a prime cut of steak, while a few leaves of lettuce can easily be discarded.
Even if computers can solve equations better and faster compared to eighty years ago, that is of no help in replacing the market economy. The computation of equilibrium solutions for quantities does not give anyone the ability to produce goods and services. Recent advances in AI have developed other computational methods, such as neural networks that can solve problems that cannot be stated in a closed-form equation.
The search for profits and risk of loss drives economic calculation. The entrepreneur strives to earn profits because wealth affects his future. Profits give the entrepreneur the possibility of a better life for himself, his family, and those in the world that have been enriched by his products. To decide to improve your future, you must first have a future. Computers do not have a life. “Having a life” is not an algorithm either. Having a life goes beyond only having goals that you can only reach in the future.
Entrepreneurial skill includes being good enough at economic calculation. Entrepreneurship can be studied and learned to a degree. Looking at the proportion of businesses that fail, it is clear that many people who go into business overestimate their own entrepreneurial skills.
AIs are trained on large datasets to reflect an aggregated view. To the extent that everyone knows certain things within the same industry, this knowledge is not a differentiator. Entrepreneurs undoubtedly look at data. However, each entrepreneur has a unique and differentiated view of how to use existing assets. Many things in a business involve data, but many do not. For a new product, there may be no data. Without data, the entrepreneur must use imagination and empathy to foresee how customers might accept a new product. However, we don’t exactly know what entrepreneurship is—not in such a way that we can train AI.
Businesses have always made calculations. Bookkeeping predates computers. Mechanical cash registers existed before electronic ones. All modern businesses use information technology in some form. Any software, from spreadsheets to enterprise resource planning, that is readily available becomes a type of capital good. Like all capital goods, software can replace some types of labor. A competitive advantage comes from using a piece of software to greater advantage than your competitors do.
Economic calculation is required to quantify this degree of advantage from adopting the new software. Software is costly to build, deploy, and use. A particular decision to use AI may work out badly. The world of information technology is littered with failed software projects, often after incurring enormous costs. According to Forbes, “Big technology projects fail most of the time.” Mary K. Pratt in CIO writes, “Technical and transformational initiatives still fall flat at an alarming rate.”
As AIs become more generally available, they will be adopted where they can help to make decisions, incorporate more information, or save humans time spent on an increasing range of tasks. I have interacted with customer support AIs that could not solve my problem at all or not as well as a person could. However, it might have cost the company from $3 to $6 to have a person help me, and that cost would have been passed on to me in some form. We are constantly faced with choices between better, more costly services and lower quality but cheaper alternatives.
AIs are improving at specific skills humans already have. AIs are trained on worked examples or datasets by the humans who do it. “Planning the economy,” however, is not a specific skill nor is it done by any one person or set of skilled people. What people do instead is to allocate resources within a limited scope of a household or a firm using economic calculation. Computers can help with that, but they cannot become central planners.
How do you cover up an atomic bomb? The same way you cover up anything else: you don’t allow people to know what really happened. Of course, the magnitude and power of a mushroom cloud are plainly unmistakable. However, the effects of that bomb can be concealed and obfuscated from the general population.
For over a year after the nuclear destruction of Hiroshima and Nagasaki, the full extent of the bomb’s killing power was kept secret from the world. While little known today, the truth was only revealed due to the actions of a single war correspondent and the stories of six individuals who were forever scarred by what they saw.
On August 6, 1945, a nuclear weapon was used in war for the first time in history against the city of Hiroshima. Just hours after the bombing of Hiroshima, President Harry Truman made a radio broadcast to the world, announcing both the fate of the city as well as the United States’ possession of atomic bombs. Truman emphasized the power of these new weapons, stating that they had the explosive power of “twenty thousand tons of TNT.”
On August 9, the city of Nagasaki was the target of the second—and so far, last—use of nuclear weapons in history. Six days later, the Japanese surrendered.
Soon after the formal end to the war, four official investigative teams were sent into both cities to give a detailed report on the impact and aftermath of the bombings. When they arrived, what they discovered shocked them: even months after the bombs were dropped, people inside the cities were still dying. As Japanese doctors treated these patients in the aftermath of the bombings, they identified their symptoms as consistent with radiation poisoning. Overexposure to radiation was not a novel concept in the medical field, but the idea that radiation from the bomb would be a significant cause of death was never considered by the Americans.
The scientists of the Manhattan Project—who had developed the bomb—assumed that the initial explosion would kill everyone and that there would be nobody left alive to be affected by radiation. While thousands were killed in the blasts at Hiroshima and Nagasaki, thousands more would die from radiation burns in the following days, and thousands more from the aforementioned radiation poisoning in the coming weeks, months, and years.
Ultimately, the harrowing effects of radiation on the populations of Hiroshima and Nagasaki were downplayed in the official reports. This was likely done for the sake of PR. The United States was rapidly entering into a “cold war” with the Union of Soviet Socialist Republics (USSR), and it desperately wanted to portray itself as a moral crusader against the evil and godless Communists. If the horrific truth about the effect of nuclear weapons on Hiroshima and Nagasaki were made public, other nations—especially Japan—might not be so amicable toward the American sphere of influence. While there were some, especially in the upper echelons of military and political leadership, who were aware of the true scope of death the bombs had brought, it was considered highly verboten to discuss or mention it at all.
For over a year after the bombings, any information about Hiroshima and Nagasaki was heavily censored. Even though the Office of Censorship was shut down at the end of the war, the War Department released an official statement concerning the bombs saying, “It is the duty of every citizen, in the interest of national safety, to keep all discussion of this subject within the limits of information disclosed in official releases.”
Shortly after Douglas MacArthur established his interim government in Japan, both cities were cordoned off and any access to them was strictly limited. Even most Japanese citizens were unaware of the full scope of the bomb’s effects as the Japanese government admitted to little more than both cities’ destruction at the hands of a new and powerful weapon. The vast majority of Americans had assumed that the blast had killed everyone in a fraction of a second, and that was that. Truman’s allusion to the explosive power of the bombs certainly gave off that impression, if only implicitly.
In early 1946, a war correspondent named John Hersey was sent to Hiroshima on special assignment for the New Yorker. He started his career in journalism writing for Time Magazine in 1937 and spent the war years reporting from both the European and Asian fronts. During his time in Hiroshima, he interviewed numerous hibakusha—the Japanese term for survivors of the atomic bomb. He was shocked by what he heard and knew that the world needed to hear it as well.
When he returned to the United States, he compiled the stories he heard into a thirty thousand–word essay describing the bombing of Hiroshima and its aftermath from the perspective of six different survivors. The original plan was for the essay to be serialized, but the editors at the New Yorker decided to run it in its entirety, dedicating the entire August 31, 1946, issue to Hersey’s work—the first and only time the New Yorker has run as a single story. The name of the essay was simple, but it would soon be in the hands of readers all around the world: “Hiroshima.”
Hersey did not shy away from the graphic reality of the bombing as well as the chaotic aftermath for those still left alive. One particularly gut-wrenching account comes from the perspective of Reverend Kiyoshi Tanimoto, pastor of the Hiroshima Methodist Church. After surviving the blast and finding his family in rubble of the city, he tried to help the wounded around him on a boat to bring to an aid station:
Mr. Tanimoto found about twenty men and women on the sandspit. He drove the boat onto the bank and urged them to get aboard. They did not move and he realized that they were too weak to lift themselves. He reached down and took a woman by the hands, but her skin slipped off in huge, glove-like pieces. He was so sickened by this that he had to sit down for a moment. Then he got out into the water and, though a small man, lifted several of the men and women, who were naked, into his boat. Their backs and breasts were clammy, and he remembered uneasily what the great burns he had seen during the day had been like: yellow at first, then red and swollen, with the skin sloughed off, and finally, in the evening, suppurated and smelly. With the tide risen, his bamboo pole was now too short and he had to paddle most of the way across with it. On the other side, at a higher spit, he lifted the slimy living bodies out and carried them up the slope away from the tide. He had to keep consciously repeating to himself, “These are human beings.” It took him three trips to get them all across the river. When he had finished, he decided he had to have a rest, and he went back to the park.
All three hundred thousand copies of the August 31, 1946, edition of the New Yorker sold out instantly. People across the world were appalled by what they read. The experiences of these six individuals, although just a small portion of the city’s population, allowed an unsuspecting world to experience just a fraction of the suffering the bomb had caused. Before “Hiroshima,” the world had been in a state of blissful ignorance concerning the realities of nuclear weapons. That veil was now forcibly and irrevocably torn from their eyes.
Soon after its publication, “Hiroshima” would be turned into a book with the same title and instantly became a bestseller. Shockingly, the MacArthur government in Japan banned “Hiroshima” from being printed in the country. It was only three years later in 1949, when the article was translated in Japanese, that the government permitted its publication. The article was the first time many Japanese learned the truth about the sufferings that their countrymen had endured.
The legacy of Hersey’s “Hiroshima” is twofold. First, it demonstrated the true danger of nuclear weapons. The famous Bikini Atoll tests occurred just two months before Hersey’s publication, and the American people were now—for the first time—fully aware of the implications of entering the Atomic Age. In just a few years’ time, the USSR would be in possession of nuclear weapons of their own, inevitably resulting in a nuclear arms race between the two powers. The theoretical state of “mutually assured destruction” became a very present reality.
This represented the power of the pen against the censorship of the state. “Hiroshima” was one of the first times in American history that the government was exposed as being dishonest at best, and liars at worst. As Randolph Bourne once famously said, “War is the health of the state.”
The state is most empowered to wage war when it obfuscates the truth and prevents the population at large from understanding the consequences of its actions. When this truth is exposed, however, the crimes of the state can be brought into the light for all to see. What the story of John Hersey clearly illustrates is that an edifice of censorship, no matter how pervasive and powerful, can be brought down by just one person willing to expose lies and proclaim what is true.
Professor Quinn Slobodian believes that free markets must lead to tyrannical worker exploitation, and socialism is the only solution. In truth, market competition is the answer.
Original Article: "Cracked-Up Slobodian"
Ambrogio Lorenzetti’s frescoes adorning the Palazzo Pubblico in Siena, Italy, tell a timeless tale of governance. They portray a city flourishing under just laws and crumbling under misrule. The latter side of this allegory rings alarmingly relevant today as the recent riots in France paint a destructive urban tableau, mirroring the narrative of government failure.
The situation has deteriorated so drastically that widespread use of force is now inevitable, especially to remove the military arsenal flourishing in the suburbs. Yet, addressing the faulty policies that led to this situation is just as paramount. The decline of French society has reached such depths because all political parties have fixated on ineffective responses and have overlooked the roots of the problem.
The two predominant responses since the late 1960s have been, firstly, antiracist policies and, secondly, restrictive immigration policies.
The Left today identifies racism as the root of the tensions in France. This approach overlooks, however, that the French government has persistently viewed the situation through this same lens since 1973, when current immigrant-native tensions first surfaced. To address racism, a series of state interventions were rolled out as early as the 1970s, from cultural initiatives to expansive affirmative action policies.
However, those policies have not prevented the problem from growing. Racism, the imputation of negative traits seen in a few to an entire group sharing a similar phenotype, is not the root of the issue. The crux lies in government policies and their ripple effects on the social fabric.
The Right is consumed by a fixation on immigration restrictions. Based on certain right-wing rhetoric, one might think that the country’s borders are wide open and that there are even public initiatives to foster immigration. This perception is starkly dissonant with the reality faced by countless immigrants who perish in the Mediterranean each year, trying to overcome extensive restrictions to reach the shores of Europe.
The policies of immigration restriction, enforced for over half a century, have failed. They have only exacerbated tensions and isolated France on the European and global stage. Ramping up restrictions even further would only drive immigrants more into the shadows and complicate their integration. These policies do not solve the problem; they amplify it. These policies let the most desperate or cunning past, prevent the preservation of immigrants’ ties with their homeland, and instill a state of fear and distrust among immigrants toward institutions.
Both sides—the Left and the Right—are ensnared in the same strategies that have repeatedly failed. Meanwhile, the real culprit—the mechanism that entraps immigrants or their descendants in a cycle of crime—eludes political agendas. Addressing this issue requires acknowledging governmental failure.
The overlooked factor is the absence of a wide-enough legal labor market for low-skilled immigrants. Could the root of the alienation of these immigrants, their dive into an irregular, criminal economy, and their subsequent distrust of institutions and democracy lie therein?
In a democracy, majority rule can transform into tyranny, fostering civil unrest when there’s a stark divide between the majority and minority and resulting in differing policy preferences. In terms of labor market regulation, the safeguarding of some workers has occurred at the expense of others. Around the 1970s, a discernible correlation emerged between substantial increases in the real minimum wage and the collapse of the low-skilled labor market. Subsequently, many offspring of immigrants from Africa have been unable to find legal employment opportunities until well into adulthood.
The heart of the problem is the absence of a broad, legal labor market for immigrants, primarily due to the minimum wage. In the early 1970s, French leaders—such as left-wing vice president of the Senate André Méric or former minister and academician Édouard Bonnefous—were cognizant that proposed minimum-wage hikes would decimate immigrant employment.
What they failed to anticipate was that the immigrants would remain in France, subsisting on an economy fueled by subsidies, along with extortion, theft, smuggling, and other illicit activities. In an ideal world, those who remained in France would have strived academically to acquire marketable skills. Many did, but for many others, the opposite occurred. As their neighborhoods succumbed to crime and violence, it pushed the legal labor market further out of reach of many immigrants.
Violence is contagious. Violence among populations detached from the regular market is bound to affect society at large, including those less hindered by public policies. The recent events have been so destructive because youths with no relevant immigrant background and better socioeconomic integration have been attracted by this violence.
The issue at hand is government failure. It is essential for the government to halt its interferences with a free labor market. This can only help immigrants secure legal jobs. At this stage, it is also necessary to decriminalize soft-drug trafficking to dismantle the criminal networks flourishing within this trade. In essence, excessive state interventions have disproportionately harmed the most vulnerable, fanning the flames of social and political chaos.
Ryan McMaken joins Bob to discuss the recent US Women's World Cup elimination, and to dispel the myth that markets are discriminatory. After defending Megan Rapinoe's failed penalty kick, they dismantle her outspoken views on "equal pay" in sports, and examine the left's claim that law is required to fix prejudice in the labor market.
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Up from Conservatism: Revitalizing the Right after a Generation of Decay
Edited by Arthur Milikh
Encounter Books, 2023; 328 pp.
The contributors to Up from Conservatism, most of whom are associated with the Claremont Institute, think that “movement” conservatism has failed, in large part through acceptance of the premises of the Left. The Right needs to carry the battle to the enemy, aiming at its destruction and its replacement by a sounder regime. The contributors include Michael Anton, David P. Goldman, Scott Yenor, and, much in the news of late, Richard Hanania, and their essays make many useful points; but the book suffers from a fatal flaw.
On the one hand, it protests against the tyranny of the state; but on the other, it calls for the expansion of that very state to bring about its own favored goals. A leftist “woke” state is bad; not so a “national greatness” state. The contributors differ among themselves, and it would be wrong to impute the statist proclivities of some of them to the others, but this is a book divided against itself.
Many of the contributors find disturbing the “woke” movement, which holds that because of past oppression of “protected” groups, members of these groups must receive preferential treatment today. Those who dissent from this view are ruthlessly suppressed, and the inquisitorial powers of the state are deployed against them. According to Joshua Mitchell and Aaron Renn, the “woke” movement has become a religion, and unbelievers must be cast out from society. They write:
Identity politics, . . . now upon us, immanentizes the scapegoat, a Christian heresy, while at the same time affirming that a scapegoat is necessary to take way the sins of the world—an article of Christian faith. . . . Man’s stain is still the consuming issue. But moral cleanliness and purity are not purchased through Christ; instead they are purchased by scapegoating another person or group said to be responsible for the sins of the world. “Not all of mankind is unclean,” declare our identity politics priests, “just the white race”. . . . The unclean must be purged from our midst. . . . In the New Awakening that is identity politics, cathartic rage is directed toward whiteness and all that it has supposedly wrought. (emphasis in original)
As Robert Delahunty notes, the FBI and other national security agencies have become a “deep state,” able to spy on those who incur the displeasure of the government and to harass them:
There is a growing risk that the vast and intrusive state security apparatus created during the War on Terror might now be turned against legitimate political opposition within the country, and that manufactured fears of domestic extremism might be used to justify repressive measures. . . . the actual practice of the Justice Department and FBI under Biden strongly suggests that the focus of “domestic security” investigations will be political conservatives exercising their constitutional rights, such as parents of school children objecting to mask mandates, pro-life activists and licensed gun owners. . . . For the Biden administration and the intelligence community that services it, violent left-wing domestic extremism seems invisible.
One would think that the lesson from this abuse of power is to curtail the powers of these nefarious agencies, and Delahunty deserves great credit for considering their outright abolition. He says:
Proposals not merely to reform but to abolish the FBI have been raised over many years on both the civil libertarian Left and the antistatist Right. The FBI’s proclivity to illegal and unethical conduct seems inscribed in its DNA and its recent shameful attempt to undermine a democratically elected president have [sic] taken its wrongdoing to a new level. The difficulty, however, is that a successor agency, even If populated by an entirely new staff, would likely return to the current agency’s patterns and practices if it were to possess the same powers and responsibilities.
Evidently, he does not fully grasp that under the libertarian proposal, there would be no successor agency at all.
I regret that some of the contributors react to the abuses of “wokeism” by saying, in effect, “If only we can come to power, we will turn the instruments of the state against our enemies. We will destroy those who tried to destroy us.” Matthew Peterson says:
As those engaged in current legal battles have pointed out, whether it be free speech, antitrust, or common carrier laws and regulations, there are plenty of avenues already available to protect consumers and attack the corporations now wielding their power against employees, customers, and competition to further a political agenda. What we lack is the will to deploy them. If we . . . engage in the full-scale economic war that corporations are already waging against us, we will unleash the talent and creativity of politicians, policy-makers, and lawyers at a much greater scale and with much greater effectiveness than we’ve seen thus far. The Left successfully carried out such a program over the past decades.
Peterson is certainly right that government subventions to corporations must end, but to act in the way he suggests would be to ignore all that history has taught us about the state, that “coldest of all cold monsters.”
Many of the contributors call for protective tariffs and the return of manufacturing jobs to the United States.
As the nation’s first secretary of the treasury, Hamilton, in his Report on Manufactures, urged a policy of promoting American manufacturing. According to Hamilton, national “independence and security” are objectives of all governments, which require America to “possess within itself all the essentials of national supply,” including “the means of subsistence, habitation, clothing, and defense.” (emphasis in original)
Carson Holloway is right that this was Hamilton’s view, but why should we accept it as correct? How does impeding American trade promote our security? We are owed some argument but do not get it: the fact that one of the Founders favored this view is enough.
A policy of high tariffs would require the state to pick winners and losers, and this is even more true of the massive partnership between business and the state that David Goldman advocates to promote research and development. Whether this is the path to American “greatness” must be left for others to determine. Certainly it is not the path to liberty.
In order for nations to have capital development and market-based economies, they must have a cultural framework that accepts these developments. Too many nations do not, and they languish in poverty as a result.
Original Article: "Cultural Change Is Necessary for Capital Development"
A friend of mine works for the public sector, in transit specifically. When I asked him to tell me what value he saw in “public transit” for society, he replied,
You must be from the stone ages! Public transit fulfills an important function. It provides transportation for folks who can’t afford the private solutions, and also solves the problem of congestion and pollution in crowded cities. And it can do some of this better than private enterprise, especially in regard to poor people far away from jobs.
But how does the private sector work, exactly? Many people think of profit as a dirty word, something exploitive. They attach moral judgements to profit-seeking enterprises. Yet, the concept of profit, especially when combined with its corollary (loss), has a social value.
As Ludwig von Mises put it: “In the capitalist system of society’s economic organization, the entrepreneurs determine the course of production. In the performance of this function, they are unconditionally and totally subject to the sovereignty of the buying public, the consumers.”
What’s more, the free market is the purest form of democracy:
The consumers by their buying and abstention from buying elect the entrepreneurs in a daily repeated plebiscite as it were. They determine who should own and who not, and how much each owner should own. . . . The choice is not unalterable and can daily be corrected. . . . Each ballot of the consumers adds only a little to the elected man’s sphere of action. To reach the upper levels of entrepreneurship he needs a great number of votes, repeated again and again over a long period of time, a protracted series of successful strokes. He must stand every day a new trial, must submit anew to reelection as it were.
In the modern economy, monetary calculation allows participants to know whether they are producing value and what the value of their “capital” might be because it allows them to calculate profits and losses. Thus, in the private sector, decisions affecting the limited (scarce) resources of the economy, like those used for public transit, are made by applying this profit and loss test to business plans. This ensures that consumers are in fact getting the things that they most urgently need, which is what Mises calls the primary economic problem.
It also ensures that capital is in the best hands—those who know how to provide these most urgently needed goods at the most profit. Thus, successful entrepreneurs increasingly become the stewards of that capital so that it is allocated to its highest-valued ends.
Importantly, capital must be valued by the consumer: “Profit and loss are generated by success or failure in adjusting the course of production activities to the most urgent demand of the consumers.”
Public departments, bypassing the profit and loss test, may not effectively meet consumer needs. This can lead to resource misallocation and wasted capital.
But what incentive structure, Mises asks, is in place in the public sector that aims at the primary economic problem? “No good should remain unproduced on account of the fact that the factors required for its production were used—wasted—for the production of another good for which the demand of the public is less intense.”
You see, the problem isn’t merely whether the government is providing stuff that people need but whether it is providing that stuff without sacrificing something people need more.
Essentially, because the government ignores profit and loss, “they are, within the limits drawn by the amount of capital at their disposal, in a position to defy the wishes of the public.”
A price system in the private sector allows calculation of a service’s value compared to other societal goods. But by bypassing this system, public services eliminate a critical tool that helps to prioritize scarce resources and understand consumer needs in society.
Moreover, the private company is accountable to its consumers and shareholders.
Government-provided services, as monopolies, often lead to stagnation and lower productivity due to lack of competition. State-run monopolies also risk a distortion of benefits due to incentivizing rent-seeking behavior and other possible abuses due to the disconnect in accountability to consumers and investors. And a public sector monopoly, since it ignores profits and losses and cannot therefore calculate whether the resources it has coopted are being used toward their highest-valued ends, is always going to see a need for more expenditures, especially as it gives services away for free or at a discount.
As a result, the demand for public transit is subsidized and encouraged, but the provider has no way of knowing whether the resources it is diverting from other areas of potential production would not serve consumers better in that area than in this one.
Public services often appear to lack resources due to artificially high demand.
Further, it is essential to challenge the assumption that a scarcity of roads is a naturally occurring problem instead of a consequence of government interference. The way cities are organized, and thus the layout of their transit systems, can also be attributed to governmental intervention. Walter Block’s book The Privatization of Roads and Highways explores many ways the public sector makes roads and highways worse than they would be in private hands. The “tragedy of the commons” is a problem in all public “goods.”
The absence of a “functioning” price system does not allow people to ration the good or service amongst themselves. It is important to realize that every intervention shifts economic power from the consumers’ hands to the producers’ hands, whether that is the government entity or a protected oligarch. As Mises put it, “The result of [any intervention] is to loosen the grip the consumers hold over the course of production.” Thus, if you run a public sector enterprise you are overriding the value consumers place on the thing.
The notion that public transit is offering something that the market system cannot do or has failed to do is always dubious, as there are many empirical examples where market systems have offered better solutions in real time even in this industry.
In a free market, consumers have a wide array of choices, each tailored to their unique needs. Contrast this with a state-controlled system where standard options are the norm and the lack of choices can be frustrating and ineffective for consumers.
So, while public transit sounds like a good idea, it tramples over the consumers’ more urgent needs, reduces consumer choices, and introduces the pitfalls of monopolies—delivering less for more, cronyism, and waste. It is the entrepreneur’s function in a market system to “make decisions” (to “act”) regarding the employment of the scarce capital available toward its most profitable use. The development of prices and free exchange allows for a calculation of costs and profits for this express purpose. The more intense the consumer demand, the more profitable the production of the good will be.
Such incentives drive entrepreneurs to align production with those most urgent demands of consumers (their preferences). The emergence of profit signals a maladjustment in that alignment. It arises because change is a constant in life, which brings endless opportunities for entrepreneurs who observe the problems that need solving. And “high profits are the proof that they have well performed their task of removing maladjustments of production.”
Profits encourage more production of the thing until a point is reached where the opportunity costs of the capital eliminate the profit opportunity and begin to indicate other higher-valued ends for the additional units of that capital good. But none of these calculations are possible without market pricing of capital and consumer goods.
No one would be in a position to calculate the capital returns used to evaluate the use that yields most profit since that’s what consumers must be demanding most urgently.
Does public transit achieve its goal of providing transportation solutions for the needy?
Well, sure. But at what cost we cannot know. We can only know that it creates and subsidizes the demands on the existing infrastructure and capital availability.
We cannot know if the bureaucrats are providing the service economically, whether the best bureaucrat is in charge of the operation, or whether the capital is being used in the service of the primary economic problem.
But if these arguments are so clear, why do we have public goods and the public sector providing them? Chances are good that capital is being wasted on goods that the bureaucrats value higher than the consumer in the scheme of things.
Are the bureaucrats well intentioned like my friend or do they revel in being unaccountable and powerful, in a position to hand out favors to their crony suppliers? No doubt it’s also a money and tax grab for all the free users of the system. In economics it is often the unseen that is not understood. In the case of wasted capital, the unseen is what could have been if that capital were diverted to where consumers more urgently needed it to go.
When it comes to the debt ceiling, political parties are irrelevant, and the recent debt ceiling drama, was little more than a sham.
Original Article: "The Debt Ceiling Debate Was Pure Theater"
[The Right: The Hundred-Year War for American Conservatism. By Matthew Continetti. Basic Books, 2022. 503 pages, Amazon Kindle Edition.]
Why should we be interested in this book? At first glance, it appears that we shouldn’t be. Though the history of American conservatism is of great importance, and the author has amassed a great deal of information about it, he lacks an illuminating analytic framework; the “history” he recounts is little more than one item after another, and when he touches on intellectual matters, he is often wrong. The answer to our question is this: Continetti has a distinctive vision of what American conservatism should be, derived, for the most part, from neoconservatives. He views the political and economic ideas of Murray Rothbard and Ron Paul as inimical to the ideas he favors, and correctly so; to him, we are the enemy, albeit not the only one. We ought then to have a look at his book, if only to see what he says about us.
Continetti makes crystal clear where he stands. As a young man of twenty-two, he was employed at the Weekly Standard, located in an office building he regards as “an intellectual hub—the frontal cortex of the American Right.” (p.10) Also, to be found at this address was “the Project for a New American Century (PNAC) It was a small think tank cofounded by the magazine’s editor that since its inception in 1997 had advocated for a defense buildup, containment of China, and regime change in Iraq.” (p.10) The editor mentioned is Continetti’s father-in-law, Bill Kristol, and throughout the book Continetti proves a faithful follower of that paragon of neoconservatism. In sum, American hegemony, perpetual war, and a modified New Deal that recognizes the free market but calls for the State to promote virtue and welfare: that is the path to be followed.
Continetti does not confine his support for war to the recent past and the present; it is a motif present through the whole course of the book. He sees, and this is a real if hardly original insight, that elitism, the view that an educated and well-off upper class needs to keep the masses firmly in line, and populism, the view that wisdom resides in the American people, have been clashing strains within American conservatism. In Continetti’s opinion, the excesses of populism are particularly to be feared, especially when people have the audacity to oppose war. He says, “Antiwar populists and Progressives joined forces. They assailed the intervention [of Woodrow Wilson in World War I]. They said that shadowy business and political interests were behind it. They lamented the changing demographic makeup of the nation caused by immigration from eastern and southern Europe. Their writings were often anti-Semitic.” (p.27) Away with those bigots!
Continetti is less than surefooted when he writes about the ideas of the Progressives. He says that Wilson “shared the view of historian Charles Beard, who had written in 1913 in The Economic Interpretation of the Constitution [sic] that the nation’s founding document was the product of a group of selfish men primarily interested in shielding themselves from revolt.” (p. 25) This is not Beard’s thesis: Beard argues rather that the framers of the constitution wished to protect personal property, principally bonds, from devaluation by state governments; not, as Continetti has it, to protect against a revolt. Moreover, Beard does not claim that the framers were selfish.
The author’s accuracy does not improve when he reaches the 1920s. He tells us that “the main figures of the intellectual Right scorned politics. . .The ’New Humanists’, for instance, were a group of literary critics who urged their audience to return to the ’great tradition’ of Western civilization. The leaders of the movement, Irving Babbitt and Paul Elmer More. . .were philosophical rather than political.” (p.34). Babbitt in fact has a good deal to say about contemporary politics, as Continetti would have discovered had he opened his books.
Continetti is aware of H.L. Mencken and Albert Jay Nock, but he scorns these great figures of the Old Right: “Nock’s and Mencken’s exacting standards were meant to expose the inadequacies of their nation and its citizens. They were snappy and memorable writers, but they were oddballs estranged from the beliefs and behaviors of their countrymen. They pined for a departed age of chivalry and Nietzschean self-assertion that had never existed in the United States.” (p.39) It is surprising that he attributes to Nock a “snappy” style. By the way, it’s also surprising that he calls Belloc and Chesterton “Anglo-Catholic writers.” (p.50) Apparently, he does not know that “Anglo-Catholic” refers to a movement within the Anglican Church and does not mean “English Roman Catholics.”
In Continetti’s coverage of the Great Depression, the Austrian school of economics attracts his notice, but he much prefers the less principled Chicago school. “Mises’s commitment to liberalism led him to frame the choice between liberalism and socialism as either-or [How dreadful!]. For Mises, any expansion of government’s limited role was a surrender to bureaucracy and statism. He had little use for the empirical methods and real-world nuance of the Chicago scholars.” (p.55) When he says that Mises’s criticism of socialist central planning was that the planners “could not possibly account for all the variables in an economy,”(p.55) readers familiar with the calculation argument will find it difficult to suppress a smile.
If Continetti is less than enthusiastic about Mises, this is as nothing compared with his revulsion from the main group opposing American intervention in World War II, the America First Committee: “Its spokesman, Charles Lindbergh was. . .an icon to noninterventionists in the Midwest but a villain elsewhere. His refusal to denounce the moral depravity of the Nazis polarized audiences. He rubbed shoulders with Fascist sympathizers and anti-Semites. . .America First could not escape the stench of Nazism.” (p. 67)
As you might expect, Continetti is an ardent Cold Warrior, and he has this to say about the most extreme of the anti-Soviet crusaders: “The grandeur of [James] Burnham’s vision, the clarity of his expression, the force of his argument, and the iciness of his prose were overpowering. The Managerial Revolution became a best seller. . .Burnham became one of America’s most famous writers on foreign affairs. In 1947, he published The Struggle for the World, in which he declared that America was engaged in World War III whether it liked it or not . .Burnham worried that America lacked the will to fight.” (p.85) Continetti does not tell us that Burnham favored a preventive nuclear war against Russia.
In his account of the onset of the Cold War, Continetti has much to say about Whittaker Chambers and Alger Hiss, and in his account of that famous case there is a surprising detail. Chambers in 1939 informed Adolf Berle, a famous law professor and advisor to Roosevelt then serving in the State Department, that he had worked with Alger Hiss as a Soviet agent. The surprise is that he calls Berle a Communist fellow traveler (p.85, repeated on p.89) and shortly afterwards, he names Berle as one of those New Dealers, along with Harry Dexter White, whom “the Right blamed for Soviet gains.” (p.90) The accusation is of course false, as anyone with the slightest familiarity with the period would know. Though Berle was a New Dealer, he was a firm anti-Communist, and I’m unaware of anyone who has suggested otherwise.
The author devotes a few pages to an account of several books that influenced the post-World War II Right, and here once more he does something remarkable. In a brief discussion of Richard Weaver’s Ideas Have Consequences, he says: “Denying the existence of God, the reality of good and evil, and transcendent, unconditional standards of right and wrong was a one-way ticket to the charnel house of Europe and the ruins of Japan. Ideas Have Consequences was unique in that it did not locate these intellectual errors in the recent past. The mistakes had been committed much earlier. . .Weaver blamed the fourteenth-century philosopher William of Ockham.” (p. 103). The remarkable thing Continetti has done is that he does not mention nominalism, the principal item in Weaver’s criticism of Ockham. It’s of course false that Ockham denied the existence of God and the reality of good and evil; he held a divine command theory of ethics.
Given his support for the Cold War, it is to be expected that Continetti would applaud William Buckley’s efforts to expel from the Right those who supported a noninterventionist foreign policy. The noninterventionist views of Franklin Roosevelt’s great critic John T. Flynn were not welcome in Buckley’s National Review; Buckley’s principal guide in foreign policy was James Burnham, who was joined in his advocacy of preventive war against Russia by Frank Meyer and Willi Schlamm. Continetti doesn’t discuss Flynn in this connection, but he describes at some length Buckley’s opposition to the John Birch Society. “After Robert Welch’s American Opinion called for US withdrawal from Vietnam in August 1965, Buckley decided to break with the group unequivocally. Weakness in the face of communism was the final straw.” Continetti cannot see how silly it is to accuse Robert Welch of being soft on communism.
In this book of surprises, it is difficult to pick a winner, but one contender is this: “Reagan. . . went to Eureka College, in Eureka, Illinois. . .He read Ludwig von Mises and Friedrich Hayek. By the time he graduated, his individualistic, Christian, democratic world view was fully formed.” (p.194) One wonders how Reagan managed this. He attended Eureka between 1928 and 1932, and Mises’s major works did not begin to become available in English translation until the mid-1930s. Perhaps Reagan read them in the original German. And if his individualistic world view was fully formed, why was he a supporter of the New Deal?
Continetti rightly stresses the influence of Allan Bloom’s The Closing of the American Mind. He says that “Bloom wrote that the university had abandoned the theory of natural rights that informed the American founding.” (p.311) This misrepresents Bloom’s view by omission. Bloom thinks that the Lockean concept of rights that influenced the American founding fathers already surrendered to relativism, in that it broke with classical philosophy, as interpreted by Leo Strauss; the abandonment of the theory of natural rights in the modern university is a further stage in this break. Continetti again botches things in his remarks about Bloom’s friend Alexandre Kojève, “the French philosopher whose lectures on G.W. F. Hegel had reintroduced the framework of the Hegelian dialectic into European thought. History, in this understanding, was the unfolding story of the state’s recognition of man’s freedom.” (p.321) Kojève, in his very influential lectures on Hegel’s Phenomenology of Spirit, did not adopt the familiar understanding of Hegel’s Lectures on the Philosophy of History that history is the progressive realization of freedom; Kojève’s lectures would hardly have had much impact had he adhered to this conventional interpretation. To the contrary, he argued that for Hegel, history ends in the “universal homogeneous state,” which is not the realm of freedom but is a condition as bad as it sounds. And though Kojève’s lectures were indeed important, it is silly to say that he reintroduced Hegel’s dialectic into European thought. I shall give just one more example of Continetti’s unusual talent for reversing the theses of books he discusses. He says that “Mancur Olson, in his Logic of Collective Action (1965) stated that the American economy had a free-rider problem: the majority benefited from public goods whose full cost they did not pay.” (p.272) Olson’s thesis is the opposite: owing to the free-rider problem, large groups cannot produce public goods from which they would benefit.
I noted at the beginning that Continetti has no use for Rothbard and Ron Paul. Their failing was that they “opposed the ‘globalism’ of a ‘neoconservative’ foreign policy that sought to maintain Pax Americana.” (p.369). Pat Buchanan, Sam Francis, and Joe Sobran are other offenders. Indeed they opposed neoconservative globalism; and for some of us, that is a badge of honor.
Originally published by LewRockwell.com.
The Biden Administration is attempting to do a victory lap for "Bidenomics", but the public isn't buying it. On this episode of Good Money, Dr. Jonathan Newman joins the show to talk about his doubts of a "soft landing" for the economy, and the lies being told to sell Central Bank Digital Currencies.
Jonathan Newman's article on CBDCs: Mises.org/GM18a Jonathan Newman's article on "Soft Landing" headlines from 2007: Mises.org/GM18b
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
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On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop are joined by Econ Bro, the founder of Nigerian Liberty, which offers seminars in Austrian economics in Nigeria. The three discuss the inflation crisis in Nigeria, the cultural consequences of rising prices in the country, and the costs of the state capture of its petrol industry.
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Many economic commentators view debt as a major risk factor as far as economic health is concerned. This way of thinking has its origins in the writings of Irving Fisher. According to Fisher, the high level of debt runs the risk of setting in motion deflation and, in turn, a severe economic slump. According to Fisher, the high level of debt sets in motion the following sequence of events.
Stage 1: The debt liquidation process is set in motion because of random shocks; for instance, a sudden, large fall in the stock market. The act of debt liquidation forces individuals into the distressed selling of assets.
Stage 2: Because of the debt liquidation, the money stock starts shrinking and this, in turn, slows down the velocity of money.
Stage 3: A fall in the money stock leads to a decline in the price level.
Stage 4: The value of individuals’ assets falls while the value of their liabilities remains unchanged. This results in a decline in the net worth, which precipitates bankruptcies.
Stage 5: Profits start to decline and losses emerge.
Stage 6: Production, trade, and employment are curtailed.
Stage 7: All this leads to a growing pessimism and a loss of confidence.
Stage 8: This leads to the hoarding of money and a further slowing in the velocity of money.
Stage 9: Nominal interest rates decline; however, because of a fall in prices, real interest rates rise.
Note that the critical stage in this way of thinking is stage 2 (i.e., the debt liquidation that sets in motion a decline in the money stock). Why, however, should debt liquidation cause a decline in the money stock?
Not Every Debt Liquidation Causes a Decline in the Money Stock Take a producer of consumer goods who consumes part of his produce and saves the rest. In the market economy, the producer could exchange the saved goods for money. He can then make a decision to deposit the money with a bank or lend his money to another producer through the mediation of the bank. By lending his money, the lender transfers his savings to a borrower for the duration of the lending contract.
The borrower could employ the money in the purchase of consumer goods that will support him while he is engaged in the production of other goods, let us say the production of tools and machinery.
Can the liquidation of credit, which is fully backed by savings, cause a decline in the money stock? Once the loan contract expires, the borrower returns the money to the original lender on the maturity date. Note that the repayment of debt or debt liquidation does not have any effect on the stock of money.
Things are, however, different when a bank uses some of the deposited money and lends it out without the depositor’s consent. Note that the owner of the deposited money has an absolute claim over the money.
On the day of loan maturity, once the money is repaid to the bank, this type of money will disappear since it never had a proper owner to whom it should be returned.
In a free market without the central bank, if a bank makes loans unbacked by savings it is likely to end up in serious trouble. If depositors were to decide to withdraw money from their respective demand deposits at the same time, the bank would not be able to oblige since it would not have enough money.
On this Ludwig von Mises wrote,
People often refer to the dictum of an anonymous American quoted by Tooke: “Free trade in banking is free trade in swindling.” However, freedom in the issuance of banknotes would have narrowed down the use of banknotes considerably if it had not entirely suppressed it. It was this idea which Cernuschi advanced in the hearings of the French Banking Inquiry on October 24, 1865: “I believe that what is called freedom of banking would result in a total suppression of banknotes in France. I want to give everybody the right to issue banknotes so that nobody should take any banknotes any longer.”
Money Supply and the Pool of Savings We suggest that the decline in money stock that precedes price deflation and an economic slump is triggered by the previous loose monetary policies of the central bank and not by debt liquidation.
It is caused by easy monetary policy, which provides support for the generation of unbacked credit. (Without this support, banks would have difficulties practicing fractional reserve lending.)
The unbacked credit leads to the reshuffling of savings from wealth generators to non–wealth generators. This weakens the ability of wealth generators to grow the pool of savings or the subsistence fund and weakens the economic growth. Note that the heart of economic growth is the pool of savings or the “subsistence fund.”
According to Eugen von Böhm-Bawerk, “The entire wealth of the economical community serves as subsistence fund, or advances fund, and, from this, society draws its subsistence during the period of production customary in the community.”
Similarly, Richard von Strigl wrote,
Let us assume that in some country production must be completely rebuilt. The only factors of production available to the population besides labourers are those factors of production provided by nature. Now, if production is to be carried out by a roundabout method, let us assume of one year’s duration, then it is self-evident that production can only begin if, in addition to these originary factors of production, a subsistence fund is available to the population which will secure their nourishment and any other needs for a period of one year. . . . The greater this fund, the longer is the roundabout factor of production that can be undertaken, and the greater the output will be. It is clear that under these conditions the “correct” length of the roundabout method of production is determined by the size of the subsistence fund or the period of time for which this fund suffices.
Because of the prolonged and aggressive loose monetary and fiscal policies, a situation can emerge when the pool of savings starts declining. We now have more activities that consume wealth than activities that produce wealth. Once the pool of savings starts dwindling then anything can trigger an economic collapse.
With the deterioration in economic conditions, banks are starting to curtail their supply of credit out of “thin air.” As a result, once loans out of “thin air” are repaid and not renewed, the stock of money comes under downward pressure.
Note that the consequent price deflation and the fall in economic activity is not caused by the liquidation of debt nor the fall of money but by the decline in the pool of savings because of previous loose monetary policies.
Unbacked by Savings, Lending Poses a Risk to the Economy Observe that when banks fulfill the role of the intermediary, they are engaged in the mediation of the lending of savings. In this sense banks make an important contribution in the wealth-generation process. By means of lending, banks widen this process.
An increase in debt because of wealth expansion is great news. The larger the debt the more prosperous the economy. The problem is not with the size of the debt but with policies that weaken the wealth-generation process through weakening the pool of savings or the subsistence fund.
Furthermore, lumping individuals’ and the government’s debt into a total national debt is a questionable practice. The government is not a wealth-generating unit and derives its livelihood from the private sector. Consequently, any government debt incurred means that the private sector will have to foot the bill sometime in the future.
Conclusion Contrary to the popular way of thinking, the threat to the US economy is not the high level of debt but loose monetary policies that undermine the pool of savings and the wealth-generation process. Hence, the fall in the money stock that precedes price deflation and an economic slump is actually triggered by the previous loose monetary policies and not by the liquidation of debt.
President Biden announced recently to much fanfare that his administration will transform the US economy through central planning. This does not end well.
Original Article: "Bidenomics Is Yet Another Version of Failed Industrial Policy"
The exodus of human capital is a primary concern for developing countries wishing to stem the tide of emigration. Some believe that emigration prevents poor countries from capitalizing on the talents of their best people. Critics suggest that poor countries would excel if the smartest minds did not emigrate. Theoretically, this sounds plausible; however, it obscures the inspiration for emigration.
If underperforming countries could equip their citizens with superior alternatives, then they would not migrate. Richer countries lure quality immigrants because of their infrastructure. Immigrants are attracted to their universities, institutions, and commercial excellence. Working in a developed country provides greater scope for professional enrichment.
Exposure to first-rate training and cutting-edge technology means that people can create greater value in a developed country. Immigrants would be less impactful had they remained in the developing world. Choosing to remain in an unproductive country only limits the ability of competent people to make a global contribution. Quite often, the genius of the smartest minds is constrained by the limitations of poor countries.
In successful countries, more options exist for people to thrive. Due to economic diversification, opportunities for employment are more plentiful. Further, in richer countries, the private sector plays an instrumental role in development. Therefore, there is less reliance on government employment.
Government has a political agenda, whereas the private sector has an economic agenda, so the growth of government can sap the dynamism of the private sector. Promoting economic freedom in the developing world would curb the level of emigration by unleashing the entrepreneurial talents of citizens. Richer countries exhibit higher levels of economic freedom; therefore, it’s easier for their citizens to become wealthy. For instance, Rwanda is perceived as a rising economic star in Africa, and economists attribute its prosperity to economic freedom.
Unlike Rwanda, some developing countries use the state as a bludgeon to badger citizens. Not only are economic activities severely regulated but corrupt politicians also employ government resources as a tool to elevate cronies. Corruption is another major reason for emigrating. There is a strong perception in developing countries that success is linked to political networks.
Hence, people who are disconnected from positions of influence feel that success is only possible if they emigrate. The perception is that in countries like the United Kingdom and America, no one is above the law. People truly believe that if you work hard in these countries then you will succeed. In rich countries, there are also critiques of meritocracy, but in the developing world it’s the norm for even low-level positions to be politicized, so the credibility of a meritocratic state is seriously doubted.
Additionally, because of the reputation of some countries, citizens encounter discrimination when traveling or doing business. Some countries in the Caribbean do not need a visa to enter America, Canada, or the United Kingdom. Yet Jamaica is not one due to its reputation for criminality. As such, traveling can really be a hassle for Jamaica.
Doing business online is equally arduous for countries known for financial scams. Ambitious people will travel and do more business than the average person; so if their country’s reputation is a barrier to success, then emigration will become a feasible option. Changing a country’s culture is hard and the political establishment might not possess the will to do so. So to secure their future, citizens migrate to better places.
Apart from structural drivers, emigration is fueled by sociocultural factors. In some poor countries it is widely believed that affluence earns people the ire of unscrupulous persons; therefore, to escape the wrath of envious personalities, people emigrate. Jamaicans refer to envious people as being “bad mind,” whereas others talk about the evil eye. A study even shows that Jamaicans cite envy as a reason for emigrating. Clearly, people are emigrating to access better opportunities and to benefit from higher quality social relationships.
Emigrating to a superior country leads to social mobility, so citizens should not be discouraged from doing so. The world gains nothing when talented people are trapped in unproductive places.
The middle class in all developed economies is disappearing through a constant process of erosion of its capacity to climb the social ladder. This is happening in the middle of massive so-called stimulus plans, large entitlement programs, endless deficit spending, and “social” programs.
The reality is that those who blame capitalism and free markets for the constant erosion of the middle class should think better of it. Massive money printing and constant financing of larger governments with new currency have nothing to do with capitalism or the free market; it is the imposition of a radical form of statism disguised as an open economy. Citizens who hail the latest government stimulus plan fail to understand that the government cannot give you anything that it has not taken from you before. You get a $1,000 check, and you pay three times over in inflation and real wage destruction. That is why a group of economists and experts have launched the Honest Money Initiative. To stop the destruction of the fabric of the economy, the middle class, and businesses via constant debasement of the currency that governments monopolize.
Citizens rarely understand inflation. Many believe that inflation is equivalent to rising prices and therefore blame those who place the tag on a product for the loss of purchasing power of a currency. However, inflation is caused by more units of currency going toward the same number of goods and services. Printing money above demand is the only thing that makes prices rise in unison. If a price rises due to an exogenous reason but the quantity of currency remains equal, all other prices do not rise.
Citizens’ misinformation about inflation is not their fault. There is an army of so-called experts aligned around governments trying to convince them that inflation is caused by anything and everything except the only thing that can make aggregate prices rise at the same time: devaluing the purchasing power of the currency. To allow governments to bloat their size in and out of crises, you must be convinced that the quantitative theory of money does not exist. Money supply times the velocity of money equals the price level, or inflation times the real output of the economy. More money in the system creates higher inflation. The way to convince you that the previously mentioned theory does not exist is to tell you that between 2009 and 2018, there was no inflation, yet the money supply grew significantly. This argument ignores that in that same period, healthcare, childcare, housing, and other non-replaceable goods and services rose an average of 57% according to the AEI, as did the enormous asset price inflation created from real estate to stocks and bonds when money velocity was plummeting.
There is no such thing as “cost-push inflation”, commodity inflation, or supply-chain inflation. There are always more units of currency going to relatively scarce goods and services. Think about it for a second. If suddenly the price of oil rises abruptly for an exogenous factor, like a war, and the quantity of currency is the same, citizens would have less money to purchase other goods and services. The only way in which one cost creeps its way to the final price of a good is if the units of currency issued are rising faster than economic output.
Imagine a twelve-inch stick. You and I understand its size because the unit of measurement does not change. Now imagine that the government and the central bank changed the unit of measure at will. The same stick would be twelve, twenty, or thirty inches, depending on how the measuring unit is manipulated.
Inflation is the perfect and most immoral of taxes because governments and politicians place the blame on supermarkets, service stations, corporations, or foreign producers and present themselves as the solution to the problem these governments have created. Inflation is the constant loss of purchasing power of the currency issued by the government.
Citizens do not understand inflation because most cannot imagine why the government would want them to be poorer. Inflation is the transfer of wealth from savers and real wages to indebted governments. It makes the size of government in the economy larger and erodes the wealth of the private sector. Why?
The artificial creation of new units of currency is never neutral. It disproportionately benefits the first recipients of the new units, government spending and the deficit, and massively hurts the last recipients of money: real wages and savings. It is, in essence, a process of stealth nationalization of the economy.
Government size rises massively in crisis times because “they have to spend” and rises further in recovery times as taxes rise and “extraordinary” spending plans are consolidated and perpetuated while the tax wedge only rises and inflationary pressures persist.
Some want to believe that artificial money creation comes from private banks, not central banks. It is easy to debunk. Make the central bank stop purchasing government bonds, bloating its balance sheet, printing money out of thin air, and manipulating the price of money (interest rates), and we will all see how private banks do not expand the money supply exponentially. Even central banks call it “the transmission mechanism” of monetary policy, and that is why they monitor credit growth as a positive development no matter the accumulated risks.
In his book The Economic Consequences of the Peace, John Maynard Keynes wrote, “Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. Through a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily, and while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but also at confidence in the equity of the existing distribution of wealth”.
Citizens are being robbed of their ability to climb the social ladder through constant financial repression and tax increases. Of course, we are always told that all spending increases will be paid by “the rich”, the modern cornucopia myth that is supposed to cover all the government imbalances and finance every entitlement plan forever. Obviously, those who are fooled by the promise of eternal government free money paid by “the rich” face the harsh reality of paying for the government’s “generosity” multiple times over in lower real wages, lower disposable income, and higher inflation.
The Honest Money Initiative was created to remind citizens that there is no such thing as the cornucopia of the magic government money tree. The reason why it is crucial now is because society seems powerless at the sight of yet another multi-trillion-dollar spending plan financed with currency printed out of thin air.
In The Theory of Money and Credit, Ludwig Von Mises explains: “The sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.” Mises goes on to explain that sound money is a crucial instrument for the “protection of civil liberties against despotic inroads on the part of governments·, as important as the constitution, independent institutions, and the system of checks and balances that protects citizens in a democratic society”.
A currency needs to be a reserve of value, a unit of measure, and a generalized means of payment to be money. The reason why central banks print it out of thin air is to disguise the enormous and rising imbalances of governments. As the process becomes unstoppable, the independence of central banks is not only in question but widely denied. Governments do not want independent central banks because they prefer to increase deficits and control the economy at the expense of citizens’ savings and wages, believing it is for their own good. Currency manipulation is not a tool for growth; it is a tool for control and cronyism. That is why governments count on some powerful allies in the process of complete control and statism. Making you poorer also makes you vulnerable and dependent on an ever-increasing state that promises free wealth and freedom but delivers poverty and repression.
The destruction of the currency is inevitable if honest money is not implemented.
Sound money is as important as independent institutions. It protects the citizen from the perverse incentives of governments to pass their imbalances to the population, and it is essential to guarantee the essence of liberty, which is economic freedom.
Pennsylvania legislators don't claim to be putting people out of work or killing job opportunities. They claim they just want workers to earn more pay.
Original Article: "Pennsylvania Legislators Want Higher Unemployment, Government Dependency, and Crime"
Socialists and communists claim to support the rights of "indigenous" peoples. However, that support rings hollow given how the USSR abused the native peoples of Siberia, all while American socialists and communists uncritically supported the Soviet Union.
Original Article: "The Soviet Abuse of Indigenous Peoples"
One of the few things that most Americans agree about today is that there are serious problems with the current news-media environment. Conservatives have spent decades denouncing the “liberal media,” labeling it a thinly veiled arm of the Democratic Party and, recently, of Big Pharma. Meanwhile, Progressives seem to blame billionaire-created Fox News for just about every problem facing America.
Even the establishment media folks are fretting over their colleagues’ coverage of the Trump indictments and the 2024 election more broadly—wrestling with the fact that the candidate they hate is so good for their business.
All of these criticisms may appear to be unique. But really, they’re simply variations of the same basic argument. That the media is meant to play an important role in our political process but a blind scramble for profits has corrupted journalism and left it unable to serve its higher purpose. In truth, this is exactly backwards. The problems with today’s media stem from politics, not profits.
At its core, journalism is a service where people gather information about recent or ongoing events and communicate that information to those interested. There are plenty of reasons why people would pay for this service. And, importantly, the goals of news consumers can and do vary. Maybe they want news about the area they live in or a specific cause they care about. Perhaps they’re trying to keep up with developments directly impacting their job. Or maybe they enjoy learning about something or keeping up with some celebrity or team.
Plenty of variety exists, but we can also identify a dichotomy of news consumers. On one hand are people who need specific information to help them make a decision. Imagine a father monitoring a storm, trying to determine if he needs to move his family into the tornado shelter. Or imagine an executive following a foreign coup to decide whether she needs to pull nearby employees out of a potentially dangerous situation.
On the other hand are people who consume news for entertainment or educational purposes. Imagine someone who wants to kick his feet up after work and hear his favorite sports pundit analyze the NBA draft results or learn the latest drama about some celebrity couple. One group needs accurate information to weigh a serious and potentially costly decision. The other wants to lean into its tribalist or gossipy tendencies for fun from the comforts of the living room. Both types of news consumers can have their unique needs met on the market.
But when politics enters the picture, it conflates these two demographics in the worst way. From a young age, we’re taught that we live in a democracy. That “we” as voters determine what the government does and that we have an obligation to stay informed on what the government is doing because we’re the ones steering the ship. Because good citizens are knowledgeable about banking mechanics, climate science, immigration trends, the tribal dynamics of eastern Afghanistan, and more. In other words, good citizens follow the news.
Even if this were a desirable ideal—it isn’t—the political process can never incentivize the careful, deliberative news consumption we’d see from the father monitoring a dangerous storm or the executive weighing whether to evacuate employees. At most, a small handful of individuals are involved in these situations. And because the father and the executive are both responsible for the safety of people they care about—and a company’s financial health, in the case of the executive—they will both be very aware of the harm of choosing wrong. Also, importantly, it will likely be clear to them whether they chose wrong after the fact.
Both voters and the governments they supposedly control are protected from these incentives and feedback mechanisms. Even on the hyper-local scale, your vote’s impact on political decisions is negligible. That lowers the stakes of potentially making a wrong decision. Add to that that you’re probably voting for a politician who will make many decisions. And because government is institutionally shielded from economic losses, the feedback on whether the correct course of action was taken is clouded too. And remember, this is all on the local level. Scale up to the state or national level, and these traits are compounded to the point of absurdity.
Is it any surprise, then, that voters with little to no incentive to make sure they’re right, and who are also protected from feedback when they’re wrong, fall into the same media habits as those who consume sports and entertainment news? If you’re supposed to follow this stuff, especially before elections, why not consume the more entertaining options? What’s the downside? And what’s more entertaining than the tribalistic intellectual junk food we see today? It feels good to be told you’re right and that the people you disagree with are stupid.
Not that tribalistic intellectual junk food is a problem in itself. Most sports media is structured this way. It only becomes dangerous when it gets mixed with real-world government policies. Because remember, politics is about using violence to force people to act in ways they don’t want to. It’s deadly serious stuff that causes a lot of misery, poverty, and death around the world.
Politics, not economics, are at the root of the problem with the media. The market is good at getting consumers what they want. This does not absolve the establishment media or the political class. They benefit greatly from this politicized media environment at our expense, as others have made clear. But politics warp people’s media consumption, drive them to consume content that confirms their biases on crucially important topics that are none of their business, encourage them to push those poor decisions into the real world at gunpoint, and shield them from the direct costs of being wrong. Why would we ever expect that to go well?
Money supply growth fell again in June, remaining deep in negative territory after turning negative in November 2022 for the first time in twenty-eight years. June's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years.
Since April 2021, money supply growth has slowed quickly, and since November, we've been seeing the money supply repeatedly contract—year-over-year— for six months in a row. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996.
Money-supply growth has now been negative for eight months. During June 2023, the downturn continued as YOY growth in the money supply was at –12.4 percent. That's up slightly from May's rate of –13.1 percent, and was far below June's 2022's rate of 5.7 percent. With negative growth now falling near or below –10 percent for the third month in a row, money-supply contraction is the largest we've seen since the Great Depression. Prior to March through June of this year, at no other point for at least sixty years has the money supply fallen by more than 6 percent (YoY) in any month.
The money supply metric used here—the "true," or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2.
The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates, although TMS has fallen faster than M2. In June 2023, the M2 growth rate was –3.5 percent. That's slightly up from May's growth rate of –3.7 percent. June 2023's growth rate was also well down from June 2022's rate of 5.6 percent.
Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth.
It should be noted that the money supply does not need to actually contract to signal a recession and the boom-bust cycle. As shown by Ludwig von Mises, recessions are often preceded by a mere slowing in money supply growth. But the drop into negative territory we've seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen. That is generally a red flag for economic growth and employment.
The fact that the money supply is shrinking at all is so remarkable because the money supply almost never gets smaller. The money supply has now fallen by $2.8 trillion (or 15.0 percent) since the peak in April 2022. Proportionally, the drop in money supply since 2022 is the largest fall we've seen since the Depression. (Rothbard estimates that in the lead up to the Great Depression, the money supply fell by 12 percent from its peak of $73 billion in mid-1929 to $64 billion at the end of 1932.)1
In spite of this recent drop in total money supply, the trend in money-supply remains well above what existed during the twenty-year period from 1989 to 2009. To return to this trend, the money supply would have to drop at least another $4 trillion or so—or 22 percent—down to a total below $15 trillion.
Since 2009, the TMS money supply is now up by nearly 184 percent. (M2 has grown by 146 percent in that period.) Out of the current money supply of $18.8 trillion, $4.5 trillion of that has been created since January 2020—or 24 percent. Since 2009, $12.2 trillion of the current money supply has been created. In other words, nearly two-thirds of the money supply have been created over the past thirteen years.
With these kinds of totals, a ten-percent drop only puts a small dent in the huge edifice of newly created money. The US economy still faces a very large monetary overhang from the past several years, and this is partly why after fourteen months of slowing money-supply growth, we are not yet seeing a sizable slowdown in the labor market.
Nonetheless, the monetary slowdown has been sufficient to considerably weaken the economy. The Philadelphia Fed's manufacturing index is in recession territory. The Empire State Manufacturing Survey is, too. The Leading Indicators index keeps looking worse. The yield curve points to recession. Individual bankruptcy filings were up 68 percent in the first half of the year. Temp jobs were down, year-over-year, which often indicates approaching recession.
Money Supply and Rising Interest Rates An inflationary boom begins to turn to bust once new injections of money subside, and we are seeing this now. Not surprisingly, the current signs of malaise come after the Federal Reserve finally pulled its foot slightly off the money-creation accelerator after more than a decade of quantitative easing, financial repression, and a general devotion to easy money. As of July, the Fed has allowed the federal funds rate to rise to 5.50 percent, the highest since 2001. This has meant short-term interest rates overall have risen as well. In June, for example, the yield on 3-month Treasurys remains near the highest level measured in more than 20 years.
Without ongoing access to easy money at near-zero rates, however, banks are less enthusiastic about making loans, and many marginal companies will no longer be able to stave off financial trouble by refinancing or taking out new loans. For example, Yellow Corporation, a trucking company, has declared bankruptcy and will lay off 30,000 workers. Tyson Foods announced this week it is closing four chicken processing plants in an effort to cut costs. 3,000 workers are likely to lose their jobs as a result. These firms have experienced financial problems for years, but rising interest rates preclude additional delays of the inevitable. We will see more of this as more companies face the realities of higher rates. (In another sure sign of a slowing economy, state and local tax revenues have been falling.)
Meanwhile, as lenders get spooked by tightening cash availability, it's getting more difficult to qualify for a home loan, and credit availability is the tightest its been in a decade. Meanwhile, the average 30-year mortgage rate rose in July to nearly the highest point since 2002.
One of the most troubling indicators is soaring credit card debt even as interest rates soar. As of May 2023, the commercial bank interest rate rose to the highest rate measured in at least 30 years. Just last year, the interest rate hovered around 15 percent. In May 2023, it reached over 20 percent. This is happening as credit card debt and other revolving loans have reached a new all-time high.
These factors all point toward a bubble that is in the process of popping. The situation is unsustainable, yet the Fed cannot change course without reigniting a new surge in price inflation. Any surge in prices would be especially problematic given the rising cost of living. Both new and used cars are becoming increasingly unaffordable. Ordinary Americans face a similar problem with homes. According to the Atlanta Fed, the housing affordability index is now the worst it's been since 2006, in the midst of the Housing Bubble.
If the Fed reverses course now, and embraces a new flood of new money, prices will only spiral upward. It didn't have to be this way, but ordinary people are now paying the price for a decade of easy money cheered by Wall Street and the profligates in Washington. The only way to put the economy on a more stable long-term path is for the Fed to stop pumping new money into the economy. That means a falling money supply and popping economic bubbles. But it also lays the groundwork for a real economy—i.e., an economy not built on endless bubbles—built by saving and investment rather than spending made possible by artificially low interest rates and easy money.
Recorded at the 2003 Supporters Summit: Prosperty, War, and Depression. Ralph Raico discusses how from Jefferson to Madison, and on to Bastiat, Molinari, and Spencer, the "classical" liberals routinely denounced war as the enemy of freedom, prudence, and natural rights. Instead, militarism and imperialism have long been the domain of the enemies of private property and other apologists for the state.
(32:19)
The use of interstate compacts by US states shows that the states don't need the federal government to dictate or manage interstate relations.
Original Article: "States Can Curb Federal Power through "Soft Secession""
In the dynamic and ever-evolving digital landscape, open protocols have emerged as a powerful force, challenging closed-source models and reshaping industries. Beyond their technical merits, open protocols embody fundamental economic principles that foster innovation, competition, decentralized decision-making, and even censorship resistance. By embracing open protocols, societies can harness the creative energies of individuals and entrepreneurs, empowering them to discover, create, communicate freely, and resist censorship in the digital age.
Spontaneous Order and the Market Process At the core of open protocols lies the principle of spontaneous order, enabling decentralized decision-making and voluntary interactions among individuals and businesses. Unlike closed-source models that exert centralized control, open protocols promote dynamic competition, foster innovation, and drive the discovery of novel solutions through the collective wisdom of the crowd. By leveraging decentralized coordination, open protocols create a self-regulating system that adapts and evolves based on market signals.
One distinguishing feature of open protocols is permissionless innovation, eliminating barriers to entry and encouraging entrepreneurial experimentation. Entrepreneurs and innovators can freely develop and deploy new applications and services without seeking authorization or overcoming restrictive gatekeepers. This freedom fosters a culture of risk-taking, creativity, and the development of disruptive solutions. It provides opportunities for a diverse range of entrepreneurs to experiment, iterate, and bring fresh ideas to the market, nurturing a vibrant ecosystem of competition.
Open protocols also facilitate a free and competitive marketplace of ideas by empowering individuals to pursue their interests and engage in mutually beneficial exchanges directly. This decentralized marketplace encourages collaboration, competition, and the free flow of information, maximizing the potential for discovery. By nurturing the exchange of diverse ideas and perspectives, open protocols fuel innovation, continuous improvement, and societal progress.
Within open protocols, spontaneous entrepreneurship thrives due to the absence of permission requirements and reduced barriers to entry. This freedom inspires individuals to identify market gaps, take risks, and create innovative applications and services that cater to the diverse needs and preferences of consumers. Encouraging entrepreneurial dynamism, open protocols drive continuous improvement, consumer satisfaction, and economic growth. Entrepreneurs are free to explore their visions, adapt swiftly to changing market conditions, and learn from failures. This culture of spontaneous entrepreneurship within open protocols cultivates a dynamic ecosystem that rewards innovation, creativity, and resilience, enabling transformative solutions to shape industries and drive progress.
Censorship Resistance and Freedom of Expression Open protocols possess inherent qualities that make them resistant to censorship and protect freedom of expression. Closed-source protocols are susceptible to arbitrary censorship or restrictions imposed by centralized entities. In contrast, open protocols empower individuals to communicate and express their ideas freely, without fear of suppression or interference. The decentralized nature of open protocols combined with cryptographic techniques make it challenging for any single authority to control or manipulate the flow of information. This resistance to censorship safeguards the diversity of voices and ideas, fostering an environment that nurtures creativity and innovation while preserving fundamental rights.
Open protocols provide a censorship-resistant infrastructure where individuals can freely express their ideas and opinions without fear of external interference. The decentralized nature of open protocols, often built on distributed networks and consensus mechanisms, makes it difficult for any single entity or government to exert control over the content and communication occurring within the protocol. This resistance to censorship ensures that diverse perspectives can be shared, ideas can be debated, and information can flow freely, enabling societies to benefit from the collective wisdom of their participants. By upholding freedom of expression, open protocols play a vital role in preserving liberty, fostering intellectual growth, and enabling innovation that thrives in an open and inclusive environment.
In today’s draconian landscape, open protocols act as sly, roundabout ways to circumvent traditional centralized systems, reclaiming power from the state and restoring it to the individual. In the realm of monetary networks, Bitcoin emerges as a prime example, challenging the dominion of central banks and their destructive monetary policies. Operating as a voluntary and decentralized system, Bitcoin offers monetary transparency, limited supply, and enhanced financial inclusion.
Likewise, decentralized social networks built on protocols like nostr present a clever workaround to platforms such as Twitter and Facebook. These networks empower users, endowing them with control over their data and defying the censorship wielded by corporations and governments. Through the adoption of open protocols, individuals reclaim autonomy and participate in a covert revolution, shaping a digital landscape that champions individual sovereignty.
Potential Limitations to Open Protocols While open protocols offer numerous benefits, it is important to consider potential counterarguments and limitations. Scalability can pose challenges for open protocols, particularly those based on decentralized networks as they may encounter slower processing times and higher costs with increasing user numbers and transactions. Regulatory bodies may seek to impose restrictions or regulations on open protocols to maintain control, potentially creating legal challenges and uncertainties that impede innovation.
It is worth noting that users must take on the responsibility for their own security, privacy, and data management, which may require a certain level of technical knowledge and caution. Furthermore, governance issues can arise within community-driven open protocols, as decision-making and achieving consensus among participants can be complex. In light of these considerations, the remarkable transformative potential of open protocols in fostering entrepreneurship, spontaneous order, and individual sovereignty remains resoundingly compelling.
Conclusion Open protocols serve as a powerful catalyst for spontaneous order, entrepreneurial dynamism, and resistance against censorship in the digital age. By enabling decentralized decision-making, permissionless innovation, and the free exchange of ideas, open protocols harmoniously align with fundamental economic principles. Embracing open protocols empowers individuals and entrepreneurs, fostering dynamic marketplaces and propelling economic progress. Moreover, open protocols provide a critical safeguard against censorship, preserving freedom of expression and facilitating the free flow of information.
Recognizing the transformative potential of open protocols is crucial in shaping a future that upholds innovation, competition, individual empowerment, and the preservation of fundamental rights and values. Through open protocols, societies can unleash the creative energies of individuals, drive economic growth, and build a more resilient and inclusive digital ecosystem. By embracing open protocols, we unlock the true potential of the digital age, where spontaneous order, entrepreneurial dynamism, and freedom of expression flourish, leading to a more prosperous and vibrant society.
For college football fans, it’s already been a wild August week before the first kickoff.
Reminiscent of the Europe of old, and, hopefully, the America of the future, the collegiate athletic landscape in the last several years has witnessed a massive redrawing conference kingdom borders. The most powerful empires are the SEC and the Big Ten, with the former adding the Universities of Texas and Oklahoma and the latter pursuing manifest destiny in the West with the addition of Southern California and UCLA in 2022, and Oregon and Washington this past week.
This shift in borders coincided with a negotiation of television rights. Disney (which owns ESPN and ABC) secured a monopoly on the SEC by adding full broadcast rights to their games to a preexisting arrangement with ESPN that included streaming rights for $3 billion over ten years. The Big Ten was able to package both broadcast and streaming rights with Fox, CBS, and NBC for $7 billion over seven years. Factoring in other revenue sources, industry analysts expect Big Ten and SEC schools to pull in $70 million per school starting in 2024.
The Big 12 responded with its own additions after losing two of its founding members, adding Colorado, Arizona, Arizona State, and Utah this past week. These acquisitions were the result of a successful television deal of their own with ESPN and Fox that is expected to net the Big 12’s programs over $30 million a year.
The loser of this zero-sum game for territory is the Pac-12, the self-named “Conference of Champions,” which now finds itself with four remaining members. It now seems inevitable that the Pac-12 will go the way of the once-proud Southwest Conference, and the less proud Western Athletic Conference, into the dustbin of pigskin history.
Understandably, these major disruptions to a sport fueled by the dynamics of hate-filled rivalries and proud tradition have resulted in a cascade of digital denunciations about the damaging costs of blind greed, the reliable boogeyman for anyone unhappy with particular economic outcomes.
But what does an alternative universe where greed does not exist in the future of sports look like? The boom in sports television-programming rights is a market response to a radical transformation in entertainment consumption. The rise of streaming services has turned sports programming into premium real estate for advertisement as one of the few entertainment options that is watched live. Sports leagues have leverage while Hollywood actors and writers are on strike. While sports channels are laying off analyst-driven content in an age of podcasts and other independent digital content, networks like Fox are investing in the creation of new sports leagues to help fill their time slots.
In The Anti-Capitalistic Mentality, Ludwig von Mises wrote at length about the extent to which capitalism and the pursuit of profit rile the prejudices of various interest groups upset at the ways changing consumer tastes create new challenges. As Mises explains, conservative anticapitalists lament that legacy powers can be ruined if they fail to meet the changing demands of consumers, while progressives condemn the riches that are awarded to those that triumph.
The Pac-12 is a perfect illustration of this dynamic at work.
While it is easy to portray Big Ten and SEC officials as the villains of conference realignment, a look at history paints a picture in which the death of the Conference of Champions resulted from its own entrepreneurial failure.
As Stewart Mandel documented for The Athletic, the seeds for the now Pac-4 were planted over a decade ago. Tasked with filling the large shoes of Commissioner Tom Hansen, Larry Scott sought to inject new energy into West Coast athletics through what was at the time the largest TV deal in history, worth $3 billion over twelve years. In 2011, Commissioner Scott launched a doomed venture called the Pac-12 Network. He followed that up with a standalone channel, which lacked the built-in support of a national network like ESPN.
This independent venture had the potential to maximize the conference’s profit. Instead, as Mandell notes, “the bizarre seven-channel model struggled to gain distribution and never came close to delivering its projected revenue figures. It became an albatross from which league members could never escape.” The consumer behavior of West Coast fans proved to be different than that of fans of the SEC and Big Ten, whose successful standalone networks helped fuel the current TV arms race.
Scott’s tenure became bogged down with controversy and mounting bills. In one instance, he infamously interfered with an officiating decision in a basketball game, undermining the league’s credibility in the eyes of some. A deal made with Comcast to elevate the Pac-12 Network resulted in the conference’s owing the cable giant $50 million in fees.
Scott isn’t entirely to blame for the Pac-12’s woes. The competitive culture of other leagues has resulted in a demand for excellence from their programs. The University of Georgia replaced a beloved and winning coach, Mark Richt, with Kirby Smart because a .738 record wasn’t elite. TCU pressured its all-time most successful coach, Gary Patterson, out of fear of stagnation. The two teams met to play for the national title this past January.
While the willingness of money-prominent programs like Texas A&M, Auburn, and Florida to spend to hire and fire head coaches has been seen as a perversion given the illusion of “amateurism” in college sports (made thinner by Name, Image and Likeness money now available to student athletes), college sports programs are ultimately economic firms engaging in highly competitive environments. Success on the field means money and prestige for both the athletics programs and the universities that they represent.
In recent years, the Pac-12’s competitive edge has been wanting. Ever since Pete Carroll left USC for a return to the NFL, the windows of opportunity to achieve national significance have been brief for Pac-12 members. Oregon’s run with Chip Kelly, a true sports science entrepreneur, lasted three years before he moved on to the pros. The respected Chris Petersen made Washington nationally relevant before stepping away from the game in 2014. Lincoln Riley revived a USC program that has never returned to its Carroll-led glory. Most conference members seemed content with mediocrity, which was on full display with the constant poor performances during bowl season.
The willingness to rest upon past success also seemed to cloud the judgment of Commissioner Scott’s replacement, George Kliavkoff. Saddled with Scott’s lingering financial issues and the loss of the profitable Los Angeles television market, Kliavkoff opened up bidding for a new television contract with a deal reportedly worth around $50 million a school. No one was interested. Kliavkoff ended up with a streaming agreement with Apple that would have offered teams around $20 million a year plus incentives for subscription sign-ups for Apple TV+ had it been approved. The legacy of the Pac-12 Network did not help the deal’s image among university leaders.
In contrast, Big 12 commissioner Brett Yormark, himself reeling from the pillaging of his two biggest brands, which even had pundits asking whether the conference’s death was inevitable, managed to do what Kliavkoff couldn’t: get a deal done, and take four of the Pac-12’s members.
Often in discussions of the sports business, emotion triumphs over economic reality. WNBA salaries are the result of misogyny. Running backs are exploited. Players’ labor is what drives the value of college football. None of this is true.
Sports, even collegiate sports, is a business. A business with history, pageantry, and tradition, but a business nonetheless. Institutions capable of winning on and off the field will inspire new generations of tradition and rivalries. Those that can’t will end up like Sewanee, which once had the most powerful football program in the South. This isn’t new to the modern era, it’s a reality inherent to competition.
The fall of the Pac-12 is an unfortunate end to a proud collegiate institution. But its death isn’t the fault of uncurable greed but of the conference’s own inability to be competitive in the game.
Some residents of St. Louis, fed up with the nonprotection from the city's police, have hired private security to deal with the problem. The egalitarian Left, of course, doesn't like that.
Original Article: "Egalitarianism as a Revolt against Safety"
“Experts” at the Federal Reserve and other central banks proudly broadcast the potential “financial inclusion” that could be achieved with a central bank digital currency (CBDC). In the Fed’s main CBDC paper, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” they make it clear: “Promoting financial inclusion—particularly for economically vulnerable households and communities—is a high priority for the Federal Reserve . . . a CBDC could reduce common barriers to financial inclusion.”
The term has a ring to it that signals support for progressive goals. “Inclusion” is part of the Orwellian trio of terms “diversity, inclusion, and equity,” which, as Dr. Michael Rectenwald writes, means “surveillance, punishment of the ‘privileged,’ sacrifice of national citizens to global interests, and the labeling as ‘dangerous’ and marking for (virtual) elimination those supposed members or leaders of ‘hate groups’ who oppose such measures.” The central banks’ use of “financial inclusion” involves the same reversal of meanings.
Financial Inclusion and Unbanked Households Consider that a retail CBDC would be like having a bank account with the Federal Reserve, even if it is intermediated by another bank. There is a lot of guesswork about how a CBDC will be implemented, but some say that it will not just be like having a bank account with the Fed, but that it could be exactly that.
Either way, if a CBDC were genuinely aimed at financial inclusion, it would offer something to those who have chosen to forgo a bank account entirely. This “unbanked” population constitutes about 5.4 percent of US households according to a 2021 Federal Deposit Insurance Corporation (FDIC) survey. The survey asked each household why they do not have a bank account, and the responses indicate that minimum balance requirements, privacy, trust, and fees are the most significant factors.
Figure 1: Unbanked households’ reasons for not having a bank account, 2021 (percent)
Source: FDIC, 2021 FDIC National Survey of Unbanked and Underbanked Households (FDIC, 2022), fig. ES.3.
The critical question, then, is this: what does a CBDC offer these households that physical cash and other nonbank financial services (e.g., check cashing, money orders, prepaid cards) do not?
Privacy (or Lack Thereof) A CBDC undermines privacy. Whatever a central bank might say about privacy protection with a CBDC can be safely dismissed. The Fed paper, for example, says, “Protecting consumer privacy is critical. Any CBDC would need to strike an appropriate balance, however, between safeguarding the privacy rights of consumers and affording the transparency necessary to deter criminal activity.” We should not conflate the characteristics of a CBDC with those of cryptocurrencies in general, which offer anonymity and pseudonymity to their users.
Consider how the IRS recently pried open PayPal, Venmo, and Cash App accounts with transactions over $600. Consider also that the Supreme Court just ruled that the IRS can investigate your bank accounts without notification in some circumstances, including if you are a friend, family member, or associate of someone who owes the IRS.
Beyond taxes, banks also willingly hand over personal information (even without a warrant or formal request) to the FBI. This data, which includes previous firearm purchases, belongs to people who show up at the wrong protest or who were merely in the vicinity as the data is collected based on transactions within a specific geographic area.
The lack of privacy with bank accounts certainly contributes to the distrust people have for banks, as noted in the survey. This shows that “financial inclusion” is a mere buzzword as there is nothing about a CBDC that would gain the trust of unbanked households, who are not excluded from the banking system but actively avoid it.
Fees and Negative Interest Rates According to the survey, fees are another commonly cited reason for being unbanked. People avoid banks because the fees are steep and unpredictable.
Although there is no certainty regarding how a CBDC would operate, many see that it could finally offer the holy grail of monetary policy: the ability to impose negative interest rates. In effect, this would be a fee for holding a CBDC.
After the 2008 crash, the Fed reached the “zero lower bound” for nominal interest rates. They were unable to stimulate more spending through their interest rate targeting approach. While there were a few outlandish ideas about imposing a negative interest rate on cash, like the idea of Greg Mankiw’s student to remove the legal tender status of all currency with a serial number ending in a randomly selected digit, it is just too difficult to impose a fee on the cash in your wallet or safe.
With a digital currency, it becomes effortless, especially if the use of physical cash is significantly diminished or even eliminated altogether. The monetary policy authorities would simply press a button and deduct a certain amount of CBDC from everyone’s accounts. Think of the spending they would encourage if everybody knew their unspent money would be subject to such a penalty!
Conclusion The “financial inclusion” rhetoric in central bank papers and speeches on CBDCs is laughable. Presently, people avoid banks because they distrust banks, value privacy, and despise fees. A CBDC wouldn’t help with any of these concerns. Instead of promoting inclusion, a CBDC would become the ultimate tool for financial intrusion and control.
The tyrannical potential is not a secret, even for the army of technocrats pushing for CBDCs. At a recent World Economic Forum event in China, Eswar Prasad matter-of-factly brandished the inevitable weaponization of CBDCs:
And one final note that I’ll make is that if you think about the benefits of digital money, there are huge potential gains. It’s not just about digital forms of physical currency—you can have programmability, units of central bank currency with expiry dates. You could have, as I argue in my book, a potentially better, or some people might say, darker world, where the government decides that units of central bank money can be used to purchase some things, but not other things that it deems less desirable, like, say, ammunition or drugs or pornography or something of the sort. And that is very powerful in terms of the use of a CBDC.
Of course, any moral qualms we have regarding the items he listed are irrelevant. It is clear that the state will use CBDCs to push us toward anything the state favors and away from anything the state doesn’t. Programmable money means programmable citizens.
Government statistics on inflation in the food sector have failed to account for skimpflation and shrinkflation.
Original Article: "Shrinkflation and Skimpflation Are Eating Our Lunch"
United States military conscription, or the draft, ended on January 27, 1973, with the winding down of the Vietnam War. The draft law was due to expire at the end of June 1971. But US President Richard Nixon decided it needed to continue and asked Congress to approve a two-year extension. In March 1973, 1974, and 1975, the Selective Service assigned draft priority numbers for all men born in 1954, 1955, and 1956, in case the draft was extended—but it never was.
Nixon thought ending the draft could be an effective political weapon against the burgeoning antiwar movement. In his 1968 presidential campaign, he had promised to end the draft. During his time out of office, he had become interested in the prospect of an all-volunteer force, being influenced by Martin Anderson, a professor at Columbia University.
While there was no opposition to an all-volunteer military in the Defense Department or Congress, Nixon took no immediate action toward ending the draft in the early years of his presidency. Rather, the president named a commission headed by Thomas Gates Jr., a former secretary of defense in the Eisenhower administration, to examine the issue.
Gates initially opposed the all-volunteer army idea but changed his mind as the fifteen-member panel did its work. The commission issued its report in February 1970. It found adequate military strength could be maintained without conscription.
US Conscription History Conscription as a noun is defined at Dictionary.com as the “compulsory enrollment of persons for military or naval service; draft.” The origins of military conscription date back thousands of years to ancient Mesopotamia, but the first modern draft occurred during the French Revolution in the 1790s. The French universal draft included all young men regardless of social class. When the French needed a bigger army in 1793, the government decreed a leveé en masse, which conscripted all unmarried, able-bodied men between the ages of eighteen and twenty-five into military service.
Congress authorized the first comprehensive Continental Army draft in a February 1778 recruiting act. Covering eleven of the thirteen states (excepting South Carolina and Georgia), the legislation called for the enactment of a nine-month levy, or an effective alternative, to fill recruiting quotas. Maryland, Massachusetts, New Jersey, New York, and North Carolina instituted a levy, and as a result, they garnered substantial numbers of men for the 1778–79 military campaigns.
The US instituted conscription during the Civil War, which led to a series of bloody draft riots. As the war entered its third season, Congress—in need of more manpower for the Union army—passed the Civil War Military Draft Act of 1863.
The act called for the registration of all males between the ages of twenty and forty-five, yet the obligation fell mostly on the poor. Wealthier men could afford to hire a substitute to take their place in the draft or pay $300 for a draft exemption—an enormous sum of money at the time. This controversial provision sparked civil unrest and draft riots.
The most destructive were the New York draft riots, which spanned several days in July 1863. At least a hundred people died in the New York riots. Many of the rioters were poor Irish immigrants. New York’s African Americans became the scapegoats for long-standing grievances, including wartime inflation, competition for jobs, and racial prejudice among working-class people.
US president Woodrow Wilson signed the Selective Services Act on May 18, 1917, after the US entry into World War I. The US had a standing army of just over a hundred thousand at the time.
The initial act required all men between the ages of twenty-one and thirty to register with the newly created Selective Service System. By the end of World War I in November 1918, roughly twenty-four million men had registered, and 2.8 million were drafted into the armed forces. The draft was dissolved after World War I.
In September 1940, Congress passed the Burke-Wadsworth Act, which imposed the first peacetime draft in the history of the US. The registration of men between the ages of twenty-one and thirty-six began one month later as Secretary of War Henry L. Stimson—a key player in moving the administration of President Franklin D. Roosevelt away from a foreign policy of neutrality—began drawing draft numbers out of a big glass bowl. The draft numbers were handed to the president, who read them aloud for public announcement.
This draft, between November 1940 and October 1946, registered thirty-four million men, and over ten million Americans served in the military. After the US entered World War II, the draft expanded to include men aged eighteen to thirty-seven. Blacks, initially excluded from the draft, were conscripted into the armed forces starting in 1943. “Conscientious objector” status was granted to those who could demonstrate “sincerity of belief in religious teachings combined with a profound moral aversion to war.”
The draft was again readopted in 1948 and continued to exist until it was officially halted on July 1, 1973. The draft was in place during the Korean War from 1950 to 1953. Resistance to the Selective Service draft reached a historic peak during the Vietnam War. Some men evaded the draft by failing to register with the Selective Service System or by fleeing the country. According to Canadian immigration statistics, as many as thirty thousand draft dodgers may have left the US for Canada during the Vietnam War.
Draft evasion carried steep fines and the possibility of jail time. Nearly 210,000 men were charged with draft evasion, including boxer Muhammad Ali, whose conviction was later overturned by the US Supreme Court.
Postconscription The US volunteer military service began on July 1, 1973, and continues to today. No requirement to resurrect the draft has garnered substantive legislative or public support thus far, although President Jimmy Carter reinstated draft registration in response to the invasion of Afghanistan by the Soviet Union.
The number of US personnel in uniform (US Air Force, Army, Marines, and Navy) from 1973 to 2014 shows that the total US military size was 2.16 million in 1974, 2.15 million in 1985, 1.43 million in 2003 (the year of the Iraq invasion), and 1.35 million in 2014. The US military’s size has remained roughly constant at 1.39 million from 2014 to 2022. The army is the biggest service branch, but air force personnel size has dropped by about half since 1974. Long-term trend lines show a smaller US military in terms of personnel. Coast guard and merchant marine numbers are not included here.
A volunteer military works by allowing eligible individuals the freedom to choose this way of life. The policymakers in Washington, DC, seem to be caught in the past where US military personnel seem to serve at their beck and call for consistently poorly thought-out military endeavors, interventions, or missions.
The list of known nations receiving US military intervention has too many places to name, including the numerous unknown countries impacted by covert missions. This makes one ponder if the real problem is the civilian and multistar ranks of military policymakers for whom the thought of not having an enemy to fight seems inconceivable. Ending conscription might have ended the coercive expansion of armed forces personnel, but nothing seems to end Washington’s lust for even more military intervention.
Trump is essentially being prosecuted for questioning the outcome of an election, and federal paranoia about protecting its own aura of legitimacy is entering a new highly aggressive phase.
Original Article: "The United States vs. Donald J. Trump"
One of Ludwig von Mises’s important contributions to economics was demonstrating the impossibility of economic calculation under socialism. He did it by showing three necessary preconditions for the generation of meaningful market prices in the factors of production—private property, freedom of exchange, and sound money. Since socialism would, by definition, socialize the factors of production, there would be no nonarbitrary and meaningful way to calculate the prices of various factors of production, the costs of alternative plans in money prices, and expected future profits of a given plan minus the costs.
In short, when factors of production—producer goods (tools, machines, etc.)—are privately owned, there is freedom to trade property. When the economy has advanced to using money, which allows for calculating everything in market prices, entrepreneurs can compare costs of plans. For example, imagine two alternative plans to achieve the same end (e.g., building a railroad track around a mountain):
Plan A: one stock of input costs in market prices subtracted from expected future profit
Plan B: a second stock of input costs in market prices subtracted from expected future profit
Economic calculation enables entrepreneurs to choose between alternative plans because they can evaluate these plans in money prices. Entrepreneurs can evaluate the costs based on the prices of what goes into producing a consumer good or service. The entrepreneurs hope to sell the final product or service to the consumer at a price greater than the combined prices of all the input costs to make the product.
Ultimately, the consumer decides to accept or reject the goods or service at a given price (so the costs do not determine the prices). Based on the decisions of the consumers, the entrepreneurs either realize a profit or a loss.
As a simple example, imagine no one had ever invented cake before. An entrepreneur first imagines a new consumer good to produce—chocolate cake. This is a new recipe. In fact, the term “recipe” is completely appropriate because Murray Rothbard employed it in Man, Economy, and State to discuss the technological idea or plan to arrange resources into something new:
Without such plans or ideas, there would be no action. These plans may be called recipes; they are ideas of recipes that the actor uses to arrive at his goal. A recipe must be present at each stage of each production process from which the actor proceeds to a later stage. The actor must have a recipe for transforming iron into steel, wheat into flour, bread and ham into sandwiches, etc.
Our entrepreneur, with his new recipe for never-before-invented chocolate cake, must use the available factors and resources to produce the chocolate cake before he offers it to the consumers. All actions have costs—the foregone alternatives of a given action, or whatever is given up when a choice is made. These include time, energy, labor, and resources. Additionally, costs to the entrepreneur include what he might pay in money prices for factors of production. For example, he may purchase flour, milk, sugar, eggs, and other ingredients, as well as the use of tools like an oven and all the tools that come with a kitchen. He may even have costs in money prices by paying for labor.
All that said, with private property, freedom of exchange, and sound money, this entrepreneur can calculate the costs of these various resources in money prices and subtract the total from the future expected profit. (It would be a common fallacy, however, to conclude that costs determine prices, because it is the exact opposite.) The entrepreneur may also compare and contrast various costs of plans in money prices for how to make the cake.
Finally, the cake is offered to the consumer, who either accepts or rejects the cake depending on preference (the consumer subjectively may not even like chocolate cake) or on a given price point. The entrepreneur either realizes a profit or a loss.
Mises demonstrated that, under socialism, the factors of production would come under the ownership of the state. There would be no private property in the factors of production. Therefore, there would be no generation of meaningful market prices. Not only would this be the case under socialism, but it would also be the case if a market somehow moved toward one big firm. (For further illustration of the calculation problem, here is the best video that I have ever seen demonstrating it.) Thus, Mises demonstrated that economic calculation is impossible under socialism.
All that said, we can now return to the main point of the article—economic calculation is nonbinary.
When Mises described the necessary preconditions for economic calculation, it is easy to misunderstand his argument to mean that economic calculation is a binary either/or situation, an all or nothing choice. In other words, we might assume either an economy has the preconditions for economic calculation or it does not. Therefore, either unhampered calculation happens, or it cannot happen whatsoever. I believe to take Mises’s argument in this direction would be a bifurcation fallacy. It is instead a matter of degree depending on the presence or absence of intervention and distortion in the preconditions.
If we ask a simple question, we can see the issue with understanding economic calculation as a binary: Does the United States today possess the three preconditions for economic calculation (i.e., private property, freedom of exchange, and sound money)?
Thinking carefully, one would have to answer with some hesitation. This is sort of like when the reverend from The Simpsons answered that the short answer was a yes with an “if” but the long answer was a no with a “but.” The problem is that the question above concerning economic calculation is not a yes or no question; it is a matter of degree.
The modern United States has or has had these three preconditions imperfectly throughout time, but there have also been interventions that have caused distortions in private property, freedom of exchange, and sound money. Mises’s point, stated even more strongly by Rothbard, was that every intervention into the market necessarily impacts economic calculation because it creates distortions. Rothbard called this “calculational chaos” in Power and Market. Rothbard writes:
For each governmental firm introduces its own island of chaos into the economy; there is no need to wait for socialism for chaos to begin its work. No government enterprise can ever determine prices or costs or allocate factors or funds in a rational, welfare-maximizing manner. No government enterprise can be established on a “business basis” even if the desire were present. Thus, any government operation injects a point of chaos into the economy; and since all markets are interconnected in the economy, every governmental activity disrupts and distorts pricing, the allocation of factors, consumption/investment ratios, etc. Every government enterprise not only lowers the social utilities of the consumers by forcing the allocation of funds to ends other than those desired by the public; it also lowers the utility of everyone (including, perhaps, the utilities of government officials) by distorting the market and spreading calculational chaos. The greater the extent of government ownership, of course, the more pronounced will this impact become.
Note Rothbard’s discussion in matters of degree. This is extremely relevant for “mixed economies” because it entails that distortions of economic calculation do not just happen in socialist countries but occur whenever there are nonmarket distortions of private property, freedom of exchange, and sound money.
Hence, for example, when governments and central banks engage in the inflationary expansion of money and credit, this introduces what Mises called misleading calculations that lead to boom-bust cycles. We do not have to wait for socialism to experience calculational chaos because the distortions that result from interventions are not binary. They are present or absent as a matter of degree. All interventions will introduce what Rothbard called “islands of calculational chaos.”
David Gordon take a critical look at Markus Gabriel's Moral Progress in Dark Times, and although he finds parts that are disturbing, he also discovers important areas of agreement.
Original Article: "Outside the Universe?"
President Biden makes the false claim that wind- and solar-generated electricity are cheaper than power generated from coal and oil.
Original Article: "Wind and Solar Are NOT Cheaper than Coal and Oil"
Why have central banks settled on a 2 percent price inflation target? Project Syndicate asked four economists about this target and whether it is still appropriate. I’ll summarize their answers and then consider Mises’s position on “stabilization policy.”
Four Economists’ Answers to “Is 2 Percent Really the Right Inflation Target for Central Banks?” Michael Boskin, Stanford University professor, Hoover Institution senior fellow, and former chair of the Council of Economic Advisers to George H.W. Bush, concludes that 2 percent is probably about right, mainly due to the negative consequences of a higher target. He considers whether a higher target could be maintained in a stable way as it comes with more variations in the returns to capital, less credibility regarding the price stability component of the dual mandate, and less restraint on government spending.
John Cochrane, who is also a Hoover Institution senior fellow, suggests that the central bank and the government should not target a price inflation rate but the price level instead. The resulting stability would give confidence to firms, investors, and government bond buyers. For Cochrane, the most important thing is maintaining stable expectations so that inflation is one less thing for people to worry about as they make their economic decisions.
Brigitte Granville, professor at Queen Mary University of London and the author of Remembering Inflation, thinks that 5 percent is a better target. She cites empirical research that shows no effect on real economic growth when price inflation is in the 5 percent range. She does caution that stability is key, however. Her reasoning for a 5 percent target doesn’t make sense and is contradictory: “[Falling to a 2 percent target] would mean further compression of real household incomes,” but she also says “a recovery in real average wages, alongside higher-than-2% inflation, would provide a much-needed boost to productivity, as it would motivate workers . . . and create incentives for more labor-substituting investment.” Your guess is as good as mine.
Finally, Kenneth Rogoff, professor at Harvard University and former chief economist of the International Monetary Fund, says that a higher target should be adopted due to nominal wage rigidities and the zero lower bound for nominal interest rates. More inflation means that employers can more easily pay workers less in real terms without having to decrease nominal wages. Also, a higher long-term price inflation rate would give the central bank more room to cut interest rates in a crisis.
Rogoff says that the ability to impose negative interest rates would allow central banks to continue to target 2 percent. He gives some radical ideas on how to do that, like “phasing out large-denomination currency notes” and “relaxing the one-to-one exchange rate between the digital- and paper-currency dollar.” (!)
What Would Mises Say? You’ll notice a theme of stability in each of the answers. Mises argued at great length against “stabilization policy”—the idea that the purchasing power of money should be stabilized by monetary policy. He said that this fallacy stems from the god complex of some economists and the desire to make economics more like physics (Mises swatted down the analogy of money as a yardstick, which was employed by John Cochrane in the Project Syndicate article). Mises’s arguments ranged from the fundamental (the economy is ever changing) to the practical (no measure of the purchasing power of money can be constructed for the whole economy).
The value of money shouldn’t be stabilized because there is nothing stable about a healthy, progressing, dynamic economy. Consumer preferences, technology, natural resources, and a million other variables are constantly changing, and entrepreneurs are tasked with arranging production today in light of their anticipations about future market conditions. If technology changes in such a way that allows output to expand and the result is price deflation, so be it. If consumers decide to increase consumption relative to their savings, then we should allow the prices of consumer goods and factors of production to adjust accordingly.
Any attempt to prevent such changes will abrogate the tendency for entrepreneurs’ plans to align with consumer demand. Worse, the monetary policy intended to stabilize the economy will cause even greater destabilization in the form of financial crises and business cycles.
Moreover, by targeting price inflation—even at the moderate-sounding rate of 2 percent—inflation becomes institutionalized, and all of its effects metastasize throughout the economy and culture. Saving is discouraged, and excessive risk is encouraged. The government grows in size and scope. The economy becomes overly “financialized.” Income and wealth inequality become exacerbated as Cantillon effects create winners and losers.
Thus, stabilization policy is destabilization policy, and the moderate position—which would bring about just the right amount of stability and dynamism—is to end the Federal Reserve and separate money and state.
According to progressive elites, it is terrorism if consumers boycott businesses because of their leftist policies.
Original Article: "Is Boycotting Target a Legitimate Protest or an Act of Terrorism?"
In this week's episode, Mark reviews what people have said about Fitch's downgrade of US government debt. Mark sees it as a good thing, but not good enough. The "minor issue" in the latest debt ceiling agreement is ignored by the mainstream media: politicians suspended the debt ceiling into 2025, rather than raising it to some arbitrary, higher figure.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Yet again, the government destroyed a business partnership that not only promised but actively delivered benefits to consumers. The Northeast Alliance (NEA), a partnership between airline companies JetBlue and American Airlines, was ruled against in federal court after a battle with the Department of Justice (DOJ). Like the rulings of cases that came before it, this antitrust action is void of common sense.
The NEA clearly does not establish a monopoly. JetBlue makes up just 5.5 percent of the airline market. Adding that to American’s 17.5 percent gets the market nowhere close to actual monopoly conditions. But, given that the NEA only services certain regions, it would be inappropriate to simply add their total market shares together.
This partnership only involves sharing certain business operations in select geographical areas. The NEA only services four international airports: Boston Logan, John F. Kennedy, LaGuardia, and Newark Liberty. To put this into perspective, out of these airports, JetBlue only has a significant market share in New York (24.6 percent) and Boston (30.7 percent). Adding American Airlines’ market share will not significantly increase the concentration of the market in any of these regions because American Airlines’ market concentration outside of New York and Boston does not exceed 10.1 percent. In fact, most of American’s business is concentrated outside of regions where it has a high market share.
Regardless of whether the NEA violated the Sherman Antitrust Act or not, the partnership was for the betterment of the consumer. JetBlue and American made sure to reiterate this fact in their respective announcements regarding JetBlue’s departure from the NEA.
The NEA joined the two companies in “code sharing (offering seats on each other’s flights) and slot swaps (pooling their gates as well as takeoff and landing times).” Furthermore, the partnership included other benefits such as frequent-flyer program reciprocity and loyalty benefits that could be used with both companies. Essentially, this partnership offered consumers a better-quality product at a higher quantity. The gate and seat sharing certainly aided in the expansion of both companies into the northeast, providing a competitive force that did not previously exist.
The departure of JetBlue from the NEA has freed them from having to staff airports in the Northeast. Additionally, this has stoked uncertainty about JetBlue’s continued provision of flights in the Northeast. For the time being, JetBlue announced that it would continue to provide flights and the benefits that the NEA offered, but they will not last. The competitive advantage that the NEA enjoyed will disappear in the long run. This antitrust action is therefore anticompetitive; it stifles the market.
This reveals the inconsistency of antitrust. What is the point of competition if not for obtaining an advantage over your competition? Whenever a company does successfully compete, they are labeled a “monopolist.” Yet antitrust laws are intended to preserve competition. This is absurd. The standard of perfect competition is not competition at all.
Ludwig von Mises states in his book Human Action, “The term monopolistic or imperfect competition is applied today to the cases in which there are some differences in the products of different producers and sellers. This means that almost all consumers’ goods are included in the class of monopolized goods.”
All goods sold on the market are done so in the spirit of monopoly. That is the competitive process.
Murray Rothbard states further,
The pure-competition theory, however, is an utterly fallacious one. It envisages an absurd state of affairs, never realizable in practice, and far from idyllic if it were. In the first place, there can be no such thing as a firm without influence on its price. The monopolistic-competition theorist contrasts this ideal firm with those firms that have some influence on the determination of price and are therefore in some degree “monopolistic.”
So-called monopolistic tendencies are integral to all selling activity. JetBlue and American had what could be perceived as a monopolistic advantage, but the total power they accumulated was far from problematic according to any standard. In fact, the agreement was aimed at improving consumer welfare rather than exploiting the consumer.
The restriction of quantity that is the characteristic mark of the mainstream understanding of monopoly did not occur under this agreement. The goods offered by these companies were extended rather than restricted.
The DOJ’s claim that this agreement would cause the consumer “hundreds of millions of dollars in harm” is unfounded. JetBlue is one of the leading low-cost airlines in the world and is ranked one of the highest in consumer satisfaction across a number of margins. There is no indication outside of the bad economics of the DOJ that this won’t continue. This deal was finalized in the last days of the Trump administration, and so far, it has not been damaging as the DOJ insinuated it would be. In fact, both JetBlue and American emphasized in their press releases that the DOJ once lauded the two for expanding competition into the Northeast.
Ironically, the DOJ killing this partnership has led to JetBlue focusing efforts on acquiring Spirit. Currently, the DOJ is attempting to block the merger between the two companies, a move that is even more ridiculous than the destruction of the NEA.
The combined market power of JetBlue and Spirit is 10.4 percent. This combined market share would not rival the power of the “big four” airlines—United, Southwest, Delta, and American—the smallest of which has a market share of 15.6 percent. It would, however, give the two small companies a competitive edge against the industry titans.
There is no good rationale for blocking the JetBlue-Spirit merger. Keeping the small companies small does not make the market more competitive; instead, it preserves the market power of the large airlines that risk losing their superior positions.
The same applies to the NEA. The companies that benefited most from the destruction of the JetBlue-American agreement are the companies that already have a superior position in the Northeast. For example, United has 56.7 percent of the market in Newark airport, which was subject to the NEA.
Special interests likely abound. Those that stand to win are the “big four” airlines, but JetBlue is the biggest loser here, having its opportunity to utilize some of American Airlines’ resources crushed and the chance of merging with a smaller competitor blocked.
These antitrust cases are just more examples of the government stepping into voluntary arrangements to stifle real competition and harm consumer welfare. Again, antitrust action lacks economic sense.
On November 15, 2021, almost twenty-one months ago, I once again had the rare and delightful opportunity to have a conversation with Prince Michael of Liechtenstein. His insights, especially with his directness and unequivocal honesty, have frequently provided me with a lot of food for thought in the past. This interview was no different. His candid and unfiltered responses to a wide variety of questions and topics made this conversation as illuminating as it was enjoyable.
Good things take time—that’s why I always thought I would release this interview once I personally believed the time was right or, at least, when I would have hope that people might better understand (or better yet, remember) that the concept of cause and effect still applies. Actions have consequences: this is an everlasting truth, and it matters not if governments the world over and all their servants try to convince the public otherwise.
———
We started off our discussion by addressing the most common political tactics and demagoguery strategies that we are increasingly seeing employed in the West over the last few decades. Of course, “divide and conquer” is nothing new. It’s one of the oldest tricks in the book. However, the way this strategy has been used in recent years, with the help of mass media and social media, has made it a lot more effective and thus a lot more dangerous. Prince Michael was quick to point straight to the roots of all these dangers, including the return of Marxism in the West and all of the toxic sociopolitical narratives we encounter today—namely, the Frankfurt school.
He also objected to the modern obsession of left-leaning political leaders with “equality”:
Equalization leads to the human being nothing other than an object. A characteristic of being human is that humans are different. In this lies the strength of humanity. The most successful civilizations are those who acknowledge this. There is no equality. Equality is only achieved by coercion. Imagine a technocratic world view: People who are self-responsible, independent, and not equal . . . it will be very difficult to insert them into a technocratic system. Therefore, this dichotomy will always remain, between technocracy and freedom.
To illustrate this point even further, Prince Michael shared a discussion he had with a high-ranking functionary of an international organization, confirming that the aim of the current system is to impoverish the average citizen and to destroy all savings and private wealth because it is much easier to control people who are in debt, who have no private wealth, and who are dependent on their government.
Continuing our talk in this vein, we both agreed that “political correctness”—or more accurately put, censorship—is one of the most important “weapons” that the establishment uses to enforce its “utopian” vision of society, where all citizens are conforming to the demands and dictates of a central authority and where all dissent and all objections are discouraged as “antisocial.” On this point, the prince noted that this silencing weapon “is directed against all of Western culture and traditions which have been established, and it is directed against individualism.” He also highlighted the dangers of the current promotion of victimhood as a virtue. As he put it, “the biggest enemy of ‘political correctness’ is good old common sense.”
We then turned our attention to the economy and to the bizarre and destructive turn that monetary and fiscal policy has taken since the last global recession. After being asked how he assessed the damage done by the pandemic lockdowns and business shutdowns, he clearly responded that the damage was enormous, and he accurately predicted:
In the long term, the biggest problem concerning inflation will be more people leaving the production and the service sector, especially after covid and due to the climate policies, for the administration and control sectors . . . government or something similar. Meaning, they will have enough money to consume due to their funny monetary policy, but the supply will not be able to keep up.
He plainly highlighted that money has to be tethered to and restrained by reality. Money must be grounded in economic output. That is why infantile ideas like modern monetary theory, or the policy of endless money printing, can never work.
He also made it clear that the long-standing trend toward more and more centralization, overregulation, and the insupportable mountain of debt that states have accumulated are at the heart of the West’s economic woes. In fact, he was convinced that we are already in a global debt crisis, even though its direct impact might not be entirely visible yet. This point seems extremely prescient from today’s perspective, of course: the banking crisis certainly showed that the “cracks in the system” are becoming apparent now and that the debt avalanche has only just begun.
Our talk eventually touched on the topic of freedom as I was curious to know his thoughts on the possibility of a truly free social order—a goal we are very far away from today. His views on this were crystal clear:
Though we are talking about freedom, we do not understand freedom as self-responsibility, in the sense that someone can choose what’s best for him or herself and live accordingly. Freedom is viewed as the ability to simply to do certain things, but in the end, you are squeezed into a very tight corset. And this is dangerous. Because “freedom” has always meant “responsibility.” To have a free society, it is important to have a decentralized structure. In Europe, we have a dangerous tendency towards more and more centralization, which is antagonistic to democracy. In my view, democracy lives in subsidiarity.
He was especially passionate when I asked him about freedom of speech in particular:
I think we have to return to the competition of ideas. We need to open up discussions, and we need to step out of the uniform mindset.
When I founded Geopolitical Intelligence Services, I said we will try to be unbiased, not led by ideologies, but simply look at the situation as it is and at what is likely to happen. Not focus on giving our own suggestions about how things could improve but simply look at what experts say is likely to happen. It was interesting and shocking to me when I was suddenly told, “No, you are very biased!”
When I asked, “But why? Can you show me an example?”, I was told, “You hold a different opinion than the Financial Times and the Economist, so you are biased!” Clearly, the Financial Times and the Economist were the gospels, and we were the heretics.”
We also tackled the problem of public and higher education, with the prince clearly identifying a dangerous trend in schools and universities becoming increasingly politicized. He lamented that we have unfortunately lost the education system to the Left. “Competing ideas should be encouraged, but now, especially in the US, the common mission of universities is: ‘We no longer share knowledge and wisdom, we simply impose dogma and unquestionable beliefs.’ . . . Like in the good old Soviet system, these institutions are morphing into forges of ideology,” he warned.
Overall, the topics covered and the insights shared in this interview include some of the most important points and arguments that every self-responsible, self-thinking, and productive Western citizen, voter, and taxpayer needs to hear and seriously consider in order to prepare for the risks we face today. What makes this conversation all the more remarkable is the accuracy of the predictions that Prince Michael shared. He saw it all coming, all the challenges we’re up against today from the debt crisis and the inflationary spiral to the sociopolitical divisions and the suppression of free speech in favor of ideological zealotry.
We can safely assume that the accuracy of his predictions is not a direct result of some kind of special clairvoyant gift—it is actually all quite simple to explain. To reach his prescient conclusions, Prince Michael used the very same gift that was given to all of us, the thing that differentiates us humans from animals and all other living beings: the gift of reason and the courage to use it independently.
After you watch this interview in full, I’m sure that you will draw your own conclusions and hopefully take away your own lessons and your own “food for thought.” Personally, this conversation certainly gave me a lot to think about, but it also decisively confirmed one thing: liberty is not everything, but without liberty, everything is nothing.
Adults tell young people to follow their dreams, but one cannot follow one's vision without realizing what it takes to get there.
Original Article: "Want to Follow Your Dreams? The First Step Involves Hard Work"
As Fed staffers no longer predict an impending recession, economists on social media are all assuring themselves that Americans are in store for a "soft landing." Mises Fellow Jonathan Newman joins Bob to explain why the data still support the case for recession and point out the eerie similarity to the calm before the storm in 2008.
Robert Lucas' Nobel Prize Winning Lecture: Mises.org/HAP407a Bob's Eerie Article from 2007 on the Recession: Mises.org/HAP407b 'Bernanke Was Wrong' Compilation: Mises.org/HAP407c 'Peter Schiff Was Right' Compilation: Mises.org/HAP407d
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Michael Huemer has made my life easier. One of my tasks at the Mises Institute is to teach praxeology to students, and doing so involves explaining a priori knowledge (i.e., what we can know just by thinking about it), a notion which many students find difficult to grasp. The task becomes even harder when you add that the a priori knowledge in question is “synthetic” knowledge that isn’t analytically true but that we can still know to be true just by thinking about it.
In order to accept synthetic a priori knowledge, must we embrace Immanuel Kant’s notoriously difficult theory of knowledge? If we decline to do so, Murray Rothbard has an alternative way to justify synthetic a priori knowledge; he appeals to Aristotelian essences, or natures. I follow him in this, but, once again, this isn’t the easiest view to understand.
Michael Huemer, a brilliant philosopher who teaches at the University of Colorado Boulder, rejects a common assumption many philosophers have about synthetic a priori knowledge; namely, that it is highly puzzling. In his superb new book, Understanding Knowledge, he maintains that it is quite easy to justify the synthetic a priori. To be clear, Huemer is not attempting to support praxeology, and my impression is that he wouldn’t accept it; he is an exponent of Chicago school price theory along the lines of his friend David Friedman. Indeed, one of Huemer’s comments about knowledge poses a problem for praxeology, and after discussing Huemer on the synthetic a priori, I’ll try to respond to it.
Huemer makes a point about a priori knowledge that I have found again and again students miss. If you claim that people have such knowledge, you are making a claim about propositions, not about concepts. If you think that concepts are abstractions from experience—Huemer doesn’t, by the way—you can consistently accept a priori knowledge. Huemer says:
Now here’s another thing I have to clarify because I know some of you readers are already making this mistake: The distinction between “empirical” and “a priori” knowledge is not about how you acquire concepts. So don’t say that some item of knowledge is empirical because you acquired the concepts through observation. For example, don’t say that “all grandsons are male” is empirical because we acquire the concepts “grandson” and “male” through experience. . . . “All grandsons are male” is considered to be known a priori because you don’t have to justify it by citing observations that you’ve made of grandsons (or of anything else) (You just have to understand the meaning of “grandson.”) (emphasis in original)
This should be enough to satisfy Objectivists that they have nothing to worry about, at least on this score, when claims to a priori knowledge are advanced, but I’m betting it won’t be.
With that out of the way, we can turn to Huemer’s biggest contribution to understanding the synthetic a priori. Many people have no trouble with analytic a priori knowledge. This is a matter of definitions, parts of definitions, or tautologies like “It’s either raining or not raining.” But according to the logical positivists, this sort of knowledge doesn’t tell us anything about the empirical world. We have such knowledge just because we use words in a certain way. If we want to know what the empirical world is like, don’t we have to go beyond appeal to the meanings of our words or the concepts our words express? Aren’t truth claims about the world synthetic (i.e., nonanalytic) propositions? And if they are, how can we know they are true just by thinking about them?
If you are doubtful about synthetic a priori truth, you don’t have to give up praxeology. You can appeal to the notion of tautology. Some people (wrongly) believe that mathematics consists of tautologies, but, even in their view, we can certainly learn something by proving a theorem; we aren’t just idly reiterating what we already know. Ludwig von Mises adopts this approach in Human Action, claiming that the truths of praxeology are analytic but by no means useless, but by the time of The Ultimate Foundation of Economic Science, he seems receptive to the charms of the synthetic a priori, pointing out, as does Huemer, that the assertion “There are no synthetic a priori truths” appears to be itself a synthetic a priori proposition and thus, if true, self-refuting.
But how can we explain how synthetic a priori truth is possible? Huemer’s response will surprise you if you aren’t already familiar with his “bottom-up” approach to epistemology. He points out examples in which we know things by thinking about them but what we know does not consist of analytic propositions:
The main reason people are rationalists [i.e., accept synthetic a priori knowledge] is not that they thought about it and saw intuitively that synthetic, a priori knowledge was possible. The main reason is that they looked for examples of knowledge, and they saw some that appear to be synthetic, a priori. . . . For instance, you know in advance that you’re never going to find anything completely red and completely blue. No matter what an object looks like, you won’t say that it’s both red and blue all over, so there is no need to look.
This claim about color isn’t an analytic truth because it isn’t part of the concept of a color that a surface can have only one color all over.
The vital core of Huemer’s case for the synthetic a priori is that we don’t have to come up with a theoretical account of how it is possible: we know there is such a thing because we have examples of it. He offers his own account, but he disarmingly says of it, “Typically, we rationalists just say some vague stuff about ‘grasping the natures of abstract objects’ and such like. I’m no exception—that’s just what I’m about to do here.” (Huemer does better than this suggests.)
And this brings up the difficulty for praxeology that I mentioned earlier. Huemer suggests that our knowledge is not typically top-down or deductive. But doesn’t praxeology proceed deductively? Does this pose a problem for us? Huemer says:
Most human knowledge is bottom up. That is, one starts from a large number of cognitions about specific cases or particular individuals. When one has enough cases, one can start to see patterns and general rules. One then starts to formulate abstract principles based upon the cases. . . . If one tries to start from the abstract principles, there is almost a 100% chance of going wrong, often disastrously so.
One way to answer Huemer would be to say that praxeology is an exception to his generalization, but you can accept what he says without ditching praxeology. The deductive structure of praxeology need not be taken as an account of how Carl Menger and his followers first discovered praxeological insights. Rather, they thought about particular cases and realized certain truths about them. The deductive structure came later, as a way to systematize these insights. Further, even within the deductive structure, praxeological reasoning is not top-down in the strictest sense.
If a theorem occasionally leads to results that strike us as intuitively implausible, we can reinterpret the theorem so that it avoids these consequences. To use the term emphasized by William J. Talbott in his important book Learning from Our Mistakes, our reasoning is not monotonic, in the sense that we can only go forward from premise to conclusion. We can rethink our premises in the light of how they turn out. (See my review of Talbott’s book in the Philosophical Quarterly.)
I highly recommend Huemer’s book, which among many other good features, is very funny. For example, a blurb on the back “quotes” Kant: “Thoughts without content are empty; intuitions without concepts are blind, and students without Mike Huemer’s books are dumb.”
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop look at the latest indictment of Donald Trump. While many are exhausted with the theater of modern politics, DC's escalating attacks reveal the state's true anatomy. Any challenge to the state's legitimacy — like questioning an election — must be crushed.
Recommended Reading "The United States vs. Donald J. Trump" by Tho Bishop: Mises.org/RR_145_A
"If Congress Were Genuinely Interested in Democracy, They Would Welcome an Election Commission" by Tho Bishop: Mises.org/RR_145_B
"Trump's Potential Legacy: 50 Million+ Enemies of the State" by Tho Bishop: Mises.org/RR_145_C
"America's Elites—Not Trump—Are Responsible for Undermining American Democracy" by Tho Bishop: Mises.org/RR_145_D
Download Anatomy of the State for free at Mises.org/Anatomy
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
PROMO CODE: RothPod for 20% off
The political passion for "social justice" is creating a larger free-rider problem and a problem of injustice.
Original Article: "Social Justice and the Free-Rider Problem"
The yearly growth rate of the consumer price index jumped from 5.4 percent in June 2021 to 9.1 percent in June 2022. Some economists attributed this increase to monopolies. According to Business Insider, economists at the Federal Reserve Bank of Boston have claimed that monopolies help keep the prices of goods and services high.
Most economists believe that monopolies make markets less efficient by influencing the prices and the quantity of products. Efficiencies emerge because monopolies deviate from the ideal state of the market as depicted by the “perfect competition” framework.
The “Perfect Competition” Framework In the world of perfect competition, a market has the following features:
- There are many buyers and sellers in the market.
- Goods are homogeneous.
- Buyers and sellers are perfectly informed.
- There are no barriers to enter the market.
In the world of perfect competition, buyers and sellers have no control over the price of the product. They are price takers.
The assumptions leave out entrepreneurs since there is no uncertainty. If this is so, who then introduces new products and how? According to the proponents of the perfect competition model, any real situation in a market that deviates from this model is regarded as suboptimal for consumers, making entrepreneurs part of what they call “imperfect competition.”
For instance, if a particular firm is believed to dominate a market, then the government should intervene to replicate perfect competition. We believe, however, that competition emerges not because of many participants but as a result of a large variety of products.
Competition in Products, Not Firms The greater the variety, the greater the competition, creating more benefits for the consumer. Once an entrepreneur introduces a product—the outcome of his own effort—he acquires 100 percent of the newly established market.
Following the logic of modern economics, however, this situation undermines consumers’ well-being because the entrepreneur has, at best, a temporary monopoly. Of course, if perfect competition were strictly enforced, no new products would ever emerge, which truly would undermine consumer well-being.
Once an entrepreneur successfully introduces a product and makes a profit, he attracts competition. By endorsing the new product, consumers give rise to competition. The producers of older products must come with new ideas and new products to catch the attention of consumers.
The notion that a producer that dominates a market can exploit his position by raising the price above the truly competitive level is wrong. All businesses seek to earn profits, but profits are not possible unless entrepreneurs offer consumers suitable prices.
Entrepreneurs seek to secure a price where the quantity that is produced can be sold at a profit. In setting this price, the producer-entrepreneur will have to consider how much money consumers are likely to spend on the product along with prices of other competitive products while considering his own production costs. Producers that disregard these facts will suffer losses.
Given this, how can government officials establish whether the price of a product charged by a dominant producer is above the so-called competitive price level? How can they know what the competitive price is supposed to be?
Government attempts to enforce lower prices could wipe out incentives to produce something. Thus, it is doubtful that government intervention can improve things for consumers, especially in the long run.
Contrary to the perfect competition model, the competitive environment is enhanced not by large numbers of participants in a market but rather by a variety of competitive products. Government policies attempting to enforce the perfect competition model, however, are destroying product differentiation and competition.
Products Are Heterogeneous The idea that only homogeneous products allow for competition is untenable. If this were the case, why would buyers prefer one seller to another? (Enforcing product homogeneity in order to emulate the perfect competition model leads to no competition at all.)
Since product differentiation helps define a free market, it means that every supplier of a product has 100 percent control as far as his product is concerned. In other words, he is a monopolist. (Economist Joan Robinson referred to this as a “spatial monopoly.”)
Product differentiation exists because entrepreneurs have different ideas and talents. This is manifested in the way the products are made, packaged, sold, and offered to consumers. For example, a hamburger that is sold in a beautiful restaurant is a different product from a hamburger sold in a fast-food shop. So, if the owner of a restaurant gains dominance in the sales of hamburgers, should he then be restrained for this? Should he then alter his mode of operation and convert his restaurant into a takeaway shop in order to comply with the perfect competition model?
All that has happened is that some consumers have expressed a greater preference to dine in the restaurant rather than buying from the takeaway shop. Let us now assume that consumers have completely abandoned takeaway shops and are buying hamburgers only from the restaurants. Does this mean that the government must step in and intervene?
Concepts of harmful monopolies are not relevant in a free-market environment. A damaging monopolist is likely to emerge when the government restricts production by limiting the number of firms in a particular market. Such restrictions limit the variety of goods and services offered to consumers.
Increases in Money Supply and Price Inflation The price of a good is the amount of money paid per unit. For a given quantity of goods, if the stock of money remains unchanged, the amount of money spent per unit of a good will also remain unchanged, all other things being equal.
However, assume there are increases in the prices of goods by alleged monopolists. If the money stock remains unchanged, however, then no general increase in the prices of goods and services will take place.
If more money is spent on the products of monopolists, then obviously less money will be left for other goods. (All that we will have here is a situation where the prices of goods produced by monopolists will go up while the prices of other goods and services will go down—the average price will remain unchanged.)
Hence, increases in the money supply underpin the underlying rises in prices and not monopolies. Without the support of the money supply, all other things being equal, no general increase in prices can take place notwithstanding monopolies.
Conclusion The idea that government should regulate so-called monopolies to promote competition and prevent the acceleration in price inflation is a fallacy. What causes price inflation is the monetary policy of the central bank. Furthermore, harmful monopolies cannot emerge without government issuing licenses or other restrictions.
On this episode of Good Money, Tho is joined by Tate Fegley of Montreat College. Dr. Fegley talks about his lectures from Mises University on policing, AI, and the deep state, and the important topic of economic calculation that connects the three. In the final segment, Tho looks at the economics of college football in the aftermath of FSU's threat of secession from their conference.
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
Receive a free subscription to The Austrian magazine at Mises.org/Magazine
To seriously threaten the regime, one must attack it at its roots. This would require rejecting the modern civil rights legal regime, something modern Buckleyite conservatives and James Lindsay-style liberals are not interested in, and unites paleoconservatives and paleolibertarians.
Original Article: "Paleoconservatives Need Better Critics"
In 1964, Leonard Read wrote a genealogy from the perspective of a pencil, demonstrating the vast, complicated web of the structure of production that is handled by the division of labor on free markets. The pencil explained that no one knows how to make a pencil because of the myriad production processes involved:
My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon. Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the persons and the numberless skills that went into their fabrication: the mining of ore, the making of steel and its refinement into saws, axes, motors; the growing of hemp and bringing it through all the stages to heavy and strong rope; the logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons had a hand in every cup of coffee the loggers drink!
The pencil then detailed the remaining work required for pencil production, which included making flat cars, rails, and railroad engines; shipping the logs; developing communication systems; supplying heat, light, and power; building a factory; forging mining tools; mining graphite; and shipping the materials to one place. Continuing, it described the supplies needed to paint the pencils and the process of painting, labeling, and adding brass tips; mining zinc and copper to make the brass; and fabricating the eraser.
While the division of labor required to fabricate a pencil is impressive, consider how many more steps are required to manufacture complicated things such as smartphones or computers. Yet each step requires one particular resource—energy.
When people discuss fossil fuels, they typically weigh the pros and cons of the electricity in their houses and the fuel in their cars. They usually do not consider what was required to build those houses and cars—much less the pencils they use to write. Fossil fuel advocate Alex Epstein writes in his book Fossil Future: Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas—Not Less about the machines needed to build houses:
Today’s unprecedented shelters are possible only because today’s shelter-building industry, like the food industry, employs a massive staff of fossil-fueled machine laborers that cost-effectively do incredible amounts of work for us.
These machine laborers include:
- excavation machines that enable one human to dig up and move massive amounts of earth to make room for the foundations of sturdy buildings;
- grading machines that enable one human being to easily flatten uneven, bumpy patches of land to make them suitable for large, level structures;
- lifting machines, such as cranes, that can lift enormous amounts of weight that, if they could ever be lifted before, took years of slave labor;
- the machines we call power tools, which enable human beings to combine their dexterity with large amounts of power for precision tasks such as hammering, fastening, and sawing;
- compacting machines that make the ground under buildings solid;
- cutting machines that clear trees to make way for human habitation;
- paving machines that build the amazing roads that interconnect our shelters;
- mining machines that extract all the raw materials involved in our amazing buildings, from iron and coal for steel, to aluminum, to copper, to sand; and
- high-heat machines used to transform mined materials into vital usable materials such as cement, steel, and plastics.
Without these completely unappreciated fossil-fueled machine laborers radically increasing humans’ productivity ability, high-quality shelter would be out of reach for the vast majority of people in what is today’s empowered world.
And that’s just the building of shelter.
A discussion of fossil fuels’ unique cost-effective benefits as they relate to house construction could easily stop there; however, if we also apply Read’s genealogy, it becomes clear that each one of the listed machines also relies on complex systems of machines and processes that require energy. In Read’s pencil analogy, he lists the hydroelectric power that runs the mill he discusses, but without the unique cost-effective energy source of fossil fuels, one could never reliably power every step of the process. This also applies to more complicated goods such as phones or computers. And as Epstein explained, the process of building the high-quality shelters that we take for granted today would be impossible without fossil fuels.
Speaking about the Austrian school of economics, Robert Murphy stated that “their capital theory and business-cycle theory are the best I have found.” The Austrian school’s capital theory is vital. While others ignore what is required for the structure of production, the Austrian school does not. Fossil fuels should be a priority in the world today—not because they are the most efficient at the level of the consumer good but because without fossil fuels the entire structure of production of the modern economy falls apart.
Like many colonial ventures, Belgium's involvement in the Congo had some successes—and many failures.
Original Article: "Belgian Colonialism of the Congo: Facts and Fiction"
Depending on one’s perspective, technology can be viewed as either an opportunity or a threat. Some people celebrate technical advances while others show disdain. Entrepreneurs are frequently eager to capitalize on the potential advantages of new technologies, but where entrepreneurs see room for dynamism, naysayers see doom. In this story, entrepreneurs are akin to wizards who use the magic of technology to improve the world, and naysayers are prophets of pessimism.
In his insightful book The Wizard and the Prophet: Two Remarkable Scientists and Their Dueling Visions to Shape Tomorrow’s World, Charles Mann illustrates the conflicts between wizards and prophets, who both advocate different approaches to solving problems. Wizards trust in the liberating power of technology to improve conditions, and prophets endorse restraining human behavior. Norman Borlaug and William Vogt are the main figures in his work. Both men had an interest in the issues posed by population growth, yet their proposals were opposite.
Borlaug, who is credited as the father of the green revolution, felt that innovations in technology would increase food production and minimize the burdens of population growth. However, Vogt proposed limiting consumption to save humanity. Unlike optimists who thought that affluence was a monumental achievement, Vogt felt that prosperity encouraged overconsumption, and this would lead to the demise of society. Luckily for society, Borlaug’s model became the catalyst for the green revolution, which resulted in the emergence of high-yielding plant varieties.
Scientific advancements in agriculture increased food supplies and staved off famines in developing countries. Despite population increases, the production of cereal crops tripled during the green revolution, and Malthusian predictions did not materialize. Developing countries managed to overcome chronic food deficits, and more crops were cultivated using less land space. Wizards have a better track record of performance than prophets, although the fearmongering of prophets is still influential.
In 1981, Julian Simon published The Ultimate Resource as a response to Paul Ehrlich’s doomsday manifesto, The Population Bomb. Ehrlich preached that population growth would lead to the exhaustion of resources, but Simon turned this argument on its head by contending that population growth churns out new ideas, and ideas lead to an abundance of products and resources. Simon foresaw humans innovating to compensate for shortages and, in the process, even creating superior alternatives. Ehrlich was unimpressed by Simon’s foresight and waged a bet in 1980 arguing that resources would become more expensive.
Ehrlich selected a basket of resources containing copper, chromium, nickel, tin, and tungsten. Fortunately for humanity, Simon emerged victorious, and by 1990, these resources were cheaper, despite fears of scarcity and population growth. Recent research by Marian Tupy and Gale Pooley has further vindicated the assumption of Julian Simon. Their research asserts that population growth is failing to halt the multiplication of resources. Notwithstanding the tremendous population growth from 1980–2018, resources not only became more abundant but also increased at a faster rate than population growth.
The positivity trend gets even better. Intuitively, we think that as the economy expands, people will begin to use more resources; however, Jesse Ausubel has been observing a wave of dematerialization. Although the American economy is generating more products, people are using fewer resources. Promoting the work of Ausubel in his fascinating book How Innovation Flourishes in Freedom, Matt Ridley touts the virtues of innovation:
By 2015 America was using 15 per cent less steel, 32 per cent less aluminium and 40 per cent less copper than at its peaks of using these metals, even though its population was larger and its output of goods and services much larger. . . . This is not because the American economy is generating fewer products: it’s producing more. It is not because there is more recycling—though there is. It’s because of economies and efficiencies created by innovation.
Innovations provide a world that’s more efficient and livable for human and nonhuman life. But the hysteria of prophets can deter progress by limiting discoveries, and they are powerful agents in the environmental arena. Environmentalists concerned about pollution are lobbying for the mining of minerals that they argue can limit emissions. Deep sea mining is the latest innovation in the environmental industry, yet if the passion of activists is not contained, then we will miss out on opportunities as the Economist suggests.
The Economist notes that the criticisms of activists are questionable and mining in the Clarion-Clipperton Zone will prove to be beneficial:
When it comes to nickel, mining the ccz is greener and cleaner than mining on dry land. Research shows that the amount of carbon stored in the ccz is negligible, meaning that mining will not stir up enough of it into the atmosphere to add to warming. Nor, according to research from the Massachusetts Institute of Technology, will the sediment churned up spread as far or as thickly as claimed. . . . The most serious concern is the threat to diverse organisms that are unknown to science. But life in the ccz is scarce—some 270,000 tonnes of biomass would be destroyed by mining—and mostly microbial. And because the ccz is the oceanic food web’s final stop, there would be few spillovers to other ecosystems.
But unfortunately, prophets of doom like Greta Thunberg and Alexandria Ocasio-Cortez have a disproportionate influence on policy. Therefore, the biggest threat to the survival of our species will not be social and political challenges that can be solved by intelligence but rather the unproductive influence of negative personalities who sway thought leaders with dangerous rhetoric.
Michael and guest co-host Ben Ahdoot talk with Ron Unz about RFK, Jr., Ron's American Prava series, the Unz Review, the Great Reset, censorship, the origins of SARS-CoV-2, and more.
The tyrannical threat of the biomedical security state is ever present.
While those that cheered for lockdowns, vaccine mandates, and the shutdown of the global economy retreat to the back pages of the news, the World Health Organization and their ilk are already gearing up for the next crisis. The covid scare may have lost its political potency, but you can be sure that "public health emergencies" will continue to be a powerful tool for future control.
Join us for a Medical Freedom Summit featuring two brave leaders in the fight against medical tyranny.
Dr. Peter McCullough is one of the most respected truth tellers in the profession, making him a frequent target of censorship from regime-controlled traditional and social media. One of America's most published cardiologists, Dr. McCullough has authored dozens of peer-reviewed publications on covid and the policy response it sparked.
Dr. Aaron Kheriaty is a fellow and director of the Bioethics and American Democracy program for the Ethics and Public Policy Center. Fired from his position as a professor of psychiatry and human behavior at the University of California, Irvine, Dr. Kheriaty is not only a leading intellectual figure in medical freedom but a man who has lived his principles at great personal cost.
Join the Mises Institute for an exciting event Saturday, August 19, in Windham, New Hampshire. We'll have select items from the Mises Store available for purchase.
Registration is $65 for Members and $75 for nonmembers, and includes a catered lunch and access to all sessions.
For $2,000, you can sit at a speaker table and you and your guest can attend a VIP dinner with all our speakers on Saturday night. For more information on this opportunity, contact Kristy Holmes, (334) 321-2101 or kristy@mises.org.
Schedule:
10:15 a.m. – Registration begins, bookstore open
11:00 a.m. – Welcome
11:15 a.m. – Dr. Peter McCullough
11:45 a.m. – Lunch
12:30 p.m. – Dr. Aaron Kheriaty
1:00 p.m. – Panel with Dr. Peter McCullough, Dr. Aaron Kheriaty, and Dr. Michael Keller
1:45 p.m. – Closing remarks
2:00 p.m. – Optional social hour
3:00 p.m. – Adjourn
Due to limited parking at the venue, all attendees will park at Medicus Healthcare Solutions, 22 Roulston Rd., Windham. There will be continuous shuttle service between Medicus and the event.
Students apply here for a student scholarship (covers admission only).
Special thanks to Joe and Tracy Matarese for making this event possible.
Unless you’ve been hiding under a rock for the past few months, you’re undoubtedly aware that award-winning director Christopher Nolan has released a new film about Robert Oppenheimer, known as the “father of the atomic bomb” for leading the group of scientists who created that deadly weapon as part of America’s World War II-era Manhattan Project. The film has earned widespread attention, with large numbers of people participating in what’s already become known as “Barbieheimer” by seeing Greta Gerwig’s hit film Barbie and Nolan’s three-hour-long Oppenheimer on the same day.
Nolan’s film is a distinctive pop cultural phenomenon because it deals with the American use of nuclear weapons, a genuine rarity since ABC’s 1983 airing of The Day After about the consequences of nuclear war. (An earlier exception was Stanley Kubrick’s Dr. Strangelove, his satirical portrayal of the insanity of the Cold War nuclear arms race.)
The film is based on American Prometheus, the Pulitzer Prize-winning 2005 biography of Oppenheimer by Kai Bird and Martin Sherwin. Nolan made it in part to break through the shield of antiseptic rhetoric, bloodless philosophizing, and public complacency that has allowed such world-ending weaponry to persist so long after Trinity, the first nuclear bomb test, was conducted in the New Mexico desert 78 years ago this month.
Nolan’s impetus was rooted in his early exposure to the nuclear disarmament movement in Europe. As he said recently:
“It’s something that’s been on my radar for a number of years. I was a teenager in the ‘80s, the early ‘80s in England. It was the peak of CND, Campaign for Nuclear Disarmament, the Greenham Common [protest]; the threat of nuclear war was when I was 12, 13, 14 — it was the biggest fear we all had. I think I first encountered Oppenheimer in… Sting’s song about the Russians that came out then and talks about Oppenheimer’s ‘deadly toys.’”
A feature film on the genesis of nuclear weapons may not strike you as an obvious candidate for box-office blockbuster status. As Nolan’s teenage son said when his father told him he was thinking about making such a film, “Well, nobody really worries about nuclear weapons anymore. Are people going to be interested in that?” Nolan responded that, given what’s at stake, he worries about complacency and even denial when it comes to the global risks posed by the nuclear arsenals on this planet. “You’re normalizing killing tens of thousands of people. You’re creating moral equivalences, false equivalences with other types of conflict… [and so] accepting, normalizing… the danger.”
These days, unfortunately, you’re talking about anything but just tens of thousands of people dying in a nuclear face-off. A 2022 report by Ira Helfand and International Physicians for the Prevention of Nuclear War estimated that a “limited” nuclear war between India and Pakistan that used roughly 3% of the world’s 12,000-plus nuclear warheads would kill “hundreds of millions, perhaps even billions” of us. A full-scale nuclear war between the United States and Russia, the study suggests, could kill up to five (yes, five!) billion people within two years, essentially ending life as we know it on this planet in a “nuclear winter.”
Obviously, all too many of us don’t grasp the stakes involved in a nuclear conflict, thanks in part to “psychic numbing,” a concept regularly invoked by Robert Jay Lifton, author of Hiroshima in America: A History of Denial (co-authored with Greg Mitchell), among many other books. Lifton describes psychic numbing as “a diminished capacity or inclination to feel” prompted by “the completely unprecedented dimension of this revolution in technological destructiveness.”
Given the Nolan film’s focus on Oppenheimer’s story, some crucial issues related to the world’s nuclear dilemma are either dealt with only briefly or omitted altogether.
The staggering devastation caused by the bombings of Hiroshima and Nagasaki is suggested only indirectly without any striking visual evidence of the devastating human consequences of the use of those two weapons. Also largely ignored are the critical voices who then argued that there was no need to drop a bomb, no less two of them, on a Japan most of whose cities had already been devastated by U.S. fire-bombing to end the war. General (and later President) Dwight D. Eisenhower wrote that when he was told by Secretary of War Henry Stimson of the plan to drop atomic bombs on populated areas in Japan, “I voiced to him my grave misgivings, first on the basis of my belief that Japan was already defeated and that dropping the bomb was completely unnecessary.”
The film also fails to address the health impacts of the research, testing, and production of such weaponry, which to this day is still causing disease and death, even without another nuclear weapon ever being used in war. Victims of nuclear weapons development include people who were impacted by the fallout from U.S. nuclear testing in the Western United States and the Marshall Islands in the Western Pacific, uranium miners on Navajo lands, and many others. Speaking of the first nuclear test in Los Alamos, New Mexico, Tina Cordova of the Tularosa Basin Downwinders Consortium, which represents that state’s residents who suffered widespread cancers and high rates of infant mortality caused by radiation from that explosion, said “It’s an inconvenient truth… People just don’t want to reflect on the fact that American citizens were bombed at Trinity.”
Another crucially important issue has received almost no attention. Neither the film nor the discussion sparked by it has explored one of the most important reasons for the continued existence of nuclear weapons — the profits it yields the participants in America’s massive nuclear-industrial complex.
Once Oppenheimer and other concerned scientists and policymakers failed to convince the Truman administration to simply close Los Alamos and place nuclear weapons and the materials needed to develop them under international control — the only way, as they saw it, to head off a nuclear arms race with the Soviet Union — the drive to expand the nuclear weapons complex was on. Research and production of nuclear warheads and nuclear-armed bombers, missiles, and submarines quickly became a big business, whose beneficiaries have worked doggedly to limit any efforts at the reduction or elimination of nuclear arms.
The Manhattan Project and the Birth of the Nuclear-Industrial Complex The Manhattan Project Oppenheimer directed was one of the largest public works efforts ever undertaken in American history. Though the Oppenheimer film focuses on Los Alamos, it quickly came to include far-flung facilities across the United States. At its peak, the project would employ 130,000 workers — as many as in the entire U.S. auto industry at the time.
According to nuclear expert Stephen Schwartz, author of Atomic Audit, the seminal work on the financing of U.S. nuclear weapons programs, through the end of 1945 the Manhattan Project cost nearly $38 billion in today’s dollars, while helping spawn an enterprise that has since cost taxpayers an almost unimaginable $12 trillionfor nuclear weapons and related programs. And the costs never end. The Nobel prize-winning International Campaign to Abolish Nuclear Weapons (ICAN) reports that the U.S. spent $43.7 billion on nuclear weapons last year alone, and a new Congressional Budget Office report suggests that another $756 billion will go into those deadly armaments in the next decade.
Private contractors now run the nuclear warhead complex and build nuclear delivery vehicles. They range from Raytheon, General Dynamics, and Lockheed Martin to lesser-known firms like BWX Technologies and Jacobs Engineering, all of which split billions of dollars in contracts from the Pentagon (for the production of nuclear delivery vehicles) and the Department of Energy (for nuclear warheads). To keep the gravy train running — ideally, in perpetuity — those contractors also spend millions lobbying decision-makers. Even universities have gotten into the act. Both the University of California and Texas A&M are part of the consortium that runs the Los Alamos nuclear weapons laboratory.
The American warhead complex is a vast enterprise with major facilities in California, Missouri, Nevada, New Mexico, South Carolina, Tennessee, and Texas. And nuclear-armed submarines, bombers, and missiles are produced or based in California, Connecticut, Georgia, Louisiana, North Dakota, Montana, Virginia, Washington state, and Wyoming. Add in nuclear subcontractors and most states host at least some nuclear-weapons-related activities.
And such beneficiaries of the nuclear weapons industry are far from silent when it comes to debating the future of nuclear spending and policy-making.
Profiteers of Armageddon: The Nuclear Weapons Lobby The institutions and companies that build nuclear bombs, missiles, aircraft, and submarines, along with their allies in Congress, have played a disproportionate role in shaping U.S. nuclear policy and spending. They have typically opposed the U.S. ratification of a Comprehensive Nuclear Test Ban treaty; put strict limits on the ability of Congress to reduce either funding for or the deployment of intercontinental ballistic missiles (ICBMs); and pushed for weaponry like a proposed nuclear-armed, sea-launched cruise missile that even the Pentagon hasn’t requested, while funding think tanks that promote an ever more robust nuclear weapons force.
A case in point is the Senate ICBM Coalition (dubbed part of the “Dr. Strangelove Caucus” by Arms Control Association Director Daryl Kimball and other critics of nuclear arms). The ICBM Coalition consists of senators from states with major ICBM bases or ICBM research, maintenance, and production sites: Montana, North Dakota, Utah, and Wyoming. The sole Democrat in the group, Jon Tester (D-MT), is the chair of the powerful appropriations subcommittee of the Senate Appropriations Committee, where he can keep an eye on ICBM spending and advocate for it as needed.
The Senate ICBM Coalition is responsible for numerous measures aimed at protecting both the funding and deployment of such deadly missiles. According to former Secretary of Defense William Perry, they are among “the most dangerous weapons we have” because a president, if warned of a possible nuclear attack on this country, would have just minutes to decide to launch them, risking a nuclear conflict based on a false alarm. That Coalition’s efforts are supplemented by persistent lobbying from a series of local coalitions of business and political leaders in those ICBM states. Most of them work closely with Northrop Grumman, the prime contractor for the new ICBM, dubbed the Sentinel and expected to cost at least $264 billion to develop, build, and maintain over its life span that is expected to exceed 60 years.
Of course, Northrop Grumman and its 12 major ICBM subcontractors have been busy pushing the Sentinel as well. They spend tens of millions of dollars on campaign contributions and lobbying annually, while employing former members of the government’s nuclear establishment to make their case to Congress and the executive branch. And those are hardly the only organizations or networks devoted to sustaining the nuclear arms race. You would have to include the Air Force Association and the obscurely named Submarine Industrial Base Council, among others.
The biggest point of leverage the nuclear weapons industry and the arms sector more broadly have over Congress is jobs. How strange then that the arms industry has generated diminishing job returns since the end of the Cold War. According to the National Defense Industrial Association, direct employment in the weapons industry has dropped from 3.2 million in the mid-1980s to about 1.1 million today.
Even a relatively small slice of the Pentagon and Department of Energy nuclear budgets could create many more jobs if invested in green energy, sustainable infrastructure, education, or public health – anywhere from 9% to 250% more jobs, depending on the amount spent. Given that the climate crisis is already well underway, such a shift would not only make this country more prosperous but the world safer by slowing the pace of climate-driven catastrophes and offering at least some protection against its worst manifestations.
A New Nuclear Reckoning? Count on one thing: by itself, a movie focused on the origin of nuclear weapons, no matter how powerful, won’t force a new reckoning with the costs and consequences of America’s continued addiction to them. But a wide variety of peace, arms-control, health, and public-policy-focused groups are already building on the attention garnered by the film to engage in a public education campaign aimed at reviving a movement to control and eventually eliminate the nuclear danger.
Past experience — from the Campaign for Nuclear Disarmament that helped persuade Christopher Nolan to make Oppenheimer to the “Ban the Bomb” and Nuclear Freeze campaigns that stopped above-ground nuclear testing and helped turn President Ronald Reagan around on the nuclear issue — suggests that, given concerted public pressure, progress can be made on reining in the nuclear threat. The public education effort surrounding the Oppenheimer film is being taken up by groups like The Bulletin of the Atomic Scientists, the Federation of American Scientists, and the Council for a Livable World that were founded, at least in part, by Manhattan Project scientists who devoted their lives to trying to roll back the nuclear arms race; professional groups like the Union of Concerned Scientists and Physicians for Social Responsibility; anti-war groups like Peace Action and Win Without War; the Nobel Peace prize-winning International Campaign to Abolish Nuclear Weapons; nuclear policy groups like Global Zero and the Arms Control Association; advocates for Marshall Islanders, “downwinders,” and other victims of the nuclear complex; and faith-based groups like the Friends Committee on National Legislation. The Native American–led organization Tewa Women United has even created a website, “Oppenheimer — and the Other Side of the Story,” that focuses on “the Indigenous and land-based peoples who were displaced from our homelands, the poisoning and contamination of sacred lands and waters that continues to this day, and the ongoing devastating impact of nuclear colonization on our lives and livelihoods.”
On the global level, the 2021 entry into force of a nuclear ban treaty — officially known as the Treaty on the Prohibition of Nuclear Weapons — is a sign of hope, even if the nuclear weapons states have yet to join. The very existence of such a treaty does at least help delegitimize nuclear weaponry. It has even prompted dozens of major financial institutions to stop investing in the nuclear weapons industry, under pressure from campaigns like Don’t Bank on the Bomb.
In truth, the situation couldn’t be simpler: we need to abolish nuclear weapons before they abolish us. Hopefully, Oppenheimer will help prepare the ground for progress in that all too essential undertaking, beginning with a frank discussion of what’s now at stake.
Originally published by TomDispatch.com.
In this new age of decentralized and democratized content creation, union members' demands may simply be based on wishful thinking for a bygone era.
Original Article: "Striking Hollywood Actors and Writers Might Have to Get Used to Stagnant Wages"
The day after America celebrated its independence and its founding principles of self-governance and liberty, across the pond, Britain paid tribute to its values of collectivism and statism by commemorating the seventy-fifth anniversary of the National Health Service (NHS). Children’s choirs sang “Happy Birthday” at a thanksgiving church service celebrating the NHS at Westminster Abbey. In attendance were the prime minister and the opposition leader, among others. The notion that the NHS is the closest thing the United Kingdom has to a state religion has never been truer.
However, behind the pomp and pageantry, the NHS is a god that has failed. The reality is that the NHS should be one of the United Kingdom’s biggest shames, as it constantly lets down both patients and staff while placing a substantial burden on the taxpayer.
The number of people waiting for treatment in England has reached unprecedented levels, with a backlog of 7.4 million—about one in eight of the population. Alarmingly, over 371,000 people have been waiting for over a year to receive treatment. The UK has significantly fewer hospital beds, doctors, nurses, CT scanners, and MRI units than the Organization for Economic Cooperation and Development average. In addition, the UK has the second-highest rate of treatable deaths in Western Europe. How can anyone believe this system deserves to be eulogized?
Yet the NHS worshippers can’t admit that the system is failing as they hang on to the lie that the NHS is an example of socialism working. Instead, they turn to conspiracies, claiming the NHS is failing because the Tories are purposefully underfunding it to push privatization as a viable alternative. This is far from the truth: NHS funding is at record-high levels, above the Organization for Economic Cooperation and Development average.
The argument that the Tories are trying to privatize the NHS has been pushed by mainstream news outlets for over four decades, from the Times in 1980 to the Byline Times in 2023, who claim that this is all a move to transition to a US-style system.
Nevertheless, the truth remains that when compared to not only the United States but also the rest of Europe, the UK continues to exhibit a significant level of statism in its healthcare system. As Dr. Kristian Niemietz, head of political economy of the Institute of Economic Affairs, points out,
After more than four decades of moral panic about secret privatisation plans, the UK still has an unusually state-centred healthcare system. Even if we include general practitioners, dentists, pharmacists and optometrists, spending on non-NHS providers still only accounts for about a quarter of the NHS budget. Spending on private providers (i.e., companies such as Bupa) in the way most people probably understand it accounts for less than one-tenth of the budget, a figure that does not show a rising trend. Private hospitals only account for one in ten hospital beds in the UK, compared to three out of ten in Austria, four out of ten in France, six out of ten in Germany, seven out of ten in Belgium and ten out of ten in the Netherlands.
Yet despite the facts, NHS fanatics would rather blame the issue on privatization boogeymen than address the point that the socialized centralized system has little accountability, cannot efficiently allocate resources, and provides patients with very little choice or freedom.
The reason why these NHS fanatics are fine with ignoring the facts is because they see the NHS as more important than human life and prioritize their dogma over reality. We could see this during the pandemic, when “protecting our NHS” was prioritized and the whole country clapped outside their houses every Thursday during the lockdown.
Meanwhile, very little coverage is given to the fact that the lockdown effects killed more people than covid, especially due to delayed treatments from the accumulated backlog. Instead of considering that the NHS’s inability to deal with the healthcare needs of Britain is a flaw in the system, NHS fanatics turn a blind eye.
NHS supporters are putting their fingers in their ears and are causing unnecessary suffering and costing people their lives. What does it matter that healthcare is “free at the point of use” when many are denied care altogether due to the waiting lists? While patients are quick to thank the NHS whenever healthcare goes right, they don’t apply the same logic to its countless failures. Those who dogmatically defend the NHS should try explaining things to the elderly person waiting for a delayed ambulance or the cancer patient waiting for delayed treatment.
Is it worth having worse healthcare outcomes in comparison to more market-based European countries to protect “our” NHS? Are they protecting people needing care or are they protecting the myths of socialism? The case seems to be the latter.
Although they professed to support "states' rights," many proslavery activists wanted a stronger federal government that could force slavery on the western territories and deny local sovereignty to territorial residents.
Original Article: "When Slave Owners Chose Federal Power over Local Sovereignty"
On July 30, Yellow, one of the oldest and largest trucking businesses in the United States, ceased operations and moved to declare bankruptcy. According to reports, the final nail in the coffin of the ninety-nine-year-old business was a labor dispute with the Teamsters Union.
Yellow’s executives also deserve some blame, however. The trucking networks acquired in the 2000s and 2010s were poorly managed, delaying their integration. That said, when the company finally sought integration, the efforts were blocked by the union. The standoff sent Yellow into a dire financial situation which culminated in a dispute over pension payments in July.
The company sought to defer two pension payments to give executives breathing room to navigate the challenging financial situation. In response, the Teamsters threatened to strike, leading customers to flee to Yellow’s competitors. The company entered a tailspin which led to Sunday’s bankruptcy announcement.
Economic losses, and the bankruptcies they can bring, are crucial to the market process. As I highlighted in an article last month, they provide a very motivating signal that specific scarce resources ought to be used elsewhere to better meet the needs and wants of end consumers—which is the entire purpose of the economy.
But this is only true when losses result from voluntary choices made by consumers and producers. Coercive government interventions warp this process in ways that can only make consumers worse off. Firms may be protected from economic losses or put out of business because of government policy. Either way, when government intervenes in the economy, some resources are no longer being used to produce what consumers value.
But sometimes this line between a productive and unproductive economic loss is not obvious. Such is the case with Yellow. Economic losses that result from poor management decisions are productive in that they reallocate resources into the hands of managers who will more competently meet the needs of end consumers. But unions complicate things.
As Murray Rothbard pointed out in his 1963 article “Restrictionist Pricing of Labor,” many “opponents of unionism go to the extreme of maintaining that unions can never be free-market phenomena and are always ‘monopolistic’ or coercive institutions.” But this is not necessarily true. Rothbard explained that the economic costs of restrictionist labor pricing fall mainly on workers themselves—most directly on nonunion workers. And it is possible for nonunion workers to value not undercutting unions more than they value working the highest-paying job available to them.
This possibility is the reason, Rothbard says, for the “mystique” of the labor union and the demonization of the “picket-line crossers” and “scabs.” Unions need very good PR for nonunion workers to voluntarily enter unemployment, or misemployment, to keep union wages high.
All that said, that something is possible in theory is far from a guarantee that it will happen in practice. And as any honest observer of history must conclude, virtually all of America’s labor unions have relied, in large part, on coercion and violence.
The type of union we see today only really started to sprout up toward the end of the nineteenth century. By the early 1900s, unions comprised only a tiny sliver of the industrial workforce. And, as is spelled out in this illuminating recounting of American labor union history by the former US Department of Labor chief economist—and Mises Institute associated scholar—Morgan O. Reynolds, these early unions were able to scrape out an existence, thanks primarily to police inaction. Unions could use violence to “dissuade” outside workers from offering to work at the market rate without fear that the police would stop them. As Walter Block explains in Defending the Undefendable II, this use of physical violence by union members was dubbed the “blue-collar way.”
In contrast, the so-called white-collar way meant getting laws passed to shift the burden of coercion onto the government. If nineteenth-century government support for labor unions took the form of refusing to stop union violence, the twentieth century marked the shift to direct government coercion on behalf of labor unions.
The “white-collar way” began with support for early public sector railroad and postal unions. But despite some union-friendly intervention during World War I, it would take the Great Depression to usher in the bulk of the legal privileges unions enjoy today.
Using as an excuse the flawed notion that the path out of the Depression and to national prosperity started with higher wages, the federal government passed a series of bills that entrenched unionization in the American economy.
The Davis-Bacon Act (1931) and the Fair Labor Standards Act (1938) criminalized lower-paying jobs—driving nonunion workers out of the market. The Norris-LaGuardia Act (1932) gave unions a level of legal immunity enjoyed by few nongovernment entities and declared all nonunion employment agreements unenforceable in federal court. The Wagner Act (1935) gave unions extensive leverage over employers in exchange for some government control over the election of union leadership.
The membership of the Teamsters Union grew with the passage of these laws. By 1941, it was the fastest-growing union in the country, and according to Walter Galenson’s history of the American labor movement, it was also the most corrupt. Even while enjoying the benefits of union-friendly laws, the Teamster of the mid-twentieth century held firmly to the “blue-collar ways.” Besides the union’s deep involvement with organized crime, the Teamsters used beatings, vandalism, arson, and bombings to control the trucking industry.
Although the union’s criminal activity and corruption appear to have dissipated as the twentieth century ended, the legal coercion propping up all organized labor remains. Despite this, private sector union membership has fallen substantially since the early days of these laws—something Reynolds chalks up to a wealthier working class. If the “mystique” of labor unions is nowhere near what it was in the mid-twentieth century, we can be rather confident that the level of unionization today is the product of coercion—in fact must be, at least to a significant degree, because of the laws on the books.
We can never know for sure how Yellow would have fared if not for its battles with the Teamsters. Maybe the labor disputes only accelerated the demise of a company doomed by incompetent management. Or perhaps it would have integrated its acquisitions successfully in the absence of union pushback. Regardless, we can be sure that because of the destructive nature of coercive labor unions, Yellow went bankrupt in a manner that leaves you, the end consumer, a bit worse off.
Economic exchange stands as the defining essence of any economy, epitomizing the intricate web of interconnected transactions that shape its very existence. In essence, an economy derives its essence from the culmination of individual exchanges. However, the profound impact of the crucial distinction between voluntary choice and coercion often goes unnoticed by many outside the realm of economic study. In this article, we delve deeper into the dynamics of economic exchange, shining a light on the transformative power of voluntary exchanges and the far-reaching repercussions of coercion on societal well-being.
Economic exchange operates along a spectrum, with voluntary choice on one end and coercion on the other. Voluntary exchanges occur when individuals willingly engage in transactions driven by self-interest and the pursuit of personal satisfaction. Both parties involved in these exchanges stand to benefit as they value what they receive more than what they give up. Voluntary exchanges form the foundation of a prosperous market economy, fostering trust, cooperation, and mutually advantageous outcomes.
On the contrary, coercion represents a departure from voluntary choice. Coercive exchanges occur when individuals are compelled to engage in transactions against their will. Coercion can take various forms, such as government taxation, regulations, prohibitions, price controls, or criminal activities. Such coercion disrupts the natural dynamics of market interactions, hindering effective economic activity, stifling innovation, and compromising individual freedom.
Voluntary exchanges serve as the lifeblood of a thriving, unencumbered market economy, propelling it toward prosperity, fostering innovation, and driving societal progress. When individuals engage in voluntary trade, they have the freedom to specialize in areas where they possess a comparative advantage, leading to heightened productivity and enhanced profitability. The beauty of specialization lies in its ability to unlock untapped potential as each participant can focus on what they do best, optimizing their skills and resources.
Within the realm of free markets, competition reigns supreme and acts as a catalyst for innovation and the continuous evolution of products and services. When individuals and businesses engage in voluntary exchanges, they are motivated by self-interest and the pursuit of profit. This drive to outperform competitors and capture market shares stimulates creativity and spurs the development of novel ideas and solutions. The constant push for improvement and the desire to meet consumer demands result in a dynamic market landscape, where innovation thrives and products become increasingly sophisticated and tailored to meet specific needs.
The consequences of such voluntary exchanges extend far beyond individual gains, ultimately benefiting the entire community. As living standards rise, people gain access to a broader range of choices, empowering them to make decisions that align with their preferences and values. The increased availability of goods and services, coupled with a competitive market that encourages fair pricing, ensures that consumers can enjoy higher-quality products at affordable prices. This, in turn, enhances their overall well-being and satisfaction.
The positive impact of voluntary exchanges extends beyond immediate economic gains. It sets in motion a virtuous cycle, where increased economic activity generates wealth, savings, and investment. As individuals and businesses accumulate wealth through successful voluntary exchanges, they have the means to save and reinvest, fueling further economic growth. These investments create new opportunities for innovation, job creation, and entrepreneurship, fostering an environment that nurtures talent and drives progress.
At the core of voluntary exchanges lies the recognition of mutual benefits. Each participant in a voluntary exchange assesses the value of what they give up and what they receive, making a rational judgment that the transaction will ultimately improve their personal well-being. It is through this subjective evaluation that both parties experience an increase in their overall welfare, making voluntary exchanges a positive-sum game. This mutual enrichment reinforces the willingness to engage in further exchanges, establishing a web of interconnected relationships that propel the economy forward.
Successful voluntary exchanges are built on a foundation of trust in the reliability and integrity of trading partners. Trust serves as a lubricant that facilitates cooperation and collaboration.
In contrast, coerced exchanges erode the virtues of voluntary transactions and undermine societal well-being. When individuals are coerced into transactions, their autonomy is compromised and their ability to exercise personal judgment and make choices aligned with their values is hindered. Coercion disrupts the ethical foundations of economic interactions as it replaces consent and voluntary cooperation with the exertion of force or the threat thereof.
Coerced exchanges lead to suboptimal outcomes, stifling productivity, innovation, and entrepreneurship. When individuals are forced to pay taxes and comply with regulations, prohibitions, or price controls, their incentive to engage in productive economic activities diminishes. The burden of coercion weighs heavily on economic actors, stifling their ability to respond to market signals and adapt to changing circumstances. As a result, market effectiveness suffers, leading to resource misallocation and decreased overall prosperity.
Moreover, coercion undermines individual freedom and moral agency. It denies individuals the right to exercise their autonomy and make choices in accordance with their own values and convictions. In a free and open society, individuals should have the liberty to engage in transactions based on voluntary consent, respecting the rights of others while upholding their own rights to property, labor, and the fruits of their labor. Coercion disrupts this balance, creating an environment where one party imposes its will upon another through the exercise of force.
From a moral perspective, voluntary exchanges reflect the principles of consent, respect, and self-determination. Individuals willingly engage in these exchanges, recognizing the rights and autonomy of others while asserting their own. Voluntary exchanges are grounded in mutual agreement, respect for private property, and adherence to the nonaggression principle. They foster social harmony, cooperation, and trust, nurturing peaceful interactions and goodwill among individuals.
In contrast, coerced exchanges breed resentment, animosity, and conflict. When individuals are forced into transactions against their will, the relationship becomes one of dominance and subjugation. Coercion undermines trust, erodes social bonds, and hampers the development of cooperative and mutually beneficial arrangements. It creates an environment where individuals are pitted against each other, leading to societal division and a breakdown of social cohesion. Murray Rothbard said, “Every man must have freedom, must have the scope to form, test, and act upon his own choices, for any sort of development of his own personality to take place. He must, in short, be free in order that he may be fully human.”
Conclusion A comprehensive understanding of economic exchange illuminates the transformative power of voluntary transactions and the consequences of coercion. Voluntary exchanges, driven by self-interest, freedom, and mutual benefit, unleash the forces of prosperity, innovation, and personal autonomy. They create a society where individuals can freely engage in mutually beneficial transactions, fostering societal well-being and upholding the moral fabric of economic interactions.
Conversely, coercion disrupts the delicate balance of power, compromises individual freedom, and distorts the ethical foundations of economic exchange. By recognizing the moral implications of voluntary and coerced exchanges, we gain profound insights into the virtues of voluntary transactions and the detrimental effects of coercion on market effectiveness and individual freedom.
We reflect on this quote from Murray Rothbard:
The major function of praxeology—of economics—is to bring to the world the knowledge of these indirect, these hidden, consequences of the different forms of human action. The hidden order, harmony, and efficiency of the voluntary free market, the hidden disorder, conflict, and gross inefficiency of coercion and intervention—these are the great truths that economic science, through deductive analysis from self-evident axioms, reveals to us. Praxeology cannot, by itself, pass ethical judgment or make policy decisions. Praxeology, through its Wertfrei laws, informs us that the workings of the voluntary principle and of the free market lead inexorably to freedom, prosperity, harmony, efficiency, and order; while coercion and government intervention lead inexorably to hegemony, conflict, exploitation of man by man, inefficiency, poverty, and chaos. At this point, praxeology retires from the scene; and it is up to the citizen—the ethicist—to choose his political course according to the values that he holds dear.
The state is, first and foremost, an institution whose overarching goal is the forcible subjugation of all the people who inhabit a given territory. However, what makes the state different from other coercive entities, such as organized crime groups, is that it enjoys some form of popular legitimacy. In other words, in addition to enslaving its inhabitants physically, it needs to secure their mental servitude as well.
Many forms of such servitude have been tested by rulers over the millennia, but by far the most effective among them is that of “representative democracy” coupled with the “welfare state.” “Representative democracy” is the illusion of universal participation in the use of institutional coercion. The “welfare state” is the reality of universal participation in the process of institutional parasitism. Together, they constitute what Frédéric Bastiat described in his immortal words as “the great fiction through which everybody endeavors to live at the expense of everybody.”
An unobvious truth that has become increasingly transparent over the last few decades is that the “great fiction” in question is by no means limited to the economic or crudely political sphere. More specifically, this fiction exploits not only the alleged victimhood of the poor at the hands of the rich and that of the “disenfranchised masses” at the hands of the “privileged elite” but also that of women at the hands of men, blacks at the hands of whites, or the young at the hands of the old (and vice versa).
It is here that the nature of the state in its most mature manifestation comes clearly into view. Far from being exclusively the nexus of institutionalized aggression or even the instigator of permanent conflict, it also turns out to be the ultimate peddler of unreality.
This unreality appears on several interlocking levels. First, there is the unreality of statist promises: legal plunder can bring about general prosperity, legal counterfeiting can alleviate business cycles, and legal murder can secure world peace—none of which are true. Then, there is the unreality of state-manufactured grievances, in which women are the permanent victims of “systemic sexism,” blacks are the permanent victims of “systemic racism,” and the young (or the old) are the permanent victims of “systemic ageism.” Finally, there is the unreality of state-encouraged narcissistic or otherwise self-destructive phantasmagorias.
It is only at this final level that the potential for generating putative “social problems” that calls for “systemic solutions” is virtually limitless. For instance, state-sponsored “educators” can declare that free speech is not about being able to voice whatever views one wishes but about being protected from “hate speech” that may castigate one’s views as ignorant, evil, or ridiculous. Likewise, state-sponsored “medical professionals” can proclaim that genital mutilation can alter one’s sexual identity and make it conform to one’s supposed “true self” and that disagreeing with this contention is a criminal violation of human dignity. Finally, state-sponsored health bureaucrats can encourage one’s belief that a persistent bad mood indicates that one’s quality of life is so low that assisted suicide is the best option going forward.
In sum, statism, the ideology that begins with flouting the fundamental distinction between “mine” and “thine,” reaches its culmination in denying the even more fundamental distinction between sense and absurdity. Since every alleged problem grounded in absurdity is, by definition, unsolvable, multiplying such problems allows the state to multiply its edicts, committees, taskforces, and appropriations ad infinitum.
However, such multiplication must come to a halt as soon as a critical threshold of dysfunctionality is passed. Just as an economically absurd system with no market prices is bound to collapse—tellingly demonstrated by Ludwig von Mises—the same fate awaits a system shot through with absurdities related to other major areas of social coexistence, such as speech, health, procreation, and identity formation.
Thus, when the threshold in question is reached, the hypertrophic and increasingly farcical “great fiction” has to either voluntarily reduce its size by a substantial margin or—more likely given the current extent of special interest capture and institutional inertia—disintegrate violently under the weight of its accumulated layers of self-destructive insanity. In other words, when the amount of unreality peddled by the state on a routine basis becomes incompatible with the preservation of even a modicum of sane social life, reality is bound to reassert itself mercilessly.
If the latter scenario transpires, free individuals will be able to regain control over their lives, belongings, livelihoods, and life plans. However, if these free individuals are not to cede this control to some would-be earthly messiah who promises to rebuild a better civilization, they must never abandon timeless wisdom for the blandishments of wishful thinking. More specifically, they must not only make consistent use of solid economic theory and cogent social philosophy—which emphasize the indispensable cooperative role of private property, market prices, and sound money—but also pay homage to the organic institutions that nourish the human soul, such as the family, the local community, tradition, and religion.
After all, it is precisely these institutions that the state invariably tries to uproot and replace in its pursuit of political, economic, and cultural hegemony. It is also precisely these institutions that not only allow individuals to prosper in commercial terms but, perhaps even more importantly, to remain firmly grounded in the reality of social life and social cooperation, both intimate and extended.
In conclusion, defeating statism requires recognizing its nature not only as the ideology of permanent conflict but also as the most potent driving force of institutionalized unreality. In other words, accomplishing this task requires realizing that the “great fiction” in its fully developed form is equally fictitious in the realm of solutions that it claims to offer and in the realm of problems that it claims to identify. As soon as this realization becomes sufficiently widespread among liberty-minded people, their efforts will become genuinely robust, meaningfully inclusive, and solidly pragmatic—which is something that we should all welcome given how impactful our action or inaction is likely to be at this late stage of the fight.
Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.1
– NASSIM TALEB
The crypto-unit bitcoin2 holds out the prospect of something revolutionary: money created in the free market, money the production and use of which the state has no access to. The transactions carried out with it are anonymous; outsiders do not know who paid and who received the payment. It would be money that cannot be multiplied at will, whose quantity is finite, that knows no national borders, and that can be used unhindered worldwide. This is possible because the bitcoin is based on a special form of electronic data processing and storage: blockchain technology (a “distributed ledger technology,” DLT), which can also be described as a decentralized account book.
Think through the consequences if such a “denationalized” form of money should actually prevail in practice. The state can no longer tax its citizens as before. It lacks information on the labor and capital incomes of citizens and enterprises and their total wealth. The only option left to the state is to tax the assets in the “real world”—such as houses, land, works of art, etc. But this is costly and expensive. It could try to levy a “poll tax”: a tax in which everyone pays the same absolute tax amount—regardless of the personal circumstances of the taxpayers, such as income, wealth, ability, to achieve and so on. But would that be practicable? Could it be enforced? This is doubtful.
The state could also no longer simply borrow money. In a cryptocurrency world, who would give credit to the state? The state would have to justify the expectation that it would use the borrowed money productively to service its debt. But as we know, the state is not in a position to do this or is in a much worse position than private companies. So even if the state could obtain credit, it would have to pay a comparatively high interest rate, severely restricting its scope for credit financing.
In view of the financial disempowerment of the state by a cryptocurrency, the question arises: Could the state as we know it today still exist at all, could it still mobilize enough supporters and gather them behind it? After all, the fantasies of redistribution and enrichment that today drive many people as voters into the arms of political parties and ideologies would disappear into thin air. The state would no longer function as a redistribution machine; it basically would have little or no money to finance political promises. Cryptocurrencies therefore have the potential to herald the end of the state as we know it today.
The transition from the national fiat currencies to a cryptocurrency created in the free market has, above all, consequences for the existing fiat monetary system and the production and employment structure it has created. Suppose a cryptocurrency (C) rises in the favor of money demanders. It is increasingly in demand and therefore appreciates against the established fiat currency (F). If the prices of goods, calculated in F, remain unchanged, the holder of C records an increase in his purchasing power: one obtains more F for C and can purchase more goods, provided that the prices of goods, calculated in F, remain unchanged.
Since C has now appreciated compared to F, the prices of the goods expressed in F must also rise sooner or later—otherwise the holder of C could arbitrate by exchanging C for F and then paying the prices of the goods labeled in F. And because more and more people want to use C as money, goods prices will soon be labeled not only in F, but also in C. When money users increasingly turn away from F because they see C as the better money, the purchasing power devaluation of F continues. Because F is an unbacked currency, in extreme cases it can lose its purchasing power and become a total loss.
The decline in the purchasing power of F will have far-reaching consequences for the production and employment structure of the economy. It leads to an increase in market interest rates for loans denominated in F.3 Investments that have so far seemed profitable turn out to be a flop. Companies cut jobs. Debtors whose loans become due have problems obtaining follow-up loans and become insolvent. The boom provided by the fiat currencies collapses and turns into a bust. If the central banks accompany this bust with an expansion of the money supply, the exchange rate of the fiat currencies against the cryptocurrency will fall even further. The purchasing power of the sight, time, and savings deposits and bonds denominated in fiat currencies would be lost; in the event of loan defaults, creditors could only hope to be (partially) compensated by the collateral values, if any.
However, the bitcoin has not yet developed to the point where it could be a perfect substitute for the fiat currencies. For example, the performance of the bitcoin network is not yet large enough. At present, it is operating at full capacity when it processes around 360,000 payments per day. In Germany alone, however, around 75 million transfers are made in one working day! Another problem with bitcoin transactions is finality. In modern fiat cash payment systems, there is a clearly identifiable point in time at which a payment is legally and de facto completed, and from that point on the money transferred can be used immediately. However, DLT consensus techniques (such as proof of work) only allow relative finality, and this is undoubtedly detrimental to the money user (because blocks added to the blockchain can subsequently become invalid by resolving forks).
The transaction costs are also of great importance regarding whether the bitcoin can assert itself as a universally used means of payment. In the recent past, there have been some major fluctuations in this area: In mid-June 2019, a transaction cost about $4.10, in December 2017 it peaked at more than $37, but in the meantime for many months it had been only $0.07. In addition, the time taken to process a transaction had also fluctuated considerably at times, which may be disadvantageous from the point of view of bitcoin users in view of the emergence of instant payment for fiat cash payments.
Another important aspect is the question of the “intermediary.” Bitcoin is designed to enable intermediary-free transactions between participants. But do the market participants really want intermediary–free money? What if there are problems? For example, if someone made a mistake and transferred one hundred bitcoins instead of one, he cannot reverse the transaction. And nobody can help him! The fact that many hold their bitcoins in trading venues and not in their private digital wallets suggests that even in a world of cryptocurrencies there is a demand for intermediaries offering services such as storage and security of private keys.
However, as soon as intermediaries come into play, the transaction chain is no longer limited to the digital world, but reaches the real world. At the interface between the digital and the real world, a trustworthy entity is required. Just think of credit transactions. They cannot be performed unseen (trustless) and anonymously. Payment defaults can happen here, and therefore the lender wants to know who the borrower is, what credit quality he has, what collateral he provides. And if the bridge is built from the digital to the real world, the crypto-money inevitably finds itself in the crosshairs of the state. However, this bridge will ultimately be necessary, because in modern economies with a division of labor, money must have the capacity for intermediation.4
It is safe to assume that technology will continue to make progress, that it will remove many remaining obstacles. However, it can also be expected that the state will make every effort to discourage a free market for money, for example, by reducing the competitiveness of alternative money media such as precious metals and crypto-units vis-à-vis fiat money through tax measures (such as turnover and capital gains taxes). As long as this is the case, it will be difficult even for money that is better in all other respects to assert itself.
Therefore, technical superiority alone will probably not be sufficient to help free market money—whether in the form of gold, silver, or crypto-units—achieve a breakthrough. In addition, and above all, it will be necessary for people to demand their right to self-determination in the choice of money or to recognize the need to make use of it. Ludwig von Mises has cited the “sound-money principle” in this context: “[T]he sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.”5 And he continues: “It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.”6
These words make it clear that in order for a free market for money to become at all possible, quite a substantial change must take place in people’s minds. We must turn away from democratic socialism, from all socialist-collectivist false doctrines, from their state-glorifying delusion, no longer listen to socialist appeals to envy and resentment. This can only be achieved through better insight, acceptance of better ideas and logical thinking. Admittedly, this is a difficult undertaking, but it is not hopeless. Especially since there is a logical alternative to democratic socialism: the private law society with a free market for money. What this means is outlined in the final chapter of this book.
[This article is adapted from Chapter 21 of The Global Currency Plot.]
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- “Nassim Taleb on Bitcoin: ‘Bitcoin Is the Beginning of Something Great,’” Nassim Taleb (website), Mar. 23, 2013, https://nassimtaleb.org/2013/03/nassim-taleb-on-bitcoin/.
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- It is better to speak of crypto-units, because many of the so-called crypto currencies do not yet deserve the term currency or money, because they are not very widespread, or general means of exchange.
-
- Because more and more investors sell their bonds, for example. As the market supply rises, prices fall and market interest rates rise (assuming that the demand for securities remains unchanged).
-
- See Cameron Harwick, “Cryptocurrency and the Problem of Intermediation,” Independent Review 20, no. 4 (2016): 569–88.
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- Mises, The Theory of Money and Credit, p. 414.
-
- Ibid.
The acronym 2SLGBTQ+IA stands for two-spirit, lesbian, gay, bisexual, transgender, queer, questioning, intersex, androgynous, and asexual. The 2SLGBTQ+IA community is often described as seeking “rights and equality” for its members. What fair-minded person could object?
Increasingly, however, the community appears to want privileges and equity as well. These goals are diametrically opposed. Rights, such as freedom of speech, are universal and cannot properly be denied to anyone. Privileges, such as affirmative action, are special advantages extended to certain classes of people; they can be given and taken away, usually by government. Equality means the law treats everyone in the same manner, with no regard to their status; equity—as the political term is used now—means the law views some people as disadvantaged and treats them preferentially as a matter of social justice.
Factions within the 2SLGBTQ+IA movement are becoming more aggressive in demanding privileges and labeling anyone who objects as a “hater.” In doing so, the movement risks losing the dynamic that allowed it to grow in the first place: the goodwill of fair-minded people. This risk is especially high when the demands for privilege involve children or physical violence.
Consider some of the Pride month parades that occurred in June. Fox News reported, “Seattle Pride’s parade . . . sparked backlash over the inclusion of a fleet of nude male cyclists, whose genitalia was on full display to attendees, including families with children.” The Washington Times referred to another incident in the Seattle parade in which naked adult men cooled off in a public water fountain near young children. Videos of both were confirmed as true by fact-checking site Snopes. Nevertheless, the progressive congresswoman Pramila Jayapal and other prominent Democrats marched in the event, including Seattle mayor Bruce Harrell. The marching officials seem determinedly silent on these events, even though they threaten the hard-won equal rights that gays and lesbians fought for in the ’70s and ’80s.
The acclaimed journalist Glenn Greenwald explained this danger during an interview (approximately 3:20 minutes in):
The gay and lesbian movement was an important part of my life. It enabled me to be legally married and it was something I supported for a long time. The lynch pin of it was not only something I believe but most Americans ended up believing. There was a cultural consensus . . . based on the principle that adults have the right to live their lives in whatever way will bring them the most self-actualization and a healthy, decent society facilitates this freedom. . . . If you look at polling done in 2015, most Americans favored same-sex marriage, even young conservatives. People even had no problem with trans rights.
All of this has unraveled because the LGBTQ+IA2—or whatever acronym you prefer—has waged a war on that principle. There were people chanting in the streets [of New York City] “We’re coming for your children.” The San Francisco gay men’s chorus sang, “We’re coming for your children.” They are claiming you’re required to get certain trans-affirming treatment for your children if they identify as trans, even if you don’t want them to; you can be deemed guilty of child abuse and have your children taken away if you don’t. The whole movement has transformed from one of “We want to be left alone to live our lives” into “Now we want to control your lives too. We want to control the way they [your children] think and influence the way they grow up.”
This was once a marginalized community. . . . It didn’t have much power; it needed to hide; it was genuinely persecuted. Now it has every institution of power on its side . . . and it has become a bullying movement. The idea that “We are going out into the streets publicly in front of your kids, be fully naked, desexualize that nudity and you can’t do anything about it” is the mentality of a movement that believes . . . they are now sort of the majority, that they have the power. And they are using it in ways that are very self-destructive. (edited for grammatical and space considerations)
He is correct about the trans movement’s trying to usurp parental rights. Consider California Senate Bill 107, sometimes called the gender-affirming care bill. California invites minors and their families to come to the state for transition treatment if their home state restricts the practice. If the change of residence violates custody orders, the noncustodial parent need only request “gender-affirming care” for a minor to receive sanctuary rather than jail time. Nothing could reverse sympathy for 2SLGBTQ+IA faster than this.
Except, perhaps, open violence. Walgreen uses the term “bullying movement” in a literal manner. For example, a disillusioned ex-trans activist showed up at the New York City parade with a sign reading “Stop Female Erasure.” She was physically mobbed and abused. Such tactics are a death knell for the positive developments that emerged from the original gay and lesbian movements.
The trans narrative is ramping up. Perhaps the authorities and mainstream media see trans power as declining, which would diminish their own power. The trans agenda is being imposed on the most trivial behavior, such as using the wrong pronoun, as well as the most heinous acts, such as the murder of children. Here are just a few cases of trans violence, among many, that happened in less than one week in 2023.
- March 27, Nashville, TN: Aiden Hale, who self-identified as transgender, fired 152 rounds within Covenant School, killing three staff members and three students. The Trans Resistance Network issued a sympathetic statement saying, “Hate has consequences,” and identifying Hale as a “second and more complex tragedy” of the shooting because he “felt he had no other effective way to be seen than to lash out by taking the life of others, and by consequence, himself.” Most media coverage downplayed the murdered children to dwell upon the victimhood of Hale. Authorities have refused to release the many journals and documents found in Hale’s home, claiming they were inflammatory.
- March 29, Richmond, VA: Two transgender activists were arrested for violently disrupting a pro-life event at Virginia Commonwealth University. According to Students for Life of America (SFLA), “The event was shut down, materials and equipment were damaged and stolen, and multiple SFLA staff and students were assaulted with Emergency Medical Services called to the scene.”
- March 31, Colorado Springs, CO: Transgender Lilly Whitworth was arrested for plotting a mass shooting after making threats to three schools and possessing the floorplans of at least one. In prison, Whitworth promised to complete the plan if bail was posted. The incident was largely ignored by the mainstream media.
Silence and denial are the worst possible strategies for events of which so much of the public is aware. If the 2SLGBTQ+IA movement keeps its current course, then it will crash.
When it does, I will be left with a question. Did we witness a double standard being embedded in the law or was it something worse—a gender caste system? Most likely, the answer will be a mixture of both.
A double standard is when an individual or group is treated with preference under a single set of laws that should apply equally to all. A caste system is when a population is divided into a hierarchy, with each category having distinct and often antagonistic “rights.” In other words, different laws for different categories of people, a “status society,” as Ludwig von Mises called it. In his book The Free and Prosperous Commonwealth, Mises described a status society as “constituted not of citizens with equal rights, but divided into ranks vested with different duties and prerogatives.”
The gender caste system and warfare have been promoted by a fashionable dynamic called “intersectionality.” The critical race theorist Kimberlé Crenshaw coined the term, which she described as “a prism for seeing the way in which various forms of inequality often operate together and exacerbate each other.” In a sense, a person’s rank in the caste hierarchy is based on victim points; the more victim points, the higher a person’s rank and entitlements. A woman oppressed by patriarchy may have one point, for example; a black woman, also oppressed by racism, may have two; a black lesbian three . . . the list goes on. Those high up on the oppression scale often pull rank on those beneath them; for example, black feminists can tell white feminists to shut up in meetings because their white status makes their voices secondary. Currently, the transgendered seem to be at the apex of the hierarchy. Heterosexual white males are at the bottom.
An open caste system—rather than a hidden one based on money, for example—makes a travesty of deep-rooted American traditions. Nevertheless, the trans agenda has achieved real legal successes, and that is because the average person has deep compassion for victims. But compassion is running thin. And when compassion means harming children, when tolerance means empathizing with the murderers of children, then it is time to withdraw this compassion and demand justice instead—a single justice for all.
The world since 1900 has experienced two major world-encompassing wars. Wars cost a lot of money, and countries—even if they were once on a gold standard—usually start printing massive amounts of money to finance their wars. This fact can be seen in the United States Federal Reserve (Fed) liabilities, for which data is available from the time of its inception in 1914—or just before the beginning of World War I—to the present.*
If we look at the Fed liabilities taken from its published reports and normalize those dollars to 1914 dollars, then we get the following chart. The normalization was achieved using the Fed M2 money supply data for the years between 1959 and 2023. This means we are truly comparing “apples with apples.”
Figure 1: US Federal Reserve Liabilities on its balance sheet normalized to 1914 dollars (red curve)
Source: Liabilities data for 1916–2023 from the Board of Governors of the Federal Reserve System, statistical release H.4.1, Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks, via FRED; and M2 money supply data for 1959–2023 from the Board of Governors of the Federal Reserve System, statistical release H.6, Money Stock Measures, via FRED. Note: The solid trend line (1) is a curve fit to the data between 1965 and 2003. The solid trend line (2) is a double exponential curve fit to the data after 2003. The two world wars are indicated by arrows pointing to the pink regions. Recessions are indicated by sepia-colored strips.
Figure 1 indicates that, due to the massive war spending, Fed liabilities expanded significantly up to 1920 and then from 1930 to 1946 while they contracted in the postwar periods. The triangle-shaped humps above the trend line (1) and labeled World War I and World War II indicate this fact. However, note that between these periods of massive money printing was the Great Depression of 1930–32. The liabilities dipped below the trend line (1) then.
Now looking at the period after 2000, we see again the liabilities dipped below the trend line, indicating the depression brought on by subprime mortgages in the global financial collapse. After this, the Fed massively began expanding its liabilities, which roughly follows the exponential growth indicated by trend line (2).
In 2014, the Fed began contracting its liabilities again until 2020, when the covid-19 pandemic started. Is it a coincidence that the war in the Donbas region of Ukraine between Russia and Ukraine also started in early 2014 after the overthrow of the democratically elected government of President Viktor Yanukovych via a US-backed coup? For this reason, on figure 1, we have drawn the start of a potential new world war (World War III) from that time.
If we take the real value of the expansion of the Fed liabilities between 1934 and 1963 due to World War II and compare it to the total liabilities from 2008 to 2023, we find the latter to be 2.3 times larger at its peak than in the case of World War II.
Couple this with the depression brought on by the global financial collapse from 2004 to 2008 just before the massive currency printing started in 2009 (i.e., quantitative easing QE1 followed by QE2, QE3, and QE4), does it indicate that we are already in World War III?
A comparison with World War I and World War II indicates also that the Fed started shrinking its balance sheet after the war was over, which make a lot of sense when the demand for war munitions and other wartime supplies is no longer needed.
Do we have the equivalent situation now?
The Fed has been aggressively expanding its balance sheet from 2020 after a period of quantitative tightening (QT) from 2014 to 2019. However, that latter QT was only because of the massive expansion under QE1 to QE3.
The second trend line, an exponential fit to the data after 2003, is indicated by the solid trend line (2). From this, we see that periods of QT have brought the Fed liabilities down to just touch this trend line (2). It is hard to see on this scale, but the monetary easing used to bail out Silicon Valley Bank, Signature, and the other banks in March also brought the liabilities up to this trend line (2) briefly before QT continued.
It seems that the Fed should be tightening (QT) and pulling its liabilities down to get back to trend line (1), when in fact, it is expanding (QE) on an upward exponential fashion along trend line (2).
Our question really is, as it follows from history, whether we can only expect aggressive QT to occur after the next world war is ended.
Currently, all the news indicates that the North Atlantic Treaty Organization (NATO)/Ukrainian war with Russia is being expanded. Joe Biden has ostensibly sent hundreds of billions of dollars in military assistance to the Ukraine already. Many of the European NATO countries are joining in supplying arms and money.
The rhetoric constantly grows stronger. Therefore, it would seem that this kinetic war needs to end before the Fed liabilities can be contracted back down to the trend line (1) indicated in figure 1. When will that happen? We don’t know. Ask Biden or whoever is running him?
A round of massive QT, with much higher bank savings rates, could do it. However, with the concomitant price inflation caused by all the massive QEs after 2009, this tightening would bring the world to financial Armageddon. You can see from the chart that the only way out for the Fed is to bring their balance sheet liabilities back down to the 1963 to 2003 trend line (1). At what cost though? More bank runs and bank collapses like what happened in March this year? However, it would seem that a kinetic World War III is inevitable if past wars are our teacher.
- *. I would like to thank Rafi Farber of the End Game Investor for getting me started looking into this and for his valuable advice.
A panel featuring members of the Mises Institute editorial staff.
Recorded at the Mises Institute in Auburn, Alabama, on 29 July 2023.
A Mises Institute staff panel featuring Tho Bishop, Felicia Jones, and Jonathan Newman.
Recorded at the Mises Institute in Auburn, Alabama, on 28 July 2023.
Ryan and Tho take a close look at Rothbard's timeless takedown of state violence, Anatomy of the State, in this special live edition of Radio Rothbard, recorded at Mises University 2023.
Download Anatomy of the State for free at Mises.org/Anatomy
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A debate between Mises Institute Summer Fellows Anthony Cesario and Connor Mortell. With Dr. Jonathan Newman as moderator.
Recorded at the Mises Institute in Auburn, Alabama, on July 29, 2023.
In this week's episode, Mark discusses the record levels of credit card debt and how it is a major contributing factor to economic pain from the Fed's impact of causing higher prices for consumer goods. This is expected to intensify when the recession officially hits.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Many of us seek products and services from sellers with goods of the best quality and relatively lower prices. Sellers seek the highest prices for selling the least amount of goods. Sellers compete for customers but would much rather be the only seller in the marketplace or market space. Furthermore, consumers want more for themselves and less for other consumers.
This depiction of market behavior is normal and may seem chaotic to some who view the marketplace through a socialist lens. With all the recent talk about reining in artificial intelligence (AI), taming AI, and limiting its uses, it sounds like the hubris of socializing artificial intelligence products and services.
However, an AI-driven economy cannot be socialized by a single entity, despite all the noise about AI restrictions, limitations, and tighter rules and regulations sent down from the top elites. We all use artificial intelligence in daily activities, ranging from work and leisure to side hustles, if you have one. With the glitz and glamour of technology, particularly artificial intelligence, the point that is missed is this: AI products and services enable firms to meet demands, assist entrepreneurs to create value, and enhance the exchange processes we all take part in daily.
Zack Dugow, who wrote “How to Defend Yourself against All-Powerful Monopolies That Control Your Business” for Forbes, made an important observation but did not take it to its logical conclusion. Dugow said, “If you have a heavy reliance on one of these monopolies [artificially driven software or social media/web page tools], you need to be able to pivot your business quickly and have your backup plan readily available to you. What service providers can you switch to?”
Should AI technology and AI startups eliminate monopolistic behavior between firms and consumers and rid the market space of the unrealistic notion of any socialization of AI technology? Everything has a price and a cost, which is why socialism was debunked some time ago.
However, what about artificial intelligence? Can it be socialized in the market space? You can socialize some things, but artificial intelligence cannot generally be owned and operated by a single entity or widely restricted from public usage. Someone must own the productive resources, sell services, and upgrade and maintain the hardware and software.
Opening market spaces for AI seems reasonable; however, will the elites plan to socialize AI services and products, close up the industry, and eliminate AI buyer options? When prices, inputs, and outputs are calculated, it becomes an unfeasible proposition that AI services, products, and industries be socialized. Fortunately, more and more AI service startups are available for buyers. Again, people use AI-enabled services and products to a large degree for many day-to-day activities. AI startups are on the rise, and they are listening to the market space, despite the socialist view that permeates throughout the media pushing toward more regulations and clamping down on open competition. Nevertheless, even in an AI-driven economy, socialism still cannot work.
No company has yet been granted exclusive ownership privileges of AI products and services. Not yet! Currently, there are over thirteen thousand (and rising) private startups of AI services and products in the United States alone, according to eWeek. Will artificial products and services remain decentralized? AI is a tool and enabler of exchanges between customers and firms. The advent of AI technologies can ward off monopolist behavior in a free market because, with an innovative approach to a consumer product or service, any company may be able to prove themselves worthy in the face of Goliath. Contrary to popular opinion, firms that use AI to enhance customer satisfaction and increase productivity open more doors for regular folks to start up their own business, which gives buyers more options in the marketplace. It also allows customers to enjoy the many features and benefits of products and services that add value to their daily lives. Some need to see this point. In other words, those who want to centralize AI services and products to one seller and raise the barriers to industry entry are saying out loud that they want more for themselves and less for you (and me).
That means no firm should have the exclusive privilege of being the only provider of AI services. Right? So many industries started as decentralized firms and are now privileged providers. Question: Who sets the prices of AI services, packages, and models? While your local utility provider, in many cases, is granted the privilege of being the only supplier of utilities, Amazon, on the other hand, has not received the same privilege. Amazon has a strong position in the market, but we know of competitors out there we can visit if we would like to. The difference between privileged providers and Amazon is that Amazon is subject to market competition. Therefore, they must listen to customers and pay attention to price increases, warehouse logistics, and customer service improvements.
If AI products and services remain decentralized, it will allow the market spaces to regulate the prices and costs for using AI services as opposed to if AI services are centralized under one firm or an elite few, similar to airline companies. When consumers and entrepreneurs see the rising costs of AI-enabled platforms, it reduces the incentives to use that technology, but it also allows new entrants to come into the market space and attempt to deliver a better product at a marginally better price. To disregard this market movement is the intent of socialism in general.
Furthermore, a handful of AI service providers eventually reduces the quality of this handful of providers (there are many instances of this decline in quality and rising price when a provider is granted a monopoly privilege). However, a natural monopoly might be reasonably valued. Technology of any kind, operating in a free market, should be the mechanism by which people who desire to enter an industry can do so with their skills and investment and make their attempts at competing—even if they are unprofitable, they were able to enter the fray.
What is often misunderstood about monopoly and prices is explained by Murray Rothbard:
There is no direct control over price because price is a mutual phenomenon. On the other hand, each person has absolute control over his own action and therefore over the price which he will attempt to charge for any particular good. Any man can set any price that he wants for any quantity of a good that he sells; the question is whether he can find any buyers at that price.
In a free market, no one is granted monopoly privilege—a privileged market position is earned by providing the best quality and price that consumers are willing to buy. On the other hand, forced or restricted choice is a form of socialism, or at least interventionism. At this time, it seems the capital markets are deciding where to invest, which is apparent in the rising number of firms producing more products and services so that businesses can meet public demand. If, however, all capital for AI investment funnels to one entity, it would be a disaster insofar as an economic calculation.
The idea of socialism does not hold up to its tenets considering AI’s technological advances made in recent years from the rising number of firms, especially advances in AI for entrepreneurs and consumers alike. A socialist vision of the world is very compelling, but reality tells us something different. The basic premise is that someone has to produce, someone has to consume, and there is a price calculation for both to exist. In the reality of socialistic visions, when subjected to market space examination, this premise tends to break down.
In many cases, the producer and consumer are the same people at different times. Production must take time, and with knowledge of prices, producers know the quantity of goods to produce at any given time. Even if one can socialize the production of luxury items, homes, and vehicles, how does one produce the capital required to make those items? Even with all needed inputs, AI cannot engage in the economic calculation needed to make a socialist economy work.
Even Marx must dimly recognize that not "material productive forces," not even "classes," act in the real world, but only individual consciousness and individual choice. Even in the Marxian analysis, each class, or the individuals within it, must become conscious of its "true" class interests in order to act upon pursuing or achieving them. To Marx, each individual's thinking, his values and theories, are all determined, not by his personal self-interest, but by the interest of the class to which he supposedly belongs. This is the first fatal flaw in the argument; why in the world should each individual ever hold his class higher than himself? Second, according to Marx, this class interest determines his thoughts and viewpoints, and must do so, because each person is only capable of "ideology" or false consciousness in the interest of his class. He is not capable of a disinterested, objective search for truth, nor of pursuit of his own interest or of that of all mankind. But, as von Mises has pointed out, Marx's doctrine pretends to be pure, non-ideological science, and yet written expressly to advance the class interest of the proletariat. But, while all "bourgeois" economics and all other disciplines of thought were interpreted by Marx as false by definition, as "ideological" rationalizations of bourgeois class interest, the Marxists
were not consistent enough to assign to their own doctrines merely ideological character. The Marxian tenets, they implied, are not ideologies. They are a foretaste of the knowledge of the future classless society which, freed from the fetters of class conflicts, will be in a position to conceive pure knowledge, untainted by ideological blemishes.1
David Gordon has aptly summed up this point:
If all thought about social and economic matters is determined by class position, what about the Marxist system itself? If, as Marx proudly proclaimed, he aimed at providing a science for the working class, why should any of his views be accepted as true? Mises rightly notes that Marx's view is self-refuting: if all social thought is ideological, then this proposition is itself ideological and the grounds for believing it have been undercut. In his Theories of Surplus Value, Marx cannot contain his sneering at the "apologetics" of various bourgeois economists. He did not realize that in his constant jibes at the class bias of his fellow economists, he was but digging the grave of his own giant work of propaganda on behalf of the proletariat.2
Von Mises also raises the point that it is absurd to believe that the interests of any class, including the capitalists, could ever be served better by a false than by a correct doctrine.3To Marx, the point of philosophy was only the achievement of some practical goal. But if, as in pragmatism, truth is only "what works," then surely the interests of the bourgeoisie would not be served by clinging to a false theory of society. If the Marxian answer holds, as it has, that false theory is necessary to justify the existence of capitalist rule, then, as von Mises points out, from the Marxian point of view itself the theory should not be necessary. Since each class ruthlessly pursues its own interest, there is no need for the capitalists to justify their rule and their alleged exploitation to themselves. There is also no need to use these false doctrines to keep the proletariat subservient, since, to Marxists, the rule or the overthrow of a given social system depends on the material productive forces, and there is no way by which consciousness can delay this development or speed it up. Or, if there are such ways, and the Marxists often implicitly concede this fact, then there is a grave and self-defeating flaw in the heart of Marxian theory itself.
It is a well-known irony and another deep flaw in the Marxian system that, for all the Marxian exaltation of the proletariat and the "proletarian mind," all leading Marxists, beginning with Marx and Engels, were emphatically bourgeois themselves. Marx was the son of a wealthy lawyer, his wife was a member of the Prussian nobility, and his brother-in-law Prussian minister of the interior. Friedrich Engels, his lifelong benefactor and collaborator, was the son of a wealthy manufacturer, and himself a manufacturer. Why were not their views and doctrines also determined by bourgeois class interests? What permitted their consciousness to rise above a system so powerful that it determines the views of everyone else?
In this way, every determinist system attempts to provide an escape-hatch for its own believers, who are somehow able to escape the determinist laws that afflict everyone else. Unwittingly, these systems become in that way self-contradictory and self-refuting. In the 20th century, Marxists such as the German sociologist Karl Mannheim attempted to elevate this escape-hatch into High Theory: that somehow, "intellectuals" are able to "float free," to levitate above the laws that determine all other classes.
[This article is excerpted from volume 2, chapter 12 of An Austrian Perspective on the History of Economic Thought (1995). An MP3 audio file of this chapter, narrated by Jeff Riggenbach, is available for download.]
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- Ludwig von Mises, Theory and History (1957, Auburn, Ala.: Mises Institute, 1985), p. 126, n3.
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- David Gordon, "Mises Contra Marx," Free Market, 5 (July 1987), pp. 2–3.
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- For the refutation of another, allied, point in Marx's ideology doctrine, that each economic class has a different logical structure of mind ("polylogism"), see Ludwig von Mises, Human Action (New Haven, Conn.: Yale University Press, 1949), pp. 72–91.
Featuring Per Bylund, Lucas Engelhardt, Karl-Friedrich Israel, Tate Fegley, Shawn Ritenour, and Timothy Terrell.
Recorded at the Mises Institute in Auburn, Alabama, on July 28, 2023.
Featuring Mark Thornton, David Gordon, Jeffrey Herbener, Peter Klein, Sandy Klein, Jonathan Newman, and Joseph Salerno.
Recorded at the Mises Institute in Auburn, Alabama, on July 28, 2023.
David Brady Jr. discusses his recent article at Mises.org, in which he argues that the newly launched "FedNOW" system isn't a CBDC. Even so, there are dangers from FedNOW, such as exacerbating bank runs. David also explains the new Mises Apprenticeship program, of which he is a member.
David's Article on Mises.org: Mises.org/HAP406a George Selgin Cato Article on FedNow: Mises.org/HAP406b
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
In recent years, blockchain surveillance (BS) companies have become increasingly important players in the cryptocurrency industry. Their business model consists in developing proprietary software that collects and interprets public data available on public blockchains and in selling their services to governments, banks, exchanges, and others that need access to this data. Usually, governments are interested in collecting information about financial crimes, while other institutional players use BS companies for compliance, especially with regard to customer due diligence. This article argues that BS companies can be understood as governmentalities.
Michael Rectenwald deploys this term to “refer to corporations and other non-state actors who actively undertake state functions.” The partnership between the state and BS companies threatens cryptocurrency users’ privacy and their ability to transact freely, away from the prying eyes of unwanted third parties.
Guilty until Proven Innocent BS companies help institutional players and law enforcement implement the risk-based approach (RBA) developed by the Financial Action Task Force (FATF). According to the RBA, customers of regulated intermediaries such as cryptocurrency exchanges are first and foremost considered to be risks to the stability of the financial system; they are considered to be customers secondarily. Consequently, all customers are categorized based on the level of risk they pose to the ability of intermediaries to comply with regulations. Different BS firms may implement the RBA differently, but the classification of risk remains more or less constant: Severe risk is usually tied to indicators of child abuse, terrorist financing, and sanctions. Ties to dark-net markets and ransomware; use of ATMs; protocol privacy; peer-to-peer activity; use of cryptocurrency mixers, and indicators of gambling are normally classified as high or medium risk factors. The use of decentralized exchanges and smart contracts poses medium to no risk by default.
If customers are a risk, it follows that the burden of proof is on them to demonstrate their innocence by providing all the required information. When BS companies flag activity as suspicious, exchanges eventually start asking questions of their customers, and if the answers are unsatisfactory, customers’ funds are blocked. As is clear from the list provided above, an activity is considered risky not only when it is an obvious crime like child abuse but also when it is a legitimate and legal action such as exchanging cryptocurrencies peer to peer, using a crypto ATM, or taking advantage of protocol privacy.
It is important to not overstate what BS companies can do. Thanks to pseudonymity, personal identities are not part of the bitcoin blockchain: only public addresses that control some funds show up in the blocks. The very purpose of customer due diligence procedures is to attach real-world identities to addresses and to follow their trails. When users’ money is not in the custody of third parties, heuristic rules can be used to guess where the funds went; however, these rules can at best provide good approximations, not infallible results.
For example, according to the common input heuristic, if more than one input appears in a bitcoin transaction, then the same entity owns them. A similar assumption usually works in everyday life: if a payment consists of a ten-dollar bill and a five-dollar bill, it is reasonable to assume that the two bills are owned by the same person. However, this is not always true. In bitcoin, CoinJoin is a transaction scheme designed to break the common input heuristic with “an anonymization strategy that protects the privacy of Bitcoin users when they conduct transactions with each other, obscuring the sources and destinations of BTC used in transactions.”
The fact that the ambiguity of well-constructed CoinJoin transactions cannot be eliminated explains why BS companies classify them as medium risk, even if there is nothing illegal about them. It cannot be stressed enough that even the most basic transactions are interpretable in many equally legitimate ways and that every heuristic rule can be broken. Still, regulated entities and law enforcement often regard transactions as risky when they are flagged by BS company software, not understanding the inner workings of cryptocurrencies and of that software.
Comparing the FATF’s travel rule with BS companies’ know-your-transaction (KYT) platforms shows the arbitrariness of blockchain surveillance practices. On the one hand, the travel rule requires intermediaries such as exchanges that transact on behalf of their customers to share information about the sender, the receiver, and the amount of any transaction with each other, and, upon request, with law enforcement. While the travel rule harms privacy and pseudonymity significantly, it at least leaves no room for discretion—intermediaries must transmit and store only objective and definite data.
On the other hand, KYT software is developed by BS companies to help crypto institutions comply with regulations and to assist law enforcement in tracking criminals. KYT platforms analyze on-chain data and data from other sources through proprietary algorithms to follow funds and flag suspicious behavior. Differently from the travel rule, KYT software is developed behind closed doors, which means that the public does not know how it works or what kind of hidden heuristic assumptions it adopts. This is morally and legally problematic because closed-source software that is sold for profit and that implements arbitrary heuristic rules can be used to charge users with criminal behavior. Moreover, while most legislation treats crypto users as risks by default, it is not clear what legal tools are available to hold BS companies accountable when their obscure and arbitrary KYT software leads to judicial errors.
Unsubstantiated claims by BS companies can do great harm. The case of Roman Sterlingov is significant in this regard. US prosecutors accuse him of operating Bitcoin Fog, a centralized mixer that was used to launder money; because of this, he has been jailed since 2021 while awaiting his trial. However, according to his attorney, Tor Ekeland,
all the accusations are based on shoddy Blockchain forensics at desks 6,000 miles away from Roman’s home in Sweden. . . . The Government’s speculative accusations have no corroborating evidence. No eyewitnesses, no evidence at all of Roman operating a BitCoin tumbling onion site with a staff for a decade. No Admin logins, notes, communications, emails, nothing. After an extensive and expensive Government investigation spanning seven years that involved surveillance, wire taps, and pen traps on Roman.
This case shows how easy it is for an advanced legal system to ruin people’s lives using spurious blockchain surveillance tools.
Scamming the Scammer Who Longs to Be Scammed As explained by Lysander Spooner, the state fears no rivals when it comes to scams: it is the only institution that is able to survive by taking other people’s property while presenting its actions as morally and legally legitimate. To tax property, the state needs to locate it by violating privacy and making the property visible to authorities. Therefore, it is not surprising that with cryptocurrencies the most important objective of regulations is to break pseudonymity as defined in the “Privacy” section of the bitcoin white paper. For example, know-your-customer (KYC) legislation requires regulated intermediaries to tie identifiers to cryptocurrency addresses: KYC-verified coins are more easily taxable than those that are not KYC verified.
BS companies are governmentalities whose main function is to help the state fight financial privacy. Their business model is unscrupulous because they sell closed-source software, based on shaky heuristic assumptions, to regulated intermediaries and to law enforcement; the latter may even use it to put people on trial, mostly for nonviolent “crimes” such as money laundering or tax evasion; moreover, given that BS is based on guessing, the risk of false accusations is astonishing, as shown by the case of Roman Sterlingov.
BS firms do not provide sound forensic tools; still, governments pay for their services with taxpayer money and deploy them in court. One cannot help but suspect that, from the perspective of law enforcement, the obscurity of surveillance software is a feature, not a bug, because it disproportionately favors the prosecution to the detriment of the defense.
For their part, these new governmentalities are happy to profit from the exploitation of the judicial system in favor of the state. BS companies present financial privacy in the domain of cryptocurrency as suspicious by default, and they profit by helping the state gain more control over white “markets” and reduce the scope of black (free) markets. This is a remarkable convergence of scheming interests.
Download the slides from this lecture at Mises.org/MU23_PPT_38.
Recorded at the Mises Institute in Auburn, Alabama, on 28 July 2023.
Some principles for understanding environmental issues. Can government steer energy use decisions to improve outcomes?
Download the slides from this lecture at Mises.org/MU23_PPT_37.
Recorded at the Mises Institute in Auburn, Alabama, on 28 July 2023.
This year during Mises University, we want to share the perspective of students in the program. The following are YouTube shorts from some of this year's Mises Apprentices, interviewing some of their favorite faculty members.
Mises University is going on the entire week. You can watch live from home at mises.org/live.The Best Week of the Year is only possible due to the generosity of our incredible donors. Every donor this week who gives $100 or more today will receive this year's awesome Mises U t-shirt! Go to Mises.org/MUnow to make your donation today.
After the collapse of socialism in the Soviet Union, many socialists, reluctant to abandon their socialist convictions, shifted to a belief in “market socialism.” The great Marxist philosopher G.A. Cohen was not among them, and in this week’s column, I’d like to examine what he says about market socialism in his essay “The Future of a Disillusion,” published in the New Left Review (November–December 1991).
Cohen acknowledges that socialists were wrong to think that the market is inefficient:
We now know that the traditional socialist view about the market’s lack of planning was misconceived. It failed to acknowledge how remarkably well the unplanned market organizes information, and, indeed, how difficult it is for a planning centre to possess itself of the information about preferences and production possibilities dispersed through the market in a non-planning system. Even if the planner’s computer could do wonders with that information, the problem is that there are systematic obstacles to gathering it: to that extent, Von Mises and Hayek were right.
Some socialists who defended central planning argued that it enabled the economy to be under the conscious control of society. Usually, these people claimed that a consciously controlled society was more productive than its allegedly irrational market rival, but, as Cohen points out, the claim of superior rationality is distinct from the claim of greater efficiency. Remarkably, Cohen rejects the conscious control argument, even though it was one of the mainstays of the socialist movement:
There was, however, in the traditional socialist objection to the absence of a plan, a separate emphasis that the market’s generation of massive unplanned outcomes, considered just as such, that is, apart from the particular disbenefits and injustices of those outcomes, means that society is not in control of its own destiny. Marx and Engels did not favour planning solely because of the advantageous economic consequences that they thought it would have, but also because of the significance of planning as a realization of the idea, derived no doubt from the Hegelian legacy under which they laboured, of humanity rising to consciousness of and control over itself. . . .
In my view, that idea is entirely misplaced. Individual self-direction, a person’s determining the course of his own life, may have value per se, but collective self-direction does not. . . . It is not the same thing as democracy, for a democracy can decide that some things should not be subject to collective purpose. And I think that it should decide what to put within collective purpose on a purely instrumental basis, that is, according to the tendency of collective action to promote or frustrate other values. . . . There is harm to no one in the mere fact that social purpose is lacking.
For Cohen, the problems of market socialism lie elsewhere. Even if turns out that the system “works,” he worries that it could lead socialists to change their preferences in a morally questionable way. People tend to have “adaptive preferences”—they tend to adjust what they think is the best possible outcome to the existing situation, and this can lead to the acceptance what is actually less than the best possible thing, and what might in some respects be downright bad.
Among these bads, Cohen thought, was the increasingly common idea that people should earn income and wealth because of their abilities and achievements. This contradicted the fundamental socialist imperative of equality:
Marx criticized the principle of reward for contribution because of the (unjust) inequality that it generates . . . he did not doubt that reward for contribution is a bourgeois principle, one which treats a person’s talent “as a natural privilege”. Reward for contribution implies recognition of what I have elsewhere called the principle of self-ownership. Nothing is more bourgeois than that, and the Gotha critique lesson for market socialism is that, while market socialism may remove the income injustice caused by differential ownership of capital, it preserves the income injustice caused by differential ownership of endowments of personal capacity.
It is clear from the context that Cohen endorses the line of thought he attributes to Marx. It would be difficult to conceive of a more fundamental opposition between the socialist and libertarian outlooks. The very thought that a person owns himself and is entitled to what he produces is dismissed as “bourgeois.”
Cohen sees a related problem with market allocation of resources, whether socialist or capitalist. In a market system, people are motivated to produce by how much money they can make. Instead, they should aim to produce along with others, in a spirit of cooperative endeavor. The market
motivates contribution not on the basis of commitment to one’s fellow human beings and a desire to serve them while being served by them, but on the basis of impersonal cash reward. The immediate motive to productive activity in a market society is usually some mixture of greed and fear, in proportions that vary with the details of a person’s market position. In greed, other people are seen as possible sources of enrichment, and in fear they are seen as threats.
The history of the twentieth century encourages the thought that the easiest way to generate productivity in a modern society is by nourishing the motives of greed and fear, in a hierarchy of unequal income. That does not make them attractive motives, and the fact that the first great experiment in running a modern economy without relying on avarice and anxiety has failed, disastrously, is not a good reason for giving up the attempt, forever. Philosophers least of all should join the contemporary choruses of dirge and hosanna whose common refrain is that the socialist project is over. I am sure that it has a long way to go yet, and it is part of the mission of philosophy to explore unanticipated possibilities.
Cohen has a fixed idea of what motives human beings should have, and he condemns a system that does not actively prod them to have these motives. Cohen’s quest for an economic system in which individual acquisition does not play a major role is a futile one. As Murray Rothbard reminds us, equality is a “revolt against nature.”
Inequality is a good thing in the free market. Economic equality is a disastrous government policy that leads to economic ruin for all—including the poor and workers.
Download the slides from this lecture at Mises.org/MU23_PPT_36.
Recorded at the Mises Institute in Auburn, Alabama, on 28 July 2023.
Experienced entrepreneurs are Austrians.
Download the slides from this lecture at Mises.org/MU23_PPT_35.
Recorded at the Mises Institute in Auburn, Alabama, on 28 July 2023.
Ineffective teaching, the enrollment cliff, stifled academic discourse, and government driving up tuition.
Download the slides from this lecture at Mises.org/MU23_PPT_34.
Recorded at the Mises Institute in Auburn, Alabama, on 28 July 2023.
Modern socialism is based upon state interference in normal human relationships, economic and otherwise. It is as disastrous as the older state-planning model.
Original Article: "Modern Socialism Is Forced Socialization"
Status inequality is inevitable due to the uneven distribution of talent. Even in poor societies, talented people eclipse their peers by joining the ranks of the elite. Inequality is an indication that ability is recognized by society. The absence of inequality suggests that talent is uncultivated.
Failure to cultivate talent hampers the organization of society. In all societies there are people more equipped to perform some tasks than others, and if such people are precluded from being effective, then society won’t be efficient. Natural hierarchies emerge even in the most primitive societies. Automatically some people are chosen as leaders because of competence or ability to appropriate resources for the group.
Others excel due to their prowess in warfare or religion, and some excel in economic activities. Social stratification must occur for society to advance. Not even hunter-gatherers were spared from inequality. Anthropologists record hunter-gatherers as having a modest level of inequality.
Invariably, ambitious people will acquire more than their peers. Like talents, preferences are unevenly distributed. One person could be contented with his living standards whereas his neighbor aspires to an aristocratic lifestyle. This disparity in ambition leads to one person becoming better off, but this is not to the detriment of his contented neighbor.
Inequality is so universal that it was a fixture even in slave societies. Slavery is perceived as a closed economic system with little room for mobility, yet this is untrue. In precolonial Africa, slaves were rewarded for hard work and loyalty. Some even served in administrative positions and were then freed.
Although in the British West Indies and the American South slaves were chattel and less likely to be manumitted, inequality was still pervasive. Carpenters, sugar boilers, blacksmiths, cabinetmakers, and rum distillers constituted an elite core of slaves. These slaves enjoyed a greater degree of mobility, wore better clothing, and benefited from a superior diet. Skilled slaves in the West Indies and the American South were also hired out and paid for their services. Due to their success, prosperous slaves were able to build nicer homes on plantations.
Inequalities led to feelings of superiority, with domestic slaves believing that they were better than field slaves because of their access to superior amenities, attire, and greater opportunities for manumission. Inequalities could become so glaring that some slaves could afford to bequeath property to heirs. Slavery even provided a role for entrepreneurial slaves who conducted business with both races. The business model of slave entrepreneurship was quite savvy and entailed contract negotiations and the large-scale marketing and distribution of their goods. Prosperity made some slaves suppliers of credit and enabled them to purchase the freedom of loved ones.
Further, those who possessed leadership abilities were tasked with leading slave gangs. These slave drivers were usually men and they commanded significant authority. Slave drivers had access to a wider array of resources than the typical slaves. They could punish other slaves and, as a result, were feared by their peers. Although such people remained slaves, they experienced more autonomy relative to their contemporaries and lived away from other slaves.
As expected, status inequality led to differences in occupational mortality rates. Barry Higman contends that the most relevant occupational mortality disparity was that between field laborers and slave drivers, skilled slaves, and domestics. Relying on data from Saint Lucia, Higman shows that on sugar plantations, the death rates of field workers doubled those of privileged groups. Less fortunate slaves not only suffered from low levels of material consumption, they also died earlier.
Clearly, slaves were aware of status differentials and expected the class system to reproduce itself. Inequality was so entrenched that on some plantations elite families emerged. These families enjoyed a closer relationship with planters than the average slaves. Such families not only had more access to resources but also more time to pursue nonwork activities. The extra time gave them the opportunity to sell produce in the marketplace and earn extra cash.
Justin Roberts narrates the comfortable lifestyle of an elite slave family in Barbados:
Some slave kinship groups, such as Old Doll’s family at Newton, were remarkably successful at attaining elite positions and privileges for their members. . . . In 1796, the new manager, Sampson Wood, noted that [Doll] “does nothing,” but she and her family acted as healers and caretakers for both managers and slaves.
Though understudied, slaves with medicinal skills featured prominently as elite slaves. These slaves utilized the medicinal properties of plants to treat ailments. Some were even more regarded than physicians. Their services were solicited by both whites and blacks. Because of their influence as healers, many became qualified for manumission.
These examples demonstrate that not even slave societies could quell the ability of talented people to surpass their peers. Inequality enables society to allocate resources and talents to scale. Therefore, inequality is functional, and without it, society would collapse.
Dr. Terrell discusses the impacts of price controls, occupational licensure, the FDA, and more.
Download the slides from this lecture at Mises.org/MU23_PPT_32.
Recorded at the Mises Institute in Auburn, Alabama, on July 27, 2023.
Bureaucrats operate with de facto electoral unaccountability.
Download lecture slides at Mises.org/MU23_PPT_31.
Recorded at the Mises Institute in Auburn, Alabama, on 27 July 2023.
Game theory done the wrong way eliminates individual choice.
Download lecture slides at Mises.org/MU23_PPT_30.
Recorded at the Mises Institute in Auburn, Alabama, on 27 July 2023.
Interventionists always blame inflation on everything and anything except the only thing that makes aggregate prices rise: Issuing more units of currency than the real demand. Seller inflation is the same excuse and fallacy as cost-push inflation. A way to confuse citizens and assign causation to something that cannot make aggregate prices rise.
Let us debunk some myths. No corporation or conglomerate can make aggregate prices rise. Some neo-Keynesians blame corporations for price increases, but that makes no sense. If corporations were able to make aggregate prices rise, the United States would experience incessantly high rates of price inflation. On the other hand, corporations are the ones that lower prices faster because they can generate economies of scale, gain market share, and produce better goods and services at a lower cost using innovation and technology. There is no single corporation that has a market share large enough to make aggregate prices rise, and even less for a prolonged period. The reader may say that corporations work as an oligopoly, but if that were the case and they were stupid enough to increase prices for no reason, they would be able to affect one or two prices for a while until competition and technology wipe them out.
Remember that aggregate prices are not the same as unit prices. If Exxon, for example, decided to increase the price of gasoline for no reason it may hurt consumers for a while, but this does not make the price of everything else go up. In the oil market, OPEC, which is a cartel of state-owned and controlled oil giants, is unable to keep oil prices above $80 a barrel in nominal terms -even less adjusted by inflation-, and yet neo-Keynesians want you to believe that a company with less than 20% market share in the U.S. economy is going to make all prices rise in unison and, even more laughable, make all their competitors do the same. Why did small, independent oil companies make natural gas and oil collapse in the fracking revolution? Competition and technology. Why did the oil giants not prevent that decline? There is no such thing as an oligopoly just because there are four or five large corporations.
Furthermore, a small group of large corporations in an open economy cannot make aggregate prices rise either, even if they wanted. Imports of cheaper goods and services would soar, be they from China or elsewhere.
If giant corporations decided prices at will, they would never run into financial difficulties, reduce their earnings, or face a declining return on invested capital, and those three events are constantly happening in the market. Consensus estimates are too high? Hey, just increase prices, beat estimates, and make profits soar. It does not happen.
Large corporations are built on delivering more and better goods at the best possible prices. You cannot have a market leader with consistently bad price structures. Large corporations are, by definition, price takers not price setters, because they would fall into enormous financial problems if they ran a massive working capital build to sell millions of units of a good that is incorrectly priced, only to find their warehouses full of unsold items, which leads to losses and even bankruptcy. Demand elasticity works everywhere, and if the amount of money in the system is the same, the seller does not have the luxury of raising prices without limit even when costs rise.
Even if there was one seller able to raise prices at will without any demand impact for a long period, something that I have never seen, that seller does not dictate aggregate prices. At all. One giant or group of multinationals, like Apple or Exxon, does not make the CPI rise nine percent. They do not even scratch the surface of aggregate prices. Because aggregate prices are set in an open economy by millions of agents and the marginal price setter is never a corporation with giant working capital requirements.
Extractive monopolies or oligopolies do not exist in open economies like the United States. Extractive oligopolies only exist in the minds of neo-Keynesians because that is exactly what they create when governments close borders to trade and direct the economy. The only way in which you can create an extractive monopoly is if the government enforces and defends it. In any other circumstance, that business would disappear in a few months.
If aggregate prices rose due to the evil works of corporations, why do those corporations not raise their prices in other currencies in other countries? Why is the same European mega-cap seeing 20% price increases in Germany and seven percent in Switzerland? It is not the same measure. One is issuing more units of currency than what the real economy demands, the eurozone, and the other, Switzerland, is not. That is why there is a Big Mac Index that tracks real inflation. McDonald’s does not raise prices; it sells affordable food. The only difference is the purchasing power of the currency.
So why do these “experts” blame large corporations for something—price inflation—they do not cause? Because the objective is to increase government control of the economy and destroy private business that are large enough to be economically independent. They do not care about small businesses because those are already asphyxiated by taxes and small and medium enterprises are easily forced to depend on the government.
Neo-Keynesians want you to believe that unit price movements are the same as aggregate prices. And it is not. The only thing that makes all prices rise in unison is the constant destruction of the purchasing power of the currency issued by a monopolistic player: the state.
Neo-Keynesians need you to believe that the quantitative theory of money does not exist so they can achieve their goal: full government control of the economy and the currency. And what happens when that goal is achieved? Scarcity and high inflation. Always. But the people close to the politicians become very wealthy. That is socialism. State enforced cronyism.
Governments never curb inflation because they benefit from it. Money creation is never neutral and disproportionately benefits the only monopolistic player in the economy: the state that issues the currency. If you think your salary is losing purchasing power due to the evil workings of a monopoly, you are right, because the only monopoly you suffer every day is the monopolistic currency issuer that grows larger and makes you dependent by destroying your real salary and your deposit savings’ purchasing power.
This year during Mises University, we want to share the perspective of students in the program. The following are YouTube shorts from some of this year's Mises Apprentices, sharing some of their favorite parts of the Mises Institute.
Mises University is going on the entire week. You can watch live from home at mises.org/live.
The Best Week of the Year is only possible due to the generosity of our incredible donors. Every donor this week who gives $100 or more today will receive this year's awesome Mises U t-shirt! Go to Mises.org/MUnow to make your donation today.
This year during Mises University, we want to share the perspective of students in the program. The following are YouTube shorts from some of this year's Mises Apprentices, sharing some of their favorite parts of the Mises Institute.
Mises University is going on the entire week. You can watch live from home at mises.org/live.
The Best Week of the Year is only possible due to the generosity of our incredible donors. Every donor this week who gives $100 or more today will receive this year's awesome Mises U t-shirt! Go to Mises.org/MUnow to make your donation today.
Remember that credit is money.
—Benjamin Franklin
The June 2023 Supreme Court decision to reject the Biden administration’s plan that pandered to those claiming impoverishment by the costs of higher education is a second-act curtain on the student debt drama. A third act in the drama was outlined by President Biden on June 30 using piecemeal administrative decisions.
For more than twenty years, the federal student loan program has been mismanaged. Revolving leadership, congressional pressure, and confusion on what constitutes a loan obligation have led to this predicament. The Supreme Court’s decision has provided a pause so that we can examine the twenty-first-century value of the current program.
Federal funding of student loans originally was intended to encourage human capital, skills, and critical thinking. While the higher education system does not produce anything per se, all certificates, diplomas, and degrees are products of a large educational complex. For investment in skills to leverage value such as human capital, a definable gain is quantified by the price that employers will pay on the free market for a degree holder. Sadly, objective information from these price points is obscured by an argument that invokes the theorem of “social return on investment” (social ROI). Social ROI claims benefits to all of society, regardless of degree or field of study. Allan Golston, president of the US Program for the Bill and Melinda Gates Foundation, wrote this in 2021: “What is college worth? It’s a question many Americans are asking, especially in light of the COVID-19 pandemic. And it’s justified: The return on investment (ROI) has not been well understood, and the results are uneven.”
In his September 28, 2022, blog, Golston summarized the findings of a survey among high school graduates who chose not to attend college: “Three key themes stand out to me: 1) students are concerned about college costs, 2) they have questions about the value of postsecondary education, and 3) many are worried about disrupting their livelihoods to attend college.”
How does forgiving student debt address Golston’s concerns? Who has come forward to address cost and value issues? What would a Venn diagram of the federal student loan program’s success look like when aggregating the personal experiences of those who participated? Consider these statistics:
- Before the covid-19 pandemic, only about half of student loans were being repaid; 25 percent were delinquent or in default
- Six percent were in, and 6 percent were in direct collections, and the Brookings Institution warned that student loan contracts from the “early 2,000s” could have default rates as high as 40 percent in 2023.
- In a 2021 survey, over 45 percent of students with degrees in humanities, arts, or social and behavioral sciences wished they had chosen a different major.
- In a 2023 Wall Street Journal poll, 42 percent of college graduates said that getting a degree wasn’t worth the cost.
- The current average undergraduate dropout rate is 40 percent.
- Sixty-two percent of students finish their degree in six years.
Three frequently mentioned benefits of a college degree, with little or no direct human capital gained, are secure employment, higher wages, and employer signaling. These justifications fail soundly when examined because they rely on an averaging sleight of hand to count all degrees equal.
In May 2023, the unemployment rate published by the Bureau of Labor Statistics (BLS) was 3.9 percent for high school graduates, 3.2 percent for those with some college credit, and 2.1 percent for college graduates. This significant marginal difference has remained relatively consistent. However, 13.1 percent of the base of graduates used in this comparison have an advanced degree, skewing the employment averages.
The lower unemployment rate for college graduates has been conclusively refuted by Bryan Caplan of George Mason University. The BLS comparison places two distinct groups of people—those who choose to attend college and those who do not—into a forced equation. The metric of higher wages also fails when the wages of those who have an advanced degree are withdrawn from the “college” category and the remainder adjusted for the different attitudes of those surveyed.
Employers value a college degree as a benefit to the workplace even without a skill match. Someone may prove his or her employability by spending up to five years and incurring a $30,000 (average) debt to qualify for a job performing work for which minimal preparation is provided in college. A comparable signal value is achieved by four or five years of employment history or service in the military or AmeriCorps VISTA. However, the mismatch between skills and work can make an employer reticent to hire and a graduate discontented and may only provide a temporary solution in a hot labor market.
Advocates of the degree signal cite language used most often by job-training programs offered by businesses such as Goodwill Industries or through academic studies at Georgetown University. These programs identify better jobs, higher income, reduced government dependence, higher tax contributions, and better quality of life. Universities may add social contact as a step to Maslow’s theory of self-actualization. In Economic Calculation in the Socialist Commonwealth, Ludwig von Mises writes: “In the socialist commonwealth every economic change becomes an undertaking whose success can be neither appraised in advance nor later retrospectively determined. There is only groping in the dark. Socialism is the abolition of rational economy.”
Does the student debt write-off push higher education’s claim of social ROI into the red? To be fair we need to apply the analytic hierarchy process (AHP) that is used by many social impact and nonprofit organizations. AHP proponents claim it is “useful for making multicriteria decisions involving benefits, opportunities, costs, and risks.” The process starts with objective measurements and then uses paired comparisons to determine the value of the outcomes.
Inputs are itemized dollar resources invested in a college degree, including state support, federal support, parent salaries, student wages, family savings, and FAFSA (Free Application for Federal Student Aid) loans. Inputs could exceed $2 trillion. The $1.6 trillion student debt from the Fed’s consumer survey is a partial amount. Michael Nietzel reports that states added $112 billion to their state university systems. Sallie Mae estimated that in 2021, 44.7 percent of college costs were paid for by parent savings and income. Many students work part time while they are students and during time off from school; foundations provide grants to cover part of student costs.
Outputs, or the direct and tangible products from an activity, must be evaluated. An example is calculating the number of people trained by a program or considering the type of degree granted. Employees with skill-based degrees will be paid higher wages and are more likely to support college fundraising efforts and pay back loans. In 2021, a computer science bachelor’s degree led to starting wages of $70,000, while a sociology degree could command $56,750, though amounts fluctuate according to supply and demand.
Outcomes, or the changes to people and the benefits resulting from a program, are addressed by comparisons of subjective beliefs. Subjective judgments, referred to as fuzzy AHP, allow wide latitude to create rationalizations for continuing to ignore the issues. The distilling of these value questions defaults to the claim that “all degrees are good.”
Some have made a passionate plea to write off student loans by claiming the benefits of social ROI, an ill-determined concept supported by fuzzy subjective reasoning that does not consider the monetary value of different degree majors. Coupled with the aforementioned Venn diagram, it is easy to conclude that the proposed 2023 program is a net failure going forward. It uses tortuous logic to rationalize past receivables. The educational industrial complex is at a tipping point.
Some problems with inflation measures, inequality and social mobility, and further implications.
Download lecture slides at Mises.org/MU23_PPT_27.
Recorded at the Mises Institute in Auburn, Alabama, on 27 July 2023.
Public health during the pandemic was anti-science and anti-health.
Download lecture slides at Mises.org/MU23_PPT_26.
Recorded at the Mises Institute in Auburn, Alabama, on 27 July 2023.
More than two thousand years ago, the ancient Chinese Tao presented ideas that are reflected in F.A. Hayek's concept of spontaneous order.
Original Article: "The Tao and the Synergy of the Spontaneous Order"
There are few individuals as reviled and vilified in our modern age as speculators. Economic turmoil of all shapes and sizes are placed squarely on their shoulders. Why do we have recessions from time to time? Because of the irrational speculators, of course. Why do economic bubbles exist? Because of wild overspeculation, undoubtably. Why are prices rising so quickly? The ceaseless activity of the speculators, no doubt. Yet it is seldom—if ever—asked in the public consciousness whether the speculator serves any valuable purpose. Most believe him to be a pointless and unwanted parasite in society, but is this really the case?
First, what is a speculator? A speculator is someone who leverages money on the outcome of future events. One can speculate over almost anything imaginable: that a company will succeed, that a company will fail, that the economy will boom, that the economy will bust, and on and on. If a speculator is relatively more correct in his view of the future, then he will make money. If he is relatively less correct, then he will lose money. In essence, the speculator appraises what future market conditions will be and invests according to that judgement.
With this description of the role of the speculator, the charges leveled against him are understandable. The speculator doesn’t produce or create anything at all! Why do we need speculators? If what everyone says about them is true, they seem to be much more trouble than they are worth. We can clearly see the economic purpose of farmers, bakers, manufacturers, and so on, but what economic purpose does the speculator serve?
First, it must be noted that the speculator with his forward-looking outlook isn’t unique from an economic point of view. All action, including action on markets, is always forward-looking. Action itself is the desire to utilize means for the attainment of ends. This means-ends interaction is one of cause and effect. Causes and effects never occur simultaneously, meaning that some passage of time is unavoidably involved. This unavoidable passage of time applies to all action. Because action deals in these cause-and-effect relationships, action itself cannot avoid the passage of time. Action always looks to the future, even if only the very near future. This applies to actions in markets as well; buying and selling, whether for production or consumption, are always future oriented.
Even so, we are not all speculators. We might engage in speculation through our actions, but this is qualitatively different than doing so as a profession. Given that speculation is a part of our daily lives, what social value is there in speculation done in pursuit of money? What does the speculator do for any of us?
The speculator, in his estimations and appraisements, alters market prices so that they factor in not only information about the present but information about the future as well. For instance, suppose that scientists announce that a deadly disease has started to spread among the strawberry crop, and that in several years, strawberries will be increasingly hard to find. At this point, the speculator leaps into action. He will start to purchase many of the strawberries being sold now in the hopes of selling them later at a higher price. This increase in present demand, along with the supply now decreased, will increase the price of strawberries. This higher price, however, acts as a signal.
Because strawberries are about to become much scarcer, it is important to conserve them now while we have them so that strawberries don’t entirely disappear when the disease fully hits. Fewer strawberries are consumed now, but more of them will be available later. In essence, that information about future strawberry crops is now being factored into present prices. Who is responsible for this change in price? The speculator.
Assuming that the speculator is correct in our example and strawberries do become scarcer in the near future, then he will be able to sell his strawberries at a higher price than what he initially paid for them, which earns him a profit. If, however, the scientists were wrong and the strawberry crop remains as strong as ever, then he will earn nothing or even lose money because of an increased supply of strawberries now being dumped on the market which lowers the price.
Given that the role of the speculator is to help bring market prices in alignment with present and future information, what economic benefit does this serve? One benefit we have already listed above is that market prices now reflect the scarcity of a product not just in the present but in the future as well. This intertemporal transmission of information gives individuals the opportunity to plan their buying and selling decisions intertemporally. Another benefit is that as these market prices are changed according to new information inputs, entrepreneurs can alter their production plans accordingly. If the price of a product increases because of perceived future scarcity, businessmen will be attracted into that field to produce more of that good or service in the future, alleviating that increased scarcity.
In our example, it is a safe bet to believe in what the scientists are saying and for the speculator to act accordingly. In the real world, however, predicting future market events is rarely so straightforward. Speculators are never perfect, and even the best among them still lose money from time to time. However, the money that they earn is not arbitrary. It reflects how accurate they are in helping to reflect future information in present prices. The speculator, despite the endless insults and vitriol hurled at him, performs an invaluable service to the market economy.
Plain and simple, the speculator has gotten an undeserved bad rap. The reason for this is not because of economic theory but a lack of it. Whenever an economic crisis comes around, the general public, economically illiterate as they unfortunately are, naturally look for someone to blame. Scapegoats are as old as time, and the speculator makes an especially appealing victim. Even so, he deserves to be acquitted of all charges in the court of public opinion. Economic theory does not indict him, and we shouldn’t either.
People with jobs, children, and actual responsibilities might not have noticed, but Hollywood is nearly shut down right now thanks to both a writers' strike and an actors' strike. Or more specifically, the writers and actors—who are members of unions—are on strike. Members of SAG-AFTRA (SAG) and the Writers Guild of America (WGA) are refusing to work until TV and movie studios agree to a variety of demands.
These actors and writers may be in for some unpleasant surprises, however. Studio revenues and advertising income isn't what it used to be. Cable subscriptions are down. Theater attendance has not recovered from covid. When revenues are stagnant or falling, it's harder to get the studios to raise compensation.
Another big problem writers and actors face is that we now live in an age when mid-budget content creators who can reach millions of viewers through platforms like Youtube and Tiktok and Twitter. These people are usually not union members, and that means a lot of non-union competition for Hollywood content creators.
This all highlights a central problem that unions have always faced: labor unions do not—and never have—raised wages for all workers in any particular industry. They can only raise wages for union members. But, if non-union workers can still write, film, edit, and act outside union control, they will always offer an alternative to union workers. Moreover, rising wages can only be supported in the long run by rising levels of productivity. That is, writers and actors can only expect sustainably larger pay if they're also bringing in more net revenue. But it's not clear rising revenue is something that Hollywood actors and writers should expect.
In this new age of decentralized and democratized content creation, union members' demands may simply be based on wishful thinking for a bygone era.
The Decline of Hollywood Dominance The last substantial actors' strike was in 1980. The last time both actors and writers went in strike together was in 1960. That was a very long time ago. In those days—whether we're talking 1960 or 1980—the big-three television stations, the large movie studios, and the artists behind them utterly dominated the world of visual entertainment. There were few viewing choices outside of what was only a handful of television stations or what was playing in movie theaters. Actors were in a fairly good position to demand higher pay for their work which in many cases enjoyed a near-captive audience. After all, summer blockbusters were a rising trend. Movie stars were household names. Prime time television commanded enormous nationwide audiences.
In 2023, the situation is very different. Yes, videos and podcasts from online content creators is not the same product as shows produced by big studios. Yet, it is nonetheless a "substitute good," as the economists say, and it does offer competition in the form of pulling viewers away from traditional media. Ten-minute comedy videos on Youtube may be very rough around the edges compared to a slick 30-minute program on cable, but the non-studio content nonetheless competes with the studios for the viewers' time. An hour spent watching Youtube content is an hour not spent watching something on NBC.
As a result, ad revenues are down and studios are losing revenue in many areas. A report on TV advertising by Enders Analysis concludes "TV advertising is expected to decline over 10% in Q1 2023 and by approximately 5% overall in 2023." David Bloom reports at Forbes that "Disney has reported its linear networks revenue (which includes its cable operations) dropped 7% percent while operating income dropped a painful 35%." Overall net revenues continue to grow for many studios, but positive revenues have come largely through cost-cutting measures. Studios have been cutting back new film and television projects which means lower overall wages for many writers and actors.
Meanwhile, Warner Bros Discovery endured an 11-percent drop in revenue in late 2022 as advertising revenues softened. Hollywood studios have endured a variety of box office disappointments this year from The Flash to Pixar's Elemental to Indiana Jones and the Dial of Destiny. Variety also reports on how movie stars are no longer reliable money makers. Since the collapse of the DVD business in 2008, few new actors have reached the heights of an Arnold or a Stallone. This makes it harder to predict which films will be a success. There are few "sure things" in movie production in 2023, which leads studios to become far more cautious about what they'll pay out ahead of time to writers and actors.
What do the Actors and Writers Want? Indeed, what appears to be keeping the studios afloat at all are the streaming services such as Peacock, HBO MAX, and Disney+. Yet, actors and writers are compensated differently for streaming content than theatrical releases and TV broadcasting. Thus, the demands by both unions center largely on changes like the shift to streaming. For example, pay for actors and writers is currently constructed in such a way that big pay increases can be had through box office revenues and syndicated television. Thanks to the rise of streaming services, however, these older means of getting at the big bucks are no longer nearly as rewarding for actors and writers.
Other concerns center around artificial intelligence and computer-generated images. There are rising concerns among writers that AI programs could be used to complete or write screenplays and teleplays. Actor are concerned that CGI will allow studios to use an actor's likeness without actually paying the actors in question.
The reluctance by studios to expand compensation to these platforms is not necessarily a function of nefarious intent as union activists often imply. (Note, for example, actor Ron Perlman's threat to burn down the houses of studio executives.) Rather, studios continue to face large threats to advertising revenues, cable-TV income, and box office gains. Simply as a matter of responsibility to stockholders, the studios have to find ways to cut costs, and are naturally reluctant to cut into their most reliable cash cows right now: streaming.
Eventually, however, a deal will be struck, and Moody's predicts this will cost media companies from $450 million to $600 million per year.
This may prove to be a late rearguard action, however, as neither studios nor writers nor actors can escape competition from outside Hollywood. Consider the sheer volume of content from highly popular Youtube creators like Mr. Beast or popular podcasters like Joe Rogan. People can spend hours per week consuming their content, without any dollars going to traditional content from studios. This content is for more decentralized than Hollywood and enjoys much less overhead.
So, any new demands from writers and actors will have to come in light of the fact there is a large entertainment world beyond the reach of the Hollywood unions and studios. This naturally presents a challenge to unions which thrive on the idea that they control at least a sizable portion of the available labor within a certain field. Moreover, there is a nearly constant stream of new writers and actors willing to offer their services to the big studios in the hopes of making it big.
Henry Hazlitt explains how this is a problem for the unions:
It is important to keep in mind that the unions cannot create a "monopoly" of all labor, but at best a monopoly of labor in certain specific crafts, firms, or industries. A monopolist of a product can get a higher monopoly price for that product, and perhaps a higher total income from it, by deliberately restricting the supply ... But while the unions can and do restrict their membership, and exclude other workers from it, they cannot reduce the total number of workers seeking jobs.
These unions are in less of a position than ever to control the work of actors and writers. There are just too many platforms offering too many opportunities to outsiders.
Hazlitt notes unions "claim the 'right' to prevent anybody else from taking the jobs that they have abandoned [during the strike]. That is the purpose of their mass picket lines, and of the vandalism and violence that they either resort to or threaten. This constantly undermines the facade of a union monopoly on labor."
This facade is more obvious than ever as non-Hollywood entertainment continues to grow in both quality and availability. The actors and writers will likely get their raises this year. But their old-fashioned studio-labor model may not survive much longer.
Download lecture slides at Mises.org/MU23_PPT_24.
Recorded at the Mises Institute in Auburn, Alabama, on 26 July 2023.
Few people understand how destructive regulations are.
Download lecture slides at Mises.org/MU23_PPT_23.
Recorded at the Mises Institute in Auburn, Alabama, on 26 July 2023.
Moving policing outside of the realm of economic calculation contributes to many of the problems we see.
Download lecture slides at Mises.org/MU23_PPT_22.
Recorded at the Mises Institute in Auburn, Alabama, on 26 July 2023.
This year during Mises University, we want to share the perspective of students in the program. The following are YouTube shorts from some of this ye ar's Mises Apprentices asking fellow students about the highlights from Tuesday, which included an evening pool party.
Mises University is going on the entire week. You can watch live from home at mises.org/live.
The Best Week of the Year is only possible due to the generosity of our incredible donors. Every donor this week who gives $100 or more today will receive this year's awesome Mises U t-shirt! Go to Mises.org/MUnow to make your donation today.
Michael talks with Gad Saad about evolutionary psychology and the market, the mind parasites, and his new book.
Do woke tech firms have monopoly power?
Download lecture slides at Mises.org/MU23_PPT_20.
Recorded at the Mises Institute in Auburn, Alabama, on 26 July 2023.
F.A. Hayek is one of the most influential figures in the field of social science. His works ranged from philosophy to economics to jurisprudence to psychology. He won the Nobel Prize in economics in 1974 and was probably the last major Austrian economist from Austria. He was not only important in Austrian economics but also in mainstream economics. One of his most popular works was the book The Road to Serfdom. Even though it was written in 1944, it is still read by many and was a bestseller in 2010 on Amazon.
With this book, Hayek brought the noise into the academia of social science and especially economics. During the Second World War, many scholars made excuses for the compulsory wartime economic system. Due to the Great Depression in the early 1930s, many had already lost their faith in capitalism and democracy. Some would prefer Keynes’s capitalist model, which focused on the demand side. Hayek himself was dispirited because he wasn’t included in contributions to the war efforts. This motivated him to write this legendary book.
This book reached places; it wasn’t just a success in the United Kingdom but was also a success in America. Politicians and scholars were well aware of the work of Hayek. However, with its rising popularity, the book was misinterpreted a lot too, leading to many great scholars to wrongly abstract the book and misinform the general public. Great names in economics like Paul Samuelson and Robert Solow alleged that Hayek wrote that with one small intervention of government in the economy, there would be serfdom in society. This is a very popular belief about Hayek’s book, but it is wrong.
Hayek never claimed anything as such. His book was a critique of authoritarian collectivism and the fallacies regarding totalitarianism and authoritarianism. He explained that socialism is not a system that supports the liberty of individuals, and if anyone dreams about socialism, then he has to be ready to sacrifice his freedom. Then, Hayek explains that any planning—even with a group of planners or a commission—would lead to chaos due to the problem of coordination. This would lead to the ultimate decision-making of a single planner, and thus the reality of any form of collectivism lies in the decisions of a single planner.
Hayek shows the importance of private property and how private property also gives choices to those who don’t own property. Then, one by one, Hayek broke the arguments for socialism into pieces. He critiques central planning, exhibits his famous work on knowledge problems, and asks how planners are capable of foreseeing the actions of individuals in a society. He argued that the planners’ claims that the political freedom of people wouldn’t be affected and only the economic freedom would be taken from them is false as both political freedom and economic freedom are complementary to one another. Without one, the other is impossible. He also argues based on law, explaining the reality of the Rule of Law and its importance in a free society. After that, he covered different issues like the socialist roots of Nazis, the ways the worst people rise to the top and rule over all, and the end of truth in a regulated society where people are deprived of truth or facts.
Hayek’s book was a critique of collectivism, but most importantly, it was dedicated “To the Socialists of all Parties.” Hayek understood very well that all forms of collectivism like socialism, communism, fascism, and nationalism oppose individualism and liberalism.
Hayek wrote this book during the Second World War when the Soviet Union was on the Allies’ side. Therefore, even though he criticized Adolf Hitler, he couldn’t do the same with Joseph Stalin. However, by reading the book, it seems like Hayek wanted to show that there is no difference between Hitler and Stalin. What many still fail to recognize today was well recognized by Hayek. He did regret not being fully open in putting his thoughts to the literature, but by showing the similarities between all types of collectivism and the socialist roots of Nazis, Hayek made his point quite well.
He challenged the popular beliefs of that time, but nowhere did he claim that a small step of government would eventually lead to serfdom. The book was not based on the evil side of government but on the illiberal impact of collectivism that would require a government that Hayek believed the socialist believers themselves wouldn’t like. There is another claim that Hayek criticized the welfare state, but there was no mention of it in the book either.
This incorrect interpretation of the book by scholars spread wrong information to those who haven’t yet read the book. This book is very important for the political economy in mainstream economics. If anyone asks why socialism isn’t considered in economics, it’s because of this book. It has helped in changing many opinions including the author of this write-up. The important issues Hayek covered are still relevant. However, it is a matter of misfortune that despite Hayek’s book being published in 1944, there are still many (that are increasing in number) that have fatal points of view toward socialism or any form of collectivism.
Karl-Friedrich Israel discusses modern econometrics, utility and welfare economics, and econometrics as a set of descriptive tools.
Download lecture slides at Mises.org/MU23_PPT_17.
Recorded at the Mises Institute in Auburn, Alabama, on 25 July 2023.
There is no clear basis in economics, ethics, efficiency, or fairness for Minimum Wage Laws. The minimum wage works the way it was intended one hundred years ago.
Download lecture slides at Mises.org/MU23_PPT_16.
Recorded at the Mises Institute in Auburn, Alabama, on 25 July 2023.
It's become common now to read arguments claiming that immigrants — broadly speaking — are good for the economy, or good for "America" in some other fashion.
"Migrants and refugees are good for economies," Nature magazine claims. "Open Immigration Is Good for the Health of People and the Economy," another writer claims. "1,500 economists to Trump: Immigrants are good for the U.S. economy," CNN insists.
Now, I'm not one to argue against freedom of contract and exchange between US citizens and foreign nationals. In other words, if a private employer wishes to offer a job to a foreign national, that foreign national should be free to accept. Similarly, if an American landlord wants to enter into a lease agreement with a foreigner, that ought to be the landlord's prerogative.
Note that in these cases, however, the private parties involved are specific individuals. The landlord and the employer have not entered into agreements with some vague concept of "immigrants." They're doing business with certain individuals who happen to be immigrants.
At the heart of this reality is a very important fact: immigrants are not homogeneous. Each person has different skills, different needs, and different luck. Moreover, immigrants aren't even homogeneous within certain national groups. An English-speaking middle-class non-felon from Mexico clearly has little in common with a gangland assassin from the same country.
Thus, we cannot say that immigrants in general are good for the economy or good for anything else. Some are. Some aren't.
For this reason, it would of course also be factually incorrect to say "migrants and refugees are bad for economies,"or "immigrants cause crime" or "immigrants are a burden on the public purse." No doubt this is true about some immigrants.But it's certainly not true of all of them. Thus, every time I see a headline that blares "Immigrants are good for America," I wonder: "Do they mean all of them?"
But which ones are delightful neighbors and customers, and which ones are future drains on the taxpayer?
This has always been the central problem of immigration policy.
A Different Approach Contrary to myths about the United States having totally open borders in the nineteenth century, many US states did, in fact, employ a variety of legal schemes to prevent entry to certain immigrants who were thought to be paupers who would be a drain on the public purse. (States did this because most people at the time agreed the federal government was not granted power of immigration matters.) New York and Massachusetts were especially notable for efforts to refuse entry to certain immigrants thought to be unemployable.
[RELATED: American Immigration Policy 160 Years Ago by Ryan McMaken]
These laws go back to colonial times — and even to England — where poor laws were devised to prevent outsiders from settling — uninvited — in a new village or district where they could then exploit poverty-relief resources intended for the locals.
It was not until later that the Federal governments began to set overall quotas and to even base immigration laws on country of origin rather than on the specific traits of immigrants.
Thus, from the 1880s onward, the Federal government increasingly began to adopt a prohibitionist approach, the most notable instance of which was the Chinese Exclusion Act of 1882.
Quota systems like this, however, have always smacked of central planning and anti-capitalism. They engage in wholesale prohibition and regulation of entire classes of immigrants, regardless of the wants or needs of native employers, families, and charitable groups who might be interested in hosting these immigrants.
A wholesale ban on immigrants from Country X is about as compatible with a free economy as is a ban on imports from Country Y. It's nothing more than a case of politicians deciding arbitrarily what sorts of economic activity Americans will be allowed to engage in.
Moreover, even in the days when states attempted to refuse entry to suspected "paupers, vagabonds, and possible convicts," entry could sometimes be dependent on the use of bonding. In these cases, those who attempted to "import" immigrants were required to post a bond under which the state could be compensated in case the new migrants ended up on the dole — whether in prison or in the poorhouse.
[RELATED: "Only the Private Sector Can Determine the "Correct" Number of Immigrants" by Ryan McMaken]
Reasonable Americans recognized that while some immigrants might bring risks to the native population, many did not. This, incidentally, is true of all imports, human and otherwise. After all, agricultural imports have always brought with them the risk of invasive species or diseases that threaten native crops. The response to these threats has been to address the risky imports without banning the good.
In a modern context, resurrecting and emphasizing strategies like these — while eschewing a prohibitionist approach — would help to lessen the role of the state in the lives of both citizens and migrants alike.
For this reason, immigration policy ought to be adopted to allow for more flexibility, free association, and market exchange, while still addressing issues such as criminality and what was once called "pauperism":
- Expedited or immediate entry for any immigrant who forfeits all access to publicly funded subsidies and amenities including public schools, Medicaid, and similar programs.
- A sponsorship, bonding and "adoption" program for private individuals, employers, and charitable organizations who are willing to financially "vouch" for immigrants. Should these immigrants turn out to be criminals or users of public funds, the sponsoring entities will be held liable. Immigrants who can find no sponsor in these situations will be deported.
- Abolish immigration ceilings, but restrict entry to immigrants who are sponsored and bonded, have forfeited access to public programs, or who can demonstrate financial independence.
The goal is to allow for greater freedom for American citizens to engage more freely in trade and other exchanges with immigrants worldwide, while also limiting the risks to taxpayers. This also naturally limits the total volume of immigration — without arbitrary government ceilings — since sponsorships and bonding will be limited by the availability of private resources.
This plan, of course, will fail to please those anti-immigrant enthusiasts who simply don't want any freedom of movement across the border at all. They think their personal feelings about American demographics and culture justifies using the power of the federal government to override private agreements and free association. On the other hand, this plan will also fail to please those Americans who are dedicated to maximizing the inflow of immigrants for ideological and political reasons. For them, immigration is a means of re-shaping American culture to better suit their preferences. And the more it's subsidized by government, the better. Both sides look to government to force their own immigration preferences on others, and to override the decisions of the private sector, which the activists on both sides mistrust.
For a great many Americans, though, their concerns are often limited to fears about criminality and strains on taxpayer-funded resources. But as with so much else, these problems can be addressed by moving more in the direction of private markets and allowing immigration flows to be determined more by the private sector, whether for-profit or charitable.
Government attempts to limit “monopoly power” cannot improve well-being.
Download lecture slides at Mises.org/MU23_PPT_15.
Recorded at the Mises Institute in Auburn, Alabama, on 25 July 2023.
What is a business cycle?
Download lectures slides at Mises.org/MU23_PPT_14.
Recorded at the Mises Institute in Auburn, Alabama, on 25 July 2023.
This year during Mises University, we want to share the perspective of students in the program. The following are YouTube shorts from some of this year's Mises Apprentices asking fellow students about the highlights from the first full day of Mises U.
In this short, one of our Mises U students talks to Dr. Patrick Newman, a member of the faculty and a Mises U alum.
Mises University is going on the entire week. You can watch live from home at mises.org/live.
The Best Week of the Year is only possible due to the generosity of our incredible donors. Every donor this week who gives $100 or more today will receive this year's awesome Mises U t-shirt! Go to Mises.org/MUnow to make your donation today.
Capital is the starting point of economic calculation.
Download lecture slides at Mises.org/MU23_PPT_13.
Recorded at the Mises Institute in Auburn, Alabama, on 25 July 2023.
You’re driving on a two-lane road and see cars headed your way. Do you drive off the road to protect yourself or your family? Probably not. You stay on your side, while they stay on theirs. In most cases you’re in a situation of mutually assured destruction if either one crosses the center line. It is not from the benevolence of the other drivers that we expect them to stay in their lane but from their regard to their own self-interest.
It’s self-interest, usually condemned as morally reprehensible but without being clearly articulated, that guides us throughout the days of our life. Self-interest, in a rational sense, is devoid of sacrifice, where “sacrifice” refers to surrendering higher values to lower ones. A value is that which one acts to acquire or defend. The mother who risks her life to save her kids from an active shooter is acting according to her values. So is the armed and trained cop who takes cover instead. The cop may want to intervene but fails to act. Neither is making a sacrifice.
In dealing with others there are incentives to act in ways that promote mutually agreeable outcomes. My grandson needs money, so I hire him to detail my car. I have clothes I no longer wear, so I give them to Goodwill. A church health spa needs a membership database and hires me to write one. At no point is anyone coerced. At no point does anyone part with their property involuntarily. At every point both sides of the transactions benefit. We are in an important sense governed without the state.
How does the state benefit our lives? How does it “establish Justice, ensure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity”? In Murray Rothbard’s words, by providing “a legal, orderly, systematic channel for the predation of private property,” it sustains the lifeline of the parasitic caste in society, usually referred to as the government, in a “certain, secure, and relatively ‘peaceful’” manner.
We’re told from day one that peace, justice, and prosperity depend on this “government” and that in any case it is too powerful to abolish, so we need to learn how to reform it to get the results we want.
Historically, as numerous scholars have detailed, the state intruded on peaceful societies. Thomas Paine wrote in Common Sense,
Could we take off the dark covering of antiquity and trace [kings] to their first rise, that we should find the first of them nothing better than the principal ruffian of some restless gang, whose savage manners or pre-eminence in subtlety obtained him the title of chief among plunderers; and who, by increasing in power and extending his depredations, overawed the quiet and defenseless to purchase their safety by frequent contributions.
And Albert Jay Nock argues at length in Our Enemy, the State: “The positive testimony of history is that the State invariably had its origin in conquest and confiscation. No primitive State known to history originated in any other manner.”
It’s hard to accept the gaslighting we’ve been subjected to about the necessity of state rule—especially today, as many states have undertaken a serious depopulation campaign, a less alarming term for mass murder (also here and here)—with the aim of global enslavement of whoever’s left under the Great Reset. Given that the state’s taxing and counterfeiting powers support only a favored few while bleeding the rest, it’s possible economic collapse will arrive before any reset, leaving societies in a state of near anarchy.
Statists have defined anarchy for us as “a state of disorder due to absence or nonrecognition of authority or other controlling systems.” Anarchy is disorder? As we’ve seen during the last few years especially, the state is the driver of disorder, forcing business closures, disrupting supply chains, lying about covid and vaccines thereby killing people and ruining the lives of medical professionals who protest, creating a stampede of immigrants on the southern border, curtailing the power of police to make petty theft and assault noncrimes, fostering a division between white people and everyone else, feeding a war in Ukraine that will either go nuclear or last until the money runs out, encouraging and exhibiting perversion in government schools, driving the cost of living to new heights with special pain reserved for those who depend on cars or are in the habit of buying food, and converting the legacy media to a Ministry of Truth.
Yet something close to anarchy was thrust upon Americans after their representatives voted unanimously for independence. In Conceived in Liberty, Rothbard notes,
The myth abounded that formal confederation was necessary to win the war, although the war would be virtually won by the time confederation was finally achieved. The war was fought and won by the states informally but effectively united in a Continental Congress; fundamental decisions, such as independence, had to be ratified by every state. There was no particular need for the formal trappings and permanent investing of a centralized government, even for victory in war. (my emphasis)
Thomas Paine saw firsthand the anarchy Rothbard describes and later wrote in Rights of Man,
Great part of that order which reigns among mankind is not the effect of government. It has its origin in the principles of society and the natural constitution of man. It existed prior to government, and would exist if the formality of government was abolished. The mutual dependence and reciprocal interest which man has upon man, and all the parts of civilised community upon each other, create that great chain of connection which holds it together. The landholder, the farmer, the manufacturer, the merchant, the tradesman, and every occupation, prospers by the aid which each receives from the other, and from the whole. Common interest regulates their concerns, and forms their law; and the laws which common usage ordains, have a greater influence than the laws of government. In fine, society performs for itself almost everything which is ascribed to government. (my emphasis)
I would scratch the word “almost.”
In 1920, Ludwig von Mises destroyed the intellectual foundations of the case for socialist central planning.
Download lecture slides at Mises.org/MU23_PPT_12.
Recorded at the Mises Institute in Auburn, Alabama, on 25 July 2023.
Time is an irreversible flux. Each moment has a unique place in the sequence of moments of time with respect to action.
Download lecture slides at Mises.org/MU23_PPT_11.
Recorded at the Mises Institute in Auburn, Alabama, on 25 July 2023.
Postwar Germany was occupied, in ruins, with an economy in chaos. Germans were reduced to using cigarettes supplied by American GIs as money.
Original Article: "To Smoke or Not to Smoke: The Cigarette Economy in Postwar Germany, 1945–48"
Pennsylvania has no state minimum wage. Currently, the law of the land is the federal minimum wage that sits at $7.25 per hour. Not having a state minimum wage can be immensely beneficial assuming that the general business climate is amenable to growth. Pennsylvania definitely can’t boast of that yet, but they have taken steps to get there. However, recent actions by the Democrat-controlled State House of Representatives threatens this potential growth.
In the summer of 2022, Pennsylvania governor Tom Wolf signed into law a bill to lower the corporate net income tax (CNIT). I wrote about this with cautious optimism at the time, stating, “Pennsylvania should adamantly commit to keep to the scheduled CNIT decreases and continue lowering its taxes in general.” A year later, the tax decrease was maintained. Eric Montarti and Scott Cross, my friend and colleague, wrote that some within the legislature are proposing an abbreviated CNIT decrease schedule, which (to me) is very promising.
Unfortunately, the Democrat-controlled House passed H.B. 1500, a bill that would raise the minimum wage to fifteen dollars per hour by 2026. This would threaten to undo some of the positive effects of the much-needed tax cut approved last summer. Pennsylvania is clearly not ready to become a business-friendly environment. These volatile policy changes (both good and bad) contribute to institutional uncertainty, diminishing the expectations of entrepreneurs.
There is so much talk about making Pennsylvania more attractive to businesses, but the state seems unwilling to continue going in the direction of less government. I don’t think the minimum wage bill will pass in its current form, but the state Republican Party leadership is open to a more moderate increase. The state Republicans have not exactly been committed to business. In fact, it was Philadelphia’s last Republican governor along with a red legislature that gave the state one of the highest gas taxes in the country.
Philadelphia’s state senator and majority leader, Joe Pittman, states that “There is potential to finding a middle ground for an increase to the minimum wage, but $15 an hour is not reasonable and is not viable. . . . Any possible actions we take must be sensitive to the impact changes would have on small businesses and non-profit organizations.”
It is great that Senator Pittman has concern for the small businesses and nonprofit organizations, but I am unsure if he fully understands the problem of the minimum wage. I think this comes from a mix of good intentions and political strategy. First of all, I have found that Republicans are not opposed to a moderate increase in the minimum wage. This allows them to make concessions on the minimum wage for political gain. Essentially, it’s a win-win situation; give the people a higher wage and also accomplish an ancillary political goal. Second, the Senate Republicans might leverage this to get the House to support legislation the Republicans want to see passed. In this case, they may recognize that the minimum wage is bad, but they have other priorities that would benefit from giving concessions to the Democrats.
However, the increase in the minimum wage is not an issue up for debate. If you want the state to improve, a definite trend toward the market principle must be established. Their actions and compromises nudge the state closer to socialism and only rarely does the size of government retract.
We know that minimum wages are not good policies. They are unethical and economically inefficient.
They violate the sanctity of voluntary agreements between employer and employee, forcing employers to raise wages against their free will and better judgment. As a result, unemployment, decreased compensation, and higher costs of production wreak havoc.
Ultimately, we know a priori that minimum wages either cause unemployment or are ineffective. As Hans-Hermann Hoppe in Economic Science and the Austrian Method states, “Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result.” We know this because it stems from the ultimate starting point of economics—human action—a premise that cannot logically be denied. This insight should be sufficient reason to oppose the minimum wage.
I am not holding my breath for the Pennsylvania Senate to become Austrian. That would require an act of divine intervention. Instead, I hope that the Republicans decide against supporting this particular policy change despite their current openness regarding it.
Entrepreneurship is a general feature of the market economy.
Download the slides from this lecture at Mises.org/MU22_PPT_09.
Recorded at the Mises Institute in Auburn, Alabama, on 24 July 2023.
"We would not expect money to be paper, national, or under the control of any entity."
Download the slides from this lecture at Mises.org/MU22_PPT_07.
Recorded at the Mises Institute in Auburn, Alabama, on 24 July 2023.
Loan banking versus deposit banking, how deposit banking affects the money supply, how free banking limits credit expansion, the money multiplier process, and more.
Download the slides from this lecture at Mises.org/MU23_PPT_08.
Recorded at the Mises Institute in Auburn, Alabama, on 24 July 2023.
The recent University of Michigan survey’s reading of one-year price inflation expectations rose to 3.4 percent in July from 3.3 percent in June. The five-year outlook also increased to 3.1 percent from 3.0 percent in the previous month.
There is a mainstream narrative that is growing all over the financial media: We must accept three percent annual price inflation as a success at combating rising prices. This is enough to pivot and return to monetary easing. It is not.
Three percent annual price inflation for ten years is a loss of purchasing power of the currency of 34 percent after what is already a disastrous inflationary environment.
There is nothing positive about rising long-term price inflation expectations. It is not just the confirmation of a terrible destruction of real wages and deposit savings, but a huge incentive to maintaining the least efficient and unproductive parts of the economy. Price inflation is not just a hidden tax created by bloated government spending financed with artificially created currency, it is also a hidden subsidy to obsolescence and a huge disincentive to innovation and technological transformation.
It is not a surprise to read so many market participants demanding more quantitative easing. Monetary expansion has been a huge driver of market bubbles, and many investors want the “bubble of everything” to return, even if it means weaker economic growth, poor productivity, and declining real wages.
The evidence from the past six months is that the entire bounce of the S&P 500 has been driven by multiple expansion. While sales and earnings growth have been weak, the index now trades above twenty times earnings from seventeen times at the end of December. Furthermore, and considering the wave of downgrades of earnings’ estimates, the most bullish investors seem to require more multiple expansion, and that can only come from easing.
The reality, though, is that a three percent per annum average price inflation rate means much higher food, utilities, gas, and all essential purchases. The June price inflation reading was particularly concerning because all items except four were rising in a month when we should have seen steep declines in most prices.
Price inflation is not caused by commodities, wages, or profits. Inflation is caused by the constant increase in the quantity of currency in circulation well above real demand. The biggest consumer of newly created currency is the government, in a country where the annual deficit is not expected to be lower than $1 trillion every year until 2032. Government spending causes inflation, which is the loss of the purchasing power of the currency the central bank issues. When many said there was “no inflation” what we witnessed was massive financial asset inflation and a disproportionate increase in the prices of non-replicable goods and services. How can anyone that pays for healthcare, insurance, education, or housing truly believe that “there was no inflation”?
Remember that what they call “no inflation” was the period between 1996 and 2018, when healthcare costs rose 100 percent, childcare by 110 percent, housing by 60 percent, college tuition by 200 percent and the average price increase of non-replaceable goods and services rose by 57 percent, according to the American Enterprise Institute study collecting Bureau of Labor Statistics data. Between 2000 and 2022 the same study showed an overall price inflation of essential goods and services of 74 percent.
If "no inflation" is 74 percent price increases in the average basket of essential goods and services, imagine for a second what three percent annual official consumer price index would be for those same non-replaceable goods.
This is what is wiping out the middle class. Negative real wage growth and massive increases in the prices of the essential goods created by the constant erosion of the purchasing power of the currency.
Can economists truly ignore the destruction of the economy and the middle class only to justify more government spending or a small increase in equity and bond valuations? Maybe, but it is a bad idea to support the destruction of the economy only to see some asset values rising, particularly because those vanish with increasingly frequent and aggressive market corrections. The economy should not be driven by government spending and financial assets, but by a thriving middle class and growing productive investment. Monetary easing is not strengthening the economy. It is weakening the fabric that creates progress only to support an ever-increasing size of government.
"The free market and the division of labor does not promote hyper-atomized individuals. It creates social harmony and community."
Download the slides from this lecture at Mises.org/MU23_PPT_06.
Recorded at the Mises Institute in Auburn, Alabama, on 24 July 2023.
This year during Mises University, we want to share the perspective of students in the program. The following are YouTube shorts from some of this year's Mises Apprentices, explaining what excites them most about "the best week of the year." A common theme is the power of the ideas that have attracted students from around the world to Auburn this summer and the unique opportunity to learn from, discuss, and debate them with their colleagues and our distinguished faculty.
Mises University is going on the entire week. You can watch live from home at mises.org/live.
Starting in July, the Federal Reserve will be rolling out a new payment service dubbed “FedNow.” Among many on the dissident side of politics, there is a growing worry that this new service may be a trojan horse for a central bank digital currency (CBDC).
The concern is a valid one. A CBDC, depending on how it is implemented, could eliminate the privacy allowed by a cash system, allow the freezing of accounts with greater ease, and open the door to social credit scores for individuals. One asks, is the fear of FedNow truly justified? Or is it a risk for another reason?
To analyze whether FedNow is a trojan horse for a CBDC, one must first understand what a CBDC would be in function. A CBDC, as defined by the Federal Reserve itself, would be “money that is a liability of the central bank.” In essence, a CBDC would be a digital dollar with accounts held at the Federal Reserve itself, similar to what the Federal Reserve offers to banks today. Jerome Powell, the Federal Reserve chairman, has dubbed this a “wholesale” CBDC and stated on numerous occasions that such a currency could only be made so by an act of Congress. Legally, individuals cannot have accounts at the Federal Reserve. Changes to this must be made by Congress, to which Powell has not offered an opinion.
Powell is not the only policy maker at the Federal Reserve to express concern or show dismissal toward possible benefits of a CBDC. Federal Reserve governor Michelle Bowman did as much during a speech to Georgetown University in April 2023. Bowman discussed the listed benefits of a CBDC, including possible speeding up of the financial system and the inclusion of more Americans in the banking system. She, however, dismissed all of these. She touted the benefits of FedNow in speeding up interbank transactions but expressed the fears many hold as to the politicization of a possible CBDC. Powell has also dismissed a CBDC on similar lines, stating to the House Financial Services Committee, “We’ll have real-time payments in this country very, very soon” (this being a reference to CBDC’s being proposed as a solution to transaction speeds).
On the possible smoothing of the payment system, Bowman touted FedNow as a solution that would make a CBDC unnecessary. On the subject of including more Americans in the banking system, she noted the skepticism that many hold toward banks. She posited that a CBDC would solve that issue in no way, shape, or form. Among key players on the Federal Reserve Board there is clear opposition to CBDCs.
But to address the elephant: FedNow. Is FedNow a central bank digital currency trojan horse? Short answer: no. Long answer: FedNow is a new settlement system for member banks of the Federal Reserve System. Historically accounts have been settled physically by vehicles moving money between banks at the end of business days. Today it is primarily done by the system known as Fedwire. Very similar name, but it is not the same entity.
Many Americans use different banks providing money warehousing services, thus resulting in transfers of money between different banks as billions of transactions occur each day. This constant stream of transfers results in a figurative spaghetti monster of assets and liabilities changing hands second after second. No bank can possibly process these transactions all at once. Fedwire accumulates payments between various banks, allowing individual account balances to be managed by banks themselves, and at the end of the business day processes payments between them in gross amounts.
The result is massive end-of-day transfers of money between various financial institutions. This service, however, is only possible during banking hours and not at all on weekends or during bank closures. FedNow, in contrast, settles payments instantaneously between banks and continues to do so even past banking hours. This new system is, to put it plainly, an upgrade over the old settlement systems in place at the Federal Reserve. It isn’t a CBDC, but it does pose a new risk.
The recently failed Silicon Valley Bank almost saw 81 percent of its deposits, worth $142 billion, withdrawn in two days. What would have taken longer in the era of physical cash was accelerated by online banking. Apps like Cash App, Zelle, and PayPal, and even those of other banks, have made the old market mechanism of bank runs far more efficient and deadly for banks. Silicon Valley Bank, thus, nearly collapsed and was seized by regulators.
FedNow, as a system, would worsen this risk. As Austrians have long noted, fractional reserve banking is a confidence game. By issuing more liabilities than assets, a fractional reserve bank relies on the hope of having enough cash on hand if depositors come knocking. The market correction comes in the form of bank runs, where depositors rush to their bank and withdraw all their deposits. The bank, being unable to meet all redemption requests, goes insolvent and must liquidate other assets to meet the demands.
The gamble of a fractional reserve bank is anticipating the depositors’ demand for their physical deposits. So long as it is only a minority of depositors who choose to redeem their claims, the bank may continue to operate. Thus, it is a confidence game. The system works so long as nobody looks under the table.
FedNow heightens the risk of bank failures. While libertarians acknowledge the market at work in bank runs, every bank in the United States operates on a model of fractional reserve banking.
Operating alongside online banking, this new system will increase bank runs and systemic bank failures. While this is certainly a market solution, the effects may be catastrophic. Depositors last in line, deceived by the fraud, may lose everything as a result. Businesses placing their funds in an ordinary bank might lose it all. There will be victims of fraud who may not be able to get restitution.
So, while FedNow is not a CBDC, it does pose a different kind of threat to the economy. Rather than create a risk of government overreach through the Federal Reserve, it opens a massive door to the collapse of the system itself. FedNow, while made to allow better settlement on the market, will be a near-fatal reform to the system that created it.
This concept of economic calculation is really the foundation of all economic theory, and price theory is the cornerstone of economic calculation.
Download lectures slides at Mises.org/MU23_PPT_04.
Recorded at the Mises Institute in Auburn, Alabama, on 24 July 2022.
Menger discovered much more than the principle of marginal utility—he created an entire system of economics based on subjective value and individual choice.
Download lecture slides at Mises.org/MU23_PPT_03.
Recorded at the Mises Institute in Auburn, Alabama, on 24 July 2022.
Caitlin Long tweeted over the July 4 weekend, “BIG NEWS for #fintech! A sixth US state—Idaho—is willing to charter uninsured, non-lending, 100% reserve banks that are eligible for Fed master accounts (the other states are CT, ME, NE, VT & WY). This trend could turn the ‘bank-as-a-service’ (#BaaS) model on its head!!!!!”
As Long explained to Ash Bennington on Real Vision, bankers are
playing this three-card monte game of, well, I’ll tell everybody that they can have their deposits back on demand. But I only keep seven cents of the deposits in cash. So, if more than 7 percent of the demand deposits get withdrawn in a short period of time, I’m in trouble. And that’s exactly what happened to all the banks that failed.
Responding to Long’s comments, Bennington made the point that today’s bank runs are not your grandpa’s bank runs:
I mean this is a really fundamental critique that you’ve just leveled right now against fractional reserve banking, against the current structure of liquidity transformation, as it’s called in the business. This idea that basically the banking system that we have is no longer fit or suited for the twenty-first century. That is a profound critique of where we are today.
Depositors are moving money to the large too-big-to-fail banks, but as Long explains:
The deposits at the cash at the large banks is only about ten cents. So, the delta, if you will, between the smaller banks is seven cents versus ten cents at the larger banks. You’re not getting that much more safety, because the larger banks aren’t sitting on that much more cash than the smaller banks are. It’s fundamentally an issue of fractional reserve banking to your point, and I think this is just going to continue to dodge, to haunt the regulators in the coming years.
She believes regulators will “be playing whack-a-mole against this because everybody has an expectation of internet speed user experience. And as they try to push everybody back to a bank branch, talk to a twenty-year-old—a twenty-year-old has never been in a bank branch and never written a check.”
The solution in Long’s mind is what she described in her tweet: “uninsured, non-lending, 100 percent reserve banks that are eligible for Fed master accounts,” or specialized payment banks or gateway banks that handle payments but cannot make loans and must hold 100 percent of their cash on deposit at the Federal Reserve.
TNB USA applied for a Fed master account in 2017. Matt Levine wrote an opinion column for Bloomberg about the narrow bank TNB receiving a provisional banking charter in Connecticut and setting itself up as a bank to do what Long described. The idea is not new and is, in fact, Rothbardian (without the gold and with the Fed).
As Blockworks explains:
The concept of “narrow banking” was the norm in the USA during the 19th century, up until the Banking Act of 1933 (also known as the Glass-Steagall Act), which created the Federal Deposit Insurance Corporation (FDIC).
Back then—note this was before the Federal Reserve System existed—narrow banks issued only short-term loans, typically for less than 80 days and backed by collateral or a guarantor.
The modern incarnation would be a bank which offers customers direct access to central bank money, thereby eliminating four types of risk: credit risk, duration risk, interest-rate risk and market risk.
However, when TNB went to the Fed in 2017 asking to open a reserve account, the Fed said no. TNB sued the Fed, arguing that the Fed’s rules require it to open an account for any qualified bank and that it is a qualified bank, but the Southern District of New York dismissed the suit.
As it is now, every bank lives in fear of a bank run. No matter how profitable, a bank engaging in fractionalized banking can be brought down by a bank run. As Caitlin Long told Ash Bennington on Real Vision: “Every bank has the proverbial sword of Damocles hanging over the head. That if there’s a rumor of a bank run, now we know within hours, the bank could go down. That’s not new, that’s always been there. What’s new is that it’s just sped up because of phones.”
What took weeks in the case of Washington Mutual’s collapse less than two decades ago, took just hours in the cases of Silicon Valley Bank, Signature Bank, and First Republic.
Ms. Long is attempting to disrupt the banking and crypto worlds with Custodia Bank in her native Wyoming. She is a Wall Street veteran and a graduate of Harvard Law School who is jousting with the Kansas City Fed to obtain a Fed master account.
What she knows is that as the world has gone from paper to digits:
Bank runs clearly are speeding up. And the impact of that is it’s revealing that the traditional banking system—it’s always been fundamentally unstable. But it’s even more unstable than folks had realized. And banks in general, as a result of the fact that the liabilities can be withdrawn a lot faster, are going to need to hold more cash.
Stijn Van Nieuwerburgh, the Earle W. Kazis and Benjamin Schore Professor of Real Estate at Columbia Business School—who believes banks are severely undercapitalized based upon decreased asset values (as opposed to what Jerome Powell says)—told Mr. Bennington in another Real Vision interview that regulators may have to allow banks to slow depositors from being able to withdraw demand deposits for certain amounts of time when banks are under stress. That was known as a bank holiday, which Franklin Delano Roosevelt instituted when he took office in 1933—the year of legislation that started this mess.
Of course, the creation of the FDIC was to stop all the bank holiday nonsense. However, the deposit insurer is having trouble keeping up with skittish tech-savvy depositors armed with cell phones who will move funds first and ask questions later. “Capital controls for demand deposit withdrawals is something that is freaking people out,” Bennington said, responding to Van Nieuwerburgh.
Scott Rechler, the chief executive officer of real estate giant RXR and a Federal Reserve Bank of New York board member, says five hundred to a thousand smaller banks could disappear because of insolvency or consolidation. If his prediction comes true, lots of people will freak out.
Bloomberg’s Patrick Clark writes that things could work out “if lenders can hold on long enough for borrowers to find their next mortgage. The problem comes when lenders are forced to realize current values. In other words, when they stop pretending and can’t keep extending.” Gavriel Kahane, a managing partner at Arkhouse Fund, responds to Clark: “What happens then is really scary.”
Scary indeed because depositors are one click away from running.
Includes an introduction by Joe Salerno. Recorded at the Mises Institute in Auburn, Alabama, on 23 July 2023.
[This article is chapter 3 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities. Now available at Amazon and in the Mises Store.]
In recent decades, many pundits, scholars, and intellectuals have assured us that advances in communications and transportation would eliminate the different political, economic, and cultural characteristics peculiar to residents of different regions within the United States. It is true that the cultural difference between a rural mechanic and an urban barista is smaller today than was the case in 1900. Yet recent national elections suggest that geography is still an important factor in understanding the many differences that prevail across regions within the US. Urban centers, suburban neighborhoods, and rural towns are still characterized by certain cultural, religious, and economic interests that are hardly uniform nationwide.
In a country as large as the United States, of course, this has long been a reality of American life. But even in smaller countries, such as the larger states of Europe, the problem of creating a national regime designed to rule over a large diverse population has long preoccupied political theorists. At the same time, the problem of limiting this state power has especially been of interest to proponents of liberalism—including its modern variant, “libertarianism”—who are concerned with protecting property rights and other human rights from abuses inflicted by political regimes.
The Growth of the State and the Decline of Local Powers
Among the best observers and critics of the problem of state power were the great French liberals of the nineteenth century, who watched this process of centralization unfold during the rise of absolutism under the Bourbon monarchy and during the revolution.1
Many of these liberals understood how historical local autonomy in cities and regions throughout France had offered resistance to these efforts to centralize and consolidate the French state’s power.2
Alexis de Tocqueville explains the historical context in Democracy in America:
During the aristocratic ages which preceded the present time, the sovereigns of Europe had been deprived of, or had relinquished, many of the rights inherent in their power. Not a hundred years ago, amongst the greater part of European nations, numerous private persons and corporations were sufficiently independent to administer justice, to raise and maintain troops, to levy taxes, and frequently even to make or interpret the law.3
These “secondary powers” provided numerous centers of political power beyond the reach and control of the centralized powers held by the French state.4 But by the late eighteenth century, they were rapidly disappearing:
At the same period a great number of secondary powers existed in Europe, which represented local interests and administered local affairs. Most of these local authorities have already disappeared; all are speedily tending to disappear, or to fall into the most complete dependence. From one end of Europe to the other the privileges of the nobility, the liberties of cities, and the powers of provincial bodies, are either destroyed or upon the verge of destruction.5
This, Tocqueville understood, was no mere accident and did not occur without the approval and encouragement of national sovereigns. Although these trends were accelerated in France by the revolution, this was not limited to France, and there were larger ideological and sociological trends at work:
The State has everywhere resumed to itself alone these natural attributes of sovereign power; in all matters of government the State tolerates no intermediate agent between itself and the people, and in general business it directs the people by its own immediate influence.6
Naturally, powerful states are not enthusiastic about having to work through intermediaries when the central state could instead exercise direct power through its bureaucracy and by employing a centrally controlled machinery of coercion. Thus, if states can dispense with the inconveniences of “local sovereignty” this enables the sovereign power to exercise its own power all the more completely.
The Power of Local Allegiance and Local Customs
When states are dominated by any single political center, other centers of social and economic life often arise in opposition. This is because human society is by nature quite diverse in itself, and especially so across different regions and cities. Different economic realities, different religions, and different demographics (among other factors) tend to produce a wide range of diverse views and interests. Over time, these habits and interests supported in a particular time and place begin to form into local “traditions” of various sorts.
Benjamin Constant came to similar conclusions. As noted by historian Ralph Raico: “Constant appreciated the importance of voluntary traditions, those generated by the free activity of society itself….Constant emphasized the value of these old ways in the struggle against state power.”7
In his book Principles of Politics Applicable to All Governments, Constant complains that many liberals of his time, having been influenced by Montesquieu, embraced the ideal of uniformity in laws and political institutions.
This, Constant warns, is a mistake and tends to create more powerful centralized states, which then proceed to violate the very rights that Montesquieu thought could be preserved through uniformity.
But political uniformity can lead down very dangerous paths, Constant insists, concluding, “It is by sacrificing everything to exaggerated ideas of uniformity that large States have become a scourge for humanity.”8 This is because large politically uniform states can only reach this level of uniformity by employing the state’s coercive power to force uniformity on the people. The people do not give up their local traditions and institutions easily and therefore, Constant continues,
It is clear that different portions of the same people, placed in circumstances, brought up in customs, living in places, which are all dissimilar, cannot be led to absolutely the same manners, usages, practices, and laws, without a coercion which would cost them more than it is worth.9
This may not be “worth it” to the people, but it appears to be worth it to the regime. Thus, states over the past several centuries have expended immense amounts of time and treasure to break down local resistance, impose national languages, and homogenize national institutions. When this process is successful, a nation’s laws end up reflecting the preferences and concerns of those from the dominant region or population at the expense of everyone else. When it comes to these large centralized states, Constant writes:
one must not underestimate their multiple and terrible drawbacks. Their size requires an activism and force at the heart of government which is difficult to contain and degenerates into despotism. The laws come from a point so far from those to whom they are supposed to apply that the inevitable effect of such distance is serious and frequent error. Local injustices never reach the heart of government. Placed in the capital, it takes the views of its surrounding area or at the very most of its place of residence for those of the whole State. A local or passing circumstance thus becomes the reason for a general law, and the inhabitants of the most distant provinces are suddenly surprised by unexpected innovations, unmerited severity, vexatious regulations, undermining the basis of all their calculations, and all the safeguards of their interests, because two hundred leagues away men who are total strangers to them had some inkling of agitation, divined certain needs, or perceived certain dangers.10
For Constant, the diversity among communities ought not to be seen as a problem to be solved, but rather as a bulwark against state power. Moreover, it is not enough to speak only of individual freedoms and prerogatives when discussing the limits of state power. Rather, it is important to actively encourage local institutional independence as well:
Local interests and memories contain a principle of resistance which government allows only with regret and which it is keen to uproot. It makes even shorter work of individuals. It rolls its immense mass effortlessly over them, as over sand.11
Ultimately, this local institutional strength is key because, for Constant, state power can be successfully limited when it is possible to “skillfully combine institutions and place within them certain counterweights against the vices and weaknesses of men.”12
The sentiments of Tocqueville and Constant were echoed later in the nineteenth century by Gustave de Molinari who came to similar conclusions:
In many respects the ancient customs, adapted over centuries to the populations they ruled and successively perfected by way of experiment, left a much greater area to individual liberty and established the responsibility attaching to liberty with more equity.13
Molinari would take these historical observations, however, and come to even more radical conclusions than most French liberals. In an essay titled “The Production of Security,” Molinari denounced the very idea of “monopoly government,” concluding that competition among regimes was beneficial even within a single territory. When monopoly power prevails, Molinary writes, “justice becomes costly and slow, the police vexatious, individual liberty ceases to be respected, and the price of security is abusively high and unequally levied.”14
The American Example: An Independent State
Nonetheless, Molinari’s more radical views were a minority position. As we see in the work of Constant and Tocqueville, the French liberals were often advocating for decentralization within a larger political entity. In this way of thinking the French state—and other states—were a given, albeit something that could be improved by significantly decentralizing the state’s power.
By the time French liberalism became a meaningful political force, however, the American liberals had already provided their own example of decentralization, in a form far more radical: the secession of the American colonies from the British Empire.
In contrast to the French liberal example of internal decentralization, the American example was of total separation. The end game in this case was to establish a completely independent state—or group of independent states.
The underlying philosophy behind this is clear enough in the text of the American colonials’ Declaration of Independence—penned primarily by Thomas Jefferson. The argument is simple: universal human rights are important, and political regimes are only legitimate or valuable when they can be relied upon to protect those rights. If a regime violates these rights, then it may be necessary to break off from that regime and form an independent state.
Yet even as the Americans moved increasingly toward forming a single confederation in North America, they were careful to ensure this was a decentralized state with political power spread out among a number of smaller member states. As originally conceived, the central government was to be quite weak. There was to be no standing federal army, and most land-based military power was to be in the hands of the militias controlled by member states. Local legislatures and local courts were to handle the overwhelming majority of government administration. Federal powers were to be strictly limited in comparison to more flexible powers of member states.
Especially among the more decentralization-minded American revolutionaries—such as Jefferson and the many “Anti-Federalists,” who opposed ratification of the new constitution without a Bill of Rights—it was thought that local customs and local institutions could provide a barrier against the abuse of power by the new national government.15
This ideology would continue to be a political force for another century under the Jeffersonians and Jacksonians who were perennially suspicious of federal power.16
Liberal Decentralization in Decline
Today, however, liberal efforts to protect regional power and customs from encroachment by central governments are very much in decline. Whether it is attacks on Brexit in Europe, or denunciations of so-called “states’ rights” in the United States, even limited and weak appeals to local control and self-determination are met with contempt from countless pundits, politicians, and intellectuals. Two centuries after Tocqueville and Constant, regimes still see decentralization as a threat. And they are right. Decentralization is a threat to state power. Those who seek to limit political power in the liberal tradition ought to take notice.
[This article is chapter 4 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities. Now available at Amazon and in the Mises Store.]
[Read More: "The Secessionist French Classical Liberals: Molinari and Dunoyer" by Ryan McMaken]
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- Murray Rothbard also viewed the rise of French absolutism as an attack on local control and local prerogatives. See Ryan McMaken, “Medievalism, Absolutism, and the French Revolution,” Mises Wire, July 12, 2019.
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- It is important to note that many liberals also supported the centralization of power. On this, Jörg Guido Hülsmann writes:
To get rid of aristocratic privileges, the classical liberals first supported the king against the lesser aristocrats, and then concentrated further powers in the democratic central state to fight all regional and local forms of monarchism and aristocracy. Rather than curbing political power, they merely shifted and centralized it, creating even more powerful political institutions than those they were trying to supersede. The classical liberals thus bought their short-run successes with very burdensome long-run annuities, some of which we have paid in the twentieth century.…It is true that this “technique” was very effective in realizing the classical-liberal program all at once in the whole territory controlled by the new democratic central state. Without it, this process would have been gradual, and it would have implied that islands of the Ancien Régime would have survived for a very long time. Yet like all mere techniques, this was a two-edged sword that would eventually be turned against life, liberty, and property.See Jörg Guido Hülsmann, “Secession and the Production of Defense,” in The Myth of National Defense, ed. Hans-Hermann Hoppe (Auburn, Ala.: Mises Institute, 2003), p. 380.
- It is important to note that many liberals also supported the centralization of power. On this, Jörg Guido Hülsmann writes:
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- Alexis de Tocqueville, Democracy in America, vol. 2, bk. 4, chap. 5, https://en.wikisource.org/wiki/Democracy_in_America/Volume_2/Book_4/Chapter_5.
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- An important characteristic of the pre-absolutist and pre-modern political institutions was that they often failed to achieve monopoly power within their jurisdictions. That is, power was often shared between the national sovereign and by local authorities, and government relied much more on a consensus model rather than on government-by-decree from a central authority. See Luigi Marco Bassani and Carlo Lottieri, “The Problem of Security: Historicity of the State and ‘European Realism’,” in The Myth of National Defense, ed. Hans-Hermann Hoppe (Auburn, Ala.: Mises Institute 2003), p. 35.
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- Tocqueville, Democracy in America.
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- Ibid.
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- Ralph Raico, Classical Liberalism and the Austrian School (Auburn, Ala.: Mises Institute, 2012), p. 225.
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- Benjamin Constant, Principles of Politics Applicable to All Governments, tr., Dennis O’Keeffe, ed. Etienne Hofmann (Indianapolis, Ind.: Liberty Fund, 2003), https://oll.libertyfund.org/title/constant-principles-of-politics-applicable-to-all-governments.
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- Ibid.
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- Ibid.
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- Ibid.
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- Ralph Raico, “Great Individualists of the Past: Benjamin Constant,” New Individualist Review (Indianapolis, Ind.: Liberty Fund, 1981), https://oll.libertyfund.org/page/raico-on-benjamin-constant.
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- Quoted in Raico, Classical Liberalism and the Austrian School, p. 242.
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- Ibid., p. 239
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- Prior to the Fourteenth Amendment, the Bill of Rights limited federal power only, and explicitly reserved the exercise of most powers and prerogatives to the member states or “the people” as stated in the Tenth Amendment.
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- Rothbard regarded the Democratic Party in the nineteenth century, which was largely controlled by Jacksonians, to be a true laissez-faire liberal political party. This ended in 1896 when William Jennings Bryan fundamentally changed the ideological orientation of the party away from laissez-faire. Murray N. Rothbard, “1896: The Collapse of the Third Party System and of Laissez-faire Politics,” The Progressive Era, ed. Patrick Newman (Auburn, Ala.: Mises Institute, 2017), p. 163.
This week Mark invites you to explore the Minor Issues archives. We have produced about a half a year's worth of short audio commentaries about the economy, and we are grateful to our listeners for their feedback. Topics range from the price of toilet paper to macro-business cycle topics, but our specialty is highlighting issues that the mainstream media ignores or misrepresents as insignificant. Thank you for listening.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
In over twenty-five years of teaching undergraduate students, I have heard the same refrain countless times: free markets have many problems that government has to step in to solve. Indeed, students expect government to “step in” so much that markets occupy a peripheral role in their idealized economic system. Even students with an ideological predilection toward markets will be quick to argue that certain problems, such as pollution, require extensive government regulation and probably copious spending of tax dollars.
This is not surprising, given that college students have been bombarded by tales of government fixes for social problems from media, teachers, and parents from elementary school onward. By the time they hear about “market failure” in their first economics class, it doesn’t take much convincing that free markets are impractical at best and a weak rationale for capitalist exploitation at worst. The best-selling economics textbooks at the university level do little to counter these perceptions, and most instructors won’t deviate much from the mainstream books.
Most principles of microeconomics and intermediate microeconomics textbooks devote at least one chapter to market failure, which typically includes “market power” (think monopoly), inadequate provision of “public goods” (goods that the private sector allegedly won’t produce enough of because of an inability to make the users pay), and “externalities” (the unintended side effects of human activity on bystanders, like pollution). While textbooks usually contain some acknowledgment of the fact that governments don’t live up to idealized models of efficiency, it is rare for proportional space to be devoted to “government failure” and easy for students to conclude that government intervention is the answer to these nearly ubiquitous shortcomings of markets.
The Apologists for Environmental Regulation The problems with monopoly theory and the errors of mainstream thinking about public goods have been dealt with elsewhere. In my experience, externalities—typically, environmental problems—have proven one of the most difficult challenges for students trying to understand markets and government. Don’t pollution problems require government intervention?
Typically, the section on externalities contains a few diagrams showing the difference between private costs (or benefits) and social costs (or benefits). The diagram for negative externalities usually looks something like figure 1, with the marginal private cost (MPC), marginal social cost (MSC), and marginal private benefit (MPB). Students are then directed to observe the difference between the optimal quantity of output (Q) of the good that results in the negative externality and the quantity of output produced in the market (QM). Any production in excess of Q adds more to costs than to benefits, creating a net loss labeled “deadweight loss.” The presence of this deadweight loss is deemed evidence of market failure, and the authors normally proceed to evaluate various ways government can push the market toward *Q.
Figure 1: The difference between costs and benefits of the quantity of output resulting in negative externalities
terrell_graph_1.png
Walter Block has argued that there are problems with the usual treatment of externalities as market failure. If the recipient of pollution is unable to collect damages or procure an injunction from a court—the typical remedy prior to around the mid-nineteenth century—then this is not market failure, but the government’s failure to uphold property rights. Once reasonably diligent in their protection of property rights, the courts began weakening these protections in the mid-1800s. An example is the 1866 case Ryan v. New York Central Railroad Co. (35 N.Y. 210), in which a railroad was not held liable for the loss of a house that had been set on fire by sparks from the railroad’s nearby woodshed, which had burned down due to the company’s negligence. Even so, court protection retained some force long after. As Jonathan Adler pointed out, in a famous 1913 case in New York, Whalen v. Union Bag and Paper Co. (208 N.Y. 1), “the state’s highest court upheld an injunction shutting down a $1 million pulp mill employing several hundred workers in order to protect the riparian rights of a single farmer.”
As court-made law to settle conflicts over nuisances like pollution has been increasingly regarded as inadequate to deal with externalities, government interventions have typically taken three forms: (1) command-and-control regulation, (2) emissions taxes, and (3) cap-and-trade (tradable permit) systems.
Command-and-control regulation is unpopular with many economists because of its tendency to require emissions reductions in ways that are inflexible and therefore likely to be more costly. It is also particularly susceptible to “crony capitalism,” since industry lobbyists can push regulatory bureaucracies to mandate technologies that keep competitors out. Far more attractive to economists are emissions taxes and tradable permits.
Emissions taxes (sometimes called Pigovian taxes after the Cambridge economist Arthur Cecil Pigou, a student of Alfred Marshall) have gained new attention as a part of climate policy. Numerous proposals for a federal carbon tax have appeared in the last several years, including the “Green New Deal,” and even some who claim to be libertarians have proposed them. Tradable permit systems have been in use in the United States for decades, notably with the Environmental Protection Agency’s Acid Rain Program that began auctioning off sulfur dioxide permits in 1993. Tradable permit systems have a superficial appeal to market-friendly economists because, after all, the permits trade in a market. Unfortunately, it’s only a quasi market, with the supply of permits dictated by regulators.
Most economists seem to favor one or the other of these policies. However, both emissions taxes and tradable permit schemes suffer from fatal problems.
The Pollution Calculation Problem First, the government has no way to determine the costs inflicted by the pollution, whether for the purposes of setting a tax or creating a cap on emissions. Referring to the diagram in figure 1, there is no way to find the MSC, which means that the government can’t know how high to set the tax, and a tradable permit system won’t have useful information about how many permits should be created.
This calculation problem has long been recognized. James Buchanan explained the problem in Cost and Choice:
Consider, first, the determination of the amount of the corrective tax that is to be imposed. This amount should equal the external costs that others than the decision-maker suffer as a consequence of decision. These costs are experienced by persons who may evaluate their own resultant utility losses. . . . In order to estimate the size of the corrective tax, however, some objective measurement must be placed on these external costs. But the analyst has no benchmark from which plausible estimates can be made. Since the persons who bear these “costs”—those who are externally affected—do not participate in the choice that generates the “costs,” there is simply no means of determining, even indirectly, the value that they place on the utility loss that might be avoided.
As Art Carden succinctly put it, “The information needed to know whether a particular regulation ‘works’ quite literally does not exist, and the key difference between firms and governments is that firms . . . have market tests for their decisions. Governments do not.”
However, economists and policy makers continue pretending the necessary information is within their reach or that the difficulty can be safely dismissed. William Baumol, writing in the top-ranked American Economic Review in 1972, admitted to the information problems in a defense of Pigovian taxes:
Despite the validity in principle of the tax-subsidy approach of the Pigouvian tradition, in practice it suffers from serious difficulties. For we do not know how to estimate the magnitudes of the social costs, the data needed to implement the Pigouvian tax-subsidy proposals. For example, a very substantial proportion of the cost of pollution is psychic; and even if we knew how to evaluate the psychic cost to some one individual we seem to have little hope of dealing with effects so widely diffused through the population.
Later he noted, “we do not know how to calculate the required taxes and subsidies and we do not know how to approximate them by trial and error.”
Unfortunately, Baumol essentially dismissed these problems and proposed acting “on the basis of a set of minimum standards of acceptability,” finding “some maximal level of this pollutant that is considered satisfactory.” This, of course, sweeps the information problem (how much is “acceptable” or “satisfactory”?) under the rug, which he admitted. “But,” Baumol contended, “if we permit ourselves to be paralyzed by councils of perfection we may have still greater cause for regret.” In other words, it is better to do something to reduce pollution than to impose no pollution limits whatsoever. Baumol, and those who still today advocate for emissions taxes or tradable permits, fail to see that even within their own problematic analytical framework, it is easily possible to overestimate the MSC and therefore “overcorrect” with taxes that are too high or emissions caps that are too low, thereby increasing instead of decreasing the size of the deadweight loss triangle (see figure 2). They also fail to appreciate the effectiveness of tort and nuisance law in preventing environmental trespasses. Murray Rothbard reminded us of the value of this decentralized, court-based approach (the common law) in his classic 1982 essay “Law, Property Rights, and Air Pollution.”
Figure 2: The effects on the quantity of output of overshooting taxes on negative externalities
terrell_graph_2.png
Environmental (In)Justice The second major problem is that neither emissions taxes nor tradable permits have a clear way to compensate the victims of pollution for the losses they continue to suffer. Fines, or the proceeds of permit auctions, go to the government, not to those who are enduring the pollution. Indeed, the entire apparatus of authoritarian environmental law that has developed over many years, whether command-and-control or some other type of regulation, has failed to protect the property rights of the neighbors of polluters. Mandating a scrubber on a coal-fired power plant or taxing sulfur dioxide does nothing to compensate someone who might still be adversely affected by the remaining emissions. Also, if emissions permits under tradable permit systems are exchanged among polluters in different areas, the emissions will shift from one polluter’s neighbors to another’s with no compensation to these victims of pollution. Justice, it would seem, would require the firm acquiring permits to increase compensation to its neighbors commensurate with the increased pollution it will emit, while the firm selling permits would reduce compensation to its neighbors. So, if property rights are protected, the firm acquiring permits would be paid by the firm providing the permits, since the acquirer is accepting the burden of compensating its neighbors. Yet, tradable emissions permit systems produce the opposite: the firm acquiring permits pays the firm providing them. The gains to some bystanders and the losses to others are regarded as irrelevant.
This presents significant ethical problems, though most mainstream economists seem willing to ignore them and pursue the elusive point of “social efficiency.” As Murray Rothbard pointed out in “Law, Property Rights, and Air Pollution,” “even if the concept of social efficiency were meaningful, they don’t answer the questions of why efficiency should be the overriding consideration in establishing legal principles or why externalities should be internalized above all other considerations.” Similarly, Robert McGee and Walter Block have argued that tradable emissions permits, despite some efficiency advantages over command-and-control regulation, “entail a fundamental and pervasive violation of property rights” and that this form of “market socialism” should be replaced with the aforementioned court-made common law that strictly preserves these rights.
Who Cares about Efficiency? Even if we set aside the information problem and the ethical problem, it is not clear why we should expect government to pursue the most efficient outcome. Politicians and bureaucracies have their own objectives—typically, politicians want to be elected, and bureaucrats want larger budgets to play with. When faced with relentless pressure by lobbying groups who don’t particularly care about overall economic efficiency, politicians will happily disregard anything their economics professors said about marginal social cost. Environmentalist organizations won’t be inclined to stop asking for emissions cuts when Q—even if we knew what it is—is reached. Natural gas producers will want carbon taxes high enough to disadvantage their coal competitors but not enough to drive electric utilities to nuclear energy. In such an environment of competing interest groups, the Q** textbook outcome would appear only by rare happenstance.
We would do well, then, to discard “efficiency-based” theories that make impossible demands for information and that rely on selflessness from government policy makers. As Ed Stringham and Mark White pointed out, following Murray Rothbard:
Utilitarian theories in general suffer from these calculation problems, but deontological theories, such as rights-based ethical systems, do not. In such theories, legal decisions would be made based on notions of justice rather than efficiency, and judges would not face the unenviable task of calculating the economic consequences, in all possible states of the world, of all their possible actions.
There are other problems with emissions taxes and tradable permit schemes apart from the several that I have mentioned here. For example, Bob Murphy has shown that even a “revenue-neutral” carbon tax is “likely . . . [to] impose more deadweight loss on the economy, offsetting at least some of the potential environmental benefits.” Furthermore, proposals for such a tax—which is, after all, a tax on capital—are full of misleading claims, and carbon taxes would be destructive to economic growth. Additionally, given that many of these proposals are intended to prevent damage that could theoretically occur in the distant future, we can know even less about the capabilities and priorities of these remote descendants of ours, and the costs could extend generations into the future before these possible benefits materialize.
Government can’t accomplish the improvement over market outcomes that emissions taxes and tradable emissions permits promise and could easily make matters worse. As we have seen, the government doesn’t have the information it would need to identify what level of pollution is efficient for an entire society, and government officials don’t have the incentives to be particularly interested in efficiency anyway. Dealing with environmental spillover effects on the basis of rights, rather than an incoherent “social efficiency,” is more defensible, both practically and ethically. A new appreciation for liberty and the common law would go a long way toward recovering property rights protections and reducing pollution problems.
My article “The Education of the Modern Socialist” deserves a follow-up. The first part showed that a change has occurred in the definition of “socialism”—a necessary change in view of the failures of this ideology during the last century. Socialism today is based on the ideology of “statism”—the conviction that the state must play a fundamental role in society. Ludwig von Mises’s wider definition of socialism as state intervention implies a modern social state that is involved in most if not all of the activities of society, whether commercial or not.
Unlike under traditional socialism, according to this new definition, very few people are not socialists. There are no political parties, then, that are not socialist, although many would never accept that label. This widespread statism largely explains much of the difficulty that Western Europe has been going through—a mostly self-inflicted political, economic, and social period of stagnation.
Thus, before addressing would-be negative effects of globalization on local communities, it is important to recognize the social consequences of the advent of the modern state. Education in the ideas of liberalism, as in the article noted above, must therefore consider this strong support that modern socialism enjoys today.
Forced Socialization In fact, socialism as statism is arguably a better definition than the traditional one, according to which all means of production belong to the state. This latter historical socialism is so contrary to human nature, notwithstanding the existence of the former Soviet Union, that it could only be at most a temporary episode in a developed capitalist society.
Where historical socialism advocated an Orwellian society in which equality of outcome would be perfect among individuals, today’s socialism desires perfect equality of opportunity. But both types of equality imply serious violations of individual freedom. Modern socialism is more insidious; it does not prohibit private property and does not strangle the economy completely, but it often severely restricts the economy’s development.
Today’s socialism is aptly named because it means—and presupposes—“socialization.” But this socialization is artificial; indeed, statism is a system of forced socialization over and above the natural social relationships that exist in a free society. At the individual economic level, this forced socialization can be progressive (income taxes), regressive (value-added taxes), or generally redistributive.
Societal Tensions Due to Socialism When a significant portion of wealth is redistributed, polarization of society is inevitable, even in contemporary societies that widely support modern socialism. By absorbing and reallocating much of the wealth produced by the market, the state and its dependent financial system create social tensions. This conflicts with the “economic harmonies” of the free market which Frédéric Bastiat described.
These tensions are linked to the fundamental injustice of redistribution and the obvious impediments to wealth creation under a statist regime. These tensions are also connected to the unjustified growth of a privileged but underperforming class of civil servants, which hinders the private sector and deprives it of human resources.
But the financial and economic impacts of modern socialism go much further. This forced socialization transforms the natural social relations that are inherent in each society. Statism creates a new social reality when compared with the organically evolving free society. In The Ethics of Money Production, Professor Jörg Guido Hülsmann described the harmful cultural and social consequences of state money production (i.e., inflation), which is another, hidden, form of confiscation of private property.
Attitudes toward saving are transformed by the devaluation of money in a fiat money system with fractional reserve banking, forcing members of society to spend more and spend it more quickly than they would in a free society. Such a socialist policy changes time preferences, which form the natural interest rates in a free market. Society under the yoke of statism thus becomes more present oriented and less future oriented, as Professor Hans-Hermann Hoppe explained in his major work, Democracy: The God That Failed.
Inflation (i.e., money creation) escalates tensions in society through the regressive nature of the Cantillon effect. The artificially inflationary monetary policy of modern states has allowed wars as destructive as they are costly, destabilizing and harming many societies around the world.
This increased importance of the present, coupled with strong fiscal and regulatory pressures, discourages both business investment and individual motivation. The state is responsible for artificial unemployment and thus contributes doubly to the general feeling of stagnation. The idea of a “generous” welfare state also drives immigration, generating challenges around cultural integration and social division.
Thus, statism coerces society into a vicious circle of forced socialization, in which the various economic and social failures reinforce each other, to the point where a rupture or crisis becomes inevitable. This is the current situation in many Western countries, as must be obvious to any keen observer of current affairs. The solution is libertarianism, which lets society benefit from the virtuous circle of true capitalism—fully open markets where investment and innovation constantly improve quality of life.
The current political, economic, and cultural decline in the West is largely explained by the phenomena described above. Until Western populations start grasping the benefits of freedom, not so much for Western nations as for each individual, it is not possible to hope for a change of direction. Education around political and economic liberty must therefore continue.
The state has a monopoly on violence. However, abusive repression harms government credibility and alienates public support in the long run. A more subtle and effective way to exercise power is to surveil the population and to prevent open manifestations of discontent.
This article analyzes the case of the of the German Democratic Republic’s (DDR) Ministry for State Security (MfS), also known as the Stasi. The thesis is that an effective surveillance regime makes the use of open violence less urgent because the population is nudged to discipline itself.
Shield and Sword of the Party A shield and a sword form the symbol of the MfS, which is modeled on the emblem of the Cheka, the Soviet secret police. Discipline and loyalty to the Socialist Unity Party (SED) of the DDR were the core values of the Stasi. Members of the secret police saw themselves as first-class comrades who could make use of surveillance, propaganda, and psychological terror to secure the power of the communist regime.
One of the defining moments of the Stasi’s history was the general strike of June 17, 1953, which sparked widespread protests among the East German working class. The MfS failed to foresee the turmoil and had to repress it with the help of Soviet tanks and the imposition of martial law. Since the incident, the mission of the Stasi became to surveil society to prevent new open manifestations of dissent against the ruling of the SED.
Relentless Privacy Violations The MfS developed one the most pervasive surveillance apparatuses in human history. In 1981, Erich Mielke, the head of the Stasi from 1957 to 1989, stated:
In its constant effort to clarify “who is who” the MfS—with its chekist forces, means and methods—has to identify people’s true political attitudes, their ways of thinking and behaving . . . to clarify means . . . providing an answer to who is an enemy; who is taking on a hostile and negative attitude; who is under the influence of hostile, negative and other forces and may become an enemy; who may succumb to enemy influences and allow himself to be exploited by the enemy; who has adopted a wavering position; and who can the party and the state depend on and be reliably supported by.
Many DDR citizens collaborated actively with the MfS. In 1989, near the end of the communist regime, the Stasi employed about ninety-one thousand people, or one out of every 180 residents. After 1968, the MfS relied heavily on unofficial collaborators, whose role was to report every major and minor sign of resentment and resistance against the SED. Unofficial collaborators were recruited after being carefully surveilled by the MfS to ensure total loyalty to the regime. They were well trained and used fake identification to infiltrate workplaces and neighborhoods. Among the 180,000 unofficial collaborators employed by the MfS in 1989, four thousand sneaked into opposition groups to spread false rumors and generate chaos. The case of Wolfgang Schnur is emblematic of the reach of the Stasi, as he was one of the most prominent lawyers who represented political dissidents. As an unofficial collaborator, however, he often exploited his position to betray his clients.
In the eighties, the Stasi performed between two hundred thousand and four hundred thousand security checks and investigations each year. The main targets were “political ideological diversion” and “political underground activity.” The Stasi’s eyes were focused on all social, cultural, and economic institutions of the DDR. Its employees were granted access to all the data they needed regarding citizens, including tax assessments, bank accounts, and health files. The Stasi deployed all kinds of mass surveillance techniques, such as telephone wiretaps, acoustic room surveillance, and postal espionage; they even collected body odor samples, which were used to train sniffer dogs.
Information about SED enemies could be used by the Stasi for psychological warfare. MfS undercover agents often spread false and misleading rumors among opposition groups to tear people apart, destroy trust, and instill fear. Targets of secret police surveillance experienced inexplicable setbacks both in their personal lives and in their careers. Compromising information was also used to blackmail individuals and to force them to collaborate with the secret police, even though the MfS preferred to employ agents who were fully convinced of the righteousness of their work.
Most Stasi employees and collaborators signed a pledge of loyalty to the communist regime, received a new alias, and started a new life. Opting out of the system was extremely difficult and came with a huge price in terms of personal freedom and reputation. On the other hand, working for the Stasi granted privileges, like a good salary, dedicated shopping centers, and the awareness of being part of the breathing organ of the DDR. In the end, the strength of collectivism lies in the ability to make people forget privacy and freedom in the name of a superior, totalizing good.
Movement Control One of the main tasks of the MfS was to control the DDR border. Officially, the frontier line was under the jurisdiction of the People’s Police and of border agents, but the Stasi was invested with the responsibility of surveilling both residents and the other police departments. MfS employees often disguised themselves as border agents so as not to arouse suspicion, and the scope of their power increased substantially after the construction of the Berlin Wall in 1961 and after the detente agreements of the 1970s.
Stasi agents oversaw the monitoring of both people’s and goods’ movements across the border. The case of the Commercial Coordination (KoKo) branch of the ministry for foreign trade is emblematic. KoKo was established in 1966 and was run by Alexander Schalck-Golodkowski, a Stasi officer. One of its objectives was to guarantee the unified management of DDR foreign trade companies. Through its unconventional operations, KoKo was able to smuggle Western goods and Western hard currency into the DDR, generating about twenty-five billion West German marks during its existence.
One of the most profitable activities was the sale of political prisoners to Western authorities. Of the eighty-seven thousand political dissidents who were arrested in the DDR between 1963 and 1989, about thirty-three thousand were sold to Western authorities. West German authorities also paid the DDR to issue more than two hundred thousand emigration permits. KoKo operations were done in secret, and prisoners often did not know why they were released. This shows that population surveillance and state secrecy often go hand in hand. Still, knowledge of the prisoner exchanges started leaking out after 1972 and discredited the DDR regime significantly.
Conclusion Surveillance regimes are defined by asymmetrical visibility. While the behaviors and even the thoughts of the population become more and more visible to state authorities, surveillance operations must remain as secret as possible. Still, individuals are likely aware that they are constantly under some surveillance, so that they police their own behaviors out of fear of being caught by state agents.
After the repression of the general strike of 1953, the DDR leadership understood that to maintain power for a long time, it needed to pivot away from open violence and toward a more subtle form of population control. The massive surveillance apparatus of the MfS served this purpose quite effectively for nearly forty years, during which relatively few people expressed their opposition vocally. Even though the MfS was never as omnipotent and omniscient as it projected itself to be, it was able to mythologize itself and to make sure that the population got used to surveillance and the lack of privacy.
Eventually, the inefficiencies of the East German communist apparatuses came to the surface, and the mass surveillance scheme of the MfS was eradicated. Nowadays, however, surveillance is becoming increasingly pervasive and effective because of technological advancements. While Stasi surveillance techniques were analog, contemporary surveillance is mostly digital.
Although the DDR was somehow isolated from worldwide markets, contemporary state institutions can count on the collaboration of big tech companies. It is not only traditional totalitarian regimes but also Western democracies that have learned only too well the lesson that privacy violations and widespread surveillance are much more effective than open violence in safeguarding power.
George Gammon, host of the popular Rebel Capitalist show, warns that the Fed won't have to force the public to adopt a central bank digital currency (CBDC). Instead, the public might clamor for it, being promised safe, high-interest checking accounts at the Fed, just like Jamie Dimon.
The Rebel Capitalist show: Mises.org/HAP405a
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Nationalism is a potent force in the modern world, and it is not surprising that some libertarians have been attracted to it. Indeed, in some circles the slogan “Blood and Soil” has come into to use to denote a people’s attachment to the land. It should be noted that although this slogan was used by the Nazis, especially by Walter Darré, it did not originate with them but was common among German nationalists such as Oswald Spengler. It would be wrong, then, to think that libertarians who use it today are signaling a covert admiration for the Third Reich and its führer. That being said, the attitude it expresses was decidedly not that of Ludwig von Mises.
Mises makes this clear in his discussion of German nationalism in Omnipotent Government. He points out that who counted as “German” to nationalists was determined by linguistic and cultural affinities, not by race. People who were descended from many different ethnic groups were found within Germany and considered by the nationalists to be members of the nation. To reiterate, these people were not tolerated minorities but fully German:
It is a serious error of English and French books and newspapers to refer to these conflicts [about nationality] as racial. There is no conflict of races in Europe. No distinct bodily features which an anthropologist could establish with the aid of the scientific methods of anatomy separate the people belonging to different groups. If you presented one of them to an anthropologist he would not be able to decide by biological methods whether he was a German, Czech, Pole, or Hungarian. Neither have the people belonging to any one of these groups a common descent. The right bank of the Elbe River, the whole of northeastern Germany, eight hundred years ago was inhabited only by Slavs and Baltic tribes. It became German-speaking in the course of the processes which the German historians call the colonization of the East. Germans from the west and south migrated into this area; but in the main its present population is descended from the indigenous Slavs and Baltic peoples who, under the influence of church and school, adopted the German language. Prussian chauvinists, of course, assert that the native Slavs and Balts were exterminated and that the whole population today is descended from German colonists. There is not the slightest evidence for this doctrine. The Prussian historians invented it in order to justify in the eyes of German nationalists Prussia’s claim to hegemony in Germany. But even they have never dared to deny that the Slav ancestry of the autochthonous princely dynasties (of Pomerania, Silesia, and Mecklenburg) and of most of the aristocratic families is beyond doubt. . . .
It must be emphasized again and again that racism and considerations of racial purity and solidarity play no role in these European struggles of linguistic groups. It is true that the nationalists often resort to “race” and “common descent” as catchwords. But that is mere propaganda without any practical effect on policies and political actions. On the contrary, the nationalists consciously and purposely reject racism and racial characteristics of individuals when dealing with political problems and activities. The German racists have provided us with an image of the prototype of the noble German or Aryan hero and with a biologically exact description of his bodily features. Every German is familiar with this archetype and most of them are convinced that this portrait is correct. But no German nationalist has ever ventured to use this pattern to draw the distinction between Germans and non-Germans. The criterion of Germanism is found not in a likeness to this standard but in the German tongue. Breaking up the German-speaking group according to racial characteristics would result in eliminating at least 80 per cent of the German people from the ranks of the Germans. Neither Hitler nor Goebbels nor most of the other champions of German nationalism fit the Aryan prototype of the racial myth.
In taking this attitude, Mises agreed with the view of his friend and colleague the great sociologist and historian Max Weber. (I am indebted to Markus Gabriel, whose book Moral Progress in Dark Times I reviewed in last week’s column, for calling attention to Weber’s views about nationalism.) Gabriel says:
In his central work (Economy and Society), Max Weber offers an impressive analysis of the “ethnic group relations”, which, already before the First and Second World Wars, showed that “race, ethnicity”, “people”, and “nation” are socially effective, despite being “unsuitable for a rigorous analysis”. Weber points out that these collective terms are an expression of a merely “presumed” commonality. According to Weber, the “belief in common ethnicity”. . . . comes about primarily through “the political community, no matter how artificially organized”.
Like Mises, Weber did not view ethnic nationalism as altogether bad. In his view, it was based on the correct perception that group membership is valuable, but it blurred this perception by adopting false views. According to Gabriel, Weber
recognizes that the organization of those who rely on myths and legends about people, nation, blood community, and so forth, is actually based on rational principles, but that they reinterpret these by offering weak explanations for their own group membership that are simply poor because they rest on numerous false assumptions. While identity politics as a whole is reprehensible, its rational element consists in the fact that it attempts to justify group membership as a value. The error lies in basing this value on non-existent identities.
Mises added to Weber’s account that group membership is especially important under the conditions of interventionism in the free market. Because the economic regulations of an interventionist government are written in the language of the dominant linguistic group, it is a great advantage to be a native speaker of that language.
It is clear also that Murray Rothbard did not think much of the slogan “Blood and Soil.” Speculating about why Ayn Rand supported Israel in what he deemed an uncritical fashion, he said the explanation, “given her professed individualism, . . . surely could not be (one hopes) the Zionist call to blood, race, and soil.”
The balanced view of nationalism held by Mises and Rothbard contrasts sharply with the sloganeering that is unfortunately prevalent in some circles.
Ryan McMaken and Zachary Yost look at the many factors behind Ukraine's failure to defeat Russia or move closer to NATO membership. Ukraine is sadly caught between a cynical NATO and a Russia that is in it for the long haul.
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People are constantly told to follow their dreams, but doing so is futile without execution. Dreaming is a blueprint for future success; however, some people live in the dream instead of working to make it a reality. Ambition is insufficient to reap success, and many fail to realize their potential. Success is only actualized when you stop dreaming and start doing.
Some believe that reading motivational books will lead them to prosperity, yet reading without application has never generated success. In a documentary about his life, Warren Buffett says that he reads voraciously to acquire useful skills. Reading without applying newly discovered principles is like going to school and remaining trapped in the same class. It’s a stagnant process that bears no fruit. That some people should not be in school or even reading books is a hard pill to swallow.
But if one does not have the tenacity to succeed, he should consign himself to a less complicated life. Most aspire to unimaginable heights, yet after reading a self-help book they will not invest in a professional course. Others dream of getting rich by investing, but they refrain from doing business and purchasing stocks. Such people expect a shower of prosperity in the absence of smart work.
This problem could be abated by accepting that the average person doesn’t have the willpower to be a Bill Gates. There are different levels of success, and if you are happy being the manager of a small business in the Midwest, don’t waste your time becoming Bill Gates. Likewise, if you prefer work-life balance to material success, then don’t aim for stratospheric success. Highly successful people spend hours working and sometimes don’t see family and friends for months.
The outcomes of success are admirable, but apparently fans don’t listen to Bill Gates and Elon Musk when they talk about their insane work ethic. A parallel story is an admiration for young influencers who started their projects quite early. People who become millionaires by thirty usually begin working in their youth. Anybody can dream to become a millionaire by thirty, but those who began to work on producing something commercially useful in youth achieve this feat.
Men like Steve Jobs, Warren Buffett, Bill Gates, and pioneer titans such as Cornelius Vanderbilt and John Davison Rockefeller found their passions quite early and commenced working earlier than most people. Unfortunately, some young people are distraught when they don’t secure their dream job after graduating. However, why are they surprised when they were not honing skills in youth? Education is not a substitute for human capital. Human capital refers to actual skills. So, if you were trading or forming business as a student this demonstrates to employers that you possess know-how.
Often, if one becomes super successful at honing his skills, after graduating he might be employing people rather than seeking employment. Bill Gates and Mark Zuckerberg dropped out of school to pursue entrepreneurship, and both became wildly successful. They could have failed like the typical start-up, but exceptional people pursue risks that most people avoid. On the path to success, there will be many reminding you why your project will come to zero. So, your goal should be to prove them wrong.
People will get rejections from venture capitalists, banks, and graduate schools. Rejection is a normal part of life, so if you fear rejection then please be content with an unexceptional life. Sometimes rejection is even positive because you might have been a bad fit for a particular organization. Rejection could be an opportunity to chart a better course.
In addition to working hard, you must be willing to seize opportunities. Many bloggers monetized the opportunity presented by the Johnny Depp trial to become self-made reporters. Sitting on your talents is wasteful. If you are a good writer, share your thoughts with the world. Never be satisfied with compliments from friends; always aim to actualize your talents.
Absolutely nothing is wrong with self-promotion. If promotion was not crucial to success, then celebrities would not have publicists. Even if you have the sweetest personality in the world, you will still be exposed to hateful people. But your job is to ignore them because in the grand scheme of things they don’t matter. Focusing on the business of you is a more enriching exercise.
As a writer, I have been exposed to racist comments, but this has never prevented me from churning out pieces. Always remember to make your dream a reality by ignoring unproductive elements. You will never become your best self by dreaming or listening to poisonous voices. If you remain committed, critics will respect you in the long run. Strangely, some people who thought I was weird in high school now value my insights.
Mark Thornton joins Ryan and Tho on Radio Rothbard to take a closer look at the state of the US dollar and how price inflation and economic crises are likely to play out in the months and years ahead.
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[This article is adapted from a panel discussion on Christian Nationalism at Freedom Fest in Memphis on July 14, 2023. The other panelists were Norman Horn, Kerry Baldwin, and Alex Bernardo of the Libertarian Christian Institute. ]
The specter of Christian nationalism—variously defined—has become one of the current bogeymen to the Left. "Christian nationalism on the rise," reports National Public Radio, and The New Yorker asks "How Christian Is Christian Nationalism?" Some churches are even hosting workshops with names like "The Threat of White Christian Nationalism." Note the insertion of the term "white." An op-ed at The Salt Lake Tribune takes it a step further declaring at the US Supreme Court is now allied with "white male Christian nationalism" (emphasis added).
The lazy, imprecise way that Christian nationalism is usually defined—or not defined—allows Christian nationalism to be more or less whatever its critics want it to be. Thus, Christian nationalism can be a bookish pursuit of a consistent Christian political ideology on the one hand. Or it can be a half-baked populist movement with little more sophistication beyond flag waving and paeans to vague ideas of "American culture." The diversity of Christian groups—with varying beliefs—makes it difficult to nail down critics when we want to know the precise details of who these Christian nationalists are, and what they believe.
What Is Catholic Nationalism? This lack of any particular definition of Christian nationalism becomes all the more problematic when we try to get specific and search for a working definition of nationalism for any particular Christian group. This is certainly the case when we try to define Catholic nationalism. Indeed, when trying to define Catholic nationalism, we have an easier time determining what Catholic nationalism is not.
It cannot be any sort of racial or ethnic nationalism, as Catholicism is hardly synonymous—historically or philosophically—with any particular nation-state, national language, or ethnic group. The international nature of the Church is a sizable impediment to any Catholic claiming that "my nation" is objectively superior to—or even fundamentally separate from—any other. Moreover, there are no "national churches" in Catholicism, as we might find with the Russian Orthodox Church or the Church of England. As noted by Benedict Anderson in his book on nationalism, Imagined Communities, the historical Catholic view is that membership within the religious community trumps membership within any local tribal, ethnic, or linguistic group. In this view, when it comes to the truly important issues, a Catholic from New Mexico ought to regard himself as more closely connected to a Catholic in Nigeria than to an atheist in New York. Similarly, a Benedictine monk from Poland is more closely tied to "foreign" Benedictines than he is tied to his so-called "countrymen."
Nor does Catholic political ideology dictate any particulartype of regime. Although many Catholic traditionalists might claim that monarchy is the only truly legitimate choice for a Catholic regime, this has never been borne out by historical realities. The republican governments of Venice, Genoa, and Florence (among many others) never made those societies somehow "un-Catholic."
Nor can it be said that Catholic nationalism is just about getting Catholics into positions of political authority. After all, the fact that John F. Kennedy was a baptized Catholic hardly made the US government a "Catholic regime." Something similar might be said of the fact that several of the justices on the US Supreme Court are Catholics.
If the idea of an explicitly Catholic American regime strikes us as an oddity, there is good reason for this. Catholics have never been a majority in the United States, and few would venture to say that American culture is especially Catholic by any measure. Indeed, American traditionalists, at least until recent decades, have been generally hostile to Catholicism. If a Catholic nationalist aspires to form a specifically Catholic-dominated culture or polity in the US, this would be a departure from traditional American culture, not a preservation of it.
Catholic Quasi-Nationalism: Integralism Given all this, how might we identify a Catholic nationalist or Catholic nationalism? It appears the closest we can get to something we might call Catholic nationalism is the system known as integralism. We find a definition of this at the integralist site The Josias. The editors write:
Catholic Integralism is a tradition of thought that, rejecting the liberal separation of politics from concern with the end of human life, holds that political rule must order man to his final goal. Since, however, man has both a temporal and an eternal end, integralism holds that there are two powers that rule him: a temporal power and a spiritual power. And since man’s temporal end is subordinated to his eternal end, the temporal power must be subordinated to the spiritual power.
Integralism is not nationalist in the strict sense in that it does not seek the protection or promotion of any particular national culture, language or ethnicity. Integralism is nationalist, however, in the sense that it seeks to strengthen the power of various national states in pursuit of a particular goal. (It is likely not a coincidence that integralism has been especially popular in recent centuries in France where the state model has historically been especially strong and especially old.)
The general idea of integralism is nonetheless very old in the sense that, even in ancient times, many Catholics believed civil authorities ought to have an active role in defending and strengthening the Church.
Many Church fathers, however, understood the peril that comes with a "partnership" between Church and civil authorities. Even after Theodosius I declared Christianity to be the state church of the empire in 380 AD, this left unanswered the sticky problem of which Christians would be favored at any given time. Initially, it was the Nicene Catholics, but various emperors would ally themselves with various Christian factions spelling the doom of whoever happened to be on the losing side. For example, in the seventh century, St. Maximus the Confessor and Pope St. Martin I were exiled for holding "incorrect" views, although their views were the orthodox ones by Church standards. Such reversals of fortune are hardly limited to the realm of religion, of course. They are common in military and partisan affairs of all types throughout history. The point is that Christian groups are no more insulated from the capriciousness of civil government than is any other group.
Having learned from his own exhaustive review of ancient history in City of God, St. Augustine was extremely skeptical of worldly princes as reliable allies. Augustine had declared unjust princes to be no better than pirates. He also concluded that even when worldly rulers can establish peace, such peace is nothing more than the naked "conquest of those who resist us" and only lasts so long as petulant civil rulers find the peace to their personal liking. In Augustine's view, truly virtuous worldly rules are so rare that there is little security or value in tying Church power to civil authorities. After all, the civil government merely oversees the "City of Man" which is altogether separate from the City of God." In fact, the very idea of using the state to accomplish Christian ends does not compute with Augustine. As John Milbank describes it:
In Augustine, there is, disconcertingly, nothing recognizable as a "theory of Church and State", no delineation of their respective natural spheres of operation. The civitas terrena is not regarded by him as a "state" in the modern sense of a sphere of sovereignty, preoccupied with the business of government. Instead this civitas, as Augustine finds it in the present, is the vestigial remains of an entire pagan mode of practice, stretching back to Babylon. There is no set of positive objectives that are its own peculiar business...
By the High Middle Ages, however, many Catholic theologians had become far more optimistic about the prospects for the existence of Christian polities—potentially ruled by virtuous princes—that serve the Church. This is perhaps why today we find that modern integralists are often disciples of St. Thomas Aquinas, trusting that natural reason can somehow be harnessed to create a just and reliable civil government in the integralist model.
Why Integralism Fails Experience, however, suggests that Augustine's radical skepticism of civil authorities is the more accurate view. Rarely do we find civil governments that pursue the goals of Christian virtue beyond short periods of time or during the reigns of unusually virtuous rulers. In practice, integralism has usually worked in reverse, rather than as intended. That is, the integralist ideal is that the civil government will be subject to religious authorities, but it is usually the civil governments that dominate religious institutions. (The Papal States are notable, extremely rare exceptions.) Thus, attempts at integralism provide examples like the Spanish Inquisition which served primarily to strengthen the Spanish state and was under the monarch's control. Or we might recall the Avignon popes who "reigned" under the thumbs of French monarchs. Rather than result in theocracy, as many critics of integralism claim is bound to happen, the usual result of the Church-state alliance is the opposite of theocracy: clerics become servants of the civil government.
Ultimately, we might conclude that while integralism is not nationalist in theory, it is nationalist in practice: integralism ends with a strong national state pushing a specific social vision. Rarely are such polities subject to religious authorities, but the integralist may be fooled into thinking it is. In actuality, the integralist state is simply a state in which civil rulers—for a time—regard the Church as a convenient ally. Once the Church ceases to be so, however, the integralist state transforms into a state hostile to those it was once designed to protect.
Thus, integralism goes down the same road as Christian nationalists in general: these movements favor the creation of a strong state that will, sooner rather than later, turn on its creators.
[This article is adapted from a panel discussion on Christian Nationalism at Freedom Fest in Memphis on July 14, 2023. The other panelists were Norman Horn, Kerry Baldwin, and Alex Bernardo of the Libertarian Christian Institute. ]
Rational choice theory claims that people in the political realm act in their own self-interest. However, in today's political climate, many people act against their own interests to avoid being attacked by others.
Original Article: "Why Do We Act against Our Self-Interest?"
Words matter and definitions often become imprecise and “slippery.” There is a natural evolution of language wherein words gradually change over time, but often a key meaning gets lost and there no longer remains a single word to describe a concept. This has been the case with the common word “inflation.”
Over the last few years, I have kept a list of quotes about the accurate definition of inflation (and I am always looking for more quotes). What inspired this list was the recognition that what most people mean and understand by the word “inflation” is price inflation—increasing consumer prices. But this is not inflation; it is a consequence of inflation. In fact, a former coworker and friend asked me during the time of massive covid spending by the government, “Where is the inflation?”—to which I responded, “It already happened.” We need to return to the true definition of inflation. Otherwise, the responsibility of government and the central bank is obscured.
While there has been some debate within the Austrian school, even distinguishing between Ludwig von Mises’s and Murray Rothbard’s positions, inflation is, generally speaking, the artificial increase of money and credit (i.e., “printing money”). This act can be perpetrated by the central bank or banks operating on fractional reserves (usually with legal permission granted by the government before the central bank). Mises wrote of the negative impact of this definition change in his essay “Inflation and Price Control”:
The term inflation is used with a new connotation. What people today call inflation is not inflation, i.e., the increase in the quantity of money and money substitutes, but the general rise in commodity prices and wage rates which is the inevitable consequence of inflation. This semantic innovation is by no means harmless. (emphasis added)
Mises again referred to the consequences of such a definition in Human Action:
The semantic revolution which is one of the characteristic features of our day has also changed the traditional connotation of the terms inflation and deflation. What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates. This innovation is by no means harmless. It plays an important role in fomenting the popular tendencies toward inflationism. (emphasis added)
Mises continued:
There is no longer any term available to signify what inflation used to signify. It is impossible to fight a policy which you cannot name. Statesmen and writers no longer have the opportunity of resorting to a terminology accepted and understood by the public when they want to question the expediency of issuing huge amounts of additional money. They must enter into a detailed analysis and description of this policy with full particulars and minute accounts whenever they want to refer to it, and they must repeat this bothersome procedure in every sentence in which they deal with the subject. As this policy has no name, it becomes self-understood and a matter of fact. It goes on luxuriantly. (emphasis added)
Likewise, Henry Hazlitt agreed with Mises and wrote a short essay that is not as well-known as it ought to be—“Inflation in One Page.” In this masterful summary, Hazlitt explains:
Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices. Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible. (emphasis added)
Rothbard’s definition of inflation differed slightly from Mises’s and was arguably a bit more precise but in the same spirit. In a recent article in the Quarterly Journal of Austrian Economics, “What Is Inflation? Clarifying and Justifying Rothbard’s Definition,” Kristoffer Hansen and Jonathan Newman clarify and agree with Rothbard’s definition of inflation, noting that Mises defined inflation as the increase in the money supply not offset by an increase in the demand for money, but Rothbard defined it as issuing “pseudo warehouse receipts” or issuing money in excess of the stock of specie (e.g., gold). Rothbard described inflation as follows:
The process of issuing pseudo warehouse receipts or, more exactly, the process of issuing money beyond any increase in the stock of specie, may be called inflation [italics original]. . . . The profit is practically costless, because, while all other people must either sell goods and services and buy or mine gold, the government or the commercial banks are literally creating money out of thin air. They do not have to buy it. Any profit from the use of this magical money is clear gain to the issuers. (emphasis added)
In The Progressive Era, Rothbard explained further:
The terms “inflation” and “inflationary” are used throughout this article according to their original definition—an expansion of the money supply—rather than in the current popular sense of a rise in price. The former meaning is precise and illuminating; the latter is confusing because prices are complex phenomena with various causes, operating from the sides of both demand and supply. It only muddles the issue to call every supply-side price rise (say, due to a coffee blight or an OPEC cartel) “inflationary.” (emphasis added)
While Mises and Rothbard differed on whether inflation should include or exclude new gold inflows, they both agreed that inflation is not an increase in prices but rather an increase in the supply of money and credit. They also both agreed that the consequences of inflation are (often) asymmetrically rising prices and business cycles.
If the definition was so simple and uncontested, why did the meaning of inflation change?
The answer can be found in the ideological and policy dispute between the British currency school and the British banking school (and their American counterparts). The currency school, which favored hard money to a greater degree, triumphed at first and had the opportunity to implement their policy prescriptions with the Bank of England. At that time, their definition of inflation was accepted. As Dr. Joseph Salerno explains in his book Money, Sound and Unsound, “The term ‘inflation’ was now used strictly to denote an increase in the supply of money that consisted in the creation of currency and bank deposits unbacked by gold.”
Unfortunately, unlike their American counterparts, the proponents of the British currency school, despite their accurate definition of inflation, failed to consider demand deposits as part of the money supply. For that reason, their policies as adopted in Great Britain failed to prevent both price inflation and the business cycle, and the currency school fell into disrepute. Inflation would now be subtly redefined as “a supply of circulating media in excess of trade needs.”
Over time, the definition would be further distorted. For example, even though it sounds technically correct, Milton Friedman’s definition contains several mistaken presuppositions: “[Inflation] is always and everywhere a monetary phenomenon. It’s always and everywhere a result of too much money, of a more rapid increase in the quantity of money than in output.”
Friedman is correct that inflation is always a monetary phenomenon; however, monetarists have different definitions of “money” and “money supply,” and monetarists view money as a policy instrument to be adjusted through inflation. Finally, the Keynesian revolution from 1936 forward would continue to change the definition of inflation to mean a general increase in the so-called price level. Salerno writes:
Before World War II, when the terms “inflation” and “deflation” were used in academic discourse or everyday speech, they generally meant an increase or a decrease in the stock of money, respectively. A general rise in prices was viewed as one of several consequences of inflation of the money supply; likewise, a decline in overall prices was viewed as one consequence of deflation of the money supply. Under the influence of the Keynesian Revolution of the mid-1930s, however, the meanings of these terms began to change radically. By the 1950s, the definition of inflation as a general rise in prices and of deflation as a general fall in prices became firmly entrenched in academic writings and popular speech. (emphasis added)
As Mises said, we cannot fight a policy that we cannot name. It is high time we clarified and implemented the true definition of inflation. If we can convince people that inflation means “printing money” artificially and then explain the consequences, this will help them understand what government has done to our money.
Whether political elites promote outright socialism or interventionism, thanks to the reality of economic calculation, they are advocating a failed economy.
Original Article: "Why Mises’s Theory of Economic Calculation Still Is Relevant Today"
In discussing the recent boycott of Target, University of Michigan economics professor Justin Wolfers recently told MSNBC:
[If] Target caves into this, then it says that the moment you threaten the employees of even a very large corporation, you get to control its policies. This is economic terrorism, literally terrorism, creating fear among the workers and forcing the corporations to sell the things you want, not sell the things you don’t.
Professor Wolfers is wrong on multiple fronts. First, boycotting products of a company is not an act of terrorism. Boycotting a person, a store, or an organization is to engage in a concerted refusal to have dealings with it, usually to express disapproval or to force acceptance of certain conditions. On the other hand, terrorism is an act of violence where a terrorist is aggressing upon someone’s bodily or physical property. Britannica defines terrorism as “the calculated use of violence to create a general climate of fear in a population and thereby to bring about a particular political objective.”
As Professor Murray Rothbard explained:
What such aggressive violence means is that one man invades the property of another without the victim’s consent. The invasion may be against a man’s property in his person (as in the case of bodily assault), or against his property in tangible goods (as in robbery or trespass). In either case, the aggressor imposes his will over the natural property of another—he deprives the other man of his freedom of action and of the full exercise of his natural self-ownership.
Are these conservative boycotters aggressing upon Target’s properties? No. Then, their boycott is not an act of terrorism. On the other hand, several Target stores have received bomb threats from some unknown people who say they are protesting against Target’s decision to pull LGBTQ-themed clothes, something that Wolfers fails to mention.
Second, what Wolfers calls terrorism is the working of a peaceful market process in which consumers are abstaining from buying Target products because they disagree with the company’s policies. Boycotting is a peaceful way of legitimate and legal protest. In his important work Politics of Nonviolent Action, Part Two: The Methods of Nonviolent Action, Professor Gene Sharp mentions consumers’ boycotts as an important method used by peaceful people as a form of nonviolent action to achieve political goals.
Despite being a professor of economics, Wolfers doesn’t understand the workings of the peaceful market process. He is ignorant of market democracy.
Ludwig von Mises said that buying and abstaining from buying are two main ways through which consumers act as captains of the market ship and guide entrepreneurs in fulfilling the most urgent needs of those consumers instead of wasting societal resources. Consumers convey their preferences to entrepreneurs through this market democracy system of voting with their money. Mises wrote:
The consumers by their buying and abstention from buying elect the entrepreneurs in a daily repeated plebiscite as it were. They determine who should own and who not, and how much each owner should own.
As is the case with all acts of choosing a person—choosing holders of public office, employees, friends, or a consort—the decisions of the consumers are made on the ground of experience and thus necessarily always refers to the past. There is no experience of the future. The ballot of the market elevates those who in the immediate past have best served the consumers. However, the choice is not unalterable and can daily be corrected. The elected who disappoints the electorate is speedily reduced to the ranks.
Each ballot of the consumers adds only a little to the elected man’s sphere of action. To reach the upper levels of entrepreneurship he needs a great number of votes, repeated again and again over a long period of time, a protracted series of successful strokes. He must stand every day a new trial, must submit anew to reelection as it were. . . .
But in buying a commodity or abstaining from its purchase there is nothing else involved than the consumer’s longing for the best possible satisfaction of his instantaneous wishes. The consumer does not—like the voter in political voting—choose between different means whose effects appear only later. He chooses between things which immediately provide satisfaction. His decision is final.
An entrepreneur earns profit by serving the consumers, the people, as they are and not as they should be according to the fancies of some grumbler or potential dictator.
In recent times, we have seen corporations increasingly becoming political. Instead of serving their consumers, corporations have become advocates for political control over the lives of people. They are teaming with authorities in censoring the critics of those in power and their political opponents. Technocrats are increasingly usurping the role of politicians or are working with politicians to nudge society in a leftist direction.
The boycott of Target and other companies by consumers is their way of resisting this technocratic agenda of control. This is one of the most effective and peaceful ways available for citizens to fight against unwarranted state power and corporate beneficiaries.
Michael talks with Tom Woods about RFK, Jr., whether the elites are evil or just incompetent, and the secret of Tom's success.
Why do individuals pay higher prices for some goods than others? The common reply references laws of supply and demand, but what are these laws? The answer is found in the law of diminishing marginal utility.
Most economists explain this law by describing the satisfaction one derives from consuming a good such as an ice cream cone. The satisfaction derived from consuming a second cone might be less than the satisfaction derived from the first cone, and so on. Mainstream economics concludes that the more of any good we consume in each period, the less satisfaction, or utility, we derive out of each additional unit, so the price that one is willing to pay per unit also declines.
By quantifying utility, economists can introduce mathematics here to determine the additional satisfaction to determine total utility. Thus, the law of declining marginal utility is derived from diminished satisfaction of consuming a particular good. After consuming several ice cream cones, an individual feels satiated, making human action dependent upon biological needs, not reason. According to Ludwig von Mises, “It is impossible to describe any human action if one does not refer to the meaning the actor sees in the stimulus as well as in the end his response is aiming at.”
The Menger Explanation According to Carl Menger, the founder of the Austrian school of economics, individuals rank various goals they deem important to meeting their needs. The ends people consider as the most important for maintaining life are assigned the highest ranking, while less important ends are given lower ranking.
Consider John the baker who produces four loaves of bread, which are the means to help meet his needs. Assume that his highest priority is to have one loaf of bread for personal consumption, leaving three other loaves for other uses.
The second loaf allows John to secure his second most important goal, which is to consume five tomatoes, and he finds a tomato farmer who agrees to exchange five tomatoes for a loaf of bread. John uses the third loaf to exchange for the third most important end, which is a shirt. Finally, John allocates his fourth loaf to feed wild birds.
To attain the second and the third ends, John exchanged his resources—loaves of bread—for goods to serve his ends. John exchanged his loaf of bread because it was not as useful to John as a shirt. Thus, the first loaf of bread secures the most important end, the second loaf of bread the second most important end, and so on.
Least Important End Sets the Standard of Valuation John gives each loaf the value imputed from the least important end, which is feeding wild birds. Why does he do this? (John’s four loaves are interchangeable. This implies that each loaf will have the same value as far as John is concerned.) Now assume, instead, that John uses the highest end as the standard for assigning value to each loaf of bread, which means he values the second, the third, and the fourth loaves higher than the ends he secures.
If this were the case, why would he exchange something valued more for something that is valued less? Under such circumstances, no exchange after the first one would occur. Yet, because John continues to engage in exchange, the remaining three loaves must have declining value.
Remember that the fourth loaf of bread is the last unit in John’s total supply. It is also called the marginal unit. This loaf secures the least important end, which means that as far as John is concerned, the marginal unit provides the least benefit.
If John had only three loaves of bread this would mean that each loaf would be valued according to the end achieved by the third loaf—having a shirt because it is ranked higher than feeding wild birds. From this, we infer that as the supply of bread declines, the marginal utility of bread rises. Every loaf of bread is valued higher than before as the supply of bread decreases. Conversely, as the supply of bread rises, its marginal utility falls and each additional loaf of bread is now valued less than before the increase in the supply took place.
In John’s case, the least important loaf of bread determines the value of bread out of a given supply. As the supply of bread increases, its unit value will decline because the marginal loaf of bread serves the least important goal.
People Do Not Set Arbitrary Goals Individuals do not pursue arbitrary ends but rather seek to maintain life and well-being, using available means at their disposal. Instead, they look to meet their most pressing needs before looking to less important goals. For instance, had John arbitrarily allocated most of his resources to feeding wild birds, he would not have enough to feed himself.
Furthermore, marginal utility is not, as the mainstream perspective presents, an addition to the total utility but rather the utility of the marginal end. Utility is not about quantities but about priorities or the ranking set by each person. Obviously one can assign cardinal values to priorities. Since total utility does not exist as such, mathematical methods that were introduced in economics and in the modern portfolio theory to measure total utility and marginal utility are questionable.
Conclusion The heart of price determination is the law of decreasing marginal utility. According to mainstream economics, this law is linked to the intensity of individual’s satisfaction with respect to a particular good which declines with increasing supply of that good. Therefore, the intensity of satisfaction is the key in determining the price of a good.
Instead, a good’s usefulness to secure one’s ends gives it value. We rank goods ordinally according to their ability to satisfy our needs. There is no need to bring mathematics into the picture.
As Ukrainian forces continue their much-hyped counteroffensive to take back contested territories in the country’s eastern and southern regions, we’re faced with conflicting coverage of the campaign. Many reports say Ukraine’s forces are struggling to break through the minefields fortifying Russia’s lines. And many admit that even the sudden and dramatic Wagner Group mutiny did not appear to hand Ukraine much of an advantage on the front. Days ago, in a move that looks like damage control, Ukraine’s defense secretary even announced that Kyiv would no longer measure success in recaptured territory but would instead just aim to destroy as much Russian military infrastructure as possible.
Still, according to some Western journalists, this is all part of Ukraine’s plan. They’re just testing Russian resistance to find weak spots so they can better allocate resources during the next phase of the counteroffensive. And that’s when the big gains will take place. Maybe that’s true, but still, other coverage about Ukraine’s losses would have you think the counteroffensive has been a horrific disaster.
Much like the wider war, how you see this counteroffensive playing out depends almost entirely on where you get your news. That is not an accident. As citizens of the wealthiest country whose government controls the most military hardware in the world, it’s important to remember that all coverage of this war ought to be viewed with some baseline degree of skepticism. This is because numerous parties—in both governments and the media outlets themselves—are working hard to bend the American public’s perception of the war to their benefit.
That is, of course, nothing new. In 1941—the last time a European war threatened to go global—the British sent an intelligence officer named William Stephenson to the United States and tasked him with running an information operation to turn American public opinion away from noninterventionism.
The main approach Stephenson’s stories team used was secretly planting carefully crafted—and sometimes outright fake—stories in the biggest American newspapers and magazines. These stories were specifically designed to portray British forces as having more than enough courage to take on the Germans but lacking sufficient resources, regardless of how accurate that depiction was at any given time.
It was a specific tone that the United Kingdom’s Secret Intelligence Service (MI6) believed had the best chance of convincing the American public to support joining the fight. Since then, every group that the American political establishment wants to support militarily gets presented to the American people in a similar fashion—from the Mujahideen to the Syrian Kurds to the current Ukrainian regime.
Though we may not know about the prevalence of covert information operations for some time, a pair of stories published last month offer a window into some more overt efforts to shape our perception of the war in Ukraine. First, Thomas Gibbons-Neff, a Ukraine correspondent for the New York Times, wrote a viral story detailing how Ukrainian press officers and some Western journalists have tried to downplay, justify, or cover up the use of Nazi symbols by Ukrainian soldiers.
One specific passage tells of Western photojournalists asking their subjects to remove patches with Nazi emblems before taking photos. By doing so, these journalists crossed the line from documenting their subjects to staging them.
On the same day, former New York Times media columnist Ben Smith published an article reporting that many Western journalists have grown frustrated with how the Ukrainian government uses access and accreditation to shape war coverage. For example, the Ukrainian military threatened to revoke a photojournalist’s credentials after he took pictures of conscripted soldiers in a trench without the presence or permission of a military press officer.
In another example, an NBC News crew traveled to Crimea to interview residents about the war. After reporting that most people they talked to preferred that Crimea belonged to Russia, the Ukrainian government revoked NBC’s credentials and confined their in-country crew to a hotel.
Smith even brings up Thomas Gibbons-Neff from above, who had his access and credentials revoked after reporting on Ukraine’s use of banned cluster munitions. There’s no question that, at least to some extent, the continual threat of a loss of access affects everyone reporting over there in an official capacity.
This is not a new or unusual technique. The US government used similar tactics to help shape the narrative of its wars in Afghanistan and Iraq. Most professional journalists struggle endlessly to find sources. So, by granting extensive access that can always be revoked, governments can run an effective carrot-and-stick ploy to control media coverage.
Our views of war are warped by design. Sure, the Russian regime is mounting a similar effort to control how the Russian people view the war, but it would be absurd to say that the Kremlin holds an influence over the American public that’s even comparable to the US or Ukrainian governments.
Despite what the media, the government, or your middle school civics teacher wants you to think, you don’t need to frantically keep up with the hourly developments in Eastern Europe to be a good citizen. But if you choose to follow this war, understand which parties have a hand in delivering whatever information you’re consuming because not everyone is trying to tell you the truth.
Keynesian policies are damaging what they were intended to support. No example is more evident than the United States. A few years ago, in 2021, I had a conversation with Judy Shelton where she said that the recovery would be much stronger without the stimulus package, and she was right. Massive government spending and currency printing have left a much weaker labor market and poorer citizens.
In June, nonfarm payrolls increased by 209,000, the smallest advance since the end of 2020, after two consecutive downward revisions in the prior months, according to the Bureau of Labor Statistics (BLS). If we look at employment statistics beyond the headline unemployment rate, we can see that the labor force participation rate was 62.6 percent for the fourth consecutive month, and the employment-population ratio, at 60.3 percent, was unchanged over the month, according to the BLS. Both measures remain below pre-pandemic levels (63.3% and 61.1%, respectively) after years of enormous entitlement and spending programs.
Workers are not satisfied, and there is a reason for it. All the money printing has created elevated inflation and a recovery where the United States has seen 26 consecutive months of negative real wage growth. We have not seen such a negative recovery for American workers in decades.
U.S. citizens are surviving on record levels of debt. Credit card debt, according to the Federal Reserve, reached a record high in the first quarter of 2023, while personal savings as a percentage of disposable income remain well below pre-pandemic levels at 4.6%, a massive 44.7% decline from the figure at the end of 2019. Real retail and food service sales bounced after the re-opening of the economy but remain below the April 2022 peak and are down in six of the last seven months.
It is no surprise that the University of Michigan Consumer Sentiment Index is still 40% below the level prior to the COVID crisis slump.
We have to put these poor figures in the context of a so-called “stimulus” that built a federal deficit that surpassed the $7 trillion mark between 2020 and the first quarter of 2023. We often read the MMT nonsense that deficits are reserves for the private sector and a tool for growth and prosperity.
The reality is that American workers are much worse off and need to work harder to make ends meet as the inflationary tax eats away at their savings and wages.
Of course, the excuse is to say that without the massive U.S. government spending plan, things would be much worse, but that is typical counterfactual nonsense. These large government spending plans were not created to mitigate a weak recovery, but as a tool to strengthen and accelerate it. And the reality is that the recovery is weaker than the historical trend, real wage growth is negative, and debt is much higher. Thus, in terms of return on invested capital, the stimulus plan has detracted from a recovery that was already evident simply because of the re-opening of the economy.
We can also argue that the stimulus plan financed with newly created currency in the middle of a lockdown has been the main cause of inflation, as the studies of Claudio Borio and others have demonstrated (“an upsurge in money growth preceded the inflation flare-up, and countries with stronger money growth saw markedly higher inflation,” BIS Bulletin, No. 67, January 26, 2023).
Why am I discussing these figures? Because the backlash from these stimulus plans will likely lead to a recession, the government will present itself again as the solution with yet another multi-trillion-dollar misguided measure. However, this time the ability to increase the deficit is simply not there, as even the most optimistic estimates see a $14 trillion accumulated deficit through 2032 with the current budget proposals.
The next stimulus plan may lead to a huge debt-deflation spiral Japan-style if population aging and de-industrialization continue, or even worse, stagflation if the government decides again to use the misguided stimulus checks. You got $1,000 from the government, and the inflationary tax took $3,000 from you.
It is evident that we have reached the point of debt saturation, where new stimulus packages simply generate no multiplier effect but make citizens poorer until the next one makes things even worse. Someday, policymakers may start to realize that progress comes from saving and prudent investment, not spending and debt.
In his recent address, President Joe Biden claimed that “wind and solar are already significantly cheaper than coal and oil.” This is flat-out wrong. There are many arguments that can be made for Biden’s claim. However, not only can they all be refuted, but they have all already been refuted.
Alex Epstein, in his book Fossil Future: Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas—Not Less, explains that two facts are ignored when pretending that wind and solar are cheaper. The first is that
solar and wind exist in large quantities exclusively in places where they are given massive government preferences. When you look at where solar and wind are used, you will invariably find subsidies—that is, the government forcing taxpayers to give money to solar and wind companies. Often, governments actually mandate a certain percentage of solar and wind by law.
These “significantly cheaper” sources only manage to be so when we’re paying indirectly for subsidies to make them cheaper. On top of that, this fact merely discusses the ways in which the prices of energy are otherwise distorted through various laws and incentives. The United States Department of Energy lists 1,854 different laws and incentives currently on the books. There are so many various government interruptions in the market that when I first attempted to download the dataset to look at the laws currently in place, it crashed my computer. Energy is one of the most highly regulated markets in existence, all to create the appearance that wind and solar energy are cheaper than fossil fuels.
From here, Epstein answers the question: Why do supposed alternative energies need so much subsidization if they are so much cheaper? This leads to the second fact that is often ignored in this discourse: “Contrary to claims of lower costs, the places that use the most solar and wind on their grid tend to have the highest electricity costs.”
This is the case because even if one were to concede that wind and solar are cheaper than coal and oil (they are not) and if one were to concede that this is happening on a free market (it is not), it would still be missing part of the picture. Even if wind and solar somehow were to have lower money costs, they make up for it in the cost of their diluteness and their intermittency.
Epstein explains the flaws in the diluteness of solar and wind by showing that they require more land per unit of energy than fossil fuels do, more mining-intensive resources (ten times more mined materials needed than when building the infrastructure for fossil fuels electricity generation), and long-distance-transmission infrastructure costs. Diluteness, he states, poses a major threat to the cost-effectiveness of wind and solar.
However, the costs do not stop there. They are intensified by the even-worse cost of intermittency. One of the most important elements of any energy is being able to control it, and solar and wind do not offer that. In order to address these two types of costs, Epstein shows that there are three possible approaches:
- Relying on some controllable source of energy, such as fossil fuels
- Relying on a diverse, distant, and enormous network of solar panels and wind turbines—so there is always sufficient electricity from somewhere
- Relying on a man-made storage system to store enough intermittent energy to always be able to meet demand
The current reality of solar and wind is that none of these approaches has yet proven cost-effective, and only the first approach—relying on some controllable source of energy, such as fossil fuels—has been implemented at any cost.
President Biden and other adversaries of fossil fuels will always try to make claims such as “wind and solar are significantly cheaper than coal and oil,” but the reality is that it is simply not true. Wind and solar are not cheaper than coal and oil. They require massive subsidization to even compete, and on the back of that massive subsidization, they are still too diluted and require the support of fossil fuels in order to remain reliable.
The Federal Home Loan Bank (FHLB) is the latest "weapon" in the government's so-called arsenal to keep the banking system afloat. But the system needs much more than just "liquidity." It needs sound money and sound banking practices.
Original Article: "The Backstops for Banks Are Full of Holes"
Economist Jeremy Horpedahl dismissed the silly claim by anticapitalists that capitalism must engineer food scarcity for the sake of profits. He presented a graph of Bureau of Labor Statistics (BLS) data demonstrating a substantial decrease in household food expenditure as a percentage of income—from 44 percent in 1901 to a mere 9 percent in 2021. This is something to celebrate and certainly can be attributed to the abundance of market economies.
But when Jordan Peterson asked, “And what’s happened the last two years?” I went digging. First, I confirmed Horpedahl’s observation: the amount we spend on food as a proportion of our budget has fallen dramatically. Second, I saw what Peterson hinted at: a significant spike in food spending when covid and the associated mess of government interventions hit (figure 1).
Figure 1: Food and personal consumption expenditures, 1959–2023
Source: US Bureau of Economic Analysis, FRED.
Interestingly, the spike looks like a blip. Someone oblivious to the events of the past few years might see this chart and say, “Yeah, something strange happened in 2020, but it looks like everything is back to normal.” I’m certain that this doesn’t align with anyone’s experience, however. Even today, no one would say that restaurant visits and grocery store trips cost the same as they did in 2019.
What changed in 2020? Why does this graph not feel right? Assuming the Bureau of Economic Analysis data isn’t totally off (and it is important to be skeptical of government data), why would a January 2023 report on consumer inflation sentiment conclude that “there is a disconnect between the inflation data reported by the government and what consumers say they now pay for necessities”?
The difference lies in the qualitative aspects of our experience as consumers. Spending proportions may have returned to their trend, but that isn’t the whole story. “Shrinkflation” and “skimpflation” have taken their toll on the quantity and quality of the food we enjoy—or maybe the food we tolerate is more apt.
Businesses know that charging higher prices is unpopular, especially when many consumers are convinced that greed is driving price inflation. So businesses resort to reducing the amount of food in the package, diluting the product but keeping the same amount, or otherwise cutting corners in ways that consumers may not immediately notice.
Thankfully, websites such as mouseprint.org document some of these cases:
- Sara Lee blueberry bagels reduced from 1 lb., 4.0 oz. per bag to 1 lb., 0.7 oz.
- Bounty “double rolls” reduced from 98 sheets to 90 (how is it still a “double roll”?)
- Gain laundry detergent containers reduced from 92 fl. oz. to 88 fl. oz. without any obvious difference in the size of the container
- Dawn dish soap bottles reduced from 19.4 fl. oz. to 18.0 fl. oz.
- Green Giant frozen broccoli and cheese sauce packages reduced from 10.0 oz. to 8.0 oz. with no change in the advertised number of servings per package
In some instances of skimpflation, the volume or weight of a product remains the same, but the proportions change. For example, Hungry-Man Double Chicken Bowls (a frozen dinner of fried chicken and macaroni and cheese) maintained a net weight of 15.0 oz., but the protein content dropped from 39 grams to 33 grams.
And while firms are reducing the quantity and quality of the food they sell, consumers are also choosing to purchase less food and even lower-quality food. The January 2023 report on consumer inflation sentiment shows that 69.4 percent of respondents “reduced quantity, quality or both in their grocery purchases due to price increases over the last 12 months.”
We have also seen a widespread and long-lasting change in customer service at restaurants. Many restaurants switched to providing only takeout for months or years. Even though the dine-in option has been reintroduced at some restaurants, the service hasn’t quite been the same, with QR-code menus, shorter hours, less staff, and terse demeanors.
It’s not surprising that the massive government interventions, including creating trillions of new dollars, would have countless effects—some that show up in various statistics but many that do not. For example, if we look back at the period of German hyperinflation, we see surprisingly boring data on food spending proportions (figure 2).
Figure 2: Household expenditures in Germany, 1920–22
Source: Data from Carl-Ludwig Holtfrerich, The German Inflation, 1914–1923: Causes and Effects in International Perspective, trans. Theo Balderston (New York: Walter de Gruyter, 1986), cited in Gerald D. Feldman, The Great Disorder: Politics, Economics, and Society in the German Inflation 1914–1924 (New York: Oxford University Press, 1997), p. 549.
There wasn’t much change in expenditure proportions, despite prices soaring to absurd levels. The food price index over the same period increased 14,613 percent. All prices, not just food prices, were skyrocketing, so the expenditure proportions across categories remained relatively stable.
Historian Gerald D. Feldman commented on the German household expenditure data in a way that sounds familiar: “As one study after another pointed out, however, the full impact of these changes had to be understood in qualitative terms.” There was “reduced quality and quantity of the food consumed” and “poorer quality clothing,” among other qualitative changes.
Government statistics are unable to capture these subtleties. This should be obvious—your personal experience as a consumer is more than just the price you pay for a certain weight of food. We aren’t merely machines; we don’t describe our lives in miles per gallon or kilowatt hours.
This is why Ludwig von Mises attacked the conceited aggregates and indexes purported to measure various aspects of consumers’ lives: “The pretentious solemnity which statisticians and statistical bureaus display in computing indexes of purchasing power and cost of living is out of place. These index numbers are at best rather crude and inaccurate illustrations of changes which have occurred.”
He concludes: “A judicious housewife knows much more about price changes as far as they affect her own household than the statistical averages can tell.”
The United States government, which prides itself in being the leading force in defending freedom throughout the world, has a history of putting a muzzle on news organizations and individuals throughout its history. From the early colonial period to the beginnings of the internet, the state has consistently silenced its critics, which seems to be its true nature.
The Sedition Act of 1798 Signed into law by the Federalist Party president John Adams on July 14, 1798, the Sedition Act made it illegal to print, utter, or publish any false, scandalous, and malicious writing about the government. Section 2 of the Sedition Act outlines the punishment for violating this new law: “Such person, being thereof convicted before any court of the United States having jurisdiction thereof, shall be punished by a fine not exceeding two thousand dollars, and by imprisonment not exceeding two years.”
This law was a blatant violation of the First Amendment in the Constitution, which was ratified only nine years before. The act finally expired after Thomas Jefferson was elected in 1800, and all those convicted under the act were pardoned. However, this would not be the last time the US government tried to use what Jefferson said was a “rod of iron” to silence others.
Censorship in the Civil War During times of peace, people may not be as willing to give up their or other people’s liberty. During times of war, however, the propaganda produced by the state will convince people that certain rights must be curbed in the name of security and victory and to protest this would be unpatriotic. The First Amendment Encyclopedia analyzes the actions of censorship taken by the Union during the Civil War and their justification for such actions. The article states: “Throughout the war, newspaper reporters and editors were arrested without due process for opposing the draft, discouraging enlistments in the Union army, or even criticizing the income tax.”
To the Union military and government, this censorship was necessary to ensure victory against the rebels, even if the First Amendment had been violated. President Abraham Lincoln, in The Truth from an Honest Man, furthered this excuse by proposing the question of whether he should “shoot a simple-minded soldier-boy who deserts, while I must not touch a hair of a wily agitator who induces him to desert?”
Some Northerners bought into this and started riots that targeted newspapers such as the Stark County Democrat in Canton, Ohio. The editor for this newspaper, Archibald McGregor, would later be arrested on unspecified charges. The town’s Republican postmaster accompanied the soldiers making the arrest, lending credibility that the charges had been politically motivated.
World War I and the Espionage Act A common theme among the Union leadership’s justification for censorship was national security, that all opposition to the war would sow discontent among the troops and cause desertion and ultimately defeat. In April 1917, when the United States entered the Great War against the Central powers, President Woodrow Wilson declared that Germany had “filled our unsuspecting communities and even our offices of government with spies and set criminal intrigues everywhere afoot against our national unity.”
With this, President Wilson passed the Espionage Act in 1917. This law gave the Department of Justice the power to charge individuals for disloyalty and gave the postmaster general the power to restrict mail. The Supreme Court, an institution allegedly created to interpret the Constitution, not only failed to protect free speech but furthered its determent. In the 1919 case Schenck v. United States, the Supreme Court ruled that Schenck posed a “clear and present danger” after distributing leaflets suggesting that the military draft was a form of involuntary servitude and therefore a violation of the Thirteenth Amendment. The Schenck case inspired Justice Oliver Wendell Holmes’s infamous “shouting fire in a theater” statement to justify suppressing free speech.
Ultimately, the Espionage Act saw 2,168 people prosecuted by the end of the war, and according to the Foundation for Individual Rights and Expression, 1,055 of these people would be convicted and punished with fines up to $10,000 and up to twenty years imprisonment.
World War II and Vietnam After the United States was attacked at Pearl Harbor and entered World War II, President Franklin Roosevelt signed Executive Order 8985, which established the Office of Censorship, without approval from Congress. President Roosevelt gave the director of the Office of Censorship the power to censor international communications at his absolute discretion. The National Archives provides us with actions of censorship taken by high-ranking government officials such as the war secretary and Federal Bureau of Investigation director J. Edgar Hoover:
On December 8, 1941, the secretary of war ordered corps area commanders to inaugurate censorship of telephone and telegraph wires crossing international borders. Three days later, FBI director J. Edgar Hoover, on presidential authority, helped set up a postal censorship program to be carried out by the War Department. He was ordered to hold this temporary position until his civilian replacement could be chosen.
The Office of Censorship was abolished under Executive Order 9631 in 1945, but the tone toward free press and government would enter a new era. With the introduction of televised news into American households, any event such as wars could now be recorded and presented to millions of people. So, when the Vietnam War started, people believed they could see firsthand what it was like on the ground. However, as the Harvard Crimson writes:
Only about 22 percent of all television reports from Vietnam before 1968 showed “actual combat, and often this was minimal—a few incoming mortar rounds or a crackle of sniper fire.” In addition, of 167 film reports he reviewed, “only 16 had more than one video shot of the dead or wounded.” The American people simply did not see gore night after night.
Vietnam offered a new form of censorship that is still prevalent today: noncritical reporting in the place of outright censorship. During the Gulf War and the war on terror, the media would portray these wars as crusades for democracy and use “experts” to justify them.
The War on Terror and Beyond The first Gulf War ended after just forty-three days of combat, a quick American victory that was painted as a cure for the defeat in Vietnam. However, when freelance journalist Jon Alpert, a longtime contributor to NBC News, visited Iraq and filmed hours of uncensored footage of the collateral damage, his relationship with the news network was terminated. As Variety states:
After viewing Alpert’s footage, “NBC Nightly News” topper Steve Friedman and anchorman Tom Brokaw knew they had a scoop and were eager to put the stuff on the air. But NBC News supremo Michael Gartner, who never saw the footage, put the kibosh on the deal. And he put an end to Alpert’s 12-year relationship with the Peacock net’s news division.
Jon Alpert would take his footage to CBS, where executive producer Tom Bettag tentatively approved it, but the content never aired: “While Alpert was cutting the piece, he got a call from CBS informing him that Bettag had been fired and that his piece was killed. By the time he went to ABC, the news division had a man in Baghdad.”
During the Iraq War in 2003, the major media outlets continued the trend of both noncritical news reporting and finding justification for this new war. So-called experts like John Bolton and others who were more often than not prowar stood unchallenged by differing ideas. In an excerpt from the book When the Press Fails, a New York Times article stated:
We have found a number of instances of coverage that was not as rigorous as it should have been. In some cases, information that was controversial then, and seems questionable now, was insufficiently qualified or allowed to stand unchallenged. Looking back, we wish we had been more aggressive in re-examining the claims as new evidence emerged—or failed to emerge.
It’s easy twenty years later to examine the failures of both the government and media; even many media outlets such as CNN would publish pieces of how they regret pushing the war in Iraq. However, as the years since have shown, these news organizations have continued to justify their actions and mostly ignore wars in Libya, Syria, Yemen, and most recently Ukraine that have American foreign policy fingerprints all over them.
The fiat US dollar, while still the world's "reserve" currency, is being imperiled by reckless actions by monetary authorities. Other countries are taking notice—and action.
Original Article: "How US States Could Pave the Way for Currency Competition"
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of "Ten Great Economic Myths". This material was prepared by Murray N. Rothbard.
The public memory is short. We forget that, from the beginning of the Industrial Revolution in the mid-18th century until the beginning of World War II, prices generally went down, year after year. That's because continually increasing productivity and output of goods generated by free markets caused prices to fall. There was no depression, however, because costs fell along with selling prices. Usually, wage rates remained constant while the cost of living fell, so that "real" wages, or everyone's standard of living, rose steadily.
Virtually the only time when prices rose over those two centuries were periods of war (War of 1812, Civil War, World War I), when the warring governments inflated the money supply so heavily to pay for the war as to more than offset continuing gains in productivity.
We can see how free market capitalism, unburdened by governmental or central bank inflation, works if we look at what has happened in the last few years to the prices of computers. A computer used to have to be enormous, costing millions of dollars. Now, in a remarkable surge of productivity brought about by the microchip revolution, computers are falling in price even as I write. Computer firms are successful despite the falling prices because their costs have been falling, and productivity rising. In fact, these falling costs and prices have enabled them to tap a mass market characteristic of the dynamic growth of free market capitalism. "Deflation" has brought no disaster to this industry.
The same is true of other high-growth industries, such as electronic calculators, plastics, TV sets, and VCRs. Deflation, far from bringing catastrophe, is the hallmark of sound and dynamic economic growth.
For more episodes, visit Mises.org/MisesReport
It is no surprise to libertarians that what is in the interest of the government might not be in the interest of people in general. More often than not, the government’s interest is directly at odds with the interests of people in general. The countless wars waged by governments throughout history, for which common people paid ultimately with their lies, bear witness to this fact.
Wars are also waged on the domestic populations that the government supposedly serves and protects. Under the guise of the greater or public good, which always require some sacrifice yet curiously dovetail with the government’s interests, individuals are the means if not the problem. In the words of Pierre-Joseph Proudhon, they’re “watched over, inspected, spied on, directed, legislated at, regulated, docketed, indoctrinated, preached at, controlled, assessed, weighed, censored, ordered about” – and taxed to finance the whole apparatus.
That it is the government vs. the people rather than the government for, by, and of the people is clear in the former’s policies in practice as well as in the statements from its leaders. Very recently, Vice President Kamala Harris noted that “When we invest in clean energy and electric vehicles and reduce population, more of our children can breathe clean air and drink clean water.” Yes, she said “reduce population.”
The White House quickly posted an updated speech suggesting the VP had merely misread. She meant to say pollution, not population.
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It is certainly possible, if not probably, that the VP misspoke/misread the prompt. But this too is highly problematic. If you read something and misread, it is because you skip too fast through the text and your mind therefore adds the most likely combination of words. Hence the well-known concept “Freudian slip”—in uncontrolled moments we sometimes say what we mean, or what is in recent memory, rather than what we “should” say.
The VP misspoke, but what she said is indicative of what she has been thinking, what discussions have been going on around her, what is on the agenda at the White House, or in some other way present in her mind. She could have said that we must reduce protrusion, pollination, perversion, petroleum, or some other word that at a quick glance might look something like pollution. She didn’t. She said, “reduce population.” Why was “reduce population” top of mind?
The obvious reason is that this is something that is often discussed in politics and most likely also within the White House. Neo-Malthusianism, the idea that all problems in the present are due to “too many people,” and the seemingly obvious policy implication that we must “reduce” the number of people living on this earth, is alive and well. It’s a hydra that by now has plenty of heads, simply because we’ve already chopped off so many (and, as for the mythological creature, two grow up to replace each head chopped off).
The fact is, of course, that whatever problems we have are much more easily solved if there are more people – more minds to figure out solutions and more people to specialize under the division of labor. This is an unintuitive answer to the question of what must be done to the problems, which requires (minimal) economic literacy to figure out. Unfortunately, people rarely have such basic understanding – and among politicians it is an even rarer quality, simply because in policy there are strong incentives to disregard economic reality.
As Thomas Sowell famously is quoted saying:
The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.
This is indeed so, and it makes clear the high cost of allowing government to infringe on the free economy and voluntary society. However, this particular parasite fails to understand the use it has for its host. Instead, she deems it a problem that should be made to disappear.
On Friday, July 7, 2023, news broke in the financial market media that the “BRICS” (that is, Brazil, Russia, India, China, and South Africa) will implement their plan to create a new international currency for trading and financial transactions, and that this new currency will be “gold-backed”.
Most recently, on June 2, 2023, the foreign ministers of the BRICS – as well as representatives from more than 12 countries – met in Cape Town, South Africa (interestingly at the “Cape of Good Hope”). Among other things, it was emphasized that they wanted to create an international trading currency. Undoubtedly, this is an undertaking that could have consequences of epic proportions.
After all, the BRICS countries represent about 3.2 billion people, approximately 40 per cent of the world’s population, with a combined economic output nearly the size of the economy of the United States of America. And there are also many other countries (such as Saudi Arabia, United Arab Emirates, Egypt, Iran, Algeria, Argentina, and Kazakhstan) that might want to join the BRICS club.
The goal of the BRICS countries is to reduce their economic and political dependence on the US dollar, challenging “US dollar imperialism”. To this end, they want to create a new international currency for commercial and financial transactions, replacing the US dollar as the means of transaction unit.
The reason is obvious. The US administration has on many occasions used the greenback as a “geopolitical weapon” and engaged in a kind of “financial warfare”: Washington sanctions enemy countries by denying them access to the US dollar capital market, but above all, it shuts them off from the international US dollar-centric payment system.
The freezing of Russia’s currency reserves (the equivalent of almost 600 billion US dollars is currently at stake) has set off alarm bells in many non-Western countries. It has reminded a number of them that holding US dollars comes with a political risk. This, in turn, has prompted many to restructure their international foreign reserves: holding fewer US dollars, switching to other (smaller) currencies, but above all, buying more gold.
But how might the BRCIS manage to swim away from the US dollar? While no details are available yet about how the new BRICS currency might be structured, it should not stop us from speculating about what lies ahead.
The BRICS could establish a new bank (the “BRICS-Bank”), funded by gold deposits from BRICS central banks. The physically deposited gold holdings would be shown on the asset side of the BRICS bank’s balance sheet – and could be denominated, for example, “BRICS-Gold”, where 1 BRICS-Gold represents 1 gram of physical gold.
The BRICS-Bank can then grant loans denominated in BRICS-Gold (for example, to exporters from BRICS countries and/or to importers of goods from abroad). To fund the loans, the BRICS-Bank makes a credit contract with the holders of BRICS-Gold: The holders of BRICS-Gold agree to transfer their deposit to the BRICS-Bank for, say, one month, or one or two years, against receiving an interest rate. What is more, the BRICS-Bank, and it can also accept further gold deposits from international investors, who can hold (interest-bearing) BRICS-Gold deposits this way.
BRICS-Gold could henceforth be used by the BRICS countries and their trading partners as international money, as an international unit of account in global trade and financial transactions. Incidentally, the new de facto gold currency would not even have to be physically minted but could be and remain an accounting-only unit while being redeemable on demand.
The exporters from the BRICS countries and the other member countries would, however, have to be willing to sell their goods against BRICS-Gold instead of US dollars and other Western fiat currencies, and the importers from the Western countries would have to be willing and able to pay their bills in BRICS gold.
How do you get BRICS-Gold? Those demanding BRICS-Gold must either get a BRICS-Gold loan from the BRICS-Bank or purchase gold in the market and deposit it with the BRICS-Bank or a designated custodian, and the gold deposit is then credited to his account in the form of BRICS-Gold.
For example, in payment transactions, the goods importer’s BRICS-Gold deposits (held, for example, at the BRICS-Bank) are credited to the account of the exporter of goods (also held at the BRICS-Bank or at a correspondent bank or gold custodian).
However, the transition, the use of BRICS-Gold as an international trade and transaction currency, would most likely have far-reaching consequences:
(1.) It would presumably lead to a (sharp) increase in the demand for gold compared to current levels, with not only gold prices measured in US dollars, euros, etc. but also in the currencies of the BRICS countries increasing (substantially).
(2.) Such an increase in the gold price would devalue the purchasing power of the official currencies – not only the US dollar but also the BRICS currencies – against the yellow metal. Also, the prices of goods in terms of the official fiat currencies would most likely skyrocket, debasing the purchasing power of presumably all existing fiat currencies.
(3.) The BRICS countries would build up gold reserves to the extent that they run, or will run, trade surpluses. They would presumably be the winners of the “currency switch”, while the countries with trade deficits (first and foremost, the US) would lose out.
BRICS official gold holdings, in billion US dollars, Q1 2023
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Source: Refinitiv; own calculations. - The BRICS’ gold reserves amounted to 5452.7 tons in the first quarter of 2023 (market value currently around 350 billion US Dollars).
These few considerations already show how disrupting the topic of “creating a new gold-backed international trading currency” could be: The BRICS could well trigger landslide-like changes in the global economic and financial structure. Still, it will be interesting to see how the BRICS countries intend to proceed at their August 22-24 meeting in Johannesburg, South Africa.
In this episode, Mark looks at the "minor issue" of the value of the dollar. While everything in the economy seems great—including stock markets, price inflation, unemployment, and consumer confidence—the value of the dollar index has fallen 12% during the rebound in stocks since last October.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Mercantilism has had a "good press" in recent decades, in contrast to 19th-century opinion. In the days of Adam Smith and the classical economists, mercantilism was properly regarded as a blend of economic fallacy and state creation of special privilege. But in our century, the general view of mercantilism has changed drastically: Keynesians hail mercantilists as prefiguring their own economic insights; Marxists, constitutionally unable to distinguish between free enterprise and special privilege, hail mercantilism as a "progressive" step in the historical development of capitalism; socialists and interventionists salute mercantilism as anticipating modern state building and central planning.
Mercantilism, which reached its height in the Europe of the 17th and 18th centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state. Thus, mercantilism held that exports should be encouraged by the government and imports discouraged. Economically, this seems to be a tissue of fallacy; for what is the point of exports if not to purchase imports, and what is the point of piling up monetary bullion if the bullion is not used to purchase goods?
But mercantilism cannot be viewed satisfactorily as merely an exercise in economic theory. The mercantilist writers, indeed, did not consider themselves economic theorists, but practical men of affairs who argued and pamphleteered for specific economic policies, generally for policies which would subsidize activities or companies in which those writers were interested. Thus, a policy of favoring exports and penalizing imports had two important practical effects: it subsidized merchants and manufacturers engaged in the export trade, and it threw up a wall of privilege around inefficient manufacturers who formerly had to compete with foreign rivals. At the same time, the network of regulation and its enforcement built up the state bureaucracy as well as national and imperial power.
The famous English Navigation Acts, which played a leading role in provoking the American Revolution, are an excellent example of the structure and purpose of mercantilist regulation. The network of restriction greatly penalized Dutch and other European shippers, as well as American shipping and manufacturing, for the benefit of English merchants and manufacturers, whose competition was either outlawed or severely taxed and crippled. The use of the state to cripple or prohibit one's competition is, in effect, the grant by the state of monopolistic privilege; and such was the effect for Englishmen engaged in the colonial trade.
A further consequence was the increase of tax revenue to build up the power and wealth of the English government, as well as the multiplying of the royal bureaucracy needed to administer and enforce the regulations and tax decrees. Thus, the English government, and certain English merchants and manufacturers, benefited from these mercantilist laws, while the losers included foreign merchants, American merchants and manufacturers, and, above all, the consumers of all lands, including England itself. The consumers lost, not only because of the specific distortions and restrictions on production of the various decrees, but also from the hampering of the international division of labor imposed by all the regulations.
Adam Smith's Refutation Mercantilism, then, was not simply an embodiment of theoretical fallacies; for the laws were only fallacies if we look at them from the point of view of the consumer, or of each individual in society. They are not fallacious if we realize that their aim was to confer special privilege and subsidy on favored groups; since subsidy and privilege can only be conferred by government at the expense of the remainder of its citizens, the fact that the bulk of the consumers lost in the process should occasion little surprise.1
Contrary to general opinion, the classical economists were not content merely to refute the fallacious economics of such mercantilist theories as bullionism or protectionism; they also were perfectly aware of the drive for special privilege that propelled the "mercantile system." Thus, Adam Smith pointed to the fact that linen yarn could be imported into England duty free, whereas heavy import duties were levied on finished woven linen. The reason, as seen by Smith, was that the numerous English yarn spinners did not constitute a strong pressure group, whereas the master weavers were able to pressure the government to impose high duties on their product, while making sure that their raw material could be bought at as low a price as possible. He concluded that the
motive of all these regulations, is to extend our own manufactures, not by their own improvement, but by the depression of those of all our neighbors, and by putting an end, as much as possible, to the troublesome competition of such odious and disagreeable rivals.
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. … But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.
In the restraints upon the importation of all foreign commodities which can come into competition with those of our own growth, or manufacture, the interest of the home-consumer is evidently sacrificed to that of the producer. It is altogether for the benefit of the latter, that the former is obliged to pay that enhancement of price which this monopoly almost always occasions.
It is altogether for the benefit of the producer that bounties are granted upon the exportation of some of his productions. The home-consumer is obliged to pay, first, the tax which is necessary for paying the bounty, and secondly, the still greater tax which necessarily arises from enhancement of the price of the commodity in the home market.2
Before Keynes Mercantilism was not only a policy of intricate government regulations; it was also a pre-Keynesian policy of inflation, of lowering interest rates artificially, and of increasing "effective demand" by heavy government spending and sponsorship of measures to increase the quantity of money. Like the Keynesians, the mercantilists thundered against "hoarding," and urged the rapid circulation of money throughout the economy; furthermore, they habitually pointed to an alleged "scarcity of money" as the cause of depressed trade or unemployment.3 Thus, in a prefiguration of the Keynesian "multiplier," William Potter, one of the first advocates of paper money in the Western world (1650), wrote:
The greater quantity … of money … the more commodity they sell, that is, the greater is their trade. For whatsoever is taken amongst men … though it were ten times more than now it is, yet if it be one way or other laid out by each man, as fast as he receives it … it doth occasion a quickness in the revolution of commodity from hand to hand … much more than proportional to such increase of money.4
And the German mercantilist F.W. von Schrötter wrote of the importance of money changing hands, for one person's spending is another's income; as money "pass[es] from one hand to another … the more useful it is to the country, for … the sustenance of so many people is multiplied," and employment increased. Thrift, according to von Schrötter, causes unemployment, since saving withdraws money from circulation. And John Cary wrote that if everyone spent more, everyone would obtain larger incomes, and "might then live more plentifully."5
Historians have had an unfortunate tendency to depict the mercantilists as inflationists and therefore as champions of the poor debtors, while the classical economists have been considered hardhearted apologists for the status quo and the established order. The truth was almost precisely the reverse. In the first place, inflation did not benefit the poor; wages habitually lagged behind the rise in prices during inflations, especially behind agricultural prices. Furthermore, the "debtors" were generally not the poor but large merchants and quasi-feudal landlords, and it was the landlords who benefited triply from inflation: from the habitually steep increases in food prices, from the lower interest rates and the lower purchasing power of money in their role as debtors, and from the particularly large increases in land values caused by the fall in interest rates. In fact, the English government and Parliament was heavily landlord dominated, and it is no coincidence that one of the main arguments of the mercantilist writers for inflation was that it would greatly raise the value of land.
Exploitation of Workers Far from being true friends of laborers, the mercantilists were frankly interested in exploiting their labor to the utmost; full employment was urged as a means of maximizing such exploitation. Thus, the mercantilist William Petyt wrote frankly of labor as "capital material … raw and undigested … committed into the hands of supreme authority, in whose prudence and disposition it is to improve, manage, and fashion it to more or less advantage."6 Professor Furniss comments that
it is characteristic of these writers that they should be so readily disposed to trust in the wisdom of the civil power to "improve, manage, and fashion" the economic "raw material" of the nation. Bred of this confidence in statecraft, proposals were multiplied for exploiting the labor of the people as the chief source of national wealth, urging upon the rulers of the nation diverse schemes for directing and creating employment.7
The mercantilists' attitude toward labor and full employment is also indicated by their dislike of holidays, by which the "nation" was deprived of certain amounts of labor; the desire of the individual worker for leisure was never considered worthy of note.
Compulsory Employment The mercantilist writers realized frankly that corollary to a guarantee of full employment is coerced labor for those who don't wish to work or to work in the employment desired by the guarantors. One writer summed up the typical view: "it is absolutely necessary that employment should be provided for persons of every age that are able and willing to work, and the idle and refractory should be sent to the house of correction, there to be detained and constantly kept to labor." Henry Fielding wrote that "the constitution of a society in this country having a claim on all its members, has a right to insist on the labor of the poor as the only service they can render." And George Berkeley asked rhetorically "whether temporary servitude would not be the best cure for idleness and beggary?… Whether sturdy beggars may not be seized and made slaves to the public for a certain term of years?"8 William Temple proposed a scheme to send the children of laborers, from the age of four on, to public workhouses, where they would be kept "fully employed" for at least twelve hours a day, "for by these means we hope that the rising generation will be habituated to constant employment." And another writer expressed his amazement that parents tended to balk at these programs:
Parents … from whom to take for time the idle, mischievous, least useful and most burdensome part of their family to bring them up without any care or expense to themselves in habits of industry and decency is a very great relief; are very much adverse to sending their children … from what cause, it is difficult to tell.9
Perhaps the most misleading legend about the classical economists is that they were apologists for the status quo; on the contrary, they were "radical" libertarian opponents of the established Tory mercantilist order of big government, restrictionism, and special privilege. Thus, Professor Fetter writes that during the first half of the 19th century, the
Quarterly Review and Blackwood's Edinburgh Magazine, staunch supporters of the established order, and opponents of change in virtually all fields, had no sympathy with political economy or with laissez-faire, and were constantly urging maintenance of tariffs, expenditures by government, and suspension of the gold standard in order to stimulate demand and increase employment. On the other hand the Westminster's [journal of the classical liberals] support of the gold standard and free trade, and its opposition to any attempt to stimulate the economy by positive government action, came not from believers in authority or from defenders of the dominant social force behind authority, but from the most articulate intellectual radicals of the time and the severest critics of the established order.10
Southey Favors Nationalization In contrast, let us consider the Quarterly Review, a high Tory journal which always "assumed that the unreformed Parliament, the dominance of a landed aristocracy … the supremacy of the established church, discrimination of some sort against Dissenter, Catholic, and Jew, and the keeping of the lower classes in their place were the foundations of a stable society." Their leading writer on economic problems, the poet Robert Southey, repeatedly urged government expenditure as a stimulant to economic activity and attacked England's resumption of specie payments (return to the gold standard) after the Napoleonic Wars. Indeed, Southey proclaimed that an increase in taxes or in the public debt was never a cause for alarm, since they "give a spur to the national industry, and call forth national energies." And, in 1816, Southey advocated a large public works program for relief of unemployment and depression.11
The Quarterly Review's desire for stringent government control and even ownership of the railroads was at least frankly linked with its hatred of the benefits that railroads were bringing to the mass of the British population. Thus, where the classical liberals hailed the advent of railroads as bringing cheaper transportation and as thereby increasing the mobility of labor, the Quarterly's John Croker denounced railroads as "rendering travel too cheap and easy — unsettling the habits of the poor, and tempting them to improvident migration."12
The arch-Tory, William Robinson, who often denounced his fellow Tories for compromising even slightly on such principles as high tariffs and no political rights for Catholics, wrote many pre-Keynesian articles, advocating inflation to stimulate production and employment, and denouncing the hard-money effects of the gold standard. And the Tory Sir Archibald Alison, inveterate advocate of inflation, who even ascribed the fall of the Roman Empire to a shortage of money, frankly admitted that it was the "agricultural class" that had suffered from the lack of inflation since resumption of the gold standard.13
Controls Under Elizabeth A few case studies will illustrate the nature of mercantilism, the reasons for mercantilist decrees, and some of the consequences that they brought to the economy.
One important part of mercantilist policy was wage controls. In the 14th century, the Black Death killed one-third of the laboring population of England, and naturally brought sharp advances in wage rates. Wage controls came in as wage ceilings, in desperate attempts by the ruling classes to coerce wage rates below their market rates. And since the vast bulk of employed laborers were agricultural workers, this was clearly legislation for the benefit of the feudal landlords and to the detriment of the workers.
Textiles vs. Agriculture The result was a persistent shortage of agricultural and other unskilled laborers for centuries, a shortage mitigated by the fact that the English government did not try to enforce the laws very rigorously. When Queen Elizabeth tried to enforce the wage controls strictly, the agricultural labor shortage was aggravated, and the landlords found their statutory privileges defeated by the more subtle laws of the market. Consequently, Elizabeth passed, in 1563, the famous Statute of Artificers, imposing comprehensive labor control.
Attempting to circumvent the shortage caused by previous interventions, the statute installed forced labor on the land. It provided that:
- whoever had worked on the land until the age of 12 be compelled to remain there and not leave for work at any other trade;
- all craftsmen, servants, and apprentices who had no great reputation in their fields be forced to harvest wheat; and
- unemployed persons were compelled to work as agricultural laborers.
In addition, the statute prohibited any worker from quitting his job unless he had a license proving that he had already been hired by another employer. And, furthermore, justices of the peace were ordered to set maximum wage rates, geared to changes in the cost of living.
The statute also acted to restrict the growth of the woolen textile industry; this benefited two groups: the landlords, who would no longer lose laborers to industry and suffer the pressure of paying higher wage rates, and the textile industry itself, which received the privilege of keeping out the competition of new firms or new craftsmen. The coerced immobility of labor, however, led to suffering for all workers, including textile craftsmen; and to remedy the latter, Queen Elizabeth imposed a minimum wage law for textile craftsmen, thundering all the while that the wicked clothing manufacturers were responsible for the craftsmen's plight. Fortunately, textile employers and workers persisted in agreeing on terms of employment below the artificially set wage rate, and heavy textile unemployment did not yet arise.
Enforcing Bad Laws The programs of wage controls could not cause undue dislocations until they were stringently enforced, and this came to pass under King James I, the first Stuart king of England. Upon assuming the throne in 1603, James decided to enforce the Elizabethan control program with great stringency, including extremely heavy penalties against employers. Rigorous enforcement was imposed on minimum-wage controls for textile craftsmen, and on maximum-wage decrees for agricultural laborers and servants.
The consequences were the inevitable result of tampering with the laws of the market: chronic severe unemployment throughout the textile industry, coupled with a chronic severe shortage of agricultural labor. Misery and discontent spread throughout the land. Citizens were fined for paying their servants more than ceiling wages, and servants fined for accepting the pay. James, and his son Charles I, decided to stem the tide of unemployment in textiles by compelling employers to remain in business even when they were losing money. But even though many employers were jailed for infractions, such Draconian measures could not keep the textile industry from depression, stagnation, and unemployment. Certainly the consequences of the policy of wage controls were one of the reasons for the overthrow of the Stuart tyranny in the mid-17th century.
Mercantilist Practices in Colonial Massachusetts The young colony of Massachusetts engaged in a great many mercantilist ventures, with invariably unfortunate results. One attempt was a comprehensive program of wage and price controls, which had to be abandoned by the 1640s. Another was a series of subsidies to try to create industries in the colony before they were economically viable, and therefore before they would be created on the free market. One example was iron manufacture. Early iron mines in America were small and located in coastal swamps ("bog iron"); and primarily manufactured, or "wrought," iron was made cheaply in local bloomeries, at an open hearth. The Massachusetts government decided, however, to force the creation of the more imposing — and far more expensive — indirect process of wrought iron manufacture at a blast furnace and forge. The Massachusetts legislature therefore decreed that any new iron mine must have a furnace and forge constructed near it within ten years of its discovery. Not content with this measure, the legislature in 1645 granted a new Company of Undertakers for an Iron Works in New England, a 21-year monopoly of all iron making in the colony. In addition, the legislature granted the company generous subsidies of timberland.
But despite these subsidies and privileges, as well as additional large grants of timberland from the town governments of Boston and Dorchester, the Company's venture failed dismally and almost immediately. The Company did its best to salvage its operations, but to no avail. A few years later, John Winthrop, Jr., the main promoter of the older venture, induced the authorities of New Haven colony to subsidize an iron manufacture of his at Stony River. From the governments of New Haven colony and New Haven township, Winthrop was granted a whole host of special subsidies: land grants, payment of all costs of building the furnace, a dam on the river, and the transportation of fuel. One of Winthrop's partners in the venture was the deputy governor of the colony, Stephen Goodyear, who was thus able to use the power of government to grant himself substantial privileges. But again, economic law was not to be denied, and the ironworks proved to be another rapidly failing concern.
Debtors' Relief: A Scheme to Aid the Rich One of the most vigorously held tenets of the dominant neo-Marxist historians of America has been the view that inflation and debtors' relief were always measures of the "lower classes," the poor farmer-debtors and sometimes urban workers, engaging in a Marxian class struggle against conservative merchant-creditors. But a glance at the origins of debtors' relief and paper money in America easily shows the fallacy of this approach; inflation and debtors' relief were mercantilist measures, pursued for familiar mercantilist ends.
Debtors' relief began in the colonies, in Massachusetts in 1640. Massachusetts had experienced a sharp economic crisis in 1640, and the debtors turned immediately to special privilege from the government. Obediently, the legislature of Massachusetts passed the first of a series of debtors' relief laws in October, including a minimum-appraisal law to force creditors to accept insolvent debtors' property at an arbitrarily inflated assessment, and a legal-tender provision to compel creditors to accept payment in an inflated, fixed rate in the monetary media of the day: corn, cattle, or fish.
Further privileges to debtors were passed in 1642 and 1644, the latter permitting a debtor to escape foreclosure simply by leaving the colony. The most drastic proposal went to the amazing length of providing that the Massachusetts government assume all private debts that could not be paid! This plan was passed by the upper house, but defeated in the house of deputies.
The fact that this astounding bill was passed by the upper house — the council of magistrates — is evidence enough that this was not a proto-Marxian eruption of poor debtors. For this council was the ruling group of the colony, consisting of the wealthiest merchants and landowners. If not for historical myths, it should occasion no surprise that the biggest debtors were the wealthiest men of the colony, and that in the mercantilist era a drive for special privilege should have had typically mercantilist aims. On the other hand, it is also instructive that the more democratic and popularly responsible lower house was the one far more resistant to the debt relief program.
Paper Money Inflation Massachusetts has the dubious distinction of having promulgated the first governmental paper money in the history of the Western world — indeed, in the history of the entire world outside of China. The fateful issue was made in 1690, to pay for a plunder expedition against French Canada that had failed drastically. But even before this, the leading men of the colony were busy proposing paper-money schemes. The Rev. John Woodbridge, greatly influenced by William Potter's proposals for an inflationary land bank, proposed one of his own, as did Governor John Winthrop, Jr., of Connecticut. Captain John Blackwell proposed a land bank in 1686, the notes of which would be legal tender in the colony, and such wealthy leaders of the colony as Joseph Dudley, William Stoughton, and Wait Winthrop were prominently associated with the plan.
The most famous of the inflationary land-bank schemes was the Massachusetts Land Bank of 1740, which has generally been limned in neo-Marxist terms as the creation of the mass of poor farmer-debtors over the opposition of wealthy merchant-creditors of Boston. In actuality, its founder, John Colman, was a prominent Boston merchant and real-estate speculator; and its other supporters had similar interest — as did the leading opponents, who were also Boston businessmen. The difference is that the advocates had generally been receivers of land grants from the Massachusetts government, and desired inflation to raise the value of their speculatively held land claims.14 Once again — a typically mercantilist project.
Keynes Wouldn't Learn From just a brief excursion into mercantilist theory and practice, we may conclude that Lord Keynes might have come to regret his enthusiastic welcome to the mercantilists as his forbears. For they were his forbears indeed; and the precursors as well of the interventions, subsidies, regulations, grants of special privilege, and central planning of today. But in no way could they be considered as "progressives" or lovers of the common man; on the contrary, they were frank exponents of the Old Order of statism, hierarchy, landed oligarchy, and special privilege — that entire "Tory" regime against which laissez-faire liberalism and classical economics leveled their liberating "revolution" on behalf of the freedom and prosperity of all productive individuals in society, from the wealthiest to the humblest. Perhaps the modern world will learn the lesson that the contemporary drive for a new mercantilism may be just as profoundly "reactionary," as profoundly opposed to the freedom and prosperity of the individual, as its pre-19th-century ancestor.
This article originally appeared in the Freeman, 1963, Mises Daily, May 12, 2010, and chapter 34 in Economic Controversies, pp. 641 –54.]
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- "The laws and proclamations … were the product of conflicting interests of varying degrees of respectability. Each group, economic, social, or religious, pressed constantly for legislation in conformity with its special interest. The fiscal needs of the crown were always an important and generally a determining influence on the course of trade legislation. Diplomatic considerations also played their part in influencing legislation, as did the desire of the crown to award special privileges, con amore, to its favorites, or to sell them, or to be bribed into giving them, to the highest bidders.… The mercantilist literature, on the other hand, consisted in the main of writings by or on behalf of 'merchants' or businessmen … tracts which were partly or wholly, frankly or disguisedly, special pleas for special economic interests. Freedom for themselves, restrictions for others, such was the essence of the usual program of legislation of the mercantilist tracts of merchant authorship." Jacob Viner, Studies in the Theory of International Trade (New York: Harper and Bros., 1937), pp. 58–59.
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- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, 1937), p. 625.
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- See the laudatory "Note on Mercantilism" in chap. 23 of John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt, Brace, 1936).
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- Quoted in Viner, Studies in the Theory of International Trade, p. 38.
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- Quoted in Eli F. Heckscher, Mercantilism, 2nd ed. (New York: Macmillan, 1955), 2, pp. 208–9. Also see Edgar S. Furniss, The Position of the Laborer in a System of Nationalism (New York: Kelley and Millman, 1957), p. 41.
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- Quoted in ibid., p. 41.
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- Ibid.
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- See ibid., pp. 79–84.
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- Ibid., p. 115.
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- Frank W. Fetter, "Economic Articles in the Westminster Review and their Authors, 1824–51," Journal of Political Economy (December 1962): 572.
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- See Frank W. Fetter, "Economic Articles in the Quarterly Review and their Authors, 1809–52," Journal of Political Economy (February 1958): 48–51.
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- Ibid., p. 62.
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- See Frank W. Fetter, "Economic Articles in Blackwood's Edinburgh Magazine, and their Authors, 1817–1853," Scottish Journal of Political Economy (June 1960): 91–96.
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- See the illuminating study by Dr. George Athan Billias, "The Massachusetts Land Bankers of 1740," University of Maine Bulletin (April 1959).
Stories cannot substitute for historical facts even when people want these stories to be true. With the influence of Black Lives Matter, resurrecting the atrocities of Western colonialism has become fashionable. The death of George Floyd revived a torrent of anticolonialism sentiment in Western societies fueled by resounding demands for governments to atone for the sins of colonialism. Although the colonial legacy of Western powers is tainted by dastardly acts, exaggerations of violence must be condemned. Using history as a political tool only pollutes public discourse in the long run.
Listening to activists is quite different from reading an academic study. Mainstream outlets will inform readers that Europeans committed atrocities in Africa and the West Indies, though the same outlets are unlikely to comment that such brutalities provoked outrage in Europe and often led to commissions of inquiry. Western colonialism could be brutal, but it was also a critical movement that encouraged introspection.
The current narrative has given a warped view of the Western colonial project, and some nations are more maligned than others. Unfortunately, Belgians are being singled out for attacks on the basis that they have failed to repent for the policies of King Leopold II, who established the Congo Free State in 1885. Unsurprisingly, because the chronology of events is ignored, debates about Belgium’s involvement in the Congo are mired in ignorance. Inaccuracies are parroted as facts to the detriment of true learning, and one can be painted as racist for exposing falsehoods. Nonetheless, the truth should be told to halt the distortion of history.
It’s the norm to vilify Belgians for the horrors that occurred during the reign of King Leopold II of Belgium. However, Belgium was a reluctant colonial power, and the Congo Free State was the pet project of King Leopold II. Leopold envisioned Belgium becoming a colonial power, but his efforts were rebuffed by the Belgian government. Leopold thought that colonies were profitable and could bolster Belgium’s presence on the global stage. To legitimize his project, Leopold sold his plan as a humanitarian attempt to end slavery and modernize Africa. His diplomatic tactics proved successful. With the endorsement of the Berlin Conference, he founded the Congo Free State as a private entity controlled solely by him.
King Leopold II was a marginal figure in Western history until Adam Hochschild highlighted him in his book King Leopold’s Ghost. Hochschild claimed that ten million Congolese died due to the policies of King Leopold II. Indeed, it is true that Leopold presided over a brutal labor regime, but the figure cited by Hochschild is outrageous and has been denounced by leading historians. Hochschild’s arguments are guided by the eminent historian Jan Vansina, who estimates that between 1880 and 1920, the population of the Congo diminished by at least half. Though Hochschild is yet to recant, Vansina has revised his own estimates.
Using these figures, Hochschild asserts the following in his book:
Only in the 1920s were the first attempts made at a territory-wide census. In 1924 the population was reckoned at ten million, a figure confirmed by later counts. This would mean, according to the estimates, that during the Leopold period and its immediate aftermath the population of the territory dropped by approximately ten million people.
This assessment is problematic because Hochschild is assuming that absent Leopold’s rule, the Congo’s population would instead be twenty million in 1924.
However, the administration of the Congo Free State lacked the resources and organizational ability to create such a huge dent in the Congo’s population. Validating Hochschild’s numbers would mean that the regime of Leopold either directly or indirectly annihilated large swathes of the population on a yearly basis during his reign. Yet this seems unlikely based on the geographical reach of the Congo and the size of Leopold’s staff complement. Moreover, Hochschild tries desperately to rehabilitate his credibility by suggesting that the weakening of the population caused by the policies of the Congo Free State made sicknesses and social ills worse.
His reasoning, however, is erroneous, because even a benevolent regime would not have mollified the impact of diseases to a great degree. Africa’s eastern and central regions were plagued by epidemics in the early twentieth century, and historically, epidemics have episodically swept through African societies. Africa’s environment is conducive to the flourishing of diseases. Although good governance helps to mitigate the consequences of epidemics, these diseases still have a ravaging effect on society.
Further, Leopold’s critics have omitted that he was a forerunner in the quest to combat sleeping sickness in the Congo. In 1903, he requested that the Liverpool School of Tropical Medicine provide a mission to the Congo Free State. The disease was rigorously studied by researchers, and the Congo Free State swiftly implemented the recommendations of these experts. To combat the ailment, camps to nurse the sick were built and staffed by Catholic nuns. The Congo Free State even instituted diagnostic methods to promote early treatment of sleeping sickness. Belgium organized the most successful campaign to combat sleeping sickness of any European colony and was lauded by other European powers.
King Leopold II was not perfect, but neither should we believe the gruesome depiction painted by activists. An increase in population for some parts of the Congo during the colonial era was even observed by Jan Vansina, who opines that “contrary to expectations, the Kuba population was actually rising rather than falling during the first two decades of the colonial era.” However, Leopold II did oversee atrocities. Therefore, a commission of inquiry was launched to investigate abuses that occurred under his watch. Because these atrocities ignited outrage in Europe, the Belgian government decided to make the Congo its colony to prevent future abuses. Belgian colonialism led to improvements in areas such as healthcare and primary education.
Economically, Belgian colonialism accelerated capital investment in the Congo. Relative to other colonies, the Congo was at the pinnacle of per capita capital investment. By 1938, the Congo had been the recipient of forty-eight dollars of foreign capital per inhabitant. In British India (including Burma and Sri Lanka), this sum amounted to eight dollars; in the Dutch Indies, thirty-six dollars; in French African colonies, twenty-five dollars; in British Africa, thirty-two dollars; and eighteen dollars in Portuguese Africa.
Historian David K. Fieldhouse renounces partisan critics of colonialism by describing the Congo’s success after the reign of King Leopold II:
Yet, after the Congo became a full Belgian colony in 1908, the Belgians again typified the period by creating one of the most efficient and benevolent colonial regimes to be found in Africa. Finally, the disasters which followed Congolese independence in 1960 demonstrated more forcefully than anywhere else how dangerous it was to end imperial control before a dependency was adequately prepared for freedom.
In sum, the narrative about Belgium’s intervention in the Congo—like many others—is just another exaggerated story. It would be more prudent for activists to focus on the millions who died in warfare under the Democratic Republic of Congo’s independent rule.
Robbie "The Fire" Bernstein is a co-host with Dave Smith of the popular podcast Part of the Problem, as well as his own podcast Run Your Mouth. He joins Bob to walk through the shocking and hilarious moves by Biden officials to downplay recent allegations of corruption.
Find More from Robbie Including His Tour Dates: Mises.org/HAP404a $5.1M Payment to Biden Businesses: Mises.org/HAP404b Biden Attorneys on The Hunter WhatAspp Message: Mises.org/HAP404c
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Moral Progress in Dark Times: Universal Values for the 21st Century by Markus Gabriel, translated by Wieland Hoban Polity Press, 2022; xii + 281 pp.
It would be easy to give this book a negative review, as it advocates a number of policies that from our standpoint are wrongheaded. Gabriel is especially alarmed by the dangers of “climate change” and also extols the spirit of cooperation that the German people displayed in acceding to the necessary measures to cope with the coronavirus pandemic (the book is a translation of a German work that was published in 2020, when panic about the virus was at its height).
The temptation to toss the book aside is difficult to resist when we learn that
in Germany we rely on the state as a vehicle of moral progress—an idea that came about in the context of the German nation state’s emergence and is rooted not least in the thought of Kant and Hegel. Precisely because the history of the German nation state involved unimaginable harm, it is crucial for us to remember the foundational gesture of the Enlightenment and effectively implement its moral impulse on an institutional level.
It would be a mistake to give in to it, however. Gabriel is an interesting philosopher and what he says sometimes converges in surprising ways with positions held by Ludwig von Mises and Murray Rothbard. Like them, Gabriel holds that the concept of action is fundamental in explaining the behavior of human beings. To understand his view, we first need to note that he has an unusual definition of “universe”: “The universe is all that can be explored using the methods of modern natural science; it is limited to the measurable realm.”
Human beings go beyond the universe, taken in his sense:
Causality—the relationship between causes and effects—does not consist in material-energetic systems encountering other material-energetic systems. My desire to buy a cooling drink at the height of summer in order to quench my thirst is not only a neuronal impulse but is also connected to the fact that I know where there are drinks and form the intention to buy a drink, to my taste, to the existence of production chains for drinks, and so on. This constellation of factors contributes decisively to any successful explanation of one’s actions: what people do cannot generally be explained in physical terms.
You might wonder, “That’s what he says; but why should we accept It?” One of the arguments he deploys to support the view that measurability isn’t the be-all and end-all of explanations of human action resembles a point made by Rothbard. Neoclassical economics, which Gabriel calls “economism,” is one of the most prominent instances of appeals to measurability:
“According to the fallacious model of Homo oeconomicus, people strive primarily for economically quantifiable utility values—a striving to which they ultimately subordinate everything else in the struggle for survival.”
Gabriel notes that this model contravenes readily established facts:
“In game theory, it was already discovered decades ago that people still make moral judgments even in competitive situations, that they are concerned not only with profit but also with fairness—which initially struck economists as irrational.”
Gabriel doesn’t give an example, but the familiar ultimatum game is a good illustration of what he means. In it, one player gets a certain amount of money which he has to divide with another player. This first player offers the second player a division, which the second player either accepts or rejects. (Bargaining isn’t allowed.) If the second player accepts, both players get the money, in the agreed-on division. If the second player rejects the division, though, neither player gets anything.
Self-interested rationality would dictate a division in which the first player keeps nearly all the money. It’s to his advantage to get as much money as he can for himself, and the second player will rationally take the small amount he is offered, because otherwise he would get nothing. People in experiments don’t meet these expectations, however; often the second player will reject an offer he considers unfair, even if he stands to lose money by rejecting it.
Rothbard used an analogous argument against Gordon Tullock, who maintained that a person won’t join a revolution unless the advantages of doing so outweigh the costs for that individual. Even people who want the revolution to succeed would prefer a situation where other people undertake the revolt and bear the risks. Rothbard countered that this argument doesn’t take account of the power of ideology. People sufficiently gripped by the moral imperative of revolution will put aside narrow calculations of self-interest.
Both Gabriel and Rothbard appeal to moral considerations, and there are significant similarities between their accounts of morality. Both of them believe that morality is a matter of objective truth, not mere subjective preferences. According to Gabriel, at least some of the truths of morality are self-evident, and one of these is that slavery is wrong. Rothbard also thought that all human beings have the right of self-ownership; he agrees with Gabriel that there are no natural slaves and not with Aristotle.
If you object to Gabriel that great philosophers like Aristotle defended slavery, contending that some people are “natural slaves,” he answers that Aristotle was blinded by ideology and really knew better:
It is extremely easy to explain why Aristotle’s supposed conception of humans is untrue and wrong. It is enough to point out that natural slaves have never existed and never will. It is utter humbug to believe that those who are enslaved were somehow made slaves by nature prior to that; Aristotle is wrong here. And it was by no means self-evident to Aristotle that some people are natural slaves—that is why he argued the case with such vehemence and attempted to justify the prevailing slavery.
I certainly agree with Gabriel that slavery is wrong, but it isn’t a good criticism of Aristotle that the fact that he engaged in argument shows that his opinion about slavery isn’t self-evident. He can consistently hold that there are natural slaves without maintaining that this is self-evident.
I encourage those so inclined to search for the insights in Moral Progress, but whether this enterprise is a good way to advance your own moral progress I do not venture to say.
Do we have a right to sunlight? How do we assert those rights? Murray Rothbard provides some answers.
Original Article: "How Should We Regulate the Sun (Since Our Government Regulates Nearly Everything Else)?"
Free rider is a term related to the political commons and rent seeking. It is like rent seeking, except it is perhaps more nuanced and eventually discourages the effective use of public goods found in the political commons.
When I was a young adult, my wife, Cyndi, and I went out with a group of people. My father warned me that if the group split the bill evenly, we could wind up paying for other people’s dinner. We were pressed for cash, so we ordered frugally. Sure enough, the group decided to just split the total cost evenly, and Cyndi and I wound up paying far more than we ordered. It was an expensive lesson.
After more education and research, I found that this situation has a name: free riding.
Regarding the free rider problem and public goods, the Khan Academy wrote:
The best way to pay for public goods is to find a way of ensuring that everyone will make a contribution, thus preventing free riders. For example, if people come together through the political process and agree to pay taxes and make group decisions about the quantity of public goods, they can defeat the free rider problem by requiring—through the law—that everyone contribute.
They define a free rider as “someone who wants others to pay for a public good but plans to use the good themselves; if many people act as free riders, the public good may never be provided.”
Free riders, rent seeking, regulatory capture, and the political commons are tightly related and need to be considered holistically. For simplicity’s sake, let us assume that corporations engage in regulatory control and rent seeking, and individuals primarily engage in free-rider behavior. That is not a perfect division. For example, high-net-worth individuals may engage in all three behaviors, while corporations can engage in free riding as well, particularly in intercorporate deals.
The combination of these behaviors is powerful for the social justice movement. Let us look at a few examples, including government programs. While I am not saying we should not use these programs, they do have their risks and downsides, and we need to tread carefully. Most free riders and rent seekers want more, not less. I suspect it is addictive, even more so when social justice advocates push them.
- Taxation. Social justice advocates constantly talk about the wealthy paying their fair share of taxes. What they rarely mention is that means that many in the protected classes pay little or no income taxes. This is a classic example of free riding, at least in theory. What the social justice movement also does not tell you is that corporate taxes are a highly regressive tax. Corporations do not pay taxes. They incorporate their taxes into the prices they charge for their goods and services.
- Healthcare. One in five Americans uses Medicaid for their healthcare. That means nearly 20 percent of the population are free riders in the healthcare system. Another large portion of the population is uninsured. However, the problem is even more significant. Those that do not pay for healthcare often use healthcare more often or more expensive healthcare. This is one reason, although perhaps not the primary reason, healthcare costs are rising so fast. Regulatory capture in healthcare, particularly in pharmaceuticals, is perhaps the main reason. The Center on Budget and Policy Priorities (CBPP) states: “Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and Affordable Care Act (ACA) marketplace health insurance subsidies—together account for 25 percent of the budget in 2022, or $1.4 trillion.”
- Social services. By definition, most of the recipients of social services are free riders. Many pay little or no income tax at any level. CBPP states that 11 percent of the federal budget supports economic security programs.
- Illegal immigrants. Under the current policy of the United States—either formal or informal—illegal immigrants are free riders from the moment they step foot in the country. Taxpayers house them, feed them, and give them a stipend for living expenses. The children of illegal immigrants are sent to public schools, where they often add enormous costs because most speak little or no English and are ill prepared for school. According to Erin Dwinell at the Heritage Foundation, illegal immigration costs $4.6 billion in in Illinois, $8.9 billion in Texas, and $21.8 billion in California. Now, add in all the other states, and this becomes a serious issue at a time when the US continually needs to raise the debt ceiling.
- Food programs. The US started with food stamps and food warehouses. The social justice advocates decided these approaches stole people’s dignity, so social services developed special debit cards that are automatically replenished. This change and others opened the gates for large amounts of fraud. Even the New York Times reports the “F.B.I. Sees ‘Massive Fraud’ in Groups’ Food Programs for Needy Children.” The Star Tribune reports that “Fraud has plagued federal meals program for years.”
However, even these massive costs potentially pale compared to the longer-term issues. These include a seemingly endlessly increasing appetite for freebies, increasing numbers of free riders, and donor fatigue. Will the government replace charitable activities? Will there reach a point with these programs when they are no longer affordable, and if so, what happens when the programs’ addicts go cold turkey?
This is truly a wicked problem. We need to create actionable knowledge and engage in critical thinking to find sustainable ways to help citizens in distress while reducing the problems from deliberate free riders, rent seekers, and regulatory capture.
On this episode of Good Money with Tho Bishop, Dr. Jonathan Newman joins to look at recent headlines on inflation. Tho and Jonathan discuss the larger costs of Fed policy on the real economy and how official government measures can be gamed with techniques such as "shrinkflation."
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On this episode of Radio Rothbard, Tho Bishop is joined by Mises Research Fellow Connor Mortell to talk about Connor's research project on energy policy. Tho and Connor push back against common narratives—even some promoted by libertarians—of fossil fuels and green energy and the necessity of keeping a human focus on energy policy.
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Recommended Resources "How Should We Regulate the Sun (Since Our Government Regulates Nearly Everything Else)?" by Connor Mortell: Mises.org/RR_142_A
"Fossil Fuels Enable Us to Better Fight Fires and Other Environmental Disasters" by Connor Mortell: Mises.org/RR_142_B
"Fossil Future with Alex Epstein" (Human Action Podcast): Mises.org/RR_142_C
Fueling a Freer Future (Mises Institute Primer Series): Mises.org/RR_142_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Michael and Walter Block discuss the Ukrainian conflict, reparations, immigration, and the Israel-Palestine conflict.
Michael and Walter Block discuss the Ukrainian conflict, reparations, immigration, and the Israel-Palestine conflict.
There are certain goods and services that egalitarians, as third parties, would prefer that no one enjoys rather than for some to have more than others. (The proviso “as third parties” is necessary since egalitarians will not do without these goods and services themselves, but they still see fit to comment on inequalities from afar.) One of these services is public safety, as shown in a series of articles written by ProPublica reporter Jeremy Kohler complaining about the fact that people in St. Louis can hire private security, rather than about everyone in the city being equally unprotected.
Consider this headline: “St. Louis’ Private Police Forces Make Security a Luxury of the Rich.” That is one way to spin the fact that the supposed engine of providing “equitable” public safety—the St. Louis Police Department—fails to provide much safety to anyone. The problem for these egalitarians is not so much that the government police do not protect the most vulnerable but rather that some people—having already paid taxes ostensibly for the purpose of the provision of public safety—have the means to choose to shell out more money to actually receive public safety. According to city alderwoman Dwinderlin Evans, private policing is unfair, “especially when you have neighborhoods that can’t afford to pay for extra policing.” Apparently, what is fair is paying taxes for services not received.
One of the private policing firms in St. Louis is The City’s Finest, which hires sworn officers from the St. Louis PD to perform patrols and other tasks. According to Kohler, “The City’s Finest has raised its pay to exceed the department’s overtime rate—in essence outbidding the police department for its own workforce.” This makes it seem as though it is only natural that the city has a monopsony on hiring security personnel, and private security entrepreneurs are just detrimentally making it more expensive for the city by bidding away scarce resources. In reality, entrepreneurs can afford to pay more for personnel because they allocate these personnel to more highly valued uses. It is the city, through its taxing power, that is able to allocate resources in a way that is not subject to consumer sovereignty. The city government taxing resources away from the productive sector is the outside intervention, not the security firms.
Kohler states that private policing firms “are not part of the city’s government and, as a result, are not accountable to taxpayers citywide,” implying that entities that are part of the city government are somehow accountable to the taxpayer. Kohler himself provides much evidence to the contrary. In another article, he suggests that the fact that so many St. Louis PD officers moonlight for The City’s Finest presents a conflict of interest: if they, as police officers, actually do their job well, then that’s going to put the private security company they work for out of business. Even if that were the case, is the problem with private security or the taxpayer-funded monopoly whose officers apparently shirk on the job?
Kohler also kvetches that employees of The City’s Finest respond to “such issues as a car abandoned on the street and a golf cart theft, trivial matters compared with the sorts of crimes he [Major Ryan Cousins, a St. Louis police officer] tries to solve for the police department.” This is rich for several reasons. First, the fact that people paid for private security to perform these tasks suggests that they are not trivial matters to these people. Second, police departments are routinely called for matters that some might consider trivial, such as noise complaints—private security is not unique in this regard.
The St. Louis PD, in particular, would not respond to such calls anyways. Kohler recalls that at a meeting between a dozen business owners and two St. Louis police officers, the chief operating officer of a chain of gas stations told the officers, “We don’t even call you every time. . . . To be honest, you guys don’t come. . . . No offense, but if someone’s not dying, you’re not coming.” Should the St. Louis PD be praised for such judicious use of resources?
Kohler also cites two reports on the St. Louis PD that said officers lacked the resources to implement more community-based policing practices, one of which is proactively dealing with quality-of-life issues before they lead to more serious crimes. The fact that private police are better able to implement community-oriented policing than government police, despite the billions in subsidies to the latter by the federal government specifically for this purpose, is a bug—not a feature—for Kohler, even though it seems he would praise the same implementation if it were the government police doing it.
A further complaint Kohler makes of private police firms is that they enforce “neighborhood orders of protection,” which ban individuals from certain areas of the city after they have repeatedly caused nuisances and been arrested. He agrees with the American Civil Liberties Union of Missouri and with longtime public defender Mary Fox that these orders of protection violate “civil rights,” which apparently include doing whatever one wants wherever one finds himself. Legal scholar Randy Barnett, in The Structure of Liberty, notes the problem with so-called public property:
A society that includes extensive public property holdings is therefore faced with what might be called a dilemma of vulnerability. Since governments enjoy privileges denied their citizens and are subject to few of the economic constraints of private institutions, their citizens are forever vulnerable to governmental tyranny. Therefore, freedom can only be preserved by denying government police agencies the right to regulate public property with the same discretion accorded private property owners. Yet steps to protect society from the government also serve to make citizens more vulnerable to criminally-inclined persons by providing such persons with a greater opportunity for a safe haven on the public streets and sidewalks and in the public parks.
It seems that some aldermen in local governments have found the idea that anyone who is not currently in prison ought to be allowed to go wherever he pleases as long as he is not on private property—even if he is a proven nuisance to adjacent property owners—not to be a viable one. Kohler acknowledges that “neighborhood leaders and police officials have defended neighborhood orders of protection as a tool for residents and businesses to make their streets safer by sending a message to criminals that they are not welcome.” Not every community should have to be gated to keep nuisances out nor should security have to wait until a proven nuisance commits a crime in order to be able to legally exclude them from a neighborhood. Even though these orders of protection are legal and (spottily) enforced by the government police, Kohler considers private police particularly bad because they do a better job of enforcing the orders.
Egalitarianism is a mixture of envy and antimarket bias. Egalitarians try to hide behind a façade of caring about the poor. However, in ProPublica’s articles on private policing in St. Louis, no evidence was presented that poorer people would be better off without private policing, only that inequality per se is bad. Better that everyone is unsafe than anyone be protected.
How can a bank “create money out of thin air”? We must enter the magical kingdom of “fractional-reserve banking,” where deposits are turned into loans, loans are turned into money, and so on, to find out.
Original Article: "Banks Create Money out of Thin Air. What Could Possibly Go Wrong?"
Former Mises Institute president Jeff Deist wrote on the concept of “soft secession” in September 2021. The article talks about how left-leaning states have an opportunity to embrace an abundance of progressive policies for their citizens—without leaving an open door for real violence to occur—through the pursuit of soft state secession. Some people in the left-thinking world are starting to get it. This soft secession principle applies to those living in the right-leaning states as well.
The article also talks about how people from certain ideological and geographic perspectives in the United States are embracing soft secession by moving to a state that more reflects their worldview. The 2020 US Census data and the currently updated estimated census figures show this happening with the ongoing exodus of people from California, Illinois, and New York, resulting in the loss of seats for each state in the US House of Representatives.
Soft secession has some advantages of telling bureaucrats in Washington, DC, that you care about your own power and control. We, the citizens of the soft seceding state(s), choose to be the adults in the room to solve the problem(s) shared with one or more border states through a compact administered by mutual consent. Any tax dollars spent through the compact are from each consenting state. Legislation, rulemaking, and compact commission composition are decided through the approvals of each state’s legislature, regulatory agencies, and political leaders. Each compact is a choice by the state(s) to ignore the plethora of nitpicking and useless federal edicts.
River compact commissions in the state of Texas are examples of these compacts administered through mutual consent. Texas implements five interstate river compact commissions or compacts. The compacts are agreements (contracts) signed by the states involved and ratified by the legislature of each state and by Congress. These compacts establish how the water is apportioned between each of the compact states, and each compact is administered by a commission comprising representatives from each state and a representative of the federal government appointed by the president.
One example is the Canadian River Compact administered in New Mexico, Oklahoma, and Texas that was established in June 1952. One purpose of this compact is for the conservation of the waters of the Canadian River.
River compacts are not new, with the Colorado River Compact of 1922 dividing the water of the Colorado River—also known at the time as the “American Nile”—between Arizona, California, Colorado, Nevada, New Mexico, Utah, and Wyoming. The compact is not a long document, but simplicity in language and administration is possible.
The Ohio River Valley Water Sanitation Compact is an interstate compact created in 1948 through the consent of Illinois, Indiana, Kentucky, New York, Ohio, Pennsylvania, Virginia, and West Virginia to operate programs to improve the quality of the water in the Ohio River and its tributaries. Approval by each state legislature as well as the federal legislative and executive branches was needed. This compact created the Ohio River Valley Water Sanitation Commission.
A future multistate compact approval could be pursued without federal legislative and executive consent as part of soft secession. Removing future oversight from federal courts would need to be addressed in the language of each state compact. Compacts could cover electrical transmission line right-of-way; environmental review and construction approval; natural gas or oil pipeline easement; construction consent and environmental permitting; freshwater pipeline construction, maintenance, and operation; saltwater bay estuary monitoring, maintenance, and remediation plans; or telehealth initiatives and cooperation.
The National Center for Interstate Compacts is a nonprofit organization that believes state coordination can be effective, but it requires deliberate and detailed recognition of state differences and the ability to structure interstate agreements in a way that promotes mutual, long-term success. This organization could be a helpful resource for those states desiring this future option.
The opportunities are present, and it takes a choice by bureaucrats, political officeholders, businessmen, and private citizens to say each state can solve their problems without looking at the sacred god of approval from Washington, DC. Looking long term for preserving river water access is one advantage of a state compact. The federal focus on problem solving is for the short term for whatever is palatable to those running public policy decision-making for that election cycle.
State-level decision-makers are encouraged to choose soft secession with the purpose of preserving and prospering their state for perpetuity. The time is before many state citizens to communicate with the people in Washington, DC, that they should float down the Potomac River into the Chesapeake Bay and out to the Atlantic Ocean to be lost and forgotten.
In recent months, Americans were treated to a particularly cheap political spectacle: negotiations over the debt ceiling.
“Extreme right-wing Republicans have hijacked the debt ceiling process,” said Vermont senator Bernie Sanders.
“The fight over the debt ceiling could sink the economy,” intoned National Public Radio.
Florida representative Matt Gaetz said that when it comes to the debt ceiling, he sees no need to parlay with the Republicans’ “hostage.”
The hyperbole flamed and kept on flaming. The bitterly partisan negotiations dragged on and on.
California representative and speaker of the house Kevin McCarthy made the most of the moment, posing in the Oval Office with White House bigwigs and New York senator and Senate majority leader Chuck Schumer as the nation anxiously awaited a deal. Treasury secretary Janet Yellen had been enacting “extraordinary measures” since the debt ceiling was breached on January 19, 2023. Something had to be done! Thank goodness the best and the brightest were on the case.
Finally, right down to the wire, the Senate passed the new debt deal on June 1. Debt armageddon had been averted.
Americans, and the rest of the dollar-throttled world, needn’t have worried, however. The deal was done before the negotiations got started. Like professional wrestling matches, the fight was scripted, and the moves were staged. The economy is rigged. The debt ceiling was always going to be raised.
Some junior politicians failed to understand what had happened. In early January, McCarthy endured an extended drama on the House floor when Congresswomen Lauren Boebert (CO) and Marjorie Taylor Greene(GA), held out support for him, ostensibly in part over the pending debt ceiling, during initial ballots for Speaker. In May, however, Greene flipped, throwing her support behind McCarthy on the debt ceiling deal he cut with the Biden administration. All that January bluffing had been hot air.
Boebert, though, seemed genuinely surprised. In a June 1 statement, she wrote this: “The House passing this so-called ‘deal’ was another example of the Swamp shoving a $6-plus trillion blank check for Biden down Americans’ throats.”
Not long after, a long-simmering feud between Greene and Boebert burst into view. Steve Bannon, for his part, called for Greene and every other Republican who voted with her to be primaried over their support for the debt ceiling deal. Boebert I can understand. But does even Steve Bannon not know that politics is as real as a midring piledriver?
Alas, after this theater faded, we were left with the sighs of the commentariat, who lamented that leaders had failed to stop the fiscal hemorrhaging, preferring instead to kick the proverbial debt can down the road.
This was all expected, and played out as intended. During the recent “debt ceiling negotiations,” some players in the drama claimed to be working "across the aisle" to arrive at a deal. From the midst of political strife, lo, political goodwill emerged. And so our republic was saved. Bipartisan compromise, good old-fashioned political horse trading had helped our great nation live to borrow another day.
But there is no aisle. There are no real political parties. There is, in truth, a gaggle of criminals assembled under a great white dome in a city which exists solely—for no other purpose than—to bilk, grift, swindle, lie, and steal. We cheer as one side lambastes the brazen larceny, the sheer immorality, of its opponents. Little do we realize, though, that both sides employ the same agents who go around picking our pockets. Just as the only two sides in any robbery are the ones who leave it poorer and the ones who leave it richer, the only two sides in politics are those whose pockets are picked and those whose pockets are lined. The “aisle” is a distraction. Neither party is your friend. Both parties waste your money profligately.
The bluster of Bernie Sanders and Kevin McCarthy, of Joe Biden and Marjorie Taylor Greene—this is as cheap as theater gets. The “debt ceiling” scene is one we’ve seen again and again in this endless play.
So, let’s wise up. Let’s use this occasion, not to root for our oppressors any longer or to get emotionally involved in their shtick, but to demand that they stop counterfeiting our currency and that they stop pretending to be in business for anyone but themselves.
With each iteration of the banking crisis, the Federal Reserve System and federal regulators gain in power and authority. Maybe the banking crisis isn’t an accident.
Original Article: "Is the Banking Crisis Being Orchestrated?"
On June 28, President Joe Biden took to the stage in Chicago to drum up support for his economic agenda, which his own team has taken to calling “Bidenomics.” The speech was part of a broader publicity tour, “Investing in America,” with the president and his cabinet traveling the country trying to get the American people to see Biden’s economic policies as successful and popular.
In his speech, the president attacked so-called trickle-down economics, which he painted as the dominant economic policy of the American government for decades. He then defined his agenda, Bidenomics, as a “new philosophy” set to “restore the American Dream.”
But Bidenomics isn’t a new philosophy. If you look at what’s been enacted and what’s still being proposed, it becomes clear that all Biden is doing is ramping up the federal government’s industrial policy. And industrial policy has, unfortunately, been around for a long time—as have its effects. When governments pursue industrial policies, they attempt a form of entrepreneurship. And in doing so, they divert scarce resources and capital away from the production of goods and services that people actually want, freed from the feedback of the market. Bidenomics won’t restore the American Dream but will do it damage.
All the fancy, focus-group-approved economic talking points the administration is now spamming us with begin to unravel when one understands basic economic truths. Chief among these truths is that the economy is a process—not a state of being. Specifically, it’s a process for producing goods and services that satisfy the needs and wants of consumers. Every part of every line of production is a means toward that end.
For an economy to grow and everyone to become wealthier, some people need to take on the role of an entrepreneur. Entrepreneurs reallocate resources to new lines of production or refine existing lines to account for changing factors like technology, capital availability, and consumer preferences. This activity is undertaken with the purpose of producing or contributing to the production of goods and services that consumers value enough to pay for.
In a market unhampered by a government, the resources and capital used in production are the property of capitalist-entrepreneurs. That means they have control over how these inputs get used. And, because they also own the produced outputs, the capitalist-entrepreneurs are personally subjected to the constant and unignorable feedback of the profit and loss system.
Consumers on the free market can opt out of any exchange for any reason. That’s why capitalist-entrepreneurs can only make profits if they produce things consumers value. When they don’t, they are stuck with the losses. Economic losses are a motivating signal that the resources used in a line of production would be better used elsewhere.
How does Bidenomics fit into all of this? Again, one could describe much of Biden’s economic agenda as ramping up industrial policy—meaning the government is attempting entrepreneurship. Political officials are using tax dollars to acquire resources that they then allocate to new production lines. Bidenomics also entails using tax-funded subsidies to get private investors to fund projects they wouldn’t have chosen otherwise. All these tax dollars pouring into new projects allow the administration to brag about creating jobs and producing stuff, which sounds good in a campaign speech, regardless of whether the end consumers value these things as the best use of scarce resources.
From a purely practical standpoint, the federal government cannot help but be a terrible entrepreneur because it is immune from economic losses. The American people are legally prohibited from opting out of their payments to the government as they are allowed to do with any other organization. As such, the government can spend decades on wasteful projects of little to no value and face no direct economic consequences. On top of that, the lack of feedback can allow the government’s operations to drift further away from reality as scarce resources go wasted and consumer needs go unmet.
Entrepreneurship is an essential part of a growing economy. But the wealth creation brought about by entrepreneurship is only truly possible with the freedom and feedback under private property. The quasi entrepreneurship taken on by the government in the president’s economic agenda siphons scarce resources away from more valuable uses and into projects protected from the critical feedback of economic losses. Policies like this aren’t going to “restore the American Dream”; they’re the very thing killing it.
On June 20, the Pennsylvania House of Representatives passed a bill to raise the commonwealth’s minimum wage to $15 per hour by 2026. Although the bill is unlikely to pass the state senate, it seems only a matter of time before the minimum wage is raised from its current $7.25 per hour, where it has been since 2006.
The Lesson Those supporting this bill need to read Henry Hazlitt’s Economics in One Lesson. Written in 1946, it has become a classic of free market advocacy. Hazlitt brings to modern audiences the timeless lesson most famously penned in 1850 by Claude Frédéric Bastiat in “That Which Is Seen, and That Which Is Not Seen.”
The one lesson has two parts. First, any economic action must be viewed for its effect not only on the immediate party but by its effect on all parties in society. In other words, using the minimum-wage proposal as an example, one must view its effect not only on those whose wages will rise—if they still have a job—but by its effect on all of society, including those who may lose their jobs because of the new minimum-wage law.
Furthermore, one must view the effect of the law not only in the short run but also in the long run. Economic interventions take a while to work their way through the economy, maybe years. This is not difficult to understand, and it is amazing that legislation to raise the minimum wage completely ignores the probable consequences.
The Consequences In the short run, it is probable that some workers’ wages will be raised to the new minimum. It is also probable—let us even say that it is a certainty—that some workers will lose their jobs. No one is claiming that raising the minimum wage will increase jobs. So, Pennsylvania will suffer higher unemployment among low-income workers. Higher unemployment leads to increases in unemployment compensation claims. However, unemployment compensation payments run out over time. Then, these low-income workers will be forced onto public assistance. They will remain there until their marginal productivity is at least equal to the new minimum wage, which is much higher than the stated wage due to taxes of various kinds.
Of course, idle hands are the devil’s workshop. It is not reasonable to assume that young, unemployed, vigorous men will do nothing. Despair will drive some to work in the unregulated shadow economy, which would include criminal activities such as drug dealing and theft.
Ah, but we are looking only at the impact of this pernicious legislation on the worker. How about the rest of society? Let’s start with the employer of minimum-wage workers. To the extent that these employers cannot continue to employ low-productivity workers at the higher minimum wage, they will be faced with existential decisions. Some employers will go out of business. Others will continue in business at some reduced level. Others may need to invest expensive capital in automation. (Recently, my restaurant dinner was delivered to my table by a robot!)
There’s always some risk in these investments, not the least of which is that automation may turn out to be more expensive than originally assumed. If the business owner cannot pass along the full cost of this higher expense to the customer, the owner may decide to close their business. What about the rest of society? The customer’s disposable income is no longer sufficient to meet the demands of higher-cost goods and services. He must cut back somewhere. Even if he reduces his savings in order to maintain his previous standard of living, less capital will be accumulated for maintaining his lifestyle in the future. Business in general will suffer from a diminution of capital once all these reductions in savings are added up.
There Is No Upside to a Higher Minimum Wage There’s no such thing as a free lunch nor a cost-free mandated increase in some necessary business expense. There is no upside to an increase in the minimum wage. If there were some benefits, why stop at fifteen dollars per hour? Why not twenty dollars? Why not a hundred dollars? If twenty dollars per hour sounds OK but not a hundred dollars, what is the correct number? Please, do not bring up the argument that the lower-paid workers need the money. For one thing, we’ve already established that many will become unemployed if the minimum wage increases.
Furthermore, the fact that many workers chose to work at the current minimum wage establishes the fact that they made a free choice. These workers either chose not to work at a different job paying a higher wage or were unable to qualify for a higher-paying job at this time. Chopping off the bottom rung of the employment ladder on which these workers stand is tantamount to a crime perpetrated by the state. It deprives potential workers of learning on-the-job and proving themselves as they become more productive and thus worthy of higher pay. Most of us started working in life this way. I certainly did.
The Democratic Socialists of America promotes a supposedly pro-Indigenous people platform. They stress that they do not want to further the “dispossession and exploitation of Indigenous people” while also recognizing the sovereignty of Native Americans. The Communist Party USA’s political program also stresses the inclusion of Indigenous people in the working-class movement. While these organizations are partially right in calling for the recognition of tribal sovereignty (free enterprise would help more than socialism), they must also recognize the atrocities committed by the Soviet Union, the representative of twentieth-century socialism, against the native tribes of Siberia.
I alluded to the abuses of minority groups by the Soviet Union in a recent article, but I did not go into much detail regarding the exploitation. The abuse of the native Siberians provides a case study.
Upon solidifying their control of Russia, the Bolsheviks inherited a vast swath of the land known as Siberia. They would use this land for their gulags, but there was also the issue of the native tribes.
Historian Benson Bobrick describes the abuses inflicted upon the native Siberians in his book East of the Sun. Although the Soviets proclaimed sovereignty for the “different nationalities” in Russia, the Siberians’ fate was not kind. Rather than simply allowing the natives to have autonomy, the Soviets set up the Committee of Assistance to the Peoples of the North.
This was the beginning of the cruel joke of sovereignty under the Soviets, which was not real sovereignty in the slightest. The Soviet structure gave no “real autonomy”; the Siberians were essentially under the direction of Russian bureaucrats.
While there were some improvements to hygiene and healthcare (such would be expected when giving aid to a more-or-less primitive society), the Soviets took steps that frustrated and broke down Siberian culture. Initially, the Roman-based alphabets of the native languages were replaced by the Cyrillic alphabet; the state encouraged the study of the Russian, rather than native, language. This is a tendency seen in many imperialistic endeavors. (For another example, the British crown banned the Gaelic language in Scotland in 1616.)
Shamans and other leaders were eliminated through dekulakization, Tartar mosques were closed, temples were destroyed, and native farming habits were forcibly displaced by the chaotic methods of central planners. The Cossacks were treated in a similar manner through de-Cossackization, which was the systematic deportation and execution of the Cossacks, another Siberian minority group. The Arctic Siberians were managed by state planners sent to make sure that reindeer herding kept to the official plan, a plan that in no way could account for the thousands of years of specialized knowledge that the Siberians had developed with their unique agricultural methods.
The contrast between the Soviets and the Siberians was most evident when the communist modes of production were imposed on the primitive “communism” of the Siberians. Bobrick states:
Although at first the government supposed that primitive native communism would make concepts of modern communism easier to apply, native ideas of sharing were found to be too generous, notably disconnected from the labor theory of value, and their failure to distinguish between work and leisure judged to be “unproductive” and “ideologically wrong.”
The Soviets were trying to fit a square through a circular hole. Official plans could not account for the needs of the population. No matter, though. The bureaucrats continued their work on the Siberians. When World War II began, “20 percent of the total native population was conscripted and sent to the front,” forced to fight a war they had no stake in.
Rather than giving the Siberians autonomy, the Soviets micromanaged the Siberians’ affairs and, when war broke out, sent a large portion of the population to the front lines to die for Mother Russia. The natives were treated as resources to be shifted around and disposed of rather than as free peoples.
Bobrick continues to tell of the native people’s dealings with the Soviet Union, but the details highlighted above are the most glaring injustices. Today, the Siberians are still under the yoke of Russia, albeit as a less authoritarian regime; however, parallels abound. The war in Ukraine is leading to the conscription of native Siberians.
A modern approach to the question of native sovereignty is simple. Siberians should be allowed to secede from Russia or become completely autonomous regions, allowing spontaneous arrangements to reign rather than central controls. The same goes for the native tribes in the United States and the rest of the world, rather than repeating the mistakes made by Russia’s Soviet forebearers.
Defenders of the free market should acknowledge this solution, but so should the socialists. In keeping with their various platforms, modern socialists should fully acknowledge the abuses of native Siberians by the Soviet Union and actively advocate for Siberian sovereignty, just as they do for Native Americans.
Patrick Deneen writes that the nonaggression principle promotes a liberalism that is harmful to society, as evidenced by John Stuart Mill's idea of the tyranny of public opinion.
Original Article: "Misreading Mill"
Murray Rothbard once proposed:
Quick: Which is America’s Most Persecuted Minority? No, you’re wrong. . . .
All right, consider this: Which group has been increasingly illegalized, shamed and denigrated first by the Establishment, and then, following its lead, by society at large? Which group, far from coming out of the “closet,” has been literally forced back into the closet after centuries of walking proudly in the public square? And which group has tragically internalized the value-system of its oppressors, so that they are deeply ashamed and guilty about practicing their rites and customs? Which group is so brow-beaten that it never thinks of defending itself, any attempt at which is publicly condemned and ridiculed? Which group is considered such sinners that the use of doctored statistics against them is considered legitimate means in a worthy cause?
I refer, of course, to that once proud race, tobacco-smokers, a group once revered and envied, but now there are none so poor as to do them reverence.
However, there is nothing I could say to defend that once-proud group that Rothbard did not already say better. What this article seeks to do is point out that as much as the establishment, commercials, the government, and just about everyone likes to criticize tobacco smokers, these critics leave a gaping hole in the critiques of free markets regarding the “free rider problem,” or the problem of “external benefits.” Rothbard explains:
We come now to the problem of external benefits—the major justification for government activities expounded by economists. Where individuals simply benefit themselves by their actions, many writers concede that the free market may be safely left unhampered. But men’s actions may often, even inadvertently, benefit others. While one might think this a cause for rejoicing, critics charge that from this fact flow evils in abundance. A free exchange, where A and B mutually benefit, may be all very well, say these economists; but what if A does something voluntarily which benefits B as well as himself, but for which B pays nothing in exchange?
It is here that the conversation of smoking comes into play. Smokers are told that they have made those around them worse off with their smoking via the secondhand smoke that those around them must face. However, it could be retorted that this is not a detriment but rather a public good. After all, the smoker paid good money for his cigar. Not only should he be allowed to smoke it, but he should also be compensated for the secondhand smoke that the surrounding free riders received just by the dumb luck of being there. By the logic of those arguing about free markets due to external benefits, a smoker should force the arguers’ hands and claim what is rightfully his.
Of course, there is a very reasonable retort to this: “But secondhand smoke is bad!” However, this is the point of the whole argument. What the smoker values is not the same as what the other man on the porch values and vice versa. To say that one should not be taxed to pay for the secondhand smoke of the other is to concede the entire Austrian economics argument as it relates to the external benefits problem. Who is to say what is a benefit and what is a harm? In fact, this harkens back to Hans-Hermann Hoppe’s criticism of the free rider problem:
Something is not a good as such, that is to say; goods are goods only in the eyes of the beholder. Nothing is a good unless at least one person subjectively evaluates it as such. But then, when goods are never goods-as-such—when no physico-chemical analysis can identify something as an economic good—there is clearly no fixed, objective criterion for classifying goods as either private or public. They can never be private or public goods as such. Their private or public character depends on how few or how many people consider them to be goods, with the degree to which they are private or public changing as these evaluations change and range from one to infinity.
It must be true that the smoker who paid good money for his good must be compensated for the public benefit he has provided, or it must be true that it turns out value is subjective and what seems a public good to one is not to another. As such, the next time an anti–free marketer challenges you with the external benefits problem, light up a cigar and remind them, as Rothbard has said, that “the free rider did not ask for his ride.”
It's fitting that the G7 recently met in Hiroshima because the policies they are following are blowing up the world economy.
Original Article: "The G7 in Hiroshima: The Latest Attempt to Impose a Unipolar World"
Argentina is one of the world's poster children for hyperinflation. Unfortunately, monetary reforms aren't working because the authorities are not serious about having a sound currency.
Original Article: "The Argentinian Zombie Currency"
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of "Ten Great Economic Myths". This material was prepared by Murray N. Rothbard.
Every time someone calls for the government to abandon its inflationary policies, Establishment economists and politicians warn that the result can only be severe unemployment. We are trapped, therefore, into playing off inflation against high unemployment, and become persuaded that we must therefore accept some of both.
This doctrine is the fallback position for Keynesians. Originally, the Keynesians promised us that by manipulating and fine-tuning deficits and government spending, they could and would bring us permanent prosperity and full employment without inflation. Then, when inflation became chronic and ever-greater, they changed their tune to warn of the alleged tradeoff, so as to weaken any possible pressure upon the government to stop its inflationary creation of new money.
The tradeoff doctrine is based on the alleged "Phillips curve," a curve invented many years ago by the British economist A. W. Phillips. Phillips correlated wage rate increases with unemployment, and claimed that the two move inversely: the higher the increases in wage rates, the lower the unemployment. On its face, this is a peculiar doctrine, since it flies in the face of logical, commonsense theory. Theory tells us that the higher the wage rates, the greater the unemployment, and vice versa. If everyone went to their employer tomorrow and insisted on double or triple the wage rate, many of us would be promptly out of a job. Yet this bizarre finding was accepted as gospel by the Keynesian economic establishment.
By now, it should be clear that this statistical finding violates the facts as well as logical theory. For during the 1950s, inflation was only about one to two percent per year, and unemployment hovered around three or four percent, whereas nowadays unemployment ranges between eight and 11 percent, and inflation between five and 13 percent. In the last two or three decades, in short, both inflation and unemployment have increased sharply and severely. If anything, we have had a reverse Phillips curve. There has been anything but an inflation-unemployment tradeoff.
But ideologues seldom give way to the facts, even as they continually claim to "test" their theories by facts. To save the concept, they have simply concluded that the Phillips curve still remains as an inflation-unemployment tradeoff, except that the curve has unaccountably "shifted" to a new set of alleged tradeoffs. On this sort of mind-set, of course, no one could ever refute any theory.
In fact, inflation now, even if it reduces unemployment in the short-run by inducing prices to spurt ahead of wage rates (thereby reducing real wage rates), will only create more unemployment in the long run. Eventually, wage rates catch up with inflation, and inflation brings recession and unemployment inevitably in its wake. After more than two decades of inflation, we are all now living in that "long run."
For more episodes, visit Mises.org/MisesReport
Estimates of United States growth have improved but remain massively below the Federal Reserve projections.
After the largest monetary and fiscal stimulus in recent years, growth remains well below trend, and debt is significantly higher. It is interesting to hear Janet Yellen say that “trickle-down economics did not work” when this is the failed trickle-down: massive government deficit spending leads to negative real wage growth and weaker GDP.
Current consensus real GDP growth for 4Q23 stands at 0.2 percent, significantly lower than the median projection of one percent in the FOMC’s June Summary of Economic Projections.
The latest figure, for example, shows evidence of headline strength hiding weakness in the details. New durable-goods orders surged in May, but this headline growth disguised that core capital-goods orders were revised down again.
Even if we consider the optimistic assumptions of the Biden administration, which assume a two percent per annum GDP growth until 2032 and 3.8 percent unemployment, the United States federal government deficit would not fall below five percent of GDP even in 2032. That is a deficit that rises from $1.1 trillion in 2023 to $2.01 trillion in 2032, an accumulated deficit between 2023 and 2032 of $15.46 trillion. That is a 106 percent debt to GDP, according to the Biden administration calculations even with very bullish estimates of growth that consider no recession or stagnation in the entire forecast period.
One of the biggest problems of this neo-Keynesian approach to government budgets is that it leaves households with less money in real terms, and the “anti-inflation” measures increase debt and inflation.
Take the American Rescue Plan. It was supposed to be the helicopter money solution to the crisis, giving families cash and supporting consumption through the pandemic. Adjusted for inflation, Bloomberg Economics estimates the average household in the bottom 40 percent of the income distribution now has liquid assets worth $1,200 less than they did before covid. You wanted the stimulus check? With printed money? You paid for it multiple times over in higher inflation.
The other key policy items of the Biden administration, the Inflation Reduction Act, the CHIPS and Science Act, and the Bipartisan Infrastructure Law, were created to incentivize aggregate demand and boost investment in areas where the private sector seemed to be underinvesting. However, it was not the case. The problem is that the government does not have more or better information about the requirements of the real economy, assumes erroneously that the private sector did not invest because of some flaw in the market, and these massive federal expenditure programs generate more inflation as they add artificial demand created with newly printed units of currency to an economy that is already working at full capacity and full employment. Thus, it puts more fuel to the fire of inflation.
Bloomberg Economics warns that “If successful, the benefits of these projects will play out in the long term – and other deliverables, like reduced dependence on China and lower carbon emissions, won’t show up directly in the GDP data. In the near term, our view is that the costs in terms of higher inflation and recession risks offset the benefits and may even outweigh them”. Even if we assume a benign view of multiplier effects, the result is that these plans accelerate the risk of a recession by artificially tightening an already strong labor market and putting more pressure on supply chains.
The Inflation Reduction Act assumes a total of $500 billion in federal expenditure and tax breaks to accelerate investment in clean energy. This was utterly unnecessary when the United States was already a global leader in renewable energy investments, and the program so far has created more inflationary pressures as artificial government spending added to an already hot industry. Furthermore, if there was an industry that required no further support from the government it was the clean energy sector, which had no impact from the pandemic on investor demand and ample financing capacity.
The same happens with the Bipartisan Infrastructure Law, $550 billion in new spending over five years, included a clearly unnecessary artificial boost to an already booming sector, driving prices much higher.
Even considering revenue-generating measures, and assuming they would work, the net effect “will be to add on average about 0.1 percent of GDP per year to the primary fiscal deficit during that period” according to Bloomberg Economics.
Launching multi-billion spending programs financed with newly created money and debt into an economy that was already running at full capacity has added to inflation and further debilitated the public finances. Meanwhile, the measures taken by the Federal Reserve to reduce the inflationary pressures -that were worsened by the government anti-inflation spending programs- make a recession more likely. The Federal Reserve must act to reduce the inflation that the government generates with its anti-inflation spending programs and by doing so, may create a recession as the rate hikes and monetary contraction hinder families and businesses. Brilliant.
When all this fails and revenues fall below estimates, growth deteriorates or leads to a recession, and debt soars, neo-Keynesians will say that another massive government spending program is required.
Originally published at DLacalle.com
The problem here not that the central bank is "setting" the "wrong" interest rate. The problem is the Fed has long been relentlessly forcing down interest rates to satisfy various politically determined "needs."
Original Article: "Wall Street to the Fed: Inflation Is Over. Give Us More Easy Money!"
Rent control is all the rage with progressives, with several states and localities trying to impose it. However, when people have their property effectively—and legally—stolen, there are long-term consequences.
Original Article: "Call Rent Control What It Really Is: Theft"
After 1820, growing numbers of propertyless squatters were voters, and this was an opportunity for politicians to offer cheap land in exchange for loyalty to the Democratic Party.
Original Article: "How "Squatter Democracy" Created America's First Welfare Program"
On this week's episode, Mark summarizes the many problems with EVs, and focuses on two consequences funded by taxpayer subsidy. Large, overpriced, long range vehicles have been subsidized at the expense of more efficient technological applications. These EVs are significantly heavier compared to their fossil fuel counterparts (which have engines and gas tanks). These heavier vehicles create greater crash risks for passengers and pedestrians. Failure to disclose such issues reveals some uncomfortable truths about the political elites who drive this agenda onto the American people.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
During the three years after World War II, Germans—facing a ruined economy and wildly depreciating currency—turned to cigarettes as a medium of exchange on a massive scale. Allied occupation authorities strictly forbade this black-market currency exchange, but it literally saved the lives of many German civilians—and inadvertently made many American GIs rich.
The cigarette had already made its appearance during the war as a currency in both the Third Reich’s massive network of concentration camps as well as in POW camps. Auschwitz survivor Stefan Kosinski commented that he didn’t smoke but always kept a stock of cigarettes for exchange: “It’s like money. With it, I could buy a little margarine, some bread, some potatoes . . . and I took with me some of these foods and [for] resale.”1 Discovery of such barter operations could mean immediate death in the camps, but survival was on the line in any case.2 POWs of Germany were safe from the death penalty, but they likewise experienced closed systems of scarcity. A young British economist, R.A. Radford, wrote a classic article right after the war describing the economy of his own camp experience in an elegant, and often very funny, account. In it, we find POWs creating a spontaneous order of exchange that started with simple barter and grew to amazing efficiency. At its most developed, prices were quoted exclusively in cigarettes, and barracks were outfitted with information boards that kept track of available goods and their prices in cigarettes. In the author’s words, “The public and semi-permanent records of transactions led to cigarette prices being well known and thus tending to equality throughout the camp, although there were always opportunities for an astute trader to make a profit from arbitrage.”3 Many POWs were smokers and smoked at least some of their currency, but the supply of cigarettes was more or less continuous since the POWs received cigarette rations in packets from the Red Cross and other organizations. Still, the cigarette reached its widest role as a commodity medium of exchange in the postwar German setting. In the wake of the Third Reich’s defeat, the collapse of German society was not total. However, for the vast majority, it was close enough to seem so. Eleven million German soldiers remained in Allied POW camps. In German cities, more than half of the dwellings had been destroyed by Allied bombing, which had also left half a million German civilians dead and many more injured.4 Hundreds of thousands of Germans who had been evacuated from their homes remained stranded in rural areas far away. Moreover, after twelve years of National Socialist inflationary and restrictive economic policies, wartime shortages, rationing, and totalitarian control, ordinary Germans had been looking at something like economic collapse before the Allies even arrived to occupy Germany. Then, things got worse.
Defeated Germany was occupied in four zones: American, Russian, British, and French. Each zone offered its own variations on this story. However, the black market/cigarette nexus developed to its fullest extent in the American zone of occupation. Following the precepts of the brutal Morgenthau Plan and its slightly modified successor plan from the Joint Chiefs of Staff, JCS 1067, the American occupation was designed to keep the Germans in ruinous condition. Decisions made in Washington, DC, meant that most of the Nazi economic controls remained in place, but the American occupation authorities added new layers of social and economic intervention. Occupation food policy curtailed food imports and transport with the intention to limit calories to drastic levels.5 The reopening of factories was outlawed. The military government also forbade the fraternization of American occupation soldiers with German civilians. Ever-changing American interventions stifled economic life, producing greater scarcity than even in Germany’s last months of the war.
Allied currency policy was gasoline on these flames. Already by March 1944, the Treasury under Henry Morgenthau Jr. had laid plans for the complete weaponization of currency in Germany, adding a fiat occupational currency alongside the inflated reichsmark. As the most careful historian of Allied currency policy, Vladimir Petrov, wrote in 1967, “This [Morgenthau] view of money as an ‘offensive weapon of war’ had many aspects, one of which was the ability to induce inflation in a conquered land.”6
For ordinary Germans, a life raft appeared in the form of the black market, bane of bureaucrats everywhere.7 Survival goods that were price controlled by the Allies but usually unavailable could be found in the thriving barter economy—at higher prices, of course. Although the Allied authorities in all zones forbade “unofficial” exchange, survival made the risk worthwhile. Almost as soon as the black market appeared, the well-known problems of a barter system created the need for a medium of exchange—something more reliable than the official currencies in circulation.
In these circumstances (as in the wartime camps), cigarettes provided the solution. Ironically, the Third Reich had campaigned against tobacco use and sales, reserving most of the available cigarettes for the army. In some cities, such as Berlin, selling tobacco was criminalized just before the war ended.8 But the exigencies of the moment and the arrival of chain-smoking GIs overcame fears of punishment.
By July 1945, just weeks after the Victory in Europe day in early May, American journalist Joel Sayre described the “cigarette economy” in full swing, with a generally recognized price structure in place. “American cigarettes,” he wrote, “are considered the best, and the standard black-market price for a pack of twenty is three hundred marks, or thirty dollars. . . . The value of a pack of Chesterfields can thus run as high as seventy-five to ninety dollars”9
Since American occupational soldiers received a ration of two cartons per month—about a dozen cigarettes per day—and since the Post Exchange (PX) cigarette price was deeply discounted, GIs could make money fast, even the smokers. Many GIs during the occupation devoted substantial time to making deals for valuables that German civilians had managed to protect or barter for. Observers depict soldiers setting up on street corners prepared to pay with cigarettes for such goods. In an interview in the mid-1990s, a colleague of mine, who had served in the occupation in Linz, Austria, described the cigarette economy at some length. He commented with obvious disapproval of his fellow GIs who took extreme advantage of the situation, “Those guys could get anything they wanted. [cold stare] Anything they wanted.”10
Indeed, soldiers and occupation officials famously worked the system by buying goods with cigarettes, then selling the antiques and other hoarded valuables for inflated reichsmarks or inflated occupational currency, and then trading these currencies for dollars at a ten-to-one ratio. In his book on Allied currencies, Vladimir Petrov calculated that by leveraging their rations and cheap (subsidized) PX goods, GIs could make $12,000 a year at a time when new GIs earned about $150 a month.11
As for the Germans, their goal was obviously to survive, their main means to doing so being food and fuel. Since German small towns and farms survived for the most part intact, food was scarce and expensive but available. Hence, urban people relied on expeditions to the countryside to buy food and fuel, but the planning and execution of these journeys required many stages before a reconditioned or even rerolled cigarette reached a German farmer, who could then smoke it in peace—or use it to buy something else.
First, one must get cigarettes, or at least tobacco. In general, Germans did this by selling goods or services. In the American zone, in particular, the Germans could also turn to gathering the cigarette butts tossed on the ground by the occupying soldiers and officials. That activity became so normalized that Germans developed words for it: Kippensammlung (gathering tossed butts) and Stummeling (stubbing). Typically, groups of street urchins gathered around soldiers, waiting to scuffle for the tossed butts, or strategically lined the streets known for military traffic, to go for the stubs tossed from jeeps. A German journalist wrote a series about Stummeling, in which he confessed to donning old clothes and joining the urchins alongside certain streets waiting for butts of “very respectable length” when they flew out of passing American vehicles.12 Sayre wrote in 1945, “Remain stationary on a Berlin street while you smoke a cigarette, and likely as not you will soon have around you a circle of children, able-bodied men, and whiskered old men, all waiting to dive for the butt when you throw it away.”13
In daily exchange, butts and pieces of cigarettes could serve as smaller currency denominations. An American GI described the system with an example: He would go to an Austrian barbershop, have his hair cut, and then pull out a cigarette and pinch a finger-width piece off the end. The barber would produce a pouch and open it for the tobacco to be deposited. Sayre described visiting an apartment in which a glazier had been replacing blown-out windows. When the workman finished, the lady of the house looked around and called out to her daughter, “Come now, where have you put the butts?” The girl appeared with a bowl of twenty cigarette stubs, and the grateful glazier left with his day’s pay.14
As a currency substitute, cigarettes posed problems, of course. They were fragile, if rerollable. Then too, as mentioned, not all cigarettes were equal, and making a deal could be complicated. Monetary supply varied over time. In the American zone, a pack of twenty Lucky Strikes, Chesterfields, or Camels could run as high as ninety dollars in Berlin during the summer after the war but later fetched as much as $180.15
The military government’s interventions to stop the leveraging of cigarettes contributed to volatility in price. At the same time, American companies advertised discounted cigarettes for sale in Stars and Stripes and other periodicals. Cigarettes from America inundated military post offices, sent by the relatives of GIs trying to get in on the trade. Hefty price swings were inevitable. Yet, despite variations over time, eyewitnesses tended to think that the cigarette held its value well enough. In any case, cigarette prices were far more stable than those of the two official currencies. With periodic influxes of newly printed fiat currency, by 1947, the supply of official money had risen by a factor of six.16
However, the black market as a whole faced many obstacles in defeating the mass of Allied controls, which led to even more extreme shortages of necessities as time went on. In May 1947, the American occupation governor, General Lucius D. Clay, announced that the food situation was so serious that essential supplies were reduced to a surplus of three and half weeks.17 Things were most urgent in the biggest cities. By 1947, a pack of cigarettes in south Germany went for eighty-five reichsmarks (or occupational money), but in Berlin, a pack was double that price. Meanwhile, a fifty-watt lightbulb sold on the black market for 50 RM, two pounds of coffee for 800 to 1,500 RM, and a radio for 3,000 RM.18 A 1947 article in the social democratic newspaper Neue Zeit noted that for thirty packs of cigarettes, an American could buy a Leica camera; for seven cartons, a radio; and for three packs, a dog. The writer of the piece commented wryly: “Almost all the Americans in Berlin are now owners of these three distinguishing characteristics of the occupation of Germany.”
These scenes of collapse and misery ended on Saturday, June 19, 1948, the day the new currency, the deutsche mark, was announced. By Monday, the cigarette economy had disappeared. Yet, as Austrian economist Hans Sennholz later pointed out, the new currency was only the lesser part of the solution. The more significant change resulted from the tireless efforts of provisional German economic director Ludwig Erhard and his advisors, who had at the same moment managed to put in place sweeping economic reforms that would do away with both Nazi and Occupational market restrictions. As Sennholz wrote in his 1979 book, Age of Inflation, Erhard’s reforms “restored the freedom of markets and thus gave free play to the inexorable laws of human action.” Yet, the Americans remained hesitant even after June 1948. Lucius Clay soon wrote a heavy-handed memorandum to Erhard repeating earlier warnings that the Allied interventionist regulations could not be altered without American permission. Erhard’s reply: “I did not alter your controls, I abolished them.”
Thus, the cigarette economy disappeared over one weekend. To summarize Sennholz’s comments on these “inexorable laws” in the period of the cigarette economy: there was a lot of human action rolled up in those cigarettes.
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- Marwa ElShazly, Chaos and Currency: Cigarettes on the Black Market in Europe 1940–1950 (self-pub., 2019), 38. https://books.google.com/books?id=rQ_PDwAAQBAJ.
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- ElShazly, “Chaos and Currency,” 27–38.
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- R.A. Radford, “The Economic Organisation of a P.O.W. Camp,” Economica, n.s., 12, no. 48 (November 1945): 189–201. https://doi.org/10.2307/2550133.
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- Earl R. Beck, “The Allied Bombing of Germany, 1942–1945, and the German Response: Dilemmas of Judgment,” German Studies Review 5, no. 3 (October 1982): 325–37. https://doi.org/10.2307/1428949.
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- Richard Dominic Wiggers, “The United States and the Refusal to Feed German Civilians after World War II,” in Ethnic Cleansing in Twentieth-Century Europe, eds. Steven Béla Várdy and T. Hunt Tooley (New York: Social Science Monographs, 2003), 441–67. http://artemis.austincollege.edu/acad/history/htooley/WiggersGermanFood.pdf.
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- Vladimir Petrov, Money and Conquest: Allied Occupation Currencies in World War II (Baltimore: Johns Hopkins Press, 1967), 195. https://archive.org/details/moneyconquestall0000petr.
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- On black markets, see Allen Gindler, “Black Markets Show How Socialists Can’t Overturn Economic Laws,” Mises Wire, June 24, 2019.
https://mises.org/wire/black-markets-show-how-socialists-cant-overturn-economic-laws.
- On black markets, see Allen Gindler, “Black Markets Show How Socialists Can’t Overturn Economic Laws,” Mises Wire, June 24, 2019.
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- Joel Sayre, “Letter from Berlin, July 28, 1945,” in The New Yorker Book of War Pieces (New York: Reynal and Hitchcock, 1947), 505. https://lccn.loc.gov/47011417.
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- Sayre, “Letter from Berlin, July 28, 1945,” 505.
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- Kenneth Street, interview, add date.
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- Petrov, Money and Conquest, 206.
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- Kraig Larkin, “‘One Would Not Get Far without Cigarettes’: The Cigarette Economy in Occupied Germany 1945–48,” in Money in the German-Speaking Lands, eds. Mary Lindemann and Jared Poley (New York: Berghahn Books, 2017), 250, 256. https://doi.org/10.2307/j.ctvw04bvd.19.
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- Sayre, “Letter from Berlin, July 28, 1945,” 506.
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- Sayre, “Letter from Berlin, July 28, 1945,” 506.
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- Sayre, “Letter from Berlin, July 28, 1945,” 505.
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- Hans F. Sennholz, Age of Inflation (Belmont, MA: Western Islands, 1979), 99–104. https://archive.org/details/ageofinflation00senn.
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- Sennholz, Age of Inflation, 2.
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- Bernd Sprenger, “60 Jahre Währungsreform—1948 und die
Wirtschaftspolitischen Folgen,” in Währungsreform und soziale Marktwirtschaft (Berlin: Konrad-Adenauer-Stiftung, 2008), 7–27. https://www.kas.de/documents/252038/253252/7_dokument_dok_pdf_13912_1.pdf/92654f86–158d-146d-0d15-fdf313cf5da8?version=1.0&t=1539663357696.
- Bernd Sprenger, “60 Jahre Währungsreform—1948 und die
Paul Gottfried is no stranger to criticism from “conservative” gatekeepers. Like his friend and colleague Murray Rothbard, Gottfried has been a target of Buckleyite conservativism ever since he was ousted from the National Review in the 1980s. Also, like Rothbard, Gottfried’s ideas have continued to inspire new generations of Americans sincerely interested in grappling with societal issues as neoconservatism has waned everywhere outside of Washington, DC.
Recently Michael Lucchese at Law and Liberty joined National Review’s Bobby Miller and prominent Twitter intellectual James Lindsay in publicly criticizing Gottfried’s work. The occasion for the first two men is the recent publication of A Paleoconservative Anthology, edited by Gottfried and filled with contributions influenced by his work.
Lucchese and Miller smear Gottfried and other paleoconservatives as “right-wing Marxists.” Why? Gottfried admitted that paleoconservative scholars like Sam Francis “felt no reservations about taking ideas from Marxist sources if they explained social developments [they were] studying at the time” and even appreciated Lenin’s effectiveness in creating and leading an ideologically driven movement. In this, Gottfried once again finds common ground with Rothbard, which explains why the paleoconservative and paleolibertarian intellectual leaders established the John Randolph Club in the 1990s.
In an address delivered at one such meeting, Rothbard outlined a “Strategy for the Right,” stating that “the proper course for the right-wing opposition must necessarily be a strategy of boldness and confrontation, of dynamism and excitement, a strategy, in short, of rousing the masses from their slumber and exposing the arrogant elites that are ruling them, controlling them, taxing them, and ripping them off.”
This sort of approach offends the sensibilities of modern-day conservatives who prefer as their guiding lights William F. Buckley and Ronald Reagan. In the eyes of Lucchese, Buckley and Reagan’s brand of conservatism, “rooted in a reverential devotion to the Constitution, a healthy appreciation of the free market, and a vigorous anti-communism,” can claim to its credit “protecting the Constitution and defeating the Soviet Union,” which resulted in “stunning electoral success.”
While Ronald Reagan’s electoral victories cannot be contested, the effectiveness of his brand of conservatism certainly can be. As Rothbard noted in his obituary of “Reaganomics,” this alleged champion of the free market increased the federal government by 68 percent, generated the largest peacetime budget deficit in American history at the expense of average Americans, and failed to deliver on core promises such as reining in the regulatory state and restoring the gold standard. In doing so, the legacy of Reaganite conservatism was carried on by Republicans like Paul Ryan, who was comfortable publicly quoting free market advocates like Ayn Rand and F.A. Hayek while supporting the growth of regime intervention when it came down to crafting policy.
As far as “protecting the Constitution” goes, the force that continues to draw minds to scholars like Gottfried, Francis, and Rothbard is precisely the breakdown of political norms and the escalation of political warfare. America’s federal government is larger than ever, actively promoting culturally leftist perversions like child mutilation, mandating medical decisions for Americans, and constructing an elaborate public surveillance apparatus that can spy on any citizen that regularly uses a phone, computer, or bank account. Of course, it was Buckley that suggested that Americans needed to accept a tyrannical state at home to fight one abroad, and the heirs of his brand of conservatism continue to find new foreign enemies that can be used to justify these abuses.
Right-wing critics of Buckley’s legacy are comfortable stating, as Gottfried does, that “the crisis of the West is real.” Lucchese contends this is simply an “ideology of despair.” He also suggests that paleoconservative attempts to capitalize on these anxieties are a political dud, pointing to the failure of Blake Masters’ Senate campaign (the fact that Masters was heavily outspent, that he was running against a popular incumbent, and that there was a massive failure of voting operations on the day most Republicans decided to vote is not mentioned). While Lucchese points to Brian Kemp’s successful campaign for governor of Georgia as a victory for his preferred brand of throwback conservatism, he also ignores Ron DeSantis’s much larger victory in Florida, even though DeSantis’s approach to politics has earned Gottfried’s praise.
Of course, any measure of short-term electoral success should not be confused with an effective attack on the regime, as Reagan’s legacy demonstrates. While Lucchese suggests that his favored conservative leaders “preferred Washington and the American Revolution to Lenin and the Russian Revolution,” the reality is that any victories of twentieth-century conservatives have failed to prevent an America that is arguably as far from its early republican roots as is modern Russia. Long gone is the Angloliberal respect for property rights, meritocracy, and Christian virtue. In its place is a civil rights regime, guided by a destructive progressive ethos of deference to state-credentialed experts and driven by an egalitarian agenda Rothbard identified as a revolt against nature.
James Lindsay suggests that America’s current state is the fault of Marxism. Gottfried sees it as the natural consequence of modern liberalism, which abandoned its original foundation of property rights and biblical morality in favor of a social democracy armed with civil rights–imposed cultural egalitarianism. Unfortunately, most modern “classical liberals,” like Lindsay, have made peace with this intellectual decay. To classical liberals like Lindsay, the solution to the woke modern Left is not a repeal of the twentieth century, which Rothbard advocated, but rather a cultural reset to a pre-woke America. Destroy the modern creation of environmental, social, and governance (ESG) financial guidelines and academic diversity, equity, and inclusion (DEI) departments but keep in place the basics of the modern civil rights regime—maintained by a reasoned sense of secular liberal impartiality.
This approach, common among modern “classical liberals,” a label best understood as a way to distance oneself from contemporary trends on the left and right, fails to identify the degree to which the modern Left’s hold on power is sustained precisely by this underlying civil rights framework. This fact is why paleolibertarians and paleoconservatives both warned decades ago about the basic incentives of a social democratic state able to reward a growing collection of targeted demographics with political privileges.
As Rothbard identified in a Rothbard-Rockwell Reportarticle titled “Kulturkampf!”:
Government has been used to create a phony set of “rights” for every designated victim group under the sun, to be used to dominate and exploit the rest of us for the special gain of these cosseted groups. . . . On and on the assault grows: and in every case government, technocrats, official “therapists,” and the malignant New Class grant themselves and accredited victim groups ever-increasing power to exploit, dominate, and loot an ever-dwindling group of: middle-aged, white, English-speaking, Christian, and especially heterosexual male parents. Culture war? It was launched decades ago and liberals were almost into the mopping-up stage before the oppressed finally woke up.
This was written in 1992 in response to the Clinton administration, which Lindsay still believes the Right hates for “manufactured” reasons. In Lindsay’s view, the paleolibertarianism promoted by Rothbard and Lew Rockwell in the ’90s, with its focus on the restoration of a property rights-driven order and respect for cultural conservatism and the role of the church, is “clearly hostile” to his form of “liberalism.” He also critiques Rothbard for being “very . . . religious,” a criticism that would confuse those familiar with his biography but might have pleased his Christian wife, Joey.
Lindsay was less charitable to Gottfried’s analysis of wokeism, dismissing him as “an idiot.”
These recent jejune critiques of paleoconservatism do not, however, mean that there are no stands against common paleoconservative orthodoxy deserving of a hard pushback. While the John Randolph Club allowed for important cross-pollination between paleoconservatives and paleolibertarians on issues of strategy and other complimentary interests, the clash on economic points is one that continues today. Prominent paleoconservatives leaders like Francis and Pat Buchanan dismissed the value of “dead Austrian economists,” a quip that lives on through the occasional remark by Tucker Carlson and Steve Bannon.
The result has been a blind spot of favoring various forms of protectionism, antitrust regulations, and other economic interventions wielded by the federal regime to reward those willing to do its bidding and to punish non-compliant firms—just as Progressive politicians always intended.
The new interest in paleoconservatism from young right-wingers has other intellectual organizations trying to leverage “populist” criticism of “libertarianism” to push their own programs that share this same rejection of free markets in favor of aggressive economic interventionism. American Compass has recently released an ambitious policy program to “rebuild American capitalism,” which seeks to promote a neo-Hamiltonian agenda for the twenty-first century.
Interestingly, the policy handbook‘s chapters on the question of “What Happened to Capitalism?” and the broader topic of financialization lack any mention of monetary policy or the role of the Federal Reserve. Ignoring the role of the regime’s capture of money and banking, championed by the leaders of the economic nationalist tradition they are seeking to revive, in the subsidization and cartelization of America’s corporate class allows the American Compass project to justify their preferred attacks on laissez-faire capitalism.
Ultimately, it is the battle over the regime’s capture of money and banking that is necessary to eliminate the economic incentives that have allowed the ideology of the state to capture the financial power of nations.
It is worth noting the differences in the stated goals of paleoconservatives and of the economic nationalists of American Compass. Paleoconservatives often voice a desire to protect the provincial life of rural and agrarian societies in the Jeffersonian tradition. Modern economic nationalists, in contrast, favor more ambitious plans for national industrial power and are far more comfortable in cosmopolitan company.
The embrace of what Hans-Hermann Hoppe has referred to as “social nationalism” will only serve as a continual threat to the goals of the paleoconservatives, maintaining a financial system that rewards economic size and ideological alignment with Washington, undermining small business owners in American towns and smaller cities, and eroding the income and savings of Americans not in a position to ride the speculative booms and busts created by Federal Reserve policies. Economic nationalists, by contrast, will always be incentivized to abandon conservative culture war issues to better direct the existing federal machinery toward their own preferred brand of centralizing economic reforms. To reverse the triumphant of modern progressivism, what is needed is radical reactionary respect for a private property society and the role of civic, ethnic, and religious institutions that can flourish without the challenges of a rivalrous social democratic state.
This would require rejecting the modern civil rights legal regime, something modern Buckleyite conservatives, Lindsay-style liberals, economic nationalists, and modern “postliberals” such as Patrick Deneen are not interested in. In contrast, this has long been a point of agreement between paleoconservatives and paleolibertarians.
To seriously threaten the regime, one must attack it at its roots. This is why we must take matters of economics as seriously as matters of cultural decline. More paleoconservatives would do well to follow the example of Paul Gottfried and pay those “long-dead Austrians” respect.
Bob walks through a recent interview of MMT champion Warren Mosler, in which he claims that Fed rate hikes lead to larger government interest expenses and hence support economic growth and inflation. Bob presents both theoretical and empirical evidence against Mosler's claims.
Bob's Debate with Warren Mosler: Mises.org/HAP403a Bob's Review of Stephanie Kelton: Mises.org/HAP403b Bob's EconLib Article on Austerity: Mises.org/HAP403c Technical Article on Why the Treasury Can't Overdraft: Mises.org/HAP403d Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
First Republic, Signature Bank, and Silicon Valley Bank have all failed, and that’s not the only thing they have in common. Western Alliance Bank’s Ken Vecchione was jealous of these three large regional banks. The chief executive admitted to the New York Times, “We were, I have to admit, a bit envious of them.”
Obviously Vecchione was and likely still is oblivious to problems at his bank and others. He doesn’t understand the fragility of fractional reserve banking. “We certainly didn’t see this coming,” Mr. Vecchione told the Times. Murray Rothbard saw it coming decades ago, writing, “Banks are ‘inherently bankrupt’ because they issue far more warehouse receipts to cash (nowadays in the form of ‘deposits’ redeemable in cash on demand) than they have cash available. Hence, they are always vulnerable to bank runs.”
Western Alliance’s chief financial officer Dale Gibbons and Mr. Vecchione were described as “gape-mouthed” by the Times as long-standing clients decided to withdraw deposits and ask questions later. “These runs are not like any other business failures, because they simply consist of depositors claiming their own rightful property, which the banks do not have,” wrote Rothbard.
“The entire system of fractional-reserve banking, therefore, is built on deceit, a deceit connived by the legal system,” Rothbard explained. Perhaps that’s why there is a banking crisis every ten to twenty years. The system must be propped up by an increasing number of schemes that can be described as government force.
There is no mention of the Federal Home Loan Bank (FHLB) in Rothbard’s book The Mystery of Banking. Created in the Great Depression, the FHLB was created to grease the wheels for financial institutions to make home loans. Now, the $1.5 trillion government behemoth is a go-to source for illiquid banks to obtain funding.
According to Bloomberg, Silicon Valley Bank held $15 billion from an FHLB at the end of 2022; Signature Bank had $11 billion; and by this April, First Republic Bank ended up with more than $28 billion from FHLB. All three banks collapsed.
FHLB didn’t take a loss with these failures because as Bloomberg writer Heather Perlberg explains,
[The FHLBs] have a so-called super lien on the money they lend, putting them at the front of the line to get repaid if a bank collapses. The FHLBs note that any secured lender would take priority in the event of a bank failure. . . .
“You can look at who they are lending to and see it’s not because they’re doing a good job screening for bank quality,” said Kathryn Judge, a Columbia Law School professor who focuses on financial regulation. “It’s a byproduct of the fact there’s a mechanism in place to protect their interests.”
Bloomberg found two former long-time FHLB employees who said they never saw a loan turned down, no matter how poor the financial health of an institution. According to them it’s all about the collateral—US Treasuries, home loans, mortgage-backed securities, and other real estate assets. My experience is they would not lend against land loans or loans involving petroleum use, but little due diligence was done.
FHLBs can sell bonds exempt from state and local income taxes. As was the case with Fannie Mae and Freddie Mac, FHLB bond buyers believe in the debt because of the widespread assumption that if an FHLB ever runs into trouble, the government would jump in with taxpayer money to prevent default. Standard and Poor’s and Moody’s have said their credit ratings for the FHLB system would be several notches lower if not for the government’s presumed backing.
According to Bloomberg, the CEO of the Council of Federal Home Loan Banks Ryan Donovan said, “The implied guarantee is also not something that’s conveyed by the government. It’s something the market perceives that we’re a safe place, that our debt that we issue is solid.”
And it’s not just small and regional banks borrowing from the FHLB. Wells Fargo, JPMorgan Chase Bank, and Citigroup collectively tapped at least $62 billion from FHLBs during last year’s relatively sedate markets.
Bloomberg’s Perlberg explains,
The FHLBs don’t track how banks use their financing. The lifelines can help troubled banks avoid fire sales of assets. But if a firm’s balance sheet is in bad shape, collateralized lending may do little more than postpone the bank’s inevitable demise, potentially letting losses worsen. The Federal Deposit Insurance Corp. is left to clean up the mess.
“That delay makes a difference,” said Judge, the law professor. “Fresh liquidity allows them to limp on longer rather than evaluate their own viability.”
Yes, that’s the idea.
The system’s total loans to members surged 28 percent to $1.04 trillion in the first quarter, beating a record set in the third quarter of 2008.
In March the Federal Reserve created another facility to backstop the nation’s banks called the Bank Term Funding Program (BTFP). BTFP provides loans with maturities of up to a year to banks, savings associations, credit unions, and other eligible depository institutions. It does not apply Walter Bagehot’s putative principles of lending in liquidity crises—to lend freely to solvent banks with good collateral but at penalty rates. The collateral is impaired, the banks insolvent, and the rates are low.
Banks can borrow at 100 percent of the par value of the US Treasuries and mortgage-backed securities among other securities. “This will allow banks to fund potential deposit outflows without crystalizing losses on depreciated securities,” Goldman Sachs wrote the Sunday after the Fed announced the program.
Banks can borrow funds for up to a year and have until March 11, 2024, to avail themselves of the program. The loan interest rates are fixed at a one-year overnight index swap rate plus ten basis points.
“Because the pledged collateral is going to be valued at par, this new facility will ensure that other banks with similarly impaired hold-to-maturity portfolios will be able to easily leverage them to access liquidity, rather than have to realize significant losses and flood the markets with paper,” according to Jefferies economists in a Reuters article.
Remember, the BTFP was just created in March. On June 14, aggregate BTFP borrowings reached just under $102 billion.
Of course, we can’t forget about the Fed. But, while “the members certainly could go to the Fed, the challenge is there is a reputation risk associated with that. In talking with member institutions, they feel that the stigma is real.”
All that keeps bank depositors from pulling their money out is reputation, and more than a little help from bankers’ growing list of friends, old and new.
A recurring theme in American politics is the cynical use of federal power by those who simultaneously pretend to favor "states' rights" or "local control." We see this today when Republicans one minute say they favor local control with gun laws or Obamacare—and then demand the federal government impose nationwide drug prohibitions. We see it among Democrats who want local control over "sanctuary cities" for illegal immigrants, but then denounce the idea that states ought to decide for themselves on abortion policy.
The basic logic goes like this: if you're negotiating from a position of relative weakness at the federal level, take a faux "principled" stand in favor of local or state sovereignty. However, once it looks like you might have the political power necessary to force federal laws down everyone's throat, declare the issue to be "too important to be left up to state or local control."
This habit of declaring every "important" issue to be a matter for federal intervention is very much the story of American politics over the past century. From alcohol prohibition to social welfare benefits to an out-of-control FBI, American policymakers never tire of "discovering" new ways that every alleged problem must be solved by a federal "solution."
This problem pre-dates the twentieth century, however. In the nineteenth century, slavery was that issue that was "too important" to be left up to local control. Instead, both abolitionists and the "slavocracy"—to use a term employed by Murray Rothbard—sought ways to use federal power to protect their own interests.
This is especially notable in the case of the slave power, of course, because proslavery activists often claimed to hold a principled opposition to federal power. There was often nothing principled about it, however. Slave owners tended to support federal intervention when it promoted and protected slavery. They opposed federal power when federal law threatened the preservation or extension of slavery.
The Slave Power Wanted a More Activist Federal Government to Enforce the Fugitive Slave Laws There are at least two ways proslavery advocates demanded more federal power to promote slavery.
The first is the fact that the slave powers wanted an active federal government to enforce the fugitive slave laws. The original 1777 constitution—the "Articles of Confederation"—said nothing about slavery and left policy up to the individual states. The new constitution, however—being, as it was, the instrument of counter-revolutionaries seeking a strong central government—included the fugitive slave clause. This clause allowed the federal government to directly intervene in state policy to ensure the return of "property" to slave drivers. Naturally, the slave powers demanded enthusiastic federal enforcement of this clause, and supported legislation to further strengthen the federal hand. They supported the Fugitive Slave Act of 1850, for example, which sought to coerce local officials into helping federal agents kidnap escaped slaves and return them to their "owners."
Many state and local governments in free states asserted their own local sovereignty and refused to assist federal agents. As a result, the slave powers concluded free states were exercising "too much" state sovereignty, and a lack of robust federal intervention in the states was specifically invoked as a reason for secession by some southern states.
The Slave Power Opposed Local Sovereignty in the Territories The second way that the slavocracy agitated for more federal power involved how the federal government regulated new territories as the federal government annexed new frontier lands. These were lands that were part of the United States, but had not yet attained the status of statehood.
In spite of the best efforts of those behind the Missouri Compromise (1820), the problem of slavery in the new western territories was not laid to rest. Debates over slavery's spread westward continued, and were enflamed by the annexation of Texas, then by the Mexican cession following the US war with Mexico. The final drama came with the Kansas-Nebraska act in 1854.
At the heart of the matter was a disagreement over how much power the federal government possessed to either outlaw slavery in the territories or ensure its legality. There were, in fact, no fewer than three theories of what the US constitution authorized the federal government to do in the territories.
The first theory was the so-called "free-soil" theory. Proponents of this position claimed Congress was obligated to outlaw slavery in the territories. Proponents based this position on a reading of the Fifth Amendments which states "No person shall be . .. deprived of ... liberty ... without due process of law." Free-soil advocates claimed this clause prohibited slavery in territories, the District of Columbia, and all other places under the exclusive jurisdiction of the federal government. This position was favored by the most vehement antislavery activists.
The second theory was popularized and developed by John C. Calhoun. Calhoun claimed, as summarized by Robert R. Russel, that the territories were "the common property of the states, as co-owners," and that the federal government could only act in the territories as a "an agent or trustee" of the states.1 For Calhoun, this meant the federal government was obliged to keep slavery legal in the territories. Key to Calhoun's position was the insistence that territorial governments were mere creations of Congress and could not decide for themselves whether or not slavery would be legal. Thus it fell on the federal government to use its power to enforce legal slavery in the territories. Calhoun regarded efforts by territorial settlers to assert local self-determination as illegitimate. He dismissed these activists as "free-soil adventurers" and proponents of "squatter sovereignty." In short, the Calhounites, as described by historian Robert Childers, launched an "offensive against territorial self-government."
A third position was known as the "popular sovereignty" position or the "Cass doctrine." This theory stated, according to Russel:
[Congress] had no constitutional authority to regulate [a territory's] internal policies in matters not put under federal jurisdiction by the Constitution. The regulation of these latter matters must be left to the people of the territories themselves acting through their elected representatives and whether or not to permit slavery was one of these matters of local, internal concern.2
The popular sovereignty position has the virtue of being the only of the three that refuses to grant the federal government powers not granted it in the constitution. The Calhounites and the free-soil activists, on the other hand, claimed that since the territories were not states, the federal government could exercise powers directly in the territories above and beyond what was listed among the few enumerated federal powers in the constitution.
Local Popular Sovereignty was the "Straightforward Solution" The popular sovereignty position naturally appealed to many Americans who had become accustomed to supporting a decentralized approach to settling disputes over slavery. It is ironic, then, that the slave power, which had claimed to oppose federal power against "states' rights" embraced federal power against local sovereignty in the territories. The distinction made by Calhoun and others rested on the arbitrary claim that true sovereignty rested only with states. Smaller or less formal units of government were declared unworthy of any recognition of their sovereignty, and thus, in the Calhounite view, can be placed directly under federal control.
Murray Rothbard noticed the contradiction:
Not only did the expansionist aim of the slavocracy to protect slavery by federal fiat in the territories as "property" aim to foist the immoral system of slavery on Western territories; it even violated the principles of states’ rights to which the South was supposedly devoted—and which would logically have led to a "popular sovereignty" doctrine.
According to Rothbard, popular sovereignty was the "simple and straightforward solution." The matter became more complicated in 1857 with the Supreme Court's Dred Scott decision. Part of the ruling stated that slavery could not be legally excluded from territories. As a result, Senator Stephen Douglas of Illinois attempted a middle path known as the "Freeport doctrine" which stated that territorial government could simply elect to not pass legislation that favored slavery, without explicitly outlawing it. This allowed Douglas to claim he supported both the Supreme Court and popular sovereignty.
Nonetheless, the Dred Scott decision had struck a blow for the slavocracy by confirming federal control over internal matters in territories. As Rothbard notes, this forced advocates of local sovereignty in the territories to resort to nullification as a means of asserting self-determination. Moreover, the SCOTUS's decision to remove popular sovereignty as a potential legal option helped set the stage for the chaotic events that led to Bleeding Kansas.
But why had the most vehement proslavery activists come down so hard against popular sovereignty? It is likely the activists suspected they were on the losing side in the territories. This was important, of course, because if slavery lost in the territories, these areas would eventually become free states, and that would swing the balance of the US Senate against slavery. By 1850, California had entered the Union as a free state, and the status of slavery in New Mexico was an open question. The more populous North was furnishing far larger numbers of migrants into the new territories. Were popular sovereignty allowed to be the deciding factor, then, it was likely that many of these territories would have surely outlawed slavery at the territorial levels. Thus, proslavery activists sought to find ways to prevent self-government by ordinary territorial residents.
New Mexico had been an especially problematic case for the slave powers. As explained by Childers, the Calhounites rejected the idea that "Mexicans" in New Mexico—i.e., Hispanic Americans in areas recently stolen from Mexico—ought to be allowed to govern themselves. Many "southerners accused Mexicans of manipulating the political process in an effort to bar the introduction of slavery." Slavery had been officially illegal in Mexico, and few New Mexico residents appeared to be enthusiastic about legalizing American-style slavery. While indentured servitude and de facto debt slavery known as "peonage" existed among the Hispanic population, this was not regarded by Calhounites as an acceptable substitute for race-based chattel slavery.3 Slavery advocates subsequently looked for ways to deny local self-government to the non-Anglos and to allow for time for more non-Hispanic white southerners to move to the territory.
Simply put, many slavery advocates felt they were losing the demographic war and so could not simply allow incoming territorial migrants to decide on slavery for themselves. The effort to extend slavery to the territories—whether New Mexico or Kansas or Nebraska—often became a matter of using federal power to ensure the continued legality of slavery. The fact that so many of these appeals to federal power came from activists who so often appealed to "states' rights" should not, of course, shock modern observers. A resort to federal power has long been a tactic employed by those with power at the federal level, regardless of whether or not such appeals can be reconciled with one's professed ideology.
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- Robert R. Russel, "Constitutional Doctrines with Regard to Slavery in Territories," The Journal of Southern History 32, No. 4 (Nov. 1966), p. 470.
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- Russel, p. 472.
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- Chattel slavery did exist among Indian tribes in New Mexico, but few activists on either side proposed granting suffrage to the indigenous population.
Crack-Up Capitalism: Market Radicals and the Dream of a World without Democracy
by Quinn Slobodian
Metropolitan Books, 2023; 336 pp.
Quinn Slobodian, a professor of the history of ideas at Wellesley College, has a good deal to say about Murray Rothbard, and I have attempted to respond to that in a review that is to be published in the next issue of The Austrian. Slobodian also includes some comments on the Mises Institute, Lew Rockwell, and Hans-Hermann Hoppe, but concerning these, as Dante says, let us not speak of them, but look, and pass on. But the central argument of the book needs to be addressed as well.
Slobodian is very concerned with the rise in recent decades of what he calls “zones.” “What is a zone? At its most basic, it is an enclave carved out of a nation and freed from ordinary forms of regulation. The usual powers of taxation are often suspended within its borders, letting investors effectively dictate their own rules.” But zones are not all that bothers him. He also worries about secessionist movements that endeavor to break up nations into smaller states and also about attempts by individualist anarchists to form territories without a state at all.
What arouses Slobodian’s concern about these various enterprises? It is that they remove parts of the economy from democratic control, subjecting the people within them to the harsh discipline of the market. Workers must accept poor working conditions and bad pay, and capitalist exploiters are free to do as they please.
You might first object to Slobodian in this way. If people were free to secede and form communities as they wish, couldn’t those who agree with Slobodian’s own preferences for strong labor unions and democratic socialism form communities of their own? Wouldn’t competition among the communities alleviate the plight of badly off workers so long as they were free to migrate, solving his worries about exploitation? Slobodian doesn’t agree with this. He notes that in “a famous book from 1927, Mises had argued for secession by plebiscite and speculated on the possibility of the secession of the individual,” but he doesn’t seem impressed.
Had he taken Mises’s argument seriously, he would have found the answer to his worries about the exploitation of workers. He attributes to supporters of the free market this line of reasoning: “The free market is more important than democracy. In fact, democracy often gets in the way of the free market. Therefore, we should eliminate democracy and civil liberties, especially the right to protest, altogether.” He does not realize that so long as there are competing communities, this alleged danger is greatly alleviated.
“But,” he might say, “what about the very bad conditions that workers in zones sometimes face?” Here the answer lies in another elementary point that Slobodian has overlooked. Workers who voluntarily accept conditions that we would think are very bad do so because these conditions make life better for them. Slobodian’s failure to understand this comes out most clearly in what he says about the massive buildup of the city of Shenzhen after the Chinese government instituted market reforms:
In Shenzhen in 1987, for the first time, a market in land was introduced under pressure from Hong Kong investors. The outcome was a deluge. What became known as zone fever gripped the nation, as huge amounts of land were sucked from rural usage and collective ownership and transformed into private property on long-term leaseholds, constituting one of the biggest transfers of public into private wealth in the modern age. On paper, the success was staggering, one of the fastest episodes of economic growth in world history. In 1980, officials had aimed to bring perhaps three hundred thousand people to Shenzhen by 2000. The real number was ten million. By 2020, the population had doubled again, to twenty million, with a GDP greater than Singapore or Hong Kong.
Slobodian says about this that the “‘decollectivization’ of the countryside created a reserve army of migrant laborers who moved between the city and the countryside, offering their labor as the crucial input for the construction-led boom.” Apparently Slobodian, relying on the Marxist catchphrase “the reserve army of the proletariat,” thinks that the position of those who entered the city worsened, when precisely the opposite is the case. Nor is this an instance, by the way, of rapacious capitalists taking advantage of those in a bad situation, offering them a slight improvement but still leaving them in dire straits. Many of the newcomers to the city became wealthy and bought land themselves.
Slobodian is not interested in the benefits of competition. He fears a “race to the bottom” in which the promise of tax breaks and freedom from regulatory control lure investors to the zone that offers them the best deal. As always, he suggests this will take place at the expense of workers, who because of lower taxes will face cuts in social programs that help them. He once more overlooks the fact that if workers, taking this into account, move to the zones anyway, they are judging that they are better off there.
Nowhere does Slobodian respond to the well-known economic arguments that the factors of production tend in the free market to earn their marginal product and that the income of landlords and capitalists does not stem from a division of the “surplus value” created by workers. Instead, he dismisses these arguments as capitalist apologetics emanating from the neoliberals of the Mont Pelerin Society, especially such evil people as Friedrich Hayek and Milton Friedman.
Slobodian’s obsession with the evils of competition is so great that it leads him to dismiss commonplace observations that everyone knows to be true—everyone, that is, besides leftists ignorant of history. Competition between different courts in medieval Europe advanced the cause of liberty, but Slobodian cannot accept this because it punctures his fantasy that competition hurts workers. He quotes David Friedman as saying that “market radicals should take their ‘cues from the European Middle Ages . . . striving to create a U.S. punctuated by a large and increasing number of territorially disconnected free cities.’ Authority was not the problem. Rules were not the problem. The problem was not having enough authorities and rules to choose from.”
Slobodian says: “That this understanding of the Middle Ages was based more on imagination than rigorous scholarly study goes without saying. The medieval world was regularly reduced to a few convenient bullet points.”
When I read this, I expected references to accounts of medieval law showing that Friedman was wrong. (By the way, claiming that competing courts advanced liberty, whether right or wrong, does not reduce the medieval world to a few bullet points. The claim does not purport to be a full account of medieval civilization.)
But Slobodian presents no “competing” account of medieval law. Instead, he incredibly suggests, pointing to Friedman’s participation in medieval reenactment games, that his comments about competing courts were mere imaginative fantasies. It is hard to believe that Slobodian intends us to take this bizarre comment seriously, but I am afraid that he does; such is his appalling ignorance of medieval history.
An eminent historian has called Crack-Up Capitalism a “head spinner of a book,” and with this sentiment I heartily agree.
On this episode of Good Money with Tho Bishop, Ryan McMaken joins the show to talk about America's debt crisis. Tho and Ryan discuss both the damage done to the economy by runaway government spending, as well as how Federal Reserve policy has incentivized consumption and punished savings, which has resulted in record-high credit card debt.
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Ryan, Tho, and Kerry Baldwin take a look at why some politicians say they're "nationalists." Is nationalism a good thing or is it just another way to justify more government meddling in our lives?
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Forty years ago last week, the Los Angeles Herald Examiner published my first attack on the federal drug war. The previous year, the Reagan administration had unleashed its “Just Say No” program, vilifying anyone who smoked a joint, sniffed the wrong powder, or used nonapproved hallucinogens. I was mortified to see Ronald Reagan—who was elected on a promise to get “government off your backs”—double-cross his supporters with what morphed into the most intrusive scheme in American history.
Like kids everywhere in the 1970s, I laughed at the 1936 movie Reefer Madness in my high school health class. I’d occasionally smoked marijuana but hadn’t felt compelled to burn down any orphanages afterward. When Reagan went on the antidrug warpath, I was “laying for him,” as Mark Twain would say.
The Herald Examiner was a conservative-leaning paper, so I slanted my argument accordingly: “Many heavy marijuana users voted Republican in 1982, so there is no proof that it causes irreparable brain damage.” I pointed out that legalizing and taxing marijuana could raise enough money to pay for the MX missile program that Reagan championed. (Pentagon boondoggles were much cheaper back then.) Ending marijuana prohibition would put hundreds of lawyers out of work, I cheerily noted. Reagan’s drug crackdown was playing to a culture war theme which I mocked in the final sentence of my piece: “Personally, I’m all in favor of locking up hippies, but we need to find a better reason.” The editor wisely deleted that last sentence before printing the article.
My attempts at humor were not universally appreciated. When I took the page from the Herald Examiner to a photocopy shop in uptown Washington, the cranky old manager was outraged by the article’s headline: “Making Pot a Crime Is, Well, Un-American.” He railed about how drugs were destroying the nation and wagged his finger so hard he almost threw his shoulder out of joint. The real problem, he said, was troublemakers like me. I just grinned at him and found another copy shop.
Two years later, writing in the San Diego Union-Tribune, I declared, “The only things drug laws achieve is to make drugs more dangerous, crime more prevalent, and government more obnoxious.” I scoffed, “If the FBI didn’t have a thousand agents chasing dope dealers, would the Soviets be having so much success stealing U.S. military secrets?” I also whacked the Feds’ narcotic nitwittery in the Detroit News and other papers.
My pieces had as much impact on the drug war as bouncing a ping pong ball off the hull of a battleship. After the drug war became politically profitable, the number of drug offenders in prisons rose tenfold. More people were locked up for drug offenses than for violent crimes, and possessing trace amounts of cocaine was often punished with longer sentences than rape, murder, or child molesting.
In 1992, I headed to Guatemala to give a few speeches on perfidious US protectionist policies. Outside of Guatemala City, I met farmers and small businessmen who explained to me how the US drug war was ravaging their country. A Guatemalan banker told me that the Drug Enforcement Administration (DEA) was involved in shooting down or forcing crash landings of small planes suspected of carrying drugs. A prominent Guatemalan politician told me, “If you criticize the Drug Enforcement Administration, you might lose your visa” and be banned from visiting the US.
Shortly after Bill Clinton’s inauguration in 1993, the Washington Times published my report on Guatemala: “U.S. anti-drug activities are wrecking the environment, terrorizing the people, and subverting the market economies that the U.S. loves to champion.” US aid was pouring into the coffers of military forces notorious for committing genocide against the Mayans and other minorities. I observed, “Giving the Guatemalan army more weapons to fight marijuana growers is like giving the Mafia bazookas to combat jaywalking in New York City.” Just in case I hadn’t riled up officialdom enough, I tossed in a closing line: “Exporting our drug war to Guatemala and other Latin American nations is Yankee Imperialism at its worst.”
Bingo: DEA chief Robert Bonner was enraged. “Columnist Sprays Tons of Misinformation over Your Pages” was the Washington Times’ headline for his response. Bonner claimed that I had done “a great disservice to your readers” and declared, “We certainly are not behaving as if the ‘drug war gives us the right to impose martial law on foreign nations,’ as Mr. Bovard contends.” The DEA later became notorious for wreaking havoc throughout Central America. The DEA was dousing Guatemala with Roundup pesticides, but Bonner claimed that “adverse human health effects . . . are virtually nonexistent.” Turn on late-night TV nowadays and you’ll see a torrent of ads soliciting class action claimants for American victims of Roundup. And the massive US aid for the Guatemalan military became a propellant for drug smuggling that was spearheaded by top generals and elite Special Forces units.
Writing about the drug war got me vilified from all sides. In early 1994, I pummeled DEA entrapment operations at Grateful Dead concerts in a Newsday article. My piece, headlined “Narcs Should Let the Deadheads Be,” pointed out that “abusive federal prosecutions” were destroying far more lives than LSD, the DEA’s pretext for witch hunts. One enraged antidrug zealot howled to Newsday, “Obviously, James Bovard sees the world through the same haze many Deadheads do,” and I was to blame for the “crime problem in this country” because I opposed holding people “accountable for their actions.” On the flipside, a fan of the band denounced me for “perpetuating false stereotypes of Deadheads,” including the notion that they tended to be “aging hippies.” As Joe Biden would say, “C’mon, man!”
Later that year, I began hammering and lampooning drug warriors for Playboy. A November 1994 piece blasted the use of drug courier profiles (later a favorite topic for social justice warriors). A December 1994 article headlined “Oops—You’re Dead! No-Knock Raids” helped put that proliferating atrocity on the national radar (followed by a 2000 update). I also flogged asset forfeiture abuses, the informant scourge (“Uncle Scam Wants You”), the prison industrial complex, and the perverse sentencing guidelines that made talking about drugs worse than murder. In a piece with an evergreen theme, I detailed how kinfolk of members of Congress and other powerful Washingtonians routinely received wrist slaps or had their drug charges dismissed (Senator John McCain’s wife was a prize example). And some folks think that type of favoritism only began with Hunter Biden.
At the end of the 1990s, I turned to the American Spectator to thump Clinton’s program that was deluging hundreds of square miles in Colombia with deadly pesticides to suppress coca production. The program got some bad press when US-funded crop dusters repeatedly fumigated school children, sickening many of the kids. Clinton administration officials trumpeted their drug war salvation mission at the same time the wife of the US military commander in Colombia was convicted for smuggling kilos of cocaine to New York. Luis Alberto Moreno, Colombia’s ambassador to the US, attacked a piece I wrote for the Baltimore Sun. Moreno claimed the Clinton aid package was carefully targeted and would “strengthen law enforcement institutions and help protect human rights.” Alas, some of the torrent of US aid was diverted to “carry out spying operations and smear campaigns against Supreme Court justices,” crippling the nation’s judiciary that was exposing mass-murdering paramilitary groups allied to the governing regime.
During the George W. Bush administration, I jibed his drug czar for demonizing drug users in federally funded TV ads and portraying people who bought drugs as terrorist financiers threatening America with annihilation. Federal drug warriors arrested cancer patients who smoked marijuana to control chemo-induced nausea and busted doctors who gave suffering patients more painkillers than the DEA preferred. I ridiculed the federal vendetta against comedian Tommy Chong (and again here last year) who was sent to prison for selling bongs. Shortly after his arrest in 2003, Chong scoffed at the nationwide raids to seize drug paraphernalia: “I feel pretty sad, but it seems to be the only weapons of mass destruction they’ve found this year.”
After the global war on terrorism and Bush’s invasion of Iraq spiraled out of control, I shifted my focus away from the drug war. I still got in an occasional slap. A decade ago, I lamented in USA Today, “Too many lives have already been destroyed so that politicians could win votes by appearing to be tough on crime.”
Since that first piece in the Herald Examiner, more than ten million Americans have been arrested for marijuana violations. Many states have legalized marijuana possession, but more people continue to be busted each year for marijuana offenses than for all violent crimes combined. The federal drug war continues with more drug fatalities than ever.
Actually, drug policy debates have become more depraved (if not demented) in recent years. During the 2020 election season, the media mostly portrayed Joe Biden as a progressive, compassionate alternative to President Donald Trump. But for decades, Biden had been the biggest drug warrior on Capitol Hill, championing policies that sent hundreds of thousands of Americans to prison. In a 2019 piece headlined “Joe Biden and the Era of Mass Incarceration,” the New York Times hyped Biden’s favorite fix: “Lock the S.O.B.s Up!” (That article ran before Biden had a lock on the Democratic presidential nomination.) Republicans seem hellbent on outboneheading Biden. Republican presidential frontrunner Trump is now calling for death penalties for drug dealers. Trump has not yet specified what other Taliban-style reforms he will endorse. Several Republican presidential candidates are calling for invading Mexico to curb drug imports. Maybe these wizards don’t realize that Pancho Villa got away a long time ago.
Before I fired my first salvo at the war on drugs, I was captivated by a line from an 1839 essay by British historian Thomas Macaulay: “It is mere foolish cruelty to provide penalties which torment the criminal without preventing the crime.” That line remains the best summary of the folly and inhumanity of criminalizing victimless crimes. As Grateful Dead’s Jerry Garcia wrote, “What a long, strange trip it’s been.”
As I wrote in my 1994 book Lost Rights, “The war on drugs is essentially a civil war to uphold the principle that politicians should have absolute power over what citizens put into their own bodies.” But there is scant hope that politicians will forfeit any punitive power regardless of how many lives they continue to blight.
Jesús Huerta de Soto, who is professor of economics at the Rey Juan Carlos University of Madrid, is the leading representative of the Austrian school of economics in Spain. He is a renowned teacher, and two of his many doctoral students, David Howden and Philipp Bagus, both now themselves professors of economics, have edited a festschrift in his honor. The contributors include students, colleagues, friends, teachers, two of his daughters, and his son. The two-volume festschrift contains many valuable essays, but I cannot do more here than comment on a few of them, as there are no less than twenty-seven essays in the first volume and twenty-four in the second, as well as two introductory essays by the editors, “Jesús Huerta de Soto: A Biographical Sketch” in the first volume and “Jesús Huerta de Soto: An Appreciation” in the second.
The contributors include reminiscences of Huerta de Soto, and the reader will gain from these a vivid sense of his impact as a teacher, his devotion to Austrian economics and libertarian political philosophy, and his immense knowledge of the literature of economics, law, and history. Few know the work of Ludwig von Mises as well as he does, and the festschrift aims to show that he has made creative contributions to both Austrian economics and libertarian legal and political theory.
A theme from Mises that Huerta de Soto has stressed in his work is the importance of uncertainty in human action and the efforts by people to cope with that uncertainty by establishing trust through a network of free market institutions. The uncertainty is of the radical Knightian kind and cannot be dealt with through application of the probability calculus. Several of the festschrift’s contributors carry this theme further. David Howden, in “Defining Money,” argues that because of the uncertainty inherent in economic exchange, it is vital to have an asset that can always be traded at par, and money is the only asset that can fulfill this function. Nothing else, not even very reliable bonds, can serve this purpose. Because this is so, Howden says, the common definition of money as “the most general medium of exchange,” though not wrong, is not complete. To define money this way is to put it at one end of a continuum, since there are other media of exchange that are less general; but if this is done, the uniqueness of money has not been brought out. Howden says, “Money is not first and foremost the most general medium of exchange, though that statement is not entirely wrong. Money is a special financial asset that emerges to alleviate the definite economic problems of (1) plan disruption caused by uncertainty and (2) to facilitate the completion of previously conceived plans. The only way to fulfill these roles is to sell at par value and on demand.”
In their efforts to cope with uncertainty, Jörg Guido Hülsmann points out in “Financial Markets and the Production of Law,” actors in the free market will establish financial markets as they think best. Because they have established these markets themselves, they will find it easy to rely on them, and in this way a network of trust can be built up. Not so, however, if the government interferes by legislation with these market arrangements. Market participants’ trust will be shaken if they are compelled to use financial markets they have not chosen for themselves. Hülsmann uses to great effect the work of the Italian legal theorist Bruno Leoni to show that legislation by the government introduces unnecessary uncertainty and instability. Hülsmann remarks, “Leoni’s analysis of the consequences of statutory law can be summarized by saying that statutory law tends to destroy the law. More precisely, under the impact of legislation, the law tends to become disconnected from the opinions and the will of their citizens, undermining their autonomy. . . . Most importantly, legislated law undermines the stability of the law, and thus one of its basic functions.”
The obvious remedy is to restore free market institutions; but Bagus argues in “The Disinterventionist Spiral” that once the government has interfered with the economy, many difficulties arise in reversing their interventions. Bagus ingeniously applies Mises’s critique of interventionism in an unexpected way. Mises argued that measures of government intervention are inherently unstable because they fail to achieve their ostensible purpose and have undesirable side effects. For example, minimum wage laws do not secure higher wages for all workers but on the contrary cause unemployment. Faced with this consequence, the government must either withdraw the intervention or press on with corrective interventions, which will in turn fail and confront the government with these options again, in a spiraling process. Bagus argues that repeal of an interventionist measure while other government interventions remain in place will lead to an unstable situation that requires either retreat or additional action. “As we can observe, there is not only an interventionist spiral but also an anti-interventionist spiral. Reforms collide with still existing interventions leading to problems from the (official) point of view of reformers and non-reformers alike. There is pressure to abolish further interventions and reduce the role of the state. When further interferences are abolished, there arise new tensions with still existing ones. The reform path is unstable. Either the path is followed through to anarcho-capitalism or reforms are eventually undone by accumulating interventions anew. There is no third path.”
In order to understand the role of uncertainty in the economy, it is necessary to use the Austrian tool of praxeology rather than seek mechanically to discover statistical correlations between macro aggregates. Doing the latter obliterates the individual decision-maker as he endeavors to assess uncertain market conditions. Joseph T. Salerno, in “Milton Friedman’s Views on Method and Money Reconsidered in Light of the Housing Bubble,” subjects to devastating criticism the methodology of Milton Friedman, ever the faithful follower of his mentor Wesley Clair Mitchell, for precisely this failing. Friedman relied on inductive inference, contradicting the strictures of Karl Popper against induction, though he professed to be a follower of Popper’s philosophy of science. Friedman’s faulty methodology led him to make numerous inaccurate predictions about the housing bubble and other issues. Salerno says, “Thus, Friedman’s monetary theory as delineated and ‘tested’ in the Monetary History is a highly aggregative and mechanical version of the quantity theory of money with very few variables and relationships.”
Careful attention to the individual actor is thus a key theme of Huerta de Soto’s economic theory, and the same emphasis is also crucial to the libertarian political philosophy of which he is so distinguished an advocate. In “William of Ockham: An Unknown Libertarian Philosopher,” Lorenzo Bernaldo de Quirós sees the great fourteenth-century Franciscan as an important political thinker. Ockham denied the Thomist view that natural law can be derived by reason from human nature, arguing that the doctrine of fixed essences contradicted the absolute power of God to decide according to his will. Ockham found the Thomist view that what is moral cannot be changed by God an unacceptable constraint on God’s power. But he also held that individuals, who are created in God’s image, should also be free to make arrangements as they prefer, so long as they respect the rights of others to do so, and that attempts to impose legislation on them based on the false doctrine that human reason can discern essences or natures are impermissible. Because it is difficult to know God’s will, those who profess religious doctrines should be tolerant of conflicting views. Bernaldo de Quirós finds in this Ockhamist teaching a precursor of the freedom of thought and expression taught by John Milton in the seventeenth century. But Bernaldo de Quirós also says that “Ockham’s nominalism leads him to undertake an energetic defense of human rights and, specifically, of one fundamental right: that of private ownership. This is not a conventional arrangement created by a social decision but a natural one born of free human action. It is, therefore, a natural right, willed by God, and, thus, inviolable.” One wonders whether this view of private ownership, however welcome we may find it, is consistent with Ockham’s own teaching of God’s absolute power.
In “A Republican Defense of Anarchism,” Juan Ramón Rallo criticizes the influential Careful attention to the individual actor is a key theme of Huerta de Soto’s economic theory, and the same emphasis is also crucial to the libertarian political philosophy of which he is so distinguished an advocate. republican school, of which Philip Pettit and Quentin Skinner are leading advocates, for a false conception of individual autonomy. The republicans are right to say that individuals should be free from domination by others, but they wrongly seek the remedy for domination in democratic decision-making that restricts the free choices of market participants. Democratic decision-making, even under ideal conditions, imposes the will of the majority on dissenters. Respect for individual autonomy mandates the right of secession from the political community and culminates in anarchism. “The key question that republicanism must confront is what to do with those minorities who, even after having scrupulously respected impartial procedures to which they themselves have not voluntarily adhered, feel that the collective decisions agreed upon contravene their conception of the common good and constitute, consequently, an arbitrary interference by majorities in their lives.”
The Emergence of a Tradition is an indispensable contribution to Austrian economics and to libertarian thought, and readers will also gain a clear sense of Huerta de Soto’s major contributions in these areas.
South Africa is suffering from rolling blackouts and other power outages. These could be avoided if the government would permit competition in electricity markets.
Original Article: "Licensing Laws Deepen South Africa's Electricity Crisis"
Mere days prior to its receiving renewed attention because of an ongoing civil war, Sudan and many other African countries were (and still are) being promoted by news organizations as citadels of suffering. Viewers are subjected to heart-wrenching images: The gaunt, skeletal bodies of starved children crying out in hunger. Families left with only emaciated cows, selling sticks to produce some kind of livelihood. After observing these agonizing spectacles, the only logical question anyone could ask is, why does this poverty exist?
Fortunately, the impeccably informative news sites are quick to relieve us of this uncertainty. “Climate change” is the answer, they declare. Not “global warming” but the new existential threat of human-caused climate change has resulted in an increase in water levels, leading to accentuated poverty in Sudan and the greater African region, and this justifies a sizable increase in government spending in the area.
One need not look too far to discover that this reasoning is filled with both logical and factual errors. To begin with, famines and poverty have been the norm in society since time immemorial, certainly before any accusations of climate change were leveled at humanity in general and the West in particular. Indeed, the West, until quite recently in human history, was one of the main victims of extreme famines. Before the 1700s, people in England and the West lived in constant fear that they would be struck with a poor growing season and famine, forcing them to go hungry through the next year.
This fact shows us that what people in Sudan are experiencing is a completely regular aspect of human existence. Prosperity is the exception to history rather than the rule. Furthermore, poverty is not lessened by demonizing certain portions of the world with accusations of climate change. It is also necessary to point out the distinct possibility that “climate change” is not the main cause of the Sudanese people’s poverty.
According to virtually every available metric, climate-related deaths have been substantially decreasing at a sharp rate since at least the 1930s. This includes the last year of 2022, which saw the fewest climate deaths ever recorded. With the effects of the supposed main catalyst of poverty in Sudan being drastically reduced, it would seem only logical that Sudan’s people would also see reduced evidence of poverty in their country. But Sudan is as poor as ever. This should lead us to believe that the actual reason Sudan, and much of the rest of Africa, is in poverty is for a separate reason.
This separate reason is Sudan’s form of government. Sudan possesses one of the most oppressive and authoritarian governments in the entire world. According to the Heritage Foundation, of the 176 countries the organization grades in terms of economic freedom, Sudan ranks 173. Only Venezuela, Cuba, and North Korea have more repressive economies. Private property rights are abysmally negligible and bureaucratic corruption runs rampant. The result of this is that people are either unwilling or unable to go through the process of producing a good when they know their right to possess it will not be respected.
Additionally, when government organizations like the United States Agency for International Development send exorbitant amounts of resources to Sudan (as they did at the beginning of this year, dispatching an additional $288 million), the incentives for citizens to increase their own productivity or attempt to instill reforms in their own government are greatly reduced.
Basic economic knowledge teaches us that you get more of whatever you subsidize. By “aiding” countries based on how poor they are, the United States is essentially subsidizing poverty, just as it does domestically with welfare. People are essentially getting a reward from the government for being poor. This causes the recipients of the subsidy, in this case the poverty-stricken people in Africa, to simply sit back with the expectation that others will take care of them, build their infrastructure, and deliver their food. There is no reason to save or invest in the future because others have already pledged to take care of them for the foreseeable future. Additionally, it would be foolish for someone to work and make themselves ineligible for free gifts from the government, and so still more people cease to work.
This isn’t to say we shouldn’t help Sudan. Charity is good. But we should think about who “we” really refers to. Generally speaking, it is not well-meaning individuals, religious institutions, or private charities. Instead, it’s the state that inefficiently and arbitrarily distributes aid wherever bureaucrats and politicians feel it is politically advantageous to do so.
If any private sources misallocate a few million dollars, they feel the cost almost immediately. This is not the case with politicians, who simply choose where other people’s tax money should be spent without experiencing any ramifications from losing exorbitant amounts of money other than possibly needing to smooth things over with their supporters.
Many people, it would seem, see that the government is inefficient. A study from the Pew Research Center found that a majority of Americans believe that government is “always wasteful.” Disconcertingly, however, the same study found that an even larger portion of Americans think the government is not doing enough to “solve problems.” Why people would wish for admittedly “wasteful and inefficient” governments to take on still more power and responsibilities remains a mystery.
The most likely reason is that people want themselves and others to be taken care of by the government. This is a deadly frame of mind that served as the justification for killing over one hundred million people in search of utopian communism. Nobody thinks about what will happen, only what they intend to cause through foreign aid.
Instead, people should consider whether the US is unintentionally propping up these dictatorial regimes by showering them with welfare, condemning the poor to a continued life of subsistence at the hand of their own government.
J. Bradford DeLong, who teaches economics at UC Berkeley and was a protégé of Larry Summer's dislikes Austrian economics, which he sometimes assails on his blog. You might reasonably expect that for this reason, I will lambaste his book, which, to no one’s surprise, defends Keynesian economics and the welfare state. But I’m going to disappoint expectations. The book contains a number of insights that merit highlighting, albeit accompanied by some bad arguments as well, and I will stress the former in what follows.
Before getting to the insights, though, I’d like to address a couple of gross distortions. DeLong asks, “Have I committed an error by lumping fascists in with Nazis? A great many people did (and some do) applaud fascists, after all. . . . Economist and darling of the far right Ludwig von Mises, born to Jewish parents in Austria-Hungary . . . wrote of fascism in 1927, ‘fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions . . . [and] their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.’ . . . In 1940, the Jewish-born Mises, too, emigrated to the United States . . . acknowledging that fists trump intentions.”
This passage suggests that Mises in 1927 thought the Nazis, like the Fascists, had “good intentions” despite their anti-Semitic rhetoric but learned to his cost that was false when he had to emigrate owing to his Jewish origins. Mises, in fact, was always a bitter opponent of the Nazis and criticized the Austrian social democrats in the 1930s for insufficient vigor in the fight against Adolf Hitler. The passage has often been misunderstood by critics of Mises. For a fuller discussion, see my mises.org article “Mises and Fascism."
DeLong also makes up out of whole cloth an accusation against Herbert Hoover, who often features in the book, usually to his discredit. DeLong says: “Stalin and his subordinates saw, after the post–World War II consolidation, that there were five tasks they needed to carry out. First, they had to build the USSR up militarily to defend the territories of really-existing socialism because the fascist-militarist capitalists might well try once again to destroy world socialism by military means. That was a reasonable notion . . . [E]x-president Hoover thought the United States had quite possibly fought on the wrong side in World War II. Although Hoover deeply regretted that the war had advanced the development of weapons of unbearable power, a president who thought like him might well use those weapons.” Hoover, in fact, favored staying out of World War II, and it is a travesty to say he thought the United States should have entered the war on the Nazi side. Further, he opposed the use of atomic weapons and, along with Robert Taft, favored a defensive Cold War strategy that avoided overseas commitments.
After this, you might wonder what can be good about the book. But I would still claim it has many good insights. For one thing, DeLong has a firm sense of the immense power of the free market to achieve economic growth. He credits Friedrich Hayek, whom he calls a genius, for the widespread theoretical recognition of this: “Hayek was a farsighted genius Dr. Jekyll in one crucially important aspect of his thinking. . . . He was the thinker who grasped most thoroughly and profoundly what the market system could do for human benefit. All societies in solving their economic problems face profound difficulties in getting reliable information to the deciders and then incentivizing the deciders to act for the public good. The market order of property, contract, and exchange can—if property rights are handled properly—push decision-making out to the decentralized periphery where the reliable information already exists, solving the information problem. And by rewarding those who bring resources to valuable uses, it automatically solves the incentivization problem. . . . Overall, what Hayek got right is absolutely essential in making sense of the long twentieth century’s economic history.”
But Hayek, in DeLong’s view, did not get everything right: his insights need to be supplemented by the wisdom of John Maynard Keynes about macroeconomic policy and Karl Polanyi about the need for rights that go beyond property rights. I’ll forego an account of DeLong’s ideas about these two thinkers, because another insight of his enables us to forestall the case they made for intervention in the free market.
This insight is found not in the book, but in an interview of DeLong by Tyler Cowen in 2023. In the interview, DeLong says: “Back before 1870, there’s no possibility at all that humanity is going to be able to bake the economic pie sufficiently large that everyone can have enough. Which means that, principally, politics and governance are going to be some elite constituting itself and elbowing other elites out of the way, and then finding a way to run a force-and-fraud domination and exploitation scheme on society so that they at least can have enough. When Proudhon wrote in 1840s that property is theft, it was not metaphor. It was really fact.”
In other words, DeLong agrees with Franz Oppenheimer and Albert Jay Nock that the state is a predatory instrument of the ruling class to exploit society, but, unlike them, he limits this insight to the period in which the economy couldn’t generate enough wealth to feed everybody. But why does he think the predatory class will relent in its zeal for exploitation once economic growth generates a prosperous society? Even if Keynes is correct about macroeconomics and Polanyi about rights, which I do not for a moment believe, why trust a powerful state to shape the economy and society? Wouldn’t it be safer to limit the state drastically, or do away with it altogether, and leave it to people to solve their problems without state coercion?
Although DeLong is firm in his loyalty to Keynes, he recognizes the grave dangers posed by inflation, and it is difficult to deny that Keynesian policies have often led to this. DeLong says, “From an economist’s perspective, an inflationary episode like what happened to the United States in the 1970s might not seem to matter much. . . . Some lose, but others gain as much. With no strong reason to think that the losers are in any way more deserving than the gainers, economists might ask, why should anyone, including economists, care very much? This view is profoundly misguided. . . . [W]oven through this passage [from Keynes about inflation] is another effect of inflation: one can usually pretend that there is a logic to the distribution of wealth—that behind a person’s prosperity lies some rational basis, whether it is that person’s hard work, skill, and farsightedness, or some ancestor’s. Inflation—even moderate inflation—strips the mask. There is no rational basis. . . . And a government that generates such inflation is obviously not competent.” Again we ask, Even if one accepts Keynesian macroeconomic policy, doesn’t the danger that the inflation would undermine social acceptance of the logic of distribution outweigh the supposed economic benefits of the policy?
DeLong would no doubt dissent, averring that the market economy cannot deal effectively with severe depressions. He challenges the view, which he wrongly ascribes to the Austrians, that “neutral” money suffices to prevent economic calamity. “Right-wingers trying to hold tight to their belief that the market could not fail but only be failed, claimed that the Great Depression had been caused by government interference with the natural order. Economists such as Lionel Robbins, Joseph Schumpeter, and Friedrich von Hayek claimed that central banks had set interest rates too low in the run-up to 1929. Others claimed that central banks had set interest rates too high. Whatever. What they agreed on was that the central banks of the world had failed to follow a properly ‘neutral’ monetary policy, and so had destabilized what, if left alone, would have been a stable market system. Milton Friedman was chief among them. But dig into Friedman’s thesis that the Great Depression was a failure of government and not of market, and things become interesting. For how could you tell whether interest rates were too high, too low, or just right? According to Friedman, too-high interest rates would lead to high unemployment. Too low interest rates would lead to high inflation. Just-right interest rates—those that corresponded to a ‘neutral’ monetary policy— would keep the macroeconomy balanced and the economy smoothly growing. Thus theory became tautology” (emphasis in original).
This criticism of Friedman leaves Austrian theory unscathed. In the Austrian view, the task of the central bank is not to strive for “neutral” money (some early missteps by Hayek to the contrary notwithstanding). This cannot be its task, because Austrian theory regards the very existence of a central banking system run by the government as interfering with the operation of the free market. There is, then, no problem of finding the “correct” interest rate that balances inflation against unemployment. The free market rate just is the correct rate.
Many readers may think I have been too easy on DeLong; a few may deem me too hard. I do not claim to be “neutral,” but I have tried to be fair; with what success you must judge for yourself.
Ryan McMaken (RM): There is a lot of talk these days about the US losing its global monetary hegemony. But a lot needs to happen in terms of unwinding the present system before that can happen. At the heart of this seems to be what you call “globalized money without a global money.” What do you mean by that, and what does it have to do with the dollar’s global importance?
Brendan Brown (BB): Globalization of money under the fiat regime magnifies and extends national monetary power. The currency of the largest economy, so long as it is freely tradable and meets minimally sufficient standards as a store of value, becomes the dominant international money. Dominance brings hegemony. Smaller countries in defying the lead of the dominant money, whether by choosing an alternative type of monetary regime or simply pursuing a different type of monetary policy, become subject to severe economic stress.
This is all quite different from in a world of gold monies. There, all countries in the gold bloc have a common monetary base consisting of above-ground supplies of gold bullion and coin. One national brand of gold money can become dominant—but this will depend less (than for fiat money) on the criterion of economic size (though this still counts) and more on whether there is trust in the given country keeping to the rules of the gold standard. Hence in the years 1880–1914 the pound remained the number one global money even though Britain had been overtaken as an economic power by first the US and then Germany.
RM: One important factor in this that is rarely understood is how monetary inflation with the dollar can spread inflation in other countries as well. How does this work?
BB: In principle, where currencies are freely floating, each country can choose its own monetary path. Foreign countries are not tied (as under a fixed exchange rate system built around the dollar) to inflationary US monetary policy. At best the given foreign country’s monetary system has a solid anchor attached to a well-functioning monetary base whose supply is independent of US influence.
In fact, we are now in a world with no such anchor anywhere. Instead, independence refers to interest rate policy, whose potential outcomes are largely unknown except by those who pretend to know the neutral rate level. In any event, defiance of US monetary policy, whether achieved ideally, via monetary base control, or by interest rate policy implementation, means potential sharp currency appreciation. This would result in losses for politically powerful economic groups in the traded goods and services sector of the economy. Moreover, money which boasted of intrinsic superiority (in terms of quality) to the dollar could become subject to large fluctuations in global demand as a haven. Individuals (in the defiant country) would still hold the domestic money in some combination with dollars to reduce their exposure to a sudden fall in [their currency’s] international purchasing power if and when the dollar rebounds. Hence, they have direct exposure to US inflation risk. In any case, the defiant country would still be subject to asset inflation spread by the US. Yield-hungry, “maddened” dollar-based investors influence the behavior of asset markets even in sound money countries—as for example equity sectors enjoying speculative narratives or sometimes a speculative bubble in their currencies.
RM: You’ve also noted, however, that the dollar is not the only player here. Other currencies are important too. Moreover, the central banks of key currencies can also “make life more difficult” for other countries. Why is this?
BB: The worse the monetary quality of the dollar, the more likely in principle it is that a foreign country would be defiant at considerable cost to US monetary hegemony. Hence in the 1970s Germany pursued an independent monetary course, seeking to shelter itself from the greatest US peacetime inflation. The Bundesbank developed and implemented a practical monetarist agenda in cooperation with a Social Democrat–liberal government which won elections on the promise of defying US inflation and thereby benefiting the middle classes. Germany became the regional monetary hegemon. Similar monetary policies in several neighboring countries meant a dampening of the deutsche mark’s potential effective exchange-rate volatility. The spectacular fall of the dollar against the deutsche mark in the crisis of 1978 helps explain the Carter administration’s bringing in Paul Volcker to head the Fed and implement the “monetarist experiment.” This turned out to be brief, and in the next US episode of monetary inflation (1985–1988/89) German defiance of the dollar hegemon finally crumbled amidst emerging flaws in Bundesbank monetarism. In a changed political climate less tolerant of sharp deutsche mark appreciation, Germany joined the euro train. There was no European or Japanese defiance of the US monetary inflation episodes of 1996–2005 or of 2013–22. Asset inflation—the chief simple manifestation of monetary inflation up until the pandemic—does not excite political reactions like high goods inflation. When this erupted in 2021–22 on both sides of the Atlantic, European central bankers and governments could not plausibly blame US hegemony, given they had been administering similar policies to Washington with enthusiasm and vigor.
RM: It seems there are many downsides to this system, yet it has persisted for a long time. Perhaps one of the best questions you ask in the book is what keeps a bad system in power. How does politics keep this system afloat?
BB: Big government, big finance, Big Tech gain much from the actual bad monetary system. The gains take the forms respectively of vast, partly camouflaged taxation; privileges and profits buoyed by asset inflation; and sky-high valuations nourished by speculative narratives about the Eldorado of endless monopoly rents. Hence in the political arena, the monetary status quo enjoys defense and attack lines fortified by crony capitalism. Reformers have not succeeded in breaking through these. Failure is due in part to monetary inflation under the present regime having shown up (until the pandemic) as asset inflation, with goods inflation largely camouflaged.
There are, however, also serious lessons which transcend the wheel of fortune. A winning message of reform, such as would emanate from a vision based on theory and application, and which reformers could deliver in response to the cheap shots of the status quo’s propagandists, has been missing. Reformers have a challenging task to persuade opinion on the basis of counterfactuals and a laboratory of history, which by its nature cannot deliver verdicts of “beyond reasonable doubt.”
Anchoring an unanchored monetary system is likely to be costly at the start. The reformers would surely gain from generating excitement about the new world in which sound money will have an integral part—joining their cause to the benefits of competitive capitalism. The reformers should aim also at undermining the status quo’s efforts to find scapegoats for crisis and societal damage as these erupt or emerge.
RM: As banks fail or the economy looks unstable, we hear repeated calls for more government regulation. But isn’t a lot of this instability caused by the monetary policy of the central banks, who are also supposedly in charge of stabilizing things? Will new regulations solve the problem?
BB: A vicious circle starts with monetary inflation. The bust phase of asset inflation follows, during which banking crisis often erupts. The regime finds its scapegoats—risky, irresponsible practices in the banking and broader financial industries motivated by greed, coupled with a giant savings surplus, which overwhelms the equilibrating mechanisms of a capitalist economy. New safety devices (deposit insurance, enhanced lender of last resort, minimal and multiple capital ratios) to prevent the eruption of future banking crises undermine further the monetary anchoring system previously in place (by diluting the “super-money” qualities of the monetary base, meaning that the demand for this is no longer strong and broad when not interest-bearing as essential to solid anchoring). Hence the danger increases of further monetary inflation episodes even harsher than the last one; the warnings about oversaving and long, sustained periods of recession, in which automatic recovery mechanisms are too weak to bring recovery, justify the authorities’ being ever ready to take “bold preemptive action” against any threatened downturn. Hence super-long cycles become the norm, but eventually these are broken by great recessions, when accumulated malinvestment and financial fragility just become too great. Safety brakes may eventually become so powerful as to mean violent banking crises no longer occur, severe asset inflations notwithstanding; that would be symptomatic of a mutation of capitalism into a China-style economic and financial system.
RM: It seems that if the dollar is weakened, this will primarily be the fault of the US central bank itself. Couldn’t the central bank take unilateral steps to strengthen its own currency? What are the benefits of a stronger currency?
BB: The implementation of a weak-dollar policy, whether declared or not, always involves the Federal Reserve’s pursuing monetary inflation. Counterfactually, an independent Fed which refused to shift policy in that direction could frustrate the aim of devaluation. That has never happened and is implausible in any gaming of possible outcomes taking account of likely shared perspectives and power relationships between Congress, the administration, and the central bank. In all episodes of dollar devaluation—Nixon-Burns (1968–72), Reagan-Volcker (1985–87), Clinton-Greenspan (1993–96), [George W.] Bush-Greenspan (2003–5), Obama- Bernanke (2009)—the accompanying inflationary monetary policy has wrought, eventually, economic destruction in the US and abroad which has been mutually reinforcing. Before that phase of destruction, the initial monetary stimulus and devaluation has gone along with a win in the first election for the president or his party. A strong-dollar policy, by contrast, means the Fed pursuing sound money and the administration/Congress renouncing devaluation. Then most other countries, small and large, would follow the US in following sound monetary principles: the dollar exchange rate would often be a key part of the anchoring system for their currency. These countries no longer would incur the costs of potential high exchange rate volatility, including sharp appreciations in consequence of their hard-money choice. The world, including the US, would be a safer and more prosperous place under the strong dollar than under a weak dollar.
RM: As a final question, it seems we should address the overall theme of the book, which is about returning to “good money.” What are the most basic tenets of good money?
BB: Good money is an excellent store of value and medium of exchange. As such, at the level of society money does not “get out of control and become the monkey wrench in all the other machinery of the economy” (to quote J.S. Mill). Good money, whether fiat or gold, has at its base a set of assets characterized by extreme moneyness and reflecting “super-money” qualities.
These assets enjoy a broad and strong demand even though they pay no interest. Constitutional rules (for fiat money) or geology and mining technology (for gold money) keep the monetary base scarce. Over the long run the supply of the monetary base grows at a very slow pace. Interest rates both short and long are freely determined without any official interventions.
[This article is excerpted from a 30,000-word memo to the Volker Fund, 1961. The full memo is available in Strictly Confidential: The Private Volker Fund Memos of Murray N. Rothbard edited by David Gordon.]
The Road to Civil War
The road to Civil War must be divided into two parts:
- the causes of the controversy over slavery leading to secession, and
- the immediate causes of the war itself.
The reason for such split is that secession need not have led to Civil War, despite the assumption to the contrary by most historians.
The basic root of the controversy over slavery to secession, in my opinion, was the aggressive, expansionist aims of the Southern "slavocracy." Very few Northerners proposed to abolish slavery in the Southern states by aggressive war; the objection – and certainly a proper one – was to the attempt of the Southern slavocracy to extend the slave system to the Western territories. The apologia that the Southerners feared that eventually they might be outnumbered and that federal abolition might ensue is no excuse; it is the age-old alibi for "preventive war." Not only did the expansionist aim of the slavocracy to protect slavery by federal fiat in the territories as "property" aim to foist the immoral system of slavery on Western territories; it even violated the principles of states’ rights to which the South was supposedly devoted – and which would logically have led to a "popular sovereignty" doctrine.
Actually, with Texas in the Union, there was no hope of gaining substantial support for slavery in any of the territories except Kansas, and this had supposedly been settled by the Missouri Compromise. "Free-Soil" principles for the Western territories could therefore have been easily established without disruption of existing affairs, if not for the continual aggressive push and trouble making of the South.
If Van Buren had been president, he might have been able to drive through Congress the free-soil principles of the Wilmot Proviso, and that would have been that. As it was, President Taylor’s bill would have settled the Western territory problem by simply adopting "popular sovereignty" principles in New Mexico, Utah, Oregon, and California territories – admitting them all eventually as free states. Instead, the unfortunate death of President Taylor, and the accession of Fillmore, ended this simple and straightforward solution, and brought forth the pernicious so-called "Compromise" of 1850, which exacerbated rather than reduced interstate tensions by adding to the essential Taylor program provisions for stricter enforcement of the Fugitive Slave Law. Since the Fugitive Slave Law not only forced the Northern people to collaborate in what they considered – correctly – to be moral crime, but also violated Northern state rights, the strict Fugitive Slave Law was a constant irritant to the North.
The shift from free-soil principles in the Democratic Party and toward the Compromise of 1850 wrecked the old Jacksonian Democracy. The open break became apparent in Van Buren and the Free Soil candidacy of 1848; the failure of the Democratic Party to take an antislavery stand pushed the old libertarians into Free Soil or other alliances, even into the new Republican Party eventually: this tragic split in the Democratic Party lost it its libertarian conscience and drive.
Pro-southern domination of the Democratic Party in the 1850s, with Pierce and Buchanan, the opening up of the Kansas territory to slave expansion (or potential slave expansion) in 1854, led to the creation of the antislavery Republican Party. One tragedy here is that the surrender of the Democrat and Whig parties to the spirit of the Compromise of 1850 forced the free-soilers into a new party that was not only free soil, but showed dangerous signs (in Seward and others) of ultimately preparing for an abolitionist war against the South. Thus, Southern trouble making shifted Northern sentiment into potentially dangerous channels. Not only that: it also welded in the Republican Party a vehicle dedicated, multifold, to old Federalist-Whig principles: to high tariffs, to internal improvements and government subsidies, to paper money and government banking, etc. Libertarian principles were now split between the two parties.
The fantastic Dred Scott decision changed the political scene completely: for in it the Supreme Court had apparently outlawed free-soil principles, even including the Missouri Compromise. There was now only one course left to the lovers of freedom short of open rebellion against the Court, or Garrison’s secession by the North from a Constitution that had indeed become a "compact with Hell"; and that escape hatch was Stephen Douglas’s popular sovereignty doctrine, in its "Freeport" corollary: i.e., in quiet, local nullification of the Dred Scott decision.
At this critical juncture, the South continued on its suicidal course by breaking with Douglas, insistent on the full Dred Scott principle, and leading to the victory of their enemy Lincoln. Here again, secession was only "preventive," as Lincoln had given no indication of moving to repress slavery in the South.
It is here that we must split our analysis of the "causes of the Civil War"; for, while this analysis leads, in my view, to a "pro-Northern" position in the slavery-in-the-territories struggles of the 1850s, it leads, paradoxically, to a "pro-Southern" position in the Civil War itself. For secession need not, and should not, have been combated by the North; and so we must pin the blame on the North for aggressive war against the seceding South. The war was launched in the shift from the original Northern position (by Garrison included) to "let our erring sisters depart in peace" to the determination to crush the South to save that mythical abstraction known as the "Union" – and in this shift, we must put a large portion of the blame upon the maneuvering of Lincoln to induce the Southerners to fire the first shot on Fort Sumter – after which point, flag-waving could and did take over.
The War Against the South and Its Consequences
The Civil War was one of the most momentous events in American history, not only for its inherent drama and destruction, but because of the fateful consequences for America that flowed from it.
We have said above that the War of 1812 had devastating consequences for the libertarian movement; indeed, it might be said that it took twenty years of devotion and hard work for the Jacksonian movement to undo the étatist consequences of that utter failure of a war. It is the measure of the statist consequences of the Civil War that America never recovered from it: never again was the libertarian movement to have a party of its own, or as close a chance at success. Hamiltonian neo-Federalism beyond the wildest dreams of even a J.Q. Adams had either been foisted permanently on America, or had been inaugurated, to be later fulfilled.
Let us trace the leading consequences of the War Against the South: there is, first, the enormous toll of death, injury, and destruction. There is the complete setting aside of the civilized "rules of war" that Western civilization had laboriously been erecting for centuries: instead, a total war against the civilian population was launched against the South. The symbol of this barbaric and savage oppression was, of course, Sherman’s march through Georgia and the rest of the South, the burning of Atlanta, etc. (For the military significance of this reversion to barbarism, see F.J.P. Veale, Advance to Barbarism). Another consequence, of course, was the ending of effective states’ rights, and of the perfectly logical and reasonable right of secession – or, for that matter, nullification. From now on, the Union was a strictly compulsory entity.
Further, the Civil War foisted upon the country the elimination of Jacksonian hard money: the greenbacks established government fiat paper, which it took 14 long years to tame; and the National Bank Act ended the separation of government from banking, effectively quasi-nationalizing and regulating the banking system, and creating an engine of governmentally sponsored inflation.
So ruthlessly did the Lincoln administration overturn the old banking system (including the effective outlawing of state bank notes) that it became almost impossible to achieve a return – impossible that is, without a radical and almost revolutionary will for hard money, which did not exist. On the tariff, the virtual destruction of the Democratic Party led to the foisting of a high, protective tariff to remain for a generation – indeed, permanently, for the old prewar low tariff was never to return. It was behind this wall of tariff-subsidy that the "trusts" were able to form. Further, the administration embarked on a vast program of subsidies to favored businesses: land grants to railroads, etc. The Post Office was later monopolized and private postal services outlawed. The national debt skyrocketed, the budget increased greatly and permanently, and taxes increased greatly – including the first permanent foisting on America of excise taxation, especially on whiskey and tobacco.
Thus, on every point of the old Federalist-Whig vs. Democrat-Republican controversy, the Civil War and the Lincoln administration achieved a neo-Federalist triumph that was complete right down the line. And the crushing of the South, the military Reconstruction period, etc. assured that the Democratic Party would not rise again to challenge this settlement for at least a generation. And when it did rise, it would have a much tougher row to hoe than did Van Buren and Co. in an era much more disposed to laissez-faire.
But this was not all: for the Civil War saw also the inauguration of despotic and dictatorial methods beyond the dreams of the so-called "despots of ’98." Militarism ran rampant, with the arrogant suspension of habeas corpus, the crushing and mass arrests in Maryland, Kentucky, etc.; the suppression of civil liberties and opposition against the war, among the propeace "Copperheads" – the persecution of Vallandigham, etc.; and the institution of conscription. Also introduced on the American scene at this time was the income tax, reluctantly abandoned later, but to reappear. Federal aid to education began in earnest and permanently with federal land grants for state agricultural colleges. There was no longer any talk, of course, about abolition of the standing army or the navy. Almost everything, in short, that is currently evil on the American political scene, had its roots and its beginnings in the Civil War.
Because of the slavery controversy of the 1850s, there was no longer a single libertarian party in America, as the Democratic had been. Now the free-soilers had left the Democrat ranks. But, especially after Dred Scott had pushed the Douglas "Freeport Doctrine" to the fore as libertarian policy, there was hope for a reunited Democracy, especially since the Democrat party was still very good on all questions except slavery. But the Civil War wrecked all that, and monolithic Republican rule could impress its neo-Federalist program on America to such an extent as to make it extremely difficult to uproot.
Not many are aware that one of the greatest works against the encroachment of the state originates from a German thinker. As early as the late eighteenth century, Wilhelm von Humboldt (1767–1835) raised the question of the general limits of state activity. Humboldt wrote his Ideas for an Attempt to Determine the Limits of the Effectiveness of the State in 1792. While individual sections of it appeared in the Berlinische Monatsschrift, the complete text was published in 1851 through his estate.
Principle According to Wilhelm von Humboldt, the basic principle of the limits of state activity lies in its strict necessity. Humboldt’s theoretical considerations lead to the general conclusion that state activity must not be subject to utility but to necessity. This “principle of necessity” is derived from the peculiarity of the natural human being in its individuality. Utility, in contrast to necessity, only exists in degrees and not as a fundamental principle. If one were to start from the principle of utility, it would be possible to continually justify ever more state intervention.
Determining the limits of state activity is not only about freedom in and of itself but also about benefiting from the diversity that is inherent in human beings. Freedom is closely connected to individuality—which is inconceivable without freedom—as the development of individuality presupposes freedom. On the other hand, privacy increases as much as the scope of state action decreases. Both are interrelated. Agreeing to the expansion of state activity means restricting the realm of private life.
The state can only focus on the results and establish the rules to be followed. This leads to the problem that when the state seeks to care for the positive well-being of its citizens, the measures taken necessarily must uniformly target a mixed multitude. From these considerations, Humboldt deduces the principle: “The state should refrain from all concern for the positive well-being of the citizens and go no further than necessary to secure their safety against themselves and external enemies; it should restrict their freedom for no other purpose.”
State Intervention The goal of all education is to foster the development of personal individuality. Individual freedom and the diversity of the experience of life are the prerequisites for individual development. Therefore, in determining the limits of state activity, it follows that “every attempt by the state to interfere in the private affairs of citizens is reprehensible unless they have a direct bearing on the violation of one person’s rights by another person.” State intervention beyond the resolution of civil disputes is illegitimate. Rational reasoning restricts state activity to those actions that prevent harm when voluntary agreement cannot be reached within civil society itself. Even if state intervention seems to be justified in terms of its function, the arbitrary use of the means of state intervention cannot be allowed.
For Wilhelm von Humboldt, it is detrimental that the state tries to increase the positive well-being of the nation, whether through public welfare, the fostering of foreign trade, or the promotion of economic, monetary, and financial affairs. All these institutions and policy measures are inappropriate for a society based on a human perspective that claims individual development as its central value.
The state’s use of resources collides with the human pursuit of individual diversity. State intervention necessarily brings uniformity and thus is an action that is alien to private society. Uniform governmental interventions lead to a situation where, instead of individuals sharpening their own capabilities, the affected individuals obtain goods from the state at the expense of their own strength. Uniformity and weakness are the results of these interventions instead of the diversity and strength that emerge from the free interaction of people. The individuals affected by state intervention, even when these interventions are aimed at “supporting” them, are relegated to the role of objects. The superior power of the state hampers the spontaneous play of forces that thrive within the members of a free community: “Uniform causes have uniform effects. Therefore, the more the state participates, the more similar not only do the actions become, but also the effects produced.”
The state desires tranquility and obedience and therefore favors uniformity. In contrast, individuals desire diversity and sovereignty over their own activities. Only those who fail to recognize the essence of human life would assume that individuals are solely concerned with the accumulation of wealth and pleasure. Such a view denigrates human beings as machines.
The vitality of the individual comes to fruition when he can act for himself. Human pursuits are intimately connected to ownership and the freedom to act. In contrast, state interventions always weaken the individual’s abilities and thus weaken the nation. All strength presupposes enthusiasm, and few things nourish enthusiasm as much as individual possessions and the expectation of future property. The intellect and other human abilities are only developed through their own activity, personal invention, and the independent utilization of one’s own mind and own means: “State regulations, however, always entail more or less coercion, and even when this is not the case, they habituate people too much to expect more external instruction, guidance, and assistance than to think of solutions themselves.”
Not only does natural human activity suffer from state intervention but morality does as well. Those who are led by authority easily fall under the spell of voluntarily sacrificing the remainder of their own activity. The assisted individual believes that he is relieved of his own concerns through external help, and thus the concept of merit and guilt shifts. Due to the extended external help, such individuals tend to believe that they are not only exempt from any other duty beyond those that the state expressly imposes but also exempt from any necessity to improve their own conditions. Under state activity, not only does the strength of the individual suffer but so does the “goodness of the moral will.”
The more extensive the state’s activity, the more people will try to evade its laws and regulations, considering each escape as a gain. The more the state’s activity spreads, the colder the relationships between people become in society. Even in private social relationships, people will rely increasingly on the state. When everyone depends on the state’s assistance, voluntary mutual assistance will gradually weaken. What is not chosen freely by the individual, but in which he is restricted and guided, does not become a part of human nature. It remains forever alien to human beings, and people do not act with human power but behave with mechanical skill.
Necessity, Not Utility Humboldt’s aim is to determine a principle for defining the limits of state activity. For this purpose, two aspects must be considered: firstly, what the government’s claim to authority should be based on, and secondly, what the scope of state activity should be and where its boundaries lie.
Humboldt’s considerations lead to the general conclusion that state activity is strictly subject to the principle of necessity and not to the criterion of utility. Utility would always require renewed action, while a necessity—as a strictly negative principle—demarcates the limits of state activity clearly. Justifying state activity based on utility drives more and more state intervention. Applying the criterion of utility to state activity does not allow for a pure and definite assessment. Applying the concept of utility requires calculations of probability, which cannot be error-free and are at risk of being thwarted by the slightest unforeseen circumstances. The gradations of utility are infinite. They always demand further action. On the other hand, necessity presents itself obviously, and what such a necessity commands is to be “always not only useful but even indispensable.”
The peculiarity of the natural human being determines the limits of the state, and only the principle of necessity is compatible with reverence for the individuality of self-active beings and the care for freedom that springs from this respect. Accordingly, the principle of necessity is “the only infallible means to empower laws and give them authority; they arise solely from this principle.” In contrast to necessity, utility provides no clear-cut demarcation. Applying the concept of utility to state activity means that there will always be different views and opinions to consider about what is useful and what is not as helpful. Justifying state activity based on utility brings with it more and more activities that are considered to fall within the realm of state activity, which by itself makes the justification in terms of utility increasingly questionable. Using utility as its guide, the study of a given situation becomes intricately complicated. This is quite different from the principle of necessity. By following the principle of necessity, the examination of the situation becomes simpler, and finding the right insight becomes easier.
Conclusion A dynamic and powerful community requires that the state be as passive as possible. The philosophical ideal of the development of human individuality serves as the guiding principle in rejecting the active state. There is a trade-off in place that says that the more active the state, the more passive society will be and the less room there will be for human flourishing. An active state faces the contradiction that state interventions must inherently be uniform while the urge for diversity prevails in society.
As the main principle, Humboldt rejects utility in favor of necessity. Utility is a brittle and frail criterion that would allow any state expansion on dubious grounds. Necessity, in contrast, serves as the appropriate criterion. No state activity is legitimate that goes beyond necessity. The limit of state activity is strict necessity.
In today's progressive climate, sexual assault charges are easy to make and hard to refute, even when they are demonstrably false.
Original Article: "Demonizing Men with False Data on Sexual Abuse"
President Joe Biden’s Federal Trade Commission (FTC) appointees have an affinity for returning to an earlier era’s antitrust enforcement, sometimes summarized as a “big is bad” or “neo-Brandeisian” approach. The most famous (or notorious) current example is the FTC’s opposition to the proposed merger between Microsoft and Activision.
In their words, the merger would give Microsoft “both the means and motive to harm competition.” How could that happen? Supposedly by “manipulating Activision’s pricing, degrading Activision’s game quality or player experience on rival consoles and gaming services, changing the terms and timing of access to Activision’s content, or withholding content from competitors entirely, resulting in harm to consumers.”
However, the FTC’s fears about higher prices for Activision games are the opposite of what will happen—lower costs for gamers’ access to their favorite games. Its fears about lowering game quality or player experience conflict with Microsoft’s postmerger incentives—to get their money’s worth by attracting more players to its games. The FTC’s fears of Microsoft worsening terms of access for its rivals, or even cutting them out entirely, are also at odds with Microsoft’s incentives to increase, rather than decrease, their very large revenue streams from Call of Duty and other franchise games that are played on other systems as well as its own, as illustrated by its offer of legally binding ten-year contracts to not worsen terms to rival makers (which Sony rejected). In other words, the FTC is painting a dystopian picture of the effects of the merger because it could conceivably happen. Unfortunately for the FTC’s stated reasons for opposition, however, it is not what could conceivably happen that matters; instead, it matters as to what is in Microsoft’s and Activision’s interests.
Even the European Union has approved the Microsoft-Activision deal. Given that the current FTC appears to perceive the European Union’s antitrust decision-making matrix as the global model to follow, with the Wall Street Journal reporting that it often collaborates with the international organization to advance antitrust policy, one would think that the FTC would follow its lead and greenlight this merger. Yet, the FTC remains steadfastly against the Microsoft-Activision deal.
It is striking how closely the claims the FTC is making to justify its opposition to the Microsoft-Activision merger reflect one of the most famously foolish court decisions on mergers in the era they wish to revive—the Supreme Court’s 1966 rejection of the proposed merger of Vons Grocery with Shopping Bag Food Stores, which former FTC head Timothy Muris called an illustration of “an incoherent era of case law.”
Neither merger would create anything like a dominant share of the relevant market, and without that, claims of threatened abuses of monopoly power are unconvincing. The Vons-Shopping Bag merger would have created a combined share of the Los Angeles market in the single digits. Similarly, the Microsoft-Activision combination “would only control 10.7 percent of the gaming market as a publisher.”
Not only did the market shares in both cases indicate there was no incipient market dominance that could harm consumers, but also because the firms largely served different markets, the FTC overstated the potential for harm. The district court, which ruled in favor of the Vons merger (before the Supreme Court reversed it), found that “Vons stores were in the southern and western parts of Los Angeles, while Shopping Bag was more in the north and east,” meaning that the calculated share “greatly exaggerated the extent of the overlap.” In the case of Microsoft, the merger would provide “a toehold in mobile gaming—where most people game and where Microsoft’s Xbox currently has virtually no presence,” and entering a concentrated market in which it had almost no presence expands, rather than contracts, competition.
In both cases, stopping the merger would not increase competition. It would erect barriers against the entry or expansion of more efficient competitors, which protects not competition but current firms from competition. In the Vons case, the economies of scale, logistics, etc., produced by the combination, as in many other markets where chains were booming, would lower costs and expand consumer choices, which would have raised the customer-imposed bar other grocers had to meet to keep them.
In the Microsoft case, the merger would add a great deal of value to its Game Pass subscription service, making Microsoft’s offerings far more attractive at a time where mobile gaming is the big growth area. Improving those offerings, when Game Pass has already attracted over twenty-five million subscribers, would attract many more, offering more attractive terms to vast numbers of gamers than what is available to them now, not threatening to harm them via some monopoly abuse.
That is, in fact, the key to understanding why Sony is the spearhead of opposition to the merger. One commenter said that “virtually no one opposes the deal, except Sony.” Sony would have its dominant position in video game platforms undermined by better and more flexible options. And one of the clearest signs that improved options are being offered (i.e., the competitive process is being enhanced) is when rivals oppose them but consumers favor them.
Further, any claims of dominant power being created today, leading to consumer harm, are undermined by the rapid growth of the gaming market, just as was the case for the booming supermarket industry in Los Angeles in the 1960s. The potential profits from better serving a rapidly growing market dominate those gained from using one’s market power over existing customers and shrinking their number.
That better service involves lower prices and better options. In Vons’s case, chains’ ability to expand offerings and lower prices were the obvious draws compared to smaller stores. And Microsoft’s Game Pass, especially if it is expanded to include Call of Duty along with a raft of other games, will offer more flexible and cheaper options than buying each game separately. For instance, it would allow trying out a host of games you are not sure you would like at a lower cost (as part of a bundle) than having to buy them up front. Further, one would not have to buy multiple consoles to get access to favorite but exclusive games. (Interestingly, Sony, leading the “it would be anticompetitive” charge against the Microsoft-Activision merger, has far more games exclusive to its platform than anyone else.)
The Vons-Shopping Bag merger case, a little more than half a century ago, produced a ruling that may have been dressed up as procompetitive but was sharply anticompetitive. It restricted the competitive process in favor of protecting some producers from competing with others who served consumers better. It even led to one the most famous lines from a Supreme Court dissent when Justice Potter Stewart wrote, “The sole consistency that I can find is that, in [merger] litigation . . . the Government always wins.” Given how the current FTC seems to want to return to “winning” more often in cases where a deal “aims to increase the welfare of consumers,” as with the Microsoft-Activision merger, we would do better to follow reality than the FTC’s rhetoric.
In times of banking and financial crises, central banks always intervene. This is not a law of nature, but it is an empirical law of central bank behavior. The Federal Reserve was created 110 years ago specifically to address banking panics by expanding money and credit when needed, by providing what was called in the Federal Reserve Act of 1913 an “elastic currency,” so it could make loans in otherwise illiquid markets, when private institutions can’t or won’t.
The great Victorian banking thinker (as well as private banker) Walter Bagehot proposed that the Bank of England “lend freely” to quell a panic, and the central banks of the world today are all his disciples in this respect. With the post–Bretton Woods, pure-fiat-currency Federal Reserve, the US currency is elastic with a vengeance. That’s how we got a Fed with assets of $3 trillion during the great real estate bust of 2007–12 and then the truly remarkable $8.9 trillion Fed balance sheet in the wake of the covid financial crisis of 2020.
Austrian economists are generally against any central bank intervention at all, but suppose with me arguendo that the case for intervention in a crisis prevails: that the periodic financial crises that do and doubtless will continue to occur should be addressed by the temporary expansion of the compact power and money-printing ability of the government and its central bank—especially the money-printing power, which shifts assets and risks to the government’s balance sheet. The central bank’s balance sheet thus expands to offset the pressured private balance sheets. Even if the crisis was caused by the actions of the central bank itself, as Austrians would point out, and even though the expansion creates moral hazard for the future, the central bank’s elastic currency and balance sheet are handy in midst of the crisis. This is the credo of all modern central banks.
But what happens when the crisis is over?
Note well the essential word temporary in the preceding argument for crisis intervention. The crisis interventions should be temporary. If prolonged, they will tend more toward monopoly and bureaucracy and less toward innovation, growth, and economic well-being than will competitive, enterprising markets. In the extreme, long-term intervention will produce markets characterized by socialist stagnation. How do you get interventions withdrawn when the crisis is over?
Consider a huge and radical intervention of the last fifteen years. The Federal Reserve started buying mortgage securities at the beginning of 2009. The amount of mortgage securities which had been owned by the Federal Reserve until then, from 1913 to 2008, was exactly zero. Then, faced with the shriveling of the vast housing bubble and the panic of 2008, the Fed was led by Chairman Ben Bernanke into a new intervention and started buying mortgage securities to prop up house prices and the housing finance market. This was the opposite of the former Fed orthodoxy, which held that the monetary power of the central bank should not be used to favor any particular economic sector.
Bernanke’s theory was that this radical intervention would be temporary. As he testified before Congress in February 2011: “What we are doing here is a temporary measure which will be reversed so that at the end of the process, the money supply will be normalized, the amount of the Fed’s balance sheet will be normalized, and there will be no permanent increase, either in money outstanding, in the Fed’s balance sheet, or in inflation” (Italics added).
Needless to say, the promised normalization didn’t happen. As of the end of April 2023, the Fed owns $2.6 trillion of mortgage securities. That is larger than what the total assets of the Fed were at the end of 2008. That number and the interest rate risk it represents would have astonished previous generations of Federal Reserve governors. The Fed also experienced a massive mark to market loss on these mortgage securities: a loss of $408 billion as of the end of 2022, or almost ten times the Fed’s total capital of $42 billion.
In the intervening years, the Fed’s mortgage purchases, driving down mortgage interest rates to an unprecedented less than 3 percent, stoked a major house price inflation. By 2021, US national house prices were in a new bubble, their increase rising to an annual rate of over 16 percent. Faced with runaway inflation of house prices, the Fed has unbelievably continued to buy hundreds of billions of dollars of mortgage securities, and never sells any. I know of no one who now defends this far overextended intervention.
In my view, the Federal Reserve should get out of the business of pushing up house prices, and the Fed’s mortgage portfolio should go back to the normal amount of exactly zero.
Emergency interventions, however sincere the original intent that they be temporary, inevitably build up political and economic constituencies who profit from them and want their continuation. When the central bank monetizes government debt, the biggest such constituent is the government itself.
So here is our essential and unsolved problem: How do you reverse the central bank emergency programs, originally thought and meant to be temporary, after the crisis has passed? No one has successfully addressed the issue of how to do this—not even central banking’s most ardent supporters propose an answer.
That the emergency interventions of the crisis should be withdrawn in the normal times which follow I call the Cincinnatian doctrine. The name comes from the ancient Roman hero Cincinnatus, who was called from his plow to save the state and made temporary dictator of Rome. He did save the state, and then, mission accomplished, eft his dictatorship and went back to his farm. Similarly, two millennia later, George Washington, the victorious general and hero who had saved the United States and might perhaps have made himself king, voluntarily resigned his commission and went back to his farm, becoming to the eighteenth century “the modern Cincinnatus.”
But the Federal Reserve does not have the republican virtue of Cincinnatus or Washington, so how do we get the Fed to go back to its farm? The difficulty of ending vast emergency interventions whose day has passed but which have become established and advantageous to their constituencies and have increased the power enjoyed by the central bankers is the Cincinnatian problem. There is no easy answer to the Cincinnatian problem. It deserves our intense focus.
It's difficult to say what most Americans commemorate or celebrate on Independence Day nowadays. Many appear to focus on some vague notion of "America." Others even take to jingoism equating the United States government with the very notion of "freedom."
Lost in all of this is the fact that the Declaration of Independence — the document we're supposed to remember today — is a document that promotes secession, rebellion, and what the British at the time regarded as treason.
On the other hand, those who do recall the radical nature of the Declaration often tend to romanticize the American Revolution in a way that is neither instructive nor helpful today.
So, what should we remember about Independence Day, and what can it teach us? For starters, here are three things about the history and context of this holiday that should continue to inform us today and into the future.
One: If You Can't Secede, You're Not Really Free The very first sentence of the Declaration of Independence lays it out. Sometimes, "it becomes necessary for one people to dissolve the political bands which have connected them with another..."
The document then goes on to list in detail why 1776's specific act of secession was justified and necessary for preserving the rights of the colonists.
By the 19th century, this philosophy of self-determination would become a foundational element of the ideology now known internationally as liberalism — or "classical liberalism" in the United States.
Not surprisingly, we find this idea in the later writings of liberals such as Ludwig von Mises who, writing in Vienna in 1927, concluded:
It must always be possible to shift the boundaries of the state if the will of the inhabitants of an area to attach themselves to a state other than the one to which they presently belong has made itself clearly known...
[W]henever the inhabitants of a particular territory ... make it known ... that they no longer wish to remain united to the state to which they belong at the time ... their wishes are to be respected and complied with.
Mises, like Jefferson, understood that without this right of self-determination, there is no freedom.
Nevertheless, modern opponents of self-determination and secession will claim that secession cannot be tolerated because it is not "legal."
This is scarcely relevant. After all, the colonial uprising against the King was not "legal," and it hardly matters whether political victors consider any breakaway secession movements legal. Times and societies change, and nothing is forever or written in stone.
For Mises, secession must be tolerated for pragmatic reasons. It is "the only feasible and effective way of preventing revolutions and civil and international wars." But For Jefferson, as for his fellow secessionists, it was a moral imperative, whether "treasonous" or not.
Two: Independence Day Is Not a Military Holiday For obvious reasons, government institutions have little motivation to emphasize the Declaration of Independence or the philosophy it represents. This would amount to the government undermining itself. Consequently, many have attempted to turn the Fourth of July into a holiday that embraces vague notions of celebrating "America."
These ahistorical interpretations notwithstanding, Independence Day recalls resistance and a withdrawal of fealty to a hostile political power. We should not twist it into a celebration of our current rulers in Washington, the federal government, or the troops that work for and represent the federal government.
It should be a celebration against government and a reminder that Americans can once again walk away from tyranny, even if force of arms is required.
This does not defame or insult the American troops, but rather reminds us that we are a civilian nation and the government (and its troops) is supposed to be our servant rather than our master. Slavish displays of patriotism and loyalty to the state are inimical to the real meaning of the holiday.
Three: Armed Revolt Is a Serious and Rare Event Among those who do wish to commemorate the true resistance offered by the revolutionaries, there is a different error: thinking that armed resistance is always right around the corner.
In some corners of America, it's become almost commonplace to hear claims that surely the Second American Revolution will come with just a few more outrages committed against life, liberty, or property. All it will take is a few more no-knock raids committed against peaceful families sleeping in their beds. Or perhaps the government need only seize a few more guns before the American people "wake up." Or perhaps once someone reveals the extent to which the US government spies on us all — as Edward Snowden has already done — then Americans will simply refuse to tolerate it any more.
In truth, armed resistance tends to only materialize in the midst of poverty or foreign invasion. Not surprisingly, over the past century, despite decades of immense growth in government power, rising taxes, and stifling government regulations, virtually no Americans have been taking up arms against the American state.
Some of this may stem from admirable prudence. After all, the American Revolution was an exceptionally bloody conflict, and such conflicts should not be started lightly. As noted by the Library of Congress, "[t]he Revolution ... was, after the Civil War, the costliest conflict in American history in terms of the proportion of the population killed in service. It was three times more lethal than World War II." The poverty, property destruction, and loss of life was immense given the tiny size of the American population at the time.
Most Americans are unaware of these specifics, but most people instinctively know that armed conflict can bring with it a very high price.
This doesn't mean armed resistance is impossible, of course. It's simply worth recognizing that so long as Americans enjoy some of the world's highest standards of living few will be motivated to take up arms.
Ideas Always Matter It is also helpful to remember that armed conflict can be especially disastrous when motivated by the wrong ideas and the wrong ideologies. Who can say with confidence that if the US government were wiped away today, that it would not be replaced with something even worse? Under such circumstances, we must never abandon the important work of laying the foundations first for a revolution in ideas. Without a true respect for the freedoms outlined in the Declaration of Independence, political resistance is of little value. Moreover, in a society where true freedom is valued — and where a majority embraces liberal ideals — violence will prove to be totally unnecessary. And this would be the best outcome of all.
Some conservatives are upset because the new best-selling beer is owned by the same company that owns the beleaguered Bud Lite. Actually, they should have no problem with that.
Original Article: "Do Boycotts Really Work? Another Look at the Bud Light Situation"
Historians have long debated the precise causes of the American Revolution: Were they constitutional, economic, political, or ideological? We now realize that, being libertarians, the revolutionaries saw no conflict between moral and political rights on the one hand and economic freedom on the other. On the contrary, they perceived civil and moral liberty, political independence, and the freedom to trade and produce as all part of one unblemished system, what Adam Smith was to call, in the same year that the Declaration of Independence was written, the "obvious and simple system of natural liberty."
The libertarian creed emerged from the "classical liberal" movements of the seventeenth and eighteenth centuries in the Western world, specifically, from the English Revolution of the seventeenth century. This radical libertarian movement, even though only partially successful in its birthplace, Great Britain, was still able to usher in the Industrial Revolution there by freeing industry and production from the strangling restrictions of State control and urban government-supported guilds. For the classical liberal movement was, throughout the Western world, a mighty libertarian "revolution" against what we might call the Old Order — the ancien régime which had dominated its subjects for centuries. This regime had, in the early modern period beginning in the sixteenth century, imposed an absolute central State and a king ruling by divine right on top of an older, restrictive web of feudal land monopolies and urban guild controls and restrictions. The result was a Europe stagnating under a crippling web of controls, taxes, and monopoly privileges to produce and sell conferred by central (and local) governments upon their favorite producers. This alliance of the new bureaucratic, war-making central State with privileged merchants — an alliance to be called "mercantilism" by later historians — and with a class of ruling feudal landlords constituted the Old Order against which the new movement of classical liberals and radicals arose and rebelled in the seventeenth and eighteenth centuries.
The object of the classical liberals was to bring about individual liberty in all of its interrelated aspects. In the economy, taxes were to be drastically reduced, controls and regulations eliminated, and human energy, enterprise, and markets set free to create and produce in exchanges that would benefit everyone and the mass of consumers. Entrepreneurs were to be free at last to compete, to develop, to create. The shackles of control were to be lifted from land, labor, and capital alike. Personal freedom and civil liberty were to be guaranteed against the depredations and tyranny of the king or his minions. Religion, the source of bloody wars for centuries when sects were battling for control of the State, was to be set free from State imposition or interference, so that all religions — or nonreligions — could coexist in peace. Peace, too, was the foreign policy credo of the new classical liberals; the age-old regime of imperial and State aggrandizement for power and pelf was to be replaced by a foreign policy of peace and free trade with all nations. And since war was seen as engendered by standing armies and navies, by military power always seeking expansion, these military establishments were to be replaced by voluntary local militia, by citizen-civilians who would only wish to fight in defense of their own particular homes and neighborhoods.
Thus, the well-known theme of "separation of Church and State" was but one of many interrelated motifs that could be summed up as "separation of the economy from the State," "separation of speech and press from the State," "separation of land from the State," "separation of war and military affairs from the State," indeed, the separation of the State from virtually everything.
The State, in short, was to be kept extremely small, with a very low, nearly negligible budget. The classical liberals never developed a theory of taxation, but every increase in a tax and every new kind of tax was fought bitterly — in America twice becoming the spark that led or almost led to the Revolution (the stamp tax, the tea tax).
The earliest theoreticians of libertarian classical liberalism were the Levelers during the English Revolution and the philosopher John Locke in the late seventeenth century, followed by the "True Whig" or radical libertarian opposition to the "Whig Settlement" — the regime of eighteenth-century Britain. John Locke set forth the natural rights of each individual to his person and property; the purpose of government was strictly limited to defending such rights. In the words of the Lockean-inspired Declaration of Independence, "to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed. That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it…."
While Locke was widely read in the American colonies, his abstract philosophy was scarcely calculated to rouse men to revolution. This task was accomplished by radical Lockeans in the eighteenth century, who wrote in a more popular, hard-hitting, and impassioned manner and applied the basic philosophy to the concrete problems of the government — and especially the British government — of the day. The most important writing in this vein was "Cato's Letters," a series of newspaper articles published in the early 1720s in London by True Whigs John Trenchard and Thomas Gordon. While Locke had written of the revolutionary pressure which could properly be exerted when government became destructive of liberty, Trenchard and Gordon pointed out that government always tended toward such destruction of individual rights. According to "Cato's Letters," human history is a record of irrepressible conflict between Power and Liberty, with Power (government) always standing ready to increase its scope by invading people's rights and encroaching upon their liberties. Therefore, Cato declared, Power must be kept small and faced with eternal vigilance and hostility on the part of the public to make sure that it always stays within its narrow bounds:
We know, by infinite Examples and Experience, that Men possessed of Power, rather than part with it, will do any thing, even the worst and the blackest, to keep it; and scarce ever any Man upon Earth went out of it as long as he could carry every thing his own Way in it…. This seems certain, That the Good of the World, or of their People, was not one of their Motives either for continuing in Power, or for quitting it.
It is the Nature of Power to be ever encroaching, and converting every extraordinary Power, granted at particular Times, and upon particular Occasions, into an ordinary Power, to be used at all Times, and when there is no Occasion, nor does it ever part willingly with any Advantage….
Alas! Power encroaches daily upon Liberty, with a Success too evident; and the Balance between them is almost lost. Tyranny has engrossed almost the whole Earth, and striking at Mankind Root and Branch, makes the World a Slaughterhouse; and will certainly go on to destroy, till it is either destroyed itself, or, which is most likely, has left nothing else to destroy.
Such warnings were eagerly imbibed by the American colonists, who reprinted "Cato's Letters" many times throughout the colonies and down to the time of the Revolution. Such a deep-seated attitude led to what the historian Bernard Bailyn has aptly called the "transforming radical libertarianism" of the American Revolution.
For the revolution was not only the first successful modern attempt to throw off the yoke of Western imperialism — at that time, of the world's mightiest power. More important, for the first time in history, Americans hedged in their new governments with numerous limits and restrictions embodied in constitutions and particularly in bills of rights. Church and State were rigorously separated throughout the new states, and religious freedom enshrined. Remnants of feudalism were eliminated throughout the states by the abolition of the feudal privileges of entail and primogeniture. (In the former, a dead ancestor is able to entail landed estates in his family forever, preventing his heirs from selling any part of the land; in the latter, the government requires sole inheritance of property by the oldest son.)
The new federal government formed by the Articles of Confederation was not permitted to levy any taxes upon the public; and any fundamental extension of its powers required unanimous consent by every state government. Above all, the military and war-making power of the national government was hedged in by restraint and suspicion; for the eighteenth-century libertarians understood that war, standing armies, and militarism had long been the main method for aggrandizing State power.
[From For a New Liberty.]
When the Soviet Union began its collapse in 1989, the world witnessed decentralization and secession on a broad scale.
Over the next several years, puppet regimes and states that were independent in name only broke away from Soviet domination and formed sovereign states. Some states which had completely ceased to exist—such as the Baltic states—declared independence and became states in their own right. In its heyday, the Soviet Union had been three times the size of the United States, and was controlled by a regime with nearly untrammeled power consolidated in a centralized state. In its place rose a number of new regimes that were smaller in size and smaller in population.
In total, secession and decentralization in this era brought about more than a dozen newly independent states.1
Political decisions that had once been made unilaterally in Moscow now were being made in numerous places; places like Riga in Latvia, Kiev in Ukraine, and Yerevan in Armenia.
This period served as an important reminder that human history is not, in fact, just a story of ever-increasing state power and centralization.
Since then, however, the world has seen few successful secession movements. A handful of new countries have come into being over the past twenty years, such as East Timor and South Sudan. But in spite of many efforts by separatists worldwide, there have been few changes to the lines on the maps.
This has certainly been the case in Europe and the Americas, where from Quebec to Scotland to Catalonia to Venice demands for independence have been met with trepidation and sometimes outright threats of violence from central governments.2
Benefits of Bigness: More Sources of Wealth for Costly State Institutions
State opposition to any movement toward dismemberment is partly due to the fact that state organizations—that is, the people who control them—are motivated to cling to the benefits conferred by bigness.
Much of this stems from the nature of states themselves. The ideology underpinning the modern sovereign state—also known as the “Westphalian state”—is founded largely on the idea that states ought to secure and protect a monopoly on the means of coercion within a specific territory. This process of statebuilding often involved the physical invasion of independent regions and territories within a potential state’s territory, and the neutralization of any military forces answerable to local nobles or municipal governments. As a state’s rulers sought to consolidate power, they pursued new ways to limit the power of local power centers such as cities, guilds, religious organizations and the local nobility. When successful, this strategy enabled state rulers to control resources directly rather than indirectly through local institutions. Ideally, state rulers built up large state bureaucracies answerable to—and funded directly by—the central state. More specifically, states must, as described by political scientist Charles Tilly,
Produce distinct organizations that control the chief concentrated means of coercion within well-defined territories, and exercise priority in some respects over all other organizations operating within those territories. Efforts to subordinate neighbors and fight off more distant rivals create state structures in the form not only of armies but also of civilian staff that gather the means to sustain armies and that organize the ruler’s day-to-day control over the rest of the civilian population.3
According to Tilly, these “distinct organizations” clearly include armies, but they also include organizations such as police, a bureaucracy for collecting taxes, and a prison system. Most important are the institutions that ensure physical control over the state’s potential enemies both foreign and domestic. As Murray Rothbard has noted:
What the State fears above all, of course, is any fundamental threat to its own power and its own existence. The death of a State can come about in two major ways: (a) through conquest by another State, or (b) through revolutionary overthrow by its own subjects—in short, by war or revolution. War and revolution, as the two basic threats, invariably arouse in the State rulers their maximum efforts and maximum propaganda among the people.4
The occasional need for “maximum propaganda” also highlights a state’s need for “soft power.” This generally includes educational institutions and other organizations that employ intellectuals to help convince the population that a state is both beneficial and necessary.
The supposed benefits of state power to the general public can also be displayed through a welfare state. This aspect of extending state power did not develop much sophistication until the nineteenth century when the German Otto von Bismarck “established compulsory accident, sickness, and old-age insurance for workers.”5 That is, he took the first steps toward a permanent and bureaucratic “safety net” for the population within Bismarck’s newly crafted German empire. But, as Robert Higgs recognized, “Bismarck was no altruist. He intended his social programs to divert workingmen from revolutionary socialism and to purchase their loyalty to the Kaiser’s regime; to a large extent he seems to have achieved his objectives.”6
Welfare states need not be established out of cynical motives, of course, but their end effect is the same. As Martin van Creveld observes, the welfare state was essential in “tightening the state’s grip on the economy” which had the additional benefit of “eradicating or at least greatly weakening lesser institutions” which had provided charity and economic benefits in earlier times.7
Naturally, this is all very costly to the state, so states will tend to seek direct access to reliable sources of wealth and geopolitical power. This can often be augmented through growth in either physical size or population—or both.
By this way of thinking, the most safe and secure states are those that can best physically control the means of military defense, punish the disobedient, dole out economic benefits, and provide funding to teachers and intellectuals.
For example, greater size means a larger frontier that can act as a physical buffer between the state’s enemies and the state’s economic core. Physical size is also helpful in terms of pursuing self-sufficiency in both energy production and agriculture. More land means greater potential for resource extraction and acreage devoted to food production. The wages and capital accumulation that arises from these activities can also be taxed, expropriated, or otherwise controlled to benefit the state itself.
In terms of population size, state control over larger populations means more human workers to tax. Larger populations also provide personnel for military uses.
Naturally, state organizations are not inclined to abandon these advantages lightly, even if a sizable portion of the population begins to move in the direction of secession.
Why States Sometimes Get Smaller
Sometimes, though, states are forced to contract in size and scope. This usually happens when the cost of maintaining the status quo becomes higher than the cost of allowing a region to gain autonomy.
Historically, the cost to the state of maintaining unity is raised through military means. Once a region in rebellion becomes sufficiently costly, it is abandoned by the outgoing central government.8 Examples of this tactic being successfully employed include the cases of the United States, the Republic of Ireland, and some of the successor states of Yugoslavia.9
But secession and decentralization have also often been achieved through bloodless or near bloodless means. This was the case in Iceland in 1944 and throughout most of the post-Iron Curtain states.
Bloodless secession movements, however, tend to enjoy the most success when the parent state is weakened by larger events beyond the secession movement itself. Iceland, for example, seceded in 1944 when World War II ensured that Denmark was in no position to object.10 The post-Soviet states seceded when the Soviet state had been rendered impotent by decades of economic decline and (in 1991) a failed coup.11 Nor is it a coincidence that India gained independence from the United Kingdom in the years immediately following World War II. It is likely the UK could have held on to India through military means indefinitely, but this would have come at a very high cost to the British economy and standard of living.
It is possible to envision largely “amicable” separations. The model for this is the separation of Canada, Australia, and New Zealand from the United Kingdom. But even in these cases, British control over these Commonwealth states’ foreign policy was not totally abandoned until after World War II, when the British state had been weakened by depression and war. Moreover, the British state assumed that these newly independent states would remain highly reliable geopolitical and economic allies indefinitely. Thus, the geopolitical cost of separation was perceived to be low.
Mega-States Are the Ideal State (From the State’s Perspective)
In cases where the seceding state is perceived to have different cultural, economic, or geopolitical interests—which is true of the overwhelming majority of cases—the parent state is, all else being equal, likely to meet demands for secession with much hostility.
Although liberal ideology has diminished the perception among much of the world’s population that bigger is better, most government agents—who are by nature decidedly illiberal—see things differently. For them, the ideal state is most certainly a large state.
Those who delight in the generous application of state violence have noticed that it is not a coincidence that the world’s most powerful states—e.g., the US, Russia, China—are often those that control large populations, large economic centers, and large geographic areas with sizable frontiers. The combination of these three factors in various configurations ensures that existential threats to the regime are few and far between. Russia’s relatively small economy—only a fraction of the size of Germany’s economy—is mitigated by its enormous geographical frontiers. Its economy is nonetheless large enough to maintain a nuclear arsenal. China’s per capita wealth is quite small, but Chinese territory, its limited nuclear arsenal, and the sheer size of its overall economy ensure a high degree of protection from foreign attack. The US’s enormous economy and its huge ocean frontiers render it essentially immune to all existential threats other than large-scale nuclear war.
Large states such as these are limited only by the military capabilities of other states, and by the threat of domestic unrest and resistance.
Totalitarian States Require Bigness
This relationship between bigness and state power has been illustrated in the fact that totalitarian states are virtually always large states.
In her book The Origins of Totalitarianism, Hannah Arendt examines a number of nontotalitarian dictatorships that sprang up in Europe before the Second World War. These included (among others) the Baltic states, Hungary, Portugal, and Romania. In many of these cases, Arendt contends the regimes attempted to turn themselves into totalitarian regimes, but failed. This was largely due to their lack of size:
Although [totalitarian ideology] had served well enough to organize the masses until the movement seized power, the absolute size of the country then forced the would-be totalitarian ruler of masses into the more familiar patterns of class or party dictatorship. The truth is that these countries simply did not control enough human material to allow for total domination and its inherent great losses in population. Without much hope for the conquest of more heavily populated territories, the tyrants in these small countries were forced into a certain old-fashioned moderation lest they lose whatever people they had to rule. This is also why Nazism, up to the outbreak of the war and its expansion over Europe, lagged so far behind its Russian counterpart in consistency and ruthlessness; even the German people were not numerous enough to allow for the full development of this newest form of government. Only if Germany had won the war would she have known a fully developed totalitarian rulership.12
Arendt was not an economist, but had she been one, she might have noted that the necessity of size is so central to totalitarian regimes because they are so economically inefficient. Contrary to promises of machine-like efficiency made by advocates of ever more powerful states, totalitarian states are absurdly wasteful both in terms of capital and human life. The same is true—to varying extents—for all regimes. But as the most centrally-planned ones—whether totalitarian or not—quickly become economic basket cases, large size is necessary.13 A smaller state would quickly exhaust its capital and its population, and the regime would collapse. Size can provide the appearance of sustainability for longer.
Cultural factors cannot be ignored, however. Arendt concedes this process of collapse can be drawn out longer in societies that are more ideologically tolerant of it:
Conversely, the chances for totalitarian rule are frighteningly good in the lands of traditional Oriental despotism, in India and China...14
That region’s relative tolerance for despotism is enabled by local ideologies that foster a “feeling of superfluousness,” which according to Arendt “has been prevalent for centuries in the contempt for the value of human life.”15
None of this means the world is now absent of small states that attempt to maximize the regime’s power. Some small states, such as North Korea, have maintained an economically isolationist and totalitarian stance—fueled both by internal paranoia and by real perennial threats issued by the regime’s enemies. For the most part, however, the spread of markets (and promarket ideology) has raised the opportunity cost of militaristic expansion from the state’s perspective. If offered the chance to expand at low cost, though, virtually all regimes would take the opportunity in a heartbeat. And this is why we will likely continue to see regimes enthusiastically resist secession within their own borders. States don’t have many opportunities to expand their territories and populations. So they’re not about to sign off on secession lightly. Nevertheless, new economic realities, wars, and demographic shifts may certainly affect the equation in coming years. And then we may again see a redrawing of maps of a sort not seen since the end of the Cold War.
[This article is chapter 3 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities. Now available at Amazon and in the Mises Store.]
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- This was part of an even larger global trend from 1950 to 2000. During this period, the total number of independent nations almost doubled to 191. Many of these new states were formed out of Europe-based empires that slowly collapsed during the 1950s and 1960s.
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- Nick Squires, “Venice prepares for referendum on secession from Italy,” The Telegraph. March 14, 2014, https://www.telegraph.co.uk/news/worldnews/europe/ italy/10698299/Venice-prepares-for-referendum-on-secession-from-Italy.html.
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- Charles Tilly, Coercion, Capital, and European States: AD 990–1992 (Malden, Mass.: Blackwell Publishers, 1992), p. 19.
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- Murray N. Rothbard, “Anatomy of the State,” mises.org, 2009, https://mises.org/library/anatomy-state.
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- Robert Higgs, “The Welfare State and the Promise of Protection,” Mises Daily, August 24, 2009, https://mises.org/library/welfare-state-and-promise-protection.
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- Ibid.
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- Martin Van Creveld, The Rise and Decline of the State (Cambridge, U.K.: Cambridge University Press, 1999), pp. 354–56.
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- Jörg Guido Hülsmann, “Secession and the Production of Defense,” in The Myth of National Defense, ed. Hans-Hermann Hoppe (Auburn, Ala.: Mises Institute, 2003), p. 380.
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- The Republic of Ireland employed violence to obtain independence, although it is unlikely that Ireland would have obtained independence when it did had the British state not been weakened by the First World War.
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- In a 1918 plebiscite, Iceland’s voters approved independence for the country in a personal union with Denmark under the Danish king. (The king would remain the head of state. Iceland became a republic after another plebiscite in 1944.)
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- Specifically, the “August Coup” of 1991 during which Soviet hardliners attempted to seize control of the regime from Mikhail Gorbachev.
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- Hannah Arendt, The Origins of Totalitarianism (New York: Harcourt, 1976), p. 310.
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- Centrally-planned economies fall victim to what Ludwig von Mises called the economic calculation problem, and quickly become wasteful and inefficient in proportion to the degree to which the private-sector economy is socialized. See Ludwig von Mises, “Economic Calculation in the Socialist Commonwealth” (Auburn, Ala.: Mises Institute, 2012).
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- Arendt, The Origins of Totalitarianism, p. 311.
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- Ibid.
While the faux debt ceiling drama rages in Washington, DC, governments worldwide are defaulting on their debt via inflation.
Original Article: "Default by Inflation Is the Real Drama in the Global Debt Market"
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of "Ten Great Economic Myths". This material was prepared by Murray N. Rothbard.
The problem of forecasting interest rates illustrates the pitfalls of forecasting in general. People are contrary cusses whose behavior, thank goodness, cannot be forecast precisely in advance. Their values, ideas, expectations, and knowledge change all the time, and change in an unpredictable manner. What economist, for example, could have forecast (or did forecast) the Cabbage Patch Kid craze of the Christmas season of 1983? Every economic quantity, every price, purchase, or income figure is the embodiment of thousands, even millions, of unpredictable choices by individuals.
Many studies, formal and informal, have been made of the record of forecasting by economists, and it has been consistently abysmal. Forecasters often complain that they can do well enough as long as current trends continue; what they have difficulty in doing is catching changes in trend. But of course there is no trick in extrapolating current trends into the near future. You don't need sophisticated computer models for that; you can do it better and far more cheaply by using a ruler. The real trick is precisely to forecast when and how trends will change, and forecasters have been notoriously bad at that. No economist forecast the depth of the 1981–82 depression, and none predicted the strength of the 1983 boom.
The next time you are swayed by the jargon or seeming expertise of the economic forecaster, ask yourself this question: If he can really predict the future so well, why is he wasting his time putting out newsletters or doing consulting when he himself could be making trillions of dollars in the stock and commodity markets?
For more episodes, visit Mises.org/MisesReport
The U.S. Supreme Court on Thursday rejected race-based admissions in higher education at Harvard University and the University of North Carolina at Chapel Hill (UNC). The ruling likely calls into question the legality of most race-based college admissions policies, especially at elite colleges.
In the ruling (Students for Fair Admissions v. Harvard) a majority of the justices ruled that the use of racial preferences in the admissions process at the two colleges violated the Equal Protection Clause of the Fourteenth Amendment. Federal law did not require racial preferences in admissions at the time of the ruling, but the federal government tolerated the discriminatory use of racial preferences by higher education institutions. This toleration persisted for decades in spite of the scheme's apparent violation of federal legislation that educational institutions—among many other institutions and private businesses—cannot discriminate against applicants based on membership within any particular racial or ethnic group.
Thus, opponents of affirmative action—most of them conservatives—have fallen all over themselves to praise Thursday's decision as a great victory. For those who hope for Supreme Court decisions that actually do something to limit federal power or protect private property, however, this decision contains little to praise. Rather, the court's ruling this week reiterates the power of the federal government to govern virtually every institution in America in the name of fighting discrimination. Even worse is the fact that the court could have—and should have—ruled against Harvard and UNC using nothing more than Title VI of the Civil Rights Act. That would have actually limited federal power. Instead, the court took a different path designed to solidify federal power and re-assert federal prerogatives.
In other words, opponents of affirmative action have won a small skirmish for their little cause, but opponents of regime power have won nothing at all.
The Problem with the Equal Protection Clause One of the most pernicious developments in the history of federal law was the adoption of the so-called "Equal Protection Clause" (found in the Fourteenth Amendment).
This new section of the constitution, adopted in 1868, turns the Bill of Rights on its head. The Bill of Rights, of course, was written to limit federal power only. It's why the First Amendment begins with the phrase "Congress shall make no law..." Note there is no mention of state legislatures. It was only after the adoption of the Fourteenth Amendment that federal courts took upon themselves new powers to force every state and local government to comply with federal courts' novel interpretations of the Bill of Rights. Known as "incorporation" this new legal doctrine ensured that the Bill of Rights functioned to expand federal power rather than limit it. As a result, the United States ceased to be a true confederation of states—as described by the Constitution as ratified in 1788—and moved much further toward becoming a unitary state.
[Read More: "End the Incorporation Doctrine" by Ryan McMaken]
Moreover, over time, federal courts began to apply the Equal Protection Clause far beyond even the deeds of state and local governments. Legal scholar Allen Mendenhall has summed up the damage done:
the Supreme Court would later turn to the Equal Protection Clause and the Due Process Clause to strike down state laws under the Fourteenth Amendment. But the Supreme Court has not stopped at state laws: gradually it has used the Equal Protection Clause and the Due Process Clause as a pretext for regulating private citizens and businesses. The Fourteenth Amendment, which was intended to reduce discrimination, has even been used, ironically, to uphold affirmative-action programs that discriminate against certain classes of people.
Ceding power to federal judges does not predispose them to liberty. Because Section Five of the Fourteenth Amendment permits Congress to pass amendments or enact laws dealing with state infringements on individual liberty, it isn't necessary or constitutionally sound for the federal judiciary to assume that role. Members of Congress, unlike federal judges who enjoy life tenure, are accountable to the voters in their states and are thus more likely to suffer from their infidelity to the Constitution.
Thus, it has become commonplace for federal judges to justify federal meddling in private businesses and other private institutions. Unfortunately, so-called conservative judges are no different, and they have been more than happy to preserve and expand the reach of the federal government using the Equal Protection Clause as justification.
This Is No Victory Against Federal "Anti-Discrimination" Schemes We see this in this week's ruling from the Supreme Court. The court's opinion bases its ruling against the University of North Carolina and Harvard University—a state institution and a private university respectively—on the Equal Protection Clause. This is clear in the ruling as written by the ultra-establishment judge John Roberts (who also ruled in favor of Obamacare):
For the reasons provided above, the Harvard and UNC admissions programs cannot be reconciled with the guarantees of the Equal Protection Clause....Respondents’ admissions systems—however well intentioned and implemented in good faith—... must therefore be invalidated under the Equal Protection Clause of the Fourteenth Amendment.
Remember, federal law does not mandate affirmative action at UNC or Horvard. So, to rule against these affirmative action schemes is not to rule against any federal law, nor does such a ruling limit federal law in any way. Rather, the ruling asserts that federal courts get to decide what state legislatures and the Harvard governing boards do with their property.
Of course, this won't bother most conservative opponents of Affirmative Action, few of whom could possibly care less about abuses of federal power so long as that abuse and arbitrary power is directed against the other side. Those who have no long-term strategy against federal power—and who lack any principled position in support of private property, local control, or true federalism—will not have any problem with the court's ruling.
The fact that the conservative wing of the court chose to double down on the Equal Protection Clause shows its centralist leanings because it could have just as easily ruled against affirmative action based on Title VI of the 1964 Civil Rights Act. Title VI states:
No person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.
Were Harvard University a truly private organization, it ought to be completely up to that institution as to how it chooses to admit students. Similarly, if UNC were truly a state-level institution, how the University of North Carolina conductions its admissions process ought to be a matter for people in North Carolina.
Yet, as is well known, both of these institutions have received enormous piles of federal money in recent decades. This has come both in the form of outright grants, and in the form of federal student loans which allows colleges and universities to hike prices well beyond what students could pay without those loans. When it comes to grants, the dollar amounts are impressive to say the least. In 2019, federal dollars made up 70 percent of Harvard's $800 million in research grants. The University of North Carolina received more than $700 million in federal research dollars in 2019.
In other words, both of these institutions are quasi-federal installations, and certainly fall under the provisions of Title VI. The fact that these institutions were using race-based admissions policies—i.e., discriminating against applicants without the "correct" demographic background—means those who pay federal tax were forced to pay for these institutions' discriminatory practices. The whole point of Title VI is to end such abuses.
A final note: lest the reader have any lingering doubts that Roberts' ruling is careful to not actually limit the federal government in any way, we can highlight footnote 4 on page 22:
The United States as amicus curiae contends that race-based admissions programs further compelling interests at our Nation’s military academies. No military academy is a party to these cases, however, and none of the courts below addressed the propriety of race-based admissions systems in that context. This opinion also does not address the issue, in light of the potentially distinct interests that military academies may present.
Had the court based its opinion on Title VI instead of the Equal Protection Clause, it would have been extremely difficult to deny that the military academies—which are, of course, federally funded—must cease any and all race-based preferences in admissions or any other aspect of administration. Yet, by minimizing the role of Title VI, the court found a convenient way to avoid the obvious.
Not all of the SCOTUS judges chose to strategically ignore this fact. In his concurring opinion, Justice Gorsuch, the least-bad member of the court, specifically invoked Title VI as a sufficient reason to reject race-based admissions schemes at Harvard and UNC. He writes:
Title VI bears independent force beyond the Equal Protection Clause. Nothing in it grants special deference to university administrators. Nothing in it endorses racial discrimination to any degree or for any purpose. ... And no one can doubt that both schools intentionally treat some applicants worse than others at least in part because of their race.
Gorsuch concludes "Title VI of the Civil Rights Act of 1964 does not [tolerate]" the discriminatory practices used at Harvard and UNC.
In other words, the court could have ruled against affirmative action without relying on freedom-destroying provisions like the Equal Protection Clause. Had the court ruled strictly along the lines of enforcing Title VI, the court's decision would have sent the message that the decades-old policy of shoveling federal taxpayer money to bigoted admissions officers was at an end. If the court's conservative wing actually respected private property and true federalism it would have made it clear that—as far as federal law is concerned—institutions would still be free to discriminate as they see fit provided they receive no federal money.
But that's not what the court did. Instead it chose to perpetuate the court's well-established and disastrous use of the Equal Protection Clause to ensure the federal government possesses nearly untrammeled power in the name of combatting discrimination.
Allow me to explain why we have not seen a recession yet despite the collapse in base money supply. We are witnessing the stealth nationalization of the economy. What does this mean?
The entire burden of the monetary collapse and rate hikes is falling on the shoulders of families and small businesses, while large corporations and governments are virtually unaffected.
Thus, when an agent like the state, which weighs 40 to 60 percent of GDP in most economies, continues to consume wealth and spend, gross domestic product does not show a recession even though consumption and private investment in real terms is declining. Bloated government spending is disguising a private sector recession and the decline in real disposable income, real wages, and margins of SMEs (small and medium enterprises). Furthermore, the accidental and exogenous factor of widespread weaker commodities is boosting the external contribution of gross domestic product.
These are the main reasons why we are living in the middle of a recession and the destruction of private wealth and wages, but the official data does not reflect it. As government weight in the economy rises faster, technical recessions may not appear in the official data, but citizens suffer it, nevertheless. The reader may think that this is good news because the spending of governments goes straight to the citizens via social spending. However, there is nothing that the state provides that it does not take away from the private sector now or in the future -deficit spending now means higher taxes and lower real wages afterward. Therefore, the flip side of “no official recession yet” is “more public debt now and after”.
The rapid decline in global money supply is staggering, at -3,4% at the end of the first quarter according to Longview. Meanwhile, in the United States, the money supply is also contracting at the fastest pace since the great recession. Consider that, in the same period, government indebtedness at a global level is up 3% and United States borrowing has also risen faster than real GDP, according to the IIF. And those deficits are financed even if the cost is higher. Governments do not care about rising borrowing costs, because you pay for it.
This all basically means a drain of liquidity for the private sector will continue for a prolonged period. Central banks scratch their heads, wondering why inflation remains persistent despite the complete reversal of the supply chain disruptions and the roundtrip of the international prices of commodities, so they keep hiking rates which have a direct negative impact on families and SMEs. Large corporations have no significant problem with higher rates, as they can access credit without any problem, finance themselves at better rates than many sovereigns, and most are swimming in cash after years of prudent balance sheet management. Some may go bust, but this is not a monetary tightening that will affect the mega caps in most cases.
So why does inflation, especially core CPI, not react faster to rate hikes? Because the largest economic agent in the economy does not care and is not reducing its imbalances. Bloated governments are consuming even more units of newly created money and that is why aggregate prices fail to reflect the price contraction of external factors like freight or energy. Furthermore, as we have seen in the gross domestic product figures of many European nations, the rents components of GDP show a massive increase in the tax rents side, while gross added value of businesses and the gross wage component remains below pre-pandemic levels. Congratulations, you wanted socialism, this is socialism: Lower real wages, lower real disposable income, and lower real savings.
With the current slump in money supply, inflation should be half what it is now, and this is even considering the tweaks in the official calculation of CPI. However, money velocity is not declining because state consumption of newly created currency units is rising despite poor real private consumption and investment. If we think of the quantitative theory of money, this may be the first private-only recession because money supply declines and money velocity growth coming from the public sector offsets it.
I am writing this column from Argentina, which is suffering a 108 percent inflation. The problem when government spending ignores any monetary tightening is that the second leg up of inflation comes from even higher state subsidies using new units of currency, and the downward spiral may start and become impossible to stop. As the interest rate and credit access of the backbone of the economy, households, and SMEs, gets worse and dries up, governments step in to solve a problem they caused by creating even more entitlement and subsidy expenditures with constantly depreciated units of currency. Of course, the U.S. and developed economies are still far from the insanity of Argentina’s 1,670 percent increase in base money (M2) in the past ten years but remember that “once you pop you cannot stop”.
The money supply slump and rate hike path so far are destroying the backbone of the economy, families, and small businesses. Normalization of monetary policy without normalization of government spending and deficits is the recipe for stagnation.
Originally published at dlacalle.com
In this week's episode, Mark looks back at the history of the Inverted Yield Curve. While many observers have now dismissed the significance of the yield curve inversion in 2022—and no recession, yet—Mark shows that the history of the IYC may back a completely opposite interpretation.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
July 4 is approaching, and many Americans are excited to celebrate their so-called independence. Why? How will this July 4 be any different from that of 2020? Haven’t the past three years revealed that Americans not only take liberty for granted but readily reject it? Is it not the least bit curious that some, if not most, of those who’ll be setting off fireworks also begged to be locked down and masked? Yes, the frauds that are “public health” and “democracy” have been exposed over the past three years, but what’s changed?
Doubling down on idiocy seems just as politically profitable as exposing it, so perhaps the talking heads have no interest in solutions. Their acolytes, who’d rather be coddled than be free, likewise have no interest in solutions beyond believing whatever makes them feel comfortable.
How many more decades or centuries must pass before the following thoughts are understood:
“The average man does not want to be free. He simply wants to be safe.” —H.L. Mencken (1880–1956)
“Humanity does not care for freedom. The mass of the people realize that they are not up to it: what they want is being fed, led, amused, and above everything, drilled.” —Joseph Schumpeter (1883–1950)
“Persons who are afraid to take on independent responsibility that necessarily goes with liberty . . . want to be told what to do and when to do it; they seek order rather than uncertainty, and order comes at an opportunity cost they seem willing to bear.” —James M. Buchanan (1919–2013)
“Most people quite like being afraid of something, and many dislike freedom and the responsibility that comes with it.” —Peter Hitchens
What began in 1776 as a manifesto for preserving voluntary exchange—capitalism—has been mutilated beyond recognition. The Declaration of Independence said: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” Today, however, it’s painfully obvious that our government, which was intended to “secure these rights” and is allegedly “from the consent of the governed,” truly acts as if some are created “more equally.” The Declaration of Independence goes on to say that “whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government.” However, the majority don’t wish to “alter or to abolish” the government; they wish to augment it.
Unfortunately, for the reader and me, the “long train of abuses and usurpations” over the past three years weren’t abusive enough for the majority. Sure, I could contact my elected representatives, but it seems that the past three years are no different from the past two and a half centuries: “Our repeated Petitions have been answered only by repeated injury.”
Experts in injustice—lawyers—will say that the Declaration of Independence isn’t legally binding, but what about the oath of office that politicians, bureaucrats, and members of the military swore to uphold? “I will support and defend the Constitution of the United States against all enemies, foreign and domestic.” Protecting Americans from foreign enemies is to be congratulated, but killing domestic enemies is now seen as treasonous? I fail to see the consistency. No, I’m not advocating violence; I’m simply pointing out the hypocrisy. In the “land of the free,” only the experts in injustice are allowed to interpret the Constitution.
It turns out that democracy is even worse than what Benjamin Franklin believed. Democracy is two lambs eagerly electing a wolf, which proves—to me, at least—that politics is worse than worthless (like masks “fighting” respiratory viruses). Politics is the poison that degrades everyone—even those who don’t consume it. There are no quick fixes—libertarian or otherwise. Since no one but the parasites can decide to change the manner in which they lord it over everyone else, the only solution to the malignant state is its implosion. It’s not just that the president is too old; it’s that we’re all too old to care anymore. Our once-great nation can no longer afford the incessant whining. Though it’s also quite old, the Declaration of Independence provides the path to prosperity. Why has it been shunned? Yes, “live and let live” died long ago, but isn’t it preferrable to “kill or be killed”? Our “leaders” think we’re stupid. When will we prove them wrong?
Robert Higgs concluded his article “Can the Rampaging Leviathan Be Stopped or Slowed?”: “Ultimately this criminal enterprise will attain such bloated size and scope that its own survival will no longer be possible, and it will implode, as the Soviet Union and other similarly overreaching politico-economic orders have imploded.”
Before that glorious day arrives, I wish to declare independence from the geriatric parasites—federal, state, and local—who serve only themselves, not me nor my neighbors. Other than parasitize us “peasants,” the government no doubt wishes to have nothing to do with us. The tax-fed seem to have forgotten that without taxes, they don’t eat. It’s long past time that the host shows the parasites who’s boss. The win-win scenario seems to be peacefully separating from each other. That’s something I’d like to celebrate on the Fourth of July. For those who seek domination over peace, comforting lies over inconvenient truths, or censorship over free expression, do us all a favor and #StayHome.
Most cartels and trusts would never have been set up had not the governments created the necessary conditions by protectionist measures. Manufacturing and commercial monopolies owe their origin not to a tendency immanent in capitalist economy but to governmental interventionist policy directed against free trade and laisser-faire.
—Ludwig von Mises, Socialism
The concept of natural monopolies has often intrigued economists and policymakers, serving as a cornerstone for proponents of statism. They argue that certain industries naturally lead to a dominant firm, impeding competition and requiring government intervention. However, closer inspection reveals that these “natural monopolies” are illusions caused by harmful government interference.
To understand the fallacy of natural monopolies, we must first grasp the essence of a truly free market. In an unhampered market economy, multiple firms compete for consumers’ favor with innovative products and competitive prices. Market forces, like consumer preferences and business efficiency, shape resource distribution and ensure optimal outcomes. Monopolies fundamentally contradict this natural order.
Debunking the Fallacies Critics argue that certain industries, particularly those dealing with infrastructure or network services, possess inherent characteristics that facilitate the emergence of monopolistic entities. These critics contend that high infrastructure costs or network effects, where the value of a service increases as more users adopt it, create insurmountable barriers to entry, enabling a single dominant player to establish its supremacy. However, a closer examination reveals that these characteristics alone do not guarantee monopoly formation. It is the interference of the government that tilts the scales in favor of consolidation and stifles competition.
The Telecommunications Case Telecommunications, with its significant infrastructure demands, has been frequently labeled as an industry prone to natural monopolies. Proponents of state intervention argue that the costs associated with establishing and maintaining the necessary infrastructure make it impractical for multiple firms to compete effectively. However, this assertion fails to recognize the dynamic and innovative nature of free markets. In the absence of government-imposed barriers and licensing requirements, entrepreneurial ingenuity flourishes and finds ways to overcome what initially appears as insurmountable obstacles.
Free markets, unencumbered by government interference, incentivize entrepreneurs and businesses to seek alternative technologies and creative solutions. This entrepreneurial drive could lead to the emergence of wireless or satellite-based communication systems, offering consumers viable alternatives to traditional infrastructure-dependent services. By introducing competition and innovative approaches, these alternative technologies can disrupt the assumed inevitability of a single dominant firm.
The key insight lies in understanding that the government’s intervention itself creates an environment conducive to monopolistic dominance. Regulatory barriers and excessive red tape hinder the entry of new competitors, stifling innovation and limiting the potential for alternative solutions to emerge. By erecting such barriers, the government inadvertently perpetuates the conditions necessary for a monopolistic market structure to prevail.
Emphasis must be placed on the importance of dynamic competition as the driving force behind economic progress. The absence of government intervention allows for spontaneous order and market processes to unfold naturally, leading to a constant stream of entrepreneurial activities and innovative responses to market demands. In the realm of telecommunications, the potential for multiple firms to develop and implement alternative technologies arises precisely from this entrepreneurial discovery process.
Moreover, it is crucial to recognize that the cost considerations associated with infrastructure development are not static. Entrepreneurs and businesses are incentivized to seek more cost-effective and efficient solutions in a competitive environment. Through trial and error, these entrepreneurs and businesses find ways to reduce infrastructure costs, optimize resource allocation, and improve service delivery. These market-driven cost reductions create opportunities for new entrants and increase the feasibility of competition in the telecommunications industry.
The Fallacy of Network Effects The assertion that network effects inherently lead to monopolistic outcomes is misguided. While it is true that network effects can contribute to the value of a service as more users adopt it, this does not preclude the existence of competition and multiple firms within the market.
In a genuinely free market, entrepreneurial competition thrives, driving firms to differentiate themselves and offer unique user experiences. The case of social media platforms like Facebook, Twitter, and Instagram provides a compelling example. Despite operating within the same broad industry of social networking, each platform has successfully carved out its own niche and attracted distinct user bases.
These platforms continually engage in fierce competition to capture users’ attention and secure advertising revenue. They do so through constant innovation and the introduction of unique features that differentiate their services. This competitive landscape not only allows for the coexistence of multiple firms but also ensures that no single platform holds a monopoly on social media.
This outcome is not surprising. The dynamic nature of the market, driven by consumer preferences and entrepreneurial creativity, ensures that competition persists and prevents monopolistic domination. Firms must continuously adapt, innovate, and provide superior value to consumers to thrive in such an environment.
Furthermore, the role of consumer choice cannot be overlooked. In a free market, consumers have the power to select the platforms that best align with their preferences, needs, and desires. This diversity of choice acts as a powerful antidote to monopolistic tendencies. If a platform fails to meet the evolving demands of consumers, they are free to switch to a competitor that better satisfies their requirements.
In contrast to the notion of natural monopolies is the market process, a spontaneous order driven by the decentralized decisions of individuals pursuing their own interests. This process fosters competition, innovation, and entrepreneurial discovery. Network effects, far from being an insurmountable barrier to entry, become an opportunity for entrepreneurs to devise new ways of offering value and attracting users.
The Role of Government Intervention Monopolies, in their truest form, are products of government intervention and involvement in the marketplace. Through regulations, barriers to entry, and artificial privileges granted by the state, monopolistic tendencies arise.
Government-imposed regulatory barriers, like licensing requirements, red tape, and complex compliance standards, hinder the free operation of markets. Licensing requirements restrict entry into industries by creating hurdles for new entrants. The burdensome process of licensing deters competition and allows existing firms to maintain dominance. Excessive red tape and compliance standards divert resources away from productive activities, hampering innovation and competitiveness. These barriers distort market signals, discourage entrepreneurs, and limit consumer choice, thereby stifling market competition.
Intellectual property laws, such as patents, copyrights, and trademarks, are intended to encourage innovation and reward creators. However, these laws can unintentionally hinder competition and foster monopolistic tendencies. Intellectual property laws grant exclusive rights to inventors and creators, but they also create barriers to entry. When these exclusive rights become overly broad or extended, they enable patent and copyright holders to maintain dominance for longer periods, stifling potential competitors and limiting competition.
The complex and expensive process of obtaining and enforcing intellectual property rights further disadvantages small entrepreneurs and start-ups. Large corporations with resources and legal teams can strategically use these laws to deter competition, consolidating power in a few dominant players. It’s important to understand that innovation thrives in an environment of open competition, where ideas are freely shared and firms are motivated to continuously improve and differentiate their offerings.
Government interventions through subsidies, tax breaks, and preferential treatment disrupt the market balance by favoring certain industries and creating an uneven playing field. This distorts signals for entrepreneurs and undermines competition. Subsidies provide unfair advantages, allowing subsidized firms to gain market power and potentially lead to monopolistic tendencies. Tax breaks and preferential treatment further skew the economic landscape, hampering innovation and resource allocation. These interventions also perpetuate the misallocation of resources, hinder efficiency, and discourage new competitors and innovative solutions. Moreover, they promote rent-seeking behavior, diverting resources away from productive activities and undermining economic growth.
Conclusion Regarding monopolies, Ludwig von Mises wrote in Human Action:
The great monopoly problem mankind has to face today is not an outgrowth of the operation of the market economy. It is a product of purposive action on the part of governments. It is not one of the evils inherent in capitalism as the demagogues trumpet. It is, on the contrary, the fruit of policies hostile to capitalism and intent upon sabotaging and destroying its operation.
The illusion of natural monopolies disappears upon scrutiny, revealing the role of government intervention and market distortions. Free markets—without constraints—foster innovation and competition, preventing monopolistic dominance. Government interference through regulations and protectionist policies perpetuates the myth of natural monopolies.
As proponents of economic freedom, it is our duty to expose fallacies, restore free markets, and promote competition for a prosperous future that empowers entrepreneurship, safeguards consumers, and drives growth. Let us rejoice in the wonders of competition and embrace its boundless potential.
The Mises Institute's Executive Editor Ryan McMaken joins Bob to discuss his latest article, in which Ryan spells out the state of the M2 money supply and possible implications for consumer prices and an impending recession.
Ryan's Mises.org article on M2: Mises.org/HAP402a Ryan's QJAE article on the inverted yield curve: Mises.org/HAP402b
The Ukraine war raises issues of the legitimacy and usefulness of the “rules-based” international order (RBO) that supposedly governs international relations. The United States and the North Atlantic Treaty Organization (NATO) have strongly condemned Russia’s invasion of Ukraine and its violation of international law and rules, and the US is also concerned about the economic and military rise of China and its alleged intentions to reshape the RBO.
In general, Western political analysts decry the perceived disintegration of the much-vaunted liberal international architecture promoted by the US. At the same time, both Russia and China reject both the West’s allegations and its international rules. However, what is the solution for a lasting peaceful international cooperation?
Pax Americana and the Liberal RBO The US emerged from World War II as the world’s dominant economic and military power and sought to devise a new global balance of power to maintain peace. It imposed a Pax Americana, which applied primarily in the West and attempted to contain communism during the Cold War. The predominant view in the West is that the US upheld a global rules‐based order fostering peace and prosperity for more than eighty years.
The new order has been considered “liberal,” because the US was founded on liberal values. Franklin D. Roosevelt and Winston Churchill expounded the fundamental principles for international cooperation in the Atlantic Charter in 1941. International institutions like the United Nations—together with its supreme authority, the UN Security Council—and the Organization for Security and Co-operation in Europe were set up to underpin international peace and security. The Bretton Woods Agreement, which created the World Bank and the International Monetary Fund, and the General Agreement on Trade and Tariffs were established to promote international free trade and economic prosperity. Both aspired to be global but were dominated by Western powers and interests.
Critics of the postwar “liberal” order declare it was neither liberal nor orderly. A wide gap emerged between the lofty ideals of benign interest and consensus building championed by the US and historical reality. Coercion, compromise, and power politics were part of the game, and the US often stretched and broke the rules of the system, in particular during the post-Cold War period. Many considered the NATO military intervention against Serbia in 1999 and the US-led invasion of Iraq in 2003, carried out without a mandate from the UN Security Council, as violations of international law.
The US and NATO military actions in Afghanistan in 2001 and Libya in 2011 also remain highly controversial. Efforts to spread liberalism were often illiberal, including unjustified external military interventions and the weakening of democratic institutions and free markets at home. NATO countries broke the international rules when they saw it in their own interests and protested when other powers, in particular Russia and China, challenged the RBO.
The Quest for a Multipolar World Russia and China are contesting not only NATO’s behavior, but the very existence of the US-backed international order. The two, together with other nonaligned countries, are striving for a multipolar world in which more countries will have a say in a new global order reflecting not only US values and interests.
Vladimir Putin claims that international rules advocated by the West apply only to the rest of the world while, at the same time, it allows the West to live without rules as a global hegemon. Even some Western analysts concur that Putin may be right when he says that the West holds Russia to standards to which the West does not abide, a grievance used by Russia to justify the invasion of Ukraine.
China also denies US accusations, countering that the US is advancing its own interests under the guise of “multilateralism.” Beijing is particularly irked that the US is turning other Asian countries against it, particularly on the topic of Taiwan. China’s Ministry of Foreign Affairs recently stated that the meeting in Japan of the Group of Seven (G7) maliciously smeared China and brazenly interfered in its internal affairs. China urged the G7 not to become an accomplice to the US in curbing China’s economic development.
Most importantly, both China and Russia reject the “rules-based order” promoted by the West as an unfair alternative to international law. They claim that the liberal international order includes soft law, i.e., standards and recommendations by international organizations, with the purpose of replacing and interpreting international law in keeping with Western interests.
International rules represent mostly values that are undefined regarding their legal enforceability. Their indeterminate nature, together with the apparent violations of international law by the US, could also explain the preference by the US for international rules rather than law. The US has not only refused to sign numerous important multilateral treaties that constitute an essential feature of international law, but it is also unwilling to hold some allied countries, such as Israel, accountable for perceived violations of international law.
Such views are not only restricted to China and Russia or to the rest of the BRICS—Brazil, India, and South Africa—but are held by many other countries making up the global south. Nearly twenty countries including Argentina, Iran, Algeria, Egypt, Saudi Arabia, Uruguay, Venezuela, and Thailand have also applied to join the BRICS. Thirty-five countries, accounting for half of the world population and one-third of the global gross domestic product (similar to the combined economies of the US and the European Union), also did not vote to condemn Russia’s invasion of Ukraine at the UN and are resisting the sanctions.
While most Western pundits still praise the virtues of the RBO principles, they also admit that the American-led order is imperfect and has eroded its legitimacy in many ways. As the global south increasingly questions US intentions, analysts believe that the West should be ready to use the RBO framework to build a more open and multilateral order. At nineteen thousand words, the recent communiqué from the Hiroshima meeting of the G7 heads of government reads like a manifesto for a world government. However, with only 10 percent of the world population and a share in global output that has gradually shrunk to 30 percent, the G7 needs to adjust its expectations to reality and accept it cannot rule the world.
Peaceful Cooperation through Market Relations The current political and economic strife between the US and the global south reminds us that international law and institutions cannot do away with the inherent international rivalry and conflicts between governments. Broader and softer constructs like the post-World War II “liberal” international order can be more divisive and ineffective than international law. Reconciling the multitude of individual interests at the global level is more likely due to voluntary market relations rather than political and military solutions.
Ludwig von Mises has argued that the only peaceful way of human cooperation in society is based on contractual market transactions. These are voluntary exchanges under the division of labor, with respect for property rights, which preclude the violent intervention in the market either by private individuals or by government. There is no compulsion and coercion in the operation of the market where both sides of a transaction gain to their mutual satisfaction. That is why market democracy, where every penny spent counts, is superior to political democracy, where only the majority influence the state of affairs in a forceful way.
The same applies to international relations where government intervention undermines harmonious cooperation. As Mises put it in Human Action: “What is needed to make peace durable is neither international treaties and covenants nor international tribunals and organizations like the defunct League of Nations or its successor, the United Nations. If the principle of the market economy is universally accepted, such makeshifts are unnecessary.”
Regrettably, instead of heeding Mises’s advice, world politicians are constraining international trade and moving away from the prevalence of business interests. Driven by national security concerns, the decoupling and derisking from China and other global competitors risk splitting the world into rival blocks again, gravely undermining prosperity and peaceful international cooperation.
The latest round of wildfires in Canada has brought out the usual statist demands that we ban fossil fuels, but in the real world fossil fuels protect people from climate-related disasters.
Original Article: "Fossil Fuels Enable Us to Better Fight Fires and Other Environmental Disasters"
When I opened the first Mises University, I could only dream about how many students would participate, how many classes would be taught, and how many lives would be changed for the better. Now as we plan the thirty ninth event, we need your help.
It was obvious students were not learning real economics and were even being taught lies in the classroom. Mises and Rothbard were being ignored for Marx and Keynes. This had to change.
Thanks to Mises University, students no longer have to depend on mediocre and even evil professors at state-run colleges and universities to teach what they call economics.
Our faculty teach at Mises University because they are passionate about Austrian economics and want to help educate the next generation. Their lectures aren’t stale and boring. They encourage discussion and questions. They are the best of the best in their fields. Over half of this year’s faculty are proud Mises U alumni: Peter Klein, Patrick Newman, Mark Thornton, Timothy Terrell, Per Bylund, Jonathan Newman, Lucas Engelhardt, Sandy Klein, Shawn Ritenour, Tate Fegley, and Karl Israel. Talk about the gold standard!
Every year the faculty is impressed with the quality of students that we attract. They are thrilled to be around smart, enthusiastic, and interested young people.
Who are these students? Most of them are enrolled in undergraduate or graduate programs. Some are young people who decided to take their education into their own hands and forgo college. Occasionally, we accept an exceptional high school student.
More than four thousand young people have attended thirty-eight Mises Universities. Many of them have gone on to do important work in academia and in the business world.
Mises University alum Martin Stefunko, who has become a successful Czech businessman and Mises Supporter, vividly remembers lectures by Hans Hoppe and Ralph Raico and wishes he could relive that time.
Mises University is the event of a lifetime.
During the week, we introduce students to the proper concepts of money and banking, production and exchange, the business cycle, entrepreneurship, and so much else. We even consider the philosophical basis of economic science.
Lectures, panels, and discussion groups continue from morning until night. It all ends with oral examinations, evaluations, awards, and a graduation ceremony. It is highly inspirational.
Because of all this, Mises University has earned international fame. Students who want an exciting and truthful education come to us. A few years ago, the students started calling it the “Best Week of the Year!” and it stuck.
In today’s America, it is easy to lose heart, the young people at Mises University prove my faith that we can win if we take the proper steps.
The best way to combat error is with truth. We do not have to sit by and do nothing as our society and civilization are wrecked by bureaucrats, politicians, central planners, and crazed professors. We do not have to stand on the sidelines as looters, backed by academic apologists, destroy property and freedom.
The Mises Institute has been accused of waging an intellectual guerilla war. We plead guilty. We are fighting against an entrenched establishment with the only weapon we have: ideas. As Mises always said, the sword is powerless as compared to the idea of liberty. Murray Rothbard agreed.
Again this summer, with your help, our classrooms will be filled with top students discovering the beauty of real economics.
I want to share a letter I received from a 2022 Mises University graduate.
Dear Mr. Rockwell,
It was wonderful to see and talk to you again at Mises U. It would be an understatement for me to say that I was mightily impressed by the event. I am close friends with a couple of gentlemen who attended Mises U when they were younger, and they were constantly telling me how wonderful the week would be. I had the highest of expectations as a result, and somehow they were exceeded.
I lack the proper words to describe just how much I learned. I had read the core books of the Austrian school before attending, and of course, I read what we were assigned over the summer. Each and every presentation was a treasure trove of knowledge. Upon leaving Auburn, I felt as if I was more than equipped not just to understand the economy and our society, but also to explain and discuss it with those around me. In fact, I learned so much that I plan to write on these topics.
The Mises Institute is unique and a precious organization dedicated to fighting evil instead of merely promoting government interests and policies.
Overall, this was a life-changing experience, and I am honored to have been included in the ranks of young men and women steeling ourselves against tyranny and evil.
Sincerely,
Ryan Turnipseed
Proud Mises U alumnus
Oklahoma State University
There is no doubt Ryan’s intellectual life was changed by Mises University. It’s a common comment we hear from our alumni.
Your donation provides a life-changing experience for our students.
Help them discover what you have always known: that freedom makes the great and good possible.
Warmest regards,
Lew
PS: Students can only attend with your generous support. Your donation covers their tuition, housing, and meals. Help us sponsor a student. Of course, donations of any amount are most welcome.
PPS: You can also donate a book scholarship so that every MU student gets 10 free books.
The Political Economy of Distributism: Property, Liberty, and the Common Good
by Alexander William Salter
Catholic University of America Press, 2023; xiii + 238 pp.
Distributism attracted considerable attention during the 1920s and ’30s among people who wished to apply Catholic social teaching to the modern capitalist economy, and it has recently had a revival. The appearance of The Political Economy of Distributism is particularly welcome for those seeking further information about distributism.
The author of the book, Alexander William Salter, an economist who teaches at Texas Tech University, is favorable to the free market but also sympathetic to distributism, and readers could not ask for a better guide. If after reading the book we find less value in a number of distributist proposals than Salter does, it is not for want of trying on his part to make the best case possible for them.
Hilaire Belloc (1870–1953) and G. K. Chesterton (1874–1936) are the two best-known distributists, and Salter devotes two chapters to each one after briefly introducing the distributist movement. He also includes two chapters on Wilhelm Röpke (1988–1966), who, though not a distributist, was influenced by the movement and may be viewed as having carried it forward. Salter also has a brief and helpful chapter on Catholic social teaching (to which he is sympathetic, although he is Orthodox and not Roman Catholic); a chapter that evaluates distributism in the light of contemporary political economy; and a conclusion that suggests ways to advance the distributist project further.
Distributists want farmland to be widely available and oppose control of the economy by monopolistic capitalist firms. Though in their criticisms of monopoly capitalism they can sound like Marxists, distributists oppose socialism and the welfare state, which they contend are inimical to human personality and the family. Salter writes:
Belloc sees various social-welfare proposals, such as mandatory insurance and minimum wages, as inherently servile. Each of these proposals would further enshrine in law the distinction between the employer and employee classes. Legal categories would force patronship on capitalists and clientelism on proletarians, a situation bearing a striking resemblance to ancient-world servility. Western society had advanced from status to contract; the spirit of these laws pushes it backwards.
Although, as Salter reminds us, F.A. Hayek cites Belloc in The Road to Serfdom, his analysis of capitalism is deficient, and of this Salter is well aware: “Belloc argues that the race among producers to extract ‘surplus value’ from workers necessarily creates industrial chaos.” Also, because workers do not have access to productive resources, Belloc contends, they must accept the hard bargains that capitalist employers offer them and are thus exploited. As Salter notes, there is no basis for the view that labor is the sole source of productive value and that the income of landlords and capitalists comes from the “surplus value” that is extracted from workers:
The standard economic theory that explains what labor earns in the market (along with capital and land) is marginal productivity theory. In brief, the factors of production receive the value they contribute to the production process. . . . If workers were systematically undercompensated (paid less than the value they add to the productive process), there is an opportunity for firms to hire workers at a slightly higher wage, depriving the underpaying firms of a source of profits and capturing those profits for themselves.
Belloc would respond that capitalist monopolies aren’t subject to competitive pressures to raise wages (i.e., in the language of modern price theory, they have “monopsony” power). But as Salter points out:
While there is nothing wrong with bargaining models in specific employment contexts, by itself this does not mean one party can dictate terms to the other. Neither employers nor employees are immune to reprisal. The existence of feasible alternatives makes strong-arm tactics impractical for either party.
Although Salter is fully cognizant of the deficiencies in Belloc’s analysis of the free market, he defends Belloc with a weak argument. Salter suggests that although many of the interventions Belloc favors in the market may reduce prosperity, the price is worth paying because it is desirable that people have wide access to productive resources:
One way of interpreting Belloc is that he means the low prices for consumer goods under capitalism do not reflect the full costs of their production. We may be giving up fewer economic resources to produce these goods under capitalism than under distributism, but we are consuming more political resources, and this is not reflected in the pricing process. Low capitalist prices do not take account of the fact that the production methods used, by concentrating property in the hands of the few, result in a widespread loss of freedom. . . . Capitalist economics have political externalities: this is Belloc’s claim expressed as concisely as possible. (emphasis in original)
This assumes without adequate justification that those who don’t have productive resources but want to acquire them would be unable to do so in the free market. If you are an industrial worker and want to buy a farm, what prevents you from doing so? Is it the high price? Then what prevents you from joining with other workers to pay it? Is the issue that we can imagine circumstances in which the price of land would be lower? If so, it is Salter’s task to describe these circumstances and to establish their normative relevance.
I suspect that the key argument is not that workers can’t acquire land in a free market but that they haven’t been willing to pay the price. If workers don’t want to become farmers, they, or at least a large number of them, should want this. This, Salter’s might say, is no mere subjective preference but represents the application of Thomist natural law ethics to contemporary capitalism (see in this connection Salter’s interesting remarks about Mary Hirschfeld’s book Aquinas and the Market). The problem with this contention, from a Rothbardian standpoint, is that people who don’t want to be become independent farmers aren’t violating anyone’s rights and may not be compelled to become farmers.
The criticisms of the argument about the alleged lack of access to productive resources apply to Chesterton and Röpke as well. Like Belloc, Chesterton wanted to interfere with the free market to promote the outcomes he thought best. Laws that imposed taxes on chain stores, for example, did not “really” restrict freedom. Salter acknowledges that Chesterton’s rationale for these laws, and others like them, is nonsense and that Chesterton knew little about economics. Röpke, an outstanding professional economist, argued forcefully for the virtues of economic freedom, but at times he did not resist the temptation to tweak the free market to promote the sort of small communities he deemed best.
Salter is entranced by Chesterton’s style and rightly draws attention to his magnificent tribute to the family. He was able to use paradox to throw unexpected light on issues, as in his magnificent demolition of eugenics. (For an excellent analysis of Chesterton as a writer, see Hugh Kenner’s Paradox in Chesterton.) I hope that many readers of Salter’s account will be encouraged to read Chesterton; by no means do I wish to emulate the “Remote and ineffectual Don / That dared attack my Chesterton” of whom Belloc wrote.
Salter hopes that distributism will become a progressive research program, but, for reasons best stated in Thomas Woods’s article “What’s Wrong with ‘Distributism,’” this is a hope I cannot share. A popular ballad after World War I asked, “How ya gonna keep ’em down on the farm / After they’ve seen Paree?,” and I do not think the distributists have a good answer.
The State of California, unable to unionize fast food workers, now is trying to create workers councils that will set labor policies for fast food restaurants.
This will not end well.Original Article: "Leviathan Is on the Menu"
Jamaica is at a critical juncture in its history, and the world is watching. Long seen as a powerhouse in the developing world, Jamaica is on track to become a republic. Like in the 1950s and ’60s, decolonization is brewing, so Britain’s ex-colonies want to sever ties with their former overlord. Jamaica has therefore established a constitutional reform committee to fast-track the process of becoming a republic.
As a political process, constitutional reform will be exposed to the pressures of lobby groups. There will be revolutionaries proposing that the new constitution be disassociated from British influences; however, such hostilities must be tempered with logic. Constitutional reform is not a cultural exercise but an opportunity to create a more prosperous Jamaica. The British became the world’s first industrial nation, and Jamaica can learn a great deal from her former colonizer.
Constitutional reform cannot be about preserving national pride. An obsession with an obsolete culture has led many nations into the bosom of failure. Culture must be rejuvenated by creative forces or it becomes stale and regressive. Countries that are hesitant to evolve because they want to preserve local culture often curse their people with stagnation.
In his book Conquests and Cultures, Thomas Sowell exclaims that an inability to appreciate the pitfalls of local culture is a proven strategy for countries to remain backward. Jamaica’s counterpart in Asia, Singapore, had no pretensions about the sanctity of local culture and instead went on a campaign for independence to learn from countries like Japan and Israel. Singapore’s then-leader Lee Kuan Yew was also sufficiently intelligent to embrace the virtues of Britain’s common law. Jamaica has a history of economic underperformance and should follow Singapore instead of entertaining delusional rhetoric.
Constitutional reform is a golden moment for Jamaica to become as successful as England or its offshoots such as America, Canada, New Zealand, and Australia. Western countries still set the standard when it comes to governance and innovation. These countries have a commercial culture, and as a laggard, Jamaica should use the reform process to create a constitution that orients the country toward business. Though Jamaica is a poor country, economic freedom is not being prioritized in the reform process.
Surprisingly, it is not even being discussed. Most pundits only seem interested in trashing Britain. All sorts of frivolities are highlighted to the detriment of commerce. The American constitution has several stipulations dealing with economic freedom, and considering that Jamaica is a country desperately in need of an economic renaissance, understanding these provisions should be the objective of the reform committee.
Jamaican entrepreneurs are beholden to regulations that violate property rights and economic freedom. In the sugar industry, until recently the Jamaica Cane Product Sales Limited had a monopoly to market sugar, despite the preferences of farmers and manufacturers. Entrepreneurs are compelled to comply with insensible regulations to appease government bureaucrats. Although regulations are unfavorable to commerce and infringe property rights by dictating how entrepreneurs use resources, few conceive of them as violating property rights, and others are too timid to resist.
The passivity of entrepreneurs has emboldened the state to the extent that manufacturers can be charged for leaking refined sugar into the retail trade. Bureaucrats argue that when manufacturers import refined sugar duty-free for manufacturing and sell it in the retail trade, they fleece the government of revenues. Bureaucrats have no business telling manufacturers how to capitalize on opportunities.
Entrepreneurs should leak refined sugar into the retail trade if doing so is profitable. It is not their concern that the state wants to protect the local sugar industry by limiting the use of refined sugar in the retail space. Jamaica’s sugar industry has been underperforming for years, and attempting to save an inefficient project without innovation is futile. Only greater innovation can rescue sugar from sinking further into the abyss.
Similarly, coffee is also burdened by regulations. Quota laws force companies to incorporate local coffee into the manufacturing process even when doing so adds no value. One company, Salada Foods, brought the issue to court and was unsuccessful. Unfortunately, a poor country like Jamaica cannot afford such regulations.
Therefore, the constitutional reform committee must ensure that the new constitution bolsters economic freedom and property rights safeguards. It would be a travesty if Jamaica wasted this moment in history to focus on political and social issues at the expense of its economic future.
The Federal Trade Commission is heavily scrutinizing the proposed merger between Microsoft and Activism. Why? Sony is against it, demonstrating that antitrust law is about protecting favored producers, not consumers.
Original Article: "The FTC Should Answer Its Call of Duty to Gamers"
On this episode of Good Money, Tho Bishop is joined by Wesley Schlemmer, president and co-founder of Bitcoin Bay. Wesley discusses the benefits of creating local professional networks around common values and how Bitcoin Bay is helping Tampa residents convert Bitcoin into real goods and services, including locally raised beef.
Learn more about Bitcoin Bay at Bitcoinbay.live.
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It is as if the average human assumes that a coercive governance must be established or assigned despite the fact that such a government is often not very efficient or even involved in the outcomes we ultimately want, peace and prosperity.
—Walter Block and Stefan Sløk-Madsen, “Who Should Own the North Pole?“
In many oil-producing countries, governments own the resource (namely, oil) that they’re extracting. Whether this is a favorable state of affairs in matters of productivity and efficiency will not matter to us in this article. What does matter is that libertarians claim that government “ownership” of resources commits an infraction of the nonaggression principle.
This article will attempt to set to ink (or to bits) my sequence of thoughts regarding the issue. I will especially focus on making the argument that attempts of governments to own petroleum, or any resource, is an inherently unethical act with respect to libertarian ethics, save for a few situations that I will detail at the end. The article will focus on the state of Kuwait, but the argument may be generalized. Finally, I note that this is not a call for action but rather a practice in thinking out loud.
Let us start with the concept of ownership. Ownership is based on homesteading in the libertarian school of political philosophy. A resource, which was not previously owned or which was abandoned, may be partially or fully owned by an individual actor who appropriates the resource in use or in production. This is to be interpreted in the narrow sense: I may use the moon as the object of my view or contemplation, but I am not using it in a way that excludes others from using it in the same way without severely diminishing its utility and interrupting others’ use of it.
The same cannot be said about using an orange to produce orange juice: the use of the orange by one person severely limits the use by the other person. In other words, resources are exhaustible. By defining resources thus, the moon may not be regarded as an economic resource. Even the sun, which for all of history has illuminated our planet, will someday cease production—but that will not happen for billions of years. So, sunlight is not an economic resource. However, the land that is exposed to light, the physical space by which we may use sunlight, is scarce. It’s scarce because not enough of the resource exists to satisfy the totality of our wants.
This homesteaded resource becomes private property. To that, we have to add another important qualification: private property can only be owned by single human beings. Human beings, as acting agents, may use resources as means to achieve their ends, but they cannot completely share ownership. This is because, at any time, no two human beings may exercise the same act of ultimate disposal of the resources, which defines the nature of private property. (This encourages us to call it several property, following Friedrich von Hayek.) Even a company, which is legally partially owned by many stockowners, is not actually owned in the strict sense by any member. No individual can exercise ultimate disposal of the company’s resources. An individual’s part-ownership is more than nominal, but he may not access and dispose of the resources as he wishes.
Article 21 of Kuwait’s Constitution declares that “All of the natural wealth and resources are the property of the State. The State shall preserve and properly exploit those resources, heedful of its own security and national economy requisites.” This leaves the most important natural resource in Kuwait, petroleum, in the hands of the state. However, even this ownership is metaphorical. No single man really owns all the petroleum. In the end, it is impossible for any single person in Kuwait to use any amount of petroleum as he wishes, even if he claims that this is done for the public’s benefit, because many people with positions of authority differ on what exactly is the public’s benefit (notwithstanding that the term constitutes a Rousseauian categorical error).
Then, what can we mean when we say that the state owns the petroleum? Some of the state’s agents, its ministries, surely extract the petroleum. Not all the petroleum, however, is extracted—let alone discovered—and become part of the state’s reserve. We surely understand that, in the event that a new petroleum reservoir is found, it will automatically be claimed by the state. Then, government ownership of resources differs from the classical type of ownership that we discussed above.
Government ownership, here, may be understood by considering this example. Suppose one was walking in the wilderness and discovered an untapped pool of oil. He soon discovers that he’s standing on an oil reservoir. He may extract some of that oil in a tanker and bring it to officials in the relevant ministry, and they will immediately claim ownership. He may not repeat that act of filling another tanker with oil without suffering legal consequences. He loses the liberty of owning that oil, which he has discovered and extracted. He is not able to use that oil for any purpose anymore, unless by gaining permission from the state. This leads us to a new way of defining government ownership. A state can own resources by two methods: either by homesteading, wherein an official has the capacity of ultimate disposal of the resource, or by threatening others from homesteading the resource.
It is in defying article 21 of Kuwait’s Constitution that one may discover his inability to own any disclosed natural resource. Under the threat of aggression, he is not allowed to homestead a resource that was previously not owned. He is also threatened into not sharing in the use of a resource that is not fully owned by any acting agent from the government’s side. These threats come regardless of whether a citizen actually subscribes to article 21 of the constitution since, in any case, claims of ownership do not translate to the rightful ownership of any resource. (Else, anyone may claim to own other human beings, Antarctica, or the Pacific Ocean by simply saying so.)
Therefore, this type of ownership is in total defiance of the ethical principle adopted by libertarians under the name of the nonaggression principle, which states that acting agents are ethically not permitted to initiate or threaten to initiate invasion or forceful interference upon persons or their properties. Government ownership of resources constitutes such an aggression.
We note that this government “ownership” does not aggress upon persons who believe that government has such duties and who might support such ownership. We also note that should officials from any government homestead the resource, this might be allowed in the libertarian sense, if the official acts by virtue of him being a private citizen without exercising his political authority in any regard and then hand that homesteaded resource to a ministry.
Whether government “ownership” is the most efficient way to utilize resources, in our estimation, is irrelevant. Some ethical systems may use efficiency as a basis for their principles, but libertarians are concerned here with whether it infringes on the nonaggression principle. We hope that the argument is understandable here, and it helps the reader see the situation from this perspective.
The US dollar has been the world reserve currency since 1944. At the Bretton Woods Conference, the dollar was pegged to gold and every other currency was pegged to the dollar. The fixed exchange rate system that emerged provided a stable environment for international trade and investment, as all countries had a currency value that was, directly or indirectly, tied to a fixed gold price.
The system began to unravel in the 1970s due to economic challenges faced by the United States, including the need to finance its war in Vietnam while simultaneously dealing with French president Charles de Gaulle’s demands that the US return France’s gold. His discontent may have been prophetic, foretelling a similar future sentiment. He said,
US imperialism leaves no field unoccupied. It takes every form, but the dollar is the most insidious. We pay the US to purchase us. So each time we have dollars, we will convert them into gold. Everyone should do the same. . . . Political pressures will no longer be used to manipulate money.
In August 1971, President Richard Nixon suspended the convertibility of the dollar into gold, effectively ending the gold standard and transforming the dollar into a total fiat currency. The value of fiat money is solely based on the faith and trust one has in its government. Interestingly, since 1913, the dollar has lost more than 97 percent of its purchasing power due to inflation.
Why Is the Dollar Still the Reserve Currency of the World? Despite being a fiat currency, the dollar has managed to retain its privileges due to its extensive usage in international trade and financial markets and its association with one of the world’s largest economies. One of the primary drivers to attaining the status of the world’s reserve currency is the petrodollar, which refers to the role of the dollar as the primary currency used for international oil trade.
In the 1970s, following the oil crisis and the subsequent agreement between the Organization of Petroleum Exporting Countries and major oil-producing nations, oil was priced and traded in dollars, which meant that people purchasing oil had to use the dollar, creating a high demand for it.
The petrodollar system brought significant benefits to the United States. As global demand for its currency increased, this system allowed the US to maintain its economic influence and control over the international financial system. It also helped stabilize the dollar and supported its status as a global reserve currency.
However, with these privileges came great responsibilities toward all nations. Following the Golden Rule, the United States had a moral and ethical obligation to treat others as it would like to be treated. It failed on this crucial responsibility, and the consequences are now obvious.
In contracts, the language calls for “duty of good faith and fair dealing,” which prohibits one party from interfering with the other’s performance or undermining their expected benefits. A breach of this duty is a serious legal offense.
Similarly, in international relations, utilizing hegemony to shape international systems through coercive or noncoercive means violates this fundamental principle of law. It is a dangerous path, particularly when the global reserve currency is weaponized to achieve political, economic, or military dominance.
Unless the US practices what it preaches toward other nations, confidence will erode, and global trade and economic stability will be threatened worldwide. Given the interconnectedness of the world, pulling on one string of the spiderweb will shake the entire web. We are witnessing this phenomenon with the emergence of a global rebellion by nations that threaten to abandon the dollar as the world’s reserve currency to return to a more responsible form of money backed by gold.
Despite efforts by state regulators to find solutions, their actions have mostly been ineffective due to strong political opposition. Professor William Greene proposed an alternative approach in an article titled “Ending the Federal Reserve from the Bottom Up.” He suggested focusing on the negative mandate of Article I, Section 10 of the US Constitution, which states that “no State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debts.” He called this approach the “Constitutional Tender Act,” a template for a bill that can be introduced in every state.
His approach is intriguing, but it remains a risky proposition. At best, it would take months, if not years, to align the collective political will necessary to rectify the situation. Clearly, it is not the optimal choice.
It is imperative for all fifty US states to prepare for a potentially catastrophic collapse of the US dollar along with the ensuing worldwide aftermath. The resulting damage at the state level could be unimaginable.
What Is the Best Option? Every surfer knows that there’s a precise moment to start paddling to catch a wave before it breaks. Start too early and it crashes upon you. Start too late, you miss it entirely. Timing is crucial if we want to harness the full power of the waves. Likewise, any state aiming to break free from the Federal Reserve must be prepared to seize that wave as soon as possible.
This new wave is the coalition of nations advocating for a sound monetary system backed by gold to replace the US dollar as the global reserve currency. The collective strength of this group allows them to fearlessly voice their dissatisfaction alongside other discontented national leaders. It’s a formidable pushback that is rapidly gaining traction. Beginning June 14, 2023, over one hundred countries have convened at the economic summit in St. Petersburg, Russia, to discuss the creation of such a gold-backed monetary system to replace the US dollar as the dominant currency.
What Is the Solution for a State? Surprisingly, it is more simple than we might imagine. While the dollar won’t be displaced overnight, fostering a competitive environment where it needs to compete with sound money backed by gold is the best option for all fifty states. Citizens can decide which currency they trust, and the laws of supply and demand will determine the winner.
Currently, there are seven US states with existing laws granting legal tender status to foreign currencies that have legal tender status within their foreign borders. These states are Texas, Louisiana, Florida, Oklahoma, Tennessee, Alaska, and Arkansas.
Once a foreign country gives legal tender status to a secure, stable, functional, transparent, and legitimate gold-backed monetary system within its territory, it will have de facto legal tender status in these seven US states. Many friendly nations will soon have a solution to offer these seven states who are well positioned to catch that wave when the opportunity presents itself.
Local governments should take proactive measures to prepare for the inevitable. While a governor’s executive order to supplement existing laws may not be necessary, such an order could help rally and focus statewide attention on the opportunity. One or more of these seven states could become a powerful magnet, attracting individuals who seek to move away from fiat currencies to money backed by gold. There is a significant first-mover advantage awaiting any state (or a group of states acting in unison) that takes the lead.
Politics is of its very nature biased in favor of intervention and planning. Even in its “minarchist” or “night-watchman” version, politics is based at root on the idea that some decisions must be made coercively and imposed on unwilling minorities — or even majorities, as the case may be. This is contrary to the principle we observe in private life every day: the consent of both parties is necessary for a transaction to take place.
The state never stays “limited” in the long or even medium run, as we've seen for ourselves, and before long it worms its way throughout civil society. Once it becomes entrenched in some area of social life that had previously been managed by voluntary means, people grow accustomed to the state's new role, even coming to view it as indispensable. The spirit of spontaneous, voluntary cooperation therefore atrophies and dies. This, in turn, is cited as justification for still further state interference, and the cycle continues.
In the modern state politics is coupled with government education in a one-two punch to the voluntary sector. That is, the moral principles and the unstated assumptions that govern politics have already been drilled into the heads of the young well before they become eligible to vote. By that time they have imbibed every comic-book platitude about the selfless public servants who are just out to improve everyone's well-being. Were it not for the indoctrination of the public from a very young age, the state's racket would be far more obvious and transparent.
(Incidentally, the first lesson kids in government schools learn is that if enough people want something — “free” education, for example — you should get it by having goons seize the funds from your neighbors. Why, how else could anything get done?)
The best known of the intellectual constructs by which the state seeks to legitimate itself must be the "social contract." To evaluate this construct properly, consider how contracts function in civil society. You and I are interested in, say, an exchange of services for money. You are going to paint my house, and I am going to give you a cash payment. We spell out the terms of our understanding in a contract.
These terms may include the nature of the work, a deadline by which the task must be completed, and perhaps even the name of an independent arbitration service we agree to consult if one of us believes the contract is not being properly honored.
Contrast this with the state's so-called social contract. Here, nobody signs anything. You are assumed to consent to the state's rule because you happen to live within its territorial jurisdiction. According to this morally grotesque principle, you have to pack up and leave in order to demonstrate your lack of consent. The state's authority over you is simply assumed (or it takes the form of a contract nobody ever signed), with the burden of proof on you, rather than — more sensibly — on the institution claiming the right to help itself to your life and property.
If my cooperation with the system is only under duress, and my repeated insistence that I do not consent, is insufficient to indicate my lack of consent, then what kind of crazy moral system is this?
Is there an analogous situation in the private sector? Do we just assume you intended to buy a car or a house, or to enter into a labor agreement, on the basis of dubious inferences? Do we not instead sign form after form, drafted in meticulous legal language, to ensure that the nature of the activity in question is clear to everyone?
Oh, but the state provides services, and you should pay for them! Again, though, when anyone else provides services, I decide for myself whether I want to use them (in which case I pay), whether I prefer an alternative provider of the service, or whether I choose not to avail myself of the service at all.
Ah, but the services the state provides aren't the kind that can be provided competitively on the market, so you must be corralled into paying for them, like them or not.
But this is mere assertion. Education is provided on the market, and always has been. Scientific research was funded more copiously per capita before the state became heavily involved. Poverty relief took place on a vast scale long before the world's welfare states amounted to much of anything. Even security and legal services can be and are quite effectively provided on the free market.
All right, so the state's social contract may not amount to a hill of beans, and in fact is a transparent attempt to legitimize behavior we would not tolerate from any other actor or institution, but what about written constitutions? Aren't these at least partly contractual in nature, and don't they restrain government from the worst abuses?
Let's consider the United States Constitution as a test case, since conservatives and even many libertarians point to it as one of the most brilliant political documents ever drafted.
The minarchist calls for a "night watchman" state, a state that limits itself to the production of security and adjudication services. (I shall leave aside the cognitive dissonance in warning about the dangers and wickedness of the state on the one hand, while simultaneously proposing the absolute necessity of the state in providing the most important and fundamental services of all.)
Interestingly, the US Constitution actually calls for something less than a night-watchman state, in the sense that most security services are assumed to rest with lower levels of government, and are not a federal function in the first place. So this would appear to be an excellent test of the "limited government" position, for here is a document that begins with such a limited government that it's even less government than minarchists themselves would call for.
Well, how has it worked out?
For the answer to that question, simply look around you.
"The Constitution hasn't been obeyed," comes the reply. Well, no kidding.
What reason would politicians have for obeying the Constitution? Once it is believed that the state may legitimately initiate force and levy taxes, it's not much of a leap to consider how those powers might be turned to the advantage of Industry X or constituency Y. Meanwhile, people who protest this development as a departure from the Constitution will be an isolated minority left in the dust, laughed at by the plotters and schemers who can't believe anyone seriously expected this institution to remain limited. Where's the money in that?
No, the Constitution cannot be exonerated. If it lacks institutional safeguards to prevent the egregious abuses of our own day, then it is a failure. Human beings have failed to follow it? Well, did we not realize from the start that fallible human beings would be in charge?
In Lysander Spooner's unforgettable formulation: "But whether the Constitution really be one thing, or another, this much is certain — that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case it is unfit to exist."
Strictly speaking, the US Constitution was conceived of as an agreement among the states, to which the US government, being the creation of that agreement, was not itself a party. But for the sake of argument, let's do as some do, and think of written constitutions as being roughly analogous to an agreement between the government and the people.
Who gets to adjudicate disputes over whether the terms of this contract are being violated? An independent third party? Of course not. The state's own courts decide. And in the case of the US, those courts are populated by people trained in US law schools — where, with insignificant exceptions, students are taught to believe preposterous, ahistorical interpretations of the Constitution's most important clauses: commerce, general welfare, "necessary and proper," and the Supremacy Clause.
Good luck waving your copy of the Constitution in that setting.
So there is certainly something fishy about the state. We are urged to apply special rules in our moral evaluation of this institution, rules we would indignantly reject in any other context.
As for the state's supposedly indispensable role, once we grow up and leave behind the scare tactics from our sixth-grade textbooks — without your public servants you'll starve, or be poisoned, or drive an exploding car — we discover how little we need the state after all. The historically unprecedented explosion in living standards all over the world had everything in the world to do with market-driven capital accumulation, and zero to do with government spread-the-wealth schemes.
The truth of the matter is this: the only welfare the state is concerned about, at root, is its own. As Murray N. Rothbard was fond of pointing out, we can get to the heart of what the state is really all about by considering the kind of crimes it treats the most severely:
We may test the hypothesis that the state is largely interested in protecting itself rather than its subjects by asking: which category of crimes does the state pursue and punish most intensely — those against private citizens or those against itself? The gravest crimes in the State's lexicon are almost invariably not invasions of private person or property, but dangers to its own contentment, for example, treason, desertion of a soldier to the enemy, failure to register for the draft, subversion and subversive conspiracy, assassination of rulers and such economic crimes against the state as counterfeiting its money or evasion of its income tax. Or compare the degree of zeal devoted to pursuing the man who assaults a policeman, with the attention that the State pays to the assault of an ordinary citizen. Yet, curiously, the state's openly assigned priority to its own defense against the public strikes few people as inconsistent with its presumed raison d'etre.
If the nature of the state is as I have described it, we should not be surprised by two related phenomena: (1) the glorification of the state, its record, its motives, and its nature; and (2) the demonization of the free market economy, which operates independently of the state. The public must be led to consent intellectually to its own subjection, to come to believe that the state's confiscations and abuses are truly for their own good. What the state needs is to bring about a society-wide Stockholm Syndrome. It accomplishes this task through a combination of (1) fear; and (2) persuading us of its legitimacy.
Libertarians must continue to take direct aim at both of these. First, fear: many people believe, based on what their formal education taught them, that under laissez faire big business would exploit everyone, the environment would be despoiled, and children would be working in factories. We have plenty of ammunition to use against these concerns.
But legitimacy is truly the state's most potent weapon. Legitimacy is what allows the state to get away with its moral enormities. It is because the public believes state activity to be legitimate that it tolerates it even for a moment. This is why the state and its hangers-on are so eager to ensure we buy into the social contract nonsense, and the various other means by which the state seeks to justify itself. When that legitimacy is cast into doubt, things happen.
Recall what Ron Paul says when he's asked what he thinks about the fact that roughly 50 percent of Americans don't pay income tax: "We're halfway there!"
Libertarians should have thought the same way about Donald Trump's threat to undermine the legitimacy of a President Hillary Clinton: if one major presidential candidate's legitimacy is undermined, we're halfway there!
No matter how the election turns out, libertarians should be about their proper business: de-bamboozling the masses, exposing the state for what it really is, and defending liberty as the root of everything we cherish.
[Originally published as "The Trouble with Politics," November 8, 2016.]
While rain at an outdoor concert is a nuisance for most attendees, a few entrepreneurs saw not "pennies from heaven," but dollars.
Original Article: "It’s Raining Entrepreneurship at a Taylor Swift Concert"
Keynesian economists believe that recessions occur because of a weakening in aggregate demand, so boosting demand will end the downturn. Whenever an economy shows signs of weakness, most experts believe that increasing aggregate demand will prevent the economy from sliding into a recession. Since private spending is declining, Keynesians say the government should counterbalance this decline by increasing government spending on goods and services.
Demand is constrained by the ability to produce goods. The more goods that an individual can produce, the more goods he can acquire. The same can be said for the economy at large because what drives an economy is not demand but rather the production of goods and services.
Producers, not consumers, are the engine of economic growth. Obviously, a producer must produce goods and services in line with what other producers require.
According to James Mill,
When goods are carried to market what is wanted is somebody to buy. But to buy, one must have the wherewithal to pay. It is obviously therefore the collective means of payment which exist in the whole nation that constitute the entire market of the nation. But wherein consist the collective means of payment of the whole nation? Do they not consist in its annual produce, in the annual revenue of the general mass of inhabitants? But if a nation’s power of purchasing is exactly measured by its annual produce, as it undoubtedly is; the more you increase the annual produce, the more by that very act you extend the national market, the power of purchasing and the actual purchases of the nation. . . . Thus it appears that the demand of a nation is always equal to the produce of a nation. This indeed must be so; for what is the demand of a nation? The demand of a nation is exactly its power of purchasing. But what is its power of purchasing? The extent undoubtedly of its annual produce. The extent of its demand therefore and the extent of its supply are always exactly commensurate.
Can Government Really Grow an Economy? The idea that the government grows the economy originates from the belief that increases in government outlays expand the economy’s output by a multiple of the initial government increase.
John Maynard Keynes, who popularized this idea, wrote,
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.
Given Keynes’s influence, it is not surprising that most economists today believe that it is possible via government spending to prevent a recession. Countering that notion requires that we examine the effect of an increase in the government’s demand on an economy’s wealth formation.
Take an economy comprised of a baker, a shoemaker, and a farmer, and assume a government enforcer enters the scene who demands goods by means of force. The baker, the shoemaker, and the farmer are forced to part with their products in exchange for nothing, weakening the flow of production of final consumer goods. The increases in government outlays do not raise overall output by a positive multiple; on the contrary, they undermine the process of wealth generation.
Through taxation, the government forces producers to part with their products for government services that are likely a low priority. According to Ludwig von Mises, “There is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.”
Monetary pumping and government spending cannot remove the dependence of demand on the production of goods. On the contrary, loose fiscal and monetary policies impoverish real wealth generators and reduce their ability to produce goods and services, thus weakening effective demand for other goods.
Therefore, curbing government spending is required to revive the economy, not increasing spending and monetary creation to boost aggregate demand. Limiting government spending enables wealth generators to revive the economy. Hence, by strengthening the economy’s ability to produce goods and services, we also strengthen overall demand.
What Causes Recessions? Keynesians believe that recessions are the result of unexpected events that push the economy away from a trajectory of stable economic growth. Shocks weaken the economy and cause lower economic growth.
In contrast, we suggest that recessions occur because of the central bank’s monetary policies in which monetary authorities first inflate the currency, then pull back on money growth. Loose monetary policies lead to a strong money growth rate which ultimately leads to inflation, prompting the central bank to reverse course.
These activities cannot support themselves; they survive because the increased money supply provides support for them. The increased supply diverts money from wealth-generating activities to unproductive ones, weakening the wealth-generating process. From there, the tight-money stance ends the malinvestment of resources, leading to the recession.
Thus, nonproductive and unprofitable activities cannot support themselves once the growth rate of money supply declines. Aggressive fiscal policies, which are enacted to support nonproductive activities, continue to undermine the wealth-generation process, thereby damaging the prospects for an economic recovery.
Conclusion During an economic crisis, the government should not intervene. When there is no monetary or fiscal tampering, wealth generators can retain their wealth, allowing them to expand the pool.
A larger pool of wealth makes it much easier to absorb various unemployed resources and eliminate the crisis. Aggressive fiscal policies, however, damage the process of wealth generation and make things even worse.
New York Times columnist David French likes to think of himself as an honest broker. In reality, his "Never Trump" mentality leads him to overlook government lawbreaking.
Original Article: "David French Gets to Sit with the Cool Kids at the NYT Lunch Table"
As we enter the dog days of summer, I have heard several media conversations and a few private ones that express exasperation over languishing capital markets. Why do things take so long to unravel? What will happen next? When will X, Y, or Z happen? Why are tech stocks so bullish now? The market takes time to process the information that it already has — or is in "process" — and everyday brings new data.
The Austrian perspective highlights the role of reality in the market process. This is especially important in this period of unprecedented government intervention and the chaos it has generated in markets.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
The local paper’s headline posed the question, “Do renters have the upper hand in Las Vegas right now?” “[The apartment project] offered us two weeks of no rent to get us moved in on the timeline we wanted,” said a renter who was also given passes to the Life Is Beautiful music festival as part of the deal. “They also throw resident events every month providing food and entertainment,” she added.
Las Vegas Review-Journal business reporter Patrick Blennerhassett reports deals like this are not uncommon. Websites for Las Vegas apartment projects indicate apartment owners “are doling out a multitude of perks.” Besides the perks, rents decreased 2.2 percent in this year’s first quarter.
“Rents are definitely falling,” said Shawn McCoy, director of the Lied Center for Real Estate and an associate professor at the University of Nevada, Las Vegas. “And in respect to concessions, when I speak with multifamily developers, much of the story is about what is the optimal way to confront pressure in the market to reduce rent, and a lot of it is marketing.”
In a statement to the Las Vegas Review-Journal, the Nevada State Apartment Association said, “There was a surge in homebuilding during the pandemic as builders tried to capitalize on the moving frenzy, especially in pandemic homebuying hot spots.”
Evidence of this surge is visible all over Las Vegas with dozens of large multifamily units in various stages of construction. But Vegas is not an anomaly. The Wall Street Journal reports that more than 950,000 multifamily units are under construction, three times the number for apartment construction twenty years ago.
Wall Street Journal’s Will Parker writes that Sunbelt cities are the most exposed. When covid-19 vaccines came out, demand for multifamily housing surged and rents increased 25 percent. But now, that growth has disappeared. Parker identifies Phoenix, Atlanta, and Las Vegas as markets where rents are falling.
The Austrian business cycle theory predicts the developers’ downfall. Low interest rates and high rental rates lure builders into pursuing multifamily projects. But these projects take time to identify and purchase land, gain zoning approvals, and collect bids for construction to determine whether the economics supports construction of the project. Low interest rates make more projects viable. However, when rates surge upward, the envisioned economics of the project falls apart, unfortunately before construction is completed.
Why will so many apartment developers be caught wrong-footed? It is certainly not the fault of a free market, as if we have one. The government’s response to covid was unprecedented, with one hand shutting everything down, with another the Fed doubling down on its zero interest rate policy, and finally, fiscally, the federal government literally sending money to everyone: from state governments to employers and finally down to individuals, who suddenly had the money for first and last month’s rent to move into a new apartment.
As Murray Rothbard explained succinctly in Economic Depressions: Their Cause and Cure,
The business cycle is brought about, not by any mysterious failings of the free market economy, but quite the opposite: By systematic intervention by government in the market process. Government intervention brings about bank expansion and inflation, and, when the inflation comes to an end, the subsequent depression adjustment comes into play.
In the apartment sector, that depression adjustment has begun and has a long way to go.
Crime is increasing in American cities, but don't count on police to protect you. The Defund the Police movement has less to do with that than most people think.
Original Article: "You Can’t Depend on the State to Maintain Public Order"
Daniel Ellsberg died on June 16, and he remains one of the nation's most prominent whistleblowers who leaked secret government information to the public. Upon his death the general consensus among the writers of memorials for Ellsberg was that he was right to leak government secrets. As the editorial board at The Orange County Register recently put it, he was "a true American hero."
They're right about Ellsberg. During the Vietnam War, through his release of the so-called Pentagon Papers in 1971, Ellsberg made public a large trove of secret government documents that exposed many of the Federal government's lies about its involvement throughout Indochina. Much of the information applied to the Johnson Administration which had been lying about the war to both the public and the Congress. Naturally, the release of this information, which smashed the Federal government's credibility on foreign policy, also called into question countless claims about the Nixon Administration. Nixon, of course, had already authorized an illegal and secret bombing campaign in Cambodia in 1969.
At the time, the response to Ellsberg's deeds was hardly one of universal acclaim. Yet, over time, criticism has waned and Ellsberg's critics have been exposed for what they were: knee-jerk defenders of a regime devoted to war crimes and crimes against the Bill of Rights.
In fact, it has become so difficult to criticize Ellsberg that defenders of today's regime have had to devise ways to claim that Ellsberg's leaks were heroic, but the leaks by more recent whistleblowers—such as Julian Assange and Edward Snowden—have been traitorous. The fact that Ellsberg himself always supported leakers like Snowden and Assange is studiously ignored.
Yet, what was true for leakers in 1971 remains true today: it is heroic to expose the lies of governments, and those who seek to jail truthtellers are the real criminals who choose to protect state power at the expense of freedom and basic human rights.
The Original Response to Ellsberg's Leak It does not require any courage or independent thinking to support Daniel Ellsberg in 2023. To do so is to do what is already accepted and popular. This is why journalists almost universally support Ellsberg today. It's easy.
Yet, to support modern-day Ellsbergs—such as Assange, Snowden, Reality Winner, Chelsea Manning, and Jack Texeira—requires some degree of independent thought, skepticism, and disregard for the regime. This is why so few journalists in the corporate media support these modern-day leakers. To do so might endanger journalists' positions with the organs of power within mainstream media. Moreover, most corporate journalists are firmly on the side of the regime. They have no interest whatsoever in undermining it.
Indeed, many journalists at the time of the release of the Pentagon Papers condemned Ellsberg. For example, at the 1971 meeting of the Associated Press Managing Editors Association a speaker insisted that approval of Ellsberg is akin to approval of any "pamphleteer" who publishes "a plan of a secret submarine or a list of foreign agents abroad, obtained from any peddler of secrets." The editors of TIME magazine, meanwhile, reminded readers that the federal government ought to use the "remedy" of prosecuting whistleblowers if publishing secrets might "endanger national security." The editors fail to mention that the federal government itself gets to determine what the amorphrous phrase "national security" actually means.
Politicians, of course, freely attacked Ellsberg with that term that is forever a favored refuge of the simple-minded: "traitor." The Nixon Administration prosecuted him under the Espionage Act of 1917. Ellsberg himself suspected he would spend the rest of his life in jail, but he escaped conviction thanks to the administrative incompetence of Nixon's "Plumbers." The Nixon Administration had already violated so many of Ellsberg's basic procedural rights in the lead up to the trial that no court would side with the administration. Ultimately, however, it must be noted that the Supreme Court took no action to meaningfully limit the Espionage Act. The Court took the easy way out in spite of the fact that the Act has always been unconstitutional, immoral, and contrary to basic property rights. As David Gordon has summed it up:
The [Espionage Act] blatantly violated the text of the Constitution. The First Amendment states that "Congress shall make no law … abridging the freedom of speech"; and as Justice Hugo Black liked to say, "'no law' means 'no law'." Congress had earlier violated the First Amendment with the Sedition Act of 1798; but along with the Alien Act of the same year, it was repudiated by Thomas Jefferson and was generally regarded as a disaster. Nevertheless, the Supreme Court said that the Espionage Act was constitutional.
In other words, Ellsberg managed to walk free on a technicality, but the threat of prosecution against other whistleblowers, who have done the same thing as Ellsberg, remains.
The Myth of the "Good" Leaker The fact that media opinion and public opinion generally sides with Ellsberg has done little to shield modern-day leakers from both public condemnation and legal prosecution.
Modern supporters of Ellsberg who also condemn men like Snowden and Assange attempt to justify this contradiction by creating narratives like the myth of the "good leaker." Kevin Gosztola has shown this tendency in how many who favor prosecuting Snowden and Texeira have attempted to claim that Ellsberg was a "responsible" leaker who held back information that might have been damaging to US national security. Yet, Gosztola shows this was not actually the case. Ellsberg did indeed expose the name of at least one clandestine CIA officer. Moreover, Ellsberg himself has noted that when he did withhold information from his leaks, it was not to protect the regime or its agents. Rather, Ellsberg feared releasing that data might hurt efforts to negotiate an end to the war. Ellsberg did not care "if the names of U.S. intelligence sources were exposed."
Ellsberg was also aware that defenders of the US security state used his case to discredit modern-day leakers and manipulate the narrative. Gosztola notes:
Ellsberg said the pundit class has used him as a “foil” against any “new revelations” of systematic government abuses of power. They have claimed certain leaks were different than his leaks to make it easier to discredit people who took great risks to reveal the truth.
Why the Regime Loves Secrets Naturally, it is necessary to create the myth that Ellsberg is "good" and Assange, et al, are "bad" so as the get around the pesky reality that most everyone today accepts it was for the best that many Vietnam-era lies were exposed. At the time, of course, this was hardly self-evident to millions of Americans who had been sufficiently propagandized into the idea that the federal government ought to be able to do more or less whatever it wants in the name of "national security."
This attitude certainly continues today, and it is this lazy deference to the prerogatives of the federal security state that allows federal agents and their enablers to keep alive efforts to arrest Assange and Snowden so the CIA and FBI can take their pound of flesh.
This attitude, of course, is thoroughly incompatible with the idea of self-government and the rule of law. In the years immediately following the end of the Cold War, even many Conservatives began to see the damage the Cold War had done to basic American freedoms in this respect. Thus, Sam Francis would write in 1992:
A self-governing people generally abhors secrecy in government and rightly distrusts it. The only way, then, in which those intent upon…the expansion of their power over other peoples, can succeed is by diminishing the degree of self-government in their own society. They must persuade the self-governing people that there is too much self-government going around, that the people themselves simply are not smart enough or well-informed enough to deserve much say in such complicated matters as foreign policy…We hear it…every time an American President intones that “politics stop at the water’s edge.” Of course, politics do not stop at the water’s edge unless we as a people are willing to surrender a vast amount of control over what the government does in military, foreign, economic, and intelligence affairs.
Governments like to keep secrets because it is politically expedient. It helps smooth the ways for more wars, and larger wars. It helps ensure the taxpayer gravy train keeps flowing, and that the taxpayers are untroubled by real facts about government lies and government crimes. Ellsberg—and other heroes like Assange, Snowden, and Manning—undermine the regime by telling the truth. This is why modern journalists and politicians hate them.
One hears this kind of thing from modern monetary theory (MMT) advocates whenever their economic theories are attacked: “We say not spending constrained,” they grumble, “We don’t mean ‘now spend’.” However, what politicians hear is that they can have anything they really want because they can just print the money for it. “It’s a fact,” an MMTer might say. “Sovereign governments with their own currencies can never go bankrupt. They can always print more money.”
This myopic gibberish is what I affectionately call “the MMT-and-bailey fallacy,” which I named for its similarity to the motte-and-bailey fallacy. In this case, the “motte” is the idea that sovereign governments can’t go bankrupt. It’s technically true. The United States government can always print more dollars. The “bailey” is the idea that printing more money doesn’t mean “spend now” to politicians or that the spending encouraged by telling politicians their budgets are unconstrained doesn’t lead to societal destruction. Let’s be clear: to elected politicians, “not constrained” is the same thing as “spend now.” After all, they’re incentivized to get as many short-term benefits from their limited terms as possible.
On the other hand, history is littered with the remains of regimes that didn’t understand their constraints as well as the abundant number of bodies of innocent people that ended up as collateral damage. When the state fails to understand its constraints, it inevitably collapses its monetary system and its economy, and it turns society into a desperate grab for rapidly vanishing necessities. You might think one 1920s Germany or 2000s Zimbabwe would be enough. Obviously, a sovereign state can print as much money as it wants. The consequences, however, are more complicated and have a much longer reach than many MMTers admit.
Austrian economics teaches that the modern economy is a complex and deeply intertwined collection of production pathways, some short-term, others needing a vast roundabout web of long-term connections to function and produce the consumption goods they aim to create.
When the government decides to produce money out of thin air and buy real goods with that new money, the expected flows of goods are disrupted. Goods that were intended for some long-term projects are now snapped up by the government, which does something else (usually something less profitable) with them. The long-term projects must either find substitutes, accept delays, or increase their spending. Marginal projects become untenable and are scrapped, likely wasting even more resources.
The new money, however, is an excellent tool for the government. Would-be cronies will court the government for its lucrative contracts. Better yet (for the cronies), those contracts will be paid out in new money, and the cronies will have the ability to buy goods at the prices that stand before the inevitable price inflation occurs.
It’s possible that the short-term effects of pulling huge amounts of commodities out of profitable endeavors and devoting them to government boondoggles is not so bad—at first. However, those disruptions, repeated in large amounts over long periods, eventually result in the breakdown of many of the more roundabout processes to which we owe much of our prosperity and comfort.
I’ve heard people use MMT to justify policies like universal healthcare. When politicians and cronies hear this, they spontaneously salivate, like Pavlov’s dogs. Ignored is the fact that the amount of new money that would have to be produced in order to offer free universal healthcare for one year is a fairly large fraction of the total amount in circulation now. That, of course, is with today’s incentives, where the enormity of healthcare costs is already a subject of constant shrieking. With the incentive to conserve removed, healthcare costs would rapidly balloon even larger. The number of resources that would have to be pulled away from other productive pathways is practically unbounded.
This is not to mention the likelihood that government-run healthcare would rapidly become as inefficient as the Department of Motor Vehicles. What about “dealing with” the price inflation that such profligate printing would cause? Well, we’d only need to raise taxes—but to what? 50 percent? 75 percent? 90 percent?
The MMTers admit that the government would need to tax all that money out of productive people to keep price inflation down—every year or maybe every quarter. Every month? It would depend on the current inflation rates! The government would also have to do it forever or until the system collapses, whichever comes first.
A sizable fraction of MMTers, regardless of the “motte” that they provide about money printing, love to ignore and minimize the “bailey” that unrestricted funding of politicians’ pet projects would produce. To call it a feeding frenzy would make a whole school of piranha blush.
These MMTers—the more short-sighted and corruptible ones—are just the latest bunch of court intellectuals who took on the state-sanctioned scholar’s cap. A rash of absurd policies and predictions from the Keynesians and neo-Keynesians stuck them with the jester’s cap. Now politicians want “new ideas,” and the MMTers have stepped in.
They and their “new ideas” still serve the politicians’ selfish interests, as all court intellectuals must, but have not yet been tarnished by the series of major failures the Keynesians pretend they aren’t responsible for causing. If politicians listen to the MMTers, the MMTers will eventually become jesters too. I would be fine with that result, except for the horrific collateral damage that would follow their money-printing schemes.
Einstein might have been one of history's most brilliant men, but even his great mind could not have made socialism work. Unfortunately, he wasn't smart enough to see that.
Original Article: "A Great Man Cannot Salvage a Bad Idea"
For the past ten weeks, American conservatives have been boycotting Bud Light in response to a beer can featuring transgender figure Dylan Mulvaney. Since then, sales of the beer have been plummeting. However, this week, a new benchmark has been passed: Anheuser-Busch InBev’s Bud Light is no longer the top-selling beer in the United States. Instead, it has been overtaken by Modelo, as the following graph from the Wall Street Journal shows:
Figure 1: Share of beer sales in US retail stores
Source: Wall Street Journal.
However, Modelo taking the top spot has sparked a debate in and of itself as some conservative figures have made the complaint that Modelo is still largely owned by Anheuser-Busch. In America, the company was broken up by an antitrust law; however, outside of North America, Modelo is still owed by Anheuser-Busch. As such, the boycott does not really work. In response to this, other right-wing figures have taken the firm stance that this complaint is cynical and that “Bud Light is suffering massive and sustained losses.”
This raises the economic question regarding whether a boycott of one part of a company is sufficient or if one must boycott the entire company. This answer has two major parts. The first part turns to the concept of economic calculation, which Ludwig von Mises describes by saying:
The preeminence of the capitalist system consists in the fact that it is the only system of social cooperation and division of labor which makes it possible to apply a method of reckoning and computation in planning new projects and appraising the usefulness of the operation of those plants, farms, and workshops already working.
Mises further addresses the fact that there are countless decisions that businesses must make daily. What factors of production should be used? Where should the business be located? What specialized employees should they have? What technology do they need? Which procedures should they use? What investments should be made? Through all these questions, Mises comes to one answer: economic calculation. Businesses make their decisions based off profit and loss, as Mises states later: “Profit is the reward for the best fulfillment of some voluntarily assumed duties. It is the instrument that makes the masses supreme. The common man is the customer for whom the captains of industry and all their aides are working.”
Mises even explains that, while it does not always feel like it, economic calculation even applies to the biggest of big businesses. They must sell what is profitable, and they must abandon what is not. To some, it may seem silly to say something should or should not be profitable over an ad. However, if Bud Light’s ad had been successful and sales had skyrocketed, no one would be saying that the ad did not really affect the product; the company would be bragging about their marketing.
At the end of the day, value is subjective. When making profit and loss decisions, businesses must recognize the subjective values of the consumers, who have clearly spoken regarding their preferences. As Mises explained regarding economic calculation, profit and loss decisions and market prices determine everything from the general location of the factory to the specific employee that is hired. As such, boycotting one specific product of one specific company still forces businesses to recognize in their calculation what the consumers want.
The flip side of this coin is to look at the reductio ad absurdum of the concept that one must boycott all Anheuser-Busch products in order to properly send a message. To this, one could easily ask, “Why stop there?” Those of us in the Austrian school know that the values of consumers do not just impute to the price of the beer but all the way back to the original factors of production. As Murray Rothbard has explained:
Producers’ goods are valued in accordance with their expected contribution in producing consumers’ goods. Higher order producers’ goods are valued in accordance with their anticipated service in forming lower-order producers’ goods. Hence, those consumers’ goods serving to attain more highly valued ends will be valued more highly than those serving less highly valued ends, and those producers’ goods serving to produce more highly valued consumers’ goods will themselves be valued more highly than other producers’ goods. Thus, the process of imputing values to goods takes place in the opposite direction to that of the process of production.
One could claim that by buying beer of any kind, a consumer keeps the factors of production oriented toward beer. If one really wanted to hurt Anheuser-Busch, the consumer could boycott beer in its entirety. This would result in the factors of production fleeing to other markets. As such, Anheuser-Busch would have no ingredients for their beer because wheat would be used instead for the higher-valued good of bread.
Of course, any reader would read this and think, it’s ridiculous to boycott the entire product across the board, even from other companies. Boycotts can be successful with far less than that. Boycotting one single product of a company like Anheuser-Busch—especially their former best-selling product—can still drastically impact their decision-making regarding profits and losses and can still make an enormous difference.
[This article is Chapter 2 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities. Now available at Amazon and in the Mises Store.]
It is not uncommon to encounter political theorists and pundits who insist that political centralization is a boon to economic growth. In both cases, it is claimed the presence of a unifying central regime—whether in Brussels or in Washington, DC, for example—is essential in ensuring the efficient and free flow of goods throughout a large jurisdiction. This, we are told, will greatly accelerate economic growth.
In many ways, the model is the United States, inside of which there are virtually no barriers to trade or migration at all between member states. In the EU, barriers have been falling in recent decades.
The historical evidence, however, suggests that political unity is not actually a catalyst to economic growth or innovation over the long term. In fact, the European experience suggests that the opposite is true.
Why Did Europe Surpass China in Wealth and Growth?
A thousand years ago, a visitor from another planet might have easily overlooked Europe as a poor backwater. Instead, China and the Islamic world may have looked far more likely to be the world leaders in wealth and innovation indefinitely.
Why is it, then, that Europe became the wealthiest and most technologically advanced civilization in the world?
Indeed, the fact that Europe had grown to surpass other civilizations that were once more scientifically and technologically advanced had become apparent by the nineteenth century. Historians have debated the question of the origins of this “European miracle” ever since. This “miracle,” historian Ralph Raico tells us:
consists in a simple but momentous fact: It was in Europe—and the extensions of Europe, above all, America—that human beings first achieved per capita economic growth over a long period of time. In this way, European society eluded the “Malthusian trap,” enabling new tens of millions to survive and the population as a whole to escape the hopeless misery that had been the lot of the great mass of the human race in earlier times. The question is: why Europe?1
Across the spectrum of historians, theories about Europe’s economic development have been varied, to say the least.2 But one of the most important characteristics of European civilization—ever since the collapse of the Western Roman Empire—has been Europe’s political decentralization.
Raico continues:
Although geographical factors played a role, the key to western development is to be found in the fact that, while Europe constituted a single civilization—Latin Christendom—it was at the same time radically decentralized. In contrast to other cultures—especially China, India, and the Islamic world—Europe comprised a system of divided and, hence, competing powers and jurisdictions.3
Although modern EU centralizers are attempting it, at no point has European civilization ever fallen under the dominion of a single state as has been the case in China. Even during the early modern period, as some polities managed to form absolutist states, much of Europe—such as the highly dynamic areas in the Low Countries, Northern Italy, and the German cities—remained in flux and highly decentralized. The rise of the merchant classes, banking, and an urban middle class—which began as early as the Middle Ages and were so essential in building industrial Europe—thrived without large states.
After all, while a large polity with few internal borders can indeed lead to large markets with fewer transaction costs, concentrating power in one place brings big risks; a state that can facilitate trade across a large empire is also a state that can stifle trade through regulation, taxation, and even expropriation.
The former vast kingdoms and empires of Asia may have once been well positioned to foster the creation of a wealthy merchant class and middle class. But the fact is this didn’t happen. Those states instead focused on stifling threats to state power, centralizing political control of markets, and extorting the public through the imposition of fines and penalties on those who were disfavored by the ruling classes.
The Benefits of Anarchy
In contrast, Europe was relatively anarchic compared to other world civilizations and became the home of the great economic leap forward that we now take for granted. This isn’t “anarchy” in the sense of “chaos,” of course. This is anarchy as understood by political scientists: the lack of any single controlling state or authority. In key periods of the continent’s development—as now—there was no ruler of “Europe” and no European empire. Thus, in his book The Origins of Capitalism, historian Jean Baechler concludes:
The first condition for the maximization of economic efficiency is the liberation of civil society with respect to the state….The expansion of capitalism owes its origins and raison d’être to political anarchy. (emphasis in original)4
For many years, economic historians have attempted to find correlations between this political anarchy and Europe’s economic success. Many have found the connection to be undeniable. Economist Douglass North, for instance, writes:
The failures of the most likely candidates, China and Islam, point the direction of our inquiry. Centralized political control limits the options—limits the alternatives that will be pursued in a context of uncertainty about the long-run consequences of political and economic decisions. It was precisely the lack of large scale political and economic order that created the environment essential to economic growth and ultimately human freedoms. In the competitive decentralized environment lots of alternatives were pursued; some worked, as in the Netherlands and England; some failed as in the case of Spain and Portugal; and some, such as France, fell in between these two extremes.5
Competition among Governments Means More Freedom
But why exactly does this sort of radical decentralization “limit the options” for ruling princes and kings? Freedom increases because under a decentralized system there are more “alternatives”—to use North’s term—available to those seeking to avoid what E.L. Jones calls “predatory government tax behavior.” Thus, historian David Landes emphasized the importance of “multiple, competing polities” in Europe in setting the stage for:
private enterprise in the West possess[ing] a social and political vitality without precedent or counterpart. This varied, needless to say, from one part of Europe to another.…And sometimes adventitious events like war or a change of sovereign produced a major alteration in the circumstances of the business classes. On balance, however, the place of private enterprise was secure and improving with time; and this is apparent in the institutional arrangements that governed the getting and spending of wealth.6
It was this “latent competition between states,” Jones contends, that drove individual polities to pursue policies designed to attract capital.7 More competent princes and kings adopted policies that led to economic prosperity in neighboring polities, and thus “freedom of movement among the nation-states offered opportunities for ‘ best practices’ to diffuse in many spheres, not least the economic.” Since European states were relatively small and weak—yet culturally similar to many neighboring jurisdictions—abuses of power by the ruling classes led to declines in both revenue and in the most valuable residents. Rulers sought to counter this by guaranteeing protections for private property.
This doesn’t mean there were never abuses of power, of course, but as Landes observed:
To be sure, kings could, and did, make or break men of business; but the power of the sovereign was constrained by the requirements of states…and international competition. Capitalists could take their wealth and enterprise elsewhere and even if they could not leave, the capitalists of other realms would not be slow to profit from their discomfiture.8
Nor was decentralization limited to the international system of separate sovereign states. Thanks to the longtime tug-of-war between the state and the church, and between kings and nobles, decentralization was common even within polities. Raico continues:
Decentralization of power also came to mark the domestic arrangements of the various European polities. Here feudalism—which produced a nobility rooted in feudal right rather than in state-service—is thought by a number of scholars to have played an essential role….Through the struggle for power within the realms, representative bodies came into being, and princes often found their hands tied by the charters of rights (Magna Carta, for instance) which they were forced to grant their subjects. In the end, even within the relatively small states of Europe, power was dispersed among estates, orders, chartered towns, religious communities, corps, universities, etc., each with its own guaranteed liberties.9
Over the long term, however, it was the system of international anarchy that appears to have ensured that states were constrained in their ability to tax and extort the merchant classes and middle classes, who were such a key component of Europe’s rising economic fortunes.10
We Need a Return to Smaller Polities
Even today, we continue to see these factors at work. Small states—especially in Europe and the Americas—tend to have higher incomes and have greater openness. We can see this in the microstates of Europe and in the Caribbean. Small states, seeking to attract capital, often undercut larger neighbors in terms of taxes.
It is true that one of the most economically successful polities in the world today is a large one: the United States. The US’s success, however, can be attributed to the enduring presence of political decentralization internally—especially during the nineteenth century—and to the latent, albeit receding, economic liberalism esteemed by much of its population. Europe, of course, was already rich—and relatively politically free compared to the despotic regimes of the East—long before it began to centralize political power under the banner of the European Union.
Today, however, we are seeing the impoverishing downside of decades of political centralization in both the US and Europe. Government regulations decreed from Brussels and Washington continue to stifle innovation and entrepreneurship. The EU has sought to crack down on low taxes in smaller member states. Both the EU and the US are erecting trade barriers to producers outside their trading blocs.
Unfortunately, those in power, who benefit from the status quo and from holding the reins of large states, are unlikely to relinquish this newly gained power without a fight.
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- Ralph Raico, “The Theory of Economic Development and the ‘European Miracle’,” in The Collapse of Development Planning, ed. Peter Boettke (New York: New York University Press, 1994), p. 39.
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- Chiu Yu Ko, Mark Koyama, and Tuan-Hwee Sng, for example, contend China was forced to centralize due to threats from the Eurasian steppe. (See Chiu Yu Ko, Mark Koyama, Tuan-Hwee Sng, “Unified China and Divided Europe,” EH.net, June 2014, http://eh.net/eha/wp-content/uploads/ 2014/05/Koyama.pdf.
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- Raico, “The Theory of Economic Development and the ‘European Miracle’,” p. 41.
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- Jean Baechler, The Origins of Capitalism (Oxford, U.K.: Basil Blackwell, 1975), pp. 77, 113. Baechler influenced F.A. Hayek in his thinking as well. Hayek quotes this passage in Baechler on “political anarchy” in volume 3 of Law, Legislation and Liberty. See F.A. Hayek, Law, Legislation, and Liberty, vol. 3 (Chicago: University of Chicago Press, 1979). Hayek also writes in The Fatal Conceit: “…the history of China provides many instances of government attempts to enforce so perfect an order that innovation became impossible. This country, technologically and scientifically developed so far ahead of Europe that, to give only one illustration, it had ten oil wells operating on one stretch of the river Po already in the twelfth century, certainly owed its later stagnation, but not its early progress, to the manipulatory power of its governments. What led the greatly advanced civilisation of China to fall behind Europe was its government’s clamping down so tightly as to leave no room for new developments, while, as remarked in the last chapter, Europe probably owes its extraordinary expansion in the Middle Ages to its political anarchy.” F.A. Hayek, The Fatal Conceit: The Errors of Socialism, ed. W.W. Barley, III (London: Routledge, 1988), p. 44.
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- Douglass North, “The Paradox of the West,” in The Origins of Modern Freedom in the West, ed. R.W. Davis (Stanford, Calif.: Stanford University Press, 1995).
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- David Landes, The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present (Cambridge, U.K.: Cambridge University Press, 1969), p. 15.
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- E.L. Jones, The European Miracle: Environments, Economies and Geopolitics in the History of Europe and Asia (Cambridge, U.K.: Cambridge University Press, 2003), p. 118.
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- Landes, The Unbound Prometheus, p. 15.
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- Raico, p. 42. It is important to note Raico does not treat Latin Christendom’s “radical decentralization” as something that “just happened.” That is, I think Andrei Znamenski is reading Raico incorrectly when Znamenski states the framework which stresses the “role of political fragmentation and decentralization as the major factor that allowed Europe to spread its economic wings” is “a well-taken and well-supported one,” but concludes “it leaves unanswered the simple question of how the fragmentation and decentralization came into existence in the first place.” Raico does address this by noting it was specifically Western Europe, which was the most economically successful and non-coincidentally existed under the Latin Church’s opposition to any single civil government becoming the ultimate civil power in Europe. See Andrei Znamenski, “The ‘European Miracle’ Warrior Aristocrats, Spirit of Liberty, and Competitionas a Discovery Process,” The Independent Review 16, no. 4 (Spring 2012).
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- The importance of decentralization within states cannot be ignored, of course. As historian Joel Mokyr notes in “The Enduring Riddle of the European Miracle: The Enlightenment and the Industrial Revolution” (2002), the rise of political and economic liberalism (which he calls “the Enlightenment”) was key in weakening states in their ability to enrich entrenched rent seeking interests at the expense of market producers. This, however, does not undermine our theory of decentralization since decentralization is a key component in sustaining and laying the groundwork necessary for ideological liberalism to thrive. See Joel Mokyr, “The Enduring Riddle of the European Miracle: The Enlightenment and the Industrial Revolution,” October 2002, http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.477.6576&rep=rep1&type=pdf.
In 2023, self-employment has collapsed again with year-over-year self-employment growth dropping by 6.5 percent. That's the largest drop since December 2007, when the Great Recession officially began.
Original Article: "Yet Another Month of Questionable Federal Jobs Data as 310,000 Fewer People Report Having Jobs"
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of "Ten Great Economic Myths". This material was prepared by Murray N. Rothbard.
The financial press now knows enough economics to watch weekly money supply figures like hawks; but they inevitably interpret these figures in a chaotic fashion. If the money supply rises, this is interpreted as lowering interest rates and inflationary; it is also interpreted, often in the very same article, as raising interest rates. And vice versa. If the Fed tightens the growth of money, it is interpreted as both raising interest rates and lowering them. Sometimes it seems that all Fed actions, no matter how contradictory, must result in raising interest rates. Clearly something is very wrong here.
The problem here is that, as in the case of price levels, there are several causal factors operating on interest rates and in different directions. If the Fed expands the money supply, it does so by generating more bank reserves and thereby expanding the supply of bank credit and bank deposits. The expansion of credit necessarily means an increased supply in the credit market and hence a lowering of the price of credit, or the rate of interest. On the other hand, if the Fed restricts the supply of credit and the growth of the money supply, this means that the supply in the credit market declines, and this should mean a rise in interest rates.
And this is precisely what happens in the first decade or two of chronic inflation. Fed expansion lowers interest rates; Fed tightening raises them. But after this period, the public and the market begin to catch on to what is happening. They begin to realize that inflation is chronic because of the systemic expansion of the money supply. When they realize this fact of life, they will also realize that inflation wipes out the creditor for the benefit of the debtor. Thus, if someone grants a loan at 5% for one year, and there is 7% inflation for that year, the creditor loses, not gains. He loses 2%, since he gets paid back in dollars that are now worth 7% less in purchasing power. Correspondingly, the debtor gains by inflation. As creditors begin to catch on, they place an inflation premium on the interest rate, and debtors will be willing to pay. Hence, in the long-run anything which fuels the expectations of inflation will raise inflation premiums on interest rates; and anything which dampens those expectations will lower those premiums. Therefore, a Fed tightening will now tend to dampen inflationary expectations and lower interest rates; a Fed expansion will whip up those expectations again and raise them. There are two, opposite causal chains at work. And so Fed expansion or contraction can either raise or lower interest rates, depending on which causal chain is stronger.
Which will be stronger? There is no way to know for sure. In the early decades of inflation, there is no inflation premium; in the later decades, such as we are now in, there is. The relative strength and reaction times depend on the subjective expectations of the public, and these cannot be forecast with certainty. And this is one reason why economic forecasts can never be made with certainty.
For more episodes, visit Mises.org/MisesReport
The term “rent seeking” is a derogatory term that implies companies and people seek to take more than they earn. It hearkens to some Marxist ideology as well. However, especially when combined with regulatory capture and bureaucratic corruption, rent seeking is a valid concept. What happens when the shoe is on the other foot and people and organizations engage in rent seeking from a social justice perspective? Is it rent seeking or corruption for actions to secure social justice? Does the end justify the means?
Investopedia defines rent seeking as follows: “Rent seeking (or rent-seeking) is an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Typically, it revolves around government-funded social services and social service programs.”
Political scientists and economists traditionally apply the term “rent seeking” to capitalists, especially the so-called robber barons from the Gilded Age. However, what the definition does not seem to consider is value creation. Value creation could be a subset of the “contribution of productivity,” but productivity does not mean value creation. We can be highly productive in activities that produce little value or may even destroy value. While the robber barons could be cruel and demanding by virtually any measure, they created the economy and infrastructure that saw the United States through two world wars. The robber barons also provided tremendous social value with the libraries, universities, and museums they funded along with their other charitable activities. These benefits do not excuse their predatory actions, but they created extensive value, which mitigates the amount of rent-seeking behavior.
The term “rent seeking” and its definition hearken back to Karl Marx’s terminology and critique of capitalism. He was most decidedly against any form of rent seeking. Perhaps it is no accident that unions grew and perhaps reached their high point during the Gilded Age. After the Russian Revolution in 1917, the West, particularly the US, turned away from anything resembling communism. The term “rent seeking” is still a charged term and concept however.
The definition of rent seeking says it is often a function of government programs. I have covered this in several blog entries (“Defending the Republic: Scenario 1 Regulatory Capture,” “Defending the Republic: Scenario 2 Policy Domination,” “Regulatory Capture and other Bureaucratic Problems,” “DIE Hydra,” and “Critical Thinking and Policy Development and Analysis”). Organizations use regulatory capture to engage in rent seeking from government programs.
A good example of rent seeking among government programs is a homeowner that builds a house in an area with frequent floods, fires, or hurricanes, yet he does not purchase the appropriate hazard insurance. When disaster strikes, the homeowner expects, if not demands, the Federal Emergency Management Agency (FEMA) to pay the costs to rebuild. FEMA does—why? Is there some deep regulatory capture going on by the home lenders and insurance companies? More study is required, but I suspect so.
Let us now look at a (hopefully) fictitious scenario. Suppose someone you have never met before walks into your house, opens the refrigerator, and starts helping themself to food. Then, they take your ATM card and withdraw half of your bank account. Next, they sleep in your bed. What would you do? Is this theft? Would you offer them the rest of your bank account, food, and shelter, or would you call the police?
In a sense, this is rent-seeking behavior. The person is taking what belongs to you and offers nothing in return. The person does not offer any compensation or services to pay for the food, money, and use of your home.
Now, let us look at a few examples we see in the US today.
- There are demands for the rich to pay “their fair share” of taxes. What is a “fair share”? Does it matter? The National Taxpayer Union wrote,
New data from the IRS find that the top 25 percent of earners paid nearly 89 percent of all income taxes in 2020. This is the highest share of income taxes paid seen in the tax data available going back to 1980. Lower income earners carry little of the overall income tax burden, with the bottom 50 percent of earners owing 2.3 percent of the national share.
Is the bottom 50 percent engaging in rent seeking? Do the rich owe more taxes?
- Illegal aliens come into the US and immediately receive food, shelter, and money. They have done nothing to earn it and almost certainly will not pay it back. In addition, schools get crowded and must pay to educate children that are not prepared for their grade level and do not speak English.
- Standards are lowered to allow people who are otherwise not qualified to get positions or attend programs. People who are qualified may not compete for the positions or a place in the programs.
- City attorneys do not prosecute crimes. Some say the individuals are entitled to steal to make up for past discrimination.
- The Biden administration wants to forgive student loans. Students may choose degrees that have little or no relevance to jobs. Then, they cannot get jobs and cannot pay their student loans. Meanwhile, people who chose degrees that are relevant to the job market and can pay their loans, as well as people who pay taxes but never went to college, are required to pay for the student loan forgiveness program.
- Likewise, the administration wants people who do not need to pay large mortgage origination fees to pay higher fees so people that do not qualify for lower fees can pay lower fees.
These examples all meet the definition of rent-seeking behavior. They also have a corrosive impact on society. They lower standards, reduce personal responsibility, and penalize a large segment of society. However, corrosive acid can be used in valuable applications, such as acid etching.
We still see the value the robber barons created from both their commercial efforts and their charitable/social efforts. It remains to be seen whether we will see value from the social justice movement. One thing is for sure, the corrosive effects of rent seeking eat away at the rule of law, which is a foundation of American prosperity.
Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it.
—Rep. Ron Paul (R-TX), before the US House of Representatives, February 15, 2006
In the mid-sixties, having read about gold in Atlas Shrugged, I decided to find out something about inflation and wrote to the United States Treasury Department to request a brochure that purported to lay inflation out in terms anyone could understand. In reply, they sent me a Peanuts comic book.
Though I didn’t know it at the time, using cartoon stars to promote government viewpoints was nothing new. In 1942, the US Treasury had commissioned Walt Disney to produce a film called The New Spirit in which Donald Duck’s radio tells him it is “your privilege, not just your duty, but your privilege to help your government by paying your tax and paying it promptly.” The following year, the government revoked that “privilege” and imposed Milton Friedman’s withholding idea, an insidious way of reducing the transparency of the income tax while making it easier to raise taxes in the future.
Like Donald Duck a generation earlier, the Peanuts gang attempted to charm people into the state’s bed. According to the comic book, inflation, you see, was a rise in prices. If we want robust economic growth and low unemployment, some inflation is necessary. Inflation was only bad if it got out of hand. However, we needn’t worry because, here in the US, we were privileged to have an agency called the Federal Reserve ready to pounce on inflation if it got too high or too low.
Charlie Brown and company were singing the same tune as my 1967 Armen Alchian and William Allen economics textbook, which states flatly that “Inflation is a rise in the general level of prices.” At that time, World War II was the “good war,” withholding was temporary, and moderate inflation was a good thing—even if, at 3 percent, the dollar loses half its value in fourteen years.
Hazlitt and Mises A little later, I descended into the catacombs of dissent and discovered authors no one ever talked about, such as Henry Hazlitt and Ludwig von Mises. In particular, I found this astonishing claim on page one of Hazlitt’s What You Should Know about Inflation: “Inflation, always and everywhere, is primarily caused by an increase in the supply of money and credit. In fact, inflation is the increase in the supply of money and credit.”
Hazlitt was saying our leaders were in the business of manufacturing money. Later on, he said the cure for inflation was to stop inflating. “It is as simple as that.”
This was during the late 1960s, the guns and butter years of the Johnson administration, when Vietnam and the Great Society were bleeding people literally and financially and when few books challenged the status quo on money and banking. No authoritative voice condemned the government for inflating the money supply to pay for the slaughter overseas and the handouts at home. Inflation was a topic of discussion only because goods and services started to cost more. The blame for that, of course, was placed on business and labor, not government. When seen only as a rise in prices, inflation not only shields the guilty, it places them in the role of the people’s champion.
Discovering Rothbard Then, sometime in the 1990s, I read Murray Rothbard’s What Has Government Done to Our Money?
Rothbard filled in the gaps. He discussed how money emerged from barter economies as well as how banks came into being and began loaning out its depositors’ money without their knowledge. Rothbard explained how government, always hungry for revenue, came to the aid of the banks whenever their depositors lined up demanding their money. This aid allowed bankers to suspend specie payment, sometimes for years, while letting the banks remain in business. Rothbard talked about how the government imposed a central bank on the economy to safeguard the bankers’ racket of fractional reserve banking, which most of the world accepts as normal and uncontroversial. This allowed the central bank, as the monopolist in control of the money supply, to “buy” government securities in the manner of a child playing make-believe—with money created out of thin air. The government could then use this money to do whatever furthered its own interests. Inflation, Rothbard said, was legal counterfeiting.
As it turns out, legal counterfeiting is indispensable for maintaining the state’s health because it funds war and increases support for the state. In The Case against the Fed, Rothbard explains:
As luck would have it, the new Federal Reserve System coincided with the outbreak of World War I in Europe, and it is generally agreed that it was only the new system that permitted the U.S. to enter the war and to finance both its own war effort, and massive loans to the allies; roughly, the Fed doubled the money supply of the U.S. during the war and prices doubled in consequence.
Rothbard’s Wall Street, Banks, and American Foreign Policy covers this episode much further, explaining how “World War I came as a godsend” for the financially-troubled Morgan empire and how the Morgan-dominated Fed played a crucial role by creating the money needed to keep the slaughter going and the profits rolling.
The Era of Greenspan This ongoing increase in the money supply continued into the era of Alan Greenspan. In the years since his insightful defense of gold in 1966, Greenspan had fallen in love with political power. Commenting on Greenspan’s nomination as Fed chairman in 1987, Rothbard noted that
Greenspan’s real qualification is that he can be trusted never to rock the establishment’s boat. He has long positioned himself in the very middle of the economic spectrum . . . he wants moderate deficits and tax increases, and will loudly worry about inflation as he pours on increases in the money supply.
What did Greenspan actually do during his tenure? By the close of 2001, he had increased the money supply by $4.5 trillion as measured by the late M3, more than twice the amount of all other Fed chairmen combined. In late 2002, Nobel laureate Milton Friedman praised Greenspan for having “the best record of any Fed chairman in history.”
Friedman, the alleged champion of free markets, blamed the Great Depression on the Fed for not printing enough money and for not forbidding bank runs. No one ever complained of insufficient “accommodation” under Greenspan’s watch, and it’s no surprise that a man who saw inflation as a necessary element of a modern economy had such praise for Greenspan’s printing press.
Innocent Blunder or Great Hoax? In a speech on December 19, 2002, Greenspan admitted the Consumer Price Index had gone ballistic in the half century following Franklin D. Roosevelt’s gold confiscation order. However, Greenspan continued by saying that, in recent decades, central bankers had shown they could “contain the forces of inflation” by maintaining more “prudent” monetary policies.
In a similar vein, if anyone should wonder about all those trillions flying off the presses during the 1990s, it was justified by the “New Economy,” in which globalization and information technology would create permanent gains in productivity much like electricity had done during the early decades of the twentieth century. For almost a decade, the technology-dominated NASDAQ index offered living proof of this proposition, soaring from 500 in April 1991 to 5,132 in March 2000. Most importantly, the New Economy, with its innovative inventory and productivity management, had seemingly eliminated the boom–bust cycle, the demon that had haunted capitalism since the advent of the Industrial Revolution. For the first time ever, it seemed the good times were here to stay.
A Sober Voice However, these good times may be too good to be true. Seventy-five years ago, Garet Garrett wrote:
There is a long history of monetary experience. It tells us that government is at heart a counterfeiter and therefore cannot be trusted to control money, and that this is true of both autocratic and popular government. The record has been cumulative since the invention of money. Nevertheless it is not believed. (my emphasis)
Given the federal influence on education, media, and just about everything else, should we be surprised that no one is center stage calling the government a counterfeiter?
However, exposing the fraud, as Garrett said, results in disbelief. People can handle corruption. They can’t handle blatant government theft. That sounds too much like a conspiracy theory, which the public has been taught to ignore.
There are those who see the damage that counterfeiting causes, but they claim the reason is the Fed’s sin of being privately-owned, discounting the government’s role in appointing the Federal Open Market Committee voting majority and other aspects of the system. These same people call for moving the printing presses to some pristine government agency responsible to state bureaucrats, as if the US would be better off if the Fed were run like the Securities and Exchange Commission, the Food and Drug Administration, or the Federal Emergency Management Agency.
It’s hard to imagine the insouciant public not acquiescing in whatever government does to them, but maybe the woke world that has been thrust on us will serve as shock therapy. Perhaps the public will start asking: How can we establish a system of sound money and free banking? The guys running the show certainly won’t ask it for the public.
Investor sentiment is clearly bullish. The CNN Fear and Greed Index for June 18th, 2023, stood at 82, which signals “extreme greed”. This is a drastic optimistic move after closing at “greed” (56 over 100) a month before and “extreme fear” (17 over 100) only one year ago. However, in the same period, the Citi global economic surprise index has declined twelve points, with the euro area component collapsing 123 points. The US economic surprise index has also declined by thirteen points.
The disastrous performance of the euro area, which fell into recession in the first quarter, is also happening while this economic region enjoys significant tailwinds: Declining energy and commodity prices have supported the euro area’s GDP, boosting the external component thanks to meaningfully lower imports. Furthermore, the euro area should benefit from the expected positive impact of the massive EU Next Generation stimulus plan. None of those effects have helped, which proves yet again that massive government stimulus plans hardly boost growth and productivity and are often directed to politically favored sectors with little real impact on jobs or growth.
This is hardly a surprise, as the Juncker Plan and the Growth and Jobs Plan of 2009 also failed to deliver any multiplier effect. The euro area is a chain of government stimulus plans that yield no real economic return as productivity growth continues to be exceedingly poor, the unemployment rate is twice that of the U.S., and growth simply does not take off.
It is important to understand that the negative trend in economic surprise comes in the middle of two gigantic stimulus plans, in the euro area and the U.S., and with the benefit of lower imports due to falling commodity prices and rising exports thanks to a robust China re-opening, which may have come below consensus estimates but is still the driving force of global growth alongside India.
Many blame rate hikes for this decline in macroeconomic figures relative to estimates. However, few seem to blame the insanely negative real rates and monster stimulus packages for this poor economic return. Think about this for a moment: The world “invested” close to 20% of its GDP in public and monetary stimuli in 2020 to deliver a strong recovery that never happened and only received high inflation and poor growth in return.
The spectacular failure of these enormous stimulus plans is almost never analyzed in academic papers because it seems that some academics have decided to avoid any study that mildly questions governments and their bloated spending. Stimulus plans fail, and all we seem to hear when the recovery is weak is that the problem is the normalization of rates, not the inexistent multiplier effect of these giant government plans that leave an unsustainable trail of higher debt and, now, inflation.
Social programs have also failed. The latest Eurostat figures show that in 2022, 95.3 million people in the EU will be at risk of poverty or social exclusion, equivalent to 21.6% of the EU population. In 2018, it was 109.2 million people, or 21.7% of the population. This is an almost insignificant improvement considering the enormous social spending, more than two trillion euros of stimulus, and the increase in population. Resorting to the old “it could have been worse” argument makes no sense. There is plenty of evidence of better uses of public money all over the world.
Rate hikes have not caused the weakening of the eurozone economy; giant government spending plans have. There is no discernible improvement in productivity or job creation other than the return of tourism, and certainly no fiscal multiplier. The growth trend is simply back to where it was in December 2019, with the eurozone on the verge of recession but with a significantly larger debt burden.
The balance sheet of the G4 central banks has just declined by a small 9.5% after soaring 78% in 2020–2021. Rate hikes have only corrected the economic aberration of negative rates. Normalization of monetary policy is happening slowly, and central banks remain hugely accommodative. Some investors may expect a mirage bounce from government programs that have proven to generate no real improvement numerous times, but it will not happen.
The carbon capture pipeline is the result of the latest gift to rent-seeking “titans of industry” and interestingly, may be used on some existing projects that came to be, years ago, due to rent seeking. More on this below.
As we’ve heard for years and years now, sometimes delivered in memorable ways, the continuing elevation of atmospheric levels of carbon dioxide, and other greenhouse gases, and the rising global temperatures that follow, is the defining issue of our time. Apparently, these couple of metrics are all we need to know to understand the fate of humanity and the future of life on Earth (even though that’s obviously false).
However, as governments often do, never let a simple, catastrophic concept go to waste, especially when it means that further state intervention can be achieved. A carbon capture pipeline is just one example of how policy is used to generate projects that hope to reduce greenhouse gases. So, what is a carbon capture pipeline? Simply put, it’s a series of pipes and other equipment that are plugged into facilities that emit greenhouse gases, which are then sequestered deep within the Earth.
In this case, I’m referring to the Summit Carbon Solutions five-state pipeline in the Midwestern US. The pipeline will be connected to more than thirty corn ethanol biofuel plants, ultimately transporting carbon dioxide and other gases to North Dakota for burial deep underground. As I’ve documented on this site, corn ethanol plants likely would not exist, at least in the current forms, without substantial support from government. It’s yet another case of state intervention causing unintended consequences, which are used to justify further state intervention.
With the current pipeline project, opposition by some landowners and farmers has been dealt with, at least in South Dakota, using the Public Utilities Commission. According to state law, any company that has requested a permit from the Commission does not need the permission of the landowner to conduct a survey, which involves the use of heavy equipment on farmers’ crops, with the potential of disrupting drainage tile below the soil. Apparently the same concept exists in Iowa, but interpretation has differed based on county. Also, the definition of “surveying” is different for different people because during one recent incident in South Dakota, surveyors entered the home and workshop of a farmer, terrifying the man’s wife and prompting some sort of response (the accounts of what happened differ dramatically) from the farmer himself. Perhaps this is why the surveying teams now have armed guards with them as they legally intrude across the land. Not allowing the pesky concept of private property rights to get in the way, there are currently about eighty eminent domain lawsuits underway in South Dakota, initiated by what is in theory a private company (at least when the money rolls in, anyway), but which also defines itself a “public carrier.”
It’s worth discussing the dismal history of carbon capture projects. Despite backing from the US Department of Energy, several projects never started or stalled out along the way. Some projects failed due to technical complications, including one pipe rupture event that dumped enough carbon dioxide onto a small town to make residents struggle to breath (forty-five were hospitalized) and internal combustion engines stop working. The Petra Nova project in Texas managed to survive a mere three years amid technical and financial problems, while never achieving the carbon capture targets laid out at the beginning. Indeed, it’s been estimated that a wind farm project, at a cost of less than half of the Petra Nova project, would have achieved the same carbon reduction goals.
So, why the interest, including the use of armed guards to keep the surveying projects moving forward, in this new carbon capture pipeline? The revised Section 45Q tax credit policy, which recently went into effect, provides enhanced incentives for these types of carbon-reducing projects. Among the changes are increases in the credits provided per metric ton of sequestered carbon dioxide, with continued increases through 2026 (more than doubling the original amount); reduced requirements for annual capture (in some cases, a reduction from five hundred thousand metric tons to only twenty-five thousand); and a requirement that construction begin before the start of 2026.
The claim period can now run for twelve years once a facility is operational. Previously, only the first sequestered seventy-five million metric tons qualified for these credits. As is often the case with artificially incentivized projects like this, what happens after twelve years is unknown, except that an aging five-state pipeline, and other equipment that need maintenance, will be sitting around for decades to come.
It’s one other feature of the new carbon capture projects (apparently not for the Summit Carbon Solutions’ pipeline, but to be sure, corn ethanol fuel use should expand in the future) that is perhaps the most telling. The new Section 45Q tax policy will triple the amount of credits given per metric ton carbon dioxide that is injected into oil fields. This process, known as Enhanced Oil Recovery, or EOR, uses carbon dioxide to increase the overall pressure within an oil reservoir, forcing oil toward productive wells. A great process for increasing the productivity of oil extraction, to be sure, but what eventually happens to the newly extracted oil? Sooner or later, it becomes fuel that is used for productive purposes, and also, emits more carbon dioxide and greenhouse gases into the atmosphere.
Don’t be fooled by the newest interesting technology to reduce atmospheric levels of carbon. Indeed, a worldwide program of planting trees could remove about two-thirds of all emissions that have been pumped into the atmosphere by human activities. This and other projects like are nothing more than state-backed investments under the guise of combatting climate change.
Money supply growth fell again in April, plummeting further into negative territory after turning negative in November 2022 for the first time in twenty-eight years. April's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years.
Since April 2021, money supply growth has slowed quickly, and since November, we've been seeing the money supply repeatedly contract—year-over-year— for six months in a row. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996.
During April 2023, the downturn accelerated even more as YOY growth in the money supply was at –12.0 percent. That's down from March's rate of –9.75 percent, and was far below April's 2022's rate of 6.6 percent. With negative growth now falling near or below –10 percent for the second month in a row, money-supply contraction is the largest we've seen since the Great Depression. Prior to March and April of this year, at no other point for at least sixty years has the money supply fallen by more than 6 percent (YoY) in any month.
The money supply metric used here—the "true," or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2.
The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates, although TMS has fallen faster than M2. In April 2023, the M2 growth rate was –4.6 percent. That's down from March's growth rate of –3.8 percent. April 2023's growth rate was also well down from April 2022's rate of 7.8 percent.
Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth.
Negative money supply growth is not in itself an especially meaningful metric. As shown by Ludwig von Mises, recessions are often preceded by a mere slowing in money supply growth. It is not necessary for the money supply to actually shrink to trigger the bust period of a boom-bust cycle. But the drop into negative territory we've seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen. That is generally a red flag for economic growth and employment.
The fact that the money supply is shrinking at all is so remarkable because the money supply almost never gets smaller. The money supply has now fallen by $2.6 trillion (or 12.0 percent) since the peak in April 2022. Proportionally, the drop in money supply since 2022 is the largest fall we've seen since the Depression. (Rothbard estimates that in the lead up to the Great Depression, the money supply fell by 12 percent from its peak of $73 billion in mid-1929 to $64 billion at the end of 1932.)1
In spite of this recent drop in total money supply, the trend in money-supply remains well above what existed during the twenty-year period from 1989 to 2009. To return to this trend, the money supply would have to drop at least another $4 trillion or so—or 22 percent—down to a total below $15 trillion.
Since 2009, the TMS money supply is now up by nearly 189 percent. (M2 has grown by 143 percent in that period.) Out of the current money supply of $19.2 trillion, $4.8 trillion of that has been created since January 2020—or 25 percent. Since 2009, $12.5 trillion of the current money supply has been created. In other words, nearly two-thirds of the money supply have been created over the past thirteen years.
With these kinds of totals, a ten-percent drop only puts a small dent in the huge edifice of newly created money. The US economy still faces a very large monetary overhang from the past several years, and this is partly why after eleven months of slowing money-supply growth, we are not yet seeing a sizable slowdown in the labor market.
Nonetheless, the monetary slowdown has been sufficient to considerably weaken the economy. The Philadelphia Fed's manufacturing index is in recession territory. The Empire State Manufacturing Survey is, too. The Leading Indicators index keeps looking worse. The yield curve points to recession. Even Federal Reserve staffers, who generally take an implausibly rosy view of the economy, predict recession in 2023. Individual bankruptcy filings were up 23 percent in May. Temp jobs were down, year-over-year, which often indicates approaching recession.
Money Supply and Rising Interest Rates An inflationary boom begins to turn to bust once new injections of money subside, and we are seeing this now. Not surprisingly, the current signs of malaise come after the Federal Reserve finally pulled its foot slightly off the money-creation accelerator after more than a decade of quantitative easing, financial repression, and a general devotion to easy money. As of June, the Fed has allowed the federal funds rate to rise to 5.25 percent. This has meant short-term interest rates overall have risen as well. In June, for example, the yield on 3-month Treasurys remains near the highest level measured in more than 20 years.
Without ongoing access to easy money at near-zero rates, however, banks are less enthusiastic about making loans. This is not uniform across the economy, however, and the credit crunch is most acutely felt among smaller businesses and middle-class households. In the latest Senior Loan Officer Opinion Survey from the Federal Reserve, researchers found that bankers believe lowered expectations for economic growth coupled with deposit outflows will lead to banks tightening lending standards. Banks have found that demand for loans has weakened as interest rates have increased and economic activity has slowed.
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- Murray Rothbard, America's Great Depression (Auburn, AL: Ludwig von Mises Institute, 2005) pp. 92, 302
The scourge of poverty wounding citizens in the developing world has provoked much discussion in affluent countries. Quite unreasonably, rich countries have been indicted for inciting poverty in poor countries. Unfortunately, the assumption that prosperity stems from exploitation is still widely popular in academia and politics. However, the historical record casts serious doubt on this argument.
Imperialism was the standard in the ancient world, but no imperialist power achieved Schumpeterian growth. For example, bouts of economic progress in ancient Rome and Greece fizzled out despite imperial pursuits. Indeed, the national treasury is expanded when empires extract tributes from conquered states, but this does not redound to superior living standards for ordinary people. The wealth of the state is not a proxy for individual prosperity.
Surveying history it becomes clear that pursuing economic extraction does not lead to long-term prosperity. Typically, countries with a history of exploiting others are poorer than their peers. In Africa, Benin is an economic dwarf despite its rapacious history, but less aggressive peers like Mauritius and Botswana are economic stars. Similarly, the Ivory Coast experienced some of its best years when the country invested in promarket policies.
On the European side, empire proved to be quite costly for Sweden. Sweden became the envy of the world after the collapse of its empire. Further, the economic success that coincided with Swedish imperialism was the result of governance and economic reforms rather than empire-building. Japan experienced the glory of empire late in its history and like other examples, the evidence shows that it was a burden.
Using political clout to exploit other countries is not a strategy for success. Indeed, history reveals that many poor countries transitioned into affluence by facilitating commerce rather than chasing colonies. Finland was a poor European country in the early twentieth century and had no colonies like Switzerland. Yet both are two of the most successful countries in the world.
The primary difference between rich and poor countries is productivity. Being productive unleashes opportunities for innovation and wealth creation. Poverty is the natural condition of humanity, and countries get rich by adding to the world’s capital stock. Taiwan, South Korea, and Singapore are resource-poor countries relative to African and Latin American countries, but due to high levels of productivity and innovation, they have joined the ranks of the elites.
Another characteristic of successful countries is the high quality of their institutions. When institutions are designed to facilitate entrepreneurship and capital formation people will be more motivated to produce because their efforts won’t be penalized. According to a landmark study, cross-country differences in productivity are a consequence of institutional quality. Likewise, institutional quality also determines a country’s ability to attract investors.
Capital thrives where it is rewarded and flees from places where it is harassed. For instance, during the latter phase of colonialism, there was a shift to statist policies. However, after independence instead of promoting free markets, ex-colonies endorsed statist institutions that were erected by colonial power. Relying on regulations to extract resources from industry and limit imports became the agenda in places like Ghana and Tanzania.
Interestingly, Tanzania did not get rich despite being a primary recipient of foreign aid from Europe. Money must be used efficiently for it to reap value. Doling out funds to poor countries is futile if they are hesitant to reform. Like Tanzania, Jamaica has been a primary recipient of foreign aid from the European Union and America, but its economy only started to see mild improvements after enacting an economic reform program sponsored by the International Monetary Fund.
Also paramount to the success of rich countries is that they are efficient users of capital and technology since they are more productive. Rich countries are adept at commercializing products and improving on existing technologies. A poor country will produce ten thousand tons of sugar; however, a rich country without a comparative advantage in sugar production will produce twenty thousand tons of sugar more efficiently. Additionally, due to the quality of human capital, rich countries are poised to export more successful goods, whereas poorer countries concentrate on lower-value goods.
Therefore, unless poor countries reform and increase human capital levels they will remain impoverished. Blaming rich countries for their poverty will only absolve them of responsibility and ensure that they remain trapped in poverty.
Mises Institute Fellow Patrick Newman joins Bob to discuss a recent tweet from Stephanie Kelton, which argued that the government's "red ink makes our black ink possible." Patrick and Bob point out that these MMT tautologies are very misleading at best. Patrick also lays out the argument in his journal article, saying that MMT's debt monetization won't cause a boom-bust cycle, but will still reduce living standards.
Last week, I discussed the way in which Patrick Deneen misreads John Stuart Mill in his book Regime Change. I’d like to continue the assault on Regime Change this week by looking at an argument he makes against libertarianism. Libertarians, Deneen alleges, are elitists. They think that ordinary people need to be ruled by an elite class of experts. They favor restrictions on democracy in order to entrench laws about property rights that benefit the rich at the expense of the masses.
Deneen tells us that
throughout its history [liberalism] has sought to preserve the idea of a knowledgeable class in advancing progress against the threat posed by the backwardness of ordinary people. Liberalism was a philosophy that posited the theoretical equality of humankind in order to justify a new aristocracy, an arrangement in which one’s status was achieved not by birth, but by achievement. (emphasis original)
Rothbardian anarchocapitalism rejects the premise that underlies Deneen’s claim about liberalism. Deneen says that classical liberals favor rule by an informed elite over the masses, but the Rothbardian position isn’t about who should rule. Rothbard holds that people have the rights of self-ownership and property acquisition and that force or the threat of force may be used permissibly only in defense of these rights.
In Ethics of Liberty and other works, he claims to establish this view of rights by argument. If you disagree with Rothbard about rights, then you need to show what is wrong with his arguments. It isn’t sufficient to raise a different question, “Who determines the scope of personal and property rights—the elite or the masses?” For Rothbard, rights are a matter for discovery, not for decision.
Deneen might respond in this way. “Doesn’t Rothbard agree with Ludwig von Mises that economics is a difficult subject that most people don’t understand? If economic policy should be guided by correct economic principles, isn’t he implicitly calling for control in this vital area by a knowledgeable elite trained in Austrian economics?” This response makes the same mistake that was just discussed. The primary question for Rothbard and Mises is, “What are the correct principles of economics?,” not “Who decides which economic policies should be put into effect?”
Deneen might answer that even if there are true principles of political morality and true economic principles, questions about the legal system and about economic policy are matters for decision within particular societies. But doesn’t the issue that Deneen has raised then confront us? Who makes these decisions? The objective truth of morality and economic principles doesn’t obviate the need for decisions but rather enables us to evaluate particular decisions as correct or incorrect.
That’s true, but Rothbard’s answer to the “Who decides?” question rejects elite control. He favors persuading people that the libertarian views he defends are correct. Rothbard’s stance is antipodal to “We are going to cram a libertarian society down your throat, whether you like it or not, because we know what’s best!”
Deneen is correct that some classical liberals do favor restricting democracy because they think that an intellectual elite is better able to rule than the masses. But Deneen stumbles when he explains the position of a leading advocate of this notion, Jason Brennan. Deneen says,
Preferring a government that largely advanced policies securing economic and personal liberty, and therefore mistrustful of populist interferences in both domains, libertarian thinkers such as Jason Brennan of Georgetown University have issued frank broadsides against the disadvantages of widespread political participation by ordinary people.
In his 2016 book Against Democracy, Brennan celebrated declining levels of political participation and low levels of voting. . . . Brennan echoes the arguments of a generation of classical liberals who interpret lack of political participation as powerful proof of “tacit consent,” arguing that people act rationally and essentially consent to the status quo when they eschew political involvement. Brennan’s argument aims to increase this implicit form of tacit consent of ordinary people by decreasing their practical engagement to effect changes in politics.
Deneen’s comment is a fantastic misconstruction of Brennan’s argument, and I don’t have in mind the slip in the first sentence of the passage just quoted (if Brennan and others wanted to restrict mass voting, they would issue broadsides against the advantages of widespread political participation, not against the disadvantages of it). The misconstruction is that Brennan’s argument isn’t based on a theory of tacit consent and that Brennan, like most libertarians, rejects consent theories of political allegiance.
Further, the “tacit consent” argument, as Deneen presents it, is stupid. Tacit consent arguments maintain that if you live in a country, this shows that you agree to the government’s authority over you: if you didn’t, you would leave. This isn’t a good argument, but it’s understandable why someone might suggest it. But it makes no sense at all to claim that by failing to participate in voting, you have consented to the government. This would be analogous to arguing that by leaving a country, you have tacitly consented to the government’s legitimacy.
Deneen suggests that nonvoters are affirming the status quo. By failing to vote, they are implicitly saying that the existing situation is all right. But voters need not want change, and those who want the status quo preserved have as much, or as little, a reason to vote as those who want to alter it. A better tacit consent argument than the one Deneen suggests (though, again, not a good one) would be that by voting, you have tacitly consented to the institution of voting in your society.
In one area, though, Deneen and Rothbard agree. Like Deneen, Rothbard thinks that Progressive Era intellectuals did view themselves as an elite who should guide the masses toward social salvation. Not even Deneen can get everything wrong, although he deserves credit for trying.
Even though Barbados and Jamaica had more similarities than differences when they became independent of Great Britain, Barbados developed its economy much more quickly.
Original Article: "Why Barbados Advanced Economically While Jamaica's Growth Lagged"
The free market system has faced its fair share of criticism, often being labeled as a breeding ground for greed and self-interest. However, let’s take a closer look and see how greed, when properly channeled and regulated within a free market framework, can actually bring about positive outcomes for society.
One fascinating thought experiment that showcases the positive role of greed in the free market is Adam Smith’s concept of the “invisible hand.” Smith proposed that when individuals pursue their own self-interest, unintended benefits are generated for society as a whole. By seeking personal gain, individuals are motivated to produce goods and services that others value, leading to voluntary exchanges that benefit both parties. This intricate network of self-interest forms the foundation of a prosperous and efficient free market system.
At the heart of the free market lies the entrepreneurial spirit, which is driven by the desire for profit. Entrepreneurs spot unmet needs and desires within the market and strive to fill those gaps with innovative products, services, and solutions. Through their endeavors, they not only create wealth for themselves but also stimulate economic growth, generate employment opportunities, and contribute to the overall expansion of the economy. Greed, when harnessed by entrepreneurs, becomes a catalyst for innovation and progress.
Competition, an inherent aspect of the free market, acts as a powerful force that channels and refines the actions driven by greed. In a competitive marketplace, self-interested individuals are compelled to provide superior goods and services at lower prices in order to attract customers and maximize profits. This compulsion leads to a broader range of choices, improved quality of goods and services, and lower prices for consumers. The drive for personal gain is transformed into a pursuit of excellence, resulting in a more efficient and consumer-oriented market.
The pursuit of self-interest in the free market fosters cooperation and specialization. Individuals, motivated by their desire for personal gain, recognize the benefits of collaboration and form mutually beneficial relationships. This division of labor allows individuals to focus on their strengths, increasing overall productivity and efficiency. By leveraging their respective areas of expertise, individuals fueled by the inherent drive for greed contribute to the collective advancement of society.
While it’s essential to recognize the positive aspects of greed within the free market, we must also shed light on how the state, through coercion and intervention, can turn greed into a destructive force. When greed operates outside the bounds of ethical principles and voluntary exchange, it poses a significant threat to the fundamental principles that underpin a free market system.
The state’s involvement in economic affairs often introduces regulations, restrictions, and mandates that hinder the voluntary nature of transactions. By imposing coercive measures, the state diminishes the essential element of consent that characterizes the free market. When individuals are compelled to participate in economic activities against their will or face punitive consequences, the spirit of voluntary exchange is eroded, and the positive aspects of greed are overshadowed.
Furthermore, when the state exercises its power to redistribute wealth, it disrupts the natural outcomes of market forces. Confiscating and redistributing resources, driven by the goal of achieving a more equitable distribution, can undermine the incentives for individual effort, innovation, and productivity. When the state forcibly reallocates wealth, it distorts the signals that greed would otherwise generate within a free market system, leading to suboptimal outcomes and stifling economic growth.
Another detrimental effect of the state’s intervention is the creation of monopolies or oligopolies. Through regulations and barriers to entry, the state can artificially limit competition, allowing a select few to dominate markets and stifle innovation. In such cases, greed becomes concentrated in the hands of a few powerful entities, who are able to manipulate prices, exploit consumers, and suppress potential competitors. This concentration of greed not only distorts the benefits that greed can bring when tempered by competition, but it also hampers the overall efficiency and dynamism of the market.
Additionally, the state’s involvement often introduces cronyism and corruption, wherein individuals or businesses seek to influence government policies and regulations to secure undue advantages and privileges. This exploitation of the political system to fulfill self-interest not only undermines the principles of fairness and equality, but it also perverts the potential positive outcomes of greed within the free market. Instead of serving as a catalyst for progress, greed is redirected toward the accumulation of political power and influence, perpetuating a system that benefits the few at the expense of the many.
It’s crucial to acknowledge how the state, through coercion and intervention, can transform greed into a negative force within the free market. By imposing regulations, redistributing wealth, limiting competition, and fostering cronyism, the state disrupts the voluntary nature of transactions and distorts the positive outcomes that greed can bring when harnessed within a free market system.
Murray Rothbard himself noted that greed is not what statists claim:
It’s true: greed has had a very bad press. I frankly don’t see anything wrong with greed. I think that the people who are always attacking greed would be more consistent with their position if they refused their next salary increase. I don’t see even the most Left-Wing scholar in this country scornfully burning his salary check. In other words, “greed” simply means that you are trying to relieve the nature-given scarcity that man was born with. Greed will continue until the Garden of Eden arrives, when everything is superabundant, and we don’t have to worry about economics at all. We haven’t of course reached that point yet; we haven’t reached the point where everybody is burning his salary increases, or salary checks in general.
Contrary to common misconceptions, greed—when channeled and regulated within a free market system—can yield positive outcomes for society. The concept of the “invisible hand” illustrates how pursuing self-interest can inadvertently benefit others. The entrepreneurial drive fueled by greed sparks innovation, fosters economic growth, and creates opportunities. Competition ensures that greed is channeled into productive avenues, resulting in better choices, improved quality of goods and services, and lower prices. By fostering cooperation and specialization, greed enhances overall productivity. When harnessed responsibly, greed becomes a force that propels societal progress, driving prosperity and the well-being of society as a whole.
Ryan and Tho take a look at the legacy of Daniel Ellsberg's heroic leak of the Pentagon Papers and the evils of government secrecy. Modern leakers like Snowden, Manning, and Assange do important work educating voters and making the state more accountable.
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On this episode of Good Money with Tho Bishop, David Gornoski of A Neighbor's Choice joins to discuss how government policies have impacted American diets. From the subsidization of certain crops to anti-science propaganda campaigns about diet, to the consolidation of the agricultural industry, the politicization of the economy still shapes not only their wallet but their plates.
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What many people call government generosity Leonard Read called avarice.
Original Article: "To Avarice No Sanction"
You might rightfully wonder: How can a bank, like the neighborhood bank down the street, “create money out of thin air”?
To answer that question, we must enter the magical kingdom of “fractional-reserve banking,” where deposits are turned into loans, loans are turned into money, and so on. For every old dollar that goes in, nine new dollars come out, created with the stroke of a pen or the click of a mouse. As you may be aware, general deposits are loans by the bank depositor to the bank. However, banks can spin new loans out of old loans, creating a wheel of fortune by lending the same dollar to nine different customers—a feat that, to the uninitiated, is equally quite amazing and frightening!
This financial alchemy is perfectly legal and is in fact carried out with the aid and assistance of central banks everywhere, including our own Federal Reserve. If this wheel of fortune should hit a bump in the road and suddenly fall off its axle, causing the bank to crash, don’t worry because a central bank can do what no one else can legally do: counterfeit new money to set things right, a feat that “all the king’s horses and all the king’s men” cannot do!
Let’s take a closer look at how fractional-reserve banking works. Customer A deposits $10,000 in a checking account at First Bank. First Bank records the cash in its books and credits customer A’s account. The cash is an asset of the bank (a credit), which is offset by the liability to customer A (a debit). First Bank now has cash to lend, subject to government reserve requirements. Reserve requirements, which are established by the Fed, specify the amount (expressed as a percentage of deposits) that a lending institution must hold in reserve, either as vault cash or on deposit with a Federal Reserve bank, in order to guarantee payment of customers’ deposits. The reserve requirement for “reservable” deposits greater than $36.1 million (as of January 3, 2023) at any lending institution has been traditionally 10 percent. As a result, First Bank is free to lend $9,000 of the deposited money, keeping $1,000 in reserve.
Customer B comes into First Bank seeking a car loan. First Bank agrees to lend customer B $9,000. First Bank credits customer B’s checking account for $9,000 and debits an asset account called “loans receivable.” As you will recall, bank loans to customers are “investments” and, therefore, are assets—not liabilities.
At the completion of these two transactions, First Bank’s statement of financial condition would look like this (for simplicity, I have assumed no other transactions).
Table 1: Statement of financial condition of First Bank, December 31, 2022
| Assets (Credits) | Liabilities and equity (Debits) | | Cash | $10,000 | | Loans receivable | $9,000 | | Deposit liabilities | $19,000 | | Reserves | $1,000 | | Bank equity | $1,000 | | Totals | $20,000 | $20,000 |
Notice that the bank has deposit liabilities of $19,000 and cash on hand of $10,000. Let’s assume that the loan to customer B is for three years, payable with interest in monthly installments. The demand deposits (checking account balances) include the original deposit of $10,000 from customer A plus the proceeds of the loan to customer B of $9,000. Presumably, customer B will spend the loan money on a car in the next few days. Where did the loan money credited to customer B’s checking account come from? Out of thin air!
The wheel turns again when the car dealer deposits the $9,000 proceeds in his bank, Second Bank. Now Second Bank, like First Bank, is free to make loans, subject to the 10 percent reserve requirement. When the wheel finally stops turning, loans of $90,000 have been created on a cash base of just $10,000. As we have seen, that cash is itself a chimera—nothing more than debt wrapped inside more debt.
Table 2: Fractional-reserve banking
| Bank | Deposits | Reserves (10 percent) | Loans | | First | $10,000 | $1,000 | $9,000 | | Second | $9,000 | $900 | $8,100 | | Third | $8,100 | $810 | $7,290 | | Fourth | $7,290 | $729 | $6,561 | | Fifth | $6,561 | $656 | $5,905 | | Remaining banks | $59,049 | $5,905 | $53,144 | | Totals | $100,000 | $10,000 | $90,000 |
The table above demonstrates that banks can expand the money supply by a factor of ten when the reserve requirement is 10 percent. Historically, the United States reserve requirement has been 10 percent on transaction deposits, such as checking and negotiable order of withdrawal accounts (M1) deposits, and 0 percent on time deposits, such as deposits into savings accounts and certificates of deposit. The 0 percent reserve requirement on time deposits enables banks to expand the money supply by more than a factor of ten.
Some would argue that banks are not really “insolvent,” just at times illiquid—not always having ready cash when needed. However, that’s true only if we consider just one or a few banks at a time. Any bank having a temporary shortage of cash could always borrow the needed funds to make up for the temporary cash shortage. The problem, however, is that all banks are illiquid and, when pricked by some general financial shock, can easily slip into insolvency.
When the reserve ratio is 10 percent, total deposits are reduced by ten dollars for every dollar withdrawn from the banking system. Banks then have to call in loans or sell securities to cover their depositor’s demands for money. This “liquidity crisis” is the reason behind most financial “panics,” bank runs, and similar economic disturbances. It’s “debt on the way down,” but this time on a grand scale!
Effective March 26, 2020, the Federal Reserve reduced bank reserve requirements, get this, to zero! Even prior to this change, reserve requirements only applied to transaction accounts, nonpersonal time deposits, and Eurocurrency liabilities. Everything else was “jokers are wild.” Thus, banks could create as much funny money as the traffic would bear. When reserve requirements are zero, the ability to create money is infinite!
The Fed’s money manipulation is the root cause of our economic problems. Bubbles in housing prices, United States Treasury notes and bonds, and cryptocurrencies—to give but a few examples—and the recent failures of the Silicon Valley, Republic, and Signature banks can all be traced to our monetary policies.
The fundamental issue for most banks is that they are forced to invest “long” but borrow “short,” something no prudent finance manager would ever do. Checking and other demand deposits are short-term liabilities of the bank. Bank loans, such as car loans, are intermediate-term investments. Mortgage loans are long-term investments. Banks also invest in government securities to balance their investment loan portfolio. Investing “long,” however, subjects the bank to interest-rate risks because the value of their investment loan portfolio is inversely related to changes in interest rates. A thirty-year mortgage loan yielding 2 percent is only worth a fraction of a similar loan yielding 6 percent. To be more precise, a $100,000 investment in such an instrument would be worth only $44,280 if interest rates were to rise to 6 percent. If interest rates rise to 8 percent, the value would fall to $31,768, according to the bond price calculator.
Therein lies the trap that Silicon Valley Bank (SVB) fell into—with disastrous results. It’s the trap set by the very nature of fractional-reserve banking:
Over a period of just two days in March 2023, the bank went from solvent to broke as depositors rushed to SVB to withdraw their funds, resulting in federal regulators closing the bank for good on March 10, 2023.
SVB’s collapse marked the second largest bank failure in U.S. history after Washington Mutual’s in 2008.
That money created out of thin air should one day evaporate before our eyes should surprise no one, except perhaps Paul Krugman and his fellow court jesters at the New York Times. The endless cycles of boom and bust are a direct result of government manipulation of the money supply. It’s really that profound and that simple.
Ryan and Robert Aro take a look at the Fed's unconvincing explanation of why it has chickened out on interest rate hikes. This only makes sense if the economy is much weaker than the Fed claims.
Be sure to follow the Fed Watch Podcast at Mises.org/FedPod.
As geopolitical tensions rise, the Chinese political leadership tells the US government to desist pushing its "color revolutions."
Original Article: "China Calls Out the USA for Instigating the Infamous Color Revolutions"
All too often, unscrupulous businesses weaponize the United States’ antitrust laws—which are only supposed to be utilized to protect consumers against higher prices and other consequences of monopoly power—for their own self-serving purposes. Professor Thomas DiLorenzo explained this problem more than a third of a century ago in a piece titled “The Rhetoric of Antitrust.” He wrote that “In theory antitrust regulation promotes competition in the marketplace but in reality its results are often anticompetitive. It is routinely used by businesses having problems competing.”
A key to understanding the difference between competition as a process benefiting consumers and competition as a misnomer for protecting those who are (or are afraid of) being outcompeted for consumer favor was revealed in an open letter on antitrust protectionism during the Clinton administration. The letter, signed by 240 professors across the country, made it clear that “consumers did not ask for these antitrust actions—rival business firms did.”
Although over twenty years have come and gone, this problem hasn’t gotten any better; antitrust protectionism has continued into the present day. The scrutiny the Federal Trade Commission (FTC) is currently giving the merger between Microsoft and game developer Activision is a testament to this sad reality.
As Joost van Dreunen from New York University’s Stern School of Business described the merger, “virtually no one opposes the deal, except Sony.” In other words, consumers are not against the merger. However, the biggest, most dominant firm in the video game industry wants it challenged. Why? This is because Sony would have its dominant position in video game platforms undermined by better and more flexible options for gamers that the Microsoft-Activision merger would make possible. Sony doesn’t even have to bear the costs of challenging the merger because the FTC is doing that for the company. As Tahmineh Dehbozorgi wrote in National Review: “Unfortunately, in this case, the FTC seems more interested in defending Sony’s dominant market position than in allowing a transaction that would enable Xbox to compete. Consumers that would gain access to new games from big and small developers, are getting hurt in the process.”
In other words, the FTC’s opposition doesn’t increase or maintain competition; it just keeps a rival to Sony (the largest firm in the video game industry) from getting closer to its scale in an industry where economies of scale are significant. When a larger (merged) rival becomes more efficient than when it was smaller, Sony would have no choice but to compete effectively with its more able rivals. That would increase competitive industry pressures and better serve gaming consumers, not harm them. That’s one of the many reasons why a slew of organizations and countries—including the European Union (which is not typically an ally of US businesses in the antitrust arena), Japan, Brazil, Chile, Serbia, and Saudi Arabia—have already approved the Microsoft-Activision merger. These groups and countries also ostensibly recognize that the deal would benefit consumers by adding a great deal of value to Microsoft’s Game Pass subscription service.
Game Pass—especially if it includes Call of Duty and other Activision games—can be cheaper and more flexible for many consumers, who would no longer have to buy each video game individually or purchase multiple consoles to get access to exclusive games. It would also allow consumers to try out games they are not sure they would like at a lower cost (as part of a bundle) than having to buy them up front.
Further, the proposed merger would create a new large-scale entrant into mobile gaming, giving Microsoft “a toehold in mobile gaming—where most people game and where Microsoft’s Xbox currently has virtually no presence.”
While Sony and the FTC continue to portray a “sky is falling” narrative about the Microsoft-Activision deal, Dehbozorgi noted that when Microsoft acquired Mojang, the company that developed Minecraft, nine years ago, none of the concerns came to be:
Since the acquisition, Minecraft has become one of the best-selling video games of all time. . . . The merger enabled Mojang to access greater resources and reach a wider audience through Microsoft’s distribution channels. Consequently, Minecraft became available on more platforms and cross-platform play became possible, breaking down barriers and fostering greater innovation in the industry. Microsoft has continued to invest in the game, adding new features and expanding its reach to new platforms.
Alas, the belief that monopoly abuses will follow in the wake of the Microsoft-Activision merger is more imaginative than proven. Even postmerger, Microsoft’s share of the market will be too low to give it that much power. Sony will remain the largest player in the market. While antitrust rhetoric often involves the “little guys” being abused by large firms, it is hard to see how Microsoft’s supposed efforts at abuse would work against a substantially larger firm that has dominated the gaming market for two decades.
Even what Sony is “selling” as the greatest competitive threat from the merger—making video game titles exclusive to Microsoft’s system—is difficult to take seriously, as Sony has done far more of that than any other console maker. If it would be monopolistic for Microsoft to utilize exclusivity, isn’t it worse that Sony—which has a far larger market share—has done exactly that? As legislators like Senator Kevin Cramer and others have noted, perhaps Sony should be the company in the FTC’s crosshairs, not Microsoft. Microsoft has even offered ten-year contracts as proof that it will not engage in these Sony-esque practices.
The Competitive Enterprise Institute’s Iain Murray has also noted several other important problems with the assertion that the Microsoft-Activision merger would be used to facilitate consumer harm. For instance, he has collected several public comments on the merger in the United Kingdom that deserve consideration. They include the following:
it is unlikely that Microsoft would make Call of Duty exclusive due to its multiplayer nature. Making Call of Duty exclusive to Xbox would only create a gap in the market that could be filled by a rival cross-platform shooter game; . . .
. . . the Merger will push Sony to innovate, such as by improving its subscription service or creating more games to compete with Call of Duty;
. . . the Merger is a reaction to Sony’s business model for PlayStation, which has historically involved securing exclusive content or early access to popular cross-platform gaming franchises . . .
. . . the Merger is pro-competitive in the mobile segment because it will create new options for mobile gamers and allow Microsoft to compete against Google and Apple, which are the two dominant mobile platforms.
Murray added:
Mobile gaming is a growth area. Microsoft/Xbox has virtually no presence in mobile gaming, while three quarters of Activision’s userbase, not to mention a sizeable portion of its revenue, derive from that area. This is most likely at the heart of the acquisition. Going from two large companies in the field to three is hardly a threat to competition.
As if these concerns with Sony and the FTC’s claims aren’t enough, Renata Geraldo has reported still more problems. She wrote that, while “The FTC is concerned Microsoft plans to withhold Activision titles, including Call of Duty, from Sony and other competitors,” Microsoft argues “it is not financially viable to remove Call of Duty from PlayStation.” Indeed, more profits are to be made from serving a rapidly growing market than from trying to squeeze its current customers. As Microsoft lawyers have argued (and Activision has echoed), “Paying $68.7 billion for Activision makes no financial sense if that revenue stream goes away . . . Nor would it make sense to degrade the game experience and alienate the millions of Call of Duty players who play together using different types of consoles.” While Sony turned down Microsoft’s offer of a ten-year guarantee against that very fear (Microsoft making Call of Duty an exclusive to its console), Microsoft has already completed such an agreement with Nintendo.
There are so many holes in the FTC and Sony’s opposition to the Microsoft-Activision merger that an analogy to Swiss cheese is in order. In fact, as Nate Sherer has summarized, the results are more likely to be 180 degrees from the imagined bogeyman: “the deal could well be a major victory for consumers and gamers alike, who are likely to benefit from expanded access, a greater selection of games, and lower prices.” So, we should leave it to gamers to decide which firms and combinations of offerings they prefer, rather than government antitrust regulators who may be carrying out their “Call of Duty” for powerful corporate rivals threatened with competition rather than for the consumers who would benefit from it.
John Klyczek joins Michael on the first episode of REKT. John (jakE) is the author of School World Order: The Technocratic Globalization of Corporatized Education. Topics include the behaviorist, collectivist, and eugenicist roots of public (and state-sanctioned private) education, the globalist organizations behind the stakeholder capitalism regime, and the making of "global citizens" through indoctrination and technocratic surveillance and control systems.
Get School World Order: Mises.org/Rekt1a
Find more work from John: Mises.org/Rekt1b
The usual suspects are "relieved" that Congress gave President Biden what he wanted on the so-called budget deal. Without sound money, however, the borrowing and spending regime will collapse sooner or later.
Original Article: "Sound Money Is Required for Real Budget Discipline"
To explain Japan’s economic problems, Paul Krugman employed a model that assumes people are identical and live forever. While admitting that the model is not realistic, Krugman nonetheless argued that his model could still offer solutions to the crisis.
In The Philosophical Origins of Austrian Economics, David Gordon wrote that Eugen von Böhm-Bawerk believed economic concepts must originate from reality and should be traced to their ultimate source. If one cannot trace them to their source, the concepts are meaningless.
Similarly, Ayn Rand suggested that concept formations are not arbitrary. The role of concepts is to integrate relevant existents, while the role of definitions is to identify the essence of the existents of a concept. According to Rand:
A definition is a statement that identifies the nature of the units subsumed under a concept.
It is often said that definitions state the meaning of words. This is true, but it is not exact. A word is merely a visual-auditory symbol used to represent a concept; a word has no meaning other than that of the concept it symbolizes, and the meaning of a concept consists of its units. It is not words, but concepts that man defines—by specifying their referents.
The purpose of a definition is to distinguish a concept from all other concepts and thus to keep its units differentiated from all other existents.
She adds: “The truth or falsehood of all of man’s conclusions, inferences, thought and knowledge rests on the truth or falsehood of his definitions.”
Milton Friedman declared that assumptions in various economic models can be detached from reality, writing:
The relevant question to ask about the “assumptions” of a theory is not whether they are descriptively “realistic,” for they never are, but whether they are sufficiently good approximations for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions.
This way of thinking says our knowledge of economics is ambiguous. Since one cannot establish “how things really work,” the underlying assumptions of a theory don’t matter.
Do We Know Something about Ourselves? Contrary to popular thinking, economics is not about gross domestic product, the consumer price index, or other economic indicators but about human interaction. For instance, one can observe that individuals are engaged in activities such as performing manual work, driving cars, or taking a walk, all actions being purposeful.
Furthermore, we can establish the meaning of these actions. Manual work may enable some people to earn money, allowing them to achieve goals like buying food or clothing. Dining in a restaurant may lead to the establishment of business relationships, and driving a car helps one to reach a destination.
The fact that individuals consciously pursue purposeful actions provides us with definite knowledge, setting the basis for coherently assessing an economy. Ludwig von Mises writes:
The physicist does not know what electricity “is.” He knows only phenomena attributed to something called electricity. But the economist knows what actuates the market process. It is only thanks to this knowledge that he is in a position to distinguish market phenomena from other phenomena and to describe the market process.
Physicists cannot directly verify assumptions because they know nothing directly of the explanatory laws or causal factors. In economics, however, human action is conscious and purposeful and not tentative. Anyone objecting to this concept contradicts himself, since he is engaged in a purposeful and conscious action to argue that human actions are not conscious and purposeful.
Knowing that people act purposefully permits us to evaluate the popular mainstream view that the “engine” of an economy is consumer spending driven by demand. We know that one cannot meet goals without means. However, means do not emerge out of nothing, as tools and machinery must first be produced. Contrary to popular thinking, the driving force is supply and not demand, since one’s demand is constrained by the ability to produce goods. The more one produces, the more goods one can demand.
In contrast, most economists believe the central bank should increase monetary pumping in response to an economic downturn. Money cannot promote real wealth generation, since it is simply a medium of exchange. Instead, increasing the supply of money undermines the wealth-generation process and leads to the boom-bust cycle. According to Murray Rothbard: “Money, per se, cannot be consumed and cannot be used directly as a producers’ good in the productive process. Money per se is therefore unproductive; it is dead stock and produces nothing.”
Is Predictive Capability a Valid Condition for Accepting a Theory? The popular view that predictive capability determines the validity of a theory is incorrect. We can confidently say that an increase in the demand for bread will raise its price. This conclusion is true and not tentative. Will the price of bread go up tomorrow or sometime in the future? This cannot be established by theories of supply and demand but does not mean these theories are incorrect because they cannot predict the future price of bread.
Mises writes:
Economics can predict the effects to be expected from resorting to definite measures of economic policies. It can answer the question whether a definite policy is able to attain the ends aimed at and, if the answer is in the negative, what its real effects will be. But, of course, this prediction can be only “qualitative.”
Why Arbitrary Concepts Undermine Individual Well-Being The arbitrary process of forming assumptions in economics should not be taken lightly. Rothbard writes:
But false assumptions are the reverse of appropriate in economics. For human action is not like physics; here, the ultimate assumptions are what is clearly known, and it is precisely from these given axioms that the corpus of economic science is deduced. False or dubious assumptions in economics wreak havoc . . .
For example, the central bank is required to pursue “price stability,” with the price level being a weighted average of prices of selected goods and services. From this, one can also infer that the average purchasing power of money is a weighted average of the purchasing power of money with respect to various goods and services.
Arithmetically, however, one cannot add up different goods in order to establish the average purchasing power of a unit of money with respect to different goods. For instance, the purchasing power of a unit of money could be established in the market as two potatoes and one loaf of bread.
Arithmetically, one cannot add up two potatoes to one loaf of bread in order to establish the average purchasing power of a unit of money with respect to bread and potatoes. If we cannot ascertain what something obviously is, it is not possible to keep it stable. A policy that is aiming at stabilizing a fiction can only lead to a disaster.
Conclusion Conscious and purposeful conduct emanates from human beings. Consequently, in economics, we know and don’t assume. A theory based on assumptions that are detached from reality cannot be made valid simply because it generated accurate predictions during a particular time interval. Economic truths are immutable, not temporary.
In the pre-industrial world, aggression and physical domination were often labeled as "masculine" virtues because they were useful for survival. The rise of the cooperative market economy changed all that.
Original Article: "How Capitalism Redefined Masculine Virtue"
The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday left the target policy interest rate (the federal funds rate) unchanged at 5.25 percent. This "pause" in the target rate suggests the FOMC believes it has raised the target rate high enough to rein in price inflation which has run well above the Fed's arbitrary two-percent inflation target since mid-2021.
Yet, at Wednesday's press conference announcing the FOMC's decision, Fed Chair Jerome Powell also claimed that "Inflation remains well above our longer-run 2 percent goal" and "inflation pressures continue to run high and the process of getting inflation back down to 2 percent has a long way to go."
Moreover, according to Powell, the labor market is red hot, with Powell stating "The labor market remains very tight" and "labor demand still substantially exceeds the supply of available workers."
The Fed Wants It Both Ways Both of these sentiments suggest that the Fed should keep allowing the target rate to rise. After all, if job demand is so high, that means continued increases to wage costs for employers plus more consumer demand for goods and services. That suggests more price inflation. Meanwhile, if measures of price inflation show that we have "a long way to go" that also suggests the Fed should keep allowing rates to rise.
In other words, all the facts presented by Powell himself point to a need for the Fed to stop pushing down interest rates and let them rise further. Yet, the Fed, for some reason, has decided now is a good time to hold the rate steady at 5.25 percent.
The Fed is certainly sending mixed messages, and apparently wants to have it both ways. Powell wants to announce he and the FOMC are firmly committed to combating price inflation by allowing interest rates to rise—and, by the way, allowing more securities to roll off the Fed's $8.3 trillion balance sheet. At the same time, Powell also wants to claim that now is a good time to pause on rate hikes, even though the Fed's favored PCE measure of price inflation is more than double the Fed's target rate of two percent.
[Read More: "Powell Explains the Pause" by Robert Aro]
Of course, the reason for muddled messaging is not completely mysterious. The answer lies in examining the political situation. Fantasies about "fed independence" might blind some observers to the reality, but the Fed is a profoundly political institution, and must juggle a variety of political pressures. As it is, the Fed must seem like it is "doing something" about price inflation while simultaneously avoiding any moves that will cause the economy to slow to the point where it becomes politically problematic for the administration. The incoherence we now see from Powell is a direct result of the Fed's desire to send several conflicting messages at once.
The Fed Rarely Resumes Substantial Hikes after a "Pause" For cynical veteran Fed watchers, the pause immediately raises the question of whether or not this will turn out to be a permanent pause, followed in, say, six months by a drop in the target interest rate. After all, historical experience shows that when the Fed "pauses" it rarely goes back to any sort of sustained period of monetary tightening.
Over the past thirty years, there have only been a few occasions during which the Fed paused for more than a single month, and then went back to allowing the target rate to move upward again. This occurred briefly in 2017, and in 1996 and 1997. In the quantitative tightening period between the Dot-com Bust and the Great Recession, however, the Fed never "paused" longer than a single month. If the Fed fails to allow rates to climb again next month, we'll have good reason to suspect that the Fed is done with this current round of rate hikes.
So, now that the FOMC has "paused," will it ever start up with rate hikes again? The odds are against it, but it is possible. It will all come down to how much the Fed fears that price inflation will again head upward to politically damaging levels. That fear, after all, is the only reason the Fed has ever entertained the idea of allowing rates to rise anywhere near the current level of 5.25 percent. The last decade has shown us that the Fed clings to a bias very much in favor of ramming down interest rates again and again. This is what happened in the ten years of near-zero rates that followed the 2008 financial crisis. Every month, the FOMC would come out and say that the economy was "growing" and was showing "strength" yet repeatedly refused to raise rates.
The Fed Is Making It Up as It Goes This Fed's contradictory messages are so apparent that even some members of the media asked why the Fed is bothering to pause at all. As one reporter asked at the press conference, "what's the value in pausing and signaling future hikes versus just hiking? … so why not just rip off the Band-Aid and raise rates today?"
Powell's answer was to admit that the Fed and its legions of economists don't actually know what the results will be of the Fed's tightening, so they're just going to take a wait-and-see attitude. This non-response from Powell highlights the fact that the Fed has long since abandoned its claim to have in place some kind of long-term plan for monetary policy. Gone are the days of "forward guidance" and we're now in the days of "we'll tinker with the economy and see what happens next."
This makes sense given that a look back at the FOMC's economic projects have been very, very wrong in recent years. According to the FOMC's Summary of Economic Projections (SEP) from September 2020, for example, every FOMC member but one predicted that the target interest rate in 2022 would remain at 0.25 percent, with only one member venturing to suggest that the rate might get up to 0.75 percent in 2022. Projections for 2023 were not much more accurate with only three FOMC members predicting that the target rate would rise above 0.25 percent. By March 2022, most FOMC members were still predicting that the target rate in 2022 would be below three percent, and only five members guessed the rate might exceed three percent in 2023. Members were also way off on projections about price inflation and GDP growth.
The Fed Has Kept the Target Interest Rate Very Low for a Very Long Time In fact, the Fed was so committed to ultra-low rates between 2008 and 2023 that the mismatch between price inflation rates and the federal funds rate was larger than anything we've ever seen before. That is, if we compare the federal funds rate to the Fed's favored measure of price inflation—PCE inflation—we see that historically, the target rate was usually above the PCE inflation rate. The exceptions were in periods we know to be inflationary, such as in the mid 1970s under the Burns Fed.
If we look at this gap between the PCE and the target rate, however, the period between 2008 and 2023 really stands out as a remarkably long period during which the target interest rate remained at rock-bottom levels, well below the official price inflation rate. Indeed, this graph shows that going back at least as far as 1960, no other period comes even close to keeping the target rate so far below the price inflation rate for so long. Out of 177 months since the 2008 financial crisis was revving up in August 2008, only 16 months have seen the target interest rate rise above the official inflation rate.
With all that easy money sloshing around for so long, we can see that FOMC members have good reason to fear that inflation has not yet been tamed.
There Is No Fed "Independence." Politics Is Guiding Fed Policy. On the other hand, the Fed will encounter immense opposition to ongoing rate hikes if the economy obviously slows. But how to decide if the economy is getting "bad" or not? A lot will depend on whether or not policymakers at the Fed and in the federal government actually believe that the labor market is as tight as Powell has repeatedly insisted.
As I noted in a recent article on the jobs data, the Fed only ever refers to the job-growth data from the establishment survey. Powell conveniently ignores the data from the household survey which has actually shown a collapse in self-employment, and several declines in total employed persons in recent months. The establishment survey's job-growth data is among the few economic indicators pointing to a strong economy right now. Numerous other indicators of manufacturing activity, consumer debt, bankruptcies, and the yield curve all point to economic trouble. If we consider these other metrics—and not just the Fed's rosy labor picture—then the Fed pause is more easily explained: the Fed is pausing out of fear of weakening the economy to the point of alarming voters.
With the Fed, however, what Powell says publicly, and what is actually going on behind the scenes, are two different things. We can only guess what their real motivations are. It is a safe bet, however, that the Fed is trying to thread a needly here in which it somehow manages to bring down price inflation while also allowing the Biden administration to claim that the economy is in great shape. What happens next will depend heavily on what the regime will feel is necessary to buoy public support for the regime and its current ruling party.
Everything seems to be lining up perfectly for individual investors with Joe Biden and Kevin McCarthy making a debt ceiling deal. In fact, a sentiment poll reflects an ebullient investor class. According to an Investors Intelligence article titled "Assume the Positioning" (reprinted in Almost Daily Grant’s, June 1, 2023), “Just 23.3 percent of respondents are bearish on stocks, the lowest since January 2022, [when] the market scaled the summit of the everything bubble.”
But that same debt ceiling fix will unleash a torrent of US Treasury issuance that will overwhelm the markets leaving stock investors in its wake. Cem Karsan of Kai Volatility Advisors told Maggie Lake on Real Vision, “By most estimations . . . we’re going to have to issue $1.4 trillion in debt before the end of the year. That is a massive sucking sound out of asset markets.”
“There’s got to be buyers of that debt,” Karsan said, stating the obvious, “which means that money is going to come from somewhere. And if that means interest rates go higher, as that supply comes on the market, demand has to be met. That means equity markets or somewhere else, some other risk asset has to reduce liquidity.”
Another expressing concern about liquidity is Eurodollar University‘s Jeff Snider who says those who think the Fed is just printing money are missing the real story. Snider told Raoul Pal on Real Vision,
Nobody ever stops and thinks about what are these bank reserves and what do they actually do? Are they actually a form of base money? And the answer is no. And they haven’t been in decades. In fact, this was a major problem that Paul Volcker confronted in the late 1970s and early 1980s. Banks had found different ways of doing money in liquidity that didn’t involve these bank reserves.
The hyperfocus on the size of the Fed’s balance sheet and in turn that its increase obviously means more money has been created is wrong, says Snider, who points out that people don’t see the money destroyed in the shadow system. He also points out that it’s not the amount of the money stock that’s important but the circulation of money and credit in the real economy.
This year money is leaving the banking system and not returning. According to Reuters, “The FDIC said the $472 billion in deposit outflows in the first quarter was the largest it had recorded since it began collecting such data in 1984.” This deposit exodus in search of higher yields likely continued in the second quarter.
While we’re left believing that the Fed has printed a bunch of money that’s highly inflationary, in certain circumstances—especially 2008, 2009, and to a degree 2020, 2021, 2022, and now 2023—we know that there’s more deflation in the monetary system than whatever the Fed might have created in terms of bank reserves. Snider says banks are supposed to do intermediation as well as money creation but haven’t done either since 2008. Banks, he says,
want to just hold to the safest and liquid assets, and just try to pick up as many nickels as they can. Understanding that whether it’s in a couple months or a couple years, they’re going to go through another liquidity problem again, and have to worry more about safety and liquidity than they do about risk-taking.
In the simplest terms, banks just haven’t created enough money. Murray Rothbard explained how banks create money in The Mystery of Banking. Banks create money by lending to individuals and businesses, not, for instance, by parking money at the Fed’s reverse repo facility, where balances have grown from zero in March 2021 to over $2.1 trillion currently, earning 4.3 percent.
So, in Snider’s view, “Even though the Fed is creating all these trillions of bank reserves, there isn’t enough bank money around in the Eurodollar system which leaves it susceptible to what should be nothing. The smallest little thing can set off this major issue, because it’s that fragile.” Banks aren’t taking risks, and neither are money market funds, which are looking for safety before return.
If this reminds you of 2008, it should. According to Snider,
The 2008 crisis wasn’t really about subprime mortgages. That’s just where it began. And once it started to infect all of these major functions in the banking system, it led to the situation that we’re confronting now, where money didn’t circulate freely throughout the global Eurodollar system, which led to all sorts of problems.
Likewise, falling commercial real estate prices are infecting other things, leading to disruptions in the market, which leads to a lack of liquidity and more risk aversion. And more risk aversion means more lack of liquidity in these markets. Don’t count on the Fed to fix this mess. As Snider said, “The Federal Reserve and central banks are always looking backwards. They don’t see these things coming so there’s no help from them either. And pretty soon before you look around, markets are illiquid. Banks are struggling for funding. Some more of them are failing.”
Lyn Alden is another who is being kept up at night worrying about liquidity. She tweeted on June 1, “However, now that the Treasury cash drain is finished, and we start looking ahead past the debt ceiling, we are potentially encountering the next period of negative liquidity (rather than sideways liquidity).”
She wonders what will break next. Last September it was the United Kingdom gilt market and nearly the US Treasury market. In March a few regional banks with unusually high duration exposure and uninsured deposit exposure failed, and now she says we have to watch the small banks and the Treasury market.
Jeff Snider has his eye on September for a liquidity crisis. “So, if you’re thinking ahead, there’s probably a really good chance that something happens in September, if not beforehand.” Karsan echoes that view: “It’s not a coincidence that mid-August into mid-September is often a scary time.”
You can talk with your registered investment advisor about your stocks’ fundamentals, but as Karsan says, “It hasn’t been about fundamentals for decades now. That’s the narrative you hear on CNBC.” It’s liquidity that moves stock prices.
Stock investors—danger lurks, and Uncle Sam is going to crowd you out.
Most people agree that we are closer to nuclear war than at any time since the 1962 Cuban Missile Crisis. Some would even argue that we are closer now than we were in those fateful days, when Soviet missiles in Cuba almost triggered a nuclear war between the US and the USSR.
In those days we were told that we were in a life-or-death struggle with Communism and thus could not cede a square foot of territory or the dominoes would fall one-by-one until the “Reds” ruled over us.
That crisis was very real to me, as I was drafted into the military in the middle of the US/USSR standoff over Cuba and we could all feel how close we were to annihilation.
Fortunately, we had a president in the White House at the time who understood the dangers of nuclear brinkmanship. Even though he was surrounded by hawks who could never forgive him for aborting the idiotic Bay of Pigs Cuba invasion, President John F. Kennedy picked up the telephone for a discussion with his Soviet counterpart, Nikita Khrushchev, which eventually saved the world.
Historians now tell us that President Kennedy agreed to remove US missiles from Turkey in exchange for the Soviets removing missiles from Cuba. It was a classic case of how diplomacy can work if properly employed.
It is all too clear that we do not have a John F. Kennedy in the White House today. Although we no longer face a Soviet empire and communist ideology as justification for taking a confrontational tone toward Russia, the Biden Administration is still dragging the US toward a nuclear conflict. Why are they putting us all at risk? The same old “domino theory” that was discredited in the Cold War: If we don’t fight Russia down to the last Ukrainian, Putin will soon be marching through Berlin.
This all started with Biden promising to only send uniforms and medical supplies to Ukraine for fear of sparking a Russian retaliation. From there we went to anti-tank missiles, multiple-rocket launchers, Patriot missiles, Bradley fighting vehicles, and millions of rounds of ammunition. The Biden Administration announced last week that it would send depleted uranium ammunition to Ukraine, which poisons the earth for millennia to come. Rumors are that long-range ATACMs missiles are to be delivered soon, which could strike deep into Russia.
Apparently, F-16 fighter jets are also on the way.
The escalation rationale from Washington, we are told, is that since the Russians have not directly retaliated against NATO for NATO’s direct support of Ukraine’s war machine, we can be sure they never will respond.
Is that really a wise bet? It is clear to many that US-built F-16 fighters taking off from NATO bases with NATO pilots attacking Russians in Ukraine – or even Russia itself – would be a declaration of war on Russia.
That means World War III – something we managed to avoid for the whole Cold War.
Congress is silent – or compliant – as we lurch forward toward disaster for no discernable US strategic goal. Biden – or whoever is actually running the show – is forging straight ahead.
As we move into the US presidential election cycle one thing is clear: we desperately need a peace president to do for us what JFK did for the US during the Cuba crisis. Hopefully it won’t be too late!
While many believe that technology is key to a growing economy, technology is useless without entrepreneurship, which develops uses for technology.
Original Article: "Technology Is Meaningless without Entrepreneurship"
There is a sea change in how society views false accusations of sexual abuse. And it’s about time.
The lawsuit John C. Depp, II v. Amber Laura Heard (2022) points to this transformation. Depp and Heard sued each other for defamation with “actual malice” over public accusations of domestic violence (DV) during their marriage; Heard also sued Depp’s attorney for making false statements. Unlike an earlier case brought by Depp in the United Kingdom, the American jury found unanimously in his favor and he was awarded $5 million in punitive damages and $10 million in compensatory ones, although the punitive damages were later reduced to $350,000 due to Virginia state law. Heard was awarded $2 million in compensatory damages from the attorney and $0 in punitive damages from Depp. A settlement was later reached.
Depp’s powerful testimony about the deep pain he’d experienced from the defamation almost certainly contributed to the jury’s large compensatory damages. At the end of four days on the stand, Depp was asked what he had lost due to Heard’s allegations. He answered, “Nothing less than everything.” After the verdict, he declared, “The jury has given me back my life.”
In a later interview, Depp commented on a rarely considered consequence of false accusations of sexual abuse—the effect on his loved ones. “Six years ago [when Heard’s allegations went public], my life, the life of my children, the lives of those closest to me, and also, the lives of the people who for many, many years have supported and believed in me were forever changed,” said Depp. The person falsely accused is not the only victim.
False accusations have ruined innocent lives, largely because the data which directs current law and policy has been weaponized for use in gender warfare. A lot of what passes for data and research amounts to a smear campaign against men. This is especially true of white men who bear the brunt of a double “privilege”—that is, they are both male and white. (Add the word “straight” and you have the trifecta of social-justice-warrior villains.) The #MeToo movement, with its demand to always believe the woman, is just one example of this weaponization; the corollary of “always believe the woman,” of course, is “always find the accused man guilty.” This is not only antimale, but also anti-Western jurisprudence. After all, if the man is automatically guilty, why even have an investigation or trial? Dispense with due process; go directly to imprisonment to save taxpayers money.
Casting men as abusers is essential to reconstructing society in the image of express social justice. If men as a class are natural abusers and women as a class are naturally abused, then a justice system based on individual rights makes no sense; differing systems of justice must address the different classes that are based on identity. Traditional marriage and family become sources of cruelty and danger. Every man should be approached with suspicion by every woman.
This vicious and divisive approach to social relations has been propped up by data and studies, most of which issue from ideologically biased academia or institutes. The statistics must be reopened with fresh eyes. Better yet, they should be replaced by honest research.
Many articles and books examine the crime of making false accusations of sexual abuse, but the issue faces a huge obstacle. No one knows the rate at which they occur.
Why? Consider statistics on just one form of false accusations—rape. Politically driven “researchers” tend to base their estimates on ideology. Perhaps the most famous or notorious statistic comes from the radical feminist Susan Brownmiller’s 1975 book Against Our Will: Men, Women and Rape. She claims 2 percent of rape accusations are false. Brownmiller’s “cited” source has never been verified, although many have tried, and the statistic has been vigorously refuted.
Nevertheless, the 2 percent figure is probably the most circulated rate for false reports in the literature on rape. Today, it has been replaced with the mantra “always believe the woman,” which drives the rate of false accusations down to zero, at least in cases where the alleged victims are female.
So, what is the rate of false rape allegations? Since rape may be the most analyzed form of sexual abuse, people might expect the data on it to be the most accurate. People would be wrong. Massive clashes of data occur depending on the source. Careful researchers estimate the rate of false rape accusations on the best data available, such as police records or Bureau of Justice Statistics, but these only include abuse that’s reported to authorities, which antirape activists claim is understated.
Nevertheless, a recent article in Slate by New York Times Magazine author Emily Bazelon and former Slate senior editor Rachael Larimore states, “If we use the Bureau of Justice Statistics that show about 200,000 rapes in 2008, we could be looking at as many as 20,000 false accusations.”
Philip Rumney, a professor of criminal law, may have made the most reliable assessment to date by comparing studies that followed sound methodology. He concluded the rate of false rape reports is probably between 8 percent to 10 percent. (To his credit, Rumney also did a study entitled “Policing Male Rape and Sexual Assault” to spotlight this neglected problem.) But Rumney cautions readers against extrapolating his estimated rate on rape to other types of crime, even sexual ones. Again, to his credit.
Whether the rate of false accusations of rape is 0 percent or 10 percent makes a huge difference in which laws and policies are implemented and how. It determines which resources are allocated and in what amount. If the rate of false accusations of rape is zero, for example, then why even waste the time and money on a trial for an accused man? The same dynamic is true of other forms of sexual violence, like domestic abuse. A less tangible but equally powerful effect of the rate of false accusations is the view of males it encourages.
A recent international survey may take us closer to accuracy. A survey including eight countries on false accusations of sexual and domestic abuse was conducted by the neutral research resource YouGov on behalf of the organization End to DV (Excel survey data here). It was released on March 14 along with a synopsis of its results: “Survey: False Allegations of Abuse Are a Global Problem, Women Most Often the Accuser.”
The results deserve scrutiny, not only because some findings are surprising but also because the survey seems politically neutral and fact-finding: 9,432 adults (aged eighteen or older) in Europe (Poland and Spain), the United Kingdom, North America (Canada and the United States), Argentina, India, and Australia participated. They answered questions about their own experience with false accusations as well as the experiences of people they know. Child abuse, domestic violence, sexual abuse, sexual assault, and rape were the categories included as abuse.
To the question of whether they had ever been falsely accused of abuse, the percentage of participants who replied “yes” was 4–19 percent. Broken down by countries, it was 19 percent in India, 10 percent in Australia, 10 percent in the United States, 8 percent in Canada, 7 percent in Argentina, 4 percent in the United Kingdom, 4 percent in Poland, and 4 percent in Spain. The figures have been weighted by YouGov and represent all adults (ages eighteen or older) in each country. The wide range of statistics may reflect differences in legal systems and cultures.
The End to DV website offers a rough breakdown of the female to male false accusers:
Among those who have known someone falsely accused of abuse, the majority said the false accuser was female and the accused person was male (except in Poland where a narrow plurality said the false accuser was male). In most countries (with the exceptions of Canada and the UK), about one-third of those who said they knew someone falsely accused of abuse said the false allegations were made as part of a child custody dispute.
A parent accused of sexual abuse is less likely to win custody.
Sexual abuse can be extremely difficult to assess for several reasons. Often the crimes occur in private between two people, which sets up a “he said/she said” scenario. A great deal of emotion surrounds sexual abuse, which can cloud memories and lead either to exaggeration due to outrage or silence due to shame. The issue has also been weaponized by those with political agendas; the motives can include winning elections, gaining research grants or status, pushing an ideology, or getting revenge on an ex. The list is long.
Hard facts on which to base sound policy and law are badly needed. New research continues to come out, but it’s not clear that this will result in a reevaluation of past data that some call flawed and ideologically driven. False accusations not only harm the accused and their loved ones, but they also harm real victims of sexual abuse who are taken less seriously by a skeptical public. On a societal basis, false accusations harm everyone who wants to live the truth.
US trade deficits seem to be expanding, placing pressure on the dollar. However, central banks around the world are just as irresponsible as the Fed, masking the relative devaluation of US money.
Original Article: "US Trade Deficits Are Growing Larger. Or Are They?"
I put for the general inclination of all mankind, a perpetual and restless desire of power after power, that ceaseth only in death.
—Thomas Hobbes, The Leviathan
California continues to attack businesses and entrepreneurial freedom. Leviathan has awakened, this time with Assembly Bill 257, promoting a state-controlled trade union for all restaurant workers.
Current United States secretary of labor Marty Walsh has left and become head of the National Hockey League’s players union, perhaps to help in the league’s diversity, equity, and inclusion and pride initiatives. Joe Biden has nominated Julie Su as Walsh’s replacement, appointed by Biden as deputy labor secretary in 2021. She received Senate subcommittee approval on April 27 and will go to the floor for a full vote, and opposition is expected.
Su left her position as head of California’s Labor Standards Enforcement to be Governor Gavin Newsom’s secretary of labor in 2019. She promoted the gig-worker legislation for companies like Uber and Lyft. The law, Assembly Bill 5 (AB 5), broadened the definition of a worker, creating medical, overtime, benefits, and wages requirements for transportation network companies. The bill was rejected in a special referendum titled Proposition 22 in late 2020.
The seven hundred thousand members of the Service Employees International Union appealed this AB 5 referendum result, challenging the legitimacy of the special ballot. The California Supreme Court dismissed their claim this year. AB 5 is dead, but the dream of state power lives on.
If Su is confirmed for this federal post, she will enthusiastically support the current California Assembly bill, cooked up to “protect” restaurant and related workers.
AB 257, titled the Fast Food Accountability and Standards Recovery (FAST) Act, was passed in August 2022. California’s governor signed the bill and said it would be effective in January 2023.
The coalition Save Local Restaurants organized in opposition, gathering over one million signatures in September to oppose the bill before completion. Save Local Restaurants gained an injunction from the Sacramento Superior Court on January 23. The voters will decide in a counter ballot proposal slated for November 2024.
This process of pass, injunct, prop, and eliminate is not unusual in California government. The recipe is always the same: Identify a free market of labor exchange and find abuses within it. Highlight the abuses found. Expose existing laws as inadequate. Demonstrate at the state capital. Provide a remedy which gives the state power to legislate the same degree of “justice” for all workers. Opposition then injuncts and petitions for a proposition to reform or repeal.
This time the complaints were centered on wage theft in overtime payments. Additional complaints included low wages, part-time schedules, and unpredictable hours. Harvard’s Shift Project in cooperation with the University of California, San Francisco provided the Assembly committee data based on 2,034 voluntary surveys. The sample was 0.12 percent of restaurant workers, which in 2022 numbered 1.7 million.
This bill is not a simple measure. AB 257 uses sectoral bargaining to negotiate across locations with different owners. No workers or craft are excluded. This law codifies what serves as a platform for a statewide union of all franchise food service workers and leverages against sole owners of restaurants their right to hire.
The prix fixe of Leviathan is stunning. A fast food council will be created. Ten members picked by the governor, Assembly speaker, and the Senate Rules Committee will decide how to implement the bill. Fast food standards would be drafted for employment, wages, working conditions, and training. Businesses must supply the necessary cost of proper living wages to fast food restaurant workers.
Cities and counties with more than two hundred thousand citizens will establish local FAST workers committees to create local rules. Local FAST committees will apply these local rules, not the market. These committees are to be led by regional directors. There will be no representation of owners.
The bill makes it clear there will be penalties if workers councils find violations of health, wages, or other standards. There is a clause to include franchisors in future suits for damages. All California locations of franchises that have more than one hundred locations nationwide qualify for FAST oversight.
Employers exempt from FAST oversight will pay FAST wages and benefits to compete for workers. The bill could extend to all, franchised or not, restaurant groups and individual stores. Fifty percent of restaurants are single, unaffiliated stores. All stores will be co-opted to comply by eventual administrative ruling or a de facto labor market.
The Council for Citizens against Government Waste identified the bill as biased against fast food restaurants. Further advocating the impact of this legislation will raise prices and reduce the number of workers. Automation and fewer menu options will likely result from the application of AB 257.
The Center for Economic Forecasting and Development predicted a food price increase of 20 percent. In an act of political thuggery, students and faculty organized to have this report quashed and the project reassigned to a less biased group.
This is law accomplishing the goals of the Fight for $15 movement which began in New York City in 2012. Twenty years ago, fast food franchise workers walked off their jobs in a demonstration for higher wages. Local chapters are in 150 major cities. Organizations like Shift are working to prevent part-time work with flexible hours.
California is the test case to give state-controlled workers the whole table, not just a seat. Kate Andrias at Columbia has called this a significant step forward, creating “a focal point for workers to be a more empowered part of the Administrative system.”
The International Franchise Association gathered restaurant owners groups for a united front. The American Chamber of Commerce joined six other groups from the National LGBT Chamber of Commerce to the Cal Asian Chamber of Commerce to resist and now repeal the law. This broad opponent grouping is due to the 30 percent minority ownership of franchises, 60 percent of franchises being single-owner stores.
The employee’s organization is a sector “union.” Locals will exist in major cities. The state of California legislature and cabinet will hold control of this organization. Elected or appointed officials will decide the leadership of the board, not the workers. Owners will have no place in the administration of the laws. Workers would be de facto members of this trade union. Diagram this and you may see 1930s Italian spices to flavor it. Buona cena.
Since 1960, Congress has raised the debt ceiling 78 times, according to Bloomberg. The process of increasing the debt limit has become so regular that markets barely worry about it. Furthermore, as the 2011 debt ceiling crisis showed, the impact on asset prices happened mostly in emerging economies. In 2011, Turkish and Indian debt were the most negatively impacted, while Treasuries rose.
Politicians believe that raising the debt ceiling is a social policy and that debt does not matter. Until it does. United States debt to GDP is now 123.4% and the risk of losing confidence on U.S. treasuries as the lowest risk asset is exceedingly high.
The problem in the United States budget is evident in mandatory and discretionary spending. Focusing all the attention on discretionary spending does not solve the deficit and debt problem. Trying to convince American citizens that the entire debt problem can be solved with higher taxes is also lying to them.
Mandatory spending is around 63% of the budget, discretionary spending almost 30% and, despite low borrowing costs, net interests already consume 8% of the budget.
The United States budget is unsustainable however you want to look at it.
Projections for fiscal year 2023 show outlays of $5.9 trillion. Outlays rose after the Covid-19 pandemic. However, instead of bringing them back to pre-pandemic level, expenses have been consolidated and annualized. The U.S. budget had already an expense problem earlier, as outlays rose above economic growth.
The same projections, courtesy of the Center on Budget and Policy Priorities, estimate a $1 trillion deficit even after considering a record $4.0 trillion in revenues.
There is no way in which the United States can cut the budget deficit to zero with higher taxes and revenues measures. It is impossible for the U.S. economy to generate a consolidated annual increase in tax receipts of $1 trillion over a cyclical high of $4.9 trillion. And this is only to bring the deficit to zero, it does not even start to address the much-needed net debt reduction.
Deficits are always a spending problem, because receipts are, by nature, cyclical and volatile, while spending becomes untouchable and increased every year.
The Neo-Keynesians will say that deficits do not matter, and debt is an asset for the rest of the world. If that were the case, why the obsession with massive tax hikes? Obviously, the idea that deficits and debt do not matter because they are constantly refinanced makes no sense. Deficits and debt matter because the confidence in the solvency of the state and its currency is predicated on its ability to manage debt to a level that does not scare off domestic and international investors. Debt is only an asset to others if the solvency of the issuing state is not under question.
The biggest problem is that the United states’ solvency and confidence are under question globally. Central banks are reducing exposure to U.S. Treasuries as a reserve asset precisely because of diminishing confidence in the public accounts as well as rising concerns about the safety and strength of government bonds as a safe haven. In 2022, many central banks saw their reserves collapse due to the decline in value of Treasuries.
The entire Neo-Keynesian fallacy is based on the idea that the state can always absorb more wealth from the private sector at no cost. However, that cost is already evident. Inflation is here, and it is a direct consequence of years of monetization of government debt. Furthermore, the dangerous cocktail includes high inflation, rising taxes and increasing debt. There is no improvement in the public accounts even with record receipts. Inflation is not reducing the overall debt level because deficit spending rises alongside consumer prices, even higher.
The world is questioning the United States’ public finances and that is why Congress needs to act and reign on spending. If things continue this way, discretionary spending will reach $2.5 trillion in a decade, and deficit spending will still be half a trillion US dollars at the end of the same period even if the economy grows without recessions or crisis years, a true impossibility, and employment does not suffer.
The United States budget is completely unsustainable, and the problem is elevated and wasteful spending. If Congress does not work to curb spending, the global confidence on the U.S. debt is likely to slump, and higher monetization will only make things worse because it will destroy confidence in the entire monetary system starting with the currency.
Maintaining these enormous fiscal imbalances will not be solved by raising taxes. It is impossible to add $1 trillion revenues every year all the time. Furthermore, higher receipts would also lead to governments feeling comfortable and spending even more.
The gigantic fiscal imbalances of the United States are putting the U.S. dollar and the safety of the national debt at risk. There is nothing social about destroying a currency’s reserve status and a bond’s attractiveness for investors.
If politicians really care about the U.S. citizens and their welfare, they should defend the currency and the solvency of the public accounts. Any other measure will only make the debt ticking bomb explode earlier in the face of our sons and daughters.
2022 was a warning sign that debunked the myth of eternal monetization of debt with low inflation. It is time to be serious.
Higher debt means more taxes, weaker growth, and weaker real wages in the future. High deficit spending is not a tool for growth, but a tool for cronyism and a burden on the future.
While F.A. Hayek's famous 1945 essay effectively critiques the "perfect information" hypothesis, it is an inadequate explanation of the issue of economic calculation.
Original Article: "The Market Process Is Not a Knowledge Problem"
After reading a few blog entries (see the Defending the Republic series), I have wondered why people who do not seem to benefit from social justice efforts support and endorse them. Why would a male push an agenda designed to deny his rights? Why do companies embrace the environmental, social, and governance agenda when it potentially makes them less competitive through lowered standards, higher costs, and policies that prevent talent from reaching its highest state? As Jonathan Haidt writes in his book The Righteous Mind, “Many political scientists used to assume that people vote selfishly, choosing the candidate or policy that will benefit them the most. But decades of research on public opinion have led to the conclusion that self-interest is a weak predictor of policy preferences.”
If the premise of the book, and specifically the quote above, is true, it shoots holes in the rational choice theory. Haidt posits people do not respond so much rationally as to maintain social standing and connections. He wrote,
Rather, people care about their groups, whether those be racial, regional, religious, or political. The political scientist Don Kinder summarizes the findings like this: “In matters of public opinion, citizens seem to ask themselves not ‘What’s in it for me?’ but rather ‘What’s in it for my group?’”
While I don’t want to throw the baby out with the bath water regarding rational actors, Haidt and Kinder seem to think that groups carry more clout than self-interest. For individual group members, they may be right. But for the group leaders, I suspect they are wrong and work according to rational choice theory. Their rational choice is to manipulate the group members for money and profit.
This is perhaps prevalent in social justice; for example, see the case of the Black Lives Matter leader using contributions to buy houses, or race-based advocates such as Al Sharpton who owe large amounts of back taxes and have made fortunes. But it is also present in other groups. Look at the televangelists, such as Jimmy Swaggart, who have used donations to grow their personal wealth and power. I suspect it may also hold for groups that advocate for diseases and other special causes. Not a few people believe cancer, diabetes, and other diseases would be cured by now if the American Cancer Society and other groups did not make so much money off the disease.
We also see the same thing in the government bureaucracy, where it is almost impossible to kill off government programs regardless of whether the alleged problem in question is resolved or the program makes the problem worse. These leaders are all rational actors, making decisions that benefit them. Although what happens to group members is often a different story.
We see the same with social influencers on social media. Whether it be social justice narratives, food, beverages, or toys, the influencers make their living by telling people what to do and what to buy. They create and propagate memes to shape people’s attitudes and actions.
Now look at unions, especially the various teachers’ unions. Are they making education better? International ratings argue they do not. America continues to slide in global education rankings.
So why do the group members stay in the group? Some are true believers, some like the acclaim and power they get from the group, and some are too afraid to challenge the group leaders and their agenda. Look what happens to college professors, even tenured ones, when they challenge the social justice agenda. They get fired.
And this happens in corporations and elsewhere. It is almost like the Roman Catholic church and the Inquisition. Tomás de Torquemada is alive and well in these social justice groups. They all get something out of the arrangement, so they may have a modicum of a rational choice. But Haidt would say it is not a rational choice per se but the rider working with the elephant. Haidt would say this is less a rational act by classic definitions and more of an act to justify the elephant’s appetites and directions.
But the powerbrokers make rational choices. The rational choice theory is not so much wrong as perhaps misapplied. So, what is in a name? Perhaps we need to tie rationality to the situation and the person to understand it.
Political leaders of the so-called liberal Western regimes are engaging in authoritarian tactics to quell legitimate dissent. But leftists who riot and burn get a free pass.
Original Article: "Rise of the Effete Authoritarians"
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of "Ten Great Economic Myths". This material was prepared by Murray N. Rothbard.
Those people who are properly worried about the deficit unfortunately offer an unacceptable solution: increasing taxes. Curing deficits by raising taxes is equivalent to curing someone's bronchitis by shooting him. The "cure" is far worse than the disease.
For one reason, as many critics have pointed out, raising taxes simply gives the government more money, and so the politicians and bureaucrats are likely to react by raising expenditures still further. Parkinson said it all in his famous "Law": "Expenditures rise to meet income." If the government is willing to have, say, a 20 percent deficit, it will handle high revenues by raising spending still more to maintain the same proportion of deficit.
But even apart from this shrewd judgment in political psychology, why should anyone believe that a tax is better than a higher price? It is true that inflation is a form of taxation, in which the government and other early receivers of new money are able to expropriate the members of the public whose income rises later in the process of inflation. But, at least' with inflation, people are still reaping some of the benefits of exchange. If bread rises to $10 a loaf, this is unfortunate, but at least you can still eat the bread. But if taxes go up, your money is expropriated for the benefit of politicians and bureaucrats, and you are left with no service or benefit. The only result is that the producers' money is confiscated for the benefit of a bureaucracy that adds insult to injury by using part of that confiscated money to push the public around.
No, the only sound cure for deficits is a simple but virtually unmentioned one: cut the federal budget. How and where? Anywhere and everywhere.
For more episodes, visit Mises.org/MisesReport
For more episodes, visit Mises.org/MisesReport.
The conditions have now aligned for a repeat of the major stock market crashes that have occurred since the founding of the US Federal Reserve Bank (Fed) in 1913. Considering their vast experience and resources, the Fed has to know that their plan to control inflation by raising interest rates rapidly and significantly since 2022, and also tightening credit this year, will likely result in another major crash. Although the Fed has issued vague warnings about the impending pain on the stock market and economy, they have not explained how and why they will again wipe out trillions of dollars of wealth of unsuspecting investors.
As Marty Zweig, a successful Wall Street investment adviser known for data studies, warned, “Don’t fight the Fed,” because the central bank largely controls the direction of the stock markets. Generally, the major stock market booms start with the Fed stimulating slow economic growth by lowering interest rates, often while the government increases deficit spending. As Austrian business cycle theory predicts, this results in asset price inflation (e.g., stocks, houses, etc.), and sometimes also consumer price inflation. The major busts result when the Fed seeks to control the inflation by raising interest rates significantly, while the government reduces deficit spending.
The following graphs demonstrate the strong inverse relationship between the Dow stock market index and interest rates largely set by the Fed (i.e., stocks values inflate when interest rates are lower and deflate when higher). The top graph from Macrotrends shows the Dow Jones stock market index on a logarithmic scale and adjusted for today’s dollars over time. The bottom graph from the Fed shows interest rates over the same time. These graphs can be used to locate the major stock market cycles and analyze the effects of interest rates along with deficit spending in causing booms and busts.
Figure 1: S&P 500 versus federal funds rate
holly_graph.png
Source: Stansberry Research.
The Dow Jones stock market can be considered to be in its sixth major boom and bust cycle. The first cycle had a 1913–15 boom and 1915–20 bust. The second cycle had a 1920–29 boom and 1929–32 bust. Then, there was a 1932–50 period that was effectively absent of major booms that could go bust. The third cycle had a 1950–65 boom and 1965–82 bust. The fourth cycle had a 1982–2000 boom and 2000–2002 bust. The fifth cycle had a 2002–7 boom and 2007–9 bust. The sixth cycle had a 2009–22 boom and a bust starting in 2022. The five major stock market crashes can be considered to have started in 1915, 1929, 1965, 2000, and 2007, with another likely in 2022.
1915—As the Fed started cutting interest rates in 1913, the Dow stock market climbed and peaked in 1915. That year, the Fed started raising rates and the stock market dropped in 1916. During 1917 and 1918, deficit spending for World War I, while interest rates were flat, caused rampant inflation and a spike in stock prices. After the war, the Fed rapidly raised interest rates in 1920 to cause a stock market crash and the depression of 1920–21.
1929—After the Fed cut interest rates from 1921 to 1925, the so-called roaring ’20s brought a booming Dow stock market from 1921 to 1929. After the Fed started raising interest rates in 1927, the stock market crashed in 1929 and the economy tanked. During the 1930s, the Fed cut interest rates, but President Franklin D. Roosevelt resisted deficit spending after 1932. The Fed even raised, before lowering, interest rates in 1935 to cause stock market losses and the recession of 1937–38. These policies prolonged the Great Depression until World War II, if not longer.
1965—Deficit spending during World War II, along with low interest rates during and after the war, helped bring a postwar boom with economic recovery, consumer price inflation, and stock market gains. During the late 1960s and 1970s, the government accommodated inflation by raising interest rates slowly over a relatively long time period. This caused a long, flat stock market with sharply declining real values (due to inflation) from 1965 to 1982. Finally, the Fed raised interest rates rapidly and high around 1978 to cause a severe recession in the early 1980s.
2000—After 1981, the Fed started cutting interest rates and the government increased deficit spending, especially on defense. The stock market boomed. The Fed raised interest rates starting in 1993 and even higher in 1999 to stop what was claimed to be the “irrational exuberance” of the booming stock market, while the US government ran budget surpluses from 1997 to 2001. The stock market, especially tech, crashed in 2000, and the economy receded during the recession of 2001.
2007—In 2001, the Fed started cutting interest rates and loosening credit on home loans while the government increased deficit spending. The stock market boomed back to its prior peak (in 2000) and home prices inflated. From 2005 to 2008, the Fed raised interest rates and the government decreased deficit spending. In 2007, the stock market and home prices crashed. The economy suffered through the Great Recession until 2009.
2022—Since the start of the Great Recession in 2007 and until 2022, the Fed has lowered interest rates to near zero while the government increased deficit spending. This has accommodated asset and consumer price inflation. Since March of 2022, the Fed has quickly raised interest rates by about five percentage points.
Today, the Fed is clearly still concerned about the inflation. However, higher interest rates have already led to a financial crisis among the banks. Experiences with past markets indicate that, if the Fed continues to fight inflation, the stock markets will likely crash, like they did twice in both the early 1900s and early 2000s. If the Fed gives up their inflation fight, the stock market will likely gradually fall in value over many years if not decades, like they did after 1965.
There have been some other large, but less significant, stock market declines. The crashes in 1917, 1941, and 2020 were caused by fears of wars and a pandemic but were soon reversed by lower interest rates and massive deficit spending used to meet the aggression. The crashes of 1937 and 1946 and subsequent recessions were preceded by rising interest rates and limited deficit spending, but 1937 was part of the recovery from the Great Depression while 1946 was soon reversed by the exceptional postwar boom. The crashes in 1968 and 1972 were preceded by rising interest rates and limited deficit spending but occurred within a major crash. The crash of 1987 was preceded by rising interest rates and reduced deficit spending but was a brief and steep up-and-down blip within a major boom.
The graphs indicate the major stock market crashes have always resulted when, and only when, the Fed has responded to inflation by raising interest rates by three percentage points or more, while the government reduces, or at least doesn’t significantly increase, deficit spending. There has never been a so-called soft landing, and the graphs indicate a so-called Fed pivot, which has usually arrived after the crash. The graphs also indicate the 1915, 1929, 1965, 2000, and 2007 crashes caused Dow stock market index losses of 59, 85, 71, 35, and 49 percent. The losses were not recovered until eleven, thirty, twenty-nine, eight, and six years after the start of the crashes, respectively.
The government has responded to the major stock market crashes, with the exception of 1929, by lowering interest rates and increasing deficit spending to gradually pump stock prices back up and eventually even higher than before. There is no guarantee that this will happen again, especially with the political far right threatening to repeat the policies that prolonged the Great Depression by restricting deficit spending.
Stock markets are unfair to uninformed and amateur investors since they are rigged by the Fed and government without transparency. Informed stock traders and insiders can earn far greater returns by selling stocks high before the stock market crashes. They can also profit by buying low later if they are assured that the government will bail out the market with low interest rates and deficit spending. Moreover, the stock markets will be unsustainable as soon as most investors realize that they are rigged.
Monetary and fiscal manipulations, currently needed to stimulate stock markets and pull economies out of recessions, should be replaced by something else, like effective deregulation of free markets.
Just in case you wrongly thought sanctions had anything to do with national security: Biden wants to sanction the people of a small African country over anti-LGBT laws.
Original Article: "Biden Wants Sanctions for Uganda Because Its Government Passed Anti-LGBT Laws"
Much of critical race theory and “antiracism” is aimed at pulling people apart, not bringing them together. To oppose such theories and practices is not racist in itself.
Original Article: "Opposing Critical Race Theory Doesn't Make You a 'White Supremacist'"
People commonly believe that a society without central political authority will dissolve into chaos. But a small kingdom within Spain existed peacefully for seven hundred years under what we would call anarchy.
Original Article: "Coto Mixto: Anarchy in Galicia"
As a banker and economist, I am riveted by the expeditious demise of Silicon Valley Bank and other institutions. Were these crashes due to bank mismanagement, as many pundits as well as regulators have posited? Were they due to not managing risk, not hedging, and unfettered exposure to sectors of concern? Or maybe something else is afoot, a movement that may have begun a decade ago.
Recall the Great Recession (2008–10), buoyed by a housing and mortgage crisis created by imprudent lending practices, and then the music stopped. In its inimitable wisdom, the government came in legislatively and regulatorily, via Dodd-Frank, crafting what they thought was a belt-and-suspenders approach to avoiding another debacle.
Certain banks were redefined as systematically important financial institutions (SIFI), to be protected at all costs, while establishing a guided risk regimen. Whether due to the additional compliance costs of Dodd-Frank or demographic changes in the market or the need for better economies of scale, we witnessed a consolidation of smaller banks, reducing the gross number from 7,700 to 4,200 over the subsequent ten years.
The US banking system—with its diversity of institutions, from money centers to community banks, harboring in urban and rural settings—is unique on the world stage. We have vastly more banks than any other country, both by design and opportunity. This has contributed to entrepreneurship through local lending, supporting farming communities, and a general competitive economy.
Figure 1: What country has the most banks?
picture1.png
Source: National Statistical Office, Helgi Library. Asterisks denote data from 2020.
The increasingly reductive nature of this industry doesn’t appear to be just another macroshakeout. Silicon Valley Bank (SVB) was a well-run institution, yet within days, it went from hero to zero. CEO Greg Becker and his team were accused of mismanagement, including being accused of precipitously monetizing stock options.
Hopefully, a little perspective will be insightful.
SVB, like most US banks, has seen over the last twenty years a consistent reduction in relative lending activity, as measured by loan-to-deposit ratios. Decades ago, the typical bank targeted a ratio of 80 to 90 percent; the spread between interest collected on loans and interest paid on deposits was the core bank revenue model. To manage lending and overall balance sheet levels, the regulators would toggle the “reserve requirement“—namely, the amount of on-hand cash that would be needed to address deposit withdrawals.
To stimulate the economy with new lending, the regulators gradually reduced the reserve requirement to zilch, nada, zero, meaning that the banks no longer had to maintain a level of ready cash for withdrawals. Now consider that with the proliferation of nonbank lenders, the current loan-to-deposit ratio sits at roughly 62 percent nationwide. With no cash requirement, the banks (including SVB) have built extensive securities portfolios, largely gilts (treasury- and government-guaranteed mortgage securities). Reallocating the asset side of their balance sheets into purportedly risk-free assets should have been considered a very conservative portfolio move. In fact, looking at the SVB balance sheet at the time of its takeover, its loan-to-deposit ratio was a mere 43 percent. Most would say, “Good on you.”
Page back to Dodd-Frank and its imposition of stress tests, capitalization levels, and risk assessments. It failed significantly in addressing the changing balance sheet composition of banks, from ledgers dominated by “credit risk assets” (i.e., loans) to the significant inclusion of assets subject to “interest rate risk.” With the recent quantitative tightening (i.e., rising rates), so-called risk-free assets were fixed rate, longer duration investments, which moved inversely with interest rates. As such, the “conservative gilt” portfolios ended up as a financial hara-kiri. By recognizing the current value of the “gilts” given rate moves, such portfolios incurred billions of dollars of losses. And based on the size of such portfolios vis-à-vis overall asset levels, coupled with leveraged banks’ equity, to which the losses are allocated, banks would find themselves either capital-impaired or rendered insolvent.
Simply, Dodd-Frank, in its feigned brilliance in correcting early deficiencies, missed the mark of monitoring “interest rate risk,” now the bane of the current banking environment.
Further, SVB is not alone in its broken-gilt affair. Reviewing call reports of the top two hundred banks in the US, nearly two-thirds find themselves in a comparable position with pro forma capital impairment. In fact, in April 2023, the Federal Reserve Bank of Kansas City reported that as of quarter three of 2022, 722 banks in the US reflected unrealized losses of over 50 percent of their capital. An industry in distress? You betcha.
Banks are highly regulated, compelled to ongoing reporting and subject to strict regulation and legislative tomes like Dodd-Frank. There are a battery of regulatory bodies overseeing them, from the Office of the Comptroller of the Currency to the Federal Reserve Bank, the Department of the Treasury, the Consumer Financial Protection Bureau, the Federal Financial Institutions Examination Council, and others. Yet, disturbingly, in their collective wisdom, they did not see the confluence of balance sheet composition, high leverage, and no reserve requirement in the wake of the rapid Federal Reserve rate hikes. Couple this with the rising risk in loan portfolios, particularly commercial real estate and consumer portfolios, and it’s powder keg time.
These are not “aha” observations. Banks report, and the regulators have a fiduciary responsibility to monitor and manage the space. Portfolio quality and monetary policy should not be surprises. Events are dynamic. Yet, one wonders whether the industry status is the result of regulator ignorance bordering on insanity, or might this be something orchestrated with intent?
Recall the Bidenette nominee for the Office of the Comptroller of the Currency, banking’s primary regulator, Saule Omarova. She had some unique views on how the economy and the banking system should run and authored an intriguing paper entitled “The People’s Ledger: How to Democratize Money and Finance the Economy.” Simply, her proposition involved moving all customer deposits held at our four thousand plus banks to be redeposited onto the Fed’s balance sheet, where everyone would hold their account.
It would then become easier for the government to “drop in” helicopter money and facilitate payments. And with banks no longer holding deposits, such would tap into the Fed, borrowing funds so to make loans to their respective borrowers, all in the spirit of efficiency and targeting funds into the economy where needed.
Panacea?
Consider, also referenced in the paper, how the Fed would have the ability to drop money into accounts directly. Alternatively, it could remove money from accounts if the Fed and the govvies believe that there are inflationary pressures and there’s a need to restrict the money supply. On the lending side, due to the “mother, may I” nature of banks borrowing from the Fed to lend to their borrowers, policy makers could weigh in. Industries in favor, like the green industry, would have access to credit, whereas industries out of favor, like fossil fuels, may need to borrow outside the banking system. Ms. Omarova’s People’s Ledger bank could embark on redlining.
In effect, Ms. Omarova’s postulate seems Orwellian—the centralization of the banking spigot under the auspices of efficiency and fairness. Ultimately, she withdrew her nomination as it became clear she would not be confirmed.
But her paper resonates as she envisaged a centralization, consolidating an industry for policy purposes. There are certainly those who subscribe to central control; thus, might not a banking crisis (i.e., reducing bank numbers) allow the People’s Ledger to manifest?
So, do we find a crisis due to exogenous circumstances or thoughtful endogeny? A crisis of neglect or one carefully planned?
Finally, it is noted that the release of FedNow, the Federal Reserve’s payment platform, is scheduled for July 2023, which looks incredibly like the People’s Ledger.
Coincidence?
Governments worldwide are trying to replace cash with CBDCs, and people worldwide are starting to wake up, but we need a lot more.
A CBDC is a government-run crypto-token that replaces the national currency with a tracking ledger—a list of who owns what—that lets government surveil, control, and mandate every dollar you spend.
They could prevent you from buying the wrong thing, whether raw milk or gas stoves, or self-defense. They could stop you from donating to the wrong person, as we saw with the Canadian Truckers. They could even force you to buy whatever a government bureaucrat tells you to.
On top of the Soviet-style surveillance state, a CBDC is an existential threat to the banking system, to the US dollar and would give central planners push-button control over every element of your life.
Popular Pushback against CBDCs Last week, the right-leaning Austrian Freedom Party lodged a protest against the current left-wing government ignoring a referendum on the right to use cash after an overwhelming 530,000 Austrians signed a referendum petition.
With CBDCs being pushed worldwide in the face of widespread public opposition, I think we’ll see more clashes over protecting the people’s right to save, and to spend, anonymously with cash—something we’ve had for a long time and taken for granted but now under threat of being seized into a CBDC, a giant balance sheet the government can surveil and manipulate at will, turning your money into an allowance.
In fact, a recent poll found that Americans overwhelmingly reject a CBDC, and opposition rises as they learn more about it. For example, opposition doubles when people learn a CBDC can be used to freeze the bank accounts of political protestors, it rises to even more when they learn a CBDC allows governments to monitor your spending, and it rises to 74% when they learn a CBDC lets government control your spending. Cholera polls better.
So why do governments keep pushing CBDCs when voters hate them? Simple: CBDCs are irresistible to governments who would dearly love to monitor and control every dollar you spend and every word you speak—think of the opportunities for social engineering, reparations, or a China-style social credit system.
Meanwhile, punishing political opponents with a CBDC means controlling speech. This means permanent job security for politicians who serve the deep state first with the people as an afterthought.
How Governments Use “Pilots” to Build CBDCs The easiest to stop a CBDC is, of course, to make sure your government doesn’t start one.
Unfortunately, central banks worldwide—8, at last count, starting with China—are running CBDC "pilots," allegedly for research, that build fully-functioning CBDCs without authorization. These should be stopped for the same reason governments shouldn't be "piloting," say, tools to mass-censor political speech. The people control the government, not the other way around, and we tell them what they're allowed to "pilot.”
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By the way, central banks can run these pilots without authorization because they're self-funding—they print their own budgets with their basement money printers. Meaning in many countries, central banks do what they like, free of the power of the purse that controls most of government.
In fact, many central banks, including the Fed, are largely exempt from Freedom of Information requirements where the government has to tell the people what it's up to. As Murray Rothbard put it, the Fed has less Congressional oversight—meaning less voter oversight—than the CIA.
This means central banks will do what they like until Congress very specifically tells them not to do it—I mean spelled out like central bankers are five-year-olds, including blanket CBDC bans even when they try to sneak one in by running it through banks or contractors.
CBDC pushers are building them using central bank machinery that's immune to voters. It's up to us to make our representatives stop them before we're locked in a digital cage that none of us voted for.
Next Step after Pilots: Forcing People to Use the CBDC Worldwide, so far there have been two major implementations of a CBDC.
The first was China, which has never met a totalitarian technology it doesn't love.
The second was Nigeria.
In 2021 the Nigerian government pushed out its CBDC, the eNaira. Almost nobody used it—uptake was about 0.5%, pretty rough in a population that is among the most crypto-savvy in the world: over a third of Nigerians own Bitcoin, and over half use crypto. So it's not the technology, Nigerians just really hate CBDCs.
Given this pathetic showing, the Nigerian government turned to hardball. First, they mandated discounts for paying in CBDC, then redesigned the physical currency to flush out informal cash. Finally, they went nuclear, limiting cash withdrawals from ATMs to $40 per day to force people into the CBDC and achieve a "100% cashless economy."
Now, the informal cash-based economy in Nigeria is an enormous share of output. It's life or death for Nigeria's 200 million people because it's the only part outside government control, so it's also the only part of Nigeria's economy that actually works.
Meaning, of course, that the cash limits led to complete chaos. People couldn't buy groceries, stores couldn't stock shelves, gas stations ran out of fuel in the largest oil-producing country in Africa. Nigeria was rocked by widespread riots, including burning down banks and even central bank branches.
By the way, the American-backed contractor who built Nigeria's CBDC, asked about the cash limits and the riots they caused, praised the restrictions as a "creative option" that he expects to happen in other countries that impose CBDCs. Making Nigeria a cautionary tale.
What’s Next As much as people worldwide hate CBDCs, governments worldwide love them: Between the totalitarian surveillance and control, and the godlike central planning of a CBDC, they will not stop until voters make them stop.
Some Republicans have been proactive on the CBDC threat: Senator Mike Lee has introduced a Senate bill to ban all forms of CBDCs, while governors like Ron DeSantis have moved to ban CBDCs in his state of Florida.
As for other countries, most voters still don’t grasp the threat CBDCs represent to their financial freedom and human rights even as rogue “pilots” spread like mushrooms. Time is running out to stop them.
[Originally published stonge.substack.com.]
University of Rochester economist Steve Landsburg joins Bob to discuss the abysmal performance of ChatGPT on his undergraduate exam. They also discuss the importance of market prices in guiding behavior and the unexpected problems with the government handing out "free" goodies.
Bob's article "Superman Needs an Agent:" Mises.org/HAP400a Steven's Book The Armchair Economist: Mises.org/HAP400b More Economic brainteasers: Mises.org/HAP400c
The last Group of Seven (G7) summit that took place May 19–21, 2023, in Hiroshima deserves attention because it exposes the latest Western attempt to impose its unipolar worldview. But first, a bit of background on the G7.
The G7 is the group of seven nations (USA, Japan, France, Germany, Italy, Canada, and the United Kingdom) that in the ’70s comprised the major industrialized countries of the capitalist world. But because of the enrichment of a large part of the world’s population and the economic stagnation of many Western nations, the situation has changed dramatically. The G7’s share of the world gross domestic product has gone from 70 percent to only 27 percent, contributing just 15 percent of overall growth in 2012–21. Moreover, they now account for only 10 percent of the world’s population.
By comparison, the five “BRICS” nations (Brazil, Russia, India, China, and South Africa) now contribute almost 31.5 percent of world gross domestic product and account for a significant share of global growth as well as 42 percent of the world’s population.
Moreover, these differences between the G7 and the BRICS will only become starker. Most G7 members are teetering on the brink of economic recession, self-inflicted by years of irresponsible monetary policy and price inflation (a result of artificially low interest rates and a voluntary increase of energy prices).
The G7 nations therefore no longer convene, in reality, as major industrial powers but rather as ideological and geostrategic allies. This becomes obvious in view of the agenda of the Hiroshima summit, aimed at giving the rest of the world the Western position to adopt on virtually every subject from security to climate change.
The G7 against Russia With regard to the Ukrainian conflict, the G7 was an opportunity for President Joe Biden to announce the training of Ukrainian pilots to fly F-16s, although this training has probably already started. This announcement is not only an exercise in political communication to confirm continued US support, but it is also a worrying Western escalation of the conflict, which increasingly resembles a North Atlantic Treaty Organization proxy war against Russia.
It is not the likely delivery of F-16s itself that is worrying because a few dozen or so old fighter jets will have no impact on the conflict, as has been confirmed by both the Pentagon and the Kremlin. What is concerning about this decision is the determination of the G7 leaders to continue to support this conflict, rejecting negotiations. This attitude reflects a long-standing geopolitical goal as well as an ideological obsession to weaken Russia, as Defense Secretary Lloyd Austin put it. The costs of this senseless policy are being borne by the Ukrainian people through their loss of life and the destruction of their country as well as by all Westerners in the form of long-term decline.
Given the turn of the war in Ukraine, with the Ukrainian army in ever more dire straits as its recent defeat in the city of Bakhmut confirms, Western leaders are trying to pressure China, insistently but vainly, to use its influence with Moscow to prevent the conflict from ending in debacle for the West.
The G7 versus China In Hiroshima, the G7 also made what the Financial Times called “the strongest condemnation of China to date.” Indeed, although couched in relatively diplomatic language, articles fifty-one and fifty-two of the G7 Hiroshima Leaders’ Communiqué criticized China’s position in virtually every area: law, military, politics, diplomacy, and economics.
The G7 found this last point unacceptable: “We will seek to address the challenges posed by China’s non-market policies and practices, which distort the global economy.” That sentence must have particularly annoyed Beijing since such policies and practices from the US and the European Union are plentiful and well-known, as the Chinese foreign ministry was careful to point out. The G7 criticizing China’s “economic coercion” is certainly a case of the pot calling the kettle black as this is precisely the modus operandi of these nations, as evidenced by the massive Western sanctions now distorting a large part of the world economy to the detriment of all its citizens.
One of the objectives of the G7 summit was precisely to adopt a “united” criticism of China in order to serve America’s disproportionate geostrategic interests. It’s clear that Washington wants to cling a little further to the dream of world hegemony by making the whole world adhere to its “international rules-based order,” rules not surprisingly kept vague and undefined.
Of course, the Chinese reaction to this strong criticism was firmer than usual. “Despite China’s serious concerns, the G7 used issues concerning China to smear and attack China and brazenly interfere in China’s internal affairs. China strongly deplores and firmly opposes this and has made serious démarches to the summit’s host Japan and other parties concerned,” the spokesperson from the Chinese foreign ministry said.
The G7 against Freedom Indeed, these strong G7 “recommendations” will remain wishful thinking. This G7 summit confirmed the extent to which Western leaders have abandoned the principles of freedom and rule of law that led to their G7 status of “advanced economic powers” in the first place. Before painfully continuing negotiations toward more free trade, the principle of nonintervention in the affairs of other nations regardless of their political and institutional systems must be respected, as per the United Nations Charter.
In other words, there is a crucial difference between two opposing concepts. On the one hand, there is political globalization—another name for global fascism in a unipolar world—based on governance by institutions controlled by the Western elites. On the other hand, there is economic globalization, which is nothing more than international free trade.
The BRICS nations, led ideologically by Russia and China, are attractive to the rest of the world because they want to implement multipolar economic globalization and abandon the political globalization pushed for by the G7. Indeed, it is ironic that it is not the G7 but China that states, “Economic globalization is the realistic precondition for world peace.” Ludwig von Mises could not have said it better.
The ideological divide between the West and the rest of the world becomes clear here, but there are signs that some in the West are finally starting to see the light. Martin Wolf of the Financial Times writes: “Both the ‘unipolar’ moment of the US and the economic dominance of the G7 are history.” And with regard to the BRICS, he rightly explained, “What brings its members together is the desire not to be dependent on the whims of the US and its close allies, who have dominated the world for the past two centuries.”
When even this associated editor and chief economics commentator of the Financial Times, the newspaper of the Anglo-Saxon globalist financial elites, starts sending out such signals, it likely means that an adaptation to the new emerging reality is now understood as necessary, if only to protect Western capital.
As was already proposed through the Mises Institute, libertarians should support the multipolar world against the unipolar world. Yet rejecting US economic and legal imperialism does not, of course, signify supporting the Chinese political system. On the contrary, libertarians see that illiberal practices already in existence in China have been, or are about to be, implemented in the West, such as mandatory confinements, intelligence agencies’ control of social media, the introduction of a universal digital pass, and the use of facial recognition technologies by the authorities.
If there is one lesson from the G7 summit in Hiroshima it is the following: as long as the G7 nations continue to want to impose their nefarious agenda of political globalism, the isolation of these nations and the antagonism of the rest of the world toward them will increase.
In his just-published book Regime Change: Toward a Postliberal Future (Sentinel, 2023), the political theorist Patrick J. Deneen indicts modern liberalism, in which he includes both classical liberalism and progressive liberalism. One of his main charges against liberalism is that it rejects the view, taught both by Christianity and classical political philosophy, that true liberty consists of virtuous conduct. In this view, people must hold their passions in check in order to be truly free. Modern liberalism thinks otherwise, claims Deneen, substituting individual autonomy for virtue. According to modern liberalism, assertions that there is an objective good to be discerned, rather than chosen, are mistaken.
Deneen sees John Stuart Mill’s On Liberty (1859) as a principal source of the view he rejects. In it, Mill said:
The object of this Essay is to assert one very simple principle, as entitled to govern absolutely the dealings of society with the individual in the way of compulsion and control, whether the means used be physical force in the form of legal penalties, or the moral coercion of public opinion. That principle is, that the sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection. That the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant. He cannot rightfully be compelled to do or forbear because it will be better for him to do so, because it will make him happier, because, in the opinions of others, to do so would be wise, or even right.
Key to understanding Mill’s contention is that Mill didn’t limit his harm principle to cases in which force, or the threat of force, was used to suppress dissenting opinions or conduct, and Deneen rightly stresses this point. Mill had in mind also the “tyranny of public opinion,” about which he says:
Like other tyrannies, the tyranny of the majority was at first, and is still vulgarly, held in dread, chiefly as operating through the acts of the public authorities. But reflecting persons perceived that when society is itself the tyrant—society collectively, over the separate individuals who compose it—its means of tyrannizing are not restricted to the acts which it may do by the hands of its political functionaries. Society can and does execute its own mandates: and if it issues wrong mandates instead of right, or any mandates at all in things with which it ought not to meddle, it practises a social tyranny more formidable than many kinds of political oppression, since, though not usually upheld by such extreme penalties, it leaves fewer means of escape, penetrating much more deeply into the details of life, and enslaving the soul itself. Protection, therefore, against the tyranny of the magistrate is not enough: there needs protection also against the tyranny of the prevailing opinion and feeling; against the tendency of society to impose, by other means than civil penalties, its own ideas and practices as rules of conduct on those who dissent from them; to fetter the development, and, if possible, prevent the formation, of any individuality not in harmony with its ways, and compel all characters to fashion themselves upon the model of its own.
Deneen argues that Mill’s views about the need for individual autonomy have led to the stifling “woke” atmosphere of our own time.
The “harm principle” was once believed to be the redoubt of libertarian freedom, a minimalist appeal that would mostly be deployed to prevent exercise of political power in the moral domain.
However, embedded in its deepest logic was its potential, and inevitability, of being wielded as an aggressive tool of domination and even tyrannical power. Far from being a break on tyrannical power, it was the ultimate means of empowering the “experimental” over those who believed there ought to be limits to the libertarian dismantling of all norms, and the resulting social disruption caused by ever more extreme forms of experimentation.
Deneen suggests that Mill’s harm principle implies that those who do not support nonconformists should be sanctioned: “To be ‘mispronounced’ or ‘dead-named’ is to be harmed, and—in keeping with the Millian ethos—the full force and power of the state and its semipublic, semiprivate agents can be brought down on the malefactor.”
Even if Deneen’s criticism of Mill’s harm principle were correct, it would leave Rothbardian libertarianism unscathed. For Murray Rothbard, political philosophy is concerned only with the permissibility of the use or threat of force: issues of conformity to public opinion are outside its purview. But I’d like to examine whether Deneen’s criticism of Mill is, in fact, correct.
When Mill warns of the danger of conformity, what does he have in mind? The answer lies within a passage from On Liberty that I have quoted: it is the danger that “the prevailing opinion and feeling” will stifle dissent. But Mill does not say or imply that any criticism of an “experimental” practice, or failure to approve it, counts as a violation of the harm principle. Mill himself says about the nonconformist:
He cannot rightfully be compelled to do or forbear because it will be better for him to do so, because it will make him happier, because, in the opinions of others, to do so would be wise, or even right. These are good reasons for remonstrating with him, or reasoning with him, or persuading him, or entreating him, but not for compelling him, or visiting him with any evil in case he do otherwise. (emphasis added)
Those who oppose same-sex marriage, for example, would be perfectly free to speak and write against it by Mill’s principle; nor is there the slightest suggestion in Mill’s essay that you cannot say anything that might offend a member of a “protected” group.
Deneen makes another dubious claim about what Mill says. Mill warns about the tyranny of public opinion, but he does not say what measures should be taken against this tyranny. He does not say, as Deneen claims he does, that force may be used to compel conformity to the harm principle. This again is an “inference” that Deneen has concocted from thin air. Long experience has taught me that when a political theorist who is not an analytic philosopher says that a proposition logically follows from a certain doctrine, it is usually the proposition’s negation that in fact follows.
Leonard Read asked how we preserve liberty in a culture that doesn't appreciate it. Liberty cannot come through force and organization. It comes from within oneself.
Original Article: "Smarter Talk Is Smarter Action"
Argentina makes press headlines worldwide and tops the inflation world rankings. People are becoming desperate—living in Argentina is extremely tough—and people are beginning to immigrate to foreign countries. The Argentinian peso is, to the world and the Argentinian citizens, a relentless zombie, rejected by the people but supported by the government, which is desperate to snatch whatever money people have left in their pockets.
To develop this further, we must go first through the history of the Argentinian monetary system to better understand the current situation. Then we will move to examine this living-dead currency and analyze proposals to return to a prosperous and free society.
A Brief Summary of the Monetary History of Argentina The earliest local government in the country that today is known as Argentina was established in 1810. Yet it was not until 1861 that the country was unified. Prior to 1881, there was no mandatory monetary system in Argentina. There were few to no laws that regulated or stated how transactions had to be made and which currency had to be used. Moreover, the national government had not issued any national currency for the citizens to use. There was limited circulation of some government-issued money (sometimes not metal backed and leading to inflation), mostly during times of war, and most people used foreign or private currencies. In summary, the system was free (or anarchic).
This state of affairs was put to an end in 1881 when President Julio Argentino Roca established the first national currency with legal tender, the peso moneda nacional, legally binding people to make their contracts in this new gold money. (The 1853 constitution gave the state the faculty of issuing a national currency. However, until Roca it had not been done.) Argentina could not escape economic cycles due to the government regularly injecting fiduciary media to solve its problems. One such cycle led to the panic of 1890. In response, the government created a currency board to stabilize the value of the gold peso called the caja de conversión (the Argentinian gold standard). It was suspended from 1914 to 1927 and abandoned in 1929 due to the global crisis.
In 1931, a year after a Fascist coup, the private Banco Nación (in full, Banco de la Nación Argentina; in English, Bank of the Argentinian Nation), was allowed to issue bank notes without needing to have them backed in gold. In 1935 (during the military-led government) the Banco Central de la República Argentina (or Central Bank of Argentina) was created, a true “bank of banks.” It regulated and supervised commercial banks and credit, accumulated money reserves, and acted as the financial agent of the state. The initial purpose was to tackle economic cycles, but eleven years later in 1946, the bank was nationalized by President Juan Domingo Perón in order to expand the money supply as much as the government saw fit in order to finance its deficit. Thus, the government cared about only one thing from here onward: how much to inflate.
Argentina’s hyperinflation period began in the late ’80s and continued into the early ’90s. This situation was stabilized between 1991 and 2002. President Carlos Menem implemented a system (devised by his minister of economics, Juan Domingo Cavallo) called “convertibility.” It was a currency board pegging the peso with the dollar—one peso to one dollar. Nevertheless, the necessary reforms to support that system were not made, and it was abandoned in 2002 to regain control of the peso and finance the public deficit with inflation. To this day inflation has been increasingly high, and there has been little to no sign that it will decrease in the short- to midterm future. All of this history can be visualized in the graphic below.
Inflation in Argentina, May 1810–July 2022
bermudez_graph.png
Source: El proceso inflacionario argentino en el largo plazo (1810–2022) (Santa Fe, Arg.: Bolsa de Comercio de Santa Fe, September 2022).
The Argentinian Peso: A Zombie Currency There were five different national currencies in Argentina. Yet the inflation problem was never solved. No matter which type of national currency was adopted, inflation continued. Argentinians have historically rejected government money and with good reason. Whoever is in office at any given time always attempts to solve fiscal problems by expanding the money supply.
From the nationalization of the central bank during the first Perónist government to the present day, Argentina has suffered chronic inflation. People abandon the peso for other currencies or goods that tend to preserve their value better than the peso. In this regard Argentina is different from other countries with inflation problems as it would seem to be the only country to have suffered eighty years of chronically high inflation. Saving this zombie money for future consumption is impossible since its value drops massively in the short-term. In April of 2023, year-over-year inflation has been 108.8 percent, and the government is not planning to stop their spending and printing spree.
Politicians insist on maintaining the peso, but Argentinians keep rejecting it because if they don’t, they will lose all their purchasing power given time. The only reason people still use the peso is because the government requires it in order for contracts to be backed by the legal system. Under any economic paradigm the peso is not money; it is a dead currency kept alive by the government by means of force. That’s why the Argentinian peso is neither alive nor dead as a currency but a zombie.
Principles of a Possible Monetary Reform After examining Argentinian monetary history and analyzing the situation of the zombie peso, the question now is, can anything be done about it? The answer is yes, definitely, but few seem to clearly see the road ahead or have the capacity to do it right. One thing is certain: the peso cannot exist anymore; it must be replaced. A reasonable course of action would be to give legal tender to all currencies for people to spontaneously abandon the peso and use any currency that they see fit (it would seem that the dollar is already the preferred choice for the vast majority). Then all the remaining pesos would be exchanged to dollars, finally eliminating the central bank since it would not be of any use any longer. It looks good on paper, but its application is anything but easy. The monetary reform must be accompanied by a series of economic reforms toward the free market. If not, given time, the dollarization will fail.
No monetary change is possible without slashing public expenditure, deregulating the economy, and cutting taxes. These are necessary measures for anything at the monetary scale to work. If not—as has been noted by eminent Argentinian economists—the monetary reform won’t be accepted by the market since it will be perceived as transitory, ultimately reverting to the inflationist state of affairs.
It must be said that Argentina doesn’t have the necessary dollar reserves to exchange the monetary base for dollars at a reasonable exchange rate—that would be the market rate (net central bank reserves are negative). First the government would increase the dollar reserve to a number between nine and eleven billion, according to one of the most prominent proponents of dollarization, to exchange at market rate (approximately one dollar per 493 pesos as of May 25, 2023). Many proposals are on the table as to how to obtain these dollars. Some are more viable than others, and both ethics and economics have to be taken into account when planning such a policy so neither private property nor the well-being of the people would be harmed.
To conclude, no matter who is in charge next year or whether the ruling party would consider dollarization or not, the administration to be elected by the end of this year will have to deal with this sorrowful situation. Statism or freedom will be their options. There is no place for moderates.
The public opinion is asking for clear positions on concrete issues, and politicians are positioning themselves on either side of the road. Compromisers are being exposed. It would seem that in people’s hearts and minds, liberty rises and socialism falls.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop are joined by Mises Senior Editor Bill Anderson to discuss his recent article, "David French Gets to Sit with the Cool Kids at the NYT Lunch Table." Bill explains the transformation of French from a "cultural conservative" commentator to the preferred "classical liberal" of the elite.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
PROMO CODE: RothPod for 20% off
Recommended Reading "David French Gets to Sit with the Cool Kids at the NYT Lunch Table" by William L. Anderson: Mises.org/RR_138_A
"Review: Sohrab Ahmari's New Attack on Laissez-Faire Liberalism" by Zachary Yost: Mises.org/RR_138_B
""Libertarian" Is Just Another Word for (Classical) Liberal" by Ryan McMaken: Mises.org/RR_138_C
"To Stop the Left, America Needs a Rothbardian Right" by Tho Bishop: Mises.org/RR_138_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
All too often, when we see a new technology we don't understand, our natural inclination is to condemn it. Artificial intelligence is no exception.
Original Article: "Can We Understand AI? A Response to Jordan Peterson’s Podcast"
On this episode of Good Money with Tho Bishop, Peter St Onge joins the show to discuss this week's Fed announcement and what it means to normal Americans. Tho and Peter also discuss the political battles in DC over the future of CBDCs and the dangerous trojan horse some Republicans may be creating on the issue.
Find more from Peter St Onge on Substack at StOnge.Substack.com. You can also find him on Twitter @ProfStOnge.
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
Receive a free subscription to The Austrian magazine at Mises.org/Magazine
During a debate on capitalism with James Otteson, Michael Anton opined that free markets are harmful to a nation's economy. Perhaps he needs to learn economics.
Original Article: "The Economic Nationalists Are Wrong: Free Trade Means Freedom and Prosperity"
News here in the USA has been full of the latest farce known as raising or not raising the debt ceiling. After the usual dog-and-pony show, a budget deal was reached. But was it progress? It was a foregone conclusion that the debt ceiling would be raised, yet again, for the simple mathematical reason that unless the budget is cut, via spending cuts or increases in taxes, it can do nothing else.
With the budget deficit projected to be (hold on to your hat!) $1.5 TRILLION, that is a political impossibility. Notice that I used the adjective “political.” Of course, technically it isn’t impossible to balance the budget or even run a surplus. But under the current monetary regime of fiat money that can be produced in any amount at the click of a computer at the Fed, there is no support either in Congress or among the electorate to do so.
All of us are corrupted collectively, as described by German economist Thorsten Polleit. Since the sky will not fall, yet, by printing more fiat money, no one can be expected to support real budget cuts—not the military, retirees, Medicare and Medicaid recipients . . . the list goes on and on. The Fed will continue to print money to support the rising government debt, in nominal terms only, until the dollar’s purchasing power is destroyed.
The only way to prevent this catastrophe is to return to sound money; i.e., linking the money stock to a commodity, almost certainly gold. By “linking” I mean that what the people call “money,” whether in the form of paper certificates, bank accounts, or some other form such as digital currency, is backed 100 percent by the commodity. The commodity is money. Nothing else. Certificates, bank accounts, or other forms are merely convenient ways to transfer ownership of claims upon the money stock.
Yes, this is the only way. Forget about electing or appointing the “right” people to Congress or the Fed. As long as any person or entity CAN print fiat money, it WILL print fiat money. It is illogical to support a monetary regime in which printing fiat money is permissible and expect that anyone exists who will refrain from doing so. Therefore, turn off your TV. Stop reading the business press. The US federal debt will grow and grow, and nothing can stop it under the current monetary regime.
The Return of Gold as Money So, is that it? We are doomed? NO! Gold will return! Why? For the simple and rational reason that gold and only gold works. For five thousand years gold was money and money was gold. Gold allows complete strangers to engage in productive exchange. Not only complete strangers but even enemies can engage in productive exchange. You don’t like the Russians? OK, but you don’t have to like them in order to buy their natural gas. Cooperative exchange means, per se, that both parties expect to benefit.
For all I know my local hardware store owner may be an Atlanta Braves fan, about as low as it gets for a Philadelphia Phillies fan like me. Nevertheless, I appreciate the convenience and quality of his store’s products and services, and I’m sure he appreciates my patronage. This is not a frivolous matter. Gold allows everyone to benefit from a worldwide division of labor that requires no vetting of personal or political views or affiliations. In other words, gold leads us to a world of peace and prosperity.
The “East” Will Lead the Way, and Eventually the “West” Will Follow The era of fiat money and dollar hegemony is coming to an end. Russia, China, India, the Arab nations, South Africa, Brazil, and others—let us call them the “East”—soon will settle their international trade in gold. It will work. Then the Western fiat money nations, led by the United States, will watch as, one by one, former allies start jumping ship. This does not mean that they are willing to be dominated by Russia or China, for example, only that real prosperity is dependent upon honest money; i.e., gold. The dollar will be thrown on the ash heap of history just like the French assignat, the Confederate dollar, the German papiermark, and more recently the Zimbabwean dollar. Of course, real statesmen, especially American, would understand this and start preparing their nations for this immense change in which military power is irrelevant.
Time for Humility It never hurts to remind ourselves that the world is a very big place and America is just one small part of it. We must learn to be good citizens of the world, honest in our commercial affairs, friendly and respectful toward all, and meddle in the internal affairs of no one. For a nation that has arrogantly assumed that it is special, this will be a very hard pill to swallow. American military power and the dollar as the world’s premier reserve currency created a hubris that is evident in many areas.
Preposterously we claim the power and authority to change the weather and the earth’s temperature, to control the health outcomes for billions of people through international vaccine mandates, the ability and maybe authority to change a person’s biological sex . . . the list goes on and on. It is time for a return to humility, honesty, and above all freedom of the individual to live his life as he, and only he, sees fit.
Despite "concerns" about increasing federal debt, in the end Republican legislators have gone along with whatever the ruling elites want. The Limit, Save and Grow Act of 2023 is more of the same.
Original Article: "Republicans Fail on the Debt Ceiling in 2023"
As reported by Reason, Colorado—one of thirty-one states that had banned its local governments from imposing rent control—is considering repealing that ban. Recent efforts to allow or impose similar controls have also taken place in New York, California, Massachusetts, Oregon, and Minnesota. However, there is a good reason that most states still ban the local imposition of rent control laws.
The key reason is that the primary advantage of local determination in a federal system—allowing people mistreated by one government body to better protect themselves by “voting with their feet” to less abusive jurisdictions—does not apply to rent control laws. That is because neither selling nor moving allows owners of rental property to escape the imposed burdens.
In many circumstances, voting with your feet favors local governance. It is generally less costly to leave a local government jurisdiction whose benefits are not worth the cost than it is to leave a similarly bad state government jurisdiction, which is less costly to leave than to leave the United States entirely. The enhanced exit option may better protect citizens’ rights against abuse. For instance, residents who view state sales and income taxes as not giving them their money’s worth in benefits can avoid those burdens by going to another state with lower tax rates or better services. However, the same is not true of rent control, whether imposed locally or at the state level.
Owners of rent-controlled properties can move away. However, if they maintain ownership of their property, they are still forced to bear the burden of reduced earnings caused by rent control. If they sell their property, they bear the burden of reduced rental income in the form of a lower sales price that capitalizes the lower revenues the property will generate. Consequently, even selling your property and leaving the jurisdiction provide no escape.
While landlords do not have a right to a specific amount of rent, their ownership should give them the right to accept what tenants would willingly offer for their units. Market conditions that lower rents are not theft because the landlords’ property rights are not violated. However, rent control, which forcibly lowers rents below what willing tenants would offer, takes away that right and much of the value of the landlords’ properties in the process. That is theft, enforced by government guns rather than robbers’ guns. Worse, rent control directly violates the central role of government—the protection of citizens’ existing property rights—as John Locke explained long ago, echoed by America’s founders.
There is no difference in results between the tenants robbing their landlords of $500 every month and tenants voting themselves $500 monthly rent reductions, except rent control takes the money before landlords get it. That does not transform what we would all recognize as theft into something legitimate unless someone is determined not to recognize their equivalence.
Such theft has also been abetted by the Supreme Court’s Fifth Amendment rulings. The amendment asserts that “nor shall private property be taken for public use, without just compensation.” While today, this still prevents the government from physically taking your property without payment, the courts have redefined takings to only occur when all of a property’s value is taken. This logic would imply that a mugger who left a victim with Uber fare home would not have robbed him. So, while the government occupation of half of someone’s apartments would require compensation, rent control that takes half of the value of each of the units and transfers it to current tenants may take just as much wealth involuntarily but does not require compensation.
That limitation on the owners’ ability to evade those imposed burdens also explains why majority-renter localities may want to impose or reimpose rent control.
In such cases, renters outnumber other local voters and greatly outnumber rental property owners, giving the renters the votes to dictate local policy. Those rental property owners who do not live in the jurisdiction cannot even vote. By stripping owners of much of their properties’ value by mandating lower rents, local majority voting power can provide existing renters with very large wealth transfers. Given that rent controls typically give residents virtual tenure for as long as they choose to stay, that wealth transfer can be massive for long-term renters, as illustrated by the fall in the value of rental properties when rent control is imposed, the large payments offered to get rent control tenants to leave, and the frequency with which such offers are rejected by current tenants.
So, imposing rent controls in majority-renter municipalities targets the property rights of owners who cannot protect themselves by voting with their feet, and it transfers very large monetary gains to those who are already renting in the jurisdiction when price controls are adopted. The current renters get to vote, but all prospective future tenants not yet there—who will be harmed by the reduced supply of available rental housing that will result—cannot. This is also true of renters in neighboring jurisdictions whose housing costs will rise due to the reduced regional supply of rental units caused by rent controls in particular municipalities.
In other words, rent control guarantees that current renters in a municipality can vote themselves huge benefits out of the outnumbered owners’ pockets. However, it does not benefit all renters; it benefits only those renters who were living in a municipality at the time rent control was enacted. In fact, there will be far more renters who are harmed than who are helped. That is because the far larger number of future prospective renters will be harmed by the consequent reduction in the supply of rental housing, which will result in higher future prices (often including under-the-table payments) for those who are able to find a rental as well as “no vacancy” signs rather than housing for many others. It is piracy by the local political “might makes right” plebiscite at the expense of both rental property owners and future prospective renters.
That is why, unlike many other areas of governance, state-level preemption of local rent control may protect citizens’ rights and well-being better than local determination. It is analogous to the Bill of Rights in the federal Constitution, which Hugo Black called the “Thou Shalt Nots” and protected citizens against unwarranted national government abuses. Additionally, in practical day-to-day government operations, such a preemption would allow those for whom rent control would harm—particularly current owners and future potential renters—greater likelihood to be able to vote and have more of a voice in the policy at the state level.
In other words, state-level restrictions on rent control allow rental property owners who face robbery to unite in opposition more effectively. Such opposition would also include “outsiders” who would be interested in building rental properties there if such construction did not get frozen by the disincentives of rent control. It is also true for those nonresidents who would be turned away from finding rentals once rent control is imposed. Even government officials outside the local municipality who face falling tax revenue from the reduced construction and income that results from rent control’s disincentives would get a voice, rather than being ignored under local determination in majority-renter areas.
The result is that citizens may be better served by state limits on the ability of local renters to form a political juggernaut in their jurisdiction that can steamroll others’ rights and well-being.
Note, however, that this is an argument for the state government to ban the local imposition of rent control. This is not an argument that they should impose statewide rent control laws because state governments can impose even broader damage than local municipalities.
Statewide bans or restrictions on local rent control are perfectly consistent with the essential job of government—to protect individuals and their property against force and fraud. That can be seen by analogy to grand theft auto. States don’t allow localities to legalize grand theft auto because that better protects all the state’s citizens from harm. Similarly, it makes sense for states to disallow localities from committing even grander theft against rental property owners, which is what rent control represents.
The classical liberal economist Edmund Phelps wants government to aid poor people, but he clearly is not an egalitarian. His philosophy would be unacceptable to today's "woke" egalitarians.
Original Article: "Edmund Phelps on Egalitarianism"
The federal government’s Bureau of Labor Statistics (BLS) released new price inflation data Tuesday, and according to the report, price inflation during May decelerated, coming in at the lowest year-over-year increase in twenty-six months. According to the BLS, Consumer Price Index (CPI) inflation rose 4.0 percent year over year in May before seasonal adjustment. That’s down from April’s year-over-year increase of 4.9 percent, and May is the twenty-seventh month in a row with inflation above the Fed’s arbitrary 2 percent inflation target. (More precisely, the Fed targets a two-percent rate in the PCE measure.)
Meanwhile, month-over-month inflation rose 0.1 percent (seasonally adjusted) from April to May. That's down from April's month-over-month gain of 0.4 percent.
May’s year-over-year growth rate is down from last June’s high of 9.1 percent, which was the highest price inflation rate since 1981. The BLS's CPI inflation rate of increase has now slowed from June's high for eleven months in a row.
Growth in CPI inflation has indeed slowed, and this reflects slowdowns in energy, gasoline, used cars and trucks. Food prices continued to rise at levels not seen since 1989 and 1990—with the exception of 2022's 40-year highs. Food prices in May were up by 6.7 percent, year over year, in May. Prices in energy overall fell 11.7 percent, year over year, with gasoline prices dropping 19.7 percent over the same period.
Shelter prices have seen some of the most robust growth in recent years, and increases have remained among the highest we’ve seen since the 1980s. During May, however, year-over-year growth in shelter prices slightly slowed as shelter prices increased 8.0 percent in May. That's down from April's year-over-year increase of 8.1 percent, and was the second month of slowing increases for shelter prices.
Meanwhile, May was yet another month of declining real wages, and was the twenty-sixth month in a row during which growth in average hourly earnings failed to keep up with CPI growth. According to new BLS employment data released earlier this month, nominal wages grew with hourly earnings increasing 3.4 percent year over year in May. But with price inflation at 4.0 percent, real wages fell again.
Moreover, once we look beyond food and energy—the two most volatile components of the CPI—price inflation has barely slowed at all, and has even accelerated month over month. This so-called "core inflation" rate of increase fell to 5.3 percent in May, but that's not down much from April's growth rate of 5.5 percent, or from the 40-year high of 6.6 percent reached last September. Month-over-month, the CPI increased by 0.4 percent in May (seasonally adjusted). That's the second month in a row of month-over-month growth in price inflation.
The market's reaction to this very slight deceleration in price inflation has been to interpret it as a victory over price inflation and to assume that the Fed's FOMC will now "pause" on interest rate hikes. According to The Hill, for example:
While the labor market has held strong amid the rate hikes, the combination of falling inflation and a slowdown in the broader economy has given the Fed reason to hold off on further increases.
Countless analysts on Wall Street have been making this same prediction for many months at this point, but Powell and the FOMC have repeatedly raised rates, pointing to jobs data as evidence that the economy has not sufficiently cooled to bring down price inflation. The narrative is now this: "price inflation is over. Now's a great time to cut interest rates!"
Will Powell and the FOMC "pause" rate hikes? We'll know at Wednesday's press conference. At the last FOMC press conference, Jerome Powell hinted that the committee has taken a dovish turn, announcing that additional rate hikes can no longer be assumed. For what it's worth however, at least some members of the Committee are maintaining the appearance of continued relative hawkishness. Last month, New York Fed President John Williams insisted that "We haven't said we are done raising rates" and "if additional policy firming is appropriate, we'll do that. ...I do not see in my baseline forecast any reason to cut interest rates this year."
It's unclear that the Fed has much appetite for additional rate hikes, however. With the FOMC's latest 25-basis-point hike to 5.25 percent, the target federal funds rate is now at the highest it's been at any time since 2001. The target rate was also at 5.25 percent on the eve of 2008 financial crisis.
What Do Interest Rates Have to Do with Price Inflation? When discussing the state of the economy and the Fed's interest-rate policy, the general media narrative is that the Fed can "solve" mounting price inflation—or "win the inflation fight"—by "raising" interest rates.
Not surprisingly, the media—and most economists and Wall Street analysts—miss the point here. The key issue here is not that the central bank is "setting" the "wrong" interest rate. The problem arises from the fact that the Fed has long been relentlessly forcing down interest rates to satisfy various politically determined "needs." The result has been monetary creation which in turn leads to asset price inflation and consumer price inflation. What are the "correct" interest rates? We'll never know so long as the Fed keep intervening in markets. In truth, however, without ongoing Fed meddling in interest rates, most market rates would likely be much higher than they currently are. Moreover, allowing markets to actually determine interest rates would be among the most effective ways to "win" against inflation. But don't expect any central bankers to entertain that idea any time soon.
Instead, the Fed has been doing the opposite. Traditionally, the Fed has been forcing down interest rates through the open market operations of the Federal Open Market Committee. That's bad enough by itself. The process, however, was put on steroids in the wake of the 2008 financial crisis. Ever since then, the Fed has repeatedly bought up trillions of mortgage-backed securities and US government Treasurys. This was done to satisfy at least two policy goals: it kept interest low on government debt, and it propped up the values of assets held by major banks.
Without this intervention in the marketplace, it's a safe bet that market interest rates would be considerably higher than they are and have been for the past decade. Some economists have attempted to claim otherwise, insisting that the "natural" interest rate has been coming down, and that the central bank has barely had anything to do with it. The absurdity of this claim is revealed in the fact that these economists also oppose an end to the Fed's open market operations. Of course, if the Fed were "barely doing anything" to push down interest rates, then a total cessation of Fed meddling in asset markets would have virtually no effect. Everyone knows that in real life, however, interest rates would almost certainly head upward swiftly if the Fed reversed its low-interest-rate policy. In addition to ending its open-market operations, the Fed could do that by selling off the trillions of dollars worth of securities in its post-2008 asset hoard.
Indeed, the only reason the Fed is now allowing interest rates to creep upward at all is because price inflation has become a political problem. It's a problem because the flip side the Fed's low-interest-rate quest has been monetary creation. Forcing down market interest rates tends to increase credit through the commercial banking system—and in the case of the Fed's asset-purchase schemes—efforts to push down interest rates lead to outright "money printing." All this easy money of the past decade led to 40-year highs in price inflation. That has given us 26 months of falling real wages, soaring gas prices, and runaway home prices. It all presents a myriad of difficulties for ordinary workers and families who attempt to plan for the future and keep their incomes ahead of expenses. Historically, price inflation tends to be very unpopular among voters, and often leads even to civil unrest—as any observer of European or Latin American history can see.
Thanks to the soaring price inflation of the last year, the Fed is now attempting to somehow "win" against inflation by doing the absolute bare minimum in terms of reversing its longstanding policy of forcing down interest rates again and again. Because easy money helps inflate asset prices and create economic bubbles, Wall Street—which is now thoroughly addicted to easy money—is hoping the Fed will soon return to ramming down interest rates yet again.
Read More:
- "Yes, the Fed Really Is Holding Down Interest Rates" by Joseph Salerno
- "Money Creation—Not Low Interest Rates—Is Behind the Boom-Bust Cycle" by Joseph Salerno
- "How the Fed Is Enabling Congress's Trillion-Dollar Deficits" by Ryan McMaken
Despite America’s attention abroad being largely Russia-focused recently, the bigger fish to fry in Washington’s eyes is China. Even as the US pours aid package after aid package into the Ukraine conflict with one hand, it still manages to raise its other hand to wag a finger across the Pacific Ocean at its rival superpower. But like every other country in the world, China has been watching America’s cavalier foreign policy and interventionism in the past decades. Now China is wagging a finger back.
Sounding the Alarm China recently concluded hosting a two-day China–Central Asia summit in the historic city of Xian where the ancient Silk Road connected imperial China to the cultures to its west. Addressing the leaders of the Central Asian countries, Chinese president Xi Jinping made statements on the future of Beijing’s engagement with the neighboring region through investment plans, freer trade terms, science and technology exchange, boosted tourism and agriculture, and security cooperation.
On the last point, Xi turned his attention to the United States. He minced no words saying, “We should act on the Global Security Initiative, and stand firm against external attempts to interfere in domestic affairs of regional countries or instigate color revolutions.” With this statement, Xi called out the US and warned against the type of meddling that Washington has discreetly carried out in recent decades.
Basis of Color Revolutions Color revolutions have been consistently observed since the early ’90s after the fall of the Soviet Union and its sphere of influence. They are characterized by seemingly grassroots popular movements in the name of achieving freedom in nominally less democratic countries. These movements typically involve mass protests, demonstrations, and civil resistance movements aimed at toppling or changing the existing government regime. Often little understood or dismissed as conspiracy theories or disinformation, the US government has funded and guided so-called color revolutions in dozens of countries, particularly those that have leaned in favor of Russia or China in key geographic locations at their peripheries and beyond.
The mechanism of bringing about color revolutions is the nongovernmental organization (NGO). While on the surface, NGOs purport to promote democratic institutions, civil society, and good governance, groups like the National Endowment for Democracy (NED) and the Open Society Foundations have played a defining role in stoking political unrest, disrupting internal institutions and elections, and bringing pro-American leaders to power. Thus, under the guise of protecting democracy and freedom, color revolutions undermine elections and sovereignty in the name of the American empire.
Chinese Foreign Policy Setting China’s authoritarian leadings aside, Beijing’s foreign policy offers an alternative to the American “my way or the highway” (or worse) approach to international relations. In contrast to American interventionism, China’s foreign policy revolves around its so-called Five Principles of Peaceful Coexistence: mutual respect for sovereignty and territorial integrity, mutual nonaggression, noninterference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence. These principles emerged in the mid-1950s when the new communist government of the People’s Republic of China wanted to befriend foreign countries.
Pledging that China would not interfere in other countries’ internal affairs and respecting national sovereignty have been key differences in China’s approach to international cooperation and development compared to Western countries and their organizations. Now it appears that Beijing may go a step further and work together with its allies to collectively safeguard domestic matters from foreign influences like those US government-funded NGOs.
On Notice This wouldn’t be the first time that the Chinese leader explicitly spoke out against color revolutions. At the latest Shanghai Cooperation Organisation summit in Samarkand, Uzbekistan—coincidentally, another key node on the Silk Road—Xi warned leaders of Central Asia, Russia, India, Pakistan, and Iran that “it is important not to allow attempts by external forces to provoke a color revolution,” and that the member states should “jointly oppose interference in the affairs of other countries under any pretext.”
Again, none of these countries are run by governments that we here in the West would like to emulate, but attempting to covertly flip them into Jeffersonian Republics is underhanded and pushes those countries to distrust the US and its values entirely. After all, the two color revolutions within a decade that tore Ukraine apart were major contributing factors to the current conflict with Russia.
Ironically, China has become the country offering economic cooperation under the terms of national sovereignty and encouraging peace while the US claims to uphold the international “rules-based order” that has overthrown governments, brought economic turmoil, and waged despicable wars and militarism around the world. As the tensions and rivalry between the US and China continue to ramp up into the foreseeable future, more countries may start to favor the Chinese approach to doing business and become more confident in pushing back against America’s already wobbling influence on the world stage. Washington might find it increasingly risky to continue running the color revolution playbook.
Contrary to the still-enduring myth about Republican budget cutting, there is no correlation whatsoever between Republican control of DC and the trajectory of federal spending.
Original Article: "The Republican Debt-Ceiling "Deal" Is Exactly What We Expected"
Onlookers often cannot fathom why Barbados and Jamaica have delivered such divergent outcomes despite their similar history as former colonies of England. Both countries achieved independence in the 1960s and inherited British law and institutions. Yet Barbados eclipsed her peers to become the pride of the developing world, whereas Jamaica recorded years of anemic growth and institutional degradation. However, digging deeper into history reveals that Barbados pursued different political economy paths from Jamaica.
Unlike Jamaica, Barbados was a settlers’ colony where planters were devoted to institution building rather than living off profits in England. Bajan planters thought that they represented the best of the West Indies. As gentlemen planters, elites aspired for Barbados to become a replica of Britain. Like their Bajan counterparts, Jamaicans also had access to management publications, but the island suffered from a high rate of absenteeism.
Scholars have theorized that absenteeism inhibited the progress of Jamaican plantations, but recent research argues that absenteeism was indicative of success because only the most successful planters could afford to hire external staff. Further, coffee plantations in Jamaica were less likely to suffer from absenteeism, and yet many crumbled. Therefore, the relevant point is that being in Barbados afforded Bajan elites the opportunity to contribute to institution building.
Though it was the norm for West Indian elites to send their children abroad to be educated, in Barbados the elite had established a sophisticated education system with 213 schools by 1834. Bajans elites were assiduously trained to govern the country with pride. Education and financial success were the hallmarks of a prosperous Bajan.
Free people of color, slaves, and working-class white people competed for employment in urban spaces, and notwithstanding racist sentiments, whites preferred competent blacks to incompetent whites. Of significance is that Barbados had a larger stratum of skilled slaves than Jamaica. As a result, Bajan blacks entered freedom at a more elevated position than black Jamaicans. Because black Bajans had acquired more human capital than Jamaicans, they matriculated more easily into the working and middle classes.
Conversely, Jamaican blacks were less educated and likely to prevent their children from attending school so that they could farm. Land was more available in Jamaica, so freed blacks preferred to migrate from plantations, and an oppositional peasant culture emerged. But geographical constraints limited black Bajans’ mobility and curbed their potential to develop an oppositional class. Instead, blacks opted to empower themselves through education or cooperation with planters after emancipation. Therefore, labor relations were less hostile in Barbados.
The cooperative relationship between blacks and white elites made reforms easier in Barbados. Bajans blacks arduously copied the white elite and even emulated their architecture. In contrast to Jamaica blacks, who were largely attached to the Baptist Church and other nonelite denominations, Bajan blacks embraced Anglicanism and subscribed to the ethos of the elites. Consequently, the bourgeois culture of the elite trickled down to the masses in Barbados.
Bajans hence had a different approach to politics than Jamaicans. Jamaican politics employed charisma and rabble-rousing to enthuse the masses, who exhibited a preference for charming leaders rather than technocrats. The charismatic Sir Alexander Bustamante, whose popularity catapulted him to success in Jamaican politics, would not have been successful in Barbados.
Andrew Dawson asserts that in Barbados such personalities were rejected at political meetings by voters, who contended that they were uninterested in the vilification of rival politicians. Unfortunately, Bustamante’s brand of politics succeeded in Jamaica to the extent that his tactics were copied by political rivals. Pork barrel schemes and violence emerged quite early in modern Jamaican politics. The pollution of Jamaican politics corrupted the public bureaucracy and led to worse social outcomes. Such factors were lacking in Bajan political culture.
Dawson attributes the success of Barbados to the astute leadership of progressive politicians like Grantley Adams and Wynter Crawford, who eschewed partisan politics and violence. He declares: “The fact that both progressive parties were more legal-rational in approach hindered the escalation of political violence (and thereby the institutionalization of patronage politics), the absence of which failed to send the island down a trajectory similar to that in Jamaica while also providing the foundation for a strong rule of law post-independence.”
The absence of these negativities in Barbados promoted high-quality governance and superior institutions. Jamaica is still plagued by pork barrel politics and cronyism. But the future could get better for Jamaicans if the government is serious about eliminating opportunities for corruption in the bureaucracy.
There is great talk about good governance and institution building in Jamaica. However, modernizing a country is a long process, so let’s see if Jamaica has the fortitude to evolve.
Like so many others in the "national greatness" movement, Christopher Buskirk understands some of the problems the country faces but fails to grasp the solutions.
Original Article: "Don’t Get on the Nationalist Bus"
Bernie Sanders, in a recent opinion piece, attacked Republicans for trying to get concessions out of the Biden administration under threat of debt default, stating, “Defaulting on our nation’s debt would be a disaster.” Writers at Jacobin echo Bernie’s sentiment.
Unfortunately, it seems like modern socialists are against default; however, historic socialists are not on the same page as our contemporaries. Karl Marx, Vladimir Lenin, and other socialists were in favor of debt default, and after communist revolutions, the leaders of those regimes almost always defaulted on the national debt, making socialists consistent with libertarians on this issue.
Marx’s rhetoric on public debt ranges from neutral to negative. Despite giving public debt credit for the transition from primitive to modern economies, Marx labels the public debt as “fictitious” and “illusory.” He rightly points out that the money lent was not invested by the state but consumed, and in that sense, it was never capital at all.
In The Communist Manifesto, Marx states, “During the subsequent regimes, the government, placed under parliamentary control—that is, under the direct control of the propertied classes—became . . . a hotbed of huge national debts and crushing taxes.” This casts a negative picture of the national debt. It was an instrument of the propertied classes.
The national debt is clearly placed in the context of class conflict. Marx states,
The accumulation of the capital of the national debt has been revealed to mean merely an increase in a class of state creditors, who have the privilege of a firm claim upon a certain portion of the tax revenue. . . . Titles of ownership to public works, railways, mines, etc., are indeed, as we have also seen, titles to real capital. . . . They merely convey legal claims to a portion of the surplus-value to be produced by it.
The accumulation of surplus value is the defining mark of modern class conflict for socialists, and Marx identifies the public debt as aiding that process.
Friedrich Engels further states, “In order to maintain this public power, contributions from the state citizens are necessary—taxes. With advancing civilization, even taxes are not sufficient; the state draws drafts on the future, contracts loans, state debts.”
The relevance of public debt for Marx and the socialists is intuitive. The “bourgeois state” needs money so it obtains funds from capitalists and imposes a tax on the general populace. The government gets funds, the capitalist class is reimbursed with principal plus interest, and the public is forced to bear the cost. Thus, for Marx, public debt is a machine for exploitation of the proletariat.
If Marx’s criticism of the national debt is not sufficient or clear enough, Lenin starkly attacks it as illegitimate. There are sporadic references to the national debt throughout the collected works of Lenin, becoming more prescient in the writings composed shortly before, during, and after the Bolshevik revolution. In his 1916 “The Peace Programme,” Lenin writes, “As a positive slogan, drawing the masses into the revolutionary struggle and explaining the necessity for revolutionary measures to attain a ‘democratic’ peace, we must advance this slogan: repudiation of debts contracted by states.”
Lenin writes that the “annulment of the national debt” should be a measure of socialist revolution. He makes mention of the “burden of a debt running into billions” and states, “The mountain of war debts shows the extent of the tribute the proletariat and the propertyless masses ‘must’ now pay for decades to the international bourgeoisie.” In 1918, Lenin called again for the “repudiation of the state debt.”
At least the Bolsheviks got something right.
In practice, the socialists defaulted on their debt when taking power as well. Bernie’s precious Soviet Union repudiated their national debts after the Russian Revolution. Lenin’s writings from this time stress heavily the necessity to repudiate the debts contracted by the czar. Repudiation was most definitely a prime goal of Lenin and the Bolsheviks and one of the many motivations for the Russian Revolution.
Furthermore, Communist China repudiated debt accumulated in the form of imperial bonds. Chairman Mao Zedong calls for the repudiation of “all the foreign debts contracted by Chiang Kai-shek during the civil war period” in point 8 of the “Manifesto of the Chinese People’s Liberation Army.”
Revolutionary Cuba did the same. Fidel Castro’s regime refused to recognize the debts accumulated by previous administrations, calling the debt “illegitimate.” As recent as this year, 2023, Cuba was being sued in British court for unpaid Castro-era debt. Should Cuba be obligated to extract funds from their unwilling populace to pay off these debts? Socialists and libertarians alike are opposed to this.
More quotes can doubtlessly be pulled from Marx, Engels, Lenin, Mao, and many other socialists, but Murray Rothbard succinctly and cogently explains the fundamental problem with the national debt:
Shouldn’t public debt be governed by the same principles as private? The answer is no, even though such an answer may shock the sensibilities of most people. The reason is that the two forms of debt-transaction are totally different. If I borrow money from a mortgage bank, I have made a contract to transfer my money to a creditor at a future date; in a deep sense, he is the true owner of the money at that point, and if I don’t pay I am robbing him of his just property. But when government borrows money, it does not pledge its own money; its own resources are not liable. Government commits not its own life, fortune, and sacred honor to repay the debt, but ours. This is a horse, and a transaction, of a very different color.
A socialist should be inclined to agree. Libertarian conflict theory pits the state versus the private sector: “[Government] intervention necessarily creates conflict between those classes of people who are benefited or privileged by the State and those who are burdened by it.” Socialist class theory would accept this, but they broaden it to bourgeois versus proletariat. The libertarian is obliged to oppose the public debt, but the socialist is obliged to oppose all debt, private and public.
Today’s socialists like Bernie Sanders flip this on its head. They oppose private debts, such as student loans, but they defend the sanctity of the public debt. Ironically, the public debt is held by a host of institutions such as the Federal Reserve, mutual funds, banks, state and local governments, pension funds, insurance companies, foreign governments, and governmental agencies. Right now, the American people are paying taxes to transfer wealth to these institutions, many of which progressives and especially socialists would like to see snuffed out.
Bernie wants to pass a progressive income tax and increase corporate taxes to avoid default. He laments about the “top 1 percent” in his recent opinion piece, but the top 1 percent would be devastated by default. Continuing the national debt racket will continue to deepen the issue of inequality that Bernie cares so much about.
Of course, there are consequences of default that would have a negative impact on Bernie’s interest groups, such as the disadvantaged and elderly. For instance, the Social Security Administration (SSA) holds about 9 percent of US debt because, unfortunately, the SSA is required by law to invest its revenue into US debt obligations. Regardless, default will also help Social Security dependents by releasing them from paying US creditors through taxation. The general effects of default may be a net positive for socialists.
Why should any of this stop Bernie though? If he is willing to take the risk of default to avoid Republicans getting the budget they want, he should be in favor of default because of its positive effects. He should at least be cautiously supportive of defaulting on the national debt because the lion’s share of it is held by the rich and powerful. Being against the national debt and pushing for repudiation would make Bernie Sanders more consistent with his predecessors.
So, no, Bernie, defaulting on the national debt would not be a “disaster.” In fact, you should be with the radical Republicans in advocating for default or the total repudiation of US debt as socialists before you have, and if not, then you are merely being an accessory to what Marx called the “class of state creditors.”
The current regime wants to use taxation not simply as a means to collect revenue for the government, but as a weapon against economic prosperity itself.
Original Article: "Taxation as a Weapon against Prosperity"
The European Union’s General Data Protection Regulation (GDPR), which became effective in 2016, is one of the most detailed legislative schemes in the field of data protection. This article discusses two libertarian-minded objections to its approach. First, I argue that the notion of “right” adopted in the GDPR is flawed. Second, it shows that the GDPR doesn’t protect individuals from data-hungry governments and corporations. In the end, data protection legislation makes people strong in theory but weak in practice, while making powerful private and public entities weak in theory but strong in practice.
A Flawed Notion of “Right” The GDPR seeks to protect fundamental individual rights relating to the collection and processing of personal data. These include the right to access, the right to rectification, the right to erasure, the right to be forgotten, the right to restriction of processing, the right to data portability, the right to object, and the right to not be subjected to automated decisions.
Libertarian reductionism holds that human rights are natural rights and that natural rights are property rights. The nonaggression principle states that any initiation of violence, that is, any aggression against property, is illegitimate. However, some of the fundamental rights protected by the GDPR violate the nonaggression principle. For example, the right to be forgotten can be invoked by an individual to force tech companies like search engine providers to obscure results about her. The GDPR seems to adopt the view that data subjects own their personal data, but this is debatable.
For example, a user that interacts with Google’s hardware and software, thus producing personal data, is not the only owner of this data because she generated it using Google’s infrastructure. The same goes for any personal data that is produced by interacting with other people, both online and in person. Moreover, when Google shows publicly available information in its search results, it is hardly violating anyone’s property rights.
From a libertarian perspective, it is a big stretch to state that the law should give users the “right” to force companies to delete data about them because this implies that these companies are not free to use their property (their hardware and software) and public information as they wish. Similar objections can be levied against other “rights” as well. The fact that at least some of the “fundamental rights” protected by the GDPR cannot be reduced to property rights is highly problematic: in the absence of well-defined property rights, the GDPR can be used to legalize aggression against persons and entities.
The Practical Ineffectiveness of the GDPR The GDPR aims at protecting individuals from the exploitation of personal data, but as is often the case with state regulation, it puts individuals at danger and favors big companies and governments.
First, the GDPR understands privacy as a fundamental right, but in most cases, it has to be invoked by individuals in order to be enforced. For example, in the case of the automated processing of data, users are granted the right to ask for human intervention before a decision is taken. Given that the vast majority of people do not have the time, the resources, and the ability to actively engage with the tens or hundreds of private and public entities that handle their data, this amounts to giving controllers and processors carte blanche with regard to data processing in general and automated processing in particular.
Second, the GDPR does little to nothing against the abuse of power that may come from the state. Users’ privacy rights can be suspended or restricted every time there is some kind of public security issue or some kind of legitimate interest. For example, recital nineteen of the GDPR states,
This Regulation should provide for the possibility for Member States under specific conditions to restrict by law certain obligations and rights when such a restriction constitutes a necessary and proportionate measure in a democratic society to safeguard specific important interests including public security and the prevention, investigation, detection or prosecution of criminal offenses or the execution of criminal penalties, including the safeguarding against and the prevention of threats to public security. This is relevant for instance in the framework of anti–money laundering or the activities of forensic laboratories.
These kinds of clauses sound appealing, but they are full of empty words (“democracy,” “important interests,” “public security,” and the like) that are found multiple times in the GDPR. On the one hand, public institutions are supposed to protect individuals’ privacy rights; on the other hand, public institutions can exempt themselves from the obligations laid down in the GDPR because of “national security.” It is a bit ironic that individuals are attributed to so many “rights” that governments and companies are legally authorized to override them in a lot of different ways. Regulators are not protecting data when they make room for exceptions and give themselves and private companies the green light to ignore individuals’ privacy: they’re just making these “exceptions” legal.
Third, the GDPR is very clear in stating that the most important duty of controllers, processors, data protection officers, the European Data Protection Board, and the like is to ensure compliance with the GDPR. However, to comply with the GDPR is one thing, and to protect data effectively is another.
For example, Daniel Solove points out that GDPR consent requirements are fiction because the scale of data processing is so overwhelming that individuals cannot possibly deal with hundreds of privacy notices. Also, individuals are required to take active action in order to invoke their rights, which is something that most people will not and cannot do. Moreover, the GDPR lays down many legal grounds to process personal data that do not require individual consent, like legitimate interest or public safety. In the end, as long as private and public entities comply with the GDPR formally, they do not need to care too much about actual individual preferences and about actual data protection.
The GDPR Paradox The GDPR both overshoots and undershoots. On the one hand, it overshoots because individuals are granted “rights” that may be used to violate other entities’ property; the main issue is that property rights of personal data are not well-defined. On the other hand, the GDPR undershoots because individual “privacy rights” as defined by European Union regulators are a fiction that can be legally overridden by corporations and by public institutions for a variety of reasons.
The GDPR paradox is that it gives individuals rights that they do not have while undermining their practical ability to protect personal data from powerful third parties. Conversely, private and public processors are denied legitimate property rights but are protected by law in their daily mission to take advantage of personal data. Without a clear definition of property rights and privacy in the domain of personal data, regulations can only generate confusion and paradoxes.
With the rise of homeless camps and tent cities in many American cities, the issue of squatting has become a cause for alarm among many residents and policymakers. In many cases parks, sidewalks, and other public rights-of-way have been taken over by people living in tents or makeshift shelters, rendering the areas unusable to most area residents. In other cases, some of these homeless people have taken over empty businesses and homes that were left unattended long enough for squatters to take over.
The use of the term "squatter" to refer to those living on land they never paid for is generally not used to suggest approval. In modern parlance, squatters are often regarded as equivalent to trespassers. There once was a time, however, when supporting squatters was de facto federal policy in the United States. Indeed, some of the legislation still on the books supporting "squatters' rights" is a relic of this past era during which many corners of the country regarded squatters more as heroic settlers rather than as thieves and trespassers.
In the days of westward expansion, squatters—white squatters only, of course—offered a convenient tool for expanding the US's political boundaries westward. Specifically, squatters helped push aside Indians, Mexicans, and other impediments to Manifest Destiny. In return, squatters received the tacit support of many ordinary Americans as well as populist leaders in Congress. Beyond these cultural and geopolitical aspects, however, official support for squatters from within the Democratic Party also offered a convenient method of buying votes. Jacksonian populists arranged to transfer land to squatters as prices well below market rates. In return, pro-squatter politicians received political support from squatters and their allies. This wealth transfer was paid by those who lost their land to the squatters, but few of those people were voters in US elections. Thus, the Jacksonians were rewarded with growing support from poor whites throughout much of the frontier as it moved westward. This was, in other words, an enormous welfare scheme.
When Squatting Was Celebrated in America Squatters have always been present in the American colonies, but at the time of the Revolution they had rarely received support from the central state. This changed after American independence was achieved. Squatters continued to move onto frontier lands, but now they were not content to just hope they could get away with it. Rather, squatters sought explicit legal sanction of their squatting.
In the first half of the nineteenth century, the squatting strategy coalesced into an identifiable pattern. Squatters would move into Indian lands or federal lands recently seized or bought from Indian tribes. In many cases, lands targeted by squatters were still legally Indian lands according to international treaties and US law. This did not stop squatters from moving onto these lands. Later, squatters would also move onto the lands of Spanish—later, Mexican—subjects and citizens. Once on the land, squatters would then exert political pressure on policymakers to abandon efforts to remove squatters. As described by Kenneth Manaster, once squatters had taken up residence on these lands,
[F]ederal officials felt it was impossible to dislodge the settlers or to prevent the settlement. Pressures for turning over land to squatters developed, taking form in the passage of successive preemption laws from 1830 to 1862. In the long run, the squatters won the preferential right to buy their land.1
At first, "federal land was sold at auction, which generated revenue for the federal treasury."2 Preemption laws, however, "changed the system to one where illegal settlers on the public domain (squatters) could buy land they occupied at the minimum price [offered at land auctions]."3
Via this method, "the actions of 'squatters' shaped the political debate in the years from 1790 to 1830 so as to favor a cheap land policy."4 The squatters knew they were breaking the law, but were confident that enough pressure on Congress could be brought to ensure that the squatters would retroactively be granted permanent legal access. In the 1830s, this strategy was generally applied to Indian lands in the South and in the old Northwest. By the late 1840s, however, a similar strategy was also applied to lands that were clearly the legal property of British subjects and former Mexican citizens.
For example, in the case of Oregon country, the Anglo-American treaty of 1846 established the 49th parallel as the southern border of British lands. However, British companies and subjects still legally held land and personal property south of this border. Once Americans began to covet these areas, however, settlers took to squatting with the assumption the US would later ratify these thefts through new pro-squatter measures. In the process, new American settlers even began to steal the personal property of British subjects. American settlers killed cattle, carried off the machinery in British-owned mills, and otherwise stole "improvements upon the land [squatters] jumped."5 In other words, these were lands that had clearly been homesteaded by British individuals and companies, but their property rights were treated as illegitimate by Americans who believed these lands should only be owned by Americans. This squatting was often treated with a wink and a nod by American policymakers and US authorities, and "Oregonians took up the pen to demand confirmation of their land claims [by Congress]."6 Eventually, the persistence of squatters who had stolen land from the British and from Indians would pay off for the squatters as many won permanent control of "their" new lands as Congress acquiesced.
Similar developments took place in the American southwest where American settlers squatted on the lands of former Mexicans who had become US citizens via the Treaty of Guadalupe Hidalgo. Anti-Mexican sentiment among non-Hispanic white settlers impelled many to find ways to seize Mexican-American lands via squatting. With the introduction of new US courts into these territories—staffed by Anglo-American judges, of course—lawsuits were frequently employed to confirm squatters as the "rightful" owners of the lands in question. The founder of the City of Brownsville, Texas—Charles Stillman—built his property empire largely on a morally and legally dubious strategy of buying up squatter claims on the lands that were legally owned by the Cavazos family. Stillman eventually forced Pedro Cavazos to sell the land at a small fraction of the market price by threatening Cavazos with ruinous lawsuits.7 Stillman never paid this much-reduced promised price, and the courts never enforced the contract. The presence of numerous squatter claims had created enough uncertainty about the land's ownership to ease Stillman's theft of the land.
The most notorious pro-squatter law employed to exploit former Mexicans was found in California. Although the Treaty of Guadalupe Hidalgo had pledged the US to enforcing the existing property rights of Mexicans, this promise was soon forgotten. Kim Chanbonpin notes
Congress substantively breached the terms of the Treaty of Guadalupe Hidalgo when it enacted the California Land Act of 1851. While the terms of the Treaty implied unlimited protections, the Act reduced those protections to a period of two years. The Board [of Land Commissioners] placed an almost impossible burden of proof on the Mexican claimants. Quite simply, the sponsors of the Act aimed “to force Mexicans off the land by encouraging squatters to invade them.”8
It was clear who owned these lands in most cases, but politics ensured that Congress generally sided with Anglo-American squatters. Chanbonbin continues:
The Mexican landowners had legal title, originating from a sovereign, yet their lands were taken away by the Board of Land Commissioners and the federal Possessory Act. As a result, settlers received squatted land, whether it was public domain land claimed by the federal government or tracts of land owned by private individuals. ... The federal government made it easier for these squatters to make land claims by making it more difficult for Mexican landowners to register in U.S. land courts.9
Support for Squatters as a Political Strategy to Buy Votes Not everyone in Congress supported the squatters. Many outside the Jacksonian wing of the Democratic party—including both Whig Henry Clay and Democrat John C. Calhoun, criticized the Jacksonian affinity for squatters, with Clay referring to squatters as "a lawless rabble."10
The populist Jacksonians, however, supported squatters in a political arrangement in which populist policymakers used the promise of cheap land to gain the enduring support of squatters throughout the Midwest and west. This was the "Squatter Democracy" that came to characterize much of the Democratic party during this period. Suval sums it up:
"Squatter Democracy" denotes the squatter-statesman alliance that was a defining force in antebellum political culture from 1830 to 1860. ... Democratic pro-squatterism was not a formal movement but rather a marriage of convenience between land-hungry white settlers and a set of influential, opportunistic politicians who recognized that they had much to gain by conspicuously backing efforts to convert the domains of Indians, Mexicans, and European colonists in the private property of those white settlers, who formed their base. ... These measures shared a common thrust: facilitating white American ownership of western terrains at minimal cost to settlers.11
When squatters appealed to Congress, they "invoked the well-understood quid pro quo—land for political support—that had long cemented bonds between Jacksonian politicians and their squatter constituents."12
The more land the populists gave away at ultra-low prices, partisans reasoned, the more support the party could expect. The degree to which the party supported squatters, in other words, was built on obtaining "sufficient spoils to satisfy partisans."13
Ensuring support for this new squatterism required a significant amount of propaganda. Suval notes
a constant strain of mythmaking aimed at rebranding squatters from outlaw intruders to virtuous pioneers. Florid paeans to the "hearty pioneer" became a staple of Democratic speech-making and editorializing, drawing their language form settlers' petitions to Congress and amplified in works of popular fiction and art.14
From the point of view of political calculus, this certainly made sense. Pro-squatter Democrats could see which way the political winds were blowing and took advantage. Realities on the frontier pointed to opportunities to win over settlers who could end up controlling both local political institutions and new seats in Congress. Carlson and Roberts note "Illegal settlers ... were often relatively poor, but influential on the frontier."15 Thanks to the rapid spread of manhood suffrage after 1820, increasing numbers of these propertyless squatters were voters, and this presented an opportunity to policymakers to offer something in exchange for loyalty to the Democratic Party.
Naturally, much of the debate was framed in terms of the hardy pioneering spirit of American settlers, but the reality was more mundane, and "Such idealism aside, the debate over the transfer of public land into private hands was dominated by self-interested rent-seekers.’’16
Those who paid the price for the transfer of these lands into private hands were varied. Those who paid the most, of course, were the Indians, Hispanics, and British settlers who directly lost their property to squatters. Moreover, the cheap-land-for-votes paradigm acted as an impetus for American populists to embrace even more hawkish foreign policy along the American frontier, so as to have more land to offer future squatters. This lead to further attacks on indigenous tribal lands.
Ordinary Americans, on the other hand, paid for the scheme in two ways. For one, federal land sales were supposed to somewhat offset federal revenues brought in from the tariff. The lessening of land-auction revenues thus put further upward pressure on tariffs to make up the difference. (Admittedly, there was no guarantee that better revenues from land auctions would have actually translated into lower tariff rates.) Another way many Americans paid for squatter gains could be found in squatters' "queue-jumping." That is, the fact that squatters could flout the law and still be able to purchase land at rock-bottom rates meant more law-abiding potential land buyers were placed at a disadvantage.
We rarely hear about the widespread abuses of squatters in modern political discussions, however. This is partly due the effectiveness of Jacksonian propaganda that continues today. Many Americans remain convinced that most American settlers and "pioneers" had every right to the land in the overwhelming majority of cases. Given the widespread role of squatters, this assumption of legality is dubious. Unquestioned support of these settlers is often rationalized with (incorrect) arguments that Indians had no real claim to ownership because they were all "nomadic" or had no concept of owning property. The problem of squatter thefts from Hispanic Americans in the wake of the Mexican-American war—which obviously violated extant legal contracts in many cases—are generally ignored altogether.
A more accurate picture of these settlement patterns would include a recognition that "Squatter Democracy" was essentially a welfare-state scheme in which the government encouraged squatting because it was politically popular to do so. This isn't terribly surprising, of course. Government schemes to redistribute wealth from one group to another have been popular grifts for millennia.
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- Kenneth A. Manaster, "Squatters and the Law: The Relevance of the United States Experience to Current Problems in Developing Countries," Tulane Law Review 94 (1968-1969), 119.
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- Leonard A Carlson and Mark A. Roberts, "Indian Lands, "Squatterism" and Slavery: Ecomomic interests and the passage of the Indian Removal Act of 1830," Explorations in Economic History 43 (2006), 487-488
-
- Ibid., p. 488.
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- Ibid., p. 487.
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- Oscar Osburn Winther, "The British in Oregon Country: A Triptych View," The Pacific Northwest Quarterly 58, (October 1967): 181
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- John Suval, "The Nomadic Race to Which I Belong": Squatter Democracy and the Claiming of Oregon, Oregon Historical Quarterly 118 (Fall 2017): 322
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- Frank H. Dugan, "The 1850 Affair of the Brownsville Separatists," The Southwestern Historical Quarterly 61, (October 1957): 274-275
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- Kim David Chanbonpin, "How the Border Crossed Us: Filling the Gap between Plume v. Seward and the Dispossession of Mexican Landowners in California after 1848," Cleveland State Law Review 52, (2005): 308
-
- Ibid., p. 309
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- John R. Van Atta, "'A Lawless Rabble': Henry Clay and the Cultural Politics of Squatters' Rights, 1832-1841," Journal of the Early Republic 28, (Fall 2008): 339
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- John Suval, Dangerous Ground: Squatters, Statesment, and the Antebellum Rupture of American Democracy (Oxford, UK: Oxford University Press, 2022), p. 3.
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- Suval, "Nomadic Race," p. 323.
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- Suval, Dangerous Ground, p. 6.
-
- Ibid., p. 4.
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- Carlson and Roberts, "Indian Lands," p. 490.
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- Ibid., p. 489.
As the Fed increases interest rates to reverse the inflation it has caused, firms that depended on easy money will face the bankruptcy judge. Stay tuned; there's more to come.
Original Article: "The Bankruptcy Caravan Is Now Arriving: Time to Pay for the Easy Money"
While George Orwell wrote magnificently against totalitarianism, his attempt to defend socialism in The Road to Wigan Pier stumbled badly.
Original Article: "Review: Orwell's The Road to Wigan Pier"
The real drama of default in global markets has not been the federal debt ceiling negotiations in Washington but the write-off by inflation. The issue of whether it turns out that the US Treasury for a few weeks has been slow in servicing its debts—with all delays subsequently rectified—is a sideshow. We could regard this as camouflage for the ongoing real write-off operation. In this, countries led by the US, where a great inflation emerged during the pandemic and Ukraine war, have achieved big reductions in the real value of their debts.
The governments have also gained from a reduction in the total nominal market value of their fixed-rate debts due to the rise in interest rates. Those gains do not show up directly in national accounts. Rather, they are opportunity cost savings. Governments will not have to pay the prevailing higher level of interest rates on that part of their debts which are in fixed-rate form until far-off maturity dates. The savings for government show up in investor wealth statements and balance sheets in so far that they are based on present market values rather than fictitious historic cost. As long as the losses are on government bonds held by the central bank, there is no benefit to big government—it is all a wash in consolidated accounting across the public sector as a whole.
This real write-off by inflation occurred without any of the political wrangling feted by interminable commentary in the financial media. A dance of high inflation stakes has occurred, featuring the central bankers, politicians, and their cronies. The first and biggest dance was when the Fed stuck to its zero interest and quantitative easing policies through the first two years of the pandemic (2020–21), citing with great confidence its central scenario of transitory inflation. The Fed was silent or dismissive about alternative possible scenarios. Chief Jerome Powell told us with great aplomb that the Fed was not even thinking about when the discussion should begin on lifting interest rates from zero.
Incredibly, at least in hindsight, the Fed announced its new framework of “flexible inflation targeting” in August 2020, already well into the germination period for the great pandemic inflation. The idea was that higher inflation for sometime in the future was welcome to “make up” for the long years of inflation less than the 2 percent target during the 2010s. Big government, in all its branches and alongside powerful outside interests—including the private equity barons, who would benefit from a reduction in the real value of their debts in a shock outbreak of high inflation—happily tolerated the complacency.
The same choreography has played out in the high-inflation countries of Europe including the United Kingdom, Italy, France, and Spain. Yes, there was some resistance within the European Central Bank (ECB) from Germany and Holland, but mooting this was a general concern in its policy board to avoid a return of European debt crisis. Remember that as late as July 2021 the ECB rolled out its new monetary framework of quasi-flexible inflation targeting, a year later than the Fed, albeit in a greener and less explicit form. The message was that the ECB would be more tolerant of inflation overshoots than undershoots as it was harder to get inflation up than down!
Japan and Switzerland have been outliers in the dance of default by inflation. There has not been a real write-off in Japan or Switzerland on anything like the scale of the high-inflation countries. Over the four-year period of 2020–23, the estimated fall in purchasing power of the domestic money has been around 17 percent in the US, 20 percent in Italy, and 5 percent in Switzerland and Japan.
In Switzerland, a low public debt to gross domestic product ratio (around 40 percent) means that big government would not join an inflation dance with the central bank. In Japan, it’s quite the opposite. Japan’s crushingly high public sector means there is visible danger of the government and the National Diet joining the Bank of Japan in a dance. The musical theme would be high optimism about future inflation despite continuing very low interest rates. The collapse of the yen against the Swiss franc reflects the specter of eventual real default by inflation in Japan. The yen/Swiss franc exchange rate has soared from 112 on the eve of the pandemic to 153 now.
Japan’s real debt write-off is small so far. High consumer price index inflation did not emerge in the second half of 2021 and early 2022 because household and business spending in the US, eurozone, and United Kingdom remained remarkably cautious. But that restraint could be fading now during a powerful rise in the Tokyo stock market alongside a crescendo of foreign optimism (the so-called Buffett boom) and the super cheap yen. So, the future of inflation in Japan might well be very different from 2021–22.
The low inflation then, however, helps to explain the so far stubbornly bad time profile of Japan’s gross general government debt to gross domestic product—rising from 238 percent in 2019 to 259 in 2020 and to 261 in 2022, eventually falling this year according to the International Monetary Fund to 258 as consumer price index inflation rises (3.2 percent year-over-year in May and long-term interest rates at below 0.5 percent). By contrast, the same ratio in the US rose from 109 in 2019 to 134 in 2020, falling back to 122 this year despite a general government deficit running now at 5–6 percent of gross domestic product. In Italy, the same ratio was at 134 percent on the eve of the pandemic, rising to 155 in 2020, and falling to an estimated 140 percent this year.
Big government is duly celebrating, but there are others joining the inflation party even if sobered by coincidental losses. Consider the indebted corporations looking forward to a future of much higher interest rates and yet enjoy income streams which tend to rise in real terms. Private equity enterprises earning revenues from long-term contracts supplying public sector services (for example in healthcare or prisons) are one obvious example, but there are many others. They welcome a real debt write-down by inflation. In the same vein are the indebted homeowners who are incurring losses (small so far in the US in general but greater in some foreign hotspots) on real estate but who expect their salary incomes to rise with prices.
The bottom line: we should not underestimate the potency of the coalition dancing to the tune of optimistic central bank narratives. Therein lies the danger to economic and financial health, not at the short-lived tensions related to US debt-ceiling legislation.
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of "Ten Great Economic Myths". This material was prepared by Murray N. Rothbard.
In recent years there has been an understandable worry over the low rate of saving and investment in the United States. One worry is that the enormous federal deficits will divert savings to unproductive government spending and thereby crowd out productive investment, generating ever, greater long-run problems in advancing or even maintaining the living standards of the public.
Some policymakers have once again attempted to rebut this charge by statistics. In 1982–83, they declare, deficits were high and increasing, while interest rates fell, thereby indicating that deficits have no crowding-out effect.
This argument once again shows the fallacy of trying to refute logic with statistics. Interest rates fell because of the drop of business borrowing in a recession. "Real" interest rates (interest rates minus the inflation rate) stayed unprecedentedly high, however — partly because most of us expect renewed heavy inflation, partly because of the crowding-out effect. In any case, statistics cannot refute logic; and logic tells us that if savings go into government bonds, there will necessarily be less savings available for productive investment than there would have been, and interest rates will be higher than they would have been without the deficits. If deficits are financed by the public, then this diversion of savings into government projects is direct and palpable. If the deficits are financed by bank inflation, then the diversion is indirect, the crowding-out now taking place by the new money "printed" by the government competing for resources with old money saved by the public.
Milton Friedman tries to rebut the crowding-out effect of deficits by claiming that all government spending, not just deficits, equally crowds out private savings and investment. It is true that money siphoned off by taxes could also have gone into private savings and investment. But deficits have a far greater crowding-out effect than overall spending, since deficits financed by the public obviously tap savings and savings alone, whereas taxes reduce the public's consumption as well as savings.
Thus, deficits, whichever way you look at them, cause grave economic problems. If they are financed by the banking system, they are inflationary. But even if they are financed by the public, they will still cause severe crowding-out effects, diverting much-needed savings from productive private investment to wasteful government projects. And, furthermore, the greater the deficits the greater the permanent income tax burden on the American people to pay for the mounting interest payments, a problem aggravated by the high interest rates brought about by inflationary deficits.
For more episodes, visit Mises.org/MisesReport.
Since 2007, South Africa has been experiencing an electricity crisis. Eskom (a South African state-owned company) cannot produce enough electricity to meet increasing demand, so Eskom has implemented rolling blackouts, which is also called “load shedding” by the South African government. Rolling blackouts involve Eskom periodically and intentionally stopping the delivery of electricity to certain parts of South Africa to avoid a total blackout.
The severity of rolling blackouts increases as Eskom’s capacity to produce electricity decreases, and the severity of the rolling blackouts are categorized into stages—where “stage 1” is the least severe and “stage 8” is the most severe for now. Energy experts and even government officials have suggested solutions but to no avail because the South African government ignores them.
In this piece, I argue two points. First, I argue that South Africa’s electricity licensing laws need to be eliminated or amended. Second, I argue that those same licensing laws prevent effective and affordable electricity supply solutions from being implemented, deepening South Africa’s electricity crisis.
Here are some facts about South Africa’s electricity crisis. According to data from Statistics South Africa, Eskom’s yearly average electricity production share is 94 percent, and South Africa’s electricity production decreased by 11 percent while Eskom’s electricity production decreased by 18 percent since the beginning of the rolling blackouts in 2007.
The decrease in South Africa’s electricity production is attributed to Eskom’s aging infrastructure and corruption. According to data from EskomSePush, South Africa experienced 311 days (over seven thousand hours) of rolling blackouts in 2022. Rolling blackouts have negatively affected businesses and livelihoods to the point where businesses have experienced significant decreases in profits and also had to cut jobs as a consequence. On the lighter side—and I say this sarcastically—the rolling blackouts have assisted South Africa in beating its climate goals, since less production in electricity leads to less emissions of greenhouse gasses.
Eskom’s domination in South Africa’s electricity market is no accident. Legislation has given Eskom unique privileges and protection from outside competition ever since its inception in 1922. Anton Eberhard writes:
The Electricity Act of 1922 also provided for the establishment of the Electricity Control Board (ECB) to regulate electricity supply undertakings. The ECB licensed the operations of private generators and ESCOM and approved their tariffs. Municipal undertakings did not require a license from the ECB. However, they required approval from the Provincial Administrator who, in turn, had to seek the opinion of ESCOM on whether it could not supply electricity more cheaply and efficiently.
The ECB was granted more regulation powers through the Electricity Act 41 of 1987, which include but are not limited to
- the issue of electricity generation and provision licenses that stipulates the area where a licensee is allowed to operate
- the ability to determine electricity prices of the licensee and set conditions for the predetermined prices
Figure 1: Electricity production, South Africa and Eksom, 1994–2022
Source: Data from the Statistical Release P4141 series of reports, Statistics South Africa.
The ECB was replaced by the National Energy Regulator of South Africa (NERSA) through the Electricity Regulation Act 4 of 2006, which regulates the electricity market in South Africa. Over and above the powers granted to the ECB in 1987, NERSA is granted the following license-issuing powers by the current legislation:
- to issue licenses that grant exclusive electricity generation, distribution, and trade rights to licensees
- to obligate or allow licensees to supply electricity to specific customer classes or end users
- to obligate or allow licensees to buy electricity from specific suppliers
- to obligate or allow licensees to sell or produce certain types of energy
- to make any license subject to any other condition that NERSA prescribes
NERSA is obligated by legislation to provide a decision on a license application to an applicant within 120 days from the date of the application but is not obligated to issue a license to an applicant.
The privileges given to NERSA in the Electricity Regulation Act serve as a gatekeeper for Eskom or any other incumbent in the electricity market because NERSA can deny a license to whomever it wishes. When it grants a license, it can severely limit the functions of the licensee, disincentivizing competition from entering the electricity market. This leaves the burden of solving the electricity crisis to the national government through Eskom, which is incapable of meeting South Africa’s electricity demand, hence the rolling blackouts.
Figure 2: Rolling blackouts in South Africa, 2014–22
Source: Data from “Loadshedding History,” EskomSePush, accessed June 9, 2023. Note: There were no rolling blackouts in 2016 and 2017.
Prospective competitors need incentives to compete in the electricity market by being permitted to compete against Eskom on all fronts for customers. The best way is to either eliminate licensing laws such as the Electricity Regulation Act or amend the current legislation to remove barriers to entry. This has nothing to do with removing safety standards.
James Anthony argues that producers already have incentives to ensure the safety of their end users. In a competitive electricity market, if safety is not prioritized, producers risk reputational damage and the loss of customers. Removing licensing laws such as the Electricity Regulation Act in South Africa will increase the production of electricity.
In the absence of the Electricity Regulation Act, competitors will be able to use a variety of energy sources to create electricity solutions for customers. Furthermore, competitors will be able to compete for customers based on the needs of the customers, which include but are not limited to affordability, environmental concerns, and energy-on-demand standards.
When the needs of customers are taken into consideration by competitors, innovative solutions will follow. An example of such is the introduction of what I call “rolling blackouts management products.” Fortunately, the government has not placed restrictive regulations on such products. As a result, products such as inverters, generators, uninterrupted power supplies, and portable power stations have been manufactured and sold. Game, a South African wholesaler, reported increased sales in gas stoves, generators, inverters, and other power supply products in 2022. Game’s vice president, Andre Steyn, said the following in response to the increased sales of products designed to manage rolling blackouts:
In November, December and January to date we have seen a 101% increase in the amount of generators sold, and a 311% increase in the number of inverters sold. Since we added inverters and power cubes to our range in June 2022 we have noticed a good response from our customers.
The above would not have been possible if similar regulations seen in the Electricity Regulation Act were implemented for products that were designed to manage rolling blackouts. Furthermore, just imagine the array of large-scale electricity solutions that competitors can produce to solve rolling blackouts in the absence of the restrictive regulations found in the Electricity Regulation Act.
The Electricity Regulation Act of 2006 is a textbook example of licensing laws that ultimately serve incumbents at the expense of not only prospective competitors but also customers who can benefit from innovations made by these competitors. In the case of South Africa’s electricity crisis, licensing laws are making South Africa’s electricity crisis unnecessarily more difficult to solve because NERSA has the last word on who can compete and how competitors can compete in the electricity market.
The Electricity Regulation Act needs to be either done away with completely or amended so that the barriers of entry are removed. Both solutions will allow competitors to provide large-scale electricity solutions to the market, which will ultimately increase the supply of electricity and end rolling blackouts for good.
Individualism, while condemned in some cultures, has helped make this country economically successful. Will the influx of immigrants from cultures that devalue individualism reverse that success?
Original Article: "Individualism in the US Has Helped Make It an Economic Success"
The usual suspects such as Robert Reich claim that corporate profits are causing inflation. Actually, increases in corporate profits are tied to increases in inflation.
Original Article: "Higher Corporate Profit Margins Aren't Causing Inflation"
The trans rights movement has quickly moved into government coercion and outright violence. There is nothing libertarian about what is happening in this movement today.
Original Article: "“Trans Rights” Means Trans Entitlements and the End of Civil Society"
Most of us would like to forget many of the unpleasant aspects of our adolescence, and especially our days in middle and high school. No matter what the school setting, private or public, every place had its “cool kids” who ruled over the rest of us, especially in the school cafeteria.
Journalism has its own version of the “cool kids,” those being reporters and writers from larger media outlets such as the New York Times (NYT) or from network news. In the past few years, I have watched journalist David French as he has maneuvered from National Review to his recent new perch as a regular columnist on the op-ed page of the New York Times, a position he has called his “dream job.” Despite the protestations of some NYT staffers and LGBTQIA+ activists over his hiring, French is proving to be a very safe choice for his new employer as he trashes many of his right-of-center former political friends and allies. After many years stumbling in the wilderness of conservative journalism, French finally has been invited to sit with the “cool kids.”
Since taking the NYT position last winter, French has attacked people on the right without letup, and while one can write at length about his newfound alliance with the Left, I will concentrate on a column he wrote for the March 31 NYT entitled: “The Rule of Law Now Depends on Republicans.”
The background of this article was the Trump indictment, something which I wrote places this government in banana republic territory and clearly was done solely for political reasons. While French wrote a column expressing misgivings about the specific charges for which Bragg was pursuing the indictment, , he nonetheless refused to say what is patently obvious: this was a political indictment in which New York Democrats were firmly pressing their thumbs on the scales of justice.
Instead of calling the indictment for what it was, a political sham, French gave it a backhanded endorsement:
I . . . know that we need to wait on both the indictment and the evidence supporting it to make any definitive decision about the merits of the charges. Informed speculation is still merely speculation, and there is a chance that the case is materially different from what we expect.
Regardless of whether the case is as weak as I fear it might be, Trump’s obligations are perfectly clear. Yes, he can certainly publicly dispute the charges. That is his right. But his ultimate path to contesting the district attorney’s claims runs through the courts, not the streets.
He continues:
The rule of law is in Republican hands now. If they choose the course they took during the election challenge, history will remember them—and not Manhattan’s district attorney—as the instruments of American destruction. Responsible leaders urge peace. Responsible leaders respect the legal process.
Rule of law in Frenchland, however, is a different matter. French refuses to write about the Durham report, in which the special prosecutor made it clear that both the FBI and the Central Intelligence Agency (CIA) directly involved themselves in a partisan manner to help swing a presidential election, something that is the antithesis of French’s cherished “rule of law.” James Bovard writes:
Special counsel John Durham exposed Monday how the FBI and Justice Department plotted to rig the 2016 presidential election.
His 316-page report proves federal law enforcement was weaponized by shielding the Hillary Clinton campaign and persecuting the Donald Trump campaign.
Yet despite the damning evidence, most of the media are treating the Durham report as a “nothingburger.”
FBI racketeering repeatedly rescued Hillary Clinton.
The Clinton Foundation raked in hundreds of millions of dollars of squirrely foreign contributions while she was secretary of state and revving up her presidential campaign.
The Durham report found that “senior FBI and Department officials placed restrictions on how [the Clinton Foundation investigation was] handled such that essentially no investigative activities occurred for months leading up to the election.”
On top of that dereliction, “the FBI appears to have made no effort to investigate . . . the Clinton campaign’s purported acceptance of a [illegal] campaign contribution that was made by the FBI’s own long-term [confidential human source] on behalf of Insider-I and, ultimately, Foreign Government.”
Top FBI officials also saved Hillary Clinton by scorning the federal statute book and treating her pervasive, perpetual violations of federal laws on classified documents as a harmless, unintentional error. (bracketed additions by Bovard)
One only can imagine French’s response had Donald Trump’s administration engaged in this kind of behavior. Moreover, with Merrick Garland’s Department of Justice continuing to keep its partisan thumbs on the scale with the draconian and questionable prosecutions for the January 6 Capitol riot, it is clear what is happening to the rule of law. Ryan McMaken writes:
A commonsense foundation for addressing violence in the Capitol building, however, would be to simply prosecute those who engaged in actual violence and trespass. It is clear, however, that gaining convictions for seditious conspiracy has been an important goal for the administration because it furthers the narrative that Donald Trump’s supporters attempted some sort of coup. Unfortunately, these sorts of political prosecutions are just the sort of thing we’ve come to expect from the Justice Department.
Furthermore, revelations from the infamous Hunter Biden laptop case show that the Joe Biden campaign orchestrated a number of present and former members of the CIA to falsely claim that the allegations of Hunter’s lawbreaking were a “classic Russian disinformation” scheme, when in retrospect the claim was itself nothing more than a disinformation effort to help Biden win the 2020 election. One would think that a good government advocate like French would be concerned about attempts by a would-be president to use official US intelligence agencies to lie to the American public about his son’s criminal behavior but guess again.
The cool kids at the NYT and elsewhere in the mainstream media are not interested in anything that might contradict the progressive narrative that Donald Trump is such a danger to the well-being of the entire United States that legal niceties must be set aside. If punishing Trump means that Democratic Party prosecutors must place their thumbs on the scales of justice, so be it. That position also is a classic violation of the “rule of law” principles that David French claims to hold so dear but quickly abandons when the name Donald Trump appears.
French loves to present himself as the überprincipled classical liberal that is undeterred by political winds. However, to be able to sit with the cool kids, French has regularly portrayed everyone from white evangelicals to people who do not support Drag Queen Story Hour as horrible people who have no place in our social and political orders.
Over time, one of three things will happen. The first is that French ultimately will become a cool kid himself, emulating David Brock, who wrote for the American Spectator only to become a George Soros–funded enforcer of leftist orthodoxy. A second path will take French further down the road of legal and moral compromises, to where he joins the pantheon of former neoconservatives like William Kristol and David Frum, who have become effective voices for the Left, although they still lack “cool kid” membership cards.
The third path is French’s own moral and political awakening, in which he realizes he helped sell out American democracy and rule of law because of his own obsession with Trump and his supporters. That is the most unlikely scenario of all, since the “cool kids” would disapprove and send him away from their lunch table.
This week we’ve seen a relatively unprecedented environmental phenomenon in New York City. Canadian wildfires have led to the worst air quality New York has ever had—and the worst air quality anywhere in the world right now. The air has taken on a sepia tint, and the city looks like the setting of a postapocalyptic movie.
Many individuals are blaming the situation on climate change and calling for mass government intervention. Alexandria Ocasio-Cortez, for example, has used it to renew her call for a Green New Deal. This is an example of what Mises Institute fellow Joshua Mawhorter has referred to as the statist non sequitur: “The statist non sequitur involves the existence of a problem followed by the alleged solution of statism. It is typically put in the form of a statement or a loaded question presupposing the necessity of a ‘solution’ imposed by the state as the obvious and sole conclusion.”
We must provide a better answer than the statist non sequitur.
For this we can turn to perhaps the loudest voice in defense of fossil fuels, Alex Epstein. Fossil fuels are routinely attacked for their alleged cause of extreme climate events like this wildfire-induced haze. However, Epstein has argued in his book Fossil Future: Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas—Not Less that even conceding the most radical anti–fossil fuel claims regarding global warming, fossil fuels are still a benefit to society. “Even if we concede fossil fuels have caused global warming,” he asks, “how have climate related deaths trended since the proliferation of fossil fuels?” He replies:
Over the last century, as CO2 emissions have most rapidly increased, the climate disaster death rate fell by an incredible 98 percent. That means the average person is fifty times less likely to die of a climate-related cause than they were in the 1920s. . . .
A dramatic reduction in climate-related death has to be the result of at least one of two factors: (1) an improvement in the state of climate conditions and/or (2) an improvement in the state of our ability to protect ourselves from climate. . . .
The dramatic change has to be an improvement in our ability to protect ourselves from climate dangers such as extreme temperatures, drought, storms, floods, and wildfires.
How have we gotten so good at protecting ourselves from climate?
In large part by using fossil-fueled machine labor.
We use fossil-fueled construction machines to build sturdy buildings. We use fossil-fueled heating machines to produce warmth when it’s cold and fossil-fueled cooling machines to produce cool air when it’s hot. We use fossil-fueled irrigation machines to alleviate drought.
To put the relationship between fossil fuels and our safety from climate in a sentence: ultra-cost-effective fossil fuel energy powers the machines that produce unprecedented protection from climate.
Epstein demonstrates that even if fossil fuels create climate change and cause significantly worse climate conditions, the vast technological benefits of fossil fuels have been so overwhelming that that there have been fifty times fewer climate deaths than there were one hundred years ago. Therefore human flourishing is stronger thanks to the effects of fossil fuels.
With these facts in mind, what is the best way to deal with forest fires? Epstein explains that there are three ways to fight wildfires—reducing fuel load, building fire barriers, and intelligently fighting fires—and that all of them are more effective with the help of fossil fuel–powered machinery.
Fuel load reduction consists of intentionally scorching fire-prone areas to remove potential wildfire fuel (such as dead trees and leaves) before it piles up enough to feed a forest fire. These controlled burns used to be done regularly in western US forests until the US Forest Service and environmentalists put a stop to them. Epstein thinks we should reimplement fuel load reduction, writing:
Today we have the ability to use fossil-fueled machines to do far more targeted controlled burns by creating firebreaks to prevent uncontrolled spread, planning the exact area to be burned, and assessing success with satellite imagery or via airplane. In addition to controlled burns, we can use fossil-fueled machine labor to do logging, in which case we actually convert the wood that could cause wildfire into wealth. We can also do mechanical brush clearing, using tractors with mulchers and other equipment attached.
Fire barriers are another great way to control forest fires. The same fossil fuel–burning engines that now allow us to better execute controlled burns also allow us to build larger, stronger fire barriers “between forests and people—or, if desired, between one area of forest and another.”
The last resort in controlling wildfires is of course firefighting, and this has also been improved by fossil fuels. As Epstein explains, “We use fossil-fueled machines and fossil fuel materials to fight fires when they start. We use high-energy fossil-fueled machines, like trucks and aircraft for transporting water, and flame-resistant, oil derived materials such as Nomex to protect firefighters.”
Every method of fighting fires—and thus for protecting against their wide ripple effects, like hazardous air quality—has been vastly improved by fossil fuels. Those calling for political action against fossil fuel use are therefore calling for more wildfire destruction, not less.
Most politicians have used the “Ukraine invasion card” to justify the massive inflationary burst in 2021-2023.
It does not matter if inflation was already elevated prior to the war. Supply chain disruptions, demand recovery, wage growth… Many excuses were used to justify inflation, except the only one that can make aggregate prices rise in unison, which is the creation of more units of currency well above demand.
Inflationists will blame inflation on anything and everything except the only thing that makes all prices, which are measured in monetary units, rise at the same: Money supply growth rising faster than real economic output.
Supply chain disruption and commodity inflation are caused by monetary expansion: More units of currency going to relatively scarce assets. Profits, wages, or commodities are not causes of inflation, but consequences. The unit used to measure prices is weakened by massive increase of its supply. It is as if I sell apples measured in glasses of milk, and suddenly the issuer of milk puts hundreds of gallons more in the market. My apples will cost more glasses of milk to adjust to the reality of the new unit of measure.
Long-term inflation expectations have risen to 3%, the highest level in twelve years. Furthermore, according to the Bureau of Labor Statistics, in April the Consumer Price Index increased 0.4 percent, seasonally adjusted (SA), and rose 4.9 percent over the past 12 months, not seasonally adjusted (NSA). The index for all items less food and energy increased 0.4 percent in April (SA); up 5.5 percent over the year (NSA). However, commodities have plummeted in the past year.
Crude oil (WTI) is down 38% in the past year, trading below the pre-Ukraine invasion level. Gasoil (-44%), gasoline (-40%), heating oil (-44%), and natural gas (Henry Hub -74% and NBP -65%) have all plummeted to pre-war levels. Even wheat is down 30% from a year before June 4th, 2023. The FAO Food Price Index has also corrected to a two-year low in May.
Why do commodities plummet in the middle of the China recovery and elevated demand growth and tight supply? Monetary factors again. The massive rate hikes and the subsequent monetary contraction have impacted the internationally quoted prices of goods all over the world. It is more expensive to purchase storage, finance margin calls, hire tankers and start long positions.
If commodities and the Ukraine war were to blame for inflation, why does the consumer price index remain so elevated? Money supply growth is plummeting but not enough to revert the price expansion of 2020-2023 and, in fact, global money supply has not fallen lower than $101 trillion, according to Bloomberg. That is a significant drop in money supply from its highs, and one that justifies the rapid decline in headline inflation, but not enough to revert the price increases for consumers.
Central banks engineered the massive inflationary burst, as proven in the BIS study by Claudio Borio et al., and now find that it is relatively easy to reduce annualized inflation to 4-5% but not that simple to bring it to 2%.
What no central bank wants to tell you is that the only way in which inflation will be brought down significantly is a recession. That is why they talk of a “soft landing” that is impossible if they truly want inflation to fall permanently.
Originally published at DLacalle.com
[This article is Chapter 1 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities. Now available at Amazon and in the Mises Store.]
Because of their physical size, large states are able to exercise more state-like power than geographically smaller states—and thus exercise a greater deal of control over residents. This is in part because larger states benefit from higher barriers to emigration than smaller states. Large states can therefore better avoid one of the most significant barriers to expanding state power: the ability of residents to move away.
The significance of this in practice becomes more clear if we consider the extreme and hypothetical case of a world with a single state. In this case, a person has no other choices at all. The number of actual choices equals zero, since our hypothetical megastate has a monopoly over the entire world. That is, a single global state is the most powerful state possible and a fully-formed state in the strictest sense. It has a complete and total monopoly of force over its population since its citizens cannot escape the state even if they emigrate. There is nowhere that they can emigrate to.
On the other hand, a world composed of hundreds, thousands, or even tens of thousands of states (or regimes of varying types) would offer many choices to residents who might wish to change their living situation.
The smaller states become, the more practical relocation options become for residents. This is due to the fact that proximity to the resources and people one desires to be near does matter as a real physical constraint. If one can escape a large state’s jurisdiction only by emigrating one thousand miles, this is a considerably different situation than in the case of a small state from which exit requires only emigrating fifty miles. In the words of Kirkpatrick Sale, these smaller states are closer to “human scale.”1
The realities of time and distance and travel mean that emigration to distant locales will limit one’s ability to share time and resources with family, friends, and loved ones left behind. Emigration to a location within a few hours’ drive, on the other hand, requires far fewer lifestyle changes.
Similarly, if emigration requires adaptation into a radically different culture and language, this will further limit the practicality of emigration for those who are not fluently multilingual. Thus, states have benefited considerably from the fact that many states enjoy monopolies on linguistic areas (which states reinforce through strategies like public education and the designation of “official” languages). For example, if one speaks only Swedish, one has a big incentive to stay in Sweden, and if one only speaks Greek, the personal cost of leaving Greece can be very high indeed. Even in the case of English, which is seen as being spoken internationally, it’s significant that a majority of native English speakers live under a single state—the United States. The implications of this for potential emigrants are evident.
But, once states can extend their monopolies over vast expanses of land, linguistic areas, and cultural areas, emigration becomes even more difficult. States in these cases are more easily able to increase their taxation and regulatory power over a population without danger of losing significant amounts of tax revenue due to migration.
In the case of a small state, however, many of these cultural, linguistic, and distance-based barriers are greatly lessened. Were the United States actually composed of fifty (or more) truly independent political jurisdictions, residents could emigrate from region to region with less trouble in terms of adapting to local languages and culture. In the case of a move from Virginia to North Carolina, for example, it would still be practical in many cases for emigrants to regularly return to visit friends and family with relative ease.
This would become all the more true were these jurisdictions reduced in size even more—to the size of a metropolitan area or even a municipality.
In fact, we often see this at work even in partially decentralized political jurisdictions. In the US, for example, Americans and businesses often move across city and county lines to avoid certain regulations, to lower their taxes, or to take advantage of better amenities.
When the city of Chicago in 2006 imposed a number of high regulatory hurdles against Wal-Mart, the retail giant elected to simply move one block away from the Chicago city limit, thus depriving the city of tax revenues, but allowing Wal-Mart access to Chicago’s consumer population.2 If subunits in a confederation are appropriately small, “emigration” might be a matter of moving a few miles down the road, making the practical cost of emigration very low indeed.
Life In a Microstate
Now, imagine a world composed of tiny states the size of small cities. The smaller the better. In our hypothetical world, let’s imagine the city of Arcadia, California has become an independent republic.
The city is eleven square miles with fifty-six thousand people. It borders at least five other cities. In other words, were the city an independent entity—we’ll call it the Republic of Arcadia (ROA)—any resident need only move a few miles to change the government under which he or she lives.
Were the ROA to impose a large tax increase or a series of new onerous regulations, many residents would elect to move away. This situation would still impose costs on the new emigrants. They would perhaps need to sell their houses or businesses, which is costly in terms of time and money. By moving, they’re leaving their preferred place of residence—which they had demonstrated by their previous actions was Arcadia. Now, however, they must live in a place that is their second or third choice, all else being equal.
In our Arcadia example, residents would have multiple choices of other jurisdictions with a nearly identical climate, language, and culture. Moreover, neighboring jurisdictions would likely be more than happy to accept the very people that the ROA’s big tax hike is most likely to drive to emigrate: the most productive and entrepreneurial residents.
Monopoly vs. a “Marketplace” for States In this scenario, the Republic of Arcadia is still formally a state in the strict sense. But even if the ROA has a state-like monopoly within its territory, this monopoly is limited to only that small piece of territory that falls within the ROA’s jurisdiction. In other words, this “monopoly” is a very weak one indeed, and we are reminded that small states are less state-like than large states.
Of course, the presence of many choices doesn’t mean everyone will always be able to find an ideal situation that meets all of his or her cultural, religious, and economic needs. Even in the world of mass-produced consumer goods, where competition is often fierce, a high degree of choice fails to provide exactly what each consumer imagines to be the ideal product.
Choices are always limited in real life, whether by physical geography, time, or by the willingness of others to voluntarily do business. One does not have the ability to choose a “perfect” hamburger restaurant at exactly the price point one desires, even in a vibrant and entrepreneurial marketplace. It is often impossible to find exactly the automobile one wants with the combination of features and with the appearance that perfectly matches each consumer’s preferences. Unless one is wealthy enough to build a custom automobile from scratch, one can only pick from a number of available choices. In many cases the best we can do is simply to increase the number of options. The same holds true when it comes time to choose a regime under which to live.
Nonetheless, the presence of a high degree of competition and choice among separate regimes offers numerous opportunities to improve one’s situation by relocating to a culturally similar, yet legally distinct political jurisdiction.
We Want More Borders and More States One objection raised against a system of numerous independent states is the fact that some form of border control is likely to persist, and that multiple borders impose additional limitations on human rights—specifically the right to travel freely. Or, to use a term preferred by economists, we are told borders are bad because they impose “transaction costs” on the populations that wish to conduct business across these borders.
As we will see in later chapters, this concern is misplaced because in practice small states tend to be more open to the movement of goods, capital, and persons. Small states are less likely than large states to close themselves off from bordering regions. Nonetheless, some border controls are likely to persist even in this scenario. This is likely to impose at least a small cost on those who frequently wish to cross borders to visit family or access employment opportunities.
But a multitude of borders brings with it an often-ignored advantage in terms of protecting human rights and basic freedoms: borders also act as a limit on a state’s powers. Put another way, just as borders impose transaction costs on the general population, they also tend to impose transaction costs on states themselves, limiting the abilities of states to exercise their own powers outside their own borders.
For example, East Germany’s border with West Germany represented the limits of the East German police state, beyond which the power of the Stasi to kidnap, torture, and imprison peaceful people was far more limited than it was within its native jurisdiction. The West German border acted to contain the East German state.
Similarly, the borders of Saudi Arabia act as a limit to the Saudi regime’s ability to impose its peculiar brand of brutal theocracy.
Even within a single nation-state, borders can illustrate the benefits of decentralization, as in the case of the Colorado-Nebraska border. On one side of the border (i.e., Nebraska) state police frequently arrest and imprison citizens for possessing marijuana. Those who resist will encounter the coercive violence of the state. On the other side of the border, the state’s constitution prohibits police from prosecuting marijuana users. The Colorado border effectively places a limit on Nebraska’s war on drugs.
Certainly, there are ways for regimes to extend their power even beyond their borders. This can be done by cozying up to the regimes of neighboring countries (or intimidating them), or through the organs of international quasi-state organizations. Or, as in the case of the United States and the European Union, imposing broader policies upon a number of supposedly sovereign states.
Nevertheless, thanks to the competitive nature of states, many states will often find it difficult to project their power into neighboring states, and thus borders represent a very-real impediment to a state’s power. Yes, borders can offer impediments to free trade and free migration, but they also bring with them advantages in limiting the damage done by poorly run or despotic regimes. This can then open the door to greater freedom, and even save lives as certain states impoverish or make war on their own citizens. The existence of a border—especially for those who live near it—can offer greater access to resources beyond the reach of the regime under which one lives.
The Case of Venezuela This principle was illustrated in recent years by the Venezuelan regime. For nearly twenty years, the Marxism-inspired regime has been expropriating and closing private businesses, while prosecuting entrepreneurs for trumped up “crimes” of exploiting the workers. Consequently, supply lines dried up and the nation entered into an economic crisis in which many goods and services became exceptionally scarce. By 2016, in order to avoid a serious humanitarian crisis, the regime opened its border with Colombia to allow Venezuelans the opportunity to purchase food and other supplies on the Colombian side of the border.3
Unlike the Venezuelan regime, the Colombian regime had not severely limited the capacity and freedoms of the private sector. Colombia had not reduced the country’s population to desperate poverty amidst collapsing economic and social institutions.
Thus, at the time, it was rather easy to buy food and provisions on the Colombian side of the border while store shelves sat empty on the Venezuelan side.
In other words, the Colombian border acted both as a limit on the Venezuelan regime, and as a lifeline to Venezuela’s residents; proximity to the border in this case was an enhancement of freedom rather than a limitation. Those who lived near the border were among the more fortunate residents of the country because the Colombian border became a source for essential goods and services either through legal trade, or through smuggling operations and illegal migration.
Borders As Protection from Supranational Superstates Another advantage of borders—and the distinct territorial zones they create—is that they impose additional costs on supranational statelike organizations seeking to consolidate power and transform smaller states into mere components of large centralized states.
This can be seen most readily in the case of the European Union where the EU government in Brussels has sought to standardize, harmonize, and centralize power within the bloc. Yet, member states have continued to offer resistance to this centralizing impulse in many cases.
As described by Luigi Bassani and Carlo Lottieri:
What is already happening in Europe is very significant. If present trends continue, the different European peoples…are about to be subject to the authority of a continental super-State. This new government will try to “harmonize” fiscal policies—not to lower taxes, to be sure—and every other type of control of individual resources. At the end perhaps, Brussels will command every political decision and succeed in building a new “imperial” State, alongside the United States.4
For now, however, proposed superstates such as the EU are “still unable to discipline States,” meaning the power of the “continental super-state” is rendered far weaker because the budding international power is regarded as an “outside” force distinct from the persons and institutions within the borders of the resistant member states. The fact that each member state still, more or less, controls its own borders—and thus maintains a separate identity and jurisdiction—limits the power of the nascent EU state.
Bassani and Lottieri conclude there is a “certain irony” here. The smaller states—which are certainly states, and thus come with all the problems one would expect from states—are nonetheless obstacles to the creation of larger, even more abusive states.5
[This article is Chapter 1 of Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities. Now available at Amazon and in the Mises Store.]
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- Kirkpatrick Sale, Human Scale Revisited: A New Look at the Classic Case for a Decentralized Future (White River Junction, Vt.: Chelsea Green Publishing, 2017), p. 145. In chapter 13, Sale discusses the proper size of the “optimum city.” For Sale, most political jurisdictions are far too large, and Sale suggests a more reasonable size is between 50,000 and 100,000.
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- “Eighteen months after the Chicago City Council torpedoed a South Side Wal-Mart, 24,500 Chicagoans applied for 325 jobs at a Wal-Mart opening Friday in south suburban Evergreen Park, one block outside the city limits….The new Wal-Mart at 2500 W. 95th is one block west of Western Avenue, the city boundary.” Quoted in Craig DeLuz, “25,000 apply for 325 Walmart jobs….Project killed by Chicago City Council,” Craig DeLuz, January 26, 2006, http://craigdeluz.com/25000-apply-for-325-walmart-jobs-project-killed-by-chicago-city-council/.
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- Sibylla Brodzinsky, “Venezuelans storm Colombia border city in search of food and basic goods,” The Guardian, July 5, 2016, https://www.theguardian.com/world/2016/jul/05/venezuelans-storm-colombia-border-food.
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- Luigi Marco Bassani and Carlo Lottieri, “The Problem of Security: Historicity of the State and ‘European Realism,’” in The Myth of National Defense: Essays on the Theory and History of Security Production, ed. Hans-Hermann Hoppe (Auburn, Ala.: Mises Institute, 2003), p. 61.
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- Bassani and Lottieri write: “There is a certain irony in the fact that freedom seekers all around the globe must rely on the States’ unwillingness to comply with the far-reaching political dreams of euro and world unificationists. The contemporary resistance of the State to this historical nemesis of its own logic—the same one that in the past has paved the road to the rise of political modernity and is now digging its grave—seems to be the only realistic hope for individual liberties.” Ibid., p. 62.
Despite all of the inflation-fighting talk from the Fed, the truth is that the government benefits from inflating the currency. We need to know how to defend ourselves.
Original Article: "Can We Protect Ourselves from Inflation?"
No matter how many times you have read a book by Ludwig von Mises or Murray Rothbard, you will find new insights if you read the book again. I found this to be true when preparing for Rothbard Graduate Seminar (RGS) this year. One of our readings was Rothbard’s For a New Liberty, and this year some of Rothbard’s arguments that I hadn’t concentrated on before attracted my attention. Usually, if you are looking for Rothbard’s views on ethics, Ethics of Liberty is the place to go, but there are some points in For a New Liberty that are different. I’m going to discuss some of Rothbard’s arguments in this week’s column.
One of the most interesting of these arguments is this:
The utilitarians declare, from their study of the consequences of liberty as opposed to alternative systems, that liberty will lead more surely to widely approved goals: harmony, peace, prosperity, etc. Now no one disputes that relative consequences should be studied in assessing the merits or demerits of respective creeds. But there are many problems in confining ourselves to a utilitarian ethic. For one thing, utilitarianism assumes that we can weigh alternatives, and decide upon policies, on the basis of their good or bad consequences. But if it is legitimate to apply value judgments to the consequences of X, why is it not equally legitimate to apply such judgments to X itself? May there not be something about an act itself which, in its very nature, can be considered good or evil?
Rothbard is arguing in this way: Utilitarians take “good” to be the fundamental concept of ethics. You should act to achieve the greatest good possible, and utilitarians “cash this out” in terms of which of your actions has the best results. “Best” in this context can be specified in various ways (e.g., results in the most pleasure, maximizes preference satisfaction, etc.).
Rothbard’s question is this: With what justification do utilitarians limit the determination of what is good to consequences? Why not ask about the goodness or badness of types of acts in themselves? In determining what to do, we would not just ask what the consequences of a particular lie would be, but also add the badness of lying to the calculation.
It’s important to distinguish this view from a more familiar position. According to this position, when considering whether you should lie, you need to take account not only of the consequences of the particular lie in a given situation but of the consequences of adopting lying in such circumstances as a general practice. (There are all sorts of complications involved here that I won’t go into now.)
But Rothbard is talking about the intrinsic goodness or badness of types of acts. A utilitarian might think that in a given case, killing someone would have beneficial consequences, even though he has added the badness of killing to his calculation. But this utilitarian calculus leaves unaddressed the question of whether killing is permissible at all.
Rothbard deserves great credit for seeing this issue, and in fact “pluralist” utilitarians have incorporated the goodness or badness of types of acts into their calculations in just the way his question suggests. As Walter Sinnott-Armstrong notes in the Stanford Encyclopedia of Philosophy:
Pluralism about values also enables consequentialists to handle many of the problems that plague hedonistic utilitarianism. For example, opponents often charge that classical utilitarians cannot explain our obligations to keep promises and not to lie when no pain is caused or pleasure is lost. Whether or not hedonists can meet this challenge, pluralists can hold that knowledge is intrinsically good and/or that false belief is intrinsically bad. Then, if deception causes false beliefs, deception is instrumentally bad, and agents ought not to lie without a good reason, even when lying causes no pain or loss of pleasure. Since lying is an attempt to deceive, to lie is to attempt to do what is morally wrong (in the absence of defeating factors). Similarly, if a promise to do an act is an attempt to make an audience believe that the promiser will do the act, then to break a promise is for a promiser to make false a belief that the promiser created or tried to create. Although there is more tale to tell, the disvalue of false belief can be part of a consequentialist story about why it is morally wrong to break promises.
Although Rothbard’s question is a good one, it isn’t clear how damaging it is to utilitarianism. Utilitarians need to figure out what to include in their calculations, but to say this is not to establish that they cannot do so in a reasonable way.
Another of Rothbard’s arguments, though, does wound utilitarianism severely, and possibly mortally:
Suppose a society which fervently considers all redheads to be agents of the Devil and therefore to be executed whenever found. Let us further assume that only a small number of redheads exist in any generation—so few as to be statistically insignificant. The utilitarian-libertarian might well reason: “While the murder of isolated redheads is deplorable, the executions are small in number; the vast majority of the public, as non-redheads, achieves enormous psychic satisfaction from the public execution of redheads. The social cost is negligible, the social, psychic benefit to the rest of society is great; therefore, it is right and proper for society to execute the redheads.” The natural-rights libertarian, overwhelmingly concerned as he is for the justice of the act, will react in horror and staunchly and unequivocally oppose the executions as totally unjustified murder and aggression upon nonaggressive persons. The consequence of stopping the murders—depriving the bulk of society of great psychic pleasure—would not influence such a libertarian, the “absolutist” libertarian, in the slightest. Dedicated to justice and to logical consistency, the natural-rights libertarian cheerfully admits to being “doctrinaire,” to being, in short, an unabashed follower of his own doctrines.
I think it would be very difficult for a utilitarian to escape from Rothbard’s conclusion that utilitarianism would justify murdering the redheads. The attempts to do so generally emphasize the bad consequences (from a utilitarian standpoint) that doing this might lead to in other areas. Philippa Foot used to say that when a utilitarian is presented with a counterexample, he will immediately talk about side effects.
There are, unfortunately, utilitarians who will “bite the bullet” (i.e., accept the consequences, no matter how implausible). The economist Robin Hanson has said that the reason the Holocaust was bad is that there weren’t enough Nazis. If there had been a sufficiently great number of them, the happiness they obtained from the Holocaust would have outweighed the pain of the victims. Some people don’t recognize a reductio ad absurdum when they see one, but the rest of us will see the force of Rothbard’s example against utilitarianism.
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of "Ten Great Economic Myths". This material was prepared by Murray N. Rothbard.
In recent decades we always have had federal deficits. The invariable response of the party out of power, whichever it may be, is to denounce those deficits as being the cause of our chronic inflation. And the invariable response of whatever party is in power has been to claim that deficits have nothing to do with inflation. Both opposing statements are myths.
Deficits mean that the federal government is spending more than it is taking in in taxes. Those deficits can be financed in two ways. If they are financed by selling Treasury bonds to the public, then the deficits are not inflationary. No new money is created; people and institutions simply draw down their bank deposits to pay for the bonds, and the Treasury spends that money. Money has simply been transferred from the public to the Treasury, and then the money is spent on other members of the public.
On the other hand, the deficit may be financed by selling bonds to the banking system. If that occurs, the banks create new money by creating new bank deposits and using them to buy the bonds. The new money, in the form of bank deposits, is then spent by the Treasury, and thereby enters permanently into the spending stream of the economy, raising prices and causing inflation. By a complex process, the Federal Reserve enables the banks to create the new money by generating bank reserves of one-tenth that amount. Thus, if banks are to buy $100 billion of new bonds to finance the deficit, the Fed buys approximately $10 billion of old treasury bonds. This purchase increases bank reserves by $10 billion, allowing the banks to pyramid the creation of new bank deposits or money by ten times that amount. In short, the government and the banking system it controls in effect "print" new money to pay for the federal deficit.
Thus, deficits are inflationary to the extent that they are financed by the banking system; they are not inflationary to the extent they are underwritten by the public.
Some policymakers point to the 1982–83 period, when deficits were accelerating and inflation was abating, as a statistical "proof" that deficits and inflation have no relation to each other. This is no proof at all. General price changes are determined by two factors: the supply of, and the demand for, money. During 1982–83 the Fed created new money at a very high rate, approximately at 15 percent per annum. Much of this went to finance the expanding deficit. But on the other hand, the severe depression of those two years increased the demand for money (i.e., lowered the desire to spend money on goods), in response to the severe business losses. This temporarily compensating increase in the demand for money does not make deficits any the less inflationary. In fact, as recovery proceeds, spending will pick up and the demand for money will fall, and the spending of the new money will accelerate inflation.
For more episodes, visit Mises.org/MisesReport.
Jonathan Newman joins The Human Action Podcast to discuss his recent Twitter controversy over the claim that market prices can be "wrong" (i.e. in disequilibrium) if they are "sticky."
Jonathan Newman's Twitter controversy on sticky prices: Mises.org/HAP399a Joe Salerno on Mises's Monetary Theory: Mises.org/HAP399b Bagus and Howden on market disequilibrium and sticky prices: Mises.org/HAP399c
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists.
For more episodes, visit Mises.org/MisesReport.
Modern progressives don't like to refer to their long-held support of eugenics. In fact, American progressives influenced the Nazis, who launched their own murderous eugenics schemes.
Original Article: "The Boston Brahmins, WASPs, and Nazis: The Pursuit of Eugenics"
Although commonly used, Max Weber’s definition of the state—an entity that has a monopoly on the legitimate use of force within a given geographical area—can mislead people into thinking that the state is the only or even the primary reason for security and order. This is illustrated in the trends in the nonstate provision of security, as revealed by my Google alert for the phrase “private police.” Lately, incidents of car and bike theft have led individuals to either organize themselves to prevent and respond to it or hire private security to do so.
One example is a gas station in Philadelphia (a city that has frequently been in the news lately due to growing crime problems, having set a new personal record for annual murders) that has hired security armed with rifles to protect patrons, mainly from car jackings, since motorists are especially vulnerable to attack while pumping gas.
One thing I found notable from a Fox News interview of the head of security Chief Andre Boyer (other than the fact that journalists at a “conservative” outlet are just as clueless as other journalists about what an AR15 is) is his response to a question about whether he and his agents will intervene when witnessing a crime in progress. Chief Boyer responds, “We have to. We have a contract to protect our clients and our clients’ assets.”
As I have noted previously, the fact that voluntarily hired security has a contractual obligation to provide services to the people who pay them is in stark contrast to government police. On multiple occasions, the US Supreme Court has opined that US citizens have no constitutional right to police protection and officers cannot be held legally liable for failing to protect them. You must pay them under penalty of law, but they are not required to provide anything in return.
Also noteworthy is a comment the interviewer makes that “the number one job of the government, whatever level, whether federal, state, local, is to keep their citizens safe. So, if you’re hiring an outside agency that’s a clear indicator that government is failing its people.” Regarding the first part of that statement, Judge Andrew Napolitano would strongly disagree: it is not the job of the government (if it is to have any job at all) to keep you safe but rather to keep you free.
Regarding the second part of that statement, the interviewer gives far too much credit to the government. To say categorically that any hiring of private security means the state is failing to do its job assumes godlike powers on the part of the state. As mentioned above, it is wrong to assume that the state’s threat of capturing and punishing lawbreakers is primarily responsible for the peace and orderliness we enjoy under normal circumstances. Perhaps since there are an estimated three to four people employed in private security for every government police officer, the Fox News interviewer would consider this proof that the government cannot do its number one job and is unfit to exist.
Car theft is not only a major issue in Philly but in Portland, Oregon, as well. Both cities are experiencing historic highs in crime. In response to the explosion of car theft in Portland, a Facebook group named “PDX Stolen Cars” was formed to crowdsource locating stolen vehicles. According to the founder of the Facebook group, Titan Crawford, “I had found a stolen car in my neighborhood. I knew it was stolen. I contacted the police and they said there’s not a whole lot we can do right now. So I was like, ‘Well see if I can do something.’”
Mr. Crawford has been disillusioned of the idea that the government is the ultimate protector of property rights: “It would be cool if the city could do this and I didn’t have to.” I imagine many people thought the same thing about government schools. Fortunately, an increasing number of parents are able to get some of their tax money back to send kids to a school of their choice. Instead of being taxed to pay for police services they don’t receive, perhaps some residents of Portland would be interested in “police choice.”
Burlington, Vermont, is having a similar experience with bike thefts, along with the Facebook groups created to deal with it because the government police are too busy. They are too busy to deal not only with bike thefts but property destruction, retail larceny, assaults by homeless people in parks, and open-air drug markets (financed by stolen bikes). And, as elsewhere, residents have found that they are on their own in dealing with these things.
One might point out that another common theme among these cities is the fact that their politicians all committed to “defunding the police” to some degree. This movement, while short-lived and ultimately overstated in how much budgets were cut, was successful in reducing police staffing and recruitment. Does the corresponding rise in crime and disorder indicate, then, that government police are crucial in maintaining order?
No. Rather, the lesson one should take from the “defund the police” experience (to the extent that one believes that it was a misguided, if not horrible, idea) is that it is an outcome that is only possible when policing is under political control. It was not a case of individuals deciding to abstain from buying when they no longer wanted a particular service.
The taxpayer-funded monopoly on policing became even less effective without leaving any more money in taxpayers’ pockets. Drawing another parallel with government schools, which closed without returning the taxpayers’ money, several cities cut police funding and staffing while keeping the money that taxpayers ostensibly paid for that purpose. It truly is only the government that can take your money, barely provide a service they’ve monopolized, and then insist on how necessary they are for the provision of that service.
Now, especially with the rise of the Soros-funded district attorneys, Americans are realizing that they are responsible for their own safety and security. This function, like the education of their children, cannot be outsourced to the government. The silver lining is that, as people build parallel institutions, the less dependent upon government they become and the more obvious the overstatement of the state’s necessity for order becomes. This is a necessary step for getting us on the road to rediscovery of an ethos of liberty and self-reliance.
American law protects what is called the "right to strike." However, Leonard Read found no moral code that permits such action.
Original Article: "There Is No Moral Right to Strike"
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop discuss the role statistics play in promoting the regime. Topics include some interesting differences in recently reported unemployment data, changes to inflation reporting over time, government withholding of various reports - including crime and money supply measures - as well as alternative measures Austrians use to better cut through state propaganda.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
PROMO CODE: RothPod for 20% off
Recommended Reading "Yet Another Month of Questionable Federal Jobs Data as 310,000 Fewer People Report Having Jobs" by Ryan McMaken: Mises.org/RR_137_A
"The "True" Money Supply: A Measure of the Supply of the Medium of Exchange in the U.S. Economy" by Joseph Salerno: Mises.org/RR_137_B
"Does GDP Present an Accurate Picture of the Economy? Not Likely" by Frank Shostak: Mises.org/RR_137_C
"World War I as Fulfillment: Power and the Intellectuals" by Murray Rothbard: Mises.org/RR_137_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
On this episode of Good Money with Tho Bishop, Jeffrey Kauffman joins the show to discuss recent attacks from the SEC on major crypto exchanges. Kauffman, CEO of LBRY and content platform Odysee, shares his own company's battle with the SEC, the impossible burdens regulators have placed on legal compliance, and why DC's Operation Chokepoint 2.0 could be a positive for the industry in the long run.
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
Receive a free subscription to The Austrian magazine at Mises.org/Magazine
When E.F. Hutton talks, people listen.
—1970s TV commercial
Imagine if your surname was synonymous with genius. And not just genius, but creative genius. Is there anything you could write or say that could be seriously challenged? Among your colleagues, certainly. Science is never closed, always debated, always contingent on certain postulates. But the lay public is apt to regard you as infallible.
Such has been the fate of Albert Einstein who today is best known for his theory of relativity and especially his equation E = mc2: the energy (E) of a body at rest is its mass (m) times the square of the speed of light (c). As astrophysicist Ethan Siegel explains it, “For every 1 kilogram of mass you turn into energy, you get 9 × 1016 joules of energy out, which is the equivalent of 21 megatons of TNT.” The “Little Boy” bomb the US dropped on the people of Hiroshima had an estimated blast yield of fifteen kilotons of TNT.
Einstein developed relativity in two parts, special (1905) and general (1915), with general adding gravity to the equations of special. His 1905 paper “On the Electrodynamics of Moving Bodies” introducing the special theory was one of four papers he published that year now referred to as the annus mirabilis papers (“miracle year” papers)—all while working as a clerk in a patent office in Bern, Switzerland. Another of those four papers, “On a Heuristic Point of View about the Creation and Conversion of Light,” earned him the Nobel Prize in physics in 1921. By that point he had been nominated for the award ten times.
Einstein was thoroughly knowledgeable of the work of his contemporaries and of scientists who came before him, particularly Sir Issac Newton whose mechanics he revolutionized. Einstein’s wife, Mileva Marić, assisted in his work to a degree that has become a matter of dispute, though at the very least she served as a sounding board and checked his math, which was no small feat in itself.
International fame for Einstein arrived on the morning of November 7, 1919, at age forty. On that date The Times of London euphorically proclaimed his general theory had revolutionized science. It was “one of the most momentous, if not the most momentous, pronouncements of human thought.”
Four years earlier Einstein had written that large masses curve or bend space. If this is true, then light rays would bend in the vicinity of the sun. A British expedition led by Sir Arthur Eddington to the island of Principe (off the west coast of Africa) had measured the deflection of light coming from close stars during a solar eclipse on May 29, 1919. They had confirmed his bizarre theory empirically.
German newspapers acknowledged the finding but without fanfare, until a Berlin paper on December 14 featured a picture of Einstein with a caption, “A New Celebrity in World History.” In the following days, articles began spinning a legend. “No name was quoted so often as that of this man. . . . Relativity had become the sovereign password. . . . The mere thought that a living Copernicus was moving in our midst elevated our feelings.” Einstein had become a rock star for developing a theory no one could understand.
“This world is a strange madhouse,” Einstein wrote to a friend. “Currently, every coachman and every waiter is debating whether relativity theory is correct.”
Einstein’s general theory had rescued man from the lowly depths to which science had assigned him. First, Nicolaus Copernicus took away the earth as the center of the universe, then Charles Darwin established the groundwork for questioning his divine creation, and finally Sigmund Freud cast doubt on his intellect by claiming he was really ruled by his unconscious. Einstein emerged as “living proof of man’s enduring grandeur. By means of pure thinking, man’s noblest art, he had succeeded in plumbing the depths of the universe.”
The Great Physicist’s Other Interests According to biographer Jürgen Neffe, Einstein was utterly lacking in the three major forces he saw ruling the world: stupidity, fear, and greed. In Einstein’s book The World as I See It, he said,
We exist for our fellowmen—in the first place for those on whose smiles and welfare all our happiness depends. . . . I am strongly drawn to the simple life and am often oppressed by the feeling that I am engrossing an unnecessary amount of the labor of my fellowmen. I regard class differences as contrary to justice and, in the last resort, based on force. I also consider that plain living is good for everybody, physically and mentally.
In human freedom in the philosophical sense I am definitely a disbeliever. Everybody acts not only under external compulsion but also in accordance with inner necessity.
He also admired the philosophy of Arthur Schopenhauer, whose assertion that “a man can do as he will, but not will as he will,”—as confusing as that might sound to ordinary brains—served, for Einstein, as an “inspiration to me since my youth up, and a continual consolation and unfailing well-spring of patience in the face of the hardships of life, my own and others.”
One of the tenets of collectivism is the notion that we exist for the sake of others, the wellspring of “from each according to his ability.” From this we get master/slave societies of various degrees along with the condemnation of profit as an expression of “greed,” which to collectivists is any act that strays from the purity of self-sacrifice. He’s at least consistent when he feels “oppressed” about “engrossing” more from the labors of others than is necessary for his ideal of “plain living”—even Einstein admits to wanton selfishness, it seems. With its definitional elasticity, greed covers a wide range of heinous misconduct from “comfortable living” to the lifestyle of Jeff Bezos, leaving only the starving homeless and the dead greed-free. That no one can “will as he will” amounts to a denial that people are ultimately in control of their lives, not even an entrepreneur like Bezos.
In late 1915, while the Great War was in its second year of slaughter, Einstein, at age thirty-six, wrote “My Opinion on the War,” in which he said the roots of war were found in the “aggressive characteristics of the male creature.” Aggressiveness is brought to the fore when individuals or societies are placed side by side. This was true for males of all ages, even among his schoolmates who took pleasure in beating up younger kids from a neighboring school. He continues by saying, “Wherever two nation states are next to each other and without a joint superpower above them, those [aggressive characteristics] at times generate tensions in the moods [gemüt] that lead to catastrophes of war.”
Who is to control this joint superpower is omitted, but presumably it would be an ethical freak for whom absolute power never corrupts, absolutely or otherwise. And if violence did erupt under this arrangement, however impossibly it could be attained, it would be more like a genocide than a war since the superpower would necessarily be entrusted with the means to extinguish any recalcitrant group.
In his writings and speeches, Einstein sometimes sounded libertarian: “Without creative personalities able to think and judge independently, the upward development of society is as unthinkable as the development of the individual personality without the nourishing soil of the community.”
But not all communities are “nourishing” in the sense he means. For radical social theorists, not to mention many ordinary people, the communities in which they were raised were nourishing only in the sense of providing an example of how not to live. Did Einstein find the Nazi community from which he emigrated nourishing? How nourishing did Alexander Solzhenitsyn find the Soviet society in which he wrote? How about the countless immigrants now crossing the southwestern US border—were they escaping from nourishing communities?
Though he had been neutral toward Vladimir Lenin’s Soviet revolution in 1920, by mid-1932 he was condemning Joseph Stalin’s dictatorship:
At the top there appears to be a personal struggle in which the foulest means are used by power-hungry individuals acting from purely selfish motives. At the bottom there seems to be complete suppression of the individual and of freedom of speech. One wonders what life is worth under such conditions.
Ukraine found out a year later.
Notwithstanding that both Nazi Germany and the Union of Soviet Socialist Republics (USSR) had “socialist” in their titles, Einstein never surrendered his commitment to socialism: “Anyone who sticks his head out of the window yet fails to notice that the time is ripe for socialism is stumbling through this century like a blind man.” And also, “I am enjoying the reputation of an irreproachable Socialist.”
In 1949 Einstein authored an essay—“Why Socialism?“—that detailed his opposition to capitalism and promoted not just socialism but global socialism. It is rife with naïve fallacies and gross misunderstandings:
Production is carried on for profit, not for use. There is no provision that all those able and willing to work will always be in a position to find employment; an “army of unemployed” almost always exists. . . . Unlimited competition leads to a huge waste of labor, and to that crippling of the social consciousness of individuals.
To his credit Einstein closed his essay realizing the danger inherent in his proposal:
The achievement of socialism requires the solution of some extremely difficult socio-political problems: how is it possible, in view of the far-reaching centralization of political and economic power, to prevent bureaucracy from becoming all-powerful and overweening? How can the rights of the individual be protected and therewith a democratic counterweight to the power of bureaucracy be assured?
If only he had read about the German miracle of 1948 first, followed by Ludwig von Mises’s book Socialism, Einstein might have had a better understanding of the system he promoted and the system he condemned.
With the appointment of Linda Yaccarino as Twitter's new CEO, Elon Musk is trying to appease woke advertisers to bring up his company's revenues. This will not end well.
Original Article: "The Woke Cartel and Twitter's New CEO"
“No point in the field of political economy merits more thought and analysis than where to draw the line distinguishing the functions proper to government from the role assumed by all-out government—socialism. A good society is but a dream unless this issue be reasonably resolved.”
This is how Leonard Read opened chapter 9, “To Avarice No Sanction,” in his 1972 book, To Free or Freeze: That Is the Question. While he addressed that question from multiple angles in his writing, here he takes his cue from Austin O’Malley’s statement that “all fallen nations lost liberty through avarice which engendered injustice.” Read concludes that a nation should “never admit a law to the statute books that makes an appeal to avarice.”
Government . . . means laws backed by force. To know what government should and should not do . . . requires a judgment as to which laws appeal to avarice, and a decision to avoid such laws!
Appeals to avarice . . . thousands of examples affirming the tendency to satisfy desires along the lines of least resistance.
Avarice breaks out, shows itself, grows and expands in proportion to the opportunities for a “free lunch” or a handout . . . because these feeding stations provide the means by which man can satisfy his desires along the lines of least resistance. . . . Men turn to these something-for-nothing sources as readily and as naturally as they turn away from higher and toward lower prices for goods and services.
Given that the use of the word “avarice” is a couple centuries past its prime, it is worth noting its somewhat different connotation than the word “greed,” which seems to have largely crowded it out. While “greed” means an undue desire for wealth and power, “avarice” adds the idea of gaining and withholding power from others, more in line with covetousness, which involves desire for something which belongs to another.
This difference between those words comes to the fore when talking about government policies, because government has no resources it does not first take from its citizens, backed by the threat of coercion. So to be greedy for government handouts of any sort inherently involves taking what belongs to other self-owning citizens—that is, it involves avarice:
There are a few who will not stoop to the line of least resistance—persons whose moral guidelines will not let them live by bread alone. In the final analysis, a good society rests on a proliferation of this breed of men. . . . [However,] the percentage of the population accustomed to the feeding stations is so great and their voting power so attractive to politicians who accommodate this weakness that the combination seems unbeatable. Nevertheless, it is worth a try.
Men stand upright in the absence of things to stoop for. . . . Avarice is . . . a dormant trait in the absence of something to be avaricious about.
Feeding stations, contrived by laws that appeal to avarice, are composed exclusively of the fruits of [other] people’s labor. . . . When these abound, as now, men contend with each other for our property. They take.
What would happen if government-enabled avarice were to be eliminated? The greatest mechanism of reinforcing such avarice, with almost uncountable tentacles of influence, would be eliminated:
Remove these stations. Immediately men will compete with each other for our favor. They trade! Why? Because this is the remaining line of least resistance.
From stooping to upright men! From contenders to competitors! From takers to traders! From plunderers to benefactors! No more goodness or perfection in man than before, but only the removal from his presence of the temptations to avarice!
From there, Read asks how we should identify if a law appealed to avarice, so we could shun it and its adverse effects appropriately:
How are we to judge whether or not a law has an appeal to avarice, so that we may keep it off the statute books? I believe there is a simple rule: Never give approval to a law that “helps” anyone!
It is definitely not the function of government to take positive action in aiding or sustaining or lending assistance to any person or group or segment of society. Such “help” can only be given to one person or group at the expense of others.
The only principled role of society’s agency is negative; government should restrain anyone from doing injury to others. The law’s job is to codify the taboos or the thou-shalt-nots and enforce them; that is, it should invoke a common justice and keep the peace.
Any time and in every instance in which government departs from this negative or purely defensive role, avarice is released in the citizenry. Government can do all of us a service by warding off intruders; but when government pretends to “help” us, government itself thereby becomes the colossal intruder.
But how should one then respond to assertions that such an approach would be heartless? First, Read would assert that history has shown that Americans have great reserves of generosity toward their fellows. Secondly, he would point out that government help is heartless toward those whose resources are taken involuntarily for others. And third, but at least as important, he would point out that such help is not really help for those whose avarice is kindled and whose development is thereby undermined.
To most people this way of drawing the line seems cold, heartless, and without pity. But pity, unless spiced with common sense, is what’s heartless. Providing people with governmental feeding stations not only kindles the vice of avarice but it renders them helpless. The process results in an atrophy of the faculties from which recovery is next to impossible.
Helping people to become helpless is no act of kindness.
The drug war of the last half century has incarcerated millions and created havoc. What it hasn't done is eliminate people using drugs without government permission.
Original Article: "The Drug War: An Irrational Crusade"
Technocrats frequently pressure the US government to increase R and D as a strategy to upstage China. The assumption is that public R and D will lead to innovation and economic growth because research generates the science that spurs innovation. Yet the formula is mistaken, for history has shown that science often lags technology. Innovations prior to the advent of modern science in Europe occurred without crucial advancements in scientific knowledge.
But this does not discount the relevance of science since, according to economic historian Joel Mokyr, the industrial revolution in Europe did not phase out like earlier episodes of industrial progress because Europe had developed an epistemic base to fuel scientific and technical advancements. Technology can be developed without science; however, advancements in science propel technological growth.
Such findings help guide modern approaches to innovation by showing that it is not initiated by state-sponsored science or even scientists. Innovation is driven by market demands, so they are created by entrepreneurs or workers in the private sector responding to consumer demands. Economist Nathan Rosenberg in his article “Does Science Shape Economic Progress—or Is It the Other Way Around?” comments that innovations are largely the result of industries’ response to commercial problems.
Similarly, a study by B. Zorina Khan assessing the profiles of inventors during the British industrial revolution contends that scientists were not highly represented as great inventors. Cormac Ó Gráda in a review essay remarks that human capital was essential to the industrial revolution, but it consisted of the skills and dexterity of craftsmen and artisans. Innovations are tested by the market before they can become viable, and workers play an essential role in testing and refining new products to make them market ready.
However, governments fail to appreciate that innovation has to serve the market rather than political ends. Usually, the political directorate is inspired to fund socially prominent rather than economically useful ideas. For instance, across the globe governments are drafting policies to encourage people to purchase electronic vehicles. But doing so is irrelevant because if electronic vehicles are useful, then people will buy them without encouragement.
Another objection to government-sponsored innovation is that the state is not a profit-driven entity. Some proponents of the entrepreneurial state argue that a government program sired the internet, yet the internet was commercialized by the private sector. The state is interested in using innovations to bolster political power and its coffers rather than promoting individual wealth.
Even modern states are influenced by the principle of mercantilism. Power is the ultimate objective of the state, and this quest for power puts the state in conflict with entrepreneurs. Hence, whenever innovations emerge, the first response of the state is to consider regulations. From artificial intelligence to cryptocurrency, politicians earnestly regulate industry. Some politicians even praise Europe for pioneering regulations despite the reality that regulations slow innovation.
The fear is that unbridled innovation must be curbed due to its potential to disrupt society, but disruption is what makes innovation unique. Technology has displaced jobs and has also created jobs that we would never have predicted. In the 1980s people did not envision platforms like YouTube and TikTok minting millionaires.
Interestingly, neither platform was built by the government; rather, they emerged due to the ingenuity of creative minds. Considering the trial-and-error process of innovation and the numerous characters involved, it is impossible for the state to plan or drive this dynamic process. Further, empirical evidence opines that there is a positive link between business expenditure on R and D, but the association between government R and D and innovation is negative.
History should teach the state that innovation is more likely when government technocrats are not involved in the process. The best option for the US government to promote innovation is for it to stay out of the picture.
Domestic violence is a stain on society, but it is worse if we only care about violence committed against people of one sex.
Original Article: "Committing Domestic Violence against Men . . . Just for a Giggle"
Ryan and Zack look at how China, Iran, and Saudi Arabia are reshaping the Middle East into a region where the United States no longer dominates. This is a good thing for ordinary Americans.
Additional Resources "Thanks to Sanctions, the US Is Losing Its Grip on the Middle East" by Ryan McMaken: Mises.org/WES_11_A
"The Petrodollar-Saudi Axis Is Why Washington Hates Iran" by Gary Richied: Mises.org/WES_11_B
"Peace is Breaking Out in the Middle East… and Washington is Not Happy!" by Ron Paul: Mises.org/WES_11_C
"Why the End of the Petrodollar Spells Trouble for the US Regime" by Ryan McMaken: Mises.org/WES_11_D
"Washington Miffed as China Makes Peace" by Joseph Solis-Mullen: Mises.org/WES_11_E
Be sure to follow War, Economy, and State at Mises.org/WES.
Many economists believe that economics must emulate the physical sciences with controlled experiments to be credible. Econometric models, they claim, can fulfill the role of laboratory experiments.
Through mathematical and statistical methods, an economist supposedly establishes relationships between various economic variables. For example, personal consumer outlays are related to personal disposable income and the interest rates, while capital expenditure is explained by the past stock of capital, the interest rates, and economic activity. Various estimated relations—i.e., equations, which are grouped together—constitute an econometric model.
A comparison of the model’s dynamic assumptions versus the data establishes the model’s reliability. (In a static simulation, the model is solved using the actual lagged variables. In a dynamic simulation, the model is solved by employing lagged variables calculated by the model). Once the model is built and accepted as a good replica of the economy, economists employ the model to ascertain the possible effects of various government and central bank policies upon the economy.
Is the Mathematical Method Valid in Economics? By applying mathematics in its analyses, mainstream economics attempts to emulate the natural sciences. In the natural sciences, mathematical formulas measure the response of objects to a particular stimulus in a given condition to see if they can be captured repeatedly.
The same approach, however, is not valid in economics since economics deals with human beings and not objects. According to Ludwig von Mises, “The experience with which the sciences of human action have to deal is always an experience of complex phenomena. No laboratory experiments can be performed with regard to human action.”
Human beings are rational animals, using their minds to sustain their lives and well-being. Human minds, however, don’t follow a fixed mechanical procedure, but rather people employ their minds according to their own circumstances, making it impossible to capture human nature through mathematical formulas.
Individuals have the freedom of choice to change their minds and pursue actions contrary to what was observed in the past. Because human beings are unique, economic analysis can only be qualitative.
Furthermore, quantitative analysis implies the possibility of the assignment of numbers, which can be subjected to all operations of arithmetic requiring an objective fixed unit, something that exists in the realm of human valuations. On this Mises wrote, “There are, in the field of economics, no constant relations, and consequently no measurement is possible.”
There are no constant standards for measuring the minds, the values, and the ideas of humans. Valuations are how conscious, purposeful individuals ascertain the given facts of reality. Once individuals establish what the facts are, they decide which of the established facts best suit their ends.
Individuals’ Goals Set the Standard for Valuation Individual goals or ends set the standard for valuing various means. For instance, people wanting to improve their health will decide which goods benefit their health and which do not. Among those that will benefit them, some will be more effective than others. There is no way, however, to quantify this effectiveness. All that one could do is rank these goods in accordance with the perceived effectiveness.
The use of mathematics in economics also poses another problem, as using mathematical functions implies that variables determine human actions. For example, contrary to the mathematical way of thinking, an individual’s outlays on goods are not “driven” by income.
While it is true that individuals respond to changes in their incomes, the response is not automatic. An increase in an individual’s income does not automatically imply that his consumption expenditure will follow suit. Every individual assesses the increase in income against the goals he wants to achieve. Thus, he might decide that it is more beneficial to him to raise his savings rather than raise his consumption.
Note again that individuals respond to changes in various factors in accordance with individuals’ goals. This means that causality in economics emanates from individuals and not mathematical variables.
From this perspective an econometric model, which is a group of various equations, is a misleading description of the world of human beings. In the world of econometric models, individuals are reduced to robots that mechanically respond to changes in a mathematical equation.
Further Issues of Using Econometric Models In conducting the “what if” experiment, a model builder utilizes a model with the equation’s parameters unchanged. Given that human beings have freedom of choice, a policy change by the government or the central bank is likely to alter the parameters of various equations.
Consequently, the employment of the fixed-parameters model in the “what if” experiment is likely to generate questionable results.
For instance, the model builder may want to evaluate the effect of a change in government outlays on the economy. It is quite likely that a change in outlays will affect the parameters of various equations. If the model builder were to ignore this, it would mean that individuals in the economy were frozen.
On this Mises said, “As a method of economic analysis econometrics is a childish play with figures that does not contribute anything to the elucidation of the problems of economic reality.”
According to the Nobel laureate in economics Robert Lucas,
Given that the structure of an econometric model consists of optimal decision rules of economic agents, and that optimal decision rules vary systematically with changes in the structure of series relevant to the decision maker, it follows that any change in policy will systematically alter the structure of econometric models.
Conclusion The introduction of econometric model building in economics is an attempt to produce a laboratory where controlled experiments can be conducted. The idea of having such a laboratory is appealing to economists and politicians. Once the model is built and accepted as a good replica of the economy, economists could evaluate the outcomes of various policies. When evaluating the effect of the government and the central bank policies on the economy, however, economists employ models with unchanged parameters, thus leading to erroneous conclusions.
One of the main fronts in the current culture war in the United States is the debate over "masculinity." Certain corners of the Left tell us that "toxic masculinity" is a terrible thing. Yet, it's often unclear whether masculinity is itself necessarily toxic, or if toxic masculinity is just one type of masculinity. How masculinity is defined is essential to the debate, and every pundit wants to define it his or her own way. Thus, David French, in his May 28 column for The New York Times, explains that conservatives are "all wrong about masculinity" largely because they employ a faulty definition of it. Meanwhile, Missouri Senator Josh Hawley has published an entire book about "manhood" and "the masculine virtues," supplying his own definitions. For its part, the American Psychological Association tells us that "traditional masculinity" is "marked by stoicism, competitiveness, dominance and aggression" and is "on the whole, harmful."
While this disagreement over what constitutes masculinity may seem unique to the "woke" wars of the twenty-first century, it turns out this lack of general agreement over what constitutes masculine virtue is not new. Historically, one's view of masculinity was formed by one's views of war, the family, the state, and the economy. A society that views military adventures as the most virtuous form of service to society is likely to have a very different view of masculinity than a society that views family, peace, and wealth as the most important building blocks of civilization. Religion matters, too. A first-century Christian defined masculine virtue in a way that was profoundly different from that a Greek pagan.
Not surprisingly, then, we find that social theorists and ideologues of the nineteenth century often fought over what constituted the masculine virtues. As bourgeois, capitalist, industrial civilization spread, its proponents—known as liberals or "classical liberals"—spread their own notions of virtue that were often at odds with older pre-industrial and agrarian ideals.
By the late nineteenth century, the battle lines were being drawn: some argued that masculinity was still defined by hunting, feats of physical strength, and military "service." This point of view was pushed by men like Theodore Roosevelt and those who romanticized the western frontier, such as Owen Wister, author of the highly influential novel, The Virginian. By this philosophy, the only way to become a "real man" was to spend time away from "civilization" on the frontier, shooting at bison or at members of the indigenous population. This "West Cure," as it was known, would supposedly cure men of their more effete habits learned in domestic settings of the cities and towns.1
On the other side of the debate were often liberals who rejected these more traditionalistic notions of masculinity, and instead suggested that true manhood was learned from practicing bourgeois virtues such as prudence, thrift, and devotion to family life. At the forefront of this debate was laissez-faire liberal William Graham Sumner. Sumner doubted that manliness was to be learned through rural dilettantism when real civilization was being built up by the men who were doing the hard work of managing businesses, saving money, supporting families, and educating children.
Sumner's View of the "Industrial Virtues" Sumner is today perhaps most closely associated with the idea of "social Darwinism." This label, as David Gordon points out, is a smear employed by enemies of Sumner and his brand of bourgeois and capitalistic liberalism. Sumner is smeared in this way as part of an effort to portray supporters of market freedom as soulless and indifferent to the fate of those who lose out in an allegedly ruthless system that is geared only toward the "survival of the fittest." In truth, Sumner was an enthusiastic supporter of mutual aid, family devotion, and voluntary cooperation. He simply opposed state planning in these areas. Moreover, according to historian Bruce Curtis, Sumner was fundamentally a Victorian who subscribed to the "late-Victorian ideal" of the "family as a center of love, a retreat from the world's harsh struggles." This view also informed Sumner's views of the family's role within an industrial capitalistic society that Sumner believed could be harnessed to greatly improve the human condition.
Taken all together, this meant that the ideal man—rather than running off to the frontier to indulge primitivist fantasies about the great outdoors—would best learn virtue through service to the family via skills that increased prosperity and security within a modern economy. Curtis summarizes Sumner's thought:
As both a private and public man, Sumner exhibited a range of personality traits that reduce to disciplined self-control and masculinity. ... That emphasis has been recognized in the ethic of a rising middle-capitalist class, which, out of a sense of moral duty and the recognition that such a course led to success and respectability, idealized delayed gratification in both economic and sexual matters and attempted to follow a rationalized life pattern within the framework established by private property capitalism and the private, monogamous, urban family.2
In the nineteenth century, this required something of a new model for manhood, and a disregard for what many traditionalists still regarded as the most manly virtues found in militaristic pursuits. Sumner was not alone in seeing this juxtaposition between two sets of values. Curtis continues:
Sumner accepted a nineteenth century distinction between "militarism" and "industrialism." Militarism encouraged atavistic social tendencies—war and imperialism; hierarchical class structures; monarchical, absolutistic governments; romantic, chivalric, glory-ridden attitudes; submission to traditional authority and custom. Conversely, industrialism fostered admirable qualities of contemporary "high civilization"—peaceful industry within free enterprise capitalism; laissez-faire republicanism that protected liberty under law; a middle-class society that championed popular education, science, rationality, monogamous marriage and the family. The key lesson was that man's long rise from savagery to civilization had been achieved, not by lone individuals, but cooperatively, socially. According to Sumner's sociology, society began within the primitive family.3
By "industrialism," it was not meant simply people who worked in factories of what we consider to be an industrial setting today. Rather, industrialism was the new market-based order that focused primarily on trade, capital accumulation, and contracts as the way to wealth. As Sumner himself wrote, it was this new system that finally allowed men to turn toward more peaceful means of improving one's situation:
What civil liberty does is to turn the competition of man with man from violence and brute force into an industrial competition under which men vie with one another for the acquisition of material goods by industry, energy, skill, frugality, prudence, temperance, and other industrial virtues. Under this changed order of things the inequalities are not done away with. Nature still grants her rewards of having and enjoying, according to our being and doing, but it is now the man of the highest training and not the man of the heaviest fist who gains the highest reward.
For Sumner, the most "civilizing" force could be found in the need to succeed in a free economy in service to one's family:
The value and importance of the family sentiments, from a social point of view, cannot be exaggerated. They impose self-control and prudence in their most important social bearings, and tend more than any other forces to hold the individual up to the virtues which make the sound man and the valuable member of society. ... The defense of marriage and the family, if their sociological value were better understood, would be not only instinctive but rational. The struggle for existence with which we have to deal must be understood, then, to be that of a man for himself, his wife, and his children.
Learning the Wrong Lessons about Manhood Sumner also saw sizable threats to his ideal social structure of markets in service of family. He believed that those who encouraged men (and boys) to indulge in aggression, immoderate consumption, and lawlessness did a great disservice not just to men, but to those who depended on men—i.e., wives and children. In an 1880 essay titled "What Our Boys Are Reading," Sumner castigates the writers, editors, and publishers of a certain "periodical literature for boys" that Sumner describes as
either intensely stupid, or spiced to the highest degree with sensation. The stories are about hunting, Indian warfare, California desperado life, pirates, wild sea adventure, highwaymen, crimes and horrible accidents, horrors (tortures and snake stories), gamblers, practical jokes, the life of vagabond boys, and the wild behavior of dissipated youths in great cities. This catalogue is exhaustive—there are no other stories. The dialogue is short, sharp, and continuous. It is broken by the minimum of description and by no preaching. It is almost entirely in slang of the most exaggerated kind, and of every variety—that of the sea, of California, and of the Bowery; of negroes, "Dutchmen," Yankees, Chinese, and Indians, to say nothing of that of a score of the most irregular and questionable occupations ever followed by men.
Sumner, of course, is talking about the so-called dime novels or "story papers" of the period which very often preached their own version of the "West Cure" to their young readers. That is, this literature instructed the reader that the best way to be "manly" was to avoid the domestic, bourgeois life of family and prudence, and to instead embrace something else entirely. As Sumner puts this, the dangerous lessons within the pages of these magazines taught boys that:
The first thing which a boy ought to acquire is physical strength for fighting purposes. The feats of strength performed by these youngsters in combat with men and animals are ridiculous in the extreme. In regard to details the supposed code of English brutality prevails, especially in the stories which have English local color, but it is always mixed with the code of the revolver, and in many of the stories the latter is taught in its fulness. These youngsters generally carry revolvers and use them at their good discretion; every youth who aspires to manliness ought to get and carry a revolver. ...
Quiet home life is stupid and unmanly; boys brought up in it never know the world or life. They have to work hard and to bow down to false doctrines which parsons and teachers in league with parents have invented against boys. To become a true man, a boy must break with respectability and join the vagabonds and the swell mob. No fine young fellow who knows life need mind the law, still less the police—the latter are all stupid louts. ... The sympathies of a manly young fellow are with criminals against the law, and he conceals crime when he can.
To many modern readers, Sumner perhaps comes off as a tiresome moralist in these passages. Yet, Sumner's agitation over the topic reflects his real concern for middle-class and working-class Americans who he believed had the opportunity to participate in the benefits of a modern market economy. Be rejecting the industrial virtues, these men had condemned themselves to hardship by embracing a childish ethic of self-indulgence rather than the truly masculine values that led to a productive middle-class household.
Sumner may have found this "boys' literature" especially vexing given that literature did exist at the time that promoted the domestic and bourgeois virtues he favored. Unfortunately, this literature was generally targeted at girls—books more along the lines of 1908's (still-popular and thoroughly entertaining) Anne of Green Gables and its sequels.
Nonetheless, one can see Sumner's point. If teaching values such as prudence, thrift, and self-denial are the keys to forming the most desirable types of men, then dime novels promoting violence and the nineteenth-century version of "van life" are hardly desirable.
At this core of all this, however, is not masculinity for its own sake. Sumner views the modern, industrial, post-militaristic model of masculinity as critical to building up the family which is at the core of a prosperous, free, and civil society.
Read More:
- Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre by Ryan McMaken
- The Political Economy of William Graham Sumner: A Study in the History of Free-Enterprise Ideas by Dominick Armentano
- "The Forgotten Man" by William Graham Sumner
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"Freedom, Inequality, Primitivism, and the Division of Labor" by Murray Rothbard
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- For a detailed examination of the conflict between bourgeois values and the "primitivism" of the West Cure, see Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.
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- Bruce Curtis, "Victorians Abed: William Graham Sumner on the Family, Women, and Sex," American Studies, 18 (Spring 1977), 120
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- Ibid., p. 106
While the US ratchets up efforts to isolate its many enemies, the Chinese, the Saudis, the Arab League, and OPEC all shrug and look to increasing international communication and trade.
Original Article: "Thanks to Sanctions, the US Is Losing Its Grip on the Middle East"
Last month, the Biden administration’s Environmental Protection Agency proposed new power plant regulations that would put harsh limits on the amount of carbon dioxide released while producing electricity. This comes from the same administration pushing to electrify all parts of daily life, from driving to cooking. As if slamming the power grid with artificial demand is not enough, now the federal government has also set its sights on electricity suppliers.
Policies as ludicrous as this are only possible because the ideology they rest on, environmentalism, has long enjoyed a perch on the moral high ground that has gone almost unchallenged. That needs to change. Environmentalism presents itself as a philosophy advocating benevolence toward nature and prudence with resources. But in reality, it is an antihuman ideology capable of justifying atrocities.
Environmentalism rests on the valuation of untouched, nonhuman nature as the highest good. There are, of course, radical and moderate environmentalists, but all adherents subscribe to this fundamental moral valuation. They only differ in their degree of consistency.
This moral view was perhaps best summarized by National Park Service biologist David Graber in his 1989 review of Bill McKibben’s book The End of Nature. Dr. Graber concludes his review with these three haunting paragraphs:
That makes what is happening no less tragic for those of us who value wildness for its own sake, not for what value it confers upon mankind. . . . McKibben is a biocentrist, and so am I. We are not interested in the utility of a particular species, or free-flowing river, or ecosystem, to mankind. They have intrinsic value, more value—to me—than another human body, or a billion of them.
Human happiness, and certainly human fecundity, are not as important as a wild and healthy planet. I know social scientists who remind me that people are part of nature, but it isn’t true. Somewhere along the line—at about a billion years ago, maybe half that—we quit the contract and became a cancer. We have become a plague upon ourselves and upon the Earth.
It is cosmically unlikely that the developed world will choose to end its orgy of fossil-energy consumption, and the Third World its suicidal consumption of landscape. Until such time as Homo sapiens should decide to rejoin nature, some of us can only hope for the right virus to come along.
That final line was unsurprisingly revisited during the last few years. In this view, if there was anything bad about covid-19 it’s that it was not deadly enough—especially for young people who have yet to have kids. That viewpoint is evil.
This idea that humanity is a cancer can be found in the writings and arguments of other environmentalists, though most are less explicit. However, that fundamental moral frame is still there. Humans are seen as something separate from nature—an outside force diluting and corrupting nature with concrete, plastic, and carbon dioxide. If an untouched, wild planet is seen as the highest good, then any human development to make the environment more livable for humans is to be seen as the moral bad. The global climb out of extreme poverty brought about by industrialization is not to be considered a miracle but a tragedy.
This idea isn’t often said outright as Dr. Graber did above, but the sentiment can be found in widespread aversion to man-made materials, disgust with urban sprawl, and the aim for low carbon footprints. We’re so used to hearing that low carbon footprints are good, but give it a little thought: Environmentalists will freely admit that one of the worst things you can do for your carbon footprint is to have children. That’s true. And on the other, less talked about end, the people who best lowered their carbon footprints were history’s biggest mass murderers. This is a blatantly antihuman metric for success and an obvious pretext for future atrocities.
All that said, the ideologues responsible for developing and advocating this moral framework are only one part of the broader movement that has thrust environmentalism to the forefront of US policy. This green coalition has many members:
- Politicians who want to win elections and secure a place in history
- Bureaucrats who want greater control over more people and resources
- Media leaders who like scary-sounding stories
- Academics who want relevance, funding, and power
- Energy companies who care about their brand and who want to maneuver themselves to benefit from policy changes
- Activists who want to feel like they’re saving the world
- Managerial elites who quite literally think they can and should run the world
- Everyday people who have actively or passively accepted the environmentalist narrative
As long as they’ve been around, governments have latched on to ideologies that justify seizing more power. The unitary executive theory did not intrigue the George W. Bush administration because of its sharp arguments but because it promised them more power. The same can be said for Keynesian economics and now for environmentalism.
Over the past few decades, this coalition has taken up a campaign aimed mainly at young people to terrify the population into handing over nearly total control of the economy to fend off an ecoapocalypse caused by climate change. The argument for this is branded as one straightforward point of settled science, but it rests on nine unique premises:
- The climate is not static, it is changing.
- The climate is currently warming.
- This warming will have terrible consequences.
- These terrible consequences cannot be overcome.
- Humans are responsible for the warming.
- Humans can slow or reverse the warming.
- Nearly all humans are incapable of making the choices necessary to slow or reverse the warming.
- A subset of humans is smart enough to understand the choices necessary to slow or reverse the warming.
- This subset of humans can and should use the force of government to compel the rest of the humans to make any and all changes to their lifestyle that are necessary to slow or reverse the warming.
This is presented not as a series of positive statements to be considered but as one single absolute truth that must be accepted in full. And the coalition has worked hard to create a high social cost to any level of disagreement. Further, the “lifestyle change” that is required is the deindustrialization of the developed world mixed with a halt to the industrialization of the Third World.
Although many in the developed world have thus far shown a willingness to be made poorer by their governments, the Third World will require the heavy hand of militarized government to stop them from industrializing. Denying billions of people the means to climb out of poverty will be met with resistance. And peddling the fiction that it can be done with solar and wind energy can’t sidestep the ugly problem at the heart of global climate initiatives.
There’s a common misconception that the next great evil ideological mania to sweep our world will be easily identified as a sinister movement from the outset. But that’s not true. The next great evil will play out like all the past ones. It will sound good to many. It will be popular. And there will be social pressure to join in. But underneath the moving language will lie a rejection of humanity—be it a subset or the whole species. That rejection plants the seed for future atrocities.
Environmentalism has all the traits of such an ideology. It does not deserve to hold the moral high ground. A healthy, clean, prosperous environment for humans is what our species has been building for thousands of years. Do not fall for the tricks of those who want to halt or reverse that progress, and never support a movement that thinks the world would be better without you in it.
More than forty years ago, Leonard Read urged graduates of Hillsdale College to find a premise, a belief in a universal idea of liberty.
Original Article: "Living by a Premise"
Another year has brought another record United States trade deficit, along with the usual dismissal of it as anything but a symbol of American excellence and a booming economy. It is true that, in our modern monetary system, a balance of payments deficit is simply the aggregate exchange of domestic asset ownership for foreign goods and services and not a problem in and of itself.
Measuring economic activity in fiat currency, however, is akin to using an ever-changing tape measure, and we must be highly suspicious of any conclusions derived from such figures.
The Raw NumbersIt is wise to take stock of the jaw-dropping nominal figures. The annualized US trade deficit in the first quarter of 2022 was equivalent to the gross domestic product (GDP) of Indonesia, and imports of US goods and services of the same time period amounted to roughly the GDP of Germany.
Figure 1: US imports of goods and services, 2001–23
Source: US Bureau of Economic Analysis (BEA), FRED.
Figure 2: US trade deficit, 2013–23
Source: Organisation for Economic Co-operation and Development (OECD), FRED.
If we simply examine our everyday consumptive habits, it certainly seems like fewer and fewer of those goods are produced domestically. These figures only lend further credence to this conclusion.
The Relative NumbersThe ratio of exports to imports (essentially an inflation-adjusted measure of the balance of trade), however, remains around the same level it was forty years ago.
Figure 3: Ratio of US exports to imports, 1945–2023
Source: BEA, FRED.
The same can be said for the trade deficit as a percentage of GDP and as a percentage of the M3 money supply over the last forty years. However, both have been more than cut in half since 2006.
Figure 4: The US trade deficit as a percentage of GDP and M3 money supply, 1960–2023
Source: OECD, FRED.
Imports as a percentage of nominal GDP, meanwhile, have fallen since 2008 and are at the same levels as in 2000, lower than in Germany, the United Kingdom, and even isolated societies such as India and Japan.
Figure 5: Imports as a percentage of GDP in the US, Japan, the United Kingdom, Germany, and India, 2000–2023
Source: OECD, FRED.
Furthermore, US imports from China are also well off record highs, both in nominal terms and as a percentage of GDP and M3.
Figure 6: US imports from China as a percentage of M3 money supply and GDP, 1985–2023
Source: US Census Bureau, BEA, and OECD, FRED.
This comparative data suggests that US raw trade figures are simply behaving as every financial asset or economic data point has over the long term when measured in fiat currency: continuously making new highs, reflecting the ever-expanding money supply and the ever-shrinking purchasing power of a unit of fiat currency. When adjusted for inflation, the US economy actually appears to have become slightly more isolated over the past decade and a half.
So how may we explain the discrepancy between our observable economic surroundings and such contradictory statistical evidence?
The Real NumbersWhile this previous conclusion that the US economy appears to have become more isolated seems appealingly counterintuitive, a more qualitative analysis can answer the question of the discrepancy. Since 2008, the US dollar has risen against the vast majority of the currencies of US trade partners, keeping import prices in check.
Figure 7: US import price index, 1999–2023
Source: US Bureau of Labor Statistics, Trading Economics.
During that same period, the US money supply has continually expanded, and domestic economic figures measured in fiat currency such as GDP have artificially increased. An increasing money supply combined with subdued import prices has thus allowed Americans to increase the real, physical volumes of their imports without imports rising as a percentage of GDP.
Figure 8: US merchandise import volume index, 2005–22
Source: World Trade Organization.
We may therefore conclude that the disparity between economic data and eyewitness testimony is a consequence of favorable exchange rates suppressing the value of imports in relation to domestic goods and services as well as concealing the importance of foreign products in the US economy.
ConclusionThe use of fiat currency is responsible for countless socioeconomic problems, but its most important consequence may well be the distortion of price signals, which severely diminishes our ability to discern economic activity through statistics.
The combination of ever-expanding money supplies and the free-floating exchange rates of fiat currencies drastically alters the dynamics of international supply and demand.
If US exchange rates were to fall and import prices were to rise, Americans would have to severely diminish or alter their current consumption levels.
However, as long as the inflationism of foreign central banks rivals that of the Federal Reserve, the US dollar will maintain its dominance, and the status quo will be maintained.
The Bureau of Labor Statistic (BLS) released new jobs data on Friday. According to the report, seasonally adjusted total nonfarm jobs rose 339,000 jobs in May, well above forecasts. The unemployment rate rose slightly from 3.4 percent to 3.7 percent (month over month).
Headlines in the mainstream media declared the headline employment data to be evidence of very strong job growth and economic success. According to Politico, the latest jobs numbers are evidence of a "remarkable resilience of President Joe Biden’s economy" and NPR declared the job market to be "sizzling hot."
Yet, May appears to be yet another month in which it seems nearly every economic indicator except the payroll jobs data points to an economic slowdown. The Philadelphia Fed's manufacturing index is in recession territory. The Empire State Manufacturing Survey is, too. The Leading Indicators index keeps looking worse. The yield curve points to recession. Even Federal Reserve staffers, who generally take an implausibly rosy view of the economy, predict recession in 2023. Individual bankruptcy filings were up 23 percent in May. Temp jobs were down, year-over-year, which often indicates approaching recession.
So how do we square all this with yet another jobs report that claims to tell us that the job market is the best it's been in decades?
Well, a lot of the jobs data isn't actually very good. The headlines have focused on the so-called Establishment Survey which is a survey of employers and shows only the number of positions, not the number of employed persons. The Household survey, on the other hand, surveys people.
The Household survey over the past two years has not shown nearly as much job growth as the Establishment Survey.
Specifically, we find that since 2022, the Establishment Survey and the Household Survey have ceased to follow a similar trend, with a sizable gap forming between the two surveys. In fact, over the past two years, the two surveys show a gap of 2.2 million:
Moreover, in May, while the Establishment Survey showed a gain of 339,000 jobs month-over-month, the Household Survey showed a loss of 310,000 employed persons. That's a gap of more than 600,000. Looking at month-to-month changes, we can also see how the two surveys have diverged since April 2022.
Part of this growing gap may be due to the fact that the number of responses to the Establishment survey has dropped off in recent years, suggesting that the survey is waning in its reliability as an indicator of the overall economy. The Household Survey, meanwhile, has not seen as large a drop off in responses.
Another factor is the fact that the Establishment Survey does not track self-employed workers, and self-employment has been a significant factor in employment trends over the past three years. Self-employment collapsed in April 2020, but surged by April 2021 to historic highs. It is unknown, of course, how many of these workers were actually replacing lost income from covid-related job losses in this period. By 2023, however, self-employment had collapsed again, and year-over-year self-employment growth dropped by 6.5 percent in May. Excluding the covid lockdown period, that's the largest year-over-year percentage drop since December 2007, when the Great Recession officially began.
We might also note that overall, the total number of payroll jobs, as shown in the Establishment Survey, is now up by 3.7 million jobs since the previous peak in March 2020 peak. The Household survey, on the other hand, shows total employed persons up by only 1.9 million persons over the same period. That's a gap of 1.7 million.
The fact that the two different employment reports tell two different stories has led some economists to wonder about the media's rosy jobs narrative. As reported by Yahoo Finance last week, economist Ian Shepherdson noted
"This is the strangest employment report for some time... [R]ight now the data suggest that economic growth is stronger than is indicated by most other monthly data. The downward trend in job growth since the summer of 2021 now appears to have flattened-off, though that could change with revisions."
And economist Paul Ashworth pointed out:
"The bigger-than-expected 339,000 increase in non-farm payroll employment in May will dominate the headlines, but the employment report was not all positive — with a big drop in the household survey measure of employment driving the unemployment rate up to a seven-month high of 3.7% and average weekly hours worked edging down to a three-year low."
We might also note that the year-over-year gain in average hourly earnings in May (according to the Household Survey) fell to a 25-month low. If the Cleveland Fed's "Nowcast" is right about inflation for May, then May will have been another month of falling real wages.
Part of the confusion and contradictory date no doubt arises from the fact that "jobs" are not at all homogeneous and employment trends can differ greatly across different industries and regions. This is the natural outcome of fact that monetary inflation is not at all neutral as it enters the economy—as the Austrian School has long pointed out. The current trend of rapidly decelerating monetary growth will have sizably different effects across the economy. The Establishment Survey is especially inept at capturing these trends in real time.
Volume 1, Number 4 (1977)New York's current financial woes have a precedent, and perhaps a solution, in the pages of the distant past. Well back in its history, in the late 1830s, New York State was spending and lending money lavishly. By the early 1840s, the rapidly mounting debt had occasioned a severe financial crisis. To avert the imminent possibility of bankruptcy and default, the state legislature in 1842 passed what was known as "the stop and tax law", a levy of one mill on each dollar of taxable property. The new revenue helped the state meet its most pressing obligations. But, even more importantly in terms of the future, New York decided to take steps to prevent another such fiscal disaster. Ambitious projects for internal improvements — mostly canal construction and loans for railroad building — were cut back or abandoned unless there was a reasonable expectation that they could be funded from tolls or taxation. And the legislature also issued a call for a constitutional convention. The new Constitution adopted in 1846 placed strict limits on the state's ability to borrow money. Thus the people of New York, facing problems similar to the state's later predicament, found the answer in an old-fashioned program of reduced spending and new taxes. What is surprising, however, is that such policies had the popular support of the most democratic and liberal elements in the state.
To understand the unusual sequence of events which culminated in the New York State Constitution of 1846, one must go back in history to the Jacksonian era and the political struggles between the Democrats and the Whigs. In New York the Jacksonian Democrats included a wide-ranging constituency of radical workingmen, Irish immigrants, farmers, intellectuals, and representatives of the new rising business or small capitalist class. The preponderance of the older landed aristocracy and wealthier classes, together with the most English or Anglo-Saxon elements in the population, gravitated toward the Whig Party. The Whigs, united nationally by their opposition to Andrew Jackson's Presidency, were the ideological heirs in New York State of DeWitt Clinton, five times governor and father of the Erie Canal. Like Clinton, the Whigs supported the generous use of state funds for internal improvements as well as for various cultural, humanitarian, and educational endeavors. The Whigs' belief in positive government and social reform reflected their paternalistic conception of politics and economics.1
Quite different were the ideas of the Democrats who, in contrast to their Whig opponents, stood for a strict construction of the United States Constitution, limiting the governing power to its least essentials. Both nationally and in New York State, the Jacksonian Democrats adhered to the Jeffersonian agrarian maxim that the least government it the best government. In New York the leader of the Democratic Party was Martin Van Buren, head of the famed Albany Regency which controlled the state governmental machinery through most of the 1830s and '40s. The most radical Democrats, known as Locofocos, were somewhat to the left of Van Buren and the Regency. They included an interesting collection of intellectuals and politicians who espoused a negative, anti-statist democracy. As against the paternalistic philosophy of the Whigs, the Locofoco Democrats stressed complete laissez faire in government-business relations. For example, the introduction in 1837 to the first issue of the United States Magazine and Democratic Review, organ of the more radical Democrats, defined the party's belief in democratic republicanism and majority rule. But the editors added:
The best government is that which governs least. No human depositories can, with safety, be trusted with the power of legislation upon the general interests of society so as to operate directly or indirectly on the industry and property of the community. Such power must be perpetually liable to the most pernicious abuse, from the natural imperfection, both in wisdom of judgment and purity of purpose, of all human legislation, exposed constantly to the pressure of partial interests; interests which, at the same time that they are essentially selfish and tyrannical, are ever vigilant. persevering, and subtle in all the arts of deception and corruption.2
Most forthright of the radical Democrats was William Leggett, a Locofoco colleague in the 1830s of such New York Democratic writers as James Fenimore Cooper, William Cullen Bryant, Theodore Sedgwick, and Parke Godwin. Leggett coupled adherence to the Jeffersonian natural rights philosophy with demands for the equal right to property, not its abolition. Governments had no warrant to interfere with individual pursuits by offering financial advantages to any particular class or industry. Specially chartered banks, including the Bank of the United States, were a favorite target of Leggett's scorn. "Let the banks perish," he wrote. "Now is the time for the complete emancipation of trade from legislative thralldom."3
As a part of their general laissez-faire philosophy and opposition to Whig paternalism, the Democrats were also dubious of those social and humanitarian reform movements which infringed upon individual liberty and private property. Thus they were hostile to the abolitionists even though this meant ignoring the question of freedom for the black slave. Imprisonment for debt attracted little attention from either Democrats or workingmen until public interest in the matter became too strong to be ignored. The workingmen's parties were, however, in a peculiar position because wage earners wanted preferential creditor status through a mechanics' lien law. Even public schools had difficulty winning Democratic support because their expense involved heavier taxation. Charity schools and use of the Lancastrian system of pupil tutors instead won Democratic favor. A system of statewide public education would also interfere with parents' control over their children and might undermine religious freedom.4
In Washington, Andrew Jackson, the Democrats' hero, enjoyed an uneasy and controversial Presidency. His years in office from 1829 to 1837 formed an era in which easy credit, cheap land, and internal improvements all contributed to an inflationary prosperity. At the same time, Jackson's own inclinations tended toward the limitations on federal spending favored by his friend and political adviser Van Buren. As governor of New York in 1828, Van Buren had secured passage of the Safety Fund System to safeguard the banks and assure the state of a source of credit and wealth to go along with the Erie Canal. The state-chartered New York banks cast doubt on the need for the federal United States Bank, while the state-constructed Erie Canal rebuked the western states' clamor for federal aid for their own internal improvements. Moreover, the Jeffersonian principle of states' rights and opposition to federal centralized power, espoused by Van Buren and the New York Locofoco Democrats, was also able to gain national success by Jackson's Bank of the United States and Maysville Road vetoes.5
In 1836 the United States for the only time in its history was without a national debt; a year later the federal government was briefly in a position to distribute its surplus revenues to the states. But the Jacksonians, despite the President's efforts to moderate or level out the economic boom, were unable to ward off its financial aftermath in the Panic of 1837. Van Buren, Jackson's successor in the White House, fell a political victim to the Panic, and in New York in 1838 the Democrats were overturned by the Whigs who elected William H. Seward as governor. Governor Seward, it should be noted, was an admirer of DeWitt Clinton who had earlier helped inaugurate the transportation revolution in New York. Upon completion of the Erie Canal in 1825, he had urged further state expenditures for new canals, turnpikes, and eventually railroads, as well as a generous policy of chartering banks and insurance companies. Now, in 1840, the Whigs under Governor Seward called for the appropriation of four million dollars for ten years to build additional canals and railroads. Henceforth dubbed "the forty million dollar party", the Whigs to their misfortune had ignored the adverse effects of the Panic of 1837 on the state's declining credit. Alarmed critics warned that the cost of public works would soon increase the state debt to as much as 75 million dollars with annual interest charges of 4.5 million. Already by 1842, when the Democrats regained control of the legislature and passed the stop and tax law, the state debt which five years earlier amounted to 7 million dollars had grown to 27 million dollars, and state bonds were unmarketable even at a discount of 20%. Instead of continuing to spend money for internal improvements, the Democrats, at a cost of 40 million dollars in principal and interest, proposed to extinguish the state
debt in twenty years. As a result of such conservative fiscal policies, within two months of the stop and tax law the state's 7% bonds sold at par, while 5% bonds reached that level in 15 month.6
By the 1840s national opinion in regard to state aid for internal improvements was undergoing a change. The former public enthusiasm for heavy state expenditures had run its course. Some of the new states in the West were in default on their bonds. State initiative and responsibility had been necessary earlier for such ambitious undertakings as the Erie Canal, but after the return of prosperity in the 1840s private capital, just beginning to be accumulated by American manufacturing and industry, was available for investment. Railroads were now becoming the most important means of transportation, but railroads with their special rolling stock could not be considered public in the same sense as a canal, a river, or a turnpike. Although railroad builders frequently turned to the states to help raise the large amounts of capital they required, most of their funds in New York came from individual savings and from credit extended by American banks. Accordingly, while there was little foreign investment in, or municipal aid for, New York State railroads until after the Civil War, the New York Central by 1853 had 2331 stockholders.7
The decline of public aid and intervention in economic enterprise was most marked in some of the eastern states where the old colonial concept of the commonwealth fell victim to a surge of anti-government feeling. Although various economic and social groups continued to desire political intervention in behalf of their own self-interests, the fear of more state taxes and increasing state indebtedness blocked heavy public expenditures throughout the 1840s. Instead of continuing to take a positive, direct role in the economy, the state granted its economic powers to private banks and stock companies. For example, the Free Banking Act passed by New York in 1838 abolished the old system requiring special legislation for each bank charter and in effect introduced competition into banking. Under general incorporation laws, state charters were now granted to all manner of enterprises which, in pursuing their own private ends, were largely freed of the public responsibility associated with governmental agencies and the earlier semiprivate corporation. Democratic reluctance to continue the specially chartered corporation for a favored few had dispersed the privilege of incorporation among many stockholders and had separated it from responsibility to the state.8
Legislation for free banking and general incorporation laws accordingly had the support not only of the business community but also of those opposed to all governmental aid and protection for selected enterprises. Locofoco Democrats and workingmen united in the crusade against economic monopoly and special privilege, although labor sometimes identified its own true interest with that of the whole community. In any case, the state was usually too weak in an administrative sense to enforce either its own definition of the public interest, or to give its full support to various private or special interest groups. Thus laissez faire and the cry of equal rights for all and special privileges for none was a more appealing political philosophy in the 1830s and '40s than any Whiggish notions of a paternalistic and expensive government.9
It was in response to these views that the Democrats pushed ahead with their plans for drafting a new state constitution. William C. Bouck, the conservative or Hunker Democratic successor to Seward as governor in 1843 and 1844, favored a moderate course on internal improvements despite the Democrats' stop and tax law of 1842. But when Silas Wright, a close friend of Van Buren and the staunchest disciple of Jeffersonian agrarian democracy in New York State, was put forward for the nomination of governor, Bouck and the conservative Hunker faction had to retreat. Wright in his first annual governor's message in January 1845 praised the stop and tax law for restoring the state's credit. Three fifths of the state's debt charged to the General Fund, he pointed out, had been incurred by unwise loans to railroads that had proved unable to pay their obligations. Wright also announced that he favored calling a constitutional convention.10
In a series of articles analyzing the progress of constitutional reform, which appeared at this time in the Democratic Review, John Bigelow, one of the party's intellectuals, listed some of the changes which he believed New York and other states should adopt. These included a provision that "The state should have no power to contract debts, or loan its credit, except in case of war, invasion, or insurrection." In the matter of a general incorporation law, Bigelow urged: "The members of such Corporations, (not excepting those established for education or charity) should be individually liable for the debts, liabilities, and acts of such Corporation, and for the consequences resulting therefrom." Furthermore: "All laws or regulations interfering with the liberty of trade or industry (such as license and inspection laws) should be abolished, and their enactment for the future prohibited." Bigelow added as miscellaneous proposals the abolishment of the death penalty and permission for women to control their own property after marriage.11
The New York Constitutional Convention, which met in the summer of 1846, completed its labors in time for the voters to approve its handiwork that same year. Although the anti-statist views of such Jeffersonian Democrats as Bigelow and Wright were subject to some modification and compromise, the New York Constitution of 1846 embodied the laissez-faire position better than any document in the state's history. Only after all debts were paid through a sinking fund could the state appropriate any surplus for canal improvements and extensions not already mandated by law. Corporations including banks were to be chartered under general laws rather than by special act. Stockholders were made liable to the amount of their shares for all debts and liabilities contracted by their banks. As an epitaph to the anti-rent wars which had reached a climax in 1846, the Constitution abolished all feudal tenures and perpetual leases. Male suffrage was made universal except for Negroes who had to possess an estate of the value of $250, unless the people in a referendum on the question voted otherwise.12 This curious and illiberal provision, which was approved by the voters, retained the clause in the 1821 Constitution in which the property qualification was removed for whites but not for blacks. The Negro vote, traditionally cast in favor of the old Federalist slaveowning class, had continued to be exercised in behalf of Clinton and then the Whigs. Though never a large vote, it was opposed by the Democrats chiefly because of labor's influence.13
In a retrospectwe article on constitutional government in the Democratic Review, Bigelow reiterated his libertarian views with the warning that "A great source of inequality in the conditions of men in respect of wealth and comfort arises from the action of law. Too much government has a direct tendency to aid one man or one set of men in the 'pursuit of happiness', and in the 'acquiring, possessing, and protecting property', if not at the expense of the rest, at least without rendering them the like assistance."14 Unfortunately the Jacksonians, despite their defeat of the Bank of the United States, had not been able to slow the growth of wealth and inequality in New York and some of the larger cities in the East in the era before the Civil War. But their more radical laissez-faire views, as embodied in the stop and tax law and 1846 Constitution, disenchanted the wealthier business class which moved more than ever into the Whig Party. Work on the Erie Canal, which the Democrats had stopped in 1842, was resumed in 1847. Moreover, until 1850 railroads had to pay canal tolls to protect the state's vested interested in "Clinton's ditch". After that, canal tolls were reduced to provide competition to the growing volume of traffic carried by the railroad.15
Historians of a later generation have grown accustomed to interpreting democracy and liberalism in terms of the modern welfare state. The negative democracy of the New York Democrats of the 1840s accordingly wins little contemporary approval. Democracy in the eyes of its later adherents has become synonymous with power, preferably such power as may be exercised by a strong executive in the name of people. Some historians even question whether the negative state can be democratic and reason that laissez faire must automatically favor an aristocracy of wealth.16 But what passes for the welfare state today rewards most of all its largest investors in the military-industrial complex. Beneficiaries of the welfare-warfare state's largesse would be horrified by a return to the spirit of the 1840s or to any consistent across-the-board application of laissez faire. Meanwhile New York's Constitution of 1846 remains an interesting, though passing, example of the enactment of Jeffersonian anti-statism into the fundamental law.
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- Useful general interpretations include: Dixon Ryan Fox, The Decline of Aristocracy in the Politics of New York, 1801–1840, ed. Robert V. Remini (1st pub. 1919; New York: Harper Torchbooks, 1965); Edward Pessen, Jacksonion America: Society, Personality, and Politics (Homewood, Ill.: Dorsey Press, 1968); Glyndon G. Van Deusen, "Aspects of Whig Thought in the Jacksonian Period," American Historical Review, Vol. 63 (January, 1958). pp. 305–322.
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- "Introduction," United States Magazine and Democratic Review, Vol. 1 (October, 1837), p. 6.
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- On Leggett, see his A Collection of the Political Writings, ed. Theodore Sedgwick, Jr. (2 vols.; New York: Taylor & Dodd, 1840); and the studies by Richard Hofstadter, "William Leggett: Spokesman of Jacksonian Democracy," Political Science Quarterly, Vol. 58 (December, 1943), pp. 581–594; Marvin Meyers, The Jacksonsian Persuasian: Politics and Belief (Stanford, Calif.: Stanford University Press, 1957), chap. 9; Edward K. Spann, Ideals & Politics: New York Intellectuals and Liberal Democracy, 1820–1880 (Albany: State University of New York Press, 1972).
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- Herbert Ershkowitz and William G. Shade, "Consensus or Conflict? Political Behavior in the State Legislatures during the Jacksonian Era," Journal of American History, Vol. 58 (December, 1971), pp. 591–621, reinforces the view of the age of Jackson as essentially one of laissez Faire. See also Peter J. Coleman, Debtors and Creditors in America: Insolvency, Imprisonment for Debt, and Bankruptcy, 1607–1900 (Madison: State Historical Society of Wisconsin, 1974).
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- New York and Van Buren's influence on Washington and Jackson is discussed in Bray Hammond, Banks and Politics in America from the Revolution to the Civil War (Princeton, N.J.: Princeton University Press, 1957), p. 352.
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- Charles Z. Lincoln, The Constitutional History of New York (5 vols.; Rochester, N.Y.: Layers Co-Operative, 1906), Vol. 2, pp. 76, 81–84, 91ff., 165; Steward Mitchell, Horatio Seymour of New York (Cambridge, Mass.; Harvard University Press, 1938), p. 53.
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- Fox, Decline of Aristocracy, pp. 405–408; Carter Goodrich, "The Revulsion Against Internal Improvements," Journal of Economic History, Vol. 10 (November, 1950), pp. 145–169; Harry H. Pierce, Railroads of New York: A Study of Government Aid, 1826–1875 (Cambridge, Mass.: Harvard University Press, 1953), pp. 8. 16.
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- Oscar and Mary Flug Handlin, Commonwealth: A Study of the Role of Government in the American Economy (1st pub. 1947; rev. ed. Cambridge, Mass.: Belknap-Harvard University Press, 1969), pp. 106ff., 160–161, 191.
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- Compare Walter Hugins, Jacksonian Democracy and the Working Class: A Study of the New York Workingmen's Movement, 1829–1837 (Stanford, Calif.: Stanford University Press, 1960) and Douglas T. Miller, Jacksonian Aristocracy: Class and Democracy in New York (New York: Oxford University Press, 1967).
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- John A. Garraty, Silas Wright (New York: Columbia University Press, 1949), pp. 292, 235.
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- "The Progress of Constitutional Reform in the United States," United States Magazine and Democractic Review, Vol. 18 (June, 1846), pp. 408–412, 420.
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- New York State Constitution of 1846, Article I, Section 12; II, 1; VII, 1, 2, 3; VIII, 1, 4 7.
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- Fox, Decline of Aristocracy, p. 269.
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- "Constitutional Governments," United States Magazine and Democratic Review, Vol. 20 (March, 1847), p. 202.
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- Edward Pessen, Riches, Class, and Power before the Civil War (Lexington, Mass.: D.C. Heath, 1973); Frank Otto Gatell, "Money and Party in Jacksonian America: A Quantitative Look at New York City's Men of Quality," Political Science Quarterly, Vol. 82 (January, 1967), pp. 235–252; Don C. Sowers, The Financial History of New York State from 1789 to 1912 (New York: Columbia University Studies, 1914(, pp. 75, 85, 87.
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- See, for example, Arthur M. Schlesinger, Jr., The Age of Jackson (Boston: Little-Brown, 1945), pp. 512–514, 519–521; Lee Benson, The Concept of Jacksonian Democracy: New York as a Test Case (Princeton, N.J.: Princeton University Press, 1961), pp. 220ff.
The Durham report reminds us it is well past time for a more realistic assessment of the FBI for what it is: a costly, unnecessary, unconstitutional, and incompetent agency.
Original Article: "End the FBI"
Friedrich Hayek’s essay “The Use of Knowledge in Society,” published in 1945 in the prestigious American Economic Review, is often hailed as an important contribution to economics. Rightly so, because it provides important “meat” to the price theory “skeleton.” However, Austrian economists often exaggerate its importance in ways that risk undermining Austrian economic theory.
Primary among the exaggerations is the claim that Hayek showed in his essay that the market system offers the solution to the knowledge problem through prices. Specifically, how prices aggregate and make available relevant information about the particulars of time and space. The role of entrepreneurs is then to adjust their production undertakings to price changes. This, then, constitutes the marvel of the market, as Hayek put it: that entrepreneurial production responds to changes without needing to know the specifics of those changes.
While the essay works well as a critique of the “perfect information” assumption in mainstream economics, which was arguably Hayek’s purpose with writing the essay, a Misesian reading makes clear that the argument is at best incomplete. Hayek’s reasoning greatly oversimplifies the economic calculation argument, downgrades entrepreneurship to responsive action, and misconstrues factor prices as bearers of information about the past. While these are listed here as separate errors, they amount to a single core issue: a misunderstanding or misrepresentation of the market process.
Economic Calculation Is a ProcessThe Misesian economic calculation argument is often misunderstood as the inability of any economy to rationally allocate resources without prices. Market socialists, like Fred Taylor and Oskar Lange, made this mistake. Therefore, as a solution, the market socialists offered a scheme in which socialism could be saved by having a central list of prices that the central planning board’s bureaucrats would update as shortages and surpluses are observed. There are several practical issues with this attempted solution, but the core problem is theoretical: it fails to recognize that the issue is not an inability to aggregate dispersed knowledge but an inability to deal with the uncertainty of the future.
Ludwig von Mises’s economic calculation problem is not merely a matter of gathering and processing information but the issue of meeting the uncertain future in value terms. Investments in production today are necessarily made without knowing whether and to what extent consumers will value the goods and services produced. The issue is not efficiency in the production of specific goods in the present (which is the role of management) but how to decide which investments should be made given unknown future valuations. In other words, today’s factor prices cannot represent information about the past.
Prices Are Future PricesFactor prices also cannot represent information about the present state of the market because production underway is not intended to satisfy wants already held but wants that consumers will hold in the future. Factor prices also incorporate entrepreneurial judgments about what productions are possible. We can easily observe this when new regulations are put in place that do not affect present production but will have an effect in the future. For example, a ban on gasoline automobiles many years into the future would cause prices of factors used in gasoline automobile manufacturing to fall while prices of factors used in production of substitute goods would go up. This should not be the case if prices represent the present. Instead, it should be obvious that the prices represent expectations about the future.
The Role of EntrepreneursThe entrepreneur is at the core of Mises’s economic calculation argument. It is not merely a matter of adjusting production to new information, whether it can easily be aggregated and communicated, but a process of price determination. In markets, entrepreneurs seeking to profit from uncertain future market states determine factor prices. As Mises put it in Human Action: “The entrepreneurs, eager to earn profits, appear as bidders at an auction, as it were, in which the owners of the factors of production put up for sale land, capital goods, and labor.”
What is the basis of the entrepreneurs’ competitive bids for factors? The basis is their appraised value of the goods they intend to make available to consumers (discounted using their rate of time preference). In other words, an entrepreneur expecting to produce goods that they envision will be of high value to many consumers will be able to outbid entrepreneurs who appraise their productions to be of lower value or of value to fewer consumers. The estimated future revenue (adjusted for the entrepreneurs’ required returns and time preference rates) determines the prices they can and will offer for factors in the present.
This bidding process weeds out entrepreneurs whose productions are appraised of insufficiently high value. This process also directs resources into more capable hands. However, it importantly also determines factor prices in the present—based on the entrepreneurs’ collective appraisement of the future value of present production. This issue is missing from Hayek’s discussion. It is also what is missing from the market socialists’ attempted solutions to Mises’s calculation problem.
Hayek’s Incomplete ArgumentAs Hayek puts it in his famous essay:
A rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.
Read as a critique of the “perfect information” assumption in mainstream economics, Hayek’s argument points to an important problem with how information is (mis)understood. It is not perfect but both imperfect and asymmetric, always incomplete and dispersed.
Reading the essay from a Misesian perspective, however, Hayek not only directs the reader’s attention to a relatively unimportant issue but, in effect, misrepresents the calculation problem and therefore the market process.
Radical environmentalists have convinced people that we are doomed if we continue to use fossil fuels. We are doomed if we stop using them.
Original Article: "Energy and Economic Efficiency: The Market versus the Politicization of Our Energy Futures"
Here in the West, particularly in countries such as the United States and Canada, we have experienced radical political and cultural changes over the past several years, and the pace of these changes seems to have accelerated since 2020. In the minds of many, there is an almost palpable feeling that a switch has been thrown and that the relationship between citizens and the state has been permanently altered.
Perhaps the most salient revelation in the wake of these changes is a highly diminished pretense of state legitimacy in Western liberal “democracies.” In the Platonic ideal, this legitimacy flows from the citizens’ belief that their democratic government—ostensibly comprising peers and fellow citizens—effectively and uniformly administers justice and serves the needs of all citizens. These critical needs include protecting the individual citizens and their property from foreign adversaries and domestic criminals. In this ideal, citizens would rest assured that “their” government (which, as Barack Obama would say, is “all of us”) would never turn its destructive wrath upon its own constituents.
It is now the spring of 2023, several years after populist groundswells such as Brexit and Donald Trump’s victory in 2016. Despite what elites and erstwhile “true believers” may claim, fewer and fewer people believe that we are still striving in unison toward the idealized vision of a liberal Western democracy. Mostly peaceful, otherwise-law-abiding citizens are being targeted for relatively minor offenses and political transgressions, while radical leftist agitators and drug-addled street criminals who terrorize cities are quickly forgiven and, in some cases, characterized as victims of an unjust, bigoted society. Some call this situation anarcho-tyranny.
Nations that were once liberal paragons of “democratic” values such as tolerance, pluralism, free speech, freedom for political dissenters, and religious liberty are now mostly led by effete, tone-deaf cosmopolitans or malevolent geriatrics, who are cracking down on those they consider to be backward, superstitious, and racist troglodytes. (The “Q-Anon Shaman” guy could not have been a more perfect culmination of left-liberal stereotypes, even if he were plucked right out of central casting.)
It is a strange time in these Western democracies, though, because the effete ruling class are still learning how to brandish their iron fists. Crackdowns are increasing not only in frequency but also in intensity. Things are not progressing in a linear way; the tyranny is ramping up in awkward fits and spurts.
Canada’s prime minister, Justin Trudeau, has activated his authoritarianism whenever he has deemed it necessary, while simultaneously claiming the mantle of the enlightened defender of liberalism. He gets the privilege of proselytizing about tolerance in between episodes of cringe-inducing cultural appropriation and the unfortunate semiregular appearances of old photos depicting him in blackface. His battle against Canada’s truckers is a prime example of his newfound authoritarian tendencies.
In early 2022, the Freedom Convoy began as a protest against Canada’s vaccine mandates but quickly grew into a national populist movement against draconian covid policies and distant elites who controlled the lives of the residents in Canada’s heartland. In some cases, truckers traveled thousands of miles to Ottawa to park their trucks in the capital city as a mass civil protest against Trudeau’s regime. This level of populist civil disobedience was once rare in Canada. Soon, the politicians became desperate to squelch the movement. Truckers who had peacefully assembled near Parliament were arrested, and Trudeau’s government began shutting down access to the truckers’ bank accounts, blocking their access to cryptocurrency, and threatening to suspend the truckers’ insurance.
These actions were all done without criminal convictions, traditional due process, or the normal window dressings of the enlightened democracy on which the liberal West has always congratulated itself. The Emergency Act was invoked for the first time by a Canadian prime minister, in order to veil the nascent despotism.
Desperate to avoid being labeled as a dictator, Trudeau claimed that the crackdowns on rogue freedom-seeking truckers were just temporary and that things would soon return to legal constitutional norms in the country. These hallowed norms will surely be respected until the next “crisis” comes along.
Over the past few years, there have been many other instances of covid-related or progressive tyranny in Canada, including shutting down Christian churches and even arresting intransigent pastors. Recently, a teenager had been arrested for distributing bibles and confronting transgender activists on a public sidewalk in Calgary.
What has happened in Canada is emblematic of what is going on in the United States and elsewhere in the West. Liberal politicians are now having to deal with an increasingly disgruntled, divided populace and a long-overdue backlash to the politicians’ cosmopolitan, corporatist, and often militarist policies. The Freedom Convoy in Canada may have been peaceful, but as Trudeau reminded the world, the Canadian truckers held “unacceptable views.” That is the crux of the issue: those who hold unacceptable views are no longer welcome to partake in the societies of Western liberal democracies.
There you have it: one of the biggest changes the world has seen in the past few years has been the willingness of erstwhile mild-mannered liberal political leaders to use brutal authoritarian tactics for a brief period on an as-needed basis. At the end of these brief periods of repression, not at all unlike what we have traditionally witnessed in communist and “banana republic” regimes, the political leaders then attempt to return to normal, liberal, and ostensibly constitutional governance—perhaps hoping that nobody had noticed what had just happened.
However, in the wake of Donald Trump’s presidency, Brexit in the United Kingdom, and populist uprisings throughout Europe, things are different, and the proverbial toothpaste cannot be put back into the tube. The liberal authoritarians have now developed a metaphorical arsenal of different tactics and tricks with which they attempt to control their unruly citizen hordes. It should be noted that these tactics and tricks are usually employed temporarily or are broad actions that are implemented sporadically.
In the United States, where citizens have lived under the constant threat of weaponized dementia since January 20, 2021, we have witnessed this ephemeral authoritarianism on many fronts, from covid policies to federal law enforcement tactics.
President Joe Biden initially admitted that the federal government had no authority to implement vaccine mandates. Yet several months later, he changed course and implemented these mandates throughout the military, airports, and federal bureaucracy, which affected more than a hundred million Americans and foreign travelers. Biden went on to angrily chastise vaccine-skeptical Americans, warning them that he was growing tired of their resistance to the jabs: “We’ve been patient. But our patience is wearing thin, and your refusal has cost all of us.” These veiled threats appear to have been effective, with millions of Americans coerced into receiving a covid vaccine for fear of losing their job or incurring the wrath of a tolerant, progressive neighbor/friend/politician. Biden’s vaccine mandates were quietly ended on May 11, 2023, with no mention of an apology or financial settlement for those who were vilified, fired, and ostracized during the covid hysteria.
Federal law enforcement in America has also seen its share of stochastic crackdowns and enforcement. Some nonviolent January 6 protesters and trespassers have received relatively light sentences and probation for their alleged crimes, whereas others—particularly those who had been active on social media in documenting and discussing the events of January 6—received much longer prison sentences. Compared to the relatively low numbers of arrests for nationwide left-wing riots and acts of vandalism against courthouses and other government buildings in the 2020s, investigations and arrests of January 6 defendants have been methodical, thorough, and numerous.
The Federal Bureau of Investigation (FBI) has certainly been busy recently. Aside from trafficking false intelligence reports and participating in the attempt by Hillary Clinton’s campaign to implicate Trump in a Russian-collusion scandal, the bureau has also been raiding the former president’s residence, luring unsophisticated Midwesterners into outlandish kidnapping plots, investigating parents at local school-board meetings, and arresting pro-life activists. (Don’t worry, though; when they knock on your door, the sharply dressed federal agents will be professional as they interrogate you and your family.) The FBI will make sure that, in the future, you think twice about voting for Trump, posting memes about Hillary Clinton, or praying outside of an abortion clinic. Unacceptable views, indeed.
Perhaps some of these authoritarian tactics are waning as we head into the second half of 2023. Perhaps the covid lockdowns and vaccine mandates are fully shelved. Perhaps the FBI and federal law enforcement have been brought to heel and will return to the constitutional limits on their power. However, one thing seems certain: the effete political leaders of the West have learned that they don’t have to be full-time authoritarians to impose their will on the masses; they just have to wait for the next crisis and then move swiftly.
We are familiar with the five stages of grief. However, it is not a stretch to apply those stages to what is happening to the banking system. Right now, we are in the second stage: anger.
Original Article: "The Five Stages of Bank Failure Grief"
A "soft landing" is impossible unless the government cuts both taxes and government spending at the same time interest rates are rising. This won't happen, so get ready for a hard landing.
Original Article: "Crowding Out: The Fed May Be Killing the Private Sector to Save the Government"
Although the Bank of England is largely responsible for inflation in the UK, its leaders blame British consumers and workers for the price increases.
Original Article: "Bank of England Economist: Britons Need to Accept That They’re Poorer"
While talk of high gas prices is no longer a headline issue, energy economics is still a vitally important aspect of understanding the economy, including the business cycle. Mark explains the basics, tells us where we now stand, and what the major implications are for the near future.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
A concrete example of an anarchic order existed within Spain, on the current border between Spain and Portugal, in the kingdoms of Castilla and Galicia. By “anarchy” I mean the abolition of centralized power, not the abolition of authority as leftists conceive it to be. One such regime was called Coto Mixto. It was a small territory located in the basin of the Salas River. Coto Mixto’s residents avoided the control of Spain and Portugal from approximately 1143 to 1868. It measured thirty square kilometers and was part of the Orense diocese.
The one thousand inhabitants of Coto Mixto (according to the 1864 census) did not have a king or feudal lord and maintained historic privileges. Its social structures could be considered anarchic because the mayor, called the judge, was elected by one family head every three years in an assembly, and he was advised by three men of the different villages within the region. It worked similar to a contemporary neighborhood’s association, in which one member per house chooses one chairman every one or two years. Furthermore, laws were immemorial unwritten traditions and customs, not distant from the natural law.
During seven centuries, they kept historical rights recognized by the other kingdoms, such as free choice of citizenship, tax exemptions, and nonmandatory military service. No security forces had jurisprudence inside Coto Mixto, and any person could be arrested or deprived of his wealth, although locals gave people accused of murder to Spanish forces if the evidence was conclusive. They also had rights of asylum and farming freedom, so they could grow tobacco, which was—and to this day still is—a state-enforced monopoly in Spain. They could have practiced free trade thanks to the “Camiño Privilegiado,” a commercial route between Portugal and Spain in which no foreign authority could impose tariffs.
There is no evidence of higher criminality in the free society of Coto Mixto compared to Portugal or Spain, contrary to the statist claim that anarchic societies are insecure. Moreover, locals were devout Catholics, and they respected all traditions and cooperated for the common good; it appears, therefore, the idea that we need the state to enforce morality and virtues is another myth. Finally, this anarchist society was stable for seven centuries without any war and without any need of a state to keep peace, prosperity, and stability.
Having considered the virtues of this regime, we must then ask the question, Why did Coto Mixto disappear? The reason was that the liberal government (in Spain, we refer to this historical period as Jacobin liberalism) of Queen Isabella II saw in Coto Mixto one problem for their homogeneity and egalitarian goals.
Thus, they started a smear campaign against the mixtos in the name of national security, claiming that the hundreds of people benefiting from mixtos favored smuggling and crime. As we have seen, such claims are obvious slander, but it was enough for the kingdoms of Spain and Portugal to sign an agreement called the Treaty of Lisbon to partition off the territory of Coto Mixto in 1864. The locals finally surrendered in 1868.
There are a lot of questions about real anarchy. Could anarchy with order work? Sure, because it is the natural system of human organization based on natural law. Could this system last over time? Yes, but we should remember that Coto Mixto lasted for such a long time due to feudal rights and the passivity of the Spanish and Portuguese governments. As soon as these powers so desired, they did away with all the historical legal customs and liberties just because they had more powerful armies, similar to any modern government doing away with any constitutional limits to their power.
The idyllic solution of splitting Europe into hundreds of political units without any state being bigger than Liechtenstein or the small principalities of the Holy Roman Empire will be difficult if we do not look back to the past and consider feudal rights again, not as evil institutions but as a viable alternative to the increasing centralization of the state power of a few bureaucrats in Brussels, the United Nations, the North Atlantic Treaty Organization, the European Union, and all the international bureaucratic institutions controlled by elites who want a world state. Secession can only be possible if citizens of close city-states never legitimize military attacks against their neighbors. Without a victory in the culture war, all secessionist and anarchist movements will be smashed with the disproportional use of force.
Coto Mixto is just one example in a long list of ordered forms of anarchic societies. For more examples, the reader can refer to the American West (nineteenth century), Celtic Ireland (650–1650), the Icelandic Commonwealth (930–1262), Rhode Island (1636–48), Albemarle (1640–63), Pennsylvania (1681–90), and Cospaia (1440–1826). Anarchy is not impossible.
[This article is adapted from a lecture delivered at the Reno Mises Circle in Reno, Nevada. on May 20, 2023.]
It is not an exaggeration to say that property rights are a prerequisite for civilization. As Ludwig von Mises wrote in The Free and Prosperous Commonwealth:
Private property creates for the individual a sphere in which he is free of the state. It sets limits to the operation of the authoritarian will. It allows other forces to arise side by side with and in opposition to political power. It thus becomes the basis of all those activities that are free from violent interference on the part of the state. It is the soil in which the seeds of freedom are nurtured and in which the autonomy of the individual and ultimately all intellectual and material progress is rooted (emphasis added).
The story of the Pilgrims shows that America was literally created because of the recognition of this truth. In 1607 all but 38 of the original Jamestown, Virginia settlers were dead from famine. An additional 500 came and 440 died. This was known as the “starving time.” Sir Thomas Dale, the high marshal of the Virginia colony, recognize the problem to be what we would today call agricultural socialism. The residents of the colony worked the fields and shops and everything was put into a common store. Each family was given an equal allotment. Thus, the man who worked diligently fourteen hours a day was paid the same as the man who decided to work not at all.
Sir Thomas Dale gave each man three acres of private land to homestead, which was soon expanded to 50 acres. It made all the difference, as people realized that the harder, smarter, and longer they worked, they more they and their families would prosper.
The exact same scenario played out years later in Plymouth, Massachusetts where half of the original pilgrims died. The wife of William Bradford, the leader of the Mayflower expedition, committed suicide by jumping off the Mayflower because of all the death surrounding her. Her husband, like Sir Thomas Dale, finally figured out the problem—the absence of private property and secure property rights. Homesteading of private property was established, and the American colonists began to thrive.
Homesteading combined with secure property rights and almost no government intervention resulted in each region of the colonies excelling by relying on their comparative advantages. New England excelled in shipping, fishing, and primitive manufacturing, while the Southern colonies became agricultural powerhouses. The American economy in 1775 was 100 times larger than it was in the 1630s and the American colonists had one of the highest per capita incomes in the world.
The American Revolution was a war of secession from the corrupt mercantilism of the British empire characterized by cronyism, protectionism, military imperialism, and central banking in the form of the Bank of England. Citizens of empires are viewed by their rulers as mere tax slaves and cannon fodder at the disposal of the state, and the American colonists had had enough of it.
The Road to Legal PlunderIn his recently published John C. Calhoun: Statesman for the Twenty-First Century, Clyde Wilson pointed out that in his famous 1850 Disquisition on Government, which Murray Rothbard praised as the greatest work in political philosophy written by an American, Calhoun perceived the political world of the first fifty years of the nineteenth century as a constant battle between the Hamiltonian vision of a highly centralized, monopolistic state with heavy taxes, heavy public debt, protectionism, corporate welfare, and military aggression financed by a central bank, and the Jeffersonian vision that was essentially the opposite. (Hamilton argued for a permanent president at the constitutional convention and stormed out when he didn’t get his way).
Presidents Jefferson, Madison, Monroe, Jackson, and Tyler all opposed or vetoed some or all of the Hamiltonian vision, dubbed “The American System” by Hamilton himself, which included protectionism, corporate welfare, and central banking. Such a vision provides the ingredients of what Frederic Bastiat called “legal plunder” in his famous book, The Law, also published in 1850. Calhoun’s Disquisition and Bastiat’s The Law both eloquently made the natural law argument that in theory government can be used to protect life, liberty and property. However, these two great men wrote, government can also pervert its legitimate purpose and abolish property rights with such interventions as protectionism. “The Law Perverted” appears in bold print in The Law where Bastiat discusses this point.
Hamilton and his political heirs such as Henry Clay and Lincoln always wanted to bring the corrupt British mercantilist system that the colonists fought a revolution against to America, cynically calling this putrid British political regime the “American” system. They finally succeeded in the 1860s when Lincoln, dubbed “the political son of Alexander Hamilton” by Lincoln biographer Edgar Lee Masters, ushered in fifty years of protectionist tariffs (increasing the average tariff rate from 15% to around 60%; showered his former employers, the railroad corporations, with historic levels of corporate welfare (which led to the biggest political corruption scandal in American history up to that point during the Grant administration); and nationalized the money supply with the National Currency Acts and Legal Tender Acts. The road to legal plunder had become a highway. Once the railroad corporations were subsidized, myriad other industries began marching to Washington to beg for their share of the loot.
One consequence of Lincoln’s war was that the federal government finally became a judicial dictatorship, with five government lawyers with lifetime tenure empowered to declare what liberties all Americans were to be afforded. Before the war there was a widespread belief that especially on issues as important as constitutional liberty, there should be opinions offered by all three branches of government, not just the judiciary, as well as the people of the sovereign states. When the “supreme” court declared the Bank of the United States to be constitutional, President Andrew Jackson responded by essentially saying thank you for your opinion, but my opinion is the opposite, and my opinion is just as valid as your opinion.
Before the war many states, North and South, nullified federal legislation that they believed was unconstitutional. That cause the federal government to be somewhat more devoted to the Constitution. That all became history because of the war and the massive centralization of governmental power that it created. The Jeffersonians had long warned that if the day ever came when the federal government itself became the sole arbiter of the limits of its own powers, then Americans would live under a tyranny. Is there a better example of “the fox guarding the henhouse?"
An especially damaging “supreme” court decision that really opened the floodgates of legal plunder was the 1877 case of Munn v. Illinois. Farmers had near monopoly political power in the Midwest and used it to gang up on and plunder two brothers who operated a grain storage business. They got the Illinois legislature to pass a price ceiling law on grain storage, an act of legalized theft if ever there was one. They gave no sappy widows-and-orphans excuse for the law; they had to power to get the legislature to steal from the Munn brothers, and so they did.
The majority of the “supreme” court declared that if one does business that affects “the public” then one must submit to regulation of your business by “the public.” Of course, by “the public” they really meant the sleazy political criminals in the Illinois legislature at the time (some things never change).
The dissent in the case was written by the heroic Justice Stephen Field who said, “The principle upon which the opinion of the majority proceeds is, in my judgment, subversive of the rights of private property, heretofore believed to be protected by constitutional guarantees against legislative interference.” It was “heretofore” believed that property rights are protected by the constitution, said Justice Field. He also warned that once such legal plunder was declared to be fair game, then the Munn brothers would have the “right” to organize their own political coalition to plunder the farmers of Illinois with their legislation. And on and on it would go with plunder seeking run amok. This was the very thing that James Madison warned against in Federalist #10 when he argued that the whole purpose of the Constitution was to limit “the violence of faction,” by which he meant this sort of special-interest politics.
Regulatory plunder soon became pervasive and common place, with the Interstate Commerce Commission created to enforce a monopoly cartel for the railroad corporations; “natural” monopolies created by government regulation for the utility industries (see my article, “The Myth of Natural Monopoly”); The Civil Aeronautics Board created to enforce a cartel for the airline industry; The Fed created as a banking industry cartel; and much more. Corporations have been true capitalism’s worst enemies.
This all evolved into fascism during the FDR administration. In his famous book, The Roosevelt Myth, John T. Flynn wrote of how the National Recovery Administration was almost identical in every way to how Mussolini centrally planned the Italian economy. “This was fascism,” he wrote.
The biggest attack on property rights was the adoption of the federal income tax in 1913. As Frank Chodorov explained in The Income Tax: Root of All Evil, the government was now saying the following:
Your earnings are not exclusively your own. We have a claim on them, and our claim precedes yours. We will allow you to keep some of it, because we recognize your need, but not your right; but whatever we grant you for yourself is for us to decide. . . . The amount of your earnings that you may retain for yourself is determined by the needs of the government, and you have nothing to say about it.
The income tax thus established the federal government as essentially the largest criminal gang on the planet, a Mafia times ten thousand, or a hundred thousand, in terms of bald-faced theft and the enslavement of a large part of the population for at least part of the year. (“Tax Freedom Day,” when the average American earns enough just to pay all of the taxes due, currently occurs in April).
The New Road to Totalitarian DestructionPolitical cronyism and legal plunder continue to metastasize and are especially visible in the unholy alliances between the pharmaceutical corporations, the banking industry, “tech” companies, and the state. But the attacks on property rights and civilization took a more directly destructive turn beginning in the 1960s when the Marxist Left settled on green totalitarianism as their new strategy, designed to literally destroy the free enterprise system once and for all and impose socialist central planning in the name of Mother Earth. As Mises wrote in Human Action (p. 414), socialism has always been “the spoiler of what thousands of years of civilization have created.” It has always been about “destructionism,” wrote Mises, in the form of destroying all of existing societies to supposedly start from scratch in designing and centrally planning humanity.
First came such books as The Population Bomb, a neo-Malthusian farce that warned that population was outstripping resources, which would lead to worldwide starvation. Author Paul Ehrlich became a celebrity by arguing for sterilants placed in public water supplies and a neutering of the Catholic church so that it could no longer oppose abortion. The Marxist Left had abandoned its pretense of being for “the people.” It now hated “the people” and wanted as few of them to survive as possible. The founder of Earth First! even famously declared that “we can only hope the right virus comes along.”
The second strategy was to claim that pollution caused by capitalism was blocking the sun and causing a new ice age. “U.S. Scientist Sees New Ice Age Coming,” blared a July 9,, 1970 Washington Post headline. “Scientist Predicts New Ice Age by 21st Century,” blared the Boston Globe on April 16, 1970. There were hundreds of other similar scary headlines all throughout the 1970s. The only way to save ourselves, we were told, was to destroy economic freedom and property rights and replace them with socialism and central planning.
That of course didn’t’ happen in the 1970s, so the Marxist Left resorted to a Plan B. “Rising Seas Could Obliterate Entire Nations” said an Associated Press headline on June 30, 1989. “Snowfalls are Now Just a Thing of the Past,” advised the British Independent on March 20, 2000. Now global warming was going to destroy the world. Unless of course we destroy economic freedom and property rights and replace them with socialism and central planning.
Well, that didn’t work out either for the Marxist Left. We did not destroy our economy, despite the best efforts of the political class and the Fed. So now the new mating call of the Marxist Left is climate change. The world’s climate has been changing for millions of years, but that must be put to an end, we are told. And the only way to do that would be to destroy free enterprise and property rights and replace them with socialism and central planning. A necessary first step, the president of the United States recently stated publicly, would be to end the use of fossil fuels altogether. No thought seems to have been given to the negative consequences of that.
The Real IsolationistsIn Human Action, Mises wrote that “What distinguishes man from animals is the insight into the advantages that can be derived from cooperation under the division of labor.” It is important to realize that when we talk about trade and exchange, it is property rights that are being traded and exchanged. The advantages of the division of labor require a high degree of economic freedom, and especially private property. Mises went on to say:
Man curbs his innate instinct of aggression in order to cooperate with other human beings. The more he wants to improve his material well being, the more he must expand the system of the division of labor. Concomitantly he must more and more restrict the sphere in which he resorts to military action. The emergence of the international division of labor requires the total abolition of war. Such is the essence of the laissez faire philosophy. . . . This philosophy is, of course, incompatible with statolatry.
A large part of the international division of labor was abolished during the twentieth century by war, socialism, and the Cold War. Nothing destroys the benefits of the division of labor more than war. Americans are always isolated from those whom they are waging war with, giving the lie to the standard neocon line that the advocates of peace are “isolationists.” Nothing—nothing—isolates us from other parts of the world than war. How many American businesses do you suppose are currently planning to start up entrepreneurial ventures in Ukraine? How about Syria, Iraq, or Afghanistan? Sure, you have the politically connected vultures who swoop in to make billions rebuilding countries that we or our “allies” have bombed into the stone age. Rebuilding infrastructure that our own bombs destroyed is the modern-day version of the old joke about how so many government jobs are similar to people getting paid to dig a hole and then fill it up again. Only this time the hole is created by mega-ton bombs, filled up with multibillion-dollar government contracts to corporations that have made significant “campaign donations” to the politicians who ordered the bombings in the first place. The neocons who have instigated all of these endless wars are the real isolationists and destroyers of the international division of labor and the civilizations that it creates.
The Free Market 12, no. 9 (September 1994)In recent years, Americans have been subjected to a concerted assault upon their national symbols, holidays, and anniversaries. Washington's Birthday has been forgotten, and Christopher Columbus has been denigrated as an evil Euro-White male, while new and obscure anniversary celebrations have been foisted upon us. New heroes have been manufactured to represent "oppressed groups" and paraded before us for our titillation.
There is nothing wrong, however, with the process of uncovering important and buried facts about our past. In particular, there is one widespread group of the oppressed that are still and increasingly denigrated and scorned: the hapless American taxpayer.
This year is the bicentenary of an important American event: the rising up of American taxpayers to refuse payment of a hated tax: in this case, an excise tax on whiskey. The Whiskey Rebellion has long been known to historians, but recent studies have shown that its true nature and importance have been distorted by friend and foe alike.
The Official View of the Whiskey Rebellion is that four counties of western Pennsylvania refused to pay an excise tax on whiskey that had been levied by proposal of the Secretary of Treasury Alexander Hamilton in the Spring of 1791, as part of his excise tax proposal for federal assumption of the public debts of the several states.
Western Pennsylvanians failed to pay the tax, this view says, until protests, demonstrations, and some roughing up of tax collectors in western Pennsylvania caused President Washington to call up a 13,000-man army in the summer and fall of 1794 to suppress the insurrection. A localized but dramatic challenge to federal tax-levying authority had been met and defeated. The forces of federal law and order were safe.
This Official View turns out to be dead wrong. In the first place, we must realize the depth of hatred of Americans for what was called "internal taxation" (in contrast to an "external tax" such as a tariff). Internal taxes meant that the hated tax man would be in your face and on your property, searching, examining your records and your life, and looting and destroying.
The most hated tax imposed by the British had been the Stamp Tax of 1765, on all internal documents and transactions; if the British had kept this detested tax, the American Revolution would have occurred a decade earlier, and enjoyed far greater support than it eventually received.
Americans, furthermore, had inherited hatred of the excise tax from the British opposition; for two centuries, excise taxes in Britain, in particular the hated tax on cider, had provoked riots and demonstrations upholding the slogan, "liberty, property, and no excise!" To the average American, the federal government's assumption of the power to impose excise taxes did not look very different from the levies of the British crown.
The main distortion of the Official View of the Whiskey Rebellion was its alleged confinement to four counties of western Pennsylvania. From recent research, we now know that no one paid the tax on whiskey throughout the American "back-country": that is, the frontier areas of Maryland, Virginia, North and South Carolina, Georgia, and the entire state of Kentucky.
President Washington and Secretary Hamilton chose to make a fuss about Western Pennsylvania precisely because in that region there was cadre of wealthy officials who were willing to collect taxes. Such a cadre did not even exist in the other areas of the American frontier; there was no fuss or violence against tax collectors in Kentucky and the rest of the back-country because there was no one willing to be a tax collector.
The whiskey tax was particularly hated in the back-country because whisky production and distilling were widespread; whiskey was not only a home product for most farmers, it was often used as a money, as a medium of exchange for transactions. Furthermore, in keeping with Hamilton's program, the tax bore more heavily on the smaller distilleries. As a result, many large distilleries supported the tax as a means of crippling their smaller and more numerous competitors.
Western Pennsylvania, then, was only the tip of the iceberg. The point is that, in all the other back-country areas, the whiskey tax was never paid. Opposition to the federal excise tax program was one of the causes of the emerging Democrat-Republican Party, and of the Jeffersonian "Revolution" of 1800. Indeed, one of the accomplishments of the first Jefferson term as president was to repeal the entire Federalist excise tax program. In Kentucky, whiskey tax delinquents only paid up when it was clear that the tax itself was going to be repealed.
Rather than the whiskey tax rebellion being localized and swiftly put down, the true story turns out to be very different. The entire American back-country was gripped by a non-violent, civil disobedient refusal to pay the hated tax on whiskey. No local juries could be found to convict tax delinquents. The Whiskey Rebellion was actually widespread and successful, for it eventually forced the federal government to repeal the excise tax.
Except during the War of 1812, the federal government never again dared to impose an internal excise tax, until the North transformed the American Constitution by centralizing the nation during the War Between the States. One of the evil fruits of this war was the permanent federal "sin" tax on liquor and tobacco, to say nothing of the federal income tax, an abomination and a tyranny even more oppressive than an excise.
Why didn't previous historians know about this widespread non-violent rebellion? Because both sides engaged in an "open conspiracy" to cover up the facts. Obviously, the rebels didn't want to call a lot of attention to their being in a state of illegality.
Washington, Hamilton, and the Cabinet covered up the extent of the revolution because they didn't want to advertise the extent of their failure. They knew very well that if they tried to enforce, or send an army into, the rest of the back-country, they would have failed. Kentucky and perhaps the other areas would have seceded from the Union then and there. Both contemporary sides were happy to cover up the truth, and historians fell for the deception.
The Whiskey Rebellion, then, considered properly, was a victory for liberty and property rather than for federal taxation. Perhaps this lesson will inspire a later generation of American taxpayers who are so harried and downtrodden as to make the whiskey or stamp taxes of old seem like Paradise.
Note: Those interested in the Whiskey Rebellion should consult Thomas P. Slaughter, "The Whiskey Rebellion" (New York: Oxford University Press, 1986); and Steven R. Boyd, ed., "The Whiskey Rebellion" (Westport, CT: Greenwood Press, 1985).
Professor Slaughter notes that some of the opponents of the Hamilton excise in Congress charged that the tax would "let loose a swarm of harpies who, under the denominations of revenue offices, will range through the country, prying into every man's house and affairs, and like Macedonia phalanx bear down all before them." Soon, the opposition predicted, "the time will come when a shirt will not be washed without an excise."
Noam Chomsky's latest offering—a series of interviews—presents the best (and worst) of one of America's premier public intellectuals.
Original Article: "There's No Place like Noam"
Kimberlé Crenshaw, one of the founders of Critical Race Theory, recently decried what she called the "war on wokeness" (by which she seems to mean, a war on CRT). According to her, this "war on wokeness" is "the road to an authoritarian state that’s paved through the history of white supremacy."
It's true that the "war on wokeness" has taken on authoritarian overtones of late. Many Republicans are rejecting the ideas of pluralism and free speech that underpin the American ideal and pushing through broad laws aimed at banning the teachings of CRT. In their desire to stop "wokeness" these laws often muzzle dissenters, and are so broadly written that they can throw the baby out with the bathwater. Free speech advocates have roundly condemned these laws and for good reason.
But it's also true that Critical Race Theory has serious problems. You don't have to be a "white supremacist" or be trying to promote an "authoritarian state" to be skeptical of CRT.
First, prominent Critical Race Theorists ("Crits" as they call themselves) lean hard into race essentialism. In Is Everyone Really Equal?, Özlem Sensoy and Robin DiAngelo (of White Fragility fame) lay out some quotations that they disagree with. One such quotation is, "People should be judged by what they do, not the color of their skin." DiAngelo and Sensoy dismiss this idea as "predictable, simplistic, and misinformed."
It's tough to overstate how inimical this concept is to modern-day American values. Martin Luther King Jr. famously proclaimed, "I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character." For DiAngelo and Sensoy, this dream is "misinformed."
In another section, DiAngelo and Sensoy list traits (allegedly) held by members of the "dominant group" in society (white people, straight people, men, etc) and contrast them with traits they claim are held by members of "minoritized groups" (black people, LGBTQ folks, women, etc). Traits held by the dominant group include "presumptuous, does not listen, interrupts, raises voice, bullies, threatens violence, becomes violent."
Traits held by the minority group include "feels inappropriate, awkward, doesn't trust perception…finds it difficult to speak up, timid." For DiAngelo and Sensoy, members of the majority group are angry bullies who don't care about anyone except themselves; and minorities are timid children who can't speak up or look after themselves. Is it any wonder that many minorities find this kind of rhetoric offensive?
A second reason to oppose CRT is that many Crits don't admit that society can ever really get better. In Critical Race Theory: An Introduction, Richard Delgado (another founder of CRT) and Jean Stefancic argue that American race relations don't improve. They call many of the civil rights gains of the 1950s and 1960s–including Brown v Board, the landmark Supreme Court case that desegregated schools across the country–"shams." According to the authors, these gains are merely "hollow pronouncements issued with great solemnity and fanfare, only to be silently ignored, cut back, or withdrawn when the celebrations die down."
For Delgado and Stefancic, meaningful social change is almost impossible. Unless all of society changes at once, "change is swallowed up by the remaining elements, so that we remain roughly as we were before." This is an ideology that has little room for the gains of the Civil Rights Movement or the dramatic decrease in bigotry in the 60 years since. A foundational American story is that our society is imperfect but is getting better, but CRT only has room for the first half of that statement.
Finally, Critical Race Theory is explicitly opposed to the Enlightenment ideals upon which America was founded. DiAngelo and Sensoy say that CRT initially advocated "a type of liberal humanism (individualism, freedom, and peace)" but stress that it "quickly turned to a rejection of liberal humanism." Values such as freedom and individualism are, apparently, not particularly welcome in Crit circles.
According to Delgado and Stefancic, "Critical Race Theory questions the very foundations of the liberal order." CRT is opposed to "equality theory, legal reasoning, Enlightenment rationalism, and neutral principles of constitutional law." If you want the law to treat people equally regardless of their immutable characteristics (ex. race, gender) then, by their founders' own admission, CRT is not for you.
Critical Race Theory isn't all bad, and there are concepts like intersectionality that can help us to recognize the struggles and advantages of people who don't look like us. But the field has deep problems, and more and more Americans of all ethnicities are picking up on this. Maligning critics as "white supremacists" is unlikely to fix those problems.
Per Bylund joins Bob to discuss his new paper at the QJAE, which points out several flaws in the MMT claim that money is valued in order to pay taxes.
Per's QJAE article: Mises.org/HAP398a
The eminent economist Edmund Phelps is a “liberal” in the modern sense, not a libertarian, but in his recent book My Journeys in Economic Theory (Columbia University Press, 2023), he makes a number of points that those of us who are libertarians will find useful.
Opponents of rights-based libertarianism like Andrew Koppelman in his book Burning Down the House say that without government welfare programs, the poor would perish. This outcome is fine with libertarians, Koppelman thinks. Those who can’t take care of themselves deserve to die. Supporters of the free market respond, however, that private charity would not be lacking in a free society.
Phelps points out that people voluntarily donate substantial amounts of money to charity:
Standard economic theories fail to account adequately for the gift-giving, donations, and philanthropic investing that people occasionally do with the money that comes from their income and capital gains after meeting their needs to spend and save, as well as with the time they have, after meeting their needs to work. This phenomenon became increasingly widespread as more and more people had money and time to spare. In fact, people from mid-nineteenth century to the mid-twentieth century could increasingly afford to exercise altruism and display ethical standards to the extent they had these qualities—more so the greater time and money they had for these acts.
Some people may object to the word “altruism,” thinking that this calls for sacrifice of one’s own well-being for others, but this isn’t what Phelps has in mind. His point is that people’s preferences often include desires to help others. If that is true, helping them does not go against their own well-being.
As I mentioned, Phelps doesn’t favor the unhampered market, but he raises some useful cautions about some popular egalitarian approaches to helping the needy. He is especially interested in the work of John Rawls, who was a friend of his, and he stresses points about Rawls’s theory of justice that are frequently ignored.
First, as is well known, Rawls’s “difference principle” calls for maximizing the welfare of the least well-off class in society. To do this, the government must tax the better off and distribute the proceeds to the least well-off, to the maximum extent that doing this will benefit them. But if the government does so, this raises a problem for “liberals.” They want the government to spend money on all sorts of other things, but to the extent that the state follows Rawls’s theory of justice, it can’t do this.
Phelps was aware of this problem for redistributionist theories even before Rawls’s ideas became prominent. In a meeting he had with Betty Friedan and a few other people,
a congenial member of Congress . . . raised the matter of the lopsided income distribution in the country and started discussion of a big plan to redistribute incomes. In a chat with Betty in the parking lot later that day, I said she should be aware that such a scheme would require a huge amount of tax revenue, so its adoption would leave little money, if any, to spend on other initiatives of great value to this country.
Liberals who support Rawls’s theory have to confront what for them are uncomfortable choices.
Phelps tightens the pressure on contemporary egalitarians with another point. When Rawls talks about helping the least well-off class, he means the working poor, not those who are so badly off that they can’t work at all. People in his “original position” are trying to arrive at principles to benefit from the gains of social cooperation. Those who don’t contribute at all aren’t included. But Phelps notes that Rawls’s book was “understood by most if not nearly all of the essayists invoking his name as a call for huge tax revenue to be spent on all sorts of welfare programs with little or no concern for the disadvantaged workers.”
Some egalitarians would respond to this point about Rawls’s theory by abandoning it or modifying it: Let’s help others besides the working poor, they would say. Phelps raises a problem for them as well. Specifically, he strongly rejects proposals for a universal basic income (UBI) that would give people money regardless of whether or not they worked:
Unfortunately, the institution of a UBI in a country, although it would be one way to provide the poor with the income with which to live, would do nothing to pull up wages of low-wage workers so they can support themselves—an ability that, in the Western nations at any rate, people need so that they can support their self-esteem. (A cascade of indirect effects might raise wages a little for a while but would slow the growth of wages over the near future.) UBI would draw people away from work, thus causing them to miss the dignity, sense of belonging, self-respect, self-help, and job satisfaction that come only from work . . . the UBI would entice people and their children away from meaningful work and thus from a sense of involvement in the economy—society’s central project. It is disappointing that UBI has not received widespread opposition.
Phelps has first put pressure on Rawlsians and then on UBI defenders. He says to the first group, “If you concentrate only on low-income workers, you will have to give up other projects” and to the second, “If you institute a UBI, you won’t be doing justice to low-income workers.” But the pressure isn’t equal: Phelps is much more favorable to helping workers than to a position that favors the poor in general without giving workers priority.
Phelps asked Rawls about aid to the nonworking poor:
I wrote a letter to Jack [Rawls] in mid-April 1976 from Amsterdam urging him to explain again that his theory is about helping the least advantaged, not the poor in general. Years went by, though, without a response. At last he responded in his paper “The Priority of Right and Ideas of the Good”. . . . In that paper he wrote, “Those who surf all day off Malibu must find a way to support themselves and would not be entitled to public funds.” I felt my understanding of [A Theory of] Justice was vindicated.
We may be grateful to Phelps for showing that those who want to take away people’s money through taxation have to face tough choices. We should instead leave the choices of which people to help to the voluntary decisions of people in the free market.
In an excellent display of how US foreign policy can be used as a means of pandering to domestic interest groups, the Biden administration has threatened to impose sanctions on Uganda as punishment for that regime's adoption of new laws criminalizing some types of homosexual behavior.
While it is abundantly clear that this move from the Ugandan state presents absolutely no threat to any vital US interest, the Biden administration apparently believes the situation requires immediate action by the US regime.
According to Axios, the Biden Administration's proposed actions
includ[e] whether the U.S. will continue to safely deliver services under the U.S. President’s Emergency Plan for AIDS Relief and other forms of assistance and investments. ... Biden administration officials will also review Uganda's eligibility for the African Growth and Opportunity Act, which provides eligible sub-Saharan African countries with duty-free access to the U.S. market for hundreds of products.
What exactly are these new laws that require the State Department to get involved in the internal affairs of a country 8,000 miles away? According to The Hill,
The new anti-gay law would impose the death penalty in cases of “aggravated homosexuality” and would impose a life sentence for engaging in gay sex. The state defines “aggravated homosexuality” as homosexual acts carried out by those infected with H.I.V. or homosexual acts that involve children, disabled people, or those drugged against their will.
Or put another way, the death penalty will be imposed in many cases on those found guilty of engaging in sex with children and with people unable to consent. Even in those cases, these are pretty harsh penalties, and certainly few Americans—from any part of the political spectrum—would support such measures.
The proposed method of punishing Ugandans is rather curious, however. Note that the sanctions being discussed include—ironically—cutting off AIDS relief dollars, plus dollars that the regime has long insisted are absolutely vital to economic development and poverty relief in the developing world. If that's true, then the US regime proposes trying to impoverish ordinary Ugandans as punishment for acts of the Ugandan regime.
It is also notable that the US regime appears to now be fixated on such laws in Uganda when similar laws already exist on the books of several US allies. For example, the death penalty can be imposed for various homosexual acts in Saudi Arabia, Qatar, and the United Arab Emirates. "Death by stoning" is also inflicted on alleged homosexuals in US ally Pakistan. Moreover, after 20-years of US occupation, Afghanistan imposes similar punishments. Those are just the places where the death penalty is potentially imposed. Homosexual acts are criminalized in a variety of countries that retain friendly relations with the US including Egypt—the top recipient of US foreign aid—plus Iraq, Jordan, South Sudan, and Nigeria. Homosexual sex between males can bring life imprisonment in Tanzania.
So why is Uganda now so much in the crosshairs while Saudi Arabia escapes notice?
The fact is the US regime is threatening sanctions on ordinary Ugandans because it can. Given that there is no sizable or electorally powerful Ugandan population in the US, it costs the administration nothing to denounce Uganda while also virtue signaling to extremely powerful and well-funded domestic LGBT interest groups. Denouncing the Saudis or the Qataris, on the other, hand might bring geopolitical "complications" and thus you won't hear much about Saudi or Qatari punishment of homosexual acts in the US media or in Washington.
The US's Moralistic and Imperialist Impulses Moreover, Washington's willingness to immediately begin threatening sanctions against some faraway country has been part of the overall imperialist impulse that has prevailed in Washington since the end of the Cold War. This was when the US shifted toward become an ever-more-aggressive world morality police that would attempt to globally "protect right" in vague mimicry of how the federal government—via the federal courts and threats of cutting off federal funding—dictates to the states what counts as acceptable law.
This new scheme was apparent by 1994 when Murray Rothbard wrote a sarcastic article suggesting that the US be prepared to invade any foreign country where the local regime has not sufficiently embraced the American regime's cultural ideals. The key, Rothbard contends, was to define every foreign "deviation" as a threat to US national security. Rothbard noted that even by the mid 1990s, American interventionists such as the neoconservatives had already "cunningly redefined 'national interest' to cover every ill, every grievance, under the sun."
This naturally would lead, Rothbard suggested, to the need to intervene in nearly every foreign country on earth:
Is someone starving somewhere, however remote from our borders? That's a problem for our national interest. Is someone or some group killing some other group anywhere in the world? That's our national interest. Is some government not a "democracy" as defined by our liberal-neocon elites? That challenges our national interest. Is someone committing Hate Thought anywhere on the globe? That has to be solved in our national interest. ...And so every grievance everywhere constitutes our national interest, and it becomes the obligation of good old Uncle Sam, as the Only Remaining Superpower and the world's designated Mr. Fixit, to solve each and every one of these problems. For "we cannot stand idly by" while anyone anywhere starves, hits someone over the head, is undemocratic, or commits a Hate Crime.
And so, since no other countries shape up to U.S. standards in a world of Sole Superpower they must be severely chastised by the U.S., I make a Modest Proposal for the only possible consistent and coherent foreign policy: the U.S. must, very soon, Invade the Entire World! Sanctions are peanuts; we must invade every country in the world, perhaps softening them up beforehand with a wonderful high-tech missile bombing show courtesy of CNN.
The good news in the Uganda case is that at least we're not hearing any calls for actual regime change or "boots on the ground" in Uganda (so far).
Fortunately, many Americans haven't yet bought into the idea that every objectionable act by foreign regimes can be defined as a threat to US national interests. This is why even today, when Washington targets some foreign regime for "regime change" or economic sanctions or a volley of cruise missiles, the American interventionists usually try to at least suggest that the target regime is some kind of threat to US "national interests."
Experience suggests that if the regime really wants to get the American public riled up about a new war, Washington has to make the case for something beyond mere "humanitarian" intervention. This is why the Bush administration felt it had to trump up accusations of "weapons of mass destruction" in Iraq. It's why President Obama claimed the US has a "national security interest in ... ensuring that we’ve got a stable Syria." It's why those who wanted a US war with Bosnia insisted that conflict in the Balkans in the mid 1990s provided a threat to "vital" US interests such as "European stability" and NATO unity.
Sometimes, though, some foreign countries are so obviously not a threat to the US that "humanitarian" meddling through military action isn't politically viable. In those cases, the regime usually falls back on "sanctions."
This strategy has been around a long time. Murray Rothbard noticed this trend in 1994 as well, and he listed just some of the real-life suggested sanctions that could be employed to whip foreign regimes into line:
In recent weeks, in addition to humanitarian troops, there had been escalating talk of American "sanctions": against North Korea of course, but also against Japan (for not buying more U.S. exports), against Haiti, against the Bosnian Serbs... Jesse Jackson wants the U.S. to invade Nigeria pronto, and now we have Senato[r] Kerry (D., Mass.) calling for sanctions against our ancient foe, Canada, for not welcoming New England fishermen in its waters.
Uganda is just one of a great many regimes targeted in this fashion in recent decades.
Yet the landscape has changed considerably since 1994. In 2023, the US obsession with sanctioning dozens of countries has backfired and begun to isolate the US more and more from the developing world and from any regime that doesn't enjoy taking orders from Washington. This includes the regimes in some of the world largest economies, including China, India, and Brazil. The US's tendency to incessantly turn to sanctions to make a political point—and the apparent capriciousness with which the US regime is willing to do so—only motivates the world's regimes to insulate themselves from the US, whether through minimizing dollar transactions or forming tighter alliances with potential allies outside the US orbit. We may soon find Uganda looking for a similar way out.
Read More:
- "Thanks to Sanctions, the US Is Losing Its Grip on the Middle East"
- "Will Biden Sanction Half the World to Isolate Russia?"
- "Why Sanctions Don't Work, and Why They Mostly Hurt Ordinary People"
A new Fed survey shows that banks are cutting back on lending big time. Over the past thirty-five years, this almost always predicts recession. Our economy can't survive without endless new infusions of easy money.
Original Article: "Banks Are Lending Less Money, and That's a Formula for Recession"
According to some commentators, the US banking crises is over, or at least can be easily managed by the Federal Reserve System. In addition, the Fed chairman has vouched for the health of the US banking sector.
However, the banking crisis is likely in its early stages. What has started as the collapse of regional banks is likely to spread to national banks. The key reason for that is the decline in the pool of savings and continuation of fractional reserve lending in which banks are legally permitted to use money placed with them in demand deposits in lending activities. Banks treat deposits as though they were loaned to them.
Although permitted by law, from an economic point of view, this results in money creation leading to consumption not supported by production, diluting the pool of wealth. According to Mises:
It is usual to reckon the acceptance of a deposit which can be drawn upon at any time by means of notes or checks as a type of credit transaction and juristically this view is, of course, justified; but economically, the case is not one of a credit transaction. ... A depositor of a sum of money who acquires in exchange for it a claim convertible into money at any time which will perform exactly the same service for him as the sum it refers to, has exchanged no present good for a future good. The claim that he has acquired by his deposit is also a present good for him. The depositing of money in no way means that he has renounced immediate disposal over the utility that it commands.
Similarly, Rothbard argued:
In this sense, a demand deposit, while legally designated as credit, is actually a present good — a warehouse claim to a present good that is similar to a bailment transaction, in which the warehouse pledges to redeem the ticket at any time on demand.
Why a free unhampered market will curtail fractional-reserve lending
In a truly free market economy, the likelihood that banks will practice fractional-reserve lending is low. If a particular bank tries to practice fractional-reserve lending it will run the risk of not being able to honor its checks.
The fact that banks must clear their checks is a sufficient deterrent for the practice of fractional-reserve lending. Furthermore, the likelihood of discovering fractional-reserve lending increases when banking is competitive.
As the number of banks rises and the number of clients per bank declines, the chances that clients will spend money from individuals banking with other banks increases. This increases the risk of the bank not being able to honor its checks once it begins fractional-reserve lending.
Conversely, as the number of competitive banks diminishes, the likelihood of discovering fractional reserve banking decreases. In the extreme case of only one bank, it can practice fractional-reserve lending without any fear of discovery. In a free market, the threat of bankruptcy is likely to prevent banks from lending money that is taken from demand deposits without the depositor’s consent.
Central banks encourage fractional-reserve banking, however. Through monetary injections, the central bank prevents bankruptcy of banks that lend depositors money without their consent, resulting in lending out of thin air, leading to an exchange of nothing for something. Please note that savings do not back the loans generated through the fractional reserve lending. Obviously, this type of lending undermines the wealth generation process, and the weakening of wealth production diminishes the borrowers’ ability to repay the loan.
Credit out of thin air causes the disappearance of money
When loaned money is fully backed by savings, it is returned to the original lender. Bob - the borrower of $10 - will pay back on the maturity date the borrowed sum plus interest to the bank. The bank in turn will pass to Joe the lender his $10 plus interest adjusted for bank fees. The money makes a full circle and goes back to the original lender, as the bank is just a mediator, not a lender.
In contrast, when credit originates out of thin air and is returned on the maturity date to the bank, this leads to a withdrawal of money from the economy, a decline in the money stock.
Because we never had a saver/lender, this credit emerges from nothing.
Credit out of thin air sets platform for non-productive activities
If banks expand credit out of thin air, non-productive activities expand. Once the continuous generation of credit lifts the pace of wealth consumption above the rate of wealth production, the positive flow of savings reverses and a decline in savings follows. Consequently, many loans become bad. In response, banks curtail lending and a decline in the money stock begins, as loans generated out of thin air go bad or are repaid with no new lending afterward.
When savings decline, a recession looms. Most mainstream economists a severe economic slump occurs because of a decrease in the money supply, a view that both Monetarists and Keynesians hold.
Economic downturns are not caused by a collapse in the money stock but are a response to the shrinking pool of savings brought on by easy monetary policy. The shrinking pool of savings leads to the decline in the credit out of thin air, which then causes the money stock to fall. Even if the central bank were to successfully prevent the decrease of the money stock, this cannot prevent a downturn if the pool of savings also is declining.
Current banking crisis is in response to the previous loose monetary policies
The present framework of fractional reserve lending and central banking creates instability in the banking system. It is not possible to stabilize the current banking system outside of creating a true free market in banking. Instead, the ever-expanding monetary pumping by the Fed makes things worse. It cannot prevent a decline in the money supply if savings are declining.
The Fed’s attempts to counter this decline leads to extremely loose monetary policy, further inflicting more damage to the process of wealth generation. If the process of creating “helicopter money” continues, it can destroy the present monetary system.
Conclusions
Banks really are facilitators of the lending of savings. They enable the flow of savings by introducing the suppliers of savings to the demanders. By fulfilling the role of the intermediary, banks are an important factor in the process of wealth formation.
However, once banks begin to lend by replacing the genuine lenders and savers, they create the menace of the boom-bust cycle and economic impoverishment. It is impossible to increase genuine credit without the corresponding increase in savings.
On this first episode of the Fed Watch Podcast, Ryan McMaken and Senior Fellow Alex Pollock talk about how the Federal Reserve has negative cash flow. The Fed will print money to "solve" the problem.
Be sure to follow the Fed Watch Podcast at Mises.org/FedPod.
Recommended Reading"The Fed’s Capital Goes Negative" by Alex J. Pollock: Mises.org/FW_01_A
"Who Owns Federal Reserve Losses and How Will They Impact Monetary Policy?" by Alex J. Pollock and Paul H. Kupiec: Mises.org/FW_01_B
"Why the Fed Is Bankrupt and Why That Means More Inflation" by Ryan McMaken: Mises.org/FW_01_C
President Biden recently claimed that "trickle-down economics" doesn't work but transferring wealth from taxpayers to politically connected people is the real trickle-down economics.
Original Article: "Government Redistribution Is the REAL Trickle-Down Economics"
[This article is adapted from a lecture delivered at the Reno Mises Circle in Reno, Nevada. on May 20, 2023.]
We are faced today with a concentrated attack on the great thinkers of the Western tradition, who are dismissed as “dead white European males.” Robert Nozick used to say that what offended him most in this phrase was the word “dead.” It’s not nice to beat up on people who can’t fight back because they are no longer here! But the attack I’m talking about is no joke. A free society depends on certain principles, and Western thinkers played a major role in their development, though they have counterparts in other civilizations as well. And there is something even more essential. In order to find out about the principles of a free society, we need to think. We must use our reason. But reason is under attack by the ‘woke” crowd, who dismiss rational thought as just the expression of class prejudice. The ideas of those who shaped the Western tradition are dismissed because they come from a “privileged” class or sex. There is no attempt to examine these ideas analytically.
Ludwig von Mises describes the phenomenon I’ve just been talking about in Human Action:
In the eyes of the Marxians the Ricardian theory of comparative cost is spurious because Ricardo was a bourgeois. The German racists condemn the same theory because Ricardo was a Jew, and the German nationalists because he was an Englishman. Some German professors advanced all these three arguments together against the validity of Ricardo's teachings. However, it is not enough to reject a theory wholesale by unmasking the background of its author.
In this talk, I’m going to give examples of Western thinkers who supported reason and concepts vital to a free society and show how they have been attacked for doing so. As we all know, Aristotle was the founder of logic. Without the tools which he developed, it would be impossible for us to think in a self-consciously rational way. As Robin Smith notes in the Stanford Encyclopedia of Philosophy,
Aristotle’s logical works contain the earliest formal study of logic that we have. It is therefore all the more remarkable that together they comprise a highly developed logical theory, one that was able to command immense respect for many centuries: Kant, who was ten times more distant from Aristotle than we are from him, even held that nothing significant had been added to Aristotle’s views in the intervening two millennia.
Murray Rothbard based his natural law ethics on Aristotle and Thomas Aquinas. He says in The Ethics of Liberty:
In natural-law philosophy, then, reason is not bound, as it is in modern post-Humean philosophy, to be a mere slave to the passions, confined to cranking out the means to arbitrarily chosen ends. For the ends themselves are selected by the use of reason; and "right reason" dictates to man his proper ends as well as the means to their attainment.
I don’t suggest that there has been no progress in logic or ethics beyond Aristotle. But his ideas deserve to be treated with respect. But here is what Agnes Callard, a philosophy professor at the University of Chicago, has to say about him. To be fair to her, she does not want to cancel him:
The Greek philosopher Aristotle did not merely condone slavery, he defended it; he did not merely defend it, but defended it as beneficial to the slave. His view was that some people are, by nature, unable to pursue their own good, and best suited to be ‘living tools’ for use by other people: "The slave is a part of the master, a living but separated part of his bodily frame."
Aristotle’s anti-liberalism does not stop there. He believed that women were incapable of authoritative decision making. And he decreed that manual laborers, despite being neither slaves nor women, were nonetheless prohibited from citizenship or education in his ideal city. . .His inegalitarianism runs deep.
Aristotle thought that the value or worth of a human being — his virtue — was something that he acquired in growing up. It follows that people who can’t (women, slaves) or simply don’t (manual laborers) acquire that virtue have no grounds for demanding equal respect or recognition with those who do.
As I read him, Aristotle not only did not believe in the conception of intrinsic human dignity that grounds our modern commitment to human rights, he has a philosophy that cannot be squared with it. Aristotle’s inegalitarianism is less like Kant and Hume’s racism and more like Descartes’s views on nonhuman animals: The fact that Descartes characterizes nonhuman animals as soulless automata is a direct consequence of his rationalist dualism. His comments on animals cannot be treated as "stray remarks."
If cancellation is removal from a position of prominence on the basis of an ideological crime, it might appear that there is a case to be made for canceling Aristotle. He has much prominence: Thousands of years after his death, his ethical works continue to be taught as part of the basic philosophy curriculum offered in colleges and universities around the world.
And Aristotle’s mistake was serious enough that he comes off badly even when compared to the various "bad guys" of history who sought to justify the exclusion of certain groups — women, Black people, Jews, gays, atheists — from the sheltering umbrella of human dignity. Because Aristotle went so far as to think there was no umbrella”
The reason she doesn’t want to cancel Aristotle is that we can learn something from him if we take what he says literally and try to grasp an alien pattern of thought. The idea that he was substantially right is not one she is prepared to entertain. And then are many who go further, and downgrade the classical world altogether.
The philosopher Lewis R. Gordon is one of these. He wants to get rid of the notion of the Greeks as the founders of philosophy. In Decolonizing Philosophy, he says,
"Ancient Greeks," for instance, is a construction that gained much currency in the French and German Enlightenment to refer to ancient Greek-speaking peoples of the Mediterranean. Those people included northern Africans, western Asians, and southern peoples of what later became known as Europe. As the presumption is that the earliest practice of philosophy was among the ancient peoples of Miletus (today in western Turkey) and Athens, the term acquired a near sacred association with the ancient city-states of Greek-speaking peoples, a group of whom referred to themselves as Hellenic. Understanding that the Hellens [sic] were but one set among other Greek-speaking peoples to have emerged in antiquity reveals the fallacy. It is as if to call English-speaking peoples of the present "English." The confusion should be evident. A product of Euromodern imagination, with a series of empires laying claim to the coveted metonymic intellectual identity for posterity, Ancient Greeks stand as a supposed "miracle" from which a hitherto dark and presumably intellectually limited humanity fell sway to what eventually became, through Latin, "civilization."
Gordon’s point is that the Hellenes were only one of the Greek-speaking peoples of the Mediterranean. But it doesn’t follow from this that the others were philosophers too, unless they engaged in rational argument. Gordon doesn’t show that they did. Instead, he says that deductive reasoning is overrated.
Let’s jump about two thousand years to another major thinker in the Western tradition, John Locke. He defended the self-ownership principle, which is basic to the Rothbardian brand of libertarianism. Self-owners, in Locke’s view, could acquire unowned resources by “mixing their labor” with it. Again, let’s see what Rothbard has to say about this:
One common confusion about Locke's systematic theory of property needs to be cleared up — Locke's theory of labor. Locke grounded his theory of natural property rights in each individual's right of self-ownership, of a "propriety" in his own person. What then establishes anyone's original right of material, or landed or natural resource property, apart from his own person? In Locke's brilliant and very sensible theory, property is brought out of the commons, or out of nonproperty, into one's private ownership in the same way that a man brings unused property into use — that is, by "mixing his self-owned labor," his personal energy, with a previously unused and unowned natural resource, thereby bringing that resource into productive use and hence into his private property.
Private property of a material resource is established by first use. These two axioms — self-ownership of each person, and the first use, or "homesteading," of natural resources — establishes the "naturalness," the morality, and the property rights underlying the entire free-market economy. For if a man justly owns material property he has settled in and worked on, he has the deduced right to exchange those property titles for the property someone else has settled in and worked on with his labor. For if someone owns property, he has a right to exchange it for someone else's property, or to give that property away to a willing recipient. This chain of deduction establishes the right of free exchange and free contract, and the right of bequest, and hence the entire property-rights structure of the market economy.
Whether you accept the Lockean view or not—and I hope you do accept it—you can’t deny that it’s an interesting theory, worthy of careful consideration. But in the opinion of Charles W. Mills, in his influential book The Racial Contract, Locke wasn’t really a defender of individual liberty. Locke’s purpose was to justify slavery, especially of black people.
Here is a good short account of Mills’s view:
“At its most basic, the social contract is an agreement pertaining to the political and moral obligations between the state and the individual. It grants the state both authority over the individual and responsibility for maintaining social order. At the same time, the individual is granted certain rights. However, despite being founded upon a discourse of universalism, Charles W. Mills contends that the social contract was in fact, from its very inception, inherently racialised.
Mills’ theory of the racial contract rests upon three claims: (1) that "white supremacy, both local and global, exists and has existed for many years"; (2) "white supremacy should be thought of as itself a political system"; and, (3) that "as a political system, white supremacy can illuminatingly be theorized based on a contract between whites, a Racial Contract."
Drawing on Carole Pateman’s The Sexual Contract, Mills charts the way in which "society was created or crucially transformed, how individuals in that society were reconstituted, how the state was established, and how a particular moral code and a certain moral psychology were brought into existence." In doing so, Mills draws our attention to the way in which the idea of race and racism fundamentally shaped how Western philosophical thinkers (e.g. Hobbes, Hume, Kant, Locke, Mill and Rousseau) conceived humanity, democracy and the political subject.
As Mills explains, key political philosophy thinkers constructed their theories and concepts using a racial classificatory schema that divided people into the categories of humans and sub-humans. In doing so, white Europeans were associated with spirit, mindfulness and rationality. In contrast, people racialised as non-white were deemed unsuitable, if not incapable, of "forming or fully entering into a body politic." Associated with nature and the body, people racialised as non-white were deemed lacking in forms of the cognitive power required for reason, authority and governance.
These forms of racial thinking structured the key political developments that occurred during the Enlightenment period: namely the formation of the modern nation-state, European declarations of sovereignty, New World conquest, and the written contracts of slavery and indenture. So much so that the racial contract and the denial of personhood was constitutionally and juridically enshrined, thus establishing "a racial polity, a racial state, and racial juridical system, where the status of whites and non-whites is clearly demarcated, whether by law or custom" (As a result, for Mills, "proclamations of the equal rights, autonomy, and freedom for all men" went hand-in-hand "with the massacre, expropriation, and subjection to hereditary slavery of men at least apparently human."
In recent years, Mills’ work has been used to expose the way which the racial contract continues to underpin the social and political world. In Britain, Nirmal Puwar highlights the way in which the racial contract operates in Westminster, the home of British politics, the senior civil service, academia, the art world and everyday life. From an Indigenous woman’s perspective, Debbie Bargallie unmasks the racial contract that exists in the Australian Public Service. In doing so, Puwar and Bargallie show that despite the rhetoric of equality, diversity, inclusion, meritocracy and reconciliation, these are spaces of institutional racism structured by "racialised somatic norms" which result in non-white bodies being considered "out of place."
Mills’s argument, to the extent you can call it that, rests on a misunderstanding of social contract theory. As I wrote in a review that appeared twenty-five years ago,
Even if we take the social contract to be in part conjectural history, it still does not follow that the contract theorists erred in ignoring the alleged racial contract. Again, the question seems very much worth asking: how might a group of people (whether or not engaged in organized racial exploitation) have formed a state? The fact that an inquiry abstracts from a certain phenomenon does not render it useless. And Mills has also not shown that there is anything amiss in the later shift to an entirely normative framework.
The great thinkers of the Western tradition no doubt had their faults. But they shouldn’t be cast aside because various “woke” writers dismiss them. We should always strive for truth in philosophy, regardless of whom the truth offends. Mises liked to quote Spinoza: "Just as light is the measure both of itself and darkness, so is truth the measure of itself and falsity."
In this episode of Radio Rothbard, Ryan McMaken and Tho Bishop take a revisionist Rothbardian lens to American history. Was the American revolution a good thing? Was Andrew Jackson better than Thomas Jefferson? Does a historical narrative really matter? Tune in for this and more!
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In this episode of Good Money, Tho Bishop is joined by Dr. Jonathan Newman to discuss the real costs of government spending. The end of the debt ceiling battle has resulted in the predictable outcome of normalizing the fiscal insanity of covid-era spending. Tho and Jonathan discuss how this was predictable to those familiar with the work of Dr. Robert Higgs, how mainstream GDP measures miss the true costs of government, and alternative approaches Austrian economists use to provide a clearer understanding of what is really going on in the economy.
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Like snobby teenagers claim of themselves, many say that “nobody understands artificial intelligence (AI).” For example, in a recent interview between Jordan Peterson and Brian Roemmele about ChatGPT, Jordan Peterson claimed that “The system is too complex to model” and each AI system is not only incomprehensible but unique. He further claims that “some of these AI systems, they’ve [AI experts] managed to reduce what they do learn to something approximating an algorithm. . . . [but] Generally the system can’t be and isn’t simplified.”
Brian Roemmele concurred: “nobody really understands precisely what it’s doing and what is called the hidden layer. It is so many interconnections of neurons that it essentially is a black box. . . .”
The criticism isn’t confined to these two. The “interpretability problem” is an ongoing topic of research within computer science. However, on closer examination, this criticism of deep learning models is not well-founded, is ill-defined, and leads to more confusion than enlightenment. We know very well the inner workings of machine learning models, better than any other system of similar complexity, and they are not a black box.
(For the sake of this argument, I will not be addressing the fact that OpenAI has ironically not published their parameters. In that sense and in that sense alone, ChatGPT is a black box.)
It seems odd to claim that we don’t or can’t “understand” a thing we made. Surely, we can open up a model and look at the flow of information. It is very precisely defined exactly which numbers are multiplied and added to what and pushed through which nonlinearities. There isn’t a single step in the entire process that is “unpredictable” or “undefined” at the outset. Even to the extent that some models “randomly” draw from a distribution, this is both predetermined (as all computers are only pseudorandom) and understandable (which is why we can describe it as “drawing from a distribution”).
So, what do people mean when they say deep learning “can’t be understood”? It seems the term “interpretability” itself isn’t well-defined. Nobody has been able to give a rigorous definition.
Pseudoscientists like Roemmele prey on people’s misunderstanding of technical language to further their false claims. For example, he claims “nobody really understands precisely what it’s doing and what is called the hidden layer.”
But the reality is that the hidden layers are no different from any other layer. This is a technical term that means any layer that is not an input or an output layer. It has nothing to do, as Roemmele has implied, with a particular mysteriousness about it. It is no more and no less “understandable” than the input or output layers. It is “hidden” only in the sense that the end user doesn’t interact with it. However, Roemmele’s audience doesn’t understand this sleight of hand. (I doubt Roemmele himself understands this as he is not a data scientist.)
Jordan Peterson must be given more leeway, as he doesn’t claim to have knowledge on AI himself—like Roemmele has—but cites his brother-in-law, Jim Keller, as his source of information. It is impossible to know exactly what Peterson’s brother-in-law might have meant, but as filtered through Peterson, the statements on AI are false.
For example, it is nonsensical to claim “the system is too complex to model” when “the system” is the model. One might claim that atoms are too complex to understand. However, would it make any sense to claim that the Bohr model of the atom is too complex to understand? The data is the thing we don’t understand, and a model is a thing we use to understand it. The more accurate the model, the better we understand the underlying phenomena. Deep learning models are the most accurate models and so are the most understandable.
It is also nonsensical to claim that “Generally the system can’t be and isn’t simplified [to something approximating an algorithm].” Algorithms have strict definitions, and all AI falls into that category. If it can be described as a Turing machine, it is an algorithm, and that includes all AI. In fact, the vast majority of AI don’t even reach the standard of Turing completeness (the most complex a computer can theoretically be) and can be described entirely as pushdown automata (a strict subset of Turing machines).
Why might people want to claim deep learning models can’t be understood? For some statisticians, I think it is their last grip on relevance as deep neural networks slowly drive older statistical models to obsolescence. For others, the “unknowability” of it all is scary and a welcome invitation for more government intervention. We shouldn’t let AI have the same fate as nuclear power—needlessly maligned over little to no threat at all. Let’s enjoy the fruits of our labor, and that includes the massive cost reduction from using a very human-comprehensible AI.
Calls for black consumers to "Buy Black" can be interpreted as socially divisive, but they are also a way to encourage black entrepreneurs in a free market.
Original Article: "The "Buy Black" Movement: Divisive or a Boon to Black Entrepreneurs?"
After countless predictions of economic armaggeddon and panicky entreaties to raise the debt ceiling with no strings attached, the Biden White House and Congressional Republicans agreed on a new budget deal this week that does virtually nothing at all to change the status quo. The deal in no way returns federal spending to pre-covid levels. At best, the deal does "limit" spending by placing tentative caps on spending which—assuming they are not abandoned in the face of some new economic or geopolitical "emergency"—allow for a one-percent increase in spending each year over the next two years. At the same time, however, the deal abolishes the debt ceiling altogether until 2025. As summarized by the Associated Press:
The agreement would keep nondefense spending roughly flat in the 2024 fiscal year and increase it by 1% the following year, as well as suspend the debt limit until January 2025 — past the next presidential election.
And, according to NBC news:
The agreement includes spending caps for the next two years to set up the appropriations process. In fiscal year 2024, it would limit military spending to $886 billion and nonmilitary discretionary spending to $704 billion. In fiscal year 2025, those numbers would rise to about $895 billion and $711 billion.
What all this really means is that discretionary spending (which is generally around $2 trillion in miscellaneous and military spending) will continue upward without even a meaningful pause. Meanwhile, mandatory spending—such as Social Security, Medicare, and Medicaid is in no danger of actually going down. At a minimum we can expect annual increases of $60 billion or more each year in the near future. That's the most "thrifty" scenario. After all, it's only a matter of time until there's a recession and thus a need for "stimulus" and bailouts. Or, Washington may decide the US needs another full-blown war. At that point, all bets are off when it comes to spending.
This miniscule "cut" in spending is more or less what we here at mises.org predicted would happen. There was never any doubt that the debt ceiling would be raised yet again, and of course, there would be no real cuts to overall federal spending. This is what has happened. Moreover, total spending remains more than a trillion dollars above where it was in 2019, even after the Trump administration was racking up near-trillion-dollar deficits.
Unfortunately, some rather naïve observers thought the Republican negotiators would somehow manage to force big concessions in federal spending or regulation. That didn't happen, and no one who has been paying attention to the GOP since the days of Calvin Coolidge would expect otherwise.
Contrary to the still-enduring myth about Republican budget cutting, there is no correlation whatsoever between Republican control of DC and the trajectory of federal spending. If we look at Republican control of the White House, for example, we see that federal spending often accelerates during the tenures of GOP presidents, especially George W. Bush and Donald Trump. (Red years are GOP, and blue years are Democrat presidents):
Keep in mind also, that these are inflation-adjusted numbers, so nominal increases were all larger. Some might protest that the GOP deserves no blame here because these presidents—despite holding the veto pen—are somehow forced into signing off on runaway spending.
Well, if we look at periods when the GOP had total control of the White House and the Congress, we still find zero evidence of a reluctance to spend big taxpayer bucks on the part of the GOP. (Gray years are divided government):
This graph even understates Republican spending in some cases. In the case of 2009, for example, it must be remembered that lame-duck George W. Bush was enthusiastically in favor of the huge bailouts and federal stimulus programs that launched 2009's federal spending well above the established trend. That was hardly Obama's idea. Nor is that a surprise since in multiple years of total GOP control under Bush, Republicans expanded spending with new Medicare programs, "no child left behind," and a cascade of federal dollars spent on the Pentagon and "homeland security." Moreover, the GOP offered essentially zero resistance to Trump's $2-trillion-dollar spending spree in reaction to the covid panic of 2020. Those who did oppose endless spending were loudly attacked by Trump.
Now, in spite of this deal, and the covid "emergency" being officially over, total spending remains well over a trillion dollars above the already bloated 2019 total.
Moreover, if we compare federal spending in the last year of each presidential term, compared with the outgoing budget of the preceding presidential term, we find that the biggest big spender was Donald Trump, followed by Carter, Reagan (first term), and Ford. Again, there's no reason here to place any hope in the GOP when it comes to fighting against growing spending.
Unfortunately, given the state of the American public, we should not expect anything else.
Even if GOP members of Congress genuinely wanted to cut spending, they would only be punished by the voters for doing so. 71 percent of conservatives polled say they want the government to spend more money on the military. This on a military that is three times more expensive than the next most expensive military (China), and which now is well on its way to receiving more than a trillion dollars per year.
Only small minorities within the public actually want the federal government to spend less on programs ranging from education to Social Security to poverty relief. Yes, a recent poll suggest that "Six in 10 U.S. adults say the government spends too much money." But when respondents are asked to get more specific, it turns out they actually want more spending. It's just they want more spending on things they like, and less spending on things they don't like.
This is why members of Congress rarely get voted out of office for spending "too much" federal money. Rather, they are more likely to be punished for spending federal money on the wrong things. Consequently, there is no rush in Washington to cut the total amount of federal spending. What really matters is funneling money to each elected officials' favored interest groups, whether they be pensioners, weapons contractors, or some of the 42 million Americans on food stamps. Whether Republican or Democrat, there simply isn't much to be gained from going to wall to cut spending. Certainly, a handful of members of Congress with atypical constituents can do this. The average voter, however, is quite happy to see more government spending, so long as it's on the "right" programs.
Those of us who prefer a smaller government might like to think that a sizable portion of the electorate agrees with us, and wants to see big cuts across the board. Unfortunately, that does not appear to be the current reality, and until we see a significant change in ideology among voters, there's no reason to expect a different outcome. Of course, things would be even worse if it weren't for those who have done the hard work of holding the line on defunding the leviathan state. Imagine a world, for example, in which there was no Murray Rothbard or Ludwig von Mises to explain the true damage done by government spending and deficits and the malinvestment caused by the government dole. Without even this intellectual backstop, Washington wouldn't even feel the need to make a show of reining in spending. It would just be endless money printing Weimar-style, and virtually 100 percent of the population would applaud.
Americans have long thought of themselves as people of action.
As Leonard Read noted in his article “How to Gain Liberty,” the sentiment “I want less talk and more action” is (or at least once was) common among Americans. It even extends to situations when people recognize that their liberties are threatened. But then the question arises as to what sorts of action are appropriate in defense of our liberties:
Thus speak Americans when they suddenly awaken to the fact that their liberties are endangered. Talk, they say, is useless; only action counts. But perhaps talk and action aren’t necessarily opposites. What if studying, talking, writing, and explaining should turn out to be the only worthwhile action there is? What then?
The issue arises because not all actions in response to restrictions on liberty are consistent with liberty. That is, the principle of equal liberty for all rules out many options:
Do those who would save liberty advocate physical action? If so, how? To use physical force against others, except defensively, is to destroy the liberty of others which, by definition, is not liberty. To adopt this tactic—to employ physical force against others in any form or degree, except in self-defense—would be merely to substitute a new form of compulsion for the existing forms of compulsion, trading violence for violence.
Most . . . mean only that they want “something done,” and quickly! They want to fight peacefully . . . they reject physical action in their calculations by not even contemplating it. Thus, according to their own thesis, nothing logically remains but intellectual action.
This leads Read to ask a crucial question: “How, then, does one fight for liberty intellectually?” As is often the case with respect to liberty, one must first pay close attention to what should not be done (and in the varied, changing, uncertain real world, we often know far more about what not to do—“do not violate your principles”—than about what is the best way to address many particular problems):
The best thing to do even in an intellectual fight for liberty, many think, is to organize—which is a form of action. Usually they think in terms of organizing someone else to do something instead of organizing their own time and energies. This damaging tactic is employed as though organizing had the power, somehow, to absolve individuals from doing any more than joining some organization. This mania for organizing is usually little more than an effort, doubtless unwitting, to transfer responsibility from oneself to some other person or persons.
Responsibility and authority always go hand in hand. Thus, if this process of organizing succeeds, authority over one’s own actions is lost precisely in the degree that responsibility is shifted to someone else. The citizen who “wants action,” and resorts to this type of tactic, ends up further from his goal than ever. In fact, organizing, more often than not, is merely an attempt to “pass the buck.” Yet, oddly enough, the mere act seems to have the strange power of conferring a sense of accomplishment on the ones who organize.
So, how can one effectively fight for liberty if organizing itself can be dangerous to liberty?
Organization, though much used, seems to be little understood. In the field of extending individual liberty, organization has strictly limited, technical possibilities. Unless these limitations are scrupulously observed, organization will inflict on liberty more harm than good; thwart, not abet, the spread of understanding. Sobering is the thought that if there were no organization, there could be no socialism!
Organizations can, however, serve a highly useful purpose in developing and spreading an understanding of liberty if organization is confined to its proper sphere. For the purpose of advancing liberty, which depends solely on the advancement of individual understanding, the only usefulness of organization would seem to be to accommodate and to make easier the joint contribution to, participation in, and ownership of the physical assets that will aid in the process . . . tools helpful to individuals who are attempting to extend their understanding of liberty.
These physical accommodations can enable searchers for truth to exchange and disseminate ideas and knowledge more effectively. They can be used to secure the advantages which derive from specialization or division of labor. Organization, limited to this form of voluntary cooperation, is a useful and efficient means for achieving these desirable ends.
Organization, however, like government, if extended beyond its proper sphere, becomes positively harmful to the original purpose. This fact constitutes the need for much careful thought on organizational limitation. Just as government becomes dangerous when its coercive, restrictive, and destructive powers are extended into the creative areas, so do voluntary organizations pervert and destroy the benefits of intellect when the capacity to merge is carried to the point of subjecting individual judgments to the will of the majority or group.
If organizing beyond certain very narrow limits is not, then, as Read put it, “the best way to secure liberty,” what is that best way?
Self-improvement is the only practical course to liberty.
Every individual ought to realize that he has not mastered the subject of liberty until he thoroughly understands, and can competently explain, this idea: With government properly limited to its legitimate function of defense, our problems of interdependence can be resolved through voluntary effort, and only through voluntary effort . . . [but] most persons are inexpert in their understanding of this subject.
Not a single person among us is justified in regarding himself other than as a student of liberty. No know-it-all exists or ever will.
For a student of liberty, the search must be within one’s self. . . . It is not possible to impart to others that which we do not possess. And even after we have made some progress in understanding, the most we can do for others is to make known to them a willingness to share what we have discovered.
So how does this comport with the American tendency toward impatience that is often the motivation toward action?
The search within ourselves may at times appear unrewarding. But if the understanding of liberty is to be advanced, the attempt must be persisted in.
The casual thinker might imagine that the best course is to try to tell others what to do and how to think. But reason supplies a contrary answer. It suggests that pursuit of one’s own personal understanding is the only practical action for one to take. If a person advances his own understanding of the true and the false, the understanding thus acquired will be sought by others.
Some persons will assert that . . . this suggested student approach—this process of self-improvement—is too slow to meet the challenge of these times. . . . But . . . there is no short cut. The only way to truth—that is, to understanding—is through one’s own person. When we gain an appreciation of this simple fact, we will be on our way to as little violence against persons, and thus to as much liberty among persons, as is within our power.
So how is someone who wishes to advance liberty to reconcile the potential conflict between talk (beliefs, thoughts, opinions, and arguments expressed) and actions (behavior)? In a nutshell, one could say that smarter talk on behalf of liberty is also smarter action on behalf of liberty:
Action? For authoritarians it is physical force. For libertarians it is first understanding and then explanation.
Can the injection of new money into the economic system enhance economic growth? Not really. Increasing (or decreasing) the money supply affects the demand for money but doesn't make us wealthier.
Original Article: "Understanding Relationships between Money Supply and Liquidity"
A Collection of the Political Writings of William Leggett, selected and arranged, with a preface, by Theodore Sedgwick, in two volumes. (1839)
This collection provides important example of populist laissez-faire opinion from the Jacksonian Era in the United States. In terms of economic policy, the Jacksonians favored low taxes, decentralization, and hard-money while opposing central banks and regulation of private business.
William Leggett was born on April 30, 1801 in New York City and died at age thirty-eight, on May 29, 1839 in New Rochelle, New York. He was a Jacksonian era journalist and the intellectual leader of the laissez-faire wing of Jacksonian democracy. He wrote editorials in support of individual liberties and private property rights while working with William Cullen Bryant at the Evening Post.
Recently, I had the pleasure of attending a debate about the morality of capitalism between James Otteson and Michael Anton, a defender of economic nationalism. Otteson made a good case for capitalism; however, Anton derailed the debate by choosing to focus on specific policies rather than ethical concerns. Ironically, Anton admits that he has hardly ever picked up an economics textbook.
Throughout the debate, Anton made claims that were either misleading or false. I will address the most egregious here.
Tariffs and Free TradeAnton’s foremost claim is that tariffs are, in fact, beneficial for economic development. Without giving much evidence, he merely appeals to the authority of Alexander Hamilton and the infant industry argument. Perhaps his ignorance of economics stunts his understanding of this issue. What is the actual impact of a tariff on economic development? Contrary to Anton’s claims, tariffs initially impact the savings-investment ratio. In regard to income taxes, Murray Rothbard states in his book Man, Economy, and State with Power and Market,
For the taxpayer’s real income and the value of his monetary assets have been lowered. The lower the level of a man’s real monetary assets, the higher will his time-preference rate be (given his time preference schedule) and the higher the proportion of consumption to investment spending.
The same applies to tariffs. Tariffs generally increase the consumption to savings ratio by increasing prices of domestic and foreign wares, which is contrary to what Austrians hold as the cause of economic development. According to Jesús Huerta de Soto, decreases in social time preferences lead to increased savings which modifies the “structure of productive stages, making this structure more complex and lasting, and in the long run, appreciably more productive.” Increasing the consumption to savings ratio leads to an increase in social time preferences, thereby causing economic regression, not progress.
Additionally, tariffs will also decrease total consumption of tariffed goods, lowering the general welfare. When pressed during the Q and A session at the dinner after the debate, Anton maintained that tariffs will not deter people from consuming goods. He uses evidence that people still use goods that are tariffed, such as Italian cars.
This is absurd and violates methodological singularism. People consume definite quantities, not classes, of goods. The marginal consumer is eliminated and made worse off. Moreover, just because a person is not deterred from consuming a good at a higher price does not mean that their welfare remains the same. They will have less money to distribute between consumption, saving, and investment, which harms their welfare.
Furthermore, tariffs contribute to the creation of monopolies, protecting companies from competition and therefore leading to higher prices and lower quality of goods, the characteristics that make almost everyone—except for Anton, apparently—opposed to monopolies.
Lastly, Anton commits the notorious fallacy of the broken window. If there is no visible effect, there is no problem for Anton. However, the vast production that would have occurred if not for the stunting effect of tariffs is immeasurably high.
Anton is wrong. Tariffs are generally harmful and do not increase economic progress.
NAFTA and Free Trade AgreementsAnton maintains the North American Free Trade Agreement (NAFTA) and other “free trade” agreements as free market canon. He says he was with the Cato Institute in supporting NAFTA, but he looks back to those days with regret. Cato was wrong, and free trade is harmful according to Anton.
If one were to look back at Cato publications from the Clinton administration, Cato was not monolithic. Some expressed excitement, others expressed caution, but Cato is not representative of the orthodox libertarian position. If one wants a sounder position, they can look at Rothbard’s publications from the time rejecting NAFTA and other “free trade” agreements as command-and-control agreements, not free trade.
The truth is that NAFTA is not the kind of free trade that libertarians want. Unilateral free trade is the only libertarian path forward; any other path opens up the door for cronyism and interventions in an attempt to make the agreement palatable for businesses and foreign interests.
Alexander HamiltonWhen all else fails, appeal to authority. Anton did just that in citing Hamilton’s Report on Manufactures, which posits an early version of the infant industry argument. Protecting “infant industries” merely prevents innovation, keeping them “underdeveloped,” defeating the purpose of the protections in the first place. There is no good reason to take the infant industries argument seriously.
The preceding economic analysis along with Rothbard’s refutation of the infant industry argument make the tariff position untenable, but there is something else fundamentally wrong here—Hamilton’s motives.
Anton maintains that Hamilton was promoting the policies he did for the common good, but this is a naïve interpretation of history. The self-interest-centered public choice school of economics displaced common-good public policy. We can understand Hamilton’s policies from the self-interest framework. Hamilton was deeply connected with the Robert Morris group, an entourage of political elite including James Wilson, John Adams, and Gouverneur Morris.
When I pressed Anton further in the private, postdebate question and answer session, he gave evidence that Hamilton was a “hard worker” in response to my claims. Yes, if political power was at stake, I would be a hard worker as well. The truth is that Hamilton was power hungry and deceptive. He did all that he could to stay in power and increase the size of the government in spite of liberty and welfare. Being a hard worker says nothing about Hamilton’s character. More can be read about Hamilton in Rothbard’s Conceived in Liberty, Patrick Newman’s Cronyism, and Brion McClanahan’s How Alexander Hamilton Screwed Up America.
ConclusionTalk of cronyism makes me question Anton’s interests. What does he have at stake? Looking at Anton’s statements of financial interest from 2018, one can see that he still had investments with Blackrock, one of his former employers. Blackrock is a supporter of government interventions, especially when it comes to the environment. Why? Because they promote government intervention that serves their own interests. Nothing definitive can be said; Anton may very well be a true believer, but that does not change the fact that his arguments were chock-full of errors.
Economic nationalism is nothing new. Its claims have been repeated for centuries. Unfortunately, as demonstrated by Anton, economic nationalism isn’t going anywhere, so we must rebuke it whenever it rears its ugly head.
American corporations are lavishing billions of dollars on leftist groups in the name of "equity." But many of them also are donating to even more questionable people and causes.
Original Article: "The Putrid Underbelly of Woke Capitalism"
[In this 1836 editorial, William Leggett laments how Wall Street and the "privileged" orders of the American upper class employ the power of the state to protect their own financial interests at the expense of ordinary taxpayers. In the nineteenth century, Leggett was an important spokesman for the laissez-faire, populist wing of the Democratic Party which supported hard money.]
There is, in the city of Genoa, a very elegant street, commonly called, The Street of the Palaces. It is broad and regular, and is flanked, on each side, with rows of spacious and superb palaces, whose marble fronts, of the most costly and imposing architecture, give an air of exceeding grandeur to the place. Here reside the principal aristocracy of Genoa; the families of Balbi, Doria, and many others of those who possess patents of nobility and exclusive privileges. The lower orders of the people, when they pass before these proud edifices, and cast their eyes over the striking evidences which the lordly exteriors exhibit of the vast wealth and power of the titled possessors, may naturally be supposed to think of their own humble dwellings and slender possessions, and to curse in their hearts those institutions of their country which divide society into such extremes of condition, forcing the many to toil and sweat for the pampered and privileged few. Wretched indeed are the serfs and vassals of those misgoverned lands, where a handful of men compose the privileged orders, monopolising political power, diverting to their peculiar advantage the sources of pecuniary emolument, and feasting, in luxurious idleness, on the fruits of the hard earnings of the poor.
But is this condition of things confined to Genoa, or to European countries? Is there no parallel for it in our own? Have we not, in this very city, our “Street of the Palaces,” adorned with structures as superb as those of Genoa in exterior magnificence, and containing within them vaster treasures of wealth? Have we not, too, our privileged orders? our scrip nobility? aristocrats, clothed with special immunities, who control, indirectly, but certainly, the political power of the state, monopolise the most copious sources of pecuniary profit, and wring the very crust from the hard hand of toil? Have we not, in short, like the wretched serfs of Europe, our lordly masters,
“Who make us slaves, and tell us ’tis their charter?”
If any man doubts how these questions should be answered, let him walk through Wall-street. He will there see a street of palaces, whose stately marble walls rival those of Balbi and Doria. If he inquires to whom those costly fabrics belong, he will be told to the exclusively privileged of this land of equal laws! If he asks concerning the political power of the owners, he will ascertain that three-fourths of the legislators of the state are of their own order, and deeply interested in preserving and extending the privileges they enjoy. If he investigates the sources of their prodigious wealth, he will discover that it is extorted, under various delusive names, and by a deceptive process, from the pockets of the unprivileged and unprotected poor. These are the masters in this land of freedom. These are our aristocracy, our scrip nobility, our privileged order of charter-mongers and money-changers! Serfs of free America! bow your necks submissively to the yoke, for these exchequer barons have you fully in their power, and resistance now would but make the burden more galling. Do they not boast that they will be represented in the halls of legislation, and that the people cannot help themselves? Do not their servile newspaper mouth-pieces prate of the impolicy of giving an inch to the people, lest they should demand an ell? Do they not threaten, that unless the people restrict their requests within the narrowest compass, they will absolutely grant them nothing?—that they will not relax their fetters at all, lest they should next strive to snap them entirely asunder?
These are not figures of speech. Alas! we feel in no mood to be rhetorical. Tropes and figures are the language of the free, and we are slaves!—slaves to most ignoble masters, to a low-minded, ignorant, and rapacious order of money-changers. We speak, therefore, not in figures, but in the simplest and soberest phrase. We speak plain truths in plain words, and only give utterance to sentiments that involuntarily rose in our mind, as we glided this morning through the Street of the Palaces, beneath the frowning walls of its marble structures, fearing that our very thoughts might be construed into a breach of privilege. But thank heaven! the day has not yet come—though perhaps it is at hand—when our paper money patricians deny their serfs and vassals the right to think and speak. We may still give utterance to our opinions, and still walk with a confident step through the Street of the Palaces of the Charter-mongers.
Immigration has raised concerns in some about America’s demographic future. Some propose that an influx of migrants with foreign worldviews will fracture American society. This argument is based on the finding that the diversity generated by immigration deters social trust.
Trust is a crucial ingredient for societies to thrive by establishing collaborative institutions. Trusting societies are more cooperative and innovative because when people trust each other, they are more likely to share information. Trust also makes it easier to do business by lowering transaction costs.
People will expedite the business process when they have confidence in the integrity of their partners. Because trust is a stimulant for social progress, concerns that immigration will corrode social relations is a legitimate worry. However, the ripple effects of immigration are more complicated than the problems posed by a low-trust society.
Individualism has been a source of America’s strength and ingenuity. Risk-tolerant and individualistic individuals migrated to America where they built the most successful society in history. Unlike in other places in Western society, change is driven by individuals rather than imposed by foreign actors.
Lawrence Mead explains in his book Burdens of Freedom that although migrants prosper in America, recent waves of immigration have been propelled by non-Europeans who are not as individualistic as European whites. Such people do succeed in America. However, on average, they fail to embrace freedom as a burden requiring obligations.
The downside is that the lack of a widespread ethos of individualism among some groups precludes them from achieving parity with the dominant white majority. East Asians do well financially in America, yet Mead opines that academics lament their conformity and inability to chart new terrains. Mead thinks that importing less-individualistic migrants from non-Western countries will sap American dynamism by reducing the propensity for individualism.
Historically, America succeeded at assimilating migrants. However, with the advent of multiculturalism, assimilation has become a dirty word. Instead, activists debase the founding fathers and European philosophers. Traits we associate with the West like individualism and analytical thinking are demeaned as products of white supremacy.
Therefore, it’s unlikely that future generations of immigrants will assimilate in large numbers. Mead’s conclusions might sound farfetched, but they are endorsed by research exploring the long-term effects of culture. Personality is heritable, so nonindividualistic immigrants are likely to birth nonindividualistic children. Individualism is a strong predictor of innovation and economic growth. Hence, a surge in less-individualistic people can limit economic growth rates.
Evidence analyzed by London School of Economics researcher Sijie Hu indicates that the reproduction of personality traits hostile to innovation stymies growth. Studying the reproductive rates of imperial China, Hu shows that elites who subscribed to the conformist tendencies of Confucianism were likely to reproduce, and this adversely affected economic growth rates during the Qing dynasty. So, Mead is not wrong to suggest that a less-individualistic America could lead to unfavorable economic outcomes.
Libertarians are wary of proposals to restrict immigration, due to economic and philosophical reasons. However, they must address the damages that immigration poses to sustaining American ingenuity. All cultures don’t lead to similar outcomes, so libertarians must account for cultural consequences when promoting immigration.
Shoddy service, regular breakdowns, and overbudget to boot. There is a reason why government-funded projects always waste resources.
Original Article: "The Failure of Public Works and Public Funding"
It is hard to ignore the headlines about US corporate profit margins stabilizing at their highest level in decades. This information has provided plenty of ammunition for populist commentators and politicians who blame corporate greed for the sharp increase in postcovid consumer prices and ignore the elephant in the room, which is a more than 40 percent increase in broad money supply after March of 2020 mostly due to central bank balance sheet expansion and the monetization of massive budget deficits.
That is not to say corporate greed does not exist, but one should note that corporations were also greedy in 2015 when inflation was only 0.7 percent. Why have they been rapidly raising prices and expanding their profit margins only after covid? I want to take you through a simple yet representative example that shows how inflation increases profit margins and not the other way around.
Consider a manufacturer of copper cookware that generates all its revenue from the sales of ten thousand copper pans every year. Each year the manufacturer pays $1 million to buy the raw material and pay the labor required for manufacturing those ten thousand units, then sells each unit at $120, which adds up to total sales of $1.2 million. If there is no inflation, the manufacturer can pocket $200,000 from the sales proceeds and use the remaining $1 million to buy the raw material and pay the labor needed to manufacture ten thousand pans next year. This amounts to a 20 percent pretax profit margin.
As long as the input costs do not rise, the manufacturer can do that year after year and keep its profit margin at 20 percent. However, if some input costs, such as copper prices, go up, this changes the whole equation. Imagine an inflationary environment where the manufacturer expects the cost of raw materials and the cost of labor for next year to go up on average 10 percent to $1.1 million for producing ten thousand units. The manufacturer has to increase the price of copper pans to be able to collect at least $1.3 million in sales.
After pocketing $200,000, they end up with $1.1 million which is just enough to pay the higher cost of raw material and labor for the next year’s production of ten thousand pans. However, for the purposes of profit margin calculation, the manufacturer has to report this year’s cost, which was $1 million amounting to a 30 percent profit margin. The reality is that the manufacturer is not getting wealthier. They are still only pocketing $200,000, yet the profit margins are inflated.
You may ask how the manufacturer can figure out that input costs are going to be higher next year. While manufacturers do not buy raw materials every day, they still track the real-time price of the material they need. The copper cookware manufacturer that observes the price of copper moving from around $3.50 a pound to more than $4.50 a pound in three months in 2021 has to adjust its prices even if it has enough copper for many months’ worth of production.
Failure to do so results in the manufacturer falling short when they attempt to buy more copper if prices do not come back down. The forward-looking nature of decision-making by producers and manufacturers compels them to raise prices when they see a trend of rising input costs.
Yet the profit margins are calculated using a backward-looking methodology. However, this is a transitory impact. As historical data suggests, a sharp rise in corporate profit margin is almost always followed by a sharp decline in those margins when the lagging rising costs catch up with the higher sales and the inevitable recession hits.
The Biden administration has decided that the REAL problem with housing is that the wrong people are saving money and making timely mortgage payments. They must be punished.
Original Article: "Biden’s New Intersectionality: Where Equity Policies Meet Bad Economics"
The United States House of Representatives’ passage of the Limit, Save, Grow Act of 2023 is a big Republican failure addressing the debt ceiling. The debt ceiling would be raised above the current limit of $31 trillion by $1.5 trillion or through March 2024, whichever comes first. Notably, “official cost estimates have not yet been released,” so the projected paltry $480 billion annual spending reductions likely will be much less. This is because this bill “does not list any specific cuts.” Fortunately, it is expected that Senate Democrats will vote down this execrable bill.
Campaigning Republicans are invariably aghast at deficits in the billions. Elected Republicans, however, are comfortable with deficits in the trillions based on last year’s appropriations passed by the most progressive Congress and administration in this country’s history.
The House bill is a “me too, but a little less” action to grow ever bigger government more slowly. Lone Rep. Tim Burchett (R-TN) stood against the farce, insisting on “true debt reduction, not rate of growth.” Declining to exercise leverage over the process, the Freedom Caucus is losing legitimacy and should rename itself the Freedom Lost Caucus.
The list is short and thin for merits to the House bill. Disqualified as a merit is the general, unspecified limit to grow spending—excluding the military—at 1 percent annually. Otherwise, the student loan forgiveness program and income-driven repayment plan would be blocked. The Internal Revenue Service appropriation of $80 billion for additional employees would be rescinded. Recipient work requirements would be added for food stamps and Medicaid. There would be a repeal of unreliable (i.e., solar and wind) energy and electric vehicle tax credits. Unused covid-19 funds would be clawed back.
Because the House initiates appropriations, no laws need to be passed if any government program, commission, office, agency, bureau, department, or administration is defunded completely. The House has authority to act unilaterally this way. Spending reductions that stop short of elimination, the path to conservative defeat, require agreement between the House, the Senate, and the White House. It won’t get easier passing a balanced budget later, and the window for this is closing quickly. We can look into the dismal future by looking at the similar past actions of Argentina, Venezuela, and the PIGS (Portugal, Italy, Greece, and Spain) with their out-of-control spending and monetary policies.
Consider the categories of individuals, groups, and issues supposedly forming the base for the perpetual political success of a realigned Republican Party. Opportunities for conservatives include parents and parental rights, the working class composed of the poor and middle class who could benefit from capitalism and its attendant prosperity, senior citizens, and citizens desiring safety and security.
Instead, parents aren’t supported. The Department of Education isn’t eliminated, which would be another step toward universal school choice. LGBTQ recruitment into sexual deviancy continues apace, with increased funding for Planned Parenthood and the medicopharmaceutical industrial complex anxious for lifetime profits from transgender transitions.
Prosperity isn’t supported for poor and middle-class workers. A balanced budget is an imperative unrecognized by elected Republicans. The Environmental Protection Agency, dedicated to antihumanism and environmental radicalism, isn’t defunded. The Department of Energy, dedicated to the Green New Deal, is still funded. Neither the Department of Commerce, dedicated to globalism, nor the Department of Health and Human Services, dedicated to the evisceration of the intact nuclear family, is defunded as well. Crony capitalist initiatives such as the funding for the Creating Helpful Incentives to Product Semiconductors (CHIPS) Act and tax credits for ethanol production should stop.
Congressional deficit spending requires the monetization of the debt by the Federal Reserve, which causes monetary inflation. Lower real wages and fewer opportunities in a more stagnant economy cause lower standards of living.
Senior citizens are under a cloud even though “cuts” would not apply to benefits programs such as Social Security and Medicare. Only a balanced budget supports senior citizens’ interests. Balancing the budget is a tougher proposition every year. The reason is that the accumulated profligate deficit spending by the uniparty, adding up to our national debt, requires interest payments. The fraction of the budget going to interest payments—currently at about 7 percent of all federal outlays—keeps climbing, increasing pressure for program cuts. If elected Republicans make hard choices now, then Social Security and Medicare won’t have to be targeted later.
Liberty isn’t advanced. Safety and security aren’t supported. At the global level, the incompetent and tyrannical World Health Organization, the United Nations, the World Economic Forum, and the socialist and crony capitalist International Monetary Fund are fully funded. Forever wars supported by the military industrial complex, the corrupt and tyrannical Volodymyr Zelenskyy, and the North Atlantic Treaty Organization are fully funded. At the national level, the corrupt and unreformable Federal Bureau of Investigation; Bureau of Alcohol, Tobacco, Firearms, and Explosives; and US Customs and Border Protection agencies are fully funded. The environmental, social, and governance; critical race theory; and diversity, equity, and inclusion frameworks are fully supported as well. The woke military is exempt from cuts.
Significantly, Congress isn’t insisting on adherence to the Constitution with respect to regulations and executive orders. The Constitution authorizes only Congress to pass laws, and this authority may not be delegated. All regulations and executive orders must be submitted to Congress as proposals for additional legislation. Elected Republicans are sanguine that the regulatory state and imperial White House make their own laws thereby directly threatening liberty and prosperity.
Neither Donald Trump nor Ron DeSantis has heartburn. Trump’s first-term legacy was a reduction in the flow of illegal immigrants, regulatory state rollback, and the recission of Barack Obama’s executive orders. However, President Trump signed every massive omnibus spending bill, each with higher deficit spending, sent to his desk. As governor, DeSantis must balance the state budget, but the virtues of doing this at the national level elude him to the extent he can’t articulate why a balanced budget is necessary for liberty and prosperity.
What recourse do voters have? Primaries are rigged by the two political parties to return incumbents to office. Nevertheless, it is within primaries that authentic conservatives can be elected. Conservatives should learn the lesson of former progressive House Speaker John Boehner, who encouraged large numbers of candidates to oppose him in his primary. There needs to be only a single authentic conservative running against the incumbents. All primaries should require a majority winner or have a runoff.
With a divided government, the legislation likely to pass would be a provision of a line-item veto by the president. Such a law would eviscerate the “take it or leave it” attitude implicit in omnibus spending bills or the huge bundled “single appropriations” bills envisioned by progressives wearing red jerseys. Congress would pass the buck to the White House to be fiscally responsible.
The House bill raising the debt ceiling is good news for the wealthy. In the face of profligate congressional spending, the Fed must eventually relent and go back to monetary easing, which will reinflate the asset bubbles in the stock and residential housing markets. The wealthy, having a higher percentage of disposable income with which to invest, will benefit disproportionately. There will be a further increase in wealth inequality between the poor and middle class versus the wealthy.
Elected Republicans are dedicated to vigorous tongue lashings, finger wagging, and foot stomping. Unfortunately, only campaigning Republicans recognize the virtues of a much smaller government. Voters should recognize the difference between campaigning and elected Republicans and know that elected Republicans are dedicated to the decline of the country. The decision to vote for an incumbent in the general election just depends how badly you want to see the progressive wear your team’s jersey color.
Economically speaking, the US government is bankrupt even if the government won’t admit what is obvious. But how would an actual bankruptcy proceeding go?
Original Article: "In the Event of an Official US Bankruptcy"
The character Mike Campbell in Ernest Hemingway’s 1926 novel The Sun Also Rises was asked about his money troubles and responded with a vivid description embracing self-contradiction: “‘How did you go bankrupt?’ Bill asked. ‘Two ways,’ Mike said. ‘Gradually and then suddenly.’”
Ground-hugging interest rates for more than a decade kept the inefficient and the incompetent in business. Now, the jig is up, with a Mother’s Day weekend corporate massacre that saw the bankruptcies of seven corporations, each with liabilities of nine figures or more—in four cases, with more than a billion dollars in liabilities each.
This cluster of large bankruptcies happening in less than forty-eight hours is the most since 2008. Libby Cherry writes for Bloomberg (reprinted on Time): “Firms across every sector are struggling with higher interest costs—making it more challenging to refinance loans and bonds—while corporate executives are drawing more scrutiny from investors and creditors.”
The corporate restructurings cover a wide range of businesses: Vice Media Group, KKR-backed Envision Healthcare, security company Monitronics International, chemical producer Venator Materials Plc, oil producer Cox Operating, fire protection firm Kidde-Fenwal, and biotechnology company Athenex.
The only thing these firms had in common was lots of debt that was unserviceable with today’s higher interest rates. Murray Rothbard wrote in America’s Great Depression:
The problem of the business cycle is one of general boom and depression; it is not a problem of exploring specific industries and wondering what factors make each one of them relatively prosperous or depressed. . . . What we are trying to explain are general booms and busts in business.
In considering general movements in business, then, it is immediately evident that such movements must be transmitted through the general medium of exchange—money.
If you haven’t been losing any sleep over these corporate failures or have been blissfully unaware, the weekly St. Louis Fed Financial Stress Index is with you, measuring no stress. Above zero on the index means there is stress in the market—when Silicon Valley Bank failed, the index jumped to 1.54. Zero means normal market conditions, and a negative reading signals below-average stress. The index is currently reading negative.
Corporate bankruptcies, the debt ceiling showdown, bank failures—nothing to see here. Providing context, Wolf Richter writes that “During the Financial Crisis, just after the Lehman bankruptcy, the index spiked to +9.25, so that’s about six times the value during the SVB collapse (+1.54).”
With everything so calm, it’s no wonder Fed heads claim to blindly have their noses to the inflation grindstone. Nonvoter Federal Reserve Bank of Richmond president Thomas Barkin told Bloomberg’s Michael McKee that he wants to reduce inflation. “And if more [interest rate] increases are what’s necessary to do that I’m comfortable doing that.”
Another nonvoter, but frequent talker, Federal Reserve Bank of Cleveland president Loretta Mester said the Fed can “do its part” by curbing inflation.
Of course, as Rothbard explained, the Fed actually creates inflation, instead of curbing it. However, higher interest rates will mean a bumper crop of bankruptcies.
TheStreet reports:
The most recent S&P data show 2023 corporate bankruptcies rising at an alarming clip. Data show 236 bankruptcies were recorded through the end of April 2023 (109 had been recorded over the same time period last year). UBS also found in a recent study that bankruptcies worth $10 million or more had a rolling average of about 8 per week.
There’s been much talk about the “everything bubble.” Perhaps that will now include bankruptcies, gradually, then suddenly.
Progressive governments in the name of equity are calling for taxation of capital gains. They really are demanding destruction of capital through capital consumption.
Original Article: "Taxing Capital Leads to Capital Consumption"
A “civil society” is a community of individuals who are linked together by common interests and activities. Common interests include being able to walk the streets safely (peace) and to exercise such rights as freedom of speech (individual freedom). These shared interests allow common activities to flourish, including commerce and the education of children.
Civil society is possible only because most people want to live securely, protect their loved ones, and prosper. This laissez-faire attitude used to be a defining characteristic of Americans, but an engineered and well-financed cultural war is destroying America’s renowned tolerance. If the common interests of society break down and peace and freedom are replaced by violence and privilege, then common activities like free-market commerce and education cannot function.
One movement captures the raw destruction of this culture war against civil society—a demand for “Trans rights!” blasts across America. But a sharp backlash against it has also developed, epitomized by the boycott of Bud Light beer over the company’s use of trans activist Dylan Mulvaney as a new “woman” ambassador for its brand.
The media characterizes this backlash as antitrans hatred by conservatives, Christians, and other troglodytes. But few people care about the sexual or gender orientation of their neighbors. Critics of the trans movement are rebelling against the forced redefinition of biology, the destruction of women’s sports by trans athletes, the hijacking of children’s education, the medical experiment of gender-transitioning children, and the intrusion of penises in women-only spaces like bathrooms, locker rooms, prisons, and shelters. Critics don’t want to oppress anyone; they want a return to civil society of peace and individual rights.
To understand why the “trans rights” movement has caused such damage, it is necessary to ask three questions. What is a “transgendered” person? What are “rights”? What is produced by the actions the movement takes?
What is a transgendered person? Already we’re in trouble. Many prominent intellectuals today can’t even answer the simpler question, What is a woman? This article uses a common definition: “Transgender describes people whose gender identity does not match their assigned gender at birth.” It is one of many gender categories being advanced by social justice. There are as many as eighty-one distinct categories, all of which are said to be fluid or constructed over time.
Politically speaking, transgenderism and the other gender categories are a continuation of identity politics. This is a fairly standard definition of identity politics: “The politics of group-based movements claiming to represent the interests and identity of a particular group, rather than policy issues relating to all members of the community. The group identity may be based on ethnicity, class, religion, sex, sexuality, or other criteria” (emphasis added). It is an attempt to splinter society into groups and categories, all of which are at war with each other because their interests are said to conflict. What does this war look like?
Consider a controversial example: gender transitioning. This is when a person uses reassignment therapy, hormone replacement, and sex reassignment surgery to change their birth sex. Few argue against the gender transition of adults who pay for the process themselves. But the trans movement demands the gender transitioning of children, often at taxpayer expense; that is, a tomboy might become a “boy” through methods that include irreversible surgery.
There are at least two flash points here. One is the minimum age at which a person should transition. The World Professional Association for Transgender Health claims hormones can start at age fourteen and some surgeries at fifteen—in other words, at the height of a teenager’s sexual confusion. Recently, a licensed social worker at a children’s medical center in Austin, Texas, was reportedly recorded as saying the center provided gender modification to children as young as eight. On April 25, Senator Ted Cruz and Representative Chip Roy submitted a formal request to the center for information on how gender dysphoria is diagnosed, how federal dollars are spent in the process, and whether patients under eighteen underwent “experimental medical procedures.”
The group war here is between a child’s right against physical abuse and trans activists’ demands for children’s access to transition. The other flash point is that transitions are often performed without parental consent or despite parental objections. The rights war here—trans activists are usurping traditional parental rights, and parents are outraged.
The idea that the rights of one group conflict with those of another is perverse because it destroys the very basis of human rights. Human rights are universal because they are rooted in human nature. All human beings possess the same rights to the same degree. Rights are not based on secondary characteristics such as gender; they rest on a shared humanity. In other words, a trans person has the same rights to the same degree as every other person in society. No more, no less.
The “rights” demanded by trans activists are actually entitlements or group privileges. This is made clear by the claim of historical oppression, which is used to justify many demands. What is really being claimed is victimhood, upon which their entitlements are based. For trans activists to sustain their victimhood status, however, those who oppose them must be cast as oppressors and endless haters. Conveniently, this characterization removes the need to deal with any argument the “haters” present, such as the need for real human rights.
Again, this trans stance is a perversion. If the trans movement has been historically oppressed—and I do not argue against this—then the movement should value individual rights more than the average person. These freedoms are how an aggrieved individual rises to his or her feet. But trans activists do not want to be treated as equal individuals; they want to be a privileged group that imposes huge costs on the majority of society to their great benefit. Individual rights are an obstacle.
Gender transition is one area in which civil society is being replaced with civil warfare, but there are many others:
- Trans “women” housed in women-only venues, like prisons and shelters, put biological women there at risk of sexual assault. Rapes are already happening.
- Trans curricula in American public schools indoctrinate children at the expense of teaching basic life skills, like math and literacy.
- A prominent doctor on Fox News warned, “First-year medical students [are] exposed to woke ‘sex and gender primer’ lesson.” This shifts the focus away from medical problems; it could also damage relationships with patients who do not share woke ideology or are not in a privileged group. The same is happening in law schools.
- The trans agenda violates constitutionally guaranteed freedom of speech in myriad ways, from forcing schools to use pronouns like “xe” and “hir” to shouting down speakers or violently attacking them.
- Draconian hate speech laws are destroying meaningful public discourse. A new bill passing through the Irish parliament, for example, outlaws communication or the possession of material that might incite hatred against “protected” classes, including gender. This is punishable by up to five years in prison.
- The demand to include trans athletes in women’s sports is destroying the entire field.
- Transitioned children who deeply regret transitioning are generally silenced or dismissed.
One way detransitioners are dismissed is through studies and statistics into which little trust can be invested. An article in the Associated Press claims, “In a review of 27 studies” of transgender surgeries, “1 percent on average expressed regret.” If this is true, it is good news. But is it true? The incessant ideology pumped through academia and the airwaves is yet another cost to civil society. Academics, journalists, and so-called experts have earned the public’s scorn. Studies and research have become just one more front in this war of all against all.
The media and authorities richly deserve this summary judgment from the public. Consider how they handle acts of violence. Every act of violence against a trans person seems to be widely reported and condemned, as it should be. But trans violence against biological women or other outsiders seems to be ignored or excused. Even the trans shooter in Nashville who killed three nine-year-old school children and three adults is protected by authorities who refuse to release the shooter’s manifesto. And media reports often expressed more concern about a backlash against trans people than about the dead children. SAVE Services, an agency that works to assure due process and fairness in schools, has an interesting page called “Stop the Wave of Transgender Violence” where many cases of trans violence are documented. In this environment, it is simply not possible to know what’s true about the levels of violence and against whom.
I would end by asking, can a more general violence—a savage civil unrest—be far behind? I believe it is already here.
With negative growth now falling to near –10 percent, money-supply contraction is now the largest we've seen since the Great Depression.
Original Article: "The Money Supply Has Plummeted in the Biggest Drop Since the Great Depression"
One of the reasons that most economists of the 1920s did not recognize the existence of an inflationary problem was the widespread adoption of a stable price level as the goal and criterion for monetary policy. The extent to which the Federal Reserve authorities were guided by a desire to keep the price level stable has been a matter of considerable controversy. Far less controversial is the fact that more and more economists came to consider a stable price level as the major goal of monetary policy. The fact that general prices were more or less stable during the 1920s told most economists that there was no inflationary threat, and therefore the events of the Great Depression caught them completely unaware.
Actually, bank-credit expansion creates its mischievous effects by distorting price relations and by raising and altering prices compared to what they would have been without the expansion. Statistically, therefore, we can only identify the increase in money supply, a simple fact. We cannot prove inflation by pointing to price increases. We can only approximate explanations of complex price movements by engaging in a comprehensive economic history of an era—a task which is beyond the scope of this study. Suffice it to say here that the stability of wholesale prices in the 1920s was the result of monetary inflation offset by increased productivity, which lowered costs of production and increased the supply of goods.
But this "offset" was only statistical. It did not eliminate the boom-bust cycle; it only obscured it. The economists who emphasized the importance of a stable price level were thus especially deceived, for they should have concentrated on what was happening to the supply of money. Consequently, the economists who raised an alarm over inflation in the 1920s were largely the qualitativists. They were written off as hopelessly old-fashioned by the "newer" economists who realized the overriding importance of the quantitative in monetary affairs. The trouble did not lie with particular credit on particular markets (such as stock or real estate); the boom in the stock and real-estate markets reflected Mises's trade cycle: a disproportionate boom in the prices of titles to capital goods, caused by the increase in money supply attendant upon bank credit expansion.1
The stability of the price level in the 1920s is demonstrated by the Bureau of Labor Statistics Index of Wholesale Prices, which fell to 93.4 (100 = 1926) in June 1921, rose slightly to a peak of 104.5 in November 1925, and then fell back to 95.2 by June 1929. The price level, in short, rose slightly until 1925 and fell slightly thereafter. Consumer price indices also behaved in a similar manner.2 On the other hand, the Snyder Index of the General Price Level, which includes all types of prices (real estate, stocks, rents, and wage rates, as well as wholesale prices) rose considerably during the period, from 158 in 1922 (1913 = 100) to 179 in 1929, a rise of 13 percent. Stability was therefore achieved only in consumer and wholesale prices, but these were and still are the fields considered especially important by most economic writers.
Within the overall aggregate of wholesale prices, foods and farm products rose over the period while metals, fuel, chemicals, and home furnishings fell considerably. That the boom was largely felt in the capital-goods industries can be seen by (a) the quadrupling of stock prices over the period, and by (b) the fact that durable goods and iron and steel production each increased by about 160 percent, while the production of non-durable goods (largely consumer goods) increased by only 60 percent.
In fact, production of such consumer items as manufactured foods and textile products increased by only 48 percent and 36 percent respectively, from 1921 to 1929. Another illustration of Mises's theory was that wages were bid up far more in the capital-goods industries. Overbidding of wage rates and other costs is a distinctive feature of Mises's analysis of capital-goods industries in the boom. Average hourly earnings, according to the Conference Board Index, rose in selected manufacturing industries from $.52 in July 1921 to $.59 in 1929, a 12 percent increase. Among this group, wage rates in consumer-goods industries such as boots and shoes remained constant; they rose 6 percent in furniture, less than 3 percent in meat packing, and 8 percent in hardware manufacturing. On the other hand, in such capital-goods industries as machines and machine tools, wage rates rose by 12 percent, and by 19 percent in lumber, 22 percent in chemicals, and 25 percent in iron and steel.
Federal Reserve credit expansion, then, whether so intended or not, managed to keep the price level stable in the face of an increased productivity that would, in a free and unhampered market, have led to falling prices and a spread of increased living standards to everyone in the population. The inflation distorted the production structure and led to the ensuing depression-adjustment period. It also prevented the whole populace from enjoying the fruits of progress in lower prices and insured that only those enjoying higher monetary wages and incomes could benefit from the increased productivity.
There is much evidence for the charge of Phillips, McManus, and Nelson that "the end-result of what was probably the greatest price-level stabilization experiment in history proved to be, simply, the greatest depression."3 Benjamin Strong was apparently converted to a stable-price-level philosophy during 1922. On January 11, 1925, Strong privately wrote,
that it was my belief, and I thought it was shared by all others in the Federal Reserve System, that our whole policy in the future, as in the past, would be directed toward the stability of prices so far as it was possible for us to influence prices.4
When asked, in the Stabilization Hearings of 1927, whether the Federal Reserve Board could "stabilize the price level to a greater extent" than in the past, by open-market operations and other control devices, Governor Strong answered,
I personally think that the administration of the Federal Reserve System since the reaction of 1921 has been just as nearly directed as reasonable human wisdom could direct it toward that very object.5
It appears that Governor Strong had a major hand, in early 1928, in drafting the bill by Representative James G. Strong of Kansas (no relation) to compel the Federal Reserve System to promote a stable price level.6 Governor Strong was ill by this time and out of control of the system, but he wrote the final draft of the bill along with Representative Strong. In the company of the congressman and professor John R. Commons, one of the leading theoreticians of a stable price level, Strong discussed the bill with members of the Federal Reserve Board. When the Board disapproved, Strong felt bound, in his public statements, to go along with them.7
We must further note that Carl Snyder, a loyal and almost worshipful follower of Governor Strong, and head of the statistical department of the Federal Reserve Bank of New York, was a leading advocate of monetary and credit control by the Federal Reserve to stabilize the price level.8
Certainly, the leading British economists of the day firmly believed that the Federal Reserve was deliberately and successfully stabilizing the price level. John Maynard Keynes hailed "the successful management of the dollar by the Federal Reserve Board from 1923 to 1928" as a "triumph" for currency management. D.H. Robertson concluded in 1929 that "a monetary policy consciously aimed at keeping the general price level approximately stable . . . has apparently been followed with some success by the Federal Reserve Board in the United States since 1922."9 Whereas Keynes continued to hail the Reserve's policy a few years after the depression began, Robertson became critical,
Looking back . . . the great American "stabilization" of 1922–1929 was really a vast attempt to destabilize the value of money in terms of human effort by means of a colossal program of investment . . . which succeeded for a surprisingly long period, but which no human ingenuity could have managed to direct indefinitely on sound and balanced lines.10
The siren song of a stable price level had lured leading politicians, to say nothing of economists, as early as 1911. It was then that Professor Irving Fisher launched his career as head of the "stable money" movement in the United States. He quickly gained the adherence of leading statesmen and economists to a plan for an international commission to study the money and price problem.
Supporters included President William Howard Taft, Secretary of War Henry Stimson, Secretary of the Treasury Franklin MacVeagh, Governor Woodrow Wilson, Gifford Pinchot, seven senators, and economists Alfred Marshall, Francis Edgeworth, and John Maynard Keynes in England. President Taft sent a special message to Congress in February 1912, urging an appropriation for such an international conference. The message was written by Fisher, in collaboration with Assistant Secretary of State Huntington Wilson, a convert to stable money. The Senate passed the bill, but it died in the House. Woodrow Wilson expressed interest in the plan but dropped the idea in the press of other matters.
In the spring of 1918, a Committee on the Purchasing Power of Money of the American Economic Association endorsed the principle of stabilization. Though encountering banker opposition to his stable-money doctrine, led notably by A. Barton Hepburn of the Chase National Bank, Fisher began organizing the Stable Money League at the end of 1920, and established the League at the end of May 1921—at the beginning of our inflationary era. Newton D. Baker, secretary of war under Wilson, and Professor James Harvey Rogers of Cornell were two of the early organizers.
Other prominent politicians and economists who played leading roles in the Stable Money League were Professor Jeremiah W. Jenks, its first president; Henry A. Wallace, editor of Wallace's Farmer, and later secretary of agriculture; John G. Winant, later governor of New Hampshire; Professor John R. Commons, its second president; George Eastman of the Eastman-Kodak family; Lyman J. Gage, formerly secretary of the Treasury; Samuel Gompers, president of the American Federation of Labor; Senator Carter Glass of Virginia; Thomas R. Marshall, vice president of the United States under Wilson; Representative Oscar W. Underwood; Malcolm C. Rorty; and economists Arthur Twining Hadley, Leonard P. Ayres, William T. Foster, David Friday, Edwin W. Kemmerer, Wesley C. Mitchell, Warren M. Persons, H. Parker Willis, Allyn A. Young, and Carl Snyder.
The ideal of a stable price level is relatively innocuous during a price rise when it can aid sound-money advocates in trying to check the boom; but it is highly mischievous when prices are tending to sag, and the stabilizationists call for inflation. And yet, stabilization is always a more popular rallying cry when prices are falling. The Stable Money League was founded in 1920–1921, when prices were falling during a depression. Soon, prices began to rise, and some conservatives began to see in the stable money movement a useful check against extreme inflationists. As a result, the league changed its name to the National Monetary Association in 1923, and its officers continued as before, with Professor Commons as president.
By 1925, the price level had reached its peak and begun to sag, and consequently the conservatives abandoned their support of the organization, which again changed its name to the Stable Money Association. Successive presidents of the new association were H. Parker Willis, John E. Rovensky, executive vice president of the Bank of America, Professor Kemmerer, and "Uncle" Frederic W. Delano. Other eminent leaders in the Stable Money Association were Professor Willford I. King; President Nicholas Murray Butler of Columbia University; John W. Davis, Democratic candidate for president in 1924; Charles G. Dawes, director of the Bureau of the Budget under Harding, and vice president under Coolidge; William Green, president of the American Federation of Labor; Charles Evans Hughes, secretary of state until 1925; Otto H. Kahn, investment banker; Frank O. Lowden, former Republican governor of Illinois; Elihu Root, former secretary of state and senator; James H. Rand Jr.; Norman Thomas, of the Socialist Party; Paul M. Warburg; and Owen D. Young. Enlisting from abroad came Charles Rist of the Bank of France; Eduard Benes of Czechoslovakia; Max Lazard of France; Emile Moreau of the Bank of France; Louis Rothschild of Austria; and Sir Arthur Balfour, Sir Henry Strakosch, Lord Melchett, and Sir Josiah Stamp of Great Britain.
Serving as honorary vice presidents of the association were the presidents of the following organizations: the American Association for Labor Legislation, American Bar Association, American Farm Bureau Federation, American Farm Economic Association, American Statistical Association, Brotherhood of Railroad Trainmen, National Association of Credit Men, National Consumers' League, National Education Association, American Council on Education, United Mine Workers of America, the National Grange, the Chicago Association of Commerce, the Merchants' Association of New York, and Bankers' Associations in 43 states and the District of Columbia.
Executive director and operating head of the association with such formidable backing was Norman Lombard, brought in by Fisher in 1926. The association spread its gospel far and wide. It was helped by the publicity given to Thomas Edison and Henry Ford's proposal for a "commodity dollar" in 1922 and 1923. Other prominent stabilizationists in this period were professors George F. Warren and Frank Pearson of Cornell, Royal Meeker, Hudson B. Hastings, Alvin Hansen, and Lionel D. Edie. In Europe, in addition to the above mentioned, advocates of stable money included: Professor Arthur C. Pigou, Ralph G. Hawtrey, J.R. Bellerby, R.A. Lehfeldt, G.M. Lewis, Sir Arthur Salter, Knut Wicksell, Gustav Cassel, Arthur Kitson, Sir Frederick Soddy, F.W. Pethick-Lawrence, Reginald McKenna, Sir Basil Blackett, and John Maynard Keynes. Keynes was particularly influential in his propaganda for a "managed currency" and a stabilized price level, as set forth in his Tract on Monetary Reform, published in 1923.
Ralph Hawtrey proved to be one of the evil geniuses of the 1920s. An influential economist in a land where economists have shaped policy far more influentially than in the United States, Hawtrey, director of financial studies at the British Treasury, advocated international credit control by central banks to achieve a stable price level as early as 1913. In 1919, Hawtrey was one of the first to call for the adoption of a gold-exchange standard by European countries, tying it in with international central-bank cooperation. Hawtrey was one of the prime European trumpeters of the prowess of Governor Benjamin Strong.
Writing in 1932, at a time when Robertson had come to realize the evils of stabilization, Hawtrey declared, "The American experiment in stabilization from 1922 to 1928 showed that an early treatment could check a tendency either to inflation or to depression. . . . The American experiment was a great advance upon the practice of the nineteenth century," when the trade cycle was accepted passively.11 When Governor Strong died, Hawtrey called the event "a disaster for the world."12 Finally, Hawtrey was the main inspiration for the stabilization resolutions of the Genoa Conference of 1922.
It was inevitable that this host of fashionable opinion should be translated into legislative pressure, if not legislative action. Rep. T. Alan Goldsborough of Maryland introduced a bill to "Stabilize the Purchasing Power of Money" in May 1922, essentially Professor Fisher's proposal, fed to Goldsborough by former Vice President Marshall. Witnesses for the bill were Professors Fisher, Rogers, King, and Kemmerer, but the bill was not reported out of committee. In early 1924, Goldsborough tried again, and Representative O.B. Burtness of North Dakota introduced another stabilization bill. Neither was reported out of committee.
The next major effort was a bill by Rep. James G. Strong of Kansas, introduced in January, 1926, under the urging of veteran stabilizationist George H. Shibley, who had been promoting the cause of stable prices since 1896. Rather than the earlier Fisher proposal for a "compensated dollar" to manipulate the price level, the Strong Bill would have compelled the Federal Reserve System to act directly to stabilize the price level. Hearings were held from March 1926 until February 1927. Testifying for the bill were Shibley, Fisher, Lombard, Dr. William T. Foster, Rogers, Bellerby, and Commons. Commons, Rep. Strong, and Governor Strong then rewrote the bill, as indicated above, and hearings were held on the second Strong Bill in the spring of 1928.
The high point of testimony for the second Strong Bill was that of Sweden's Professor Gustav Cassel, whose eminence packed the Congressional hearing room. Cassel had been promoting stabilization since 1903. The advice of this sage was that the government employ neither qualitative nor quantitative measures to check the boom, since these would lower the general price level. In a series of American lectures, Cassel also urged lower Fed reserve ratios, as well as worldwide central-bank cooperation to stabilize the price level.
The Strong Bill met the fate of its predecessors, and never left the committee. But the pressure exerted at the various hearings for these bills, as well as the weight of opinion and the views of Governor Strong, served to push the Federal Reserve authorities into trying to manipulate credit for purposes of price stabilization.
International pressure strengthened the drive for a stable price level. Official action began with the Genoa Conference, in the spring of 1922. This Conference was called by the League of Nations, at the initiative of Premier Lloyd George, who in turn was inspired by the dominant figure of Montagu Norman. The Financial Commission of the Conference adopted a set of resolutions which, as Fisher puts it, "have for years served as the potent armory for the advocates of stable money all over the world."13 The resolutions urged international central-bank collaboration to stabilize the world price level, and also suggested a gold-exchange standard.
On the Financial Commission were such stabilizationist stalwarts as Sir Basil Blackett, Professor Cassel, Dr. Vissering, and Sir Henry Strakosch.14 The League of Nations, indeed, was quickly taken over by the stabilizationists. The Financial Committee of the League was largely inspired and run by Governor Montagu Norman, working through two close associates, Sir Otto Niemeyer and Sir Henry Strakosch. Sir Henry was, as we have indicated, a prominent stabilizationist.15 Furthermore, Norman's chief adviser in international affairs, Sir Charles S. Addis, was also an ardent stablizationist.16
In 1921, a Joint Committee on Economic Crises was formed by the General Labour Conference, the International Labour Office (ILO) of the League of Nations, and the Financial Committee of the League. On this Joint Committee were three leading stabilizationists: Albert Thomas, Henri Fuss, and Major J.R. Bellerby. In 1923, Thomas's report warned that a fall in the price level "almost invariably" causes unemployment. Henri Fuss of the ILO propagandized for stable price levels in the International Labour Review in 1926.
The Joint Committee met in June 1925 to affirm the principles of the Genoa Conference. In the meanwhile, two private international organizations, the International Association for Labour Legislation and the International Association on Unemployment, held a joint International Congress on Social Policy, at Prague, in October 1924. The congress called for the general adoption of the principles of the Genoa Conference, by stabilizing the general price level. The International Association for Social Progress adopted a report at its Vienna meeting in September 1928 prepared by stabilizationist Max Lazard of the investment banking house of Lazard Frères in Paris, calling for price-level stability. The ILO followed suit in June 1929 terming falling prices a cause of unemployment. And, finally, the Economic Consultative Committee of the league endorsed the Genoa principles in the summer of 1928.
Just as Professors Cassel and Commons wanted no credit restraint at all in 1928 and 1929, so Representative Louis T. McFadden, powerful chairman of the House Banking and Currency Committee, exerted a similar though more powerful brand of pressure on the Federal Reserve authorities. On February 7, 1929, the day after the Federal Reserve Board's letter to the Federal Reserve Banks warning about stock-market speculation, Representative McFadden himself warned the House against an adverse business reaction from this move. He pointed out that there had been no rise in the commodity price level, so how could there be any danger of inflation? The Fed, he warned skittishly, should not concern itself with the stock market or security loans, lest it produce a general slump. Tighter money would make capital financing difficult, and, coupled with the resulting loss of confidence, would precipitate a depression.
In fact, McFadden declared that the Fed should be prepared to ease money rates as soon as any fall in prices or employment might appear.17 Other influential voices raised against any credit restriction were those of W.T. Foster and Waddill Catchings, leading stabilizationists and well known for their underconsumptionist theories. Catchings was a prominent investment banker (of Goldman, Sachs and Co.), and iron and steel magnate, and both men were close to the Hoover administration. (As we shall see, their "plan" for curing unemployment was adopted, at one time, by Hoover.)
In April 1929 Foster and Catchings warned that any credit restriction would lower the price level and hurt business. The bull market, they assured the public—along with Fisher, Commons, and the rest—was grounded on a sure foundation of American confidence and growth.18 And the bull speculators, of course, echoed the cry that everyone should "invest in America." Anyone who criticized the boom was considered to be unpatriotic and "selling America short."
Cassel was typical of European opinion in insisting on even greater inflationary moves by the Federal Reserve System. Sir Ralph Hawtrey, visiting at Harvard during 1928–1929, spread the gospel of price-level stabilization to his American audience.19 Influential British Labourite Philip Snowden urged in 1927 that the United States join in a world plan for price stabilization, to prevent a prolonged price decline. The London Statist and the Nation (London) both bemoaned the Federal Reserve "deflation."
Perhaps most extreme was a wildly inflationist article by the respected economist Professor Allyn A. Young, an American then teaching at the University of London. Young, in January 1929, warned about the secular downward price trend, and urged all central banks not to "hoard" gold, to abandon their "high gold reserve-ratio fetish," and to inflate to a fare-thee-well. "Central banks of the world," he declared, "appear to be afraid of prosperity. So long as they are they will exert a retarding influence upon the growth of production."20
In an age of folly, Professor Young's article was perhaps the crowning pièce de résistance—much more censurable than the superficially more glaring errors of such economists as Irving Fisher and Charles A. Dice on the alleged "new era" prosperity of the stock market. Merely to extrapolate present stock market conditions is, after all, not nearly as reprehensible as considering deflation the main threat in the midst of a rampantly inflationary era. But such was the logical conclusion of the stabilizationist position.
We may conclude that the Federal Reserve authorities, in promulgating their inflationary policies, were motivated not only by the desire to help British inflation and to subsidize farmers, but were also guided—or rather misguided—by the fashionable economic theory of a stable price level as the goal of monetary manipulation.21
This article is excerpted from America's Great Depression, part 2, chapter 6, "Theory and Inflation: Economists and the Lure of a Stable Price Level" (1963; 2008).
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- The qualitative aspect of credit is important to the extent that bank loans must be to business, and not to government or to consumers, to put the trade cycle mechanism into motion.
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- The National Industrial Conference Board (NICB) consumer price index rose from 102.3 (1923 = 100) in 1921 to 104.3 in 1926, then fell to 100.1 in 1929; the Bureau of Labor Statistics (BLS) consumer good index fell from 127.7 (1935–1939 = 100) in 1921 to 122.5 in 1929. Historical Statistics of the U.S., 1789–1945 (Washington, D.C.: U.S. Department of Commerce, 1949), pp. 226–36, 344.
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- C.A. Phillips, T.F. McManus, and R.W. Nelson, Banking and the Business Cycle (New York: Macmillan, 1937), pp. 176ff.
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- Lester V. Chandler, Benjamin Strong, Central Banker (Washington, D.C.: Brookings Institution, 1958), p. 312. In this view, Strong was, of course, warmly supported by Montagu Norman. Ibid., p. 315.
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- Also see ibid., pp. 199ff. And Charles Rist recalls that, in his private conversations, "Strong was convinced that he was able to fix the price level, by his interest and credit policy." Charles Rist, "Notice Biographique," Revue d'Èconomie Politique (November–December, 1955): 1029.
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- Strong thus overcame his previous marked skepticism toward any legislative mandate for price stabilization. Before this, he had preferred to leave the matter strictly to Fed discretion. See Chandler, Benjamin Strong, Central Banker, pp. 202ff.
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- See the account in Irving Fisher, ibid., pp. 170–71. Commons wrote of Governor Strong: "I admired him both for his open-minded help to us on the bill and his reservation that he must go along with his associates."
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- See Fisher's eulogy of Snyder, Stabilised Money, pp. 64–67; and Carl Snyder, "The Stabilization of Gold: A Plan," American Economic Review (June, 1923): 276–85; idem, Capitalism the Creator (New York: Macmillan, 1940), pp. 226–28.
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- D.H. Robertson, "The Trade Cycle," Encyclopaedia Britannica, 14th ed. (1929), vol. 22, p. 354.
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- D.H. Robertson, "How Do We Want Gold to Behave?" in The International Gold Problem (London: Humphrey Milford, 1932), p. 45; quoted in Phillips, et al., Banking and the Business Cycle, pp. 186–87.
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- Ralph O. Hawtrey, The Art of Central Banking (London: Longmans, Green, 1932), p. 300.
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- Leading stabilizationist Norman Lombard also hailed Strong's alleged achievement: "By applying the principles expounded in this book . . . he [Strong] maintained in the United States a fairly stable price level and a consequent condition of widespread economic well-being from 1922 to 1928." Norman Lombard, Monetary Statesmanship (New York: Harpers, 1934), p. 32n. On the influence of stable price ideas on Federal Reserve policy, see also David A. Friedman, "Study of Price Theories Behind Federal Reserve Credit Policy, 1921–29" (unpublished M.A. thesis, Columbia University, 1938).
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- Fisher, Stabilised Money, p. 282. Our account of the growth of the stable money movement rests heavily upon Fisher's work.
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- While Hawtrey was the main inspiration for the resolutions, he criticized them for not going far enough.
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- See Paul Einzig, Montagu Norman (London: Kegan Paul, 1932), pp. 67, 78.
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- Sir Henry Clay, Lord Norman (London: Macmillan, 1957), p. 138.
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- Cited in Joseph Stagg Lawrence, Wall Street and Washington (Princeton, N.J.: Princeton University Press, 1929), pp. 437–43.
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- Commercial and Financial Chronicle (April, 1929): 2204–06. Also see Beckhart, "Federal Reserve Policy and the Money Market," in Beckhart et al., The New York Money Market (New York: Columbia University Press, 1931), vol. 2, pp. 99ff.
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- See Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press, 1959), vol. 4, p. 178.
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- Allyn A. Young, "Downward Price Trend Probable, Due to Hoarding of Gold by Central Banks," The Annalist (January 18, 1929): 96–97. Also see, "Our Reserve Bank Policy as Europe Thinks It Sees It," The Annalist (September 2, 1927): 374–75.
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- Seymour Harris, Twenty Years of Federal Reserve Policy (Cambridge, Mass.: Harvard University Press, 1933), vol. 1, 192ff., and Aldrich, The Causes of the Present Depression and Possible Remedies (New York, 1933), pp. 20–21.
Despite the soothing hot air from the White House and Fed officials, the financial system is becoming increasingly fragile and unstable. Maybe all of that intervention the past decade was not wise.
Original Article: "Finance Discovers Sting: "How Fragile We Are""
Modern culture is biased against those that are rich even while depending upon the wealth that successful entrepreneurs have created.
Original Article: "Progressives Want to Eliminate Wealthy Entrepreneurs but Need the Wealth They Create"
Mark takes a look at all the wrong predictions of recession in recent years, including those of Austrian School economists. While the MSM and Fed officials try to downplay the coming of a recession, many of the statistics and facts that Austrian consider important are indicating a looming recession, if not a full-blown economic crisis.
Check out Anatomy of the Crash: The Financial Crisis of 2020, edited by Tho Bishop: Mises.org/AnatomyOfTheCrash
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Rulers found out early on that they could debase gold and silver coins for their own gain. As a consequence, the money supply increased, whereas money’s purchasing power fell. This pseudoalchemy is the true definition of inflation and has been a policy for more than a thousand years.
What’s more, an increase in the money supply leads to rising prices. This symptom of inflation is often mistaken as inflation itself. The correct term, though, is price inflation.
Moreover, inflation creates boom-bust cycles and redistributes wealth, which results in winners and losers.
In a world of governments, inflation is inevitable since it is advantageous to the ruling class. Though we can’t escape this dreadful disease, we can learn to better deal with its symptoms—starting with knowledge.
Hence, I would like to share some insights I wish I had learned before the massive covid money pumping began in 2020.
The Price of Money and Consumer Price IndexesThe price of any good or service is expressed in money. If the money price of a pen is one dollar, the pen price of a dollar is one pen. Note that money is a common denominator, whereas a good, such as a pen, is not. We cannot say that the price of a dollar is one pen. So, the price of a dollar must be expressed in each and every good and service, in order to determine its purchasing power.
Yet, attempts have been made to determine the purchasing power of money through consumer price indexes. These indexes are said to reflect a population’s consumption. Regarding the Consumer Price Index (CPI) in the United States, the Bureau of Labor Statistics writes on its website: “The CPI represents changes in prices of all goods and services purchased for consumption by urban households.”
The CPI simply cannot include all goods and services. Also, it leaves out many of those goods and services purchased individually. It is, therefore, deceiving to view the CPI as a measure of the personal (price) inflation rate.
If we take a closer look at the CPI, we find it being divided into eight major groups of goods and services. Should we zoom in further, we find that there are more than two hundred smaller groups within these eight. Furthermore, we see that the rate of increase differs for different groups—which brings us to the next insight.
The Cantillon EffectSome economists and laymen believe in the neutrality of money. This means that changes in the money supply affect all prices simultaneously and proportionally. However, as Irish banker Richard Cantillon noted almost three hundred years ago, money is not neutral.
Suppose that you owned a printing press in your garage that could print a thousand hundred-dollar bills per day. At first, the printing press would favor you since you could spend your money before prices rise.
To simplify, let’s say you go out and spend your newly printed money on sports cars from a local dealership. As a result, the car dealer makes more money, which he spends on suits from a local tailor. After a while, the dealer also starts raising his prices due to the increased demand.
The car dealer keeps spending his money on suits, and soon, the tailor starts raising his prices to meet the increasing demand. Furthermore, the tailor has a penchant for antiques, which he buys from a local dealer. So it goes, until the money has spread throughout the economy.
From this phenomenon, known as the Cantillon effect, we can draw some conclusions. First, the earlier recipients of the new money benefit from it at the expense of the later recipients. Second, the largest increase in prices will typically be where the money first enters. Third, prices are affected singly and disproportionately.
Inflation Hedging According to Mainstream EconomistsMany investors and mainstream economists suggest investing in the stock market, precious metals, or real estate to hedge against inflation. There is much truth to this. However, these investors and economists fail to explain why and when to invest in these types of investments.
Most of today’s money is created whenever commercial banks make loans, where the money then flows into capital goods and real estate. In the diagram below, we see that the Swedish M3 money supply correlates well with the Swedish house price index.
Figure 1: Swedish M3 money supply and house price index, 1980–2023
picture1.jpg ###### Source: Data from scb.se.
Furthermore, central banks buy securities in order to inflate the money supply. This act is known as quantitative easing (QE). Whenever the banks feel the inflation target is reached, they begin to sell off their securities (or raise interest rates). Thereby, they are engaging in what is called quantitative tightening (QT).
Below, we see the M2 money supply for the US and the S&P 500. Quite the correlation.
Figure 2: US M2 money supply and S&P 500, 2008–22
picture2.png ###### Source: M2 data from “M2 (WM2NS),” Board of Governors of the Federal Reserve, FRED; S&P 500 data from stooq.com.
In March 2020, the Federal Reserve began its $700 billion QE program along with a zero-interest-rate policy. As expected, the stock market rose significantly. However, in late 2021, the Fed started reducing its purchases. In March 2022, they reverted and commenced QT.
Consequently, the stock market fell in the beginning of 2022 and reached its lowest point in October of that year.
Meanwhile, the twelve-month CPI stayed under 2.0 percent between March 2020 and February 2021. When the stock market peaked in late December 2021, the CPI was up to 7.0 percent.
When the CPI peaked in June 2022 at 9.1 percent, the S&P 500 was down about 25 percent from its highest in January 2022. Thus, he who tried to hedge against the CPI by investing in a stock market index at that time would have been in dire straits.
ConclusionThe purchasing power of money declines over time due to an increase of the money supply. It then follows that the prices of most goods and services increase. However, since money is not neutral, prices will increase disproportionately.
Thus, in order to protect ourselves from inflation, we must follow the money. Where large amounts of money are injected, that’s where we need to be.
Finally, one should consider one’s personal inflation rate and try to compensate by increasing one’s income. At the end of the day, real income is what counts.
Back in 2002, then-Vice President Dick Cheney claimed "Reagan proved deficits don't matter" and went on to push for tax cuts combined with more federal spending. Indeed, the Bush administration would go on to push immense amounts of new spending, supporting a huge Medicare expansion and blowing hundreds of millions of dollars on costly and pointless occupations in Iraq and Afghanistan. The national debt grew by 70 percent during Bush's eight years, but no one in Washington—Republican or Democrat—really cared. After 2003, the economy seemed to be growing and after the 2008 financial crisis hit, all that really mattered was bailing out Wall Street to "save" the global economy.
In fact, for more than thirty years, stern warnings about the federal debt and annual deficits have come from wet-blanket curmudgeons who insisted that running up huge debts would become a problem. They were right, but the time frame has proven to be quite a bit longer than most anticipated. Many significant global political and economic changes intervened to ease the process of incurring an enormous national debt, even as the total debt exploded from $5.6 trillion to $22.5 trillion between 2000 and 2019. These changes included rising global productivity, a new globalized work force, and solid global demand for dollars—which fueled apparently limitless demand for for US government bonds. This ensured the debt remained easy enough to manage. For a time.
Things are changing, however, and in the coming five years we'll begin to see how a newly accelerating debt, declining demand for dollars, and rising price inflation will finally reveal how and why deficits do matter, after all.
How Much Debt Are We Talking About?The US's national debt is now projected to exceed $32 trillion in 2023. That's up by nearly ten trillion dollars since January of 2020. Nearly eight trillion of that came in 2020 and 2021 alone. Since 2019, the rate at which the US government has taken on new debt has significantly accelerated beyond what was already a shocking rate of deficit spending. Back in 2019, I noted that the Trump administration had added nearly a trillion dollars to the deficit in a single year of what was considered an economic expansion. That was remarkable at the time. Of, cours, what happened under both Trump and Biden during the covid panic made a trillion dollars look like spare change.
Moreover, the debt has reached new post-World-War-II highs in proportion to the overall size of the economy. In 2020, total federal debt as a percentage of national GDP shot up to 120%. This puts the US at previously-unseen peacetime debt levels.
Comparing debt to GDP doesn't tell us much about the government's ability to pay and service its debt, however. A more realistic measure is total debt compared to federal revenues. By this measure, we also find debt has accelerated to peacetime highs. Total federal debt is now more than 6 times the size of annual federal receipts.
This Translates Into a Lot of Interest Payments The problem with a large national debt isn't that it's big or difficult to pay off. An enormous debt can be sustained indefinitely by a government so long as it can manage paying the interest on the debt. For most of the past three decades, the US government had it very easy in this respect. It could run up huge annual deficits, incur trillions of dollars in new debt, yet interest payments on that debt remained remarkably stable and did not rise to "out of control" levels.
This was made possible by the fact that interest rates trended downward again and again for most of the past 35 years. If we look at the federal funds rate—which tends to trend with average interest levels paid on federal debt—we can see that debt levels surged at the same time that interest rates were falling. This fall in interest rates prevented interest payments from surging upward as well.
Why this rates fall? During much of the 1990s, the US grew to dominate the global economy in the wake of the end of the Cold War. This drove far greater need for dollars worldwide, and all those dollar holders put many of the dollars into buying US government debt. This pushed down the cost of issuing new federal debt considerably. Even after the rise of the euro after 1999, globalization helped sustain global demand for US debt, as did the eurodollar economy.
After 2008, interest rates on US debt were pushed down even further as the US central bank bought up nearly six trillion dollars worth of US bonds. As this artificial demand for federal bonds rose, the interest rate sank further. So, even as the federal government was adding trillions to the national debt after 2009, interest payments remained manageable.
We can see how from 1998 to 2015, total debt service costs barely budged in spite of an ever growing national debt. This finally began to grow after 2017 with Trump's growing mega deficits and efforts at the Federal Reserve to finally allow interest rates to increase over fears of price inflation. After 2020, of course, interest payments on the debt then surged above half a trillion dollars, and are projected to increase further:
Interest Payments Will Gradually Consume the Federal BudgetIt is here where we begin to see the problem with such huge debt levels. An enormous debt makes total debt payments far more sensitive to movements in interest rates. In 2007, when the national debt was at a "mere" nine trillion dollars, the federal funds rate could rise above five percent without a resulting surge in interest payments. More than a decade later, with debt levels at $30 trillion, a similar increase in the federal funds rates leads to a much larger increased in debt service payments.
In practical terms, this means that a government with enormous debt levels likely cannot sustain any sizable increases in interest. Under these conditions, debt payments will gradually grow larger and larger until they consume much of the nation's federal spending.
We can see this in even the official federal projects for debt payments moving forward. For example, according to the Office of Management and Budget (OMB), the federal government will owe $660 billion in debt service in 2023. But this will increase to $960 billion by 2028, in five years. For comparison, we can note that the OMB also projects the entire defense budget in 2028 will be $966 billion.
The OMB's projections are rather conservative compared to forecasts in a February report from the Congressional Budget Office. According to the CBO report, interest payments will reach nearly a trillion dollars in 2028 and will continue to climb after that. In a decade, total interest payments will exceed $1.4 trillion and will be the third largest federal "program" behind Social Security and Medicaid. At that time, interest payments will exceed defense spending by $300 billion.
On a per-capita basis, this is not exactly trivial. In 2030, for example, the $1.4 trillion owned in interest payments will work out to approximately $4,000 per American adult of working age (adults between ages 18 and 65).
In other words, within six years, American taxpayers will be forced to pony up more than a trillion dollars every year to just to cover long-past federal spending on various lost wars and failed social programs. Baby Boomers will be mostly dead or in nursing homes, but young workers will be paying for the bill incurred by their elders decades ago.
Keep in mind, however, that this is all a "best case scenario." CBO and OMB estimates assume there will be no recessions in coming years, and they also assume relatively stable interest rates. The CBO estimates forecast interest on US federal debt will average about 2.7 percent in 2023, but will not increase significantly after that, rising only to 3.2 percent by 2031.
That's possible, of course, but current trends suggests the CBO is too optimistic. Geopolitical realities point to a relative decline in demand for the dollar—which will also lead to a decline in demand for US bonds. The US insists on isolating itself both politically and economically as it wages sanction wars—or threatens to do so—on many of the world's key economies. This will all drive up interest rates. As we've shown here on mises.org, the dollar is unlikely to disappear as an important global currency, but it is likely to face more competition. That will mean higher interest rates for federal debt as dollar demand wanes.
Another key development here is that the central bank no longer has the freedom to force down interest rates as it did a decade ago. Back then, the Fed could simply buy up new government debt to prop up demand and keep down interest rates. This has required the central bank to engage in large amounts of monetary inflation. For a time, that seemed to work, but then price inflation rose to 40-year highs and has remained stubbornly high. The Fed can no longer simply print up an additional trillion dollars to buy up US government debt—and then just hope no price inflation appears. Rather, because price inflation is so politically unpopular, the Fed has to treat lightly on new monetary expansion. This ties the hands of Fed in how much it can intervene to keep interest rates low.
Thus, the very mild increases in interest rates predicted by the CBO may greatly understate the true risks.
Moreover, this all assumes that endless increases to debt service will be politically tenable ten years from now. Will voters really be convinced that they have to endure increasingly large cuts to popular government programs in order to keep paying money to bondholders forever and ever?
At some point, the voters are likely to say "enough" when it comes to escalating debt payments. And that's when a country gets either hyperinflation or a sovereign debt crisis. In the meantime, that interest bill is just going to keep getting bigger.
In 1948, Ludwig Erhardt rescued a German economy that was in shambles simply by invoking free markets and currency reform. Our economy needs its Rothbard moment.
Original Article: "Rothbard’s Button Doesn’t Exist, but It Needs to Be Invented"
Once again, the economic system is trying to adjust to political and monetary interventions. The year 2023 marks the end of a historical period characterized by zero-cost credit.
The monetary expansion that began in the early 2000s led to the great financial crisis of 2008 and the emerging markets boom. Exaggerated demand expectations and easy access to capital caused an overexpansion of production capacity and the subsequent industrial restructuring between 2015 and 2018.
Later came covid, with a further reduction in production capacity while demand was sustained with new money. The result was the highest inflation since the 1980s and a drastic rise in interest rates in response, which precipitated the current recession.
The possible duration and intensity of this difficult period is unknown. Although some believe it is a classic stock liquidation process that is bottoming out, it is highly probable that the adjustment could extend well into 2024. We could even be entering a long period of deleveraging and austerity.
This recession has shown that new money does not create wealth, but rather misallocates resources. There is no wealth without capital, and there is no creation of capital without savings. And there is no saving without reduced consumption. In addition, new money creates the economic inequality that often precedes social disorder.
Normally in a recession, there is an abundance of malinvested capital. But for the moment, it seems to be the opposite: there is a shortage of labor, cars, roads, energy, batteries, semiconductors, food, and water. When governments take control of our domestic economies, the result is chaos, discoordination, and poverty. To all this chaos is added a global struggle for resources, with even military confrontation between countries.
It is evident that, in the absence of an unlikely radical technological transformation, we will have to prioritize things and give up others, and the rosy picture of a thirty-five-hour workweek, two electric cars, vacations abroad, disposable clothing, and eating healthy, cheap, and outside the home will not be possible.
However, there is a limit to intervention, and people together—businesses—have enormous adaptability. This has consisted in recent years of flexibility, efficiency, consolidation, and rationalization.
The producer who has been able to adapt is better positioned than ever and, in many cases, enjoys unprecedented market power. From a chemical company that has consolidated the market we hear:
Our pricing is a ratchet. Our pricing only turns one way and does not reverse. If necessary, we will sell zero volume into the freely negotiated market to preserve our ratchet principle and the value of our broad downstream chains based on those linchpin products. (Scott McDougald Sutton Olin Corporation—President, CEO & Chairman in Q2 2021 results, conference call July 28, 2021)
The owner of a shipping group made the following comment a few weeks ago:
Our time has come; the market owes us a lot of money. And for us to be able to go to our stakeholders—to our shareholders to build new ships, these are the rates that we require. We’re not being arrogant; we should never be arrogant. We never say take it or leave it. We are always willing to provide you the service and the reliability that we are known for, but we need higher rates. (Niels G. Stolt-Nielsen Stolt-Nielsen Limited—CEO & Director Q1 2023 results, conference call March 30, 2023)
Economic, political, and climate-change uncertainty, along with financing difficulties and pressure from shareholders asking for dividends suggest that this position of strength will not change in the short term.
Heritage Fellow Peter St. Onge joins Bob to set the record straight on several popular talking points about the debt ceiling.
Bob on selling Gov't resources to reduce the National Debt: Mises.org/HAP397a
This episode of Good Money with Tho Bishop features guest Ryan Griggs of Griggs Capital Strategies. During the show, Ryan discusses his work with Bob Murphy on an Austrian understanding of inverted yield curves as a signal for recessions and how it differs from the mainstream analysis. He also discusses Nelson Nash's infinite banking strategy as a means for capital accumulation, in contrast to traditional investment approaches.
Ryan and Bob Murphy on the Austrian understanding of inverted yield curves: Mises.org/GM7a
Griggs Capital Strategies: Mises.org/GM7b
America and the Art of the Possible: Restoring National Vitality in an Age of Decay
by Christopher Buskirk
Encounter Books, 2023; xxv + 162 pp.
Christopher Buskirk is the publisher and editor of the magazine American Greatness, and the title of that magazine, like that of the book, shows his principal concern. How can the American people regain the sense of optimism and purpose which we once had but have now lost?
Buskirk says that in
the public sphere, civilizational vitality is shown in a capacity for collective action, which is rooted in what the fourteenth-century Arab philosopher Ibn Khaldun called asabiyya. This concept can be understood as social cohesion, national or civilizational purpose, a feeling of being in it together and for the same reasons. (p. xi)
Later in the book, asabiyya is characterized as “a combination of solidarity, cohesion, trust, and shared purpose” (p. 109).
Buskirk argues that economic growth is central to this national sense of purpose but that this has now fallen off. As a result, middle- and working-class people no longer look forward to the future with confidence. He discusses various reasons for America’s national decay, including “institutional betrayal and elite sociopathology, “and offers suggestions about how the sense of purpose may be regained.”
I believe Buskirk’s project of reclaiming American greatness is fundamentally misconceived, but he has some good ideas. In what follows, I’ll first talk about some of the good ideas and then indicate what is wrong with his central thesis.
Buskirk rightly says that economic growth depends on producing real goods and services but that in recent decades, the nation’s economic resources have been diverted into dubious financial enterprises:
As productivity growth has slowed, the economy has become more financialized, which means that resources are increasingly channeled into means of extracting wealth from the productive economy instead of producing goods and services. Peter Thiel said that a simple way to understand financialization is that it represents the increasing influence of companies whose main business or source of value is producing little pieces of paper that essentially say, “You owe me money.” (p. 12, emphasis in original)
In describing financialization, he is aware of the vital importance of the Cantillon effect and cites a paper by Louis Rouanet, a former summer fellow at the Mises Institute (p. 146n14). As Buskirk notes:
The effect was first described in the eighteenth century by Richard Cantillon after he observed the results of introducing a paper money system. He noted that the first people to receive the new money saw their income rise, while the last to receive it saw a decline in their purchasing power because of consumer price inflation. The first to receive newly created money are banks and other financial institutions. They are called “Cantillon insiders,” a term coined by Nick Szabo, and they get the most benefit. (p. 13)
Buskirk is also on target in warning about the dangers of large government debt, the increase of which he also ties to the Cantillon effect: “Increases in aggregate debt throughout society are a predictable result of the Cantillon effect in a financialized economy” (p. 17).
Despite these insights, Buskirk is by no means a supporter of the free market. He says:
The telos of the globalist order is purely materialist. In that sense it is the apotheosis of modern liberalism, which views man as a walking stomach. This is apparent in Marxism but there is a similar understanding present in Austrian economics. The Austrians have the better of the argument with Marx and are much closer to the truth about human nature, but both see man primarily as a collection of appetites. They mistake a part for the whole. (p. 92)
This is a gross mistake about Austrian economics, which applies to all human actions and is not restricted to desires for material goods. Ludwig von Mises recognizes that people aim to increase their material welfare, but Buskirk is hardly in a position to dispute this, since an increase in productivity is basic to his own project. (One also wonders, by the way, why he takes Marxism to be a variety of modern liberalism.)
Buskirk’s complaint against free-market supporters rests in part on a confusion, but the source of this confusion is a genuine difference between his view and libertarianism. He contrasts those who limit their lives to immediate gratification with those who plan for their long-term future and wrongly puts libertarians in the former group. Why does he make this mistake? The reason is that he thinks that if you are concerned for your long-term future and reject the hedonism of the moment, you will seek to be part of a nation that aims for “greatness,” in his sense.
According to Burkirk, such people must ask, “How can we become part of a unified nation with a sense of purpose, as we once were?” But it by no means follows that we must ask this. When we consider the disastrous failures of politics, it is the better part of wisdom to endeavor to create a society in which the state is drastically restricted or done away with altogether, rather than to join together to build vast enterprises under the direction of the state, as Buskirk wishes.
There is a further anomaly in Buskirk’s position. He criticizes, in my view rightly, the notion of “civil religion.” The term points to a problem, he says:
It is a neologism that suggests the merger of religion and politics to create a secular creed. Some people think this creed supplements true religion in the public sphere, but in reality it is a competitor that cannot tolerate any other gods. . . . The political problem is that when the stakes of a conflict are high enough and the disagreements are over fundamental ideas of right and wrong, civil religion alone simply can’t carry the weight. (p. 29)
He asks, “Can so-called civil religion fill the same social, cultural, and political role as revealed religion? History provides no examples. Do people even want this type of totalizing ‘civil religion’ or is it more natural simply to have politics and true religion?” (p. 29). Is this not to instrumentalize “true” religion, viewing it as having a role to play in the idolatrous worship of the nation? Religion becomes a means by which the nation aiming for greatness preserves social stability. Erik Peterson long ago criticized this notion as anti-Christian, as applied to the Roman Empire, in his classic article, “Monotheism as a Political Problem.” Peterson argued that theologians who supported the emperor favored dubious doctrines that justified imperial control of the church. Readers of Buskirk’s book would do well to study this article and absorb its lessons before accepting Buskirk’s quest for national greatness.
Monetarists believe there is an optimum growth rate of money. However, a fiat money system itself is unstable, so there is no optimum growth rate.
Original Article: "Is There an Optimum Growth Rate of Money?"
During the progressive era, academia hastily adopted the inhumane pseudoscience of eugenics, and its results on the world were devastating. The influence of the Boston Brahmins in New England can explain the fervent adoption of this malignant belief. This elite and well-educated class of white Anglo-Saxon Protestants reeked of pomp and snobbery.
The origin of the term “Boston Brahmin” came from Oliver Wendell Holmes Sr. in his 1861 novel Elsie Venner. He chose the unique word “Brahmin” because in India they are the most distinguished caste. This is how the northeastern nobles wanted to be perceived in their neck of the woods.
There was no shortage of academics who propagated the eugenics movement. Richard T. Ely was a Columbia University graduate and persistently proselytized eugenic dogma. In 1901, he favored a bill proposed by an Indiana state senator, Thomas J. Lindley, to regulate marriage with the intent that the couple would not have “unfit” children. The state would examine their physical, mental, racial, and moral attributes to decide whether they could wed.
The US Army would conduct a test called the Army Alpha to evaluate soldiers’ intelligence. Richard Ely was pleased to learn the state could evaluate the hereditary status of human livestock. Ely blatantly disapproved of the “unfit” in his book Studies in the Evolution of Industrial Society. He states, “The sad fact, however, is not that of competition, but the existence of these feeble persons.” When India was amidst a famine, Ely called for their starvation to continue for the sake of “race improvement.” He also claimed black people were “grown up children and should be treated as such.”
Ely’s academic prowess, heavily seasoned with racism and eugenics, would unfortunately be passed on to his students. While at Johns Hopkins University, Ely mentored Woodrow Wilson. Eventually becoming Princeton University’s president, Wilson excluded black students from enrolling. Having absorbed the skewed beliefs of Ely, New Jersey governor Wilson signed a sterilization bill targeting the “hopelessly defective and criminal classes.”
Wilson was not the only university president to accept these beliefs. Stanford’s David Starr Jordan, Harvard’s Charles William Eliot, and the University of Wisconsin-Madison’s Charles Van Hise shared similar sentiments. Spewing his hate in San Francisco, Eliot told the crowd, “Each nation should keep its stock pure.” Van Hise declared that “human defectives should no longer be allowed to propagate the race.” Jordan believed entering into World War I was detrimental because the physically fit men would die and America would “breed only second-rate men.”
Serving on the board of trustees for the Human Betterment Foundation, Jordan was involved in this organization to observe potential benefits of forced sterilizations in California. Ezra Gosney, founder of this vile organization, coauthored a book with Paul Popenoe on the benefits of sterilization, which became popular enough to influence other states and countries to espouse eugenic legislation.
Sweden would sterilize over sixty thousand people from the 1930s to the 1970s. Their book would even be recognized and cited by Nazi party officials to enact their own program in 1933. Charles Goethe, a fellow eugenicist, wrote to Gosney congratulating him on his work being adopted by the Nazis:
You will be interested to know that your work has played a powerful part in shaping the opinions of the group of intellectuals who are behind Hitler. . . . I want you, my dear friend, to carry this thought with you for the rest of your life.
The Human Betterment Foundation would keep in contact with the Nazis, even mailing them a pamphlet to show the benefits Californians had experienced with forced sterilization. Their mutual admiration for each other was not a secret. While the Nazis adopted the American eugenic laws, US progressives were not bashful in promoting what Adolf Hitler’s henchmen were doing. In 1934, the Los Angeles County Museum displayed Nazi exhibits to boost support for eugenics. This promotion worked, and the southern California branch of the American Eugenics Society openly praised it: “It portrays the general eugenics program of the Nazi government, giving special attention to the need for sterilization. . . . Take the opportunity to see this while it is in Los Angeles. Tell your friends about it.”
At one point, the Nazis were sterilizing their people at a far greater rate than the Americans, causing Virginia’s director of the Western State Hospital, Joseph DeJarnette, to complain, “The Germans are beating us at our own game.” Popenoe pondered on how to exterminate the “unfit” in his book Applied Eugenics. In it, he talks about a race being improved through “the destruction of the individual by some adverse feature of the environment, such as excessive cold . . . or by bodily deficiency.”
For his final Stanford commencement speech, President Jordan talked about barring southern and eastern European immigrants from entering America due to their inferiority to Anglo-Saxons. Generally speaking, Jordan did not single out these particular Europeans but said all immigrants were “a menace to peace and welfare.” Jordan would also become the inaugural chair of the American Breeders Association where he would invite fellow academic Charles Davenport to join.
Within eugenics circles, Davenport was a prominent figure to get ahold of. Davenport realized the lucrative research funding opportunity and happily accepted. By collecting data on Stanford students through a questionnaire, Davenport sought to observe their heredity, racial origin, and other characteristics. Later in his career, Davenport would go on to start the International Federation of Eugenics Organizations to bring together eugenic scientists from across the globe. Writing to Benito Mussolini in 1929, Davenport stressed the importance of an Italian eugenics program.
Lobbying to Congress, Davenport was an anti-immigration activist wanting to hinder the “undesirable.” The Immigration Act of 1924 would be the result of Davenport’s constant requests to Congressman Albert Johnson, a eugenicist ally. This legislation would halt Asian immigration while also setting quotas on southern and eastern Europeans. Author Adam Cohen made a documentary detailing that this act barred Anne Frank’s father from escaping to America. Concerned about the threat of immigrants, Charles Davenport wrote to Madison Grant, another prominent eugenicist, asking, “Can we build a wall high enough around this country . . . so as to keep out these cheaper races.”
Grant would certainly agree with this proposal because of his famous book The Passing of the Great Race where he argues that the Nordic race is superior. He was worried “inferior” races were outgrowing the Nordic population, which is why he also supported the 1924 Immigration Act. The book was so popular that he received a letter from Hitler saying the book was his “bible.” During the Nuremberg trials, the Nazis referenced three pages of Grant’s book to defend Karl Brandt, their euthanasia program leader. By rationalizing this despicable practice, the Nazis wanted absolution from the sins the Americans had initially committed.
With their connections in government, the Boston Brahmins wanted the state to eradicate the “unfit” for them. Their abominable propaganda was exported to multiple states and countries while giving Hitler fuel to continue his merciless campaign. The elite and the state will always collude to destroy their peskiest enemy: you. May we never forget the atrocities this group circulated to the world, and may we always reject its evil, no matter what forms it may camouflage itself with.
People from socially and economically marginized groups in the USA tend to support socialism. Yet socialists have a long and bloody history of suppressing these very groups.
Original Article: "Socialism, Minority Groups, and Personal Liberties"
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop tackle the debt ceiling debate. As negotiations continue in Washington, the corporate financial press is hard at work warning about the potential for disaster. Ryan and Tho cut through the nonsense to look at the real state of America's finances, potential ramifications in the short term, and US defaults of the past and the inevitable future.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
PROMO CODE: RothPod for 20% off
Recommended Reading"Three Lies They're Telling You about the Debt Ceiling" by Ryan McMaken: Mises.org/RR_135_A
"Yes, the US Government Has Defaulted Before" by Ryan McMaken: Mises.org/RR_135_B
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
The Economist magazine in a recent editorial painted a rather positive image of the American economy. After encountering setbacks, the American economy often registers a buoyant recovery. Despite competition from rivals, America has retained her position as the world’s top economy. Some are bewildered by America’s enduring prosperity, but is it reasonable to expect less from a country designed to do business?
The American Constitution is a fierce protector of property rights and economic freedom. Respect for property rights is so ingrained in the American legal system that for legal purposes corporations are considered as people. Because of this special status, American corporations are poised to defend themselves from government encroachment. A consequence of this is that American companies can be more flexible and responsive to market changes since they are less constrained by the whims of the government.
For example, the principle of at-will employment makes it easy for American companies to hire and fire workers thereby ensuring the efficient allocation of labor and capital. It also frees companies of the burden of preserving jobs that no longer add value. Instead, they can prioritize attracting new talent to boost productivity. As such, America remains attractive to investors due to less burdensome regulations.
Further, unlike in other countries, in the United States individuals own the minerals discovered beneath the surface of their homes. Therefore, it is easier for homeowners and entrepreneurs to commercialize discoveries without government intervention. In fact, political involvement slows development because the expertise to capitalize on discoveries is usually lacking in government. Entrepreneurs toiling in the marketplace are more equipped to expedite the business process than bureaucrats who are primarily concerned with using regulations to increase political power.
America’s innovative approach to mineral development has helped to accelerate the fracking revolution by incentivizing entrepreneurs and homeowners to pursue explorations for minerals. This has created wealth for ordinary people and businesses. Another advantage of America’s light regulatory approach is that it leads to more experimenting. If America had been like other places, then businesses would have to wait a long time for approval, and this would limit the scope for experiments to unlock innovation.
America’s rich free-market tradition has made her an economic superpower. So, why are policy makers employing taxation to derail progress? The obvious answer is that the state relies on taxation to bolster its coffers. As a predatory institution, the state is motivated to extract resources from private actors and augment its power. However, doing so is to the detriment of societal progress.
Economic estimates show a positive relationship between low taxes and entrepreneurship. Lower taxes also promote economic growth. Yet, the nascent marijuana industry is being taxed to the point where it is becoming an impediment to growth. Some policy makers are laboring under the impression that citizens have an obligation to enrich the state.
The thinking is that all activities must be captured by the tax net. New rules will even make PayPal transactions over $600 liable to taxation. Such policies are depriving citizens of investment capital and disposable income. Nevertheless, they are portrayed as the noble goals of a benevolent government.
Indeed, the state requires money to function, but debates still loom about its legitimacy and that of the income tax. Hence, politicians ought to curb their appetite for spending, promise less, and desist from pursuing useless military excursions. The state should be satisfied with what it collects from citizens because it is not owed anything.
People are already compelled to pay the income tax. Therefore, if they choose to earn extra income and use PayPal or other platforms to conduct transactions, that’s their business. The government is not entitled to any of what they earn. Few share this view, but the IRS is an intrusive agency whose influence should be curtailed.
The ingenuity of the American people made this country great rather than rapacious government institutions. Americans must defend themselves against government encroachment instead of passively watching the state taxing them into penury.
Should political reform be the result of a much-discussed comprehensive plan? Or should it come about through decentralized decision-making that deals with the situations at hand?
Original Article: "Comprehensive Reform versus Piecemeal Reform"
Americans are in a time of rising labor unrest and activism, including multiple unionization campaigns, regulatory and legal changes to make it easier for unionization efforts to succeed, the “Fight for $15” minimum wage agitation, and the Hollywood writer’s strike. However, such discussions and campaigns seldom approach the issues involved from a moral perspective, beyond the implicit presumption that trying to force others to give you a raise must be moral.
That is why it is worth reconsidering Leonard Read’s bold argument that “There Is No Moral Right to Strike” in his The Coming Aristocracy (1969): “Rarely challenged is the right to strike. While nearly everyone in the population, including the strikers themselves, will acknowledge the inconvenience and dangers of strikes, few will question the right-to-strike concept.”
A quick Google search of “union strike” or “right to strike” quotes quickly verifies Read’s premise that the right to strike is broadly accepted. However, most discussions of strikes focus on their legality, rather than their morality. Read states that “The present laws of the United States recognize the right to strike; it is legal to strike. However, as in the case of many other legal actions, it is impossible to find moral sanction for strikes in any creditable ethical or moral code.”
That conclusion is dramatically at odds with one particular quote I came across in the search mentioned above that asserted that “The right to strike is a fundamental human right.”
Almost as if he was responding directly to that claim, Leonard Read focused on what he saw as the major source of confusion behind it—the difference between the right to quit, singly or as a group, and the right to strike, which goes much further:
This is not to question the moral right of a worker to quit a job or the right of any number of workers to quit in unison. Quitting is not striking, unless force or the threat of force is used to keep others from filling the jobs vacated. The essence of the strike, then, is the resort to coercion to force unwilling exchange or to inhibit willing exchange. No person, nor any combination of persons, has a moral right to force themselves—at their price—on any employer, or to forcibly preclude his hiring others.
Read, for whom the distinction between willing and unwilling exchange was a major theme, recognized that the right to quit involved no coercion of others and violated no one else’s equal rights to offer their labor or goods and services in willing exchanges. However, strikes relied on coercion, allowing strikers to violate others’ equal rights: “Reference need not be confined to moral and ethical codes to support the conclusion that there is no moral right to strike. Nearly anyone’s sense of justice will render the same verdict if an employer-employee relationship, devoid of emotional background, be examined.”
As he so often did, Read turned to an illustrative example to make his point:
An individual with an ailment employs a physician to heal him. The physician has a job on agreeable terms. Our sense of justice suggests that either the patient or the physician is morally warranted in quitting this employer-employee relationship at will, provided that there be no violation of contract. Now, assume that the physician (the employee) goes on strike. His ultimatum: “You pay me twice the fee I am now getting or I quit! Moreover, I shall use force to prevent any other physician from attending to your ailment. Meet my demands or do without medical care from now on.”
Who will claim that the physician is within his moral rights when taking an action such as this?
Read then generalized the moral conclusion of his example in contrast to the common “right to strike” view:
To say that one believes in the right to strike is comparable to saying that one endorses monopoly power to exclude business competitors; it is saying, in effect, that government-like control is preferable to voluntary exchange between buyers and sellers, each of whom is free to accept or reject the other’s best offer. In other words, to sanction a right to strike is to declare that might makes right—which is to reject the only foundation upon which civilization can stand.
To further develop his argument, Read turns to a property rights approach, reflecting economists’ understanding that different property rights provide different incentives, and different incentives produce different outcomes. In particular, he emphasizes that a job is the result of a willing exchange between parties, not something a worker “owns” in the absence of contractual agreement or continued willingness by the employer. However, a right to strike asserts not just ongoing ownership of one’s current job even in the absence of employer agreement, but a new right they did not have when they entered their employment relationship—the ability to deny all others the right to compete for that job, even if both that worker and the employer would agree to it:
Lying deep at the root of the strike is the persistent notion that an employee has a right to continue an engagement once he has begun it, as if the engagement were his own piece of property. The notion is readily exposed as false . . . A job is but an exchange affair, having existence only during the life of the exchange. It ceases to exist the moment either party quits or the contract ends. The right to a job that has been quit is no more valid than the right to a job that has never been held.
Leonard Read concludes that “the censure” for the adverse consequences for individuals’ rights and social cooperation that arises from both threatened and imposed strikes “should be directed at the false idea that there is a moral right to strike.”
It is worth noticing that Leonard Read’s argument here is also strongly aligned with one of his libertarian forebears—English philosopher Auberon Herbert. Like Read, Herbert believed in a government solely empowered to use defensive force against others’ aggressive use of force so that “the state would defend the rights of liberty, never aggress upon them.” In his 1891 “The True Line of Deliverance,” Herbert stated:
It is the interest of all . . . to make the free-trade footing universal for all. I do not mean that A and B should accept work on any terms other than those that they themselves approve; but that they should throw no dam round their labor by preventing C from . . . accepting terms which they decline. That is the true labour principle, universal individual choice . . .
. . . the labor of the country never can obtain for itself, except at the expense of other labour, more than the free and open market will yield. . . . Extracting more . . . is very near to dishonesty, since he is forcing this higher price at the expense of others. . . .
. . . leave every man free to settle his own price of labour . . . In the case of a serious disagreement between an employer and his men, the union would remove all such men as wished to leave . . . But there would be no effort to prevent the employer obtaining new hands. . . . There would be no strike, no picketing, no coercion of other men, no stigmatizing another fellow-workman . . . because he was ready to take a lower wage—all this would be left perfectly free for each man to do according to what was right in his own judgment. If the employer had behaved badly, the true penalty would fall upon him; those who wished to leave his service would do so . . . That would be at once the true penalty and the true remedy. Further than that in labour disputes has no man a right to go. He can throw up his own work, but he has no right to prevent others accepting that work.
Leonard Read, and Auberon Herbert before him, stood apart from “the crowd” in that both approached the right to strike from a moral perspective. They shared a common answer to the animating question, “Do you believe in force and authority, or do you believe in liberty?” They came to similar conclusions. In fact, Read could easily have written Herbert’s thoughts about the right to strike’s use of coercion to violate others’ rights—“Force rests on no moral foundations.”
In perhaps one of the most unexpected and sudden shifts in consumer demand in recent years, sales of Bud Light have now fallen sizably for six weeks in a row, with no end in sight. The New York Post reported on Monday that "Sales of the US’s No. 1 beer were down 24.6% for the week ended May 13 compared to a year ago — slightly worse than the 23.6% dip they suffered a week earlier."
But it's not just Bud Light. Sentiment has turned against Bud Light parent Anheuser-Busch Inbev (AB Inbev) to the point that other brands at the company are seeing declining sales as well. Budweiser, Michelob Ultra, Natural Light, and Busch Light all experienced declines during the same period. AB Inbev has lost an "astonishing" $15.7 billion in value over the past six weeks.
Not surprisingly, Bud Light is also losing market share as former Bud Light consumers turn to competitors. Miller Light and Coors Light (both brewed by MolsonCoors) have seen a surge in sales as have independent brands Yuengling and Pabst Blue Ribbon.
Why have so many consumers changed their mind? It appears the shift stems from an ill-fated ad campaign initiated by Bud Light executives in an attempt to pander to "transgender" activists and their ideological allies. In early April, Bud Light promoted social media posts with transvestite Dylan Mulvaney—who claims to be a woman—as a spokesperson. The post featured a newly issued can featuring an image of Mulvaney in commemoration of Mulvaney's alleged "365 days of girlhood."
The response from many ordinary observers on Twitter was less than positive, with many denouncing AB Inbev for pushing a highly divisive politically charged ad campaign that many existing Bud Light drinkers found insulting. Several Conservative media outlets began to promote the boycott as well, and the boycott caught on among both well-known conservative pundits and among a larger number of users on social media platforms. Soon thereafter, sales of Bug Light began to fall quickly. The large numbers abandoning the brand, however, are too large to blame on just a small minority of right-wing political activists. Rather, Bud Light has apparently damaged its image with a large number of consumers, most of whom are likely uninterested in activism, but simply prefer a beer that is less political.
At first, it was unclear that the boycott would have any discernible effect, given the sheer number of other beer brands under the AB Inbev umbrella. However, it soon became clear that the company was feeling the pinch. Two Bud Light executives behind the Mulvaney campaign were put on a "leave of absence" (i.e., fired). The corporation launched new ad campaigns in an attempt to win back consumers who had apparently lost interest in the company's products. These new ads were nostalgic and hyper "patriotic" in character, and were transparently devised to appeal to former core consumers. These efforts, however, were mocked as insincere in social media.
As the latest sales numbers suggest, however, these efforts have apparently not been working. A new report from Beer Business Daily concludes "We've never seen such a dramatic shift in national share in such a short period of time," and that if the boycott continues, Bud Light risks losing its position as the nation's best selling beer.
If Bud Light's decline continues, it will be because company executives committed the most basic sin of entrepreneurship and marketing: they were apparently more interested in their own preferences rather than the preferences of their customers.
Where Did Bud Light Go Wrong? Specifically, it seems likely that the Bud Light/Mulvaney campaign was an attempt on the part of corporate executives to cater to certain ideological groups—groups favored by wealthy, elite-college-educated managers—rather than to the company's largely middle-class, middle-Americans customers. For example, the executive in charge of the campaign, Alissa Heinerscheid, attended a $60,000 per year private school (the Groton School) in her youth, and went on to get degrees in English and Literature from Harvard. She also obtained an MBA through the Wharton School. This is not someone who would naturally have any common cause or innate understanding of Bud Light's customer base.
Denouncing the Bud Light's current branding as "fratty" and "out of touch," Heinerscheid decided that Bud Light should cease pursuing its existing clientele in favor of partnerships with transgender activists. There is no doubt that this idea would seem attractive to someone of Heinerschied's background. Yet, it's difficult to see how Bud Light could improve its financial situation by enthusiastically partnering with a highly divisive figure such as Mulvaney.
Bud Light is now learning the hard way that it's the consumers—not corporate managers—who decide what goods and services get produced. At the heart of the entire economy is what Ludwig von Mises called the "sovereign consumer" whose unpredictable and subjective valuations ultimately determine all prices in the economy through consumer demands. Mises writes:
Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.
Bud Light executives thought customers wanted the beer to partner with a "transgender" celebrity. Or executives simply didn't care what customers thought. In any case, the executives are now paying the price.
Value Is Subjective—especially When It Comes to Light BeerThe miscalculation on Bud's part may prove to be especially damaging for two reasons. The first is that light beer is extremely dependent on emotional appeal to sustain brand loyalty. The other factor working against Bud Light is that it is extremely easy for consumers to switch to another brand.
All value is subjective to the consumer, of course, but some brands can at least hope to convince consumers of the brand's value based on objective factors. For example, Volvo has long marketed itself—with studies to back up the claims—as a particularly safe automobile. Other brands are able to claim high levels of reliability, such as with Maytag appliances which used to be known for rarely needing repairs.
Needless to say, light beer can't bank on these factors. Blind taste tests have shown that consumers can't even distinguish between brands based on taste. As one researcher put it, light beer is essentially a "a commodity industry." This is why Coors Light began marketing itself not as the "most delicious" light beer, but as the "coldest," complete with a special label that turns blue when the beer gets cold. When flavor doesn't matter much, light beers have to look elsewhere to gain customer loyalty.
Because of this, it is highly likely that most consumers of light beer choose their beer "not for taste but because of the beer's image and reputation that's been developed via advertising, logos, and other marketing efforts." In other words, it's all about emotional appeal. It's about whether or not a beer brand is perceived to be "cool" or if it evokes certain feelings about "the American dream."
Light beer depends almost entirely on cultivating these sorts of subjective feelings in customers and getting them to develop a habit of buying that particular brand. However, if the beer brand disrupts that emotional and habitual response to its product, the brand is in deep trouble.
The second factor pointing to ongoing pain for Bud Light is the fact that it's so easy to switch to other brands. Even the smallest liquor store offers Coors Light and Miller Light as alternatives to Bud Light. Larger liquor stores offer even more choices such as Yuengling, Pabst, and a handful of light beers put out by small craft breweries. Moreover, it is easy to switch to another brand immediately and never look back. By contrast, someone who buys a car and then regrets it may nonetheless be stuck with that car for months or years due to the inconvenience and cost of selling and purchasing cars. On the other hand, picking up a 12-pack of light beer is neither costly nor inconvenient. A consumer who loses interest in Bud Light this afternoon can begin buying up the competition's beers this weekend.
The presence of these factors in the case of light beer suggests that the Bud Light boycott may turn out to be permanent. This should be easy enough for the consumer's standpoint. It's hard to imagine that many consumers who ditched Bud Light for Miller Light will be feeling that they've somehow been depriving themselves of "better" beer. This only highlights the remarkable incompetence and recklessness with which Bud Light executives like Heinerscheid have treated the Bud Light brand. Brand loyalty can be quite fragile, yet executives apparently believed the brand's core customers could be taken for granted. The managers thought they were the ones who decide what the consumers will buy and why. It turns out the executives were wrong.
Tucker Carlson has rankled the ruling elites for many years. But was his interview with Robert Kennedy Jr. a bridge too far?
Original Article: "Did Tucker's Last Major Guest Lead to His Firing?"
George Orwell’s The Road to Wigan Pier is a book for which I kept hearing recommendations. I was told that it contained biting criticisms of socialism and was a valuable source of antiauthoritarian thought.
What I found, instead, was a snobbish text that ineffectually denounces snobbery, an erudite-sounding text that lacks any philosophical or economic depth, and a persistent veil of ignorance over and presumption in favor of state intervention for any of the problems described, as well as the shortsighted implication that the solution is simply more of the same.
The book was first published in 1937, which is long after the Soviets abandoned war communism in 1921, after the end of the New Economic Policy in 1928, and even after the state-engineered Ukraine famine from 1930–33. Ludwig von Mises wrote his first devastating critique of central planning, Economic Calculation in the Socialist Commonwealth, in 1920, and Socialism: An Economic and Sociological Analysis was published in English in 1936.
One might be tempted to forgive Orwell for his ignorance, if not for the vague, shortsighted, and infantile defenses of socialism he provides in the book. “The choice is not, as yet, between a human and an inhuman world,” he simpers. “It is simply between Socialism and Fascism, which at its very best is Socialism with the virtues left out.”
Only someone with no understanding of socialism could make such a claim. The possibility of a state with limited powers that refuses to trample on the rights of its citizens is chillingly absent from Orwell’s thought. Instead, he is driven by a persistent fear of fascism without any clear concept of what it is or how it even differs from socialism, except for nationalism which he mocks without providing a strong argument.
Even the parts of the book that seem to criticize socialism are sadly toothless. Most of the incisive lines are pointed at the English upper social classes and the breed of socialist prevalent in the United Kingdom at the time. As such, they do not reflect on socialists’ failings anywhere else, except by coincidence. The names of a few socialist writers appear in critical passages, but the target is primarily their tone, not the consistency of their arguments. There is no principled attack on socialist thought. In fact, Orwell dedicates his entire final chapter to a defense of socialism, using flimsy reasoning camouflaged by emotionally resonant language that might sway a casual or uninformed reader.
This is not to say that there is nothing of value in the book. Orwell seems to be unfamiliar with basic economics. However, his observations and evaluations raise a variety of questions that deserve some curiosity. For instance, his examination of miners’ wages shows some interesting contradictions. He shows that the labor requires significant technical skill (for supporting shafts and dynamiting new deposits of coal) and specialized physical conditioning: “[The miners] have got to remain kneeling all the while [they dig],” he notes. “Kneeling down, the whole of the strain is thrown upon your arm and belly muscles.” Yet the miners’ wages seem quite low for such specialized work, not to mention the high danger of the job. One wonders: what state favors did the coal companies receive to push down the prevailing wage?
Orwell’s discussion of “the dole” doesn’t show what he thinks it does. He argues that welfare payments are barely enough to live on. He examines budgets for people “on the dole” and discovers a complete lack of saving and laments the desire for cheap, unhealthy food. Yet, he also notes that the level of the dole is “framed to suit a population with very high standards and not much notion of economy.” He observes that a foreign laborer would be perfectly able to live on one-quarter of the dole provided to the English unemployed.
All this while he opines on the high quality of foreigners’ bodies, compared to the “soft” English. So, which is it, Mr. Orwell? Are the dole-takers starving or soft? Why is the obvious solution to a welfare payment that allows for such wastefulness a larger payment?
Orwell’s examination of rents at boarding houses has some value, but it completely lacks any comparison to outside alternatives or historical progress. In proper Marxist form, Orwell buys into the false notion of progressive impoverishment of the working class. Conspicuously absent is any discussion of government policy that might discourage the production of better housing. However, Orwell’s description of the squalor in many quarters clashes with the descriptions of boarders taking no actions to clean or improve them. His characterization of landlords as sluggish workers paints a picture of a cultural problem rather than a poverty problem. No one seems incentivized to maintain his living space, and I suspect the reason lies somewhere in government policy.
One other valuable part of the book is Orwell’s description of the state of affairs in colonized Burma and India. His critique is valuable if surface level. He details the exploitation and harsh punishments of the natives in these places and describes his visceral moral disgust at what he saw there. However, it seems that barely one minute later he is describing how the general public approves of England’s status as colonizer—an English public that is already significantly in favor of socialist policy, by his own admission. If he cannot convince socialists to abandon imperialism, what does that say about socialism in practice? Orwell fails to provide an answer.
To summarize, The Road to Wigan Pier is not a criticism of socialism, despite its reputation. At best, it is a weak criticism of some tendencies of socialists in 1930s England. The reader can make an antisocialist case by digging deeper into some of the topics discussed in the book, but it is clear from the last chapter that if any of these deeper criticisms found their way into Orwell’s mind, they didn’t stay long.
The Road to Wigan Pier criticizes foreign imperialism and social class snobbery, but Orwell still adheres to odd Luddite notions of the dangers of mechanization. The starkest example of his shortsightedness comes near the end of the book, when he states, “The capitalist-imperialist governments, even though they themselves are about to be plundered, will not fight with any conviction against Fascism as such.” This, published barely two years before the outbreak of World War II.
Read this book but do so with healthy skepticism and a firm theoretical and historical grounding in economics. Without these, Orwell’s intelligent-sounding and emotionally gripping words might pull you down a dangerous, authoritarian path.
By any conventional measures of finance, the Federal Reserve has negative equity. In the long run, cooking the books only puts off the day of reckoning.
Original Article: "The Fed Is Overindebted, Isn’t It?"
On May 12, 2023, Elon Musk announced that Linda Yaccarino, the now former chairman of global advertising and partnerships at NBCUniversal, would become the new CEO of Twitter. Musk’s appointment of Yaccarino followed an advertiser exodus that caused Twitter’s ad revenue to plummet by more than 60 percent from October 2022 through January 25, 2022, from around $127 million to just over $48 million. According to Pathmatics, by Sensor Tower, more than half of Twitter’s thousand advertisers pulled their ads from Twitter after Musk’s takeover of the social media company.
The flight of advertisers was due to concerns about Twitter’s content moderation and Musk’s so-called free-speech advocacy. In short, Musk’s supposed free-speech absolutism and his subsequent renunciation of the Democratic Party as “the party of division and hate” put Musk and Twitter squarely in the crosshairs of the establishment and its woke cartel. Yaccarino’s appointment represents Musk’s attempt to appease this seemingly all-powerful contingent. But the Yaccarino hire has no doubt damaged Musk’s reputation as a free speech advocate and dashed many hopes for Twitter as an open forum.
Soon after Musk’s announcement, a firestorm erupted on Twitter. Numerous posters claimed that Yaccarino was the executive chairman of the World Economic Forum (WEF), a globalist organization that has strongly advocated social media censorship to exclude “misinformation,” “disinformation,” and “conspiracy theories.” Through its partnerships with the United Nations and over a thousand leading banks and corporations, the WEF has promoted its Great Reset project to advance “stakeholder capitalism” and “global governance.”.
Of course, Yaccarino is not the executive chairman of the WEF itself—that would be Klaus Schwab, who is the founder and chair—although her LinkedIn profile seems to suggest as much and is the source of the Twitter and alternative media confusion. But as noted by Reuters, Yaccarino is the chairman of the WEF’s Taskforce on the Future of Work and sits on the WEF’s Media, Entertainment and Culture Industry Governors Steering Committee. She declares that she is a “Global Leader” on her LinkedIn profile; however, it is unclear whether she is an alumnus of the WEF’s Young Global Leaders Forum, a training program that Schwab has claimed exerts enormous influence on leading political figures around the world.
Nevertheless, Yaccarino’s affiliation with the WEF should be a cause for concern for those Twitter users who advocate free speech on the platform, as should her statements during an interview with Musk that Twitter advertisers should have a say about Twitter content moderation. In response to Yaccarino’s questioning, Musk stated that Twitter has implemented “adjacency controls” that let marketers block ads from appearing next to “anything that is remotely negative.” That is, posts that include “anything remotely negative” are already subject to visibility filters that limit their reach to reduce their adjacency to ads. That means that Twitter limits the reach of posts that criticize governments, leading politicians, the Federal Reserve, or the globalist organizations with which Yaccarino is associated, for example.
Yaccarino is an establishment-approved figure and is very well respected in woke advertising circles, which is largely why Musk hired her. During her tenure at NBCUniversal, she also served as the chairman of the board of the Ad Council from 2021 to 2022, and she remains on the board of directors to this day. The Ad Council was a driving force in promoting masking, social distancing, and vaccinations throughout the covid crisis. Under Yaccarino’s direction, the Ad Council teamed up with the JED Foundation to produce its “Alone Together” public service announcement (PSA) campaign, which suggested that viewers stay home “alone” to save lives “together.” The PSA was picked up by numerous media outlets and other organizations.
Yaccarino’s WEF and Ad Council affiliations, and her advocacy of advertiser regulation of speech, have led some Twitter users and media outlets to declare that she is a globalist, a vaccine pusher, and another high-profile promoter of censorship. Indeed, it does appear that Musk has caved to the woke cartel and its state, corporate, and international governance enforcers.
Every day, more and more Americans are awakening to the reality that the institutions in control of this nation are failing them. From violence in the streets, inflation in our stores, increasing tyranny and censorship, and absolute buffoonery on public display in halls of political power. The ruling class is getting richer while most of us suffer, and new generations are becoming increasingly warped by the dangerous ideologies of the left.
Recorded at The Depot Craft Brewery & Distillery in Reno, Nevada on May 20th, 2023.
Every day, more and more Americans are awakening to the reality that the institutions in control of this nation are failing them. From violence in the streets, inflation in our stores, increasing tyranny and censorship, and absolute buffoonery on public display in halls of political power. The ruling class is getting richer while most of us suffer, and new generations are becoming increasingly warped by the dangerous ideologies of the left.
Recorded at The Depot Craft Brewery & Distillery in Reno, Nevada on May 20th, 2023.
Every day, more and more Americans are awakening to the reality that the institutions in control of this nation are failing them. From violence in the streets, inflation in our stores, increasing tyranny and censorship, and absolute buffoonery on public display in halls of political power. The ruling class is getting richer while most of us suffer, and new generations are becoming increasingly warped by the dangerous ideologies of the left.
Recorded at The Depot Craft Brewery & Distillery in Reno, Nevada on May 20th, 2023.
Every day, more and more Americans are awakening to the reality that the institutions in control of this nation are failing them. From violence in the streets, inflation in our stores, increasing tyranny and censorship, and absolute buffoonery on public display in halls of political power. The ruling class is getting richer while most of us suffer, and new generations are becoming increasingly warped by the dangerous ideologies of the left.
Recorded at The Depot Craft Brewery & Distillery in Reno, Nevada on May 20th, 2023.
While Japan made some technological transfers to these places, prosperity came to them later, with the advent of free-market economies.
Original Article: "Was Japanese Colonialism the Engine of Later Prosperity for Korea and Taiwan? Probably Not"
Negotiations over increasing the federal debt ceiling continue in Washington. As has occurred several times over the past twenty years, Republicans and Democrats are presently using increases in the debt ceiling as a bargaining chip in negotiating how federal tax dollars will be spent.
Most of this is theater. We know how these negotiations always end: the debt ceiling is always increased, massive amounts of new federal debt are incurred, and federal spending continues its upward spiral. In fact, since the last time we endured a major debate over the debt ceiling—back in 2013—the national debt has nearly doubled, soaring from $16.7 trillion ten years ago to $32 trillion in 2023. Over that same period, federal spending has increased more than 80 percent from $3.4 trillion in fiscal year 2013 to $6.2 trillion in fiscal year 2022.
So here we are again with policymakers essentially discussing how long it will take for the national debt and federal budget to double again. As far as Washington is concerned, that's all fine. The debt ceiling will rise sizably. We know this because what really matters—as far as DC policymakers are concerned—is that the taxpayer gravy train never stops. Equally important is that the federal government not default on any of its massive debt to ensure continued access to cheap debt—and thus massive amounts of deficit spending—now and forever.
To take this narrative at face value, however, we have to buy into some big myths that policymakers are quite enthusiastic about repeating. These lies persist because the regime needs to convince the voters and the taxpayers that no matter what happens, no major changes to the tax-and-spend status quo can ever be allowed to occur. Let's look at three of those myths now.
One: The Republicans Want Austerity
In Washington, when politicians use the word "cut," they usually are talking about small reductions in the rate of increase in spending. For example, if Pentagon spending has been increasing at 2 percent per year (which has indeed been the average for the past decade) then an increase next year of 1.5 percent will be denounced by some as a "cut." In reality, it's not a cut at all, of course. Spending has increased. But in the minds of Washington policymakers, taxpayer money is rightfully theirs, so any slowdown in the flow of free money is branded a "cut."
That's the basic premise of what we're seeing now when advocates of limitless increases of the debt ceiling bemoan "cuts" to Social Security or any other welfare program. In the current debate, the Republicans say they want "less spending than last year" for the 2023 fiscal year, and then a "cap" on spending at 1 percent increases in each year for the next ten years.
But before anyone claims that this is indeed some sort of meaningful "cut" let's look at the federal outlays over the past twenty years (the 2023 FY total is CBO's forecast):
After some moderation in spending during the second Obama term, spending again accelerated during the Trump years as then surged to new off-the-charts highs as Trump doubled down on massive spending increases during the Covid panic. Naturally, this surge continued during the Biden years, and spending now remains well above trend. Indeed, to bring spending back to the pre-2019 trend would require massive budget cuts totaling more than a trillion dollars to the annual budget
That's certainly not in the cards right now. Rather, the Republicans are seeking a tiny reduction in spending from the CBO 2023 estimate of $6.4 trillion down to slightly below 2022's spending of $6.27 trillion. Even with this slowdown, there is no danger of the 5-year moving average falling below where it was in 2022.
According to the GOP plan, after the proposed miniscule reduction for 2023, it's back to annual increases of one percent. But, it's important to remember that this "cap" on annual increases to one percent is in no way binding on future Congresses. Congress can—and will, if history is any guide—forget about any previous agreement and increase spending to meet perceived "needs" at any time.
Rather, the "cuts" we keep hearing about—even if the GOP is successful—are likely to look like the so-called "sequestration" we kept hearing about back in 2013. That was supposed to usher in an age of austerity. Instead, federal spending and debt has nearly doubled in the decade since.
In other words, any claim that Republicans want to cut spending is true in only the most narrow short-term sense. Spending remains and will likely continue to remain, far above even Trump's huge (at the time) 2019 budget increases. The post-Covid mega-spending isn't going away.
Two: The US Has Never Defaulted
Central to the debt-ceiling and budget debate is the often-repeated claim that negotiations must be concluded immediately to ensure that the US does not miss payments on any of its debts. After all, we are told, the US has never missed a payment.
This is an out-and-out lie. The US has absolutely, indisputably defaulted before. This began in the wake of the American Revolution when the US defaulted on domestic loans. After the new constitution was in place in 1790, the federal government renegotiated past debt at less favorable terms for investors. That's a default.
Then there was the Greenback default of 1862. The original greenbacks were $60 million in demand notes which were redeemable in specie. Less than five months later, in January of 1862, the US Treasury defaulted on these notes by failing to redeem them on demand.
Perhaps the most egregious case was the Liberty Bond default of 1934. The US was contractually obligated to pay back its debts on these bonds in gold. Franklin Roosevelt decided to default on the whole of the domestically-held debt by refusing to redeem in gold to Americans and devaluing the dollar by 40 percent against foreign exchange. The US refused to make good on its end of these bond contracts. That was also a default.
Then there was the short default of 1979. As Jason Zweig noted in 2011:
In April and May 1979, amid computer malfunctions, heavy demand from small investors and in the wake of Congressional debate over raising the debt ceiling, the U.S. failed to make timely payments on some $122 million in Treasury bills. The Treasury characterized the problem as a delay rather than as a default. While the error affected only a fraction of 1% of the U.S. debt, short-term interest rates—then around 9%—jumped 0.6 percentage point and the U.S. was promptly sued by bondholders for breach of contract.
So, the next Time Joe Biden or Janet Yellen go on television to insist the US has never defaulted, know that you are being lied to.
Three: Default Is the End of the World
Any talk of default is sure to bring predictions of economic devastation. Those who have lived through a financial crisis or two will know how this works. As soon as signs of trouble in the economy appear, the regime lines up "experts" to tell us that unless the government is empowered to spend endlessly on bailouts and "stimulus," then the economy will collapse, unemployment will surge, and hell on earth will ensue.
The taxpayers certainly heard this repeatedly in 2008 and 2009 as the regime insisted it must be free to hand over trillions of dollars in bailout funds to wealthy bankers and auto makers and financiers. We were told that the central bank must be able to print up trillions of dollars so as to buy up government bonds and mortgage-backed securities to pad the balance sheets of the investor class. We were told this would "fix" the economy.
Naturally, when the recession turned out to be the worst since 1982, the "experts" then said—without any evidence whatsoever—things "would have been worse" without all their bailouts.
We're hearing the same thing now about possible default on the $32-trillion national debt. "Give us new debt ceiling increases with no strings attached" appears to be the constant refrain. Without this carte blanche, we are told, there will be economic catastrophe.
But it is all the same scare tactics the regime trots out every time it wants a new series of bailouts or immense amount of new spending. Trump hysterically said the same thing when he demanded passage of his $2.2 trillion covid "rescue plan." We're told there is no alternative, and any opposition is "reckless." Rather, we must approve any and all new spending now and deal with the consequences later. But "later" never comes because the strategy is always to just kick the can further down the road. To not do so, the experts insist, will destroy the economy.
Well, the time has come to start doubting this narrative and demand that the federal government start being more honest about its runaway and unpayable debt. And yes, today's massive federal debt is unpayable. It's not even manageable. For an example of how it is unmanageable, just look at how interest on the debt is gradually consuming all other federal spending. With interest rates rising, debt service is ballooning. According to an analysis from the Committee for a Responsible Federal Budget:
Net interest will surpass defense spending by 2028, Medicare spending by 2044, and Social Security spending by 2050, becoming the largest single line item in the budget. By 2053, net interest will consume approximately 7.2 percent of GDP – nearly 40 percent of federal revenues.
It's clear at this point that the only strategy the federal government the Federal Reserve have for dealing with this is to inflate away the dollar with easy money so as to bring interest rates back down and pay back the debt in devalued dollars. Paying back debts with devalued dollars is a type of default, but this method helps hide the fact. Make no mistake: when the US government chooses to manage its debts by inflating away the dollar, it is defaulting.
A more honest and rational approach would be to explicitly default. Rather than trying to dishonestly inflate away the debt obligation, a less deceptive federal government would simply admit that it can only afford to pay back its debt at some reduced amount: say, 90 cents on the dollar, or less. Naturally, this would cause interest rates to surge as has occurred in the past when the US has defaulted. This, however, would simply be the process of bringing interest rates more into line with the real risks that go with investing in government debt.
The current political status quo, however, is built around protecting investors—rather than the taxpayers who ultimately pay all the bills—from risk. This method of turning debt into inflation is attractive to governments and their Wall Street enablers because it shifts the burden of runaway spending to ordinary savers and consumers. They are the ones who pay the real price of de facto inflationary default through price inflation, unaffordable homes, stagflation, and falling real wages.
When the experts who oppose any sort of explicit default insist that default would bring disaster, what they really mean is that it would bring disaster for their friends on Wall Street and in the government. The experts prefer the status quo which is a slow-motion inflationary disaster that's playing out in the household budgets of ordinary Americans.
As the first signs of an economic tempest move through the United States—an alarming increase in bank failures, a surge in unemployment claims, and a troubling decline in retail sales—we find ourselves perched on the edge of a deep recession. Staring into this uncertain abyss, the self-designated guardians of our financial destiny, the Federal Reserve and the US government, are confronted with a monumental task. When the recession bells toll, how will they respond?
Will the Federal Reserve and the Biden administration again disrupt the market’s natural rhythms through rapid interest rate cuts, quantitative easing (QE), and excessive government spending? These interventionist measures, though designed to cushion economic downturns, distort market signals, leading to resource misallocation and the perpetuation of unsustainable structures. This approach hinders the market’s self-corrective mechanisms, preventing a return to natural equilibrium. Permitting recessions to run their course enables an organic recovery.
The noninterventionist approach, acknowledging short-term pain as a necessary component of long-term economic health, respects the market’s self-correcting ability. It understands that the short-term pain of businesses, firms, and banks facing failure is a necessary component of long-term economic health and sustainability. In our quest for economic stability, we must turn our gaze to the inherent self-corrective mechanisms at the heart of the market. The annals of economic history are filled with instances where allowing these natural healing processes to unfold has catalyzed a return to prosperity, such as the recessions of 1819 and 1919–21.
The noninterventionist approach is a nuanced, constrained approach, one that demands patience and faith in the market’s innate capacity to rebalance and recover. The path from a recession to a strong recovery passes through deflation of artificially inflated asset prices and liquidation of bad investments, which free up capital to be utilized in profitable sectors, starting the recovery.
This idea is not without its critics, however. Keynesian and monetarist economists, who push a policy of extended QE, increased spending, and reduced interest rates, often argue that liquidation could exacerbate a recession by further reducing demand and creating unemployment. According to John Maynard Keynes in his 1936 The General Theory of Employment, Interest and Money, “The remedy for the boom is not a higher rate of interest but a lower rate of interest!” His theory suggests that stimulating demand through lower interest rates and government spending would allow for a more gradual correction of malinvestments.
Monetarists, such as Milton Friedman, also argue against liquidation. In his 1962 Capitalism and Freedom, Friedman states, “We believe that the Federal Reserve System . . . should aim to mitigate, and, ideally, to prevent, severe changes in the total amount of money.” This perspective suggests that maintaining stability in the money supply can prevent severe recessions and are a better cure for them than the potentially destructive liquidation process. These measures, however, risk prolonging the adjustment process and creating greater economic instability down the line.
The Recessions of 1819 and 1919–21The 1919–21 recession, also known as the depression of 1920–21, was a significant period in the history of the United States economy. It is of greater significance because it has been completely ignored by most of the academic community, as it doesn’t fit the Keynesian narrative of stickiness in prices, as James Grant’s seminal work The Forgotten Depression: 1921: The Crash That Cured Itself demonstrates.
Liquidation refers to businesses’ closing operations, selling assets, and using the proceeds to pay off debts. When a business cannot meet its financial obligations or is insolvent, liquidation becomes inevitable. During the 1919–21 recession, the high rate of business liquidations contributed to the severity and length of the economic downturn.
Grant especially scrutinizes the role of the Federal Reserve’s monetary policy. The Federal Reserve, established in 1913, was relatively new during the 1919–21 recession. Grant argues that the Fed’s tight monetary policy of high interest rates and contraction of the money supply contributed significantly to the severity of the recession and the high rate of business liquidations.
The Federal Reserve raised interest rates in late 1919 to combat the inflationary pressures that had built up during and after World War I. As documented by the Federal Reserve’s data, the discount rate rose from 4 percent in 1919 to 7 percent by 1920. This contraction, while initially causing economic hardship, led to the liquidation of malinvestments.
This policy led to a contraction in credit, which made it more expensive for businesses to borrow money. As a result, businesses that were highly leveraged or had weak cash flows were pushed into insolvency, leading to a surge in liquidations. The Consumer Price Index (CPI) fell by 10.8 percent in 1921, the largest single-year drop in the index’s history. This deflation reflected the widespread liquidation of malinvestments, which lowered the prices of overvalued capital and freed it to be used in profitable and stable ventures, and the economy’s adjustment to postwar conditions. The liquidation process also facilitated the reallocation of labor. Unemployment spiked to 11.7 percent in 1921 from 3.0 percent in 1919.
Despite these harsh conditions, the economy recovered remarkably quickly. By 1922, unemployment had fallen to 6.7 percent, and by 1923, it was down to 2.4 percent. Gross domestic product, which had contracted by 2.4 percent in 1921, grew by 3.8 percent in 1922 and 4.7 percent in 1923.
This incredible recovery, Grant notes, was brought about by a curious turn of fate which stopped the US government and the young insecure Federal Reserve from intervening. The one crucial role the federal government played in the 1920–21 recession was allowing the liquidation to occur. Grant cites Secretary of the Treasury Andrew Mellon, who advocated for a hands-off approach: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” By 1922, just three years after the onset of the recession, the economy was growing again, marking a relatively swift recovery.
The Panic of 1819The Panic of 1819 was the first major peacetime economic crisis in the United States. As Murray Rothbard shows in his 1962 The Panic of 1819: Reactions and Policies, this downturn was precipitated by a sharp collapse in commodity prices and a significant contraction in the money supply. Following the War of 1812, the Second Bank of the United States attempted to curb inflation by calling in loans, leading to a sharp contraction in credit. A wave of bankruptcies across businesses and financial institutions ensued. Despite these severe conditions, the economy naturally adjusted, without any significant governmental intervention.
A pivotal mechanism facilitating this self-correction was deflation. The money supply reduction led to a substantial decrease in prices, lowering the cost of goods and sparking a revival in demand. According to Rothbard, the prices of cotton, for instance, dropped from thirty-two cents per pound in early 1819 to just fourteen cents by the end of the year, stimulating cotton exports and helping to restore balance in the economy.
Rothbard notes that this contraction led to widespread foreclosures and bankruptcies, which resulted in a significant liquidation of malinvestments. Unfortunately, this process was not completed. He writes, “It was unfortunate that the liquidation of inflated land values was not allowed to run its beneficial course.”
Still, the downturn was relatively brief, with the economy starting to recover by 1821. The government’s laissez-faire approach, as Rothbard suggests, allowed for this liquidation process to occur, and despite the initial hardship, the economy began to rebound. The liquidation allowed capital and labor to be reallocated to more productive uses, facilitating economic recovery.
ConclusionThe cases of the 1819 and 1919–21 recessions underline the value of patience and understanding the market’s capacity to rebalance and recover. The path to a strong recovery, as witnessed in these periods, often passes through the painful but necessary processes of deflation and liquidation of malinvestments. These processes, although tough in the short run, free up capital for more profitable ventures, thereby initiating an organic, self-driven recovery.
These historical episodes serve as reminders of the profound resilience of markets. They underscore the need for economic policies that resist the temptation to overintervene and instead allow the invisible hand of the market to orchestrate recovery. In the long run, this policy leads to a more robust, resilient, and sustainable economic framework that is better prepared to weather future economic storms.
A century ago, Argentina was one of the world's wealthiest nations and the Argentine peso rivaled the dollar. Today, Argentina is famous for periodic hyperinflation.
Original Article: "Argentina Sleepwalks into Hyperinflation (Yet Again)"
Writing pseudonymously in a series of articles for Faith and Freedom in the 1950s, Murray Rothbard took on the question of whether or not the United States should defend Formosa (Taiwan) from attack by mainland China. While his conclusions will surprise no one familiar with his work (that war is the health of the state, that individuals concerned with the fate of Taiwan should do as they will privately, but that their lives and property are not for the government to command), a review of the articles’ contents are worthwhile, nonetheless. For apart from such typically memorably Rothbardian lines as “only those who want to socialize America really look forward to the third and perhaps last World War,” we find many of the same ludicrous rationales for war with China used today excoriated with great wit by Rothbard.
For example, Rothbard begins the first of these, “Along Pennsylvania Avenue,” by rhetorically posing the question of how it happened that a smattering of islands eighty miles off the coast of mainland China became “necessary to our defense,” and as an answer he replies:
[The government] were forced to portray the Reds as “island hopping” their way to the United States. [. . . For] if the Reds take Formosa, they will be one island nearer to the United States. It is an age-old story: a peaceful Pacific “moat” is needed for our defense. In order to protect his moat, we must secure friendly countries or bases all around it. To protect Japan and the Philippines, we must defend Formosa, to protect Formosa we must defend the Pescadores. To protect the Pescadores, we must defend Quemoy, an island three miles off the Chinese mainland. To protect Quemoy we must equip Chiang’s troops for an invasion of the mainland. Where does this process end? Logically, never (18).
Readers unfamiliar with the history of the region may be interested in some additional context regarding Rothbard’s mention of equipping Chiang Kai-shek, the dictator of Taiwan and exiled leader of China’s failed Republic, for an invasion of the mainland. Despite having been driven from the off by force of arms, and only secured in their island fortress by virtue of the United States Navy repeatedly intervening to prevent a cross-strait invasion by the PLA, it was the official policy of Taipei to retake the mainland by force. Though such plains never got far off the ground—and were mostly abandoned by the 1970s—it was not until the constitutional revisions of the 1990s that Taiwan officially gave up such a policy of armed reconquest in favor of focusing strictly on its own defense.
Writing in the 1950s, near the height of the first Taiwan Strait Crisis and when talk of an invasion of the mainland by Taipei was still openly planned and called for by Chiang, Rothbard heroically pushed back against those who equated isolation with appeasement. In a scene all too familiar, he complained that Congress’ answer to heightened tensions over Formosa was to write what “amounted to a blank check for war in China whenever the President shall deem it necessary,” noting sadly that only two congressmen had opposed the resolution on the grounds that the United States should not actively seek to “engage their boys in a war on foreign soil,” the rest merely arguing over the scope or scale of the commitment to be made.
Rothbard was predictably red-baited for his efforts, even attacked by a fellow “libertarian” in Faith and Freedom. He defended himself in a series of further articles, “Fight for Formosa?” Parts I & II, and reflecting on the experience some years later in The Betrayal of the American Right he had this to say:
I could never—and still cannot—detect one iota of devotion to ‘freedom’ in the worldview of those whose zeal for crusading abroad makes them blind to the real enemy: the invasion of our liberty by the State…to give up our freedom in order to “preserve” it is only succumbing to the Orwellian dialectic that “freedom is slavery.”
Indeed.
Those who today reasonably say that the defense of an island eighty miles off the coast of mainland China and five thousand miles from Hawaii (let alone the mainland United States) cannot possibly be a core national interest can take comfort in following the footsteps of such brave and principled forebearers as Rothbard.
Americans can and must say NO! to the new Cold War and refuse efforts by Washington to provoke Beijing with regards to Taiwan, virtually its only declared “red line.”
That is, unless another disaster like Ukraine is the goal—which it may well be.
[Originally published at the Libertarian Institute.]
Another mass shooting, another call for gun control. However, when it comes to mass killings, Washington sets the sorry example.
Original Article: "Washington Has No Moral Authority to Ban Guns"
Decades ago, Hollywood brought the neglected problem of domestic violence (DV) against women into the spotlight and helped to create cultural change. Today, Hollywood encourages people to dismiss or laugh at the neglected problem of DV against men. After all, the man must have had it coming; either that or he is too weak to stand up for himself and so deserves no sympathy. A general acceptance of women beating up men continues.
A recent episode (aired on April 20, 2023) of a new hit TV series on Netflix epitomizes this attitude. The Diplomat is a semicomedic political thriller about a female US ambassador named Kate in London and includes glimpses into her marriage. Season one, episode three—“Lambs in the Dark”—has a long segment in which the ambassador slugs her unresisting husband Hal, violently tackles him to the ground, scratches and kicks him, pummels him dozens of times with her fists, and picks up a huge branch with which to continue the attack. At one point Hal screams, “You are killing me!”
Two security agents stand some distance away, watching the assault through binoculars without intervening. (Note: if these are the sort of agents provided to other American officials, then they are federal law enforcement officers with police powers.) One of them dismisses the violence, saying, “We’re not his detail. We’re hers.” The violence is so casually presented that the agents follow it like a football game, with one observing, “Not going well for him, is it?” The hysterical battery ends only when an agent approaches to tell Kate that the chief of staff wants to talk to her. The next day, Hal sports a black eye and bruised nose.
The scene is played as comedy. Presumably, it is also meant to cement the image of Kate as a powerful woman who doesn’t put up with the abuse Hal puts her through; in short, he deserves it.
Now imagine that Hal attacks an unresisting Kate. Would anyone consider this to be humorous? Would they view a man who bashed a woman to be powerful and more of a man? What if she were a harpy; would she also deserve to be punched repeatedly in the face? What would people think about law enforcement who stood and watched as though it were a sporting event?
Two commonly offered justifications for dismissing or ridiculing male DV victims are that such attacks are rare and the harm inflicted is mild compared to what a woman experiences.
DV against males is not rare. The widespread abuse of men is well documented. A fact sheet from the National Coalition Against Domestic Violence states, “1 in 3 women and 1 in 4 men have experienced some form of physical violence by an intimate partner. This includes a range of behaviors (e.g., slapping, shoving, pushing) and in some cases might not be considered domestic violence.” Different research offers higher or lower rates of male victimization, but both sexes are abusers and abused. Yet to the mainstream media, a victimized woman is an outrage; a victimized man is a giggle.
Regarding the second justification, while DV against men may inflict less physical harm, psychological injuries are a different question. The physical injuries may well be milder because women are not generally as strong as men. But the use of weapons—even a simple frying pan—can eliminate this advantage. Perhaps the most reliable estimate on the “severity” issue comes from the National Intimate Partner and Sexual Violence Survey: 2010 Summary Report: “1 in 4 women and 1 in 7 men have been victims of severe physical violence (e.g., beating, burning, strangling) by an intimate partner in their lifetime.” The issue remains unclear, however, for several reasons. A great deal of research includes feminist bias; for personal reasons, those who report DV often exaggerate or downplay their injuries; some of the best data is old, as data goes. The bottom line: unless people similarly dismiss female victims who are slightly injured, it comes back to dismissing male victims simply because they are men.
Netflix’s bias is not confined to The Diplomat but spills over into other shows. Consider Alia Bhatt’s Darlings, a 2022 Indian Hindi-language film distributed by Netflix. The Netflix site describes the movie: “Badru hopes her volatile husband will reform if he stops drinking. But when his rage goes too far, she and her mom boldly, albeit clumsily, seek revenge.” In the article “Alia Bhatt’s Darlings Proves Revenge Doesn’t Justify Domestic Violence against Men,” the Indian website MensXP comments on the clumsy revenge sought.
Badrunnisa is a victim of domestic violence who keeps going back into an abusive relationship, thinking this is the last time she’ll get hurt—emotionally and physically. . . . Everyone feels bad for this woman who keeps putting up with her violent husband. She’s about to end her life one day when she decides to take matters into her own hands and put an end to this oppression. How? By becoming an oppressor, herself.
If our hearts can collectively bleed for a woman being beaten by her husband, why does it fall shush when the same happens to a man?
The husband is tortured by Badrunnisa and her mother who eventually tie him to a railroad track where he meets his death. Along the way, the mother confesses to Badrunnisa that her own husband—presumably Badrunnisa’s father—was also abusive, which is why she killed him as well. Apparently, mariticide is a family tradition. The Wikipedia entry for the movie calls it a “dark comedy” and ends the plot summary with the statement, “A few days later, they hold a funeral for Hamza [the husband]. Badru smiles, roams around the city independently happy that she is free now, hoping for a better future.”
Badrunnisa could have left her husband at any time. Instead, she becomes a torturer and a murderess; her mother is a torturer and a double murderess. And yet, they walk free and Badrunnisa smiles happily while contemplating a better future. Hamza has no future. If his abuse was inexcusable, which it was, then how much worse is their abusing and killing him? And yet, Netflix normalizes, if not celebrates, torture and murder . . . that is, if they happen to a man. Switch the sexes in Darling and Netflix would be screaming its outrage.
Abuse is always abuse, and it is never justified. Turnabout is not fair play if the person being tormented is free to leave but chooses to stay. I was once so badly beaten by a boyfriend that I am now legally blind in one eye. But my other eye sees clearly that violence against another person is justified only in immediate self-defense and only as a last resort.
It is shameful that Netflix embraces the brutalization of men as a happy, giggling matter. Do not share in the shame by laughing along.
It is the right of the consumer, not the regime, to determine what lighting sources work best for them.
Original Article: "Shedding Light on the Law of Unintended Consequences"
It’s been over five decades since the war on drugs began in the United States, and billions of dollars coerced from taxpayers have been spent on this frivolous operation. The General Accounting Office’s report found that the Drug Abuse Resistance Education (DARE) program did not deter youth from drug abuse. How exactly has this war benefited taxpayers when drug use has increased, and more potent drugs are being consumed? Even the diabolical Charles Manson distributed drugs while imprisoned. Does one honestly think the government will eradicate drugs off the streets?
The mere suggestion of legalizing drugs causes many to accuse me of advocating drug abuse. I do not have any inclination to consume harmful drugs, and neither do I condone such behavior. My motivation for writing this article, however, is grounded in freedom. I hope that after reading this, people across the political spectrum will understand this objective. For people on the right, they should realize this war is unconstitutional. The Constitution does not grant the government control of what someone injects into their body. The state continues to extend its tentacles of power over its people, and the war on drugs is just one facet of that reality.
The state believes it has the prerequisites to decree what can and cannot be allowed, not just regarding drug policy but in our private lives as well. Lysander Spooner, the nineteenth-century theorist, argued that vices are not crimes: “Vices are those acts by which a man harms himself or his property. Crimes are those acts by which one man harms the person or property of another.” You have total autonomy of your body, not the government or anyone else. This should hopefully register with individuals on the left. Today’s political climate has forced citizens into a political dichotomy with no room outside the uniparty’s parameters. Most politically passionate people fail to realize that they share quite a bit of similarities with their supposed “enemies.” It’s not Left versus Right; it’s the state versus you!
Many today disregard the significant number of deaths caused by alcohol, tobacco, and prescription drugs. A considerable number of people abuse these substances, but drug warriors seem to disregard these addictions. Alcohol is a form of drug and can be dangerous when consumed as it affects people differently. On average, 140,000 people die every year from this beverage. Prescription drugs claim 16,500 lives per year. Tobacco consumption is the foremost cause of preventable deaths at an astounding 480,000 deaths annually. One can consider food to be a drug, and its abuse leads to a multitude of health issues. Heart disease, being one of those issues, is the leading cause of death in America.
The government doesn’t care about your well-being or privacy; it only wishes for complete control over you. Financial privacy has even been encroached upon by the state due to the drug war. Deposits of more than $10,000 in the bank are reported to the Internal Revenue Service even though it’s your money. If you are pulled over with a substantial amount of cash, the police can confiscate your money under civil asset forfeiture laws. Essentially, you are guilty until you prove your money was legally acquired. They can slander your name for simply transporting cash. Police, on countless occasions, have been found planting drugs on one’s person or vehicle. By ending the war on drugs, the accused can be protected from these pernicious acts.
In 2003, the life of a young man, Weldon Angelos, was ruined by the war’s idiocy. An undercover informant made several purchases from Angelos involving minimal amounts of weed. The informant claimed Angelos possessed a gun, despite one never being brandished or used. Initially, Angelos would have been imprisoned for a day, but federal law required fifty-five years due to a gun being present during the transactions. Presiding over the case, Judge Paul Cassell was so distraught at handing down this absurd sentence that he later petitioned for Angelos’ release. An actual criminal who had committed child rape, second-degree murder, or an aircraft hijacking would have had a shorter sentence than Angelos. After public outrage, Angelos was released in 2016 and pardoned in 2020. Unfortunately, there are many stories like Angelos’ across our country.
Due to the irreparable harm from Richard Nixon’s war, the US has the world’s largest prison population. China has almost half as many incarcerated individuals. When comparing China’s population to America’s, this is an astounding statistic. In 2020, over a million people were arrested for using or possessing illicit drugs. The government and the police will be further strengthened as they wage their unjust war, while citizens are terrified of false accusations. To clarify, I am not arguing that a person on drugs who hurts or steals from someone should not be in jail. There should be no leniency for these violent crimes. Harm done to people and property are crimes, not vices. To help solve the drug epidemic, however, one should realize this war has not worked.
There are a few countries that have pursued intriguing alternatives to this crisis. The Netherlands has decriminalized cannabis possession of less than five grams. Psychedelic mushrooms were made illegal in the Netherlands in 2008, yet users found with small quantities are not criminally charged. In Switzerland, they adopted a policy of helping their drug-addicted citizens instead of fighting drugs. For the past two decades, the Swiss have implemented drug-consumption rooms and needle exchange programs. By providing clean needles to users, this reduces the risk of infections. Because of these measures, HIV infections have declined at a significant rate, and Hepatitis C cases have continued to decrease since 2002. Consumers at drug-consumption rooms are watched to prevent overdoses. Facility employees make connections with these individuals without stigmatizing them. Users are more comfortable with what they inject at drug facilities compared to what they may find on the streets.
Portugal has arguably been the most prominent trailblazer in drug policy reform. In 2001, they decriminalized all drugs, treating it as a health-conscious issue rather than a criminal one. Individuals possessing less than a ten-day supply of any drug will not be punished with prison time but will usually be sent to a commission for recovery treatment options. The European Union’s average rate of drug-related deaths is five times higher than Portugal’s. From 1998 to 2011, drug treatment attendees in Portugal increased by 60 percent. This result is encouraging because Portuguese citizens are seeking help, rather than fearing incarceration.
An ample portion of US states and cities have changed their tune on drug legalization based on the positive results from the aforementioned countries. Marijuana used for medical purposes is currently legal in thirty-eight states, while recreational use is permitted in twenty-two states. In 2021, the city of Seattle approved legislation decriminalizing psychedelics, which mirrors the policies of Oakland and Santa Cruz. Similar to Portugal’s revolutionary policy, Oregon has adopted legislation that will not criminally charge individuals with small quantities of any drug but will instead enforce a hundred dollar fine. Although there is much to improve in America’s drug policy, these states and cities are taking a closer step toward allowing citizens the freedom to choose what they can consume. Hopefully, all states can learn from these drug pioneers, domestic and abroad, that are helping addicts rather than waging an irrational crusade against their people.
Modern Western culture is dominated by demands for "social justice." But how does one even define this term, and does social justice even produce justice in the end?
Original Article: "Is Social Justice Just? A Review"
On Friday, members of the Arab League welcomed the Syrian regime back to the organization. Representatives from several Arab member states shook Syrian leader Assad’s hand and gave him, a “warm” reception according to several news outlets. Syria was suspended from the league in 2011, but on May 7 in Cairo the league agreed to reinstate the Assad regime.
This represents a reversal from years of isolation placed on the regime, and a break with US policy which remains staunchly opposed to Assad. Indeed, the League’s rapprochement with Assad should be seen as a repudiation of US policy, and especially as a sign of how Washington’s influence among Leage members—the most powerful of which are Saudi Arabia and Egypt—has waned.
Moreover, this is just the latest bad news for Washington’s influence in the region coming mere weeks after Iran and Saudi Arabia reestablished diplomatic relations.
In both cases, we find regimes that Washington had sought to isolate and sanction, but both states have instead been expanding their relations with other states in the region with the help of China. Meanwhile, both Beijing and Riyadh have increased their ties with Russia. These development help illustrate how growing US attempt to impose—or threaten to impose—hard line sanctions against a growing number of regimes has only accelerated a global movement away from the US dollar and away from Washington’s orbit.
Saudi Arabia Increasing Ties with Iran and SyriaIn March of this year, Saudi Arabia and Iran announced a resumption of relations following a deal brokered by China. The Saudi regime—a longtime Washington ally—had apparently not told the Biden administration of the meetings with Iran and China. Shortly after the agreement was announced, the administration dispatched CIA Director William Burns to Saudi Arabia where he reportedly “expressed frustration with the Saudis,” telling “Saudi Crown Prince Mohammed bin Salman that the U.S. has felt blindsided by Riyadh’s rapprochement with Iran and Syria.”
Although the White House now claims to be supportive of the new agreement between Riyadh and Tehran, this support is really just an admission that there’s not much Washington can do about it. After all, for decades, US policy has been to isolate Tehran and in recent years, Washington has imposed harsh sanctions, including Donald Trump’s “maximum pressure campaign” designed to cripple Iran even more. The Biden administration took no significant steps to reverse the Trump position. The Saudi regime’s newfound openness to Iran is thus contrary to US policy, and it is not plausible that Washington is in any way pleased with the change.
From Washington’s perspective, the situation got even worse this month when the Arab League readmitted Syria, also apparently without consulting Washington. Since 2011, the US has imposed draconian sanctions on Syrian in a manner similar to Iran. Syria’s newfound reintegration into the Arab League is thus also contrary to the US’s ongoing efforts to isolate the Assad regime which the US has repeatedly claimed must by subjected to “regime change.”
Growing Ties with RussiaNew overtures by the Saudis toward both Syria and Iran also run afoul of Washington because both Iran and Syria are important allies of Moscow. With the US now inflicting harsh sanctions on the Russian regime, anything that helps Damascus and Tehran has the potential to help Moscow as well.
Both the Saudis and the Chinese have shown growing efforts to forge ties directly with the Russian regime as well. At a Chinese-Russian summit in February 2022, both regimes stated they plan to forge even closer ties. This has apparently not changed even after a year of heightened hostilities from the US and NATO aimed at Moscow. In fact, it is likely that Russia-China relations are closer than they’ve ever been in the post-Soviet era. This has clearly been a problem for Washington as China continues to provide an important market for Russian exports in the face of US sanctions. Both states have also made efforts to move away from the US dollar and settle international trade in other currencies.
This might all be dismissed as the scheming of foreign powers that were never reliable “partners” or allies of the US in the first place. But Saudi Arabia is another matter, and the Saudis are apparently willing to play nice with the Russians, Chinese, and other members of the latest supposed “Axis of Evil."
The Saudi regime has grown closer to Moscow in the wake of US sanctions against Russia. For example, “Saudi Arabia and the UAE, traditional Middle Eastern allies of the United States, are not shying away from importing, storing, trading, or re-exporting Russian fuels despite American efforts to persuade them to join a crackdown on Russian attempts to evade the Western sanctions on its oil.”
In other words, US efforts to get the Arab world to isolate Russia are failing, and Russian ties with the Middle East are actually improving.
This can be seen in the fact that the Organization of the Petroleum Exporting Countries (OPEC)—which is dominated by its largest producer, Saudi Arabia—has shown no interest in helping the US in its sanctions war against Russia. Instead, OPEC has cut production levels to raise oil prices, which benefits Moscow. The US has opposed these cuts, and now some anti-Russia factions in the US are exploring ways to punish OPEC for its lack of enthusiasm in cooperating with US efforts against Russia.
At this point, a trend has clearly emerged: as the US further attempts to tighten its geopolitical grip on the global economy through economic sanctions, fewer and fewer states worldwide appear interested in playing along.
Indeed, the spread of US sanctions provides good reason for other regimes to increase efforts to forge close ties with other regimes as insurance against becoming the victims of US policy. After all, the US has been quite free and easy with threatening “uncooperative” countries with so-called secondary sanctions as a punishment for doing business with states like Syria and Russia. The US has been explicit in this and in February, as CNN reported at the time, “the United States is ramping up efforts to choke off Russia’s economy and it has set its sight on the Middle East. . . . A top US Treasury official arrived in the United Arab Emirates (UAE) on Monday to warn the regional business hub that helping Moscow evade sanctions wouldn’t be without consequences.” China had already been “warned” in a similar fashion.
Yet, it appears that the US’s ongoing sanctions war against a growing percentage of the world population is having the opposite of its intended effect. The US threatens to sanction Saudi Arabia and China, and in return, both countries become even more willing to seek cooperation with some of the regimes Washington has attacked the most.
While Washington pursued a divide-and-conquer strategy throughout the Middle East, Beijing brokers deals to increase regional stability. While the US ratchets up efforts to isolate its many enemies, the Chinese, the Saudis, the Arab League, and OPEC all shrug and look to increasing international communication and trade. The Washington foreign policy establishment shows few signs that it is even noticing. The US regimes foreign policy “tool box” continues to be centered on sanctions, violence, and making demands on both its allies and its professed enemies. The rest of the world is moving on, however, and Washington may be among the last to accept the new reality.
Taxpayer-funded company Dominion is suing private parties for saying things the company doesn't like. These lawsuits illustrate how defamation laws can be used to destroy free speech.
Original Article: "The Dominion Lawsuit against Fox News Is Part of the War against Free Speech"
As the US government debases the dollar, other nations take notice and possibilities increase that another currency based on sound principles might emerge.
Original Article: "Will a New BRICS Currency Change Anything? Maybe"
In this week's episode, Mark explains why the market for existing homes has been diverging from the market for new houses. The Fed ZIRP, QE and Covid bailouts have locked Americans into their mortgages and low payments, reducing the supply of existing homes. This keeps them off the market and home prices high in an economy that is headed for a recession or crisis. Buyers have been diverted to newly constructed homes where builders have more flexibility to sell and there are no existing homeowners locked into mortgages.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Money is a crucial command post of any economy, and therefore of any society. Society rests upon a network of voluntary exchanges, also known as the “free-market economy”; these exchanges imply a division of labor in society, in which producers of eggs, nails, horses, lumber, and immaterial services such as teaching, medical care, and concerts, exchange their goods for the goods of others. At each step of the way, every participant in exchange benefits immeasurably, for if everyone were forced to be self-sufficient, those few who managed to survive would be reduced to a pitiful standard of living.
Direct exchange of goods and services, also known as “barter,” is hopelessly unproductive beyond the most primitive level, and indeed every “primitive” tribe soon found its way to the discovery of the tremendous benefits of arriving, on the market, at one particularly marketable commodity, one in general demand, to use as a “medium” of “indirect exchange.” If a particular commodity is in widespread use as a medium in a society, then that general medium of exchange is called “money.”
The money-commodity becomes one term in every single one of the innumerable exchanges in the market economy. I sell my services as a teacher for money; I use that money to buy groceries, typewriters, or travel accommodations; and these producers in turn use the money to pay their workers, to buy equipment and inventory, and pay rent for their buildings. Hence the ever-present temptation for one or more groups to seize control of the vital money-supply function.
Many useful goods have been chosen as moneys in human societies. Salt in Africa, sugar in the Caribbean, fish in colonial New England, tobacco in the colonial Chesapeake Bay region, cowrie shells, iron hoes, and many other commodities have been used as moneys. Not only do these moneys serve as media of exchange; they enable individuals and business firms to engage in the “calculation” necessary to any advanced economy. Moneys are traded and reckoned in terms of a currency unit, almost always units of weight. Tobacco, for example, was reckoned in pound weights. Prices of other goods and services could be figured in terms of pounds of tobacco; a certain horse might be worth eighty pounds on the market. A business firm could then calculate its profit or loss for the previous month; it could figure that its income for the past month was 1,000 pounds and its expenditures 800 pounds, netting it a 200 pound profit.
Gold or Government PaperThroughout history, two commodities have been able to outcompete all other goods and be chosen on the market as money—two precious metals, gold and silver (with copper coming in when one of the other precious metals was not available). Gold and silver abounded in what we can call “moneyable” qualities, qualities that rendered them superior to all other commodities. They are in rare enough supply that their value will be stable, and of high value per unit weight; hence pieces of gold or silver will be easily portable, and usable in day-to-day transactions; they are rare enough too, so that there is little likelihood of sudden discoveries or increases in supply. They are durable so that they can last virtually forever, and so they provide a safe “store of value” for the future. And gold and silver are divisible, so that they can be divided into small pieces without losing their value; unlike diamonds, for example, they are homogeneous, so that one ounce of gold will be of equal value to any other.
The universal and ancient use of gold and silver as moneys was pointed out by the first great monetary theorist, the eminent fourteenth-century French scholastic Jean Buridan, and then in all discussions of money down to money and banking textbooks until the Western governments abolished the gold standard in the early 1930s. Franklin D. Roosevelt joined in this deed by taking the United States off gold in 1933.
There is no aspect of the free-market economy that has suffered more scorn and contempt from “modern” economists, whether frankly statist Keynesians or allegedly “free market” Chicagoites, than has gold. Gold, not long ago hailed as the basic staple and groundwork of any sound monetary system, is now regularly denounced as a “fetish” or, as in the case of Keynes, as a “barbarous relic.” Well, gold is indeed a “relic” of barbarism in one sense; no “barbarian” worth his salt would ever have accepted the phony paper and bank credit that we modern sophisticates have been bamboozled into using as money.
But “gold bugs” are not fetishists; we don’t fit the standard image of misers running their fingers through their hoard of gold coins while cackling in sinister fashion. The great thing about gold is that it, and only it, is money supplied by the free market, by the people at work. For the stark choice before us always is: gold (or silver), or government. Gold is market money, a commodity which must be supplied by being dug out of the ground and then processed; but government, on the contrary, supplies virtually costless paper money or bank checks out of thin air.
We know, in the first place, that all government operation is wasteful, inefficient, and serves the bureaucrat rather than the consumer. Would we prefer to have shoes produced by competitive private firms on the free market, or by a giant monopoly of the federal government? The function of supplying money could be handled no better by government. But the situation in money is far worse than for shoes or any other commodity. If the government produces shoes, at least they might be worn, even though they might be high-priced, fit badly, and not satisfy consumer wants.
Money is different from all other commodities: other things being equal, more shoes, or more discoveries of oil or copper benefit society, since they help alleviate natural scarcity. But once a commodity is established as a money on the market, no more money at all is needed. Since the only use of money is for exchange and reckoning, more dollars or pounds or marks in circulation cannot confer a social benefit: they will simply dilute the exchange value of every existing dollar or pound or mark. So it is a great boon that gold or silver are scarce and are costly to increase in supply.
But if government manages to establish paper tickets or bank credit as money, as equivalent to gold grams or ounces, then the government, as dominant money-supplier, becomes free to create money costlessly and at will. As a result, this “inflation” of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy.
The natural tendency of government, once in charge of money, is to inflate and to destroy the value of the currency. To understand this truth, we must examine the nature of government and of the creation of money. Throughout history, governments have been chronically short of revenue. The reason should be clear: unlike you and me, governments do not produce useful goods and services that they can sell on the market; governments, rather than producing and selling services, live parasitically off the market and off society. Unlike every other person and institution in society, government obtains its revenue from coercion, from taxation. In older and saner times, indeed, the king was able to obtain sufficient revenue from the products of his own private lands and forests, as well as through highway tolls. For the State to achieve regularized, peacetime taxation was a struggle of centuries. And even after taxation was established, the kings realized that they could not easily impose new taxes or higher rates on old levies; if they did so, revolution was very apt to break out.
Controlling the Money SupplyIf taxation is permanently short of the style of expenditures desired by the State, how can it make up the difference? By getting control of the money supply, or, to put it bluntly, by counterfeiting. On the market economy, we can only obtain good money by selling a good or service in exchange for gold, or by receiving a gift; the only other way to get money is to engage in the costly process of digging gold out of the ground. The counterfeiter, on the other hand, is a thief who attempts to profit by forgery, e.g., by painting a piece of brass to look like a gold coin. If his counterfeit is detected immediately, he does no real harm, but to the extent his counterfeit goes undetected, the counterfeiter is able to steal not only from the producers whose goods he buys. For the counterfeiter, by introducing fake money into the economy, is able to steal from everyone by robbing every person of the value of his currency. By diluting the value of each ounce or dollar of genuine money, the counterfeiter’s theft is more sinister and more truly subversive than that of the highwayman; for he robs everyone in society, and the robbery is stealthy and hidden, so that the cause-and-effect relation is camouflaged.
Recently, we saw the scare headline: “Iranian Government Tries to Destroy U.S. Economy by Counterfeiting $100 Bills.” Whether the ayatollahs had such grandiose goals in mind is dubious; counterfeiters don’t need a grand rationale for grabbing resources by printing money. But all counterfeiting is indeed subversive and destructive, as well as inflationary.
But in that case, what are we to say when the government seizes control of the money supply, abolishes gold as money, and establishes its own printed tickets as the only money? In other words, what are we to say when the government becomes the legalized, monopoly counterfeiter?
Not only has the counterfeit been detected, but the Grand Counterfeiter, in the United States the Federal Reserve System, instead of being reviled as a massive thief and destroyer, is hailed and celebrated as the wise manipulator and governor of our “macroeconomy,” the agency on which we rely for keeping us out of recessions and inflations, and which we count on to determine interest rates, capital prices, and employment. Instead of being habitually pelted with tomatoes and rotten eggs, the chairman of the Federal Reserve Board, whoever he may be, whether the imposing Paul Volcker or the owlish Alan Greenspan, is universally hailed as Mr. Indispensable to the economic and financial system.
Indeed, the best way to penetrate the mysteries of the modern monetary and banking system is to realize that the government and its central bank act precisely as would a Grand Counterfeiter, with very similar social and economic effects. Many years ago, the New Yorker magazine, in the days when its cartoons were still funny, published a cartoon of a group of counterfeiters looking eagerly at their printing press as the first $10 bill came rolling off the press. “Boy,” said one of the team, “retail spending in the neighborhood is sure in for a shot in the arm.”
And it was. As the counterfeiters print new money, spending goes up on whatever the counterfeiters wish to purchase: personal retail goods for themselves, as well as loans and other “general welfare” purposes in the case of the government. But the resulting “prosperity” is phony; all that happens is that more money bids away existing resources, so that prices rise. Furthermore, the counterfeiters and the early recipients of the new money bid away resources from the poor suckers who are down at the end of the line to receive the new money, or who never even receive it at all.
New money injected into the economy has an inevitable ripple effect; early receivers of the new money spend more and bid up prices, while later receivers or those on fixed incomes find the prices of the goods they must buy unaccountably rising, while their own incomes lag behind or remain the same. Monetary inflation, in other words, not only raises prices and destroys the value of the currency unit; it also acts as a giant system of expropriation of the late receivers by the counterfeiters themselves and by the other early receivers. Monetary expansion is a massive scheme of hidden redistribution.
When the government is the counterfeiter, the counterfeiting process not only can be “detected”; it proclaims itself openly as monetary statesmanship for the public weal. Monetary expansion then becomes a giant scheme of hidden taxation, the tax falling on fixed income groups, on those groups remote from government spending and subsidy, and on thrifty savers who are naive enough and trusting enough to hold on to their money, to have faith in the value of the currency.
Spending and going into debt are encouraged; thrift and hard work discouraged and penalized. Not only that: the groups that benefit are the special interest groups who are politically close to the government and can exert pressure to have the new money spent on them so that their incomes can rise faster than the price inflation. Government contractors, politically connected businesses, unions, and other pressure groups will benefit at the expense of the unaware and unorganized public.
[Originally appeared as “Taking Money Back,” pt. 1, The Freeman, October 1995. Available in The Rothbard Reader.]>
The talking heads on financial TV ask everyday where we are in the banking crisis. Is it over yet? After scooping up First Republic, JP Morgan’s Jamie Dimon said, “This part of the crisis is over.” After he said that, however, the shares of regional banks such as PacWest, Zions, and Western Alliance were cut in half. The market doesn’t believe Mr. Dimon.
Elisabeth Kübler-Ross described five stages of grief: denial, anger, bargaining, depression, and acceptance. On Twitter, describing the typical timeline for a banking crisis, Real Vision’s Raoul Pal posted:
It’s one bad apple,
Well maybe it’s just a few
“Banks remain strong”
It’s the evil short sellers (we are considering a ban)
Ok, now we are banning shorts
Oh, seems that didn’t work
Cut rates
That didn’t work
Panic
Change . . .
Kübler-Ross’s denial stage would include Pal’s “one bad apple,” “just a few,” and “Banks remain strong.” The anger stage would be “evil short sellers,” “banning shorts,” and it “seems that didn’t work.” The bargaining stage would be “Cut rates” and “That didn’t work.” Depression would be “Panic,” with “Change” being the acceptance stage.
We clearly appear to be only in the anger stage. Kimberly Adams writes for Marketplace:
The American Bankers Association is laying some of the blame for that at the feet of short sellers trying to scare people into thinking banks are about to go under so that the stock price falls and they can profit. On Thursday, the ABA sent a letter to the Securities and Exchange Commission asking the agency to look into the issue. . . .
“We’ve been in constant communication with our members, and they’ve shared with us their concerns, including engagement that they’ve seen on social media,” said Naomi Camper, chief policy officer at the ABA. “And many believe that their shares have been manipulated by short sellers. They’re seeing trading in their shares that defy the underlying fundamentals, and they’re worried about it.”
During the Q and A at Berkshire Hathaway’s annual meeting televised by CNBC, Warren Buffett mentioned a bank stock short-selling ban. Reuters reports that Wachtell, Lipton, Rosen & Katz, a law firm that has represented large companies, said in a letter to clients that “the Securities and Exchange Commission (SEC) should regulate what it defined as ‘coordinated short attacks’ by imposing a 15-trading day prohibition on short sales of financial institutions.”
Taking the other side of the argument is longtime bank analyst Dick Bove. Bloomberg reports: “‘The funds and others who are shorting bank stocks are doing the American public a meaningful service,’ analyst Bove said in a note. ‘They are winnowing the banking industry and forcing these companies to stabilize their financial statements.’”
Bove is right. The average depositor can’t make heads or tails of their bank’s financial statements. At least short sellers give John and Jane Q. Public a heads-up about their banks. Bank regulators are like the fire department, the hook and ladder doesn’t arrive until a house is fully inflamed.
If it plays out the way Mr. Pal believes, a couple more banks will fail, the Securities and Exchange Commission will impose a short-selling ban, and then a few more banks will fail. Then, it will be time for a Federal Reserve rate cut.
Reuters reports that the Fed futures market is factoring in a more than 70 percent chance of a rate cut at the Fed’s September meeting.
This summer may be an interesting one.
The Federal Reserve’s balance sheet reached its all-time high in May 2022. Since then, it was supposed to drop at a steady pace and shed three trillion US dollars by 2024. The normalization of monetary policy was built on the idea of a soft landing for the economy. However, the Fed may be killing the private sector to save the government.
Curbing inflation requires a significant reduction in the money supply and aggregate demand. However, if government deficit spending is left untouched, the entire burden of normalizing monetary policy will fall on families and businesses.
The current situation is the worst possible. The Fed’s balance sheet is not falling as fast as it should; government spending has not even been scratched, but the money supply is falling at the fastest pace since the 1930s, and rate hikes are hurting the productive economy while the government seems unaware of the need to reduce its bloated budget.
The first-quarter GDP figure is extremely concerning. Government spending showed yet another big rise at +4.7 percent, much higher than expected. However, consumption, at +3.7 percent annualized, was well below estimates and driven by a worrying new record in credit card debt. Even more concerning, gross private domestic investment fell by a massive 12.5 percent.
There is robust evidence of a negative trend in the real economy. Rising federal expenditure, more bureaucracy, higher taxes, and weaker activity in the part of the economy that drives growth and jobs
Rate hikes have two direct negative effects on the economy if the government does not reduce its deficit spending spree. They mean higher taxes and a massive crowding out of available credit. The government deficit is always going to be financed, even if it is at higher rates, but this also means less credit for businesses and families. The crowding-out effect of the public sector over the productive economy means lower productivity growth, weaker investment, and declining real wages as the government keeps inflation above target by spending additional units of newly created currency, but the productive sectors find it harder and more expensive to find credit. Additionally, the government borrows at a much lower cost than even the most efficient and profitable businesses.
It is impossible to achieve a soft landing for the economy when the Federal Reserve ignores the signals of the banking system and the real economy. The first pillar of a true soft landing must be to preserve the real disposable income of workers and the job creation and investment capabilities of businesses.
When the government continues to increase spending, there is no signal of the mildest budgetary control, and the entire “landing” comes from the private sector, what we get is upside-down economics.
The Federal Reserve has stopped paying attention to monetary aggregates just as the money supply is contracting at an almost historic pace. Even worse, the money supply is contracting but federal deficit spending is untouched, and the debt ceiling was raised again.
The money supply is collapsing due to the inevitable credit crunch and the difficulties faced by consumers and businesses. It is impossible to grow with rising taxes, persistent inflation—a tax in itself—and carrying the entire burden of the normalization of monetary policy.
Fighting inflation without cutting government spending is like dieting without eliminating fattening foods.
Contrary to the worldview of progressives, taxation and the coercion it brings are not part of a "social contract." Instead, they are implemented by force.
Original Article: "You Don’t Like It? Leave! The Telling Sophistry of Tax Apologists"
On April 6, 2023, President Joe Biden’s Twitter account sent the following message: “Trickle-down economics doesn’t work.” Trickle-down economics is a phrase that is often thrown around negatively to ridicule those who believe that the free-market system is the best way to regulate the economy. “Trickle-down theory” was never coined by economists, and the term has two possible origins, both of which were meant to discredit those who wanted less government involvement in the economy. It’s an ironic term as well because those who shout that “trickle-down economics doesn’t work” seem to be zealots in the belief that higher taxes paid to the government on all levels will trickle down and eventually benefit everyone.
What Is Trickle-Down Economics?Because the term “trickle-down” was created as ridicule, its definition came after its first use. According to Investopedia, “trickle-down” is the theory that tax breaks for corporations and the wealthy will trickle down and eventually benefit everyone. In other words, private individuals and companies keeping more of what is theirs is more of a benefit to society than being heavily taxed. Those who are against this concept of “trickle-down” often believe that wealth is concentrated in too few hands where it becomes unused and stagnant at the disadvantage to many who do not have access to it through welfare programs.
How Washington Redistributes Current Tax Money“Fair share” has become one of the most loaded terms in recent American politics where it has no precise meaning as a policy point and is only meant to provoke emotional reactions to give the government more power to tax (other people, not you). Because “trickle-down” is a phrase meant to discredit those who oppose big government, it would be best to see how big government has been managing the resources that are currently under their control.
As of now, the federal government has a debt of over $31 trillion, which is about 150 percent of the total US gross domestic product in 2021. The debt limit has been reached and congressional approval is needed to raise it again. The Republican-led House of Representatives leadership has submitted a plan to raise the limit with restrictions to slow down the debt spiral while the Democrat president refuses to meet with them and demands the limit be raised without restrictions.
Spending is out of control, and if everyone was taxed at 100 percent for a year, the debt would remain in the trillions. This is unsustainable, and any talk of raising or expanding taxes to expand government is doomed to fail in practice.
At the same time, five of the ten richest counties in America are suburbs of Washington, DC, where the biggest employer is the federal government. In the ten states with the lowest net federal funding per resident, the people actually pay in more than they get back. It is safe to say that a huge chunk of the money coming to Washington is staying in Washington.
Current Redistribution ProposalsTwo areas of American life where the federal government has stepped in to regulate for fairness and opportunity with poor results are housing and student loans. Government-guaranteed student loans have given more people the opportunity to go to college which has increased demand and, with unlimited tuition money available for borrowing, increased the price dramatically. President Biden wants to cancel $400 billion of the current loans which would then make the general taxpayer on the hook for them along with the other $31 trillion of debt, freeing the borrowers of the loan they agreed to take, used, and were supposed to pay back.
Proponents of this policy point out that these borrowers can use the money they would have spent paying back their loans on other things in the economy, like houses. In other words, the effects of this policy will trickle down from those whose debts were wiped out to the rest of us.
There is a current proposal to expand home loans to people with poor credit scores and low savings for down payments. This would be paid for by a fee that would be added to new traditional mortgages where the borrowers have large down payments and good credit scores. In other words, the heavy hand of the Biden administration will use its powers to take from those it deems more fortunate and have it trickle down to the less fortunate.
Government Redistribution Is Trickle-DownBoth policy proposals have a lot of legitimate arguments against them ranging from highly inflationary effects for loan forgiveness to the potential moral hazards for both. But they also have the threat of force and authority to take from some to give to others. They contain the belief that central planners can create more fairness in life by taking large amounts of wealth, concentrating it in the capital, and then allowing it to trickle down to the rest of America.
Illegitimate Authority: Facing the Challenges of Our Time
by Noam Chomsky, edited by C.J. Polychroniou
Haymarket Books, 2023; x + 330 pp.
Noam Chomsky is universally respected for his contributions to linguistics and to the philosophy of mind, but he is a “public intellectual” as well, and it is in the public arena that opinion about him is divided. Illegitimate Authority is a collection of thirty-four interviews of him by C.J. Polychroniou, the book’s editor, and the economist Robert Pollin, and reading it makes clear why people react strongly to Chomsky’s opinions. He speaks with supreme self-confidence, and if you disagree with him, you are likely to turn away angrily. I often felt like doing this while reading the book, but nevertheless what he says is often insightful. In brief, Chomsky is better on foreign policy than on the economy.
He rightly deplores crony capitalism, the use by big business of state-granted privileges to gain wealth. By no means, though, does he call for the state to get out of the economy. To the contrary, he argues that the free market could not function at all without an interventionist state:
The masters of mankind have always understood that free-market capitalism would destroy them and the societies they owned. Accordingly, they have always called for a powerful state to protect them from the ravages of the market, leaving the less fortunate exposed. That has been dramatically plain in the course of the “bailout economy” of the past forty years of class war, masked under “free market” rhetoric.
If you ask why he thinks that the free market must be unstable, a surprising fact emerges. He offers no defense of this view at all. If challenged, Chomsky would doubtless cite many “progressive” economists who agree with him, along with an abundance of facts and figures; but there would be no rigorous argument that capitalism must break down. This approach is in marked contrast to that of his work in linguistics, which is based on theoretical considerations that are clearly set forward. In questions of public affairs, Chomsky proceeds by trying to overwhelm people with facts, or supposed facts, drawing on his wide reading and capacious memory.
He is aware of Ludwig von Mises, but he offers no response to Mises’s demonstration that the free market is the only workable system of social cooperation. Incredibly, he regards Mises as the father of “neoliberalism,” Chomsky’s name for crony capitalism. He calls Mises “the revered founder of the neoliberal movement that has reigned for the past forty years.” We learn that the “core features of the reigning state capitalist institutions have been exacerbated by the rot spreading from interwar Vienna, adopting the term ‘neoliberalism’ in the international Walter Lippmann symposium in Paris in 1938, then in the Mont Pelerin society.” He presents the standard distortion of Mises’s comments on Italian fascism in Liberalism (1927); for an account of what Mises meant, see my “Mises and Fascism.”
As I mentioned earlier, though, Chomsky is much better on foreign policy. His strongest point is his resolute opposition to war. He recognizes the role of what Murray Rothbard called “court intellectuals” in fomenting the war spirit:
A few years later, in 1916, Woodrow Wilson was elected president with the slogan “Peace without Victory.” That was quickly transmuted to Victory without Peace. A flood of war myths quickly turned a pacifist population to one consumed with hatred for all things German. The propaganda first emanated from the British Ministry of Information . . . American intellectuals of the liberal [John] Dewey circle lapped it up enthusiastically, declaring themselves to be the leaders of the campaign to liberate the world. For the first time in history, they soberly explained, war was not initiated by military or political elites, but by the thoughtful intellectuals—them—who had carefully studied the situation and, after careful deliberation, rationally determined the right course of action: to enter the war, to bring liberty and freedom to the world, and to end the Hun atrocities concocted by the British Ministry of Information.
In the present thermonuclear age, when wars have the potential to destroy life on earth, it has become even more imperative than at the time of the world wars, with all their appalling horrors, to seek peace. Chomsky cannot be deemed a partisan of Vladimir Putin, whom he deems a war criminal, but he firmly rejects the policy of massive arms shipments to Ukraine by the United States. This policy has resulted in a proxy war between Russia and America that might escalate into nuclear war, and to prevent this ultimate disaster, we must seek compromise, Chomsky asserts.
He notes that Graham Allison, an outstanding authority who strongly opposes Putin, recognizes this necessity:
A diplomatic settlement must offer Putin some kind of escape hatch—what is now disdainfully called an “off-ramp” or “appeasement” by those who prefer to prolong the war. That much is understood even by the most dedicated Russia-haters, at least those who can entertain some thought in their minds beyond punishing the reviled enemy. One prominent example is the distinguished foreign policy Graham Allison of Harvard University’s Kennedy School of Government, who also has long direct experience in military affairs . . . few can doubt that Putin is a “demon” radically unlike any US leader, who at worst only makes mistakes, in [Allison’s] view. Yet even Allison argues that we must contain our righteous anger and bring the war to a quick end by diplomatic means. The reason is that if the mad demon “is forced to choose between losing and escalating the level of violence and destruction, then, if he’s a rational actor, he’s going to choose the latter”—and we may all be dead, not just Ukrainians.
Can anything be done by those of us outside the government to promote peace? Chomsky offers a helpful suggestion, and here he again echoes Rothbard. He notes that government ultimately rests on public opinion; if this turns against a war, the government may feel irresistible pressure to change its course:
In one of the first works in what is now called political science, 350 years ago, his “First Principles of Government,” David Hume wrote that
. . . . We shall find that, as Force is always on the side of the governed, the governors have nothing to support them but opinion. It is, therefore, on opinion only that government is founded; and this maxim extends to the most despotic and most military governments, as well as the most free and most popular.”
If this is right, a determined campaign for peace has a good chance of achieving its aims—if it wins over the public.
Those who read Illegitimate Authority will need to sort out the good ideas from the nonsense in the book. There is plenty of both.
Veteran investigative journalist James Bovard joins Ryan and Tho to talk about the Durham Report and what it tells us about the media and the FBI.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
PROMO CODE: RothPod for 20% off
Recommended Reading"Durham proves that Hillary and the FBI tried to rig the 2016 election" by Jim Bovard (New York Post): Mises.org/RR_134_A
"Democrats attack FBI whistleblowers — giving cover to the agency’s abuses" by Jim Bovard (New York Post): Mises.org/RR_134_A2
"The FBI Vetoed the 2016 Presidential Election" by Jim Bovard: Mises.org/RR_134_B
"End the FBI" by Ryan McMaken: Mises.org/RR_134_C
"Yes, the FBI is America’s secret police" by Jim Bovard (The Hill): Mises.org/RR_134_D
"The FBI’s Forgotten Criminal Record" by Jim Bovard: Mises.org/RR_134_E
"Why the Worst Get on Top" by F. A. Hayek: Mises.org/RR_134_F
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Bob originally invited Brian Albrecht (Chief Economist of the International Center for Law & Economics) to discuss the work of Armen Alchian, but on the day of recording, Robert Lucas happened to die.
Bob and Brian discuss rational expectations, real business cycle theory, and how Alchian cracked the military's top secrets.
Brian on Alchian's famous "Costs and Outputs" paper: Mises.org/HAP396a
Mises had hoped that democracy would lead to free societies after World War II ended. He did not foresee the illiberal turn in the West in the last decade.
Original Article: "Libertarian Law by Democratic Means: The Power of Ideologies and Public Opinion"
Even after two years of "transitory" inflation, America's ruling classes insist that prices are falling and that all of this is temporary. We don't believe them.
Original Article: "The Ruling Classes Are Inflation Deniers and the Ship of Fools Sails On"
Behind closed doors, the report is already making the rounds in expert circles: if you follow the rules of sound commercial accounting, the United States Federal Reserve (Fed) has lost its equity and is, as common language would have it, bankrupt. What happened?
During spring 2020 (i.e., in a period of extremely low interest rates), the Fed purchased large amounts of government bonds and mortgage bonds to support the economy and financial markets during the covid crisis.
The Fed paid for the purchases by issuing vast amounts of new central bank money. This has created an enormous “money surplus” in the US interbank market, where banks lend money to one another. It is exactly in this market where the interest rates for all other credit markets are determined.
However, the excess money supply now exerts strong downward pressure on the interbank interest rates. Since this is not desirable from a monetary policy point of view—after all, the Fed is raising the key interest rate with the intention of making interbank credit more expensive, slowing down economic growth, and lowering inflation—the Fed’s Open Market Committee has decided to pay interest on the excess balances that the banks hold at the Fed.
This interest rate is currently 5.15 percent. This is close to the Fed’s official key interest rate, which is currently between 5.00 and 5.25 percent. In doing so, the Fed has set an interest rate limit in the interbank money market: no bank can lend its excess money supply for less than 5.15 percent if it gets this rate from the Fed.
In addition, the Fed grants “privileged nonbanks” the opportunity to conclude so-called reverse repurchase agreements with the Fed—this select group includes asset managers, investment companies, pension funds, and others. This agreement allows them to transfer the balances they and their customers do not need to the Fed “overnight” in exchange for interest-bearing securities. In return, they earn an interest rate of 5.05 percent, slightly below, but still close to, the minimum interest rate on the interbank market.
While this means that the Fed has full control over the interest rates in the money market, it is committed to making interest payments that are higher than the interest payments it receives on its securities portfolio. Since the Fed has been paying more interest than it collects for some time now, a massive negative interest result has built up on the Fed’s balance sheet. It is recorded as a balance sheet liability. The usual US Treasury retained earnings, which are positive under normal circumstances, were negative $54.5 billion as of April 12, 2023 (or negative $44.2 billion on a consolidated basis).
picture1.png If, however, a book entry that the Fed shows on the liability side of its balance sheet (i.e., under its liabilities) has a negative sign, this means nothing other than that it reduces the overall debt. One can rightly become suspicious here: this accounting practice is hardly compatible with truth and clarity when it comes to balance sheet accounting. Rather, it obscures the fact that the Fed’s debt has effectively eaten away its reported equity, which was just $42.2 billion at the time. In other words, the Fed’s liabilities are greater than its assets; in commercial accounting terms, this means “overindebtedness.”
It is worth noting that the Fed’s book loss would be much larger if it were to report on its balance sheet the debt securities it purchases at market values (“mark-to-market”) rather than at historical cost. By the way, it is the Fed’s interest-rate-hiking spree that has security prices plummeting.
The Fed currently holds around $8.5 trillion in debt securities on its balance sheet. A price drop of just, let’s say, 5 percent on this debt portfolio would result in an accounting loss (an “unrealized loss”) of $425 billion, reducing the Fed’s equity capital by the same amount. (It should be noted here that if the Fed held the securities to maturity and the borrowers repaid them in full, the accounting loss would disappear by maturity.)
Any conventional company would be in dire straits under these circumstances. (By the way, failing to report a loss would be a punishable offense in many countries.) However, the Fed, like any other central bank, is not a conventional company. Rather, it has the state monopoly of money production, which makes it truly special.
The central bank can produce the money with which it needs to pay off its liabilities at any time and in any amount. However, a central bank cannot become insolvent like a traditional company. In fact, it could continue to operate even if its equity were depleted (i.e., if it were zero or negative, which is recorded on the assets side of its balance sheet).
Of course, the Fed’s lack of equity could be remedied. This would be the case, for instance, if the US Treasury transferred newly issued government bonds to the Fed for free. The Fed’s assets would increase, so the Fed’s equity would increase if and when its liabilities remained the same.
The gold reserves on the Fed’s balance sheet could also be revalued. Since the early 1970s, the Fed’s 261.5 million gold troy ounces have been valued at $42.22 per troy ounce, equivalent to $11.04 billion. At current prices, however, the gold on the Fed’s balance sheet has a market value of approximately $520 billion. That said, the revaluation of the Fed’s gold could produce a revaluation gain of around $510 billion—and bolster Fed equity accordingly.
While such a “cooking the books” could indeed “save” the Fed’s balance sheet, it doesn’t mean investors wouldn’t become concerned and have doubts about the whole US dollar construct. If the Fed has already run out of equity, what must the situation be like in the commercial banking sector? Also, if its balance sheet is already overstretched, will the Fed still be in a position to function as a “lender of last resort” in the next crisis?
The Fed’s balance sheet, in which liabilities exceed assets, is a red flag. Investors could lose confidence in the reliability and value of the US dollar and all currencies based on it. Who could blame investors if that eventually happened? In fact, the Fed’s negative equity is just another sign of the growing trouble in the world’s fiat money regime dominated by the US dollar.
To prevent rail accidents like the one in East Palestine, dial back government regulation and allow the tort system to work.
Original Article: "Prevent Future Losses Like East Palestine by Reducing Regulation and Empowering Torts"
Mainstream historians attribute the postwar economic success of South Korea and Taiwan to the legacy of Japanese colonialism. The Japanese are credited with providing new technologies, critical infrastructure, and an efficient state that enabled industrial progress in South Korea and Taiwan. Both Taiwan and Korea benefitted from the successful adoption of Japanese technologies and recorded industrial growth under imperial rule.
Moreover, during 1913–38, Taiwan and South Korea experienced rapid per capita gross domestic product growth accompanied by broad social transformations. Scholars describe Japan’s state-building project in ex-colonies as having the features of a developmental state. Unlike Western colonialism, the legacies of Japanese rule are earnestly portrayed as progressive and positive. Japanese colonialism did result in some favorable outcomes for Taiwan and South Korea, but reassessments of the literature have shown that these laudable effects have been exaggerated.
Starting with anthropometric data, researchers show that the average height of Taiwan’s ethnic Chinese rose under colonialism, but this pattern was never sustained because height and other indicators of welfare stagnated in the 1930s. Additionally, a review of the colonial period in South Korea avers that per capita caloric intake failed to increase continuously, and other measures such as real unskilled wage decreased in the 1920s and 1930s. Closer inspections of Japanese rule reveal perceived achievements to be quite fleeting.
The Japanese are even lauded for cultivating an entrepreneurial class in her colonies that was supported by Japanese expertise and capital. However, the historical record paints a different picture. Infrastructural projects aided the growth of indigenous capital, but Japanese firms obtained special privileges at the expense of local businesses that were too small to compete or unconnected to the government bureaucracy. Japan’s economic policy benefitted some local firms in Taiwan and South Korea, but it largely served military and geopolitical objectives.
Further, economist Anne Booth opines that industrial growth in Taiwan and South Korea was not that rapid relative to elsewhere in Asia. Booth points out that in Taiwan, like the Philippines, Indonesia, and British Malaya, industrialization largely hinged on agricultural processing until the 1930s. On the other hand, growth in Korea was impressive but started from a low base. Like Indonesia, Korea benefitted from an influx of foreign capital that spurred manufacturing in the 1930s. By 1940, manufacturing accounted for the same share of gross domestic product in both territories. However, the share of labor employed in Indonesia was higher.
Responding to Atul Kohli’s assertion that Japanese colonies were characterized by more progressive governments, Booth notes that by the first decade of the twentieth century, all the colonial powers in Southeast Asia had built effective administrative structures that emphasized the modernization of fiscal systems. As such, revenue per capita grew rapidly in Korea after 1910. Yet by 1929, Korea’s revenue per capita was on par with the Philippines and Burma.
According to Booth, Taiwan and Korea possessed superior endowments of roads and railways relative to most places in Southeast Asia in the late 1930s. However, neither place was better served than Java. Likewise, British Malaya had relatively good transportation infrastructure and electric power capacity. Korea and Taiwan had great advantages in irrigation since nowhere in Southeast Asia could boast an equally extensive irrigation network. Nevertheless, irrigation was also prioritized in Indonesia and Vietnam. Demographically, the profile of Japanese colonies was also similar to non-Japanese colonies in Asia, with Taiwan’s infant mortality rate being just a little lower than British Malaya.
Academically, Taiwan was ahead of most places in East and Southeast Asia based on the ratio of educational enrollments to the total population by the end of the 1930s. Interestingly, in British Malaya, this ratio was above that of Korea, although a number of students were disproportionately Chinese and Indian rather than Malay. The Philippines was the leader in access to postsecondary institutions with more than forty thousand students enrolled in higher education by the early 1940s.
Despite building schools in Taiwan and Korea, education was elitist, and nearly all Taiwanese were denied access to tertiary education and white-collar jobs. Although the Japanese made investments in primary education in Korea, they pursued a hostile cultural policy that limited Korean language use and displaced Korea’s indigenous educational system. By 1944, less than 14 percent of Korea had benefitted from any schooling, and 2 percent of Koreans had matriculated beyond primary levels.
After rigorous analyses, the achievements of Japanese colonialism appear quite pale when compared to other powers. Anne Booth comments that America was the real trendsetter, considering that they encouraged self-government and the eventual independence of the Philippines. Americans also placed a greater premium on secondary and tertiary education than the French, British, Dutch, or Japanese. Their policy was so successful that, by the 1930s, Filipinos were represented in almost all posts in the civil service, and many were influential in the private sector and various professions. In contrast to America’s liberal approach, the Dutch and the British expressed doubts about the abilities of natives to become competent citizens and entrepreneurs.
Furthermore, although Japan is perceived as a pioneer in building infrastructure, Anne Booth and Kent Dang observed that Japanese colonialism in this regard is actually comparable to her rivals rather than superior. In all colonies, colonial engineers employed the expertise of the metropole’s population to erect railways, roads, and irrigation projects. For example, Dutch achievements in Java were similar to those of the Japanese in Taiwan. The Dutch constructed large-scale irrigation networks in Java, which still exist today.
Some posit that the development of Korea and Taiwan is attributable to postcolonial policies instead and that Korea would have developed without Japanese colonialism due to the legacy of precolonial educational institutions. Japanese colonialism might seem progressive, but the evidence shows that, relative to non-Japanese colonialism, it was rather ordinary. Therefore, we can deduce that South Korea and Taiwan encountered spectacular development courtesy of postcolonial economic policy, entrepreneurship, and investments in human capital that accelerated after the colonial era.
Federal laws with acronyms are usually bad news. (Think the USA PATRIOT Act.) The RESTRICT Act is yet another Orwellian proposal in which the federal government assumes ignorance is strength.
Original Article: "Disinformation and the State: The Aptly Named RESTRICT Act"
Once the Southern states accepted the Thirteenth Amendment, Lincoln was entirely content for the old Southern elites to resume their positions of power and for many blacks to continue in a condition little better than bondage.
Original Article: "Lincoln's Main Target Was "Anarchy" and Secession, Not Slavery"
The current banking crises have deep roots in US financial history. Monetary authorities have engaged in inflationary behavior for more than a hundred years.
Original Article: "A Pyrrhic End to 130 Years of Vicious Bad Money and Banking Crises"
Bank reserves are seldom mentioned except in cases of bank runs. The other possible mention is all the interest money the Fed pays to banks simply for holding reserves. Mark explains the role of bank reserves in the current "system" and gives a brief explanation of why the Austrian view is better and actually gets the job done.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
The Argentine peso has lost half its value in one year. Both the official and parallel exchange rates with the US dollar and the Mexican peso have doubled in one year. Consumer prices have doubled in one year. The quantity of Argentine pesos has doubled in one year. All the rates at which these variables are increasing have also doubled in one year. Expecting everything to double again in half a year is now a conservative projection.
Argentina was the richest country in the world at the beginning of the twentieth century. It has now endured almost one hundred years of fiscal dominance, meaning that the central bank always accommodates whatever deficit the government decides to run. Argentina has been practicing modern monetary theory since before it was even a concept. Today more than half the people in Argentina are in poverty by worldwide standards, and the highest-earning quartile has an income comparable to the lowest-earning quartile of a developed country.
The Argentine economic policy consists of everything that even the most mainstream economic principles course teaches should never be done: there is fierce and indiscriminate protectionism, the labor market is overregulated to the point that hiring is prohibitively expensive, and price controls are ubiquitous. Everyone is acutely aware that there is a problem, but the current administration has decided to stay the course and focus their efforts on short-term measures to mend the cracks in the haul so that the ship does not sink before the election later this year.
Meanwhile markets are already starting to break down and people are starting to panic. Some merchants are deciding to reduce the merchandise available for sale and build up inventories, and people are going out to buy durable food products as soon as they get their paychecks. This is indicative of a rapidly decreasing demand for Argentine pesos, which has no anchor and no bottom.
The silver lining of this terrible situation Argentina finds itself in is that it may become a catalyst for a new dawn for the entire region. Many people in Argentina expected this to happen and have been preparing. Most people have saved in US dollars and real assets. Some of those savings are in the banking system, but there is a general distrust toward banking as well. Some economists speculate there are billions of dollars saved under the mattress. A change of currency has de facto already started. Most durable goods like houses and cars are priced and transacted in US dollars. This is a trend that will be extended wherever possible to employment contracts and within supply chain transactions as the Argentine peso continues to lose value at faster rates.
Javier Milei, an economist and Argentine presidential candidate, has gone from being relatively unknown to being the single name expected to get the highest number of votes in the primaries of any party, polling at 27 percent of the total affirmative vote. He is followed by Horacio Rodríguez Larreta, current governor of the city of Buenos Aires and longtime political insider, with 22 percent of the total affirmative vote.
Milei proposes deep and swift reforms with the ultimate goal of starting to generate growth again. His core campaign promises consist of liquidating the central bank, providing an institutional framework to support the de facto dollarization, and ending the deficit spending by reducing the budget by 15 to 20 percent through an elimination of the infrastructure budget and directional transfers without initially reducing welfare spending. He also seeks to deregulate the labor market, simplify the tax structure, and eliminate tariffs and restrictions on international trade.
Milei has received heavy criticism by political opponents and experts close to power on his plan to retire the Argentine peso from circulation, being called unfeasible. The truth is that the liquidation of the central bank is no more complicated than the liquidation of any other company. The central bank has both assets and liabilities. In the case of Argentina, the liabilities are the Argentine pesos and interest-paying bonds. The assets are net foreign currency reserves and Argentine treasuries.
The number of US dollars required to recover all Argentine pesos and repurchase the interest-paying bonds depends on the exchange rate. At current rates, between $30 and $35 billion would be necessary. The face value of the Argentine treasuries currently held by the central bank is around $70 billion, but they are currently traded in Wall Street at around twenty-five cents on the dollar. If the government were to stop running a deficit, it would be easy for the market price to increase to over fifty cents on the dollar as this is the price at which the defaulted Sri Lankan treasuries are traded.
Though not from the same party as the current administration, Larreta represents a continuation of the status quo in terms of economic policy. During the covid-19 pandemic he supported and enacted draconian measures comparable to what New York and California state and local governments imposed. He has been unable to keep crime under control, he has allowed welfare recipients to block the streets as they protest for an increase in benefits, and he has used the government apparatus of the city of Buenos Aires for personal gain. These are all normal things for Argentine politicians.
Larreta represents the opposition with experience, but he has no strong beliefs or convictions; he is guided by focus groups, and his dialogue consists of phrases manufactured to sound good but which have no depth. He has been talking about an “integral plan” (could also be translated as “holistic plan”) to solve the current problems for months but has never provided any details.
To the extent that Larreta has mentioned concrete inspirations, he has called himself a Keynesian and has advocated price controls. He has also expressed vague opposition to the shock reforms proposed by Milei. He wants to be seen as the “responsible” option, and the reforms also happen to be against his personal interests. He is inexplicably the center-right option.
Milei is expected to continue to grow in the polls. It is now almost certain that he would be one of the two candidates in the case of a second round if no candidate receives 45 percent of the affirmative vote or 40 percent with a ten-point lead over the next contender in the first round. According to my calculations, a victory by Milei in the first round is now a real possibility. Whether he can reverse Argentina’s slide into hyperinflation is another question altogether.
[Originally from Joseph R. Peden and Fred R. Glahe, eds., The American Family and the State (San Francisco: Pacific Research Institute, 1986).]
While the "Progressive Era" used to be narrowly designated as the period 1900–1914, historians now realize that the period is really much broader, stretching from the latter decades of the nineteenth century into the early 1920s. The broader period marks an era in which the entire American polity—from economics to urban planning to medicine to social work to the licensing of professions to the ideology of intellectuals—was transformed from a roughly laissez-faire system based on individual rights to one of state planning and control. In the sphere of public policy issues closely related to the life of the family, most of the change took place, or at least began, in the latter decades of the nineteenth century. In this paper we shall use the analytic insights of the "new political history" to examine the ways in which the so-called progressives sought to shape and control selected aspects of American family life.
ETHNORELIGIOUS CONFLICT AND THE PUBLIC SCHOOLSIn the last two decades, the advent of the "new political history" has transformed our understanding of the political party system and the basis of political conflict in nineteenth century America. In contrast to the party systems of the twentieth century (the "fourth" party system, 1896–1932, of Republican supremacy; the "fifth" party system, 1932–? of Democratic supremacy), the nineteenth century political parties were not bland coalitions of interests with virtually the same amorphous ideology, with each party blurring what is left of its image during campaigns to appeal to the large independent center. In the nineteenth century, each party offered a fiercely contrasting ideology, and political parties performed the function of imposing a common ideology on diverse sectional and economic interests. During campaigns, the ideology and the partisanship became fiercer and even more clearly demarcated, since the object was not to appeal to independent moderates—there were virtually none—but to bring out the vote of one's own partisans. Such partisanship and sharp alternatives marked the "second" American party system (Whig versus Democrat, approximately 1830 to the mid-1850s) and the "third" party system (closely fought Republican versus Democrat, mid-1850s to 1896).
Another important insight of the new political history is that the partisan passion devoted by rank-and-file Democrats and Republicans to national economic issues, stemmed from a similar passion devoted at the local and state level to what would now be called "social" issues. Furthermore, that political conflict, from the 1830s on, stemmed from a radical transformation that took place in American Protestantism as a result of the revival movement of the 1830s.
The new revival movement swept the Protestant churches, particularly in the North, like wildfire. In contrast to the old creedal Calvinist churches that stressed the importance of obeying God's law as expressed in the church creed, the new "pietism" was very different. The pietist doctrine was essentially as follows: Specific creeds of various churches or sects do not matter. Neither does obedience to the rituals or liturgies of the particular church. What counts for salvation is only each individual being "born again"—a direct confrontation between the individual and God, a mystical and emotional conversion in which the individual achieves salvation. The rite of baptism, to the pietist, therefore becomes secondary; of primary importance is his or her personal moment of conversion.
But if the specific church or creed becomes submerged in a vague Christian interdenominationalism, then the individual Christian is left on his own to grapple with the problems of salvation. Pietism, as it swept American Protestantism in the 1830s, took two very different forms in North and South, with very different political implications. The Southerners, at least until the 1890s, became "salvationist pietists," that is, they believed that the emotional experience of individual regeneration, of being born again, was enough to ensure salvation. Religion was a separate compartment of life, a vertical individual-God relation carrying no imperative to transform man-made culture and interhuman relations.
In contrast, the Northerners, particularly in the areas inhabited by "Yankees," adopted a far different formof pietism, "evangelical pietism." The evangelical pietists believed that man could achieve salvation by an act of free will. More particularly, they also believed that it was necessary to a person's own salvation—andnot just a good idea—to try his best to ensure the salvation of everyone else in society:
"To spread holiness," to create that Christian commonwealth by bringing all men to Christ, was the divinely ordered duty of the "saved." Their mandate was "to transform the world into the image of Christ."1
Since each individual is alone to wrestle with problems of sin and salvation, without creed or ritual of the church to sustain him, the evangelical duty must therefore be to use the state, the social arm of the integrated Christian community, to stamp out temptation and occasions for sin. Only in this way could one perform one's divinely mandated duty to maximize the salvation of others.2 And to the evangelical pietist, sin took on an extremely broad definition, placing the requirements for holiness far beyond that of other Christian groups. As one antipietist Christian put it, "They saw sin where God did not." In particular, sin was any and all forms of contact with liquor, and doing anything except praying and going to church on Sunday. Any forms of gambling, dancing, theater, reading of novels—in short, secular enjoyment of any kind—were considered sinful.
The forms of sin that particularly agitated the evangelicals were those they held to interfere with the theological free will of individuals, making them unable to achieve salvation. Liquor was sinful because, they alleged, it crippled the free will of the imbibers. Another particular source of sin was Roman Catholicism, in which priests and bishops, arms of the Pope (whom they identified as the Antichrist), ruled the minds and therefore crippled the theological freedom of will of members of the church.
Evangelical pietism particularly appealed to, and therefore took root among, the "Yankees," i.e., that cultural group that originated in (especially rural) New England and emigrated widely to populate northern and western New York, northern Ohio, northern Indiana, and northern Illinois. The Yankees were natural "cultural imperialists," people who were wont to impose their values and morality on other groups; as such, they took quite naturally to imposing their form of pietism through whatever means were available, including the use of the coercive power of the state.
In contrast to evangelical pietists were, in addition to small groups of old-fashioned Calvinists, two great Christian groups, the Catholics and the Lutherans (or at least, the high-church variety of Lutheran), who were "liturgicals" (or "ritualists") rather than pietists. The liturgicals saw the road to salvation in joining the particular church, obeying its rituals, and making use of its sacraments; the individual was not alone with only his emotions and the state to protect him. There was no particular need, then, for the state to take on the functions of the church. Furthermore, the liturgicals had a much more relaxed and rational view of what sin really was; for instance, excessive drinking might be sinful, but liquor per se surely was not.
The evangelical pietists, from the 1830s on, were the northern Protestants of British descent, as well as the Lutherans from Scandinavia and a minority of pietist German synods; the liturgicals were the Roman Catholics and the high-church Lutherans, largely German.
Very rapidly, the political parties reflected a virtually one-to-one correlation of this ethnoreligious division: the Whig, and later the Republican, party consisting chiefly of the pietists, and the Democratic party encompassing almost all the liturgicals. And for almost a century, on a state and local level, the Whig/Republican pietists tried desperately and determinedly to stamp out liquor and all Sunday activities except church (of course, drinking liquor on Sunday was a heinous double sin). As to the Catholic church, the pietists tried to restrict or abolish immigration, since people coming from Germany and Ireland, liturgicals, were outnumbering people from Britain and Scandinavia. Failing that and despairing of doing anything about adult Catholics poisoned by agents of the Vatican, the evangelical pietists decided to concentrate on saving Catholic and Lutheran youth by trying to eliminate the parochial schools, through which both religious groups transmitted their precious religious and social values to the young. The object, as many pietists put it, was to "Christianize the Catholics," to force Catholic and Lutheran children into public schools, which could then be used as an instrument of pietist Protestantization. Since the Yankees had early taken to the idea of imposing communal civic virtue and obedience through the public schools, they were particularly receptive to this new reason for aggrandizing public education.
To all of these continuing aggressions by what they termed "those fanatics," the liturgicals fought back with equal fervor. Particularly bewildered were the Germans who, Lutheran and Catholic alike, were accustomed to the entire family happily attending beer gardens together on Sundays after church and who now found the "fanatic" pietists trying desperately to outlaw this pleasurable and seemingly innocent activity. The pietist Protestant attacks on private and parochial schools fatally threatened the preservation and maintenance of the liturgicals' cultural and religious values; and since large numbers of the Catholics and Lutherans were immigrants, parochial schools also served to maintain group affinities in a new and often hostile world—especially the world of Anglo-Saxon pietism. In the case of the Germans, it also meant, for several decades, preserving parochial teaching in the beloved German language, as against fierce pressures for Anglicization.
In the last three decades of the nineteenth century, as Catholic immigration grew and the Democratic party moved slowly but surely toward a majority status, the Republican, and—more broadly—pietist pressures became more intense. The purpose of the public school, to the pietists, was "to unify and make homogeneous the society." There was no twentieth century concern for separating religion and the public school system. To the contrary, in most northern jurisdictions only pietist-Protestant church members were allowed to be teachers in the public schools. Daily reading of the Protestant Bible, daily Protestant prayers and Protestant hymns were common in the public schools, and school textbooks were rife with anti-Catholic propaganda. Thus, New York City school textbooks spoke broadly of "the deceitful Catholics," and pounded into their children, Catholic and Protestant alike, the message that "Catholics are necessarily, morally, intellectually, infallibly, a stupid race.”3
Teachers delivered homilies on the evils of Popery, and also on deeply felt pietist theological values: the wickedness of alcohol (the "demon rum") and the importance of keeping the Sabbath. In the 1880s and 1890s, zealous pietists began working ardently for antialcohol instruction as a required part of the public-school curriculum; by 1901, every state in the Union required instruction in temperance.
Since most Catholic children went to public rather than parochial schools, the Catholic authorities were understandably anxious to purge the schools of Protestant requirements and ceremonies, and of anti-Catholic textbooks. To the pietists, these attempts to de-Protestantize the public schools were intolerable "Romish aggression." The whole point of the public schools was moral and religious homogenization, and here the Catholics were disrupting the attempt to make American society holy—to produce, through the public school and the Protestant gospel, "a morally and politically homogeneous people." As Kleppner writes:
When they [the pietists] spoke of "moral education," they had in mind principles of morality shared in common by the adherents of gospel religion, for in the public school all children, even those whose parents were enslaved by "Lutheran formalism or Romish supersitition," would be exposed to the Bible. That alone was cause for righteous optimism, for they believed the Bible to be "the agent in converting the soul," "the volume that makes human beings men."4
In this way, "America [would] be Saved Through the Children.”5
The pietists were therefore incensed that the Catholics were attempting to block the salvation of America's children—and eventually of America itself—all at the orders of a "foreign potentate." Thus, the New Jersey Methodist Conference of 1870 lashed out with their deepest feelings against this Romish obstructionism:
Resolved, That we greatly deprecate the effort which is being made by "Haters of Light," and especially by an arrogant priesthood, to exclude the Bible from the Public Schools of our land; and that we will do all in our power to defeat the well-defined and wicked design of this "Mother of Harlots.”6
Throughout the nineteenth century, "nativist" attacks on "foreigners" and the foreign-born were really attacks on liturgical immigrants. Immigrants from Britain or Scandinavia, pietists all, were "good Americans" as soon as they got off the boat. It was the diverse culture of the other immigrants that had to be homogenized and molded into that of pietist America. Thus, the New England Methodist Conference of 1889 declared:
We are a nation of remnants, ravellings from the Old World. . . . The public school is one of the remedial agencies which work in our society to diminish this . . . and to hasten the compacting of these heterogeneous materials into a solid nature.7
Or, as a leading citizen of Boston declared, "the only way to elevate the foreign population was to make Protestants of their children.”8
Since the cities of the North, in the late nineteenth century, were becoming increasingly filled with Catholic immigrants, pietist attacks on sinful cities and on immigrants both became aspects of the anti-liturgical struggle for a homogeneous Anglo-Saxon pietist culture. The Irish were particular butts of pietist scorn; a New York City textbook bitterly warned that continued immigration could make America "the common sewer of Ireland," filled with drunken and depraved Irishmen.9
The growing influx of immigrants from southern and eastern Europe toward the end of the nineteenth century seemed to pose even greater problems for the pietist progressives, but they did not shrink from the task. As Elwood P. Cubberley of Stanford University, the nation's outstanding progressive historian of education, declared, southern and eastern Europeans have served to dilute tremendously our national stock, and to corrupt our civil life. . . . Everywhere these people tend to settle in groups or settlements, and to set up here their national manners, customs, and observances. Our task is to break up these groups or settlements, to assimilate and amalgamate these people as a part of our American race and to implant in their children. . . the Anglo-Saxon conception of rightousness, law and order, and popular government. . . . 10
PROGRESSIVES, PUBLIC EDUCATION, AND THE FAMILY: THE CASE OF SAN FRANCISCOThe molding of children was of course the key to homogenization and the key in general to the progressive vision of tight social control over the individual via the instrument of the state. The eminent University of Wisconsin sociologist Edward Alsworth Ross, a favorite of Theodore Roosevelt and the veritable epitome of a progressive social scientist, summed it up thus: The role of the public official, and in particular of the public school teacher, is "to collect little plastic lumps of human dough from private households and shape them on the social kneadingboard."11
The view of Ross and the other progressives was that the state must take up the task of control and inculcation of moral values once performed by parents and church. The conflict between middle and upper-class urban progressive Anglo-Saxon Protestants and largely working-class Catholics was sharply delineated in the battle over control of the San Francisco public school system during the second decade of the twentieth century. The highly popular Alfred Roncovieri, a French-Italian Catholic, was the elected school superintendent from 1906 on. Roncovieri was a traditionalist who believed that the function of schools was to teach the basics, and that teaching children about sex and morality should be the function of home and church. Hence, when the drive for sex hygiene courses in the public schools got under way, Roncovieri consulted with mothers' clubs and, in consequence, kept the program out of the schools.
By 1908, upper-class progressives launched a decade-long movement to oust Roncovieri and transform the nature of the San Francisco public school system. Instead of an elected superintendent responding to a school board elected by districts, the progressives wanted an all-powerful school superintendent, appointed by a rubber-stamp board that in turn would be appointed by the mayor. In other words, in the name of "taking the schools out of politics," they hoped to aggrandize the educational bureaucracy and maintain its power virtually unchecked by any popular or democratic control. The purpose was threefold: to push through the progressive program of social control, to impose upper-class control over a working-class population, and to impose pietist Protestant control over Catholic ethnics. 12
The ethnoreligious struggle over the public schools in San Francisco was nothing new; it had been going on tumultuously since the middle of the nineteenth century.13 In the last half of the nineteenth century, San Francisco was split into two parts. Ruling the city was a power elite of native-born old Americans, hailing from New England, including lawyers, businessmen, and pietist Protestant ministers. These comprised successively the Whig, Know-Nothing, Populist, and Republican parties in the city. On the other hand were the foreign-born, largely Catholic immigrants from Europe, Irish, Germans, French, and Italians, who comprised the Democratic party.
The Protestants early tried to use the public schools as a homogenizing and controlling force. The great theoretician and founder of the public school system in San Francisco, John Swett, "the Horace Mann of California," was a lifelong Republican and a Yankee who had taught school in New Hampshire before moving West. Moreover, the Board of Education was originally an all-New England show; consisting of emigrants from Vermont, New Hampshire, and Rhode Island. The mayor of San Francisco was a former mayor of Salem, Massachusetts, and every administrator and teacher in the public schools was a transplanted New Englander. The first superintendent of schools was not exactly a New Englander, but close: Thomas J. Nevins, a Yankee Whig lawyer from New York and an agent of the American Bible Society. And the first free public school in San Francisco was instituted in the basement of a small Baptist chapel.
Nevins, installed as superintendent of schools in 1851, promptly adopted the rule of the New York City schools: Every teacher was compelled to begin each day by a Protestant Bible reading and to conduct daily Protestant prayer sessions. And John Swett, elected as Republican state superintendent of public instruction during the 1860s, declared that California needed public schools because of its heterogeneous population: "Nothing can Americanize these chaotic elements, and breathe into them the spirit of our institutions," he warned, "except the public schools."14
Swett was keen enough to recognize that the pietist educational formula meant that the state takes over jurisdiction of the child from his parents, since "children arrived at the age of maturity belong, not to the parents, but to the State, to society, to the country."15
A seesaw struggle between the Protestant Yankees and Catholic ethnics ensued in San Francisco during the 1850s. The state charter of San Francisco in 1855 made the schools far more responsive to the people, with school boards being elected from each of a dozen wards instead of at large, and the superintendent elected by the people instead of appointed by the board. The Democrats swept the Know-Nothings out of office in the city in 1856 and brought to power David Broderick, an Irish Catholic who controlled the San Francisco as well as the California Democratic party. But this gain was wiped out by the San Francisco Vigilance Movement, a private organization of merchants and New England-born Yankees, who, attacking the "Tammany" tactics of Broderick, installed themselves in power and illegally deported most of the Broderick organization, replacing it with a newly formed People's party.
The People's party ran San Francisco with an iron hand for ten years, from 1857 to 1867, making secret nominations for appointments and driving through huge slates of at-large nominees chosen at a single vote at a public meeting. No open nomination procedures, primaries, or ward divisions were allowed, in order to ensure election victories by "reputable" men. The People's party promptly reinstalled an all-Yankee school board, and the administrators and teachers in schools were again firmly Protestant and militantly anti-Catholic. The People's party itself continually attacked the Irish, denouncing them as "micks" and "rank Pats." George Tait, the People's party-installed superintendent of schools in the 1860s, lamented, however, that some teachers were failing to read the Protestant Bible in the schools, and were thus casting "a slur on the religion and character of the community."
By the 1870s, however, the foreign-born residents outnumbered the native-born, and the Democratic party rose to power in San Francisco, the People's party declining and joining the Republicans. The Board of Education ended the practice of Protestant devotions in the schools, and Irish and Germans began to pour into administrative and teaching posts in the public school system.
Another rollback began, however, in 1874, when the Republican state legislature abolished ward elections for the San Francisco school board, and insisted that all board members be elected at large. This meant that only the wealthy, which usually meant well-to-do Protestants, were likely to be able to run successfully for election. Accordingly, whereas in 1873, 58 percent of the San Francisco school board was foreign-born, the percentage was down to 8 percent in the following year. And while the Irish were approximately 25 percent of the electorate and the Germans about 13 percent, the Irish were not able to fill more than one or two of the twelve at-large seats, and the Germans virtually none.
The seesaw continued, however, as the Democrats came back in 1883, under the aegis of the master politician, the Irish Catholic Christopher "Blind Boss" Buckley. In the Buckley regime, the post-1874 school board dominated totally by wealthy native-born, Yankee businessmen and professionals, was replaced by an ethnically balanced ticket with a high proportion of working-class and foreign-born. Furthermore, a high proportion of Irish Catholic teachers, most of them single women, entered the San Francisco schools during the Buckley era, reaching 50 percent by the turn of the century.
In the late 1880s, however, the stridently anti-Catholic and anti-Irish American party became strong in San Francisco and the rest of the state, and Republican leaders were happy to join them in denouncing the "immigrant peril." The American party managed to oust the Irish Catholic Joseph O'Connor, principal and deputy superintendent, from his high post as "religiously unacceptable.” This victory heralded a progressive Republican "reform” comeback in 1891, when none other than John Swett was installed as superintendent of schools in San Francisco. Swett battled for the full reform program: to make everything, even the mayoralty, an appointive rather than an elective office. Part of the goal was achieved by the state's new San Francisco charter in 1900, which replaced the twelve-man elected Board of Education by a four-member board appointed by the mayor.
The full goal of total appointment was still blocked, however, by the existence of an elective superintendent of schools who, since 1907, was the popular Catholic Alfred Roncovieri. The pietist progressives were also thwarted for two decades by the fact that San Francisco was ruled, for most of the years between 1901 and 1911, by a new Union Labor party, which won on an ethnically and occupationally balanced ticket, and which elected the German-Irish Catholic Eugene Schmitz, a member of the musician's union, as mayor. And for eighteen years after 1911, San Francisco was governed by its most popular mayor before or since, "Sunny Jim" Rolph, an Episcopalian friendly to Catholics and ethnics, who was pro-Roncovieri and who presided over an ethnically pluralistic regime.
It is instructive to examine the makeup of the progressive reform movement that eventually got its way and overthrew Roncovieri. It consisted of the standard progressive coalition of business and professional elites, and nativist and anti-Catholic organizations, who called for the purging of Catholics from the schools. Particular inspiration came from Stanford educationist Elwood P. Cubberley, who energized the California branch of the Association of Collegiate Alumnae (later the American Association of University Women), led by the wealthy Mrs. Jesse H. Steinhart, whose husband was later to be a leader in the Progressive party. Mrs. Steinhart got Mrs. Agnes De Lima, a New York City progressive educator, to make a survey of the San Francisco schools for the association. The report, presented in 1914, made the expected case for an "efficient," business-like, school system run solely by appointed educators. Mrs. Steinhart also organized the Public Education Society of San Francisco to agitate for progressive school reform; in this she was aided by the San Francisco Chamber of Commerce.
Also backing progressive reform, and anxious to oust Roncovieri, were other elite groups in the city, including the League of Women Voters, and the prestigious Commonwealth Club of California.
At the behest of Mrs. Steinhart and the San Francisco Chamber of Commerce, which contributed the funds, Philander Claxton of the U.S. Office of Education weighed in with his report in December 1917. The report, which endorsed the Association of Collegiate Alumnae study and was extremely critical of the San Francisco school system, called for all power over the system to go to an appointed superintendent of schools. Claxton also attacked the teaching of foreign languages in the schools, which San Francisco had been doing, and insisted on a comprehensive "Americanization" to break down ethnic settlements.
The Claxton Report was the signal for the Chamber of Commerce to swing into action, and it proceeded to draft a comprehensive progressive referendum for the November 1918 ballot, calling for an appointed superintendent and an appointed school board. This initiative, Amendment 37, was backed by most of the prominent business and professional groups in the city. In addition to the ones named above, there were the Real Estate Board, elite women's organizations such as the Federation of Women's Clubs, wealthy neighborhood improvement clubs, and the San Francisco Examiner. Amendment 37 lost, however, by two to one, since it had little support in working-class neighborhoods or among the teachers.
Two years later, however, Amendment 37 passed, aided by a resurgence of pietism and virulent anti-Catholicism in postwar America. Prohibition was now triumphant, and the Ku Klux Klan experienced a nationwide revival as a pietist, anti-Catholic organization. The KKK had as many as 3,500 members in the San Francisco Bay Area in the early 1920s. The anti-Catholic American Protective Association also enjoyed a revival, led in California by a British small businessman, the anti-Irish Grand Master Colonel J. Arthur Petersen.
In opposing Amendment 37 in the 1920 elections, Father Peter C. Yorke, a prominent priest and Irish immigrant, perceptively summed up the fundamental cleavage: "The modern school system," he declared, "is not satisfied with teaching children the 3 Rs . . . it reaches out and takes possession of their whole lives."
Amendment 37 passed in 1920 by the narrow margin of 69,200 to 66,700. It passed in every middle- and upper-class Assembly District, and lost in every working-class district. The higher the concentration of foreign-born voters in any district, the greater the vote against. In the Italian precincts 1 to 17 of the 33rd A.D., the Amendment was beaten by 3 to 1; in the Irish precincts, it was defeated by 3 to 1 as well. The more Protestant a working-class district, the more it supported the Amendment.
The bulk of the lobbying for the Amendment was performed by the ad hoc Educational Conference. After the victory, the conference happily presented a list of nominees to the school board, which now consisted of seven members appointed by the mayor, and which in turn appointed the superintendent. The proposed board consisted entirely of businessmen, of whom only one was a conservative Irish Catholic. The mayor surrendered to the pressure, and hence, after 1921, cultural pluralism in the San Francisco school system gave way to unitary progressive rule. The board began by threatening to dock any teacher who dared to be absent from school on St. Patrick's Day (a San Francisco tradition since the 1870s), and proceeded to override the wishes of particular neighborhoods in the interest of a centralized city.
The superintendent of schools in the new regime, Dr. Joseph Marr Gwinn, fit the new dispensation to a tee. A professional "scientist" of public administration, his avowed aim was unitary control. The entire package of typical progressive educational nostrums was installed, including a department of education and various experimental programs. Traditional basic education was scorned, and the edict came down that children should not be "forced" to learn the 3 Rs if they didn't feel the need. Traditional teachers, who were continually attacked for being old-fashioned and "unprofessional," were not promoted.
Despite continued opposition by teachers, parents, neighborhoods, ethnic groups, and the ousted Roncovieri, all attempts to repeal Amendment 37 were unsuccessful. The modern dispensation of progressivism had conquered San Francisco. The removal of the Board of Education and school superintendent from direct and periodic control by the electorate had effectively deprived parents of any significant control over the educational policies of public schools. At last, as John Swett had asserted nearly sixty years earlier, schoolchildren belonged "not to the parents, but to the State, to society, to the country."
ETHNORELIGIOUS CONFLICT AND THE RISE OF FEMINISMWomen's Suffrage
By the 1890s, the liturgically oriented Democracy was slowly but surely winning the national battle of the political parties. Culminating the battle was the Democratic congressional victory in 1890 and the Grover Cleveland landslide in the presidential election of 1892, in which Cleveland carried both Houses of Congress along with him (an unusual feat for that era). The Democrats were in way of becoming the majority party of the country, and the root was demographic: the fact that most of the immigrants were Catholic and the Catholic birthrate was higher than that of the pietist Protestants. Even though British and Scandinavian immigration had reached new highs during the 1880s, their numbers were far exceeded by German and Irish immigration, the latter being the highest since the famous post-potato-famine influx that started in the late 1840s. Furthermore, the "new immigration" from southern and eastern Europe, almost all Catholic—and especially Italian—began to make its mark during the same decade.
The pietists became increasingly embittered, stepping up their attacks on foreigners in general and Catholics in particular. Thus, the Reverend T.W. Cuyler, President of the National Temperance Society, intemperately exclaimed in the summer of 1891: "How much longer [will] the Republic . . . consent to have her soil a dumping ground for all Hungarian ruffians, Bohemian bruisers, and Italian cutthroats of every description?"
The first concrete political response by the pietists to the rising Catholic tide was to try to restrict immigration. Republicans successfully managed to pass laws partially cutting immigration, but President Cleveland vetoed a bill to impose a literacy test on all immigrants. The Republicans also managed to curtail voting by immigrants, by getting most states to disallow voting by aliens, thereby reversing the traditional custom of allowing alien voting. They also urged the lengthening of the statutory waiting period for naturalization.
The successful restricting of immigration and of immigrant voting was still not enough to matter, and immigration would not really be foreclosed until the 1920s. But if voting could not be restricted sharply enough, perhaps it could be expanded—inthe proper pietist direction.
Specifically, it was clear to the pietists that the role of women in the liturgical "ethnic" family was very different from what it was in the pietist Protestant family. One of the reasons impelling pietists and Republicans toward prohibition was the fact that, culturally, the lives of urban male Catholics—nd the cities of the Northeast were becoming increasingly Catholic—evolved around the neighborhood saloon. The men would repair at night to the saloon for chitchat, discussions, and argument—nd they would generally take their political views from the saloonkeeper, who thus became the political powerhouse in his particular ward. Therefore, prohibition meant breaking the political power of the urban liturgical machines in the Democratic party.
But while the social lives of liturgical males revolved around the saloon, their wives stayed at home. While pietist women were increasingly independent and politically active, the lives of liturgical women revolved solely about home and hearth. Politics was strictly an avocation for husbands and sons. Perceiving this, the pietists began to push for women's suffrage, realizing that far more pietist than liturgical women would take advantage of the power to vote.
As a result, the women's suffrage movement was heavily pietist from the very beginning. Ultrapietist third parties like the Greenback and the Prohibition parties, which scorned the Republicans for being untrustworthy moderates on social issues, supported women's suffrage throughout, and the Populists tended in that direction. The Progressive party of 1912 was strongly in favor of women's suffrage; theirs was the first major national convention to permit women delegates. The first woman elector, Helen J. Scott of Wisconsin, was chosen by the Progressive party.
Perhaps the major single organization in the women's suffrage movement was the Women's Christian Temperance Union, founded in 1874 and reaching an enormous membership of 300,000 by 1900. That the WCTU was also involved in agitating for curfew, antigambling, antismoking, and antisex laws—ll actions lauded by the women's suffrage movement—s clear from the official history of women's suffrage in the nineteenth century:
[The WCTU] has been a chief factor in State campaigns for statutory prohibition, constitutional amendment, reform laws in general and those for the protection of women and children in particular, and in securing anti-gambling and anti-cigarette laws. It has been instrumental in raising the "age of protection" for girls in many States, and in obtaining curfew laws in 400 towns and cities. . . . The association [WCTU] protests against the legalization of all crimes, especially those of prostitution and liquor selling.16
Not only did Susan B. Anthony begin her career as a professional prohibitionist, but her two successors as president of the leading women's suffrage organization, the National American Woman Suffrage Association—Mrs. Carrie Chapman Catt and Dr. Anna Howard Shaw—also began their professional careers as prohibitionists. The leading spirit of the WCTU, Frances E. Willard, was prototypically born of New England-stock parents who had moved westward to study at Oberlin College, then the nation's center of aggressive, evangelical pietism, and had later settled in Wisconsin. Guided by Miss Willard, the WCTU began its prosuffrage activities by demanding that women vote in local option referendums on prohibition. As Miss Willard put it, the WCTU wanted women to vote on this issue because "majorities of women are against the liquor traffic. . . .”17
Conversely, whenever there was a voters' referendum on women's suffrage, the liturgicals and the foreign-born, responding to immigrant culture and reacting against the pietist-feminist support of prohibition, consistently opposed women's suffrage. In Iowa, the Germans voted against women's suffrage, as did the Chinese in California. The women's suffrage amendment in 1896 in California was heavily supported by the bitterly anti-Catholic American Protective Association. The cities, where Catholics abounded, tended to be opposed to women's suffrage, while pietist rural areas tended to favor it. Thus, the Oregon referendum of 1900 lost largely because of opposition in the Catholic "slums" of Portland and Astoria.
A revealing religious breakdown of votes on an 1877 women's suffrage referendum was presented in a report by a Colorado feminist. She explained that the Methodists (the most strongly pietistic) were "for us," the (less pietistic) Presbyterians and Episcopalians "fairly so," while the Roman Catholics "were not all against us"—clearly they were expected to be.18 And, testifying before the U.S. Senate Judiciary Committee in favor of women's suffrage in 1880, Susan B. Anthony presented her own explanation of the Colorado vote:
In Colorado . . . 6,666 men vote "Yes." Now, I am going to describe the men who voted "Yes." They were native-born men, temperance men, cultivated, broad, generous, just men, men who think. On the other hand, 16,007 voted "No." Now, I am going to describe that class of voters. In the southern part of that State are Mexicans, who speak the Spanish language. . . . The vast population of Colorado is made up of that class of people. I was sent out to speak in a voting precinct having 200 voters; 150 of those voters were Mexican greasers, 40 of them foreign-born citizens, and just 10 of them were born in this country; and I was supposed to be competent to convert those men to let me have so much right in this Government as they had. . . 19
A laboratory test of which women would turn out to vote occurred; in Massachusetts, where women were given the power to vote in school board elections from 1879 on. In 1888, large numbers of Protestant women in Boston turned out to drive Catholics off the school board. In contrast, Catholic women scarcely voted, "thereby validating the, nativist tendencies of suffragists who believed that extension of full suffrage to women would provide a barrier against further Catholic influence.”20 During the last two decades of the nineteenth century "the more hierarchical the church organization and the more formal the ritual, the greater was its opposition to women suffrage, while the democratically organized churches with little dogma tended to be more receptive.”21
Four mountain states adopted women's suffrage in the early and mid-1890s. Two, Wyoming and Utah, were simply ratifying, as new states, a practice they had long adopted as territories: Wyoming in 1869 and Utah in 1870. Utah had adopted women's suffrage as a conscious policy by the pietistic Mormons to weight political control in favor of their polygamous members, who contrasted to the Gentiles, largely miners and settlers who were either single men or who had left their wives back East. Wyoming had adopted women's suffrage in an effort to increase the political power of its settled householders, in contrast to the transient, mobile, and often lawless single men who peopled that frontier region.
No sooner had Wyoming Territory adopted women's suffrage, than it became evident that the change had benefited the Republicans, particularly since women had mobilized against Democratic attempts to repeal Wyoming's Sunday prohibition law. In 1871, both houses of the Wyoming legislature, led by its Democratic members, voted to repeal women's suffrage, but the bill was vetoed by the Republican territorial governor.
Two additional states adopting women's suffrage in the 1890s were Idaho and Colorado. In Idaho the drive, adopted by referendum in 1896, was led by the ultrapietistic Populists and by the Mormons, who were dominant in the southern part of the state. The Populist counties of Colorado gave a majority of 6,800 for women's suffrage, while the Republican and Democratic counties voted a majority of 500 against.22
It may be thought paradoxical that a movement—women's suffrage—born and centered in the East should have had its earliest victories in the remote frontier states of the Mountain West. But the paradox begins to clear when we realize the pietist-Anglo-Saxon-Protestant nature of the frontiersmen, many of them Yankees hailing originally from that birthplace of American pietism, New England. As the historian Frederick Jackson Turner, that great celebrant of frontier ideals, lyrically observed:
In the arid West these pioneers [from New England] have halted and have turned to perceive an altered nation and changed social ideals. . . . If we follow back the line of march of the Puritan farmer, we shall see how responsive he has always been to isms. . . . He is the Prohibitionist of Iowa and Wisconsin, crying out against German customs as an invasion of his traditional ideals. He is the Granger of Wisconsin, passing restrictive railroad legislation. He is the Abolitionist, the Anti-mason, the Millerite, the Woman Suffragist, the Spiritualist, the Mormon, of Western New York.23
Eugenics and Birth Control
Thus the women's suffrage movement, dominated by pietist progressives, was not directed solely to achieving some abstract principle of electoral equality between males and females. This was more a means to another end: the creation of electoral majorities for pietist measures of direct social control over the lives of American families. They wished to determine by state intervention what those families drank and when and where they drank, how they spent their Sabbath day, and how their children should be educated.
One way of correcting the increasingly pro-Catholic demographics was to restrict immigration; another to promote women's suffrage. A third way, often promoted in the name of "science," was eugenics, an increasingly popular doctrine of the progressive movement. Broadly, eugenics may be defined as encouraging the breeding of the "fit" and discouraging the breeding of the "unfit," the criteria of "fitness" often coinciding with the cleavage between native, white Protestants and the foreign born or Catholics—or the white-black cleavage. In extreme cases, the unfit were to be coercively sterilized.
To the founder of the American eugenics movement, the distinguished biologist Charles Benedict Davenport, a New Yorker of eminent New England background, the rising feminist movement was beneficent provided that the number of biologically superior persons was sustained and the number of the unfit diminished. The biologist Harry H. Laughlin, aide to Davenport, associate editor of the Eugenical News, and highly influential in the immigration restriction policy of the 1920s as eugenics expert for the House Committee on Immigration and Naturalization, stressed the great importance of cutting the immigration of the biologically "inferior" southern Europeans. For in that way, the biological superiority of Anglo-Saxon women would be protected.
Harry Laughlin's report to the House Committee, printed in 1923, helped formulate the 1924 immigration law, which, in addition to drastically limiting total immigration to the United States, imposed national origin quotas based on the 1910 census, so as to weight the sources of immigration as much as possible in favor of northern Europeans. Laughlin later emphasized that American women must keep the nation's blood pure by not marrying what he called the "colored races," in which he included southern Europeans as well as blacks: for if "men with a small fraction of colored blood could readily find mates among the white women, the gates would be thrown open to a final radical race mixture of the whole population." To Laughlin the moral was clear: "The perpetuity of the American race and consequently of American institutions depends upon the virtue and fecundity of American women.”24
But the problem was that the fecund women were not the pietist progressives but the Catholics. For, in addition to immigration, another source of demographic alarm to the pietists was the far higher birthrate among Catholic women. If only they could be induced to adopt birth control! Hence, the birth control movement became part of the pietist armamentarium in their systemic struggle with the Catholics and other liturgicals.
Thus, the distinguished University of California eugenicist, Samuel J. Holmes, lamented that "the trouble with birth control is that it is practiced least where it should be practiced most." In the Birth Control Review, leading organ of the birth control movement, Annie G. Porritt was more specific, attacking "the folly of closing our gates to aliens from abroad, while having them wide open to the overwhelming progeny of the least desirable elements of our city and slum population.”25 In short, the birth controllers were saying that if one's goal is to restrict sharply the total number of Catholics, "colored" southern European or no, then there is no point in only limiting immigration while the domestic population continues to increase.
The birth control and the eugenics movement therefore went hand in hand, not the least in the views of the well-known leader of the birth control movement in the United States: Mrs. Margaret Higgins Sanger, prolific author, founder and long-time editor of the Birth Control Review. Echoing many of the various strains of progressivism, Mrs. Sanger hailed the emancipation of women through birth control as the latest in applied science and "efficiency." As she put it in her Autobiography:
In an age which has developed science and industry and economic efficiency to their highest points, so little thought has been given to the development of a science of parenthood, a science of maternity which could prevent this appalling and unestimated waste of womankind and maternal effort.26
To Mrs. Sanger, “science" also meant stopping the breeding of the unfit. A devoted eugenicist and follower of C.B. Davenport, she in fact chided the eugenics movement for not sufficiently emphasizing this crucial point:
The eugenists wanted to shift the birth control emphasis from less children for the poor to more children for the rich. We went back of that and sought first to stop the multiplication of the unfit. This appeared the most important and greatest step toward race betterrnent.27
GATHERED TOGETHER: PROGRESSIVISM AS A POLITICAL PARTYProgressivism was, to a great extent, the culmination of the pietist Protestant political impulse, the urge to regulate every aspect of American life, economic and moral—even the most intimate and crucial aspects of family life. But it was also a curious alliance of a technocratic drive for government regulation, the supposed expression of "value-free science," and the pietist religious impulse to save America—and the world—by state coercion. Often both pietistic and scientific arguments would be used, sometimes by the same people, to achieve the old pietist goals. Thus, prohibition would be argued for on religious as well as on alleged scientific or medicinal grounds. In many cases, leading progressive intellectuals at the turn of the twentieth century were former pietists who went to college and then transferred to the political arena, their zeal for making over mankind, as a "salvation by science." And then the Social Gospel movement managed to combine political collectivism and pietist Christianity in the same package. All of these were strongly interwoven elements in the progressive movement.
All these trends reached their apogee in the Progressive party and its national convention of 1912. The assemblage was a gathering of businessmen, intellectuals, academics, technocrats, efficiency experts and social engineers, writers, economists, social scientists, and leading representatives of the new profession of social work. The Progressive leaders were middle and upper class, almost all urban, highly educated, and almost all white Anglo-Saxon Protestants of either past or present pietist concerns.
From the social work leaders came upper-class ladies bringing the blessings of statism to the masses: Lillian D. Wald, Mary Kingsbury Simkhovitch, and above all, Jane Addams. Miss Addams, one of the great leaders of progressivism, was born in rural Illinois to a father, John, who was a state legislator and a devout nondenominational evangelical Protestant. Miss Addams was distressed at the southern and eastern European immigration, people who were "primitive" and "credulous," and who posed the danger of unrestrained individualism. Their different ethnic background disrupted the unity of American culture. However, the problem, according to Miss Addams, could be easily remedied. The public school could reshape the immigrant, strip him of his cultural foundations, and transform him into a building block of a new and greater American community.28
In addition to writers and professional technocrats at the Progressive party convention, there were professional pietists galore. Social Gospel leaders Lyman Abbott, the Reverend R. Heber Newton, and the Reverend Washington Gladden were Progressive party notables, and the Progressive candidate for governor of Vermont was the Reverend Fraser Metzger, leader of the Inter-Church Federation of Vermont. In fact, the Progressive party proclaimed itself as the "recrudescence of the religious spirit in American political life."
Many observers, indeed, reported in wonder at the strongly religious tone of the Progressive party convention. Theodore Roosevelt's acceptance address was significantly entitled, "A Confession of Faith," and his words were punctuated by "amens" and by a continual singing of Christian hymns by the assembled delegates. They sang "Onward, Christian Soldiers," "The Battle Hymn of the Republic," and finally the revivalist hymn, "Follow, Follow, We Will Follow Jesus," except that "Roosevelt" replaced the word "Jesus" at every turn.
The New York Times of August 6, 1912, summed up the unusual experience by calling the Progressive assemblage "a convention of fanatics." And, "It was not a convention at all. It was an assemblage of religious enthusiasts. It was such a convention as Peter the Hermit held. It was a Methodist camp following done over into political terms.”29
Thus the foundations of today's massive state intervention in the internal life of the American family were laid in the so-called "progressive era" from the 1870s to the 1920s. Pietists and "progressives" united to control the material and sexual choices of the rest of the American people, their drinking habits, and their recreational preferences. Their values, the very nurture and education of their children, were to be determined by their betters. The spiritual, biological, political, intellectual, and moral elite would govern, through state power, the character and quality of American family life.
SIGNIFICANCEIt has been known for decades that the Progressive Era was marked by a radical growth in the extension and dominance of government in America's economic, social, and cultural life. For decades, this great leap into statism was naively interpreted by historians as a simple response to the greater need for planning and regulation of an increasingly complex economy. In recent years, however, historians have come to see that increasing statism on a federal and state level can be better interpreted as a profitable alliance between certain business and industrial interests, looking for government to cartelize their industry after private efforts for cartels and monopoly had failed, and intellectuals, academics, and technocrats seeking jobs to help regulate and plan the economy as well as restriction of entry into their professions. In short, the Progressive Era re-created the age-old alliance between Big Government, large business firms, and opinion-molding intellectuals—an alliance that had most recently been embodied in the mercantilist system of the sixteenth through eighteenth centuries.
Other historians uncovered a similar process at the local level, especially that of urban government beginning with the Progressive Era. Using the influence of media and opinion leaders, upper-income and business groups in the cities systematically took political power away from the masses and centralized this power in the hands of urban government responsive to progressive demands. Elected officials, and decentralized ward representation, were systematically replaced either by appointed bureaucrats and civil servants, or by centralized at-large districts where large-scale funding was needed to finance election races. In this way, power was shifted out of the hands of the masses and into the hands of a minority elite of technocrats and upper-income businessmen. One result was an increase of government contracts to business, a shift from "Tammany" type charity by the political parties to a taxpayer-financed welfare state, and the imposition of higher taxes on suburban residents to finance bond issues and redevelopment schemes accruing to downtown financial interests.
During the last two decades, educational historians have described a similar process at work in public, especially urban, school systems. The scope of the public school was greatly expanded, compulsory attendance spread outside of New England and other "Yankee" areas during the Progressive Era, and a powerful movement developed to try to ban private schools and to force everyone into the public school system.
From the work of educational historians, it was clear that the leap into comprehensive state control over the individual and over social life was not confined, during the Progressive and indeed post-Progressive eras, to government and the economy. A far more comprehensive process was at work. The expansion of compulsory public schooling stemmed from the growth of collectivist and anti-individualist ideology among intellectuals and educationists. The individual, these "progressives" believed, must be molded by the educational process to conform to the group, which in practice meant the dictates of the power elite speaking in the group's name. Historians have long been aware of this process.30 But the accruing insight into progressivism as a business cartelizing device led historians who had abandoned the easy equation of "businessmen" with "laissez faire" to see that all the facets of progressivism—the economic and the ideological and educational—were part of an integrated whole. The new ideology among business groups was cartelist and collectivist rather than individualist and laissez faire, and the social control over the individual exerted by progressivism was neatly paralleled in the ideology and practice of progressive education. Another parallel to the economic realm, of course, was the increased power and income accruing to the technocratic intellectuals controlling the school system and the economy.
If the action of business and intellectual elites in turning toward progressivism was now explained, there was still a large gap in the historical explanation and understanding of progressivism and therefore of the leap into statism beginning in the early twentieth century. There was still a need to explain mass voting behavior and the ideology and programs of the political parties in the American electoral system. This chapter applies the illuminating findings of recent "ethnoreligious historians" to significant changes that took place during the Progressive Era in the power of government over the family. In particular, we discuss the movement to expand the power of the public school and the educationist elite over the family, as well as the women's suffrage and eugenics movement, all important features of the Progressive movement. In every case, we see the vital link between these intrusions into the family and the aggressive drive by Anglo-Saxon Protestant "pietists" to use the state to "make America holy," to stamp out sin and thereby assure their own salvation by maximizing the salvation of others. In particular, all of these measures were part and parcel of the long-standing crusade by these pietists to reduce if not eliminate the role of "liturgicals," largely Roman Catholics and high-church Lutherans, from American political life. The drive to stamp out liquor and secular activities on Sundays had long run into successful Catholic and high-church Lutheran resistance. Compulsory public schooling was soon seen as an indispensable weapon in the task of "Christianizing the Catholics," of saving the souls of Catholic children by using the public schools as a Protestantizing weapon. The neglected example of San Francisco politics was urged as a case study of this ethnoreligious political battle over the schools and hence over the right of Catholic parents to transmit their own values to their children without suffering Anglo-Saxon Protestant obstruction. Women's suffrage was seized upon as a means of increasing Anglo-Saxon Protestant voting power, and immigration restriction as well as eugenics was a method of reducing the growing demographic challenge of Catholic voters.
In sum, recent insights into the cartelizing drive of various business interests have provided an important explanation of the rapid growth of statism in the twentieth century. Ethnoreligious history provides an explanation of mass voting behavior and political party programs that neatly complement the cartelizing explanation of the actions of business elites.
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- The quotations are, respectively, from the Minutes of the Ohio Annual Conference of the Methodist Episcopal Church, 1875, p. 228; and the Minutes of the Annual Meeting of the Maine Baptist Missionary Convention. 1890. p. 13. Both are cited in Paul Kleppner, The Third Electoral System, 1853–1892: Parties. Voters. and Political Culture (Chapel Hill: University of North Carolina Press, 1979), p. 190. Professor Kleppner is the doyen of the "new political," also known as the "ethnocultural," historians See also his The Cross of Culture: A Social Analysis of Midwestern Politics, 1850–1900 (New York: The Free Press, 1970).
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- In contrast to previous Christian groups, which were either amillennial (the return of Jesus will bring an end to human history) or premillennial (the return of Jesus will usher in a thousand-year reign of the Kingdom of God on earth), most evangelical pietists were postmillennialists. In short. whereas Catholics, Lutherans, and most Calvinists believed that the return of Jesus is independent of human actions, the postmillennialists held that Christians must establish a thousand-year reign of the Kingdom of God on earth as a necessary precondition of Jesus' return. In short, the evangelicals will have to take over the state and stamp out sin, so that Jesus can then return.
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- Cited in David B. Tyack, The One Best System: A History of American Urban Education (Cambridge: Harvard University Press, 1974), pp. 84–85.
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- Kleppner, Third Electoral System, n. 1, p. 222.
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- Our Church Work (Madison, Wis.), July 17, 1890. Cited in ibid., p. 224.
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- Minutes of the New Jersey Annual Conference of the Methodist Episcopal Church, 1870, p. 24. Cited in ibid., p. 230. Similar reactions can be found in the minutes of the Central Pennsylvania Methodists in 1875, the Maine Methodists in 1887, the New York Methodists of 1880, and the Wisconsin Congregationalists of 1890.
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- Minutes of the Session of the New England Annual Conference of the Methodist Episcopal Church, 1889, p. 85. Cited in ibid., p. 223.
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- Tyack, n. 3, p. 84.
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- Tyack, n. 3, p. 85.
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- Ellwood P. Cubberley. Changing Conceptions of Education in America (Boston: Houghton, Mifflin, 1909), pp. 15–16.
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- Edward Alsworth Ross, Social Control (New York, 1912). Cited in Paul C Violas, "Progressive Social Philosophy: Charles Horton Cooley and Edward Alsworth Ross," in C.J. Karier, P. C. Violas, and J. Spring. eds., Roots of Crisis: American Education in the 20th Century (Chicago: Rand McNally, 1973). Pp. 40–65.
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- The cities were already beginning to reach the point where class and ethnic divisions almost coincided, where, in other words, few working-class Anglo-Saxon Protestants resided in the cities.
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- For an excellent study and analysis of the ethnoreligious struggle over the San Francisco public schools from the mid-nineteenth through the first three decades of the twentieth century, see the neglected work of Victor L. Shradar, "Ethnic Politics, Religion, and the Public Schools of San Francisco, 1849–1933" (Ph.D. dissertation. School of Education. Stanford University, 1974).
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- Shradar, n. 13. p. 14.
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- Rousas John Rushdoony, "John Swett: The Self-Preservation of the State," in The Messianic Character of American Education: Studies in the History of the Philosophy of Education (Nutley. N.J.: Craig Press, 1963). Pp 79–80.
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- Susan B. Anthony and Ida H. Harper. The History of Woman Suffrage. Vol. 4 (Rochester: Susan B. Anthony, 1902), pp. 1046–47.
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- Cited in Eleanor Flexner, Century of Struggle: The Woman's Rights Movement in the United States (New York: Atheneum, 1970), p. 183.
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- Anthony and Harper, n 15, Vol. 3, p. 724.
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- Quoted in Alan P. Grimes, The Puritan Ethic and Woman Suffrage (New York: Oxford University Press, 1967), p. 87.
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- Jane Jerome Camhie "Women Against Women: American Antisuffragism, 1880–1920" (Ph.D. dissertation in history, Tufts University, 1973), p. 198. See also James J, Kenneally, "Catholicism and Woman Suffrage in Massachusetts," Catholic Historical Review 53 (April 1967): 253. Joining in the demand that only Protestants be elected to the Boston school board were, in addition to British-American clubs and numbers of Protestant ministers, the WCTU, the Loyal Women of American Liberty, the National Women's League, and the League of Independent Women Voters. See Kleppner. Third Electoral System. n 1, p. 350. See also Tyack. n. 3, pp 105–6: and Lois Bannister Merk, "Boston's Historic Public School Crisis," New England Quarterly 31 (June 1958): 172–99.
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- Camhi, n. 20, p. 200. Hierarchically organized pietist churches, like the Methodist or the Scandinavian Lutheran, were no less receptive to women's suffrage than the others.
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- Furthermore, in the Colorado legislature that submitted the women's suffrage amendment to the voters in 1893, the party breakdown of voting was as follows: Republicans, 19 for women's suffrage and 25 against; Democrats, 1 in favor and 8 against; Populists, 34 in favor and 4 against. See Grimes, n. 19, p. 96 and passim.
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- Frederick Jackson Turner, "Dominant Forces in Western Life," in The Frontier in American History (New York: Holt. Rinehart & Winston, 1962), pp. 239–40. Quoted in Grimes, n. 19, pp. 97–98.
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- Cited in Donald K. Pickens. Eugenics and the Progressives (Nashville, Tenn.: Vanderbilt University Press, 1968), p. 67.
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- Annie G. Porritt. "lmmigration and Birth Control, an Editorial," The Birth Control Review 7 (Sept. 1923): 219. Cited in Pickens. n. 24, p. 73.
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- Quoted in Pickens. n. 24, p. 80.
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- Ibid., p. 83.
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- See Paul C Violas. "Jane Addams and the New Liberalism," in Karier et al., eds. Roots of Crisis, n. 11, pp. 66–83.
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- Cited in John Allen Gable, The Bull Moose Years: Theodore Roosevelt and the Progressive Party (Port Washington, N.Y.: Kennikat Press, 1978), p. 75.
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- For further discussion of education, see Robert B. Everhart. ed., The Public School Monopoly: A Critical Analysis of Education and the State in American Society (San Francisco: Pacific Institute for Public Policy Research, 1982).
Federal Reserve data shows $98 billion of deposits left the banking system in the week after the Silicon Valley Bank collapse. Most of the money went to money-market funds, as the Bloomberg data shows that assets in this class rose by $121 billion in the same period. The data shows the challenges of the banking system in the middle of a confidence crisis.
However, as many analysts point out, this is not necessarily the main factor that dictates the risk of a credit crunch. Deposit flight is certainly an important risk. Many regional banks will have to cut lending to families and businesses as deposits shrink, but in the United States bank loans are less than 19 percent of corporate credit according to the IMF, while in the euro area it is more than 80 percent. What will generate a credit crunch is the destruction of capital in the asset base of most lenders.
The slump in mark-to-market valuations of all asset classes from loans to investments is what will ultimately drive an inevitable credit contraction.
Credit standards have tightened significantly already, and the credit impulse of the economy, both in the US and euro area, has deteriorated rapidly, according to the respective Bloomberg indices. Both are below the March 2021 low.
We must remember that credit standards’ tightening was already a reality before the Silicon Valley Bank demise. But the reality check of capital destruction in the financial system’s asset base is far from done.
Start-ups will most likely see the most severe crunch in financing as the tech bubble burst adds to the asset base capital destruction in private equity and venture capital firms, who have delayed all they could the required write-downs and face a sobering reality check. Our internal estimate of capital destruction in the asset base of banks and private equity firms is between a 15 to 25 percent wipeout, which is consistent with the average decline in market value over the October 2021–March 2023 period.
Real estate investments all over the US and Europe require a significant reevaluation now that real estate has underperformed the market for eighteen months, according to Morgan Stanley. The optimistic valuations of real estate and corporate investments in banks’ balance sheets will require a significant analysis and subsequent write-off that leads to much tighter credit standards and stringent investment conditions.
Capital destruction tends to be forgotten in a world used to constant central bank easing, but it is likely to be the main source of strangling of credit to families and businesses as banks and private equity firms deal with the loss of value and weakening earnings and cash flow of investments made at elevated valuations and unreasonable prices. The main challenge this time is that capital destruction is happening in almost every part of the lenders’ asset base, from the allegedly low-risk part, sovereign bond portfolios, to the aggressively priced investments in volatile businesses and bull-market valuations of corporate and venture capital investments. The profitable asset part of banks will likely require important provisions for nonperforming loans, a subject that was raised by the Federal Reserve and the ECB months before the banking crisis. Furthermore, as governments will blame the recent collapses on lack of regulation again, it is extremely likely that new rules will be imposed demanding banks to book large provisions recognizing losses on the loan book ahead of time.
Even if we assume a modest impact on banks’ balance sheets, the combination of higher rates, declining optimism about the economy and the slump in equity, private investments and bond valuations is going to inevitably lead to a massive crunch in access to credit and financing. It is more than banks. The crunch will come from private direct middle market loans, a decline in high-yield bond demand, while institutional leveraged loans may fall as access to leverage is more expensive and challenging and investment grade bonds may likely continue to see strong demand but at higher costs. The question is not when there will be a credit crunch, but how large and for how long. Considering the size of the famous “bubble of everything “and its slow implosion, it may last for a couple of years even with a central bank pivot, because by now a reverse in monetary policy may only zombify the financial system.
Both artists and athletes perform for others. When governments get involved it either is for subsidies or censorship. Neither is satisfactory.
Original Article: "The Economics of Arts and Culture"
After the hate crime against Christians perpetrated by a transgender shooter in Nashville in March 2023, there was the usual outcry to ban firearms.
Days after the killing spree, activists staged an insurrection at the Tennessee State Capitol calling for tougher gun laws. This despite the fact that many in favor of gun control politicized the violence and called for more of it.
However, the most jarring of all the gun-ban reactions to the Nashville attack was, to my mind, one posted by Claire Yost, a staff sergeant with the United States Army. S.Sgt. Yost, wearing her army uniform, posted a video in response to the Nashville incident arguing that guns should be banned because their “sole purpose” is “destroying” whatever they are aimed at.
Many have pointed out that S.Sgt. Yost’s political statements made while in fatigues are a clear violation of the Uniform Code of Military Justice and could be grounds for initiating a court-martial against her. (Perhaps the feds can get around to doing that after they have caught the pro-life pregnancy centers firebombers who have thus far outwitted the Federal Bureau of Investigation (FBI) by operating under the cover of darkness.)
It is true that the argument about banning weapons is disturbing when it comes from someone who has sworn to uphold and defend the Constitution. Let us not quibble over paperwork. What is truly astonishing about the video is that someone who works for the United States government would be in favor of outlawing guns. The logic simply does not hold.
In the first place, governments never really outlaw guns. They monopolize them for organized killing on a scale beyond the reach of even the most depraved solitary citizen. Citizens with guns prevent governments from committing mass murder. Therefore, guns aren’t outlawed by governments; they’re merely concentrated in the hands of those who make the law (while those who break the law don’t, by definition, obey gun laws anyway).
Related to this first point is a second, even bigger, one. Namely, the question whether to ban something is a moral question. It is an “ought” question, which entails moral reasoning. Therefore, and because a ban requires an agent to do the banning, we must ask whether the United States government has the moral authority to do what S.Sgt. Yost proposes.
The short answer is, “No, it does not.” Details follow.
The United States is run by a notoriously belligerent government. There are some three and a half million people working for the Department of Defense, a worldwide weaponized cabal. Millions more are also liable to be drafted (euphemistically called “selective service”) depending on how badly the Pentagon gets us involved in foreign wars. The United States government maintains a base network planetwide. Apart from this active and potential belligerency, the United States government has a lucrative side business as a prolific gunrunner.
There are more than five thousand nuclear warheads in the Pentagon’s arsenal. The United States’ deployment of atomic weaponry—against a defenseless civilian population consisting heavily of women, children, the disabled, and the elderly—spurred an arms race that continues to this day.
Between 1957 and 1975, the United States government dropped more than seven million tons of ordnance on the heads of people in Indochina. These numbers do not include clandestine killings or the mass chemical attack on civilians and soldiers—North Vietnamese, South Vietnamese, American, and others—in the form of Agent Orange.
The United States government turned the American economy into a ward of the belligerent state during World War II. More than one and a half million tons of ordnance, much of it made by workers co-opted by the war-state, was rained down from American government equipment in Mr. Franklin D. Roosevelt’s war.
One can keep winding the clock back as one wishes and yet still not arrive at a point at which the United States government has the moral authority to ban guns. The United States Army committed genocide against various native tribes (perhaps S.Sgt. Yost can find her regiment mentioned in the historical records) and war crimes against Southern civilians.
The United States federal government has since been at the cutting edge of assassinations, chemical warfare, nuclear blackmail, mass starvation, environmental annihilation, war on false pretenses, the establishment and maintenance of puppet governments, pandemic-inducing gain-of-function bioweapons research, social upheaval, and the construction of global gulag archipelagoes. Death by drone strike hits random, often innocent, targets at the pleasure of the commander in chief of the United States’ armed forces.
Nor does this federal belligerency know any distinction between abroad and the “homeland.” FBI agents swarm the homes of pro-life Christians, while mechanized police units are known to terrorize and attack noncriminals when the units show up at the wrong house. The federal government has a long track record of killing women and children. The federal government engages in smear campaigns and “all-of-government” fake-news attacks on those who expose such treachery. It must not be forgotten that the United States federal government authorized, by judicial fiat, the extermination of more than sixty-three million (unarmed) Americans.
Without guns, Americans would be susceptible to the horrors visited upon the disarmed peoples whom the American government, and other governments, have murdered en masse. Without guns in patriot hands, the American “homeland” would be as convenient a strafing target as weddings in Yemen and Afghanistan.
S.Sgt. Yost may want the government she serves to disarm Americans. Unfortunately for S.Sgt. Yost, that government has no moral authority to do this. The only truly moral course of action in the face of so murderous a regime is for every citizen to keep his or her firearms and to keep buying more.
Jonathan Newman joins Bob to critique a recent Twitter argument where some were claiming that supercomputers solved the socialist calculation problem.
The Twitter thread on AI and Socialism: Mises.org/HAP394a
Bob on Socialism and calculation vs knowledge: Mises.org/HAP394b
Karras Lambert and Tate Fegley on economic calculation and AI: Mises.org/HAP394c
Is Social Justice Just?
Edited by Robert M. Whaples, Michael C. Munger, and Christopher J. Coyne
Independent Institute, 2023; xxiii + 348 pp.
Before one can answer the question posed by this excellent book’s title, one needs to ask what social justice is, and answering this proves to be no easy task. As Robert Whaples says, “For many, the term social justice is baffling and useless, with no real meaning. Most who use it argue that social justice is the moral fairness of the system of rules and norms that govern society.”
The book contains nineteen essays by distinguished scholars favorable to the free market. The essays attempt to determine what social justice is and to assess its merits. It contains, as well, a foreword by the famous psychologist Jordan Peterson, a preface by the eminent philosopher Nicholas Rescher, and a helpful introduction by Whaples in which he describes the main essays. The book has two parts, “How to Do (Social) Justice Wrong” and “How to do (Social) Justice Right” The latter part has two divisions, “Use the Insights of Philosophers and Theologians” and “Let People Build a Just Society on Their Own—and Reform Flawed Public Policies.”
Several of the contributors devote attention to Friedrich Hayek’s criticism of the notion of social justice in his book The Mirage of Social Justice (1976), and just as there is much disagreement among them about social justice, so is there also much disagreement about what Hayek meant and whether he was right. But though the authors differ on these points, they converge on the view stated in the second division of the second part. In what follows, I shall comment on one of the many interesting arguments contained in the book.
Pascal Salin quickly, and I think correctly, states the fundamental consideration that should govern our thinking about social justice. People own themselves and have the right to acquire unowned resources. They can also acquire resources through exchange, gifts, or inheritance. Claims that the outcomes of these transmissions of property are unfair do not suffice to justify coercion to compel property owners to transfer resources. In Salin’s words:
The basic principle of ethics consists in claiming that individuals are free, which means they are not subject to constraint by other people; that is, they are the owners of themselves. But one does not own himself if ever he is not the owner of the goods and services he creates by using his mind and physical labor. Therefore, it must be considered that legitimate property rights are those obtained by acts of creation (and, obviously, by exchanging goods and services that have been created by parties to the exchange).
Salin takes social justice claims to be demands that resources be transferred from property owners to others on the ground that those others are more deserving of them. For example, it might be said that members of certain minority groups have been discriminated against and should receive compensation for this. Salin does not object to people’s holding this view, but he opposes policies by government to implement it:
But someone who steals goods from a person to give the loot to another person—because his personal morality induces him to help the latter—violates the property rights of the first person and therefore universal morality. Now it is exactly the same with “inequality policies,” statesmen (politicians and bureaucrats) levy, thanks to coercion, resources from some people (known as citizens) to give them to others. In doing so, they undermine universal morality, and therefore we must accept the idea that a policy aimed at reducing inequalities is immoral in principle.
In a characteristically erudite essay, Jacob T. Levy raises an objection to the theory of rights just discussed, though his target is not Salin but Robert Nozick. Levy would object on the same ground to Murray Rothbard’s Lockean account of property rights. Levy adapts insights from Hayek and Joseph Schumpeter to formulate his complaint, which in essence is this: Nozick’s theory of rights, and theories similar to it, account for only a small amount of the economic value created in a market economy. Individuals who trade goods and services expect to gain by these trades, but often they have no way to estimate the future economic value of what they have exchanged. As Hayek has argued, the results of the market’s spontaneous order cannot be foretold. This unpredictability is exacerbated by the process of creative destruction stressed by Schumpeter, in which successful new enterprises produce vast amounts of increased economic value. This objection rests on a misunderstanding.
Levy says:
[In Nozick’s theory] Either I have mixed my labor with the world and produced a new thing to which I have an entitlement, or I have reached voluntary contractual relationships with others . . . to do so on my behalf, retaining for myself the entitlement to the new good. This cannot be, however, all there is to say about the matter, in part precisely because a market economy is a spontaneous order and, like all such orders, is very much more than an aggregation of its component microscale elements. To put it in different terms, it has been well known at least since Joseph Schumpeter that entrepreneurial innovation and technological development throw off tremendous positive externalities, creating much more wealth than the entrepreneur himself or herself will capture.
Lockean theories in the style of Rothbard and Nozick do not argue in this way: someone who appropriates resources has added to their value and thus owns that value. If the argument were of this sort, then Levy would have a point: What about value the appropriator did not create?
But the rights theories of Rothbard and Nozick is different. In this theory, once someone rightfully acquires an asset, this leaves no room for any questions about who owns the asset’s value. The value of an asset depends on the market demand for it, and this can rise or fall in unpredictable ways. If the owner of the asset sells it, he will get the market price for it, whether higher or lower than its value when he appropriated it. Thus, as Schumpeter posits, some people will gain “tremendous positive externalities” and those whose businesses have lost out will lose economic value; but neither of these facts raises a problem for Lockean accounts of property acquisition. Levy may respond that he has not sought only to point out an internal weakness in these accounts—namely, that they leave important questions about the ownership of economic value unaddressed. He could claim also that a good theory of ownership should not deal with economic value in the way I have suggested the theories of Rothbard and Nozick do. If he said that, though, he would owe us some arguments for this contention, and I do not see that he has provided any in his essay.
The book contains a very large number of other interesting arguments, and everyone interested in rights and justice should read it.
The US Department of Energy has recently announced two new rules banning the manufacture of incandescent light bulbs starting in July 2022 and phasing in standards across industries over the following months. The Biden administration claims that this ban is a cost-saving measure that will “save consumers about $3 billion annually when fully implemented.” However, the net impact of this policy is unclear since the substitution of incandescents for LED lights comes with notable negative effects such as impaired sleep and consequently impaired productivity.
As the great economic columnist of the twentieth century Henry Hazlitt wrote, we must not look merely at the direct effects but also the indirect effects of a given policy change or individual choice.
It is worth mentioning that in 2020 about 70 percent of the general service lamp (GSL) market was LEDs while 30 percent was incandescents and halogens, and greater than two-thirds of that 30 percent share was incandescents. As the market share of LED bulbs has gone up yearly, the market volume has decreased, presumably due in large part to a lower need for replacement bulbs given LEDs’ longer-lasting nature.
However, LEDs and fluorescents emit much higher levels of blue light which inhibits the production of the sleep hormone melatonin, which is important in the morning and midday, but melatonin should not be inhibited in the evening or at night. As LED lights have gained in use over the past ten years, American sleep health has continued to decline: short sleep duration in working American adults has increased from 30.9 percent of the population in 2010 to 35.6 percent of the population by 2018.
Of course, changes in household and city lighting are merely one of many factors. Other factors include screen use as well as glyphosate-laced foods that reduce the amino acid glycine, which is associated with sleep quality. The increase in blue light exposure to eyes and the consequent decline in sleep health has driven an expanding market for sleep aids, a $30 billion North American market in 2022. This amount is only set to increase unless current sleep trends change with an estimated compound annual growth rate of 6.5 percent.
Another rationale for the ban on incandescent light bulbs is that it will “cut carbon emissions by 222 million metric tons over the next thirty years.” While the carbon impact is largely outside the scope of my article, it is worth mentioning that the use of LEDs is not without environmental impact, specifically the use of metals such as lead and arsenic.
Additionally, the increase in blue light affects nonhuman organisms such as bats and moths and may be a contributing factor in the declining insect population. Light pollution dominates city skylines with blue light increasing by two percent per year from 2013 to 2016. Aesthetic values must also be considered given that many Americans can no longer see the rich and beautiful night sky in its former glory.
I personally use smart LED lights to simulate to some extent the light profiles of the sun at different times of the day in my apartment. However, in my research, I learned that my LED lights create naturally appearing colors by separately increasing the levels of red, green, and blue light at specific wavelengths. An LED orange is not the full-spectrum orange of an incandescent light, but at least blue and green wavelengths can be limited in evenings and at night with such options.
If we grant for the sake of argument that the state has a place in deciding the options available to light bulb consumers, a serious technocratic case could be made to ban LED light bulbs in favor of eye-friendly bulbs. The technocrats in Washington evidently are not good technocrats if they only look at the dollar/lumen/time aspect of lighting and not the whole distribution of wavelengths of different lighting options and their effects on human and ecological health. Ultimately, it is the right of the consumer, not the regime, to determine what lighting sources work best for them.
In March 2021, Dominion Voting Systems—a company that produces electronic voting equipment and software—sued Fox New Channel for 1.6 billion. Dominion claimed the company had been harmed by allegedly false claims made by Fox program hosts and guests about Dominion's role in alleged efforts to rig the 2020 US presidential election. In April 2023, Fox New Channel settled with Dominion for $787.6 million. Dominion still has other lawsuits pending against other parties, including Rudy Giuliani and Sidney Powell.
The Fox settlement over a defamation lawsuit comes less than a year after Alex Jones was ordered to pay $965 million in a lawsuit over things he said on his show about the Sandy Hook massacre. Both lawsuits were centered around merely saying things that other people didn't like being said. Both suits were also centered on politically charged topics of public interest. Both lawsuits also demonstrated how defamation laws can be used to silence people and punish them for making controversial political statements. Moreover, it's clear that both Jones and Fox news commentators were expressing these views as journalists.
The Alex Jones lawsuit was alarming in its own way, as I explained here at mises.org. The Dominion lawsuit, however, is even more baseless and alarming in that it sets a precedent in which a government-funded monopoly can sue private parties over statements about public policy. Moreover, it is clear that the US regime—along with many other regimes throughout the West and the world overall—have ramped up efforts to limit free speech under the guise of combatting "misinformation." The White House and Big Tech have worked together to deplatform and silence users who say things the regime doesn't like. A second important tool in silencing critics is defamation laws. Defamation lawsuits can be employed by regime allies to silence, impoverish, or otherwise harass critics who make statements regime agents find troubling. The Dominion lawsuits are an illustration of how this works.
Why Defamation Isn't a Real ProblemThe very concept of defamation has always been incredibly questionable, and it clearly is incompatible with any serious commitment to free speech. The idea of defamation has always relied on the notion that if Person A says something nasty about Person B, then Person C is going to simply believe those nasty things and act accordingly. Thus, we are required to believe that if my neighbor tells my wife that I'm an adulterer, then my neighbor is somehow at fault and has inflicted "damages" if my wife chooses to believe him. Of course, my wife might instead choose to notice that I rarely leave the house and most of my socializing consists of one-hour 7-a.m. breakfast meetings. But, even if my wife chooses to believe this neighbor and divorces me. That's bad news for me, but how is this the fault of the neighbor? He was just saying words that other people are free to believe or not.
In this scenario, it was my wife who did the damaging things. Human beings are not automatons who just believe everything some other person tells them. The concept of defamation is built upon this absurd supposition. We might also note that historically in the United States, legal judgements against convicted perpetrators of defamation were generally small fines, and the suits were designed to simply allow the plaintiff a forum to publicly defend himself.
Governments (in America) Can’t Sue for DefamationIn the past, government officials in the United States were even known to sue critics for defamation on grounds that critical statements about government personnel inflicted damages on policymakers and elected officials. Policymakers in the state of Florida are now trying to revive the execrable practice. Governor Ron DeSantis, for example, has supported legislation that makes it much easier for a variety of parties—including government employees—to sue for defamation. The legislation also removes the longstanding requirement that defamation plaintiffs prove malice on the part of the defendant. Legislation like this greatly expands the ability of people in power to sue and silence critics for the "crime" of saying certain words that might cast state agents in an unfavorable light.
Government employees employed this strategy in the past, but this came to an end with the 1964 case New York Times v. Sullivan. This was a case in which a government employee—specifically a police commissioner—sued a newspaper for saying things some bureaucrats did not like. The US Supreme Court concluded:
For good reason, “no court of last resort in this country has ever held, or even suggested, that prosecutions for libel on government have any place in the American system of jurisprudence.”
The reasons for this should be obvious. Government agencies enjoy monopoly privileges and are funded through the coercive collection of taxes. Even the most blue-pilled regime sympathizer can probably see the danger that arises from also granting this monopolistic agency the right to sue people for criticizing it. After all, the liberal notion of “free speech” was codified in documents like the Bill of Rights primarily for the purposes of ensuring critics of the regime would be legally immune from the regime’s attempts to retaliate.
Fake "Private" Organizations Should Never Be Able to Sue for Defamation This brings us to “private” organizations like Dominion.
In its lawsuits against Fox News and others, the company is proceeding as if it were just another private company. The basic claim is “we’re just a poor, innocent group of entrepreneurs being defamed!”
But “private” is clearly not an appropriate term for describing a company like Dominion. And “entrepreneurship” has very little to do with it. This is a company that is overwhelmingly geared toward serving only government agencies and performing what can only be described as government services. Dominion provides ballot-counting software and related services. Its only “clients” are apparently government agencies. As such, Dominion’s revenue comes from tax revenue. The company and its founders are not “entrepreneurial” in any sense except in the sense of a “political entrepreneur,” who seeks profit through government subsidies and contracts. The company does not interact in a free and open marketplace where real customers exchange money with the company in exchange for a good or service. Rather, taxpayers are forced to support Dominion through taxation, and taxpayers have no meaningful say in whether or not they “pay” Dominion. In short, the relationship between Dominion and the people who ultimately fund Dominion is one of coercion and exploitation.
In this sense, Dominion is like many other de facto government agencies which rather unconvincingly claim to be “private” in any sense other than the legal. One such example is Academi—formerly known as Blackwater—which supplies mercenary troops and related services to government agencies. The company was founded and managed by former CIA agents and other bureaucrats who presumably wanted to cash in the on the lucrative business of government contracts. Academi’s revenue has overwhelmingly come through these contracts, and as such, it is funded by the sweat and toil of the taxpayer. Of course, this hasn’t stopped Academi’s founder, Erik Prince, from ridiculously claiming to be some sort of free market entrepreneur.
We might also point to other “private” companies that cater to governments. This would include weapons manufacturers like Lockheed Martin, or even road construction companies whose business plan is based around construction of government projects. This is also true of Dominion when it attempts to sue critics for defamation.
So, was Dominion defamed by its critics? The proper answer is: who cares? This should be considered of no more importance than whether or not the ATF (Bureau of Alcohol, Tobacco, Firearms and Explosives) is being defamed when critics of the Waco massacre contend that federal agents murdered Branch Davidian women and children. Allowing a government agency to sue in such cases would be a direct assault on free speech and the freedom to verbally attack perceived abuses by the regime.
Moreover, it's questionable that Dominion has incurred any actual damages from the utterances of Fox news pundits. Dominion's "customers" are not the general public, but a small number of government bureaucrats which make decisions about vote-tabulating equipment. Do the opinions of Fox news hosts heavily influence the thinking of such people? That is not at all clear.
In any case, De facto government agencies like Dominion (or Academi or Raytheon) should not be allowed to pose as legitimate private companies deserving of private sector legal protections. If they don’t like it, these firms can get in the business of offering real, voluntary services in the marketplace sans the taxpayer largesse.
In this episode of Radio Rothbard, Ryan McMaken and Tho Bishop discuss the cancellation of Tucker Carlson's Fox News show and the similar treatment of Murray Rothbard by Bill Buckley. What does Tucker's cancelation mean for the growing anti-regime trends on the right, and why do "conservative" gatekeepers prefer the company of the left more than their audience? We look at this and more on this episode of Radio Rothbard.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
For more on the history of the conservative movement, get your copy of Betrayal of the American Right by Murray Rothbard. Receive 20% off with coupon code RothPod at the Mises Store.
Also available as an audiobook.
PROMO CODE: RothPod for 20% off
Recommended Reading"Murray Rothbard, RIP" by William F. Buckley Jr.: Mises.org/RR_132_A
"Frank Meyer's Fusionism and the Search for Consensus Among Conservatives" by Paul Gottfried: Mises.org/RR_132_B
"NotCon 3 Video: The Failure of Fusionism" Mises.org/RR_132_C
"Why Fox Fired Tucker: BlackRock, Replacement Theory, and the ADL" by Michael Rectenwald Mises.org/RR_132_D
"Buckley Revealed" by Murray Rothbard Mises.org/RR_132_E
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
After years of inflationary intervention, the Federal Reserve has no more rabbits to pull out of the hat.
Original Article: "The Failure of the Federal Reserve: The Covid Boom and Unnecessary Intervention"
What better way to “celebrate” tax season than to talk taxes? Stop me if you’ve heard this one: Taxation is not theft. It’s just the law of the land. You want to live in this country, you pay the long-established, constitutional, customary tax. If you’re not okay with that, there are plenty of other countries to choose from whose customs and edicts you may find more agreeable. Just go live there, and best of luck to you! So as long as you have that right of exit, the taxes confiscated from your income do not represent any initiation of force, coercion, or violation whatsoever.
This is a valuable argument, to be sure. Not only is it completely wrong but its underlying premise reveals a certain sensibility that is, at the very least, intriguing. If we peel back the layers of this statement, we can see the speaker’s potential to grasp some sort of entry-level morality and maybe even economics, confirming our suspicions that he knows what’s right and is purposefully evading it. A hint of insight is on display here, if only unconsciously, that liberty itself depends on private property rights as he’s desperately trying to frame this “right of exit” nonsense as a private property argument.
Let’s run through a few scenarios here:
- I’m having a costume party. To attend, you must dress up as something. You will not be admitted otherwise. If you refuse, due to some personal objection to donning a costume, then enjoy your night someplace other than my costume party. No harm, no foul.
- I don’t allow shoes to be worn in my house. If you wish to visit, bare your feet at the door. If you insist on wearing your shoes, then happy walking, but not into my house. No harm, no foul.
Ready for one that’s not so easy to stomach?
- In my restaurant, no one of German descent is allowed to dine. Anyone wishing to eat here must first present genealogical proof of no German ancestry. Any hint of German in your background, or refusal to produce the appropriate documentation, no problem. Just get your corndogs someplace else. No harm, no foul.
So this is what’s presented in the taxation argument:
- In this country, we pay our taxes. You don’t want to pay up? Leave! And if you don’t and you continue to live, work, and trade in this country, you’ve given your tacit consent to abide by the tax code and render unto Caesar accordingly. To stay put, enjoying all of the fruits of taxation and yet continuing to whine about it and alleging some infringement of your “rights” is just a hypocritical childish plea to have your cake and eat it too.
If this is really what’s being put on the table, then let’s look at what they’re saying.
What do each of the above “policies” have in common? They’re enacted by the rightful property owner. What makes them such? They obtained the restaurant/house/party headquarters through purchase, trade, inheritance, gift, original appropriation, or some other VOLUNTARY arrangement. Their possession and ownership came about by the only true measure of legitimacy—absence of coercion, force, or fraud. Their power to set the rules for admittance or exclusion comes from that ownership.
So to buy this “right of exit” premise, one would have to accept the notion that the federal government is the rightful owner of the United States, the entire landmass. Likewise, one would somehow have to surmise that, at the same time, there are overlapping property claims held by the state, city, and local governments of the further subdivided parcels. This is no small matter as it means that we the people, in effect, own nothing. Every house, building, lot of land, business, vehicle, animal, vegetable, and mineral within the national borders (and some without) is the government’s property, which we’re all simply renting from them.
Anything you or I have is at their discretion and whim. They allow us the privilege of possessing these things only as long as they see fit. These are the only terms under which the above reasoning holds. If the government can demand my payment on pain of expulsion from the country, then it all must be theirs.
But what’s the original source of any property claim at all? Technically all land title chains originate with the US government. Things admittedly get a little tricky here, though not on the issue at hand. Was the founding of the USA a legitimate acquisition of property in the first place? If so, did that make the federal government the de facto original owner? If so, then they would have no more continued control over it once it’s left their hands than the previous owner of your house does over your domestic choices.
If not—and the country was stolen by aggressive conquest, thus never properly claimed by any of our ancestral invaders—well, that’s a can of worms beyond this article. But I will ask you this: Would that justify continued payment and deference to the organization that perpetrated the invasion?
One may claim that the government is not acting as a property owner but merely a trading partner. They offer certain benefits and services in this geographical location—namely, the infrastructure that makes the production and earning of your own property possible—so the choice is yours: If you want to take up space here and soak up your share of these benefits, then you have to pony up your fair share. If you don’t, then you’d better remove yourself from the service zone, you freeloader!
This is really the same argument from a different angle. Under what auspices do they offer said benefits and services? By a forceful declaration that they are to be the sole and exclusive proprietors within the demarcated region. The consent of you, the residents, their “customers,” is irrelevant. If you’re caught on their self-proclaimed turf attempting to either provide or receive these services on any other terms, men with guns will come talk to you.
So once again, it’s simply a coercive property grab, this time for more commercial purposes and in no sense a bona fide economic transaction. You can call it many things, but you can’t call it trade, you can’t call it choice, and you can’t call it voluntary.
“But this is a democratic system, where the state is only acting as a proxy of the people, so the government isn’t asserting universal ownership, but merely managing the property of the people at large.” This argument is deluded, evasive, and telling. It provides an interesting study in fallacious reasoning and behavioral science and invokes a whole new way to be divested of your property. The government will only seize it by force once your neighbors and countrymen have voted it away from you. Whatever happens is up to the caprices of the 50.1 percent. Imagine the bizarre, macabre dystopia painted here, where no property, no moral ideology, and indeed no rights exist at all. But once again, it is beyond the scope of this article.
And lastly, I would be remiss not to point out that there is no right of exit. I hate to tell you, but if you show up at the airport with nothing but your luggage and boarding pass in hand, ready to find out if Ukraine is as nice as people say this time of year, you ain’t goin’ nowhere! This should truly be all you need to do to “just leave” if there really were a such an option. But, of course, you’ve got to have that little magic book, the one that’s obtained through the prescribed qualification process of, plus payment to, those on high to be granted their permission to leave the country.
This is the very definition of not a right. Sure, you may say it doesn’t matter that you’re compelled to ask because they almost always say yes, so it’s practically a right. What if I show up with a passport that expired last week? I mean, it’s practically still valid. Amazing how so much semantic leeway is granted to those who allow us none.
So there you have it. If “pay up or get out” is really a legitimate proposition to live under, it must be because nothing is ours. Everything around us, including you and me, belongs to the state. At best we have possession of some of what we earn, produce, or are given, until and unless the supposed rightful owner no longer approves and wishes to reclaim it. So the next time someone poses this slogan to you, be sure to remind them of its full meaning. If they don’t want to accept that reality, they can always “just leave.”
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
These short columns—usually no more than two typewritten pages each—appeared in the Freedom Newspapers. Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968, addressing the campus revolt; the massive antiwar demonstrations; the Six-Day War between Israel and the Arab powers; the Newark riots; the Vietnam war; the persecution of H. Rap Brown, the assassination of Martin Luther King, the abdication of Lyndon Baines Johnson, the rise of Richard Nixon — in those two crucial years there was, as they say, never a dull moment.
Read the text version here. Narrated by Jim Vann.
Download the complete audiobook (63 MP3 files) in one ZIP file here. This audiobook is also available on Apple Podcasts, Spotify, SoundCloud, and via RSS.Purchase the Audiobook on iTunes/Audible/Amazon, or paperback at the Mises Store.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968. In those two crucial years, there was, as they say, never a dull moment.
Narrated by Jim Vann.
Money first originated through the voluntary exchange of commodities, such as gold and silver, in order to eliminate the inefficiencies of barter.
As Austrian school of economics founder Carl Menger explained:
Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.
However, governments quickly learned that they could gain enormous wealth and power by taking control of money. Ludwig von Mises detailed in his magnum opus Human Action how this control has harmed human progress and noted that “For two hundred years the governments have interfered with the market’s choice of the money medium. Even the most bigoted étatists [statists] do not venture to assert that this interference has proved beneficial.”
Murray N. Rothbard further elaborated in What Has Government Done to Our Money? that
government meddling with money has not only brought untold tyranny into the world; it has also brought chaos and not order. It has fragmented the peaceful, productive world market and shattered it into a thousand pieces, with trade and investment hobbled and hampered by myriad restrictions, controls, artificial rates, currency breakdowns, etc. It has helped bring about wars by transforming a world of peaceful intercourse into a jungle of warring currency blocs. In short, we find that coercion, in money as in other matters, brings, not order, but conflict and chaos.
We see this chaos every day, with the economy bouncing from inflation to deflation and boom to bust. How did we reach this point and could it change going forward?
Devolution Of Money from Gold to Fiat CurrenciesPrior to World War II, the British pound was the world’s “reserve currency.” However, after the war, the United States had the strongest economy and largest amount of gold reserves in the world.
At the Bretton Woods Conference in 1944, the US dollar was tied to gold at thirty-five dollars per ounce, and all other currencies were tied to the US dollar at fixed exchange rates. That made the dollar the “world reserve currency,” which means it was the only currency accepted throughout the world for the settlement of international trade accounts.
In the 1960s and early 1970s, the US government’s out-of-control spending spurred a run on US gold reserves by foreign governments. In response, President Richard Nixon ended all ties between the US dollar and gold in 1971. Since then, there has been no commodity backing for any currencies in the world. This led to higher inflation and lower living standards than would have otherwise occurred.
Following the Arab oil embargo of 1973, the US government agreed to provide military support to Saudi Arabia in exchange for Saudi Arabia agreeing to sell oil only in US dollars. This “petrodollar” arrangement helped solidify the dollar as the world’s reserve currency for the past fifty years.
What can compete with the US dollar now?
Rise of the BRICS“BRICS” is an acronym for five of the largest emerging countries: Brazil, Russia, India, China, and South Africa. The BRICS countries comprise about 42 percent of the global population and 32 percent of global gross domestic product (GDP). By contrast, the US has only 4 percent of the global population and 16 percent of global GDP.
In addition, several countries are rumored to be joining the BRICS alliance in the future, including Saudi Arabia, the United Arab Emirates, Egypt, Turkey, Thailand, and Indonesia.
The BRICS countries have grown weary of being beholden to the US dollar and US monetary policy. This is particularly true in recent years, with (a) the 40 percent increase in the US money supply that has led to the highest inflation in forty years; (b) the increase of the US federal government debt to GDP to 120 percent, double the level of fifteen years ago and triple the level of forty years ago (as shown below), plus over $200 trillion in unfunded liabilities for Social Security, Medicare, and other obligations; and (c) the aggressive US foreign policy, including sanctions relating to the Russia-Ukraine war.
Figure 1: Total public debt as percent of gross domestic product
picture1.jpg ###### Source: FRED economic data from the Federal Reserve Bank of St. Louis.
BRICS Taking ActionDue to the Russia-Ukraine war and China’s continued economic growth, the BRICS are accelerating plans to take power from the US.
So far, the BRICS have started initiatives such as the New Development Bank for infrastructure lending, a Contingent Reserve Arrangement to protect against foreign exchange pressures, and a BRICS payment system as an alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
They are also working on a BRICS reserve asset based on a basket of the BRICS countries’ currencies to compete with the International Monetary Fund’s (IMF) special drawing rights (SDR). The SDR is based on a basket of the US dollar, the euro, the British pound, the Japanese yen, and the Chinese yuan. The SDR is not officially a currency, but it can be created out of thin air and sold for national currencies if the IMF tells countries to buy SDRs.
Central banks around the world are already starting to diversify away from the US dollar and into the Chinese yuan and other currencies.
After Russia invaded Ukraine, the US banned Russia from the dollar system. However, Russia is the largest oil provider to China, so Russia and China started trading in Chinese yuan rather than US dollars.
India has also paid for most of their Russian oil in currencies other than the US dollar lately. Recently, Brazil and China agreed to conduct all future trade in their own currencies. French oil company TotalEnergies recently completed its first purchase of liquefied natural gas from China using the Chinese yuan.
As a result of these and other efforts, the percentage of global currency reserves in US dollars has fallen from 73 percent in 2001 to 58 percent now.
It Will Not Be Easy to Dethrone the US DollarThe BRICS countries are unlikely to seriously challenge the king dollar if their only tool is just another fiat currency they can create out of thin air.
The US has the largest and safest government bond market, no capital controls, and a reputation for enforcing the rule of law. By contrast, the BRICS countries are hardly known for respecting laws or having strong currencies.
Perhaps more importantly, non-US entities have $12 trillion of US dollar-denominated debt that they need to pay back with dollars, so abandoning the dollar would be incredibly difficult and costly.
Unless the BRICS Create a Hard Commodity-Backed CurrencyOf course, their competition with the dollar would ultimately end in failure, as Bretton Woods did, if the BRICS countries continue to create money out of thin air to finance their warfare and welfare spending. The BRICS will have a much better chance if they create a hard currency backed by gold or other commodities like oil.
The BRICS countries have a combined gold reserves of 5,352 tons, which makes them the second largest owner of gold reserves after the US, which has 8,133 tons. China has quadrupled its gold reserves over the past twenty years, as shown below.
Figure 2: China gold reserves
picture2.jpg ###### Source: Trading Economics.
BRICS countries are wisely exploring gold-backed currencies. For example, in March 2022, Russia announced they were linking the ruble to gold at five thousand rubles per gram and requiring payment for their exports in rubles. It was also recently reported that Russia and Iran are working on a new “stablecoin” cryptocurrency backed by gold to compete with the dollar.
How ironic if the “free market” US were outcompeted by an even more free-market currency created by the likes of Russia, China, and Iran.
US Economic and Political ImpactIf the BRICS are successful and the US does not change its policies to focus on a stronger dollar, less spending, and peace instead of war, it is possible the dollar will slowly lose its “reserve currency” status. This would hurt US living standards and lead to less power for the US government, similar to the weakening of the UK after World War II. All empires in history have failed, and the US will not likely be an exception—if the BRICS can create a successful hard currency to compete with the dollar.
ConclusionUnless the BRICS are willing to give up the power to create money out of thin air and create a currency that is backed 100 percent by gold or other commodities, any new currency will likely suffer the same problems as the dollar and other fiat currencies.
Ultimately, until money is returned to the free market so it cannot be manipulated by governments, we will continue to experience the economic problems that have plagued mankind since governments started meddling with our money.
The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday raised the target policy interest rate (the federal funds rate) to 5.25 percent, an increase of 25 basis points. With this latest increase, the target has increased 5 percent since February 2022. This is the highest rate reached since August 2007, shortly before a recession began in December of that year.
With an increase of only 25 basis points, the May meeting is the third month in a row during which the Fed has pulled back from its more substantial rate hikes of 2022. After four 75-basis-point increases in 2022, the committee approved a 50-point increase in December, followed by 25-point increases in February and March, and another on Wednesday.
Although CPI inflation has remained at or above five percent in recent months the FOMC has slowed down in its monetary tightening over the past four months. This is spite of the fact Powell today characterized price inflation as "well above" the two-percent target while concluding the Fed "has a long way to go" in terms of getting price inflation under control. Nonetheless, indications continue to mount that the Fed is maintaining its drift toward more dovish policy.
This was apparent in Powell's comments on the state of the economy on Wednesday. The Fed uses most indications of economic weakness as excuses to embrace monetary easing, and the Fed now increasingly points to weakening growth. In his remarks, Powell said "the US economy slowed significantly last year" while noting the pace of growth "continued to be modest" into the spring. Although Powell, as usual, pointed to "strong" job growth numbers, he did not present this as a clear indicator of the overall economy. Instead, the discussion turned toward the Fed's economic forecasts which, according to Powell, point to a "mild recession." Sticking to the usual script however, Powell emphasized the word "mild" and predicted employment losses as a result of a coming recession would be "smaller than is typical in recessions." Given that the Fed has demonstrated no prescience whatsoever in terms of forecasting inflation rates or economic growth in recent years, it's unclear as to what gives Powell the confidence to make such a precise prediction.
The FOMC's press release text also points toward a policy turn away from monetary tightening. For example, in March's press release, the FOMC noted:
The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
In contrast, this is what Wednesday's statement reads:
In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
Powell emphasized this change in this remarks during the press conference nothing that the committee no longer assumes additional "policy firming" is necessary. Rather, the committee will look into if additional firming is necessary in the future. In other words, FOMC policy and outlook could change at any time. The Fed has long since abandoned forward guidance, and now explicitly makes policy on a month-to-month basis. This, of course, makes sense given that the Fed has repeatedly been shown to lack any insight into economic trends, following 2022 debacle over "transitory" inflation and numerous Fed officials' proclamation that no rate hikes would necessary before late in 2023.
A Looming Threat of Bank FailuresPerhaps the most recent—and alarming—demonstration of the Fed's disconnect from reality comes from the Fed's repeated failures to foresee or address mounting bank failures.
2023 has already seen three major banks failures. As The New York Post reported on Monday:
The three US banks that collapsed this year — First Republic, Silicon Valley Bank and Signature Bank of New York — had more combined assets under management than all 25 federally insured lenders that failed in 2008 at the onset of the Great Recession.
This is apparent in this helpful graph created by Mike Bostock, large bank failures in the early days of the 2007-2008 crises were followed by hundreds of failures at smaller banks. If 2023-2024 follows a pattern similar to that of 2007-2008, the banking system is in a lot of trouble.
Perhaps in an attempt to calm the banking sector, Powell was sure to declare at the FOMC press conference that the banking system is "sound and resilient." Yet, within hours of the press conference, two more banks were showing signs of extreme stress. Regional banks PacWest and Western Alliance saw their stock prices crash in after-hours trading. As of 7 PM Eastern on Wednesday, PacWest's stock is down 55 percent, and Western Alliance is down by 20 percent. In other words, Powell professed confidence in the banking system required only a few hours to look very misplaced, indeed. Both banks have recently reported increasing threats to profitability.
Complacency about the Banking sector appears to be fashionable at the Fed, however. In today's press conference, CNBC's Steve Liesman—the only reporter who asks tough questions at these press conferences—asked Powell why the Fed has done so little to address the increasingly obvious structural weaknesses in the banking sector. (Liesman asked a similar question at the March meeting, to which Powell responded with a deer-in-the-headlights look.) Powell responded to Liesman's question with no details except to insist the Fed has the situation under control and to say that things are fine because banks are actively seeking more liquidity.
What Powell failed to mention is that this search for liquidity is becoming more and more difficult the higher interest rates rise. As the Fed allows rates to return to more normal levels after a decade of financial repression, depositors are moving their money elsewhere in a search for yield above the paltry interest that banks pay in deposits.
The Fed's Low-Interest BubbleThere is no clear way out of this for banks, however. The banking sector has become extremely reliant on business models that assume extremely low interest rates. If interest rates continue to head upward, banks will increasingly find themselves in a position of having to pay out interest at higher rates than they can collect on the older low-interest assets on the banks' balance sheets. In other words, banks will find themselves with negative cash flow and will become insolvent. Given Powell's response to Liesman's question, it is also apparent the Fed has no strategy here except to pump more liquidity—i.e., easy money—into the banking system. Given that price inflation is already well above targets, and at a 35-year high, it's unclear how the Fed thinks it can do this without making price inflation further entrenched.
After all, the Fed's target policy rate remains quite low compared to price inflation. Historically—prior to 2008—the policy rate tended to exceed the CPI inflation rate except in recessionary periods when the Fed was explicitly attempting to "stimulate" the economy out of a recession. Since 2008, however, the relationship has reversed and Fed has continually pushed the target rate below CPI price inflation. With this latest rate hike, the FOMC brings the target rate slightly above the CPI inflation rate (for April) of 5 percent. Powell is likely right that the Fed still has a long way to go before bringing inflation down near the two-percent target.
If the Fed is serious about brining down price inflation, however, it's difficult to see how the Fed can do that while also guaranteeing more liquidity to an obviously fragile banking system. We may be on the leading edge of a new wave of bank failures, the total size of which could dwarf the bank failures of 2008.
Ryan and Zack talk about some of the details from the recently leaked Pentagon documents. They reveal dysfunctional American foreign policy and just how much contempt the US regime has for its own allies.
Additional Resources"What the leaked Pentagon documents reveal — 8 key takeaways" by Paul Adams, Jean Mackenzie, and Antoinette Radford (BBC News): Mises.org/WES_10_A
"Fact Sheet on U.S. Security Assistance to Ukraine" (U.S. Department of Defense, 19 April 2023): Mises.org/WES_10_B
"U.S. doubts Ukraine counteroffensive will yield big gains, leaked document says" by Alex Horton, John Hudson, Isabelle Khurshudyan, and Samuel Oakford (Washington Post): Mises.org/WES_10_C
"Arbitrary Use of Power: Punishing Those Who Expose Not-So-Secret Government Secrets" by Bill Anderson: Mises.org/WES_10_D
Be sure to follow War, Economy, and State at Mises.org/WES.
Washington elites and especially their media have denounced what they once praised: leaking of official documents that show the government has been lying.
Original Article: "Arbitrary Use of Power: Punishing Those Who Expose Not-So-Secret Government Secrets"
This spring marks the twentieth anniversary of the US invasion of Iraq in 2003. After an initial frenzy of war fever in the early years of the war, support for the war has since largely evaporated. Nearly two thirds of veterans now say the war was "not worth fighting." Two thirds of American adults say the same thing. Even among Republican veterans, only a minority say the war was worth it.
These numbers are not surprising. The US obviously failed to achieve its stated objectives in Iraq, and the reasons given to justify the initial invasion were either exaggerations or outright lies. There were no weapons of mass destruction. Iraq was never any threat to Americans. Years after the initial invasion, the US regime still couldn't keep the lights in in Iraq, suicide bombings became an epidemic, and the war paved the way for the spread of the so-called Islamic State, also known as ISIS.
In fact, the war has been such an obvious failure that its supporters are now routinely on the defensive. We've come a long way from the days when war supporters were denouncing all dissenters as traitors or Saddam-lovers, or as being "with the terrorists." Today, many of the war's supporters studiously avoid mentioning the war at all. But many others have been forced to express "regrets" or even offer half-hearted apologies.
This is all certainly insufficient. A "sufficient" response would be a Church-committee-like Congressional investigation of the war and its supporters. This would be followed by legal authorization of lawsuits against the personal property and estates of government officials who prosecuted the war. This would be followed by a tidal wave of lawsuits by maimed soldiers and the families of Americans killed in the war. Foreigners would be able to sue in federal court, as well. George W. Bush and Paul Bremer should be facing financial ruin as should the heirs of Donald Rumsfeld and Colin Powell.
The odds of all that happening are about zero, unfortunately. The more attainable goal at hand, however, is to fight to ensure that the Iraq War and its supporters are never rehabilitated by historians, and the war does not go down in history as some sort of "noble but misguided" conflict. Nor should it be forgotten.
The War's Record of Failure In the wake of 9/11, millions of Americans were primed for war with somebody—anybody—on whom could be pinned the blame for what happened that day. Although Iraq had nothing to do with the 9/11 attacks, a majority of Americans believed it did. Any remotely well-informed person knew this was not the case, but the dominant corporate media did nothing to disabuse the nearly two-thirds of Americans who believed this. Thus, an implied—but never explicitly stated—reason for the war was to combat the terrorists alleged to be within the Hussein regime. To explicitly make the case for the war, however, the US regime falsely claimed the Hussein regime possessed "weapons of mass destruction" (WMDs) it planned to use on Americans. Colin Powell lied to the United Nations about WMDs in an effort to secure international support for the US's planned invasion. Much of the world didn't fall for it, but many Americans certainly did.
The fictional WMDs were the primary justification for the war, but for foreign policy wonks, other justifications were provided as well. The "humanitarian war" myth was used in Iraq as it has been used for most wars in recent decades. The regime insisted Iraqis would be made immensely better off by the war. Further, anti-Iran ideologues pushed the war since they imagined the war could be used to turn the Iraqi regime into a client state that would allow the US to better contain Iran.
Some of the more dedicated prowar ideologues pushed the war as a first step in the forced "democratization" of the world. Iraq, we were told, would be a staging ground for the eventual conversion of the entire Middle East into a region of America-loving liberal democracies. As Sean Yom of the Foreign Policy Research Institute has noted, the Iraq war was part of grand revolutionary global vision in which terrorism and autocracy could be wiped out while also securing access to oil and safety for the State of Israel:
The push for war masked a deeper bipartisan consensus that despotism in the Middle East represented an existential threat to US national interests. Dictatorships bred dissatisfied citizens that could be seduced by the propaganda of terrorist organizations; and friendly democracies, not rapacious autocracies, could be better entrusted with protecting Israel and safeguarding regional oil. Thus, a simplistic logic reigned. If the United States could engender a wave of Middle East democratization, then grateful peoples and the new governments they elected would gladly help satisfy its long-term goals. Such democracy promotion required new diplomatic and economic commitments, such as pressuring governments to curtail repression, ramping up assistance to civil society, and conditioning aid on democratic reforms.
But the keystone was always war. The invasion of Iraq enshrined not just America’s coercive firepower but also the credibility of its liberal commitment. If a post-Saddam Iraq became a shining exemplar of US-built democracy, then every future call for freedom would carry an interminable clause: Democratize, or else we will do it for you.
By these standards, the Iraq War failed in every respect. Obviously, it had nothing to do with 9/11, and thus did not punish any of the perpetrators of terrorism on American soil. Most 9/11 terrorists, after all, had origins within the US regime's ally Saudi Arabia. The WMD's did not exist, and thus the war did not protect any Americans from them. Moreover, the post-war Iraq regime is more supportive of the Iran regime than was the Hussein regime. Iran benefited from the fall of Saddam Hussein. On the humanitarian front, the Iraq war was a mixed bag, at best. The US's callous and incompetent approach to the occupation involved completely disbanding the army which was responsible for keeping domestic civil order and which also offered employment to millions of Iraqis. The subsequent mass unemployment and domestic disorder paved the way for civil war and insurgencies against the United States which also "sucked thousands, if not tens of thousands, of jihadi terrorists into the country." This laid the groundwork for the rise of the so-called Islamic State which swept across northern Iraq in 2014. Those Iraqis who actually survived the American war there now live in an Iraq that is significantly poorer than before the war.
As far as the plan to democratize the world goes, that's a complete failure too. No reasonable person still believes that the United States can swoop in and turn countries into liberal democracies with a "quick and easy" war. That was never anything more than a fantasy among neoconservatives and their allies in the US regime.
Throughout it all, the cost to taxpayers has been at least 1.5 trillion, and if we count future costs of medical care for veterans, it comes to more than 2.5 trillion. Americans are also still paying interest on the enormous debts incurred to finance the war.
It's all been such a failure that even its most dedicated supporters don't even pretend it was a success anymore. Tucker Carlson has fully recanted his earlier warmongering. Perhaps no pundit was more rabid in his support of the war than Max Boot, and even Boot now admits he was wrong, although he couches his "apology" mostly in a book attacking his current enemies in the GOP. Sentiment against the war has even forced George W. Bush to say he "regrets" the war was based on lies—i.e., "flawed" US intelligence on WMDs—although he still can't bring himself to actually apologize for ordering the war. Before his death, Colin Powell admitted he lied about WMDs and said he regrets helping start the war.
The War's Criminality Note that most of this debate ignores the criminality of the war, and the widespread human rights abuses that were both directly and indirectly due to the war. The US regime has even tacitly admitted its agents would be found guilty of war crimes were it subject to international tribunals. This is why the US has always refused to participate in the International Criminal Court treaty. This was recently brought to the fore again when the US government was asked to help the ICC prosecute Vladimir Putin over war crimes allegedly committed in the Ukraine War. The US has refused because "the [US] defence department is firmly opposed on the grounds that the precedent could eventually be turned against US soldiers."
Indeed, the US has long opposed the ICC. As reported by The Hill:
[T]he US maintains that no US official is subject to the ICC. Why is this? Because the US knows that if its were held to the same standards as Putin, the US officials would likely be charged as war criminals by the ICC.
The US, of course, claims to be the arbiter of a "rules-based international order," yet it is apparent the US invasion of Iraq violated the very standards of national sovereignty that the US now invokes as the foundation of its case against the Russian invasion.
To illustrate the true brutality of the US war, we could point to the deaths of hundreds of thousands of Iraqis, the leveling of Fallujah, the use of depleted uranium on civilians, and the admitted war crimes committed by US soldiers and US-paid mercenaries.
This aspect of the war is rarely mentioned even by those who now disavow their former support. It's easy to see why. Now that the war's failures are obvious, the human rights abuses that occurred under the US's watch appear all the more pointless and gratuitous.
The Revisionist Imperative It is important to reiterate the moral and practical failures of the war because the debate over the war is far from over.
Although opinion has overwhelmingly turned against the war for now, it still has its defenders. Victor Davis Hansen, for example, continues to make excuses for the war and has switched to a morally questionable consequentialist claim that some "positive outcomes" from the war justify the lies and carnage. A survey of US senators shows that certain GOP partisans still defend the war: Senators Marco Rubio, Chuck Grassley, and Thom Tillis all apparently believe the war was worth it.
Just because scholarship on the war has turned against the war today, however, doesn't mean this can't change. Historical narratives on wars often swing back and forth over time. As historian Hunt Tooley has pointed out, historical debates about long-over wars continue for decades. Moreover, since the general public rarely reads serious history books, the popular interpretation of the known historical facts can always be twisted or rewritten to reflect current political goals and narratives.
Thus, it remains important to not let up on condemnations of the war and those who supported it. It was a failure in every way. It sowed the seeds of further terrorism and violence. It plunged the US even deeper into debt and inflationary spending. Above all, the war's failures must be remembered the next time the regime tells us it needs yet another war to punish evil and "keep us safe."
Previously I explained Ludwig von Mises’s descriptive philosophy of the consent of individuals as the only thing that gives value to norms and authority. Individuals interpret norms and authority as useful—whether or not they are useful in reality for individuals’ purposes of coexistence. I continue with the explanation of how group consent originates and how it sustains norms and authorities with the help of ideologies and public opinion.
Ideologies and Ideological EntrepreneursIn the first place, the consent of the governed refers to individual consent to ideas, more specifically to systems of ideas that Mises calls “ideologies.” From Misesian theory, the act of consenting to norms and authorities is influenced by an ideology that guides action. Ideologies are standardized sets of purposes and means that facilitate the creation of groups by simplifying individual choices. In Mises’s words:
What creates a group activity is a definite end sought by individuals and the belief of these individuals that cooperating in this group is a suitable means to attain the end sought. A group is a product of human wishes and the ideas about the means to realize these wishes. Its roots are in the value judgments of individuals and in the opinions held by individuals about the effects to be expected from definite means. To deal with social groups adequately and completely, one must start from the actions of the individuals. No group activity can be understood without analyzing the ideology that forms the group and makes it live and work.
Mises’s subjectivist-utilitarian individualism helps us to understand social phenomena on the basis of minimum certainties and by avoiding metaphysical speculations: only individuals exist in a real way, while groups exist only as the action of individuals who share the same ideologies.
In Misesian philosophical individualism, since individuals act, there are no “natural” forms of organization of society; all forms of organization are ideological, and ideologies are human inventions and choices. Therefore, ideologies are explained as immaterial products or social technologies created by concrete individuals and not by an anonymous mass or some metaphysical phantom. Groups are consumers of these products, and social phenomena are the result of these products. Mises explains ideologies as entrepreneurial creations:
There are pioneers who conceive new ideas and design new modes of thinking and acting; there are leaders who guide people along the way these people want to walk, and there are the anonymous masses who follow the leaders. There can be no question of writing history without the names of the pioneers and the leaders. . . . To ascribe the ideas producing historical change to the mass psyche is a manifestation of arbitrary metaphysical prepossession. . . . Mass movements are not inaugurated by anonymous nobodys but by individuals. We do not know the names of the men who in the early days of civilization accomplished the greatest exploits. But we are certain that also the technological and institutional innovations of those early ages were not the result of a sudden flash of inspiration that struck the masses but the work of some individuals who by far surpassed their fellow men.
There is no mass psyche and no mass mind but only ideas held and actions performed by the many in endorsing the opinions of the pioneers and leaders and imitating their conduct. Mobs and crowds too act only under the direction of ringleaders. The common men who constitute the masses are characterized by lack of initiative. They are not passive, they also act, but they act only at the instigation of abetters.
In short, ideologies are sets of standardized ends and means created by intellectuals—the ideological entrepreneur. When adopted by others, ideologies generate group actions, including the action of group consent to certain norms and authorities.
Public Opinion and Political EntrepreneursThe consent of the governed is an individual phenomenon, something that each individual decides on his or her own; however, it is only functional for the support of norms and authorities if there is a sufficient “critical mass”—the minimum number of people necessary for a group phenomenon to take place—to allow governance. Mises calls “public opinion” a number of people who adopt the set of ends and means of an ideology and whose number, significant but not quantified, gives them the capacity to influence the adoption of norms and authorities.
In Misesian theory, all government is ultimately government of public opinion—regardless of the form of government a community formally has or whether its government tends toward freedom or slavery. Mises thus explains the theory of de facto government by public opinion in any community:
The way toward a realistic distinction between freedom and bondage was opened, two hundred years ago, by David Hume’s immortal essay, On the First Principles of Government. Government, taught Hume, is always government of the many by the few. Power is therefore always ultimately on the side of the governed, and the governors have nothing to support them but opinion. This cognition, logically followed to its conclusion, completely changed the discussion concerning liberty. The mechanical and arithmetical point of view was abandoned. If public opinion is ultimately responsible for the structure of government, it is also the agency that determines whether there is freedom or bondage. There is virtually only one factor that has the power to make people unfree—tyrannical public opinion. The struggle for freedom is ultimately not resistance to autocrats or oligarchs but resistance to the despotism of public opinion. It is not the struggle of the many against the few but of minorities—sometimes of a minority of but one man—against the majority. The worst and most dangerous form of absolutist rule is that of an intolerant majority.
While the government is ruled by public opinion, it is exercised by the few in any society. So what is the dynamic between the de facto government of public opinion and the rule of the few? Mises explains that in a business mode, the rulers—the political entrepreneurs—operate as providers of the “service of governing” by satisfying the ideological preferences of public opinion. Unlike intellectuals, or ideological entrepreneurs, who guide public opinion, rulers or political entrepreneurs please it:
A statesman can succeed only insofar as his plans are adjusted to the climate of opinion of his time, that is to the ideas that have got hold of his fellows’ minds. He can become a leader only if he is prepared to guide people along the paths they want to walk and toward the goal they want to attain. A statesman who antagonizes public opinion is doomed to failure. No matter whether he is an autocrat or an officer of a democracy, the politician must give the people what they wish to get, very much as a businessman must supply the customers with the things they wish to acquire.
ConclusionMises—using the subjectivist-utilitarian method of analyzing society: subjective value, entrepreneurial innovation, consumer sovereignty, and action guided by ideas about ends and means—argues that in reality all de jure government is ultimately de facto government by public opinion, which is guided by ideologies.
From a Misesian perspective, the establishment of a representative democracy is a quest for a de jure government of public opinion. This could deal both with the social fact of the power of ideologies and public opinion and with the regulative ideal of a peacefully adapting to changes in the ideological preferences of the population.
Walter Bagehot, as Jim Grant writes, believed that bankers and central bankers should exhibit financial discipline. He would not recognize today's banking world.
Original Article: "From Discipline to No Discipline: The Sorry Evolution of Modern Banking"
The Central bankers of the world, apparently losing confidence that they can fix the inflation they created, are turning to Plan B: blame the people. So we fight each other.
Last week the chief economist of the Bank of England, Huw Pill, said the quiet part out loud, that “British households and businesses need to accept they are poorer and stop seeking pay increases and pushing prices higher.”
Note inflation in the UK is currently running double-digits, with grocery prices up 19% year-on-year. So not getting a raise may mean cutting a meal.
Meanwhile, a poll from a major British insurer found 57% of small businesses in Britain are at risk of closure from rising prices.
So you plebes need to drop a meal and close your family business so we can keep stealing from you.
17436f86-680c-47e9-a892-bbaf476da2cd_538x557.jpg Central Bank Divide and ControlAccording to the Guardian, central bankers actually have a name for this scapegoating of the masses: “Greedflation.”
As in, double-digit inflation had nothing to do with central bankers printing up trillions and handing it to governments, bankers, and—surely by accident—to the rich at the fastest pace in 50 years.
To the point that, as of last year, one in 4 pounds in existence, and almost one in 3 dollars, had been printed in the previous 3 years.
f6f8496a-7993-4711-bf68-9f7ee2aff86f_1282x793.jpg Naturally, the bankers say: Ah, but that was all sheer coincidence. What’s really happening is the people, for some odd reason, suddenly got greedy. They weren't greedy before, you see, but now they are and it must stop.
The beauty of the “Greedflation” narrative is not only does it dodge blame for central banks' institutionalized pillaging, it sets the masses against one another while the elite used central banks to thieve away.
They're quite open about this: A couple of weeks ago the European Central Bank put out a tweet asking “What really drives inflation? Profits or wages?”
Get it, voter? Is it the greedy right-wing capitalists or is it the greedy left-wing unions?
They do this because if they can get half the country to blame the other half, the bankers and bureaucrats who actually caused the problem are off the hook. They can get back to siphoning away our life savings and future prospects while we fight.
It's enough to make you wonder if maybe Americans, or Britons, or Europeans aren't actually at each other's throats. That perhaps we actually agree the system is broken, but our elite does everything they can to set us against one another.
This divide between the masses has been going on for a long time, certainly since the founding of the Federal Reserve, indeed since Western governments took on an activist role that converted them from responsible custodians of the common good—fixing potholes, dredging ports, the "night watchman" state—and turned them into existential political footballs in service to the elite to be weaponized against the masses.
They ran this playbook perfectly last financial crisis, setting the right-populist Tea Party and left-populist Occupy Movement away from the bankers who'd just pillaged the country and turned them against each other. They will, no doubt, try again.
And your part in all this? Make do with less, take one for the team, and fight against your neighbor so the elite can go on robbing all of us, and all of our children, blind.
The Mother of All Greed: GovernmentSo what is driving inflation? It’s greed alright: government greed. In the form of trillions printed up to buy votes and bribe voters into accepting authoritarian lockdowns.
Then, when the resulting inflation tore into the people, central bankers around the world responded by hiking rates to crush the private economy. Keeping the way open for historic deficits by clearing out the rest of us.
We lose our jobs so governments can go on spending, buying votes, and rewarding their friends and sponsors.
The solution is easy. In fact, so easy it will never happen: shrink the government. Cut deficits to zero, and use the savings to fire the bureaucrats and regulators who are holding down job creation, innovation, and the small businesses that are increasingly an endangered species.
Central banks could accomplish this literally tomorrow. By simply standing up and telling their governments: “No More.” No more central bank financing of trillion-dollar deficits, no more central bank making ends meet by crushing the people.
Of course, there’s no chance of this happening. Not until voters actually demand it, either because they’re angry or because they’re desperate.
One might hope voters do get angry. Before they have nothing left to lose.
[Originally published at stonge.substack.com. Subscribe here.]
To understand the economy, most financial experts and commentators rely upon gross domestic product (GDP). The GDP framework looks at the value of final goods and services produced during a particular time interval, usually a quarter or a year.
This statistic is constructed with the view that consumption, not wealth production, drives an economy. Since consumer outlays are the largest part of the overall demand, it is assumed that consumer demand drives economic growth, a fundamental assumption in Keynesian economics.
The belief is that demand for goods gives rise almost immediately to their supply. This framework, however, ignores the stages of production that precede the emergence of the final good. It is not enough to demand goods; there must be the means to accommodate the demand. Real savings determines economic growth. If economic growth requires a particular infrastructure but there are not enough real savings, then economic growth will not occur.
The GDP framework, however, is hostile to savings, as Keynesian economists believe savings weakens consumption. The GDP framework gives the impression that individual activity doesn’t produce goods and services but rather something else called the “economy.” Yet, at no stage does the so-called economy have a life of its own independent of individual action. The so-called economy is a metaphor.
By adding up final goods and services, government statisticians promote the fiction of an economy via the GDP statistic. The GDP framework cannot tell us whether production of final goods and services happens because of real wealth expansion or capital consumption.
For instance, should the government construct a pyramid, which adds nothing to individual well-being, the GDP framework assumes it contributes to economic growth. In reality, the building of the pyramid diverts real savings from wealth-generating activities, thereby stifling the production of wealth.
GDP and the Real Economy—What Is the Relationship?There are serious issues regarding the calculation of real GDP. To calculate it, several things must be added together, and to do that, they must have some unit in common. However, it is not possible to add refrigerators to cars and shirts to obtain the total of final goods. Since the total real output cannot be defined in a meaningful way, it cannot be quantified. To overcome this problem, economists employ total monetary expenditure on goods, which they divide by an average price of those goods. There is, however, a serious problem with this.
Suppose two transactions were conducted. In the first transaction, one TV set is exchanged for $1,000. In the second transaction, one shirt is exchanged for forty dollars. The price or the rate of exchange in the first transaction is $1,000 per TV set. The price in the second transaction is forty dollars per shirt.
In order to calculate the average price, we must add these two ratios and divide them by two. However, $1,000 per TV set cannot be added to forty dollars per shirt, implying that it is not possible to establish an average price. Murray Rothbard wrote, “Thus, any concept of average price level involves adding or multiplying quantities of completely different units of goods, such as butter, hats, sugar, etc., and is therefore meaningless and illegitimate.”
Employing sophisticated methods to calculate the average price level cannot change the fact that it is impossible to establish an average price of unrelated goods and services. Accordingly, the price indices that government statisticians compute are simply arbitrary numbers. If price deflators are meaningless, so is the real GDP statistic.
Even government statisticians admit their calculations are unrealistic. According to J. Steven Landefeld and Robert P. Parker from the Bureau of Economic Analysis:
In particular, it is important to recognize that real GDP is an analytic concept. Despite the name, real GDP is not “real” in the sense that it can, even in principle, be observed or collected directly, in the same sense that current-dollar GDP cannot in principle be observed or collected as the sum of actual spending on final goods and services in the economy. Quantities of apples and oranges can in principle be collected, but they cannot be added to obtain the total quantity of “fruit” output in the economy.
Since it is not possible to quantitatively establish the total of real goods and services, data like real GDP should not be taken seriously. The GDP statistic gives the impression that there is such a thing as the national output. In a market economy, however, wealth is produced by individuals and belongs to them independently.
Goods and services are not produced in totality and supervised by one supreme leader. This means that the entire concept of GDP is devoid of any basis in reality as far as the market economy is concerned. According to Ludwig von Mises, the whole idea that one can establish the value of the national output or the GDP is somewhat far-fetched: “The attempts to determine in money the wealth of a nation or the whole of mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimension of the pyramid of Cheops.”
Mises continues:
If a business calculation values a supply of potatoes at $100, the idea is that it will be possible to sell it or replace it against this sum. If a whole entrepreneurial unit is estimated at $1,000,000 it means that one expects to sell it for this amount, the businessman can convert his property into money, but a nation cannot.
What do we make of claims that the economy, as depicted by real GDP, grew by a particular percentage? All we can say is that this percentage has nothing to do with real economic growth and that it more likely mirrors the pace of monetary pumping.
Since GDP is expressed in dollar terms, it is obvious that its fluctuations will be driven by the fluctuations in the amount of dollars pumped into the economy. From this, we can also infer that a strong real GDP growth rate most likely depicts a weakening in the process of wealth formation. Once it is realized that so-called real economic growth, as depicted by real GDP, mirrors fluctuations in the money supply growth rate, it becomes clear that an economic boom has nothing to do with real economic expansion.
On the contrary, a boom is about real economic contraction since it undermines real savings—the heart of real economic growth. It is no wonder that in the GDP framework, the central bank can cause real economic growth, and most commentators who slavishly follow this framework believe that this is so.
There is no shortage of so-called economic research designed to produce “scientific support” for popular views that, by means of monetary pumping, the central bank can grow the economy. However, these studies can reach no other conclusion since GDP is a close relative of the money stock.
ConclusionReal GDP growth rate does not measure the real strength of an economy but rather reflects monetary turnover adjusted by a dubious statistic called the price deflator. Obviously, then, the more money is pumped, all other things being equal, the stronger the economy appears to be.
It is not surprising Keynesian economists believe that the Fed can “drive” the economy since the central bank can influence the GDP growth rate by means of monetary pumping. Through the real GDP statistic, Fed policy makers and government officials create an illusion that they can create economic growth. In reality, economic intervention by the Federal Reserve and the government in the long run can only make things worse.
Official Washington and its Court Media are up in arms that someone has told the truth via leaking government documents. They won't rest until he is punished severely.
Original Article: "Endangering Washington's Divine Right to Deceive"
This Audio Mises Wire is generously sponsored by Christopher Condon.
A mom in the neighborhood recently made trouble. Macroeconomic trouble. Here is a way to spot such trouble, and how to help nurture the goodness in our economic way of life.
A few months back her boy went door to door, confidently introducing himself, explaining his purpose, and handing us a detailed flier: “Twelve-year-old boy willing to work.” He was trying to earn money to go to sailing school. I was impressed. My wife was impressed. We told our kids to be impressed.
There is virtue in hard work and initiative, and such virtue is doubled when it involves tweens and teens. I commend the boy and the mom—both of whom were complete strangers to me.
But then things turned bad. Not with the boy—he was great. I called him to bring our empty trash cans back up to the house one day when we would be out of town. I promised him ten dollars upon my return. He was thrilled and he performed the task with what I imagine was great alacrity. Never have my trash cans been so well brought up to the house.
Things turned bad when I got the text from Mom: “It was an easy task. No need to pay.”
A Dangerous Underlying PremiseI concede that the task was easy and ten dollars was very generous. Heck, I probably could have negotiated the boy down to five dollars! That he actually had a reservation wage of zero was both remarkable and a missed opportunity to avoid transgressing child labor laws.
I also readily concede that charity and neighborliness are lovely and important. But this was something else. The mom’s sequitur was “easy; ergo, free”—an analogue to the more familiar “hard; ergo, expensive.” In this, she had slipped into economic (and moral) reasoning that is everywhere in society and everywhere dangerous. Economists call it the labor theory of value.
In simple terms, the theory states that the amount of hard labor put into a product or service is what determines its value (and price). The harder the work, the more value generated, and thus the more the worker should be remunerated. Sounds innocent enough.
Indeed, so easily does such logic enter into the brain that it is deeply embedded in our moral sensibility. It is the intuition telling us that the hard work and commitment of teachers ought to be better remunerated. It is the impulse telling us that the per-throw, per-word, per-hour, and per-post earnings of, respectively, athletes, actors, CEOs and Instagram personalities is unjustly high.
The mom clearly calculated the effort of the boy and was embarrassed that the effort did not align with the remuneration. She wanted the boy to learn the value of hard work. What was there to learn in this easy-money situation? Maybe something unseemly.
Neoclassical Economic PerspectiveI saw the learning opportunity differently. His mom and I were going to wrestle for the soul of this child and for the future of our economic order.
Value, as most economists recognize since the marginal revolution of the late nineteenth century, is not actually determined by calculating the number of hours of production. Rather, value is determined by the customer—by how much the customer appreciates the product relative to availability. Value is inherently subjective.
In what will be known as the “trash can debacle of 2023,” I clearly and dearly valued trash can service. Trash cans on the curb would signal absence and invite ne’er-do-wells to break in and steal my lovely tchotchkes and shiny baubles. I would have paid twenty dollars. Geesh, maybe more!
The boy got lucky by my conundrum. But this luck was not without merit. He was an entrepreneur. He came up with the idea, developed excellent flyers, and then built up the courage to go door-to-door and look complete strangers in the eye and make an impression. He also had to remember that between prealgebra and LEGOs he had to retrieve trash cans in the cold. Heck, he was probably anxious about it for days!
The labor theory of value errs by directing us to calculate the most visible. But there was much more benefit to me than could be gleaned in the easy movement of empty objects. And much more went into moving those empty objects than walking the twenty yards to my house. As Roman philosopher Seneca (and renowned football coach and plagiarist Vince Lombardi) stated, “Luck is when opportunity meets preparation.”
An Alternative MoralityThus my moral contribution to this child’s upbringing: Your value is in your whole person, not in just your “labor.” Your ideas will have value in today’s society. Your gumption will have value. Your character too. Figure out what the world appreciates. You will earn well and improve the lot of others.
Adam Smith saw morality in such wealth-seeking spirit. The twelve-year-old boy was my butcher or brewer or baker that day. He did not offer me services out of a charitable spirit, but rather out of a selfish spirit to get to sailing school. And that is ok. Look at the outcome, not the intention. He effectively provided me alms (or what economists call “consumer surplus”).
Smith was born three hundred years ago this year. His kind of moral thinking threatened the monopoly of political and spiritual leaders of his time. It does the same today. Alexandria Ocasio-Cortez would like you to think that we often exchange money for the alienated souls of laborers. Pope Francis insists that labor transactions are “win-lose” events between haves and have-nots.
My exchange with the boy says otherwise. In markets, we exchange wants for provisions, needs for fulfillments, and dreams for realizations. We are all have-nots becoming haves, and haves providing to have-nots.
Continuing EducationIn the end, I paid the boy and did not preach. The morality of the market is often learned simply by participating in it.
If the boy and I continue to do business together this year, we will both be better off. Moreover, to ensure continued transactions, he will likely keep himself upstanding and I will likely avoid being a boor and a brute (this article notwithstanding).
This upcoming year my neighborhood will experience a demonstration of Smith’s invisible hand as well as Montesquieu’s doux commerce. It is a demonstration replicated over and over across free societies—one where diverse strangers meet, solve each other’s disparate problems, and behave in ways that lend to tolerance, democracy, peace, and trust.
Such a society is a cause worth donating to. So find that neighborhood kid willing to work, and make sure to pay. You will be nurturing the miraculous sentiment that trade has its virtues. In doing so, you will be paying it forward for all of us.
Last week the House passed legislation increasing the debt ceiling. The bill was supported by all but four Republicans. For some Republicans, this was the first time they had ever voted for a debt ceiling increase. Perhaps the reason they did so this time was because the legislation also promised to reduce federal spending by $4.5 trillion over the next decade. Most of those spending reductions are achieved by rolling back Fiscal Year spending to 2022 levels and then limiting increases in spending to one percent for the next ten years. The bill also returns unspent COVID relief money to the US Treasury and eliminates President Biden’s student loan forgiveness programs.
Perhaps the most significant part of the bill is the REINS Act. This legislation requires congressional approval of any new federal regulation that will have an impact of more than $100 million, will have significant harmful impact on the economy, or will increase consumer prices. Even though the bill increases spending and debt, there are reasons a supporter of limited government might vote for it.
However even in the unlikely event that this bill is passed in the Senate and signed into law by President Biden, it is unlikely that the one percent spending cap would remain in force for the full ten years. Historically, spending caps imposed as part of a balanced budget or debt ceiling deal do not last for more than one or two Congressional terms. This is because every spending program is “protected” by members of Congress whose constituents and/or donors benefit from the program. This process already occurred with this bill before it was even voted on, as Speaker McCarthy had to remove provisions limiting ethanol subsidies to appease several farm state Republicans.
Surely lobbyists for the military industrial complex are already plotting to use hysteria over China, Putin, Iran, or one of the US’s many other designed enemies to justify greater than one percent increase in military spending.
The only reason the US government is able to run up such huge deficits without experiencing a complete economic meltdown is the dollar’s world reserve currency status. But the growing de-dollarization movement-fueled by the US government’s fiscal recklessness and hyper-interventionist foreign policy should be a wake-up call to Congress.
Sadly, few in DC seem to be paying attention.
The government’s fiscal situation will soon worsen, as both the Social Security and Medicare trust funds will likely be bankrupt within the next decade, forcing Congress to find an additional $116 trillion to fully fund them.
The looming economic crisis is a symptom of our moral and philosophic crisis. Too many Americans have bought into the lie that government can and should provide them with economic and physical safety while promoting “global democracy” abroad. Therefore, the most important step in the liberty movement now is convincing more people to apply the same moral code to theft and murder committed by government as they apply to those same crimes by private citizens. The government, at the very least, should be held to the same moral codes as the people it governs.
Ensuring that government follows the same nonaggression principle as law-abiding citizens is the key to a society of freedom, peace, and prosperity.
Reprinted with permission from the author.
Even when currency is backed by gold, governments have many political reasons to pursue national, territorial currencies. Now there are hundreds of national currencies. It didn't have to be this way.
Original Article: "Why Do Most Countries Have Their Own Currency? Governments Wanted It That Way."
The Austrian business cycle theory teaches us that low interest rates manipulated by the central bank lead to malinvestments, which are cleared when the central bank lets rates rise, reflecting a truer cost of capital. A real-time example is happening in the United States commercial office real estate market. Combine that with the government’s covid lockdowns, which forced employees to work from home. Now, employees never want to change out of their pajamas while on the clock. Notwithstanding Jamie Dimon’s call for JPMorgan Chase & Co. employees to return to the office five days a week, most employers have acquiesced to their employees, and the need for office space has diminished.
In downtown Louisville, Kentucky, the twenty-nine-story Fifth Third Bank building, which is only half occupied, just sold for $9 million. The building contains 374,400 square feet, making the purchase price twenty-four dollars per square foot, a small fraction of what it would cost to build the high-rise. The sellers bought the building in 2001 for $34.8 million, according to Voit Real Estate partner Christopher Drzyzga. On LinkedIn, Drzyzga linked to an article about the sale, leading the post with “You make your money on the buy” and asking for “Thoughts on this deal?”
The more thoughtful comments from lenders and real estate professionals included one that said, “a couple months ago we looked at a $18/sf refi in Memphis which seemed amazing until we saw far nicer Class A office sales for as low as $9/sf.” There was more than one comment saying the buyers may have paid too much, referencing ten dollars per square foot sales in similar-sized cities.
I wrote recently about Brookfield walking away from office buildings in downtown Los Angeles.
Wolf Richter of Wolf Street has also listed a number of other office defaults and losses in a recent article.
Blackstone just sold office towers in Santa Ana, California, for $82 million after buying it for $129 million. The towers changed hands in 2007 for $183.8 million.
Blackstone (again) bought a twenty-six-story building in 2014 for $605 million, borrowing $308 million against it. By March 2022, the value of the tower had dropped so far below the loan value ($308 million) that they walked away.
Parkway Property sold the 960,000-square-foot San Felipe Plaza in Houston, Texas, for $82.8 million in late March. Thomas Properties had bought the property in 2005 for $156.5 million, before Parkway bought Thomas.
The Chetrit Group sold the 617,000-square-foot tower at 850 Third Avenue in Manhattan to its lender, HPS Investment Partners, for $266 million after having paid $422 million for it in 2019.
The lender Argentic Investment Management has listed the 1923 Barneys New York Building at 115 Seventh Avenue for sale for around $30 million after taking possession for $49.5 million. The seven-story building is vacant. The previous owner that defaulted had purchased the building in 2014 for $57 million.
The vacant forty-six-story 1.4 million square foot office tower formerly called “One AT&T Center,” in downtown St. Louis, Missouri, sold for $4.1 million in April 2022 in a foreclosure sale. In 2006, the property had been purchased for $205 million and became the collateral of a $112 million mortgage.
Union Bank is trying to sell its headquarters tower at 350 California in San Francisco, California, and lease back a portion of it. The bank listed the building for sale last year at $250 million but pulled that listing and relisted it in February for 52 percent off—$120 million.
Another lender, Wells Fargo, tried to sell its 550 California tower in 2022 for $160 million. The bank pulled the listing and will try again this year at a discount of 67 percent off the original listing price, around $53 million, according to the San Francisco Business Times.
Other commenters to Drzyzga’s post mentioned converting the Fifth Third Bank building into apartments. At least one successful investor disagrees. “It’s one asset class [office buildings] that just has to get redone, and redone meaning demolished,” said Hayman Capital Management’s Kyle Bass. As far as converting office to residential, he told Bloomberg, “You have to jackhammer rebar and concrete. You have to re-plumb everything. And when you finish it, it just doesn’t feel right. You wouldn’t want to live there.”
Meanwhile, the apartment market may have a coming supply problem. When rates were low, builders went wild. Wolf Richter pointed out the bad news on the supply side, saying,
In 2022, construction started on 547,400 units in multifamily buildings of two units and larger, the highest since 1986, when the last multifamily boom ended. And it was up by 55% from the peak this millennium in 2005. And it followed the 473,800 units that were started in 2021, the most since 1987.
Meanwhile, thirty-two hundred units in Houston were just sold at a foreclosure auction. The units went for $196.5 million ($61,125 per door), while debt on the property was $229 million. The units were purchased in 2021 with variable interest rate debt that rose from 3.4 percent to 8 percent.
“A record $151.8 billion in U.S. mortgages backed by rental apartment buildings are set to expire this year, and $940.1 billion are set to expire over the next five years, according to Trepp,” the Wall Street Journal reports.
That wall of refinance requests will arrive just as banks are drawing back. “Over a longer time horizon, [this] will likely shift CRE lending from the banking system to private capital at higher spreads,” hedge fund Ellington Management Group said in a report.
Carmen Arroyo and John Sage write in Bloomberg, “The turmoil sparked by the US regional bank crisis combined with rising loan defaults on troubled properties has burned small banks, prompting them to scale back on commercial real estate lending as they reduce risk and shrink balance sheets.”
Some might say, “Well, all real estate is local.” Sure, but higher interest rates and tight lending conditions are everywhere.
Adherents of leftist dogma increasingly push the notion that teachers should be permitted to distract, confuse, or influence their students by discussing their personal beliefs, ideas, and private activities and choices in the classroom.
Original Article: "How the Woke Left Is Destroying Education"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Economists are becoming more appreciative of how historical episodes shape future events. The resurgence of history as an explanatory tool has led economists to publish a series of papers collectively known as the “Deep Roots” literature. These papers cover a wide range of topics, but Africa has been a strong focus due to its unique history of underdevelopment. Some trace Africa’s fortunes and misfortunes to the character of precolonial institutions.
Considering that the transatlantic slave trade occupies a watershed moment in African history, several studies detail its disruptive effects on African societies. Research shows that by prioritizing male exports, the trade led to gender imbalances and high rates of polygyny across Africa. Other research suggests that the transatlantic slave trade increased absolutism in precolonial Africa by 17–35 percent, thereby reducing democracy and liberalism. Prior to the transatlantic slave trade, Africa possessed autocratic institutions, so the slave trade is not the genesis of African autocracy; however, the trade amplified autocratic tendencies.
Debates have also been provoked about the impact of the transatlantic slave trade on Africa’s demography, with many contending that it stalled economic growth by substantially depleting Africa’s labor force. Yet this argument is not without flaws because Joseph C. Miller asserts in a 1982 paper that environmental burdens played a more significant role in restricting population growth and stirring social change in West Central Africa than did the impact of slave exports.
Demographic changes were an obvious outcome of the transatlantic slave trade; however, the trade did not affect all regions of Africa equally. Interestingly, studies on the trade’s demographic impact are becoming infrequent, and more scholars are exploring the trade’s consequences on entrepreneurship. Entrepreneurship is a collaborative venture, so it is more likely to scale in high-trust environments, but the slave trade fractured trust and social cohesion in Africa.
The slave trade created incentives for people to betray allies by selling them into slavery. Due to the intensity of the slave trade, people became less trusting of friends and strangers. Testing the association between contemporary developing countries and historical shocks, Ikenna Stanley-Paschal Uzuegbunam and coauthors conclude that social entrepreneurship has been inhibited in places where the slave trade fomented mistrust. Areas that were exposed to the slave trade still suffer from low trust and, as a result, are more likely to struggle in developing community enterprises.
Equally important is a paper by Lamar Pierce and Jason A. Snyder articulating that firms in areas that have suffered great exposure to the slave trade are more likely to exhibit concentrated ownership or be sole proprietors. A possible explanation is that the slave trade weakened institutions and lowered social capital. With lower social capital, entrepreneurs will be demotivated to formalize businesses into limited liability companies. In the long term, this adversely affects one’s ability to raise capital from large and impersonal groups.
Seemingly, the slave trade has negative effects, but did it lead to anything positive? James Fenske, in a review of Africa’s economic history, cites data arguing that the slave trade made affected places more commercial:
Evans and Richardson (1995) note that, after 1700, slaves were captured for export from further and further inland. This necessitated the emergence of new long-distance trading networks, the proliferation of slave caravans, and the development of credit arrangements. This expansion may also have encouraged division between the enslavement and marketing functions, allowing coastal states to become more commercially oriented.
Similarly, according to the 2017 research of Gabriele Cappelli and Joerg Baten, towns that were exposed to the slave trade benefited from European human capital, experienced development, and had a more numerate population. Further, Adeel Malik and Vanessa Bouaroudj posit in a fascinating paper that individuals whose ancestors were historically exposed to the slave trade have higher levels of educational attainment relative to individuals from ethnicities with less exposure to the slave trade. Malik and Bouaroudj note that these effects are primarily driven by coastal countries and, on another note, could imply the transmission of European human capital.
Connecting current developments to past episodes is difficult, and the effects of the past can fade away. However, even when these effects remain, countries are still not enslaved to the past. Indeed, the slave trade resulted in some negative effects for Africans, but it also led to favorable outcomes. Admitting so is simply a statement of fact rather than an endorsement of European imperialism.
Donald Trump legally pays hush money and prosecutors try to fashion a crime from it. However, if a president lies and thousands of people die, it is called foreign policy.
Original Article: "Presidents Are Legally Immune for Their Most Dangerous Crimes"
This Audio Mises Wire is generously sponsored by Christopher Condon.
"The foundation of any and every civilization, including our own, is private ownership of the means of production. Whoever wishes to criticize modern civilization, therefore, begins with private property." — Ludwig von Mises
Every day, more and more Americans are awakening to the reality that the institutions in control of this nation are failing them. From violence in the streets, inflation in our stores, increasing tyranny and censorship, and absolute buffoonery on public display in halls of political power. The ruling class is getting richer while most of us suffer, and new generations are becoming increasingly warped by the dangerous ideologies of the left.
Join the Mises Institute in Reno, Nevada, for an event dedicated to key issues of our time: Property, Civilization, and Culture. Our lineup will feature some of our leading intellectual thinkers:
Ron Unz owns and operates unz.com, a website heavily censored by Big Tech for publishing and hosting content dangerous to the regime. He is a leader in business, politics, and publishing and has long been a fearless voice of the threats to property, civilization, and culture.
Tom DiLorenzo will speak on how respect for property rights made America rich and the threats to capitalism being waged from both the left and right.
David Gordon will speak to the greatest thinkers of the Western tradition, a lesson in the ideas that American universities are seeking to erase from society.
Bill Anderson will speak on an episode that identified the modern race-baiting playbook of the corporate press, the Duke Lacrosse scandal, and its lessons for better understanding the culture wars today.
This event will be held on Saturday, May 20, at The Depot Craft Brewery & Distillery, 325 E 4th St, Reno. Registration is $60 and includes a catered lunch. Tentatively, the event will begin at 12:00 p.m. and end at 3:00 p.m.
Students apply here for a student scholarship (covers admission only).
Register now!
We are hearing calls both from right and left for an amicable national divorce. In truth, the states were never "hitched" in the first place, at least not by any plausible definition of marriage.
Original Article: "Do We Need a "National Divorce"? It's Not a New Idea"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Mark discusses something bigger than the Disney layoffs: the Wall Street Journal's April 25 frontpage article on investing in gold. It would seem that the recent rise of the price of gold is the result of tired, dumb, and disillusioned crypto currency investors throwing in the towel to "chase shiny new object—gold." Mark explains that the rational reasons for investing in gold loom larger than the entire Magic Kingdom!
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Everyone will agree that the American tax system is a mess. Taxes are far too high, and the patchwork system is so complicated that even IRS officials don’t understand it. Hence the evident need for some sort of dramatic, even drastic, reform. As often happens, a group of dedicated and determined reformers has arisen to satisfy that need. But before we embrace this new gospel, we should heed the old maxim about jumping from the frying pan into the fire, and also remember the warning of the great H.L. Mencken, who defined “reform” as “Mainly a conspiracy of prehensile charlatans to mulct the American taxpayer.” And we should also bear in mind that all acts of government, however worthy they may seem, have a way of winding up solving no problems and only making matters worse.
Working within current tax realities, the reformers’ plans are varied and change nearly daily, as they meet conflicting political pressures. But whether they be Kemp-Kasten, Bradley-Gephardt, the Treasury plan of fall, 1984 (Regan, or Reagan I), or the final Reagan plan of spring, 1985 (Reagan II), there is one common and seemingly simple goal: that every person or group should pay the same proportional tax on their net income, and that all deductions, exemptions, and shelters be abolished in the name of this uniform proportional tax (a “flat tax with no exemptions”).
The flat tax reformers have much in common with militant ideologues that we have become all too familiar with in the twentieth century. In the first place, they are egalitarians in this case, assuming it to be sinful or at least grossly “unfair” for any person or group to escape the scythe of the great uniform tax. Second, and along with this egalitarianism, they assume in brusque and lordly fashion that they alone represent and embody the “general interest,” and that all objections to a uniform flat tax may be quickly dismissed as the self-interested croakings of the “special interests.” It doesn’t seem to matter if the “special interests” encompass most of the American populace; they must be unceremoniously swept aside to achieve the flat tax paradise. The fact that most of the impetus for this and other reforms comes from academic economists puts the icing on the flat tax cake. Academic idealists have always been accustomed to sweeping aside everyone else’s interests and concerns as petty and “special,” while they speak automatically for the larger interests of mankind. At best, the reformers cavalierly overlook the enormous amount of harm and pain they will inflict in the course of their grandiose reform.
One example: the flat tax would impose an enormous amount of harm and damage on every American homeowner. In their wisdom, the flat taxers have decided that deduction of interest payments on your mortgage is a “subsidy” granted by the tax system, and that your true net income would permit no such deduction. They have also concluded that the unwitting homeowner also enjoys another “subsidy” from the government: failure to tax his “imputed rent”; that is, the amount that he would have had to pay in rent if he had been renting the house instead of owning it. One of the many problems with the latter proposal is that the poor homeowner is never able to pay his “imputed” taxes; no, his taxes would have to be paid in cold cash, even though his income is “psychic” and not earned in money. But we press on. A third body blow to the homeowner would be the flat taxer’s insistence on eliminating federal tax deductions for state and local taxes, most of which are property taxes on one’s home. Thus, we have a three-fold tax increase inflicted on the homeowner, and the effect of this one-two-three punch would be a permanent lowering of the market value of one’s home, which consists of the present value of expected future returns from the house.
These are but a few of the many grave consequences and damages that would flow from the reformers’ measures. But the reformers literally do not care; no pains (almost invariably suffered by others) must be permitted to block or delay the speedy achievement of their Utopia. Any alterations are only grudging concessions to the fierce resistance of the “special interests” to the advent of the flat taxers’ New Jerusalem. Thus, the Regan plan of fall, 1984 (Reagan I), proposed to increase drastically the capital gains tax, toward the ideal of raising it to the precise level of the income tax, and also suggested a sharp lowering of oil depletion allowances. Great resistance was offered to the plan by risky venture capitalists, who would be particularly crushed by a high capital gains tax, and by the similarly damaged oil interests, always considered sinister in the popular imagination. As a result, the reformers were forced to abandon these two aspects of their Grand Plan in Reagan II. But in the long run, these forced retreats are not important; their goal—a uniform across-the-board flat tax—always remains the same.
But why is this plan so grand? So vitally important that our pain and hardships should be treated as nothing? Here the reformers offer little argument. Basically, their reasons boil down to two: their tax system would be simple (you could calculate your tax on a postcard), and above all, it would be fair.
The Argument for SimplicityMaking out your taxes, the reformers claim, would be simplicity itself. No more back-breaking work trying to figure out what’s going on, no more hiring tax lawyers or accountants. But the sweet simplicity of the argument can be disposed of very quickly. In the first place, anyone who wants simplicity can have it now, by using the short E-Z form, and two-thirds of Americans do so at the present time. So then the question to ask is: why do one-third of us choose complexity by spending many painful hours over the complex form, and why do we hire expensive lawyers and accountants to aid us? Surely, not because we love complexity and expense for their own sakes, but because we believe that there are things in life worse than complexity, and one of them is paying more taxes! We are willing to suffer some complexity in order to lower some of our monstrous tax burden. And by eliminating our deductions, exemptions, shelters, and so on, the reformers are imposing compulsory simplicity against our wishes. They are truly what the great nineteenth century Swiss historian Jacob Burckhardt said of the statist intellectuals of his day, “terrible simplifiers.”
But the joke is on us, for the reformers’ system would really in no way be simple. We would still have to go through a complex and murky maze. For the key to the flat taxers is that the uniform proportionate tax is to be levied on all net income. But what is net income? The answers are far from simple, and good arguments can be found on either side. The interesting and crucial fact is that, on each of these arguments, the flat taxers invariably come down against the harried taxpayer, and in favor of bringing ever more of our income and assets into the greedy maw of the taxing Leviathan State.
Thus, are “capital gains” income? The reformers say yes, and call for taxing it to the same extent as ordinary income. Western Europe has not gone down the economic drain partly because its capital gains taxes have always been far lower than its income taxes, but this fact does not and cannot count in the harsh calculus of our reformers. Should capital gains be taxed as they accrue on our books or only as they are realized in cash? Once again, the reformers opt for accrual, grabbing our assets at an earlier date, and heedless of our problem of paying taxes in money while our “gains” have only accrued in our psyche or on paper. Are the losses in our tax shelters phony, or should they be treated as real losses to write off our income? The reformers insist that they are phony, and that therefore they must be disregarded when our taxes are estimated. But who is to say so? Who is to say that if I buy a horse farm in Virginia, and suffer losses, that these are losses I welcome in order to reduce my taxes? Who is equipped to look into my heart and mind and find out if these losses are “genuine” or not? And since when has the IRS acquired occult powers, along with the rest of its totalitarian armamentarium?
And what about the cherished American institution of the threemartini lunch? Reformers from Carter to Reagan have tried to crush that lunch, and to claim that these are not genuine or worthy business expenses. Net income is arrived at by deducting costs from gross income. But is the three-martini lunch a “genuine” cost of business, or is it a sneaky way of earning income that is not subject to tax? Who knows? Who knows how much genuine business, if any, is conducted at such lunches? Once again, the reformers know! And they know that such deductions can be swept away.
And there is the problem of the corporation. Corporations are entities. Should their income be taxed at the same rate as personal income? Economists have come to recognize that there is no living thing called a corporation. A corporate income tax is a double tax upon stockholders, first as a “corporation,” and next upon their personal income. But while economists have been increasingly calling for abolition of the corporate tax, the reformers have in their wisdom decided that since all entities’ income must be taxed uniformly, the corporate income tax must be included and even raised if necessary to be taxed at the same rate.
None of these arguments is simple, but it’s instructive that in each and every case, the reformers have come down fiercely on the side of including all these incomes or assets in the taxation category. Their bias in favor of tax, tax, and more tax should be clear by now.
The Argument for FairnessThe major argument of the flat taxers is that it is “fairness” that demands a swift forced march toward their ideal. “Fairness” is worth almost any cost. But it is strange that this ethical argument comes from a profession (academic economists) who have made a career of loudly proclaiming that all of their doctrines are “value-free science” that have nothing to do with ethics. So when did they become expert ethicists? Indeed, the fairness argument is generally and blithely assumed to be true, after which the reformers can gleefully denounce every resister to higher or broader taxes as embodiments of sinister “special” interests.
One argument holds that fairness demands that everyone pay his or her equal share of the “services” of government. Let us set aside for a moment the surely important point that these “services” are often dubious, are inordinately expensive, and sometimes mean that the taxpayer is forced to pay for his own surveillance and oppression. Since when does “fairness” demand that everyone pay the same proportion of his income for a good or service? Mixed in with the argument for fairness is the view that government should do nothing to penalize one industry or occupation, or subsidize another. This neutral-to-the-market argument puts the flat taxers in the guise of militant adherents of free enterprise. This sounds admirable, but why does it imply that everyone should pay the same proportion of his income? When David Rockefeller and I buy a loaf of Wonder Bread at the supermarket, each of us pays the same price; no one is there to inspect our annual incomes and levy a proportionate fine. No one forces Rockefeller to pay $1,000 for a loaf of Wonder Bread, just because his income is a thousand times that of the next man. The free market tends toward uniform and equal pricing for each product; one price for everyone, whatever that person’s race, creed, class, color, or income. Why should it suddenly be different for taxes? In short, a quiet but highly important change has here been made in the concept of “equal,” from equal and uniform price for all on the free market, to equal proportion to income in the hands of the flat taxers.
“Subsidy” True and FalseAt the heart of the fairness and neutral-to-the-market assumptions of the flat taxers is their express desire to eliminate subsidies, which are assumed to be both evil and non-neutral to the free market. The problem here is an equivocation on the term “subsidy.” It’s certainly true that our tax and budget system is riddled with subsidies, properly defined as taxing one group of people to line the pockets of another, or robbing Peter to pay Paul. If you or I are taxed to subsidize tobacco growers, or highway builders, or contractors, or welfare recipients, then these are indeed subsidies, cases where productive people are being robbed by the government to support groups who function, in effect, as parasites upon the producers. These are subsidies that should be eliminated forthwith. But what about, say, deductions for payment of interest on mortgages, tax credits for investment, or deductions for payment of state and local taxes? In what sense are they “subsidies”? Instead, what is really happening here is that some people—homeowners, investors, or state and local taxpayers—are graciously allowed by the government to keep more of their own money than they would have otherwise. I submit that being allowed to keep more of your hard-earned money is not a subsidy in any true sense; it simply means that you are being fleeced less intensely than you would have been. If a robber assaults you on the highway, and is about to run off with all of your funds, and you persuade him to let you keep some bus fare, is he “subsidizing” you? Surely not. Being allowed to keep your own money can scarcely be called a subsidy.
We are now able to see through two very different senses of the concept of “special interest.” It is all too true that the tobacco planter or the highway contractor who eagerly demands government funds are special interests aggressively dedicated to fleecing the taxpayer. But the investor, or the homeowner, or the venture capitalist, or whatever, who lobbies to be able to keep ‘more of his own money is a “special interest” in a very different sense. They are resisters properly dedicated to defending their own rights and assets against government assault. “Special” they might be, but they are, whether they know it or not, engaged in the noble effort of defending the rights and the freedoms of all of us against assault and depredation.
By focusing on defenders of their property and rights as alleged subsidy-seekers, the flat taxers are engaging in a strategy of “divide and conquer.” The reformers have taken a growing movement of rebellion, resentment, and call for lower taxes and split the taxpayer forces by encouraging one set of us to seek out and persecute the other set. The flat taxers have managed to shift the focus of discussion from “lower taxes for all” to the proposition: “If you want your taxes to be lower, seek out and confiscate the assets of those bad people whose taxes are ‘unfairly’ low.” The focus becomes raising the other guy’s taxes instead of lowering yours and everyone else’s. This clever ploy of the high taxers unfortunately seems to be working.
The flat taxers like to proclaim their plan to be “revenue-neutral,” that is, the overall tax burden will not change. The lowering of some taxes on upper income groups, then, must be offset by “broadening the base,” or by extending the tax burden to more people and sources of income. But who is to guarantee that once the base is broadened, and more income sources are brought under government’s sway, it will not follow its natural proclivities and once again raise taxes for everyone?
What Is a Loophole?It is ironic that the slogan “close the loopholes,” which used to be a hallmark of left-liberalism, has now been adopted by the Reagan administration and by the flat taxers. The great free-market economist Ludwig von Mises once rose up in a conference on taxation that devoted much energy to the closing of tax loopholes, and asked the crucial question: “What is a loophole?” He answered that the assumption of the loophole theorists seemed to be that all of everyone’s income really belongs to the government, and that if the government fails to tax all of it away, it is thereby leaving a “loophole” that must be closed. The same charge applies to the deductions, exemptions, credits, and all the other loopholes out of a flat tax so condemned by our tax reformers.
Let us now consider the vexed question of ending deductibility of state and local taxes—a vital point to our reformers—because ending deductibility will provide a huge bonanza for our federal tax collectors. The flat taxers argue that by allowing deductions, the citizens of low-tax cities and states are “subsidizing” the citizens of high-tax states, and that an end to deductions will put all regions on a plane of fairness and uniformity. Governor Mario Cuomo, on behalf of the notoriously tax-oppressed citizens of New York, accepted the charge of subsidy, and then eloquently threw it back to the critics of New York, asking, in effect, “What’s wrong with a subsidy? Are you against the citizens of New York subsidizing tobacco farmers in North Carolina, or subsidizing highway contractors in Iowa?” As a rare consistent supporter of left-liberalism, Cuomo was able to reveal the hypocrisy of those whose attacks on subsidies habitually suffer from a convenient double (or triple) standard. Being a left-liberal, Cuomo was not equipped to go one step further—to step outside the mammoth subsidy system and ask the crucial question: Are Iowans really subsidizing New Yorkers under deductibility? Or are the oppressed and cruelly taxed New Yorkers being spared from being doubly taxed on their own income? The average New Yorker is not responsible for his high taxation; he suffers unwillingly under the highest sales, income, and property taxes in the country. Why should he suffer more than the average Iowan? What is so “fair” about that?
The Reagan administration supporters of ending deductibility offer a pragmatic or strategic argument in reply. If you tax New Yorkers higher up by eliminating deductions, then they will rise up and roll back New York state and city taxes to the lower Iowan level. This is the old the-worse-the-better argument that unfortunately, in addition to being strategic rather than moral, never seems to work. One of the main arguments for bringing in the income tax in the early twentieth century was that now, in contrast to the indirect tariff, everyone would directly feel such a tax, and therefore the public would rise up to keep taxes low. Obviously it didn’t work that way. Instead, we kept and increased tariffs, and we exploited a new tax source and raised it to gigantic and crippling proportions.
“Fairness”: Equal SlaveryOne dramatic way of looking at our tax system in relation to the question of subsidy or fairness is to assume for a moment that this is 1850, and that the question arises in the North as to what should be done with slaves who had managed to escape from the South. Let us assume that both sides of a growing debate are ardently in favor of freedom and are opposed to slavery. Group A hails the slaves’ escape and advocates setting them free. But Group B argues as follows:
We are, of course, just as ardent a champion of slave freedom as the people of Group A. But we believe it is unfair for one group of slaves to escape, while the remainder of their brothers and sisters remain in slavery. Therefore, we hold that these escapees should be shipped back into slavery until such time as all the slaves can be freed together and simultaneously.
What would we think of such an argument? To call it specious would be a kindly understatement. But I submit that believers in the free market are arguing in precisely the same way when they say that all taxes must be uniform, and that all specific tax deductions or exemptions must be canceled until such time as everyone’s taxes can be reduced uniformly. In both cases, the egalitarians are arguing not for equal freedom but for equal slavery or equal robbery in the name of “fairness.” In both cases, the rebuttal holds that the enslavement or plunder of one group can in no way justify the enslavement or plunder of another, be it in the name of fairness, equity, or whatever.
The Argument for Misallocation of ResourcesThe most sophisticated argument of the flat tax reformers is that deductions, exemptions, and loopholes distort the allocation of resources from what it would be on the free market, and therefore should be abolished. This is an integral part of the neutrality-to-the-market argument, and is particularly insidious, because it makes the reformers appear to be knowledgeable and dedicated adherents of the free market. Let us take, for example, two credits or deductions: an investment tax credit, and an energy credit. The reformers argue that the result of the “subsidy” of tax credits is that more resources are now going into investment or energy, and less are going into other areas, than would on the free market, and that therefore these credits should be eliminated.
It is true that more resources are now going into investment, energy, and a slew of other areas, than would have in a purely free market system. But the reformers leave out a crucial point: what is the alternative? If investment, energy, or other credits or deductions are abolished, resources will not automatically go into more productive areas; instead, they go into government, via higher taxes. In short, the alternatives to energy credits are not merely Energy or All Other Consumption and Investment. They are threefold: Energy, Other Forms of Expenditure, and Government. And a higher tax will simply be wasted, thrown down the rathole of unproductive and profligate government spending. In short, there is no waste—no misallocation—like government; anything else would be an improvement.
The Way Out of the MessThe policy conclusions that flow from our analysis are diametrically opposed to those of the flat taxers. In looking at the history of reform and at the arguments of the flat taxers, one can almost sympathize with Richard L. Doernberg, professor of law at Emory University, who throws up his hands and concludes that “We have a lousy system; let’s leave it alone or it will get worse.” Doernberg urges that the current tax code, as bad as it is, should remain precisely the way it is forever, so that at least people will know the score and be able to plan around its provisions.
But we can do better than that. We have to look differently at taxation. We have to stop looking at taxes as a mighty system for achieving social goals, which merely needs to be made “fair” and rational in order to usher in Utopia. We have to start looking at taxation as a vast system of robbery and oppression, by which some people are enabled to live coercively and parasitically at the expense of others. We must realize that from the point of view of justice or of economic prosperity, the less people are taxed, the better. That is why we should rejoice at every new loophole, new credit, new manifestation of the “underground” economy. The Soviet Union can produce or work only to the extent that individuals are able to avoid the myriad of controls, taxes, and regulations. The same is true of most Third World countries, and the same is increasingly true of us. Every economic activity that escapes taxes and controls is not only a blow for freedom and property rights; it is also one more instance of a free flow of productive energy getting out from under parasitic repression.
That is why we should welcome every new loophole, shelter, credit, or exemption, and work, not to shut them down but to expand them to include everyone else, including ourselves.
If, then, the standard for proper reform is to lower any and all taxes as much as possible, how might government services be supplied? To answer we must take a very hard look at government services. Are they “services,” or are they embodiments of repression? Or are they “services,” at best, that no one really wants? And if they are genuine services, wouldn’t they be supplied more efficiently, as well as voluntarily, by private enterprise? And if our friends the tax reformers are so all-fired concerned about the free market, shouldn’t they answer this question: Why not put your emphasis on privatizing and thereby drastically lowering/eliminating government services? Wouldn’t that be really neutral to, and consistent with, the free market? How do we explain the fact that if we go back to the earlier years of our nation, the level of government spending and taxation—even adjusted for inflation and population growth—was enormously less, on every level of jurisdiction, than it is today? And yet the Republic survived, and even flourished.
We must, in short, get past the tax reformers’ favorite ploy of revenue neutrality. Why must total revenue remain the same? Instead, it should be lowered drastically, and as much as possible.
We now return to the old question of “fairness”: if there are any taxes or government spending left after our drastic cuts, how should the remaining taxes be levied? Here we reopen the point that fairness is the closest possible approximation to neutrality toward the free market. One method would be user fees, so that only direct users would pay for a service and there would be no extra coercion on non-users. For the rest, we should look at the free-market system of one price for a good or service. We might then suggest a system not of equal proportional income tax, but of equal tax, period. This is the age-old system of the “head tax,” in which every citizen pays an equal amount each year to the government, in payment for whatever services may have been conferred upon him from governments’ existence during that year. The abolition of the income tax would mean the end of snooping and surveillance by the IRS as well as the elimination of vast economic distortions and oppression caused by the system; the end of sales and property taxes would also be a great boon to the freedom and prosperity of Americans.
We would then and only then have a tax system that truly, and at long last, fulfilled the proclaimed goals of our flat tax reformers. For here would be a system that would be truly simple, truly fair, and genuinely neutral to the free market. Short of that goal, we could settle temporarily for former Congressman Ron Paul’s (R-TX) interesting variant of the flat tax proposal: reducing all income tax rates to 10 percent, while at the same time keeping all existing deductions, credits, and exemptions. The principle should be clear: to support all reductions in taxes, whether they be by lower rates or widening of exemption and deductions; and to oppose all rate increases or exemption decreases. In short, to seek in every instance to remove the blight of taxation as much as possible. Here is one reform, at least, that could not fall under Mencken’s definition of a plot to injure the American taxpayer.
[Reprinted from The Logic of Action Two (Auburn, Ala.: Mises Institute, 1997). Available in The Rothbard Reader.]
College campuses have long been battlegrounds between due process for those accused of sexual misconduct (innocent until proven guilty) and legal privileges for alleged victims who many automatically believe (guilty until proven innocent).
The front line is Title IX, the 1972 federal law designed to curb sex discrimination in schools. President Joe Biden’s Department of Education (DOE) wants to add gender identity to the mix. The players in this renewed conflict are Senator John Kennedy of Louisiana, who has introduced a bill to champion due process rights on campus, and Biden’s DOE, who is expanding the definition of discrimination.
The specific issue addressed by the DOE is athletic eligibility. The issue is a political flash point that revolves around the question, “Should transgendered male-to-females compete in women’s sports or is their strength advantage unfair to biological females?” This article examines the competing and overlapping provisions of the draft Title IX regulation, the 2023 draft sports regulation, and Kennedy’s bill.
The Biden executive order 14021 (March 8, 2021) that sparked the current conflict is entitled “Guaranteeing an Educational Environment Free from Discrimination on the Basis of Sex, including Sexual Orientation or Gender Identity.” It is a statement of intent. On April 6, 2023, the DOE rolled out an implementation mechanism for the executive order “Proposed Change to its Title IX Regulations on Students’ Eligibility for Athletic Teams.”
The language in the 116-page document is confusing and vague, but the core of it redefines terms such as “discrimination” and favorably includes gender identity into the framework for athletic eligibility. The opening summary states that the DOE will “set out a standard that would govern a recipient’s adoption or application of sex-related criteria” that might “limit or deny a student’s eligibility to participate on a male or female athletic team consistent with their gender identity.” This regulation presumes transgendered athletes are able participate in their chosen categories unless the school identifies safety reasons to not allow this.
Backlash from progressives has been swift. The “Proposed Change” is insufficiently protrans, they claim. “These regulations specify methods schools may employ to determine a student’s sex, including invasive physical examinations,” complains the transgender journalist Erin Reed.
Moreover, the DOE document would give school districts the final say on whether injecting gender identity into athletics is problematic. Progressives react with horror. Actually, this is no issue at all. As with past DOE recommendations, schools are likely to over comply not only due to the extreme liberal bias on most campuses but also to avoid a catastrophic loss of federal funds. The “Proposed Change” makes this threat explicitly.
And, on the other side, there is a renewed push for due process rights. On March 28, Kennedy introduced the Ensuring Fairness for Students Act that would codify due process protections for an accused into campus Title IX proceedings. It may be the finest due process legislation in decades. And it is timely. Donald Trump’s secretary of education Elizabeth DeVos (2017 to 2021) worked with some success to install traditional legal protections into campus hearings.
Now Kennedy accuses the Biden administration of trying to “roll back fair proceedings on school campuses by making students guilty until proven innocent.” The bill would provide other traditional due process protections, such as written notice of the allegations, objective evaluation of evidence, and cross-examination.
Kennedy’s bill is timely for at least two reasons. First, a few days after the bill was introduced, the Foundation for Individual Rights in Education released its report “Spotlight on Campus Due Process 2022,” which is based on a national survey. Among the findings: 72 percent of universities did not provide timely notice of allegations to those accused of wrongdoing; 60 percent do not assure the presumption of innocence; only 15 percent of institutions guarantee that both accusers and the accused could see the evidence on hand. To the extent DeVos was successful, that progress is being eroded.
Second, the DOE’s “Proposed Change” focuses on transgender eligibility for sports, but this is almost guaranteed to expand into areas like harassment. The inevitability of the expansion is based on several factors, including the wording of Biden’s executive order “Guaranteeing an Educational Environment Free From Discrimination on the Basis of Sex, Including Sexual Orientation or Gender Identity.” Title IX is a broad antidiscrimination measure, not limited to sports. Moreover, the history of Title IX is one of constant redefinition and expansion. Even before the “Proposed Change” is enacted, progressives are pushing hard for more protections.
If gender harassment is included in Title IX, then it will be as subjective and legally vague as past sexual harassment standards which hinged on whether the complainant felt offended. The “Proposed Change” repeatedly prohibits causing “embarrassment” to those who gender identify but nowhere does it define or describe what causes or constitutes embarrassment.
Does it include a refusal to use a complicated and evolving set of self-declared pronouns from “xemself” and “zirself” to “ney” and “zie”? What if a student simply gets them wrong? If the mistake embarrasses a trans person, is it punishable? This provision violates what is called the vagueness doctrine. In constitutional law, a statute is void when it is so vague as to be either unenforceable or incomprehensible to the average person.
One thing is clear: if sexual misconduct expands to gender misconduct, many more people—almost always men—will be accused of abuse. This would further chill free speech on already cold campuses. It would also destroy innocent human beings. Accused violators will be punished, tried, and even expelled with scarlet Ts (transphobic) branded on their academic records. Without due process, Title IX proceedings are kangaroo courts.
People who oppose due process are opposing common decency in the legal treatment of others. With bitter irony, they do so in the name of protecting the vulnerable—in this case, the gender identified. Anyone who needs protection against common decency and truth is not pursuing justice. They want privilege and power. If the voice of reason can still be heard, people need to hear it now.
In March 2009, in the midst of recession, then Treasury secretary Timothy Geithner was pressed to respond on the question of whether or not another currency—possibly the IMF’s special drawing rights (SDRs)—might displace the US dollar as the dominant global reserve currency. Geithner responded that he’s open to more use of SDRs but then felt the need to clarify with “The dollar remains the world’s dominant reserve currency and I think that’s likely to continue for a long period of time.”
It’s not a coincidence that this occurred in the context of financial crises, recession, and some big changes in the global economy. Crises have a tendency to bring out questions about the dollar’s reserve-currency status. Similar discussions occurred in the late 1970s as the United States was experiencing stagflation. Policy makers and central bankers began discussing the possible benefits of “diversifying” away from the dollar in the global economy. It is true that during the 1970s the dollar’s reserve-currency status suffered somewhat to the benefit of the deutsche mark and Japanese yen. Nonetheless, decades later, the dollar remains the undisputed favorite.
Yet no global reserve currency retains its place forever. History is a graveyard for currencies that were once considered essential to global commerce, from the Spanish silver dollar in the sixteenth century to the Dutch guilder and French franc of later times.
The last time we saw a dominant global currency give way to its successor was in the first half of the twentieth century, when British pound sterling lost its position as the preferred global reserve currency and was replaced by the US dollar. History never quite repeats itself, but the story behind the fall of sterling and the rise of the dollar contains many familiar events such as war, inflation, and government spending. Many observers of the global currency scene continue to regard the dollar as untouchable, but their predecessors said the same thing about sterling. Indeed, the decline of Britain’s once exalted currency is a powerful cautionary tale about how global currencies lose their power.
The Rise of the Pound SterlingIn its day, sterling was immensely important and central to global commerce. Since at least the early eighteenth century, sterling was among the most frequently traded and most trusted national currencies, and this helped establish London as an international financial center. Even after the Napoleonic Wars—period during which sterling was temporarily delinked from gold—the currency’s relatively swift return to gold ensured sterling would dominate international finance by the late nineteenth century. This dominance was greatly enhanced by the fact the British economy was among the most industrialized and strongest in the world. On top of this, the British state was thought to intervene in its monetary system less than other states and also believed to be more likely to make good on promises to convert banknotes into gold.
As Bo Karlstroem notes, during the late nineteenth century:
The overwhelming predominance of Great Britain in world trade . . . reflected the particular economic strength of Great Britain as the first country to reap the benefits of the industrial revolution. British industrial goods were in demand the world over, while Britain had a great appetite for raw materials and foodstuffs; it has been estimated that in 1860 the British market was absorbing over 30 per cent of the exports of all the other countries in the world. The share fell as other countries, notably Germany and France, reached the point of “take-off” into industrial growth, but in the 1890’s the percentage was still over 20. The trading in goods was accompanied by a wide range of exports of services, such as shipping and insurance, from Great Britain.
This was about more than the mere size of the British economy, however. After all, the American economy had surpassed the British economy in size in the 1870s. By 1900, the German economy was larger than the British economy as well. Yet until the First World War, sterling’s role in international reserves, trade, and investment remained disproportionately large.
For example, according to Barry Eichengreen, the sterling market was especially “deep and liquid” owing partly to the size of London’s global networks with the rest of the British Empire. Yet also key was the British regime’s reluctance to meddle in the gold mechanism, Eichengreen noted: “While the Bank of England occasionally resorted to the gold devices, modifying the effective price of gold, it never seriously interfered with the freedom of nonresidents to export gold. Few if any other financial centers could claim all these attributes.” At this time, both the Bank of France and the German Reichsbank engaged in various policies to make it more difficult for market participants to export gold. Meanwhile, the US dollar remained in the race to become a global reserve currency. Jeffrey Frankel explains that
prior to 1913, the dollar’s main problem was not size (the first criterion for an international currency) since the U.S. economy had surpassed the UK economy, at least as measured by national output, in 1872. Rather, the country lacked financial markets that were deep, liquid, dependable, and open. Indeed, it even lacked a central bank, which was considered a prerequisite for the development of markets in instruments such as bankers’ acceptances.
Then as now, regimes and their friends in the financial sector viewed central banks as the best insurers of liquidity and of uniformity in a currency. It is no coincidence, for example, that sterling’s rise to power in Europe came in the decades following the British “financial revolution” and the creation of the Bank of England. Because the Americans lacked the institutional framework preferred by global investors and bankers, sterling reigned supreme throughout the nineteenth century and into the early twentieth century.
(It should be noted this lack of a central bank and a global currency did not prevent enormous gains in ordinary Americans’ standard of living throughout the late nineteenth and early twentieth centuries.)
The Decline of SterlingSterling’s undisputed reign came to an end with the First World War. The British state’s massive war debts and its abandonment of the classical gold standard crippled sterling’s ability to attract the same level of trust and investment it had before the war. Sterling’s competitors—except for the dollar—were sidelined as well. Karlstroem writes:
Many European countries introduced various kinds of controls on foreign exchange transactions during World War I, mainly in order to conserve their holdings of dollars; and European central banks stopped converting their currencies into gold on demand, thereby turning away from the gold standard. The United States, however, continued to follow its policy of convertibility. At the end of the war, there was a large pent-up demand from Europe for U.S. goods, and this demand was backed by rather substantial holdings of dollars. The United States was, of course, willing to supply these goods and it was also capable of doing so, not having suffered from the destruction of production facilities caused by the war as other countries had done.
The world’s central banks embraced both the dollar and the US’s new central bank, investing in dollars as reserves while private-sector bankers and importers in Europe demanded dollars to buy American goods.
Competition among Global CurrenciesYet sterling did not totally abandon the field to the dollar. When exactly the dollar overtook sterling as the most preferred currency is still a matter of debate, and it is an empirical question. According to Eichengreen and Marc Flandreau, the dollar eclipsed sterling as early as “the mid-1920s and . . . then widened its lead in the second half of the decade,” in part because it remained tied to gold after Britain went off the gold standard in 1931. This, however, was not the end of the story, as the gold standard did not last much longer in the US either. As Eichengreen and Flandreau note: “With the devaluation of the dollar in 1933, sterling regained its place as the leading reserve currency. Contrary to much of the literature on reserve currency status, it does not appear that dominance, once lost, is gone forever.”
Indeed, it looks like the interwar years were characterized by a heated competition among major global currencies, with both sterling and the dollar near the top at various times. Eichengreen and Flandreau continue:
Our findings challenge the very notion that there necessarily exists a dominant reserve currency. They throw into question the idea that network effects and external scale economies leave room for only one significant international currency. A reasonable reading of the evidence is that sterling and the dollar shared reserve-currency status in the interwar period. Both New York and London were liquid financial markets. Neither the U.S. nor the UK had significant capital controls. Both were attractive places to hold reserves. As a group, central banks split their reserves between them, not wishing to put all their eggs in one basket.
What had been an “oligopoly” of global currencies dominated by sterling, the mark, the French franc was replaced after the war by a contest between the dollar and sterling. This could have gone on indefinitely had not the Second World War dealt another heavy blow to sterling. The war would prove to be even more devastating than the Great War for Britain in terms of human lives, infrastructure, finances, and fiscal stability. The coming ascendance of the dollar was so obvious by 1944 that Europe embraced the Bretton Woods system, which placed the dollar at the center of a new gold-exchange standard in which only the dollar was linked to gold.
Sterling was further wounded by mounting public debt and inflation in Britain. In 1949, the British state deliberately devalued sterling against the dollar—and therefore also against gold. Meanwhile, many of the world’s largest economies embraced capital controls. European regimes embraced even more intervention in the marketplace, increasing foreign exchange risk for those holding sterling or francs after the war. (The German, economy, of course, had been utterly destroyed in the war.) All of this further enhanced the dollar’s position. (Sterling was devalued a second time in 1967.) Meanwhile, American productive capacity continued to grow, further boosting international demand for dollars.
At this point, the dollar began an upward trend in global demand that would peak in the 1970s. The dollar reached levels of dominance rarely experienced by any currency. In 1955, sterling and the dollar were nearly equal in that both currencies made up about 45 percent of foreign reserves. Thirty years later, the dollar had surged to over 75 percent of all reserves and sterling had plummeted to under 10 percent.
distribution_reserves.jpg ###### Source: Catherine R. Schenk, “The Retirement of Sterling as a Reserve Currency after 1945: Lessons for the US Dollar?,” World Financial Review, May–June 2011.
Even after the US abandoned the remnants of the gold standard in 1971—thus ending the Bretton Woods system—no currency rivaled the dollar. This was partly due to the fact that even the end of Bretton Woods could not erase the fact that the dollar continued to be the most accessible and reliable currency in market terms. After the Second World War, Eichengreen and Flandreau note, “American economic and financial dominance was overwhelming, New York was the only truly deep and liquid financial market, and the U.S. was [the] only country to shun capital controls—and . . . the dollar, therefore, dominated the reserve holdings of central banks.”
Lessons from the Demise of SterlingIn many ways, the decline of sterling as a global currency resulted from self-inflicted wounds. The British state chose to needlessly enter the First World War, incurring enormous war debts. It then attempted to apply wartime central planning to the domestic economy permanently, further hampering economic growth. Even worse, British participation in the First World War helped pave the way for an aggressive German state in the 1930s. The Second World War essentially bankrupted the United Kingdom, and the resulting inflation made the decline of sterling inevitable. Throughout most of the twentieth century, sterling inflation outpaced dollar inflation. Repeated devaluations sealed sterling’s fate. The dollar thus inherited a position that had been to a large extent unilaterally abandoned by sterling.
It remains to be seen how long the dollar will retain this position. So far, however, there are few signs of an imminent collapse on a level that would rival what happened to sterling after the Second World War.
Yes, the dollar has certainly retreated from its unparalleled highs in the mid-1970s, when it made up nearly 80 percent of global reserves. Yet the dollar is still clearly the most favored currency, with a role in the global economy well exceeding that of its closest rival, the euro. More than 55 percent of global reserves are in dollars, and only around 20 percent are in euros.
As British policy makers doomed sterling with their own policy choices, American policy makers can still do the same. Eichengreen warns:
Whether the dollar retains its reserve currency role depends, first and foremost, on America’s own policies. Serious economic mismanagement would lead to the substitution of other reserve currencies for the dollar. In this context, serious mismanagement means policies that allow unsustainably large current account deficits to persist, lead to the accumulation of large external debts, and result in a high rate of U.S. inflation and dollar depreciation.
However, recent experience suggests that “serious economic mismanagement” is here to stay. Were US policy makers to rein in deficits and allow interest rates to rise, all while keeping price inflation below that experienced in Japan and Europe, we could say the dollar faces no likely rivals. Yet it is extremely unlikely such reforms will actually happen.
This heightens the odds that the dollar will again face competition from other currencies as investors, central banks, and savers seek to avoid keeping all their eggs in the increasingly risky dollar basket.
Unlike the situation that existed after the First World War, however, there is no other economy or currency that stands ready to truly replace today’s favored currency. A more likely outcome is currency diversification such as existed in the interwar period, when dollars and sterling became essentially peer currencies and francs served a significant but supporting role.
The degree to which other currencies may look attractive compared to the dollar is up to American policy makers themselves. As Daniel Lacalle recently noted, no currency is poised to easily replace the dollar. But American policy makers could still cause the dollar to self-destruct by embracing even more reckless debt, spending, and monetary inflation.
Recorded in Birmingham, Alabama on April 22, 2023.
From the Mises Institute's recent event in Birmingham, Alabama dedicated to the global threat of "The Great Reset".
The latest Canadian housing data showed a slight uptick in prices and a pause from 2022’s correction, and a new wave of dip buyers has already begun to call this a buying opportunity, as if valuations at ten times average annual income and 50 percent more expensive than their cash flows were anything but still extremely overvalued.
This is merely the most recent development in what appears to be the end of Canada’s massive housing bubble and the beginning of a potential 2008-style recession for the Canadian economy.
Statistical EvidenceFollowing the 2008 global financial crisis (from which Canada emerged relatively unscathed), the Bank of Canada’s record-low interest rate policy fueled an unprecedented bull market in Canadian real estate.
While prices showed signs of reversal in 2019, the events of 2020 provided justification for the Bank of Canada’s mind-boggling balance sheet expansion, which virtually quintupled in a matter of months.
Central planners had decided to pour metaphorical gasoline on the country’s already raging-hot fire, creating an outright manic buying frenzy.
The penultimate state of the bubble in late 2021 was astronomical:
- Residential property prices in Toronto and Vancouver had doubled to quadrupled in little more than a decade.
- Canada’s overall nonfinancial debt amounted to almost 350 percent of gross domestic product (GDP) and household debt surpassed 110 percent of GDP, both higher than the levels seen in the United States before the 2008 global financial crisis.
- Homeownership rates surpassed the two-thirds mark.
- Canadian real estate, construction, and financial sectors combined to form over 28 percent of GDP!
By almost every statistical measure, Canada’s housing bubble was one of the largest on record.
This Time It’s DifferentAs is typical of every bubble, timeless tropes were regurgitated in order to justify the madness.
The most often repeated argument was that the Canada Mortgage and Housing Corporation (CMHC), Canada’s public mortgage insurer and a Canadian version of Fannie Mae, would never allow a bubble to occur because they are supposedly more responsible than US regulators.
This argument fails on numerous counts:
- The CMHC’s stated mission is to ensure housing affordability for Canadians, and this is ingeniously “accomplished” by artificially injecting billions of dollars into the real estate market. Now that Canadian housing is less affordable than ever, their other statements should undoubtedly be questioned.
- If one of the CMHC’s objectives was to prevent the unsustainable overleveraging typical of every bubble, they unequivocally failed because mortgage debt in Canada has blown past any level that could be called sustainable.
- This argument also asks that you put aside your common sense and ignore observable reality as multimillion-dollar fixer-uppers, bidding wars for shacks, and widespread exuberant optimism were all easily identifiable examples of mania.
- Most ironically of all, pointing to a government mortgage insurer, one of the entities most responsible for providing the moral hazard that fueled the boom in the first place, as an entity that would prevent a bubble from taking place demonstrates a severe lack of economic education and a goldfish-like memory following the bailouts of Fannie Mae and Freddie Mac.
Canadian BankingFollowing the 2008 global financial crisis, Canadian banks gained a reputation for stability due to their resiliency throughout decades of cyclical global recessions.
But the question that must be asked is not whether the Canadian financial system has seen a crisis in recent decades, but whether it has seen a bubble the likes of which occurred over this past cycle.
The seeds of a bust are sown throughout a boom in the form of malinvestments rendered profitable by artificially low interest rates, and thus the severity of a recession is ultimately determined by the degree to which malinvestment permeates the economy.
It is safe to say that after more than a decade of nationwide real estate malinvestment, a significant portion of Canadian bank assets is correlated to housing, which will expose Canadian banks to the threat of insolvency in the event of a large-scale market correction.
But both the government of Canada and the Bank of Canada have shown a penchant for intervention and will almost certainly prevent the failure of any major Canadian bank, transferring significant losses to the taxpayer.
ConclusionCanada is inarguably a wealthy nation with a complex capital structure and an abundance of natural resources, but this will not stop a painful housing correction from taking place.
While central bank–monetized government stimulus may prevent nominal valuations from falling, relative prices will inevitably regress to historical levels. One hopes that a return to economic sanity will be accompanied by a return to free market principles and a reduction in state interventionism.
Although equality and "equity" are modern buzzwords, the only way to reach such a social nirvana is through violent means. Do we really want to go there?
Original Article: "Equality Requires State Violence"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Revolt against Humanity: Imagining a Future without Us
by Adam Kirsch
Columbia Global Reports, 2023; 100 pp.
Aristotle says in book 1 of the Nicomachean Ethics that “happiness, therefore, being found to be something final and self-sufficient, is the End at which all actions aim.” The Greek word eudaimonia, “happiness” in this edition, is often translated as “flourishing.”
Isn’t it obviously true that you want your life to flourish? Of course, all sorts of bad things can happen to you, but they aren’t what you aim for. Some people think there is more to morality than happiness this, or define “morality” so that it includes only duties to others, but even those who do this usually acknowledge that seeking your own happiness is important.
In his new book, Adam Kirsch, a poet and literary critic who edits the Wall Street Journal’s weekend Review section, writes about people who deny that you should seek your own happiness, giving them credence that their views don’t merit. Antihumanists are one group of people that doesn’t value flourishing. They believe that human beings will bring about a catastrophe not only for themselves but also for other species if present levels of carbon emissions continue.
Antihumanists don’t think our damage is confined to climate. In the present era of the “Anthropocene,” the fashionable term, human beings have upset the balance of nature. It’s not that the world was a paradise before our arrival, but we have made things much worse:
The idea that we will destroy ourselves in despoiling the planet is more radically unsettling [than the threat of nuclear war]. It means that humanity is endangered not only by our acknowledged vices, such as hatred and violence, but by pursuing aims that we ordinarily consider good and natural: prosperity, comfort, increase of our kind.
In my view, the apocalyptic scenarios of the climate change propagandists are gross exaggerations, but that is not an argument that needs to be considered here. (For a good discussion, see Alex Epstein’s Fossil Future, which I reviewed here.)
Suppose that you do think an imminent climate catastrophe is coming soon unless we “do something.” In that case, shouldn’t we try to arrange our activities so as to disturb our lives as little as possible? The antihumanists don’t think so. Since we have done so much damage to nature, they think that it would be a better idea to get rid of us.
If the only way to restore the sovereignty of nature is for human civilization to collapse, then [Paul] Kingsnorth welcomes the prospect. . . . If he must choose between nature and humanity, Kingsnorth chooses the former, with full awareness of where such a decision may lead.
Kirsch notes that some philosophers sympathetic to antihumanism think that to state their position properly requires a radical modification of ordinary language:
The first step in changing our picture of the world is to change the language we use to describe it. . . . For the theorists of antihumanism, language presents a particular problem, because it is an exclusively human mode of cognition. Paradoxically, as soon as we state our intention to think outside or against our humanity, we have failed, since this is a statement only human beings could conceive or understand.
An interesting problem confronts those who take so negative a stance toward human beings. If our activities do indeed put us at odds with other types of life or the “balance of nature,” why should we care about that? Why is it in our interest to sacrifice ourselves for an assortment of plants and animals?
One response would be to deny that values, meaning what ought to be pursued, are directly related to people who want them. According to this position, values are “intrinsic”; something is valuable just in itself. Among the intrinsic values, though, are the relative values or interests of various living things (and nonliving, in some cases). Accordingly, what humans value doesn’t count or counts negatively. But people who think this must account for moral motivation: even if there are intrinsic values, it needs to be shown why they should matter to us.
I don’t think the antihumanists have supplied such an account, but that hasn’t stopped them from wishing we were all dead:
One prominent example is Patricia MacCormack, whose book The Antihuman Manifesto: Activism for the End of the Anthropocene (2020) calls for “an end to the human both conceptually as exceptionalized and actually as a species.” The second part of the demand is to be met by “the deceleration of human life through cessation of reproduction” and by “advocating for suicide [and euthanasia].”
Most readers will find views of this sort repugnant, but is such a reaction rational? Kirsch says:
Racial mixing and homosexuality also once looked like defilement to most people; slavery and the caste system were things humanity held dear for millennia. Entrenched evils can only be overcome when they are subject to rational scrutiny. . . . The wisdom of repugnance means that reason falls silent when it most needs to be heard.
Kirsch hasn’t succeeded in blocking the wisdom of repugnance. As he says, people can reject with horror proposals to change evils to which they are blind, but this shows only that repugnance isn’t the final word. Often rational examination will sustain the proposal or at least find nothing amiss with it, but this doesn’t show repugnance counts for nothing. Those who suggest change bear the burden of proof. They must come up with arguments sufficient to outweigh our repugnance. Reason is the final judge, but reformers need to start from where we are now.
Laughter has much to be said for it also. Kirsch takes this seriously, but how can you avoid laughing at it, and why should you try?
[Political theorist Jane Bennett] writes about coming across a random pile of trash in a Baltimore storm drain and suddenly seeing it in a new way: “the materiality of the glove, the rat, the pollen, the bottle cap, and the stick started to shimmer and spark.” . . .
“Why advocate the vitality of matter? Because my hunch is that the image of dead or thoroughly instrumentalized matter feeds human hubris and our earth-destroying fantasies of conquest and consumption,” she writes. Once we recognize living and nonliving matter alike as kindred to us in essential ways, we are less likely to destroy or exploit it.
Trash heaps of the world unite!
Are NASA contracts propping up the private space industry? Or are Government regulations stifling the private space race?
Dr. Eli Dourado, Senior Research Fellow with the Center for Growth and Opportunity at Utah State University, joins Bob to discuss the recent "successful failure" of the exploded SpaceX launch and the differences between government and privately funded space travel.
Dr. Dourado on NASA contracting private companies to build their shuttles: Mises.org/HAP393a
Dr. Dourado on the Artemis moon program: Mises.org/HAP393b
As markets settle down after the last set of bank failures, political elites claim the crisis is behind us. But it is not over, not by a long shot.
Original Article: "No, the Financial Crisis Is Not Over"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The human tendency to kill what one fears asserted itself on April 4, 2023, as a Manhattan district attorney called Donald Trump into his office to issue a vague threat.
What crime Trump was being charged with is known only to Alvin Bragg, but the rest of the world is left playing a guessing game.
Trump supporters are rallying everyone with a heartbeat to support their candidate. It’s survival time. Even a few Trump haters are finding a way to support Trump. Not that they want him back in the White House, perish the thought, but the Bragg travesty is more than even they can stand.
If Trump doesn’t win in 2024, the crumbling edifice that was once this country will come to rival the sack of Rome. Policies will amount to anything and everything that will wipe out the economy. Joe Biden or some other surrogate will continue his attacks on the country he was hired to defend.
Even if Trump is nominated and is heavily favored against a woke World Economic Forum (WEF) democrat, there’s the so far unsolved problem of how to get an honest vote count. Did the recently elected Brandon Johnson for Chicago’s mayor actually receive more votes than Paul Vallas as an expression of Chicagoans preference for high crime rates? Much of the suffering in the last three years has been on the back of a broken democracy.
Suppose Trump wins and serves as the forty-seventh president. Trump will be persecuted to his grave and so will any follow-up frontpiece that doesn’t embrace the woke WEF agenda.
For those who find deliverance in wokeness and bugs for breakfast, have at it. There are many who want no part of it.
The incendiary Marjorie Taylor Greene has suggested a national divorce wherein red states would separate from the blue states, although Steve Bannon absolutely rejects it. Journalist Jason Whitlock wants some kind of separation, whether through a national divorce or secession.
The Challenges of SeparationWith separation comes issues. Let’s look at a few of them.
Would the Federal Reserve, the government’s money printing agency, go red or blue, and how will it be decided? Would the red states eliminate the central bank and rely on a market-chosen money such as gold or silver—or bitcoin? How many Trump patriots understand what the Fed does and its role in our economic decline? Are most of them Ron Paul supporters in his drive to end the Fed? When they sing the National Anthem, are they including the Fed and the Internal Revenue Service, the two major bloodsuckers of the middle class? How free do they feel when they hit the part about the land of the free, knowing their government can push them around any way it wants if “national security” or some other excuse is invoked?
How many Americans understand the essential nature of the government that lords over them? Will red states create a kinder, gentler government with fewer regulations and taxes? How will red states defend themselves against foreign aggressors (including against blue states)? Will both continue on the offense as the government has since the CIA emerged from Harry Truman’s pen in 1947?
Would red states be able to keep out blue-state citizens, such as the agitators who infiltrated the January 6 protest? Could the red states do it without violations of personal liberty?
Would foreign rivals such as China, Russia, or North Korea assist the blue states in obliterating the red states?
Would the red states eliminate the blue states with a false flag?
Members of both red and blue states have embraced the idea of a coercive form of government that the United States Constitution was meant to mitigate. However, it didn’t work. In 1867, Lysander Spooner detailed many of the Constitution’s shortcomings in his essay The Constitution of No Authority concluding that “whether the Constitution really be one thing, or another, this much is certain—that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist” (emphasis mine).
He wrote this over 150 years ago, before the Fed, before the income tax, before the world wars the government was eager to join and the smaller wars of choice that continue to this day, and now with the looming prospect of nuclear Armageddon.
A Stateless GovernmentThe idea that coercive governments represent a contradiction in theory has been developed in such works as Robert P. Murphy’s article, “But Wouldn’t Warlords Take Over?,” videos of Hans-Hermann Hoppe presenting his thesis, “State or Private Law Society?,” and Murray Rothbard’s Power and Market: Government and the Economy. There are many more. My own book, Do Not Consent, argues that the government we need is the government that’s right in front of our face.
Finding something other than the gang of bandits running our lives will forever be only a dream if we don’t have a radical cultural change. The late Gary North said it best when he wrote in 2015:
We need to know what we have lost. We need to know why we have lost it. Only then will it become clear that there must be a restoration of liberty. This means a restoration of personal responsibility on a scale that is almost unimaginable today. It is going to come, but only after the great default has at last bankrupted the federal government. (emphasis mine)
When the government goes belly-up, it will be as close to a state of nature as we will ever experience. It will be a time to start fresh without the mistakes of the past—by freeing the free market from state coercion.
Scalia: Rise to Greatness, 1936–1986
by James Rosen
Regnery Publishing, 2023
496 pages
James Rosen, who has written biographies of John Mitchell and Dick Cheney, and was for many years a reporter for Fox News, is a neoconservative and Reagan Republican. He has found an ideal biographical subject in Antonin Scalia, a Reagan Republican, who served for thirty years on the Supreme Court. The volume under review, the first of two, covers the time from Scalia’s birth to his appointment to the court; it concludes with Scalia’s installation ceremony. Rosen has made much more extensive use of Scalia’s papers than two previous biographers, as he never ceases to remind us; and it is easy to see why he has been granted this access. His attitude toward Scalia falls little short of adulation.
The book also conveys, though, a fact about Scalia that one doubts Rosen had in mind in writing the book. Although Scalia made many effective criticisms of the excesses of the Left, in particular of the use of the “living Constitution” doctrine to promote judicial usurpation of power, he was not someone who saw the need for fundamental change in the system by which America is governed. Instead, he wanted to succeed within that system. In this respect, his career contrasts sharply with that of Ron Paul, who although a member of Congress for many years, was always an outsider. Their attitudes toward congressional investigation of the Central Intelligence Agency (CIA) and other intelligence agencies, to be discussed below, illustrate these different political approaches.
In Scalia’s years as a student at Harvard Law School, beginning in 1957, the faculty emphasized judicial restraint. In 1959, when Herbert Wechsler, a professor at Columbia Law School and one of the most influential legal theorists of the time, delivered the Oliver Wendell Holmes Lecture at Harvard, Scalia was attracted to his view that the law consists of a strict body of procedural rules from which judges should not deviate in efforts to achieve various social ends. “In his address, entitled ‘Toward Neutral Principles of Constitutional Law,’ Wechsler argued the benefits of the legal process’s ‘transcending the immediate result that is achieved.’ He asked the audience to consider whether Brown v. Board of Education (1954), the landmark Supreme Court ruling that struck down separate-but-equal treatment in public education for black students, reflected such a process. ‘For me, assuming equal facilities, the question posed by state-enforced segregation is not one of discrimination at all,’ Wechsler said.” (There is some doubt whether Scalia attended the lecture, but it generated great attention and was later published.)
Given his acceptance of judicial restraint and strict adherence to procedure, Scalia viewed with alarm the radical departures from precedent of the Warren court. The “living Constitution” of Justice William Brennan was abhorrent to him. At his confirmation hearing for Supreme Court justice in 1986, in answer to then senator Joseph Biden, Scalia said, “The Constitution is obviously not meant to be evolvable so easily that, in effect, a court of nine judges can treat it as though it is a bring-along-with-me statute and can fill it up with whatever content the current times seem to require. To a large degree, it is intended to be an insulation against the current times, against the positions of the moment that may cause individual liberties to be disregarded, and it has served that function valuably very often. So I would never use the phrase ‘living Constitution.’”
Scalia was much more committed to procedure and restraint than to individual liberty, and this led him to accept many of the incursions of the Leviathan state. One of the chief means by which our freedoms have been trampled on is administrative law, in which unconstitutionally broad legislation delegates to administrative agencies such as the Fair Trade Commission and the Food and Drug Administration the power to enact binding regulations that have the force of law. Scalia was not altogether blind to abuses of delegation, but his primary emphasis in this area was that courts must accept the procedures these agencies use to reach their decisions. Thus, “judicial restraint” became an instrument of judicial tyranny. In one instance, he praised an opinion by the Supreme Court that “rebuked the D.C. Circuit, one rung below the Supreme Court, for having ‘improperly intruded into the agency’s decision-making process.’”
The opinion of the foremost authority on administrative law, Philip Hamburger of Columbia Law School, was entirely different: “In sum, the conventional understanding of administrative law is utterly mistaken. It is wrong on the history and oblivious to the danger. That danger is absolutism: extra-legal, supra-legal, and consolidated power. And the danger matters because administrative power revives this absolutism. The Constitution carefully barred this threat, but constitutional doctrine has since legitimized this dangerous sort of power. It therefore is necessary to go back to basics. Among other things, we should no longer settle for some vague notion of ‘rule of law,’ understood as something that allows the delegation of legislative and judicial powers to administrative agencies. We should demand rule through law and rule under law. Even more fundamentally, we need to reclaim the vocabulary of law: Rather than speak of administrative law, we should speak of administrative power—indeed, of absolute power or more concretely of extra-legal, supra-legal, and consolidated power. Then we at least can begin to recognize the danger.”
There is an even more glaring instance in which Scalia’s views were at odds with individual freedom. He supported the CIA and other spy agencies after the Vietnam War, when revelations of abuses led to demands for congressional oversight and investigation. More generally, he favored a “strong” foreign policy, viewing this area as under the jurisdiction of the executive branch. Nor were his views merely a matter of academic interest. In the period under consideration, Scalia worked for the Office of Legal Counsel in the Justice Department and had a major impact in drafting the presidential responses to congressional efforts to limit executive discretion.
Scalia was especially concerned to counter attempts by Congress and members of the public to use the Freedom of Information Act to ferret out abuses of power. Defending Scalia, Rosen endeavors to counter those “who thought that every proposal that expanded the obligations of the federal government to release the records of the executive branch, no matter how voluminous or highly classified, was . . . wise and urgent, a bulwark against what Arthur Schlesinger, Jr., the former Kennedy adviser, called ‘the imperial presidency.’”
Never mind the abuses: for Scalia, at stake were historical tradition and the separation of powers. “As ‘the president’s lawyer’s lawyer’ at the dawn of an accidental presidency [Gerald Ford’s], it fell to Scalia to defend traditional executive authority precisely when Congress, the courts, and the news media made it the least fashionable. Scalia also thought the CIA was justified in engaging in illegal operations abroad: this too was a matter for the executive branch to decide, though not without some vague limits. For him, the CIA and FBI were not power-mad rogue agencies, but defenders of America.”
Ron Paul, a true champion of freedom, has a different opinion. He wrote last December in protest against the FBI’s use of Twitter to silence dissent: “As we learn more and more from the ‘Twitter Files,’ it is becoming all too obvious that Federal agencies such as the FBI viewed the First Amendment of our Constitution as an annoyance and an impediment.”
Despite his mistakes, Scalia was an impressive figure who showed himself more than a match for the left-wing elites who dominate the major law schools. The intelligence and wit manifest in his opinions made him one of the major jurists in the history of the Supreme Court, and if we must sometimes dissent from this great dissenter, we should not lightly dismiss him.
What if the world’s states were to come together and create a single world currency? From a purely economic point of view, there would be significant advantages if every nation didn’t operate with its own money but with the same currency. Not only for an individual economy, but for the world economy as a whole, the optimal number of currencies is one. Let’s take a look.
The decisive factor is how this single world currency comes about, and who issues it. In a free market for money—in a natural process—a single world currency would emerge from the voluntary agreements of the market participants: the money demanders would decide which commodity they want to use as money. It is impossible to predict with certainty what the outcome of the free choice of currency would be; after all, it resembles a discovery procedure whose outcome is not known in advance. However, it can be assumed that a commodity currency would be created, that gold or possibly a cryptounit would be chosen as the money base.
However, if states monopolize money production, a single world currency cannot develop through voluntary decision-making. In 2023, several national fiat currencies coexist. But this is not a stable equilibrium. Rather, here too, there is a tendency to create a single world currency—because it is optimal for everyone in the world to trade and calculate with the same currency. This is what democratic socialism takes advantage of.
Creating a single world currency is a means to an end for democratic socialism. Its adherents recognize that a single world state cannot be established directly. The national resistance that would have to be overcome is too great. The detour, the indirect way, by which democratic socialism can achieve its goal is by creating a single world currency under state control. The eurozone can serve as a “model” for this process. We’ve seen nations voluntarily give up their monetary sovereignty and accept a single fiat currency that is issued by a supranational central bank. Within the eurozone, money is no longer controlled by individual national parliaments.
The shared euro currency creates major problems in and between the participating countries. But the forced euro marriage has not yet been through the “divorce courts” because of the high costs of a euro exit and also because the democratic socialists fight any attempts to withdraw from the euro with all political means available to them. The problems created by the single currency are increasingly forcing participating countries into communization. As part of the eurozone, some nations must pay for the national debts of others, and the cost of saving ailing banks from collapse is borne by all taxpayers and money users.
All of the problems of imposing one fiat money across many nation-states only became apparent after the euro community was locked into place—the potential problems received little or no attention beforehand. From the outset, it was not economic rationality that inspired the euro, but political endeavors that can be traced back, unsurprisingly, to politics, namely the ideology of democratic socialism. The end of national monetary sovereignty and the adoption of the euro were promoted in public by emphasizing the peace and prosperity effects of a single currency.
In light of the experience gained with the “euro experiment,” the question arises: What are the consequences of creating a single fiat world currency? A state-controlled world currency would bring with it all the negative characteristics and problems of national fiat currencies, and it would cause economic, political, and cultural damage that would eclipse that from national fiat currencies.
What every single state that has fallen victim to democratic socialism wants is also what a community of states wants: to control the production of money and to expand the money supply at will in order to secure and expand its rule. It is a logical step for the states to merge their own fiat currencies into a fiat world currency—especially for small and medium-sized states, whose financial leeway is considerably increased as a result.
The fact that a fiat currency and not a commodity money has been chosen is virtually self-explanatory: the national currencies are already fiat money, and fiat money is the type of money that states prefer because it can be multiplied at any time and in any quantity at the lowest cost.
If the national states agree to accept a single fiat currency issued by a world central bank, then the money users will no longer have any choice or escape options. They will be at the mercy of a fiat world money. The world central bank will not have to fear that dissatisfied users of its money will “migrate” to other currencies because there will be no other currencies anymore. And because the single fiat world currency will have no competition, it will also become a plaything of political interests. Above all, the states will encourage the world central bank to pursue a monetary policy through which they can finance themselves as cheaply as possible with credit.
After all, debt financing is particularly attractive to every state: the possibility of easy borrowing is a very important motive for states to adopt a fiat world currency. Unlike with taxation, savers usually give their money voluntarily to the state, because they expect it to be repaid to them plus interest. A world central bank has a free hand to set the market interest rate as it sees fit. It does not have to fear that capital will migrate away from an extremely low market interest rate—after all, the interest rate that it determines will prevail all over the world.
A world central bank, which has a monopoly on the fiat world money, facilitates the worldwide debt economy to an extent probably still unknown. The relatively bad state debtors—i.e., those who have so far only been able to finance themselves at relatively high interest rates—particularly benefit from a single fiat world currency. If there is only one currency left in the world, there will be a single large, transparent, and liquid capital market in which there will be no exchange rate fluctuations, which helps to reduce credit costs. The improved debt opportunities in such a market favor the expansion of state influence and thus promote the nationalization of the economy and society.
A single currency will put governments in a favorable position to buy votes. The states will lure voters with money, and more and more citizens and entrepreneurs will become transfer recipients and beneficiaries of the state. They will benefit from state-financed jobs, social benefits, and contracts. States’ involvement in economic and social life will increase. The culture of collectivism will be promoted, and individualism will be repressed. What is left of the free market economy will inevitably give way to a command economy in which states play a decisive role in determining who produces what, when, and where. Although this transformation is already progressing under national fiat currencies, it will be uninhibited under a global fiat currency.
With a single fiat world currency, it will be possible for a world central bank to set an artificial boom in motion worldwide and to protect itself from a bust for a long time. Thanks to the global currency, the boom will affect all the world’s economies: the prices in all labor and factor markets will be distorted—after all, there will no longer be any exchange rate movements between the economies that could shield a region from the monetary policies in other regions; all economies will thus be “monetarily aligned.”
Companies and investors will continue to favor some regions of the world over others, just as investors in the eurozone see the “northern countries” as less risky than the “southern countries” and the “northern countries” continue to be the most attractive region for investors within the eurozone. If, however, the economic developments of the participating nation-states vary too much, the world central bank can be expected to take political countermeasures: it will support weaker countries. For example, it will buy up weak countries’ government and bank bonds; the eurozone’s many “rescue policies” are an example of this eventuality.
In this way, the world central bank will weaken or eliminate the market’s remaining corrective forces, which could put an end to the boom. The boom set in motion by the world bank will therefore be able to last a long time. However, the longer the boom lasts, the greater the damage (overconsumption and bad investments) will be. And the longer the boom progresses, the greater the costs of the corrective crisis will be, which will intensify the political incentives to keep the boom going by any means—after all, states shy away from recession and unemployment and the associated social and political consequences.
In order to avert the corrective crisis, the states will continue to intervene in the market with bans and prohibitions, laws, price controls, subsidies, and labor and expenditure programs. Above all, however, they will make use of the world central bank. If it is politically desired, the world bank will keep any stumbling debtor afloat with newly created money and delay the arrival of the crash. This leads to the question: Will a single fiat world currency be more inflationary than national fiat currencies? The answer is yes.
States’ primary goal with a single fiat world currency is to be able to pursue a controlled inflationary policy with as little punishment as possible. Controlled inflation benefits states and politically connected groups.
However, even under a uniform fiat world currency, there are limits to inflationary policy. The world central bank does not have to reckon with the fact that money users will switch from its fiat money to other currencies when inflation is high, as there will be no other currencies left. But if the inflation of the fiat world currency is too high, its users will lose confidence in it. In an extreme case (hyperinflation) people will start to escape from the fiat world money by taking desperate measures. They will no longer want to use the money at all, and this could seal the fate of the fiat world money.
Of crucial importance for the inflation of the fiat world currency is which forces gain the upper hand in the decision-making body of the world central bank. There are two possible scenarios. In the first case, the governments of the states have a direct influence on the world central bank. In democracies, rulers are known to have short-term goals: their power is only temporary. Therefore, they are anxious to maximize their income during their term of office. Those in power do not participate in the long-term prosperity of the community and consequently have no great interest in making decisions that maintain or increase its net present value beyond their term. In other words, the cow is not milked but slaughtered. Inflation will be comparatively high in this case.
In the second case, the decision-makers on the council of the world central bank are closely connected to those in the financial sector and big business. Such a world central bank council’s interest is that its “product,” its currency, remains permanently marketable. It will not frivolously jeopardize the world currency by implementing an exaggerated inflation policy. The world central bank council would therefore not want to slaughter the cow but milk it for as long as possible. In this case, an oligarchic democracy will prevail in the world central bank council.
In this scenario there is a high probability that the world central bank will above all serve the special interests to which the council oligarchs are closely linked (these are, of course, big banks and big businesses). The interests of the general public take a back seat and are only taken into account if they do not jeopardize the continuation of the world central bank’s special-interest monetary policy. The world central bank will therefore endeavor to keep inflation from becoming too high so that the population does not become dissatisfied and rebel.
Under a self-referential oligarchic democracy, in which councilmen recruit their own successors, the fiat world money is even granted a particularly long stay. The oligarchs will make every effort to ensure that the fiat world money system can continue to exist for as long as possible, that crises, when they occur, are tackled in such a way that the fiat world currency does not suffer and a “flight from money” is avoided.
In view of the overindebtedness problem that fiat money necessarily creates, we cannot exclude the possibility of negative interest rates. Under a policy of negative interest rates, the central bank might set the interest rate at, say, −4 percent per year. This means that a bank balance of €100.00 is reduced to €96.00 one year later and after ten years is only €66.48. What harms the saver benefits the debtor, who makes a profit by taking out a loan! Savers and investors will not tolerate this. Wishing to avoid the losses, they will go to the bank and demand that their assets be paid out in cash and coins. Therefore, as long as there is cash, the effectiveness of a negative interest rate policy is limited.
However, a world central bank can easily enforce the abolition of cash by shutting down cash production. Without cash, the money is “trapped” in bank accounts and can no longer be withdrawn from the banking sector. The negative interest rate policy can then be implemented unchecked. Money holders no longer have the opportunity to evade the devaluation of money and savings. Individual states welcome the abolition of cash for another reason: they will be able to track the financial dispositions of citizens and companies, who will only be able to make payments electronically: banks will be required to provide full information on the payments and financial assets of bank customers at all times. As a result, the taxation possibilities of states will be increased immensely.
As long as there is still cash, there are limits to taxation: if market participants feel that the tax burden is too high, they can carry out their transactions anonymously with cash. This in turn encourages states not to tax citizens and businesses too heavily. But when the taxpayers no longer have this alternative because there is no more cash, the political reluctance which still stands in the way of increased taxation in a world with cash decreases. And if the financial privacy of citizens and businesses is lost, states can easily subject citizens and businesses to full monitoring.
A global central bank will undertake the supervision of the banking and financial sector. It will want to prescribe how commercial banks operate; for example, what liquidity and capital requirements they must meet and how they must assess their credit risks. The world central bank will also want to decide whether and under what circumstances failing banks will be aided or allowed to close. The right of national governments to have their say will increasingly dwindle in favor of the supranational world central bank and supranational supervisory authorities and bodies. The consequences will be far reaching.
The pressure for a body of regulation to which all banking and financial enterprises are subject will increase—and will come from the large and powerful interest groups. National or regional peculiarities will not be taken into account if the large and powerful interest groups have asserted themselves in the political negotiation of the regulatory provisions. For many small countries, this will force far-reaching adjustments—not only in their banking and financial economies but also in their production structures. There will be winners and losers in this process: adjustment costs will be higher for some regions and lower for others. This will create conflicts of interest between the nation-states.
A fiat currency used by people in many countries will fuel further conflicts. It is well known that the expansion of the money supply means that a few are made better off at the expense of many others: the first recipients are the beneficiaries, the late recipients, the disadvantaged. This is already resulting in disputes in nation-states that are relatively homogeneous in terms of culture, language, and tradition. The conflicts over redistribution will become even more acute when the effects of redistribution are felt across borders, when people in one country realize that they are being bled in favor of people in another country.
A world central bank has a free hand to set the world interest rate at will. Not only can it keep it artificially low to set a boom in motion and keep it going for a long time, but it can also bring about a negative world interest rate, a political “solution” to the overindebtedness problem caused by a fiat world money. Another motive for forcing world interest rates into negative territory is the democratic socialists’ desire to better steer and control the economy and society, or to shatter what is left of the free market economy.
The fact that this is possible with a negative interest rate policy becomes apparent when one considers the consequences of a negative interest rate for the credit market. Commercial banks receive credit from the world central bank at, say, −2 percent, on the condition that they lend the money to consumers and companies. If they borrow €100 at −2 percent and lend the money at −1 percent, their profit is €1. Under these circumstances the demand for credit grows enormously: after all, everyone wants to profit from the negative interest rate loans.
The world central bank must ration the loans so that the creation of credit and money does not get out of hand. It is no longer the market interest rate that balances supply and demand, but the world central bank, which gives a certain amount of credit and allocates it. But what criteria should be used to allocate the loans? Should all those who ask for loans get them too? Or should labor-intensive economic sectors be preferred? Or should the loans go only to sunrise industries? Or should weakening branches of industry be supported with additional loans? Or should the south get more than the north?
The world central bank has a decisive influence on who can finance and produce what, when, and where. Like a central planning authority, it—or the interest groups who control it— determines the fate of the economies in all the regions of the world: which industries are promoted or pushed back; which economies grow stronger and which weaker; which banks are allowed to survive in which countries and which are not. Welcome to the centrally planned economy! However, a negative interest rate policy would not be possible in the long term; it would lead to the end of the division of labor in the economy.
First, lowering the interest rate inflates the prices of existing assets: stocks, houses, and land— everything becomes more expensive. The lower the interest rate, the higher the present value of future payments and thus also the market prices of the assets. The speculative bubble, which is inflated, initially provides investors with high returns. At the same time, the outlook for future returns deteriorates. The reason? Zero and negative interest rates cause the prices of stocks, houses, etc., to rise until the expected yield that these asset classes promise has approached the low or negative interest rate set by the central bank. In extreme cases, the expected market returns will fall to or even below the zero line.
But once the world central bank has pushed all returns to or below the zero line, the free market economy (or what is left of it) is on the verge of collapse. Without a positive market interest rate, without the prospect of a positive return, saving and investing cease: after all, every consumer and entrepreneur has a positive originary interest rate. And when there is no more return to earn, there is no more saving and investment, only consumption. The economy based on the division of labor comes to a standstill. Replacement and expansion investments fail to materialize, capital consumption begins, and the modern economy falls back into a primitive subsistence economy. An extreme example. Or is it?
The very process by which the world central bank lowers the world market interest rate to or below zero (something it can do as a monopolist of money production) is extremely problematic. It artificially pushes people’s time preferences up. As Friedrich Nietzsche put it, there is a “revaluation of all values,” a devaluation of the future. The here and now is made even more important than tomorrow. The consequences are far reaching. Life on credit is promoted. The virtue of thrift goes out of fashion. “Permanent debt” becomes morally acceptable. Achieving short-term goals becomes more important to people than achieving longer-term goals. The willingness to achieve decreases, because, compared to the disutility of labor, leisure time rises even higher in value. Divorce also becomes more attractive as a “solution” to marital problems; efforts to overcome relationship difficulties are increasingly shunned. The quality of education suffers: if the here and now is so important, then we will also spend less time cultivating and maturing for the future. Morals decay: consideration and manners are costly activities in interpersonal relationships and often only pay off in the long term. Aesthetics degenerate: it is easy for passing fads to find buyers; breaking away from “proven classics” is made easier. A world central bank that issues fiat money has decivilizing consequences worldwide.
The idea that states could remain sovereign and independent once they participate in the fiat world money system is illusory. If the same money is used in different countries, this will help to make the best possible use of the efficiency potential offered by the international division of labor. The commodity and factor financial markets of the national economies will increasingly dovetail. And the closer the ties between those markets, the stronger will be the incentive of the nation-states to surrender sovereignty to supranational authorities. This applies both to economically good times—then the willingness to share, to make compromises, is relatively high—and to economically bad times— then a way out of the economic problems is seen in moving closer together, in jointly pursued “emergency policies.”
A fiat world currency promotes political centralization. The “urge” to establish a unified government, a world state, is strengthened, especially under the ideological leadership of democratic socialism. If economic and financial ties become ever tighter, why not create a single world state that can more effectively implement the desired policies—such as policies for prevention of economic and financial crises as well as tax fraud, environmental protection, counterterrorism, etc.? The world central bank, which issues the fiat world currency, becomes a particularly sought-after political power and control center in this concentration process.
Drawing on Robert Michel’s iron law of oligarchy, it is to be expected that a relatively small, assertive group of people which originates from the party and government structures of the participating states will try to put the world central bank under its control and make it serviceable for its own purposes. Against this background, it would be unrealistic for something to emerge that could be described as a “democratic world central bank.”
The representatives of the participating states may initially endeavor to “chain” the world central bank—i.e., to design the rules and regulations to which the world central bank is subject in such a way as to prevent abuse of power. However, what happens in the hierarchy of parties also happens in the hierarchy of a community of states: the most determined, tireless, ruthless, and relentless advocates of democratic socialism prevail. The aim of the oligarchy will be to make the world central bank serviceable and, above all, to enable the creation of a world government, a world state, which democratic socialism must necessarily strive for.
A world state, equipped with its own global fiat money monopoly, would open a dark chapter in the history of humankind and lead to a civilizational catastrophe. The world state would have no competitors to fear. No one could escape from it. Emigration would be impossible; the world state would be everywhere. The hope that the expansion of the power of the world state could be effectively curbed by democratic electoral acts would prove to be illusory as soon as oligarchization set in—and this is to be expected, of course, as already impressively illustrated by the expansionist drive of the nation-states in recent decades.
It is downright absurd to think that a world state with its own fiat world currency would not sooner or later mutate into a totalitarian tyrant.
But are there perhaps good forces that could challenge the money monopoly and thereby effectively prevent the ideas of world money and a world state from being put into practice? One possible good force is technological disruption, which could revolutionize the global monetary system or show people that better money than that offered by states is both necessary and possible. There is no doubt that cryptocurrencies hold such potential for disruption.
Technological Disruption: CryptocurrenciesThe cryptounit bitcoin holds out the prospect of something revolutionary: money created in the free market, money the production and use of which the state has no access to. The transactions carried out with it are anonymous; outsiders do not know who paid or who received the payment. It is money that cannot be multiplied at will, whose quantity is finite, that knows no national borders, and that can be used unhindered worldwide. This is possible because bitcoin is based on a special form of electronic data processing and storage: blockchain technology (distributed ledger technology), which can also be described as a decentralized account book.
Think through the consequences if such a “denationalized” form of money should actually prevail in practice. The state could no longer tax its citizens as before. It would lack information on the labor and capital incomes of citizens and enterprises and their total wealth. The only option left to the state would be to tax the assets in the “real world”—such as houses, land, works of art, etc. It could try to levy a “poll tax”: a tax in which everyone pays the same absolute tax amount— regardless of the personal circumstances of the taxpayers, such as income, wealth, ability to achieve, and so on. But would that be practicable? Could it be enforced? This is doubtful.
The state could also no longer simply borrow money. In a cryptocurrency world, who would give credit to the state? The state would have to justify the expectation that it would use the borrowed money productively to service its debt. But as we know, the state is not in a position to do this and is in a much worse position than private companies. So even if the state could obtain credit, it would have to pay a comparatively high interest rate, severely restricting its scope for credit financing.
In view of cryptocurrency’s financial disempowerment of the state, the question arises: Could the state as we know it today still exist at all, could it still mobilize enough supporters and gather them behind it? After all, the fantasies of redistribution and enrichment that today drive many voters into the arms of political parties and ideologies would disappear into thin air. The state would no longer function as a redistribution machine; it basically would have little or no money to finance political promises. Cryptocurrencies, therefore, have the potential to herald the end of the state as we know it today.
The transition from the national fiat currencies to a cryptocurrency created in the free market would have consequences for the existing fiat monetary system and the production and employment structure it has created.
However, bitcoin has not yet developed to the point where it could be a perfect substitute for fiat currencies. For example, the performance of the bitcoin network is not yet high enough. Another problem with bitcoin transactions is finality. In modern fiat cash payment systems, there is a clearly identifiable point in time at which a payment is legally and de facto completed, and from that point on, the money transferred can be used immediately. However, distributed ledger technology consensus techniques (such as proof of work) only allow relative finality, and this is undoubtedly detrimental to the money user (because blocks added to the blockchain can subsequently become invalid by resolving forks).
The transaction costs are also of great importance regarding whether bitcoin can assert itself as a universally used means of payment. In the recent past, there have been major fluctuations in this area. In addition, the time taken to process a transaction has also fluctuated considerably at times, which may be disadvantageous in view of the emergence of instant payment options for fiat money.
Another important aspect is the question of the “intermediary.” Bitcoin is designed to enable intermediary-free transactions between participants. But do the market participants really want intermediary-free money? What if there are problems? If someone made a mistake and transferred one hundred bitcoins instead of one, he cannot reverse the transaction. And nobody can help him! The fact that many hold their bitcoins in trading venues and not in their private digital wallets suggests that even in a world of cryptocurrencies there is a demand for intermediaries offering services such as storage and security of private keys.
As soon as intermediaries come into play, the transaction chain is no longer limited to the digital world, but reaches the real world. At the interface between the digital and the real world, a trustworthy entity is required. Just think of credit transactions. They cannot be performed unseen and anonymously. Payment defaults can happen here, and therefore the lender wants to know who the borrower is, what credit quality he has, and what collateral he provides. But if the bridge is built from the digital to the real world, the cryptomoney inevitably finds itself in the crosshairs of the state. However, this bridge will ultimately be necessary, because in modern economies with a division of labor, money must have the capacity for intermediation.
It is safe to assume that technology will continue to make progress, and that it will remove many remaining obstacles. However, it can also be expected that the state will make every effort to discourage a free market for money by reducing the competitiveness of alternative money media such as precious metals and cryptounits vis-à-vis fiat money through tax measures (such as turnover and capital gains taxes). As long as this is the case, it will be difficult even for money that is better in all other respects to assert itself.
Therefore, technical superiority alone will not be sufficient to help free market money—whether in the form of gold, silver, or cryptounits—achieve a breakthrough. In addition, and above all, it will be necessary for people to demand their right to self-determination in the choice of money or to recognize the need to make use of it. Ludwig von Mises has cited the “sound-money principle” in this context: “The sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.” And he continues: “It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.”
These words make it clear that in order for a free market for money to become possible, quite a substantial change must take place in people’s minds. We must turn away from democratic socialism, from all socialist-collectivist false doctrines, from their state glorifying delusion, and no longer listen to socialist appeals to envy and resentment. This can only be achieved through better insight, acceptance of better ideas, and logical thinking. Admittedly, this is a difficult undertaking, but it is not hopeless. Especially since there is a logical alternative to democratic socialism: the private law society with a free market for money.
A Free Market for MoneyA free market for money means two things. On the one hand, those demanding money can freely choose what they want to use as money—for transaction and saving purposes. On the other hand, every market participant has the freedom to try to offer his fellow human beings a good to demand voluntarily as money. But wouldn’t that lead straight to “money chaos”? Wouldn’t hundreds, maybe even thousands of types of money circulate and thus make financial calculation impossible in the economy? And wouldn’t that undermine the efficiency of the economy? This concern is unfounded.
The money demander plays the decisive role. In a free market for money, anyone who asks for money will, out of self-interest, ask for a good that has the greatest possible marketability, a good that is recognized by its trading partners as the generally accepted medium of exchange. What do you offer the baker? It is best to offer something that the baker can use to buy shoes from a cobbler or shirts from a tailor. In a free market for money, people will demand as money a good that finds the widest acceptance, which is regarded by the largest number of people as a medium of exchange. The choice of the good that serves as money is based on the wishes of the trading partners.
But what if Mrs. A offers colorfully printed paper slips and says that these are “good money”? The answer is that no one would accept her paper slips as money. Why not? Quite simple: you wouldn’t know what these colorful notes are worth, or what you could get for them in exchange. That’s why no one would demand them as money. This is exactly what Mises has shown with his regression theorem: money must arise from a good that already has a nonmonetary market value before it is used as money. This is not the case for colorful and arbitrarily printed paper slips. They would not be able to compete against other goods such as gold and silver.
In a free market for money, people will demand a good that possesses the physical qualities that “good money” must have: be scarce, storable, transportable, divisible, malleable, and transferable and be regarded as valuable. If we take into account currency history, it seems quite probable that money would still be chosen in the form of precious metals—notably gold and silver—today. But cryptounits could also possibly assert themselves as money in the future. The choice people will ultimately make in a free market for money cannot be predicted with certainty.
Precious metals as money is an improvement compared to unbacked fiat money. No one has to carry jangling coins around in their pockets. The use of gold and silver can be digitalized. All kinds of payments that are common today could be carried out easily and problem-free with gold and silver. If cash is desired, precious metal coins can circulate or banknotes can be used that can be exchanged 100 percent for physical gold at the storage facility that issued the banknotes. Cashless payment transactions are also possible in the usual way when using gold money: bank transfer, direct debit, crossed check, payments by credit and debit card, mobile payment, bills of exchange, etc.
In a free market for money, in which a good that cannot be multiplied at will (by granting credit) is chosen as money, the credit market can exercise its intended function undisturbed: the supply of and demand for savings create a market interest rate that ensures that sufficient savings are available to make investments. This puts an end to the chronic economic disruptions of boom and bust caused by the issuance of fiat money. Because the banking business is not inflationary, the nonmarket (antisocial) redistributive effects of fiat money cease.
In a free market for money, there is no central bank and no state supervisory or regulatory authorities. All that is necessary for the functioning of a free market for money is a functioning legal order, which ensures that the contracting parties fulfill their obligations and that infringements of contractual agreements are effectively sanctioned: for example, that the stored commodity money is not embezzled, that banknotes can be exchanged for the money base at face value at any time. In order to guarantee that contractual obligations are fulfilled, there is no need for state monopolies of law. Jurisprudence and law enforcement can also be organized in the free market.
A free market money system—with free choice of money and bank freedom—is not a national but an international concept. If trade takes place internationally, across national borders, the market participants select the good to use as money with the same calculation as is used at the national level. Every user of money has an economic incentive to demand as money that good which he thinks is the most attractive means of exchange from his trading partner’s point of view. The idea of a free market for money is thus global in the truest sense of the word: just as free trade knows no national borders, a free market for money extends globally.
A free market for money is incompatible with the state as we know it today; namely, as a territorial compulsory monopolist with ultimate power of decision over all conflicts in its territory. There is no question that a free market for money requires far-reaching changes in people’s thinking. This insight was formulated by Mises in 1923:
The belief that a sound monetary system can once again be attained without making substantial changes in economic policy is a serious error. What is needed first and foremost is to renounce all inflationist fallacies. This renunciation cannot last, however, if it is not firmly grounded on a full and complete divorce of ideology from all imperialist, militarist, protectionist, statist, and socialist ideas.
The Private Law SocietyThe alternative to the state, in its present form, is the private law society. It is characterized by the fact that the same rules apply to all people always and everywhere: that everyone has self-ownership and that everyone has ownership of external goods acquired lawfully—i.e., nonaggressively. And since the same law applies to everyone, there is no public law apart from private law. A private law society is by no means synonymous with anarchy. Far from it! Rather, the private law society is characterized by a very clear distinction between mine and yours, and violations of property are punishable and sanctioned.
In a private legal system, security is offered in the free market. On the supply side, there are insurance companies that offer security services (insurance against theft, personal protection, etc.) in competition with other companies. In insurance contracts, the security service is specified precisely and the mutual rights and obligations are contractually laid down (such as the exclusion of negligence by the insured from compensation in the event of damage). The insurance contracts specify independent conciliation bodies—which also compete with each other for customers who pay voluntarily—to be called upon in the event of a dispute between the policyholder and the insurer.
Under competitive conditions, it is to be expected that prices for insurance coverage and dispute resolution will fall (while they will rise chronically in today’s state-monopolized security and legal apparatus). And it is not only that the insurance services in the free market for security are more geared to the customer’s wishes (in terms of scope and pricing); peaceableness and conflict avoidance are also promoted. Those who demonstrably behave well and are friendly toward their fellow human beings represent a smaller risk and are rewarded with comparatively low insurance premiums.
Since an insurance company is contractually obliged to indemnify the policyholder in the event of a loss (e.g., burglary), it will make a great deal of effort to prevent the occurrence of a loss. And if the damage has nevertheless occurred, the insurance company will do everything in its power to track down the perpetrator and make him liable; otherwise, it will have to pay the compensation, which in turn will reduce its profit. The free market for security discourages crime because potential perpetrators face highly efficient private insurance providers and police agencies. Such insurance and legal contracts can be established not only nationally, but of course also internationally, for private households as well as companies.
In a private law society, a free market for money is a natural phenomenon in the truest sense of the word: a free market for money is people’s right to self-determination when choosing money. The voluntary agreement of the people involved in the global division of labor would result in a single world currency. A freely chosen world currency differs categorically from a single fiat world currency, which is the passion of democratic socialists. A world currency chosen in a free market for money would literally be economically and ethically good money, which best serves humankind and best promotes the peaceful and cooperative coexistence of people in this world.
The ChallengeUnderstanding and practicing economics is the key to destroying the foundations of the driving force of democratic socialism, which for decades has been working toward establishing a world state with a world currency and has already made considerable progress along this path. Bad experiences, undesirable developments, and crises will not be able to deprive democratic socialism of its power and overcome it. This can only be achieved by insight into better ideas, and by the struggle of arguments of reason. The Global Currency Plot is meant as a contribution to help the better ideas prevail.
On Sunday morning, March 12, Treasury Secretary Janet Yellen told CBS there would be no bailouts. Later in the day the Fed declared quantitative easing to infinity and beyond.
What’s going on?
Quite simply, the Fed is willing to overpay for debt (again). They call it the Bank Term Funding Program (BTFP), and as far as one can tell, its dollar value is limitless. The term sheet reads:
Program: To provide liquidity to U.S. depository institutions, each Federal Reserve Bank would make advances to eligible borrowers, taking as collateral certain types of securities.
And who is eligible?
Any U.S. federally insured depository institution (including a bank, savings association, or credit union) or US branch or agency of a foreign bank…
Basically everyone (i.e., not you or main street, just financial institutions) can take part in this legal counterfeiting operation.
So what’s being traded for newly created Federal Reserve notes?
Eligible collateral includes any collateral eligible for purchase by the Federal Reserve Banks in open market operations … provided that such collateral was owned by the borrower as of March 12, 2023.
Meaning: Practically any bank can exchange US Treasury (or even mortgage-backed securities, should they have held any on their books) with the Federal Reserve.
This program will be offered for one year at no charge to banks, and of course with no recourse!
The Fed explains:
Recourse: Advances made under the Program are made with recourse beyond the pledged collateral to the eligible borrower.
Now here’s the rub:
Collateral Valuation: The collateral valuation will be par value. Margin will be 100% of par value.
Therefore, if Wells Fargo or Bank of America owns US debt that is trading at fifty cents on the dollar, they can trade it with the Fed which will pay one dollar. In theory, it’s only an unrealized and temporary loss for the Fed because once the debt comes due, it will be paid in full. So the Fed won’t suffer a loss, nor will the bank.
The Fed will purposely pay an amount above market value on debt held by banks. The banks will receive this newly created money and get rid of their unrealized losses. Afterward, the banks will have to do something with this new money, such as buy more debt. We can only guess, but whatever the banks do with the money, it will most certainly be highly lucrative for them, push asset prices up, and further erode whatever is left of the middle class. It will also offer a new way for banks to make even riskier bets that will land them in more trouble in the future.
It is theft, a moral hazard, anti-capitalistic, and even antagonistic to those forced to pay taxes and work for a living. But still more questions remain, specifically: How large is this program? Are we talking a few billions or trillions of dollars? At one extreme, this program serves as a confidence booster more than anything; it’s public messaging. Very few banks will accept the generous offer. But it will provide public assurance that the Fed will insure deposits, keep banks from panic selling bonds at a loss, and quell any ideas of a bank run.
If this is the case, then the Fed has bought a little more time until the next panic sets in.
At the other extreme, every bank in America lines up to receive free money from America’s central bank. The Fed will eventually expand its balance sheet by trillions of dollars more, and they’ll tell us that it would have been worse if it weren’t for the Fed.
As for the Fed’s commitment to reducing the balance sheet, we’ll know the answer to this soon enough! Few things are certain at the moment, but it sure is a good day to be a banker.
Contrary to Krugman, DeSantis and others warning about a CBDC aren’t being paranoid: they are simply drawing the obvious conclusions from history.
Original Article: "It’s Not Paranoid to Worry about a Central Bank Digital Currency"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Since the beginning of the war in Ukraine, Western leaders have declared that Ukraine was defending not only its own freedom, but ours too. President Joe Biden, to whom apparently “freedom is priceless,” vowed to support Ukraine for “as long as it takes.”
In turn, President Volodymyr Zelenskyy stated that the American support for Ukraine is not charity but an “investment in global security”. Other commentators also argue that a Ukrainian victory would strengthen global freedom by deterring other aggressions from autocratic powers like China. Yet, these positions are at odds with the clear antiwar stance of Murray N. Rothbard, one of the most prominent American libertarians of the twentieth century.
Rothbard made a clear distinction between the interests of governments as opposed to those of private individuals, which are subject to the government’s monopoly of violence in a specific territory. He believed that all interstate wars lead to an increase in the government aggression of both domestic and foreign individuals. The aggression against innocent people is inevitable because each state derives its capacity to wage war from taxpayers; in the case of a military conflict, it will intensify its local aggression either through taxation or conscription or both. At the same time, because the citizens of the enemy country are the resources allowing their state to fight, they and their property will be targeted through military action.
According to Rothbard, war never enhances freedom, only domestic tyranny, “a tyranny that usually lingers long after the war is over.” Therefore, any libertarian should pressure governments to avoid going to war against other countries and negotiate peace as soon as war breaks out.1 However, let’s see if the conflict in Ukraine is likely to advance freedom or not.
Human and Economic Cost of the WarThe human cost of the war in Ukraine, borne primarily by the two belligerents, appears huge already. The number of military casualties is not certain, as both sides are downplaying their own losses and exaggerating the ones of the enemy. Yet, third party estimates claim that Russia has suffered around one hundred thousand to 130 thousand casualties (wounded and killed) to Ukraine’s one hundred thousand, making the conflict one of the bloodiest in modern history. This is not counting about thirty thousand Ukrainian civilian casualties and the many civilians dragged by force into the army. Russia drafted three hundred thousand reservists and conscripts in late 2022, whereas Ukraine declared martial law in February 2022 and may have already drafted around a million people. In addition, about a third of the Ukrainian prewar population—thirteen million people—have left their homes due to the war, of which around 8.1 million fled abroad, showing the full size of aggression against innocent civilians.
The direct economic cost of the war is also massive for Ukraine, Russia, and the West. Ukraine’s economy lost more than 30 percent of its gross domestic product (GDP), or $60 billion, just in 2022. Ukraine could not have supported the war effort without substantial military, financial, and humanitarian aid from the West, estimated at about $133 billion for the first year of war only (graph 1). Estimates for the cost of reconstructing Ukraine after the war vary widely between $411 billion and $1 trillion. The West is expected to pay the lion’s share of the reconstruction bill, with some possible support from about $300 billion in foreign exchange reserves seized from Russia. Although Russia suffered only a 2–3 percent decline in real GDP in 2022, despite heavy Western economic sanctions, its economic prospects are also bleak given the withdrawal of foreign companies, curtailed access to Western technology, and lasting increases in defense budgets.
Graph 1: Government support to Ukraine
picture1.png ###### Source: Ukraine Support Tracker.
The indirect economic fallout of the war is much broader, and its scars will last for many years to come. Following previous ultraloose monetary and fiscal policies, the war-induced hike in international energy and food prices led to a surge in global inflation. This was one of the main factors that slowed global economic growth to just 3.1 percent in 2022 versus prewar projections of around 5 percent, according to the Organisation for Economic Co-operation and Development (OECD). The sharpest economic slowdown is taking place in Europe, due to its decoupling from cheap Russian gas and oil. European countries have spent an astronomical €800 billion, or more than 4 percent of GDP, to shield households and companies from soaring energy costs so far (graph 2).
Graph 2: Government spending to mitigate the energy crisis
picture2.png ###### Source: Bruegel.
Stimulated by the war, global defense spending is likely to surge as well, with an increase of between €375 billion to €453 billion expected in Europe between 2021–26. Even if the United States seems to benefit from higher sales of gas and armament, these benefits are restricted to a small number of energy and arms producers, whereas ordinary taxpayers are hit by inflation and increased government spending on transfers to Ukraine. Global public debt—already at record high levels since World War II—will become an even heavier burden to taxpayers, in particular in advanced economies. Last but not least, the growing global north-south division threatens to accelerate deglobalization trends and overall impoverishment.
Freedom of Press and DemocracyNot only have the two belligerents curtailed the freedom of press in favor of war propaganda, but so have the more mature Western liberal democracies. There is a long history of government propaganda and encroachment upon the freedom of press and civil liberties in times of war in the US as well. It started during the American Civil War, when more than three hundred opposition newspapers in the North were shut down. Government interference with Western media has continued through the wars in Iraq and Libya, whose official justifications remain highly controversial.
The Patriot Act also includes government surveillance of both the media and individual dissidents. Therefore, it is not surprising that the main Western media organizations have run a suspiciously uniform narrative about the war in Ukraine from day one and seemed fully engaged in the information war.
It could be that the media is very centralized and indirectly controlled by governments or that it imposes a voluntary self-censorship due to a general weakening of the Western liberal tradition, similar to the pro-Soviet propaganda during World War II decried by George Orwell. The result is more or less the same, with biased information disseminated to the public, even though half of Americans believe that news channels deliberately manipulate public opinion. This also became quite clear in the Ukraine war when many headline stories were contradicted by subsequent events, such as Russia’s alleged sabotage of its own gas pipelines under the Baltic Sea or Russia’s supposed chronic shortage of modern weapons and ammunition whereas the opposite proved to be true.
When official propaganda fails to influence public opinion, governments have no qualms about ignoring community voices altogether. Protest demonstrations against the war took place in many European cities but were either ignored or downplayed by the mainstream media. According to the European Union’s Eurobarometer survey, only about 33 percent of Bulgarians and 38 percent of Slovaks agree with supplying military equipment to Ukraine. Yet, the former Bulgarian prime minister recalled how his government secretly provided Kyiv with vital supplies of weapons and ammunition via intermediaries. The Slovak government decided to send not only tanks but also MIG-29 fighter jets to Ukraine. It makes one wonder why, in allegedly healthy democracies, the people are not consulted directly via referenda on major issues at least, which may involve going to war or having a significant impact on civil and economic liberties.
ConclusionInstead of expanding freedom, the conflict in Ukraine has actually restrained civil liberties, economic prosperity, and government accountability not only in Russia and Ukraine, but also in the West. It is possible that the end of the war will bring more freedom for some Ukrainians who integrate Western political and economic alliances or move abroad. Yet, one cannot say for sure how Ukraine’s liberalization process will turn out given its disappointing track record.
At the same time, the erosion of democratic practices and economic liberties in the West is all too real. Regardless of what politicians may want us to believe, Rothbard’s libertarian view that government wars are always to be avoided or quickly ended by peace negotiations appears vindicated.
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- This applies also to “just wars of defense,” which also harm innocent civilians. In Rothbard’s view, all governments are justifying their wars as a defense by the state of its subjects. In reality, war represents a struggle for expansion or survival between monopolists of aggressive violence. Therefore, only private resistance through revolution (i.e., a popular uprising), appears as a legitimate action against the aggression of a foreign government.
Mere inflation—that is, the mere issuance of more money , with the consequence of higher wages and prices—may look like the creation of more demand. But in terms of the actual production and exchange of real things it is not.
—Henry Hazlitt, Economics in One Lesson
Money is among the most important forms of technology. It solves the fundamental human problem of barter and allows us to transfer value across geography and time. By enabling efficient trade—and thereby profit and capital investment—money has been as critical to human development as fire and the wheel.
This money technology arose in the marketplace, without design by central authorities. Carl Menger explained the origin of money as the most saleable commodity. Ludwig von Mises explained its value as flowing from an earlier nonmonetary use. And for centuries gold was used worldwide as a stable form of payment.
Yet today money is dominated by politics. One of the great tragedies of human history is the commandeering of money by kings and governments to serve their own purposes. Fiat money—which is to say political money—operates as an instrument of state power rather than a product of the marketplace. Money today requires “policy,” in the form of politicians and central bankers to run it.
This political money is at the heart of our economic problems.
Perhaps our most important job at the Mises Institute is to help intelligent lay audiences understand and fight political money. To that end we offer a brilliant new book by Dr. Thorsten Polleit, a Mises Institute associated scholar and an influential German economist. The Global Currency Plot is a tour de force in a very compact and readable form, and we’ve excerpted some of the most compelling chapters here (you can read the entire book at mises.org/plot).
This book is nothing less than a mini course in Austrian economics applied directly to the present-day reality of 2023 politics and the global economy. It covers everything from logic, human action, money, the state, democracy, and socialism to bitcoin and central bank digital currencies. But the author’s summary is a nice encapsulation of the book:
“Ultimately, it is ideas (or theories) that guide people’s actions. Ideas determine what is considered good and evil, just and unjust, feasible and impossible. However, human action will only be successful if the ideas that guide it are compatible with the laws that undoubtedly exist in the field of human action. It is therefore crucial to change the ideas prevailing today if the dystopia of a political world currency and a world state is to be prevented. This requires putting the dominant ideas to the test in a rigorous intellectual discourse and, if they do not withstand critical examination, debunking them and rejecting them as false.”
We are enormously excited to bring you this book and hope you will recommend it to anyone interested in the fight against monetary hedonism. The Global Currency Plot not only debunks the disastrous economics of a centrally planned worldwide system of “democratic” socialism, but explains its utter incompatibility with human nature and human reason.
We’re in a war, and Dr. Polleit provides us with ready ammunition.
Also in this issue, David Gordon reviews a brandnew biography of the late Supreme Court justice Antonin Scalia, Scalia: Rise to Greatness, 1936–1986, taking a fresh look at his legal thought in the process. Fans of the Mises Institute may have mixed feeling about “Nino,” who, in the more radical Rothbardian sense, surely was imperfect in his broad understanding of constitutional liberty.
And yet Scalia in many ways personified a far better strain of American judicial temperament than we are likely to see again, one suspicious of state power and reluctant to expand the court’s jurisdiction. His interpretative doctrine of text-based originalism, which sought to apply the plain meaning of statutory text rather than conjure up the nebulous “rights” and penumbras desired by lawmakers, was a needed check on judicial grandiosity. He helped blunt the worst excesses of the Warren court and gave hope to a new generation of legal scholars who argued for restraint rather than activism. And Scalia’s bombastic personality, explored at length in this biography, provides great insights into his development as both a jurist and a man. But you’ll have to read David’s review to decide if the book is worth your time.
Finally, we wish to thank each and every one of you for subscribing to The Austrian and supporting the Mises Institute in the process. It is proving to be an exciting year, and we hope you will join us both online and at live events in 2023.
Understanding what turns an ordinary currency into a global reserve currency can help us understand how the dollar could go into decline and give way to competing currencies.
Original Article: "Why the Dollar Still Beats the Euro and the Yuan"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The allure of environmental, social, and governance (ESG) goals has hypnotized corporate America into offering ESG funds that score investments for prioritizing social goals. Companies that account for environmental, social, and governance goals in their decisions collectively held $8.4 trillion in US investment assets at the beginning of 2022. Leading investment firm BlackRock more than doubled its holdings to over $500 billion and other players are following its lead.
ESG investing is becoming a permanent fixture in the global corporate landscape, but not without backlash. Some entrepreneurs and politicians in the United States argue that prioritizing ESG investing at the expense of shareholder welfare will diminish returns for investors. Strong concerns about the viability of ESG investing led Florida to pull $2 billion worth of assets from BlackRock in a nationwide ESG purge.
But the battle is only heating up because President Joe Biden overturned a Senate bill that prevented fund managers from factoring environmental, social, and governance goals into their investment decisions. In the private sector, tycoons have been launching firms to counter ESG investing by buying shares in companies like Apple and Disney to undercut the activism of management.
Undoubtedly, ESG investing is creating a storm in the United States, but aside from the excitement surrounding ESG investments, what are the implications? Maximizing shareholder welfare is the primary objective of an investment fund and ESG funds should not be pursued if they fail to meet this goal. Some posit that since shareholders are the owners of the company, they must be free to advocate policies that achieve ESG goals. Therefore, ESG investing can be compatible with maximizing shareholder welfare.
However, companies must ensure that shareholders are appreciative of the costs and benefits of ESG investing. Shareholders might perceive virtue in using their investments to effect social change, but learning that ESG funds are uncompetitive will surely alter their outlook. Although research on the feasibility of ESG funds is in its infancy, studies show that they have not been delivering for investors.
ESG funds have done worse than their S&P counterparts, and the typical ESG fund fees can be three times the reported figure. Additionally, empirical research does not make compelling arguments for ESG investing. According to one financial paper by Samuel M. Hartzmark and Abigail B. Sussman, there is no evidence that high-sustainability funds outperform low-sustainability funds. Of importance is that reviews and meta-analyses of ESG funds are equally disappointing in assessment. A review of 1,141 primary peer-reviewed papers and twenty-seven metareviews published between 2015 and 2020 has shown that the case for ESG funds is inconclusive because their performance is indistinguishable from non-ESG funds.
Neither is it evident that ESG funds record superior social performance. Research from Massachusetts Institute of Technology asserts that ESG goals don’t always align with shareholders’ preferences. Even when there is an explicit mandate to pursue social objectives, ESG funds still vote against shareholders. MIT’s findings show that Vanguard and BlackRock voted against proposals requiring the disclosure of board diversity and qualifications at Apple, Salesforce, Twitter, Discovery, and Facebook.
Quite shocking is that Vanguard Social Index Fund voted against almost all environmental and social resolutions examined during 2006–19. ESG funds are not only uncommitted to pursuing the social goals of shareholders, but they also perform poorly on environmental and governance indicators. A wide-ranging study by university researchers indicates that ESG funds hold stocks with higher carbon emissions per unit of revenue, demonstrate subpar performance in relation to carbon emissions based on raw emissions output and emission intensity, and have lower levels of board independence.
By objective measures, ESG funds are failing to promote social objectives and deliver returns for shareholders. However, because shareholders own companies, they can always lobby for ESG funds, but companies should never design these instruments without shareholders’ consent or the provision of accurate information on their viability. Moreover, politicians and regulators ought to desist from foisting ESG goals on companies. ESG investing is activism and companies can determine if they are going to pursue social activism at the behest of shareholders without politicians interfering.
Most Western historians claim that World War I came about because of aggression from Germany and Austria-Hungary. However, Great Britain and its ANZAC allies were not innocent bystanders.
Original Article: "How Australia and New Zealand Helped Provoke and Escalate the First World War"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Featuring Will Blakely, Bryan Dawson, Allen Mendenhall, and Michael Rectenwald. Recorded in Birmingham, Alabama on April 22, 2023.
From the Mises Institute's recent event in Birmingham, Alabama dedicated to the global threat of "The Great Reset".
Recorded in Birmingham, Alabama on April 22, 2023.
From the Mises Institute's recent event in Birmingham, Alabama dedicated to the global threat of "The Great Reset".
Recorded in Birmingham, Alabama on April 22, 2023.
From the Mises Institute's recent event in Birmingham, Alabama dedicated to the global threat of "The Great Reset".
Most Americans do not understand debt default. When it is explained, debt default comes off as immorally reneging on the financial obligations of the government. In contrast, libertarians have demonstrated that it is, in fact, moral and beneficial. However, when default is brought up, it is hardly ever discussed in terms of local governments. So, here is why your local government should leave their creditors in the dust.
Government issued debt is essentially immoral. Government debt issuance is an aggressive action and should be rejected as such. It involuntarily transfers money from the taxpayer to the government’s creditors. There is no positive obligation to pay back the creditors because the creditors are fully aware of where the payments come from—involuntary transfers from the taxpayer. The creditors are about as morally culpable as the government. Local government debt is only different in one way: it is easier to repudiate.
Ask yourself: how much control do you have over whether the Federal government defaults on their debt? If you are sane and honest, your answer should be “no control whatsoever.” Your congressman or senator has little to no control as well. The Federal debt is a monster that we have just about no control over. However, rejecting local debt can be relatively easy. All it takes is a majority on a local government board to pass an ordinance stating, “Government X will only pay zero dollars for every one dollar owed on bond Y.” It is that simple.
Additionally, local government debt default will restrict the spending activities of future administrations because the creditworthiness of the local government will be wrecked. Some might say this is a bad thing—“You are restricting our future”—but this is exactly what you should want. You kill two birds with one stone. You get out of present obligations and, to some extent, you prevent future board members from taking the town into more obligations. They are unable to pay for more of their pet projects.
One might say, “Local debt is only the tip of the iceberg. The national debt is the real problem.” Au contraire! Local and state governments owe just over a total of $3 trillion. This roughly comes out to $9,700 per person. They owe even more in other obligations—$5 trillion to be exact.
For example, my local government was loaned over a million dollars in 2005 and has been paying it back for nearly two decades (it is a twenty-four-year loan). The taxpayers never consented to this massive burden, and they would be right to throw it away. The loan could potentially be defaulted on, and the citizens of the small town in Pennsylvania where I reside would no longer be saddled by the financial stress the loan presents.
School districts can be even worse. The school district where I live had more than $9 million in outstanding debt. Of course, the school board has a plan to pay off the debt, which I am sure will be offset by more debt acquisition in the future, but all payments are funded involuntarily by the taxpayer. Apollo-Ridge, my school district, is relatively small compared to other districts, so other districts in the United States more than likely have a more dire debt situation.
This is a relatively untapped opportunity for libertarians across the country. We are infatuated with the national debt when we could be pushing debt default on a local level. Of course, state laws might get in the way, but municipalities have done it before. States have done so in the past (throughout the nineteenth century, many states defaulted on loans for infrastructure projects) but are now prohibited from doing so according to federal law.
However, municipalities (cities, school boards, boroughs, etc.) are free to do so. Even if a state law prevents a local municipality from defaulting, try it anyway. Reassert local power; nullify government debt.
All the cases of local government defaults I have read were due to financial problems with government-sponsored enterprises. A departure from historical trends, an ideologically driven debt default would be immensely dangerous to the local government agendas, and that is a good thing.
This policy was once proposed by Thomas Jefferson, so not only is debt repudiation beneficial and moral, one of the most proliberty founding fathers was in favor of it. It is not a foreign concept but an idea that is linked to the conception of the country.
Furthermore, if one municipality does it, then others may follow. If there is a mass reneging on financial obligations, it will signal to the financial sector that local governments are no longer good investments. Ultimately, there will be fewer government projects soaking the taxpayer, fewer boondoggles, and less overreach. They will be forced to engage in the unpopular action of raising taxes, an action that is much harder to justify.
Of course, a movement to default might spur action by state governments or the Feds, but pressing the issue is better than not pressing it at all. It does not matter if the Feds step in and mandate local governments to pay off their debts. It would be no better than the status quo.
Municipal debt default would ultimately be a good thing, so put it on your local government official’s radar or run for office with it as an agenda item. Just like anything else, if you want to get rid of government debt, start at the lowest level.
Low rates of military reenlistment in the USA are spun as a near crisis. Perhaps this situation should make us more optimistic about our future.
Original Article: "Low Rates of Military Enlistment May Portend Prosperity Ahead"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Brain-dead Biden and his gang of neocon controllers want to “green” the economy. They use the phony “climate change” hoax, aka “global warming,” as the excuse to do this. Their plans will destroy America’s economy, which is dependent on fossil fuels. They talk a lot about helping the poor and arouse people to hate the rich. But destroying our country’s economy won’t help the poor.
Brain-dead Biden’s proposed Inflation Reduction Act ( IRA) is supposed to give us cheap “green” energy. But it will, in fact impose limitless costs. As fossil-fuel expert Alex Epstein points out, “We were told that the IRA would give us cheap ‘green’ energy for ‘only’ $400 billion in subsidies.
In reality, the IRA has a limitless price tag due to its 1) a limitless number of years, 2) limitless dollars per year, and 3) limitless harm to our grid.
- The promise that for just $400 billion the IRA would give us cheap ‘green’ energy never made sense.
- If the ‘green’ sources the IRA was subsidizing were actually on the verge of being cheap, they wouldn’t need to be subsidized.
- If the IRA was trying to make low-carbon energy cheap—which is the only way to lower global CO2 emissions long-term—it would have focused on liberating low-carbon energy production from the anti-development ‘green’ regulations that hold back nuclear, geothermal, and natural gas.
- The real goal of the IRA was to pretend to do something about global CO2 so as to wildly enrich ‘green’ companies that are unable/unwilling to compete on a real market—above all solar/wind companies, who successfully lobby to be paid a (subsidized) premium for unreliable power!
- Given that the IRA’s promise of $400 billion in subsidies leading to lower costs was a lie, it should be no surprise that the $400 billion number is a total lie.
The IRA’s cost is limitless:
- It lasts a limitless number of years
- It costs limitless dollars per year
- It does limitless harm to our grid.
The IRA lasts a limitless number of years
While we were led to believe the IRA’s ‘green” subsidies, mostly for solar and wind, would last 10 years, they actually continue indefinitely until America reaches an emission level even the Biden Admin says we won’t reach by 2050!
The IRA specifically states that its stream of lavish subsidies for green energy projects will last at least until 2032, but it will only end if the CO2 emissions of the electricity sector are below 25% of their 2022 levels.That is very likely to be far, far more than 10 years.
Recent projections by the Biden Admin’sEnergy Information Administration (EIA) indicate that the CO2 emissions of the electric sector will not go down to 25% of current emission levels before 2050! That means the IRA subsidies will last more than 26 years!
Any calculation of the IRA’s cost needs to be based on a realistic projection of when electricity CO2 emissions will go below 25% of their current levels. And given the Biden Admin’s biases their after-2050 estimate should be suspected to be overly optimistic.
2. The IRA costs limitless dollars per year.
While IRA advocates and the CBO have calculated government expenditures on the order of $400 billion for the IRA’s energy and climate policies over the next 10 years, that could easily be an underestimate by a factor or 3 or more.
When the public hears a number like $400 billion in subsidies, few know that this is not a fixed number. It is an estimate based on how many companies choose to take advantage of the subsidies.
As Al Gore celebrated at the recent World Economic Forum, companies are scarfing IRA subsidies. Gore said he was ‘very encouraged’ by the prospect of ‘actually open-ended’ subsidies. Gore being ‘very encouraged’ about subsidies means we should be ‘very discouraged’ about cost.
While the CBO and partisan analysis projected that the IRA’s green energy and climate provisions would cost less than $400 billion over a decade, analysis by Goldman Sachs indicates that the uncapped subsidies could balloon 3 times to $1.2 trillion.
As reported by the Wall Street Journal, by ‘Goldman’s estimate, the IRA tax credits will cost tens to hundreds of billions more than CBO estimated over 10 years.’ This includes almost $400 billion of additional EV subsidies alone and over $80 billion more for solar and wind electricity generation
In addition, investors in solar and wind are incentivized by the IRA to use particularly costly solar panels and wind turbines manufactured in the hostile environment of US regulations, which means higher subsidies for every project.
3. The IRA does limitless harm to our grid.
Not only will the IRA’s subsidies last far longer than the decade we were pitched, and not only will those subsidies likely be far higher per year than we were pitched, but—worst of all—the IRA has a limitless ability to harm our grid.
We’re in a growing electricity crisis caused by shutting down reliable power plants and not replacing them with reliable power plants.
The IRA’s response to this crisis is to double down on one of its main causes: subsidies for unreliable solar and wind.
Alex Epstein—Electricity Emergency
Why is America shutting down too many reliable power plants?
Two of the chief villains are the subsidies known as the Investment Tax Credit (ITC) and Production Tax Credit (PTC). These subsidies had expired. But the Inflation Reduction Act restored and extended them.7
The ‘ITC’ and ‘PTC’ solar and wind subsidies pay utilities to shut down or slow down reliable gas and coal plants whenever the sun shines or the wind blows. This defunds reliable plants, causing many to be shut down.
The IRA extends these ruinous subsidies indefinitely.
The IRA pretended to be pro-nuclear by adding nuclear to its subsidized forms of energy. But since nuclear overregulation makes new plants cost-prohibitive, the Inflation Reduction Act’s endless ‘clean energy’ subsidies = endless solar and wind subsidies.
By expanding and extending subsidies to unreliable solar and wind, the IRA provides even greater incentives to retire reliable capacity in favor of unreliable green energy. This means more reckless endangerment of our grid’s reliability.”
Not only will greening the economy impose limitless costs. It will destroy our economy, which is based on fossil fuels. Here again Epstein is a good guide. “Why do I believe the world needs to increase fossil fuel use when so many tell us to rapidly eliminate fossil fuel use?
Because it follows from 3 irrefutable principles for thinking about fossil fuels that I, as a philosopher and energy expert, follow—and most ‘experts’ don’t.
My 3 irrefutable principles for thinking about fossil fuels, which no opponent has ever challenged:
1 Factor in fossil fuels’ benefits
2 Factor in fossil fuels’ ‘climate mastery benefits’
3 Factor in fossil fuels’ negative and positive climate side-effects with precision
Irrefutable principle 1: Factor in fossil fuels’ benefits
When we’re evaluating what to do about any technology we must factor in not only its negative side-effects but also its benefits.
E.g., oil-powered equipment and natural gas fertilizer are crucial to feeding 8 billion people.
Even though we obviously need to factor in fossil fuels’ benefits, not just their negative side-effects, most designated experts totally fail to do this.
E.g., ‘expert’ Michael Mann 100% ignores fossil fuels’ unique agricultural benefits in his book on fossil fuels and climate.
Irrefutable principle 2: Factor in fossil fuels’ ‘climate mastery benefits’
One huge benefit we get from fossil fuels is the ability to master climate danger—e.g., fossil fueled cooling, heating, irrigation—which can potentially neutralize fossil fuels’ negative climate impacts.
Even though we obviously need to factor in fossil fuels’ climate mastery benefits, our designated experts totally fail to do this.
E.g., the UN IPCC’s multi-thousand page reports totally omit fossil fueled climate mastery! That’s like a polio report omitting the polio vaccine.
Irrefutable principle 3: Factor in fossil fuels’ negative and positive climate side-effects with precision
With rising CO2 we must consider both negatives (more heatwaves) and positives (fewer cold deaths). And we must be precise, not equating some impact with huge impact.
Even though we obviously need to factor in both negative and positive impacts of rising CO2 with precision, most designated experts ignore big positives(e.g., global greening) while catastrophizing negatives (e.g., Gore portrays 20 ft sea level rise as imminent when extreme UN projections are 3ft/100yrs).
If you follow my 3 irrefutable principles for thinking about fossil fuels—factoring in fossil fuels’ 1) benefits, 2) climate mastery benefits, and 3) precise negative and positive climate side-effects—the facts show that we need a Fossil Future.
Consider 10 undeniable facts
5 undeniable facts about fossil fuels’ benefits
1 Human flourishing requires cost-effective energy
2 Far more energy is needed
3 Fossil fuels are uniquely cost-effective
4 Unreliable solar and wind are failing to replace fossil fuels
5 Fossil fuels give us an incredible climate mastery ability
Undeniable energy fact 1: Cost-effective energy is essential to human flourishingCost-effective energy—affordable, reliable, versatile, scalable energy—is essential to human flourishing because it gives us the ability to use machines to become productive and prosperous.
Thanks to today’s unprecedented availability of cost-effective energy (mostly fossil fuel) the world has never been a better place for human life. Life expectancy and income have been skyrocketing, with extreme poverty (<$2/day) plummeting from 42% in 1980 to <10% today
Undeniable energy fact 2: The world needs much more energyBillions of people lack the cost-effective energy they need to flourish. 3 billion use less electricity than a typical American refrigerator. 1/3 of the world uses wood/dung for heating/cooking. Much more energy is needed
The desperate lack of life-giving, cost-effective energy means that any replacement for fossil fuels must not only provide energy to the 2B who use significant amounts of energy today but to the 6B who use far less. Restricting fossil fuels without incredible alternatives is mass-murder.
Undeniable energy fact 3: Fossil fuels are uniquely cost-effectiveDespite 100+ years of aggressive competition, fossil fuels provide 80%+ of the world’s energy and they are still growing fast—especially in the countries most concerned with cost-effective energy. E.g., China.
Fossil fuels are uniquely able to provide energy that’s low-cost, reliable, and versatile on a scale of billions of people. This is due to fossil fuels’ combo of remarkable attributes—fossil fuels are naturally stored, concentrated, and abundant energy—and generations of innovation by industry.
There is currently only one energy tech that can match (actually exceed) fossil fuels’ combo of naturally stored, concentrated, abundant energy: nuclear. Nuclear may one day outcompete all uses of fossil fuels, but this will take radical policy reform and generations of innovation + work.
Recent price spikes in fossil fuels do not reflect some new lack of cost-effectiveness on the part of fossil fuels, but rather the devastating effects of ‘green energy’ efforts to artificially restrict the supply of fossil fuels on the false promise that unreliable solar/wind can replace them.”
Paul Diessen sums up what will happen under the Biden gang’s plans. “Let me say it again: Wind and sunshine are free, clean, green, renewable and sustainable. But harnessing this diffuse, unreliable, weather-dependent energy to power civilization definitely is not. And every bit of ‘renewable’ power must be backed up with other power—so double our cash and material investments.
The Green Lobby and its legislator and regulator friends really seem to think they can just pass laws and earmark subsidies, demanding energy transformations by 2050—and it will just happen. The raw materials will just be there, perhaps with a little MAGIC: Materials Acquisition for Global Industrial Change. That is, they simply assume the necessary raw materials will also just be there.
Not one of these luminaries has given a moment’s thought to—much less attempted to calculate—what this net-zero transition would require:
- How many millions of wind turbines, billions of solar panels, billions of EV and backup batteries, millions of transformers, thousands of miles of transmission lines—sprawling across how many millions of acres of wildlife habitat, scenic and agricultural lands, and people’s once-placid backyards?
- How many billions of tons of copper, steel, aluminum, nickel, cobalt, lithium, concrete, rare earths, composite plastics and other materials? How many trillions of tons of ores and overburden? How many mines, across how many more acres—with how much fossil fuel energy to operate the enormous mining equipment, and how much toxic air and water pollution emitted in the process? Where will it be done?
- To cite just one example, just those 2,500 wind turbines for New York electricity (30,000 megawatts) would require nearly 110,000 tons of copper—which would require mining, crushing, processing and refining 25 million tons of copper ore … after removing some 40 million tons of overlying rock to reach the ore bodies. Multiply that times 50 states—and the entire world—plus transmission lines.
- How many processing plants and factories would be needed? How much fossil fuel power to run those massive operations? How many thousands of square miles of toxic waste pits all over world under zero to minimal environmental standards, workplace safety standards, child and slave labor rules?
- How many dead birds, bats, and endangered and other species would be killed off all across the USA and world—from mineral extraction activities, wind turbine blades, solar panels blanketing thousands of square miles of wildlife habitats, and transmission lines impacting still more land?
- How many will survive hurricanes like Ian or Andrew? Where will we dump the green energy trash?
Not only do the luminaries and activists ignore these issues and refuse to address them. They actively suppress, cancel, censor and deplatform any questions and discussions about them. They collude with Big Tech companies and news agencies, which too often seem all too happy to assist.
The hard reality is, there are not, will not be, and cannot be, enough mines, metals and minerals on the entire planet—to reach any ‘net-zero’ US economy by 2050, much less a global ‘green’ economy.
Here’s another issue: electric vehicle and backup lithium-ion battery modules can erupt spontaneously into chemical-fueled infernos that cannot be extinguished by conventional fire-fighting means. That raises an important analog to rules Alec Baldwin should have kept uppermost in mind a year ago. Treat every firearm as if it is loaded. Never point your muzzle at anything you are not prepared to destroy.
In the Biden-Newsom-Kerry-IPCC energy arena: Treat every electric vehicle and backup battery system as if it is loaded and ready to ignite. Never park an EV, install a PowerWall or locate a backup power facility near anything you are not prepared to destroy.
That includes in your garage; near other vehicles; in parking garages under apartment and office buildings; in residential neighborhoods and highway tunnels; or on cargo ships like the Felicity Ace.
And yet we’re supposed to go along with Green Energy schemes—as we did with masks, school lockdowns and vaccinations to stop covid—because our government, media and ‘public interest’ groups insist that we ‘follow the science,’ on which there can be no doubt (certainly none permitted) that we face a ‘manmade climate crisis’ that threatens the very existence of humanity and ‘the only Earth we have.’
Because we have to destroy the planet (with green energy) in order to save it (from climate change).
It’s time to short-circuit this electricity nightmare, by asking these questions, demanding answers, and ending the notion that governments can simply issue edicts and compel reality to change in response.”
Let’s do everything we can to stop brain-dead Biden and his gang of neocon controllers from destroying America.
In 1934, at the behest of Prime Minister R.B. Bennett and with the approval of Parliament, Canada’s central bank, the Bank of Canada (BOC), was founded. It began operations in 1935. Its job is “to promote the economic and financial welfare of Canada.” It is now 2023, and more than half of Canadians are living hand to mouth, a trend that has been well established for many years. How much longer do we have to wait for the BOC to do its job?
The BOC continues to operate because its real purpose is not to promote the economic and financial welfare of Canada, but rather to promote the economic and financial welfare of Canada’s political class, including bankers, at the expense of regular citizens. The BOC is able to do this because equality under the law does not exist in a democracy, where legal privileges are granted to some people, but not all people. For example, the government says that it is legal for the BOC and the commercial banks—but no one else—to create money that did not previously exist. They even explain the process:
The majority of money in the economy is created by commercial banks when they extend new loans, such as mortgages. . . .
. . . Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
You may have to wait a few days to find out if you qualify for a bank loan, but after you qualify, the banker only needs a few seconds at his keyboard to create the money for you. As your loan is repaid, the banker destroys the principal and keeps the interest. This is how Canadian banks rake in billions of dollars in profits every year. The exclusive right to create and destroy money is the ultimate power, the source of banks’ ill-gotten gains. As Ludwig von Mises wrote:
A government’s plans concerning the determination of the quantity of money can never be impartial and fair to all members of society. . . . It always furthers the interests of some groups of people at the expense of other groups. It never serves what is called the commonweal or the public welfare.
When the BOC and the banks create money that did not previously exist, they are congratulated for facilitating economic growth. Anyone else who does this is punished for counterfeiting. In other words, in a democracy, the legality of a specific action is determined not by the nature of the action itself, but by whether the person initiating the action is a member of the political class. Thus, counterfeiting is legal for banks and the BOC, but not for anyone else. Counterfeiting is bad, but this double standard is worse.
When newly created money (monetary inflation) outpaces the production of new goods, the result is price inflation, which can be more severe in specific asset classes, such as houses, where bankers have seduced borrowers with mortgages at ultralow interest rates. Bankers never acknowledge that their counterfeiting activity results in price inflation which steals purchasing power from the pockets of hardworking Canadians. According to the BOC’s own inflation calculator, the Canadian dollar has lost 25 percent of its value since 2010; 50 percent of its value since 1990; and 95 percent of its value since 1935, when the BOC began operations. The government borrows a lot of newly created money as an alternative to imposing higher visible taxes on the public. Therefore, a loss of purchasing power is best described as an inflation tax, but the political class believe that Canadians are too stupid to make this connection.
They also believe that Canadians are too stupid to discover the truth about bank bailouts. The recent failure of Silicon Valley Bank in California elicited these comments from University of Toronto finance professor Laurence Booth, a member of the political class: “The big test for the Canadian banks was the financial crisis in the United States in 2008 and 2009. . . . But there was never any question about the safety of the Canadian banking system.”
Booth is dutifully repeating the lies of former prime minister Stephen Harper. To this day, there remains a widespread misperception that the Canadian banking system was rock solid, head and shoulders above the rest of the world, never in need of financial assistance. This is pure myth. Canadian officials are simply less transparent than their foreign counterparts. Five banks dominate the Canadian market, and at the height of the financial crisis, they were all in deep trouble. Each of them received massive bailouts from the Canadian government, the Bank of Canada, and the Federal Reserve. Thus, the banks got their profits, their CEOs got raises, and taxpayers got shafted, which forced hardworking Canadians to work even harder to support themselves, their families, and these bloodsucking political parasites.
The political class offer many sophisticated arguments to justify their exclusive right to create money out of thin air, but their arguments should be dismissed because the BOC has failed to achieve its official objective. However, the absence of equality under the law is a far more important reason to dismiss their arguments. Politicians constantly make laws that do not apply equally to all people, and they get away with these immoral laws because most citizens attended government schools where they were taught to equate “law” with “justice.” Frédéric Bastiat warned us about confusing morality with legality:
It would be impossible . . . to introduce into society a greater change and a greater evil than this—the conversion of the law into an instrument of plunder. . . .
. . . When law and morality are in contradiction to each other, the citizen finds himself in the cruel alternative of either losing his moral sense, or of losing his respect for the law—two evils of equal magnitude, between which it would be difficult to choose.
Money is not the root of all evil, but a legally sanctioned monopolistic power to create money is nothing more than a legalized counterfeiting ring, which is the root of a lot of evil.
Loans can be economically beneficial, but only when the money being loaned comes from our savings which we voluntarily relinquish for the term of the loan. When a bank deviates from this process and misrepresents the nature of the money being loaned, the bank is guilty of fraud. Democracy legalizes this fraud.
The BOC must be abolished. Money and banking must be returned to the competitive marketplace. This will force the government to either cut spending or convince the public of the need to drastically increase visible taxes.
Technically speaking, it is legal to use other forms of money in Canada, but the government actively discourages this with tax laws and legal tender laws. When the law does not hinder anyone’s freedom to use whatever form of money they choose, people tend to use money whose quantity changes very little over time because this inspires confidence in the future value of money. History shows that money freedom tends not only to preserve the value of money, but to increase its value. Money freedom puts the responsibility for the “economic and financial welfare” of the people back where it belongs—in the hands of the people.
A generation ago, the Berlin Wall fell and the USSR collapsed. Today, US monetary authorities are bringing down our own country.
Original Article: "Role Reversal: The Collapse of the Dollar-Enforced Empire"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Every human acts purposefully using scarce means to attain ends. From this action axiom, we can deduce further human behavior and its effects. One such behavior is time preference.
Time preference is the idea that people value present ends above future ends. Since we must choose between various ends at any given time, we must have a preference to achieve the chosen end sooner rather than later. Otherwise, we wouldn’t have acted at all.
High Time Preference versus Low Time PreferencePeople have different time preferences. Thus, we distinguish between low and high time preferences. What is considered low and high in this aspect is relative.
People with (relatively) high time preferences are more present oriented. Thus, they place extra value on consuming sooner. They prefer instant gratification and are, consequently, less inclined to save and invest.
In turn, the present orientation depends on how people think about the future. Some people, like small children, have a hard time grasping the concept of the future. Others, like the severely ill and the elderly, think less of future consumption since they know there won’t be any.
On the contrary, people with (relatively) low time preferences are more future oriented. They can delay gratification and have clear visions for the future. Typically, these people are healthy adults.
Having a low time preference makes a person inclined to save and invest. Furthermore, savings and investment is what causes economic growth not just for the person in question, but for society as a whole.
Since we cannot stop consuming completely, we cannot put all our focus on increasing our production. So, in order to increase one’s production, one must refrain from a portion of consumption during some time, i.e., save.
After one has saved enough consumption can the investing begin. During the investing period, one lives off his savings. Hence, economic growth starts with low time preference and proceeds with savings and investment.
Does Low Time Preference Equal Success?American social psychologist Walter Mischel claimed that delayed gratification (low time preference) correlates with success.
During the ’60s and ’70s, he and his colleagues performed some experiments on delayed gratification. In these experiments, four-year-old children were given a choice between receiving one marshmallow right away or waiting for fifteen minutes and receiving two instead. The children were left alone in a room while waiting.
The participating children were followed up later in adult life. The researchers found that the children who could delay their gratification were successful in many ways.
For instance, they were more likely to be socially and academically competent, more likely to have higher SAT scores, and less likely to suffer from stress.
Although the marshmallow experiment is interesting, it is, like many other experiments in the social sciences, biased and misleading. Instead, we can use praxeology to reason through whether a low time preference is related to success.
First of all, let me stress that success can mean many things and that it is subjective. The Cambridge Dictionary defines success as “the achieving of the results wanted or hoped for.” However, in this sense, I am referring to an overall “objective” success.
On time preference and personal success, Hans-Hermann Hoppe writes:
One man may not care about anything but the present and the most immediate future. Like a child, he may only be interested in instant or minimally delayed gratification. In accordance with his high time preference, he may want to be a vagabond, a drifter, a drunkard, a junkie, a daydreamer, or simply a happy-go-lucky kind of guy who likes to work as little as possible in order to enjoy each and every day to the fullest. Another man may worry about his and his offspring’s future constantly and, by means of savings, may want to build up a steadily growing stock of capital and durable consumer goods in order to provide for an increasingly larger supply of future goods and an ever longer period of provision.
Second, there are many factors behind any form of success. Some of these are external, such as upbringing, environment, culture, and luck. Others are internal within our brains. These often include risk management, social ability, grit, and intelligence.
By keeping all external and internal factors constant and equal, it becomes clear that success can depend on time preference. Likewise, we can see that success depends as much on grit or intelligence, other things equal.
While praxeology simply cannot predict future outcomes, it does describe purposeful behavior. A low time preference means that a person can delay gratification and is more future oriented.
While we cannot tell if this leads to success, a low time preference at least allows for economic growth, which is generally considered successful. On this, British real estate investor Samuel Reeds wrote in a 2022 Entrepreneur article:
Even someone with an excellent salary or a healthy company can end up poor if they have a “high time preference,” in other words being focused principally on the present. On the other hand, someone from a poor background with a low time preference and the correct training can end up wealthy.
All in all, there are many factors involved for success. A low time preference is a preferable trait and an important factor, but it is not crucial.
The government wants to make gas cars a lot more expensive. But electric vehicles are so expensive in the longer term that gas cars still look like a better deal.
Original Article: "Peak EV: Electric Vehicles Will Fade as Their True Costs Become Clear"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Murray N. Rothbard wrote in the February 1971 issue of the Libertarian Forum that “libertarians, if they have any personal philosophy beyond freedom from coercion, are supposed to be at the very least individualists.” Indeed, libertarianism holds high the rights and responsibilities of the sovereign individual: the right to self and to justly acquired property and thus the right not to be coerced or arbitrarily restricted and the responsibility for one’s own actions and the moral duty to respect and honor other individuals’ rights.
Yet libertarianism, or at least a relatively large subset of proponents of libertarianism, has taken a strange collectivist turn in recent years. This is evident in a number of issues, such as free trade, where libertarians used to be in agreement in principle, albeit not necessarily in all the details or the applications of those principles. In contrast, this new turn toward collectivism argues from a different starting point. Rather than the individual’s rights, the starting point for this group is instead a notion of the individual’s collective belonging and identity (such as one’s country or ethnicity).
There has, of course, never been a problem for libertarians to recognize individuals for who they are, or choose to be, and thus within their preferred social and cultural context. No man is an island. As social beings, we are embedded in a context of community, culture, and tradition. The distinction between individualist and collectivist is not either-or but which is primary: for collectivists, the individual is subject to the will of the collective (or, in reality, the will of its leadership); for individualists, the collective has no right of its own but is subject to the individual’s choice to associate. For obvious reasons, the analysis of any state of affairs from a collectivist point of view is different from that of an individualist point of view.
The issue of free trade illustrates this clearly. Libertarians used to be universally and uninhibitedly for free trade. Whether domestically or across borders, voluntary exchange serves individuals best—and any restriction thereof is a violation of their rights. Thus, any restrictions should always be abolished, the sooner the better.
Granted, reality is somewhat more complex. As I discuss in The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives, whenever the state regulates economic action, there are severe and oftentimes far-reaching distortions of both the structure and outcome of market exchange. As libertarians have long recognized, regulations create winners and losers. Also, rolling back one or a few regulations, while it potentially causes a “freer” market, it will cause a situation with a different set of winners and losers. This is true as long as a regulation remains in effect. The only truly fair and just economy is one completely devoid of the state’s manipulations, whether those are actively pursued or passively effected.
These complex implications of trade policy were never seen as an argument against deregulation, however. Rather, they are an argument for letting people and businesses exchange without interventions. Less intervention means less distortion, and this is always preferable. This should be preferred even by interventionists, because, as Ludwig von Mises famously recognized: “Economic interventionism is a self-defeating policy. The individual measures that it applies do not achieve the results sought. They bring about a state of affairs, which—from the viewpoint of its advocates themselves—is much more undesirable than the previous state they intended to alter.”
In other words, libertarians were free traders and favored any step in the direction of free trade. However, this is no longer obvious. Donald Trump’s trade war with China when he was president appears to have caused a rift within libertarianism, or at least among those libertarians who eagerly discuss policy online, along the individualist-collectivist fault line.
Individualist libertarians are true to the “traditional” libertarian view that the state should get out of trade altogether and that a trade war is only harming consumers and the economy. The collectivists instead focus on international trade as a matter of collectivist justice and, as a result, raise other issues. Among those are the recognition that China (the “other” collective) is engaged in “unfair business practices” by subsidizing and in other ways supporting Chinese (their “own”) business and, as part of this, neglecting to enforce international treaties. (A similar argument can, of course, also be made for the United States and any other state.)
This is itself not news, as libertarians have always recognized the destructiveness of realpolitik, nation-statism, and the overall distortive nature of interventionism. The solution from an individualist-libertarian perspective has always been to call for deregulation and free markets—even unilaterally—with the obvious goal of getting the state out of trade. That China, for example, subsidizes production so that American and European consumers can buy goods and services at a very low, and possibly below-cost, price is not a problem for anyone but the Chinese. They are, after all, picking up the tab for the low prices we enjoy.
From the collectivist-libertarian perspective, however, the suggested solution is very different—and may even be contrary to traditional libertarian views. In their take, Chinese domestic and international trade policy is not an issue primarily for the Chinese but threatens “our” businesses and therefore “our” ability to produce goods and services, which can make “us” dependent on Chinese production.
In other words, the issue of trade is no longer a matter of the free exchange between private parties, whether individuals or businesses, but a matter of the collective to which these parties “belong.” International trade then becomes an issue of “national security” and, the argument goes, it is therefore justified to call on the state to act on “our” behalf. Consequently, a trade war is seen by this group as a means for “us” to pressure the Chinese to adopt “fair” business practices so that “our” (American and perhaps Western European) businesses can compete on the same terms as Chinese companies—or, as it is often called, a level playing field.
While there are certainly problems involved with an expansionary Chinese state—a Keynesian monster with grand international ambitions made clear in, among other things, the Belt and Road Initiative—it should be fundamentally problematic for libertarians to identify with, and even support, one state against another. It is even more problematic to support a state setting out to restrict and tax trade, whether or not it is intended as a means to pressure (or punish) “them”—the nation-state that is even more interventionist than “we” are.
The trade war issue is the latest among a number of collectivist-libertarian critiques of traditional libertarian positions (examples include migration and state building). Just like the other issues, it appears to cause severe confusion among the new collectivist breed of libertarians regarding the nonaggression principle. This core principle is what underlies the free trade issue: it is fundamentally a question of voluntary market exchange. Trade is a matter of the parties involved in each exchange, not a conflict between the parties as players for different “teams.” There is no larger “game” to be played that somehow trumps or nullifies the parties’ right to voluntarily exchange as they themselves see fit.
The state is of course antithetical to this freedom, as it is to any freedom, whether the freedom is exercised alone or in voluntary association with others. The state is at the core mere aggression, not a team coach. Thus, a libertarian cannot see the state as a mechanism for good, or as a means to an end, no matter how legitimate the end.
Politicians like Elizabeth Warren and Alexandria Ocasio-Cortez are demanding that successful entrepreneurs be taxed into oblivion. The real parasites are the politicians who destroy wealth instead of creating it.
Original Article: "Who Are the Wealth Destroyers, Politicians or Billionaires?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The bipartisan RESTRICT Act—marketed as a "Tik Tok ban"—is properly named because it will restrict freedom, empower the state, and expand government surveillance.
Original Article: "The RESTRICT Act Launches a New War on Free Speech"
This Audio Mises Wire is generously sponsored by Christopher Condon.
As governments create a housing crisis, Marxists call for policies that will make the crisis worse.
Original Article: "Marxists Have a Plan for Housing: Make Sure There Is Less Available"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Mark looks at the price of Apple stock—one of the best performing stocks over the last quarter century, and one of the largest holdings in stock indexes, mutual funds, and Berkshire Hathaway portfolio. Market watchers have kept a keen eye on Apple as it heads for a new all-time high; but, Mark is concerned that a downturn would have a huge ripple effect on the overall market—possibly equivalent to a tsunami.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
[From chapter 23 of The Case Against the Fed.]
Having examined the nature of fractional reserve and of central banking, and having seen how the questionable blessings of Central Banking were fastened upon America, it is time to see precisely how the Fed, as presently constituted, carries out its systemic inflation and its control of the American monetary system.
Pursuant to its essence as a post-Peel Act Central Bank, the Federal Reserve enjoys a monopoly of the issue of all bank notes. The US Treasury, which issued paper money as Greenbacks during the Civil War, continued to issue one-dollar "Silver Certificates" redeemable in silver bullion or coin at the Treasury until August 16, 1968. The Treasury has now abandoned any note issue, leaving all the country's paper notes, or "cash," to be emitted by the Federal Reserve. Not only that; since the US abandonment of the gold standard in 1933, Federal Reserve Notes have been legal tender for all monetary debts, public or private.
Federal Reserve Notes, the legal monopoly of cash or "standard," money, now serve as the base of two inverted pyramids determining the supply of money in the country. More precisely, the assets of the Federal Reserve Banks consist largely of two central items. One is the gold originally confiscated from the public and later amassed by the Fed. Interestingly enough, while Fed liabilities are no longer redeemable in gold, the Fed safeguards its gold by depositing it in the Treasury, which issues "gold certificates" guaranteed to be backed by no less than 100 percent in gold bullion buried in Fort Knox and other Treasury depositories. It is surely fitting that the only honest warehousing left in the monetary system is between two different agencies of the federal government: the Fed makes sure that its receipts at the Treasury are backed 100 percent in the Treasury vaults, whereas the Fed does not accord any of its creditors that high privilege.
The other major asset possessed by the Fed is the total of US government securities it has purchased and amassed over the decades. On the liability side, there are also two major figures: demand deposits held by the commercial banks, which constitute the reserves of those banks; and Federal Reserve Notes, cash emitted by the Fed. The Fed is in the rare and enviable position of having its liabilities in the form of Federal Reserve Notes constitute the legal tender of the country. In short, its liabilities—Federal Reserve Notes—are standard money. Moreover, its other form of liability—demand deposits—are redeemable by deposit-holders (i.e., banks, who constitute the depositors, or "customers," of the Fed) in these Notes, which, of course, the Fed can print at will. Unlike the days of the gold standard, it is impossible for the Federal Reserve to go bankrupt; it holds the legal monopoly of counterfeiting (of creating money out of thin air) in the entire country.
The American banking system now comprises two sets of inverted pyramids, the commercial banks pyramiding loans and deposits on top of the base of reserves, which are mainly their demand deposits at the Federal Reserve. The Federal Reserve itself determines its own liabilities very simply: by buying or selling assets, which in turn increases or decreases bank reserves by the same amount.
At the base of the Fed pyramid, and therefore of the bank system's creation of "money" in the sense of deposits, is the Fed's power to print legal tender money. But the Fed tries its best not to print cash but rather to "print" or create demand deposits, checking deposits, out of thin air, since its demand deposits constitute the reserves on top of which the commercial banks can pyramid a multiple creation of bank deposits, or "checkbook money."
Let us see how this process typically works. Suppose that the "money multiplier"—the multiple that commercial banks can pyramid on top of reserves, is 10:1. That multiple is the inverse of the Fed's legally imposed minimum reserve requirement on different types of banks, a minimum which now approximates 10 percent. Almost always, if banks can expand 10:1 on top of their reserves, they will do so, since that is how they make their money. The counterfeiter, after all, will strongly tend to counterfeit as much as he can legally get away with. Suppose that the Fed decides it wishes to expand the nation's total money supply by $10 billion. If the money multiplier is 10, then the Fed will choose to purchase $1 billion of assets, generally US government securities, on the open market.
Figures 10 and 11 below demonstrate this process, which occurs in two steps. In the first step, the Fed directs its Open Market Agent in New York City to purchase $1 billion of US government bonds. To purchase those securities, the Fed writes out a check for $1 billion on itself, the Federal Reserve Bank of New York. It then transfers that check to a government bond dealer, say Goldman Sachs, in exchange for $1 billion of US government bonds. Goldman Sachs goes to its commercial bank—say Chase Manhattan—deposits the check on the Fed, and in exchange increases its demand deposits at the Chase by $1 billion.
Where did the Fed get the money to pay for the bonds? It created the money out of thin air, by simply writing out a check on itself. Neat trick if you can get away with it!
Chase Manhattan, delighted to get a check on the Fed, rushes down to the Fed's New York branch and deposits it in its account, increasing its reserves by $1 billion. Figure 10 shows what has happened at the end of this Step One.
The nation's total money supply at any one time is the total standard money (Federal Reserve Notes) plus deposits in the hands of the public. Note that the immediate result of the Fed's purchase of a $1 billion government bond in the open market is to increase the nation's total money supply by $1 billion.
But this is only the first, immediate step. Because we live under a system of fractional-reserve banking, other consequences quickly ensue. There are now $1 billion more in reserves in the banking system, and as a result, the banking system expands its money and credit, the expansion beginning with Chase and quickly spreading out to other banks in the financial system. In a brief period of time, about a couple of weeks, the entire banking system will have expanded credit and the money supply another $9 billion, up to an increased money stock of $10 billion. Hence, the leveraged, or "multiple," effect of changes in bank reserves, and of the Fed's purchases or sales of assets which determine those reserves. Figure 11, then, shows the consequences of the Fed purchase of $1 billion of government bonds after a few weeks.
Note that the Federal Reserve balance sheet after a few weeks is unchanged in the aggregate (even though the specific banks owning the bank deposits will change as individual banks expand credit, and reserves shift to other banks who then join in the common expansion.) The change in totals has taken place among the commercial banks, who have pyramided credits and deposits on top of their initial burst of reserves, to increase the nation's total money supply by $10 billion.
It should be easy to see why the Fed pays for its assets with a check on itself rather than by printing Federal Reserve Notes. Only by using checks can it expand the money supply by ten-fold; it is the Fed's demand deposits that serve as the base of the pyramiding by the commercial banks. The power to print money, on the other hand, is the essential base in which the Fed pledges to redeem its deposits. The Fed only issues paper money (Federal Reserve Notes) if the public demands cash for its bank accounts and the commercial banks then have to go to the Fed to draw down their deposits. The Fed wants people to use checks rather than cash as far as possible, so that it can generate bank credit inflation at a pace that it can control.
If the Fed purchases any asset, therefore, it will increase the nation's money supply immediately by that amount; and, in a few weeks, by whatever multiple of that amount the banks are allowed to pyramid on top of their new reserves. If it sells any asset (again, generally US government bonds), the sale will have the symmetrically reverse effect. At first, the nation's money supply will decrease by the precise amount of the sale of bonds; and in a few weeks, it will decline by a multiple, say ten times, of that amount.
Thus, the major control instrument that the Fed exercises over the banks is "open market operations," purchases or sale of assets, generally US government bonds. Another powerful control instrument is the changing of legal reserve minima. If the banks have to keep no less than 10 percent of their deposits in the form of reserves, and then the Fed suddenly lowers that ratio to 5 percent, the nation's money supply, that is of bank deposits, will suddenly and very rapidly double. And vice versa if the minimum ratio were suddenly raised to 20 percent; the nation's money supply will be quickly cut in half. Ever since the Fed, after having expanded bank reserves in the 1930s, panicked at the inflationary potential and doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation, the Fed has been very cautious about the degree of its changes in bank reserve requirements. The Fed, ever since that period, has changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent. It should come as no surprise that the trend of the Fed's change has been downward: ever lowering bank reserve requirements, and thereby increasing the multiples of bank credit inflation. Thus, before 1980, the average minimum reserve requirement was about 14 percent, then it was lowered to 10 percent and less, and the Fed now has the power to lower it to zero if it so wishes.
Thus, the Fed has the well-nigh absolute power to determine the money supply if it so wishes.1 Over the years, the thrust of its operations has been consistently inflationary. For not only has the trend of its reserve requirements on the banks been getting ever lower, but the amount of its amassed US government bonds has consistently increased over the years, thereby imparting a continuing inflationary impetus to the economic system. Thus, the Federal Reserve, beginning with zero government bonds, had acquired about $400 million's worth by 1921, and $2.4 billion by 1934. By the end of 1981 the Federal Reserve had amassed no less than $140 billion of US government securities; by the middle of 1992, the total had reached $280 billion. There is no clearer portrayal of the inflationary impetus that the Federal Reserve has consistently given, and continues to give, to our economy.
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- Traditionally, money and banking textbooks list three forms of Fed control over the reserves, and hence the credit, of the commercial banks: in addition to reserve requirements and open market operations, there is the Fed's "discount" rate, the interest rate charged on its loans to the banks. Always of far more symbolic than substantive importance, this control instrument has become trivial, now that banks almost never borrow from the Fed. Instead, they borrow reserves from each other in the overnight "federal funds" market.
Continued inflation inevitably leads to catastrophe.
—Ludwig von Mises
Consumers’ behaviors cause the consumer price index (CPI) broad heading of food to understate the real or wallet level of inflation. It is much worse than the top line statistic—it is a serious offense to the poor and fixed-income citizens.
The CPI measures nominal dollar changes based on month over month and year over year for 299 items. The year ending December 2021 posted an overall CPI of 3.4 percent. Food at home was up 6.5 percent during this period. For the year ending 2022 the CPI rose 6.5 percent while food rose 10.4 percent. Compounding the two years the CPI rose 11 percent, and the food at home category rose 17.6 percent.
For this same two-year period nominal hourly wages for private industry rose 15 percent. A two-year period from fourth quarter 2020 to fourth quarter 2022 shows real wages decreased by 4 percent. There is no relief, even for the fully employed.
Drive a few miles down a main road in my hometown of Brookfield, Wisconsin, and you’ll see many gas stations. Prices may vary, perhaps by 5 percent: $3.09 a gallon to $3.29 a gallon. Buying gas is passive. There is little to gain by shopping one station for another for a five-cent savings on twelve gallons of gas. Buying gas is an “on my way” task. I’ll get gas on my way to the hardware store.
Sales of inferior goods increase when consumer purchasing power is constrained. Higher prices for normal and even inferior goods drive the purchase of substitute goods, if available or affordable. The changes may be subtle, difficult to quantify, and missed by the survey or those who interpret them.
Grocery shopping is not passive. Food prices are more elastic than gas because consumers have choices. A vigorous market of consumer preferences is exercised at the grocery-cart level. Some decisions include menu planning, buying generic brands, buying bulk or larger quantities for lower unit cost, specific sales from weekly ad scrutiny, shopping in multiple stores including big box stores, finding substitutes, purchasing inferior goods, or just saying no to pricey or discretionary items. Searching for more reasonable prices increases the time and mobility necessary to find bargains, adding opportunity costs to the equation.
The nominal cost of goods measured is more punishing to the consumer when we add these efforts to economize. They are paying more with weaker dollars after exerting an effort to pay less for their real cost of goods, even if they could exercise shopping discretion.
Treasury secretary Janet Yellen told the public that the nuisance of inflation was temporary. Inflation is not temporary; it compounds. It will never be negative. For a true-up of the two-year period of food inflation, let’s use a two-year comparison. Narrowing this to a general kitchen-plate comparison we can select menus for breakfast, lunch, and dinner.
We will keep the costs at the average nominal price increases as reported by the Federal Reserve Economic Data for March 2023. We compare twelve months ending February of 2021 through January of 2022 and then compare to twelve months through January of 2023.
For breakfast consider eggs, bacon, toast, bananas, and coffee. In 2021 the cost of this meal increased by 14 percent from 2020. In 2022 this same meal increased 25 percent from 2021. In twenty-four months, the increase was 42 percent. Switching to cereals for a bargain? Maybe not. The 2021 and 2022 price increases for cereal and bakery items compounded two-year increases of 27 percent.
Lunch is a cheeseburger. Bread, ground chuck, and cheese all increased. This meal edged up 3 percent from 2020 to 2021. However, that same meal for the year ending 2022 cost 12 percent more.
We will plate chicken, potatoes, and carrots for your dinner. This meal remained flat in the first year, just as lunch did. The change for the year ending 2021 was 3 percent more expensive. In the year ending 2022, the two-year cost increase was 36 percent.
To summarize: the two-year increase on breakfast was 42 percent. The modest cheeseburger lunch increased 12 percent, and dinner was up 34 percent. The media lost their composure, criticizing the clever Wall Street Journal editorial which suggested you could skip breakfast.
Low-income and fixed-income people feel greater pain from inflation. Income limitations prevent adjustments for higher food prices. The Social Security increase in 2021 was 1.3 percent. The 2022 increase was 5.9 percent, providing a compound increase of 7.2 percent over two years.
But the rent “eats” first. And rents have increased.
A National Institutes of Health survey by All of Us with over one hundred thousand participants noted that 9 percent of those surveyed from May 2020 to February 2021 ran short on money for food. In 2020 6.7 percent of American families used a food bank. In 2022 over 53 million people used food banks or emergency kitchens.
Inferior goods are illustrated in ground beef prices. In my area’s grocery store average pricing has settled on the price point of $3.99 for a pound of ground chuck. Pricing in 2021 was based on 8-percent fat content. The 2022 price is now for fat content up to 20 percent: same price, same product name, different or inferior quality.
In Wisconsin and the greater Milwaukee area, we have a thriving Friday fish fry dinner tradition. Every week churches and not-for-profits become takeout restaurants offering fried cod, fries, coleslaw, applesauce, and rye bread. Even theme and ethnic restaurants adapt their menus to match the community fish fry frenzy.
This is a huge market in one good (cod or whitefish) with many buyers and sellers. During Lent more cod is consumed than in other seasons. Cod can be an example of an inferior or substitute good.
Fresh fillets can be as much as $14.99 at a specialty market. Previously frozen cod was recently sold for $8.99. Frozen cod went on sale for $6.99. Purchasing frozen cod instead of fresh is a substitute, or an inferior good, matching many of the characteristics of fresh but lacking in taste. Any activity by consumers electing different types of cod to save money is lost in the CPI for food. This doesn’t just happen with cod.
Consider Girl Scout cookies. An adult supervisor at a recently visited sales table shared that a box of cookies was five dollars. Responding to my questions, she said they were four dollars a box two years ago. When asked if there was any shrinkflation the adult nodded and said, “We think so on some, but we’re not sure.” Cookie prices increased 25 percent. We can expect unit sales counts to be down, but maybe not nominal sales if consumers don’t rally.
Continued expansion of federal largesse on many fronts will proliferate the compounding of inflation. More citizens will become food insecure or needy.
Despite value shopping and thrift effort, food prices increased 17 percent. If the consumers sought a simple 10-percent savings, the real cost of food at the cash register increased more than 25 percent, paid for by real wages that fell by 4 percent.
Don’t expect relief. The inflation insouciance is systemic in DC and the Federal Reserve. Janet Yellen’s replacement at the San Francisco Fed is Mary Daly. Like Secretary Yellen, she was an inflation denier.
In a let-them-eat-cake moment, Daly responded to a question on inflation.
I’m not immune to gas prices rising, food prices rising. . . . But I don’t find myself in a space where I have to make trade-offs, because I have enough, and many, many Americans have enough.
You may not be able to go to the vacation you want. You may end up instead camping or doing a stay-cation. . . . And I see all of that.
This is a catastrophe aboard Plato’s ship of fools.
Professor Per Bylund joins Bob to debunk the worries over AI and to question whether the latest version of chatbots should even be called "intelligent."
Per on Robots Taking your Jobs: Mises.org/HAP392a
The federal government’s Bureau of Labor Statistics (BLS) released new price inflation data last week, and according to the report, price inflation during the month decelerated slightly, coming in at the lowest year-over-year increase in twenty-three months. According to the BLS, Consumer Price Index (CPI) inflation rose 5.0 percent year over year in March before seasonal adjustment. That’s down from February’s year-over-year increase of 6.0 percent, and February is the twenty-fifth month in a row with inflation above the Fed’s arbitrary 2 percent inflation target. Price inflation has now been at or above 5 percent for twenty-three months in a row.
Meanwhile, month-over-month inflation rose 0.1 percent (seasonally adjusted) from February to March. That's down from February's month-over-month gain of 0.4 percent.
March’s year-over-year growth rate is down from June’s high of 9.1 percent, which was the highest price inflation rate since 1981. The BLS's CPI inflation rate has now slowed from June's high for nine months in a row.
Growth in CPI inflation has indeed slowed, and this reflects slowdowns in energy, gasoline, used cars and trucks. Food prices continues to rise at an alarming rate, but even there, price increases moderated somewhat with "food at home" slowing from a year-over-year increase of 10.2 percent in February to 8.4 percent in March. Prices in energy overall fell 6.4 percent, year over year, with gasoline dropping 17.4 percent over the same period.
As of March, however, there is still no sign of price growth in shelter slowing down. In March, shelter prices increased by 8.2 percent year over year, which was the highest growth rate since June 1982. Month-over-month growth in shelter costs also remained among the highest we’ve seen since the 1980s.
Meanwhile, March was yet another month of declining real wages, and was the twenty-fourth month in a row during which growth in average hourly earnings failed to keep up with CPI growth. According to new BLS employment data released earlier this month, nominal wages grew with hourly earnings increasing 4.18 percent year over year in March. But with price inflation at 5 percent, real wages fell.
Inflation Is Not “Falling”Predictably, the Biden administration has attempted to use this slowing in price growth as an excuse to claim inflation is "falling." Last Friday's press release on inflation from the White House reads:
Inflation has now fallen by 45% from its summer peak. Gas prices are down more than $1.40 from the summer, and grocery prices fell in the month of March for the first time since September 2020.
This is a very tortured spin on the statistics. The press release is worded in such a way as to suggest that prices are falling, but this is most certainly not what is going on. Even with energy prices going down, year over year, increases in food and shelter prices are more than enough to ensure that the cost of living continues to go up in real terms. This is especially painful given 24 months of falling real wages.
Interestingly, even the mainstream media seems to have given up on trying to send the message that price inflation is disappearing. NBC News, for example, notes that "the cost of food and shelter remain stubbornly high" while also noting the "wage growth is slowing" and admitting deceleration in prices will happen "only very slowly."
In other words, if you're an ordinary person hoping to get your grocery and rent bills under control, don't expect much relief in the near future.
Moreover, once we look beyond food and energy—the two most volatile components of the CPI—it looks like even more price inflation is baked into the equation. This so-called "core inflation" rate of increase fell to 5.6 percent in March, but that's not down much from the measure's 40-year high of 6.6 percent reached last September. Month-to-month increases also remain elevated with no sign of core-inflation growth turning negative.
This is likely why even the Fed—which always is happy to claim it has everything under control—refuses to declare victory against rising prices. On Wednesday, New York Fed President John Williams declared "“Inflation is still too high" prompting more predictions from Fed watchers that the Federal Open Market Committee (FOMC) will raise the target interest rate again at the committee's next meeting. The Fed knows that price inflation is deeply unpopular with the general public and that its credibility in predicting coming economic trends is lackluster at best. After all, it was not until late 2021 that Fed officials would even admit the price inflation was a problem at all. Up until then, Fed talk about inflation was all about how "transitory" it was. Before that, Fed officials has spent an entire decade talking about how inflation was too low. Even into 2021, Neel Kashkari was stating inflation was perfectly under control and there would be no hikes to the target policy rate until 2023.
The administration has not been any more insightful. Janet Yellen, an economist turned politician who now inhabits the Treasury Secretary position, has consistently been wrong in a similar fashion.
Members of the administration have also been forced to backtrack when trying to convince Congress of their expertise. On Tuesday, for example, Biden advisor Jared Bernstein explained to Congress that "transitory" wasn't really wrong, it was just vague:
“We thought inflation was going to accelerate and gradually cool down over time. Now that has turned out to be in fact the pattern that inflation has taken but ‘transitory’ was much too ambiguous a description of that dynamic."
Berstein insisted that "transitory" should be understood in the context of years, rather than weeks or months.
Clearly, however, this is not what "experts" like Bernstein, Kashkari, and Yellen meant when they said "transitory." Transitory was clearly intended to mean "no big deal" or "don't worry about it." It has always been a political term, not a technical one. Now, after two years of falling wages, many are learning to doubt the experts' narratives. Unfortunately, it's too late to prevent a recession or ongoing malaise. After more than a decade of runaway monetary inflation in the form of quantitative easing, bailouts, and covid stimmies, the stage has been set for widespread bubbles, malinvestments, and economic distortions that can only be unwound with deflation, unemployment, and recession. The disease has always been the easy-money fueled boom. Price inflation is just a symptom.
On February 3, 2023, on Norfolk Southern Railway’s general merchandise freight train 32N, a suspect bearing on the twenty-third car measured at 38°F above ambient, then 103°F above ambient, then 253°F above ambient. In East Palestine, Ohio, eleven tank cars derailed and hazardous materials ignited.
First responders mitigated the fire, but afterward the temperature was still rising in one tank car that carried vinyl chloride liquid. Responders expanded the evacuation zone, dug ditches, released the vinyl chloride into the ditches, and burned it.
There’s a better way.
Vinyl chloride presents a complex real-world challenge. It’s efficiently produced using competitively priced feedstocks and energy. Its product, PVC, is safe in use, cost-effective, and valuable in important applications. But producers of vinyl chloride and PVC, like many commodity-chemical industry producers, have had to contend with overbuilding that left them with overcapacity. They had to retrofit processes after vinyl chloride’s carcinogenicity was discovered. Now they have chronically lower research funding.
To limit hazardous transport, vinyl chloride or PVC producers could relocate plants or build new plants to further colocate vinyl chloride production and PVC production. To keep pricing favorable, colocated producers could merge. But in an industry that has massive existing capital investment, such big moves would be costly, slow, and risky.
It appears much more practical to simply better maintain railways and rolling stock and mitigate any remaining accidents by developing better emergency processes, equipment, and operations. But even getting such limited tasks engineered and executed well would require there to be a suitable incentive structure.
Incentives Done Poorly versus Done WellGovernment actors don’t lose when they fail; they gain by presenting themselves and more funding as the solutions. They wouldn’t benefit from developing expertise in engineering; they really only benefit from developing expertise in political maneuvering.
The way to prevent losses is to make tort lawsuits great—like in the 1820s, and better. Economist Walter Block provides background:
Up to the 1820s and 1830s, the legal jurisprudence in . . . the U.S. was more or less predicated upon the libertarian vision of non invasiveness. Typically, a farmer would complain that a railroad engine had emitted sparks which set ablaze his haystacks or other crops. . . . Almost invariably, the courts would take cognizance of this violation of plaintiff’s rights. The usual result during this epoch was injunctive relief, plus an award of damages.
But then in the 1840s and 1850s a new legal philosophy took hold. No longer were private property rights upheld. Now, there was an even more important consideration: the public good. And of what did the public good consist in this new dispensation? The growth and progress of the U.S. economy.
From roughly 1850 to 1970, firms were able to pollute without penalty. This . . . was a failure of the government to uphold free enterprise with a legal system protective of private property rights.
In the 1970s a “discovery” was made: the air quality was dangerous to human beings and other living creatures. Having caused the problem itself, the government now set out to cure it, with a whole host of regulations which only made things worse. . . . “Rent seeking” played a role in the scramble, as eastern (dirty burning sulfur) coal interests prevailed over their western (clean burning anthracite) counterparts. The former wanted compulsory scrubbers, the latter wanted the mandated substitution of their own coal for that of their competitors.
Libertarian noninvasiveness is still used in places. Where it’s used, it works great.
When Hurricane Katrina devastated industry, for instance, the insurance company FM Global found that damages were only 12 percent as large for insured locations that had implemented its engineering recommendations.
FM Global’s engineering knowledge and research shows that most losses are preventable. CEO Shivan Subramaniam explained:
Our customers are the ones who don’t want to have a loss. So, the actual insurance thing is almost a second or third step in the process. The first step is, can you help me put in place procedures that prevent something from happening, and even if it does happen, can contain it.
Limiting Governments, Freeing PeoplePreventing deprivations of life, liberty, and property for all persons is an underappreciated challenge that requires both intellectual prowess and emotional intelligence. Deprivations of property can be addressed well by a functioning tort system.
Judges can protect sympathetic victims who are affected by products, but judges should equally protect all persons who invest in or produce products. The current bastardized tort system is a Progressive mechanism for grabbing rents and distributing these spoils to donor blocs and voting blocs.
What’s needed is to place the full costs, responsibility, and rewards in the hands of producers, aided by insurers. To do this, politicians and governments must be limited to only providing dispute resolution, and only for now while private adjudicators build more efficient, proactive services.
When we break each problem into its component parts and we each do only the parts that we can do well ourselves, our successes at together solving problems and adding value become breathtaking.
President Biden pushes a wealth tax as a measure of "fairness." Not only is it unconstitutional, but it's also bad for the economy.
Original Article: "Biden's Wealth Tax Is a Trojan Horse Requiring Multiple Manipulations"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In a recent column, I discussed an argument about secession made by Abraham Lincoln and sympathetically expounded by Michael P. Zuckert in his important book A Nation So Conceived. Lincoln maintained that a nation once formed could not allow secession because doing so would open it to unlimited fissiparous tendencies, culminating in anarchy. This argument did not address the problem of slavery, surely relevant to the concrete circumstances of the Civil War. Zuckert has a suggestive, though in my view mistaken, discussion of Lincoln’s view of secession and slavery, and in this week’s article, I’ll try to explain Zuckert’s position and the difficulties he faces defending it.
Zuckert’s position is this: Lincoln considered slavery to be morally wrong and contrary to the Declaration of Independence, which he took to state universally valid truths that were binding on the American nation. It may seem at first hard to claim this because slavery existed at the time of the declaration and continued to exist from that point until the secession crisis that confronted Lincoln after his victory in the presidential election of 1860. But in response to this fact, Lincoln said that at the time of our nation’s founding, it was recognized in all sections of the country that slavery was an evil. Even those who held slaves believed this and hoped that through gradual emancipation it ultimately would become extinct.
Things changed after the cotton gin made slave labor much more productive and profitable than it had been in the eighteenth slavery, and some Southerners, most notably John C. Calhoun, rejected the equality clause of the Declaration of Independence and viewed slavery as a positive good. This Lincoln could not abide, and he was determined to respond to the challenge by using the secession crisis and the war he foresaw as its inevitable result to bring slavery to an end.
To this narrative there is an obvious objection. Lincoln said in his first inaugural address that he didn’t intend to interfere with slavery in the states where it existed and that he believed he had no constitutional power to do so. Further, a topic Zuckert doesn’t mention, Lincoln favored the amendment proposed by Thomas Corwin of Ohio, which would have prevented Congress from interfering with slavery in any of the states.
Zuckert’s answer is that Lincoln intended his first inaugural to be provocative:
Lincoln tells us of his hopes but what are his expectations of the real-world outcomes? He is going to hold government property, including the forts still under government control, and he is going to collect the revenue. He is, in a word, asserting a claim to the two central attributes of governance, the sword and the purse. . . . The assertion of power to collect the revenue is especially irksome in South Carolina, site of the nullification crisis during the Andrew Jackson years . . . Lincoln’s apparently pacific and placatory role seems much less so when viewed in toto.
Why did Lincoln follow a policy of provocation? One reason was that he rejected secession and was prepared to fight to overturn it. But Zuckert thinks Lincoln had another goal as well. He reads Lincoln’s goals as in line with his earlier “House Divided” speech; provocation might provide a chance to end slavery:
It is tempting to say that the most revealing part of the speech in Lincoln’s mind was the invocation of a “crisis” that must be reached and passed before the agitation over slavery will end. Lincoln’s image of a crisis that must be reached puts one in mind of the course of a fever. The serious ones rage until they reach crisis stage—a very high fever that threatens the life of the patient before it breaks and the patient, the lucky one, returns to health. It is not difficult to read the “House Divided” speech as a prediction or even a prescription for such a cause and cure. Beneath the moderation of his policy proposals lies the more extreme possibility that Lincoln’s insistence on an end to slavery expansion and on a public condemnation of slavery has the goal or expected effect not of putting the public mind at ease but rather of bringing the nation to that crisis that must be passed before health can return.
Zuckert’s argument fails because it neglects a key point. Lincoln indeed opposed slavery, but what primarily concerned him was the agitation over slavery that threatened the country’s legal institutions. So long as the slave states recognized that slavery was bad, Lincoln was in no hurry to get rid of it. The trouble lay rather with those who thought slavery a positive good and wished to create a slave empire. Zuckert recognizes Lincoln’s concern but fails to see its full consequences in interpreting Lincoln’s aims. Zuckert says:
He followed his insight that the statesmanship of [Henry] Clay . . . proffered a constant incentive to proslavery forces to push for greater gains by reraising the threat of secession. As Lincoln made clear over and over again between 1850 and 1861, to give into these plans by allowing slavery expansion would not cement the Union for the future but would merely temporarily slake the thirst for slavery expansion, and in the longer run the nation would have to face the threats and provocations once again.
Why should my interpretation of Lincoln’s policy, not Zuckert’s, be accepted? The answer lies in what happened after the Southern surrender. Once the Southern states signified a pro forma rejection of slavery by accepting the Thirteenth Amendment, Lincoln was entirely content for the old Sothern elites to resume their positions of power and for many blacks to continue in a condition little better than bondage. It is exactly for this that the leftist legal academic Sanford Levinson takes Lincoln to task in the foreword to Zuckert’s book:
In his own book on Lincoln’s last speech, the historian Louis Masur quotes Indiana Radical Republican senator George Julian that Lincoln’s assassination might have been a gift presented by a providential God who presumably supported the Radicals. Had Lincoln lived, he would have had to give concrete meaning to the notion (and limits) of a “mild” Reconstruction.
Slavery was no doubt a bad thing to Lincoln, but what goaded him into action was his wish to crush secession.
David Gordon explores how Abraham Lincoln's stated view on secession was fundamentally Hobbesian, cynical, and violent.
Original Article: "If at First You Don't Secede . . ."
This Audio Mises Wire is generously sponsored by Christopher Condon.
The RESTRICT Act (Restricting the Emergence of Security Threats that Risk Information and Communications Technology Act) has recently been making the rounds in the media, and rightfully so. The act is truly terrifying, but more than the open tyranny that it would further, the act illustrates a very clear problem from the perspective of the state.
In previous eras, either formally or informally, the state exercised a great deal of control over the information available to the wider population. This is no longer the case in the present day. With the advent of the internet and the resulting decentralization of media and other channels of information, the state has had increasingly fewer options at its disposal to control information. It is very obviously afraid of losing its position as the controller of information, and the RESTRICT Act is a desperate attempt to reassert itself as such.
What’s in the Act?At this point, most people who have been paying attention should recoil upon seeing a large acronym under the consideration of Congress. After the USA PATRIOT Act, normal people recognized that these bills of massive overreach were, to put it lightly, misnamed. But in a move of honesty, the RESTRICT Act does exactly what it says it will do should it be enacted and enforced. The Senate’s website is remarkably up-front, saying:
Vendors from the U.S. and allied countries have supplied the world’s information communications and technology (ICT) for decades. In recent years, the global ICT supply chain has changed dramatically; a number of prominent foreign vendors—many subject to the control of autocratic and illiberal governments—have gained significant market share in a variety of internet infrastructure, online communications, and networked software markets. . . . The RESTRICT Act comprehensively addresses the ongoing threat posed by technology from foreign adversaries by better empowering the Department of Commerce to review, prevent, and mitigate ICT transactions that pose undue risk, protecting the US supply chain now and into the future.
Thankfully, the state is going to defend us from information and communications technology from “autocratic and illiberal governments,” as if our own states, which locked us in our own homes, were democratic and liberal. What specifically is being targeted in the broad category of information and communications technology?
As the act has been publicly marketed, this is a move against the popular social media platform TikTok. The US government’s reasoning is simple: TikTok, and similar platforms, are owned by foreign states, and these foreign states can distribute or facilitate information that is contrary to the narratives pushed by our state.
This is an existential threat to the US government. Seeing as the goal of a state is to maintain control, as articulated by Marray Rothbard in his book Anatomy of the State, having rival states present alternative narratives to the population harms your legitimacy. This legitimacy is necessary for the state to exist. As Rothbard says of people supporting the state:
This support, it must be noted, need not be active enthusiasm; it may well be passive resignation as if to an inevitable law of nature. But support in the sense of acceptance of some sort it must be; else the minority of state rulers would eventually be outweighed by the active resistance of the majority of the public.
The state, therefore, must maintain its legitimacy to survive, and the US government is attempting just that by trying to retake control over the country’s media. As mentioned earlier, the internet rendered most of the state’s old methods of control obsolete, which is why for the last few years the US government has been on the defensive, using covert means to influence channels of information (as can be seen with the Twitter Files).
The fact that the state has had to openly announce its direct censorship and control signals the state’s weakness. If it were stronger and bolder, as it was in most of the last century, it would have just acted already and passed the action off as a mundane matter of governance. If it were on surer footing, it would have just continued its policy of covert influence. The state is threatened. It’s afraid!
In the media and wider US society, a false debate has arisen. One side is in support, and the other side rejects the RESTRICT Act as terrifyingly evil because it is consolidating power in parts of the executive branch. According to the act, the executive branch will now have the authority to
address any risk arising from any covered transaction arising from any covered transaction by any person, or with respect to any property, subject to the jurisdiction of the United States that the Secretary determines . . . poses an undue or unacceptable risk to the national security of the United States.
The popular opposition is claiming that this is tyrannical because the secretary of commerce is appointed only by the president and reports only to the president, making the secretary unelected and subject to no congressional oversight. This objection is approaching the truth, but it’s not quite there. This act is not bad because the person who gets to determine what is an “undue or unacceptable risk” is unaccountable and undemocratic.
The act is far worse because the state should not be deciding what is an “undue or unacceptable risk.” Should this go through, the United States will have its own censor under whom no ray of light, from wherever it may come, shall in future go unnoticed and unrecognized by the state or be divested of its possible useful effect, and it will be called the secretary of commerce.
Implications of the ActAs with everything pushed by the state, what will actually happen goes far beyond the written intentions. Just as the act nominally passed to defend our freedoms from terrorism is used to spy on millions of normal Americans, this act will control and censor far more than TikTok (which is obviously not the only foreign-owned media in this country). And this is written into the act itself, which provides, “The Secretary may undertake any other action as necessary to carry out the responsibilities under this Act that is not otherwise prohibited by law.”
Worse than just the focus on “foreign adversaries,” how long until this is applied to any media deemed adversarial? How long until this act, after being passed, is amended to crack down on “domestic adversaries” like conspiracy theorists and spreaders of “disinformation,” all of which, of course, will be determined by the state? We have every reason to believe the state will grab this power, being as these categories, deemed so by the state, threaten its legitimacy. As Rothbard wrote, “A ‘conspiracy theory’ can unsettle the system by causing the public to doubt the state’s ideological propaganda.”
Even though the advances of tyranny are now commonplace, and the continual infringement of our liberties is the norm, this blatant aggression in the form of the RESTRICT Act should not go unnoticed. Moreover, this fight should not happen on the state’s terms. The rhetoric surrounding the act focuses on TikTok and “foreign adversaries,” two subjects that are unpopular and, frankly, difficult to defend. However, defending them, or focusing on them at all, is missing the point. The state was not content with merely spying on you, restricting your commerce and production, drafting you, and forcing your children into state schools and subjecting them to who knows what.
No, the state also needs to control your information, for if the information is free, and people can research and discuss freely, the state’s legitimacy, and therefore its very existence, is threatened. As it has shown us by so openly and disgustingly lashing out, anyone who engages in the spreading of ideas outside the purview of the state, especially of ideas that correctly dismantle the legitimacy of the state, is contributing to the state’s peril. As the US government has just proven by its ugly reaction, the spreading of ideas is how we are to proceed ever more boldly against this evil.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop look at common American history myths baked into government school curriculums. While Republican governors have begun to prioritize removing "critical race theory" and other forms of modern "leftwing indoctrination" from textbooks, there are a number of historical episodes left unchallenged that all lead to a deification of state power and a celebration of progressive politics.
PROMO CODE: RothPod for 20% off
Recommended Reading"The Meat Packing Myth" by Murray Rothbard: Mises.org/RR_130_A
"Krugman's Hoover History" by Robert Murphy: Mises.org/RR_130_B
"Why the 1787 Constitution Did Not Bring Republican Government to America" Mises.org/RR_130_C
The Progressive Era by Murray Rothbard Mises.org/RR_130_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Over the past year, three US states have enacted new legislation legalizing recreational marijuana within their borders. In May 2022, recreational cannabis became legal in Rhode Island, and the same occurred in Missouri in December of last year. In the wake of the 2022 election, in which Maryland voters approved Maryland Question 4, recreational use became legal in that state as well. With the addition of Rhode Island, New Hampshire—where cannabis is "only" decriminalized and legal for medical purposes—is now the only state in New England where recreational marijuana is not legal. Missouri joins Alaska and Montana as one of the handful of "red states" that have legalized recreational use as well.
Now, with these three states approving recreational use, more than 156 million Americans now live in states where the possession and use of marijuana has been effectively legalized in a manner similar to alcoholic beverages. That's 47 percent of the US population. It is now simply incorrect to say "marijuana is an illegal drug in the United States" just as it is wrong to say "abortion is illegal in the United States." The fact is, such things are legal in some parts of the United States, and illegal in others.
Proportion of US Population by Cannabis Legalization Status
Notably, Rhode Island is also one of a growing number of states where recreational cannabis has been legalized through the legislative process rather than through statewide referenda or voter initiatives. Initially, recreational legalization was only politically possible through voter initiatives, as legislators refused to approve legalization themselves. The first successful cases of this were in Colorado and Washington State in 2012, and they were followed by Alaska and Oregon in 2014. Since then, recreational cannabis has been legalized through a variety of methods in sixteen other states for a total of twenty-one.
Were these states to combine to form their own country, it would be—in terms of population—the ninth-largest country in the world, and larger than Russia. As with gun policy, school vouchers, and abortion policy, cannabis policy is increasingly dominated by state-level legislation. With cannabis, this comes in spite of the fact that federal policy has not actually been changed. Marijuana is still formally targeted by federal bureaucrats as an illegal substance. This continues to hamper commerce in the states in many ways. For example, it remains illegal for federally regulated financial institutions to deal directly with cannabis-related businesses. Some Republican politicians have even attempted to ratchet up federal prosecutions. For example, in 2018, then attorney general Jeff Sessions rescinded the Cole Memo. This was part of an effort to reassert greater federal control of cannabis policy. Yet congressional delegations from states where recreational cannabis is legal—both Republican and Democrat—have shown an unwillingness to support federal efforts in this regard. As a result, Congress voted to deny the Justice Department funds to enforce federal laws against medicinal marijuana in 2017. Sessions's plan received bipartisan opposition in Congress. Bipartisan efforts at federal legalization have been repeatedly introduced, such as the "Strengthening the Tenth Amendment through Entrusting States (STATES) Act" which, is essentially a "states' rights" bill supported by both parties in the name of reining in the drug war. (An antilegalization bloc, based mostly in southern states, has been able to kill efforts to strengthen more localized control in drug policy.)
These state-level movements to ignore or oppose federal policy are all firmly rooted in ideas of federalism, decentralization, and the Tenth Amendment of the Bill of Rights. From the prohibitionists who cling to centralized political power, however, we routinely hear the same slogans and pro-Washington legal theories about "federal supremacy" or how whatever Congress says is "the law of the land."
Both conservatives and the Left support these ideas when it serves their purposes. The Left, of course, wants uniform rule from Washington when it comes to guns. Conservatives have wanted the same for drugs. Republican attorneys general even sued Colorado in an attempt to impose federal drug laws on the state. What these Republicans wanted was essentially a federal ruling rendering localism and the Tenth Amendment null and void. Fortunately, they failed.
This centralizing impulse, of course, is very popular in Washington. We hear it frequently from those deeply mistaken constitutional scholars who want federal judges to use the "Incorporation Doctrine" to decide what is and what is not legal in every state. These people—both conservatives and leftists—can often be found angrily declaring that federal law is essentially sacrosanct and that state-level nullification "ain't gonna happen." The reality, however, is that it has happened and is happening.
After all, political and ideological realities are such that state-level legalization has effectively meant marijuana has become de facto legal in nearly half of the country. The strategy has also helped to illustrate the potential for success with state-level legal efforts at weakening or nullifying federal law. Proimmigration groups have tried similar tactics in some states, such as California. Similarly, some anti-gun-control policy makers—as in Missouri—have passed legislation in which state officials are prevented from enforcing federal law within state borders. Those who love the Washington regime and the status quo will no doubt continue to press for reform only at the center. These people continue to cling to the long-discredited idea that Washington will be "fixed" if we "elect the right people." Good luck with that.
The original vicious circle starts with inflationary interventions in an up-to-then well-anchored monetary regime. Consequent asset inflation spawns a banking crisis. That leads to the installation of anticrisis safety structures (one illustration is a novel or enhanced lender of last resort). Alongside a possible monetary regime shift, these damage the money’s anchoring system. A great asset inflation emerges and leads on to an eruption of another banking crisis, devastating in comparison with the first.
An array of additional safety structures is put in place which makes the now-bad money worse than before. After a long and variable lag, a long and violent monetary storm means the safety structures fail, a banking crisis again erupts but this time milder than the previous.
Then a further tinkering with the safety structures causes money to deteriorate even more in quality. Another shift in monetary regime coincidentally does much additional damage. Consequently, in time, a new crisis erupts much worse than the last one.
The safety engineers do more work, causing yet more damage to the mechanisms essential to sound money. But now the safety structures are so pervasive and strong across the banking industry that there is widespread belief that bank crisis eruptions will be smaller or, more likely, totally repressed.
Subsequent events demonstrate those beliefs to be hollow. There is a new round of safety structure elaboration leading to further monetary deterioration. Regime officials declare the end of bank crises.
The cumulative economic cost of this vaunted triumph over bank crisis is an advance of monopoly capitalism and monetary statism that throttles the essential dynamism of free market capitalism. Malinvestment becomes cumulatively larger. Living standards in general suffer. The severely ailing money which subsists is beyond any cure except the most radical.
Let’s fit the above abstract series of vicious bad money–bank crisis cycles to the most recent 130-year history of US money. At the start there were the inflationary interventions by US administrations in the two penultimate decades of the international gold standard, overpowering for sustained periods the “checks and balances” of that regime.
Murray Rothbard highlights these interventions in his US monetary history book—the first intervention under the “Billion Dollar Congress” of 1889–91 and the second from 1902–7 under Secretary Leslie Shaw who aimed to create a virtual central bank within the Treasury by deploying the huge cash balances of the federal government. The results were the Panic of 1893 and then the epic crash of 1907 followed by a recession.
These financial system convulsions and the related economic slumps were decisive events behind the creation of the Federal Reserve in 1913. Its advocates promised that an elastic currency, a state-run clearing house, and a monopoly of note issuance would mean the end of episodic banking crises.
The true source of these crises, however, were the preceding episodes of monetary inflation, and the scope for this crisis just got a lot worse. The international gold standard disintegrated at the outbreak of World War One. Demand for monetary gold in the belligerent European countries collapsed as governments there sequestered the yellow metal to pay for imports.
Beyond that wartime experience, the launch of the Fed destabilized the demand for monetary base. The novel provision of lenders of last-resort facilities and, more generally, discount window-access to member banks diluted the perceived special qualities of the monetary base (as means of payment and store of value) essential to its enjoying strong, broad, and stable demand despite its constituents bearing no interest. These “super money” qualities are crucial to monetary base’s role in the solid anchoring of money.
In the wake of the immediate postwar depression in 1920, during which no banking crisis erupted, opinion was prevalent that the institution of the Federal Reserve meant no more systemic bank runs and panics. Correspondingly, individuals saw less reason to hold large amounts of cash or types of deposits that were backed by large amounts of cash, gold, or reserve deposits. Hence, though monetary base growth seemed low and stable through what Milton Friedman misleadingly describes as “the high tide of the Federal Reserve” in 1922–27, monetary conditions were, in fact, highly inflationary. This did not show up in average consumer prices in that the economic miracle of the second industrial revolution meant there was a powerful natural rhythm downward of costs in tune with rapid productivity growth.
The result: a great asset inflation and then a subsequent bust, featuring three back-to-back recessions which together formed the so-called Great Depression; the last two of these were marked by convulsive waves of bank failures. This culminated in the New Deal shift of monetary regime, including exit from gold, deposit insurance, and swathes of new bank regulations. The bad money of the 1920s got a lot worse—amidst further dilution of its base’s qualities and a vast expansion of the US monetary base from 1934 to early 1936.
The interlude of wartime inflation and subsequent economic miracle in the US, Europe, and Japan for long stages meant that the vicious bad money–bank crisis circle was in suspense until well on into the “greatest peacetime inflation” (from the mid-1960s to the start of the 1980s). Fast-forward to the eruption of the US banking crisis at the start of the 1980s as the bubble in lending to Latin America (a key symptom from the mid-1970s’ asset inflation) burst. The Fed’s and Treasury’s rescue of large US banks ended the brief US monetarist experiment of targeting the monetary base. Dollar devaluation fueled by Fed inflation following the Plaza Accord in 1985 spawned an asset inflation culminating in the savings and loan debacle and banking crisis in Japan, France, and Scandinavia.
By the early- to mid-1990s, recent examples of the Fed and US government assisting banks in crisis had further diluted the perceived qualities of the monetary base. In consequence, sound money, which depends on a functional monetary base whose supply is highly restricted, had become even more remote. Coincidentally, a shift in US (and European) monetary regime was under way, to the so-called 2 percent inflation standard, with the Fed abandoning any remnants of money supply targeting.
All this led on to a virulent episode of monetary inflation, featuring most directly asset inflation which became the source of the next great banking crisis in 2008–12. A swathe of new banking regulations followed. These came in combination with “monetary reforms”—crucially including interest paid on reserve and quantitative easing—which though ostensibly designed to fortify the banking system, in fact, caused already bad money to become even more unsound. Hence, the reforms laid the foundation for further banking crises which erupted in the aftermath of the great monetary inflation during the pandemic and the onset of the Russia-Ukraine war.
The response to this most recent banking crisis: “too big to fail” extended to deposits of all banks, at least those deemed by highly politicized opinion to be of “systemic relevance”; speculation about vastly increased deposit insurance; and promised new regulations across medium and small banks. The net consequence: a further dilution of any remaining special qualities of reserve deposits.
Reconstituting a functional monetary base as essential to a sound money system would now require radical reform. Money is set to deteriorate in quality yet again—more statist, more regulation, less competition amongst the institutions which produce it in its various forms for the public.
Could state-administered safety structures in the banking system now become so omnipresent that the next asset inflation would not culminate in crisis? Essential flaws of regulation and the likely virulence of future asset inflations make that outcome unlikely. Meanwhile, expect official silence about the cumulative costs of the anticrisis “infrastructure” whether in the form of advancing monopoly capitalism, reducing economic dynamism, ever-worse malinvestment, bigger government, and ever-more pervasive crony capitalism.
Even a partial weakening of the dollar's global demand will limit the US regime's ability to throw its weight around internationally. Yet Washington is unwilling to do what's necessary to prevent it.
Original Article: "Why the Regime Needs the Dollar to Be the Global Reserve Currency"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Since its emergence in 1871, the Austrian school of economics has provided systematic opposition to empiricism in the development of economics. The Methodenstreit persists, even with different players. Several papers and publications have criticized the concept of economics based on empirical evidence. Positivism, and its different currents of thought, are consistently criticized by Austrian economists.
But the roots of attempts to make research objective are much older. In the Renaissance, the development of natural sciences neglected essentialism. Essentialism was seen as part of the Middle Ages and so was attacked by Renaissance thinkers.
We can also remember Francis Bacon, an English philosopher. Bacon advocated for the mathematization and quantification of every human experience as well as the use of the natural science’s method to research social phenomena.
The first round of the Methodenstreit involved Carl Menger and the German historical school. It must be considered more than a battle of methods. Ludwig von Mises explains in his essay “The Historical Setting of the Austrian School of Economics” that Austrians have been involved in a battle about science itself and further clarifies why empiricism became the ruling trend in economics.
Mises presented a strong link between scientists and the Prussian elite and how their research justified the elite’s pretensions. That scenario envisioned a strong and centralized state. This state would coordinate economic growth and take Germany to prominence.
Contemporarily the scenario is quite different. Mainstream economists are apostles of “scientific rigor.” For them, science is promoted through the proper use of econometric procedures. Moreover, they consider that facts are facts, which are set and cannot be distorted. But their method results in the same flaws that always accompany empiricism.
Social facts are, naturally, complex phenomena. They involve an uncountable number of variables. These variables cannot even be fully perceived and comprehended by the researchers nor can they be isolated as a physical or chemical experiment. Moreover, the problem is deeper. Social facts are not facts of nature but the result of human meaning. There is no money in nature; money is a social convention. In the same way, we cannot find corporations in nature as they are abstract entities.
Social scientists’ goals do not involve the quantification and measurement of each element of the facts. Their goal is not to extract knowledge from these procedures. They cannot establish rules from experience as each experience is complex and unique. As explained above, social facts are not directly observable. These facts can be interpreted using the signification given by individuals. Thus, scientists must develop an adequate theory to analyze facts.
Why does empiricism persist in ruling the economics discipline? It is a convenient method. Research confirms the aimed-at conclusions.
Mises’s comprehension of the German historical school also defines contemporary social science. It is convenient for the ones who are in power. Benjamin Disraeli said, “There are three kinds of veracity: lies, damned lies, and statistics.”
Econometric investigations, although claimed to be rigorous, are inappropriate to research social phenomena. Is not by chance that research generally confirms ideological trends. Statistics can be manipulated and made convenient. Econometric models are used to justify more intervention and control.
Empirical research has its relevance as an illustration of economic theory and history, but it is not from empirical data that theory is built. The theory comes from the logical enchainment of theoretical laws. These laws come from main axioms. And it is this theory that allows the interpretation of complex social reality. Furthermore, theoretical strictness prevents the manipulation of reality according to interest groups.
With the government foolishly handicapping the oil and gas industries and pushing other alternatives, the future is not very bright..
Original Article: "What Will Our Energy Future Be? A Few Ideas"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Federal Reserve’s failure to meet its own policy goals of price stability and growth has become increasingly evident in the current economic situation in the United States. The country is now facing recessionary fears after experiencing historic inflation due to the misinterpretation of the causes of the Great Depression. The perverse effects of expansionary monetary policies also reflect the failure of the institutional economic position which regards the Federal Reserve as the key benefactor of growth, stability, and security.
Business Contraction and Laissez-Faire PolicyThe US government’s response to covid both influenced other governments to lock down their economies and restrict the movement of people, and the cancellation of economic activities affected the global economy. The interconnectedness of the global economy means that it relies on the division of labor and the consistent flow of goods and services. Lockdowns and cancellation of economic activities led to a contraction of business activity. In response to this unnatural economic downturn, the Fed and the government engaged in massive fiscal and monetary expansions when the need for them was not immediately clear.
The Federal Reserve implemented quantitative easing (QE) by purchasing Treasurys, mortgage-backed securities (MBS), and agency debt. In March 2020, the Fed initiated its largest QE program, consisting of nearly $6 trillion in MBS and treasury purchases, purchasing assets at a rate of $120 billion per month ($80 billion in Treasurys and $40 billion in MBS). The federal funds rate, which before the pandemic was 1.58 percent, was lowered to a disastrous 0.05 percent in April 2020 and kept near zero for two whole years. It was still 0.08 percent in February 2022, when the Fed realized that inflation was not transitory.
A careful study of the events following the interventions allows us to see what follies these fiscal and monetary expansions were. It also allows us to gain insights into why refraining from such massive interventions would have brought quick recovery from the pandemic lockdowns and avoided the massive inflation that the US has suffered for more than two years, beginning in March 2021 and continuing today.
There would also have been no need for increases in credit creation and no room for unsustainable business expansions without the monetary and fiscal injections. The future recession, which continues to edge closer, wouldn’t be looming if governments had done as Murray Rothbard lays out in America’s Great Depression in a passage on policy prescription: “The first and clearest injunction is: don’t interfere with the market’s adjustment process.”
According to Rothbard, there are various ways in which the government can hamper the natural readjustment process: preventing or delaying liquidation, inflating further, keeping wage rates up, keeping prices up, stimulating consumption, discouraging saving, and subsidizing unemployment. The US government’s response was a classic example of this preemptive statement of what governments shouldn’t do in a contractionary period.
Government Intervention and Business CyclesLet us trace the steps as they occurred. As the uncertainty of covid began in April 2020, financial markets were quick to price in those concerns, leading to a fall in asset values and a clamoring by participants in the financial markets for easier credit. At this point, with widespread closures of businesses due to mandated lockdowns, there was a sharp fall in economic activity. Real gross domestic product (GDP) decreased at an annual rate of 31.7 percent in the second quarter of 2020.
But the reversal of this fall didn’t take much time. By July 2020 the economy had started to grow again as the lockdowns were lifted and people were allowed to work again; by September 2020, in the third quarter, real economic growth was starting to become positive and grow rapidly, and household spending was already back to three-quarters of prepandemic levels. A Fed governor admitted in an address that economic growth was picking up faster than expected. The total unemployment rate was 8.4 percent, down from 14.7 percent in April.
This recovery, however, was not due to the various governmental stimuli, but was a natural outcome of removing restrictions on work. The capacity utilization index, which measures the output currently produced as a percentage of its full capacity, was at 78 percent in February 2020. By April it was 65 percent, but it shot back up to 73 percent in July. The natural readjustment process was still hampered by the various covid and lockdown restrictions that severely depressed industries such as travel and leisure, which, although they still have not regained their prepandemic level, are growing today as more restrictions are finally lifted. The travel and tourism industry increased by 64.4 percent in 2021 after decreasing by 50.7 percent in 2020.
In September 2020, the Fed was still pursuing its accommodative monetary stance of buying long-term Treasurys and MBS with no signs of stopping. Believing that its forward guidance would help the economy recover through credit inflows to needy sectors, the Fed acted to build future expectations by emphasizing in the Federal Open Market Committee (FOMC) press conference that rates would remain way below market rates, at essentially 0 percent, until the economy was far into its recovery.
The Fed’s September 2020 meeting summarized the views of the members of the FOMC. They forecast that inflation levels wouldn’t touch 5 percent until 2022; more precisely, their median projection was 5.4 percent in 2022, which they forecast would come down to 2.8 percent in 2023. These expectations turned out to be false and misleading when the Consumer Price Index (CPI) increased by 4.2 percent over the twelve months from April 2020 to April 2021. The Fed continued its QE asset purchases in April 2021, as well as the low-interest regime that had begun in March 2020 until the Fed saw more progress in labor market conditions and growth.
According to the US Bureau of Economic Analysis, real GDP increased in all fifty states and the District of Columbia in the first quarter of 2021, as real national GDP increased at an annual rate of 6.4 percent. This massive growth was due to the expansive monetary and fiscal policies, which drove unsustainable spending in housing, construction, information, durable goods, and transportation and warehousing. However, other industries, such as travel and leisure, were still subdued by various covid restrictions.
US inflation hit a thirteen-year high in June 2021 at 5.4 percent, which was up from May’s 5.0 percent. June’s figure was the highest twelve-month inflation rate since August 2008. The Fed continued its asset purchases and lower interest rate regimes. The mainstream opinion was clearly that prices were being driven by sectors having trouble with readjusting supply to demand; they were surprised by the low rate of adjustment of various industries. Inflation was still viewed as transitory.
The unemployment rate went down from 5.4 percent in July 2021to 4.8 percent in September. This is exactly as one would expect given the massive increase in the money supply and increasing velocity in exchange. The Fed decided to start tapering net asset purchases in November 2021, but they continued with low interest rates until March 2022. Real GDP increased at an annual rate of 6.9 percent in the fourth quarter of 2021. The CPI rose 6.8 percent from November 2020 to November 2021, the largest twelve-month increase since June 1982. Energy prices rose 33.3 percent over the prior year, and food prices increased 6.1 percent.
These increases in energy prices were due to rising additional demand for energy, which was several times higher than producers’ expectations. The Fed chair during his November 30 testimony to the US Senate Banking Committee accepted defeat in keeping inflation to 2 percent and suggested that it was perhaps time to retire the word “transitory.” The unemployment rate fell to 3.9 percent in December 2021.
After losing the battle for price stability and fearing that inflation expectations would become entrenched, the Fed ceased its new asset purchases and increased the Federal funds rate by 25 basis points in early March 2022. Inflation still rose from 7.4 percent in March 2021 to 8.5 percent in March 2022, and barreled ahead at 8.3 percent in April, remaining near forty-year highs. In June 2022 it reached 9.1 percent.
Cause and EffectThe sudden cluster of calculation errors resulted in inflation, laying the groundwork for a recession; and if there is a financial crisis, then, as proposed by Milton Friedman and other monetarists, a possible depression will have come specifically through government interventions.
Entrepreneurs invest and pay costs in the present, expecting to recoup a profit in the future. The market rewards entrepreneurs who are better at forecasting future conditions and weeds out inefficient entrepreneurs. However, monetary expansion misleads entrepreneurs by directing too many of them toward using resources that have not been freed up through the voluntary savings of consumers. This then leads to inflation: the error here has been that entrepreneurs are using an increasing amount of resources to produce output to satisfy future demand conditions, but since consumers’ real income has steadily fallen due to inflation and monetary expansion has ultimately come to an end, the future which these entrepreneurs predicted hasn’t arrived.
There are still economic adjustments to come. This situation is far from over.
Ryan and Zachary talk about how wars are not nearly as cheap or economically harmless as many Americans seem to think. Rather, taxpayers must give up enormous amounts of resources to fund wars halfway across the globe that have little to do with actual defense. Americans are still paying interest on the trillions spent on Washington's many lost wars of recent decades.
Additional Resources"On Paying for the Costs of War and War Loans" by Ludwig von Mises (1918): Mises.org/WES_09_A
"The Cross of Iron" by Dwight D. Eisenhower (1953): Mises.org/WES_09_B
"Fact Sheet on U.S. Security Assistance to Ukraine" (U.S. Department of Defense, 4 April 2023): Mises.org/WES_09_C
"How the Fed Is Enabling Congress's Trillion-Dollar Deficits" by Ryan McMaken (2021): Mises.org/WES_09_D
"War and the Money Machine: Concealing the Costs of War beneath the Veil of Inflation" by Joseph T. Salerno (2021): Mises.org/WES_09_E
"As the Pentagon Fails Another Audit, Congress Wants to Spend Even More on 'Defense'" by Ryan McMaken (2022): Mises.org/WES_09_F
"Russia and Ukraine named as Europe’s most corrupt countries" by William Nattrass (3 February 2023): Mises.org/WES_09_G
Be sure to follow War, Economy, and State at Mises.org/WES.
Like Bentham's panopticon, modern cancel culture is built upon fear and online bullying, making people police their own thoughts.
Original Article: "Cancel Culture: The Digital Panopticon"
This Audio Mises Wire is generously sponsored by Christopher Condon.
To describe anything in human life without the context of economics is to erase the reasoning behind why it even exists. Why do we need reasons for items and concepts to exist? Because it is helpful for every human to think critically about what is truly valuable in society and to give that human the best possible information to best serve the public.
The arts are a fantastic aspect of our culture that display the talents of individuals for everyone to enjoy. What economic context apply to the arts within our culture? There are several aspects that we can both appreciate and learn from when it comes to applying the economic context from the patron’s perspective.
The conscious use of imagination in the production of objects intended to be contemplated or appreciated as beautiful is the official definition of art. However, I believe this falls short in including contemporary forms of entertainment, such as sports, martial arts, comedy, and other entertainment mediums. In fact, the value of entertainment is the key economic context needed to fully appreciate the arts placed before our very eyes. Culture demands to be entertained by the art that is supplied.
Art in this economic context gains meaning significantly when we venture to understand the sheer masses of people who entertain themselves by consuming art and reflecting upon it. Today’s content factories, such as social media websites, offer a platform for creators to pump out entertainment for the masses. Athletes are artists who showcase their various skills before large crowds. The capacity and the desire for a human to be entertained ultimately elicit demand for creators to supply numerous forms of entertainment.
Through this lens, we can understand that art is held very closely to the market phenomena that many of us of the Austrian school champion. In fact, it is so market oriented that there are only two ways in which the government can intervene in the market of the arts: censorship or subsidization. Most Western governments opt for the subsidization of many arts and leave a relatively free market for other art forms to develop. These subsidized arts tend to disregard the market of entertainment and are free to produce art that does not meet the market standard. Whether it be the local theater gaining city government subsidies or the federal government’s influence on Hollywood, these entities will always stray from the market and will consequently affect the rest of the culture despite not meeting the economic threshold to do so.
Because there is such a binary within both the capacity for the human mind to be entertained and the government’s impact on the arts, market forces will most certainly find an avenue to entertain people without the need for government involvement. New games will be invented, new skills will be tested, and new thoughts will be drawn or written down not by government order, but through the propensity of the individual spirit and the desire of individuals to entertain themselves and the others around them.
Art has the capacity for both low and high time preference. The best artists in every field leave their marks upon future generations, standing the test of time and reaching contemporary audiences beyond the earlier civilizations in which their work was created. Televised soccer matches mean that the audience present and abroad can enjoy the creation of beautiful goals both live and in the future. Archaeologists in the distant future will study the effects that Joe Rogan has had on commentary surrounding the social contentions du jour and the nature of the world. He is the best example of the art market swiveling and flipping the table upon itself to create and broadcast several new forms of artistry.
Art is the imprint of the present onto the future. There will never be a better distributor or vocalizer of our ideas. It takes one initiative or one stroke of inspiration to change a million minds. Legacies are never made by accident.
Thirty years ago, FBI tanks smashed into the ramshackle home of the Branch Davidians outside Waco, Texas. After the FBI collapsed much of the building atop the residents, a fire erupted and 76 corpses were dug out of the rubble. Unfortunately, the American political system and media have never honestly portrayed the federal abuses and political deceit that led to that carnage.
What lessons can today’s Americans draw from the FBI showdown on the Texas plains 30 years ago?
Purported Good Intentions Absolve Real Deadly ForceJanet Reno, the nation’s first female attorney general, approved the FBI’s assault on the Davidians. Previously, she had zealously prosecuted child abuse cases in Dade County, Florida, though many of her high-profile convictions were later overturned because of gross violations of due process. Reno approved the FBI assault after being told “babies were being beaten.” It is not known who told her about the false claims of child abuse; Reno claimed she couldn’t remember. Her sterling reputation helped the government avoid any apparent culpability for the deaths of 27 children on April 19, 1993. After Reno publicly promised to take responsibility for the outcome at Waco, the media conferred instant sainthood upon her. At a press conference the day after the fire, President Bill Clinton declared, “I was frankly—surprised would be a mild word—to say that anyone that would suggest that the Attorney General should resign because some religious fanatics murdered themselves.” According to a Federal News Service transcript, the White House press corps applauded Clinton’s comment on Reno.
It Is Not an Atrocity If the U.S. Government Does ItShortly before the Waco showdown, U.S. government officials signed an international Chemical Weapons Convention Treaty pledging never to use nerve agents, mustard gas, and other compounds (including tear gas) against enemy soldiers. But the treaty contained a loophole permitting governments to gas their own people. On April 19, 1993, the FBI pumped CS gas and methyl chloride, a potentially lethal, flammable combination, into the Davidians’ residence for six hours, disregarding explicit warnings that CS gas should not be used indoors. Benjamin Garrett, executive director the Chemical and Biological Arms Control Institute in Alexandria, Virginia, observed that the CS gas “would have panicked the children. Their eyes would have involuntarily shut. Their skin would have been burning. They would have been gasping for air and coughing wildly. Eventually, they would have been overcome with vomiting in a final hell.” A 1975 U.S. Army publication on the effects of CS gas noted, “Generally, persons reacting to CS are incapable of executing organized and concerted actions and excessive exposure to CS may make them incapable of vacating the area.”
Rep. Steven Schiff (R-NM) declared that “the deaths of dozens of men, women and children can be directly and indirectly attributable to the use of this gas in the way it was injected by the FBI.” Chemistry professor George Uhlig testified to Congress in 1995 that the FBI gas attack probably “suffocated the children early on” and may have converted their poorly ventilated bunker into an area “similar to one of the gas chambers used by the Nazis at Auschwitz.” But during those 1995 hearings, congressional Democrats portrayed the CS gas as innocuous as a Flintstone vitamin.
Orwellian Language Will Vaporize Federal AggressionAs Abrams tanks driven by FBI agents continually battered the Davidian’s home, FBI loudspeakers broadcasted endlessly: “This is not an assault.” According to FBI apologists in the media, that proved the feds did not assault the Davidians. Prior to the fire, the tanks had collapsed 20 percent of the building atop its residents and the FBI planned to totally demolish the home. Grenade launchers on the tanks and other armored vehicles fired almost 400 ferret rounds of CS gas through the thin wooden walls and the windows of the building. Yet Attorney General Reno later insisted: “We didn’t attack. We tried to exercise every restraint possible to avoid violence.” Demolishing someone’s home was supposedly no more bothersome than leaving a Federal Express package on their doorstep. A 1993 Justice Department investigation was so shoddy that even The New York Times denounced the “Waco whitewash.” But that blunt condemnation was soon memory-holed in the rush to absolve the feds.
Don’t Trust Congress to Expose Federal MisconductA few days after the conflagration, Reno was heartily praised at a Senate committee hearing and the media made her a national hero. There was little or no sympathy on Capitol Hill for those who died during the final FBI assault. Rep. Jack Brooks (D-TX), chairman of the House Judiciary Committee, commented that the Davidians were “horrible people. Despicable people. Burning to death was too good for them.” If Republicans had not captured control of Congress in 1994, there would have been no substantive hearings on Waco. And even those hearings faltered badly at times because so many Republican congressmen wasted their time boasting of their love of law enforcement rather than seeking the truth.
Media Favorites Can Perform Rhetorical Magic TricksWhen Attorney General Reno testified to the House Waco hearing on August 1, 1995, she was challenged on the FBI’s use of 54-ton tanks to assail the Davidians. Reno replied that the tanks were “not military weapons… I mean, it was like a good rent-a-car.” When Rep. Bill Zeliff (R-NH) challenged her, Reno hectored: “I think it is important, Mr. Chairman, as you deal with this issue, not to make statements like that can cause the confusion.” This is the high-toned DC version of the old saying: “Who are you going to believe—me or your lying eyes?” Media coverage of Reno’s showdown with congressional Republicans ignored her rent-a-tank absurdity, and instead praised her toughness and demeanor. (My article in The Wall Street Journal on the day after the hearings was practically the only place Reno got thumped for her “rent-a-car” line.)
Bad Attitudes, Not Federal Atrocities, Are the Real ProblemWaco illustrates how “truth will out” is Washington’s biggest fairy tale.The FBI speedily asserted that the Davidians ignited the fire that consumed their dwelling but never provided convincing evidence on that score. Six years later, independent investigator Michael McNulty found pyrotechnic ferret rounds the FBI fired at the scene prior to the flames erupting in a Texas government evidence warehouse. Attorney General Reno lashed out at the FBI for destroying her credibility but neither she nor FBI officials suffered any consequences from the collapse of the official narrative.
Reno could have recused herself from any role in choosing a new person to reinvestigate Waco. Instead, she personally chose John Danforth, a former Republican senator and a golfing buddy of Clinton’s, to be in charge of the reinvestigation. Danforth, an ordained Episcopal priest whose piety earned him the derisive nickname “Saint Jack,” was one of Washington’s favorite useful idiots of Leviathan.
In lieu of investigating Waco carnage, Danforth appointed himself as the nation’s political faith healer. His investigation found that numerous federal officials had lied about Waco but thankfully it wasn’t their fault. Instead, the culprit was the American people’s distrust of federal agencies. Danforth defended federal deceivers:
“In today’s world, it is perhaps understandable that government officials are reluctant to make full disclosures of information for fear that the result of candor will be personal or professional ruin.”
(Danforth did not specify the provision of federal law that absolves government agents from candor when it is not in their self-interest.)
Danforth’s bizarre downplaying of federal aggression could only have passed the laugh test in Washington. At a Senate hearing on his report, he was asked about the flash-bang grenades the FBI threw at Davidians who tried to escape and may have thrown inside the Davidians’ residence. Danforth claimed that flash-bangs were little more than “firecrackers. They make a flash and they make a bang. And they don’t cause injury, as a general rule.” In 2020, the North Carolina Supreme Court labeled flash bangs as “weapons of mass destruction.” A 2019 federal appeals court decision noted that flash-bang grenades are “four times louder than a 12-gauge shotgun blast” with “a powerful enough concussive effect to break windows and put holes in walls.” Flash-bangs burn hotter than lava and have started more than a hundred fires across the nation.
But the real WMD was Americans’ bad attitudes. When Danforth released his whitewash report, he hoped his findings would “begin the process of restoring the faith of the people in their government and the faith of the government in the people.” Danforth declared that the burden is on “all of us” to “be more skeptical of those who make sensational accusations of evil acts by government.” No wonder PBS NewsHour host Jim Lehrer responded by gushing over Danforth on national television, “You did tremendous investigating.” Danforth became a hero in DC for championinga “move along, nothing to see here” version of “consent of the governed” in which citizens are obliged to swallow unlimited federal malarkey.
Unfortunately, that same storyline still prevails in much of the nation’s media. Last month, a Houston Chronicle editorial declared, “’Waco’ has become an Alamo of sorts, a shrine for…anti-government extremists and conspiracists.”Waco should have taught the disastrous consequences of unleashing government agencies from the law and the Constitution. Thirty years after the FBI’s final assault, millions of Americans still refuse to recognize tanks and flash-bang grenades as federal paternalism at its best.
This article first was published on the Libertarian Institute website
Violent crime is on the rise in Canada, and its progressive democracy is helpless to stop it. Further empowerment of the state makes things worse.
Original Article: "Canada's Impotent Justice System Is the Product of Dysfunctional Canadian Democracy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Every decade or so bank failures and the subsequent bailout response via central bank intervention appear. The latest jangling of depositor nerves involved US regional banks and a certain Swiss bank of great systemic importance. As James Grant writes in his book Bagehot: The Life and Times of the Greatest Victorian, “In economics, the most ostensibly rigorous of the social sciences, progress–and error, too–are cyclical; we keep stepping on the same rakes.” Sounding Rothbardian, Grant writes, “In banking, though, accidents came in clusters. Bank runs, unlike train wrecks, were contagious.” Nothing has changed.
Walter Bagehot famously urged the Bank of England—or “the Old Lady,” as the world’s first central bank is referred to in Grant’s elegant telling of Bagehot’s life and the economic history surrounding this great man of letters—to lend freely to stem a panic, against good collateral and at high rates. The Bank Term Funding Program (BTFP), the new facility post–Silicon Valley Bank, would not meet Bagehot’s qualifications. Banks can borrow funds equal to the par value of the collateral they pledge, which according to the Wall Street Journal is “a boon for banks, who were sitting on some $620 billion in unrealized losses on securities at the end of last year, according to the Federal Deposit Insurance Corp.”
Besides his prolific output as an author and journalist—five thousand words a week and never one out of place, according to Grant—Bagehot was a banker back when bank general partners were on the hook personally for customer deposits, “down to their last shilling and acre.” Precorporate structure without limited liability protection and government deposit insurance protection not even considered, “the depositor’s only security against loss was the prudence of his bankers and the assessable wealth of the bank’s shareholders.”
The Joint Stock Companies Act and the Bank Charter Act were enacted in 1844 in preview of the Limited Liability Act of 1855 and the subsequent passage of the Companies Act of 1867 which unleashed “a powerful stimulant to new financial enterprise,” Grant explains. To unleash the animal spirits of the hoi polloi who could never invest “when one’s entire net worth was at risk was, for many a thoughtful person, unacceptable.”
While Bagehot was in favor of limited liability, he wrote: “The system of unlimited liability is that which fosters the most speculative management.” This speculative management we’ve lived with ever since with each banking crisis is not simply a problem for the overextended individual bank to solve but becomes the public’s business. “They would look not to their own reserve but to the central bank’s.”
Robert Lowe, leader of the Liberals in Bagehot’s time, “viewed limited liability as a force for democracy in capitalism and for equality of opportunity between the rich and the aspiring rich.” Hans-Hermann Hoppe’s critiques of democracy immediately come to mind and apply: the increase in the rate of social time-preference (emphasis on the short term), creation of a new power elite and ruling class, ever higher taxes, a never-ending flood of legislation, and increased legal uncertainty. Grant’s thorough chronicling of the debate makes clear the corporate structure with limited liability is no outgrowth of natural law but a privilege bestowed by state fiat, as Jeffrey Barr explained in his presentation at the most recent Austrian Economics Research Conference (AERC) entitled “An Austrian Attack on the Corporation.”
Perhaps not coincidentally, the limited liability debate is intertwined with a voting measure in Grant’s telling. At issue was the requirement that, since 1832, to vote one must pay at least ten pounds (the typical bribe rate) yearly in rent. The Liberals wished to expand the voting franchise to the masses with a lower threshold.
“One of the greatest pains to human nature is the pain of a new idea,” wrote Bagehot. “It is, as common people say, so ‘upsetting’; it makes you think that, after all, your favorite nations may be wrong. . . . Naturally, therefore, common men hate a new idea, and are disposed more or less to ill-treat the original man who brings it.”
Bagehot believed if restless speculators could just stay idle for four hours rather than using debt in an attempt to achieve more during the remaining four hours “they would have been rich men.” Also on the issue of idleness, Bagehot believed a life of the mind left less energy for reproduction. Bagehot was for less speculation and less sex.
The author wonders if Bagehot’s belief that “the good times too of high prices almost always engender much fraud” pushed John Kenneth Galbraith’s concept of the “bezzle”—“the pregnant interval between the commission of an embezzlement and the victim’s discovery of his loss.” In that regard, the respective panics of 1825, 1847, 1857, and the failure of Overend, Gurney & Company are given considerable attention, making Grant’s richly footnoted book a must for those researching these events.
Winding toward the close, Grant writes that his subject’s world was “one of institutionalized discipline,” while today’s world is “one of institutionalized indiscipline,” or as Ludwig von Mises wrote, each government intervention leads to another. The lack of discipline means more money creation and government control. Even Bagehot, who wrote in favor of central bank intervention so long ago, would be dismayed.
Democratic politicians and supporters are cheering the Trump indictment, but the entire process has been so politicized that its legitimacy is easily called into question.
Original Article: "With the Trump Indictment, America Is a Step Closer to Being a Banana Republic"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Most readers might not remember Daniel Ellsburg, but for those of us who came of age during the Vietnam War, the maelstrom that formed around him and his actions helped to define that era. Ellsburg, of course, is famous because he leaked a number of internal government documents called the Pentagon Papers in which the writers expressed skepticism about the chances for U.S. success in the Vietnam War.
Ellsburg chose to leak to the New York Times and the Washington Post, which at that time (as well as today) were the print voices of the political and academic elites. By 1971, when the papers printed some of the documents (after the U.S. Supreme Court voted 6-3 to allow publication), the war was well out of favor with the Democratic Party – whose politicians had started the war in the first place – and it had been three years since Walter Cronkite denounced it on his evening broadcast.
The Richard Nixon administration, which had inherited the war and expanded it into neighboring Cambodia, charged Ellsburg with violating the Espionage Act of 1917, but the courts dismissed the charges in 1973 because of government misconduct. Ellsburg has been a free man since then and has been a celebrity in elite circles. (I saw him at a 2007 conference sponsored by the Future of Freedom Foundation. We gave him a standing ovation.)
Jack Texiera, the Massachusetts Air National guardsman who is accused of leaking U.S. Government documents relating to the Ukraine war and other U.S. interventions elsewhere, is unlikely to enjoy Ellsburg’s celebrity status with the progressive elites. Like Ellsburg, he is charged with violating the Espionage Act of 1917; unlike Ellsburg, the recipient of the allegedly leaked documents was a website that clearly does not have favor of the NYT or the Post.
Independent journalist Matt Taibbi writes:
On a flight, reading about the FBI’s arrest of Jack Texiera, already dubbed the “Pentagon Leaker.” A quick review reveals multiple media portraits already out depicting him as a dangerous incel who shared his wares on Discord, a social media app where “racist memes” and “offensive jokes” flourish.
Taibbi adds that the Post labeled him as a “gun enthusiast” as a means to further discredit him. Unlike Ellsburg, Texiera will not have Ivy League law professors representing him, nor will the editorial pages of the nation’s elite newspapers defend him. Indeed, the NYT has boasted about how it found the identity of the alleged leaker before government authorities did. David French, who recently became a columnist for the NYT and since has used his new journalistic perch to shill for unlimited American involvement in the Ukraine war, has condemned both Texiera and his defenders on Twitter, calling them “repulsive.” The alleged leaks, declares French, “can do immense damage.” Tom Nichols in The Atlantic has declared him to be a “narcissist” endangering America.
In the past, elite media has defended leaks of government documents, especially when it is clear that government officials have been lying. Unfortunately, in this new age of progressive media, the press now plays detective for the government if the leaks come from the "wrong" people. Taibbi writes:
The New York Times and Washington Post trumpeted roles in helping identify Air National Guardsman Teixiera for the FBI. “We’re delivering him to you with his head on a platter,” is how Glenn (Greenwald) put it.
Of course, one must ask what it means to be “endangering America.” The Pentagon Papers did not change the outcome of the war; indeed, by the time they were released the Nixon administration already was looking for a “peace with honor” way out of the conflict. If anything was endangered, it was the reputations of members of the Lyndon Johnson and Nixon administrations that had lied to Americans about the conduct and outcomes of the war.
Likewise, the document leaks that came from Chelsea Manning, Edward Snowden, and Julian Assange did not place ordinary Americans – or even American military personnel – in danger of their lives. Instead, they exposed how American politicians, military, and executive branch officials have lied to Americans, all the while claiming their lies were necessary to “protect” America.
Before going further with the government’s case against Texiera, we also should address the fact that members of the national security establishment have been leaking documents for years, but that is considered good because the political goals of the leakers are seen to be sacrosanct. Taibbi writes:
The intelligence community has itself been massively interfering in domestic news using illegal leaks for years. Remember the “Why Did Obama Dawdle on Russia’s Hacking?” story by David Ignatius of the Washington Post in January of 2017, outing would-be Trump National Security Advisor Michael Flynn as having been captured in intercepts speaking with a Russian ambassador? That was just the first in a string of leak- or intercept-based news stories that dominated news cycles in the Trump years, involving everything from conclusions of the FISA court to supposedly secret meetings in the Seychelles.
When civilians or whistleblowers like Edward Snowden, Julian Assange (in jail for an incredible four years now), Reality Winner and now the “Discord Leaker” bring leaked information to the public, the immediate threat is Espionage Act charges and decades of jail time. When a CIA head or a top FBI official does it, it’s just news. In fact, officials talk openly about using “strategic leaks” as a P.R. staple. In a world where media currency is becoming the ultimate power, these people want a monopoly. It’s infuriating.
The sad irony continues as the Post editorial board, which now apparently believes that democracy needs darkness – or at least properly-orchestrated media blackouts from the truth – has denounced the leak in an editorial. There will be no protections for Texiera, no appeals from the media, as nothing is permitted to stand in the way of the Biden administration’s proxy war against Russia. Writes Jordan Schactel:
It seems there is a concerted effort in the legacy press to paint a personal picture of Mr. Teixeira as an anti-government Trump-loving right winger who is undeserving of whistleblower protections. It’s not that he’s harming the reputation of the Current Thing . . . He's religious! He loves guns! He's a "MAGAt!” Blue Anons, activated!
In other words, Texiera does not fit into the favored media category and so he must face the full wrath of the government for allegedly violating the Espionage Act (Section 793 of the Federal Code) and Section 1924, unauthorized removal of classified documents. (Note that both Biden and Donald Trump have allegedly violated Section 1924, but it is doubtful that either will be perp-walked for their transgressions.)
Taibbi further notes that not long ago, the New York Times was willing to expose much more sensitive material and even partner with Julian Assange, something that one cannot even imagine today:
For the Times, this symbolized a complete turnaround from just 12 years ago, when it partnered with Julian Assange to print “The War Logs,” a far more damaging set of leaks. Just one of those Wikileaks-based stories, “Pakistan Aids Insurgency in Afghanistan, Reports Assert,” was probably more impactful than all the Teixeira docs combined. It described how officials in Pakistan, an ostensible American ally receiving over $1 billion from the U.S. for aid in fighting “militants,” was holding “secret strategy sessions” with the Taliban, to help organize “networks… that fight against American soldiers.”
As we saw with Alvin Bragg’s indictment of Donald Trump, prosecutors can slice up charges to create a large number of separate “crimes,” and then insist that the guilty party serve each sentence consecutively, so theoretically Texiera could be given an effective life sentence. A violation of Section 793 can carry a maximum 10-year sentence, while violations of Section 1924 have prison sentences of up to five years. You do the math.
As Texiera disappears into the maw known as the U.S. Bureau of Prisons, one can be sure he will be held without bond and will be spending much of his pre-trial (and probably post-trial time as well) in solitary confinement. Medical and psychological researchers have documented the pernicious effects of solitary confinement, but one doubts Texiera will receive much sympathy on that front, especially from the groups that usually denounce such punishments, but are silent when someone from the wrong side of the political and social tracks is the victim.
Texiera is charged with the same “crime” that is regularly committed by those favored by American political, media, and academic elites. Ironically, according to the New York Times, the information that he leaked might prove helpful to the Ukrainian cause, since it points out the dire situation that Ukraine faces at the present time:
…in Kyiv, Ukraine’s capital, this past week, there was little palpable alarm about the scores of pages of classified documents that have surfaced in one of the most remarkable disclosures of American secrets in the last decade. In fact, some welcomed the leak, hoping that it would emphasize what President Volodymyr Zelensky has been saying for months — that Ukraine urgently needs more ammunition and weapons to expel the Russian forces.
“From many points of view, this leak is really useful, and good, even I can say good for Ukraine,” said Oleksiy Honcharenko, a member of Parliament in the opposition European Solidarity party.
One would think, if one believes the “Democracy Dies in Darkness” sermons we hear preached by American elites, that the Biden administration and the Pentagon should be telling people the truth about how far-reaching American involvement has been in this proxy war, especially since Russia has extensive nuclear weapons. But those folks really don’t believe their rhetoric. Instead, Jack Texiera will soon disappear for good into prison, and, like Julian Assange who still languishes without trial, their names will be forgotten.
Money supply growth fell again in February, falling even further into negative territory after turning negative in November 2022 for the first time in twenty-eight years. February's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years.
Since April 2021, money supply growth has slowed quickly, and since November, we've been seeing the money supply contract for the first time since the 1990s. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996.
During February 2023, the downturn became even bigger as YOY growth in the money supply was at –6.6 percent. That's down from January's rate of –5.0 percent, and down from February 2022's rate of 6.9 percent. With negative growth now dipping below –6 percent, money-supply contraction is approaching the biggest declines we've seen in decades. At no point for at least sixty years has the money supply fallen by more than 5.6 percent in any month.
The money supply metric used here—the "true," or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2.
The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates, although TMS has fallen faster than M2. In February 2023, the M2 growth rate was –2.2 percent. That's down from January's growth rate of –1.7 percent. February's rate was also well down from February 2022's rate of 10.5 percent.
Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth.
Negative money supply growth is not in itself an especially meaningful metric. But the drop into negative territory we've seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen. That is generally a red flag for economic growth and employment.
The fact that the money supply is shrinking at all is so remarkable because the money supply almost never gets smaller. The money supply has now fallen by $1.7 trillion (or eight percent) since the peak in April 2022. In raw numbers, that's certainly the largest fall we've seen. But we can see in the next graph why, in percentage terms, the drop doesn't beat those of the late 80s and early 90s. Money creation since 2009—and especially since 2020—has been so large that even a drop of $1 trillion is relatively small in percentage terms. Rather, the money supply would have to drop another $5 trillion or so—or more than 25 percent—just to return to the pre-2009 trend.
In fact, since 2009, the TMS money supply has grown by 200 percent. (M2 has grown by 149 percent in that period.) Out of the current money supply of $20 trillion, $5.8 trillion of that has been created since January 2020—or 28 percent. Since 2009, $13.4 trillion of the current money supply has been created. In other words, nearly two-thirds of the money supply have been created over the past thirteen years.
With these kinds of totals, an eight-percent drop puts a fairly small dent in the huge edifice of newly created money. The US economy still faces a very large monetary overhang from the past several years, and this is partly why after nine months of slowing money-supply growth, we are not yet seeing a sizable slowdown in the labor market.
Nonetheless, the monetary slowdown has been sufficient to considerably weaken the economy. Home prices have fallen. Credit card debt has soared, consumer loan delinquencies are up, job openings are falling, and the manufacturing outlook is falling.
We've seen these trends continue in March of this year as well. In March, growth in consumer loans fell almost to zero.
Money Supply and Rising Interest RatesNot surprisingly, this comes after the Federal Reserve finally pulled its foot slightly off the money-creation accelerator after more than a decade of quantitative easing, financial repression, and a general devotion to easy money. The Fed has allowed the federal funds rate to rise to five percent. This has also meant short-term interest rates overall have risen as well. In March, for example, the yield on 3-month Treasurys is approaching the highest level measured in 16 years.
This means trouble for all the zombie companies and banks that have become heavily dependent on easy money. As explained by Daniel Lacalle, the long period of easy money ended up getting banks heavily dependent on low-interest longer-term Treasury and mortgage-backed securities. Now mounting price inflation has forced the Fed to allow interest rates to rise slightly, however. Now, banks find they don't have enough interest income coming in—i.e., income from those older low-interest securities—to pay the bank's bills in the current era of higher interest rates. The first problem signs of this yield mismatch have appeared with the failures of Silicon Valley Bank and Signature Bank.
Banks are therefore reluctant to raise interest rates on deposits, and this has led to a historic decline in bank deposits with March deposits falling deeper into negative territory than in any other month in more than 50 years.
This is all connected to falling money-supply growth, as well. As Bob Murphy notes in his book Understanding Money Mechanics, a sustained decline in TMS growth often reflects spikes in short-term yields, which can fuel a flattening or inverting yield curve—which strongly suggests a recession is approaching. For example, the 3s/10s yield spread often heads toward zero as money supply growth moves in the same direction. This was especially clear from 1999 through 2000, from 2004 to 2006, and during 2018 and 2019, and beginning in 2022.
This all points toward rapidly declining economic activity in an economy where real savings and investments have been hollowed out by more than a decade of easy money. Without an economy geared toward real savings and increased productivity, ongoing monetary inflation will increasingly make price inflation worse. In this fragile economy, the Fed has therefore had to choose between rising price inflation on the one hand, and a banking system teetering on the brink in the other. Inflation fears have—for now—spurred the Fed to allow interest rates to rise, accompanied by a contracting money supply. It remains to be seen how long it will take the Fed to hit the panic button and retreat back toward easy money, spurring a continuation of this cycle of mounting price inflation.
In a recent NYT column, economist Paul Krugman mocks Florida Governor Ron DeSantis, who warned that a central bank digital currency (CBDC) would give the government too much power over Americans. Specifically, DeSantis argued that the feds could use a CBDC to further implement the “woke” agenda, penalizing Floridians if they bought too much gas or guns.
Human Action Podcast: Krugman Says It's Paranoid to Worry About a Fed Digital Currency with Robert Murphy and Jonathan NewmanKrugman ridiculed the very notion that a CBDC might threaten civil liberties:
If this sounds crazy, that’s because it is. I have no idea whether DeSantis believes any of it, or even knows what a central bank digital currency is or what it would do (more on that later). And it’s possible that he’s taking this stand out of general paranoia.
But Krugman doesn’t actually think it’s mere paranoia that explains DeSantis’ opposition to a Fed-issued CBDC. Instead, Krugman thinks big Republican donors are currently benefiting from using anonymous currency as a way to shield their nefarious schemes. As Krugman concludes his column:
[These considerations] tells us what DeSantis’s attack on central bank digital currency would actually do. It wouldn’t protect the rights of Floridians to buy gas or guns; instead, it would protect the ability of wiseguys to evade taxes, launder money, buy and sell illegal drugs, and engage in extortion.
But hey, I guess thinking that money laundering and extortion are bad things is just another example of the wokeness that DeSantis is trying to kill.
As usual, Krugman’s smug attacks fall apart under scrutiny. For starters, my academic colleague Jonathan Newman pointed out that the Fed study Krugman linked to from his column, actually discussed the possible privacy dangers from a CBDC! As the Fed study put it:
krugman_murphy1.png In other words, it’s not just Ron DeSantis who realizes a CBDC could abuse citizens’ privacy—the Federal Reserve does too.
Beyond that, we have seen in recent history how monetary freedom can be violated in the pursuit of political objectives. For example, the Canadian government froze the funds of the Canadian truckers protesting Covid policies, and many Americans saw their donations likewise thwarted.
The practice of “civil asset forfeiture” also provides a grim warning of what could happen with a CBDC. Over the years, there have been many cases of motorists being pulled over for a routine traffic stop, where the police seize thousands of dollars in cash and then hold it until the driver can—months later—prove he’s not a drug dealer. For example, Phoenix businessman Jerry Johnson had $39,500 in cash which he was using to buy a truck, but police seized it at the airport. Johnson eventually got his money back, two and a half years later, even though he had never been charged with a crime, let alone convicted.
With the framework of civil asset forfeiture in mind, suppose the Federal Reserve implements a CBDC. All transactions would be held on the Fed’s ledger, where AI bots could look for “suspicious” patterns. And just as happens right now with actual currency, here too the authorities could freeze someone’s account until the hapless individual could prove his or her innocence—which would prove extra difficult without access to money.
The important thing to remember is that a CBDC needn’t be a “FedCoin,” requiring a MetaMask wallet and limited to the tech-savvy. Instead, as George Gammon explained to Cole Snell and me in a recent podcast episode, it would just take people switching their checking accounts to the Fed. So long as regular people’s checking deposits were liabilities on the Fed’s balance sheet, that would be a central bank digital currency. They would still be “dollars,” it’s just that the Fed would be in complete control; there wouldn’t be an intermediate level of private—and competing!—commercial banks.
Krugman and his often-ally Dean Baker unwittingly confirmed Gammon’s warnings, as they argued that it would be just swell if citizens could cut out the middleman and bank directly with the Fed, but gosh darn it those greedy bankers would never allow it. Notwithstanding their claims, Gammon is right: If average Americans hold bank accounts directly with the Fed, its control over their lives would be nearly absolute, particularly if cash is phased out.
Contrary to Krugman, DeSantis and others warning about a CBDC aren’t being paranoid: they are simply drawing the obvious conclusions from history. The Federal Reserve was originally created in 1913 in order to smooth out business fluctuations and reduce turmoil in the financial sector. The great stock market crash and ensuing Depression happened 16 years later, and since then every time they tell us they’ve got it fixed, another crisis eventually strikes.
We rightly don’t trust the government or central banks with control over the news or science, and we shouldn’t give them control over money and banking either. It is crucial for entrepreneurs to develop alternatives for cash management and capital accumulation outside of the traditional avenues. We are doing out part here at infineo, and invite interested readers to take a look.
[Originally published on infeneo.]
Since the Trump administration launched their trade war with China in 2018, “Trump tariffs” have continued to harm not only our international relationships but also the US economy and the pocketbooks of US consumers. Now as global relations with China intensify and we face a national economic downturn, it’s time for the United States to embrace a more cooperative approach to foreign trade and allow free markets to provide a remedy to our economic woes.
Although President Joe Biden has thus far elected to keep these nonsense tariffs in place, in September 2022, the administration announced its request for the United States Trade Representative to analyze the effectiveness of the tariffs prior to making a final decision on removal or more permanent implementation. Hopefully, the consensus to remove tariffs from economists and academics can facilitate their expeditious dismissal. The benefits to removing the tariffs would extend beyond “wallet relief” for Americans.
Former president Donald Trump established these tariffs in an effort to address a trade deficit, but instead of bringing economic balance, they increased political tensions and prevented cooperation with China. Despite the claim this would benefit American manufacturing, the US lost nearly a quarter million manufacturing jobs and pays more now for imported goods.
Prior to the Trump administration’s trade war, the US and China had been working cooperatively to facilitate more friendly relations. China joined the World Trade Organization in the early 2000s and agreed to work with the United States to promote reduced tariffs and protect intellectual property. During the Obama administration, the United States and China engaged cooperatively to help solve global problems, such as halting Iran’s nuclear weapons program, limiting emissions contributing to global warming, and building security and cooperation among the Association of Southeast Asian Nations. The economic result of this cooperation was growth of US-China trade from $350 billion in 2008 to over $500 billion in 2015. We now have the opportunity to relieve political and military tensions between the US and China by demonstrating a good faith effort to increase mutual economic growth.
Removing tariffs will not only improve our relationship with rival nations but will also ease the financial burden they place on the American economy. This month the US International Trade Commission (ITC) released the results of a multiyear-long study that found American importers and consumers are bearing the brunt of the costs of tariffs on Chinese products—to the tune of roughly $51 billion of increased consumer costs annually. Research from the past five years suggests that small businesses in particular have struggled to adapt to these tariffs. According to a 2019 survey, tariffs increased the cost of doing business for nearly 40 percent of US-based small businesses. Two years later, a study by the US-China Business Council found the tariff-fueled trade war caused the loss of nearly a quarter million US jobs. According to CNBC, these tariffs amount to the largest tax increase on businesses and consumers since 1993.
These challenges don’t just impact small businesses. The ITC estimates that for each 1-percent increase in tariffs, the price of goods increase by 1 percent. While businesses may feel the initial hit, increased prices spread that burden to the American consumer. A 2019 study from the New York Fed showed that the average US household is paying an additional $831 annually due to tariffs on Chinese goods. That’s about seventy dollars a month that could be used to put gas in people’s tanks or groceries on their tables. Removing tariffs can offer immediate savings that would make a huge difference in the lives of everyday Americans.
According to the US Congressional Joint Economic Committee, it is “counterproductive” and “hinders economic growth” to keep tariffs in place. Removal of tariffs would likely lead to an immediate 4.5 percent increase in trade of manufactured goods between the US and China and help restore manufacturing jobs in the US.
To provide financial relief to Americans, support small businesses, and promote national economic growth while improving international relations with our rivals, we must remove these outmoded tariffs. They have failed to achieve the Trump administration’s desired “America first” outcome and have done more harm than good. The United States should put to rest the outdated tariff strategy and let free markets salve our nation’s wounds.
Do Americans have the right to know if the $100 billion in their tax dollars that the Biden administration is delivering to Ukraine is being wasted? No, according to the U.S. Congress - which recently voted against creating an Inspector General to investigate whether handouts to the most corrupt government in Europe were being stolen.
Do Americans have the right to know if their own government blew up the Nord Stream pipeline, the biggest act of environmental terrorism in history? The Washington Post reported that the message from the U.S. and western European governments is “Don’t talk about Nord Stream.” So almost all reporters were “good boys” and moved along.
Do Americans have the right to know if Biden administration officials have perennially made false statements about the prowess and victories of the Ukrainian army fighting the Russians?
No, according to Washington journalists who proudly fly Ukrainian flags on their own lavish homes.
Regardless of the horrendous death tolls suffered by both the Ukrainian and Russian armies, the Powers That Be in Washington are doing just fine and living comfortably.
Except for another damn leak.
In the last 10 days, Washington has been rocked by leaks of top secret information on Ukraine, Russia, Israel, and a few other topics. The response by the Washington establishment and media is akin to the mob in “Monty Python’s Life of Brian” who stoned an old man who said the word “Jehovah” out loud.
On Thursday, the FBI arrested Jack Teixeira, a 21-year-old Massachusetts Air National Guard member. He was charged with retention and transmission of national defense information and willful retention of classified documents. According to the Washington Post, a friend said that Teixeira was “a devout Catholic and a libertarian with an interest in guns and doubts about America’s future.” A Post editorial noted that the alleged culprit had “complained of government overreach,” so obviously he was up to no good.
At this point, it isn’t clear whether Teixeira intended to leak the documents or whether people on the Discord gaming group where the documents were allegedly posted chose to make them public without his permission. His motivation is unclear.
The documents reveal that the Ukrainian military is in far worse shape than the Biden administration claimed. The expected Spring offensive by the Ukrainian army will likely be a flop if not a disaster. They reveal that the Ukrainian government was behind an attack in Belarus. The documents also contained embarrassing information on Israel’s Mossad, the Russian government, and U.S. spying on South Korea.
Thus far, it appears that none of the information that allegedly came out via Teixeira has endangered the lives of any U.S. soldiers or American citizens. But Teixeira is guilty of exposing boatloads of bootlickers and liars in Washington.
White House National Security spokesman John Kirby warned the media that the leaked documents are “not intended for public consumption... This is information that has no business in the public domain.”
Unfortunately, that is how federal policymakers feel about almost all the information regarding U.S. foreign policy. That’s why the government creates trillions of new pages of secrets per year.
According to local legends, there was a bygone era when Washington journalists fought zealously to expose government cover-ups. But the response to the latest leaks makes that story difficult to swallow.
New York Times military correspondent David Philipps tweeted, “The NYT worked feverishly to find the identity of the guy leaking [Top Secret] docs on Discord. Ironically, if they same guy had leaked to the NYT, we'd be working feverishly to conceal it.” (Philipps wasn’t endorsing that fever.) Journalist Michael Tracey scoffed, “Contributing writer at The Atlantic @AmyZegart declares the real ‘heroes’ of the week were all the amazing journalists who participated in a ‘dragnet’ to identify the leaker, at which time the FBI ‘moved into action’ and nabbed him. A true landmark feat of journalistic heroism.”
The Washington press corps showed vastly more enthusiasm for tracking down the leaker than for discovering who bombed the Nord Stream pipeline. At a Pentagon press conference, journalists showed far more indignation about the breach of federal secrecy than about the lies that the documents exposed. (Here’s a film clip of journalists demanding “that more be done to prevent future leaks.”)
Don’t expect the Fourth Estate to ‘fess up to their conflict of interest. Many of the reports on the leaker are written by people who previously peddled official lies on Ukraine and other topics. When the Biden administration exploits the leak to further suppress freedom of speech on the Internet, expect most of the Washington press corps to cheer him.
Will the uproar over the leaks spur some Americans to recognize how their “self-government” has become a parody? The Biden administration is tacitly invoking a divine right to continue deceiving the American people regarding Ukraine and a boatload of other foreign policies. But supposedly, everything Biden and his appointees do automatically incarnates “the will of the people” because of tens of millions of mail-in ballots a few years ago. It doesn’t matter if Biden seems perennially confused or unaware of where he is or what he is saying. Is the “holy ghost of democracy” hovering over Biden’s shoulder thanks to “Vox Populi, Vox Dei”? Unfortunately, the answer is classified.
Are we defaulting to the “cannon fodder version of democracy”? Do Americans have the right to know if the Biden administration is dragging them into World War Three? Unfortunately, few mainstream media outlets have either the curiosity or the courage to doggedly investigate and expose the possible perils of the Biden administration’s escalation of the Ukraine-Russia conflict. Biden’s appointees have vigorously opposed any ceasefire in that war. It is a national disgrace that such comments have not spurred widespread outrage at Team Biden’s efforts to perpetuate the carnage. A Washington Post editorial condemned the alleged leaker: “Breaking the laws for a psychic joyride is a despicable betrayal of trust and oaths.” But what about the media’s complicity in championing a war that makes the Hearst newspapers’ campaign for war with Spain in the 1890s look like child’s play?
Almost no one who condemns leaks of confidential information offers any alternative for Americans learning what “their” government is doing. As long as average Americans stay in their place, paying and obeying, everything will work out fine - at least for Washington real estate values. If democracy is now little more than a system where insiders deceive people for their own good, how is it different than all the other regimes that oppressed people throughout history?
The collapse of California-based Silicon Valley Bank (and Signature Bank in New York) on March 10, 2023, sent shock waves through the international financial system. It not only made bank stocks and bank bonds fall sharply but also finally brought ailing banking giant Credit Suisse to its knees. The Swiss bank had to be rescued and was bought by UBS on March 19, 2023. In another wave of market fear, Deutsche Bank, another global systemically important bank, came under pressure: its share price fell sharply, and credit default swap spreads on its liabilities skyrocketed.
In the meantime, however, market stress seems to have subsided. It is fair to say that the Federal Reserve (Fed) and the US Treasury have pulled it off. The Fed opened its funding spigots for banks, providing them with the necessary funds. This washed away the unfolding liquidity crisis. The US Treasury guaranteed banks’ (hitherto) uninsured deposits, calming people’s fears and giving them less incentive to withdraw their funds from banks, especially from small and medium-sized banks to put into bigger banks.
However, it would be premature to say that the banking crisis is over. In fact, sound economics suggests that things could all too easily take a rather bad turn. The reason lies in the unbacked paper, or fiat money, system. In a fiat money system, banks create new money balances through credit expansion, accompanied by an artificial suppression of market interest rates. This, in turn, results in an initial boom, which sooner or later ends in a bust because distorted market interest rates lead to overconsumption and malinvestment.
In a fiat money regime, banks operate with fractional reserves: they hold merely a fraction of their immediate payment obligations to their customers in cash (banknotes and central bank money balances). In normal times, this does not seem to be a problem. In times of market stress, however, things can get ugly: the “latent illiquidity” of banks could result in a bank run. Of course, the central bank can provide any cash needed to distressed banks at virtually any time; a liquidity shortage can thus be solved. However, an even bigger problem may rise.
A liquidity crisis in the banking system may spill over into a credit crisis—meaning investors fear that borrowers could become unable to service their debt. Why? Banks facing a liquidity problem will become more cautious when it comes to credit risk. Their credit supply will become less abundant and more expensive. This results in payment defaults and business failures. It is precisely through such a process—you might call it a “credit crunch”—that boom turns into a bust. Banks suffer losses and restrict their credit supply even more, then the economy is headed for recession or even depression.
After many years of ultralow borrowing costs, the central banks’ rate hiking spree is most likely to result in a significant slowdown of growth, if not an outright recession. Money supply growth in the US is negative both in nominal and real terms, a direct result of the Fed’s higher interest rates and shrinking of its balance sheet—suggesting a drop in economic activity. Likewise, bank credit growth has slowed considerably and is also negative in real (inflation-adjusted) terms. Monetary developments are quite similar in the euro area.
Therefore, chances of a future substantial slowdown of economic growth, even a fall in production and a rise in unemployment, are high. Such a scenario is all the more likely given the rather high level of debt in many national economies, which has so far been financed by very low interest rates and that now has to be refinanced at significantly higher credit costs. As soon as the first borrowers default on their debts, concern about more defaults will spread like wildfire, and the risk of a collapse of the debt mountain rises.
What will central banks do in such a scenario? They would most likely prioritize keeping the banking system and government entities afloat and doing whatever it takes to ward off defaults. The objective of lowering consumer goods price inflation comes second. Inflation would be considered a lesser evil worth taking to prevent a supposedly even greater evil. So, in the end, what started as a liquidity crisis turns into a credit crisis and eventually a currency crisis—meaning people are losing faith in the purchasing power of money.
Against this backdrop, holding physical gold and silver as part of the liquid portfolio makes sense. Gold and silver cannot be debased by central banks expanding the money supply (i.e., their inflationary policies), and precious metals do not carry counterparty risk as bank deposits do. Most importantly, from our analytical perspective, gold and silver prices are trading on the cheap side. Perhaps this is because many investors expect the banking crisis to be over. We would warn against such a conclusion and say: it’s not over yet; better hold at least some physical gold and silver.
The Austrian economist, Ludwig von Mises (1881–1973), knew the problem all too well. As early as 1951, he wrote:
Politicians are helpless in the face of the crisis they have conjured up. They cannot recommend any way out except more inflation or, as they call it now, reflation. Economic life is to be “cranked up again” by new bank credits (that is, by additional “circulation” credit) as the moderates demand, or by the issue of fresh government paper money, which is the more radical programme.
But increases in the quantity of money and fiduciary media will not enrich the world or build up what destructionism has torn down. Expansion of credit does lead to a boom at first, it is true, but sooner or Iater this boom is bound to crash and bring about a new depression. Only apparent and temporary relief can be won by tricks of banking and currency. In the long run they must land the nation in profounder catastrophe. For the damage such methods inflict on national well-being is all the heavier, the longer people have managed to deceive themselves with the illusion of prosperity which the continuous creation of credit has conjured up.
If politicians and voters—that is, the ruling class and the class of the ruled—keep disregarding the teachings of sound economics, it is fair to say that the crisis is not over yet.
Mark takes a look at the good news on price inflation and why it is better than reported, but probably short-lived. Other statistics are worsening and, amazingly, even landlords are starting to feel the pain!
Be sure to follow Minor Issues at Mises.org/MinorIssues.
The income tax is “undoubtedly the most totalitarian of all taxes.1
—Murray Rothbard
At the founding of our country, the framers of our Constitution wisely withheld the right to tax incomes from the federal government. With the recent Revolutionary War in mind, the States were reluctant to cede strong taxing powers to a central state.
Given the enormous change in how this country regards the income tax, it is instructive to consider its origins. Studying this evolution may result in lessons that illuminate current debates.
The FoundingThe constitution originally limited the federal government’s power to tax. Article 1, Section 2 stated that direct taxes shall be uniform among the States. Direct taxes were generally considered to be taxes such as head taxes or taxes on property and uniform taxes had to apportioned equally between the states according to population. Article 1, Section 8 gives Congress the power to tax “duties, imposts, and excises,” but reiterates the requirement for uniform taxation. The uniformity requirement was intended to restrict one region from imposing taxes on another region. The concepts of “direct” taxes and “uniform” later became crucially important in determining the constitutionality of income taxation.
The anti-tax mood of the country at that time is illustrated by the fact that direct excise taxes on spirits distilled from grain and on housing led to the Whiskey Rebellion in 1794 and the Fries Rebellion in 1798, respectively. Enforcement of the whiskey tax led to the forerunner of the Internal Revenue Service. Discontent with these tax policies supported by the Federalists, particularly those of President John Adams, led to the dissolution of the Federalist party and was a major factor in the support for Thomas Jefferson in the election of 1800.
Income Taxes: The Early YearsThe country initially relied on tariff revenue to fund the government. But it was less than a quarter century after ratification of the Constitution to hear the first call for an income tax. The War of 1812 led to taxes on housing, land and slaves. Revenue needs led to Alexander Dallas, Secretary of the Treasury, indicating that an income tax might generate a revenue of three million dollars. The Treaty of Ghent ended the war and brought relief from the war taxes and eliminated any effort to impose an income tax. The tariff again became the primary source of revenue.
The tariff was an economic weapon that the industrialized north could use against the rural areas of the country. Northern business interests in conjunction with their minions in the government, were victimizing the rural south with the tariff. High tariff rates protected the northern manufacturing interests, and the South and West were paying a disproportionate share of this cost with high prices for imports and for finished goods from the north. This exploitation was an impetus for the war when the south seceded from the union.
The War Between the States brought the next proposal for an income tax. As Abraham Lincoln took office in 1861, he faced a federal debt of $75 million. Tariffs were doubled, excise taxes were raised, and bonds were issued. In addition, an income tax act was passed in 1861 as a substitute for a direct tax on land, which was objectionable to political interests in the West and Southwest. The act decreed a tax rate of three per cent on annual incomes over $800 and contained the first loophole. A reduced rate of one and one-half per cent was placed on the interest on government bonds, in order to facilitate the sale of bonds.
Before this act was put into effect, a second bill was passed in 1862. Union debt had increased to over $500 million, so the new act specified a progressive tax beginning with a three per cent rate on incomes of $600 and a top rate of seven and one-half per cent on incomes over $50,000. An 1864 act further increased the tax rates. It is important to note that the progressivity of the tax was due to revenue needs, and did not address any “fairness” concerns. After much debate, the income tax was scrapped in 1872.
The constitutionality of the income tax during the Civil War was not tested in court. Many agreed that allowing the tax in wartime was a necessity that could not be tolerated in peacetime.
The Rise of PopulismFrom 1874 to 1894, congressional proponents submitted 68 bills to restore the income tax. All of these proposals came from Southern and Western Representatives. Due to the Northern control of the seats of power in Congress, none of these came to a vote before 1894.
The rise of populism drove this tax sentiment. The protected northern industrial interests were on one side of the debate, and the rural, mainly agricultural, concerns were on the other side. The main income tax argument was merely an anti-tariff argument. Rural states saw the income tax as a way to eliminate the tariff and to get the northern states to pay their share of the tax burden. Pro-income tax populists believed that an income tax would only be applied to “the bloated rich” and that they would be exempt.
Tariffs were very high during the post-Civil War period even during times budget surpluses. This is not surprising since the war had largely been fought over the tariff issue and the pro-tariff side had been victorious.
In 1888, Benjamin Harrison was elected president on a protectionist platform. Under his watch, the McKinley Tariff Act of 1890 passed, increasing the average rate on dutiable imports to 48 per cent. The Republicans did not anticipate the political fallout of their legislation. In the elections of the 1890, the Republicans suffered a disastrous defeat, holding only one-quarter of the seats in the House of Representatives.
The 1894 Income TaxThe Democrats ran Grover Cleveland for president in 1892. Their anti-tariff platform was noted for its denunciation of “Republican protection as a fraud, a robbery of the great majority of the American people for the benefit of a few.” It also termed the McKinley Tariff the “culminating atrocity of class legislation.” Cleveland himself called the tariff “ruthless extortion.” Cleveland easily beat Harrison in this race.
A small but growing deficit made it difficult for Cleveland to meet his pledge for tariff reduction. An income tax seemed to be a means of reducing tariffs while balancing the budget and he called for “a small tax upon incomes” in December of 1893. Opponents called a peacetime income tax “socialistic” and warned that the Supreme Court would declare such a tax unconstitutional.
The House version of the 1894 Wilson-Gorman tariff bill eliminated the McKinley tariffs and instituted an income tax of two percent on incomes above $4,000. Ninety-eight per cent of the populace was completely exempt from this tax. The act passed easily and the tax proponents jubilantly carried the chairman of the House Ways and Means commit, William Wilson, out of the hall on their shoulders. When the Senate debated the issue, however, tariff rates were increased. Cleveland had been betrayed by protectionist forces within his own party. If he vetoed the bill, the McKinley tariff would continue, and, he would contradict himself by signing it. Cleveland refused to sign the bill, but allowed it to go into law without his signature.
The 1894 tax was immediately challenged in court. The Supreme Court took up the issue in Pollock v. Farmers’ Loan and Trust Company. The court declared the tax unconstitutional, by a vote of five to four, on the grounds that it was a direct tax not assessed uniformly. Tax proponents argued that the original intent of the constitutional writers was for direct taxes to be considered taxes on property, not on income. The majority opinion, however, viewed the income tax as a direct tax.
Although the constitutional question turned on the definition of “direct” taxes, those pleading their cases before the court introduced ideological arguments into the debate. Populists, such as James C. Carter, asserted that the tax was justified as a weapon to be used against the plutocracy and that the court should “accept the voice of the majority.” An opposing attorney, Joseph P. Choate, argued that the court needed to protect the rights of private property.
The arguments defending private property also show up in the decision of the court. Writing for the majority, Justice Stephen J. Field said “the present assault upon capital is but the beginning. It will be but a stepping stone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich, a war constantly growing in intensity and bitterness.”
Justice Edward White, dissenting, pointed out that the decision was “fraught with danger to the court, to each and every citizen, and to the republic.” If the conclusions of this court depend on the personal opinions of its members, it will become a “theatre of political strife.” Strict constitutionalists should be slow to applaud this decision that was explicitly grounded on ideological considerations.
The Sixteenth AmendmentUnfortunately, the Republicans regained the White House in 1896. The call for income taxes waned as the “progressive” reformers of the era turned to other matters, particularly the antitrust battle. There was still some support for an income tax and in 1904, William Jennings Bryan was even able to get support for an income tax plank in the Democratic platform.
Republican President Theodore Roosevelt revived the idea in a speech on the Fourth of July. He stated that taxation may be desirable for limiting large fortunes and, according to an account of the time, “declared vehemently for a graduated income tax…Democrats were jubilant…smiles froze on the faces of Republicans.” Although no other prominent Republican showed much interest, the debate was renewed.
In 1909, William Howard Taft, a Republican but arguably the least likely candidate to approve of an income tax, succeeded Roosevelt as president. It seemed unlikely that a tax revolution was at hand.
Taft took office in the middle of a tariff battle and a revenue shortfall. His own party was split on the tax/tariff issue. The Democrats were pushing for an income tax bill, expecting the court to reverse itself on this issue. To placate both sides, Taft proposed a corporation “excise” tax (actually an income tax under another name) of one per cent of net incomes in excess of $5000. The revenue from the excise would relieve the revenue problem and defuse the tariff debate in his own party. The Supreme Court later approved the excise tax, indicating that it may have sanctioned a tax on personal incomes.
To quiet the Democrats, Taft proposed an amendment authorizing Congress to collect income taxes. The amendment would relieve Congress of following the uniformity clause regarding direct taxation. He believed that this was a harmless gesture and that the amendment would never succeed. A leading proponent for an income tax, Robert La Follette, agreed that “the success of this amendment is improbable,” and was against the amendment.
The Senate passed the amendment unanimously. In the House, the vote was 318 For, 14 Against, and there were 55 abstentions.
The strength of the tax movement in the states was highly underestimated by parties on both sides of the debate. The amendment went to the states late in 1909. Alabama ratified it, unanimously, before the year was out. Eight others followed in 1910, and the required 36 states ratified the amendment by 1913. On February 25, 1913, the Sixteenth Amendment was adopted.
Democrats held the presidency, since Woodrow Wilson had been elected in 1912, and controlled both houses of Congress. The debate over an income tax bill began immediately, and the 1913 Revenue Act was passed on October third of that year. It specified a one per cent tax rate with a $3000 personal exemption. A progressive “surtax” ranging from one to six per cent was also included, resulting in a top rate of seven per cent and the tax was retroactive to the day that the amendment was ratified. Tariff reductions were also in the bill. In fact, the debate in Congress centered around the tariff issues.
By 1916, World War I had reduced trade, thereby reducing tariff revenue, and business profits were down which decreased corporate tax revenue. This coupled with increased spending for war preparation created a deficit that the income tax was called upon to relieve. The 1916 Revenue was the first income tax not explicitly linked to the tariff. The bill increased the top rate to 15 per cent. It also included the first war profits tax.
By 1917, due to increased revenue needs, a new act was passed increasing the top rate to 67 per cent and cutting the personal exemption by two-thirds. An individual’s first $1000 in income was now exempt. The very high top rates allowed the Congress to expand the tax base by reducing the personal exemption.
The Revenue Act of 1918 again increased the tax rates. The lowest rate was upped to six per cent, and the highest increase to 77 per cent. Again, the high top rate generated little revenue, and was mainly political cover for increasing the lower rates. In just five years, a tax that was promised to be a small tax on the rich became a substantial tax applying to a broad base.
After the war, tax rates decreased, but the federal government still relied heavily on the corporate and personal income tax for its revenue. In 1925, nearly half of federal receipts were derived from these taxes. Once the revenue capabilities became apparent, there was little chance that Congress would forego opportunities to return to a very limited income tax scheme.
LessonsThis outline of the establishment of the sixteenth amendment to the Constitution leads to a few tentative conclusions.
First, the framers of the Constitution specifically limited the taxation powers that they accorded Congress. They argued that Congress was ill equipped to restrain itself. Given the powers of the Sixteenth Amendment, Congress established tax rates formerly considered beyond reasonable bounds. This should be a warning when Congress promises to restrain itself in other matters, such as any promises regarding taxes spending in the current budget debate.
Second, one danger of replacing one tax with another is that it is no longer necessary to rely on the initial tax to generate revenue. Implementing the income tax reduced the need for tariff receipts. This freed up the tariff to be used for protectionist measures with little need to consider the revenue consequences. Recent tariff debates center on free trade versus protection arguments, and have little to do with tax revenue consequences. Giving the government multiple tax means allows it to use some tax methods for punitive ends.
Third, the income tax movement was driven by the motive to shift the tax burden from one group, the Southern and Western states, to another, the Northern industrial states. Those believing that they would escape income taxation anticipated incorrectly. Tax burden shifting is a dangerous scheme that could, and in this instance did, backfire.
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- See Rothbard’s marvelous dismantling of Milton Friedman, “Milton Friedman Unraveled” available in Rothbard’s Economic Controversies, p. 898.
This week, with camera crews well positioned with the perfect shot to take it all in, federal agents arrested a man for allegedly leaking classified Pentagon documents mostly related to U.S. involvement in the ongoing proxy war in Ukraine.
Massachusetts Air National Guardsman Jack Teixeira has been accused of leaking sensitive U.S. intelligence documents on to a Discord server. For those who are unaware, Discord is an internet messaging platform for a variety of like-minded communities.
js_1.jpg According to the corporate media’s reporting, Teixeira was a member of an online Discord chat named Thug Shaker Central, which reportedly consisted of a couple dozen young men, who used it for unfiltered conversations and sharing memes. It was in this chat where Teixeira allegedly leaked the classified information.
One anonymous member of the chat told The New York Times:
“This guy was a Christian, anti-war, just wanted to inform some of his friends about what’s going on . . . We have some people in our group who are in Ukraine. We like fighting games, we like war games.”
Another member of the Discord chat told The Washington Post that Teixeira “had a dark view of the government.”
No kidding.
It seems there is a concerted effort in the legacy press to paint a personal picture of Mr. Teixeira as an anti-government Trump-loving right winger who is undeserving of whistleblower protections. It’s not that he’s harming the reputation of the Current Thing . . . He's religious! He loves guns! He's a "MAGAt!” Blue Anons, activated!
Somewhere along the way, the documents were reportedly moved from the Discord chat to a variety of public online forums.
It appears that the DOJ intends on throwing the book at Teixeira and charging him under the Espionage Act, which can carry a heavy prison sentence.
Your humble correspondent has not seen the primary documents first hand, but is aware of them due to media outlets reposting the classified images.
The dozens of leaked images and plans provided evidence that the Pentagon/NATO is much more intimately involved in its proxy war against Russia than previously understood. Specifically, U.S. troops have “mission critical functions” in Ukraine, despite never having declared war against Russia. And not only is the Biden Administration actively monitoring the Zelensky government’s every move, according to the docs, but they are also effectively running point on the war effort. This shouldn’t come as a surprise to those who understand the power dynamics of the Russia-Ukraine spat, but it certainly clears up any doubts about who is ultimately in charge in Kiev.
There’s lots of chatter on social media fairly suggesting that Teixeira must’ve been a patsy or something similar because a 21 year old shouldn’t have been able to have access to such important classified information. However, let me remind readers that the man formerly known as Bradley Manning was also a junior enlisted service member in his early 20s when he leaked a bunch of classified information to Wikileaks. The myth of institutional competence is just that: a myth.
The Uniparty in D.C. has been noticeably, but unsurprisingly silent about Teixeira’s potential protections as an alleged whistleblower. That’s because the alleged leaks attached to him could jeopardize the standing of the Current Thing. The people in charge in Washington only like universally-approved “whistleblowers,” and they declare the likes of Edward Snowden and co as traitors to democracy and such.
Will the institutional press corps stand up for speaking truth to power?
Of course not.
At the Pentagon presser today, the military’s churnalists paradoxically united behind demands for a more robust security state that can better shield information from the public.
js_2.png The Uniparty will tell you that a career intelligence agent who spied on the former president is a certified whistleblower. The same people will then tell you that the alleged Ukraine whistleblower is a criminal, because he almost made it more difficult for their racket to continue.
[Originally published at The Dossier on Substack.]
Taxes are the price we pay for a civilized society.
Taxes are the price we pay for civilization.
I like to pay taxes. With them I buy civilization.
—Justice Oliver Wendell Holmes Jr.
During tax season, many people try to provide you with practical ways to lower your tax bill and mitigate your exposure to both tax payments and reporting. Instead of repeating such advice, I would rather discuss the role of taxes in society or, in particular, why we don’t need taxes.
Almost everyone recognizes that paying taxes causes psychological harm along with other negative effects. However, it is commonly said that despite all the drawbacks, taxes are the price we pay to live in a civilized society, which is what the sign in front of the Internal Revenue Service building in Washington, DC, proclaims.
Instead, I would like to make the case that this common statement is the opposite of the truth. Taxes are not the price we pay to live in a civilized society. Rather, taxes help to undermine what is left of civilized society.
Two broad-based reasons for taxation are frequently given. First, we need taxes in order to provide for so-called public goods. Second, we may need to distribute wealth in a more equitable manner. I submit that neither of these reasons is a particularly good reason for taxation and should therefore not be proposed. If taxation is to exist, it should be justified on other grounds.
Both arguments made in this article are somewhat simplified. For a thorough explanation, readers are encouraged to read Murray Rothbard’s treatise Man, Economy, and State, among other great works. The arguments presented in this book are impeccable and logically consistent, and that logic is taken to its conclusion, showing that the only truly ethical world in which we can live must be a world in which taxes do not exist and coercion is removed from society.
Why Taxes Cannot Be Used to Increase Welfare in SocietyAll economics is microeconomics. No “macroeconomic” phenomena can exist outside the individual decisions of billions of individuals. Therefore, we will start this exercise from the perspective of the individual. Individuals must act in the world. No matter what you do, you must act in some manner. This action consists of using means to obtain certain ends. But how do we know which ends to achieve and which means we should use to obtain them? That is up to the individual to decide. The individual must believe that achieving the ends will necessarily make his life better. He must also believe that his action combined with the means he utilizes can successfully achieve the desired end. Note I am not saying that he is flawless in this assessment nor in his ability to achieve the ends but rather that he believes both to be true before the fact.
The way in which we know as outside observers that an individual desires some definite end is always and only through observing his actions in the world. While the individual can always say what he values and make tradeoffs in his mind that he then expresses to the world, we can never be sure that he actually desires some end more than another unless he actually demonstrates his preference through his action in the real world. This point is crucial in that I do not advocate the typical model of the market as efficient and man as homo economicus. Those are simply not accurate pictures of the world. What I do advocate is that not only is any individual in a better position to know what increases his well-being, he is actually the only one that can possibly know what makes him better off. No outside party can possibly know.
From this point, we can draw a more sweeping conclusion. If the individual is the only one that can know what makes him better off, we must necessarily allow individuals to make choices in society in a voluntary manner. This demonstrated preference would be their only way of expressing what actually maximizes their own welfare. As a corollary, any intervention into the market economy therefore necessarily impedes the ability of the individual to express his preferences through action.
It is no major step from this point to highlight that given all actions in the free market maximize welfare (at least beforehand, or a priori) and that all coercive interventions into the market necessarily harm the ability of the individual to maximize his welfare, when the government intervenes in the economy, it necessarily makes the world worse off. Utility cannot be maximized in any scientific way if the government intervenes.
Finally, we note that, while all forms of government intervention necessarily make society worse off, taxation falls well within this category. As a nonvoluntary payment, taxation forcibly co-opts funds from members of society. Those funds were necessarily going to be spent in another way. If they weren’t, then what is the point of taxation in the first place? Therefore, we know that funds are taken from the wallets of some and put into the hands of capital allocators, who will necessarily spend the money in a less optimal way, making the world worse off.
Why Redistribution through Taxation Makes the World PoorerThe second major argument for taxation is to redistribute wealth in a perceived more equitable manner. This too is a fallacy. Actually, the very idea of a “distribution” of wealth is fallacious from the start. Natural resources are distributed all over the world. Some places have more and some have less quantity for any number of resources. No matter the starting point, we know that humans act in the world in order to alleviate unwanted dissatisfaction. From here, we know that in practice, this often means acquiring certain inputs (could simply be skills and elbow grease all the way to major manufacturing equipment) and mixing these inputs in a certain way and in a certain environment to create an output. This output is then sold: the higher the selling price, the better for the producer; the lower the price, the better for the consumer.
Given that all economic activity consists of the creation of wealth through this rearrangement of inputs to better achieve the desires of the consuming public (and therefore obtaining a higher selling price for the producer), we know that producers (or entrepreneurs) are trying to maximize the welfare of the consumer in order to maximize their own welfare through increased profits. In this sense, profits are simply an indication of how much good you have already done for the world. Taxing these profits and giving the proceeds to others who have not done as much good is incentivizing a lowering of consumer welfare and a raising of prices, as well as necessarily making those in society that do not produce as much in an artificially better position than their counterparts who actually did produce value for the world.
Letting the market allocate resources and funds is the only just distribution of resources. To be more precise, it is not actually a process of “distribution” at all. Each transaction in society necessarily leads to where resources currently sit. Each transaction was entered into by at least two individuals making themselves better off a priori. There is no such thing as some allocation of wealth beyond what is entered into on a daily basis by the individual. As such, redistribution should be recognized as a government-mandated allocation away from what consumers desire. When you put it this way, redistribution of wealth is not so attractive after all.
Jonathan Newman joins Bob to dissect Paul Krugman's latest NYT op-ed, in which he derides Ron DeSantis as paranoid for thinking a central bank digital currency (CBDC) could be used to control citizens.
Krugman's op-ed in the New York Times: Mises.org/HAP391a
Bob breaking down negative interest rates: Mises.org/HAP391b
[This piece is an excerpt from The Great Reset and the Struggle for Liberty.]
The notion that the world can be replicated and replaced by a simulated reality says a great deal about the beliefs of those who promote the metaverse [treated in the previous chapter]. The conception is materialist and mechanistic at base, the hallmarks of social engineering. It represents the world as consisting of nothing but manipulable matter, or rather, of digital media mimicking matter. It suggests that human beings can be reduced to a material substratum and can be induced to accept a technological reproduction in lieu of reality. Further, it assumes that those who inhabit this simulacrum can be controlled by technocratic means. Such a materialist, mechanistic, techno-determinist, and reductionist worldview is consistent with the transhumanist belief that humans themselves will soon be succeeded by a new transhuman species, or humanity-plus (h+)—perhaps a genetically and AI-enhanced cyborg that will outstrip ordinary humans and make the latter virtually obsolete.
The term transhumanism was coined by Julian Huxley, the brother of the novelist Aldous Huxley and the first director-general of the United Nations Educational, Scientific and Cultural Organization (UNESCO). In an essay entitled “Transhumanism,” published in the book New Bottles for New Wine (1957), Huxley defined transhumanism as the self-transcendence of humanity:
The human species can, if it wishes, transcend itself—not just sporadically, an individual here in one way, an individual there in another way, but in its entirety, as humanity. We need a name for this new belief. Perhaps transhumanism will serve: man remaining man, but transcending himself, by realizing new possibilities of and for his human nature.1
One question for transhumanism is indeed whether this transcendence will apply to the whole human species or rather for only a select part of it. But Huxley gave some indication of how this human self-transcendence might occur: humanity would become “managing director of the biggest business of all, the business of evolution . . .”2 As the first epigraph to this Part makes clear, Julian Huxley was a proponent of eugenics. And he was the President of the British Eugenics Society.3 It was in his introduction of UNESCO, as the director-general that he suggested that eugenics, after the Nazi regime had given it such a bad name, should be rescued from opprobrium, “so that much that now is unthinkable may at least become thinkable.”4 As John Klyczek has noted, “In the wake of vehement public backlash against the atrocities of the Nazi eugenic Holocaust, Huxley’s eugenics proper was forced to go under-ground, repackaging itself in various crypto-eugenic disguises, one of which is ‘transhumanism.’” Transhumanism, Klyczek suggests, is “the scientific postulate that human evolution through biological-genetic selection has been largely superseded by a symbiotic evolution that cybernetically merges the human species with its own technological handiwork.”5
Contemporary transhumanist enthusiasts, such as Simon Young, believe that humanity can take over where evolution has left us to create a new and improved species—either ourselves, or a successor to ourselves:
We stand at a turning point in human evolution. We have cracked the genetic code; translated the Book of Life. We will soon possess the ability to become designers of our own evolution.6
In “A History of Transhumanist Thought,” Nick Bostrom details the lineage of transhumanist thought from its prehistory to the present and shows how transhumanism became wedded to the fields of genomics, nanotechnology, and robotics (GNR), where robotics is inclusive of Artificial Intelligence (AI).7 It is the last of these fields that primarily concerns us here. The transhumanist project has since envisioned the transcendence of humanity via technological means. In the past thirty years, this technological transcendence has been figured as “the singularity.”
Vernor Vinge, the mathematician, computer scientist, and science fiction author introduced the notion of the technological singularity in 1993.8 The singularity, Vinge suggested, is the near-future point at which machine intelligence will presumably supersede human intelligence. Vinge boldly declared: “Within thirty years, we will have the technological means to create superhuman intelligence. Shortly after, the human era will be ended.”9 Vinge predicted that the singularity would be reached no later than, you guessed it, 2030. The question Vinge addressed was whether, and if so, how, the human species might survive the coming singularity.
The inventor, futurist, and now Google Engineering Director Raymond Kurzweil has since welcomed the technological singularity as a boon to humanity. Kurzweil, whose books include The Age of Spiritual Machines (1999), The Singularity Is Near (2005), and How to Create a Mind (2012), suggests that by 2029, technologists will have successfully reverse-engineered the brain and replicated human intelligence in (strong) AI while vastly increasing processing speeds of thought. Having mapped the neuronal components of a human brain, or discovered the algorithms for thought, or a combination thereof, technologists will convert the same to a computer program, personality and all, and upload it to a computer host, thus grasping the holy grail of immortality. Finally, as the intelligence explosion expands from the singularity, all matter will be permeated with data, with intelligence; the entire universe will “wake up” and become alive, and “about as close to God as I can imagine,” writes Kurzweil.10
Thus, in a complete reversal of the Biblical creation narrative, Kurzweil posits a dumb universe that begins with a cosmic singularity (the Big Bang) and becomes God by a technological singularity. This second singularity, Kurzweil suggests, involves the universe becoming self-aware, vis-à-vis the informational, technological agent, humanity. Thus, in the technological singularity, the technological and the cosmic converge, as Kurzweil resembles a techno-cosmic Hegelian. (Hegel figured collective human self-consciousness progressing in self-actualization and self-realization, finally becoming and recognizing itself as God, “through the State [as] the march of God in the world.”11) Incidentally, according to Kurzweil, our post-human successors will bear the marks of their human provenance. Thus, the future intelligence will remain “human” in some sense. Human beings are the carriers of universal intelligence and human technology is the substratum by which intelligence will be infinitely expanded and universalized.
More recently, Yuval Noah Harari—the Israeli historian, WEF-affiliated futurist, and advisor to Klaus Schwab—has also hailed this singularity, although with dire predictions for the vast majority. According to Harari, the 4-IR will have two main consequences: human bodies and minds will be replaced by robots and AI, while human brains become hackable with nanorobotic brain-cloud interfaces (B/CIs), AI, and biometric surveillance technologies. Just as humans are functionally replaced, that is, they will be subject to the total control of powerful corporations or the state (or, what’s more likely, a hybrid thereof, a neo-fascist state). Rather than a decentralized, open-access infosphere of exploding intelligence available to all, Singularitarian technologies will become part of the arsenal for domination. The supersession of human intelligence by machine intelligence will involve the use of such data and data processing capabilities to further predict and control social behavioral patterns of the global population. In addition, the biotechnical enhancement of the few will serve to exacerbate an already wide gulf between the elite and the majority, while the “superiority” of the enhanced functions ideologically to rationalize differences permitted by such a division. That is, Harari suggests that if developments proceed as Vinge and Kurzweil predict, this vastly accelerated information-collecting and processing sphere will not constitute real knowledge for the enlightenment of the vast majority. Rather, it will be instrumentalist and reductionist in the extreme, facilitating the domination of human beings on a global scale, while rendering opposition impossible.
In an article in Frontiers in Neuroscience, Nuno R. B. Martins et al. explain just how such control could be implemented through B/CIs, which the authors claim will be feasible within the next 20 to 30 years:
Neuralnanorobotics may also enable a B/CI with controlled connectivity between neural activity and external data storage and processing, via the direct monitoring of the brain’s ~86 x 109 neurons and ~2 x 1014 synapses. . .
They would then wirelessly transmit up to ~6 x 1016 bits per second of synaptically processed and encoded human–brain electrical information via auxiliary nanorobotic fiber optics (30 cm3) with the capacity to handle up to 1018 bits/sec and provide rapid data transfer to a cloud-based supercomputer for real-time brain-state monitoring and data extraction. A neuralnanorobotically enabled human B/CI might serve as a personalized conduit, allowing persons to obtain direct, instantaneous access to virtually any facet of cumulative human knowledge (emphasis mine).12
Such interfaces have already reached the commercialization stage with Elon Musk’s Neuralink,13 Kernel,14 and through DARPA,15 among others.
When neuralnanorobotic technologies that conduct information and algorithms that make decisions interface with the brain, the possibilities for eliminating particular kinds of experiences, behaviors, and thoughts becomes possible. Such control of the mind through implants was already prototyped by Jose Delgado as early as 1969.15 Now, two- way transmission of data between the brain and the cloud effectively means the possibility of reading the thoughts of subjects, interrupting such thoughts, and replacing them with other, machine-cloud-originating information. The desideratum to record, label, “informationalize,” rather than to understand, let alone critically engage or theorize experience will take exclusive priority for subjects, given the possibilities for controlling neuronal switching patterns. Given the instrumentalism of the Singularitarians— or, as Yuval Harari has called them, the “Dataists”— decisive, action-oriented algorithms will dominate these brain-cloud interfaces, precluding faculties for the critical evaluation of activity, and obliterating free will.17 Given enough data, algorithms will be better able to make decisions for us. Nevertheless, they will have been based on intelligence defined in a particular way and put to particular ends, placing considerable emphasis on the speed and volume of data processing and decision-making based on data construed as “knowledge.” Naturally, Aldous Huxley’s Brave New World comes to mind. Yet, unlike Huxley’s mind-numbing soma, brain-cloud interfaces will have an ideological appeal to the masses; they are touted as enhancements, as vast improvements over standard human intelligence.
Harari peels back the curtain masking transhumanism’s Wizard of Oz promises, suggesting that even before the singularity, robotics and machine intelligence will make the masses into a new “useless class.”18 Given the exorbitant cost of entry, only the elite will be able to afford actual enhancements, making them a new, superior species—notwithstanding the claim that Moore’s Law closes the technological breach by exponentially increasing the price-performance of computing and thus halving its cost per unit of measurement every two years or less. How the elite will maintain exclusive control over enhancements and yet subject the masses to control technologies is never addressed. But perhaps a kill switch could be implemented such that the elite will not be subjected to brain-data mining—unless one runs afoul of the agenda, in which case brain-data mining could be (re)enabled.
In a 2018 WEF statement, Harari spoke as the self-proclaimed prophet of a new transhumanist age, saying:
We are probably among the last generations of homo sapiens. Within a century or two, Earth will be dominated by entities that are more different from us, than we are different from Neanderthals or from chimpanzees. Because in the coming generations, we will learn how to engineer bodies and brains and minds. These will be the main products of the 21st century economy (emphasis mine).19
No longer capable of mounting a challenge to the elite as in the nineteenth and twentieth centuries, and having no function, the feckless masses will have no recourse or purpose. Exploitation is one thing; irrelevance is quite another, says Harari. And thus, as Harari sees it, the remaining majority will be condemned to spend their time in the metaverse, or worse. If they are lucky, they will collect universal basic income (UBI) and will best occupy themselves by taking drugs and playing video games. Of course, Harari exempts himself from this fate.
As for the elite, according to Harari, their supposed superiority to the masses will soon become a matter of biotechnological fact, rather than merely an ideological pretension, as in the past. The elite will not only continue to control the lion’s share of the world’s material resources; they will also become godlike and enjoy effective remote control over their subordinates. Further, via biotechnological means, they will acquire eternal life on Earth, while the majority, formerly consoled by the fact that at least everybody dies, will now lose the great equalizer. As the supernatural is outmoded, or sacrificed on the altar of transhumanism, the majority will inevitably forfeit their belief in a spiritual afterlife. The theistic religions that originated in the Middle East will disappear, to be replaced by new cyber-based religions originating in Silicon Valley. Spirituality, that is, will be nothing but the expression of reverence for newly created silicon gods, whether they be game characters, game designers, or the elites themselves.
Harari’s pronouncements may amount to intentional hyperbole to make a point, but his statements are remarkable for the cynicism and disdain for humanity they betray. They are revelatory of the unmitigated gall of believers in the transhuman future. Coupled with the neo-Malthusian impulses of the elite, centered around the UN and the WEF, a picture emerges of an elite whose objective is to reduce the population of “useless eaters,” while keeping the remainder in their thrall.
[This piece is an excerpt from The Great Reset and the Struggle for Liberty.]
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- Julian Huxley, “Transhumanism,” New Bottles for New Wine, London: Readers Union, Chatto & Windus, 1957, page 17.
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- Ibid., page 13.
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- “Past Presidents,” Adelphi Genetics Forum, August 10, 2022, https://adelphigenetics.org/history/past-presidents/. The Adelphi Genetics Forum was originally named the British Eugenics Education Society and was founded in 1911. It changed its name to the British Eugenics Society in 1926 and changed its name again to the Galton Institute in 1989. In 2021, it changed its name yet again to the Adelphi Genetics Forum.
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- Julian Huxley, “UNESCO: Its Purpose and Its Philosophy,” Unesdoc.unesco.org, 1946, https://unesdoc.unesco.org/ark:/48223/pf0000068197, page 21.
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- John Adam Klyczek, School World Order: The Technocratic Globalization of Corporatized Education, Trine Day, 2019, page 207.
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- Simon Young, Designer Evolution: A Transhumanist Manifesto, Prometheus, 2005, Kindle Edition, Location 273.
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- Nick Bostrom, “A History of Transhumanist Thought,” in Michael Rectenwald and Lisa Carl, eds., Academic Writing Across the Disciplines, New York: Pearson Longman, 2011.
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- Vernor Vinge, “The Coming Technological Singularity: How to Survive in the Post-Human ERA - NASA Technical Reports Server (NTRS),” NASA, March 30, 1993, https://ntrs.nasa.gov/citations/19940022856.
-
- Ibid., page 11.
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- Ray Kurzweil, The Singularity Is Near, Penguin Publishing Group, page 375.
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- Georg Wilhelm Friedrich Hegel, Elements of the Philosophy of Right, trans. S. W. Dyde, London: George Bell and Sons, 1896, page 247.
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- Nuno R. B. Martins, Amara Angelica, Krishnan Chakravarthy, Yuriy Svidinenko, Frank J. Boehm, Ioan Opris, Mikhail A. Lebedev, et al., “Human Brain/Cloud Interface,” Frontiers in Neuroscience 13 (March 29, 2019), https://doi.org/10.3389/fnins.2019.00112, no page numbers.
-
- “Home,” Neuralink, accessed September 26, 2022, https://neuralink.com/.
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- “Home,” Kernel, accessed September 26, 2022, https://www.kernel.com/.
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- a. b. Staff, E&T editorial, “DARPA Funds Brain-Machine Interface Project for Controlling Weapons via Thoughts,” RSS, May 23, 2019, https://eandt.theiet.org/content/articles/2019/05/darpa-funds-brain-machine-interface-project-for-controlling-weapons-via-thoughts/.
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- Yuval Noah Harari, “Yuval Noah Harari on Big Data, Google and the End of Free Will,” Financial Times, August 26, 2016, https://www.ft.com/content/50bb4830-6a4c-11e6-ae5b-a7cc5dd5a28c.
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- Yuval Noah Harari, “The Rise of the Useless Class,” ideas.ted.com, February 24, 2017, https://ideas.ted.com/the-rise-of-the-use-less-class/.
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- World Economic Forum, “Will the Future Be Human? - Yuval Noah Harari,” YouTube, World Economic Forum, January 25, 2018, https://www.youtube.com/watch?v=hL9uk4hKyg4.
In his excellent new book In Defense of Capitalism (Republic Book Publishers, 2023), the historian and political scientist Rainer Zitelmann asks a vital question about inequality. In asking this question, he makes a move characteristic of his work. Demands to reduce inequality of wealth and income are widespread, and often debates about proposals to do this are centered in political philosophy. Do people have natural rights to their property that state-mandated measures of redistribution violate? Is inequality inherently bad?
Zitelmann has some interest in questions like these, but his primary focus is elsewhere. He asks what the empirical record tells us about measures to promote equality. He in effect says to defenders of redistribution, “You will have to pay a price for what you want that most people will find unacceptably high.” In this week’s column, I’d like to discuss some of the points he raises.
Zitelmann contends that inequality has always accompanied prosperity:
I am of the opinion that an increase in social inequality is not at all worthy of criticism if it is accompanied by a reduction in poverty. The Nobel Prize winner for economics Angus Deaton even goes so far as to argue that progress is always accompanied by inequality. The fruits of progress have rarely been equally distributed in history. Thus, between 1550 and 1750, the life expectancy of English ducal families was comparable to that of the general population, possibly even slightly lower. After 1750, the life expectancy of the aristocracy increased sharply compared to that of the general population, opening up a gap that was almost 20 years in 1850. With the onset of the Industrial Revolution in the eighteenth century and the gradual beginning of a social order that is today called capitalism or a market economy, life expectancy also increased for the general population from 40 years in 1850 to 45 in 1900 and almost 70 years in 1950. “A better world makes for a world of differences; escapes make for inequality,” Deaton observes.
What happens if egalitarians ignore this fact and go ahead with their plans? Here Zitelmann asks another question: Under what conditions will they succeed in reducing inequality? It turns out that these conditions are drastic:
Another question that is all too rarely asked is: what would be the price of eliminating inequality? In 2017, the renowned Stanford historian and scholar of ancient history Walter Scheidel presented an impressive historical analysis of this question in his book The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century. He [Scheidel] concludes that: “So far as we can tell, environments that were free from major violent shocks and their broader repercussions hardly ever witnessed major compressions of inequality”. . . . According to Scheidel, the greatest levelers of the twentieth-century did not include peaceful social reforms; they were the two world wars and the communist revolutions. . . . The price of reducing inequality has thus usually involved violent shocks and catastrophes, whose victims have been not only the rich, but millions and millions of people who have had to pay with the loss of their lives, freedom, income, or property. . . . “If we seek to rebalance the current distribution of income and wealth in favor of greater equality,” Scheidel writes, “we cannot simply close our eyes to what it took to accomplish this goal in the past. We need to ask whether great inequality has ever been alleviated without great violence.” Scheidel’s answer is a resounding no.
In arguing that substantial reductions in inequality have an unacceptably high cost, Zitelmann also draws on Thomas Piketty, a leftist economist who strongly supports egalitarian redistribution:
In Capital in the Twenty-First Century, Thomas Piketty even argues that “progressive taxation was as much a product of two world wars as it was of democracy.” Prior to the First World War, “tax rates, even on the most astronomical incomes, remained extremely low. . . . This was true everywhere without exception.” . . . “Of course, it is impossible to say,” explains Piketty, “what would have happened had it not been for the shock of 1914–1918. A movement had clearly been launched. Nevertheless, it seems certain that had the shock not occurred, the move toward a more progressive tax system would at the very least have been much slower, and top rates might never have risen as high as they did.”
We can readily grasp why substantial egalitarian redistribution has such a high cost. The rich will be reluctant, to say the least, to give up their money. Only if a violent revolution gets rid of them or if the tremendous costs of a war require that their funds be taxed away can we take major steps toward equality.
It might be objected that welfare states like Sweden and Denmark have achieved egalitarian redistribution without violence. Zitelmann counters this contention by noting that these countries remain quite inegalitarian, often as much as or more so than countries with less of a welfare state. He says in his earlier book The Power of Capitalism (LID Publishing, 2019):
Spoiler alert: contemporary Sweden is not a socialist country. According to the Heritage Foundation’s 2018 Index of Economic Freedom ranking, Sweden is among the most market-oriented economies worldwide. Overall, it ranks in 15th place, ahead of South Korea (27th) and Germany (25th) and behind Denmark—another supposedly socialist country—in 12th place.
It’s essential to keep in mind that Zitelmann isn’t trying to show that all redistributive measures have severe social costs, but only that substantial ones do. Also, the issue that concerns us here isn’t whether moderate redistributive measures are good for the poor.
A committed egalitarian might respond to this argument by saying: “Even if war and revolution have been required to get substantial equality in the past, that doesn’t rule it out now. The argument just points to a historical regularity. It isn’t a praxeological law.” But many generalizations based on common sense and experience are very likely true. It isn’t a praxeological law that voluntary payments to the government won’t raise as much money as taxes. But it would be a poor idea to bet against this.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop discuss recent reveals about new lows for the FBI. Ryan discusses new reports about the targeting of traditional Catholic churches and the history of the American Stasi, while Tho highlights new evidence about the role of federal agents in escalating January 6.
Recommended Reading"The FBI’s Forgotten Criminal Record" by Jim Bovard: Mises.org/RR_129_A
"Abolish the FBI" by Ryan McMaken: Mises.org/RR_129_B
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
The past few weeks, major countries have been moving away from the US dollar, raising doubts about the dollar’s long-dominant role in the world. Eight weeks ago, it was just pariah nations like Iran or Russia trying to de-dollarize. Now it’s Brazil, France, even Saudi Arabia—the lynchpin of the decades-long “petrodollar” arrangement.
If the dollar does lose its position as the global reserve currency, it will be catastrophic for the American economy. Catastrophic for the American people on whose backs 80 years of reserve status were built. And it will subject billions of foreigners, for whom the dollar has meant decades of being bullied, to history’s greatest bait and switch.
Dollar at RiskIn late March, Saudi Arabia announced it will price oil in Chinese yuan. Even CNN was worried, in a rare display of situational awareness, while Fox fretted about “Weimar”—hyperinflation.
The dollar has been the undisputed global reserve currency since the 1940s. Reserve currency status looks great on paper: You get to print stacks of green paper and foreigners give you cool stuff for it, like toasters, luxury cars, and copper mines. The problem is who profits—who gets paid when foreigners crave the green paper?
Unfortunately, it’s not the American people; it’s whomever’s printing money: The Fed, meaning the Treasury, to whom they hand their ill-gotten profits, and—you guessed it—Wall Street. Commercial banks.
To see why, imagine foreigners didn’t want dollars. The Fed and banks could only print a little bit since printing a lot would create inflation, and voters would toss them out.
But if foreigners want a large number of dollars, the Fed and banks can print a matching amount. It’s like a river flowing into the money supply reservoir, matched up with a river flowing out to foreigners. The reservoir stays stable, and voters don’t riot.
But notice where the profits went. That river to foreigners didn’t go to we the dollar-holders—we are the reservoir; we are unchanged. The profits went right through us to the source of the river: the US Treasury and Wall Street.
So, like the rest of our crony financial system, it’s a hustle. The American people think they’re benefitting from reserve status, but the profits were sucked out and handed to the people who designed the institutional fleecing we call a financial system.
Enter WeimarNow, here’s the problem. What if foreigners suddenly don’t want dollars?
Maybe China’s paying them to sell oil in yuan, or maybe the Fed lost the plot and creates too much inflation.
Demand dries up, the dollar starts to lose value, and foreigners start worry their life savings and corporate treasuries are melting. They sell out of the dollar. A little at first, more and more if it accelerates.
Now that river to foreigners reverses, it flows back into the reservoir. The dollar collapses. 70 years of Fed and Wall Street money printing comes rushing back like a tsunami running up a canyon. We’re talking double-digital inflation, over multiple years, at a minimum.
If they screw this up, reserve currency status could turn out to be a trap, an absolute catastrophe for the American people.
What Are the Stages of De-dollarization?So what happens if the dollar falls?
For starters, foreigners don’t need as many dollars. Meaning there are extra dollars nobody wants. This makes the price of the dollar fall—it gets weaker.
It’s usually slow at first, then picks up speed if it keeps going, a progressive rush for the exits. This is because the first ones out only lose a little bit, but the longer they waited, the more they’ll lose.
Who’s left holding the bag as the dollar becomes increasingly worthless? Easy: Americans. The only people on earth who are actually obligated to use the US dollar, thanks to an obscure law passed in 1862 as a wartime emergency that nevertheless managed to stick around for 151 years.
So Americans have no choice: unless you swapped your dollars for gold, or Bitcoin, or goats, you go down with the ship.
What happens to those Americans? A falling dollar drives up the price of everything that comes into America. But it also drives up the price of anything traded on world markets. Meaning the raw materials and imported components that drive American factories and sustain American consumers.
The first to jump would be gasoline, heating fuel, and food prices—all of those are world markets. Along with prescription medicines since China has a creeping stranglehold thanks to our idiotic over-regulation—indeed, this is more or less true for every consumer product that China dominates: we shot ourselves in the foot, and now it’s coming back to bite us.
Next, those expensive commodities and input prices pour out through the supply chain. Yanking prices up in industry after industry—cars, construction materials like steel or concrete, clothes, furniture, TVs, computers, and medical devices.
Gone are the days of affordable luxuries—now you gotta work for them.
The Main Event: Capital FlowsAnd that’s when the main event begins: capital flows.
If foreigners get nervous, they sell not only dollars, they sell assets denominated in dollars. Starting with the most liquid: stocks, bonds, and treasuries. These are easy to trade—IBM stock is easier to sell than a Taiwanese factory in Wisconsin—so they go first.
About 40% of American stocks are owned by foreigners and about one-third of corporate bonds. If foreigners start fleeing, both plunge. This could cut your 401k almost in half, and it could drive up borrowing costs for companies to impossible levels.
Leading to mass bankruptcies on top of the wave of bankruptcies the Fed’s already engineering to try and stop the inflation it started.
It doesn’t stop there: one-third of US treasuries are owned by foreigners—over $8 trillion in bonds. If foreigners start dumping those, it will either send US government debt service soaring by potentially hundreds of billions of dollars a year. Or, much more likely, it forces the Fed to step in and buy up all that foreign demand, flooding yet more trillions into the economy.
This would flip inflation overnight marching back towards double-digits.
ConclusionThere are ways to stop this. But given the Washington clown show to raise the debt ceiling yet again, paired with their obsession with sanctions that scare foreign countries off the dollar, Washington isn’t remotely close to the serious thinking it will take to right this ship.
Losing reserve currency status would savage the American economy, and it would savage the American people. No country needs reserve currency status—after all, it doesn’t benefit the people. But, like climbing a cliffside with no gear, once you go halfway, you better not let go.
[A version of this article first appeared on Peter St. Onge's substack.]
Among the many facts of modern life that are accepted without question by most ordinary people is that it is somehow perfectly natural, expected, and unremarkable that every sovereign state should have its own currency. We see this everywhere in names such as "the U.S. dollar" or "the Chinese yuan" or "the Japanese yen." Indeed, among the 203 sovereign states of the world, there are nearly as many separate national currencies. The euro, of course, is a notable—and recent—exception to this, but even after more than 20 years of the euro, only 26 of the world's states use it. Many of those are very small states such as Andorra, Vatican City, Malta, and Latvia. Moreover, the British refuse to give up the pound sterling. The Swedes are sticking with the krona. The Swiss still have the franc.
Similarly, a handful of states choose to use the U.S. dollar in place of local national currencies. Yet, nearly all of these are tiny island nations. The largest country—by far—in the dollar zone is Ecuador.
In other words, in the overwhelming majority of modern states, currency zones correspond to that state's borders. This is not a coincidence. Since the eighteenth century, states increasingly and deliberately sought to create and promote national currencies that were treated as the preferred currency within local national borders. This was true even in the days of the gold standard. Although gold at this time was theoretically the only true money, national governments sought to define gold in terms of national currencies.
This was a key event in the growth of state power because once national currencies became popular and widely used in their own rights, this enabled states to shed the metallic backing altogether.
[Read More: "How Governments Seized Control of Money" by Ryan McMaken]
None of this, however, is necessary for a well-functioning economy or useful money. There is no natural law or sound economic theory that tells us that the world needs territorial currencies created by states. National currencies are not the natural result of market forces or consumer demand. National currencies were created by princes and legislators primarily to address political concerns, not economic ones.
Before National CurrenciesIn an unhampered marketplace, what is widely used as a currency would be determined by the subjective values of consumers and investors. Nor is there any reason why those currencies need to be associated with any particular country or government. Historically, a wide variety of currencies have been used as payment. Privately minted gold coins can be currency, as can silver coins. However, the cumbersome nature of gold and silver has often led to the use of pieces of paper—which were backed by precious metals, and which we would generally call bank notes today. The "currency zones" of these early paper currencies were anywhere that the currency was in demand. The currency was neither government-issued nor "national" in nature.
Before European states began to seize control of money in the late Middle Ages, Europe contained countless private mints employed by local nobles and elites. These private mints produced a wide variety of coins that functioned as currencies throughout Europe. Paper currency was private as well. In this, Martin van Creveld notes:
Beginning already in the fourteenth century ... banking and commerce revived; Italian banks in particular made great fortunes and were soon opening branch offices throughout the Continent. Bills of exchange were developed to facilitate financial transactions between those branches, and to the extent that they were made out to the bearer rather than any individual they may be regarded as the first non-metallic money in Europe. During the next two centuries the system spread to France, Spain, the Low Countries, and finally England. Note, however, that the money in question was produced not by the slowly emerging state but by private institutions.1
During this time, however, Europe's monarchs were working to wrest control of the coinage away from local elites and private institutions: "While private institutions were thus beginning to develop paper money, rulers, on their part, were slowly imposing a monopoly on coinage."2
Turning Private Currencies into Government Currencies Progress was slow. It was not until the seventeenth century that "the idea that the right to mint was one of the prerogatives of sovereignty had gained wide recognition."3 Only in 1696 did the English create the first truly "public" mint that was controlled by government employees as a function of the state. This was accompanied by the creation of the Bank of England (in 1694) which would eventually gain far more control over coinage and bank notes. England's national bank was followed by similar institutions in France and elsewhere.
[Read More: "Why Did the World Choose a Gold Standard Instead of a Silver Standard?" by Ryan McMaken]
Gold and silver coins continued to be widely used, but this did not prevent states from defining these metals in terms of national currencies. For example, if one were to ask a shopkeeper how much a loaf of bread cost in England in 1840, one was likely to hear the price in terms of pounds (or pence) rather than in terms of some specific weight of gold. It would have been known that the price of an ounce of gold was around 4.3 British pounds, but money was increasingly a matter of legally-defined territorial currency.
This became increasingly important as the money economy grew and became more complex. The difficulty of moving physical gold in large amounts increased the use of gold- and silver-backed paper money. This paper currency, of course, was increasingly denominated in the local national currency of each country.
This progression toward specific national currencies required both changes in thinking and in legal realities. One important policy change was the effort to issue more government-produced token coins. These coins often contained some precious metals, but the legal face value of these coins exceeded the value of their metallic content. These coins taught people to separate the concept of coinage from full-weight gold and silver coins. Another legal change within each state was to eliminate subnational monetary standards and coinage where they existed. States also gradually moved toward making bank notes uniform nationwide while securing a monopoly over money. In the US and Switzerland, for example, the central government first began merely regulating the issuance of private bank notes. Later, this evolved into a full-blown government monopoly over notes. In 1844 in England, the Bank Act began the process of bringing all bank-note authority under the central bank. Similar trends continued throughout Europe and Latin America.
By the nineteenth century, the process of centralization of power into vast territorial states neared completion. As described by Eric Helleiner:
the emergence of the nation-state in the nineteenth century acted as a key precondition for the creation of territorial currencies. Many of the activities associated with the construction of territorial currencies relied on the nation-state's unprecedented capability to influence and directly regulate the money in use within the territory it governed. This capability stemmed from such features as its policing powers, its more pervasive role in the domestic economy, its centralized authority, and its stronger ability to cultivate the "trust" of the domestic population.4
In practical terms, changes in technology—combined with vast tax revenues—allowed states to employ new technologies that made state-controlled currencies more manageable:
Territorial currencies could not be created, furthermore, without a technological transformation that has received less scholarly attention: the application of new industrial technologies to the production of coins and notes in the nineteenth century. This development dramatically and rapidly improved the uniformity of the money in circulation ... Equally important, the high quality of the new industrially produced money made counterfeiting a much more difficult proposition, a development that in turn strengthened the ability of state authorities to maintain stable national "fiduciary" forms of money on a mass scale. This latter development was of enormous significance in enabling states to create and maintain territorial currencies.5
Why Governments Want a National Currency —Even When There's a Gold StandardWhy have states been so enthusiastic about creating national currencies? On this, politics generally trumps economics. As the free-market liberals of the eighteenth and nineteenth centuries often understood, territorial currencies did not offer an economic advantage. Rather, an ideal currency is that which enjoys widespread usage both inside and outside one's own national territory. Splitting the world into currency zones is an economic drag. This was one reason why liberals insisted that all national currencies continue to be tied to gold. A common connection to gold (or silver, and some other commodity) provided a continued bridge between currencies even as states increasingly passed legislation that favored the local national currency and required its use. Indeed, many liberals hoped that international trade would again move away from gold-backed national currencies and move toward a single global gold currency.
Unfortunately, events moved in the opposite direction instead. States continued to assert more and more control over national currencies until the public began to accept them as commodities in their own right. This would eventually enable governments to separate national currencies from precious metals altogether. Nonetheless, even for policymakers who had no plans to abolish metal-backed money, states and their agents still had many reasons to press for national currencies subject to state control.
First, states sought to create closer economic bonds among communities and industries within the domestic economy. By mandating or legally favoring the use of a certain currency in all domestic markets, governments built cohesion among domestic markets while putting foreign merchants, banks, and producers at a disadvantage. These currency zones were essentially a form of protectionism. Naturally, foreign buyers and sellers could convert their own currencies to gold, and then into whatever currencies were needed. Yet, this imposed transaction costs that were absent in trade within a single currency zone.
[Read More: "How the Classical Gold Standard Fueled the Rise of the State" by Ryan McMaken]
Another political motivation was the perception that state control over the national currency allowed governments to insulate themselves from the monetary discipline imposed by the gold standard. This can be most often seen in the fact that governments could temporarily unlink the national currency from gold so as to allow for more spending—enabled my monetary inflation—for the duration of the perceived emergency. During the Napoleonic wars, for instance, The British state abandoned the gold standard so the regime could more freely spend on war needs.
Since the abolition of the gold standard, states with their own currencies have gained even more autonomy in manipulating money. Those states that lack their own currency—such as Italy under the euro—do not enjoy as much autonomy. Yes, Italy under the euro enjoys the benefits of lower exchange risk and lower transaction costs. Yet, the Italian state also has less of an ability to augment domestic spending via monetary inflation or to tailor monetary policy to Italy's specific economic circumstances.
Finally, there are cultural and social elements as well. National currencies have long been central to strongly held nationalist beliefs. Eric Hobsbawm has noted that in recent centuries, a country's money is its "most universal form of public imagery," and Richard Farmer writes that "[m]oney, in its physical form, functions as a national symbol and is frequently associated with sovereignty and identity." As nationalism gained popularity in the nineteenth century, many domestic populations associated national currency with national prestige, autonomy, and security. Even today, we can find many who believe in the idea that "great powers have great currencies." This is also undoubtedly a factor in continued opposition to adoption of the euro among many Europeans.
The Final Triumph of National Currencies By the twentieth century, it was clear that national currencies were something much more than mere local measures of gold or silver. Wartime measures had proven that these currencies could be taken off these gold standard for years without their values collapsing. Moreover, large banks throughout the nineteenth century had increasingly turned to holding large amounts of paper money in the form of national bank notes as reserves. Paper reserves even began to outnumber gold reserves toward the end of the nineteenth century.
World War One brought a new Europe-wide experiment in de-coupling national currencies from gold. National currencies moved even further away from precious metals when the world's regimes introduced the "gold exchange standard" in the interwar years. With this new system, gold was only money at the international level. Large banks and governments could still settle exchanges in gold, but domestic economies were to be conducted almost exclusively in terms of the government's currency. Virtually no one thought about making purchases in terms of some amount of gold or silver anymore. Increasingly, the only questions that mattered in daily life were questions like "how many French francs does it cost... how many U.S. dollars?"
The role of gold was reduced sill further with the introduction of the Bretton Woods system in 1945. The final link to gold was abolished in 1971 when Bretton Woods failed and the world embraced floatingnational fiat currencies. But it didn't have to be this way. There is no economic disadvantage to currencies issued by private banks, subnational units, or private mints. Yet, from the state's perspective there are indeed many political advantages to national currencies. Wherever we find strong states, we usually find that government-issued territorial currencies have sprung up as a means of giving the state ever more control of money.
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- Martin Van Creveld, The Rise and Decline of the State (Cambridge: Cambridge University Press, 1999), p. 226.
-
- Ibid.
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- Ibid., p. 227.
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- Eric Helleiner, The Making of National Money: Territorial Currencies in Historical Perspective (Ithaca: Cornell University Press, 2003), p. 224.
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- Ibid.
As we know, Silicon Valley Bank (SVB) was taken over by the Feds after a bank run. Despite assurances from SVB that they were sound, they obviously failed to understand their precarious situation. Based on SVB’s balance sheet, it was technically insolvent. The regulators shut it down and pondered what to do next.
A bank run? How could this happen in modern financial America? Doesn’t the government (the Fed and the Federal Deposit Insurance Corporation [FDIC] in this case) regulate and monitor banks and make them safe? Wasn’t post–Great Recession legislation supposed to prevent this? Apparently not.
According to the New York Times, since 2021 the Fed has issued six warnings to SVB about liquidity issues. The warnings related to the bank’s ability to pay off depositors in the event of a crisis. These warnings were mostly ignored.
At the end of 2022, SVB’s assets were $209 billion, and customer deposits (a liability) were $175.4 billion. So, what happened? Why were they not able to pay all depositors? It was because the value of a significant portion of those assets had declined in value . . . a lot.
SVB’s deposits grew about 225 percent from 2020 to 2022 which was fallout from the Fed’s crazy pandemic monetary infusion, an unprecedented $4.5 trillion of new money. That money spigot was the genesis of today’s inflation. Wads of money found its way to Silicon Valley venture capitalists who funded startups like crazy. Many of those investment companies and their startups banked with SVB.
What do banks do with depositor cash that isn’t lent out? They invest it, mostly in bonds: US Treasurys, mortgage-backed bonds, or corporate bonds. SVB was loaded with long-term bonds paying very low interest rates when they bought them. Shortly thereafter the Fed announced it was raising interest rates to fight inflation. Starting in March 2022 the Fed’s interest rate went from about 0.5 percent to about 4 percent. That is a huge jump for the bond market.
Higher interest rates devalue bonds with very low rates. Let’s say you paid $1,000 for a ten-year bond yielding 0.5 percent, for an annual return of $5. Let’s say the next day the Fed raised rates to 4 percent. You go to sell your bond but find that no one wants to pay $1,000 for a $5 yield when they can get a $40 return for the same amount. Buyers will discount the value of your bond to an amount that equals a yield of $40. In this example, the current value of that low-interest bond would be about $716. This is overly simplified, but you get the point.
It took a year for the Fed’s interest rate to get from 0.5 percent to 4 percent, yet SVB, despite the Fed’s warnings, stuck with their low-interest bonds which resulted in those bonds being substantially devalued. That is what alarmed the Fed. Now their liquid assets (bonds) were less than their deposits which meant they were technically insolvent.
Anyone who knows anything about economics and monetary theory knew inflation was coming long before it happened. The consumer price index, a measure of inflation, went from 1.23 percent in quarter one 2020 to 8.29 percent in quarter two 2022. The Fed has only two tools to combat inflation: raising interest rates, and shrinking the supply of money. For some reason SVB’s management was either ignorant of the iron laws of economics or foolishly ignored the problem despite the Fed’s warnings. You pick.
So, what’s the Fed to do? Since 97 percent of SVB’s deposits exceeded the $250,000 FDIC guarantee, those uncovered depositors stood to lose much of their funds. In an unprecedented move, the FDIC, Fed, and Treasury announced they would guarantee the return of all depositor money, not just the $250,000 limit. By law they can’t do that unless the failure of the two regional banks (SVB and Signature Bank) represent a “systemic risk” to the financial system.
This was a very controversial call. Treasury secretary Janet Yellen said it wasn’t a bank bailout because the bank’s shareholders wouldn’t be saved. Technically true, but it does bail management out of the consequences of bad banking decisions. Also, it is a bailout of Silicon Valley companies who parked huge amounts of money at SVB without considering the potential risk of bank failure. For example, Roku had $487 million in deposits. BILL (New York Stock Exchange) had $300 million there. They too will be bailed out from their bad money management decisions.
Bailouts lead to problems. The issue is what in economics is called “moral hazard.” If you allow someone to get away with something they’ll probably do it again. If there is one thing free-market capitalism does well it’s reward success and kill failure. If a company goes under because of bad decisions, the lesson to investors is to stop funding it. Economist Joseph Schumpeter called this “creative destruction.” You shouldn’t waste capital propping up failures; invest in successful companies, which will benefit everyone.
Bailouts encourage risky behavior. Banks, financial companies, and large corporations now know they will get bailed out by the government in crises. This became famously known as the “Bernanke put,” a term referring to the former Fed chairman Ben Bernanke’s willingness to bail out “structurally significant” institutions during the Great Recession. It means the Fed will pump vast amounts of new money into the economy, reduce interest rates to near zero, and bail out failing companies in the hope that it will prop up a faltering economy.
Because of this financial turmoil, two things have emerged that should give us pause. One is that we are seeing moral hazard in play in real time. The Bernanke put apparently has encouraged risky behavior by banks. The other thing is that it reveals the fragility of our financial infrastructure. Liquidity, the ability of capital to go where it is needed, is tight, a symptom of the instability of our capital markets. Since capital sustains our economy, it is, as they say on Wall Street, risk off.
“On Wednesday, the Environmental Protection Agency plans to announce tough new tailpipe emission standards designed to effectively force the auto industry to phase out the sale of gas-powered cars,” reports The Verge, with the provocative headline “The End Is Nigh for Gas-Powered Cars.”
Environmental, social, and corporate governance (ESG) is the newest religion, and we all know who the practitioners are. Electric vehicle (EV) owners sing “Hallelujah” when they pull out of their garages. The investor-class ESG evangelists believe the new belief is in its beginnings. Whatever the Biden EPA does, investor Harris Kupperman thinks it’s likely just the Church of What’s Happening Now.
Kupperman, referred to as Kuppy by Real Vision’s Maggie Lake, told her, “Well, I think we’re nearing peak ESG, which is probably a good thing, honestly.” He explained,
And it’s like religions kind of come, they peak, they die out. No one practices Roman religions anymore. I can name three of the gods and I’m a Roman history major.
These things, they peak, they crest, and this little religion of ESG, it’s been around for a while. It peaked. And now there’ll be some die hard adherence, but I think the vast majority of investors want to make money. And it’s great if they’re doing something that has a social good, but most of them just want to save for their retirement.
As to all those fancy Teslas silently cutting you off in traffic, their drivers teeming with superiority, thinking they are saving the planet, Kuppy sees them going the way of T. rex. “No. I think EV is going to be something you’re going to go to a museum with my kids and be like, wow, that was an evolutionary dead end and we always [waste] trillions of dollars on this. No, I think that there’s no future to EV.”
“Really, why?” an aghast Lake wondered.
Next, Kuppy comes with the hard facts amateur environmentalists and government enforcers don’t consider.
Because it [the EV] destroys energy. You have this concept called EROI, which is the return on energy you put in. An EV, you put more energy in than you get out. And so as a result, it’s just like a thermodynamic rule—it won’t work unless you subsidize it.
What’s the reason for EVs? It’s because it supposedly produces less carbon. But through the full life cycle of owning an EV, because so much carbon has to go into the stupid thing, it doesn’t use less carbon. You’re better off having a gas guzzler.
Yikes. Maybe EV owners are not as heroic as they believe.
Kupperman says that without government subsidies, consumers will stick to internal combustion engine (ICE) vehicles. In fact, even with subsidies, most people, like Kupperman, will buy ICE vehicles. But there will always be snobs.
[If] you kind of want to be a snob and say you’ve got an EV, then be a snob. It’s a nice thing to have if you want to show off that you have a thing. For me, I have a truck. Doesn’t bother me at all and I’m proud of my truck.
However, “if carbon is the thing you’re caring about, you’re caring about the total cost of using the car or the energy in versus energy out. Almost any component you look at, you’re better off just having an internal combustion engine. And those engines have actually gotten very efficient over the last couple of years.”
Kupperman points out that as these EVs age, owners will see
what happens to battery degradation with lithium ion batteries, and the fact that the lithium ion battery is such a large component of the total cost of a car, and when you’re at year five or six [and] have to replace 30% to 40% of your car’s initial cost, people are going to realize the lifetime cost of owning an EV is astronomically high.
Thus, in Kuppy’s view adoption will decline and EV owners will have second thoughts and realize their EVs are terrible vehicles.
As far as ESG goes, it is just a tax on humanity, according to Kupperman. “And that’s a real detriment to 6 billion people that want a better standard of living if they can’t afford the things to pull them up out of poverty, effectively.”
Kupperman believes continued demand for energy is unstoppable and the government will only make matters worse.
They’ll try all sorts of stupid things. Governments historically do really dumb things that make problems worse. That’s the history of governments. I assume they’ll try all sorts of things that’ll fail. And all that it will do will be to destroy the supply response because of the government’s interfering in your ability to do your business.
When Lake asked about potential government interference, Kupperman replied,
Yeah, they’re probably going to try excess profits taxes. They’re probably going to try export bans, and price caps, and all sorts of other things. And the net result is that guys will take their dividends and go to the beach. They’re not going to drill for oil. No, I think it’s almost inevitable that the government will take a problem and turn it into a crisis.
Yes, an energy crisis is on the way, courtesy of Uncle Sam.
For decades, providing students with the highest quality of education was a key objective in many countries because doing so would facilitate scientific progress and innovation, support social and economic development, and raise living standards. In recent years, however, the woke Left has garnered an increasingly prominent role in the education systems of many Western countries, and its adherents have been significantly altering many of the objectives and accepted norms at institutions of learning.
In particular, adherents of this dogma have been aggressively pushing the notion that teachers should be permitted to distract, confuse, or influence their students by discussing their personal beliefs, ideas, and private activities and choices in the classroom.
Moreover, the woke Left’s indoctrination of young children involves advocating for racism against the white population, as well as the promotion of sexually explicit LGBTQ+ (lesbian, gay, bisexual, transgender, queer/questioning plus) content. For example, they endorse making books available in the libraries of elementary and high schools that contain graphic details “about performing sexual acts and include scenarios of pornography, rape, and incest.”
The increasingly prominent role of the woke Left could ultimately end up destroying the Western education system, which is not the product of one group of people, one generation, one ideology, one discipline, one government, or one nation. Across history, many talented people of great repute and distinguished character have contributed to the development and formation of the education system and the evolution of educational ideas in Western societies. These individuals came from diverse backgrounds and areas of expertise.
In fact, some of them had to battle the darkness of their age in order to enlighten the people, including Johann Gottlieb Fichte (1762–1814), Friedrich Wilhelm August Fröbel (1782–1852), Johann Friedrich Herbart (1776–1841), Johann Gottfried von Herder (1744–1803), Wilhelm von Humboldt (1767–1835), Immanuel Kant (1724–1804), Gotthold Ephraim Lessing (1729–81), Johann Heinrich Pestalozzi (1746–1827), Jean-Jacques Rousseau (1712–78), Johann Christoph Friedrich von Schiller (1759–1805), and Friedrich Daniel Ernst Schleiermacher (1768–1834), just to name a few.
These visionaries, along with numerous others, inspired the foundations of the modern Western education system, including kindergarten programs, elementary schools, high schools, training schools for teachers, and universities. Despite differences between their respective views and specializations, they were in agreement that the development of an effective system of education was a serious undertaking that required great commitment, effort, and responsibility. Among their main recommendations was that teachers should be selected from a pool of people with the best qualities since they would be sharing their thoughts and advanced knowledge with the generations and would be responsible for guiding society in the future.
Johann Gottlieb Fichte was a renowned philosopher of German idealism and nationalism who contributed to the development of the education system in Germany during the nineteenth century, in addition to being one of the founders, and later the rector, of the University of Berlin. According to Fichte, teachers must have “strict watchfulness over their words and actions” if they want to encourage the highest development of their students. He believed that it was in the interest of humanity that teachers should strive for “the purest morality and acquire sound practical wisdom.” From an early age, the aspiring teacher ought to be “placed in a position where it is possible and necessary for him to acquire this practical wisdom and delicacy of feeling, and that this cultivation of mind and character should be a peculiar element in the education [of future generations].” Rousseau supported similar ideas, arguing that the role of the teacher was “to turn the child’s attention from trivial details and to guide his thoughts continually towards relations of importance which he will one day need to know, that he may judge rightly of good and evil in human society.”
Before the woke Left had such an influential role in the field of education, teachers were expected to keep the details of their personal lives and choices confined to their private spheres. This notion was supported by Humboldt, reformer of the Prussian school system, when he stated that the teacher should “rise completely above any apparent impediments in his own body, temperament or habits etc.” Meanwhile, Fichte argued that the role of the teacher is “imperceptibly to familiarize the youth with the high and noble before he is able to distinguish these from the vulgar—to accustom him to these, and to estrange him from the low and ignoble.”
He was concerned that children are very likely to embrace the perverse and vulgar ideas and actions of their teachers on account of their innate desire to seek approval from figures in positions of authority that command their respect. At this point, they would also be indoctrinated into believing that the acceptance of such ideas and actions is a sign of social progress.
According to Fichte, teachers had to avoid teaching vulgar and ignoble ideas because they can often awaken and stimulate the animal nature of human beings while simultaneously degrading the souls, spirits, and minds of children and youth. He further explained that regular exposure to the vulgar and ignoble ideas and behaviors of a teacher could potentially dull the minds of students, who could also develop a habit of “spiritual torpor.”
Thus, he insisted that the encouragement of vulgar, perverse, ignoble, and dishonorable ideas eventually robs “man of respect for himself, of faith in himself, and of the power of reckoning with confidence upon himself and his purposes.” Fichte further claimed that the teaching of vulgar and ignoble ideas in the classroom leads to children experiencing “self-forgetfulness” and becoming slaves to the opinions of others, instead of developing into self-reflecting, self-determining, independent, and free beings. Eventually, they could lose faith in their own wills, thoughts, and consciences, or even abandon their religions, cultures, customs, and traditions in multicultural societies. Fichte concluded that the unworthiness of a teacher should be “clearly recognized” when it exists. It should never be concealed or respected because such an individual could have a tremendous detrimental impact on the development of his pupils.
In recent years, it appears as though the woke Left has committed itself to undoing all of the rational, constructive, and sensible work that has been undertaken by previous generations over centuries, which was aimed at designing the best possible education system that prioritized the interests, needs, and development of pupils. That is to say, adherents of this dogma do not seem to care about providing children with a proper education during their formative years, which would enable them process knowledge in infinite ways, become self-determining individuals, make better choices over the course of their lives, and develop into contributing members of society.
At the moment, it seems as though all of the societal changes that are being rapidly implemented in the name of some distorted versions of progress, inclusivity, equity, and diversity demonstrate that the enlightenment of the past is not able to penetrate the darkness of the woke Left. Ultimately, the degradation and eventual destruction of the Western education system being driven by the woke Left will elevate an unqualified, irresponsible, and corrupt generation of professionals to leadership positions in every area of life, which could quietly bring about the collapse of the nation-state.
Nelson Mandela once said, “Education is the most powerful weapon which you can use to change the world.” It seems that the globalist backers of the woke Left have recognized this and are weaponizing education to induce self-forgetfulness, eliminate freedom, erase history, diminish cultural, traditional, and religious beliefs, and eventually destroy the nation-state in order to facilitate the transition toward a system of multistakeholder governance.
Entrepreneurship is well-defined in economics, and well-recognized as the engine that drives economic growth. That means people enjoying greater well-being, including but not limited to material prosperity. But economic growth can be uneven. Some countries, some regions, and even some firms do not generate the same levels of economic growth as others. How do we understand this variability? We look for what holds entrepreneurship back.
Knowledge CapsuleEconomic development can be a self-reinforcing cycle of continuous improvement in people’s circumstances.Greater material prosperity is a valid and worthwhile goal for economic development. But, says Shawn Ritenour, economic development goes beyond that goal: it delivers a greater variety of goods and services that individuals and businesses can use as means to achieve their own diverse ends. The production of this greater variety requires entrepreneurship in the creation of new ideas and the pursuit of new value, and it generates new entrepreneurship by supplying a greater variety of resources to work with in those pursuits.
To generate this cycle, an enabling environment is required — one that acts as a catalyst for entrepreneurship.Economic development is a multifaceted process in which several forms of human action combine in a system for economic prosperity. It’s not instructive to try to isolate financial capital or capital goods or technology or even human capital, and culture and social institutions can’t be ignored. These sources of prosperity must work together in an orderly fashion to generate the necessary synthesis.
The vital role is that of the entrepreneur.The entrepreneur is the one who undertakes production, the one who combines resources to produce a product that meets customers’ needs and enables those customers in their own economic pursuits. Entrepreneurs kick off the cycle. Firms and organizations can act entrepreneurially, but it’s fundamental to understand that individuals — sometimes working in teams or committees — are the ones behind entrepreneurial decision-making. The entrepreneur is not necessarily a single person, but entrepreneurship is always a human action.
How do we get entrepreneurship started?Entrepreneurship requires customer knowledge, technical knowledge and financial capital. Customer knowledge includes the empathic understanding of what’s needed for customers to be able to better meet their own needs. In the context of economic development, this knowledge is probably widely available to private entrepreneurs, but it may not be available to governments, whose understanding is distorted by predispositions to develop specific industries or subsidize specific economic sectors, or towards a particular technology. For these reasons, there can be no “entrepreneurial state”. Individuals with their own ideas and their own private property will provide the energy o break economic inertia.
Technical knowledge defines a sufficient understanding of the technology and technological resources to deliver the desired new value to the customer. In under-developed economies, this technical knowledge may be thin, so reinforcing the technical knowledge of entrepreneurs is appropriate, through education, injections of new technology, training, mentoring, or other forms of knowledge transfer.
With the right understanding of customer needs and the command of the right technology, the entrepreneurs involved in the development state will always need financial capital, because production takes time to organize before cash flows in to the firm from customers. In development contexts, entrepreneurs often will not have savings of their own, and there may not be an appropriate institutional infrastructure of local banks and lenders and investors.
Therefore, customer knowledge, technical knowledge and financial capital combine to provide the foundation for entrepreneurial leadership and growth. They’re integrated: it’s important for the sources of financial capital to understand and appreciate the nature of the customer and technical knowledge that is being deployed. Typically, this takes the form of venture capital or private equity.
Education is another important element in the institutional environment for entrepreneurship.Entrepreneurship as a skill or capability can not be taught — it requires a special orientation that’s more developed in some individuals and firms than others. But principles, process and tools can be taught, and experienced entrepreneurs and businesspeople who have developed market savvy can share knowledge that they have acquired. Communicating the entrepreneurial mindset and methods in all stages of education will help to create and promote an entrepreneurial community that’s supportive of economic development.
One aspect of learning is to understand the entrepreneurial ethic of sacrifice, that it takes a lot of time and effort and expenditures and extended commitment before business success can be achieved. There’s more hard work than there is magic.
Institutional elements such as property rights and sound money are important components of entrepreneurial development.Property rights and sound money may sound like abstract concepts, but they are extremely influential in economic development processes. Property rights mean that entrepreneurs can assemble and go to market with their own resources in whatever way they prefer. Sound money means that entrepreneurs can anticipate a return from their productive activities that’s not eroded away by inflation, and they’re not led into miscalculation by monetary manipulation (e.g., unanticipated escalation of future borrowing costs).
Removing obstacles to entrepreneurship is the best economic development policy.Traditional approaches to economic development favor centrally planned initiatives, government spending, and policies in the form of subsidies or special incentives. They’re not typically market-based approaches. But the right approach is the opposite of policy-making. Instead of trying to design and add new structures, development should be focused on the removal of barriers — on identifying what’s getting in the way of nurturing a rich and robust entrepreneurial culture, and focusing on the removal of those obstacles. Leave the entrepreneurs to identify the specific products and services and businesses that can flourish, and to attract the investment capital that will support those businesses, without the need for “policy”.
Additional ResourcesThe Economics of Prosperity: Rethinking Economic Growth And Development by Shawn Ritenour: Mises.org/E4B_214_Book1
The Economics Of Prosperity (Edward Elgar): Mises.org/E4B_214_Book2
Shawn Ritenour at Mises.org/Ritenour
Shawn Ritenour at Grove City College: Mises.org/E4B_214_Profile
News reports have been studded in recent weeks with talk of a “national divorce.” Georgia congresswoman Marjorie Taylor Greene has been the face of the national divorce movement, but she is hardly alone in her view that Republican and Democrat states need to go their separate ways. For example, a March poll of American adults found that 20 percent of respondents favored splitting the country up along red and blue lines.
At the state level, too, talk of secession and redrawing state borders is heating up. Californians fed up with high taxes, crippling government regulations, and Jabba the Hutt–level bloated bureaucracy have long been discussing splitting their state into three, with six counties stretching from Monterey to Los Angeles forming the stump of California while northern California and southern California strike out on their own. The eastern two-thirds of Oregon appears overwhelmingly to favor joining “Greater Idaho,” thereby escaping the lunacy of the Antifa-addled Pacific coast. And if the TEXIT Referendum Act clears the Texas state legislature, Texans could vote on secession as early as November of this year.
Such talk of breaking up states and even the country into pieces is wonderful, welcome, and long overdue. A word of correction is in order on the “national divorce” front, however. There can be no national divorce because there was never a national marriage.
There is no “United States.” A great American philosopher named Lysander Spooner pointed out in the nineteenth century that the Constitution has “no authority” and binds no one to anything. Americans today continue to live as though we were wedded to, and by, a political compact from an age when grown men strutted around in tights and buckled shoes. But it’s a mirage, a will-o’-the-wisp.
This is not to say that state power isn’t real. It is. All too real, in fact. The government in Washington and the various state and local governments throughout the land lord it over us, stealing our money (which they also counterfeit) while subjecting us to humiliating deference rituals and involving us in gangland wars on a global stage.
Most of us go along with the rigamarole. Some of us, perhaps afflicted with Stockholm syndrome, even act as though dying for our captors were noble and sweet.
So, when talk of a national divorce crops up, or when we hear activists or our neighbors speaking of seceding from the “Union,” we often gasp in horror. The very idea! The red and blue states may not get along very well, but we are stuck with one another, so we had better learn to live with it. George Washington said so, and so did Thomas Jefferson, and so here we are.
But consider the points which Lysander Spooner raised about the putative nuptials which brought our “Union” into being. Here is how Spooner opens his 1870 tract No Treason no. 6, The Constitution of No Authority:
The Constitution has no inherent authority or obligation. It has no authority or obligation at all, unless as a contract between man and man. And it does not so much as even purport to be a contract between persons now existing. It purports, at most, to be only a contract between persons living eighty years ago. And it can be supposed to have been a contract then only between persons who had already come to years of discretion, so as to be competent to make reasonable and obligatory contracts. Furthermore, we know, historically, that only a small portion even of the people then existing were consulted on the subject, or asked, or permitted to express either their consent or dissent in any formal manner. Those persons, if any, who did give their consent formally, are all dead now. Most of them have been dead forty, fifty, sixty, or seventy years. And the Constitution, so far as it was their contract, died with them. They had no natural power or right to make it obligatory upon their children. It is not only plainly impossible, in the nature of things, that they could bind their posterity, but they did not even attempt to bind them. That is to say, the instrument does not purport to be an agreement between any body but “the people” then existing; nor does it, either expressly or impliedly, assert any right, power, or disposition, on their part, to bind anybody but themselves.
Spooner’s arguments are, to my mind, irrefutable. You say you want a national divorce? Well, first show me our national marriage certificate. If you produce a copy of the Constitution, I will have to ask you to show me where on that document you see your name and mine, and our signatures affirming our desire to be married. If you can’t do that, then, sorry, but I can’t divorce whom I never wed.
This is a glib assessment. The reality, of course, is much more complicated. Yes, it is true that extracting oneself from the “constitution of no authority” will be much more difficult than simply stating that the document is null and void. There is more to secession than simply walking away.
As a March police shooting in Utah amply demonstrated, when an American declares himself free of government tyranny, the government almost always responds by killing that American on the spot. (Those who know the name “Ashli Babbitt” don’t need to be reminded of what government does to patriots.)
But while Americans will have to fight the government for our freedom, we should be clear on the terms of what we propose to do. What we seek is our rightful liberty. We don’t need a national divorce because we were never hitched in the first place.
When I took my high school’s twentieth-century world history class, both the teacher and workbooks claimed repeatedly that World War II took us out of the Great Depression. Why would anyone question this? After all, unemployment went down. The US Bureau of Labor Statistics measured the unemployment rate from 1929 onward. In 1939 the unemployment rate stood at 17.2 percent. By 1942 it was at 4.7 percent, and by 1944 it was at 1.2 percent.
Professor Friedrich Hayek wrote in his essay “Full Employment, Planning, and Inflation” about the phenomenon of full employment and the reason behind it. Professor Hayek stated:
Full employment has come to mean that maximum of employment that can be brought about in the short run by monetary pressure. This may not be the original meaning of the theoretical concept, but it was inevitable that it should have come to mean this in practice. Once it was admitted that the momentary state of employment should form the main guide to monetary policy, it was inevitable that any degree of unemployment which might be removed by monetary pressure should be regarded as sufficient justification for applying such pressure. That in most situations employment can be temporarily increased by monetary expansion has long been known.
In 1942, the time where unemployment finally made it below 5 percent, the United States government tripled defense spending to $17.5 billion, or about $531.7 billion in today’s currency. The military needed to staff its new army and fleet. The size of the military swelled from 3.9 million men and women in 1942 to 12.2 million by the war’s end in 1945. Hayek was doubtful that employment would follow the peace, especially without the monetary expansion found during times of war, but eventually the war ended as did the spending, and 1946 would expose the smoke and mirrors of the spending economy.
The World War Boom and the ’46 BustProductive economic activity heightens the living standards of the average person. Producers throughout the world create goods and services through a price system that puts food in the markets, cars in the driveway, and refrigerators in the kitchens. When the government, however, mandates the mass production of a certain product, it may lower the living standards of the country. During World War II, there was a mass production of war supplies like tanks, planes, ships, etc. A large portion of the munitions workforce during this time were women and teens, seeing that much of the men and skilled labor were sent off to war. Keynesians claim it was because of this massive increase of spending and production of these munitions that dragged America out of the Great Depression, but this is untrue. The arms production was short term as the war was not going to last forever, and tanks, war planes, and battleships aren’t exactly in high demand in the civilian market. Just because the government employed whoever didn’t go to war to build tanks that would be scrapped after the war doesn’t mean living standards improved. Thomas Sowell explains, “The federal government could make a Rolls Royce affordable for every American, but we would not be a richer country as a result. We would in fact be a much poorer country, because of all the vast resources transferred from other economic activities to subsidize an extravagant luxury.”
Everything from sugar, meat, rubber, and gasoline was extremely scarce, and Americans took every bit of scrap they had to fuel the building of arms and fighting vehicles. The mainstream idea is that the war and blockades caused these massive shortages, but this was also a time of regulations like price and wage controls, which were managed by the Office of Price Administration during the war.
picture1.png Keynesian economists claim the war dragged us out of the depression,and, after all, the graph above shows a massive rise in GDP during the war, and a dip in 1946. These economists may claim that once the spending stopped, the economy tanked, but the reality is that arms and munitions stopped being produced, permitting a productive domestic market for civilian goods to absorb the unemployed in the properous post war economy. World War Two did not end the depression; the end of World War Two ended the depression.
ConclusionWhy does this matter? Who cares what ended the depression, given it was long ago. It matters because the false belief that war can end our economic problems will create a society where war is not only seen as normal, but as necessary for a market economy to thrive, something that is taught to every new generation.
Young adults today were born either right before or after 9/11, and they grew up with war continually in the background. They entered adulthood during the collapse of Kabul, and beginning of a new forever war in Ukraine. The United States has moved from the Global War on Terror phase and has entered a new phase of maintaining global hegemony by political means and by printing dollars. We see the consequences of the latter with inflation and the recent collapse of the SVB bank. It is time to change course.
The 2018 Farm Bill is due to expire this year, and US lawmakers have already begun working out the next version. This food-related omnibus bill was introduced ninety years ago as a “temporary” measure during the Great Depression. It’s been reauthorized by Congress every five years since, and recent ones cobble together two seemingly unrelated programs, the Supplemental Nutrition Assistance Program (SNAP), formerly called food stamps, and federal farm subsidies.
However, the two share an important link. One program gives tax dollars to those who cannot afford food; the other seeks to make food less affordable. Taxpayers are forced to help prop up crop prices only to be taxed again to address the consequences. The American people must wake up to the scam hidden in the Farm Bill if we ever wish to see it end.
SNAP gets the most attention during Farm Bill negotiations in part because it eats up most of the bill’s price tag. However, it is also the only Farm Bill program where negotiations fall neatly within party lines. Negotiations over farm subsidies are less partisan. Lawmakers mostly push to secure benefits for their districts and friends in the industry. This year, the media is focused on the Democrats’ push for more funding and fewer restrictions for those relying on SNAP. Republicans are voicing concern about government spending and pushing for more restrictions on those receiving benefits.
If Democrats were serious about wanting to help the poorest Americans afford food and Republicans were serious about wanting to cut federal spending, they could accomplish both these goals by rolling back the other part of the Farm Bill. From the beginning, America’s farm subsidies have always aimed to do one thing above all: keep crop prices high.
In his book, America’s Great Depression, Murray Rothbard notes that American farm subsidies have their roots in several failed cartelization attempts in the 1910s and 1920s. Farmers formed organizations like the National Wheat Growers’ Association and American Cotton Association. These groups then tried to collectively cut production to bring about higher prices. As Rothbard explains, “The chief stumbling block in all these schemes was the noncooperating farmer, the rugged individualist who profited by expanding his production while his rival farmers cut theirs.”
Arbitrarily raising prices did not work on the free market—government assistance was needed. This assistance came in 1929 when President Herbert Hoover signed the Agricultural Marketing Act. With that, the alliance between the federal government and Big Agriculture was born. This alliance would spend the Great Depression wrestling with the laws of supply and demand. When the government raised prices, output increased, threatening to bring prices back down. The solution, made famous in John Steinbeck’s 1939 novel, The Grapes of Wrath, was to burn crops, kill livestock, and spray produce with toxic chemicals. The government destroyed food to keep prices high while Americans starved.
Today, farm policy is far less dramatic because we are not currently in an economic depression. However, the primary goal of the agricultural portions of the Farm Bill remains the same. The government restricts the domestic supply of certain crops to keep prices well above the world price. Take sugar, for example. Each year, a United States Department of Agriculture (USDA) planning board awards market allotments to a handful of sugar producers, directing them on the total supply they can produce that year.
For fiscal year 2022, the USDA ordered the production of exactly 10,370,000 tons of cane and beet sugar. American Crystal Sugar, which spends the most on lobbying of any sugar producer, was awarded the largest allotment, meaning they were legally guaranteed the most sugar sales. They also get to make those sales at a price double the global market rate. The federal government also props up the domestic prices of milk, cheese, peanuts, avocados, onions, beef, poultry, cotton, tobacco, and more.
The Farm Bill subsidizes farms more directly through crop insurance. Taxpayers are forced to pay 60 percent of crop insurance premiums. Part of the program insures against crop loss, which, when subsidized, leads to riskier farming practices and crop allocations. The subsidized insurance also protects farmers from losses incurred by falling crop prices. There are fourteen companies authorized to sell subsidized crop insurance, and they are required to sell to every eligible farmer who requests it. The USDA also determines which crops are insured and at what rate on a county-by-county basis.
This ability to choose which crops get insured, combined with the scale of the subsidies, gives Washington a great deal of control over the nation’s food supply chain. Democrats are working to use that control to compel farmers to adopt “climate-friendly” practices, while some Republicans want to force farmers to join their crusade against China.
The Farm Bill creates the very problems it then promises to solve. The Democrats may say they want to help the poor afford food. Republicans can claim they want to cut spending. However, both want to keep prices high to benefit Big Agriculture and then use that leverage to steer America’s food supply chain to align with their own agendas. Washington is ripping us off every five years. To stop a recurring nightmare, we must first wake up.
Part II: Market, Chapter 4: A Process, Not a Factory
How to Think about the Economy: A Primer. Narrated by John Quattrucci.
How to Think about the Economy was written to accomplish something big: economic literacy. It is intentionally kept very short to be inviting rather than intimidating. You will gain a life-changing understanding of how the economy works in practically no time.
Narrated by John Quattrucci.
Download the complete audiobook (12 MP3 files) in one ZIP file here. This audiobook is also available on Soundcloud and via RSS.Purchase the Audiobook on Audible/Amazon, or paperback at the Mises Store.
Part II: Market, Chapter 7: Economic Calculation
How to Think about the Economy: A Primer. Narrated by John Quattrucci.
Part II: Market, Chapter 6: Value, Money, and Price
How to Think about the Economy: A Primer. Narrated by John Quattrucci.
Part III: Intervention, Chapter 8: Monetary Intervention
How to Think about the Economy: A Primer. Narrated by John Quattrucci.
Part I: Economics, Chapter 1: What Economics Is
How to Think about the Economy: A Primer. Narrated by John Quattrucci.
Part III: Intervention, Chapter 9: Regulatory Intervention
How to Think about the Economy: A Primer. Narrated by John Quattrucci.
Part I: Economics, Chapter 2: Economic Theory
How to Think about the Economy: A Primer. Narrated by John Quattrucci.
Conclusion: Action and Interaction, How to Think about the Economy: A Primer.
Narrated by John Quattrucci.
Part I: Economics, Chapter 3: How to Do Economics
How to Think about the Economy: A Primer. Narrated by John Quattrucci.
Part II: Market, Chapter 5: Production and Entrepreneurship
How to Think about the Economy: A Primer. Narrated by John Quattrucci.
Following the violent attack on Americans in the Mexican border city of Matamoros in early March, South Carolina Republican senator Lindsey Graham stated that he was prepared to get tough and introduce legislation to set the stage for US military intervention in Mexico. The move would be a significant escalation in the long-running war on drugs that has been raging under the auspices of the United States for many decades to the dismay of many Latin American countries.
Graham continues to ignore the disastrous results of the use of force in US foreign policy as he eyes adding Mexico to his growing bucket list of interventionist missions. If previous interventions serve as examples, a US military intervention in Mexico would be just another excuse to expand national security interests and mire the country in another costly conflict.
Matamoros AttackGraham’s comments on using military force in Mexico were sparked when four Americans were kidnapped in Matamoros on the Mexican side of the border with Texas. The area is known for having a heavy drug cartel presence due to its proximity to the US-Mexico border. The four Americans have been identified as Latavia “Tay” McGee, Shaeed Woodard, Zindell Brown, and Eric James Williams.
McGee’s mother told reporters that her daughter was traveling to undergo a cosmetic surgical procedure with the other three. They were fired on in downtown Matamoros and loaded into a pickup truck. A local woman, Areli Pablo Servando, was also killed by a stray bullet in the attack. Brown and Woodard were eventually found dead, while Williams and McGee survived.
Later, a letter of apology along with five men found with their hands tied were turned over to authorities of the Tamaulipas state law enforcement purportedly by the Scorpion faction of the Gulf Cartel. The organization extended its apology to the families of the victims and to the people of Matamoros in general for the poor decision-making and discipline of its affiliated associates.
This public relations move indicated that the cartel was alarmed by the outcry following the attack and wanted to frame it as an unusual incident outside of the ordinary rules under which it operates. Chances are that the cartel wanted to do anything they could to avoid direct US military confrontation.
Policymakers against the CartelsGraham told Fox News that he would introduce legislation “to make certain Mexican drug cartels foreign terrorist organizations under US law and set the stage to use military force if necessary to protect America from being poisoned by things coming out of Mexico.” This highlights the concern surrounding the trafficking of fentanyl into the US from Mexico and the deadly toll it has been having on the population, and there is a growing sentiment, especially among Republican leaders, for more to be done about it.
Former attorney general Bill Barr concurred with the notion of US military action against cartels and recommended declaring the groups as “foreign terrorist organizations.” Texas representative Dan Crenshaw and Florida representative Michael Waltz have expressed their desires to authorize the president to use military force against “those responsible for trafficking fentanyl or a fentanyl-related substance into the United States or carrying out other related activities that cause regional destabilization in the Western Hemisphere.” Seventeen Republicans have cosponsored that resolution.
Georgia representative Marjorie Taylor Greene wrote on Twitter that the US “should strategically strike and take out the Mexican Cartels, not the Mexican government or their people, but the Mexican Cartels which control them all.” This common assurance that America’s execution of military plans will simply target the right people and nobody else has been used in virtually every instance of the US using force in foreign conflicts. It shows either the hubris of US foreign policy or its indifference to the lives of its innocent victims abroad.
Roots of ViolenceThese calls for military intervention would serve as another layer of policies and actions already implemented by the US that have had disastrous consequences. After all, the violence in Mexico is an extension of the war on drugs started by American policy. In just the last decade, the US Drug Enforcement Administration has been found laundering millions of dollars in cash and delivering drugs for Mexican traffickers, and the Bureau of Alcohol, Tobacco, Firearms, and Explosives was found to have illegally proliferated nearly two thousand firearms with the intention of tracking criminal elements. These firearms were subsequently lost and used in cartel violence on both sides of the border.
Meanwhile, US-trained Mexican troops and federal police officers have committed widespread human rights violations. If these are the policies that have already been implemented, sending the military would be adding fuel to the fire.
Graham followed up with his statements on military force and clarified that he did not mean sending the US Army to invade Mexico but to destroy drug labs. This is reminiscent of the beginning of the US missions in the war on terror in Afghanistan, when special forces under the Joint Special Operations Command were implemented in secret raids that were highly controversial in their lack of accountability in causing collateral damage and civilian casualties. Without any clear definition of success and with the dubious effectiveness of using military force, this kind of endeavor would be susceptible to mission creep and expansions of the scope and spending, just as it did in the many interventions of the war on terror.
Mexican president Andrés Manuel López Obrador has already responded to the remarks by Republican lawmakers, saying that any US military intervention in his country would represent an unacceptable infringement of Mexican sovereignty. If the US military’s track record provides any indication, the direct use of force in Mexico would likely cause more pain and suffering in a country with a population already plagued by violence.
Every year on April 25, Anzac Day is observed in Australia and New Zealand. It originally commemorated Australians and New Zealanders who served and died during the First World War. It has since become a day of remembrance for all Australians and New Zealanders who have served and died in military conflicts.
One can understand the desire to mourn the dead. However, the loyalist nature of the commemorations—military and government figures are prominent, and there is social pressure to wear a red poppy—symbolizes a lack of critical thinking about the First World War. Many, if not most, Australians and New Zealanders treat the war as a tragedy that was largely unforeseen and ultimately futile. A significant number still affirm the pro-Allied view that German imperialism was to blame and that the British Empire—of which Australia and New Zealand were an important part—was fighting for world peace and liberty.
There is almost no support in these countries for revisionist scholarship. Revisionism contends that the Allies helped precipitate the war and that their militaristic and imperialistic tendencies were equal to, or more decisive than, Germany’s. Revisionism blasts apart the myth that Allied nations were altruistic vehicles of justice and liberty whose interventions have safeguarded democracy through the ages. Above all, the myth challenges Anglophone self-righteousness, exemplified by figures like Woodrow Wilson and Winston S. Churchill, which has helped justify military interventions up to the present day.
The weakness of revisionist scholarship in Australia and New Zealand means that many people in these countries still affirm the myth of Anglophone righteousness. For example, New Zealand’s only revisionist text of any note, the leftist Stevan Eldred-Grigg’s The Great Wrong War, has been heavily criticized by academics with close establishment ties.
This lack of attention to revisionism is unfortunate since Australia and New Zealand contributed to the outbreak and escalation of the war—even more than Eldred-Grigg suggests. Isolated from Britain, Australia and New Zealand had long feared invasion by rival powers. To offset the possibility, they advocated seizing wide swathes of the Pacific as buffer zones; the most ambitious wanted to transform the ocean into a British lake. Before the war, New Zealand had already begun executing this plan, successfully annexing Niue and the Cook Islands. This kind of behavior alarmed other powers with vested interests in the region, notably Germany, whose colonies of New Guinea and Samoa were among those coveted by the Anglophone countries.
At first, Australia and New Zealand had relied on the Royal Navy for protection, which was funded by the British taxpayer. However, when rival nations began to challenge Britain’s naval dominance over the world’s oceans—not least to protect their commerce from British interference—Australia and New Zealand leaped into action. Between 1902 and 1914, the Australian defense budget increased by a factor of six, accounting for over 30 percent of government spending by 1914. Between 1902 and 1912, New Zealand’s defense budget doubled. Both countries instituted compulsory military service to augment their ground forces. They also upgraded their naval assets: New Zealand funded a new battlecruiser for the Royal Navy, HMS New Zealand, to help with Pacific defense, and Australia established its own navy, whose leading warship was the battlecruiser HMAS Australia.
This surge of militarism contributed to prewar tensions. Isolated and underfunded, Germany’s Pacific colonies were virtually devoid of army personnel. There was a cruiser squadron based in Tsingtao, China, but its vessels were easily outclassed by British and Australian naval forces in the Asia-Pacific region. This situation distressed Germany’s colonial leaders because it put them at the mercy of belligerent British forces. For example, when the Second Moroccan Crisis of 1911 sparked saber rattling between Britain and Germany, HMS Challenger of the Australia Station slunk into German Samoa’s main harbor in a covert night operation. Recognizing that the ship would attack if war were declared, many Germans fled into the hinterland for protection—and all this before a formal declaration of war.
Upon Britain’s entry into the First World War in 1914, Australia and New Zealand lost little time realizing their imperialist ambitions. New Zealand swiftly dispatched approximately fourteen hundred men to capture Samoa. Given that it was virtually undefended, the German authorities surrendered without a fight. Australia launched a similar expedition against New Guinea. Here, a handful of German and Melanesian soldiers resisted. However, they could not hold back the Australian juggernaut—approximately two thousand men and the Royal Australian Navy’s most powerful warships—for very long.
The Australians and New Zealanders subjected their newly won territories to a potent mixture of racism, economic exploitation, and martial law. Especially in the months after the capture of New Guinea, drunken Australian soldiers looted indiscriminately and assaulted Melanesian and Chinese residents. New Zealand instituted martial law in Samoa, interning many Germans in appalling conditions and literally beating the large Chinese labor population into submission. The colony was stripped of its wealth; deported Chinese laborers even had their earnings confiscated. These actions scandalized the Germans who learned about them. For example, it has been suggested that a desire to revenge the brutalization of Samoa partly motivated Admiral Maximilian Graf von Spee’s audacious attack on the Falkland Islands in December 1914. Although the Germans ultimately lost—von Spee did not expect to find capital ships in the harbor—the raid put an entire British squadron at risk. The attack might even have succeeded if it had been pressed home, which would have been catastrophic for the British war effort.
Another way that Australians and New Zealanders escalated the war was by the participation of HMAS Australia and HMS New Zealand in the starvation blockade of Germany and Austria-Hungary. One of the greatest war crimes of the twentieth century, this blockade cost the lives of nearly one million German and Austro-Hungarian civilians. As battlecruisers, the Australia and New Zealand were essential for preventing the German High Seas fleet from breaking this blockade.
With all this in mind, the need for a critical attitude toward the war in Australia and New Zealand becomes evident. Their imperialistic and militaristic tendencies fueled prewar tensions and intensified the conflict. To point this out is to highlight the strength of the revisionist perspective and, ultimately, to expose the foul underbelly of the British Empire.
Jeff and Bob review the history and impact ofThe Human Action Podcast—formerly Mises Weekends—and discuss where the podcast is headed.
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This episode explores precious metals. Gold (Au) is the main precious metal, followed by Silver (Ag), Platinum (Pt), and Palladium (Pd). These are distinct from valuable industrial metals such as copper (which served as money historically), nickel, and zinc, which have served as token coins in modern times. There are many different ways and forms you can own precious metals.
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With the recent collapse of Silicon Valley Bank and Signature Bank, financial markets all around the world are on edge. Despite promises from the Federal Reserve that a “soft landing” of the economy is on the way, all signs point to an imminent “crash landing”! While the full consequences of these bank failures are yet to fully play out, a prized and popular scapegoat has already been trotted out to explain the current crisis: deregulation of financial markets.
According to proponents of this view, the partial rollback of the famous Dodd-Frank Act that took place in 2018 enabled banks to engage in overly risky behavior that has now become those banks’ undoing. This perspective has even started to gain traction in Washington, DC, as well. On March 14, Senators Elizabeth Warren and Katie Porter introduced a bill that would undo the partial rollback of Dodd-Frank. In a statement released the same day, Warren writes, “In 2018, I rang the alarm bell about what would happen if Congress rolled back critical Dodd-Frank protections: banks would load up on risk to boost their profits and collapse, threatening our entire economy—and that is precisely what happened.”
This is hardly the first time that deregulation has been blamed for a financial crisis. Both popular consciousness and the economics profession has always pinned deregulation as one of the major factors leading to the 2008 financial meltdown (even though this is not supported by the data). If the current crisis continues to evolve into a full-blown recession, then fingers will doubtless be pointed once more at deregulation as a main cause.
But is this really the case? Was it truly because of deregulation that Silicon Valley Bank and Signature Bank went under? To evaluate these claims, we have to know more about the specific regulation involved—in this case, the Dodd-Frank Act. What are the contents of this bill, and what portions of it were allegedly rolled back by the Trump administration?
The Dodd-Frank Wall Street Reform and Consumer Protection Act (colloquially known as Dodd-Frank) was a landmark piece of legislation passed in 2010 in response to the 2008 financial crisis. The idea behind the bill was that financial markets were in need of greater regulation, especially the largest banks. The bill resulted in the creation of:
- the Financial Stability Oversight Council, which is tasked with overseeing the financial stability of the largest banking firms and ensuring that none of them are “too big to fail”;
- the Consumer Financial Protection Bureau, which ensures that mortgage lending and other consumer loans are nonpredatory and understood by customers;
- the Volcker rule, which prevents banking institutions from engaging in short-term trading of securities or derivatives, the purpose of which is to further separate the activities of an investment firm from those of a bank.
In 2018, the Trump administration loosened the requirements of Dodd-Frank specifically on small- and medium-sized banks. The justification for doing so was that the restrictions that Dodd-Frank had placed on the banking industry, especially the “stress tests” and capital requirements, had crippled the lending ability of these smaller banks. Because of their smaller size, they had much less freedom of action under the requirements of Dodd-Frank as opposed to their larger counterparts. Dodd-Frank’s regulatory framework had applied to all banks with a capitalization of over $50 billion, which the Trump administration raised to $250 billion—a number which effectively excludes all but the largest banks in the country.
Fast-forward to present day. On March 10, Silicon Valley Bank (SVB) was taken over by the Federal Deposit Insurance Corporation (FDIC) after it was declared insolvent due to its inability to pay out depositors. On the same day, Signature Bank was also taken over by the FDIC over concerns about depositor withdrawals in the wake of SVB’s collapse. While both of these banks were large in their own right—with capitalizations of $212 billion and $88 billion, respectively—they were both under the $250 billion requirements to be under the full weight of Dodd-Frank. If they had both been subjected to the same regulatory scrutiny of the largest banks, would they have still failed?
Despite the protestations of Elizabeth Warren, the answer is yes. While the deregulation of these smaller banks might imply that they were eager to engage in very risky, casinoesque financial gambling, this was not the case. SVB had been dealing with a steady stream of deposit withdrawals for months as Silicon Valley more broadly has suffered financially.
Much of SVB’s portfolio was held in US Treasury bonds, which they purchased near the start of the covid-19 pandemic—a point when bond prices were very high because interest rates were low. As interest rates have risen in recent months, bond prices have correspondingly fallen. Because SVB was forced to liquidate its assets to pay depositors, it had to sell these bonds at a loss. When the news of these sales reached investors and depositors, more panic ensued which resulted in the eventual bank run that followed.
In the case of Signature Bank, its closure can be largely attributed to the failure of SVB. The contagion from its failure had spooked Signature’s depositors into withdrawing funds from their accounts. To help stave off a total run on the bank, as had happened with SVB, the FDIC stepped in and closed the bank to prevent any further drawdown of reserves.
In neither case would the Dodd-Frank regulations have prevented the bank from failing. US Treasury bonds are commonly viewed as the safest asset that one can buy, meaning that SVB’s portfolio would have likely passed any “stress tests” that regulators would have thrown at it. Signature closed its doors as a result of a good old-fashioned bank run, which Dodd-Frank—nor any other regulation—could ever truly prevent. This fact was attested to by Barney Frank himself, who was on the board of directors at Signature! As convenient an explanation as it might be, the exemption of these banks from Dodd-Frank had nothing to do with their ignominious collapse.
If regulation was not the cause, then what or who is the guilty party? The true culprit is something much more insidious: bad monetary policy. For years, the Federal Reserve has maintained artificially low interest rates—far lower than what would otherwise have been set by unhampered markets. The result is that financial institutions were misled into believing that there were far more savings in the economy than was actually the case. As a result, they were more willing to purchase bonds and make other investments based on this assumption.
However, these artificially low rates cannot last forever. As the Fed has raised interest rates in response to rising inflation, the investment decisions made by these banks were revealed to be mistakes. Because SVB’s depositors came looking for their money, they had to realize these losses and close their doors, which also led to Signature’s demise. It remains to be seen the effect that these malinvestments will have on the broader financial system, but the outlook is murky at best.
The full implications of the Fed’s malicious monetary policy are yet to fully manifested, but one point is already clear. If we are to prevent these or other crises in the future, the problem must be pulled out by its roots: the cheap-money policies of the Fed must be ended once and for all.
While centralized control over interest rates and the money supply persists, we can expect continued recessions and crises into the future. Dodd-Frank—or any similar legislation, for that matter—misunderstands the problem entirely. The solution to financial distress is not in regulating markets but in removing interference in them. No regulation, large or small, can save us from the consequences of bad monetary policy and economic illiteracy.
On October 29, 2018, on Lion Air Flight 610 out of Jakarta, Indonesia, a Boeing 737 MAX’s safety control pushed the plane’s nose down hard, paused for five seconds, then repeated this cycle, over and over. The pilots fought to pull the nose back up, only to get overpowered again and again. The passengers fell back against their seats, then fell forward, over and over. The seconds stretched on across all these souls’ last moments alive.
On March 10, 2019, on Ethiopian Airlines Flight 302 out of Addis Ababa, Ethiopia, another Boeing 737 MAX’s safety control operated in the same way and crashed this second flight.
Deadly consequences follow when simplicity, controllability, innovation, and safety take a back seat. This happens when regulation is done not through the relentless choices of customers but instead by governments.
How Producers Learned to Stop Worrying and Love the RegulationThe National Advisory Committee for Aeronautics was created by Democratic progressives in 1915, before Boeing started in business. The Air Commerce Act was enacted by Republican progressives in 1926. From then on, civil-aircraft producers have been regulated by governments.
Regulators can’t be industrial-design peers who actively participate in design. Even if they could be, they would be few in number and wouldn’t even see plenty of contributions that are crucial to safety.
Regulators risk their reputations if they approve new products that cause harm. On the other hand, regulators face little criticism if they slow-walk or even deny approvals. As a result, regulators are strongly incentivized to severely limit innovation.
Producers, including their managers and designers, minimize their business risks by not resisting regulators and by proactively limiting innovation.
Working together as a fused government/business system, the Federal Aviation Administration (FAA) and Boeing blocked efficient new designs of Boeing 737 MAX planes. Boeing managers and designers prioritized marketability: more-efficient engines and wings, negligible training costs, and fast-enough development time, especially the certification time. They took an existing design already certified by regulators and just made modifications on it.
The existing 737 design had minimal ground clearance. More-efficient engines had larger diameters, so aerodynamics designers moved the engines forward, with their centers higher.
This affected the pilots’ control of the angle at which the plane flies through the air, which is called the angle of attack. If the angle of attack gets high enough, a plane’s wings suddenly stall and lose lift, and the plane can crash. Because of the 737 MAX’s engine placement, when a pilot throttles up, the angle of attack increases.
Even worse, as the angle of attack increases, it increases progressively faster. Imagine if when pressing your car’s brake pedal, the pedal would start out stiff but then get looser as you brake harder. It would be natural for you to lock up the brakes and crash. Piloting these planes in hard pitch-up maneuvers, it would be natural to pitch up too far, stall, and crash.
Compensating controls would need to be added to make these planes not pitch up when a pilot throttles up as well as pitch up proportionately when a pilot pulls back on his control column. However, the control designers didn’t add such intuitive, continuous basic control; they only added overpowering, abrupt safety control.
The original angle-of-attack safety control used a single sensor, and these sensors can fail if they hit a bird or ice up. When this sensor failed, the control would pitch the plane’s nose down, pause five seconds, and repeat until the plane crashed.
The current fix by Boeing managers and designers, approved by FAA regulators, ensures this control doesn’t override the pilots’ control-column commands. Also, the control uses two sensors, and if the sensors don’t agree, the control doesn’t take action at all. The control will also only take action once. Now, if a single sensor fails or the control takes action one time, the control doesn’t take action for the remainder of a flight.
Better, more intuitive control is still required. The plane’s angle of attack is still intrinsically poorly controlled. This controllability still isn’t improved by intuitive basic control and is barely addressed by the safety control that’s approved by government regulators.
If Regulation Were by CustomersRegulation by governments could simply be eliminated. Civil-aircraft producers already have every incentive to keep everyone alive and satisfied. Even so, producers need to not be incentivized by government regulators to compromise and instead be incentivized by customers to improve.
Restoring producers’ full freedom to optimize products would significantly advance safety and value. Restoring producers’ clear responsibility would further incentivize producers to protect the safety of their customers. When responsibility is more concentrated, producers manage safety risks and consequences better and prevent more losses.
Also, when losses do happen, producers are better at preventing subsequent losses. After the Bhopal chemical disaster, these customer-regulated producers in the chemical industry quickly collaborated with peers and outsiders to understand all that went wrong and prevent all kinds of avoidable disasters from happening in the future. Government regulation arrived only much later.
Under regulation by customers, producers aren’t forced to dilute their efforts just to make their liberty and property at least somewhat secure from regulators in governments. Plus, when producers have minimal distractions, small, lean teams of people can then perform their core tasks best. It becomes efficient for producers to develop new, better designs faster.
This becomes a competitive necessity. The customer-regulated computer producers haven’t harmed people, and they’ve increased computing efficiency approximately exponentially from 1900 through 2020.
If civil-aircraft producers were customer regulated, producers developing new models would always develop new aerodynamics, propulsion, and structural designs. In new aerodynamics designs, controllability is designed in. Control designers would further make control increasingly intuitive.
Technology will keep advancing. People will still have limitations. No one wants to cause disasters. Yet, all the government/business system dynamics that caused the Boeing 737 MAX disasters remain in place and operating the same.
To prevent more such disasters, it’s necessary to improve the current management of regulation and production. First, lay off all the government regulators.
James Anthony is an experienced chemical engineer who applies process design, dynamics, and control to government processes. For more information, see his media and about pages. Mr. Anthony was the propulsion lead for the skunkworks concept demonstration of a tail-sitter vertical takeoff and landing unmanned aerial vehicle.
A century ago, the US coal industry was at its peak employing 883,000, and today, coal employs fewer than 41,000. Is that a bad thing? Is the US worse off because of this? Though it’s remarkable––that 95 percent fewer coal miners are needed to power a population that’s now 2.9 times larger––can you name someone who cares? Is declining employment in the coal industry a threat to “national security”? Do the majority bemoan the rapidly declining prevalence of black lung? I’m sure there are some who’ve been personally harmed by the coal industry’s decimation––I’m not making light of that––but those who voluntarily chose another profession vivify what’s been disregarded for the past three years: trade-offs.
Those who toiled beneath the soil weighed the benefits of compensation against the downsides of a dangerous office, and they chose to accept the risks. Though there are many reasons for the coal industry’s decline, surely miner preferences for risk should be included. With different energy sources developed over the past century, and with technology enabling fewer and fewer people to produce more and more energy, Americans have been able to specialize––to give more weight to their skills and desires than to the risks and benefits of less-desirable jobs.
When human capital is able to migrate to where it’s treated best––to its highest use––everyone benefits. To illustrate this point, you’ve likely seen videos of children in poor countries scrounging around in the mud for precious metals. But what if they were able to devote their time to something much more productive, something that enabled the capital accumulation known as “prosperity”? If given an opportunity that pays more or is less dangerous, would most dawdle in the dirt? When people no longer need to put their health in jeopardy in order to feed themselves, when they’re instead able to develop and devote their skills to more safe and efficient uses, we all get more for less. This is not entirely dissimilar from what’s been oddly perceived as the “crisis” in military recruitment.
For nearly a quarter millennium, patriotic Americans have weighed the benefits of “serving” their country against the inherent risks, and they’ve readily enlisted. But as risk declined in other industries, along with risk tolerances, exponentially advancing technology gave rise to safer and better-paying jobs. In the mind of the paternalists, however, technology somehow meant that more and more high schoolers were needed to produce greater national security.
But doesn’t that fly in the face of rudimentary reason? Since when did the technology that enables specialization require bloated overhead? The only way for this bizarre equation to make any sense is if the parasites’ policies––imposed preferences––invalidate the technological gains. This blunder was easy to cover up for most of the past 250 years, but with the Internet age now in its fourth decade, the charade is not nearly as easy to conceal. Adding insult to injury, the past three years have been more than enough to dissuade the country’s youth from risking their lives for “our democracy.”
At least with the coal industry, the mission is straightforward: “You’re gonna go in this hole and mine for coal.” But with the military, its mission is ripe for debate: “You’re gonna go to this place to protect America the Great.” Oh really? What did they do to us? How is this abjectly poor country a threat to me and mine? Do my fellow Americans want me to fight for their freedom, or have the past three years proven that “freedom” is wildly overrated in the “land of the free”?
Which governor said the following in March 2020? “Everyone is free to go about their business and activities.” Answer: Hassan Rouhani, president of Iran. If the US regime were as benevolent as its sycophants believe, would it need to bribe eighteen year olds with $50,000 to join the military? The past three years have revealed the gerontocracy’s true nature: “Though we’ve exceeded the average life expectancy, we’ll sacrifice your kids if it means lording it over you longer.” Are those in the military serving our country or these geriatric parasites?
The game is up, and with youth choosing to prosper and produce rather than parasitize and destroy, there’s a greater chance that, due to specialization, real problems will be solved rather than manufactured problems being “reformed.” Fewer in the military means more Americans minding their own business, and that will benefit the entire planet. The hand-wringing over recruitment rates being under target distracts from this happy fact: if the troops come home, our government might finally fear the people it allegedly serves, and the rest of the world would breathe easy. Human capital diverted to production means more capital to go around.
The whining over declining rates of military enlistment emanates almost exclusively from the political Right, but the Right also laments the jobs that were sent overseas or “taken” by immigrants. If the troops come home, and if the youth no longer deem killing the world’s poorest to be serving their country, at the very least, wouldn’t their priorities shift? Wouldn’t their trade-off scale be zeroed? And the political Left, aren’t they both antipoverty and antiwar? Hey, I can dream. Less interest in the military means more interest in civilization’s capital accumulation.
Robert Mugabe, once president for life of Zimbabwe, became infamous for hyperinflation and political repression. Today, he is becoming the patron saint of central banking.
Original Article: "Central Banks Are Creating the Return of Mugabenomics"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Bureau of Labor Statistic (BLS) released new jobs data on Friday. According to the report, seasonally adjusted total nonfarm jobs rose 236,000 jobs (seasonally adjusted) in March, the smallest month-over-month jobs gain since December 2020. The unemployment rate fell slightly from from 3.6 percent to 3.5 percent (month over month). This has changed little since December 2022, and this reflects rising numbers in workforce participation as total employment estimates have increased. In March, the labor participation rate rose very slightly from 62.5 percent, to 62.6 percent, the highest estimate since March 2020.
These numbers suggest slow but continued growth in total employment, but net growth continues to flatten as layoffs throughout much of the economy continue to mount. For example, in March, Virgin Orbit, Roku, Disney, Bed Bath & Beyond, Glassdoor, Indeed, Amazon, Tyson, and Lockheed Martin all announced layoffs totaling tens of thousands of jobs in aggregate. This was just in March. Employment bulls may claim these numbers amount to only 1 to 5 percent of all employees in these companies, but this was just in March, and that follows months of other layoff announcements. To paraphrase one well-known joke about government spending: a thousand jobs here and thousand jobs there, and soon you're talking about real numbers. The trend continued in April with jobs extending beyond the tech sector. Walmart announced it would cut 2,000 jobs. McDonalds has begun laying off corporate-level employees.
Moreover, the latest cuts aren't even showing up in the latest employment numbers. Many of these jobs come with severance plans that mean many of these employees won't even count as unemployed for several more months.
One could also note that many of these layoff announcements are about jobs in tech and other types of services, rather than in retail or hospitality. It does indeed appear to be the case that jobs retention and growth in lower-paid service-industry jobs—plus government jobs—appears to be fueling an outsized portion of jobs growth. In March, 72,000 of the 236,000 new payroll jobs—both full time and part time—were in "leisure and hospitality." That's 30 percent of all new jobs. Of those, 50,000 were specifically in "food services and drinking places." 47,000 new jobs were government jobs meaning that essentially waiting tables and tending bar amounted to more than a quarter of new private-sector jobs in March. New jobs in professional services amounted to only 17 percent of all jobs.
Meanwhile, total nationwide job openings fell to 9.9 million, the lowest since May of 2021. It's increasingly looking like former tech workers will need to learn how to pour beer if they want to stay employed in 2023.
Food-Service Jobs Drive a Lot of Job GrowthIndeed, it may be that relative strength in food-service and hospitality sectors is also helping to drive up full-time work totals. After several months of waning full-time work being eclipsed by new part-time hires, the trend appears to have reversed again, with full-time work against growing faster than part-time.
As I noted last month, the current relative strength in the job market partly reflects the ongoing monetary overhang from years of breakneck growth in money-supply inflation. It is apparent that the $6 trillion in money that was newly created since 2020 is still very much a factor in the present economy. Even with a historic collapse in the money-supply growth since last fall, the economy appears to still be in only the very early phases of an economic bust that is to be expected in the wake of a monetary slowdown.
Although March's jobs numbers were relatively weak, markets have interpreted them as strong enough to impel the Fed and the Federal Open Market Committee (FOMC) to delay an assumed pivot toward a lower policy rate. The New York Stock Exchange is closed today for Good Friday, but the 10-year Treasury note headed up sharply today to 3.4 percent in the wake of the new jobs numbers.
Will the Fed Pivot?For at least two years, Fed Chairman Jerome Powell and the Fed have fixated on jobs numbers as the stated driver of FOMC policy. Assuming the FOMC continues to rely on this metric, March's job growth numbers—while relatively weak—could be strong enough to allow Powell to politically justify ongoing rate hikes of at least 25 basis points in coming months. This, of course, has been the FOMC's path for the last several months in spite of the fact that economic indicators outside employment totals have repeatedly pointed to a rapidly weakening economy.
Among these indicators is the fact that as of March, real wages have been negative for two full years, or 24 months. Average hourly earnings in March fell to 4.18 percent, year-over-year. That's the smallest increase since June 2021. In real terms, this means negative wage growth in March since, according to the Cleveland Fed's preliminary CPI number, price inflation grew by 5.2 percent in March.
We might also look to other traditional indicators of upcoming recession such as the US leading indicators index, which remains in recessionary territory. Factory orders continue to head downward. Meanwhile, as Reuters reported this week, "U.S. manufacturing activity slumped in March to the lowest level in nearly three years as new orders plunged." The yield curve is deep into territory that points to recession. Money supply growth late last year went negative for the first time in more than 30 years, and has stayed there.
The fact that Jerome Powell is ignoring all this is actually a good thing. Thanks to more than decade of "unconventional monetary policy" with unprecedented levels of financial repression and ultra-low interest rates, the degree to which the Fed has created an economy addicted to easy money is remarkable. Falling home prices, bank failures, and tech layoffs all point to this addiction. To put the economy on a more realistic footing, the Fed will have to allow interest rates to rise even above where they are now. After all, even with the most recent FOMC increase in the target federal funds rate to 5.0 percent, this target rate is still below the official price inflation rate of 5.9 percent. In the past, the Fed frequently allowed the target rate to rise above CPI inflation in order to rein in inflationary forces. Since 2009, however, the Fed has steadfastly committed itself to driving interest rates well below inflation rates. At the time, this was a new development and part of the Fed's new extreme easy-money crusade.
Now, even with 6 months of rising rates, interest rates are still quite low in real terms by historical standards. The fact that a target rate of merely five 5.0 percent is a problem for banks and investors simply illustrates how much damage has been done by 12 years of ultra-low rates in creating an economy crippled by a lack of real savings. The problem isn't that the Fed is now allowing rates to rise. The problem is the Fed forced those rates down much too far for much too long.
In any case, jobs totals continue to show that the monetary inflation of the past three years continues to work its way through the economy and there will be no fast readjustment.
A Nation So Conceived: Abraham Lincoln and the Paradox of Democratic Sovereignty
by Michael P. Zuckert
University Press of Kansas, 2023; 416 pp.
Michael Zuckert, a political philosopher who teaches at the University of Notre Dame, tries to make the best case he can for Abraham Lincoln, but in doing so he offers substantial material that supports those critical of the Great Emancipator. The book analyzes a number of speeches Lincoln gave, beginning with an early talk about the perpetuation of American institutions, delivered in 1838, and ending with the second inaugural address in 1865, and also discusses the political contexts within which these speeches were given.
Zuckert, a follower of Leo Strauss, argues that the speeches are always carefully organized and thought out and sometimes, though not always, have a hidden meaning that only the discerning few can understand. In this week’s column, I’d like to consider a central argument in the book that libertarians may find of interest.
The argument arises from a well-known fact, much stressed in the book. Lincoln would not allow the Southern states to secede from the Union peacefully. He also thought, though, that government rested on consent, and in that case, if the people of a state wished to leave the Union, weren’t they within their rights to do so? Lincoln said they weren’t: if secession were allowed and you formed a new association, people could secede from that one as well, and soon we would have anarchy. What could be worse than that?
Secession, as Lincoln here conceives it, is a minority refusing to accept the result of a majority’s decision and instead withdrawing from the political unit. Since, as he says, unanimity is impossible, any ongoing system of democratic rule implies a moral decision to accept majority decision (under the conditions Lincoln has specified [these include constitutional checks and limitations.]). . . . To say otherwise is to invite anarchy, for it is nearly inevitable that minorities will feel aggrieved and seek to avoid outcomes they disfavor. If the principle is established that the minority is free to disregard majority decision in this way, the result will almost certainly be that the new independent minority will have a minority within it secede in the same way. And so on, with Lincoln’s projected result of anarchy.
Despite Zuckert’s use of the word “anarchy,” what’s at issue here is not the anarchist-minarchist argument familiar to libertarians. The dispute does not concern whether protective agencies or governments can compete within the same territory. Rather, the claim Zuckert is making on Lincoln’s behalf is that even if a group of people wish to leave a territory, they are not free to do so but must remain subject to the will of the majority in the territory where they now live. If you once allow secession, there is no way to limit it.
Some of us will at this point inquire, “What is the matter with that? Is it supposed to be obvious that large states are better than small ones?” Zuckert has little to say about this, though in one place he suggests that because of the “unacceptable” outcome of continued secession, despotism will be necessary to restore order. But he does not tell what is unacceptable about the outcome other than that Lincoln doesn’t like it.
What happens, you may wonder, if a minority considers itself badly oppressed? Then, Lincoln thinks, it may appeal to its “revolutionary right” to break away from the state; but, if it does so, the state has the right to try to put down the rebellion. The outcome will depend on which side has the superior force. For all his talk of rights, it is apparent that Lincoln is at least at times a Hobbesian for whom “right” and “might” are often difficult to separate. And if the rebels win the struggle, they in turn can suppress attempts by minorities in their new state to depart. The democratic will of the majority must not be thwarted.
Lincoln’s attitude toward secession can usefully be contrasted with that of Ludwig von Mises. Mises was not an anarchist, nor was he a utopian dreamer blind to the problems of successful defense. Here is what he says about this topic: “No people and no part of a people shall be held against its will in a political association that it does not want.”
There is no reason to try to hold a people against its will in a free-market world, Mises explains:
It makes no difference where the frontiers of a country are drawn. Nobody has a special material interest in enlarging the territory of the state in which he lives; nobody suffers loss if a part of this area is separated from the state. It is also immaterial whether all parts of the state’s territory are in direct geographical connection, or whether they are separated by a piece of land belonging to another state. It is of no economic importance whether the country has a frontage on the ocean or not. In such a world the people of every village or district could decide by plebiscite to which state they wanted to belong.
Mises spells out in greater detail what he means by “self-determination”:
The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars.
Although I disagree with this central argument of Zuckert’s book, A Nation So Conceived is well worth reading. Zuckert’s ingenious interpretations are often a marvel to behold, and his command of the scholarly literature is impressive. Suffice it to say that the book is a worthy successor to Harry Jaffa’s Crisis of the House Divided.
Philosopher Susan Neiman may be a leftist, but she recognizes the dangers of woke progressivism.
Original Article: "Wisdom from a Yenta"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Manhattan district attorney Alvin Bragg has charged former president Donald Trump with thirty-four felonies tied to his payments to two women prior to the 2016 election. Some pundits are outraged that a former president is facing charges, and others are jubilant that Trump now has a mug shot. But this case will do nothing to curtail the most dangerous immunities that presidents possess.
Neither presidents nor any federal officials were entitled to break the law when this nation was founded. John Taylor, a US senator, wrote in 1820 that the Constitution “wisely rejected this indefinite word [sovereignty] as a traitor of civil rights, and endeavored to kill it dead.” But the following year, Chief Justice John Marshall concocted the doctrine of sovereign immunity out of whole cloth: “The universally received opinion is, that no suit can be commenced or prosecuted against the United States; that the judiciary act does not authorize such suits.” The Supreme Court declared in 1945 that sovereign immunity is “embodied in the Constitution,” but the justices have never revealed exactly where they found it.
In 1977, former president Richard Nixon told interviewer David Frost, “When the president does it, that means that it is not illegal.” Somewhat dumbfounded, Frost replied, “By definition?” Nixon answered, “Exactly. Exactly.” Nixon’s comments were considered scandalous at the time. But “It is not a crime if the president does it” is now conventional wisdom in Washington.
This doctrine provides a “get out of jail free” card for any president who itches to bomb foreign nations. In 1998, President Bill Clinton launched a missile strike against Sudan after US embassies in Kenya and Tanzania were bombed by terrorists. The US government never produced any evidence linking the targets in Sudan to the terrorist attacks. The owners of the El-Shifa Pharmaceutical Industries plant—the largest pharmaceutical factory in East Africa—sued for compensation after Clinton’s attack demolished their facility. Eleven years later, a federal appeals court dismissed the case: “President Clinton, in his capacity as commander in chief, fired missiles at a target of his choosing to pursue a military objective he had determined was in the national interest. Under the Constitution, this decision is immune from judicial review.” Determinations based on secret (often false) information legally absolved presidents of any killings or calamities abroad.
In 1999, former president Clinton attacked Serbia, killing up to fifteen hundred Serb civilians in a seventy-eight-day North Atlantic Treaty Organization (NATO) bombing campaign. Serbia had done nothing to the United States, but defense secretary William Cohen justified the bombing as “a fight for justice over genocide.” After the bombing ended, no evidence of genocide was found. Many of the Serbs remaining in Kosovo were slaughtered and their churches burned to the ground. Clinton’s attack brought on the takeover of Kosovo by a vicious terrorist clique that was condemned by the European Union in 2014 for murdering Serbs and selling their kidneys, livers, and other body parts.
Thirty-one congressmen sued Clinton for violating the War Powers Act by attacking Serbia. A federal judge dismissed the lawsuit after deciding that the congressmen did not have legal standing to sue.
Last year, former president George W. Bush gave a speech vehemently condemning the “decision of one man to launch a wholly unjustified and brutal invasion of Iraq.” Bush had blundered in a speech condemning Russia’s invasion of Ukraine. He realized his mistake, mentioned Vladimir Putin, then added, “But Iraq, too.” The audience at the George W. Bush Presidential Center in Dallas laughed. The humor was lost on the families of four thousand American servicemen and hundreds of thousands of Iraqi civilians who perished in the conflict.
Bush dragged the nation into war against Iraq by conning Americans into falsely believing that Saddam Hussein was the culprit behind the 9/11 attacks. Bush also frightened people about Iraqi weapons of mass destruction. The ruse worked even though the WMDs were never found.
After the 9/11 attacks, Bush’s lawyers assured him that the Constitution and federal law no longer constrained the president’s power. Bush White House counsel Alberto Gonzales formally asserted a “commander-in-chief override power” entitling presidents to ignore the Bill of Rights.
Weaselly legal opinions propelled tyranny. An August 1, 2002, Justice Department memo narrowed the definition of torture (banned by federal law and the US Constitution) from suffering “equivalent in intensity” to “organ failure . . . or even death.” Call it a license to almost kill. Bush proceeded to authorize the type of torture regime that civilized nations had formally abandoned hundreds of years earlier. The Central Intelligence Agency (CIA) constructed an interrogation regime by “consulting Egyptian and Saudi intelligence officials and copying Soviet interrogation methods,” the New York Times reported. A secret legal opinion authorized CIA interrogators to engage in head slapping, waterboarding, frigid temperatures, and manacling in stress positions for many hours. CIA interrogators often did not speak the language of detainees, so they compensated by beating the hell out of them.
While he was president, Bush denied that he had authorized torture. However, in 2010, during a book tour to promote his memoir, Bush bragged about authorizing waterboarding, which had been categorized as torture by the US government for more than fifty years. Torture victims who survived filed lawsuits in federal court. However, judges dismissed all the cases due to sovereign immunity.
When Barack Obama was elected president in 2008, many Americans expected the government to show more respect for the Constitution. But Obama quickly proclaimed a presidential prerogative to assassinate Americans whom he labeled as terrorist suspects. Obama’s lawyers insisted that the president need disclose zero evidence before executing officially designated bad guys. A Justice Department lawyer declared in court in 2010 that no federal judge had authority to be “looking over the shoulder” of Obamaand his targeted-killing program because those policies involved “the very core powers of the president as commander-in-chief.” A federal judge agreed, ruling that “there are circumstances in which the Executive’s unilateral decision to kill a US citizen overseas” is “judicially unreviewable.” Obama faced no peril regardless of killing at least one innocent American in a drone attack in Yemen (a sixteen-year-old boy born in Denver). Drone strikes increased tenfold under Obama, and he personally chose who would be killed at weekly “Terror Tuesday” meetings which featured PowerPoint parades of potential targets. The CIA often did not know whom it was killing but counted all adult males “in a strike zone as combatants . . . unless there is explicit intelligence posthumously proving them innocent,” the New York Times noted. Daniel Hale, a former Air Force intelligence analyst, revealed that nearly 90 percent of people killed in Obama’s drone strikes were not the intended targets. But because he was president, Obama has no liability to any of the victims or their survivors.
Sovereign immunity creates a two-tier society: those above the law and those below it; those whom the law fails to bind and those whom the law fails to protect. Sovereign immunity presumes that the more evils government officials are permitted to commit, the more blessings they can confer—give or take ten thousand body bags. The doctrine is a parody of “government under the law.”
But the friends of Leviathan in the nation’s courts, media, and universities assured that this perversion became standard operating procedure. As a result, America’s legal system is akin to those of Third World banana republics. “Many public officials in Africa seek re-election because holding office gives them access to the state’s coffers, as well as immunity from prosecution,” according to 2009 Council on Foreign Relations report.
Alvin Bragg, the prosecutor who filed charges against Trump, is being widely criticized for using a novel legal theory to underlie his case. It is unclear whether Trump would have faced any legal liability under the statutes and precedents previously governing such charges. As a result, some legal experts expect the case to be speedily dismissed.
Regardless of the fate of the Manhattan case, Americans need to end de facto immunity for commanders in chief. Thomas Jefferson warned in 1798, “In questions of power then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.” One of the best ways to make the Constitution binding is to cease blocking lawsuits against presidents for trampling Americans’ rights or inflicting carnage around the globe. But don’t expect either Republicans or Democrats to embrace that fix any time soon.
The Soviet empire started to crumble around 1989. The time period between the forming of the North Atlantic Treaty Organization (NATO) in the late 1940s and the retreat of Russia from Eastern Europe with the eventual collapse of communism in Russia is known as the Cold War. There was a great power confrontation in Europe that did not result in war.
Essentially, US-led NATO stood its ground to prevent further Soviet expansion from the territory it occupied at the end of World War II and waited for the inevitable collapse. Now, perhaps not everyone saw the collapse of the Soviet empire as inevitable. But all one had to do was view the Soviet empire for oneself, up close and personal, which is what I did in the early 1970s as a young Air Force officer.
The State of the Communist EconomyThe Russian economy at that time is painful to describe. Moscow and Leningrad (Saint Petersburg), the so-called jewels of the Soviet Union, were depressing. Everything was shoddily built. There were very few cars on the streets. There were no retail shops deserving of the name. Lines formed in the middle of the night awaiting the opening of the few bakeries. I saw this for myself from my hotel window on the Nevsky Prospekt in Leningrad. GUM, the “world’s largest department store” near Moscow’s Red Square, sold nothing that was equal to what could be found in any garage sale in the West.
Actually, that should not be a surprise since at one time all those garage-sale goods were marketable. I did not visit Berlin, but those who did say that crossing the Brandenburg Gate from West Berlin to East Berlin was shocking. The very idea that the Soviet economy and lifestyle was in any way superior was ludicrous. It took brutal police power and the infamous Berlin Wall to prevent mass exodus to the West.
The Peaceful Collapse of the Soviet EmpireI’m sure that life only got worse in the years between my visit to the Soviet Union in the early 1970s until its final collapse. And the collapse occurred without a shot fired between the Great Powers. The collapse came very quickly and without warning. Author Amity Shlaes was a reporter for the Wall Street Journal Europe at the time.
Returning to New York from Berlin, Shlaes called her boss between planes in London and was told to return to Berlin. Something was happening. She told her boss that she had just left Berlin and that nothing was happening. Her boss told her to go back for a few days anyway. She did as ordered and witnessed the German people tearing down that despicable insult to humanity.
How the US Enforces the American EmpireThe American empire is not enforced by walls with armed guards to prevent its citizens from escaping but, instead, by the almighty dollar. Since the enthronement of the dollar as a reserve currency in 1944 at the Bretton Woods conference and then the establishment of the petrodollar in the early 1970s, almost all international trade has been conducted in dollars. Thusly, dollars are held by every country’s central bank to settle international trade flows. Alasdair Macleod of Goldmoney calculates that foreigners hold around $31.8 trillion in US liabilities, of which $5.8 trillion is held by “official” institutions. (Refer to US Treasury International Capital figures.)
But the US has abused this “special privilege” by printing dollars out of thin air. It has funded its empire of hundreds of bases worldwide with excess dollars. Furthermore, it has enforced compliance with its expansionist foreign policy by freezing dollar accounts held by foreign central banks, foreign businesses, and foreign individuals whom it dislikes. By cutting them out of the international financial messaging system known as SWIFT, it has created great hardship on nations held to be offensive to the US.
Today the Roles Are ReversedBut these nations have discovered America’s Achilles’ heel and are doing something about it. The almighty dollar rests on a base of sand known as fiat money, which is not redeemable in a desirable commodity such as gold or silver. This characteristic has led to inflation of the dollar over the past fifty years at an ever-accelerating rate. Such inflation causes the exchange value of the dollar to shrink.
Since President Richard Nixon took the US off what was left of the gold standard in the fall of 1971, the dollar’s value against gold has shrunk by 98 percent. No one believes that this debasement will end or even slow down. In fact, the US seems determined to accelerate the dollar’s depreciation to pay for its military adventures and expanding welfare programs. Combining the debasement of the dollar with the trade sanctions has created an intolerable situation for those currently in America’s bad graces.
But these nations are countering American hegemony by deploying their own arsenal—not nuclear weapons but gold. Like America and NATO during the Cold War, these nations are standing their ground and arming themselves with an alternative and better reserve currency; i.e., a currency backed by gold and to be used at least initially for settling international trade.
Russia has been working on the framework of a new trade settlement currency for quite some time, and now China and others—such as Iran, India, Brazil, and South Africa—are joining the project. There is nothing nefarious per se about establishing an alternative trade settlement system. One may call it rational self-interest.
It is a peaceful project, but its results may be devastating for countries that depend upon a stable dollar. Those who join the new system will no longer need to hold dollars. This fall in the demand to hold dollars will lead to an inevitable fall in its purchasing power, perhaps even to its total collapse. This could happen literally overnight and without warning, just like the fall of the Berlin Wall.
Blinded by Fallacious IdeologiesOf course, no one in a position of power in the US understands anything about real money and real finance. They are blinded by the promise of Keynesian economics and modern monetary theory, which posits that creating aggregate demand (Keynesianism) funded by massive money printing (modern monetary theory) is the sure path to economic progress. They fail to acknowledge that the steady fall in the purchasing power of the dollar and the rise of an alternative trade settlement system are the inevitable consequences of their blindness.
I see nothing that can stop the continued debasement of the dollar, now coupled with arrogant and harmful financial sanctions, that will prevent the peaceful establishment of an alternative international reserve currency and all the consequences that it will bring to an unprepared US-dominated world.
The standard narrative around current bank failures is that they occur because of a lack of regulation. Credit Suisse was heavily-regulated; that was the problem.
Original Article: "Credit Suisse Collapsed Because of Government Intervention, Not Despite It"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While no one expects politicians to be honest, one of the biggest lies that comes from President Joe Biden, members of his party, and those who echo their messages is that “the rich pay less taxes than you.” This crafted statement is designed to stir up emotions at the expense of facts in order to drive popular opinion to support a wealth tax despite its unconstitutionality and lack of support when first proposed in 2020 by Elizabeth Warren, who was decisively defeated during the Democrat primaries that year.
Manipulation 1: Lying through Omission“The rich pay less taxes than you” creates an image of a Wall Street CEO paying fewer actual dollars annually than a McDonald’s manager. But when authors of articles and politicians make this statement and present the evidence to back it up, it turns out that they are referring to tax rates instead.
Capital gains are taxed at a lower rate than income. Currently the highest income tax rate bracket is 37 percent, while capital gains are taxed at a maximum of 20 percent because long-term capital gains (held for more than one year) are taxed lower than income. Capital gains come in the form of assets like annuities, stocks, and real estate, and they are paid only when the investment is realized and cashed out.
For example, if you paid $100,000 for a piece of land and sold it two years later for $200,000, then you would pay 20 percent tax on the additional $100,000 you made on the sale. And it should be noted that for most Americans, the initial $100,000 investment would have come from savings that accumulated after paying an income tax.
One argument one might hear is that Warren Buffet only pays a tax rate of 20 percent because his money comes from capital gains while his secretary pays a tax rate of 37 percent (she would need to make more than $400,000 a year for that to happen), so she therefore pays more taxes than him. In 2011, Warren Buffet told Congress that he made $62.1 million in 2010. Twenty percent of that number is $12,420,000, while 37 percent of $400,000 is $148,000. Per dollar amount, Warren Buffet’s annual tax bill is more than that of his hypothetical secretary’s.
Manipulation 2: Confusing Unrealized Gains with IncomeRegarding President Biden’s proposal for a billionaire minimum income tax, the White House website laments that the current tax code rewards wealth instead of work because workers pay taxes on the money they earn (realize) while investors do not pay any taxes on their investments as they grow in value until they are realized (cashed out), and so they want the ultrawealthy to pay more money annually to the government in the name of fairness. They claim that this is needed because “billionaires pay 8 percent of their total realized and unrealized income on taxes while a teacher or firefighter could pay more than double that.” That statement is manipulative because it contains a technical lie.
Under our current tax system, we pay taxes on income only when it is realized. No one pays a tax on unrealized income because that would be a wealth tax, which is unconstitutional. That statement, which came directly from the White House’s website, is using the tactic of telling a lie so often that it will eventually be accepted as truth.
There are many problems with wealth taxes. Ignoring the moral problems, one of the biggest logistical hurdles is that it is a tax on unrealized gains, which can fluctuate and be subjective in value. You could have bought stock in Disney for $100 per share in 2020, had it be worth $200 per share in 2021, and then watched it drop to less than $90 per share in 2022. Under a wealth tax system, you would have paid taxes on a gain you never enjoyed and then experienced a loss on which you probably wouldn’t be refunded. Under our current system, you don’t have a real gain or loss until you sell.
Manipulation 3: The Rich Do Not Pay Their Fair ShareOne statement that is designed to boil up the emotions of the masses is that the rich do not pay their fair share in taxes. However, no one who makes this statement is willing to offer up a percentage or dollar amount, let alone a definition, of what “fair” is. But when reviewing income tax data, it becomes obvious that half of the US taxpayers are subsidizing the other half by paying the overwhelming amount of tax revenue. That half is the top, and they paid 97.7 percent of federal revenue in 2020.
The villainized top 1 percent of earners paid more than the bottom 90 percent, with $723 billion versus $450 billion. More than 60 percent of all revenue came from the top 10 percent of earners. There is definitely a large percentage of Americans who are not paying their fair share, but the reality goes completely against what is popular opinion.
Wealth Taxes Destroy FreedomThe purpose of such manipulation is to sway the public into supporting a wealth tax. We are told that a wealth tax would be wonderful because only the super rich would pay for it while the rest of us would enjoy the benefits at no risk. However, a wealth tax would violate the principle of private property ownership. If private property is viewed as a public resource where the needs of the many outweigh the needs of the few, then political operatives could weaponize it against their opposition and begin a path toward tyranny.
Income taxes were also pitched and bought by the public because they were told that only the superrich would pay it. Experience has shown us differently. Likewise, if an incredibly radical concept like wealth tax is really needed because decreasing the deficit has become a priority for those who have reliably increased it from year to year, then the fastest and most efficient alternative to meet this objective would be to cut spending.
As evidenced by a number of recent policy changes in China, Russia, Saudi Arabia, and Brazil, the status of the US dollar as the world’s reserve currency is under coordinated attack. Efforts to dethrone the dollar, however, will require time and luck in favor of antidollar forces. For now, however, the US dollar is the most preferred currency for foreign reserves and for settling international transactions.
The fact that the dollar is the most popular currency right now is no guarantee it will be so into the medium or long run. No currency remains the reserve currency forever, and the US dollar has only been the world’s reserve currency since the 1930s. Before then, the global reserve currency was the pound sterling. But thanks to the World Wars, the costs of a colonial empire, and an increasingly socialistic economy, the British currency was replaced by the dollar.
Understanding what turns an ordinary currency into a global reserve currency can help us understand how the dollar could go into decline and give way to competing currencies. That this will happen at some point is inevitable, and it will happen due to a combination of economics, geopolitics, and domestic political concerns.
What Makes a Good Global Reserve Currency?We can identify some basic conditions that make it a currency desired by banks, investors, and central banks. Here are the most important ones:
- The currency is used frequently in international trade.
- The currency has a high degree of convertibility.
- The domestic economy has large and open financial markets.
- The domestic economy is large.
- Domestic macroeconomic policies are generally stable and allow economic openness.
Different currencies have met these conditions over time. Sometimes, as Barry Eichengreen and Marc Flandreau have shown, these conditions can be met by more than one currency at once, leading to a period of ongoing competition among two or more currencies. This was the case before World War I, when the German mark, the French franc, and the pound sterling were all in competition. This was later replaced by a decade or more of interwar competition between sterling and the dollar.
The dollar eventually won out, but not only because the US economy became larger than the British economy. Investors and central banks switched to the dollar because the British state was nearly bankrupted by two world wars and because Britain finally abandoned the gold standard in 1931. The United States also abandoned the gold standard, of course—in 1933—but continued growth in the US economy kept the dollar in the running for global reserve currency. Macroeconomic policies were looking worse in the United Kingdom as well. The British state increasingly turned toward an economy based on subsidies, price controls, and other regulations. The US economy also became more regulated, but it remained relatively free. In 1944, the Bretton Woods agreement finally sealed the deal: the dollar had replaced sterling. Under Bretton Woods, the dollar would remain tied to gold for international transactions among sovereign states, and other currencies were only pegged to gold via the dollar.
Bretton Woods did not make the dollar the global reserve currency by decree, however. The new agreement simply “made official” what was already clear about the dollar’s new status as the dominant reserve currency. Decades of war, instability, and monetary inflation had finally done in the currencies of Western Europe. This, coupled with the US’s new status as global industrial powerhouse, set the stage for decades of dollar dominance.
How much longer will this last? It’s true that no currency will hold its position as global reserve currency forever. Yet for now, it appears the dollar continues to fare well. Indeed, when we look at the five key qualifications for reserve currencies listed above, the dollar still has the advantage. This is true even when we compare the dollar to the euro and to the Chinese yuan.
Why Hasn’t the Euro Replaced the Dollar?The rise of the dollar did not reduce all other currencies to irrelevance. As late as 1995, the Japanese yen still made up nearly 7 percent of foreign exchange reserves. The Deutsche mark was at nearly 16 percent.
Moreover, when the euro—a new currency built largely on the strength of the Deutsche mark—was introduced in 1999, it was thought that the euro would soon compete seriously with the dollar to become the global reserve currency. Yet the euro has continued to lag, although the eurozone includes many of the world’s largest economies and has some of the most sophisticated financial centers. Even more than twenty years since the creation of the euro, the dollar is used in 51 percent of international currency transactions, and the euro is used in only 36 percent. Moreover, the euro makes up only 20 percent of all foreign exchange reserves, while the dollar makes up 58 percent.
If the choice of a reserve currency were based merely on the size of the economy and total use in international trade, one would expect the euro to be much more competitive.
In a 2009 study, however, the US Treasury suggested a reason why the US dollar continues to surpass the euro:
The key factor that may explain the smaller share of the euro as a reserve currency is the size and depth of government bond markets. Although total sovereign debt outstanding in the euro area rivals that of the United States, there is no common euro area sovereign debt market. This reduces the ease with which holders of euro-denominated securities can buy and sell them, compared with U.S. Treasury securities.
The US government bond market is huge and allows a great deal of ease in buying and selling Treasurys, which remain extremely liquid and which are considered by many to be near dollar substitutes.
Moreover, the eurozone does not present much of an alternative to the US in terms of its macroeconomic policies. Deficit spending in the eurozone is enormous, and even though the US dollar is continually subject to monetary inflation, the euro easily rivals the dollar in this respect too. Finally, sovereign debt in Europe doesn’t appear any more secure than sovereign debt in the US.
Why Hasn’t the Chinese Yuan Replaced the Dollar?The Chinese yuan presents another example of why having a large economy on its own isn’t enough for a country’s currency to seize global reserve status. China in recent years has overtaken the US economy in terms of sheer size. Yet the yuan remains in fifth place in terms of global foreign exchange reserves. As of late 2021, the yuan still ranked fourth in terms of its share of international transactions.
Although the yuan is certainly experiencing a high growth in international trade, it still has a lot of ground to cover. Recent deals with Russia, Saudi Arabia, Iran, and an increasing number of states in the developing world will further this trend, but this will only help China meet some of the requirements for becoming a global reserve currency. The size and scope factors are moving in China’s favor, but problems of openness and convertibility remain. China still employs capital controls, meaning its economy is relatively less open than Western ones. Yes, Western states have long used a variety of quasi controls of their own, but we’re still talking about relative openness here. China has only to be relatively less open than its competitors to fail the “reserve currency test.” Moreover, Chinese government debt markets aren’t nearly as liquid or sophisticated as those of the US. The world is in many ways awash in US government bonds—bought with dollars and still considered extremely “safe”—and this is not the case with Chinese debt. Finally, macroeconomic policies in China present a high degree of potential geopolitical risk. China’s track record of not expropriating foreign capital is not well established or reliable. The long covid lockdowns of recent years in China don’t exactly instill confidence either.
The US Dollar Benefits from Other Currencies’ “Bad Behavior”In short, the dollar continues to benefit from the fact that no matter how inflationary it becomes, or how hobbled by regulation the US economy remains, the eurozone and China—not to mention Japan and Britain—present trends that often look at least as bad.
Yet the US insists on shooting itself in the foot. In spite of the dollar’s many economic advantages as a reserve currency, the US regime continues to provide many political reasons for other regimes and economies to abandon the dollar. If the US doubles down on economic sanctions and weaponization of the dollar economy, the dollar’s liquidity and widespread usage may not save it.
Some economists have tried to apply psychology to economic analysis, but psychology is not what drives economic activity.
Original Article: "Understanding the Difference between Praxeology and Psychology"
This Audio Mises Wire is generously sponsored by Christopher Condon.
“Stay in your lane” is a frequently heard refrain nowadays, normally a piece of advice directed at those who, by virtue of some aspect of their identifying characteristics or profession or beliefs, express views which are deemed unwelcome. “Stay in your lane” is not often fair and appropriate advice to be given in debate.
I submit, however, that “Stay in your lane” is usually fair and appropriate advice to give a Marxist who opines on matters which concern the moral, efficient, and effective satisfaction of human wants.
On a recent Saturday morning, with equal parts amusement, frustration, and resignation, I read novelist Sally Rooney’s analysis of an economic situation. Noting Rooney’s position as a self-described Marxist, it was no shock to see her strident call for the government to reinstate an expiring ban on evictions that had been introduced over winter 2022/23 and her proposed solution to housing shortages—the abolition of private property (where that private property is a rental property). The collectivist impulse is strong with Marxists, no matter the costs to humanity. Indeed, some Marxists regarded it as a great loss when the beautiful perpetrators of the Holdomor, that great atrocity, fell from power.
While Marxists might find the inconvenient truths of reality and husbandry hard or unpalatable to grasp, they remain in force as they have done for millennia. Satisfaction of human wants (the end) requires means. Producing means requires time and other goods and resources. Resources that are saved and not consumed allow the production of goods which satisfy the ends. Landlords are people who have husbanded and accumulated their resources and chosen to provide the use of residential property to those (tenants) who do not have the resources to acquire their own for whatever reasons.
Rooney, our Marxist scribe, views such providers of a residential property as mere “middlemen between existing homes and the people who want to live in them.” The value the landlord—the capitalist, the entrepreneur—provides in investing his resources into a home which allows another (the renter) to use that home when he cannot afford or chooses not to purchase one of his own is utterly lost on our Marxist scribe and Marxists generally.
Our Marxist scribe concludes normal people sell their property only when they “judge that the price of an asset has reached its peak.” This is only half right and ignores the question of why so many are choosing to do so at the same time. More accurately, people sell their property when the expected future benefits of holding fall below those of selling now.
Private landlords look up and see a future of ill-informed, shortsighted invective fueled by a tidal wave of political opportunism, economic illiteracy, and envy, with the sole effect (if not aim and objective) of making it unfeasible to be a private landlord. An Irish landlord already knows that rents can’t be adjusted to account for inflation and interest rate rises.
Landlords see legislators proposing that “no fault evictions” be outlawed (i.e., the landlord’s ability to regain access to their property is to be seriously curtailed and possible only on very limited and prescribed grounds). They see proposals that all sales of rental property must leave the tenants in situ, often at rents far below the prevailing market, which in turn depresses the prices they could receive from a future purchaser. They see proposals to give tenants a first option to buy when a landlord wishes to sell (and it is extremely unlikely that the tenant will be required to be the highest bidder).
Landlords know the system is loaded against them if a tenant decides to stop paying rent. In consequence, landlords are necessarily deciding either to sell up or never become landlords to begin with. I have covered the causes and effects of the shortfall in Irish housing stock and rent control previously.
No matter. Our Marxist scribe asserts there is a fixed stock of property that either exists now or which will be built in the future, and this can only house so many people—be they owners or renters. This is a grotesquely simple and very Marxist assertion. Each and every housing intervention, restriction, and control that has been introduced and argued for by the Left has the effect of limiting the supply of housing stock—and consequently pushing rents up. Marxists never consider how individuals will change their behavior and choices when faced with such restrictions and invariably fail to heed the parable of the broken window. Supply lost due to disincentivizing the production of that supply is invisible to them, and the knock-on effects of reduced supply elude them entirely.
Our Marxist scribe’s piece merely proves the truth of Thomas Sowell’s famous observation, “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” Rooney opines, “Why would the government lift the ban? It’s so unpopular! They can only be trying to curry favor with private landlords to win their votes.” She clearly sees everything through the lens of what is quick, easy, expedient, and popular. In the case of our Marxist scribe, the long-term solution is obvious: the state should acquire any properties owned by the “exploitative” private landlords. There must be no private ownership of rental properties. The state can provide rental accommodation, and at far cheaper rents!
“Free” lunches, such as heavily subsidized rents, are always popular with Marxists and those who are either unable or unwilling to consider where the resources to provide the lunches come from and the implications of appropriating or diverting those resources from other uses. Alas, nothing is ever free; somebody, somewhere, will be forced to bear the costs, and they will do their utmost, as is their right as a sovereign individual, to avoid those costs. The state, described by Frédéric Bastiat as “that great fiction by which everyone tries to live at the expense of everyone else,” can only plunder resources from taxpayers (current ones through taxation or future ones through borrowing) or from the population as a whole via inflation and then redistribute them, badly.
At least, I trust, Rooney—as a self-described Marxist—does not avail herself of the Irish income tax code’s artist’s exemption. No good Marxist would deny the state tax revenue, of course.
Our Marxist scribe is indeed a novelist whose currency is in the realm of fiction and fantasy, and her forays into the world of reality and logical analysis fall flat. She should stay in her lane. However, it is not her profession as a novelist which suggests she should do so, but rather, it is her Marxism.
Ryan and Tho talk about why Trump is the only former president to be prosecuted for crimes. The ruling class has agreed to not prosecute their own, but since they see Trump as an outsider, he is fair game. In truth, we'd be better off if more presidents and former presidents faced prosecution.
Recommended Reading"With the Trump Indictment, America Is a Step Closer to Being a Banana Republic" by Bill Anderson: Mises.org/RR_128_A
"Politics Is Turning Us into Idiots" by Lipton Matthews: Mises.org/RR_128_B
Anatomy of the State by Murray N. Rothbard: Mises.org/RR_128_C
"Yes, Virginia, There IS a Deep State—and It Is Worse than You Think" by Bill Anderson: Mises.org/RR_128_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
[April 5 is the 90th Anniversary of Franklin Roosevelt's executive order banning private ownership of gold. In this selection from Part III of America's Money Machine: The Story of the Federal Reserve, economist Elgin Groseclose shows how FDR's executive order was part of a larger effort to deliberately debase the dollar, drive up prices, nationalize gold markets, and default on gold-based bonds. All the while, he claimed the dollar "a generation hence" would "have the same purchasing and debt-paying power."]
Public sentiment for inflationary remedies and direct monetary management continued to outpace the Administration thinking and during the 73rd Congress numerous bills to this end were introduced. Among them was another bill, by Representative T. Alan Goldsborough, that would have established an independent monetary authority. Roosevelt managed to have this buried on the necessity for further study. Several Senate bills would also have abolished the Federal Reserve Board and created a new monetary authority.
Meantime Roosevelt was coming round to the views of George Warren that the quickest way to restore prices was by raising the price of gold, which would cause a similar movement in the prices of all other commodities. Warren calculated and promised that a 75 per cent increase in the price of gold from $20.67 to $36.17 an ounce would restore prices to the 1926 leve1. He was supported by the influential Committee for the Nation, which was urging a $41.34 price for gold, that is, a 50 cent dollar.
The chronology of the development of the gold policy is of interest. On March 10, the day following the signing of the Emergency Banking Act, Roosevelt had issued an Executive Order prohibiting the export of gold except under license. This had been followed by an Order on April 5, that forbade the private holding of gold and gave the Secretary of the Treasury authority to regulate by license all transactions in gold, both domestic and foreign. On April 20, a further Order terminated the export of gold and took the U. S. off the gold standard. Following the April 20 Order, the dollar began to depreciate abroad; that is, the price of gold began to rise, with the premium going to 23.2 per cent by June 10. At the same time the prices of basic commodities began to move upward, and this was taken as confirmation of the Warren gold-price theory.
On May 12 the Thomas amendment was enacted, which gave the President authority to devalue the dollar by as much as 50 per cent, with corresponding authority to revalue silver.
On June 5, by Public Resolution, all "gold clauses" contained in dollar obligations, excepting currency, were declared to be against public policy; and such obligations, whether or not they contained a "gold clause," were declared to be discharged upon payment, dollar for dollar, in any coin or currency that was legal tender at the time of payment. The Resolution also declared all coins and currency of the United States to be legal tender.
The gold clause abrogation was pushed through the House in three days (from May 26 when the Resolution was introduced to May 29) and a little longer in the Senate. It represented a profound break in U. S. banking practices. Since the Civil War currency depreciation it had been customary in bond indentures to specify payment of principal and interest in gold coin of "the present weight and fineness." It had become federal practice by the Act of February 4, 1910, which provided that "any bonds and certificates of indebtedness of the United States, hereafter issued, shall be payable, principal and interest, in United States gold coin of the present standard of value."
As an estimated amount Of $100 billion of public and private obligations bearing the gold clause were outstanding, it was argued that the clause was meaningless since there was not enough gold in the world for the purpose. That the argument equally applied to all the monetary obligations outstanding in relation to the available money stock carried little weight. The constitutionality of the Resolution was subsequently challenged in the courts and in a series of famous "gold clause" cases the abrogation was sustained.
On July 22, Roosevelt sent his message to the London Economic Conference which practically foreshadowed a competitive debasement of currencies, in his declaration that "the United States seeks the kind of a dollar which a generation hence will have the same purchasing and debt-paying power as the dollar we hope to attain in the near future."
On October 22, in a radio address to the country, Roosevelt formally launched his famous experiment in lifting the price level by purchasing gold in accordance with the Warren theory. In his address he reiterated that the definite policy of the Government "has been to restore commodity price levels." He stated that when the price level had been restored, "we shall seek to establish and maintain a dollar which will not change its purchasing and debt-paying power during the succeeding generation." Stating that "it becomes increasingly important to develop and apply the further measures which may be necessary from time to time to control the gold value of our own dollar at home," and that "the United States must take firmly in its own hands the control of the gold value of our dollar," the President announced the establishment of a Government market for gold in the United States. He stated that he was authorizing the Reconstruction Finance Corporation to buy gold newly mined in the United States at prices to be determined from time to time after consultation with the Secretary of the Treasury and the President. "Whenever necessary to the end in view," the President added, "we shall also buy or sell gold in the world market. " He continued, "Government credit will be maintained and a sound currency will accompany a rise in the American commodity price level."
The operations of the program were formalized by an Executive Order on October 25 and were carried out by a special committee consisting of Jesse H. Jones, chairman of the Reconstruction Finance Corporation; Dean Acheson, Under Secretary of the Treasury; and Henry Morgenthau, Jr., then governor of the Farm Credit Administration. Roosevelt, however, took personal charge of the program and he seems to have done so with the enthusiasm of a sports car fan with a new model.
The first offer was set at $31.36, the equivalent of a 66 cent dollar, and the idea was to raise the offer by degrees. The committee met daily at the White House to fix the prices for the day and the amount of the increase seems to have been a matter of caprice. Morgenthau, in his Diary, reports that Roosevelt one morning suggested a 21 cent increase: "It's, a lucky number, because it's three times seven."
On January 17, 1934, the price of gold had been advanced to $34.45 plus handling charges, at which price it was held. Roosevelt now concluded that he needed a stronger legislative mandate for his proposed reform of the currency system and in a message to Congress on January 15 he outlined in comprehensive form the objectives of the new monetary policy. Repeating language he had used to the London Economic Conference, he declared his purpose to be that "of arriving eventually at a less variable purchasing power for the dollar." Although extensive hearings had been scheduled by the House Committee on Coinage, Weights and Measures, the leadership pushed the bill through the House by 360 to 40, with only one day of debate.
Roosevelt's gold buying program in many ways marked the divide between his earlier policy of fiscal conservatism and the outright acceptance of managed money, fiscal manipulation and government intervention. It caused the first major shift in his staff of advisers. Dean Acheson resigned as Under Secretary of the Treasury and was replaced by Henry Morgenthau, Jr. on November 17. William H. Woodin pleaded his illness to resign the Secretaryship of the Treasury and was replaced by Morgenthau on January 1. James P. Warburg and O. M. W. Sprague also retired from the scene.
Money proper is not artifice. It is a physical "thing" of value, acquired through labor and emerging out of the needs of individuals, who through voluntary exchanges determine its value.
Original Article: "Is It Real Money or Just Artifice?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Earlier this month, Senator Mark Warner (D-VA) introduced the Restricting the Emergence of Security Threats that Risk Information and Communications Technology Act, or the RESTRICT Act. The bill is being floated as a possible means for the federal government to ban TikTok over its connection to the Chinese government. However, the RESTRICT Act’s vague language and broad scope has many voicing concerns about the bill’s threat to free speech and freedom of expression.
But, as Murray Rothbard has pointed out, “human rights, when not put in terms of property rights, turn out to be vague and contradictory.” Your freedom to have an opinion does not grant you the right to express that opinion in venues or on media outlets you do not own. But if you pay to give a speech at a lecture hall and the government blocks it, this violation of free speech could be better understood as a violation of property rights. So how would property rights fare under the RESTRICT Act? Not well. The bill would not only block private companies from engaging in legitimate business practices but would further violate the property rights of American citizens and companies through an open-ended digital surveillance regime.
The RESTRICT Act seeks to give the Commerce Department broad new authorities to “identify, deter, disrupt, prevent, prohibit, investigate, and mitigate” information and communications technology products “in which any foreign adversary has an interest, and that pose an undue or unacceptable risk to U.S. national security or the safety of U.S. persons.” The bill defines foreign adversaries as China, Russia, Iran, Cuba, Venezuela, and North Korea, but it allows the Executive to add and drop foreign regimes from the list without oversight from Congress.
The information and communications technology products highlighted in the act are expansive and unspecific. They range from desktop applications, mobile apps, web-based applications, payment platforms, and gaming systems to webcams, Wi-Fi networks, drone cameras, home surveillance systems, and even biotechnology.
It’s worth mentioning that the only real threat the alleged adversarial regimes pose is to Washington’s ability to exert military control over the entire globe. The root of this issue lies in America’s overzealous foreign policy aspirations—not in some irrational wish by these regimes to see American people harmed. The proper way to address these threats is to bring American foreign policy back in line with reality as Washington’s unipolar moment slips away. The RESTRICT Act ignores the root of the problem and instead attacks the rights of the American people.
Our right to property stems first from our right to self-ownership. We alone own our bodies. Any property claim made on our bodies is unethical and impossible. From self-ownership, property can be attained justly through homesteading—mixing one’s labor with unowned land resources. After property has been homesteaded, it can be justly transferred through gifts or voluntary exchange. That is how most property is justly acquired in modern societies.
Unfortunately, we do not live in a perfectly libertarian world. But property rights are still important and, to the extent they exist, must be defended. As such, if a someone wishes to read, watch, or listen to a foreign government—maybe they want to hear both sides of a geopolitical dispute to be better informed—and a website owner is willing to deliver that piece of media to them, it is completely within the rights of both the consumer and website owner to engage in that transaction.
Further, it is the right of those who own the internet service provider, data center, and optical fiber cables to make part of their infrastructure available for the information transfer if they find the price to be worth it. Even if the information originated from or encountered a foreign regime, any third party stepping in to stop this transaction would be violating the right of the individuals involved to control their own property.
The conduct that the RESTRICT Act seeks to prohibit is not a real crime. And beyond that, the state surveillance of private activity necessary to identify the relevant transactions is where the majority of property rights violations will occur. The bill makes numerous references to the use of information gathered by the director of national intelligence. Although we’re told US intelligence agencies focus on gathering information and conducting operations outside of the United States, whistleblower Edward Snowden revealed that agencies such as the National Security Agency conduct mass surveillance of American’s communications. The RESTRICT Act could ratchet this up by extending the surveillance beyond communications to include digital information of any kind. By accessing devices without express permission, the federal government would further violate our property rights.
There is even more of concern. With its vague language, the bill gives the government much leeway in defining what qualifies as illegal information. We’ve already seen government officials and their friends in media conflate antiestablishment arguments with foreign disinformation. They’ve even falsely labelled accurate news stories as foreign disinformation. It’s not hard to see these same people using the powers granted to them by the RESTRICT Act to criminalize certain dissenting views under the guise of counterintelligence.
This awful bill seeks to prop up Washington’s disappearing global military dominance by making certain pieces of digital information illegal. The implementation of the RESTRICT Act would violate the American people’s basic right to control their property—all in the name of thwarting a fake crime. The bill isn’t protecting you from a threat. It is the threat. Don’t fall for it.
Market research is a tool for gathering data about customers and consumers that businesses hope will lead to insights about their behaviors and preferences that can be translated into innovation, better service and better business performance. As with any dynamic system, it has changed over time, and the effects of entropy have begun to show themselves in invalid techniques, invalid data, and invalid conclusions. And as with virtually all business systems, the coming of the digital age provides businesses with the opportunity to review, revise and improve exiting practice and existing thinking.
Knowledge CapsuleTraditional models of market research are losing validity.The Economics For Business approach to market research leans to the qualitative, such as one-on-one conversations with customers and detailed ethnography whereby businesses can observe customer behavior directly. The market research industry grew up favoring quantitative research at scale for its own reasons: that’s where the money is. Sharekh Shaikh points out that a $USD 70 billion industry was built largely on large scale panels — recruited audiences adding up to hundreds or thousands of individuals, to whom the market research industry could launch survey questions (“data gathering instruments”), generating large amounts of response data for quantitative analysis and numerical reporting.
Customers of these research reports use the output for decision support. Consideration of launching, or of purchasing and installing, a software suite or platform costing millions of dollars can be justified with the results of a survey costs tens of thousands of dollars or low six-figures.
One of the planks supporting the value proposition of market research panels is the difficulty of recruiting qualified respondents, such as CIO’s or CTO’s for an enterprise software survey. Panel operators’ revenues reflect their claims to solve this problem, but Sharekh Shaikh tells us that the reliability of their claim has eroded. Panels now may include inaccurately identified respondents (wrong title or role, for example, because the respondent has changed jobs or roles), or even fraud (responses provided by others than the supposed respondent, including bots). The data from the panels is no longer as valid as it once was, and its decision-support quality no longer as high.
This general decline in the quality and reliability of traditional research is taking place in many categories, not just tech — consumer package goods, entertainment, fashion, and any industry that uses these methods.
The digital revolution brings new opportunities for change, including in traditional market research.It’s unusual to think of digitization as increasing human contact, but in research it’s the case. Sharekh’s research platform, CleverX, has effectively removed the intermediary, the market research panel operator and market research respondent recruitment agency, from the equation, so that the firm requiring research can be connected directly with the respondent with the desired experience and user perspective.
Respondents sign up to a place on the platform by supplying their personal data, career profiles, qualifications, credentials and experience. Their incentives include their desire to participate in and contribute to industry developments, as well as the compensation offered. By learning the questions that are being asked, the professionals who sign up to be respondents can gain insight into the developments that are being pursued in their industry. Being a panel member is career and professional advancement.
The firm seeking to gather data can identify their respondents and assemble their own panel, using their own criteria and specified profiles, and building a direct relationship with their respondents and customers. Moreover, they can use any data collection tool they prefer, whether that is a technical tool such as Survey Monkey, or direct one-one-one conversations on Zoom or Microsoft Teams, digital focus groups, or any other format. By integrating with calendar software, research interviews with CXO’s can be organized and calendarized. These powerful toolsets result in higher quality research being completed up to 10X faster.
Digital technology also facilitates video interviewing, so that researchers can talk directly with respondents, and develop a relationship with them. The video interviewing can be asynchronous: given a query, respondents can video-record their responses whenever convenient, TikTok-style. AI can add enhancements such as sentiment analysis, body language and facial expression interpretation.
The distinction between quantitative and qualitative research disappears and we realize qualitative data at scale.
Market research can become continuous monitoring in the adaptive entrepreneurial system.The reality of markets today is high-speed continuous change. Market research as a tool has always been at a disadvantage in delivering snapshot that take time to process, by which time the market has moved on. Now, with digital techniques, continuous monitoring is possible. Sharekh mentioned several applications:
- Customer understanding of digital developments: as platforms and systems evolve, customers may not be able to keep up with the technology, or may not be taking advantage of new feature. Digital research techniques can monitor and measure customer understanding dynamically, and point to gaps in their comprehension.
- Dynamic product development: as developers move a product towards market, digital research techniques can expose potential customers to the development path, and help developers to integrate real-time findings.
- Monitoring changing lifestyles and mental models: since digital research technologies can provide a continuing connection with customers, it can measure not only their responses to queries, but also their behaviors, attitudes and thinking in general. It’s possible to develop profiles and personas and segmentations into which innovative ideas can be inserted to simulate reactions and acceptance.
CleverX represents exactly the kind of knowledge recombination that can result in revolutionary change across an entire industry.A core concept in entrepreneurship is the combining of existing knowledge in new ways for new solutions. Sharekh Shaikh combines his software engineering knowledge with knowledge of the market research space and knowledge of the dissatisfaction of end users with the available research tools. His newly-launched company, CleverX, is a fast-growing new entrant in the research space as a result of providing a totally new service: the facilitation of a direct connection between researcher and respondent with digital intermediation in place of previous-generation tools. The experience for the customer is better data, at faster speeds, gathered more conveniently and faster, and, consequently, of greater use in development and innovation processes.
Additional ResourcesCleverX.com
Sharekh Shaikh on LinkedIn: Mises.org/E4B_213_LinkedIn
From race to gender to nearly everything else, decisions about what is correct or incorrect are made according to politics. This is a recipe for social destruction.
Original Article: "Politics Is Turning Us into Idiots"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Thinking that billionaires are a policy failure has become pervasive in the United States. Politicians like Alexandria Ocasio-Cortez and Elizabeth Warren are leading the charge in the demonization of billionaires. Left-leaning politicians and their allies think that billionaires corrode society by accumulating large fortunes, which amplify inequality. As such, many propose taxation as a tool to promote fairness by redistributing resources, yet such intentions are not always virtuous and could instead be guided by envy.
When proposals to tax billionaires are couched in compassionate terms, they are more likely to elicit sympathy. Usually, we think that suggestions to tax billionaires are motivated by notions of justice and fairness. Most people are appalled by acts of injustice and unfairness, and the thought of people earning billions when others barely struggle to survive could strike some as unfair and unjust.
However, a shocking research finding is that envy and self-interest play a pivotal part in explaining support for redistribution. According to evolutionary psychologists in a 2017 paper: “evolved motives for navigating interpersonal interactions clearly predict attitudes about redistribution, but a taste for procedural fairness or distributional fairness does not.” More recent evidence also points to the influence of malicious envy in initiating support for redistribution.
That envy motivates support for redistribution should not surprise readers because those who fail to succeed in the marketplace often develop contempt for winners. Intellectuals, for instance, find it scandalous that entertainers and influencers make more money despite the intellectuals’ greater education and expertise. By attacking wealth creators, underachievers elevate themselves at the expense of society because their proposals to penalize billionaires will make society worse off.
People become billionaires by creating value for society. If the inventions and services delivered by billionaires were useless, then billionaires would not have accumulated riches. Becoming a billionaire is a reward for generating immense value. Moreover, most benefits of technological innovations are passed on to consumers rather than appropriated by innovators. Billionaires are net value generators since their investments in society are greater than their rewards.
Microsoft made Bill Gates a billionaire, but its impact on boosting the productivity of organizations across the globe and stimulating economic activity is greater than the wealth Gates has obtained. Market-based innovations fueled by the ambition of billionaires have lowered costs for consumers and brought luxury goods to the masses. Despite the benefits of billionaires, some argue taxing them would provide the government with more resources to fund welfare for the poor.
This assumption is misguided because billionaires on average are philanthropic, and many signed a pledge declaring that most of their wealth will go to charity. Other than philanthropic involvements, billionaires are committed to using their wealth to solve some of the world’s most pressing challenges. Ninety-five percent of surveyed billionaires believed that they should use their wealth or resources to tackle global challenges, and over two-thirds asserted that it’s their responsibility to drive change, according to a UBS report.
Billionaires have a greater reach than national governments and are positioned to maximize the welfare of people across the globe. Furthermore, when governments fund welfare, they are using tax dollars, but billionaires are using their own funds. Ideally, if government policies encourage more billionaires, then private philanthropy can become a greater source of funding for welfare. With less government reliance on tax dollars, taxpayers will have more funds that can be diverted to saving and investing, thereby increasing the stock of capital assets to spur future innovations.
A society with fewer billionaires is less dynamic and efficient; countries that cultivate hostile climates for entrepreneurship by imposing taxes and costly regulations struggle in the long-term. Sweden’s leftward lurch during the late 1970s and 1980s stymied entrepreneurship to such an extent that among the top one hundred firms in that country with the greatest revenues in 2004, only two were entrepreneurial firms established after 1970, compared with twenty-one founded before 1913.
Clearly, the assault on entrepreneurship during this period deprived Sweden of potential innovations that would have made the society more dynamic and prosperous. Ordinary people were also prevented from netting profitable investments in stocks that they would have gained if government policy had enabled the success of entrepreneurial firms.
Working people derive substantial benefits from the value-generating activities of billionaires, as philosophers Jessica Flanigan and Christopher Freiman expounded in an article defending billionaires:
To the extent that billionaires make their money through investments in productive companies, they have powerful incentives to produce goods, services, and useful public infrastructure, which benefits everyone, including the poor. . . . Overwhelmingly, large retail companies benefit low-income consumers through economies of scale, even if they also produce billionaires.
Planting seeds of contempt for billionaires will lead to dangerous consequences. Billionaires are a sign of progress and prosperity. Therefore, attempts to thwart the emergence of new billionaires will diminish living standards and hurt the prospects of the people left-wing politicians claim to defend.
The challenge at hand is more than simply opposing the state. Rather, it is necessary to build up, reinforce, and sustain institutions that can offer alternatives to the state.
Original Article: "To Fight the State, Build Alternatives to the State"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Federal Reserve’s new report of its balance sheet shows that in the approximately six months ended March 29 it has racked up a remarkable $44 billion of cumulative operating losses. That exceeds its capital of $42 billion, so the capital of the Federal Reserve System has gone negative to the tune of $2 billion—just in time for April Fools’ Day.
This event would certainly have surprised generations of Fed chairmen, governors, and, we’d have thought, newspapermen. The Fed’s capital will keep getting more negative in April and for some long time to come, at least if interest rates stay at anything like their current level. The Fed in the first quarter of 2023 reported losses running at the rate of $8.7 billion a month.
On an annual basis that would be a loss of over $100 billion. Recalling the famous line of Everett Dirksen—about how a billion here and a billion there starts to add up to real money—we are talking about serious losses. These are cash, operating losses. The mark to market of the assets in Fed’s balance sheet also caused an unrealized loss of $1.1 trillion as of September 30.
To see the negative capital from the Fed’s weekly “H.4.1” report, one does have to do a bit of the simple arithmetic of the first paragraph. The Fed’s balance sheet claims its capital is $42 billion, but in violation of the most obvious accounting principle (from which it conveniently excepts itself), the Fed does not subtract its operating losses from its capital as negative retained earnings.
Instead, it accumulates the losses as an opaque negative liability, which balance is found in Section 6 of the report under the title “Earnings remittances due to the U.S. Treasury.” These are simply negative retained earnings: to get the right answer, you just subtract them from the stated capital.
Although the Fed itself and its defenders say that its negative capital and its losses don’t matter to a central bank, they do mean the Fed has become a fiscal drag on the American Treasury, a current cost to the taxpayers instead of a contributor of profits to it, as, just for the record, it was for more than a century.
The situation is certainly unbecoming for what is supposedly the world’s greatest central bank. Did the Fed intend to lose this much money and drive its capital negative? I think that the answer is no. Yet the Fed seems never to have explained to Congress how big a big money-loser and fiscal drag it would become.
The unprecedented $44 billion in operating losses so far, and their unavoidable continuation, are a feature of the post-1971 age of Nixonian fiat money, where the dollar is undefined in statute and unlinked from gold or silver specie.
This has allowed the Fed to have, in effect, made itself into the financial equivalent of giant 1980s savings and loan. Of the Fed’s $8.7 trillion in assets, there is a risk position of about $5 trillion of long-term fixed rate investments funded by floating rate deposits and borrowings.
Of these investments, $2.6 trillion are mortgage securities made out of 30-year fixed rate mortgages. The result is an extreme interest rate risk, which turned into big losses when interest rates rose. This interest rate risk is similar to that of Silicon Valley Bank.
The Fed knew it was creating the interest rate risk, but seems not to have expected the massive size of the losses which resulted. As an old banker told me long ago, “Risk is the price you never thought you would have to pay.”
Of course, if short term interest rates had stayed near zero, the Fed would now be reporting big profits instead of big losses. Two years ago, in March 2021, the Fed was still rapidly adding to its long term investments and to the magnitude of its risk. At that time, the Fed published projections for 2022.
In what seems unbelievable now, yet was the belief of the Fed then, the 2022 projection for the federal funds rate was 0.1 percent. The highest individual forecast was 0.6 percent. Needless to say, the reality at the end of 2022 was a fed funds rate of 4.5 percent.
That was how much the cost of the Fed’s floating rate liabilities went up and generated losses for it and the Treasury. So much for Fed foresight. This provides yet another instructive lesson in how an interest rate risk position can move against you much more than you thought.
Unfortunately, with such forecasts, and with its years of suppressing interest rates and buying trillions in long term bonds and mortgage securities, the Fed was also the Pied Piper who led the banking system as a whole into a similar risk position.
A recent National Bureau of Economic Research working paper correctly points out that for banks, the interest rate risk arises not only from long term fixed rate securities, but also from fixed rate loans. Taking all of these into account, the paper estimates the current mark to market loss of the banking system at $2 trillion.
All banks together have tangible capital of about $1.8 trillion. So using the broad NBER estimates, it looks like on a mark-to-market basis, we may have a banking system with a tangible capital in the neighborhood of zero, in addition to a central bank with negative capital. What hath the Fed wrought?
Last week, Fox News aired a segment discussing the possibility that the US dollar will cease to be the global reserve currency and what that would mean for Americans. The tone of the piece suggested that a “catastrophic” decline of the US dollar was not only possible, but perhaps even imminent. CNN last week also aired its own segment suggesting the US will face “a reckoning like none before” if the “dollar’s dominance” in the global economy falls significantly.
Much of the analysis was framed to stoke the public’s fears of Chinese geopolitical power, and the Fox segment was especially hyperbolic in its predictions of near-total economic devastation resulting from any movement away from the dollar in international trade and reserves.
Yet both segments are correct that events are piling up that point to at least a gradual decline in the dollar’s preeminence in the global economy and that this could lead to serious economic trouble for Washington. Events are not moving as quickly as the pundits are predicting, but they are moving, and if current trends continue, the United States will find itself facing a new and enduring era of stubborn price inflation and weakening US geopolitical power.
The Beginning of a Trend?Much of the discussion around the decline of the dollar is framed as a matter of the Chinese renminbi (RMB, or yuan) becoming the global reserve currency. This purported imminent replacement of the dollar with the RMB, however, is not going to happen any time soon. There are many reasons for this. China still uses capital controls, its economy is not nearly as open as the US economy, and US government debt still looks less risky than Chinese debt. Yet we are witnessing a growing trend in the world’s regimes of moving away from the dollar as the overwhelming favorite among currencies used for international trade.
First, there is the recent agreement at the Russia-China summit to carry out trade transactions “between Russia and the countries of Asia, Africa, and Latin America,” as Vladimir Putin put it. This would be quite a change from the status quo in which nondollar transactions make up a tiny portion of international trade settlements. This trend is catching on elsewhere as well. Last month, China and Brazil reportedly “struck a deal to allow companies to settle their trade transactions in the two countries’ own currencies, ditching the United States dollar as an intermediary.” Meanwhile, a French company bought sixty-five thousand tons of liquified natural gas (LNG), meaning “Chinese national oil company CNOOC and France’s TotalEnergies have completed China’s first yuan-settled LNG trade.” Oil giant Saudi Arabia has also repeatedly stated that it’s amenable to opening up its oil trade to currencies other than the US dollar, with an eye toward accepting RMB.
None of this threatens to immediately send the dollar into a tailspin or “collapse.” The dollar’s role in the world economy is still huge, and the dollar remains the most used currency by far. This becomes all the more obvious when we look at how much the US dollar still dominates foreign exchange reserves—which are assets in foreign currencies held on reserve by central banks. These reserves are partly an indication of just how much central banks anticipate dollars will be needed to engage in international trade.
Dollars still make up 58 percent of foreign exchange reserves. That’s far above even the second-place currency, the euro, which is at a mere 20 percent. All other currencies are far behind that. The Japanese yen makes up about 5.5 percent of all reserves, and the pound sterling makes up under 5 percent. The RMB is in fifth place at about 2.7 percent.
Source: International Monetary Fund.
While the RMB is not about to replace the dollar, general movement away from the dollar—in favor of a mixture of other currencies—is indeed in place. In fact, as of the fourth quarter of last year, the dollar made up the lowest percentage of foreign reserves since 1995, falling from 66 percent of reserves in 2014.
Why Does Reserve Currency Status Matter?Being the country whose currency enjoys global reserve status brings both domestic and international advantages to the US regime.
Domestically, reserve currency status brings a greater global demand for dollars. This means more of a global willingness to absorb dollars into foreign central banks and foreign bank accounts even as the dollar inflates and loses purchasing power. Ultimately, this means the US regime can get away with more monetary inflation, more financial repression, and more debt before domestic price inflation gets out of hand. After all, even if the US central bank (the Federal Reserve) creates $8 trillion in new dollars in order to prop up US asset prices, much of the world will take those dollars out of US domestic markets, and this will reduce price inflation in the US—at least in the short term. Moreover, the fact the dollar dominates in global trade transactions means more global demand for US debt. Or, as Reuters put it in 2019, the dollar is used “for at least half of international trade invoices—five times more than the United States’ share of world goods imports—fuelling demand for U.S. assets.”
Those assets include US government debt, and this pushes down the interest rate at which the US government must pay on its enormous $30 trillion debt. This also decreases the likelihood of a US sovereign debt crisis. Domestically in the US, reserve status for the dollar mutes inflation, lowers interest rates, and enables more government spending.
Internationally, the US government enjoys many benefits from reserve status. For example, the US regime is much more easily able to impose economic sanctions on rival states, thanks to the role of dollars in international trade and banking. Dollars are central to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, which is the main messaging network through which international trade transactions are initiated. In recent years, this control of SWIFT has enabled the US to largely exclude both Iran and Russia from much of the international banking system. The US has also frequently threatened sanctions on a number of countries that have not been quick to accept US primacy in all regions of the world. This power is further enhanced due to a longstanding agreement in which oil-producing Arab states—primarily Saudi Arabia—use dollars for oil transactions in exchange for certain US military commitments. These so-called petrodollars further secure US dominance in the geopolitical realm.
[Read More: “Why the End of the Petrodollar Spells Trouble for the US Regime” by Ryan McMaken]
Weakening Reserve Status Means a Weakening US RegimeOften, discussion about the dollar’s reserve status creates a false dichotomy between total domination of the global monetary system on one hand and complete abandonment of the dollar on the other.
A more likely scenario is that the dollar will weaken considerably but will remain among the most often used currencies. After all, even after the pound sterling lost its status as reserve currency in the 1930s, it did not disappear.
For example, let’s say the US dollar sinks to 40 percent of all foreign reserves and is only used in one-third of all international trade invoices—instead of one-half, as is now the case. This would not necessarily destroy the dollar or the US economy, but it would certainly weaken the US regime’s geopolitical position. As global infrastructure around other currencies grows, it will become easier for regimes and private firms to circumvent US sanctions. Perhaps more importantly, a world less awash in dollars will mean a world with less demand for US assets such as US government debt. That means higher interest rates for the US government and less of an ability to finance elective wars by inflating the currency.
In other words, even a weakening of the dollar’s global demand will limit the US regime’s ability to throw its weight around internationally. This is why in a recent interview with Fox News, US senator Marco Rubio worried that if other countries are using their own currencies in trade, “we won’t be talking about sanctions in 5 years . . . because we won’t have the ability to sanction them.”
This doesn’t require the full collapse of the dollar. It just requires a framework for other currencies. It will take a while, and some attempts will fail. But those frameworks are being built now, and not all of them will fail.
How to Stop the Slide Away from the Reserve CurrencyFor obvious reasons, then, the US regime wants to maintain the US dollar’s status. If the US regime were motivated to ensure economic prosperity and security for Americans, however, it could easily do so. All that is required is to end the US central bank’s easy-money policies, reduce monetary inflation, and rein in deficit spending. This would immediately buttress both the real and perceived value of the dollar and make the dollar far more attractive as a currency that holds its value. Moreover, the US regime could ensure continued widespread use of the dollar if it stops using the dollar to bully other regimes and wage economic war on every regime that annoys the foreign-policy establishment. Without the dollar’s weaponization—especially with reduced monetary inflation—there is very little motivation to abandon the dollar in favor of other currencies. After all, most other regimes inflate their own currencies at least as much as the dollar and engage in widespread deficit spending. Economically, the dollar remains less turbulent than both the euro and yen.
It’s difficult to see how the US regime will abandon this status quo any time soon, however. Washington is addicted to deficit spending, monetary inflation, and international meddling in the name of US primacy and war. It won’t stop until domestic inflation becomes politically unbearable and foreign states finish building off-ramps from the dollar system.
Access to energy has long been taken for granted as society became quite used to relatively stable prices and the ample abundance of energy. Meanwhile, the business side of energy was relegated to industry insiders, policymakers, and market traders dealing with the matter as a profession. However, the perceptible rise in prices and the fear of supply shortages have pushed energy considerations to the forefront of societal consciousness.
This crunch has largely resulted from US government policies, such as the Green New Deal and the cancellation of the Keystone pipeline, that deliberately discouraged capital investment for the future production of fossil fuels in favor of focusing the energy economy toward clean energy. The transition to electric vehicles (EVs) is a huge focus in government plans for a clean energy future while also raising serious issues regarding the feasibility of revamping the energy infrastructure to accommodate this change.
Global issues, including the government shutdowns in response to the covid-19 pandemic affecting demand, supply chain disruptions affecting supplies, the geopolitical turmoil of the Russian war in Ukraine, and changes in oil production targets by the Organization of Petroleum Exporting Countries, not to mention central bank interference and government spending, have sent shockwaves through all aspects of the world economy and much of it comes down to energy. Today, the energy discussion revolves around trends in the long-term outlook — the desire to move away from fossil fuel energy sources and the search for effective green and sustainable alternatives to fossil fuels. At the heart of these challenges lies the alarmist doctrine of climate change, which drives government policies and hinders the economy’s search for the best energy future.
Energy TransitionFor little more than a century and a half now, the world population has flourished thanks to the cheap and abundant energy from fossil fuels including coal, oil, and natural gas. Recent sentiment in the last decade has identified carbon emissions from the use of fossil fuels as a major issue that needs to be urgently addressed. Leading developed nations have pushed policies to promote green and carbon-free energy alternatives, such as wind and solar. However, the feasibility of phasing out fossil fuels in the manner usually prescribed falls short of realistic expectations.
While testifying on infrastructure and discussing how much power would be required for the mass adoption of electric vehicles, US Secretary of Transportation Pete Buttigieg was taken by surprise when Congressman Thomas Massie informed him that charging an EV would be the equivalent of running twenty-five refrigerators. Meeting the US government’s goals will not only be unrealistic but actually unattainable with the prevailing policy trajectory—the throttling of existing energy sources and the lack of viable clean replacement sources.
The current electrical grid in the US simply cannot meet the goal of transitioning to EVs as quickly as policymakers are demanding. Meanwhile, the current carbon-free alternatives are not as reliable in producing the needed consistent baseload energy as proponents suggest. Thus, there is an unrealistic opportunity cost in moving the energy infrastructure in this direction. Generating that much electricity with green and carbon-free energy sources like wind and solar would be enormously costly, while fossil fuels have fallen out of favor. This is where nuclear and geothermal energy can step in if government regulation can step out of the way.
NuclearMost current nuclear power plants work through the nuclear fissioning of uranium fuel pellet rods, causing a chain reaction of splitting atoms in a nuclear reactor. The fissioning releases a large amount of heat that raises the temperature of a circulating fluid, usually water, which can generate steam. That steam is then used to drive turbines that produce carbon-free electricity. Nuclear power has already been recognized as an efficient, clean, and safe source of baseload energy. The last point may surprise those who remember the names Hiroshima, Chernobyl, Three Mile Island, and Fukushima and the massive nuclear disasters associated with them. The fear of these dangerous scenarios has pushed public opinion and public policy against nuclear power, making it a highly regulated industry.
However, the reputation of nuclear power has been changing in recent years since the Fukushima disaster. Negative sentiments toward nuclear power have shifted as many countries have developed and implemented it as part of an overall energy mix as a means to improve energy security, reduce the impact of volatile fuel prices, and make their economies more competitive while also addressing climate change goals. The European Union has gone as far as labeling nuclear (along with gas) a green and sustainable energy. In January 2023, the US Nuclear Regulatory Commission certified NuScale Power’s design for small modular reactors, a milestone in the potential production of uniform and scalable nuclear reactors for the near future.
Future developments point in the promising direction of cutting-edge liquid salt thorium-fueled reactors, which take advantage of this relatively abundant metallic element to produce energy and reduce radioactive waste several hundred times more efficiently than with uranium reactors. The path forward for nuclear energy involves rolling back regulations that have hindered its development, in part due to its soured reputation in previous decades. Nuclear energy remains a highly regulated industry with the major issues of reactor safety and nuclear waste disposal among the top concerns among policymakers. However, with its potential to provide effective, scalable, and carbon-free energy, nuclear energy should serve as a key source of energy to the world.
GeothermalCompared to nuclear energy, geothermal energy is not as well-known and is even less well understood compared to other energy sources. Extremely hot molten rock lies under the surface of the earth. The most common way of capturing geothermal energy is by drilling vertically down into the earth’s surface to access that hot rock. Cool water is then heated by the rock to produce steam, which rises to the surface, and that steam is used to drive electric generators.
This type of energy is already used in many places in the world that have access to hot rock closer to the surface of the earth, such as around locations with high volcanic activity like Indonesia and Iceland. For now, that’s the only type that can be profitable and makes economic sense. However, the future of using geothermal energy will depend on the development of deep geothermal energy, whereby even deeper holes are drilled to access hotter rock formations, which would not be location dependent. Here, the techniques and technology developed by the shale-oil drilling industry, such as horizontal drilling, can be repurposed and refocused to tackle the challenge of accessing deep geothermal energy. This helps put the oil and gas industry in a position to help in the energy transition rather than simply dropping them entirely, as popular policy dictates.
Despite rhetoric against fracking techniques in the industry, the US Government has only restricted new permits for oil and gas projects on federal lands and waters without outright banning fracking. At this point, policymakers will either go down the route of adding further controls on the industry, including on horizontal fracking techniques, or it will recognize the value of these methods in their application to geothermal energy and pursue the potential of harnessing this energy source.
Future EnergyIn considering actionable goals for now, developed economies can look into some options both domestically and with international or region-specific cooperation toward advancing the infrastructure needed for an energy transition. This can start with scaling up existing conventional nuclear facilities that do not need to overcome legal and permitting hurdles. From there, the target for roughly the next decade could focus on rolling out the research and development for advanced nuclear facilities using thorium for the nuclear fuel cycle rather than uranium. Meanwhile, the expertise of the oil industry can be harnessed to develop effective horizontal drilling for access to deep geothermal energy.
Overcoming regulatory obstacles, which kneecap current energy industries while pushing impractical climate objectives, as well as harnessing these two sources of energy may give humanity a realistic shot at truly clean, sustainable electricity that will move the energy paradigm away from fossil fuels while also acknowledging their legitimate and relevant role in the immediate future.
Like the arsonist who then heroically fights the fire he set, the Fed is increasing its efforts to bail out banks both at home and abroad. This does not end well.
Original Article: "Is the Fed Trying to Bail Out the World? Sure Looks Like It"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Recently, Silicon Valley Bank (SVB), a bank that was heavily involved in cryptocurrency, collapsed. Naturally, Democrats want to exploit the situation to rush through new regulations. But that will only make the problem worse.
The failure of Silicon Valley Bank, a forty-year old, $200 billion bank, has caused many to worry about the country’s economic stability. Among the concerned is Senator Elizabeth Warren, who wants to reinstate some of the defunct banking regulations from the Dodd-Frank Act of 2010.
But the failure of SVB would not have been prevented by more government intervention. On the contrary, the government itself—by driving up inflation and making it difficult to hedge against interest rate risk—is partially responsible for the collapse of this bank. Passing new regulations might give us a semblance of comfort, but all it would do is create the conditions for more bank failures in the future.
In a New York Times op-ed published days after the announcement that regulators were taking control of SVB, Senator Warren claimed that she knew exactly why the bank failed: it was allowed to take on too much risk. She argues that the level of risk taken on by SVB was only permitted after sections of Dodd-Frank were repealed by the Trump administration in 2018. This claim has also been repeated by President Joe Biden and other top Democrats.
Warren is correct when she asserts that SVB had a risky business model. As she writes in her op-ed, “The bank relied on a concentrated group of tech companies with big deposits, driving an abnormally large ratio of uninsured deposits. This meant that weakness in a single sector of the economy could threaten the bank’s stability.” SVB was also heavily invested in long-term bonds, which made it difficult for it to get more liquidity when depositors began pulling out their funds.
But where the senator goes astray is her contention that the original liquidity and capital requirements under Dodd-Frank would have prevented SVB from going under. As researchers at the Cato Institute point out, SVB “was extremely well capitalized, with ratios roughly twice as high as the requirements.” In other words, SVB had more than enough funds to cover its liabilities—barring an unexpected bank run. An analysis by the Bank Policy Institute found that SVB almost certainly would have passed the Dodd-Frank minimum liquidity coverage ratio, meaning the bank would have been found to be sufficiently prepared to meet short-term obligations.
So why did SVB fail? While SVB executives of course deserve most of the blame, the federal government is also at fault. Through a combination of huge spending increases, government lockdowns, and ultra-low interest rates in 2020 and 2021, inflation increased to a forty-year high. This necessitated a complete about-face in Federal Reserve policy. Interest rates were increased quickly to tamp down inflation.
Of course, SVB executives should have hedged against the possibility of rising interest rates. But it should come as no surprise that some financial institutions put themselves in precarious situations when the Federal Reserve pursued an erratic monetary policy, making long-term financial planning more difficult for private banks. Not to mention that throughout 2021 “experts” declared inflation was “transitory,” indicating there was little need for the Fed to raise rates. Senator Warren herself repeatedly downplayed the inflation problem. Yet in her op-ed, she blames SVB for failing to prepare for interest rate hikes.
Nonetheless, Democrats like Elizabeth Warren want to have their cake and eat it too. They want the government to be able to spend wildly and keep interest rates low while hamstringing banks with onerous regulations to try to avoid the natural consequences of their bad policies. Rather than demonstrate the need for more regulation, the collapse of SVB proves that the government not only can’t prevent bank failures but often creates the conditions under which banks are more likely to fail.
The panopticon is a hypothetical surveillance and control system first imagined by philosopher Jeremy Bentham in the eighteenth century. It’s envisioned as a tool to control the behavior of a large number of people with as little effort as possible. Here is one description: “The panopticon is a disciplinary concept brought to life in the form of a central observation tower placed within a circle of prison cells. From the tower, a guard can see every cell and inmate but the inmates can’t see into the tower. Prisoners will never know whether or not they are being watched.”
Essentially, the panopticon would function in a similar way to the two-way television sets in George Orwell’s 1984. Orwell described the function of the television sets this way: “There was of course no way of knowing whether you were being watched at any given moment . . . you had to live . . . in the assumption that every sound you made was overheard, and, except in darkness, every movement scrutinized.”
In the past few years, we’ve created a live panopticon–and the Far Left are the ones running it. The panopticon is cancel culture. The guards are the cancelers, an online mob that exacts brutal punishment on those whose sins they can see. You can find story after story of decent people losing their livelihoods for the sin of deviating from Far Left orthodoxy.
Here are a few examples:
- In 2020, trans writer Isabel Fall was outed and forced offline after she wrote a short story that critics said was transphobic (Fall published under a pseudonym).
- Recent college graduate Griffin Green was fired from his software company for the crime of making fun of bodegas (no, really).
- Bestselling children’s author Gillian Philip was fired from her publisher for changing her Twitter handle to include #IStandWithJKRowling.
These punishments function in part to cow other people who might otherwise be inclined to deviate from approved opinion in similar ways.
The prisoners in this panopticon are ordinary Americans, whose online activity can be viewed at any time by pretty much anyone (including the guards) and who self-regulate in order to protect themselves. A New York Times poll found that “Fifty-five percent of respondents said that they had held their tongue over the past year because they were concerned about retaliation or harsh criticism.”
On a college campus, it’s even worse. Emma Camp noted that “According to a 2021 survey administered by College Pulse of over 37,000 students at 159 colleges, 80 percent of students self-censor at least some of the time.” Socialist writer Freddy DoBoer summed up the whole system: “Correct thoughts are enforced through a system of mutual surveillance, one which takes advantage of the affordances of internet technology to surveil and then punish.”
It’s true that cancel culture isn’t as perfectly widespread as the panopticon that Bentham imagined, in which no prisoner can ever deviate from the guards’ desires. But that’s not for lack of vision. Prominent targets of cancel culture like Jordan Peterson and J.K. Rowling still have careers, but this is in spite of the best efforts of a certain strain of social justice warriors who tried to get them removed from public life.
These folks tried to stop the publication of Jordan Peterson’s book, Beyond Order: 12 More Rules for Life, tried to stop the publication of Rowling’s children’s book, The Ickabog, and launched boycott campaigns against both. In one sense, every time a cancelee rebounds and continues to have a career despite the best efforts of these Far Left activists, it is a failure of cancel culture. It is a sign that the panopticon they’ve built doesn’t operate perfectly.
But we should never let the imperfection of the apparatus distract us from the totality of its end goal. For the most die-hard proponents of this new culture, the goal is a culture in which no one is allowed to deviate from Far Left orthodoxy without suffering punishment.
When we understand that those activists who engage in cancel culture are the guards of the panopticon, we see through one of the central myths of cancel culture. Proponents of this culture are keen to paint themselves as the underdogs: marginalized voices punching up against powerful actors.
Anne Charity Hudley, the previous chair of linguistics of African America at the University of California, Santa Barbara, argued that cancel culture is just about giving marginalized people a voice. “For black culture and cultures of people who are lower income and disenfranchised,” she says, “this is the first time you do have a voice in those types of conversation.” According to procon.org, one argument in favor of this new culture is that it “gives a voice to disenfranchised or less powerful people.” This argument, however, is mistaken.
Cancelers are not disadvantaged people punching up to hold the powerful to account; in many cases, they are themselves the powerful ones. When an online mob gets a recent college grad fired from his first real job for not understanding what a bodega is, it takes a lot of mental gymnastics to say that the mob are the ones who are being marginalized. When professors speak privately about their fear of being canceled for not toeing the ideological line, it’s clear that the Far Left activists they are afraid of do in fact wield substantial power. Cancelers need to reckon with this reality and come to terms with the fact that in many cases, they’re the enforcers of this new system.
The good news is that, unlike a physical panopticon, there are no walls keeping us in our cells. The guards lack guns and bullets. The only tool they have to make us conform is fear, built on past examples of what happened to people who did not conform. When we find the courage to refuse to self-regulate, to say that 2 + 2 = 4 and dare the cancelers to do what they will, the fundamental weakness of the cancelers will be revealed.
We can call their bluff by virtue of the fact that we are many, and they are very few. Faced with a culture that refuses to bend the knee, the cancelers will be revealed for who they are: simply a few regressive souls, stripped of power, who need to accept that disagreement isn’t a sin.
Many governments support continuing the Ukraine war, but ordinary people in Europe, America, and the developing world fear the war will bring economic disaster.
Original Article: "Why Most of the World Isn't on Board with the NATO-Russia War"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Seventeenth-century French kings and their minions did not impose an accelerating burden of absolutism without provoking grave, deep, and continuing opposition. Indeed, there were repeated rebellions by groups of peasants and nobles in France from the 1630s to the 1670s. Generally, the focus of discontent and uprising was rising taxes, as well as the losses of rights and privileges. There were also similar rebellions in Spain in mid-century, and in autocratic Russia throughout the seventeenth century.
Consider, for example, the remonstrances of the peasants in the first great French rebellion of the seventeenth century, the croquants' (literally, "crunchers") revolt in 1636 in south-western France. The croquants' rebellion was precipitated by a sudden near-doubling of direct taxes upon the peasantry to raise funds for the war against Spain. The intendant La Force, sent to investigate the disturbances, reported on the peasants' grievances and demands. The peasants focused on the eternal and accelerating increases of taxation. They pointed out that in the reign of Henry IV more taxes had been collected than in all previous reigns of the monarchy taken together; and that in but two years of the reign of Louis XIII they had paid more than in all the years of Henry IV.
The peasants also protested that the royal tax-collectors carried off their cattle, clothes and tools, merely to cover the costs of enforcement, so that the principal of the tax debt could never be reduced. The result was ruin. Deprived of their means of labor, the peasants had been forced to leave their fields untilled, and even to leave their ancient lands and beg for bread. In a letter to his superior, La Force feels compelled to endorse their complaints: "It is not, Monseigneur, that I am not, by natural feeling, touched with very great compassion when I see the extraordinary poverty in which these people live."
The peasants protested that they were not subversives; they were willing to pay the old customary taxes, provided the recent increases were repealed. New taxes should only be imposed in extreme emergencies, and then only by the states-general (which hadn't met since 1615, and was not to meet again until the eve of the French Revolution). Like deluded subjects at all times and places, the peasants placed the blame for their ills not on the king himself but on his evil and tyrannical ministers, who had led the sovereign astray. The peasants insisted that they had had to revolt in order that "their cries may reach the ears of the King himself and no longer just those of his Ministers, who advise him so badly." Whether a ruler be king or president, it is convenient for him to preserve his popularity by deflecting protest and hostility to advisers or prime ministers who surround him.
But despite this unfortunate limitation, the croquants had the insight and the wit to zero in on the "public interest" myth propounded by the royal ministers. The "needs of the state," the peasants declared, were only a "pretext for enriching a few private persons" — the hated tax farmers, who had bought the privilege from the Crown of collecting taxes which then went into their pockets; and the "creatures of the man who rules the state," i.e., Richelieu and his entourage. The peasants called for the abolition of courtiers' pensions, as well as the salaries of all the newly created officials.
The following year, 1637, the croquants of the neighboring region of Périgord rose in rebellion. Addressing King Louis XIII, the commune of Périgord set forth its reasons for the revolt: "Sire … we have taken an unusual step in the way we have expressed our grievances, but this is so that we may be listened to by Your Majesty." Their overriding grievance was against the tax farmers and tax officials, who "have sent among us a thousand thieves who eat up the flesh of the poor husbandmen to the very bones, and it is they who have forced them to take up arms, changing their ploughshares for swords, in order to ask Your Majesty for justice or else to die like men."
Shaken by the rebellion, the Crown organized its faithful servitors. The royal printer, F. Mettayer, published a statement by the "inhabitants of the town of Poitiers," denouncing the "seditious" commune of Périgord. The Poitiers men declared that "We know, as Christians and loyal Frenchmen, that the glory of Kings is to command, while the glory of subjects, whoever they may be, is to obey in all humility and willing submission … following God's express commandment." All the people of France know that the king is the life and soul of the state. The king is directly guided by the Holy Spirit, and further, "by the superhuman decisions of your royal mind and the miracles accomplished in your happy reign, we perceive plainly that God holds your heart in his hand." There is therefore only one explanation for the rebellion, concluded the Poitiers loyalists: the rebels must be tools of Satan.
Not all the Catholics agreed, nor even the Catholic clergy of France. In 1639, an armed rebellion broke out in Normandy, resting on two demands: an opposition to oppressive taxation, and a call for Norman autonomy as against the centralized Parisian regime. It was a multiclass movement of the relatively poor, grouped together in an "army of suffering," and calling themselves the Nu-Pieds — the barefoot ones — after the salt-makers in the southwestern Norman region of Avranches, who walked barefoot on the sand. The general of the army was a mythical figure named Jean Nu-Pieds; the actual directorate of the army consisted of four priests from the Avranches area, of whom the leader was Father Jean Morel, parish priest of Saint-Gervais. Morel called himself "Colonel Sandhills," but he was a poet-propagandist as well as army commander. In his "manifesto of the High Unconquerable Captain Jean Nu-Pieds, General of the Army of Suffering," directed against the "men made rich by their taxes," Father Morel wrote,
And I, shall I leave a people languishing
Beneath the heel of tyranny, and allow a crowd of outsiders [non-Normans]
To oppress this people daily with their tax-farms?
The reference to "outsiders" shows the continuing strength of particularist, or separatist national movements in France, in this case Normandy. The Norman and croquants movements were rising against centralizing Parisian imperialism imposed only recently on independent or autonomous nations as much as against the high taxes themselves.
This article is excerpted from An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith. An MP3 audio file of this article, read by Jeff Riggenbach, is available for download.
Conservatives have been pressuring “the Liberal government to address what they term a violent crime wave, citing the killings of five police officers in five months and a surge of violence in cities across Canada.” Conservative leader Pierre Poilievre said that violent crime is up 32 percent, gang killings are up 92 percent, and “Police tell us that often they have to arrest the same people multiple times in the very same day because they are released again and again on bail.” Liberal justice minister David Lametti said that “there is a need to restore trust in Canada’s justice system and address Canadians’ worries about recent violence.”
The pathetic performance of Canada’s justice system has been evident for many decades, regardless of which party is in power. While there has been much recent concern about violent crimes committed by individuals released on bail, it has been a standard feature of Canada’s so-called justice system:
During a 33-year period from 1975 to 2008, some 508 criminals who, after extensive psychological testing and interviewing were judged no danger to public safety by the NPB [National Parole Board], were released from prison and in that period killed 557 perfectly innocent Canadians.
Of the 508 killers mentioned, 10 percent were on day parole—they walked out and on the same day killed 49 Canadians. (emphasis original)
This high level of incompetency also infects the other two components of Canada’s justice system, the police and courts. If we define the solving of a crime as the capture and conviction of the perpetrator, regardless of sentence imposed, we discover that roughly 81 percent of homicides are NOT solved by the government, and their track record is even worse with crimes of rape, attempted murder, and robbery.
Democracy Rewards FailureWhen we shop for food, clothes, cars, haircuts, electronics, etc., service is linked to payment. If we do not like the product or service that we expect to receive in return for our payment, we are not obligated to complete the transaction because all transactions are voluntary. We can shop elsewhere because competition exists. Therefore, if they want to be profitable, businesses are forced to accommodate our preferences because that is the only way to persuade us to part with our money. Consumers are in control.
In contrast, within the realm of government, consumers are ignored, competition is forbidden, transactions are compulsory, coercion replaces persuasion, and service is severed from payment. The government is in control, and it arbitrarily determines (a) the price to be charged (taxes) for a particular service and (b) the level of service to be provided. Accountability disappears, and perverse incentives arise.
Having stacked the deck in its favor, the government has little incentive to prevent crimes, solve crimes, or rehabilitate criminals because less money allocated to these tasks means more money is available for exorbitant bureaucratic salaries. Likewise, government inefficiency is a magnet that attracts power-hungry politicians and bureaucrats, who promise—yet again—that higher taxes are the solution to reducing crime. Power and money flows to politicians and bureaucrats, while taxpayers continue to pay for third-rate services.
To sum up, the modus operandi of the justice system is a forced extraction of large sums of money in return for various services, without being legally obligated to actually provide these services. Thus, the justice system does not embody sufficient incentives to prevent crimes, solve crimes, or reform criminals with any reasonable degree of efficacy.
However, when someone suggests that these services could be handled more efficiently in the private sector, politicians and bureaucrats claim that essential services will quickly deteriorate if they are subjected to the whims of private entities, who care only about profits. But, as we have seen, private entities can be profitable only if they provide services valued by consumers. So, the real government mantra is this: “We will forbid private entities from earning profits so that we may steal profits from taxpayers.” In other words, it is the politicians and bureaucrats, not private entities, who care only about profits. As Bruce Benson wrote, “The fact that government law has taken over as much as it has is not a reflection of the superior efficiency of representative government . . . It is, rather, a reflection of government’s general purpose of transferring wealth to those with political power.”
Selling Victims Down the RiverContrary to what politicians claim, a criminal does not owe a debt to society, but rather to a specific member of society—the victim. The debt must be paid to the victim by the person who incurred the debt. A system that forcibly extracts resources from other members of society to support government bureaucracies and convicted criminals in government prisons is, as Benson wrote, “a reflection of government’s general purpose of transferring wealth to those with political power.”
Moreover, drugs, rape, and other acts of violence are common in government prisons. This encourages recidivism, not rehabilitation, which guarantees a continual transfer of wealth to these so-called correctional bureaucracies. Meanwhile, victims are rarely compensated.
Before kings and governments monopolized the justice system for their own benefit, the law was in the hands of the people, for their benefit. This was known as customary law (law established in recognition of evolving customs). Under customary law, when an offense was committed, victim restitution, not imprisonment, was expected. The offender must compensate his victim. To facilitate this, most people voluntarily joined mutually beneficial legal institutions based on the concept of reciprocity. This was an effective arrangement that achieved a high degree of restitution.
In stark contrast to the government’s pathetic record of preventing and solving crimes, “victim justice” under customary law actually discouraged individuals from committing offenses in the first place: “If I kill, rape, or steal, I know for certain that a protection agency will be hot on my trail.” Moreover, it was unlikely that dangerous offenders would be released into the community, contrary to what the government does today. Instead, these offenders would likely face capital punishment or permanent incarceration if they work hard enough to compensate their victims and cover the cost of their own confinement.
Customary law is the enemy of democracy. In a democracy, it is illegal for private entities to produce services that would compete with government bureaucracies. In other words, the legality of a specific action is not determined by the nature of the action itself but by whether or not the person initiating the action is a member of the political class.
Thus, equality under the law disappears, political accountability disappears, and politicians routinely make campaign promises that they have no intention of keeping because democracy encourages them to lie. Special interest groups dictate government policy, while regular voters are ignored. The result is high taxation, uncontrolled spending, burgeoning bureaucracies, and massive government debt, all of which falls on the backs of the people whose opinions are routinely dismissed.
The government also enriches its bureaucracies by redefining numerous peaceful activities as crimes, even though there are no victims. Whereas the people, if consulted, might reject these laws because, from their perspective, the cost of enforcement cannot be justified. Wasteful spending is a prominent feature of most democratic governments, where bankruptcy is a foreign concept.
In contrast, firms in the private sector have a strong incentive to control costs because the alternative is bankruptcy. Competition ensures that entrepreneurs are motivated to offer high-quality services that the people want at a price that the people are willing to pay.
Do we want services to be provided by people operating within democratic institutions that extract profits by granting politicians legal authority to steal money from consumers’ pockets without satisfying their preferences?
Or do we want services to be provided by people in an unhampered market, in an environment of open competition, where consumer satisfaction is the only path to profits?
Politicians tout "bipartisanship"—that often just means one's pocket will be picked even more cleanly.
Original Article: "Bipartisanship Is Not a Substitute for Voluntary Exchange"
This Audio Mises Wire is generously sponsored by Christopher Condon.
“This is all about regulation and the fact that at some point in time there was great advocacy for making sure that the regional banks and the smaller banks didn't have to comply with some of the rules that perhaps would not have allowed them to get into this situation because there would've been stress testing and more oversight and more watching of what was going on.”
~ Rep. Maxine Waters (D), Financial Services Committee, March 15, 2023
As fate would have it, Silicon Valley Bank CEO Greg Becker lobbied in 2018 to raise the asset bar on the annual Dodd-Frank stress tests from $50 billion to $250 billion. On May 24, 2018, when President Donald Trump signed “the biggest rollback of bank rules since the financial crisis,” SVB’s assets footed to $54 billion. By the end of last year, they had mushroomed to $212 billion.
Never mind that the rollback bill was signed by 33 Democrats in the House and 17 in the Senate. The Left had its perfect scapegoat. “Back-to-back collapses came after deregulatory push,” claimed The New York Times, shortly after the FDIC took control of SVB and Signature Bank, the second and third largest U.S. bank failures in history.
Would it have made any difference? The architects of the 2010 Dodd-Frank Act put in place a set of rules to prevent another mortgage crisis, never imagining that the next crisis would change its spots. Truth be told, subjecting SVB to a rash of annual stress tests would not have saved the day. Bank regulators have been looking for trouble in all the wrong places.
Banking risksThe nature of modern day, fractional reserve banking is a high wire act, juggling blow torches over pools of gasoline. Far from their staid, conservative public image, banks are exposed to a number of risks that could spell impending doom on any given day. These risks are magnified by leverage, typically 10 to 15 times.
A bank has three main risks: credit risk (not being paid back), interest rate risk (rising interest rates) and funding risk (depositors pulling their money out). Banks are in the business of borrowing short-term and lending long-term, a.k.a. the “carry trade.” While the stream of interest payments from borrowers is fixed, the rate banks pay depositors is variable and unknown.
The 2008 financial meltdown centered on credit risk, as a combination of easy money (meant to contain the bursting tech bubble of 2000-02) and the government’s drive towards homeownership encouraged lax lending standards and ignited a housing bubble. In 2009, the same all-seeing regulators who failed to anticipate the Great Financial Crisis (GFC) were tasked with heading off the next disaster, leading to the Basel III Accords in which 27 member countries participated. This was the blueprint for Dodd-Frank, which began subjecting the “global systemically important banks” (G-SIBs) to annual stress tests in 2013.
Administered by the Federal Reserve, the tests project various economic variables over a 3 ¼ year period for a baseline path and “severely adverse” scenario (deep recession with the unemployment rate reaching roughly 10 percent). A simulation is then run along the severely adverse path, concentrating on how capital ratios are impacted for each participating bank.
Post-GFC environmentThe good news is that the credit risk of bank portfolios appears to be waning. From 2013 to 2022, the Fed’s loss rate assumption on domestic first-lien mortgages went from 6.6 percent to 1.3 percent as homeowners’ equity increased from 52.6 percent to 71.2 percent. Apparently, some of the lessons from the mid-2000s housing bubble were taken to heart.
The bad news is that nobody paid attention to exponentially growing interest rate risk. The onset of Covid-19 and ensuing government lockdowns set off an ill-fated “flight to safety,” plunging 10-year Treasury yields from 1.92 percent to 0.65 percent in the first quarter of 2020. Several stimulus packages followed, totaling over $6 trillion. As the government’s budget deficit swelled from $1.0 trillion to $4.1 trillion that year, the Fed went into rescue mode, more than doubling its balance sheet. From the end of 2019 to the end of 2021, bank deposits exploded, going from $13.2 trillion to $18.0 trillion.
The banks sealed their fate when they put that money to work, much of it flowing into low-yielding Treasury bonds and mortgage-backed securities (government guaranteed) which the regulators had assigned ultra-low capital requirements and risk weightings of zero. By the end of 2021, CPI inflation hit 7.0 percent, the highest rate in 40 years, yet the fed funds rate (overnight rate banks lend to each other) remained stuck at 0.08 percent. With deposit rates essentially at zero, buying government bonds yielding 1 ½ percent seemed like a no-brainer. What could possibly go wrong?
Plenty, as interest rates more than doubled, narrowing the gap with price inflation and producing the worst year for bonds since the early days of the republic. (And no, this wasn’t caused by Fed chair Jay Powell raising rates. The market demanded higher rates to compensate for raging price inflation. The Fed was way behind the curve.) For all of 2022, the 10-year Treasury lost 17.5 percent of its value, with the yield ending the year at 3.88 percent. For perspective, a 10x leveraged bank that loses 10 percent on its assets is insolvent.
duffy1.png 2022 stress testHow far off were the stress test modelers? Heading into 2022, the baseline scenario assumed declining, but still positive real GDP growth, CPI inflation falling to 2.1 percent over the next three years and the 10-year Treasury yield increasing to 2.5 percent. Meanwhile, the severely adverse scenario projected a 1.3 percent CPI inflation rate and 0.7 percent 10-year yield by the 3rd quarter of 2022. Ironically, the baseline path may have been more damaging to bank balance sheets due to rising rates, but only the adverse path was considered when running the 2022 stress tests.
The 33 banks tested in the first half of 2022 had a combined Q4 2021 Tier 1 capital ratio of 14.1 percent, well above the regulatory minimum of 6.0 percent. By comparison, Silicon Valley Bank sported a Tier 1 capital ratio of 14.9 percent, earning the bank the distinction of “well-capitalized.”
Under the severely adverse scenario, the Tier 1 capital ratio of the 33 banks was projected to fall as low as 11.4 percent, still comfortably above the minimum. Although we cannot know for sure, SVB’s outsized holdings of bonds (59 percent of assets vs. just 31 percent in loans) and high capital ratio meant it would have likely passed the 2022 stress test with flying colors.
Held-to-maturity accountingHow big were the bond losses at Silicon Valley bank? They totaled $18 billion at year-end (17 percent of cost), $15 billion of which was kept off the books as long as the securities were marked “held-to-maturity.” While HTM losses wiped out 98 percent of SVB’s tangible equity, they are spread throughout the banking system, albeit to a lesser degree. For example, Bank of America would see 53 percent of its equity vanish under mark-to-market accounting. (Losses were also 17 percent of cost at year-end, but BofA’s bond portfolio was only 26 percent of total assets.)
The Fed’s new Bank Term Funding Program (BTFP) kicks the HTM can further down the road. The banks will not have to recognize these losses as long as they never sell, holding to maturity. To help them over the current rough patch, the Fed is willing to lend against these underwater bonds at par (well above their market value) for one year at the overnight index swap rate (currently 4.72 percent) plus 0.10 percent. In other words, these losses will be passing through the income statement for years, slowly bleeding bank equity. The total bill will depend on future short-term interest costs.
duffy2.png ConclusionCitigroup CEO Jane Fraser recently argued, “this is not a credit crisis.” She’s right. This is a crisis caused by banks taking on massive amounts of interest rate risk from 2020-21 during the final blow off phase of a 40-year bull market in bonds, all under the watchful eyes of the financial system’s overseers.
This is not to suggest that the problem is isolated to bond portfolios. The banks’ loan books make provisions for future credit losses, not mark-to-market losses due to rising rates. According to Goldman Sachs, 99 percent of outstanding mortgages were originated at rates below today’s market rate.
duffy3.png The Fed is caught between a rock and a hard place. Allow interest rates to rise much further and the banking system becomes insolvent. Try to push rates lower and price inflation spirals out of control. Above all, the Fed must instill confidence in the system lest depositors panic. Like the banks, the Fed is juggling blow torches.
Several years ago, Jim Grant envisioned what should be obvious today: “The question before the house is whether the central bankers can continue to control events or whether events will turn the tables and start to control the central bankers. Our money's on events.”
Suppose an addict had the ability to magically create, ex nihilo, his own stimulating drug, as fractional reserve banks can do with money and credit. Would you expect moderation?
Original Article: "Why Fractional Reserve Banking Is behind Bank Failures"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The "first" Children's Crusade of 1212 ended in tragedy for those taking part. The "second" crusade is not going to produce any happy endings, either.
Original Article: "Climate Activism: The Second Children’s Crusade"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Mark is not fooling around today. He looks back at the history of gold and its price, which some believe is too erratic and too unstable (like Bitcoin) to serve as a basis of a monetary system. Mark shows that it is not gold that destabilizes events in the real world, but rather real world events related to political decision-making that has made the price of gold unstable. The price of gold is a "minor" indicator of what governments are really up to.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
As long as states are around, money will never be sound. But first, some clarity.
Sound money, per Ludwig von Mises, has two aspects: It serves as a commonly accepted medium of exchange, while also making it difficult for governments to meddle with it. We can see immediately that sound money is nowhere to be found in today’s world. All the current rhetoric about banks and their systemic risks are about money that’s subject to political expediency, the kind that brings civilization to its knees.
There is at least one group, however, putting up a good fight. In the US the Sound Money Defense League is working at a state level to bring gold and silver coin back as legal tender. According to their website:
. . . sound money activists are launching exciting initiatives at the state level to challenge the monetary monopoly of the Fed….
From Alabama to Wyoming, states across the U.S. continue to pass legislation to eliminate taxes on gold and silver, establish in-state depositories, protect state taxpayer funds with sound money, and more.
It’s encouraging to see people stand up for a better money and work to get it recognized for the absolute advantages it possesses, particularly against the Fed’s “mandate” to produce inflation. The movement also highlights the Constitution’s restriction wherein no state shall “make any Thing but gold and silver Coin a Tender in Payment of Debts.” Later, the phrase “national emergency” superseded this restriction. But as the League admits:
Ultimately, individual states cannot bring soundness to America’s monetary system on their own. The root of the problem is the Federal Reserve, U.S. Treasury, and Congress who have fully embraced fiat money and abandoned monetary restraint.
An even deeper root is the widespread ignorance of money and banking not just among the public but among the public pronouncements of monetary economists. A quote attributed to Henry Ford that if the public really understood what was going on it would trigger an overnight revolution points to the precarious position of the accepted corrupt narrative. Recognizing this, the federal reserve has bet on Mark Twain’s insight — that virtue has never been as respectable as money — and put economists on its payroll, making “real criticism of the central bank a career liability for members of the profession.”
Thus, anyone asserting the federal reserve system is a naked counterfeiting racket at the center of the economy is routinely ignored or ridiculed.
Can a gold-standard state fund war?But the situation is even darker than this. “War is the health of the state,” Randolph Bourne famously wrote in his unfinished essay The State, in that it brought “a sense of the sanctity of the State.” And most wars are fought with the printing press running at redline. In American history only the Mexican War of 1846-1848, financed by the newly created Independent Treasury, has the distinction of being inflation-free.
One of the deadliest conflicts in world history was World War I, which prompted Bourne’s essay. Belligerents on both sides abandoned sound money (gold) to fight it, though as Gary North argued “sound money” was no more than a government promise to support it. Government never wants to run out of money while at war, and the kind that rolls off the printing press (or today’s electronic equivalent) is far superior to a limited-quantity money such as gold.
Rothbard, following Oppenheimer and Nock, defined a state as a predatory organization, in that it produces nothing but instead uses its monopoly of force to sustain and expand itself. Today’s governments are all predators in this sense. War threatens their existence, and everything is on the table to fight it except sound money.
“National security” wasn’t always our foundational principleDuring the Writs of Assistance case of February 1761, James Otis, Jr. argued at length against the legality of the writs before a select audience in Boston’s State House. Today writs are called general search warrants, forbidden by the Fourth Amendment. Among those present was a young John Adams who recalled in later years that:
Otis was a flame of fire; with a promptitude of classical allusions, a depth of research, a rapid summary of historical events and dates, a profusion of legal authorities. . . . Then and there the Child Independence was born. ... The seeds of Patriots & Heroes ... were then & there sown.
Researcher A. J. Langguth in Patriots: The Men Who Started the American Revolution described it this way:
In wig and black gown, James Otis stood up to speak, and something profound changed in America. . ..
The British constitution [had become] only and whatever Parliament said it was. But Otis soared beyond that argument. Every man lived in a state of nature, he said. Every man was his own sovereign, subject to laws engraved on his heart and revealed to him by his Maker. No other creature on earth could legitimately challenge a man’s right to his life, his liberty and his property. That principle, that unalterable law, took precedence . . . even over the survival of the state. (Emphasis added; P. 23)
Otis’s five-hour defense, though it eventually failed, launched him into the top ranks of patriot leaders. Furthermore, in 1764 Otis wrote that “The colonists are by the law of nature freeborn, as indeed all men are, white or black.”
States exist as protection agencies, or to secure our inalienable rights, as Jefferson wrote. Clearly, every state by its predatory nature is a failure, to say the least. Whether he realized it or not, James Otis, Jr. put the rising revolutionary spirit in the right direction. Who among our leaders today would assert the sovereignty of the individual over the state — and mean it?
ConclusionWith the upcoming Great Default, as Gary North described it in 2011, in which we reach the “final stage of the politicians' addiction to debt,” states will be threatened by their own inherent faults. “Future generations will elect new politicians who will stiff the trusting, naive holders of government debt,” he wrote.
North believed in limited government, meaning a limited state. Most libertarians do. But consider a different perspective. Limited governments grow. The future does not depend on a cleansed repeat of past mistakes, brought to us by “new politicians.” It depends on understanding, then implementing, a government based solely on market incentives. In many respects we live under that government now.
When Rudy Giuliani was pursuing his infamous Wall Street prosecutions in the 1980s, his aides admitted that they were indicting people on “novel legal theories” that had not been used before. A Giuliani lieutenant bragged to a group of law students that prosecutors in his office
...were guilty of criminalizing technical offenses. . .. Many of the prosecution theories we used were novel. Many of the statutes that we charged under . . . hadn’t been charged as crimes before. . . . We’re looking to find the next areas of conduct that meets any sort of statutory definition of what criminal conduct is.
At that time, federal prosecutors were going after people like investment banker Michael Milken, but even they would have stopped at indicting a former president. That day is gone, however, and today we have Manhattan district attorney Alvin Bragg following what John Cassidy of the New Yorker calls a “novel effort” to combine both state and federal laws to create what clearly is a bill of attainder to convict Donald Trump of a crime. Even if the courts rule against Trump and permit the charges to stand—and it is certain that Trump and Bragg will litigate the charges all the way to the Supreme Court themselves—that does not change the fact that Bragg has cobbled a number of statutes together to create something the US Constitution forbids: a bill of attainder.
Although the indictment is still sealed at this writing, the gist of the charges is as follows: (A) Donald Trump, who was running for president, authorized payment of $130,000 to a woman known as Stormy Daniels to keep her quiet about an affair between them, with Trump’s lawyer Michael Cohen making the payments; (B) he listed the payments as a campaign finance expense and Cohen pleaded guilty to federal campaign fraud; (C) the Trump Company reimbursed Cohen for the payments and claimed them as a legal expense.
Bragg is alleging that Trump approved these payments while breaking federal campaign law, which makes them a felony (under New York law, simply falsifying business records is a misdemeanor). Writes attorney and New York Times columnist David French:
So how can Trump be prosecuted? If Bragg can prove that, contrary to New York State law, Trump falsified records when the “intent to defraud includes an intent to commit another crime or to aid or conceal the commission thereof,” he can prove that Trump committed a felony, and a felony not only carries stiffer penalties; it has a five-year statute of limitations.
He continues:
But what is the other crime that can convert a charge of records falsification to a felony? Most likely prosecutors will rely on an allegation of violating federal campaign finance law, specifically the claim that the hush money payments to Daniels were illegal campaign contributions. But this is also not a simple case to make: The prosecution may claim that state campaign finance laws apply to Trump, and his payments thus violated New York law, but remember we’re talking about a presidential election. A federal statute expressly states that the relevant campaign finance laws “supersede and pre-empt any provision of state law with respect to election to federal office.” This law represents a formidable barrier to prosecuting Trump under state campaign finance laws, and there is no obvious path around it.
This is a problem because during the infamous “Russiagate” investigations, special prosecutors looked at this situation and concluded that the facts were too sketchy to charge Trump with breaking federal campaign laws. However, Bragg will be calling for a state jury to conclude that Trump actually did break federal law—something a state jury should not be doing. Because Trump was never charged with breaking campaign laws, there is now no legal way to claim he broke them.
Bragg’s entire case hinges upon this point, which is why French—who clearly despises Trump and would rejoice if he were convicted of something—advised against bringing state criminal charges in the first place. He writes:
It’s no wonder that even Bragg’s aggressive former prosecutor Mark Pomerantz was concerned that the Daniels case was, as The New York Times reported, “too risky under New York law.” A Reuters article described the legal theories supporting a prosecution for the Daniels payments as “untested.” A January New York Times story also accurately called the theories “largely untested.”
While one can condemn Trump for the reckless behavior that brought about this situation in the first place, I would argue that Bragg’s behavior is much more reckless, given that he is cobbling state and federal statutes together to target a political figure roundly hated by the Democrats. Bragg is using criminal law for political purposes, and while such actions have a sorry history going back to the Franklin D. Roosevelt administration’s hounding of critics of the New Deal, including former Treasury Secretary Andrew Mellon, they have no place under the rule of law.
The Wall Street Journal editorial board (unlike the New York Times editorial board, which prattled on about Trump “not being above the law”) recognized the greater danger of unleashing what it called a “Pandora’s box” that has “political ramifications that are unpredictable and probably destructive.” This indictment, unfortunately, is politically popular with Democrats (and some never-Trump Republicans), and the usual brakes that accompany political processes have been discarded in the hopes that the Great Orange Whale will see the inside of a prison cell.
While Trump and his supporters will rightly argue that Bragg is manipulating the law in a special way to go after one person, this case highlights greater abuses of the law attributable to what Candice E. Jackson and I labeled almost twenty years ago as “derivative crimes.” Under a “derivative crime” regime, which makes up the bulk of federal criminal statutes, a “crime” such as “racketeering” is not defined as a specific act, but rather is derived from other actions that may either be actual crimes or acts that someone might call criminal but do not break any laws.
For example, Jackson and I described the RICO statutes in our 2004 Independent Review paper:
The “crimes” under the RICO statute are essentially fictitious, created to enable federal authorities to avoid the state courts in which accused “mobsters” traditionally had been prosecuted. Because reputed “mob” figures were being acquitted in state courts—often in the face of overwhelming evidence of guilt—the government created a new set of “derivative crimes,” a class of offenses that by definition are derived from other criminal acts.
One does not “racketeer” anyone. Instead, the government permits federal prosecutors to present evidence of lawbreaking elsewhere, but the defendants are not charged with those crimes (such as extortion, murder, and robbery). Instead, they are charged with racketeering, which is derived from those other alleged actions. With derivative crimes, federal prosecutors were able to win cases against alleged organized crime figures such as John Gotti, who was convicted in federal court of . . . racketeering.
While the US Constitution forbids passage of bills of attainder, clever prosecutors find other ways of implementing them by piecing together various statutes to form criminal charges that are specifically aimed at one person. The conviction of Charles Keating, whose savings and loan business failed in the late 1980s, is a case in point. In a courtroom where the infamous Judge Lance Ito (of O.J. Simpson fame) was presiding, California prosecutors managed to get Keating convicted on yet another “novel” legal theory, as noted by Forbes:
The results, as laid out by Roberts, are certainly disturbing. Savings and loan financier Charles H. Keating Jr. was convicted of the crime of employing fraudulent bond salesmen, even though there was no evidence he knew of their activities, and the crime was not on the books when he supposedly committed it. His conviction was overturned on constitutional grounds after he served 4 1/2 years in jail.
One unique aspect of Trump’s case is that state prosecutors are deriving their charges from federal criminal statutes instead of the other way around, but the particulars of this case are especially troubling, given the politics involved and the fact that Trump was never charged with breaking federal campaign law, much less convicted of it. In order for Bragg to gain a conviction, jurors will have to conclude that Trump broke federal law, something that they are not legally entitled to do, given that lawbreaking never was demonstrated in federal court. To put it another way, New York jurors are being asked to declare Trump guilty of a crime for which he never was charged.
There is no doubt that Trump will litigate the charges himself, making many of the same legal arguments that have appeared in this article. Note that these charges are also unique in New York legal history. That alone should give pause.
As the Wall Street Journal editors noted, this opens a true “Pandora’s box” that is going to have major ramifications for generations. If the Democrats manage to convict and imprison Trump, the rush to bring criminal charges for political reasons will not stop with him. Future Republican administrations, not to mention state prosecutors, will extract their revenge by going after Democratic politicians.
This is a recipe for a banana republic. If Donald Trump has committed a real crime, then the authorities should charge him for it. Instead, the Democrats have decided that they want Trump in prison, and they don’t care if they have to bend the legal system out of shape to get what they want. As I recently wrote, our political elites are unleashing an evil legal and political genie that once out cannot be put back into the lamp. They are sowing the wind, but all of us will reap the whirlwind.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop discuss the global moves being made against the US dollar. The regime's decade long weaponization of money and banking has both international rivals and historical allies looking for alternatives. Ryan and Tho discuss what that means for Americans, and what may come next.
Recommended Reading"World needs to end risky reliance on U.S. dollar: BoE's Carney" (Reuters, 2019): Mises.org/RR_127_A
"Governments Can't Blame Inflation on Energy and Putin Anymore" by Daniel Lacalle: Mises.org/RR_127_B
"Is the Fed Trying to Bail Out the World? Sure Looks Like It" by Kristoffer Hansen: Mises.org/RR_127_C
"Why Fractional Reserve Banking Is behind Bank Failures" by Jonathan Newman: Mises.org/RR_127_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Because his actions were so outrageous, perhaps it is impossible to satirize the former president of Zimbabwe, Robert Mugabe, but perhaps I can describe him.
As a shout-out to all my neighbors in the Asia Pacific, let us not forget the Sun Tzu tradition to “know the enemy.”
For an analysis of the Zimbabwe hyperinflation, see Jayson Coomer and Thomas Gstraunthaler’s article in the Quarterly Journal of Austrian Economics.
Below, I draw similarities between Mugabe’s policies and Western central banks and discuss the effects of both on an economy’s productive capacity.
Perhaps for the staunchest communist, Mugabe was the final stage, the dictatorship of the proletariat, before the onset of utopia. Nonsense! Either utopia takes more than twenty years to dawn or the Zimbabwe Fed didn’t go hard enough in the decade of the 2000s.
Mugabe was a bad egg. His photo should be in the dictionary under “delusional.” To illustrate, I dissect a snippet from a statement Mugabe made in a 2009 Newsweek interview.
Mugabe said, “I’ve been condemned by traditional economists who said that printing money is responsible for inflation.”
Let us give these traditional economists the benefit of the doubt; no circular reasoning arguments for Zimbabwe’s inflation were ever spouted in the West.
Mugabe then said, “I found myself doing extraordinary things that aren’t in the textbooks.”
Mugabe acknowledged that he ignored these traditional economists, and his conduct was considered extraordinary.
Mugabe went on to say, “Out of the necessity to exist, to ensure my people survive, I had to find myself printing money.”
Apparently, hyperinflation was necessary to ensure his people survived. Mugabe had no aversion to gaslighting his people.
Finally Mugabe surmised, “I decided that God had been on my side and had come to vindicate me.”
No, God did not come to vindicate Mugabe. The former president might just rot in hell for his economic mismanagement alone, but that is a theological debate.
For Mugabe, there was no admission of failure, only adherence to a fanatical delusion. This despot ignored textbooks, told lies, used extraordinary measures, and just decided whatever he did was right. Mugabe was plain wrong, and his horrendous policy outcomes resulted in the destruction of “the food bowl of Africa.”
I suspect many of “Mugabe’s people” did not believe his propaganda, and similarly many in the West do not believe most Keynesian economists today.
The similarities between Mugabe, the global financial crisis bailouts, the covid stimulus, and the Federal Deposit Insurance Corporation (FDIC) bailouts are alarming. Today’s bailouts are described as decisive action.
One might think of the directional maps exclaiming, “You are here!,” at shopping malls or theme parks when reading some of the following elements of Mugabenomics:
- Monetize government liabilities
- Maintain negative real interest rates
- Distribute inflation propaganda
- Continually lower bank reserve requirements
- Nationalize industries (e.g., agricultural or banking capital stock)
- Impose import controls
We can point to numerous examples of the above monetary trickery in all the advanced Western economies. For example, the FDIC is bailed out via inflation and taxation, and new FDIC receiverships increase the nationalization of the banking industry.
At the risk of providing a Fed lightbulb moment, I provide examples of Mugabenomics that are employed less sparingly in the West, for now:
- Price controls
- Bans on free markets (bulldozing farmers’ markets)
- Government insiders profiting from trading in banned foreign exchange (FOREX) markets
- Bans on private FOREX accounts
- Surrender requirements on exporters
- Restrictions on cash withdrawals
- Redenomination
- Antiriot police at banks
Mugabe was criticized for quasi-fiscal activities. Bailouts of the banking industry are quasi fiscal. Quasi-fiscal activities allow the state to subsidize an industry—for example, the banking industry—without raising a new tax. The subsidy is paid for via inflation.
When quantitative tightening (QT) is deployed, the alternative passive investment offers a relatively higher return, or gain, on capital. With QT, the idea is that production slows or halts, capital is destroyed, and deflation occurs in factor prices. The more leverage, the worse the capital destruction, so deflation usually hits banks first. The idea of QT is to see orderly, or somewhat linear, deflation occurring in the price of goods and services throughout the economy. Good luck with that!
The worsening boom-bust crisis is caused by the disregard of marginalist economic theory. Free market ideas are virtually censored in the typical undergraduate macro course, yet it is the failure of capitalism that is blamed. It is near impossible to “see the unseen” while surrounded by a socialist fog.
Central banks engaging in quasi-fiscal activities must believe their “expertise” extends to all industry, all economic calculation. Thanks to the Austrian school’s ideas, more people understand that, like Mugabe, the central banks are plain wrong and unashamedly pandering to special interests.
Obviously, the Zimbabweans began using almost any scarce commodity or less inflated fiat as currency as a substitute for the Zimbabwean dollar (ZWD). The ZWD had become useless for conducting economic activity, except for perhaps performing one’s ablutions of a morning. Central bank digital currencies will be literally good for nothing as well.
Austrian school economists favor lower (or no) taxes and sound money. Removing the taxes on gold, silver, bitcoin, or any capital for that matter gives society alternatives to the currencies that may predictably become physical or digital toilet paper sooner than society would like. In the West, we have the option of avoiding the hunger games, but it will take reversing the current progressive tide.
Thanks to their adoring media, politicians create crises and then blame businesses for them. And the political "solutions" are worse than the original problems.
Original Article: "How Politicians Use Regulations to Deflect Blame"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Left Is Not Woke
by Susan Neiman
Polity Press, 2023; 155 pp.
There is much to dislike in this book. Susan Neiman, a former philosophy professor who now heads the “Einstein Discussion Group” in Potsdam, is a socialist who has good things to say about Communist East Germany and parrots every anticapitalist cliché in the book. I have blasted some of her work in earlier reviews. In Left Is Not Woke, though, she makes some good points, and I’m going to concentrate on them in this week’s column.
As you would expect, she sympathizes with the grievances of blacks and other minorities and supports Black Lives Matter. But she thinks that some people in the “woke” Left have gone too far. In their eagerness to find racism everywhere, they dismiss rights and justice as ideological concepts and denounce the main figures of the Enlightenment as hypocritical racists. She says,
What’s confusing about the woke movement is that it expresses traditional left-wing emotions: empathy for the marginalized, indignation at the plight of the oppressed, determination that historical wrongs should be righted. These emotions, however, are derailed by a range of theoretical assumptions that ultimately undermine them.
Her complaint is that the woke movement reduces people to their ethnic identities, but in fact people have many different identities, and rights are universal. If we don’t recognize rights, society is reduced to a power struggle among competing groups. Only if we recognize rights can we condemn slavery as wrong, rather than just say that it benefitted certain groups at the expense of others. Further, the woke are wrong to dismiss the Enlightenment’s appeal to rights as “Eurocentric.”
The Enlightenment “introduced the very idea of humanity that its critics, like de Maistre, were unable to recognize. Enlightenment thinkers insisted that everyone, whether Christian or Confucian, Parisian or Persian, is endowed with innate dignity that demands respect” (emphasis in original). I don’t think that Neiman has taken adequate notice of Brian Tierney’s work showing that some of the medieval Scholastics had the notion of universal rights—see, e.g., his The Idea of Natural Rights—but she deserves praise for her stress on the concept.
She is also correct to emphasize that the thinkers of the Enlightenment did not endorse colonialism and the exploitation of native peoples but on the contrary condemned these practices. For example, as cited by Neiman, Immanuel Kant wrote in Toward Perpetual Peace,
Compare the inhospitable acts of the civilized and especially of the commercial states of our part of the world. The injustice they show to the lands and peoples they exhibit (which is equivalent to conquering them) is terrifying to behold . . . [they] oppress the natives, excite widespread wars among the various states, spread famine, rebellion, perfidy, and the whole litany of evils which afflict mankind.
Oddly, though, she takes Karl Marx to be one of the enlightened humanists, noting that he had a sense of “reverence.” She does not tell us that he criticized rights as an egoistic notion based on the separation of a human being from his community.
Why has the woke movement rejected rights, when on its face the notion would seem to have great appeal in prosecuting the struggle against discrimination? Neiman assigns much of the blame to the malign influence of Michel Foucault and Carl Schmitt. Foucault, she holds, was a discerning analyst of the networks of power in society and correctly discerned that reforms often functioned as new means of oppression. But his relentless rejection of the normative dimension lacked a basis.
From the fact that the rhetoric of rights can be used to control people it does not follow that they lack rights or that the concept of “rights” is useless. She aptly says,
Reason does have the power to change reality, but to view it merely as a form of power is to ignore the difference between violence and persuasion, and between persuasion and manipulation. It is the difference between saying you should do this because I’m bigger than you and you should do this because it’s (a) right (b) good for the community (c) in your self-interest (d) choose your own form of justification. (emphasis in original)
It must be said, though, that although Neiman is correct to protest Foucault’s elision of the normative, she does not make clear her own grounding for rights; from her other work, I suspect this would take a Kantian form.
As she says, it is surprising that Carl Schmitt has influenced the woke Left, since he supported the Nazis during the Third Reich, but such is the case. Leftist writers often cite his rejection of universal appeals to rights as a case of what he called “the tyranny of values,” by which phrase he meant the wrongful effort to justify war and imperial conquest through ideological slogans. Schmitt argued that because the enemy was alleged to be violating universal human values, the limits on warfare imposed by the public law of Europe would be disregarded. He thought that Woodrow Wilson’s declaration in World War I that “the world must be made safe for democracy” was an example of this.
Neiman holds that the Left should be wary of Schmitt’s influence, as in her view he remained even after World War II a convinced Nazi who thought Germany’s policies under Adolf Hitler were correct. Neiman forthrightly rejects Schmitt’s view of values:
Universalist claims of justice meant to restrain simple assertions of power were often abused, from the American and French Revolutions that first proclaimed them to the present day. Carl Schmitt wasn’t wrong about that. He concluded that unvarnished power grabs like that of the Nazis were not only legal but legitimate. You may think that’s the best we can do. Or you may go to work to narrow the gap between ideals of justice and realities of power.
Neiman’s assault on Schmitt is forceful, but I wonder whether she has done him full justice (though if she is right about his view of justice, he could hardly complain); she herself recognizes that a more sympathetic reading of Schmitt is possible. In his postwar memoir, Ex Captivitate Salus: Experiences, 1945–47, which Neiman cites in another context, Schmitt invoked Herman Melville’s short story Benito Cereno to portray himself as in effect a prisoner forced to do the Nazis’ bidding.
Neiman makes another insightful point in the book. She deplores the uncritical acceptance of the view, derived from evolutionary psychology, that human beings, regardless of their conscious motives, always aim to advance their contribution to the gene pool. Following the primatologist Frans de Waal, she rejects what he calls the veneer theory:
The word veneer is well-chosen by de Waal to criticize a number of views that hold that all that’s natural are biologically determined drives to reproduce ourselves; culture is the transparent and thin attempt to further, while glossing over, that reality. . . .
. . . His research on a variety of apes and monkeys led him to conclude “we are moral beings to the core.” (emphasis in original)
De Waal’s assertion is to my mind of vital importance, but it is not dependent on evolutionary speculations: human beings are not controlled by instinct but can act in accord with reason.
Readers will have to wade through a great deal of leftist garbage to get the book’s valuable points, but I think the quest is worth it.
Bob is joined by guest Peter St. Onge to discuss how SVB's CEO, as well as Bernie Madoff, had key positions advising the Fed and SEC. Then they discuss how we should think about central banks losing money.
How the SEC was Charmed by Madoff: Mises.org/HAP389a
Bob's Understanding Money Mechanics: Mises.org/HAP389b
One excuse that political elites give when they drag nations into war is that the conflict was "inevitable" or "unavoidable." Ralph Raico knew better.
Original Article: "The Outbreak of World War I: A Libertarian Realist Rebuttal"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Credit Suisse, one of the fifty largest banks in the world, has joined the long list of Western banks over the past two decades that have been rescued from the brink of failure and subsequently acquired by a larger financial institution.
After comments from the chairman of the Saudi National Bank triggered the evaporation of almost a third of the megabank’s market capitalization, the Swiss National Bank (SNB) announced the creation of a new facility to preemptively strengthen Credit Suisse’s liquidity (i.e., bail the bank out in order to prevent a full-blown financial crisis).
This was followed over the weekend by the announcement of UBS’s intentions to purchase the bank at a significant discount with the full support of the SNB, while over fifteen billion dollars in bonds will be defaulted upon.
In the midst of the panic, Credit Suisse’s CEO, Ulrich Koerner, offered an insightful public statement: “Our capital, our liquidity basis is very very strong,” Koerner said. “We fulfill and overshoot basically all regulatory requirements.”
This was perhaps one of the only factual statements uttered across global financial media during the chaos, amid a flurry of mainstream analysts begging for Credit Suisse’s rescue while conversely claiming that this rescue posed no threat to the global financial system.
Despite its reputation as a tax haven, the Swiss banking industry is one of the most regulated financial sectors on Earth, with countless stringent requirements established in the name of protecting the solvency of the financial system, all of which Credit Suisse dutifully adhered to.
Yet the bank completely imploded, proving that these regulations were at best, useless, and at worst, directly responsible for its woes.
The Usual SuspectAs with every financial crisis, the central bank sets the stage for a collapse by creating untenable economic conditions in the form of an artificial boom fueled by a drastic increase in the money supply.
Figure 1: Swiss National Bank balance sheet (millions of CHF)
picture1.png Figure 2: Swiss National Bank policy rate (percent)
picture2.png The SNB’s near-fifteen-year suppression of interest rates directly lowered the returns on fixed-income assets, which form the bulk of every bank’s portfolio, dramatically diminishing profitability in the Swiss banking sector.
Figure 3: Credit Suisse net income ($USD)
picture3.png More importantly, the SNB’s distortion of markets resulted in all kinds of financial absurdities, such as negative-yielding 50-year government bonds, 0 percent unsecured corporate bonds, and near–0 percent mortgages.
These malinvestments never would have come to life without the SNB’s intervention, but year after year of low interest rate, zero interest rate, and negative interest rate policies have resulted in Swiss markets pricing themselves upon the lowest rates seen in five thousand years, a recipe for disaster.
While the yields on Credit Suisse’s assets continually fell as the suppressed-rate environment dragged on, the vulnerability of its portfolio to a rise in interest rates increased.
Anyone with a shred of common sense questioned the sustainability of keeping rates so low for so long, but as always, state officials justified their delusion through convoluted academic dogma.
Harmful RegulationsCredit Suisse’s downfall further highlights the failure of financial regulators, whose meddling exacerbates the vulnerable position of private financial institutions as middlemen in the business cycle.
Cookie-cutter regulations seeking to stabilize the financial industry through arbitrary capital requirements invariably have the opposite effect, as investment positions are dictated by unelected bureaucrats rather than managers of financial institutions who are evaluating market signals for themselves.
Asset allocation enforced by mandate and decree rather than guided by free market prices leads to severe waste and malinvestment while forcing financial institutions to pursue their desired investments in black markets.
This phenomenon transpired in 2008, as the first Basel accords pushed banks into seemingly low-risk, mortgage-backed securities and off-balance sheet leverage.
The same effects have arisen throughout this cycle, as banks such as Credit Suisse were forced to hold large portions of low-yielding assets in the name of reducing systemic risk.
Rather than protecting the megabank, regulators virtually guaranteed its failure once interest rates rose, as they eventually did.
Boom Turns to BustWhile depressed global consumer price inflation (CPI) rates had provided cover for the SNB’s activities, the recent rise in Swiss CPI figures forced its hand, and it began hiking interest rates and trimming its balance sheet in the second quarter of 2022.
Figure 4: Switzerland consumer price inflation (year-over-year percent change)
picture4.png Less than a year later, with interest rates having barely risen above 0 percent from the previous negative percent rates, economic growth is pointing toward imminent recession, and the country’s second largest bank just required a central bank–sponsored rescue. To any proponent of the Austrian school of economics, this is yet another example that can be added to the list of countless business cycles that have proven the validity of Austrian business cycle theory:
- The Swiss government and the SNB intervened in the economy in the name of fostering prosperity.
- Their intervention fueled a bubble of malinvestment in low-yielding assets.
- Their attempts to slow the resulting uncomfortable rise in prices without causing a recession were futile as the bubble popped, and the illusionary house of cards they had erected collapsed before their eyes.
ConclusionThe dissolution of Credit Suisse is far from the end of this business cycle’s financial crisis, as negative interest rate policies were not unique to Switzerland, having been implemented across Europe and in Japan.
Other “too big to fail” megabanks will likely face the same fate as Credit Suisse, pushing central banks to intervene in order to provide just enough moral hazard to ignite another artificial boom.
The Austrian school’s accurate forecasts (Many. Accurate. Forecasts.) will continue to clash with the ignorance of Keynesian economists and government officials as long as they disregard liberalization in favor of regulation and intervention.
On March 13th, the Pentagon rolled out its proposed budget for Fiscal Year 2024. The results were—or at least should have been—stunning, even by the standards of a department that’s used to getting what it wants when it wants it.
The new Pentagon budget would come in at $842 billion. That’s the highest level requested since World War II, except for the peak moment of the Afghan and Iraq wars, when the United States had nearly 200,000 troops deployed in those two countries.
$1 Trillion for the Pentagon?It’s important to note that the $842 billion proposed price tag for the Pentagon next year will only be the beginning of what taxpayers will be asked to shell out in the name of “defense.” If you add in nuclear weapons work at the Department of Energy and small amounts of military spending spread across other agencies, you’re already at a total military budget of $886 billion. And if last year is any guide, Congress will add tens of billions of dollars extra to that sum, while yet more billions will go for emergency aid to Ukraine to help it fend off Russia’s brutal invasion. In short, we’re talking about possible total spending of well over $950 billion on war and preparations for more of it—within striking distance, in other words, of the $1 trillion mark that hawkish officials and pundits could only dream about a few short years ago.
The ultimate driver of that enormous spending spree is a seldom-commented-upon strategy of global military overreach, including 750 U.S. military bases scattered on every continent except Antarctica, 170,000 troops stationed overseas, and counterterror operations in at least 85—no, that is not a typo—countries (a count offered by Brown University’s Costs of War Project). Worse yet, the Biden administration only seems to be preparing for more of the same. Its National Defense Strategy, released late last year, manages to find the potential for conflict virtually everywhere on the planet and calls for preparations to win a war with Russia and/or China, fight Iran and North Korea, and continue to wage a global war on terror, which, in recent times, has been redubbed “countering violent extremism.” Think of such a strategic view of the world as the exact opposite of the “diplomacy first” approach touted by President Joe Biden and his team during his early months in office. Worse yet, it’s more likely to serve as a recipe for conflict than a blueprint for peace and security.
In an ideal world, Congress would carefully scrutinize that Pentagon budget request and rein in the department’s overly ambitious, counterproductive plans. But the past two years suggest that, at least in the short term, exactly the opposite approach lies ahead. After all, lawmakers added $25 billion and $45 billion, respectively, to the Pentagon’s budget requests for 2022 and 2023, mostly for special-interest projects based in the states or districts of key members of Congress. And count on it, hawks on Capitol Hill will push for similar increases this year, too.
How the Arms Industry Captures CongressThe $45 billion by which Congress increased the Pentagon’s budget request last year was among the highest levels on record. Add-ons included five extra F-35 jet fighters and a $4.7 billion boost to the shipbuilding budget. Other congressional additions included 10 HH-60W helicopters, four EC-37 aircraft, and 16 additional C-130J aircraft (at a cost of $1.7 billion). There were also provisions that prevented the Pentagon from retiring a wide array of older aircraft and ships—including B-1 bombers, F-22 and F-15 combat aircraft, aerial refueling planes, C-130 and C-40 transport aircraft, E-3 electronic warfare planes, HH-60W helicopters, and the relatively new but disastrous Littoral Combat Ships (LCS), referred to by detractors as “little crappy ships.”
The lobbying effort to prevent the Navy from retiring those problem-plagued ships is a case study of all that’s wrong with the Pentagon budget process as it works its way through Congress. As the New York Times noted in a detailed analysis of the checkered history of the LCS, it was originally imagined as a multi-mission vessel capable of detecting submarines, destroying anti-ship mines, and doing battle with the kinds of small craft used by countries like Iran. Once produced, however, it proved inept at every one of those tasks, while experiencing repeated engine problems that made it hard even to deploy. Add to that the Navy’s view that the LCS would be useless in a potential naval clash with China and it was decided to retire nine of them, even though some had only served four to six years of a potential 25-year lifetime.
Contractors and public officials with a stake in the LCS, however, quickly mobilized to block the Navy from shelving the ships and ultimately saved five of the nine slated for retirement. Major players included a trade association representing companies that had received contracts worth $3 billion to repair and maintain those vessels at a shipyard in Jacksonville, Florida, as well as other sites in the U.S. and overseas.
The key congressional players in saving the ship were Representative John Rutherford (R-FL), whose district includes that Jacksonville shipyard, and Representative Rob Wittman (R-VA), whose district includes a major naval facility at Hampton Roads where maintenance and repair work on the LCS is also done. I’m sure you won’t be surprised to learn that, in 2022, Wittman received hundreds of thousands of dollars in arms-industry campaign contributions, including substantial donations from companies like Lockheed Martin, Raytheon, and General Dynamics with a role in the LCS program. When asked if the lobbying campaign for the LCS influenced his actions, he said bluntly enough, “I can’t tell you it was the predominant factor . . . but I can tell you it was a factor.”
Former Representative Jackie Speier (D-CA), who tried to make the decision to retire the ships stick, had a harsh view of the campaign to save them:
“If the LCS was a car sold in America today, they would be deemed lemons, and the automakers would be sued into oblivion . . . The only winners have been the contractors on which the Navy relies for sustaining these ships.”
Not all members of Congress are wedded to the idea of endlessly increasing Pentagon spending. On the progressive side, Representatives Barbara Lee (D-CA) and Mark Pocan (D-WI) have introduced a bill that would cut $100 billion a year from the department’s budget. That figure aligns with a 2021 Congressional Budget Office report outlining three paths toward Pentagon budget reductions that would leave the U.S. with a significantly more than adequate defense system.
Meanwhile, members of the right-wing Freedom Caucus and their allies have promised to push for a freeze on federal discretionary spending at Fiscal Year 2022 levels. If implemented across the board, that would mean a $75 to $100 billion cut in Pentagon spending. But proponents of the freeze have been unclear about the degree to which such cuts (if any) would affect the Department of Defense.
A number of Republican House members, including Speaker Kevin McCarthy, have indeed said that the Pentagon will be “on the table” in any discussion of future budget cuts, but the only specific items mentioned have involved curbing the Pentagon’s “woke agenda”—that is, defunding things like alternative fuel research—along with initiatives aimed at closing unnecessary military bases or reducing the size of the officer corps. Such moves could indeed save a few billion dollars, while leaving the vast bulk of the Pentagon’s budget intact. No matter where they stand on the political spectrum, proponents of trimming the military budget will have to face a congressional majority of Pentagon boosters and the arms industry’s daunting influence machine.
Greasing the Wheels: Lobbying, Campaign Contributions, and the Job CardAs with the LCS, major arms contractors have routinely greased the wheels of access and influence in Congress with campaign contributions to the tune of $83 million over the past two election cycles. Such donations go mainly to the members with the most power to help the major weapons producers. And the arms industry is fast on the draw. Typically, for instance, those corporations have already expanded their collaboration with the Republicans who, since the 2022 election, now head the House Armed Services Committee and the House Appropriations Committee’s defense subcommittee.
The latest figures from OpenSecrets, an organization that closely tracks campaign and lobbying expenditures, show that new House Armed Services Committee chief Mike Rogers (R-AL) received more than $511,000 from weapons makers in the most recent election cycle, while Ken Calvert (R-CA), the new head of the defense appropriations subcommittee, followed close behind at $445,000. Rogers has been one of the most aggressive members of Congress when it comes to pushing for higher Pentagon spending. He’s a longstanding booster of the Department of Defense and has more than ample incentives to advocate for its agenda, given not just his own beliefs but the presence of major defense contractors like Boeing and Lockheed Martin in his state.
Contractors and members of Congress with arms plants or military bases in their jurisdictions routinely use the jobs argument as a tool of last resort in pushing the funding of relevant facilities and weapons systems. It matters little that the actual economic impact of Pentagon spending has been greatly exaggerated and more efficient sources of job creation could, with the right funding, be developed.
At the national level, direct employment in the weapons sector has dropped dramatically in the past four decades, from 3.2 million Americans in the mid-1980s to one million today, according to figures compiled by the National Defense Industrial Association, the arms industry’s largest trade group. And those one million jobs in the defense sector represent just six-tenths of one percent of the U.S. civilian labor force of more than 160 million people. In short, weapons spending is a distinct niche sector in the larger economy rather than an essential driver of overall economic activity.
Arms-related employment will certainly rise as Pentagon budgets do and as ongoing expenditures aimed at arming Ukraine continue to do so as well. Still, total employment in the defense sector will remain at modest levels relative to those during the Cold War, even though the current military budget is far higher than spending in the peak years of that era.
Reductions in defense-related employment are masked by the tendency of major contractors like Lockheed Martin to exaggerate the number of jobs associated with their most significant weapons-making programs. For example, Lockheed Martin claims that the F-35 program creates 298,000 jobs in 48 states, though the real figure is closer to half that number (based on average annual expenditures on the program and estimates by the Costs of War Project that military spending creates about 11,200 jobs per billion dollars spent).
It’s true, however, that the jobs that do exist generate considerable political clout because they tend to be in the states and districts of the members of Congress with the most sway over spending on weapons research, development, and production. Addressing that problem would require a new investment strategy aimed at easing the transition of defense-dependent communities and workers to other jobs (as outlined in Miriam Pemberton’s new book Six Stops on the National Security Tour: Rethinking Warfare Economies).
Unfortunately, the major contractors are ever better positioned to shape future debates on Pentagon spending and strategy. For example, a newly formed congressional commission charged with evaluating the Pentagon’s National Defense Strategy mostly consists of experts and ex-government officials with close ties to those weapons makers. They are either executives, consultants, board members, or staffers at think tanks with substantial industry funding.
And sadly, this should shock no one. The last time Congress created a commission on strategy, its membership was also heavily slanted towards individuals with defense-industry ties and it recommended a 3% to 5% annual increase in Pentagon spending, adjusted for inflation, for years to come. That was well more than what the department was then projected to spend. The figure that the commission recommended immediately became a rallying cry for Pentagon boosters like Mike Rogers and former ranking member of the Senate Armed Services Committee James Inhofe (R-OK) in their efforts to push spending even higher. Inhofe typically treated that document as gospel, at one point waving a copy of it at a congressional hearing on the Pentagon budget.
“An Alert and Knowledgeable Citizenry”The power and influence of the arms industry are daunting obstacles to a change in national priorities. But there is historical precedent for a different approach. After all, given enough public pressure, Pentagon spending did drop in the wake of the Vietnam War, again at the end of the Cold War, and even during the deficit reduction debates of the early 2010s. It could happen again.
[Adapted from a longer article at TomDispatch. Reprinted with permission of the author.]
Keynesian economists claim that cutting costs in a business slowdown is counterproductive. As usual, the Keynesians have it backward.
Original Article: "Does Cost Cutting Undermine Economic Growth?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
As the financial ripples following the recent collapse of Silicon Valley Bank (SVB) continue to run through the financial sector, a predictable voice has weighed in on the affair, and, as always, giving bad advice. Elizabeth Warren, never one to skip a chance to publicly gnaw on a financial carcass, writes in the New York Times that the entire problem is lack of government regulation. Of course.
The US senator from Massachusetts has spent most of her Washington career calling for both easy money and a financial sector that will “serve the little guy” and be the paragon of fiscal responsibility at the same time. Her demands are mutually exclusive, but that doesn’t stop her from trying to be the voice of financial reason from the left. She writes in the Times:
No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules.
In the aftermath of the 2008 financial crisis, Congress passed the Dodd-Frank Act to protect consumers and ensure that big banks could never again take down the economy and destroy millions of lives. Wall Street chief executives and their armies of lawyers and lobbyists hated this law. They spent millions trying to defeat it, and, when they lost, spent millions more trying to weaken it.
Since none of the changes to Dodd-Frank in 2018 would have prevented the collapse of SVB, Warren is attempting to apply a general concern (easing of some bank regulations) to a specific event. But by claiming that financial crises are the result of lax regulation, Warren overlooks the real reason that we had the 2008 meltdown and that the financial system is also in near crisis today: easy money from the Federal Reserve System.
To put it mildly, Elizabeth Warren lives in an economic netherworld in which easy money equals responsible monetary management. Banks give near-unlimited credit to people with zero or poor credit histories to buy homes or cars, the Fed stays in permanent money-pumping mode, lending is directed by the political system, and all the while banks are regulated by a green-eyeshade regime that makes Ebenezer Scrooge look like Wilkins Micawber. Perhaps a typical progressive Massachusetts voter might be able to logically tie these things together, but for people grounded in causal realism, her comments make no sense.
Peter Schiff noted in his famous speech at the Mises Institute in 2009 that a financial system should be regulated by profits and losses. However, that kind of system cannot have government bailouts, easy money triggered by central banks, or political favoritism, as government interference will overpower natural market regulation because the political system will declare winners and losers.
The system that Warren and others like Paul Krugman demand is something close to the regulated banking cartel that was in place from the New Deal to about 1980. Writes Krugman:
The banking industry that emerged from that collapse was tightly regulated, far less colorful than it had been before the Depression, and far less lucrative for those who ran it. Banking became boring, partly because bankers were so conservative about lending: Household debt, which had fallen sharply as a percentage of G.D.P. during the Depression and World War II, stayed far below pre-1930s levels.
He adds: “Strange to say, this era of boring banking was also an era of spectacular economic progress for most Americans.”
Far from being a time of “spectacular economic progress,” the late 1970s was a period of stagflation. Inflation rates hit double digits and unemployment was not far behind. During the so-called golden era of which Krugman writes, Regulation Q, which was created by the Federal Reserve Board in 1933, restricted interest rates on time deposits. This and other regulations greatly restricted bank lending to ensure that only the best customers received loans. This regime bumped along with no major bank failures or major problems until the late 1970s.
When the Carter administration sought to loosen lending rules and abolish Regulation Q, it wasn’t out of ideology but rather because American banks were facing a disintermediation crisis. For that matter, even President Ronald Reagan’s so-called signature financial deregulation measure, the 1982 Garn-St. Germain Act, was much more the initiative of Ferdinand St. Germain, the Democratic chairman of the House Banking Committee, than anything from the White House.
All of this contradicts the standard narrative we hear regularly from Krugman and progressives like Warren, but the history of financial and economic deregulation over the past forty-five years has had very little to do with ideology and more to do with trying to mitigate the growing problems caused by the regulatory regimes themselves, something I pointed out in a reevaluation of the Carter presidency.
With the appointment of Alan Greenspan as chairman of the Federal Reserve in 1987, the Fed launched an easy-money regime that has lasted nearly forty years, and (contra Warren) easy money means consequences. By pushing interest rates to near zero, the Fed has eliminated the attractiveness of interest-bearing securities as investments, driving banks and other financial institutions to other financial instruments. One of the reasons that so many investment banks have been holding mortgage-backed securities is because these instruments have had better returns than instruments paying interest.
This brings us to the great contradiction: progressives like Warren have demanded that the Fed suppress interest rates, all the while denouncing the hard fact that artificially low interest rates drive investors—including banks—to embrace riskier lending and outside investment.
Neither has Warren limited her contradictory demands to banking and finance. She loudly advocates for rent controls—all the while decrying housing shortages (which rent controls would make even worse)—and, for good measure, demands government-enforced price controls for the rest of the economy. She also is a leading voice for student loan forgiveness, conveniently overlooking the fact that such “forgiveness” measures only transfer responsibility from borrowers to other taxpayers and hardly fits her ideal of regulated lending.
Second, Silicon Valley and the financial industry tied to it have been cash cows for Democratic Party candidates for the past several election cycles. Even leaving out Samuel Bankman-Fried and the millions laundered mostly to Democrats through the now-collapsed FTX exchange, no regulator tied to a Democratic regime is going to do anything to shut off the political money spigot that has given the party a huge edge the past two elections.
The symbiotic relationship between Washington and the tech industry is simply not conducive to the kind of financial oversight Warren demands, something she almost surely understands. That the feds are bailing out everyone associated with SVB, even above the $250,000 limit for federal deposit insurance, probably is as much a political payoff as it is a measure to keep the markets from being further frightened.
Warren, the New York Times, and the assortment of progressive pundits are spinning this crisis—and nearly every other financial one—as a regulatory problem that can be solved by all-knowing financial clairvoyance. But none of them are calling for an end to the real problem: the easy-money regime that is rotting out the economy and especially the financial sector from the inside out.
Western governments seem to relish a clash with Russia, despite the specter of nuclear war. If so, it will be a conflict built on government lies.
Original Article: "The Last Lie Government Will Ever Tell"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It has been proposed that praxeology has potential not only as the foundation for growing the Austrian school of economics but other sciences as well. The utility of Austrian economics is immense, and similar achievements in other domains would be welcome.
However, it seems like a difficult task, as demonstrated by a recent effort to expand praxeology to psychology. The present article discusses the scope and power of praxeology and the conditions of psychological science.
In his book Human Action, Ludwig von Mises describes praxeology as the general theory of human action. At the most fundamental level, he distinguishes praxeology theory from history. History, in his account, is rather the collection and interpretation of data. Another way to make the distinction is to separate claims as either valid a priori (theory) or contingent on facts (history). The focus in our case is the use of theory—the use of praxeology—to study human action.
What is the distinguishing attribute that makes praxeology so useful? It is the recognition of the action axiom as the proper starting point of economical reasoning. The action axiom states that men act purposefully. This, I believe, is the core of Misesian praxeology.
There are other attributes of praxeology, such as methodological individualism and logical deduction. But without the action axiom, individualism and logic are merely that. They are not praxeology, the power of which is contingent and limited by the action axiom. Austrian economics has expanded our knowledge of economics widely within that framework, and I personally view Hans-Hermann Hoppe’s work on praxeology-based epistemology as immeasurably illuminating.
A psychology of human action that applies Misesian praxeology will have to show first, that it remains within the bounds of logical reasoning from the action axiom, and second, expands our knowledge about human psychology. A claim like “Human action is motivated by a struggle in the social-status hierarchy” is not logically deducible from the action axiom and thus not a praxeological claim. It does not expand our knowledge of human psychology either.
Now, it seems obvious that this claim is true to some degree, but we cannot say exactly how this struggle for social hierarchy influences our behavior. Any such specific theories or conclusions are dependent on facts derived from empirical observation above and beyond theoretical fundamentals.
In Human Action, Mises writes:
The field of our science is human action, not the psychological events which result in an action. It is precisely this which distinguishes the general theory of human action, praxeology, from psychology. The theme of psychology is the internal events that result or can result in a definite action. The theme of praxeology is action as such.
Mises distinguished praxeology from psychology, and I believe that was judicious. Further, psychology might be a uniquely ill-suited domain for the kind of armchair reasoning that works so well in other lines of inquiry. Behaviorists have recommended parents not to soothe their crying babies because it will reinforce crying for attention. From behavioral theory alone, this might seem to be reasonable. But psychology is about everything, including evolved developmental dynamics that are not evident a priori. Now, one might say that in this case it must be obvious that you can’t leave your child crying like the behaviorists recommended. I agree, and I also think it points to the danger of proving too much with theory, and that theory is at its very best when limited to its core capability and function.
Very little is evident a priori in psychology, and it’s a domain suited for skepticism and scientific rigor. This is especially the case when we involve physiological events or evolutionary history. We should involve such aspects but as testable hypotheses. Even though it might seem self-evident that certain aspects of our nature influence mind and behavior, the specifics of this influence are not logically derivable like individual preferences are from the action axiom. Psychological science is broad and ranges from the humanities to the natural sciences. Although the choice of method will depend on the research question at hand, the necessity of empirical methods is rarely escaped. Just as the fundamental epistemology necessitates sound a priori theory, the advancement of applied models necessitates falsifiability of hypotheses and proper tests to demonstrate validity a posteriori. Merely the realization that scientific psychology tries to expose the developmental processes of such phenomena as self-deception and virtue signaling should prompt skepticism toward the fallibility of one’s preconceptions. If anything passes as a foundational axiom in psychology, it is that perception does not equate to a correct interpretation of what’s factual.
It’s not surprising that the robustness of praxeology begets eagerness to utilize the method to tackle important intellectual problems. It becomes even less surprising when one considers the confused pseudoquantifications in social sciences, as well as the politicization and general decadence of academic social science. Still, good theory should be the proper foundation of good empirical methods, not a substitute.
Canadian politicians tout their healthcare system as morally superior to private medicine. There is nothing moral about relegating thousands of people to death each year for lack of medical care.
Original Article: "Democracy Created Canada’s Lethal Healthcare System"
This Audio Mises Wire is generously sponsored by Christopher Condon.
At the end of February 2023, the price of oil (WTI and Brent), Henry Hub and ICE natural gas, aluminum, copper, steel, corn, wheat, and the Baltic Dry Index are below the February 2022 levels.
The Supply Chain Index and the global supply-demand balance, published by Morgan Stanley, have declined to September 2022 levels. However, the latest inflation readings are hugely concerning.
Considering the previously mentioned prices of commodities and freight, if price inflation were a “cost-push” phenomenon, it would have collapsed to 2 percent levels already. However, both headline and core inflation measures, from the Consumer Price Index (CPI) to Personal Consumer Expenditure Prices (PCE) show extremely elevated levels and rising core inflationary pressures.
We have mentioned numerous times that there is no such thing as “cost-push” price inflation. It is only more units of currency going toward relatively scarce goods and services.
The monetary aspect of inflation has been proven on the way up and in the commodity correction. The Federal Reserve’s rate hikes have deflated the price of commodities despite rising geopolitical tensions, supply challenges, and robust demand growth. Rate hikes make it more expensive to store, take long positions, and finance margin calls. Powell offset the entire supply-demand tightness impact on prices.
Governments cannot blame price inflation on Putin’s war or the so-called “supply chain disruptions” anymore. Printing money above demand is the only thing that makes prices rise in unison. If a price rises due to an exogenous reason but the quantity of currency remains equal, all other prices do not rise. A PCE index of 4.5 percent in January 2023 with all the main commodities below the January 2022 level shows how high inflationary pressures are.
Price inflation is accumulated, and the narrative is trying to convince us that bringing down inflation from 8 percent to 5 percent in 2024 will be a success. No. It will be a massive destruction of more than 20 percent of purchasing power of citizens from inflation in the period.
However, rate hikes are not enough. Broad-based money growth needs to come down rapidly. So far, in the United States, broad money growth is flat and has declined to more reasonable levels in December 2022. However, the latest European Central Bank reading of broad money growth in the euro area points to a 4.1 percent increase, which is very high compared to modest gross domestic product (GDP) growth and certainly very high compared with the estimates for 2023.
Broad money growth was too aggressive in 2022 and it may take some time to ease the inflationary pressures to a level that does not make citizens even poorer.
Two recent papers published by the Bank of International Settlements remind us that money growth was the main culprit for the price inflation surge. Claudio Borio, Boris Hoffmann, and Egon Zakrajšek conclude that
a link can also be seen in the recent possible transition from a low- to a high-inflation regime. An upsurge in money growth preceded the price inflation flare-up, and countries with stronger money growth saw markedly higher price inflation. Looking at money growth would have helped to improve post-pandemic inflation forecasts, suggesting that its information value may have been neglected.
(Does money growth help explain the recent inflation surge?). Reis explains that “Inflation rose because central banks allowed it to rise. Rather than highlighting isolated mistakes in judgment, this paper points instead to underlying forces that created a tolerance for inflation that persisted even after the deviation from target became large” (The burst of high inflation in 2021–22: how and why did we get here?)
The supply chain and Ukraine war excuse has vanished, but inflation remains too high. Many market participants want rate cuts and money supply growth to see higher markets, with multiple and valuation expansion. However, rate cuts are very unlikely in this scenario and central banks know they have caused a problem that will take more time than expected to correct.
Governments cannot expect price inflation to correct when public spending is rising, which means higher consumption of new monetary units via deficit and debt.
Citizens are suffering these inflationary pressures via weakening real wage growth added to much higher cost of living as the prices of nonreplaceable goods and services—education, healthcare, rents, and essential purchases—are rising much faster than the headline CPI suggests.
We are all poorer, even if headline price inflation is slightly lower. Slowing inflation growth does not mean lower prices, just a slower pace of destruction of the purchasing power of currencies.
Someone will invent another excuse to blame price inflation on anything except the only thing that causes prices to rise at the same time: printing currency well above demand.
In his 1884 article “Mind as a Social Factor,” Lester F. Ward attacked the laissez-faire doctrine in an “inversion of values” that would have made Friedrich Nietzsche blush. “But how shall we distinguish,” Ward asked,
this human, or anthropic, method from the method of nature? Simply by reversing all the definitions. Art is the antithesis of nature. If we call one the natural method we must call the other the artificial method. If nature’s process is rightly named natural selection, man’s process is artificial selection. . . .
The fallacy [in the laissez-faire doctrine] is a non sequitur. . . . [E]very mechanical invention proves that nothing is easier than to interfere successfully with the operation of . . . uniform natural forces. They have only to be first thoroughly understood and then they are easily controlled.
One could hardly find a better expression of the postmillennial progressive agenda to remake the world in man’s image. Because man has “mind,” his species (or at least the enlightened members of it, like Ward) will overcome the “blighting influence” of natural laws and usher in a utopian new age, an entirely artificial world impervious to the physical limitations of scarcity. Ward’s vision of artifice continues to plague public discussions on monetary policy today. This monetary artifice has gone largely unchallenged primarily because of the promiscuous use of the word “money,” allowing Ward’s artificial vision to shape public perceptions of monetary policy. To counter the artifice that currently afflicts popular understanding of monetary policy, a more analytically rigorous use of the word “money” is required.
The ruthless success of progressive artifice is evident in the current global monetary order. Since the US default in 1971, the global economy has been built on the artifice of money. What could be more artificial than a currency valued against a “basket of currencies” which themselves have no original use value? What exactly is a “basket of currencies”? Where does it come from? Where do I exchange my dollars for said baskets? The short answer is that there is no “basket of currencies.” The basket is simply an artifice invented to mask the reality that the US dollar is entirely artificial, created, as Murray Rothbard put it, “out of thin air.”
Thus did a small number of “enlightened” individuals gain a global monopoly on the issuance of the universal medium of exchange—a control that infiltrates the most intimate decisions of individual human action. The “people” could choose an alternative medium of exchange or even revert to barter temporarily until a new medium of exchange emerged, its value set by the demands of the market. However, although rejecting the monopoly money is possible, the consequent inconvenience and privation make it unlikely that a critical mass of people will make that choice. Therefore, according to Ludwig von Mises and Rothbard, what we face today is a de facto monopoly on “money” which will continue as long as the majority consents to its use.
In 1912, Mises defined money simply as a medium of exchange. However, within that broad category, he distinguished between different kinds of money, noting their heterogeneous effects on the economy. These distinctions are lost in the public discourse since the word “money” is used indiscriminately to refer to mutually exclusive media of exchange. In her recent defense of modern monetary theory (MMT), for example, economist Mariana Mazzucato pointed out that “governments create money all the time.” The critical point here is that Mazzucato is not referring to what Mises called money in the “narrower sense”—also referred to as money proper—which means either the commodity itself (commodity money) or paper claims representing that commodity at par (credit money). What the MMT camp is talking about is not money proper, but rather “fiduciary media.” Because fiduciary media do not represent a claim to any physical commodity, they can in fact be created at will in unlimited quantities.
Free-market economists have also used the word “money” loosely, but unlike Mazzucato, when Austrians think of money, they mostly imply money in the narrower sense, which emphatically cannot be created “out of thin air.” In response to Mazzucato’s assertion that the Germans had simply created 100 billion euros “overnight,” Jeff Deist and Bob Murphy posed the question, “Can the US realistically implement a permanent wartime economy?” Assuming that the money creation required to implement such an economy refers to money in the narrower sense, Deist and Murphy are correct to assert that the answer is no. However, with no distinction between money proper and fiduciary media, both assertions—in reality mutually exclusive—appear to be correct. Clearly, although both sides use the word “money,” they are actually talking about two entirely different media, each with different consequences for the economic order.
Unlike commodity money and credit money, fiduciary media are not bound or constrained by the scarcity of an actual commodity and therefore are artifice. Thus, in 1971, when Richard Nixon closed the gold window, leaving the value of the dollar to float in a “basket of currencies,” the progressive dream of a completely man-made, artificial economy was finally achieved. Since the source of money in the economy is completely disconnected from the reality of scarcity, the answer to the question about the feasibility of a permanent wartime economy has to be yes. As long as nations and individuals agree to use the monopoly money, the wartime economy of the US (and the world) can go on indefinitely. This, then, is the artifice of money.
Since, as Mises and Rothbard argued, all governments ultimately rule by consent, it is possible to dismantle the artificial economy by means of education. In his essay, “Anatomy of the State,” Rothbard emphasized that “‘we’ are not the state; the government is not ‘us.’” Imparting to the public at large the instrumental distinction between money proper and fiduciary media is the most direct and visceral way to demonstrate this fundamental principle. If people understood the difference between commodity money that must be acquired through labor and fiduciary media that can be created at will out of thin air, they might be outraged when unelected bureaucrats like Mazzucato brazenly assert that governments, unlike “households,” do not have to “earn tax revenue.”
Predictably, this line of thinking leads to the following question: If the government can print money out of thin air, then why can’t I? Deploying careful distinctions between money proper and fiduciary media would make it painfully obvious to individuals that the government arbitrarily imposes a scarcity of fiduciary media for individuals. Having realized that there is no logical reason, apart from the arbitrary decisions of the self-appointed enlightened ones, for individuals’ want of fiduciary media, the public would understand, quite viscerally, that the government is “not an institution of social service.” Thus, with a precise understanding of the different kinds of money, we see immediately that not only is the government is not “us,” but it is rather, as Bertrand de Jouvenel described it, “a band of brigands.”
Money proper is not artifice; it is a physical thing of value, acquired through labor and subject to scarcity, that emerges out of the needs of individuals, who alone, through myriad daily, voluntary exchanges, determine its objective exchange value. An economic order based on government-issued fiduciary media, on the other hand, will always be, as Ward predicted, “easily controlled.” However, once people understand the artifice of money and see its real effects on their economic condition, they might indeed withdraw their consent to the state’s “monopoly money.”
Karl Marx may have been a philosopher or just someone with an opinion. He was not, however, an economist.
Original Article: "Karl Marx Was Not an Economist"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Political correctness in Western societies fosters polarization and a toxic culture of ignorance. Although people are rightly outraged by the cancellation of prominent figures, the most glaring consequence of political correctness is the proliferation of ignorance. When speakers are cancelled for contradicting sacrosanct opinions, this leads to an environment where people never arrive at the truth because ideas are not disputed in the public domain.
This devolution of Western culture stymies free speech and intellectual progression. While some view cancel culture as primarily an assault on freedom, its effects are infinitely more pernicious. Societies evolve by exchanging inferior ideas for superior ones, and cancel culture is disrupting the mechanism filtering out bad ideas. Due to cancel culture, people hold steadfast to false doctrines; the belief that the gender pay gap is a result of discrimination is a classic example that continues to circulate despite evidence showing that gaps are an outcome of working hours and occupational segregation.
The effect of endorsing inaccurate assumptions is that such beliefs will be employed to justify misguided policies. If people think that women on average earn less than men because of discrimination, they will lobby for policies to rectify the problem, and such policies could be expensive to implement. Entertaining ignorant beliefs will also make it difficult to improve social mobility and narrow the highly touted black-white achievement gap.
Current narratives state that blacks are underperforming in education because of racism, and some propose abolishing standardized tests as a tool to help black students. However, research shows that black students are likely to do well when teachers impose rigorous standards rather than when standards are diluted. Case after case reveals that when scrutinized, politically correct views fail to pass the accuracy test. Nonetheless, wrongheaded ideas are propagated as gospel to the detriment of intellectual progress.
People are entitled to express political opinions and promote them as accurate. However, critics are not obliged to accept folly as truth. The popularity of dubious ideas would not be a problem if proponents would desist from compelling critics to espouse these views or be expelled from polite society. Institutionalizing fallacious ideas has resulted in widespread confusion, especially since these fallacies are inconsistently applied. In polite society, it is objectionable to say that race is not a social construct, and even mainstream consensus purports that race is primarily a social category, but it must be noted that consensus is not evidence.
Yet, despite the acceptance that race is malleable, Rachel Dolezal became a pariah after she was exposed as a white woman pretending to be black. However, why should this pose a problem when race is a social construct? Culture is shared and learned, and we all have the capacity to appreciate foreign cultures. Based on the malleability of race, a white person identifying as black should not be seen as problematic. Sex is biological, so although a man can identify as a woman, he can never become a woman. Yet, activists are infuriated when white people identify as black, even though doing so is more logically plausible than a man identifying as a woman.
Some find white people identifying as black offensive because they claim that doing so provides these white people with benefits that belong to historically oppressed black people. But this is a double standard, since men who identify as women gain benefits that belong to women, who are also seen as oppressed. It is mind-boggling that woke activists can’t see the parallels between transracialism and transgenderism. Moreover, equally outrageous is that they don’t seem to recognize that trans women are depriving real women of benefits when trans women profit from gender quotas.
For years, feminists have been arguing that women have been disenfranchised. Today, many feminists, except for some radicals, advocate for the disenfranchisement of women by embracing male athletes who compete with females. Instead of empowering women, the idiocy of political correctness inspires feminists to endorse the marginalization of women. Allowing men to compete with women diminishes opportunities for female advancement, but stating the obvious will ruin one’s career.
Kathleen Stock was ruthlessly hounded by the unthinking mob for arguing that allowing men to identify as women creates dangerous spaces for women. Stock asserted that the desire to be seen as trans friendly has led companies to advocate policies that make women susceptible to violence:
Even more pressingly, if we lose a working concept of “female” . . . self-declared trans women (males) may well eventually gain unrestricted access to protected spaces originally introduced to shield females from sexual violence from males. We are already seeing the erosion of these, as companies and charities open formerly female-only spaces such as changing rooms, shared accommodation, swimming ponds, hospital wards, and prisons, to everyone out of a desire not to appear transphobic.
Moral blind spots and contradictions are baked into the psyche of political correctness. Another issue is that denying the genetics of IQ is fashionable despite evidence to the contrary. Politically correct thinkers struggle to appreciate that IQ is genetic, but they don’t have a problem accepting the heritability of other traits or diseases if they can prove that such inherited characteristics disadvantage minority groups. For example, many believe that blacks are more likely to suffer from high blood pressure because during the slave trade’s Middle Passage, Africans who retained salt had lower mortality rates. Therefore, they passed on genes conducive to salt retention, which leads to hypertension.
However, this idea was thoroughly debunked by Heidi L. Lujan and Stephen E. DiCarlo in an academic paper:
Available evidence suggests that the difference in salt-sensitivity between African-Americans and Caucasians (European-Americans) is significantly smaller than what the Slavery Hypertension Hypothesis suggests. In fact, Chrysant and colleagues were unable to find differences in the blood pressure response to salt by race, age, sex, or body weight. Thus, salt sensitivity is not a racial problem, but rather a human problem, and the generalization that blacks are salt sensitive and whites are not should be discarded.
Nevertheless, the evidence does not seem to disabuse politically correct activists of incorrect notions. Indeed, sensitive topics can be involved in political debates, but sympathizing with delusional people will create a generation of idiots and destroy civilization in the process.
The Ralph Raico Memorial Commencement Lecture.
Recorded at the 2023 Austrian Economics Research Conference hosted at the Mises Institute in Auburn, Alabama, March 16–18, 2023.
The Austrian Economics Research Conference is the international, interdisciplinary meeting of the Austrian School, bringing together leading scholars doing research in this vibrant and influential intellectual tradition. The conference is hosted by the Mises Institute at its campus in Auburn, Alabama, and is directed by Joseph Salerno, professor of economics at Pace University and academic vice president of the Mises Institute.
Decolonization is a popular academic and media buzzword. But is colonialism actually responsible for poverty in developing countries? This question deserves an honest answer.
Original Article: "Did Colonialism Impoverish Africa and Asia? Perhaps Not"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The collapse of Swiss banking giant Credit Suisse recently was a catastrophe long in the making. A quick perusal of the bank’s financial statements from recent years shows that we’re dealing with something analogous to a classic bank run. Credit Suisse’s pool of liquid assets declined more than 50 percent from 2021 to 2022, mostly in October 2022, from CHF 229.9 billion to CHF 118.5 billion as depositors withdrew their money. Despite the timing, however, the fall of Credit Suisse had little directly to do with the collapse of Silicon Valley Bank and a lot to do with the contraction of the international monetary system.
The Contractionary FedAs pointed out last year, the Federal Reserve has long pursued a deflationary policy. This may come as a surprise, since official inflation numbers are still elevated and Federal Reserve officials have continued (until very recently, at least) to pronounce their determination to bring down inflation. However, if we look at changes in the money supply, and especially changes in that part of it the Fed directly controls, it becomes apparent that sizeable deflation has been occurring. The US M2 money supply had been slightly falling since April 2022 and in total declined by about USD 900 billion until February 2023 (figure 1), but the real contraction is significantly larger.
Figure 1: US M2 money supply, January 2021–March 2023
picture1.png To see this, we only need to look at the Fed’s balance sheet, specifically at reverse repurchase (repo) agreements (which is where the Fed sells an asset and promises to buy it back the following day at a slightly higher price determined by the repo rate). As I pointed out last year, by accumulating reverse repos, the Fed is effectively sterilizing bank reserves. Banks and financial institutions move their cash into repos at the Fed, where they earn a cool, risk-free 4.80 percent. As a result, the reserves in the financial system have fallen, since repos do not serve as reserve balances for the commercial banking system. Reverse repo operations have partly served to soak up reserves added to the system during the corona inflation, but it is important to note which financial institutions have access to the Fed’s reverse repo operations.
Not all banks have access—in addition to the primary dealers, only accepted reverse repo counterparties can conduct business with the New York Fed. A quick look at these lists reveals them to be a veritable who’s who of Wall Street and international investment banks, from old names like J.P. Morgan and Goldman Sachs to more recently famous Blackrock and Vanguard to Swiss banks Credit Suisse and UBS. It is especially the international aspect that is of interest here. It is the markets that these international banks operate in that have been drained of dollars due to Fed deflation—and above all, that means the Eurodollar system.
Eurodollars and the FedEurodollars are simply dollar deposits originating outside the United States and thus not subject to US regulations. Since the 1960s they have played an increasing role in the international financial system. The Eurodollar system is not, however, totally detached from the American banking system; above all, it is not detached from the Federal Reserve. The Eurodollar banks, like all modern banks, operate on a fractional reserve basis.
Thus, if reserves are cheap and plentiful, they expand; and if reserves become expensive and scarce, they contract. The ultimate supplier of reserves is the Federal Reserve—either directly, through related international investment banks or indirectly, through US banks that supply credit to international borrowers. Thus, while the expansion of Fed reverse repos seems to have had only a belated and weak effect on the domestic money supply, the Eurodollar institutions experienced a significant contraction of reserves.
Figure 2: US dollars to euro spot exchange rate, January 2021–January 2023
picture2.png Unfortunately, we have no direct knowledge of the number of Eurodollars in existence, but the rapid appreciation of the dollar throughout 2021 and 2022 suggests that there was a substantial contraction of the Eurodollar supply (figure 2). This contraction also compares well with changes in reverse repos: the dollar appreciated continuously to almost 96 cents per euro in late September 2022, only to depreciate rapidly thereafter, while reverse repos reached a peak of USD 2.4 trillion on Friday, September 30, 2022, and have fallen significantly since (figure 3; it should be noted that there is a seasonal spike in reverse repos at quarter end, but the trend is clear). The Fed’s contraction therefore really ended back in October 2022—after that, no talk of tightening was connected to the reality in the international dollar market.
Figure 3: Overnight Fed reverse repos, January 2021–January 2023
picture3.png Back to BernIt is surely significant that the change in Fed policy came about at exactly the time that Credit Suisse felt the squeeze, in October 2022. Now, this change in policy was not necessarily entirely driven by the Fed, since credit contraction would drive up interest rates in the market and thereby make it attractive to move from reverse repurchases to expansionary private lending anyway. As credit tightened for Credit Suisse, the Swiss bankers would be willing to pay dearly for short-term loans to fund the outflow of deposits and avoid illiquidity and bankruptcy. However, that can only explain a short-run change in the flow of liquidity. The turn to loose money in October, then, was a deliberate policy change, aimed at propping up the Eurodollar market.
One can speculate about what prompted the Feds to first drain the Eurodollar system and then reverse the decision when the first bank threatened to collapse. It is always a live option that these people did not, in fact, know what they were doing—but it strains credulity that the Cantillionaires, those bankers and financiers close to the central bank, whose wealth and power depend on access to the Fed and the privileges supporting the broader fiat money system, did not realize the implications of the policy changes.
According to the central bank’s own explainer, raising the repo rate (and thus attracting more reverse repos) is simply a necessary part of raising the interest rate on domestic reserves and thereby preventing a domestic overexpansion of the money supply. Since the Fed risked losing all credibility if it did nothing in the face of the high inflation and monetary overhang from the corona policies, Chairman Jerome Powell and his fellow rate setters may simply have felt forced. Once their primary clients, the Cantillionaires, really felt the heat, however, the Fed quickly changed gears.
Central Bank to the World?In the aftermath of the collapse of Credit Suisse, still in the process of being taken over by UBS, on March 19 the Federal Reserve and the main central banks of the Western world reactivated their liquidity swap lines. These swaps lines were a key tool in “saving” the international system after the great financial crisis and will play a similar role today: non-US central banks will borrow dollars from the Fed using their own currencies as collateral.
Say the Swiss National Bank (SNB) wants to supply Swiss banks with dollar liquidity. In a swap with the Fed, it first buys a dollar deposit at the Fed in exchange for a Swiss franc–denominated deposit at the SNB. The SNB can then use the dollars to supply liquidity to the Swiss financial system. To close the swap, the SNB sells the dollar deposit back to the Federal Reserve against the Swiss franc deposit. The exchange rate in this transaction is frozen; the Swiss National Bank only has to pay a small amount of interest on the loan. However, the swap is also an inflationary instrument: money is newly created to be used in these swaps—after all, that’s all a central bank can do.
A second important inflationary policy that the Fed has reactivated is the Foreign and International Monetary Authorities (FIMA) Repo Facility. Here central banks can borrow from the Fed using US Treasurys as collateral. While the focus in the press has been on the liquidity swap lines, the real action so far has been here: the supply of repos to foreign official institutions has expanded from zero to USD 60 billion in the week ended Wednesday, March 22. This looks so far to be a limited, one-off liquidity support—the coming weeks will show how many dollars the Fed will inject into the global dollar system.
It may sound like the Federal Reserve is now engaged in an altruistic quest to save the global financial system, and that is the stated intention. But it is far from altruistic. The Eurodollar system and the rest of the central bank–sponsored global financial system benefit the Fed’s real patrons among the Cantillionaires, who are placed in a position of privilege as bankers to the world. If the Eurodollar system collapsed, the Fed would have the most to lose. After all, any currency could serve as the global trade currency; the global use of the dollar and the Eurodollar system supported by the Fed and Western central banks are not necessary. However, he seigniorage the US earns on the global use of the dollar funds the US’s permanent balance-of-payments deficit: dollars and debt are exported in exchange for real goods and services, while Americans buy up foreign assets at a discount. Barry Eichengreen estimated that the US pays 2–3 percentage points less on its foreign liabilities than it earns on its foreign investments.
In fact, the global financial system resembles the old Bretton Woods system. Bretton Woods led to a great wealth transfer from Europe to the US—to the spoliation of Europe, as Jacques Rueff called it. The modern, dollar-based financial system leads to similar benefits for the US economy and for US-based financiers. Americans can consume more and the US government can spend more because foreigners are forced or induced to use the US dollar. The Federal Reserve, now and always, is simply acting in the narrow interests of its sponsors. These interests dictate policy. Fed tightening was probably seen as necessary to maintain the legitimacy of the system, but once serious problems emerged back in October, the Fed quickly changed gears to easing. That Credit Suisse fell despite this change, and that we now see much more drastic interventions in the financial system, only shows the limitations of central bank power. Inflation can only distort reality for a while, benefiting some and hurting others, it cannot permanently lead to general prosperity—a crisis must come.
Throughout its history, liberalism—the ideology today called “classical liberalism” or “libertarianism”—has suffered from the impression that it is primarily against things. This is not entirely wrong. Historically, liberalism coalesced as a recognizable and coherent ideology in opposition largely to mercantilism and absolutism throughout Western Europe. Over time, this opposition extended to socialism, protectionism, imperialism, aggressive warfare, and slavery as well. In this regard, liberals have for centuries fought against a wide array of moral and economic evils that spread poverty, injustice, and misery.
Being “against” things, however, has never been sufficient in itself, and liberals have never contented themselves with being so. Liberalism, of course, has long been closely associated with so-called “bourgeois” values, private property, local self-determination, and—in spite of claims to the contrary—religious institutions. Today, however, these institutions that have long undergirded liberalism and the free society are in an advanced state of decay. These are the institutions that have made society and civic life possible without state control.
The decline of these institutions did not happen by accident. The power of the modern state is the result of long wars by the state against independent churches, against family ties, and against local self-determination and self-government. The state has never suffered rivals, so any organization that competes for the “hearts and minds” of the population must be made impotent.
So, we find that the challenge at hand is more than simply opposing the state. Rather, it is necessary to build up, reinforce, and sustain institutions that can offer alternatives to the state in terms of organizing and supporting human society. Without these institutions, liberalism’s job is much more difficult—or even impossible.
Societies Are Composed of InstitutionsAs libertarian historian Ralph Raico notes, liberals make a key distinction between the state and “society.” Society is simply those institutions that are not the state. Or as David Gordon puts it, “Liberals believe that the main institutions of society can function in entire independence of the state.”
The idea that the institutions of society can function without a state is an established historical fact. Since the beginnings of human civilization, even in the absence of states, people have built up institutions and relationships designed to provide order, security, and social safety nets. As described by historian Paul Freedman, many societies have been held together by something other than “government in the sense that we understand it.” Rather, they can be held together with “informal social networks and ties.” These include “kinship, family, private vengeance, religion.”
These institutions have also been essential in the Western ideal of dispersing political power among a variety of organizations rather than concentrating it in a single central authority. According to Raico, the Western struggle for freedom and political independence is historically characterized by these institutions’ fight for their own separate legal rights:
Princes often found their hands tied by the charters of rights (Magna Carta, for instance) which they were forced to grant their subjects. In the end, even within the relatively small states of Europe, power was dispersed among estates, orders, chartered towns, religious communities, corps, universities, etc., each with its own guaranteed liberties.
Not surprisingly, the rise of the modern state is closely connected to the state’s struggle against these institutions. As historian of the state Martin van Creveld has shown, in order to consolidate power, the state first had to gravely weaken the churches, the nobility, and the towns. After all, these organizations competed with the state. They often provided economic safety nets of their own and civil order through courts and local militias. They created a sense of community and social purpose apart from the idea of the nation-state. They provided key economic services, as in the case of the Hanseatic League, which offered safe trade routes and arbitration services for merchants.
These polycentric political systems were obstacles to the state’s consolidation of power, and as Murray Rothbard has noted, the process of abolishing nonstate institutions accelerated during the early modern period. By the sixteenth century in France, the process was in full swing. The French state “systematically tore down the legal rights of all corporations or organizations which, in the Middle Ages, had stood between the individual and the state. There were no longer any intermediary or feudal authorities. The king [was] absolute over these intermediaries.”
[Read More: “Conceived in Liberty: The Medieval Communes of Europe” by Guglielmo Piombini]
This process was necessary to end pockets of independence and potential resistance to the state. In earlier times, the state had to gain buy-in from a variety of organizations that could offer real resistance to its rule. As Alex de Tocqueville noted in the nineteenth century: “Not a hundred years ago, amongst the greater part of European nations, numerous private persons and corporations were sufficiently independent to administer justice, to raise and maintain troops, to levy taxes, and frequently even to make or interpret the law.”
Creating a Direct State-Citizen RelationshipYet even after their medieval legal independence was abolished, churches, fraternal organizations, and extended family networks continued to be institutions critical to local solidarity, regional independence, and poverty relief.
Moreover, extended family enterprises made up a separate locus of power outside the state, and many of these families self-consciously sought to remain economically independent. Marxist historian Eric Hobsbawm’s view of the “bourgeois family” is not exactly complimentary, but he nonetheless captures some of the central role of the family in nineteenth-century society: “The ‘family’ was not merely the basic social unit of bourgeois society but its basic unit of property and business enterprise.”
But even this informal institutional competition with the state could not be tolerated.
In the nineteenth century, the state’s opposition to independent institutions was taken to the next level with the welfare state. This came first in Germany, where the welfare state was introduced by conservative nationalist Otto von Bismarck. Raico contends the welfare state was a deliberate effort by Bismarck to end the population’s financial independence from the state, and Antony Mueller concludes the welfare state established “a system of mutual obligation between the State and its citizens.” This further solidified the idea that the state was to enjoy a direct relationship with individuals, unimpeded by local, cultural, or religious institutional obstacles.
The Twilight of Nonstate InstitutionsThe effort to neutralize nonstate institutions has been enormously successful. Institutional obstacles to state power are shadows of their former selves. Long gone are the independent communes, the free towns, the local militias, and the independent monasteries and churches. In more recent history, even fraternal organizations and local charities have become increasingly invisible, and ever more dependent on the central government's tax dollars. Religious observance is in deep decline. Church organizations such as schools and parishes are consequently much reduced. Families are in decline as well. Both marriage rates and fertility are falling, and divorce is widespread, meaning fewer familial bonds are for the long term. Even among people calling themselves conservative, it’s easy to find many who are divorced, cohabiting, living apart from their own young children, and distant from extended relations.
In contrast, the most enduring economic and institutional relationship many people will have is with their national government. The vast majority of taxes are paid to central governments. Most healthcare and pension benefits come from national governments. States—not churches or local prominent families—now financially dominate universities, hospitals, and poverty relief.
This is all to the advantage of the state, since it means fewer individuals can rely on family or other local networks for economic or social security. It means fewer allegiances to any community except the vaguely defined and essentially imaginary national “community.”
Individuals Are Not EnoughIn response to all this, some might say, “Oh, we don’t need any organizations or institutions. We only need rugged individualists!” It’s a nice idea, but there is no evidence of this actually working as a counterweight to state power. Historically, liberals have long understood that opposition to state power cannot be effective if based merely on opposition from diffuse individuals who share no preexisting and enduring practical, religious, familial, or economic interests and feelings of common cause.
Rather, resistance to the state has tended to be centered around some cultural, religious, linguistic, or local institutional loyalty. Historically, this often took the form of local networks of families and their allies. Tocqueville noted that these groups provided a ready nexus around which to organize opposition to government abuses. He writes, “As long as family feeling was kept alive, the antagonist of oppression was never alone; he looked about him, and found his clients, his hereditary friends, and his kinsfolk. If this support was wanting, he was sustained by his ancestors and animated by his posterity.”
Without these, or similar, institutions, Tocqueville concluded, political opposition to the state becomes ineffective. Specifically, without institutions through which to practically build resistance to state power, even antiregime ideology has no way of being brought into practice:
What strength can even public opinion have retained, when no twenty persons are connected by a common tie; when not a man, nor a family, nor chartered corporation, nor class, nor free institution, has the power of representing that opinion; and when every citizen—being equally weak, equally poor, and equally dependant [sic]—has only his personal impotence to oppose to the organized force of the government?
The Franco-Swiss liberal Benjamin Constant came to similar conclusions, noting that local social institutions often provide a cultural counterbalance to state power through solidarity and organization. Constant writes: “The interests and memories which are born of local customs contain a germ of resistance which authority suffers only with regret, and which it hastens to eradicate. With individuals it has its way more easily; it rolls its enormous weight over them effortlessly, as over sand.”
What Is to Be Done?Thus, if we are meaningfully oppose state power, it is necessary to encourage, grow, and sustain institutions and organization over which states cannot so easily roll their enormous weight. When people support a local parish, raise a family, build a business, create mutual aid organizations, or foster local civic independence, they are doing work that is absolutely critical to fighting state power. While it is always good to speak ill of state power—and to oppose its countless violent and impoverishing grifts—this is not enough. We must also speak well of nonstate institutions and strengthen them in our daily work and daily lives. Without these institutions of kinship, religion, markets, and towns, nonstate society will be irrelevant.
Mere opposition to the state—without viable private or local alternatives—will never be sufficient. People want services like education and help for widows, orphans, and the disabled. They want safety, a sense of community, and solidarity with others. These benefits of society do not require states, but they do require institutions. Yet these institutions in our own time as so reduced as to offer little as alternatives to the state.
As the war in Ukraine drags on into its second year, protest demonstrations have been taking place in major European cities. They express the growing sentiment that the people are tired of the protracted conflict and fearful of what could come should the war continue even longer. Memories of the catastrophic world wars that ravaged Europe in the first half of the last century and the terrible threat of nuclear annihilation that divided the continent in the second half of the century form the traumatic foundation from which Europeans are voicing their aversion to this conflict, which has the potential to spiral out of control and bring a major war to Europe and the world again.
Broad Opposition to WarThere have been protest demonstrations occurring in Germany, France, the Czech Republic, Greece, Spain, Great Britain, Belgium, Austria, Italy, Albania, Moldova, and others. European protests surrounding the anniversary of the start of the conflict notably span the Left-Right spectrum in opposing US-led North Atlantic Treaty Organization (NATO) imperialism as well as the economic hardships that have befallen ordinary Europeans against the backdrop of sanctions on Russia and the funding of Ukraine.
Italian port workers aligned with the Left protested in Genoa specifically to resist the use of Italian ports to supply arms deliveries to Ukraine. Meanwhile in France, demonstrations organized by the right-wing Les Patriotes party in various locations across the country called for France’s withdrawal from both NATO and the European Union.
In all cases, the people on the streets at these events identify involvement in the war as harmful to general economic well-being and have been expressing frustration with their countries’ acquiescence to these intergovernmental and supranational organizations in fueling the violence while simultaneously discouraging dialogue. Feelings of skepticism toward NATO, the European Union, and the United States have become increasingly vocal in Europe due to the way that western countries are handling the war. In the minds of many Europeans, their governments are recklessly following the will of Washington, which could lead them into a serious escalation to a wider war.
German MemoryGermany suffered tremendously during the two World Wars and continued to endure the pressures of division and foreign occupation during the Cold War. A century of pain and turmoil brought about by militarism and intervention still informs the collective consciousness of the country. As part of the anniversary protests, thousands of people gathered around the iconic Brandenburg Gate in Berlin for an event called the “Uprising for Peace,” organized by prominent Left party member Sahra Wagenknecht and the feminist journalist Alice Schwarzer. The rally was a show of support for a “manifesto for peace,” which had already received well over half a million signatures by the time of the rally. It calls for the end of military exports to Ukraine and for negotiations between Kyiv and Moscow. Demonstrations have also taken place in Nuremberg (in response to the German government’s plan to send tanks to Ukraine), in Munich (during the Munich Security Conference), and outside of the prominent US air base in Ramstein where important matters regarding the Ukraine conflict are discussed among Western leaders.
At the rally in Nuremberg, one demonstrator recalled the historical record, explaining that if Germany gets involved in another war with Russia, then “based on history, it is the worst sign that we can send.” He emphasized that “no war must go through Germany, neither with arms deliveries nor anything else, because otherwise, Germany will be in the middle of it again.”
The last time war broke out in Europe between the two countries, it was one of the most catastrophic events in human history. This view echoes the glimmer of hope from just a few months before the start of Russia’s invasion that the completion of the Nord Stream 2 pipeline could have strengthened ties and prevented conflict in Europe, especially with regard to Russia and Germany. Of course, the mysterious destruction of Nord Stream a year later and the report by Seymour Hersh identifying US and allied hands in the sabotage mission completely turned that hope on its head. Those who strive for peace and an end to the bloodshed are understandably disheartened, yet they are motivated to vocally speak out to European leaders to push for peace.
Across the Atlantic and BeyondThese gatherings have run parallel to the Rage Against the War Machine rally in Washington, DC, where Americans protested against the US’s funding and arming of Ukraine as well as the diplomatic negligence in preventing the negotiation of an end to the fighting. Those speaking and demonstrating against US involvement in Ukraine have parallel grievances toward their government and echo those in Europe.
Voices spanning the political spectrum from socialists to libertarians have found common ground in opposing the many rounds of weapons packages and financial aid to Ukraine, as well as the lack of diplomatic responsibility on the part of Secretary of State Antony Blinken in communicating with his counterpart, Russian foreign minister Sergey Lavrov. Since the rally, President Joe Biden has included $6 billion in Ukraine and NATO funding as part of his $842 billion defense-budget request for 2024. Meanwhile, Blinken met briefly with Lavrov on the sidelines of a G20 meeting in New Delhi with no tangible progress on the subject of ending hostilities in Ukraine. While hopes from the American side remain dim, perhaps the protests in Europe may influence decisions at the levels of leadership in their respective countries.
The West’s commitment to Ukraine has also struck opposition from other regions. At this year’s Munich Security Conference, leaders from non-Western countries expressed the necessity of finding peaceful solutions. Brazil’s foreign minister Mauro Viera called upon the world to “build the possibility of a solution,” while Colombia’s vice president Francia Marquez said, “We don’t want to go on discussing who will be the winner or the loser of a war. We are all losers, and, in the end, it is humankind that loses everything.”
Namibia’s prime minister Saara Kuugongelwa-Amadhila stressed the waste of money and resources in the name of hostility which “could be better utilized to promote development in Ukraine, in Africa, in Asia, in other places, in Europe itself, where many people are experiencing hardships.” China went so far as to outline a political settlement to the Ukraine crisis on the anniversary of the invasion.
These statements and efforts show their acknowledgment of the much poorer state of affairs the world finds itself in as the war drags on. The Russian war in Ukraine must come to an end one day, and more people around the world are demanding a solution now.
Murray Rothbard was an elite economist, historian, and avowed enemy of the state. His legacy lives on nearly three decades after his untimely passing.
Original Article: "American Dissident: The Legacy of Murray Rothbard"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Besides using bipartisan comprehensive political reform as a cover for evasion and extortion, the many political abuses of posturing, window dressing, and maneuvering enabled do not exhaust the problems involved. Those problems are, instead, far more comprehensive, especially when it comes to the amount of usable information that is accessible, including accurate information about the true costs of government programs.
As Ludwig von Mises, Friedrich von Hayek, and many others have clearly laid out, centralizing decisions in the hands of politicians and bureaucrats requires that many valuable details of time, place, and circumstance, which can be known only to those directly involved, must be discarded from the decision-making process.
Substituting political determination for voluntary arrangements thereby throws away a great deal of wealth that could otherwise have been created based on that knowledge of valuable details. Just ask how much of your knowledge of what allows for more productive use of your resources would be incorporated into a government central plan. That problem gets worse the more comprehensive the government plan. While more extensive plans are always couched in assuring words, implying even more good deeds will be done, the fact is that the more “comprehensive” the political plan, the more comprehensive is the ignorance that will be imposed in place of usable knowledge, and the more wealth that will be destroyed. Potential mutual benefits at even more margins of choice will be disabled.
History is full of illustrations of the damage that can be wrought as a result, as can be recognized from the many examples of “the law of unintended consequences,” my favorite version of which is “Every government program creates adverse unintended consequences, and they always come as a surprise to the program’s creators.”
That is also one reason why the increasing federal domination of political decisions in the US, despite the federalism designed in the Constitution, makes the problems worse. Expanding the empowerment of Beltway politicians guarantees that even more of the details and the wide variations in situations and desires among individuals will be left out. At the same time, those stuck with the tab are given less ability to escape the burdens by voting with their feet because it is more costly, sometimes prohibitively more costly, to leave a larger abusive government jurisdiction than a smaller one.
The best summary of this issue I can recall is what Albert Jay Nock called a curious anomaly in Our Enemy, the State: “State power has an unbroken record of inability to do anything efficiently, economically, disinterestedly or honestly; yet when the slightest dissatisfaction arises . . . the aid of the agent least qualified to give aid is immediately called for.”
Another all but ignored aspect of a government displacing its citizens from what they believe best advances their “life, liberty, and pursuit of happiness” is the wealth destroyed over and above the dollars that end up in government coffers. A government has no resources of its own, so what it spends, it must first commandeer from citizens (including citizens into the far future, as demonstrated by the national debt and far more massive underfunding of government promises and trust funds). As a consequence, each dollar of government spending costs Americans far more than a dollar because of what economists call the welfare cost or excess burden of taxation.
Beyond the resources taken from citizens for government coffers, tax wedges between what buyers pay and what sellers receive net of taxes destroy productive trades and the gains they would have created. A 20 percent tax would destroy trades that generated up to $1.20 in value per dollar spent. Raising it to 30 percent would also destroy trades generating between $1.20 and $1.30 per dollar spent, and so on. In 2006, Martin Feldstein estimated the excess burden at seventy-six cents per dollar of added tax revenue, when the US government was far smaller than today. If true, that estimate (not the highest estimate researchers have made) means one more dollar of government spending actually costs society $1.76. As a result, every dollar of additional government spending would have to generate more than $1.76 in benefits to conceivably improve Americans’ general welfare.
However, when have you ever heard any officeholder or office seeker seriously consider whether each dollar of government spending provides more than a dollar of benefits (or that those forced to pay the costs receive more in benefits than costs), much less the far higher actual social cost of funding government programs, in their sales pitch for growing government further? If you have never asked such a question, one good way to find out the answer is to check how often those costs have been included in an official government benefit-cost analysis, a technique that is supposed to guard against government misrepresentation.
The Henry Hazlitt Memorial Lecture, sponsored by Harvey and Mei Allison.
Recorded at the 2023 Austrian Economics Research Conference hosted at the Mises Institute in Auburn, Alabama, March 16–18, 2023.
The Austrian Economics Research Conference is the international, interdisciplinary meeting of the Austrian School, bringing together leading scholars doing research in this vibrant and influential intellectual tradition. The conference is hosted by the Mises Institute at its campus in Auburn, Alabama, and is directed by Joseph Salerno, professor of economics at Pace University and academic vice president of the Mises Institute.
Advocates for more military spending tell us the taxpayer must pay to expand the US's nuclear arsenal. Because of China. In truth, the US's arsenal is in no danger of not "keeping up."
Original Article: "No, We Don't Need More Nuclear Weapons"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Keynesian economists claim that cost cutting by companies in order to protect profits can lead to an economic slump. They believe that if everyone tries to cut costs, demand from retrenched workers for goods and services weakens, and as a result corporate revenues and profits come under pressure. This necessitates new layoffs, and the downward spiral accelerates.
Popular thinking presents economic activity as a circular flow of money: spending by one individual becomes part of the earnings of another individual, and spending by this other individual becomes part of the first individual’s earnings. The idea is that recessions occur because consumers—for unknown reasons—cut expenditures and increase savings.
To Be Successful, Businesses Must Abide by Consumer DemandBut successful businesses must meet consumer demand. Therefore, when a business owner seeking higher profits observes growing demand, he responds by increasing the production of goods, thus increasing his demand for the factors of production.
Conversely, when demand for goods slows down, less production follows. Consequently, to protect his profits the business owner reduces his demand for the factors of production in line with the fall in the production of goods. Note the causal order. Businesses engage in cost cutting in response to less demand for their products, not the other way round. Businesses embark on cost cutting due to the emerging economic slowdown. What, then, causes the economic slowdown?
Central Bank Monetary Policies Are the Key Cause of Boom-Bust CyclesCentral bank intervention in the economy via monetary manipulation sets the stage for repeated boom-bust cycles. For example, when monetary authorities believe the economy is not expanding quickly enough, the central bank loosens its monetary stance, setting off an economic boom. The economic boom, however, is a misallocation of resources: artificially lowered interest rates set by the central bank lead business owners to undertake capital projects that were not viable prior to the easy money policy.
Once the boom is seen as overheating the economy, however, the central bank tightens its monetary stance. Capital projects that emerged during the boom are no longer supported, which leads to an economic bust.
Once the bust worsens, the central bank again loosens its monetary stance—creating a new economic boom. From there, according to Ludwig von Mises’s Human Action, the boom-bust cycle intensifies.
Is an Increase in Savings Bad for Economic Activity?According to Keynesian thinking, savings are a leakage that diminishes the spending flow, thereby weakening economic growth. But there is another perspective. Let’s start with a barter economy.
When a baker produces ten loaves of bread and consumes one loaf, his saving is nine loaves of bread. The baker may choose among several things to do with his saved bread: he could use the saved bread to sustain himself in the weeks ahead; he could exchange some of the bread for other consumer goods; or he could exchange it for something that will enhance his oven.
His saved bread has not caused a “leakage” or a drop in economic activity. On the contrary, saving sustains economic activity. Whenever the baker exchanges his bread for shoes or shirts, his saved bread sustains the shoemaker and the shirt producer. This enables them to continue their production of shoes and shirts.
Furthermore, if the baker decides to exchange his bread for oven parts that improve his oven, his productivity is likely to increase and his production of bread is likely to follow suit. All other things being equal, this production increase will, in turn, enable the baker to save more and acquire a greater variety of goods and services.
In fact, more production of goods supports a greater demand for goods. After all, when a baker produces bread, he is not producing everything for his personal consumption. Most of the bread that he is producing is exchanged for other goods and services that he needs. Hence, his production enables him to acquire other goods and services. If everyone decides to expand their savings, increasing the number of final consumer goods supplied to the market, how can this slow economic activity?
Introducing MoneyIn a money economy, producers of consumer goods exchange savings for money by supplying other producers with saved consumer goods. When a person acquires a capital good such as machinery, he transfers money to the producer of the machinery. The machinery maker can choose to exchange the money not only for consumer goods but also for services. A service provider who receives the money could, in turn, exchange it for consumer goods and services. Money enables the goods of one specialist to be exchanged for the goods of another specialist.
Money permits an individual to channel savings (unconsumed goods) to others, which widens the wealth-generation process. Money’s main purpose is to fulfill the role of medium of exchange; it does not sustain or fund real economic activity.
Why Cost Cutting Is Good for the EconomyIf a company trims costs in order to make a profit, what is wrong with this? By moving from a loss to a profit, the company makes more efficient use of its resources. Its use of resources now generates a positive return, meaning the company has generated real wealth.
According to Mises in Planning for Freedom:
The only goal of all production activities is to employ the factors of production in such a way that they render the highest possible output. The smaller the input required for the production of an article becomes, the more of the scarce factors of production is left for the production of other articles.
Consider a farmer who plants ten seeds and harvests only five seeds. Obviously, he cannot continue with this practice for long before he runs out of seeds and is faced with the threat of starvation. Thus the farmer is forced to alter his conduct by finding better land or learning a better way of planting his seeds.
So why would a change that generates a surplus be bad? With a greater crop, the farmer could both improve his well-being and increase his savings, thus giving rise to a much greater future crop, all other things being equal. The crux of the matter is that profit adds to real wealth and hence raises the living standards of individuals in the economy.
What about all the workers who were made redundant? Surely their incomes will fall, and this will weaken demand for goods and services. In fact, however, a general increase in profits because of cost cutting lifts the overall real wealth in an economy, which generates more employment opportunities. In a market economy, retrenched workers have to adjust to new conditions and find jobs elsewhere—jobs that contribute to wealth generation.
ConclusionCost cutting by companies is essential to correcting previous erroneous decisions in order to return to a situation where real wealth can be generated. As a rule, cost cutting takes place in response to an emerging economic slowdown; however, rather than further slowing the economy, reducing costs helps to revive the economy.
The Murray N. Rothbard Memorial Lecture, sponsored by Steven and Cassandra Torello.
Recorded at the 2023 Austrian Economics Research Conference hosted at the Mises Institute in Auburn, Alabama, March 16–18, 2023.
The Austrian Economics Research Conference is the international, interdisciplinary meeting of the Austrian School, bringing together leading scholars doing research in this vibrant and influential intellectual tradition. The conference is hosted by the Mises Institute at its campus in Auburn, Alabama, and is directed by Joseph Salerno, professor of economics at Pace University and academic vice president of the Mises Institute.
Drug addicts suffer major withdrawal symptoms when they go cold turkey. In the case of high-tech startups and their banks (like Silicon Valley Bank), the super-low-interest-rate stimulant has been taken away by the drug dealer (the Fed) via interest rate hikes. With cheap credit drying up, firms switched to pulling cash out of SVB, all while the same interest rate increases caused the value of SVB’s assets to fall. SVB’s balance sheet couldn’t handle the fast withdrawals, which became a classic, self-propagating, panicky bank run, and the simultaneous fall in value of its liquid assets.
When banks practice this kind of maturity mismatch—potentially immediate-term liabilities (deposits) backed by long-term assets (loans and Treasury securities), it is called “fractional reserve banking.”
The failure of SVB and other recent bank crises have reignited the debate over fractional reserve banking. While Austrian economists across the board are critical of central banking and government manipulation of the money supply and interest rates, there are differences of opinion on fractional reserve banking. Murray Rothbard was firmly against the practice for both economic and ethical reasons; however, “fractional reserve free bankers” (FRFB) like George Selgin and Larry White have written extensively about how fractional reserve banking per se does not make for an inherently unstable banking system and does not cause business cycles. The FRFB position is that the business cycles and instability are caused by government interference, primarily via central bank monetary policy.
To understand how fractional reserve banks operate, we first need to make a distinction between warehouse banking and loan banking. Warehouse banking refers to the way banks accept deposits and act on instructions from the depositor to send or withdraw money at par on demand. In warehouse banking, there is no multiplication of deposits or creation of credit—the bank simply stores, or “warehouses,” depositors’ cash. Importantly, depositors have to pay a fee for this service at warehousing banks.
Loan banking refers to the way banks can act as financial intermediaries. A bank customer can purchase a certificate of deposit or other time deposit that, importantly, represents a parting with funds. The customer cannot access these funds for spending or withdrawing. The bank uses these funds to extend loans. The interest earned on these loans is shared (according to the contract) between the bank, which administered and intermediated, and the customer, who relinquished the money. Here, there is also no multiplication of deposits, expansion of the money supply, or creation of credit ex nihilo.
The issues with fractional reserve banking come from combining these two functions: warehouse banking and loan banking. Banks combine these functions by using demand deposits (which depositors can withdraw at par on demand) as a basis for extending loans. Hopefully, the potential problems with this are obvious: What if depositors request more money than the bank has on hand, due to the fact that not all deposits have matching cash reserves, but instead are backed by long-term loans?
This is exactly what happened to SVB. Depositors wanted to withdraw more cash than the bank had in reserves. SVB had used depositors’ funds to purchase Treasury securities and mortgage-backed securities, and to extend loans to high-tech firms. SVB might have had less foresight than other banks, but it is important to note that all banks do this sort of thing. No bank keeps 100 percent reserves—no bank keeps its warehousing and intermediation functions separate. In fact, in 2017 the Federal Reserve blocked a new bank that intended to be such a safe haven for depositors.
The repeated bank runs and associated financial crises caused by fractional reserve banking have led to the creation of central banking, government deposit insurance, a multitude of bank regulations, and a host of agencies to design and enforce these regulations. It’s worth pointing out, however, that if the government simply ignored bank runs, then the standard mechanisms of profit and loss would be at work. Banks would fail in the same way other private businesses fail. Potential bank customers would avoid unsound banks and flock to sound banks according to their own preferences and expectations. This prospect leads the FRFB crowd to conclude that fractional reserve banking per se isn’t a problem—it is the moral hazard and money creation by the government that causes all the problems.
In my view, the debates over the sustainability and ethics of fractional reserve banking suffer from poorly defined terms. If a deposit is defined as “redeemable at par on demand,” then that constitutes a promise by the bank to have the funds available at par on demand, meaning no loans are purchased with those funds. If a contract stipulates that the bank will offer accounts for which deposits are defined as such but then uses the funds to provide loans, then the bank is in breach of contract. If, however, the bank and the customer agree on a looser definition of the term “deposit,” such that deposits are not always redeemable at par, or are redeemable at par but sometimes with a delay, then that is their prerogative. It seems to me that such an arrangement is more properly called an “unsecured callable loan” and that if these coexisted with true, fully backed deposits on the market, the callable loans would trade at a discount against the fully backed deposits.
I also think that the debates over the sustainability and ethics of FRFB are less important than the economic consequences of fractional reserve banking. No matter what the fine print in a deposit agreement says (and the language is not standard, by the way), if depositors view their checking account balances as one-to-one money substitutes, then prices and spending patterns will reflect the depositors’ own net worth calculations and expectations of disposable income. If a bank expands credit on top of that via fractional reserve banking, then the supply of credit and interest rates no longer reflect the depositors’ underlying real savings and rates of time preference. This wedge is what triggers the boom-bust cycle.
This brings us back to the addict analogy. Suppose an addict had the ability to magically create, ex nihilo, his own stimulating drug, as fractional reserve banks can do with money and credit. Suppose that the negative side effects of using the drug could be spread to all other members of society, as central banks and government deposit insurance allow for fractional reserve banks. Would you expect moderation? Would you expect healthy outcomes? Or would you expect an endless cycle of highs and crashes?
Central banks usually don't admit their guilt in the destruction of money, but the Bank of England unwittingly comes clean.
Original Article: "The Bank of England: Money Creation in Their Own Words"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The more powerful a government, the more likely it is to engage in war and conquest. Case in point: US involvement in Ukraine.
In 2014 the US led a coup that displaced a “democratically elected” president, Viktor Yanukovych.
In November 2013, . . . Yanukovych rejected a major economic deal he had been negotiating with the EU and decided to accept a $15 billion Russian counteroffer instead. That decision gave rise to antigovernment demonstrations that escalated over the following three months.
Instead of waiting around for the next election, Yanukovych fled to Russia on February 22, 2014.
The new government in Kiev was pro-Western and anti-Russian to the core, and it contained four high-ranking members who could legitimately be labeled neofascists. . . .
[It was] clear that Washington backed the coup. [US assistant secretary of state Victoria] Nuland and Republican Senator John McCain participated in antigovernment demonstrations . . . As a leaked telephone recording revealed, Nuland had advocated regime change and wanted the Ukrainian politician Arseniy Yatsenyuk to become prime minister in the new government, which he did.
In 2019, comedian and actor Volodymyr Zelensky was elected president with 73.23 percent of the vote. In spite of the media’s love affair with Zelensky, portraying him “as something equivalent to a reincarnation of Winston Churchill and Mother Teresa,” the Ukraine government remains one of the most corrupt on the planet.
But the power-hungry US regime will tolerate a corrupt Ukrainian regime as long as it helps get Ukraine into NATO and puts US nuclear missiles on Russia’s border.
Turns out Russia doesn’t like that idea so President Putin invaded Ukraine a year ago to put a stop to it. The US saw this as a great opportunity to blame Russia for what was obviously an act of war and rush to the defense of innocent Ukraine with massive taxpayer funding and military support.
All this is well known.
Also well known among the sentient is the US having a history of lying the country into war (also here.) When you’re a rich and powerful government, war can be a very lucrative undertaking—for some. It’s rarely that way for the ones doing the actual fighting or for the taxpayers who aren’t connected to the US war industry. But a thoroughly corrupt media ensures that such issues receive little or no light. We are the champions of the little guys, and a little guy is being picked on by perennially evil Russia.
People are beginning to wake up to the lies and censorship surrounding covid and its treatments, so why should they believe any government pronouncement, including the ones involving Ukraine and its enemy?
Because Ukraine hasn’t touched them like covid has—most can’t find Ukraine on a map—and that helps keep the media campaign running. Thus, we hear that Russia is so evil it likely blew up its own Nord Stream 2 pipeline that was built to deliver more natural gas to Germany and the rest of Europe.
The Biden team said a Seymour Hersh report blaming the US for the sabotage is “utterly false and complete fiction,” despite Biden’s promise that the US would bring “an end to [the Nord Stream pipeline].” But it wasn’t just Biden’s promise—US commentators, including former President Trump, have long opposed the pipeline because it would make Germany a “hostage of Russia.”
You know, just like your iPhone makes you a hostage of Apple.
As Matt Taibbi wrote a month after the Nord Stream explosions, “American officials in both parties for years used the strongest possible language to condemn, cajole, and threaten Europeans. The Senate Foreign Relations Committee held hearings in 2017 led by Republican Ron Johnson and ranking member Chris Murphy of Connecticut blasting Europe for even considering the pipeline.”
Going NuclearThroughout the Ukraine war’s one-year history we’ve heard repeated speculations about the conflict going nuclear. Don’t worry, we’re told, even if Putin decided to launch nuclear weapons they would likely be tactical, not the big ones that turn cities into moonscapes and their populations into dust.
Yet today’s tactical weapons aren’t exactly toys. According to Dr. Rod Thornton, a security expert at King’s College London, “The largest tactical weapons can be as big as 100 kilotons (1 kiloton equals 1,000 tons of TNT)—the bomb the U.S. dropped on Hiroshima was 15 kilotons.”
Furthermore, last May, Russian state TV presented a simulation of a nuclear attack on the UK and Ireland, using a “Poseidon nuclear underwater drone [that] could cause a tsunami that would ‘plunge the British Isles into the depths of the sea’ and turn them into a ‘radioactive desert.’”
“On many fronts, Putin is under pressure,” Thornton says.
The more desperate Putin becomes, the more he’s pushed on the back foot, the more likely it becomes that a nuclear weapon is used. . . .
He floated Snake Island, a Black Sea outpost taken by Russia early in the war that has since been retaken and become a symbol of Ukrainian resistance, as [a target] Putin could have in mind.
In a feeble attempt to threaten Putin,
NATO’s secretary general Jens Stoltenberg warned of “severe consequences” for Russia if it uses nuclear weapons in Ukraine, echoing private warnings of “catastrophic consequences” from Washington.
Adding an exclamation point to the matter, Putin said he is not bluffing.
ConclusionAmid the talk of Putin going nuclear is the absence of any talk of the US striking first—and blaming it on Putin.
Given US aggression so far and its belief it would come out on top in a nuclear war, plus Biden’s determination to support Ukraine “as long as it takes,” such a scenario is more than a possibility.
And what’s to keep a tactical nuclear war from escalating into a full-blown ICBM exchange?
Nothing, of course. Certainly not the mindsets of US leaders.
It would be overtones of Nord Stream, with global annihilation added.
And the lies from all governments would finally be silenced.
[This article appeared earlier on Lewrockwell.com.]
Most socialists are not misguided about how to have a prosperous economy, for that is not their goal.
Original Article: "Socialism Isn't about Creating Economies. It Is about Amassing Political Power"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The latest from the world of social media is the role of "influencers." There is a perfectly good economic explanation for their popularity.
Original Article: "Influencers and Subjective Value: They Have Something to Teach Us"
This Audio Mises Wire is generously sponsored by Christopher Condon.
With commercial banks exposed by the recent bailouts, Americans question whether “their money” is truly safe despite the promises of FDIC insurance.
Jeff and Bob walk through the mechanics of how a full reserve bank could work in a truly free market based on the concepts and taxonomy of Mises’s Theory of Money and Credit.
Mises's A Theory of Money and Credit: Mises.org/TMC
Bob's study guide to A Theory of Money and Credit: Mises.org/HAP388a
John Cochran, 'The Safest Bank the Fed Won't Sanction':Mises.org/HAP388b
In this episode, Mark looks at the far away minor issue of the impact of hyperinflation in Zimbabwe. Even though they have switched from Zim dollars to US dollars, ordinary people are still suffering. Their government and its inflationary monetary policy is manifesting itself in some interesting ways.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
The provision of private healthcare in Canada is contingent on the ability of private actors to satisfy all of the conditions embedded within government legislation. However, the severity of these conditions means that most aspects of private healthcare are essentially outlawed, as they have been for many decades.
Perhaps that wouldn’t matter if the government kept the promise it made to Canadians when it arbitrarily imposed universal healthcare (Medicare) on the country. The government promised “to make sure that people could get care when it was needed without regard to other considerations” (emphasis added).
The government breaks this promise on a daily basis. Currently, there are approximately 1.2 million Canadians stuck on a government waiting list for healthcare that they need. This is a death sentence for many of them, as it has been for thousands of patients who have gone before them.
Politicians Are Guilty of Criminal ActsWhen the failure of Medicare became undeniable many decades ago, the government should have repealed the legislation because it was obvious that they could never keep their promise. However, they didn’t repeal the legislation. They continued the charade. The federal government still insists that its primary objective is “to protect, promote and restore the physical and mental well-being of residents of Canada and to facilitate reasonable access to health services without financial or other barriers” (emphasis added).
Patients who endure considerable suffering as they languish on a waiting list—where many of them die—cannot be seen to have been given reasonable access to health services in the government’s Medicare system. The government also prevents them from having reasonable access to a private healthcare option.
Thus, reasonable access is an obvious deception, with benefits flowing to highly paid, power-hungry politicians, bureaucrats, and administrators wanting to maintain control over massive, inefficient healthcare bureaucracies at the federal and provincial levels. This deceitful behavior fits the definition of fraud and should be prosecuted as such.
Thousands of Canadians die while they wait for the care that the government promised to deliver when they needed it. That’s bad enough, but due to the prohibition of private healthcare, politicians have prevented these patients from saving their own lives. That’s a criminal offense! Section 262 of the Canada Criminal Code reads:
262 Every person is guilty of an indictable offence and liable to imprisonment for a term of not more than 10 years or is guilty of an offence punishable on summary conviction who
(a) prevents or impedes or attempts to prevent or impede any person who is attempting to save his own life, or
(b) without reasonable cause prevents or impedes or attempts to prevent or impede any person who is attempting to save the life of another person.
Section 262 (a) should apply when a patient is prevented from saving their own life because private healthcare is forbidden.
Section 262 (b) should apply when a private doctor is prevented from saving the life of another person because private healthcare is forbidden.
All politicians, past and present, who have supported Medicare legislation should be prosecuted for fraud. Likewise, those who have supported the suppression of private healthcare should be prosecuted under Section 262. In both cases, politicians should also be subject to civil action. Unfortunately, none of this will happen because, in a democracy, politicians are not governed by the same laws as the rest of the population.
Politicians Are Legally UntouchableIf politicians were personally accountable for the damage they caused, guess what? They wouldn’t cause any damage! However, we cannot hold them personally accountable because equality under the law does not exist in a democracy.
In the private sector, you are accountable for your own actions. If you break your neighbor’s window, you pay for the replacement. If you are a politician and you break the window in the course of performing your official duties, you can charge the cost of the new window to taxpayers. Moreover, in a democracy, taxpayers have no control over political actions, as two American professors have warned us:
The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence. . . . The chief predictions of pure theories of Majoritarian Electoral Democracy can be decisively rejected. Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all.
Politicians say that society can grow and prosper only if politicians make laws to grant themselves legal immunity for actions they undertake in the performance of their public duties. So, that’s what they do, and that’s what most people do not understand. The lack of accountability is a symptom of democracy. It encourages bad decisions within the political class. It encourages inefficiency, as we see with the ongoing deterioration of Medicare.
When citizens demand better service, politicians respond by saying, “Okay, but that means we have to take more of your money.” So, taxes are raised, more bureaucrats and administrators are hired, and the inefficient Medicare bureaucracies that politicians and bureaucrats regard as their personal fiefdoms grow ever larger. That’s why healthcare is the single largest item in many provincial budgets. As Bruce L. Benson wrote:
The fact that government law has taken over as much as it has is not a reflection of the superior efficiency of representative government in making or enforcing law that facilitates interaction. It is, rather, a reflection of government’s general purpose of transferring wealth to those with political power.
The expressed aim of government officials in a representative democracy may not be the accumulation and centralization of power, but that is a necessary consequence of the process as it has evolved within the institutions developed by medieval kings. Whether the government producing law is a totalitarian king or a representative democracy, power is centralized and coercion is used to impose rules beneficial to some upon the rest of the population. Government is still a wealth transfer mechanism.
The legacy media parrots the government’s healthcare mantra that demonizes private firms seeking to profit through the provision of healthcare. However, the same media remains silent about politicians, bureaucrats, and administrators who have profited greatly from monopolizing an industry that allows them to determine their own salaries, resulting in lengthy wait lists, thousands of preventable deaths, a surplus of highly paid bureaucrats and administrators, and a dearth of the stuff that actually matters, such as doctors, nurses, hospital rooms, medical equipment, life-saving medicines, etc.
This government/media propaganda is becoming less effective due to the ongoing collapse of Medicare. A majority of Canadians polled are now in favor of private healthcare for those who are able to afford it. If and when that happens, Canadians will discover the superiority of private healthcare, where full accountability makes it far more efficient and cost effective, and much less lethal, compared to the government’s Medicare scam, which was gifted to Canadians under the guise of democracy.
A very common criticism of the libertarian position runs as follows: Of course we do not like violence, and libertarians perform a useful service in stressing its dangers. But you are very simpliste because you ignore the other significant forms of coercion exercised in society—private coercive power, apart from the violence wielded by the State or the criminal. The government should stand ready to employ its coercion to check or offset this private coercion.
In the first place, this seeming difficulty for libertarian doctrine may quickly be removed by limiting the concept of coercion to the use of violence. This narrowing would have the further merit of strictly confining the legalized violence of the police and the judiciary to the sphere of its competence: combatting violence. But we can go even further, for we can show the inherent contradictions in the broader concept of coercion.
A well-known type of “private coercion” is the vague but ominous-sounding “economic power.” A favorite illustration of the wielding of such “power” is the case of a worker fired from his job, especially by a large corporation. Is this not “as bad as” violent coercion against the property of the worker? Is this not another, subtler form of robbery of the worker, since he is being deprived of money that he would have received if the employer had not wielded his “economic power”?
Let us look at this situation closely. What exactly has the employer done? He has refused to continue to make a certain exchange, which the worker preferred to continue making. Specifically, A, the employer, refuses to sell a certain sum of money in exchange for the purchase of B's labor services. B would like to make a certain exchange; A would not. The same principle may apply to all the exchanges throughout the length and breadth of the economy. A worker exchanges labor for money with an employer; a retailer exchanges eggs for money with a customer; a patient exchanges money with a doctor for his services; and so forth. Under a regime of freedom, where no violence is permitted, every man has the power either to make or not to make exchanges as and with whom he sees fit. Then, when exchanges are made, both parties benefit. We have seen that if an exchange is coerced, at least one party loses. It is doubtful whether even a robber gains in the long run, for a society in which violence and tyranny are practiced on a large scale will so lower productivity and become so much infected with fear and hate that even the robbers may be unhappy when they compare their lot with what it might be if they engaged in production and exchange in the free market.
“Economic power,” then, is simply the right under freedom to refuse to make an exchange. Every man has this power. Every man has the same right to refuse to make a proffered exchange.
Now, it should become evident that the “middle-of-the-road” statist, who concedes the evil of violence but adds that the violence of government is sometimes necessary to counteract the “private coercion of economic power,” is caught in an impossible contradiction. A refuses to make an exchange with B. What are we to say, or what is the government to do, if B brandishes a gun and orders A to make the exchange? This is the crucial question. There are only two positions we may take on the matter: either that B is committing violence and should be stopped at once, or that B is perfectly justified in taking this step because he is simply “counteracting the subtle coercion” of economic power wielded by A. Either the defense agency must rush to the defense of A, or it deliberately refuses to do so, perhaps aiding B (or doing B's work for him). There is no middle ground!
B is committing violence; there is no question about that. In the terms of both doctrines, this violence is either invasive and therefore unjust, or defensive and therefore just. If we adopt the “economic-power” argument, we must choose the latter position; if we reject it, we must adopt the former. If we choose the “economic-power” concept, we must employ violence to combat any refusal of exchange; if we reject it, we employ violence to prevent any violent imposition of exchange. There is no way to escape this either-or choice. The “middle-of-the-road” statist cannot logically say that there are “many forms” of unjustified coercion. He must choose one or the other and take his stand accordingly. Either he must say that there is only one form of illegal coercion—overt physical violence—or he must say that there is only one form of illegal coercion—refusal to exchange.
We have already fully described the sort of society built on libertarian foundations—a society marked by peace, harmony, liberty, maximum utility for all, and progressive improvement in living standards. What would be the consequence of adopting the “economic-power” premise? It would be a society of slavery: for what else is prohibiting the refusal to work? It would also be a society where the overt initiators of violence would be treated with kindness, while their victims would be upbraided as being “really” responsible for their own plight. Such a society would be truly a war of all against all, a world in which conquest and exploitation would rage unchecked.
Let us analyze further the contrast between the power of violence and “economic power,” between, in short, the victim of a bandit and the man who loses his job with the Ford Motor Company. Let us symbolize, in each case, the alleged power-wielder as P and the supposed victim as X. In the case of the bandit or robber, P plunders X. P lives, in short, by battening off X and all the other X's. This is the meaning of power in its original, political sense. But what of “economic power”? Here, by contrast, X, the would-be employee, is asserting a strident claim to P's property! In this case, X is plundering P instead of the other way around. Those who lament the plight of the automobile worker who cannot obtain a job with Ford do not seem to realize that before Ford and without Ford there would be no such job to be obtained at all. No one, therefore, can have any sort of “natural right” to a Ford job, whereas it is meaningful to assert a natural right to liberty, a right which each person may have without depending on the existence of others (such as Ford). In short, the libertarian doctrine, which proclaims a natural right of defense against political power, is coherent and meaningful, but any proclaimed right of defense against “economic power” makes no sense at all. Here, indeed, are enormous differences between the two concepts of “power.”1
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- On the spurious problems of “bargaining power,” see Scoville and Sargent, Fact and Fancy in the T.N.E.C. Monographs, pp. 312–13; and W.H. Hutt, Theory of Collective Bargaining (Glencoe, Ill.: Free Press, 1954), Part I.
Modern secular society embraces a new religion complete with prophets, crusaders, commandments, contrition, and even a holy land: East Anglia, United Kingdom. These congregants will behave idiosyncratically in the economy. The activist green movement increasingly parallels Western religious structure, even generating a modern version of the medieval Children’s Crusade.
Motivated by hope, the first Children’s Crusade assembled in 1212 under the preteen leadership of two boys countries apart—Stephen of Cloyes (France) and Nicholas of Cologne. One claimed a vision and the other a letter from Christ, sparking a movement to retake Jerusalem from the city’s Muslim conquerors. The boys’ preaching and zealous piety created what some historians have called mass hysteria.
Greta Thunberg of Norway has become a leader of the second Children’s Crusade. “How dare you?” she scolds as she issues press releases and speaks globally, seemingly without adult manipulation, speechwriters, coaches, press managers, or stylists. Into this publicity storm steps a second leader, charismatic young Representative Alexandria Ocasio-Cortez of Brooklyn, New York. A “cool” older sister who galvanizes children’s fear of imminent death, she claimed in early 2019 that “we have 12 years left.” These two figures have many willing acolytes.
The first Children’s Crusade was spontaneous; it carried no papal blessing or church authentication. However, the current movement has Pope John Kerry, resident envoy on climate, who commends the crusade.
Official records and accounts are open to contrasting interpretations, but historians converge on a size for the thirteenth-century Children’s Crusade of between 15,000 and 30,000 participants. Many of these were marginalized people who had neither skill, nor money, nor weapons to recapture Jerusalem. Children had the largest representation.
The populace during the first Children’s Crusade was ripe for naïve solutions. Prior crusades had gained Jerusalem but failed to hold it. Believers wanted blessings from the relic of the true cross; pleasing God, Jerusalem would be wrested from the infidels. The citizenry had been taught from the crib that crusaders were heroes and that anyone losing their life on crusade would be rewarded in heaven. Lacking prospects in the nasty, brutish, and short life of the underclass, these crusaders may have been desperate.
In 1212 thousands were led across the Alps to Italy, with many dying along the way. Those surviving the trek expected the Mediterranean to part like the Red Sea. Some marched on to French Mediterranean ports to embark for the Holy Land; many were lost at sea or sold into slavery.
The second Children’s Crusade officially dawned in Senator Diane Feinstein’s office on February 23, 2019. Children as young as seven years old from the Sunrise Movement pleaded with Feinstein to immediately adopt new, green ideas, so they would still be alive twelve years later. They demanded that Feinstein look at their faces as future victims (not you, Diane, you’re old) of climate/global change/warming. She responded, “You didn’t vote for me.”
Today’s climate prophets preach inconvenient truths. There is a doctrinal revelation (via science) that must influence daily life. There is a dogma of procedural remedies, with wind and solar as its catechism. And there are traditional struggles for virtue against the omnipresent and seductive sin of Oil.
With no hope for the future, believers adopt tribal behavior rules. Zealously embracing the new tenets allows virtuous scolding of outsiders. Outrageous acts against culture and history are praised: soup poured on priceless art, hands glued to museum walls, “die-ins” staged to block traffic, and milk poured out in resistance to global warming. Student walkouts solidify tribal status.
In June 1989, a “senior” United Nations environmental official predicted that if the trend were not reversed by 2000, entire nations could disappear. In 2006 Nobel Prize–winner Al Gore predicted that in ten years the Earth could be a “frying pan.” Alexandria Ocasio-Cortez thinks humans could be extinct in twelve years.
The second Children’s Crusade mirrors the first in many ways. Environmental fears have been taught in twenty-first-century schools since kindergarten. There is frustration with the lack of progress in addressing climate change. There is fear, leading to desperation; the children are considering how short their lives will be. Covid isolation has made socialization difficult and the future unappealing. Long-term goals of education and family formation are dissipating. There is only now for this generation’s spending.
Meanwhile, as the ice disappears in Greenland we find Viking bones and artifacts. Polar bear populations have increased in some places and are stable in others. Hunting artifacts are being exposed in melting Alaskan and Norwegian glaciers. Are we heading toward a cooling period, yes or no? Will solar minima slow the arrival of our doom?
This panicked rush to the doors focuses on elimination of carbon emissions without the help of the three largest developing economies; we will not reach the heaven of Carbon Zero. We are ignoring geoengineering efforts to mitigate suspected warming. Efforts like no-till farming, open-field grazing, feldspar applications to fields, and planting trees to rebuild the carbon sink could contribute toward a planned, cost-effective mitigation.
Parents in 1212 locked their children at home to prevent them from being swept up—in a Pied Piper moment—in the Crusade and its speciousness. In 2023, especially after the early covid predictions, parents need to take their children aside and teach them to be suspicious of these precise predictions of climate doom.
Generation Z citizens need to take a flinty look at the climate debate. From Robert Malthus 225 years ago to global cooling alarmists of the early ’70s to doomsayers of the twenty-first century’s global climate change panic, predictions have not been challenged adequately. The current dialogue labels disagreement with the new green religion precepts as heretical.
Today’s crusade is drawing from a pool of distressed teens. Psychologists are alarmed at the rate of suicidal ideation and attempts in this generation. Among adolescents aged twelve to seventeen in 2020, 17 percent (or 4.1 million people) had had a major depressive episode in the past year. Twelve percent of that same age group had had serious thoughts of suicide. Fifty-five percent of the female high school population had reported feelings of hopelessness.
Jonathan Haidt of the New York University Stern School of Business commented to the Wall Street Journal on Gen Z’s high anxiety profile, concluding that they are “‘less likely to swing for the fences, . . . start [their] own company. . . . I hear from a lot of managers . . . that it’s very difficult to supervise their Gen-Z employees, that it’s very difficult to give them feedback.’ That makes it hard for them to advance professionally by learning to do their jobs better.”
The threat of incineration interrupts the American Dream and may underlie “quiet quitting” trends. This fear will affect education, the economy, and family formation.
The New Abnormal: The Rise of the Biomedical Security State
by Aaron Kheriaty
Regnery Publishing, 2022; xxv + 278 pp.
Aaron Kheriaty is a medical doctor who taught for many years at the University of California Irvine School of Medicine and headed the school’s medical ethics program. Though highly regarded as a teacher, he became a “nonperson” when he challenged the university’s compulsory covid vaccination policy and was fired from his position: “In 2021 I found myself in the teeth of the unfolding biomedical security regime. . . . I sacrificed my career as an academic physician to challenge the constitutionality of vaccine mandates.”
As an expert in medical ethics, Kheriaty soon came to question compulsory vaccination. The vaccine had not been adequately tested, and evidence that it often had severe, and sometimes fatal, side effects quickly surfaced. Didn’t compulsion violate the Nuremberg Code, established after World War II, which forbade administering potentially dangerous medical procedures to people without their free consent? Consent was hardly free in this instance, as those who refused the vaccine would lose their jobs or their student status.
Kheriaty was especially interested in “natural immunity”; i.e., the phenomenon that people who had contracted covid, as he had, acquired a lessened susceptibility to dangerous effects from reinfection. Though substantial evidence indicated that natural immunity far exceeded the vaccine in beneficial effects, Kheriaty’s university turned a deaf ear when he pressed this point and soon suspended him. Vaccination was to be compulsory, with no exemption for those naturally immune; and when Kheriaty refused, he was fired.
Kheriaty’s misfortune led him to investigate the background assumptions of those instigating compulsory vaccination, and the results of his inquiry have resulted in a number of points of philosophical interest, one of which I’d like to write about in this week’s column. Because some people, despite the assurances of the medical establishment, refused to take the vaccine, the notion quickly developed of placing students and faculty under continuous surveillance so that their vaccination status and compliance with all covid regulations could be determined and, if necessary, appropriate sanctions imposed. Proposals were soon in the works to extend this surveillance to other social institutions. Because we faced a “medical emergency,” we were to become subject to an all-powerful medical bureaucracy. It is this notion of continuous observation on which, if you will allow the pun, I’d like to focus.
As Kheriaty notes, Jeremy Bentham’s “panopticon,” a machine that consisted of cells that could always be monitored, lies at the origin of this method of social surveillance and control:
Bentham maintained that the panopticon was “a new principle of construction applicable to any sort of establishment, in which persons of any description are to be kept under inspection.” Besides prisons, he also suggested its use in quarantine stations, poorhouses, houses of industry, factories, hospitals, workhouses, and, alas, schools. The panopticon’s principle of radical transparency promised to rationalize the discipline of otherwise unruly populations. . . . Through constant fear of punishment, prisoners would learn to patrol themselves. George Orwell captured this in his dystopian novel, Nineteen Eighty-Four, with his description of Big Brother’s ubiquitous television screens with built-in cameras, always on and always watching you.
Kheriaty adds to Bentham the insight that universal surveillance does not only become the prerogative of the observer who sits at the center of the panopticon:
With the advent of technologies of mass surveillance, we now live in a kind of worldwide digital panopticon, where each citizen is simultaneously guard and fellow prisoner. In totalitarian societies one does not just fear the censure of the ruler, one fears everyone else, for every neighbor is a potential informant. Today every potential informant is armed with a smartphone camera in his pocket. . . . Recall how university administrators encouraged students to act as informants during covid to enforce strict compliance with the minutiae of their covid protocols.
You might at this point object, “This is a frightening development, and Kheriaty deserves great credit for bringing it to our attention and for his efforts to combat it; but why is it of philosophical interest?” The answer lies in another extension of Bentham’s argument that Kheriaty makes. Greatly influenced by C.S. Lewis and the Italian philosopher Augusto del Noce, he suggests that our new biomedical overlords wish to replace biological humans with mechanical substitutes, to the extent that they can do so. Real people disturb the ideal of perfect regularity that those devoted to technological control wish to attain.
He holds Lewis’s The Abolition of Man “to be among the most important and prescient works of the twentieth century.” He quotes Lewis to this effect: “Human nature will be the last part of Nature to surrender to Man. The battle will then be won. We shall . . . be henceforth free to make our species whatever we wish it to be.”
Del Noce, who will probably not be as familiar to most of my readers as Lewis, was a twentieth-century Catholic philosopher of great learning and wisdom. In his opinion, modern technological society is dominated by the view that reason is purely instrumental. Knowledge is confined to the physical sciences, and transcendent values have no place. “Human reason, on this view, is unable to grasp ideas that go beyond brute empirical facts; we are incapable of discovering transcendent truths. Reason is merely a pragmatic tool, a useful instrument for accomplishing our purposes, but nothing more.” Thus, if, like Kheriaty, you object that forced vaccinations and universal surveillance violate human dignity, your objections will not be answered. You will rather be told that you are inconsistent with “science.”
Is this analysis correct? In order properly to assess it, we would need to be told more about the transcendent values to which Kheriaty appeals; but he seems to me to be suggestive and insightful. (I expect to be instructed by a frequent commenter on my articles that he has failed to ground his appeal to values in the philosophy of “She Who Must Be Obeyed”). Kheriaty’s thoughtful book deserves our attention, and its message brings to mind some familiar words from Percy Shelley’s Queen Mab: “Obedience / Bane of all genius, virtue, freedom, truth / Makes slaves of men and of the human frame / A mechanized automaton.”
Despite the massive intellectual feat that Marx’s Capital represents, the Marxian contribution to economics can be readily summarized as virtually zero. Professional economics as it exists today reflects no indication that Karl Marx ever existed.
—Thomas Sowell
If socialists understood economics they wouldn’t be socialists.
—F.A. Hayek
Karl Marx is a very popular name in social sciences. As a scholar of the nineteenth century, he is still a part of political discussions today. He was born in Germany and later shifted to London where he lived with his family in exile. Marx was a sociologist and philosopher, but some also see him as an economist. This article is a rebuttal to such thoughts.
Economics simply deals with the problem of the allocation of resources. As resources are scarce, they need to be allocated efficiently to the people in society who are involved in such activities. Economics is the science that deals with the problem of resource allocation in society, which makes it a social science. Nobody has the capability to allocate these resources; thus, it is best done by the market mechanism, the so-called invisible hand.
Most economists believe that the market mechanism allocates resources, and the works of Ludwig von Mises and F.A. Hayek in the calculation and knowledge problem play a big role in understanding that point. But Marx strictly didn’t believe in the market mechanism. His major problem was with capital, but ever since Adam Smith’s era or even before, the fundamental terms of economics include capital, saving, investment, prices, money, supply, demand, consumer, entrepreneurship, profit, etc., which Marx either criticized or ignored.
While Marx’s ideas would have been discussed in economics in an earlier era, today they are nowhere to be found. An economy needs profit and capital as these factors establish consumer sovereignty and enhance productivity. Marx saw profit as a rate of exploitation. According to Marx and his followers, the workers’ work and the profit are mostly taken by the capitalist just because he is the capital owner.
Marx clearly ignored the risk involved in a competitive market, as capital accumulation is uncertain and not all investments are converted into capital. It requires risk-taking and skill to be an investor in a competitive market.
Marx also says that an increase in technological advancements replaces the workers and increases the rate of profit for capitalists. This belief originated when computers were newly introduced in India, which led to mass protests by communists who went on to destroy the computers. Today, the service sector is a major contributor to the Indian economy, and the IT sector is booming and creating more employment opportunities. The IT sector contributes to the service sector both directly and indirectly. The computer that would once take away jobs is now a major hope for employment in India. Not only does it provide jobs, but it also provides better and more skilled jobs than were available earlier.
Technological advancement also increases productivity. When output increases, employment increases, not the other way around. Marx used a static model, and in such models, one can easily form equations or make predictions. But in reality, people aren’t static. Marx ignored the essence of entrepreneurship and consumers in the market. His focus was only on workers and the evil bourgeoisie, and he didn’t realize how consumer choice directs market processes.
What a person deserves to earn can’t be decided by anyone—certainly not a politician or an intellectual. It is assumed that a capital owner isn’t working, but their decisions need local knowledge of time and place which cannot be formed easily. Marx only saw one side of the coin, ignoring the fact that the owner of capital has a possibility of losses too.
But Marx’s complaint is only against profit. If an owner faces loss, then the worker would still be receiving his wages and can also change his workplace. Profit is uncertain, but the wages and salaries are certain; therefore, for the owner there is more risk and more gain. Hence, the subjectivity of these matters needs to be respected. The profits don’t come easily and when they do, a share of them is invested, which opens more job opportunities.
It is true that in the case of cronyism, there is unfairness. Despite being a capitalist system, the essence of competition and consumer sovereignty is lost. Marxists have been opponents to this, but unlike free-marketers, they prefer more regulation of the market. Their approach is unrealistic, which has already been proven by economists like Mises and Hayek.
The argument against socialism has developed from an incentive problem to a calculation and knowledge problem, as well as a self-interest problem. Not surprisingly, socialists have still not been able to deal with these arguments and rather try to escape them in name of “morality.”
Also, socialists haven’t developed their arguments from beyond the aesthetic feature of socialism, which, unfortunately, deceives laymen from looking at the big dark hole inside the ideology. It is sad that with more failures of socialism in history, there have been increasingly more followers of a figure like Marx. Marx’s theories might be part of discussions in political science or sociology, but his contributions to economics are next to none.
Economics deals with how things are, not how things should be. Karl Marx was a thinker, for which he is respected, and the fact that he was able to articulate his thoughts is commendable. After that, however, his conclusions were not true, and putting them into practice brought misery and death. Let nobody deceive you: Karl Marx cannot be considered an economist in this or any other era.
This week on Radio Rothbard, Ryan McMaken and Tho Bishop are joined by Peter St. Onge, a fellow at the Heritage Foundation and a regular contributor to the Mises Wire. This episode looks at the political response to the recent turmoil in the banking system and how the Austrian position looks today relative to 2008. St. Onge makes a case for optimism.
Recommended Reading"It Turns Out That Hundreds of Banks Are at Risk" by Peter St. Onge: Mises.org/RR_126_A
"The Fed Backtracks on Future Rate Hikes as Bank Failures Loom Large" by Ryan McMaken: Mises.org/RR_126_B
"Looming Bank Failures Point to More Price Inflation as Real Wages Fall Again" by Ryan McMaken: Mises.org/RR_126_C
Peter St. Onge's Substack: StOnge.substack.com
2023 Libertarian Scholars Conference: Mises.org/LSC23
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Mises saw essentialist values as fallacies because they were unverifiable and saw metaphysical ideas as a key component of authoritarianism. His solution was utilitarianism.
Original Article: "Libertarian Law by Democratic Means: Utilitarianism and the Demythologization of Authority"
This Audio Mises Wire is generously sponsored by Christopher Condon.
When we read about the US economy, we often get wage growth as a signal of a strong labor market. It is hardly a strong market when the labor participation rate and the employment to population ratio are both below the February 2020 level and have been stagnant for months.
Additionally, the headline figure of 4.6 percent annualized wage growth is misleading, as it shows a nominal and average figure that disguises a much tougher environment. According to the Bureau of Labor Statistics, from December 2021 to December 2022, real average hourly earnings decreased 1.1 percent, seasonally adjusted.
When we look at wage growth by sector, the picture is even worse. According to JP Morgan, no sector in the US economy has seen a rise in wages that covers inflation. Only two sectors in the US economy, Information and Financial Services, show more than 2 percent wage growth in annualized seasonally adjusted January figures. Furthermore, Construction, Manufacturing, Education and Health Services, Retail, Leisure and Hospitality as well as Professional Business Services show a negative nominal annualized change of minus two to minus 6 percent. This means an even worse real figure after discounting inflation.
When we look at such a scary loss of real disposable income, two things come to mind. First, in the euro area it is even worse, as there is barely any nominal wage growth to start with. Second, and most important, citizens do not understand it but the middle class is being eroded from the combination of inflationary policies, money printing, bloated government spending, and protectionism, trade barriers, and regulatory burdens.
Inflation is not a coincidence; it is a policy. Massively increasing money supply has brought levels of core inflation that many would have never imagined. Now, the narrative is to try to convince all of us that an annualized CPI of 5 percent is ~~“lower prices,”~~ when the reality is that inflation is accumulated and citizens are poorer every year.
Think about this. If even in the years when the mainstream said that there was ~~“no inflation”~~ we all saw the cost of housing, healthcare, education, and nonreplicable goods and services rise well above real wage growth, imagine what is happening now to households.
Inflation may be cooling but that does not mean low prices or even improving living standards.
How is consumption holding up in such a negative environment? Basically because citizens are using their savings or taking on more debt, hoping that the message coming from authorities about lower inflation may bring prices back to where they were in 2019. However, that is unlikely unless there is a massive crisis or governments cut drastically their enormous spending plans and protectionist agenda.
When governments announce ~~“anti-inflation”~~ plans based on spending even more of what is already a massive budget with an enormous deficit, they are not combating inflation, they are prolonging it.
Governments do not need to implement anti-inflation measures because it is government spending and political trade barriers what causes inflation. Inflation is not an external phenomenon; it is the destruction of the purchasing power of the currency due to political decisions. The so-called ~~“supply chain disruptions”~~ were nothing less that government barriers to trade added to more units of currency going to relatively scarce assets. Commodity inflation is always more units of currency going to relatively scarce assets. It is so evident it was a monetary phenomenon that in the middle of the Ukraine invasion commodities made a U-turn and ended 2022 flat or down on the year after a couple of rate hikes from the Fed.
One of the worst inflationary policies is protectionism. Protectionism places barriers to trade under the promise that we will buy and sell our own products and live happily ever after. The problem is that protectionism also makes goods and services less available and more expensive, and reducing the purchasing power of the currency through massive printing diminishes internal demand and makes everyone poorer.
The reader may say that governments know the negatives of excessive spending, high debt financed by money printing and imposing trade barriers, so why implement these policies? Because government is the first beneficiary of inflation.
Artificial money creation is never neutral. Government spending is always paid by you, even if you are poor, through taxes, inflation, or both.
The narrative now is to convince you that 5 percent annual inflation is a step in the right direction just to make you believe that three or four percent will be a success. By the time you accept four percent annual inflation as an acceptable outcome, the purchasing power of your wages will have fallen by more than twenty percent. The outcome will be more citizens dependent on government support paid with constantly depreciated currencies. Meanwhile, whatever you may save will be eroded by negative real rates, financial repression.
Inflation did not come out of the blue. It was a policy. And inflation, currency debasement, and financial repression are a massive transfer of wealth from savers and the middle class to governments that constantly increase their size relative to the economy.
Many will blame capitalism for all I have mentioned, but the reality is that the policy of middle-class impoverishment comes from two decades of rising interventionism, more government interference in the economy, rising protectionism, and widespread inflationism. None of that has anything to do with capitalism and everything to do with statism.
Have you ever thought about the relationship between the words liberty and freedom? Frequently, the words are used interchangeably, but I have always preferred liberty.
Perhaps my preference goes back to Thomas Jefferson’s reference to “life, liberty, and the pursuit of happiness” in the Declaration of Independence. Perhaps it traces to Patrick Henry’s “Give me liberty or give me death.” Perhaps it is because “with liberty and justice for all” is “the most important phrase in the Pledge of Allegiance,” according to Harvard political theorist Danielle Allen. In a more analytical sense, it could come from John Stuart Mill’s essay “On Liberty” and its contrast between freedom to act and the absence of coercion, or Isaiah Berlin’s distinction between positive liberty (often the meaning when people talk of freedom) and negative liberty (protecting individuals from the tyranny of others) in his essay “Two Concepts of Liberty.”
All of those have no doubt influenced my views on freedom versus liberty. But what I most remember as my biggest trigger was Franklin D. Roosevelt’s famous “Four Freedoms” speech. It mixed freedoms that were consistent with liberty with freedoms that were not, demonstrating how demagogues have been able to more successfully misrepresent or twist freedom than liberty.
FDR’s first two “essential human freedoms”—freedom of speech and expression, and freedom of every person to worship God in his own way—were not problematic because both can be enjoyed universally. The freedom of one individual to speak or worship does not detract from the same freedom for others. The only government role created is preventing others’ intrusions on those rights. They are aspects of liberty for all, defending citizens’ rights against man-imposed coercion, including that exercised by the agency with the greatest coercive power—government.
However, FDR’s third freedom—freedom from want—cannot be similarly universal. It commits government to provide some individuals more goods and services than they would have gotten through voluntary interactions (including voluntary charity) with others. But expanding recipients’ freedom in that sense necessarily constricts others’ equal freedom to attain their desired goods and services with their resources. Such freedom must violate liberty.
FDR’s fourth freedom—freedom from fear—was also insufficiently generalized. It proposed guaranteeing that “no nation will be in a position to commit an act of physical aggression against any neighbor.” Such protection against other governments’ depredations is certainly a valuable defense of liberty in the world. But it says nothing about constraining a nation’s freedom to aggress against its own citizens, which history has shown is a widespread threat to liberty.
Since FDR’s third freedom requires domestic government aggression to get the required resources for its “benevolence,” his “freedom from fear” omits the most significant agency most people must fear when it comes to their liberty. So, his list of freedoms was something quite different from liberty for all.
In my reading on the topic of liberty, including for my 2016 book, Lines of Liberty, liberty has more strongly connoted the absence of an outside constraint imposed by government than freedom. Liberty seems clearer on what it is liberty from—man-imposed coercion—while freedom is more agnostic about what it is freedom from. Perhaps Ludwig von Mises stated what has become my view most clearly in his book Liberty and Property: “Government is essentially the negation of liberty. . . . Liberty is always freedom from the government. It is the restriction of the government’s interference.”
Further, I have found that liberty seems to more strongly suggest a general or universal condition than the word freedom. I can enjoy additional freedom from want through government’s use of what John Hospers called others’ “expropriated money and property,” but such freedoms cannot be general or universal. That is, they cannot provide liberty for all. Such enhancements of freedom for some require taking away others’ equal freedoms. Liberty, in contrast, expands everyone’s joint freedoms, broadening the canvas for peaceful, voluntary actions.
It is also instructive to consider the usage of liberty with regard to travel or movement. As Justice William Douglas wrote in Kent v. Dulles, “The right to travel is a part of ‘liberty’ of which the citizen cannot be deprived without the due process of law. . . . Chafee, Three Human Rights in the Constitution of 1787 . . . shows how deeply engrained in our history this freedom of movement is.” That, in turn, reflected Blackstone’s description of the liberty to move to “whatsoever place one’s own inclination may direct.”
This protection against rulers’ power to restrict citizens’ movements is part of liberty as a general freedom from government coercion. However, it is only a negative claim against government interference with their choices. It gives citizens no positive claim on the beneficence of government (i.e., forced charity from others) to get them from point A to point B. If the government fails to coerce one person to give bus fare to another, it in no way limits his freedom from government dictation. And that is the essence of liberty.
It seems to me that the greater linguistic precision and self-consistency of liberty can also be seen in economists’ well-worn TANSTAAFL adage, “There ain’t no such thing as a free lunch.” Its lesson is that while something could be made free to a particular individual (easing one’s fear of want), the fact of scarcity means there’s still a cost that someone must bear. Therefore, if something is made free to one individual through government, the burden must be imposed on others. Such a freedom not only falls short of being universal, but it actually requires the violation of the same freedom for others. And that usage of the word freedom makes it more distortable than the word liberty. For instance, slaves could equally well be described as being made free or being liberated, but the same equality of freedom and liberty does not apply to free lunches.
Those on whom such burdens are imposed are often simply ignored when so-called freedoms that are inconsistent with liberty are discussed. They fail William Graham Sumner’s test of asking, “Who holds the obligation corresponding to his right?” which is a logical extension of Frédéric Bastiat’s book That Which Is Seen, and That Which Is Not Seen.
Consequently, I have come to more clearly distinguish between some specific freedom or privilege for some and liberty as universal freedom from government coercion. Freedom can be used to mean liberty, but it can also be used to mean freedom for some that denies the same freedom for others, enforced through government coercion. And a host of abuses can find a foothold in that confusion.
An online search of liberty turned up similar distinctions. Liberty was defined as “the state of being free within society from oppressive restrictions imposed by authority on one’s way of life, behavior, or political views.” Independence, autonomy, sovereignty, self-government, self-rule, and self-determination were common synonyms, and constraint was cited as an antonym. That is generalized liberty.
Freedom is a word brimming with hope and possibilities. As Leonard Read said in his book Pattern for Revolt, “Freedom is an assertion of man’s God-given free will, a resurrection of man from deadening arbitrary authority.” But I have frequently seen it manipulated to mean something that reduces general liberty by increasing government coercion. Further, some of the most ringing words of America’s founders are expressed in terms of liberty (e.g., John Adams’s statement that “liberty is [government’s] end, its use, its designation, drift, and scope”; Samuel Adams’s assertion that “the most glorious legacy we can bequeath to posterity is Liberty”; John Dickinson’s declaration that “liberty . . . her sacred cause ought to be espoused by every man on every occasion, to the utmost of his power”; and Patrick Henry’s belief that “Liberty is the greatest of all earthly blessings”). That is why my preference is for liberty, which reduces misrepresentation and clarifies the set of freedoms which provides the best hope and the greatest possibilities—universal freedom from government coercion.
Perhaps we should follow the lead of the common phrase “I took the liberty (to do something).” In one sense (especially to one who has no objection), it can mean one does not need permission. Legitimate liberties are things that we do not need special permission to do because we all share such in- or unalienable rights. In another sense (especially to one who disapproves), it can mean that there are acceptable boundaries to people’s liberties or that overstepping them is allowed. But that just reminds us that the appropriate boundaries of one person’s liberties are marked by the requirement that they do not violate other people’s equal liberties.
The story of the failure of Silicon Valley Bank is the story of nearly every bank failure. Fractional reserve banking invites the risky behavior that brings down the banking system.
Original Article: "Silicon Valley Bank and the Failure of Fractional Reserve Banking"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The pro-life activist Randall Terry has a famous quote that anyone who cares about politics should be familiar with: “He who frames the question wins the debate.”
Politicians are well aware of this fact, which is why they spend much of their time directing the political conversation into frameworks that benefit them. If they can get us arguing over how best to “reform” the education system, for instance, there will be little discussion about the bigger question of whether education should be handled by the state at all. It doesn’t really matter how the reform conversation goes after that. The framing that every reform combatant implicitly buys into grants that education should be handled by the state. The educational establishment wins before a single shot is even fired.
Another way politicians like to influence the framing of debates in their favor is with regulations. A few examples will help to illustrate how this works.
Minimum Wage LawsThere has been a vigorous debate in recent years over how high the minimum wage should be. Though some say it should be higher and others say it should stay where it is or even go down, most people accept the idea that some minimum wage is necessary, and that the only important conversation is figuring out where to set it.
The critical reframing, of course, is to challenge that assumption. The debate we need to be having is whether a minimum wage should exist at all.
But how is the minimum wage an example of politicians framing the debate in their favor? Think about what problem the minimum wage is trying to solve, and most importantly, who is being implicitly blamed for that problem. The problem is that many poor people can’t afford a basic standard of living. The people being implicitly blamed are their employers.
But why should the employer be blamed for what is essentially a mismatch between the income of workers and the cost of living? Why not blame the cost side for being too high? After all, a wage of five dollars per hour would be more than enough if the cost of living were lower by a factor of ten.
Maybe it’s the grocery stores and landlords that are charging too much rather than the employers paying too little. Or maybe the blame lies with the government. Maybe the real problem is that government intervention in the economy has made the cost of living soar, and that’s why the poor can’t afford a basic living.
If that’s true—and it seems quite likely that it is—then the blame for this problem should be directed at the government for making things so expensive, not at employers for paying too little.
The politicians can’t have that, of course. They want to be seen as the saviors, not the problem causers—the heroes, not the villains. So, what do they do? They find a scapegoat in the form of the employer, who happens to be a rather effective one since there’s a general animosity toward employers anyways. “He is the reason you are starving,” the politicians tell us. “We will stand with the poor and downtrodden by forcing him to pay a ‘fair wage.’”
Never mind that they are the reason the cost of living is out of reach for so many. It is always the employer’s fault. It is the employer who must pay more and more whenever the government makes life more expensive.
Rent Control and Consumer ProtectionMany other regulations follow a similar pattern of deflecting blame from the government. Take rent control. The problem is that many people struggle to pay their rent. The proposed solution is a cap on rental rates. The people being implicitly blamed under that approach are the “greedy” landlords (another favorite scapegoat). The people actually to blame are, of course, the politicians and bureaucrats, who have set up a web of zoning laws and land-use regulations that put a major check on supply and thus push prices far above what they would be in a free market.
Consumer protection regulations work in much the same way. The problem is that corporations sometimes deliver poor-quality products and services. The proposed solution is regulations on quality. The people being implicitly blamed are business owners. Now, it’s true that business owners don’t always conduct their businesses ethically. But again, consider how the government might be at the root of this problem.
In many industries, the government actively restricts entry with tariffs, IP laws, licensing, and such, protecting established firms from competition. That competition is likely the key to driving bad firms out of business. The solution, then, is not to add even more regulations that ostensibly protect consumers, but to deregulate the industry so that monopolistic producers can’t get away with bad products and services.
Challenging How Issues Are FramedThe key thing to notice is that there is an accusation of culpability implicit in every regulation. If a regulation is aimed at you, it must be because you are the one causing the problem.
In reality, it is often the politicians causing the problem, and the regulation is just a convenient way for them to deflect blame. And it’s surprisingly effective. Politician A argues we should regulate employers, landlords, and business owners one way. Politician B insists we should regulate them another way. Everyone picks a side, but the most important battle is already lost because the idea that group X is the problem and that regulating them is the solution has been conceded by both sides from the get-go.
It is incumbent upon those of us who know where the blame truly lies to call this out, not only with the regulations mentioned above but wherever it happens. Practice looking for blame deflection with every policy you come across. Ask yourself, what’s the problem this is attempting to solve, and who is being implicitly blamed? Consider how other actors (often the government) might be the real culprits and how in light of that fact a completely different approach might be called for.
Above all, don’t concede the framing. If we are content to debate the trivialities of the day and don’t insist on fundamentally redirecting blame back to the government when that’s where it rightfully belongs, we’ve already lost.
The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday raised the target policy interest rate (the federal funds rate) to 5.00 percent, an increase of 25 basis points. With this latest increase, the target has increased 4.75 percent since February 2022.
However, with an increase of only 25 basis points, the March meeting is the second month in a row during which the Fed has pulled back from its more substantial rate hikes of 2022. After four 75-basis-point increases in 2022, the committee approved a 50-point increase in December, followed by a 25-point increase in February, and another on Wednesday.
Although CPI inflation remains at or above six percent, the FOMC has slowed down in its monetary tightening over the past two months. At Wednesday's press conference, Fed chairman Jerome Powell moved further into dovish territory.
We should expect more of this as the year wears on. Although CPI inflation remains well above the Fed's two-percent target, recent bank failures will put the Fed under pressure to force interest rates back down so as to give banks better access to cheap liquidity. In other words, the Fed will have to choose between helping bankers on the one hand and reducing inflation for regular people on the other. Experience suggests the Fed will side with bankers and will thus move back in the direction of easy money even as inflation continues to drive up the cost of living.
The Fed Can't Keep Tightening and Also Protect Banks The FOMC's retreat to 25 basis points was expected in light of this month's bank failures and nascent financial crisis which became obvious with the failure of Silicon Valley Bank on March 10. This was the largest bank failure since the 2008 financial crisis, and is the second-largest bank to fail in the United States. On March 12, Signature Bank failed as well.
In order to prop up the banking sector in the wake of these failures, the Fed is unlikely to continue with much more than token monetary tightening. Here's why:
As SVB and Signature Bank failed, depositors who exceeded the $250,000 maximum for FDIC deposit insurance were poised to lose the entirety of their deposits above the maximum. In the case of both banks, this was the lopsided majority of depositors. Many policymakers became fearful that system-wide concerns over bank failures among depositors would cause mass withdrawals from the banking system—especially among smaller banks.
This would have pushed even more banks toward insolvency, and would have been highly deflationary. In what has become nearly normal since the 2008 bailouts, both the Treasury Dept and the Federal Reserve sought to intervene in markets to backstop banks and provide a de facto bailout. This came in the form of a March 12 joint announcement from both Treasury and the Federal Reserve that virtually all deposits—regardless of the $250,000 legal limit—would now be guaranteed. Federal policymakers claimed that this would be financed by FDIC fees, but this is clearly wishful thinking since total deposits at US banks exceed FDIC funds by about $18 trillion. Moreover, the Fed has promised to further prop up bank portfolios by allowing banks to receive loans against collateral at fancifully high par values, rather than at market value.
[Read More: "Yes, the Latest Bank Bailout Is Really a Bailout, and You Are Paying for It." by Ryan McMaken]
Yet, even with these new special favors doled out to bankers and wealthy depositors, banks will continue to head toward even more precarious positions if the Fed continues to allow market interest rates to head upward.
The Fed's Low-Interest BubbleThanks to more than a decade of negative and near-negative real interest rates, the banking sector has become extremely reliant on business models that assume extremely low interest rates. If interest rates continue to head upward, banks will increasingly find themselves in a position of having to pay out interest at higher rates than they can collect on the older low-interest assets on teh banks' balance sheets. In other words, banks will find themselves with negative cash flow and will become insolvent.
[Read More: "How Easy Money Killed Silicon Valley Bank" by Daniel Lacalle]
Moreover, even if the Fed pivots back toward easy money, many banks will continue on the road to failure anyway, and this will necessitate new bailouts via the sorts of quantitative easing we saw after 2008. That too will require lowering interest rates to be sustainable beyond the very short term.
Considering the fragility of the financial system, and the potential need for more bailouts, it's hard to see how the Fed can really continue with the ongoing quantitative tightening that Powell has repeatedly claimed he will support.
How the Fed Got More Dovish on Wednesday We can already see how the Fed is backing off from Powell's relatively hawkish talk over earlier months. For example, in February's press release, the FOMC noted:
The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
In contrast, this is what Wednesday's statement reads:
The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
We see that "increases" has become "firming"—i.e., holding steady on increases—while "will be" has become "may be." "Ongoing" has become "some." In the press conference, Powell explicitly noted that readers should focus on "some" and "may" as the key part of this sentence.
As has been the case since the Fed abandoned forward guidance and any attempts to claim it has a long-term plan, the FOMC was sure to state "the Committee will continue to monitor the implications of incoming information for the economic outlook."
In other words, FOMC policy and outlook could change at any time.
In spite of the FOMC's clear lack of commitment on any particular policy, many will continue to look the FOMC's "dot plot" (in the Summary of Economic Projections or SEP) as indicators of future Fed policy. In Wednesday's new SEP, the dot plot suggested that all but one member of the FOMC say they expect the target interest rate to remain above five percent this year. All but four members say they expect the target rate to remain above four percent through next year.
For those looking for reliable information on the future, however, they'll find little of it in the SEP. Experience makes it clear there is very little correlation between what Fed officials say will happen, and what actually does happen. After record breaking amounts of monetary inflation in 2020 and 2021, Fed economists were still insisting that price inflation would be no problem and would be "transitory." Numerous Fed economists from Neel Kashkari to Jerome Powell continued to state that the Fed should keep interest rates low well into 2022, or even into 2023.
They were wrong about both inflation and Fed policy. There's no reason to assume that FOMC members provide a reliable gauge of future policy.
Moreover, the SEP's predictions of future economic conditions read more like an attempt at calming fears over recession and inflation. For example, the SEP predicts the US economy will grow by 0.4 percent in 2023, and 1.2 percent in 2024. In other words, the SEP is clear that if there is any recession in 2023, it will be neither long nor deep. The SEP also takes it as a given that inflation will come down substantially in 2023, predicting a median rate of 3.3 percent in PCE inflation. It's hard to not read this as wishful thinking, and it would be very much in character for the Fed which tends to paint a rosy picture of the economy until recessions become undeniable.
Not surprisingly then, Powell at Wednesday's press conference continued the Fed's policy of fixating only on the relatively innocuous employment data while ignoring a number of other economic indicators that point to recession. Moreover, when asked about the likelihood of a "soft landing," Powell insisted it is still possible, and concluded it is “too early to say whether these events [i.e., bank failures] have had much of an effect.”
Unfortunately for ordinary people who are seeing real wages fall, the Fed is being careful to keep the door open for more bailouts and financial repression in the interest of bailing out Wall Street and the financial sector yet again.
What remains unclear is whether the Fed will favor bankers by forcing interest rates back down, or simply by turning to bailouts once a financial crisis is obvious. Or, it could be a mixture of both. In none of these cases, though, is the Fed committed to any real efforts to bring inflation under control. Unless the Fed does more to rein in inflation soon, a likely outcome will be recession plus price inflation. This sort of stagflation would be devastating to American households. I have no doubt, however, that bailed-out bankers and wealthy depositors will weather the economic storm much more easily.
The Ludwig von Mises Memorial Lecture, sponsored by Yousif Almoayyed.
Recorded at the 2023 Austrian Economics Research Conference hosted at the Mises Institute in Auburn, Alabama, March 16–18, 2023.
The Austrian Economics Research Conference is the international, interdisciplinary meeting of the Austrian School, bringing together leading scholars doing research in this vibrant and influential intellectual tradition. The conference is hosted by the Mises Institute at its campus in Auburn, Alabama, and is directed by Joseph Salerno, professor of economics at Pace University and academic vice president of the Mises Institute.
The F.A. Hayek Memorial Lecture, sponsored by Greg and Joy Morin.
Recorded at the 2023 Austrian Economics Research Conference hosted at the Mises Institute in Auburn, Alabama, March 16–18, 2023.
The Austrian Economics Research Conference is the international, interdisciplinary meeting of the Austrian School, bringing together leading scholars doing research in this vibrant and influential intellectual tradition. The conference is hosted by the Mises Institute at its campus in Auburn, Alabama, and is directed by Joseph Salerno, professor of economics at Pace University and academic vice president of the Mises Institute.
Even if Powell is sincere in this stated desire to slay inflation with more rate hikes, recent bank failures will put the Fed under enormous pressure to end its rate hikes and to once again embrace easy money to save the banks and Wall Street.
Original Article: "Looming Bank Failures Point to More Price Inflation as Real Wages Fall Again"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Revisiting the legacies of colonialism to indict Western imperialism has become a fashionable pastime for leading academics. Many argue that colonialism erected permanent roadblocks to thwart the progress of ex-colonies. Western colonialism is so vilified that any attempt to present a balanced overview is deemed improper. Bruce Gilley’s controversial essay, “The Case for Colonialism,” spawned a firestorm of criticisms that led the journal, Third World Quarterly, to retract the piece.
Gilley sought to demonstrate that in several cases, colonialism brought positive benefits, and he even suggested that some places would prosper if they were recolonized. Recolonizing independent territories is fraught with tension and seems impractical, but Gilley is correct in pointing out that colonialism led to some favorable outcomes. More recently, he published the book, In Defense of German Colonialism, and his intellectual ally, Nigel Biggar, released Colonialism: A Moral Reckoning to offer an objective appraisal of the British Empire.
Gilley and Biggar are charting a new course so that critics and defenders of Western imperialism can engage in an evidence-oriented debate. Because the debate is so emotionally charged, consumers are fed empty platitudes and anecdotes rather than empirical data. Politically correct academics and their minions might find the idea of foreign rule troubling, but that is an irrelevant footnote. On the other hand, libertarians view colonialism as a violation of sovereignty, and this assumption is accurate for those who oppose foreign rule.
It is undeniable that European countries presided over atrocities in former colonies; however this does not make the European brand of colonialism more morally repugnant than its Islamic or African counterparts. Frequently, the imperial history of non-European powers is omitted from the debate. Hence people are led to think that colonialism was strictly a Western project. Therefore, because Western colonialism is rarely compared to other versions of colonialism, we cannot say that it was exceptional in benevolence or cruelty.
However, researchers have amassed anecdotes and empirical data revealing positive outcomes of Western colonialism. For a long time in academia, the consensus was that on average Western colonialism was a favorable event, but then this course was reversed by the revolutionary politics of the 1960s and ’70s. Today, colonialism is blamed for every conceivable ill in the developing world from poverty to environmental degradation.
Bashing Western colonialism imbues speakers with moral status, but anecdotes and empirical evidence contradict their arguments. Deepak Lal opens his lecture defending empires with an 1881 letter from African kings to British Prime Minister William Gladstone requesting that he restore foreign rule:
We want to be under Her Majesty’s control. We want our country to be governed by British Government. We are tired of governing this country ourselves, every dispute leads to war, and often to great loss of lives. . . . We are quite willing to abolish all our heathen customs. . . . No doubt God will bless you for putting a light in our country.
Europeans exhibited a greater capacity to impose order in colonial societies by suppressing tribal politics. In Colonialism: A Moral Reckoning, Nigel Biggar avers that even in India, natives invited the British to lead because local opponents were more hostile. The colonial world was marred by tribal politics, and local governments lacked the authority to pacify warring groups. As outsiders, Europeans could exploit trust deficits among tribes to legitimate their rule and impose order.
In the Journal of African Military History, Eginald P.A.N. Mihanjo and Oswald Masebo note that Germany’s subdual of African warlords had a profoundly positive effect on the well-being of natives in Tanzania. Establishing order safeguarded the commercial and political interests of Europeans in their colonies, but the creation of more peaceful societies also redounded greatly to the benefit of natives, who were the victims of warfare. Saying so is politically incorrect; however in several circumstances, Europeans were more benevolent than the overlords they overthrew.
On the other side of the debate, it is parroted that countries are worse off because they were colonized, yet this is not shown by studies. Researchers argue that hostility to colonial interventions predicts lower development. Research gathered by Elise Huillery concludes that prosperous areas in French West Africa were displaced by newcomers because by resisting colonialism, they limited access to colonial investments. Although such areas did not become poorer, they lost their precolonial advantage and were deprived of investments in health, education, and infrastructure.
Similarly, an analysis by African scholars concurs with Huillery that African resistance to European colonialism has led to adverse effects. In contrast, regions that were more amenable to European intervention benefited from better public services, superior schooling, and higher-quality healthcare. Results for Asia are also similar, according to a 2022 paper indicating a favorable link between European settlements and social outcomes in Indonesia. Evidently, some ex-colonies were made better off by importing European human capital and institutions.
Based on the data, it is obvious that colonialism led to some favorable conditions. So, although berating the colonial history of Europe is fashionable, it is indeed true that many places are better off precisely because they were colonized by Europe. Without colonization, they might have experienced development. However, colonialism may have provided a jumpstart for some ex-colonies.
Collusion was a way of life with state-chartered enterprises. Little has changed, as firms with political connections still gain profits from their collusion with the state.
Original Article: "The Theory and Practice of Conspiracy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
As you may have noticed, those dreaded “forces” seem to have rematerialized—in the headlines, in the journals, in the pages of bestsellers: those historical, material, political, or ideological forces that supposedly make conflict between some set of groups, classes, or states “inevitable.”
But as the great libertarian historian Ralph Raico never tired of telling, such collectivist narratives are often little more than convenient scapegoats or outright inventions to cover for bad decisions made by powerfully situated individuals who could and should have done otherwise.
To illustrate the point, take the most typical of those terrible and “inevitable” conflicts so frequently invoked by the interventionists as the justification for their continued efforts toward US hegemony under the guise of world “leadership”: World War I.
Specifically, their criticism is of the instability or tendency toward war fostered by so-called multipolarity. In their telling, the leaders of the great powers (Britain, France, Germany, Austria, and Russia) were finally overcome by the circumstances of their complex system of alliances and were sucked into war over an incident of Austrian politics.
Even devoid of any considerations of further additional factors, however, this narrative fails to hold up.
In the first place, World War I came when the various powers had become set into more or less solidified blocs; that is, the tergiversation of Italy aside, Europe had become bipolar. Secondly, even though the opposing groups—the “Central Powers” (mainly Germany and Austria-Hungary) and the “Entente Powers” or “Allies” (primarily the Russians, French, and British)—were variously tied together by a combination of formal treaties, a review of the specific commitments these entailed clearly reveal none of the major powers were required by treaty to go to war in 1914.
On the side of the Central Powers, Germany was obliged under treaty to help defend the Austrians if they were attacked, but Austria had not been attacked. Rather, Archduke Franz Ferdinand—the heir and nephew to the Austrian emperor—was assassinated in the recently annexed territory of Bosnia by a Bosnian student terrorist with suspected ties to members of the Serbian military intelligence apparatus.
Turning to the Entente Powers, though imperial Russia had long-running interests in the Balkans and Serbia in particular, there existed no formal treaty at all between Belgrade and Saint Petersburg. Russia was, however, bound to France by a strict treaty of mutual defense in the event either was attacked by Germany.
For its part, Great Britain’s only conceivable involvement in any possible pan-European war could stem from its having cosigned a treaty in 1839 guaranteeing independent Belgium’s neutrality. While it had settled its colonial disputes with Paris (in 1904) and Saint Petersburg (in 1907) via a series of separate agreements, London otherwise stood apart from the two opposing militarist blocs.
While an entire recounting of all that followed is beyond the scope of this article, it is clear that what happened after June 28, 1914, cannot be blamed on multipolarity nor on forces beyond human control. In fact, applying the libertarian realist perspective to the outbreak of World War I clearly reveals the centrality of individual decision to the slow outbreak of a war that, twenty-five years later, had destroyed the old Europe and its ideological and material power forever.
As Justin Raimondo wrote some years ago, libertarian realism is a subjectivist perspective that views foreign policy as a function of “domestic political considerations.”
Turning to the belligerents of World War I, one finds the leadership in Vienna determined to act aggressively against Serbia in order to prevent the disintegration of their centuries-old empire into competing ethnostates of Hungarians, Croats, Slovenes, Czechs, and Poles, with the rump Austrian monarchy reduced to practical irrelevance and likely extinction.
In Saint Petersburg, the tsar’s own hold was equally tenuous. In the wake of total defeat by Japan and near revolution in 1905, the tsar had consequently been unable to act effectively on behalf of Russia’s Balkan client states. Being forced to back down during the Bosnian crisis in 1908 in the face of joint Austro-German pressure had been viewed as a national disgrace because of the imperial government’s own propaganda, which had long cast the tsar as the defender of all Orthodox Slavs everywhere. And so in 1914—with domestic unrest again growing, the pan-Slavic cause of the Orthodox Serbs popular, and all eyes watching—the tsar plunged his people into a horrifying war few of them actually wanted for fear of how he would look if he did not.
France, for its part, was led by a popularly elected politician who hailed from Lorraine and had worked as chief legal counsel for French arms giant Schneider-Creusot. One of the two provinces lost to Berlin during the final war of German unification in 1870, Lorraine’s seizure by the Germans and its promised future reclamation were familiar tropes of French politics in the years leading up to the war. Raymond Poincaré, a leading voice of this lobby and the dominant force of French politics during the period, was so personally desirous of an opportunity to seize back the lost provinces that he assured the tsar’s ambassador that his government would choose to interpret a Russian attack on Austria over another Balkans crisis as satisfying the conditions of their mutual defense pact.
As it happened, however, Germany ultimately relieved Paris of any necessary contorting of their treaty obligations. The collapse of German-speaking Austria would have thrown the carefully constructed “little Germany,” desired by Prussia and authored by Otto von Bismarck, into potential chaos at a time when the Prussian ruling elite already felt threatened. Domestically, the existing undemocratic Germany (dominated by the old Prussian aristocracy) was straining with the social and political demands of a highly industrialized capitalist society. Pride in the new German state and nation had diverted much of this pressure, with the mass member pan-German and Navy Leagues (connected to the intelligentsia and arms industry) pushing the imperial government’s already aggressive line abroad. However, with the window for further national glory by expansion in danger of closing, the kaiser’s government increasingly looked for a favorable opportunity to settle things with its implacable foe (France) while beating back its apparent industrializing rival (Russia).
So it was that Germany ultimately declared war on both France and Russia in response to the latter’s intervention against Austria. Like Austria and Russia, the German government’s decision to go to war was largely motivated by the concern of rulers for their power—or, in the case of Poincaré in France, the determination of one man to bring the place of his birth back within the domain of the French state.
In Britain, meanwhile, the government was divided. There was no great public clamor to go war, and despite Prime Minister Herbert Asquith’s recognition of the likely geostrategic implications of a hypothetical German victory, as well as existing joint war plans, his government hesitated to the end over whether to choose to take the impending German passage through Belgium en route to France as a casus belli. According to foreign secretary Lord Grey, as testified in a speech before the House of Commons, what was at issue was not consideration of the costs in men, money, or material; but rather, in the loss of “prestige” the British state would incur from having failed to “honorably” take the opportunity to enter the war on the side of the Entente Powers given a pretext to do so.
Thus, London chose war in the name of preserving the credibility of its commitments, with the wider aim of preventing Germany from dominating the continent, thereby ensuring that what otherwise would have been a bloody but brief affair dragged on until all sides were bled white.
While there were other factors at play, it is clear that in 1914 there was much room for all sides to have avoided war had their leaders so chosen. Instead, driven by largely domestic political considerations, the leaders of the various governments responsible made deliberate decisions they knew would almost certainly lead to a war of disastrous proportions.
Interest in such scholastic archaeologies of past human follies aside, human life is unlikely to survive another such round of follies. Looking around today, one is filled with foreboding.
The American public has been fairly easily lied into every war since 1898, while at the level of policy there seems to be no interest or even willingness to hear alternatives to the attempted maintenance, insofar as possible, of what remains of the so-called unipolar moment. In fact, the same failures that brought us the Afghanistan and Iraq war, as well as the disasters of Syria, Libya, Yemen, and Ukraine, are now further advocating upping the ante versus China vis-à-vis Taiwan.
Though the recent effort to preemptively empower whoever was president to go to war with China over Taiwan unilaterally was prevented from making it into (yet another) omnibus spending bill, behind the scenes things are quietly being put in place so as to make such circumstances de facto, with joint military plans being laid and US forces already in Taiwan.
Faced with the same choice as that of British leaders a century ago—preserving peace and its relative preponderance or a world-destroying war over what was not in fact a core national interest—it is tragicomical to think the president and his advisors will have one eye on the polls, but no doubt they will.
With generals and admirals now telling Congress and the White House a war over Taiwan is inevitable, now is precisely the time to push back against such obvious attempts by the Pentagon to further pad its budget, while simultaneously seeking to write off responsibility for successive Congresses and administrations for having failed to pursue the kinds of policies necessary for continued peace.
Welcome to Whose Economy Is It, Anyway?, where the rules are made up and the dollars don’t matter. Or at least that seems to be the view of the Yellen regime.
Original Article: "A Bank Crisis Was Predictable. Was the Fed Lying or Blind?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The failure of Silicon Valley Bank (SVB) on March 10 was the second largest bank failure in US history. Just two days following SVB’s collapse, Signature Bank joined the record books as the third largest bank failure in US history. First Republic Bank also seemed on the edge of collapse until Bank of America, Citigroup, and other big banks agreed to jointly fund a bailout for it.
Major Swiss bank Credit Suisse was also teetering on the brink when it received a 54 billion dollars line of credit from the Swiss UBS Group last week. Now, UBS is in the process of buying Credit Suisse. Politicians, regulators, and financial “experts” all rushed to assure us these problems were all caused by factors unique to the individual banks and were not a sign of a systemic weakness in the banking system.
The bank failures and near failures caused nervous banks to borrow a combined 164.8 billion dollars in one week from the Federal Reserve’s discount window and the Bank Term Funding Program, a new program created by the Fed to make loans to troubled banks. The Fed created this program even though supposedly there is no systemic problem in the banking industry.
While SVB didn’t receive a bailout, the Federal Deposit Insurance Corporation (FDIC) guaranteed the full amount of all deposits even though Congress set a standard FDIC guarantee on deposits of up to 250,000 dollars. By covering all SVB deposits, the FDIC has created an expectation among depositors at major financial institutions (as well as the institutions themselves) that the government will cover 100 percent of deposits. This will cause both depositors and banks to make investment decisions they typically would not make, thus guaranteeing larger bank failures followed by more bailouts for wealthy depositors.
Some have blamed the current bank failures, along with other signs that the economy is on the verge of a major downturn, on the Federal Reserve’s interest rate increases. It is true the Fed bears responsibility. However, the rate increases are not the problem. The problem is the “easy money” and low or zero interest rate policies the Fed pushed since the 2008 market meltdown, which was caused by the bursting of the Fed-created housing bubble. Federal Reserve manipulation of the money supply distorts interest rates, which are the price of money. This distorts the signals sent to market actors regarding the true value of investing in particular industries. The result is malinvestments in those industries creating a bubble. The bubble will inevitably burst.
The economic downturn that follows the bursting of a bubble is necessary to cleanse the economy of the malinvestments. The correction will not last long and the economy will emerge stronger if Congress, the Treasury Department, and the Federal Reserve refrain from “stimulating” the economy with federal spending and artificially low interest rates. Government interference, however, can create yet another bubble, setting the stage for another crash.
The new wave of bank failures is an indication that the US economy is either in or on the verge of another serious Fed-caused recession. With nations seeking to end the dollar’s status as the world’s reserve currency, the end of America’s disastrous experiment with fiat money, and with it the welfare-warfare state, could be on the horizon. The collapse can be accompanied by civil unrest and greater restrictions on liberty. However, the spreading authoritarianism can also spur a growth in the movement for individual liberty, a free market, and limited government that could make the dark night of authoritarianism a prelude to a new dawn of liberty.
Murray Newton Rothbard, perhaps the greatest enemy of the state in the second half of the twentieth century, would have recently celebrated his ninety-seventh birthday had he lived.
Men are not salmon, those unique creatures that swim against the current. Most people “go with the flow” and allow the pace of events to dictate their lives, at least in that few consciously choose to reject the current order of things, declare it to be profoundly wrong, and act on it. Rothbard was one of those few.
The State qua StateRothbard’s greatest practical achievement was the demystification of the state: an entity that must be cloaked in apologias and ringed with armed men in order to survive. Before his classic piece, The Anatomy of the State, there was a serious lull in substantive writing on the state qua state, the actual substance of what a state is, and what it necessarily implies.
All the justifications for the state conjured up by the hired guns of academia in league with it serve to camouflage the actual operation of the entity itself. Since there is no “it” to the state, meaning it has no separate consciousness, it is nothing but a shorthand for the individuals who make it up. The only difference between the people who make up the state and the plebians outside it is political power, which is, as per Franz Oppenheimer, the ability to satisfy one’s material needs by the means of coercion.
Since the state is not its own entity, there cannot be special ethics that apply only to it and not to the individual (deeper yet, how can there be special ethics at all?).
Ergo, the state is a shorthand for the political-power-using individuals who make it up, who also by necessity operate under the same ethics as any non-bureaucrat does. Since the state is involved in taxation, conscription, regulation of business, warfare, welfare, censorship, and imprisonment among other things, it follows that the state is a criminal organization of the highest caliber. No brutal mafioso or cruel feudal baron could come within screaming distance of the criminality of the state, and this was Rothbard’s chief insight.
Little wonder why the intellectual bodyguard of the state, academia, was not overly fond of him.
The Victory of the RadicalsArmed with his mentor, Ludwig von Mises’s, insight that socialism cannot long persist due to the impossibility of economic calculation and the death of revolutionary enthusiasm, Rothbard saw the cracks in the Soviet edifice long before his contemporaries. His biographer, Justin Raimondo, quotes him as follows:
I am not expert enough to say [how] far this progress has already gone in the Soviet Union. But the point is that it must, in the nature of things, be underway already, and its importance will grow as time goes on. If we realize this, and remember also that revolutionary inspiration has always, historically, died out after a time, we will see that time is on our side, and we will realize that we need not dig in for a long and bloody battle to the death with an enemy that is even now withering from within.
Though the victory was far from total, Rothbard and his like were vindicated when the Soviet Union and its worm-eaten client states collapsed under the weight of their own bureaucracies, much as he predicted. After the death of Chairman Mao, China gave up the goal of building communism and acquiesced to gradual economic liberalization. The West reaped the fruits of its own liberalization after seeing the error of the postwar Keynesian consensus.
If Rothbard and the underground liberty movement around the world have a political legacy that one can see in the daily papers, it is the rout of outright socialism.
Liberty since RothbardSadly, the gains the economist oversaw in his last years have not been well stewarded, let alone advanced.
Freedom House measures the trends of civil liberties over time. Since 2006, there has been an ominous one: every year, more countries lose liberty than gain it. By their estimates, as of 2021, only one in five people live in free countries.
Freedom House’s definition of liberty is relative, not absolute. As a result, they habitually turn a blind eye to the depredations of supposedly free Western states. Rothbard would hardly call a state with a progressive income tax, eminent domain, gun control, conscription, a prison industrial complex, and a standing army a free one.
The Great Recession, which blindsided mainstream Washington yet was entirely foreseeable from the Rothbardian angle, further brought banking under the control of the state and served as a launchpad for the Barack Obama spending bonanza. Since Donald Trump had a dubious commitment to market rights, it should not have been surprising that he spent even faster than his predecessor, and President Joe Biden proceeded to spend more than Trump.
To really see where the world went wrong after Rothbard’s time, one has to put state spending and related metrics aside to focus on other things—things that would not have been conceivable in his time.
Coronavirus, and more specifically how the state responded to it, tells the biggest story of all. China locked down billions of people. Australia built gulags. The United Kingdom arrested people for being outside their homes. Slovenia banned the unvaccinated from buying gasoline. New Zealand shut itself off from the rest of the world. The European Union made vaccine passports.
Oppression overseas is one thing, and for a man who saw the horrors of the twentieth century, it would not have surprised him. The same oppression at home is another ballgame. American churches were closed, many never to reopen. American businesses were closed, many also never to reopen. Masks were mandated first, and then so was the vaccine, with at one point over 100 million Americans subject to the mandates. Americans were spied on to new degrees by their own government. Coronavirus brought oppression to American soil in a way that has hardly been felt before in living memory.
If only Rothbard and his typewriter were still here to shred these absurdities with editorials.
The Happy WarriorThese setbacks for liberty are real, but the core of the Rothbardian outlook was never settling and always persevering, which is why he penned For a New Liberty, his detailed plans for an anarcho-capitalist society.
In contrast to other political outsiders, who can often be called a grim lot, Rothbard was a joyous fellow and called himself a happy warrior. He lived his life and fought his battles with an upbeat demeanor that the liberty movement must recall and emulate, especially after the hard defeats of the last few years. Putting aside for a moment all his insights, the veritable library he wrote, and the principles he elucidated, one thing the liberty movement must take from his legacy is to be as he was: happy warriors.
Happy belated birthday, Murray Rothbard, and may there be more like you soon.
The Fed is launching a new billionaire bailout designed to keep banks afloat, and the FDIC is promising to back potentially trillions in deposits. The taxpayer will ultimately be on the hook.
Original Article: "Yes, the Latest Bank Bailout Is Really a Bailout, and You Are Paying for It."
This Audio Mises Wire is generously sponsored by Christopher Condon.
A key principle in understanding Austrian economics is seeing the inefficiency of government spending. In an era of overbearing states and reckless fiscal policy, this principle must be emphasized repeatedly. Politicians might claim the best of intentions when dishing out funds for military defense, social welfare, and public works. Their civil servants might try to realize these plans efficiently and thriftily.
However, the very nature of government spending goes against sound economics because government does not subject itself to the rigors of the free market. The latter operates according to a system of profit and loss, which enables entrepreneurs to use market prices as a guide to invest their limited capital rationally. Those who do this satisfy their consumers and earn a profit; those who do not suffer losses that force them to overhaul their business model or close down.
Governments escape this efficiency test because of their ability to draw money from taxes, a seemingly bottomless well of capital. Knowing that they can always fall back on tariffs and the taxpayer, politicians are liable to mandate outlandish policies that bureaucrats carry out with appalling wastefulness. As the great economist Murray N. Rothbard notes, this phenomenon makes inefficiency “inherent in all government enterprise” (emphasis in original).
Among the starkest examples of government inefficiency in modern times is Joseph R. “Joey” Smallwood’s premiership of the Canadian province of Newfoundland (now officially known as Newfoundland and Labrador). Premier from 1949 to 1972, Smallwood was the most consequential statesman Newfoundland has ever produced, having been the driving force behind its joining Canada in 1949. A considerable influence in federal and provincial politics, he also built a substantial international reputation.
Smallwood’s chief goal was to modernize Newfoundland. The province was heavily reliant on its fisheries, whose outports often used antiquated technology and whose saltfish export trade was bringing in poor returns. Chronic unemployment had stalked Newfoundland for years. Most fishermen struggled to make ends meet, and there were few alternative means of employment. Ambitious young people, seeking a better life, were emigrating in droves.
Smallwood sought to overcome these difficulties through audacious government programs. The Canadian federal government had given the new province a cash surplus of approximately $45 million. Proclaiming that Newfoundland must “develop or perish,” Smallwood invested this money in new industries. In the 1950s, over a dozen manufacturing plants were established in Newfoundland, some built directly by the government and others having received loans.
At first, it all seemed quite promising. But as the commentator Harold Horwood remarks, Smallwood was ill versed in mathematics and had previously failed as a small businessman. He was therefore reckless with his finances even by the standards of government leaders.
As the Newfoundland and Labrador Heritage Website notes, some of Smallwood’s manufacturing plants relied on expensive imported raw materials, which virtually doomed them to economic loss. Even those that utilized local materials frequently struggled to find a secure market for their products since the province’s market was rather small and the Canadian and international markets were extremely competitive. Despite handsome government support, many of the industries folded quickly, taking with them much of Newfoundland’s cash surplus. Those that survived could provide employment only for a select few.
If a commercial company wished to stay in business after such setbacks, it would urgently have to rethink its commercial strategy. But Smallwood’s government could rely on taxpayer money for assistance. Thus, he continued to endorse poorly conceived development projects. In the late 1960s, for example, Smallwood supported the building of an oil refinery at Come By Chance. The result, the Heritage Website notes, was an economic disaster.
Although he cannot be blamed for the international 1973 oil crisis, the fact that there were already refineries in eastern Canada by this time prevented the Newfoundland refinery from becoming the economic miracle that Smallwood expected. It closed in 1976, having run up around $500 million in debt.
Another example is Smallwood’s establishment of a paper mill in Newfoundland. Because the island already boasted two paper mills, it was decided to base this third one on the mainland in Labrador. Labrador had the requisite forests, but as the Heritage Website points out, its territory was underdeveloped and key waterways were frozen for much of the year. These factors, which any half-decent entrepreneur would have spotted, made its construction ridiculously expensive—approximately $155 million. As one might expect, the venture proved to be economically unsustainable.
Smallwood’s modernization of the fisheries was also dogged with incompetence. For instance, in December 1949, Smallwood was conned by Icelandic fishermen (or men pretending to be Icelanders) who promised to breathe new life into Newfoundland’s fisheries if the government gave them money to purchase some modern herring boats.
Without properly checking their identities, Smallwood enthusiastically gave them a sizable $412,000. The Icelanders (or pretenders) acquired some obviously old vessels, caught a few token fish, and then disappeared—taking the government’s money with them. Smallwood never got these funds back. Indeed, as Smallwood’s biographer states, he lost even more money trying to recuperate part of his loss by selling the old boats. They remained unsold for three years until “a buyer . . . paid $55,000 for them—a sum he was able to afford by way of a government loan.”
Much more could be said about the failed policies of Smallwood’s government. Nevertheless, the evidence already provided illustrates well enough the incisiveness of the Austrian critique of government spending. Smallwood had good intentions, but as a government leader directed by political goals, he pursued projects recklessly and inefficiently. When they failed, he simply moved on, knowing that greater taxes could be levied to cover the debts.
Supporters of Austrian economics have protested the fallaciousness and injustice of this behavior for years. The fact that governments around the globe continue to act like this makes it imperative to continue such protests.
If we have learned anything from hundreds of years of government oppression and atrocities, one thing is certain: government isn't our friend.
Original Article: "Government Is as Government Does"
This Audio Mises Wire is generously sponsored by Christopher Condon.
During the past few weeks, Donald Trump has been releasing some of his proposals if he were to win the election in 2024. While many of his positions pose great danger to personal liberty, such as his plan to “end crime and keep Americans safe,” his proposals on tariffs are up there in terms of ignorance.
In a video posted on February 27, Donald Trump released his plan to “end our reliance on China.” In the short video, Trump claims that his plan would increase American jobs by the millions and remove our dependence on China. The Trump War Room twitter account proclaimed he would “revive Mercantilism for the 21st Century.”
Trump’s promoting of tariffs is disastrous for the economy. The increase in the costs of production manipulates competition as it leads to people spending more money on a product than they otherwise would have. People would be better off buying products in their self-interest at the cheapest cost.
Let us say America were to propose a tariff on a sweater company from Britain to incentivize American made sweaters. Since the tariff can be altered so high that if forces Americans to buy domestically, the prices of the American sweaters would be expensive since the demand for American made sweaters skyrocket. The extra money a consumer lost due to the tariff could have gone somewhere else in the economy.
If the tariff were to be exponentially higher and the hypothetical industry were to be started, it would need workers. If this new company needed 30,000 workers, it would need to come out of another sector of the economy. Therefore, no net gain is achieved.
Sadly, Trump did not understand this economic concept when he came into office in 2017 and still does not. Trump wasted no time and increase tariffs to boost domestic growth. His tariffs did not accomplish this.
In a report conducted economist Erica York of the Tax Foundation, the tariffs imposed nearly $80 billion worth of new taxes on Americans, equivalent to one of the largest increases in decades. They also reported that his tariffs reduced long-rung GDP growth by 22 percent, wages by 14 percent, and full-time equivalent jobs by 173,000.
The tariffs implemented in 2018 and 2019 have led to direct burden and deadweight loss, according to numerous economists from academia. In fact, the amount of burden costed was roughly $800 per household
Industries also took big hits as well. Aaron Flaaen and Justin Pierce found that the tariffs were associated with “relative increases in producer prices via raising input costs.” Between February 2018 through January 2020, the tariffs were estimated to cost American companies $46 billion, and exports of goods hit have fallen sharply.
The claim that Trump would bring mercantilism to the 21st century clearly shows Trump’s lack of economic history. Mercantilism, as defined by Murray N. Rothbard, is "a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state."
Thanks to this policy, monopolies such as the East India Company and the French East India Company were formed. Countries such as Great Britain adopted these policies, and it cost them economic growth and freedom of colonial business.
Further consequences were seen in the tax revenue used to build the power of the English government, along with the” multiplying of the royal bureaucracy needed to administer and enforce the regulations and tax decreed,” according to Thomas J. DiLorenzo. The consumers lost out on the government restrictions on production on top of hampering the division of labor imposed by the bureaucrats.
It was only after Britain extended the trading market that economic growth could be achieved. According to Professor Robert Allen, the expansion of international trade led to Britain’s “high wage, cheap energy economy, and it was the springboard for the Industrial Revolution.”
Eventually, free trade began to flourish as countries saw high economic growth and reductions in poverty. Countries such China embraced free trade after decades of failing communism, including with America. Both sides benefited from free trade, benefits that gives American an extra $260 of extra spending a year, according to economists Xavier Jaravel and Erick Sager.
America has seen great benefits from free trade over the last several decades. According to a report published by the Peterson Institute for International Economics, the payoff for American trade between 1950 and 2016 was at $2.1 trillion. This increased the GDP per capita by around $7,000 and GDP per household to $18,000.
Companies also see great benefits as well. Almost 11 million jobs are depended upon the export of American goods and services, as well as foreign direct investments.
Despite all the great benefits from free trade, people like Donald Trump continue to ignore basic economics and instead implement disastrous economic ideals.
Keynesians and fellow travelers hold the Phillips curve to be sacrosanct. But because the Phillips curve cannot establish causality, it is useless as economic theory.
Original Article: "The Phillips Curve Is an Economic Fable"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It’s the weekend, but our fresh Financial Crisis does not sleep. And a recent study says we’ve only seen the tip of the iceberg.
The Washington Post yesterday wrote: “If banks were suddenly forced to liquidate their bond and loan portfolios, the losses would erase up to 91 percent of their combined capital cushion.” In other words, we were already right up against the edge.
The Post cites two studies that total unrealized losses in the system are between $1.7 trillion and $2 trillion. Total capital buffer in the US banking system: $2.2 trillion. That’s about a 10 percent to 20 percent buffer. And now running into a market crisis where bank stocks have declined by about a third in the past few weeks, and are now at a P/E ratio of 7.35.
st_onge1.png Meanwhile, the Wall Street Journal last week wrote about a brand new study from Stanford and Columbia finding 186 banks are in distress — possibly to the point of seeking a bailout. The study estimates that hundreds of banks are in worse shape than SVB: hundreds have larger losses than Silicon Valley Bank, and hundreds have lower capitalization buffers in case of distress than Silicon Valley Bank.
picture2.jpg How did it Happen?In short, while tech bros and loose bankers hog the headlines, what drives hundreds of banks to the edge is our crony banking system.
In this case, rapid Fed rate hikes crashed into a banking system that fractional reserve banking and the Fed’s “Lender of Last Resort” (LOLR) permanent bailout have driven to permanently drive as fast as possible, as close to the edge of the cliff as possible.
Together, the moral hazard has given a green light to those reckless tech bros, to those loose bankers who hand out millions — it turns out hundreds of billions. And it drives the entire banking industry to use opaque accounting tricks to hustle sleepy regulators and innocent taxpayers and dollar-holders who get stuck with the bill. The bankers themselves sleep like babies because they know you’ll cover their losses, but they keep their wins.
What turned this rigged casino into a crisis is in the past year the Fed hiked rates at the fastest pace in 50 years, from 0 percent last March to 4.5 percent to 4.75 percent today. They did this in a desperate bid to cancel the inflation they caused by financing $7 trillion in deficit spending and Covid lockdowns. Indeed, those of us who wondered why voters stood by meekly had only to look at the flood of money going out the door.
These reckless hikes savaged long bond prices, by far the most popular asset in bank vaults: Across the board, long bonds fell 20 percent, feeding an estimated 10 percent plunge in all bank asset values. In essence, the bank thought it had a dollar in the vault, but turns out it only had 90 or 80 cents. In the case of high-flyers like Silicon Valley and potentially hundreds more, it was more like 60 cents. Few banks can survive that.
picture3.jpg What’s NextThis slow-motion train-crash is now making contact: Last week $152 billion in loans went out the Fed’s discount window — the discount window is where desperate banks go when nobody else will lend, like a junkie selling the TV.
That dwarfs even the worst of the 2008 crisis at $111 billion. Keep in mind back then was months into the alleged financial crisis of the century. Here we passed it at week one.
What’s next? Probably a lot of pain and a lot of inflation. We the People will survive — after all, the real assets don’t vanish: the food, cars, and electricity are all there. It’s a paper crisis, but unfortunately that paper crisis has sucked real Americans in, suckered them into putting their life savings into the care of a bunch of degenerate gamblers in expensive suits. And it can bring enormous collateral damage to the wider economy that, yes, provides that food, cars, and electricity if government steps in, as it usually does.
Concretely, I’d expect trillions of dollars in bailouts, driving inflation back towards last year’s highs, perhaps even into double digits. This while the economy careens into recession, indeed into stagflation. The Fed will abandon the inflation fight it started, opting instead to bailout the bankers who it serves. And We the People, as always, will pay the tab: for the bailouts, for the inflation, for the stagflationary crisis that’s looking increasingly likely.
How to protect yourself? If we’re headed for a crash, you want hard assets — Bitcoin if you understand it enough to hold in a storm, gold if you don’t. Periods of chaos drive big swings in markets and prices, so you’ll be tempted along the way into equities and bonds. But going by the principle that the first goal of investing is being able to sleep at night, I’d probably keep the powder dry until the smoke clears.
What do you guys think — how will this pan out? Does it get to the cat food stage or just down-budgeting from Beyond Meat to dog food? And let me know what you’d like to hear in future posts and future videos.
See you next time!
This article first appeared on Peter’s Substack page.
Ludwig von Mises wrote Socialism: An Economic and Sociological Analysis, a small book published in 1922, which demonstrated that economic calculation in a socialist commonwealth is impossible. Of course, Mises assumed that the purpose of an economy, even a socialist one, was supposed to produce goods and services, which determined its success or failure.
Alain Besançon wasn’t an Austrian or a Misesian, but he wrote Anatomie d’un spectre: l’Économie politique du socialisme réel, also a small book the size of Mises’s own Socialism, in which he also observed that the Soviet economy couldn’t perform economic calculation; thus, the Soviet economy performed poorly, very poorly by Western standards.
The Soviet economy was wasteful and chaotic. Besançon believed that economic planning induced irrationality in the system. Terrified managers couldn’t report failing the plan, and consequently any subsequent economic planning would be even more divorced from reality than previous planning had been.
Both Besançon and Mises knew that socialism could not discover market prices. Both knew that this would lead to widespread corruption. However, Besançon realized that the state not only tolerated but also used the black market for price discovery in economic sectors critical to the regime, like defense and certain prestigious cultural and sport endeavors (Bolshoi Theatre, gymnastics, eventually hockey, etc.).
However, there is a critical difference between Mises and Besançon. While Mises believed that the goal of the Soviet economy was to produce usable goods and services, Besançon believed otherwise. The Soviet economy, he posited, was never about producing goods and services for consumers, but rather had other goals.
The Soviet economy existed to keep the Communist Party in power, and that was the sole criteria party leaders used to evaluate its performance. The “production” of political power was supreme, and anything else was secondary, subordinated to the main goal for the Soviet economy.
Soviet political leaders did not want an economy thar produced goods abundantly because abundance separates the citizen from the state. The state would lose its power over its subjects if they became wealthier. Homo sovieticus—the Soviet man—had to be dependent on the state, barely living from one day to the next on state-issued ration cards.
Despite absurd planning orders and a lack of market prices, if a Soviet manager managed by some miracle to produce well-being, he might well have been punished for failing to produce what he really needed to produce: state power over simple people. Abundance and well-being always were and still are the true enemies of socialism; people cannot be able to ignore or to forget the power of the state.
While the Soviet economy is not something people wish to revisit, nonetheless, influential elites are calling for governments to assert power over individuals to restrict consumer choice to achieve political goals benefitting those in power. For example, the World Economic Forum declares that people should start eating insects in the name of “sustainability.” Likewise, in the name of fighting climate change, progressive elites in government and business are attempting to force people to buy electric cars despite their serious drawbacks. While social media outlets like Facebook and Twitter are private companies, they have done the bidding of governments in the name of “fighting disinformation” or trying to preserve a narrative that reflects the governmental message, something especially seen during the government-imposed Covid restrictions by restricting online speech.
For decades Western governments have been spending more than 45 percent of the gross domestic product. Rothbard warned us that every government-owned entity is an island of calculational chaos in the economy. In countries like Finland, France, Germany, Austria, and Belgium the government represents the majority of the economy. In the United States, government spending is nearly 40 percent of GDP and in 2020, it was almost half of GDP.
Hence, we cannot any longer speak of islands of calculational chaos induced by the government. In our day the rule of Western economies is chaos, the exception being the continued existence of market prices. The presence and influence of the ESG movement in US corporations and especially financial and capital markets enables socialists to have a huge influence over the US economy, and ordinary people are helpless to stop it. Many economic sectors are enabling socialists to gain political power, and the production of real goods and services has become secondary to the promotion of leftist ideology.
Alain Besançon was right about the real goals of socialists, and while both he and Mises understood the inherent dysfunctionality of a socialist economy, Besancon went one step further in realizing that the chaos the socialism produces worked to the advantage of those in power. The goal of socialists is not a better economy through socialism, but rather the full establishment of socialist power.
The incredible growth and success of SVB could not have happened without negative rates, ultra-loose monetary policy, and the tech bubble that burst in 2022.
Original Article: "How Easy Money Killed Silicon Valley Bank"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The current job market strength partly reflects the ongoing monetary overhang from years of breakneck growth in money-supply inflation. The $6 trillion in money that was newly created since 2020 is still very much a factor.
Original Article: "The Fed's Huge Monetary Overhang Keeps Job Totals Up as Real Wages Fall"
This Audio Mises Wire is generously sponsored by Christopher Condon.
This past weekend saw extraordinary actions by the Fed to address the meltdown of Silicon Valley Bank. Did the central bank break the law by effectively authorizing unsecured loans to banks based on the face value—rather than significantly lower market value—of those banks' Treasury holdings?
Bob's study guide to A Theory of Money and Credit: Mises.org/HAP387a
Jeff on the Fed as the ultimate bank: Mises.org/HAP387b
Teaching high schoolers economics means teaching Austrian principles.
Original Article: "The Balfour Declaration"
This Audio Mises Wire is generously sponsored by Christopher Condon.
There are many excuses often used to explain inflation. However, the fact is that there is no such thing as “cost push inflation” or “commodity inflation.” Inflation is not an increase in prices, it is the destruction of the purchasing power of the currency.
Cost-push inflation is more units of currency going to relatively scarce real assets. The same can be said about all other, from commodities to demand and my favorite, “supply chain disruption.” More units of currency going to the same goods and services.
The monster inflation we have endured these years first arrived through asset inflation and then through consumer prices. Now, governments and statistical bodies are tweaking the calculation of CPI to disguise the loss of purchasing power of the currency and central banks had to hike rates after the disaster created in 2020, when the massive increase in money supply went to finance bloated government spending and created the mess we live today.
Central banks know that inflation is a monetary phenomenon and that is why they are hiking rates and tightening as fast as governments allow them. However, central banks have lost a significant amount of an already low credibility by first ignoring the inflation risk and later using the base effect and transitory excuse, only to react late and slowly.
This has happened in a world where the excess in money supply growth has a number of back-stops and limits that prevent a massive increase in consumer prices through the destruction of the artificially printed currency. With quantitative easing there are a number of limits that stop inflationary pressures: as the transmission mechanism of monetary policy is the banking channel, it is our demand for credit what puts a break on inflationary pressures.
The only thing that saves citizens from much higher prices is the fact that the transmission mechanism of monetary policy is independent and diversified. Now imagine for a second if that transmission mechanism was direct and had only one channel, the central bank itself.
A central bank digital currency would be issued directly to your account within the central bank. As such, it is surveillance disguised as money. The central bank would know exactly what you use the currency for, how much you save, borrow, and spend and where. It can make the currency fungible to avoid the ludicrous but often repeated “problem” of “excess savings”. Furthermore, with increasingly political central banks, they may even penalize those who spend in a way that they deem inappropriate of benefit those that do what they recommend. The entire privacy system and monetary limit mechanism would be eliminated. Even worse, when the central bank makes the mistake of printing way too much money as they did in 2020 the impact on consumer prices would be direct. With an increase in money supply that exceeded 20% in a year, we would be suffering close to 20% levels of inflation as the limits to the transmission mechanism are destroyed.
Now imagine if there was only one account, one central bank and the government. Guess what would happen? The complete monetary financing of all government spending driving the currency to hyperinflation in a few years and the obliteration of the private sector. A de facto nationalization. A digital version of the French Assignats. Hyperinflation and full government control and financial repression.
Central bank digital currencies are an unnecessary and terrible idea. You cannot start an experiment of such caliber when the independence of central banks has been questioned for many years and there is ample evidence of policy actions that fail to recognize the risk of elevated inflation in asset prices and consumer goods. Central banks have never prevented a bubble, elevated levels of risk-taking and excess debt nor recognized inflationary pressures. With such a track record, no one should defend a measure that would allow them to take full control of the entire financial and monetary system.
The most important thing to remember is that central bank digital currencies are unnecessary. The benefits of technology, digitalization and ease of transactions are already there. There is no need to create a currency issued directly to an account at the central bank. They are unnecessary as well because there is absolutely no need to compete with a digital yuan. China is moving closer to sound monetary policy and its central bank is purchasing more gold, not the opposite. If you want to compete with other currencies or cryptocurrencies there is only one way: Make it absolutely clear that you will defend the reserve of value status of your currency. There is no need for the euro or the US dollar to compete with bitcoin or a digital yuan if the Fed and the ECB truly defend their reserve of value and purchasing power.
The argument of the need to compete with currencies that are used in less than 1% of total transactions makes no sense, particularly when the transmission system and technology is already stronger for the world reserve currencies.
However, it looks like the only reason the Fed or the ECB want a digital currency is because they want to retain their market share without defending the purchasing power and reserve of value status of their currency. It looks like central banks want to behave like a monopoly that sells bad quality products but demands to remain the main supplier by eliminating the competition. The Fed and the ECB do not need to compete against cryptocurrencies if they show the world that they will defend the purchasing power of the US dollar and the euro.
The fact that the leaders in the monetary system fear currencies and assets that barely make a difference in terms of global use or market share shows that they know that their product -the currency- is not going to retain the confidence of citizens for a long period of time at this rate of monetary excess.
If the ECB and the Fed really want a digital currency is because they know they will lose the confidence of citizens earlier than we think and they need to impose their market share, not gain it.
If the Fed or the ECB implemented a sound money policy and truly followed their mandate of price stability they would destroy any competing currency, digital or not, in a second. If they do not win this race, it will be because the ultimate motive is to abandon the price stability and reserve of value mandate to continue bloating government size at the expense of real wages and deposits of the private sector.
Do the Fed and the ECB want a global and digital dollar or euro that is accepted and demanded by everyone? Simple: follow exactly the mandate and gain global share in currency utilization because people want it, not because they are forced to.
SVB Bank and Signature Bank failed this week and were bailed out. Mark explains why the banks failed and why it was bound to happen. The minor issue is that the total FDIC bailout fund is actually smaller than either one of the banks.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
How should Congress assess the Federal Reserve’s track record as an investor in residential mortgage-backed securities (MBS)? Regardless of Fed spin, it merits a failing grade.
The Fed’s COVID-era intervention in the mortgage markets fueled the second real estate bubble of the 21st century. The bubble ended when the Fed stopped purchasing MBS and raised rates to fight inflation. While time will tell whether recent increases in home prices are reversed, the end of the bubble has already cost the Fed over $400 billion in losses on its MBS investments.
From 1913 until 2008, the Fed owned precisely zero mortgage-backed securities. While the Fed’s monetary policy decisions still impacted conditions in the housing and mortgage markets, they did so indirectly through the influence the Fed’s purchases and sales of Treasury securities had on market interest rates.
In a radical “temporary” policy response to the 2008 financial crisis, the Fed began intervening directly in the mortgage market. Through a series of MBS purchases, the Fed’s MBS portfolio ballooned from $0 to $1.77 trillion by August 2017. The Fed subsequently altered policy and slowly reduced its MBS holdings. By March 2020, it held about $1.4 trillion in MBS.
When the COVID crisis hit in March 2020, the Fed decided to reinstate its 2008 financial crisis rescue plan. It resumed purchasing MBS as well as Treasury notes and bonds. By the time it stopped its purchases in the spring of 2022, it owned $2.7 trillion in MBS. The Fed had become the largest investor in MBS in the world. By spring 2022, it owned nearly 22 percent of all 1-to-4 family residential mortgages in the U.S. By Sept. 30, the date of the last available quarterly Fed consolidated financial statement, the Fed had lost $438 billion on its MBS investments. These losses will increase if the fight to subdue inflation requires still higher interest rates.
Because most buyers borrow 80 percent or more of the purchase price of a home, house prices are sensitive to the level of mortgage interest rates. Low mortgage rates increase the pool of potential buyers, stimulating housing demand. If the interest rate stimulus is overdone, excess demand will push up home prices. High mortgage interest rates have the opposite effect. They dampen demand, dissipate upward pressure on home prices, and in some cases, lead to home price declines.
As one might predict, the Fed’s massive MBS purchases coincided with large reductions in mortgage interest rates. During the Fed’s COVID MBS purchase campaign, the national average 30-year mortgage interest rate fell to a low of 2.65 percent in January of 2021. Today, with the Fed’s campaign of higher interest rates to battle inflation, 30-year mortgage interest rates are hovering around 7 percent. This change in the mortgage interest rate alone would cause monthly principal and interest payments on a same-sized mortgage loan to increase by 65 percent.
Predictably, the decline in mortgage interest rates stimulated housing demand and pushed up home prices. Government statistics report that, from January 2018 to this January, the median new home price in the United States rose from $331,800 to $467,700—an increase of 41 percent. Interestingly, from January 2018 through March 2020, before the Fed renewed its MBS purchases, the median price of a new house actually declined to $322,600. From April onwards, the national median house price rose steadily, reaching a peak of $468,700 by the end of June 2022.
In 2018, purchasing a new median-price home with 20 percent down and the then prevailing average 30-year mortgage rate of 3.95 percent required $1,259 in monthly principal and interest payments. In January, purchasing the $467,700 median-priced new home with 20 percent down required monthly payments of $2,360 given the 6.48 percent rate on a 30-year mortgage. In only 5 years, because of house price inflation and higher mortgage interest rates, the monthly principal and interest payment needed to purchase a median-priced new house increased by 87 percent!
The Fed’s foray into the MBS market will have a long-lasting impact on real estate markets. Not only has demand for homes been softened by home price inflation and 7 percent mortgage rates, but current homeowners with favorable mortgage interest rates are reluctant to sell, reducing the inventory of homes available for sale in a market that is already starved for listings. This unfavorable balance is clearly reflected in the National Association of Realtors housing affordability index which has fallen from a cyclic high of 180 in July 2021, to recent readings below 100, indicating affordability challenges not seen since the double-digit mortgage interest rates of the 1980s.
The end of Fed MBS purchases and the increase in Fed policy rates have put an end to the COVID housing bubble. While home prices are showing declines in some areas, prices in other areas remain elevated due to historically low inventories of homes for sale and strong job markets.
Any realistic review of the impact of the Federal Reserve’s experiment investing in MBS would conclude that the Fed should stop buying mortgages. Its decision to invest trillions of dollars in MBS has helped to push the cost of home ownership beyond the reach of many. Others will find themselves locked into homes they cannot afford to sell because of the artificially low rates on their current mortgages.
From either perspective, the Fed’s MBS experiment has whipsawed housing markets and cost the Fed over $400 billion in MBS losses. It’s hard to see how this experiment merits anything but a failing grade.
[First published in The Hill with Paul H. Kupiec.]
[This article is featured in chapter 79 of Making Economic Sense by Murray Rothbard and originally appeared in the September, 1985 edition of The Free Market]
It was a scene familiar to any nostalgia buff: all-night lines waiting for the banks (first in Ohio, then in Maryland) to open; pompous but mendacious assurances by the bankers that all is well and that the people should go home; a stubborn insistence by depositors to get their money out; and the consequent closing of the banks by government, while at the same time the banks were permitted to stay in existence and collect the debts due them by their borrowers.
In other words, instead of government protecting private property and enforcing voluntary contracts, it deliberately violated the property of the depositors by barring them from retrieving their own money from the banks.
All this was, of course, a replay of the early 1930s: the last era of massive runs on banks. On the surface the weakness was the fact that the failed banks were insured by private or state deposit insurance agencies, whereas the banks that easily withstood the storm were insured by the federal government (FDIC for commercial banks; FSLIC for savings and loan banks).
But why? What is the magic elixir possessed by the federal government that neither private firms nor states can muster? The defenders of the private insurance agencies noted that they were technically in better financial shape than FSLIC or FDIC, since they had greater reserves per deposit dollar insured. How is it that private firms, so far superior to government in all other operations, should be so defective in this one area? Is there something unique about money that requires federal control?
The answer to this puzzle lies in the anguished statements of the savings and loan banks in Ohio and in Maryland, after the first of their number went under because of spectacularly unsound loans. "What a pity," they in effect complained, "that the failure of this one unsound bank should drag the sound banks down with them!"
But in what sense is a bank "sound" when one whisper of doom, one faltering of public confidence, should quickly bring the bank down? In what other industry does a mere rumor or hint of doubt swiftly bring down a mighty and seemingly solid firm? What is there about banking that public confidence should play such a decisive and overwhelmingly important role?
The answer lies in the nature of our banking system, in the fact that both commercial banks and thrift banks (mutual-savings and savings-and-loan) have been systematically engaging in fractional-reserve banking: that is, they have far less cash on hand than there are demand claims to cash outstanding. For commercialbanks, the reserve fraction is now about 10 percent; for the thrifts it is far less.
This means that the depositor who thinks he has $10,000 in a bank is misled; in a proportionate sense, there is only, say, $1,000 or less there. And yet, both the checking depositor and the savings depositor think that they can withdraw their money at any time on demand. Obviously, such a system, which is considered fraud when practiced by other businesses, rests on a confidence trick: that is, it can only work so long as the bulk of depositors do not catch on to the scare and try to get their money out. The confidence is essential, and also misguided. That is why once the public catches on, and bank runs begin, they are irresistible and cannot be stopped.
We now see why private enterprise works so badly in the deposit insurance business. For private enterprise only works in a business that is legitimate and useful, where needs are being fulfilled. It is impossible to "insure" a firm, even less so an industry, that is inherently insolvent. Fractional reserve banks, being inherently insolvent, are uninsurable.
What, then, is the magic potion of the federal government? Why does everyone trust the FDIC and FSLIC even though their reserve ratios are lower than private agencies, and though they too have only a very small fraction of total insured deposits in cash to stem any bank run? The answer is really quite simple: because everyone realizes, and realizes correctly, that only the federal government--and not the states or private firms--can print legal tender dollars. Everyone knows that, in case of a bank run, the U.S. Treasury would simply order the Fed to print enough cash to bail out any depositors who want it. The Fed has the unlimited power to print dollars, and it is this unlimited power to inflate that stands behind the current fractional reserve banking system.
Yes, the FDIC and FSLIC "work," but only because the unlimited monopoly power to print money can "work" to bail out any firm or person on earth. For it was precisely bank runs, as severe as they were that, before 1933, kept the banking system under check, and prevented any substantial amount of inflation.
But now bank runs--at least for the overwhelming majority of banks under federal deposit insurance--are over, and we have been paying and will continue to pay the horrendous price of saving the banks: chronic and unlimited inflation.
Putting an end to inflation requires not only the abolition of the Fed but also the abolition of the FDIC and FSLIC. At long last, banks would be treated like any firm in any other industry. In short, if they can't meet their contractual obligations they will be required to go under and liquidate. It would be instructive to see how many banks would survive if the massive governmental props were finally taken away.
Because of inflation and a lack of a savings ethic, Americans are less prepared for retirement than ever. The numbers are discouraging.
Original Article: "Ready for Retirement? Fewer and Fewer Americans Are Saving for That Time"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In 2022, investments into the creator economy surged to $5 billion. The term creator refers to people who generate value from intellectual output or artistic work. However, a new form of creative has emerged known as the “influencer.” Influencers are online personalities who, through their charisma, cultivate a loyal fanbase. Due to their reach, brands employ influencers to market their products and services.
Influencer marketing has proven to be a lucrative venture, and estimates suggest that the industry totaled $16.4 billion in 2022. Brands fork out huge sums to capitalize on the reach of megacelebrities who sway millions to buy their products. Football superstar Cristiano Ronaldo earns $2,397,000 million per Instagram post, and the doyen of American influencers Kim Kardashian collects $1,689,000 million per post.
The business of influencing is so profitable that several youngsters are seriously considering it as a future profession. In 2021, a YouGov survey reported that more young people aspire to become professional influencers rather than doctors or lawyers. Unfortunately, many perceive this development as a worrying trend because they view influencing as mindless banter. Some personalities do peddle pointless banter, but their ability to inspire and motivate followers cements their credibility as influencers.
The relevant point is that influencers create value by enhancing the well-being of their followers. Naysayers accuse the Kardashians of promoting trashy entertainment; however, their work has been determined as useful by the market. If the Kardashians were not creating value for viewers and brands, then they would have been relegated to the dustbin of history years ago.
The success of influencers is the best reinforcement of the subjective theory of value. People like the Kardashians and MrBeast are only popular because they have been rewarded by the market for responding to the subjective demands of consumers. Influencers also demonstrate the anti-elitist nature of markets since most influencers garner prestige by responding to the preferences of ordinary people.
Further, thinking that influencing is an illegitimate career choice is misguided. Influencing, like other professions, mandates years of hard work and self-development. Stars like MrBeast and Logan Paul did not become millionaires overnight. Quite often, successful influencers started their journey as teenagers and spent years honing their skills. Many had to master the art of video editing, graphic designing, and public speaking before launching successful platforms.
Critics think that influencers don’t work hard because their job seems fun, but when they invest hours into making videos, editing, and planning future projects they forego leisure time. Others argue that being an influencer is not physically or cognitively demanding; hence, influencers don’t deserve to earn millions, but such critics are missing the point. Influencers possess entrepreneurial insight, so many are either responding to new demands or establishing new markets. People gain affluence by pursuing socially and economically useful projects, so one’s job as a plumber is important, but it could be more profitable for a plumber to document his worst experiences and turn his job into a reality show.
If some people choose to pursue important but unprofitable careers that is their choice, and they should respect influencers for selecting another option. Influencers are doing what they love with intense passion, and many exhibit an unmatched work ethic. MrBeast described his own work ethic as “crazy” in an interview with Lex Fridman:
There are just some nights where I don’t wanna sleep, and for whatever reason, I feel compelled to go all night. . . . And when I’m really in grind mode it’ll be seven or eight days just non-stop going, going, and then I’ll realize, “Oh, I need some recharge time,” and then go . . . binge a season of anime.
Also, influencers teach us a great deal about negotiating and monetizing brands. Successful influencers invest in managers who help them to scale and deliver better products for consumers. MrBeast can lavish his audience with gifts due to strategic partnerships with advertisers who understand his reach. Likewise, Jeffree Star turned beauty influencing into a multimillion-dollar business, and Addison Rae leveraged her dancing skills to build an empire.
Those who dismiss the business of influencing will fail to capitalize on lucrative opportunities. Although I won’t divulge the details, this writer is building a start-up and is on course to raise an additional $100,000. Influencing is the business of the future, and we must not hesitate to seize the opportunities offered by this new paradigm.
Ryan and Tho talk about how last week's banking panic led to new ways for bankers and politicians to exploit regular people through inflation, regulations, and corrupt loans.
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Nomocratic Pluralism: Plural Values, Negative Liberty, and the Rule of Law
by Kenneth B. McIntyre
Palgrave Macmillan, 2021; xii + 214 pp.
Kenneth McIntyre, a political theorist and historian who teaches at Sam Houston State University, addresses one of the most difficult questions in political philosophy in his excellent book. It is a question that should interest everyone who wants a free society. McIntyre sets forward his answer with an immense command of the scholarly literature and makes many acute remarks along the way. In what follows, I’ll comment on a few of the issues he discusses.
McIntyre’s basic argument is this. People have different values, and there is no procedure rationally compelling to everybody by which to show that there is one set of values that is best. It isn’t that values are just subjective preferences: some values really are objectively good and are better than others. But this fact doesn’t suffice to enable values to be arranged in a hierarchy. Many values are incommensurable. Because people are attracted to different values, they will pursue different projects; and, so long as they do not try to coerce others, they should be free to do so. McIntyre, following Isaiah Berlin, calls this the presumption of negative liberty; crudely put, “You leave me alone and I’ll leave you alone.”
By no means does this presumption imply approval of other people’s values, but unless it interferes with the freedom of others, people’s pursuit of their projects should be tolerated. As you would expect, McIntyre sees only a very limited role for the state. It should provide a framework of rules within which people can peacefully interact as they carry out these projects. Private property and a free market are essential. The state should have no goals of its own; it should be “nomocratic” rather than “teleocratic.” Here McIntyre has been influenced by Friedrich Hayek and Michael Oakeshott.
McIntyre’s basic argument has many appealing features and ends up in the right place, but I don’t think he gives a fully adequate defense of the priority of negative liberty. The problem is apparent in his discussion of the philosopher Thomas Nagel, whom he calls an “egalitarian pluralist.” According to Nagel, people must balance their personal, or “agent-centered,” values against what he calls the “impersonal standpoint.” From this standpoint, you realize that your own life is no more valuable than that of others. McIntyre says about this:
Nagel writes that “the basic insight that appears from the impersonal standpoint is that everyone’s life matters, and no one is more important than anyone else.” However, it is not at all obvious that his egalitarian conclusion necessarily follows from a recognition that others have their own beliefs, values, and commitments, and that some of these are common to all (or most) human beings. Instead, one might just as reasonably say “I recognize that others have commitments in a similar way to the way that I do, but mine are more important because they are mine; I expect other people to feel the same way; because of this I am happy to engage in reciprocal non-interference, as I expect no assistance from them and they shouldn’t expect any from me.” Nagel’s egalitarian conclusions, then, are questionable from early on in his argument.
I think that this is mistaken in that from the impersonal standpoint, everyone’s life matters equally; it isn’t only that you acknowledge that each person’s beliefs, values, and commitments matter to him more than those of others, though this is likely true (if it is, that is an objective truth about the personal point of view, not a characterization of the impersonal standpoint). If the question is why one should acknowledge the impersonal standpoint, the answer would be that it is an evident fact about morality disclosed by reflection and that if one denies its truth, it would be difficult to maintain a belief in moral objectivity, which McIntyre wants to do.
In brief, Nagel would probably respond that McIntyre is wrongly taking the impersonal standpoint to be purely descriptive rather than evaluative, and this is the central issue. McIntyre also misses that the question about the distributional consequences of the impersonal standpoint involves further reasoning. We can better defend the free market by arguing that the impersonal standpoint doesn’t mandate such redistribution rather than by rejecting the standpoint altogether, as McIntyre does. If we procced in his way, there is a danger that negative liberty may be deemed just one incommensurable value among others. If so, its protection might not be given the unconditional priority he thinks it should. To his credit, McIntyre is aware of this problem.
A better approach would be to take the “metanormative framework” of Douglas Rasmussen and Douglas Den Uyl as a proxy for Nagel’s “impersonal standpoint.” In Rasmussen and Den Uyl’s Aristotelian approach to ethics, each person ought to fulfill his own nature, but do so within a neutral structure of libertarian law. Like McIntyre, they take each person’s pursuit of the good to be agent relative, but they avoid the trap of taking the political recognition of liberty to be one incommensurable value among others. McIntyre cites their work, and it fits in well with his own use of Aristotle in his discussion of practical reason. McIntyre’s discussion of the nomocratic state, which provides a legal structure within which people can work on their individual projects, also has a striking affinity with Robert Nozick’s discussion of the minimal state as a framework for utopia in the third part of Anarchy, State, and Utopia.
In the course of defending his pluralist view, McIntyre brilliantly criticizes a competing variety of pluralism which emphasizes autonomy rather than negative liberty. Proponents of this position, such as the Oxford legal philosopher Joseph Raz, stress “autonomy,” by which they mean a person’s self-mastery (i.e., the control of his life by reason). Choices that do not meet the conditions for autonomous choice that these philosophers set forward are not protected from state regulation under autonomous pluralism. For example, people in closed religious communities who do not provide an education in which their children are made aware of other perspectives can be forced by the state to do so. As McIntyre notes, this reliance on what people “should” rationally choose rather than what they do choose is a paternalistic interference with individual freedom.
I would like to conclude with my favorite footnote in the book: “John Gray changes theoretical commitments as often as Larry King changes wives.” I urge everyone interested in political philosophy to read McIntyre’s thoughtful book.
Those adhering to Austrian Economic thinking see the beauty in concepts coming together and providing a way to truthfully assess human action.
Original Article: "Yearning for Beauty in the Truth of Economic Thinking"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In March 2014 the world’s oldest central bank, the Bank of England (BoE), did every advocate of sound money a big but unintentional favor by publishing an official introduction to and an official detailed account of unsound money.
Given both the importance of and the lack of publicity regarding these two seminal papers over the past nine years, even here at mises.org, the focus in this piece will be on quoting some of the BoE’s “greatest hits.” (This approach was also taken by this author in 2020 when quoting from the Black Lives Matter website prior to its being scrubbed.)
Modern Money IntroductionThe BoE sets the stage in the paper “Money in the Modern Economy: An Introduction” by defining money in terms of the following three important roles:
The first role of money is to be a store of value—something that is expected to retain its value in a reasonably predictable way over time. . . . Money’s second role is to be a unit of account—the thing that goods and services are priced in. . . . Third, money must be a medium of exchange—something that people hold because they plan to swap it for something else, rather than because they want the good itself.
This multidimensional definition (and other similar ones) is largely accepted by both free-market and government-centric economists alike. To its credit, the BoE expands upon the first role:
These functions are all closely linked to each other. For example, an asset is less useful as the medium of exchange if it will not be worth as much tomorrow—that is, if it is not a good store of value. Indeed, in several countries . . . the traditional currency has become a poor store of value due to very high rates of price inflation. . . . Gold or silver that was mined hundreds of years ago would still be valuable today.
Also to its credit (pun intended), the BoE accurately and honestly describes fiat money:
Since 1931, [BoE] money has been fiat money. Fiat or “paper” money is money that is not convertible to any other asset (such as gold or other commodities). . . . Because fiat money is accepted by everyone in the economy as the medium of exchange, although the [BoE] is in debt to the holder of its money, that debt can only be repaid in more fiat money.
But, to its discredit, the BoE inaccurately or dishonestly defends it as well:
But the Bank permanently abandoned offering gold in return for notes in 1931 so that Britain could better manage its economy during the Great Depression. . . . With fiat money, changes in the demand for money by the public can be matched by changes in the amount of money available to them. When the amount of money is linked to a commodity, such as gold, this places a limit on how much money there can be, since there is a limit to how much gold can be mined. And that limit is often not appropriate for the smooth functioning of the economy.
Modern Money CreationIn the second paper, “Money Creation in the Modern Economy,” the BoE right out of the gate happily busts the myth about bank savings and loans but then sadly obfuscates the mystery of central and fractional reserve banking:
The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money “multiplied up” into more loans and deposits.
However, this does sound like “central bank money ‘multiplied up’ into more loans and deposits”:
When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as “fountain pen money,” created at the stroke of bankers’ pens when they approve loans.
And, this does sound like “the central bank does . . . fix the amount of money in circulation”:
The higher stock of deposits may mean that banks want, or are required, to hold more central bank money in order to meet withdrawals by the public or make payments to other banks. And reserves are, in normal times, supplied “on demand” by the [BoE] to commercial banks in exchange for other assets on their balance sheets.
The BoE importantly highlights, “Of the two types of broad money, bank deposits make up the vast majority—97% of the amount currently in circulation,” whilst noting that “broad money is a measure of the total amount of money held by households and companies in the economy.” Yet, despite the BoE’s begrudging admission to the modern statist symbiosis of central and commercial banks, the BoE largely dismisses this Nobel laureate’s reminder that an “inflationary money supply” is “inflation”: “Milton Friedman (1963) famously argued that ‘inflation is always and everywhere a monetary phenomenon.’ So changes in the money supply may contain valuable information about spending and inflationary pressure in the economy.”
Gold Standard ConclusionThe BoE’s introductory paper unwittingly provides a nice overview of how sound money used to work once upon a time:
When the [BoE] was founded in 1694, its first banknotes were convertible into gold. The process of issuing “notes” that were convertible into gold had started earlier than this, when goldsmith-bankers began storing gold coins for customers. The goldsmiths would give out receipts for the coins, and those receipts soon started to circulate as a kind of money. The [BoE] would exchange gold for its banknotes in a similar way—it stood ready to swap its notes back into gold on demand. Other than a few short periods, that was how currency worked for most of the next 250 years—the “gold standard.”
It is not uncommon for economists in academia, government, and media to suggest that fractional reserve banking is simultaneously an incredible conspiracy theory and yet a credible economic system.
The BoE has happily and officially debunked the conspiracy but sadly and predictably upheld the fractional reserve banking system. The latter is despite its own statistics, clearly demonstrating its failed ability to “better manage [its] economy during [or since] the Great Depression” that it helped create compared to the previous “250 years [of] the ‘gold standard’ [when the bank would simply] exchange gold for [its] banknotes.”
Never before have we seen an entire generation of young Americans being censored—and self-censoring—for making innocuous statements. This does not end well.
Original Article: "The Censored Generation"
This Audio Mises Wire is generously sponsored by Christopher Condon.
San Francisco’s panel on reparations has issued a recommendation that qualified black residents in that city receive $5 million in reparations for the financial effects of slavery and/or racial discrimination. There was never slavery in the city of San Francisco, but the panel nevertheless suggested that city inhabitants must atone for racial discrimination. Such calls for reparations to black people are based on the notion of collective white guilt. But collective guilt is a false notion, and reparations based on it would violate the property rights of those whose ancestors gained nothing from slavery, even if such parties benefited from so-called discrimination.
Leftists and left-leaning liberals extol the merits of reparations. Like New York Times columnist David Brooks, they call for national reconciliation and atonement for racial injustice stemming from but not exclusive to slavery. According to their line of reasoning, the national soul will never be set aright without a reckoning that includes reparations and other racial “equity” programs aimed at redressing the centuries-long, continuing “sin” (per Brooks) of American racial injustice. Every white person, the argument goes, has been the beneficiary of racism, which has its roots in slavery but also derives from historical and ongoing discrimination, “white privilege,” and the myriad, often inscrutable, advantages accruing to whiteness. These leftists and left-leaning liberals ask, When will national reconciliation finally begin?
Conservatives, on the other hand, dismiss arguments for reparations, basing their dismissal either on time passed or on the argument that black people have already been more than compensated through welfare, affirmative action, and other social programs. But importantly, they, too, address the question in terms of guilt and moral culpability. Even if my ancestors owned slaves, they argue, I am not guilty of their sins. I had nothing to do with slavery. These conservatives ask, When will the national guilt-tripping of white people finally end?
Both arguments are made in the wrong register because both rest on the moral grounds of collective guilt and the need for repentance (or the lack thereof).
The libertarian economist Walter Block takes another approach. Instead of treating the question of reparations on abstract moral grounds, Block suggests that it should be examined in terms of property rights. Block provides a just basis for reparations, using a concrete example:
Justified reparations are nothing more and nothing less than the forced return of stolen property—even after a significant amount of time has passed. For example, if my grandfather stole a ring from your grandfather, and then bequeathed it to me through the intermediation of my father, then I am, presently, the illegitimate owner of that piece of jewelry. To take the position that reparations are always and forever unjustified is to give an imprimatur to theft, provided a sufficient time period has elapsed. In the just society, your father would have inherited the ring from his own parent, and then given it to you. It is thus not a violation of property rights, but a logical implication of them, to force me to give over this ill-gotten gain to you.
Similarly, if my ancestors bequeathed me property that was gained based on property rights violations—the primary instance of property rights being a person’s ownership of himself or herself—then, indeed, my debt to the descendants of those robbed by my ancestors still holds today. I can no more dismiss such claims based on time passed or on the moral argument that I had nothing to do with it than I can dismiss the rightful owner’s claim to the stolen ring I got from my grandfather via my father’s intermediation (as in Block’s example).
But the arguments for reparations are not based on property rights. Instead, they are based on collective white guilt, on the “crime” of being born with white skin. This notion of collective guilt would cause all white people to be penalized and robbed of property that has no connection with slavery. As for the effects of discrimination, no one has a right to another’s property because that person or his ancestors were favored, on whatever basis, by other property owners. Property owners act perfectly within their rights when they decide on the beneficiaries of their contractual commercial exchanges.
It is useful to note that collective race guilt has its roots in the Marxist notion of class guilt, the idea that membership in the “bourgeoisie” makes a person guilty for the “crimes” of his or her ancestors. Class guilt is based on the Marxist theory of exploitation. But the theory of exploitation is false because it is based on the false labor theory of market prices (a.k.a. “labor theory of value”). As Carl Menger demonstrated in his Principles of Economics, the price of a good is not derived from the labor hours required to produce that good; it is based on what the consumer will pay for the good. Eugen von Böhm-Bawerk demonstrated in Karl Marx and the Close of His System that profits, which are price differentials, result from the capitalists’ ability to advance labor their share of the final selling price of the good prior to the final sale, at the start of a lengthy production period. Thus, profits do not derive from unpaid labor time expropriated by capitalists from workers. As the labor theory of value crumbles, so too does the Marxist theory of exploitation. The Marxist notion that workers are routinely exploited by capitalists is a fable.1
As Hans-Hermann Hoppe explained, the difference between the price of a good charged by a capitalist and what the worker receives in wages for its production is explicable in terms of the higher time preference of the worker. Thus, class guilt is based on a false premise.
Just as class guilt is a fatally flawed concept, so too is race guilt. If one gained nothing from slaveholding or trading, one does not owe a debt to a nebulous class of slave descendants. The execution of reparations on the grounds of collective race guilt would amount to theft of property from the rightful holders of it.
Instead (and this is most unlikely), if the actual descendants of slave owners, slave traders, and slaves could be located—whether they be white or black Americans, Africans, British, Dutch, French, Irish, or whatever—then the property deriving from slavery that the descendants of slave owners and slave traders hold should be returned, accounting for inflation and with interest. Of course, locating such descendants would be a logistical nightmare, as would the determination of debts. In the case of mixed-race persons, would one half of the person owe the other half? Reparations likewise founder on the practical issues of isolating the beneficiaries of slavery, determining their debts and whom they owe, and properly disbursing payments.
But reparations should never be based on race per se. San Francisco’s payments for racial discrimination would be criminal. Such reparations would constitute an attack on white people, amounting to extorting tax money from them for debts that they do not owe, with the additional effects of exacerbating already fraught race relations in America and further destabilizing property rights. This is apparently the intent of the American ruling, statist elite, who would punish all “whites” in order to deflect attention from and cover for their own multifarious crimes. But more importantly, reparations are primarily another stealthy means of expanding the role of the state and its oppression and robbery of unfavored property holders.
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- Thanks to Robert Blumen for his help with this passage about value and price.
It's popular for politicians to claim they will never cut Social Security. But doing nothing now about the program means imposing an even larger hit on seniors in the future.
Original Article: "Why Biden's Spending Is Unsustainable"
This Audio Mises Wire is generously sponsored by Christopher Condon.
People are arguing over whether artificial intelligence (AI) and robotics will eliminate human employment. People seem to have an all-or-nothing belief that either the use of technology in the workplace will destroy human employment and purpose or it won’t affect it at all. The replacement of human jobs with robotics and AI is known as “technological unemployment.”
Although robotics can turn materials into economic goods in a fraction of the time it would take a human, in some cases using minimal human energy, some claim that AI and robotics will actually bring about increasing human employment. According to a 2020 Forbes projection, AI and robotics will be a strong creator of jobs and work for people across the globe in the near future. However, also in 2020, Daron Acemoglu and Pascual Restrepo published a study that projected negative job growth when AI and robotics replace human jobs, predicting significant job loss each time a robot replaces a human in the workplace. But two years later, an article in The Economist showed that many economists have backtracked on their projection of a high unemployment rate due to AI and robotics in the workplace. According to the 2022 Economist article, “Fears of a prolonged period of high unemployment did not come to pass. . . . The gloomy narrative, which says that an invasion of job-killing robots is just around the corner, has for decades had an extraordinary hold on the popular imagination.” So which scenario is correct?
Contrary to popular belief, no industrialized nation has ever completely replaced human energy with technology in the workplace. For instance, the steam shovel never put construction workers out of work; whether people want to work in construction is a different question. And bicycles did not become obsolete because of vehicle manufacturing: “Consumer spending on bicycles and accessories peaked at $8.3 billion in 2021,” according to an article from the World Economic Forum.
Do people generally think AI and robotics can run an economy without human involvement, energy, ingenuity, and cooperation? While AI and robotics have boosted economies, they cannot plan or run an economy or create technological unemployment worldwide. “Some countries are in better shape to join the AI competition than others,” according to the Carnegie Endowment for International Peace. Although an accurate statement, it misses the fact that productive economies adapt to technological changes better than nonproductive economies. Put another way, productive people are even more effective when they use technology. Firms using AI and robotics can lower production costs, lower prices, and stimulate demand; hence, employment grows if demand and therefore production increase. In the unlikely event that AI or robotic productive technology does not lower a firm’s prices and production costs, employment opportunities will decline in that industry, but employment will shift elsewhere, potentially expanding another industry’s capacity. This industry may then increase its use of AI and robotics, creating more employment opportunities there.
In the not-so-distant past, office administrators did not know how to use computers, but when the computer entered the workplace, it did not eliminate administrative employment as was initially predicted. Now here we are, walking around with minicomputers in our pants pockets. The introduction of the desktop computer did not eliminate human administrative workers—on the contrary, the computer has provided more employment since its introduction in the workplace. Employees and business owners, sometimes separated by time and space, use all sorts of technological devices, communicate with one another across vast networks, and can be increasingly productive.
I remember attending a retirement party held by a company where I worked decades ago. The retiring employee told us all a story about when the company brought in its first computer back in the late ’60s. The retiree recalled, “The boss said we were going to use computers instead of typewriters and paper to handle administrative tasks. The next day, her department went from a staff of thirty to a staff of five.” The day after the department installed computers, twenty-five people left the company to seek jobs elsewhere so they would not “have to learn and deal with them darn computers.”
People often become afraid of losing their jobs when firms introduce new technology, particularly technology that is able to replicate human tasks. However, mass unemployment due to technological innovation has never happened in any industrialized nation. The notion that AI will disemploy humans in the marketplace is unfounded. Mike Thomas noted in his article “Robots and AI Taking Over Jobs: What to Know about the Future of Jobs” that “artificial intelligence is poised to eliminate millions of current jobs—and create millions of new ones.” The social angst about the future of AI and robotics is reminiscent of the early nineteenth-century Luddites of England and their fear of replacement technology. Luddites, heavily employed in the textile industry, feared the weaving machine would take their jobs. They traveled throughout England breaking and vandalizing machines and new manufacturing technology because of their fear of technological unemployment. However, as the textile industry there became capitalized, employment in that industry actually grew. History tells us that technology drives the increase of work and jobs for humans, not the opposite.
We should look forward to unskilled and semiskilled workers’ upgrading from monotonous work because of AI and robotics. Of course, AI and robotics will have varying effects on different sectors; but as a whole, they are enablers and amplifiers of human work. As noted, the steam shovel did not disemploy construction workers. The taxi industry was not eliminated because of Uber’s technology; if anything, Uber’s new AI technology lowered the barriers of entry to the taxi industry. Musicians were not eliminated when music was digitized; instead, this innovation gave musicians larger platforms and audiences, allowing them to reach millions of people with the swipe of a screen. And dating apps running on AI have helped millions of people fall in love and live happily ever after.
With negative growth now dipping below –5 percent, money-supply contraction is approaching the biggest declines we've seen in the past thirty-five years.
Original Article: "Money Supply Growth Went Negative for the Third Month in a Row, and Is Near a Thirty-Five-Year Low"
This Audio Mises Wire is generously sponsored by Christopher Condon.
I have previously explained how for Ludwig von Mises, democracy is necessary for the libertarian society because of its usefulness in achieving and maintaining social peace, insofar as social peace is a prerequisite for economic and civil liberty.
This time I want to explain an idea that is implicit in Mises’s subjectivist philosophy and that leads him to defend democracy, understood as the consent of the governed, but which may go unnoticed because it is dispersed throughout his work: a “philosophy of consent.” Mises’s philosophy of consent is not a “value judgment,” but a “factual judgment”—a description of the functions—of human action in the realm of norms, authorities, and government.
Demythologization of Social ConventionsMises explains that free-market liberalism, or libertarianism, is part of the Enlightenment movement and is its most faithful successor. Between the seventeenth and eighteenth centuries, this movement intellectually freed individuals from their obedience to authority based on mere tradition. Through the use of reasoning, they were freed from their philosophical chains forged with supposedly objective and eternal moral values—that demanded obedience for the benefit of kings, clergy, noble landlords, guilds, and other authorities. Mises described this process as follows:
The social order created by the philosophy of the Enlightenment assigned supremacy to the common man. In his capacity as a consumer, the “regular fellow” was called upon to determine ultimately what should be produced, in what quantity and of what quality, by whom, how, and where; in his capacity as a voter, he was sovereign in directing his nation’s policies.
However, the first generation of enlightened-liberals often confronted essentialist authoritarianism that appeal to an “essentialist” individualism—see “natural rights,” “absolute justice,” and other ethical fallacies of appealing to “nature”—something that in Misesian logic meant freeing oneself from some myths and replacing them with other myths. The old Enlightenment was then perfected in utilitarianism, with David Hume as a close precursor, and then restated by Mises, freeing itself from the myths of essentialism. Mises explained the value of utilitarianism as follows:
It is useless to emphasize that nature is the ultimate arbiter of what is right and what is wrong. Nature does not clearly reveal its plans and intentions to man. Thus the appeal to natural law does not settle the dispute. It merely substitutes dissent concerning the interpretation of natural law for dissenting judgments of value. Utilitarianism, on the other hand, does not deal at all with ultimate ends and judgments of value. It invariably refers only to means.
Utilitarianism overcame essentialist individualism with an “existentialist,” or subjectivist, individualism. This subjectivist individualism postulates that we can know nothing about the objective essences or moral values or purposes to which we are subject. We only know that there are individuals who construct and dynamically change the values of what they call “good” and “bad,” which in reality only means “I like” and “I don’t like.” As Mises explains:
All judgments of value are personal and subjective. There are no judgments of value other than those asserting I prefer, I like better, I wish. It cannot be denied by anybody that various individuals disagree widely with regard to their feelings, tastes, and preferences and that even the same individuals at various instants of their lives value the same things in a different way. In view of this fact it is useless to talk about absolute and eternal values. This does not mean that every individual draws his valuations from his own mind. The immense majority of people take their valuations from the social environment into which they were born, in which they grew up, that moulded their personality and educated them. Few men have the power to deviate from the traditional set of values and to establish their own scale of what appears to be better and what appears to be worse.
With objective values—suprasocial rights of essentialist individualism—eliminated as an impossibility, social norms become human conventions meant to facilitate cooperation and instruments (more useful or less useful) that serve to deal with the problems arising from interindividual coexistence. Mises sees essentialist doctrines as flawed because justice has no relevance prior to the formation of society:
All these ethical doctrines have failed to comprehend that there is, outside of social bonds and preceding, temporally or logically, the existence of society, nothing to which the epithet “just” can be given. A hypothetical isolated individual must under the pressure of biological competition look upon all other people as deadly foes. His only concern is to preserve his own life and health; he does not need to heed the consequences which his own survival has for other men; he has no use for justice. His only solicitudes are hygiene and defense. But in social cooperation with other men the individual is forced to abstain from conduct incompatible with life in society. Only then does the distinction between what is just and what is unjust emerge. It invariably refers to interhuman social relations.
All Authorities as Social ConventionsPeople create or accept conventions—past and present—because they think they serve their own interest, whatever they believe it to be. In Mises’s philosophy of consent there are no social norms or natural authorities, only conventional ones. While “the concept of absolute and eternal values is an indispensable element” of totalitarian authority, he says,
an ethical doctrine that does not take into full account the effects of action is mere fancy. Utilitarianism does not teach that people should strive only after sensuous pleasure (though it recognizes that most or at least many people behave in this way). Neither does it indulge in judgments of value. By its recognition that social cooperation is for the immense majority a means for attaining all their ends, it dispels the notion that society, the state, the nation, or any other social entity is an ultimate end and that individual men are the slaves of that entity. It rejects the philosophies of universalism, collectivism, and totalitarianism. In this sense it is meaningful to call utilitarianism a philosophy of individualism.
Consent, therefore, is not a suprasocial right to be claimed before a metaphysical court but an inevitable fact of existence—the logic of means and ends. This reasoning leads to a demythologization of the the social order, which ceases to be “sacred” and in thus becomes subject to scrutiny. Mises sees this demystification as decidedly good:
In such matters, no less than in all our other mundane affairs, mysticism is only an evil. Our powers of comprehension are very limited. We cannot hope ever to discover the ultimate and most profound secrets of the universe. But the fact that we can never fathom the meaning and purpose of our existence does not hinder us from taking precautions to avoid contagious diseases or from making use of the appropriate means to feed and clothe ourselves, nor should it deter us from organizing society in such a way that the earthly goals for which we strive can be most effectually attained. Even the state and the legal system, the government and its administration are not too lofty, too good, too grand, for us to bring them within the range of rational deliberation. Problems of social policy are problems of social technology, and their solution must be sought in the same ways and by the same means that are at our disposal in the solution of other technical problems: by rational reflection and by examination of the given conditions.
Mises arrives at antiauthoritarianism via demythologization, which should not be understood here as another essentialism but a rejection of all belief that does not recognize that all norms and authority are the result of dynamic social convention originating in consent.
ConclusionMises’s philosophy of consent is a Promethean message to all mankind that shows us that without consent, norms and authority—including government—are sustained by nothing and have no intrinsic value.
All of Al Gore's children went to Harvard. Are we really to believe that this is because the Gore kids had the most "merit"? The only real meritocracy is in the marketplace.
Original Article: "The "Meritocracy" Was Created by and for the Progressive Ruling Class"
This Audio Mises Wire is generously sponsored by Christopher Condon.
With the apparent failure of Silicon Valley Bank (SVB) potentially causing a crisis in the American and even the global financial system, we will be treated to all manner of explanations, very few of which will accurately state the cause of these troubles: fractional reserve banking.
In modern banking there is little separation between warehouse and investment banking. The downside of investment banking is a potential loss of money since no investment can be a sure bet. The upside is the potential for a good return on money, the reward of taking on a degree of risk. In warehouse banking, such as personal or business checking accounts, the customer is not expecting any loss due to actions taken by the bank. The service rendered here is not expert investment advice; rather it is secure storage of funds and seamless payment transfer. The customer expects all of his money to be available to him at any time.
Rather than having to pay a small fee for the services of a warehouse account, depositors are, in fact, paid a small return for using these services. This is because modern banks lend out money stored in warehouse accounts. Since the warehouse depositor is entitled to access all his money on demand, the banking scheme requires the creation of new money out of thin air. Say the bank lends outs 5 percent of the value of a warehouse account. They still claim to have 100 percent of the value of the account available to the depositor. In theory, this works if what the bank invested the 5 percent in was successful: the return on investment brings the real value of the warehouse account back up to 100 percent, pays a gain to the depositor, and pays a profit to the bank.
Everybody wins. That is, assuming the investment is successful, which can hardly be relied upon. With the failure of the investment, the bank is now short 5 percent of the funds both expected by and legally owed to the warehouse account depositor. The bank has to find a way to make up the 5 percent shortfall before the depositor realizes what has happened. Otherwise, the depositor will try to remove all of his money, recouping his deposit from the bank’s reserves.
We have been discussing only one account, but banks have many customers. We have also been discussing the relative prudence of a 95 percent reserve requirement. Say a bank has only 10 percent of their warehouse deposits available in cash. If its investments fail and it struggles to make payments, customers will scramble over one another to be the first to withdraw their deposit from the meager 10 percent the bank actually possesses. This is called a bank run and is the death spiral of a failing bank.
This microeconomic situation has macroeconomic implications. The bank’s creation of money increases the money supply, inherently lowering lending standards. Investments which otherwise wouldn’t have been made typically fail and thus constitute malinvestment. Resources are misdirected, and during the time it takes to redirect resources into a new and sound capital structure, a recession occurs.
In more prosaic terms, banks are the engine of economic growth, as they make capital available for businesses (investment banking). They are also the gasoline, as they provide a payment system (warehouse banking). If many banks fail, these essential services are unavailable, depressing the economy in a “liquidity crisis,” the beloved of the economic mainstream.
The mechanism I have outlined above explains what happened in the case of Silicon Valley Bank. They did not have 100 percent of their warehouse accounts available in cash. The Federal Reserve dictated ultra-low interest rates for years. The Fed began raising rates in 2022 and 2023. SVB had extensive holdings of older US government bonds, losing investments when the Fed begins to raise rates. (Higher interest rates are also bad for start-ups in general.) The losses mounted, and SVB failed to secure money to cover the shortfall. Customers caught wind of what was happening and rushed to withdraw their deposits.
The bank was insolvent, and the regulators took over operations. Since SVB is (was) the sixteenth largest bank in the United States and a key lender to the tech industry, one of the most important industries in the country, the outlook for the American economy is poor. Since all banks are intertwined in lending to one another, the outlook for the global economy is poor as well, with banking shares dropping internationally.
The mainstream appears to understand the practical impact of fractional reserve banking, without realizing the full implications. As equity research analyst Alexander Yokum said in a comment to the BBC, “The issue was that people wanted money and they didn’t have it—they had it invested and those investments were down.”
A single bank failure doesn’t necessarily spell economic collapse. SVB is liquidating assets to cover deposits, which is the right thing to do. America also has the Federal Deposit Insurance Corporation (FDIC), which is a government agency that insures all deposits up to $250,000.
However, the FDIC is only a temporary solution which makes things worse in the long run for the economy at large. The deposit insurance program institutes moral hazard and encourages risky behavior by banks.
The solution to both bank runs and business cycles is to institute a gold standard along with a 100 percent reserve requirement for warehouse accounts. We must foster the public understanding that we live in the real world, not a utopia, and thus all investments carry risk. To avoid risk entirely means foregoing any prospect of a return and paying for warehousing services rendered, just like paying for any other good. Potentially, banks with both warehousing and investment divisions could offer free warehousing or even a return on warehousing accounts to entice people to use their investment division over that of competitors. But the separation between divisions would have to be strict for this to not be fractional reserve fraud against both the individual depositor and the public at large. Under this system, it would be possible to have economic growth, no inflation, no business cycles, and a declining price level too.
The federal government’s Bureau of Labor Statistics (BLS) released new price inflation data today, and according to the report, price inflation during the month decelerated slightly, coming in at the lowest year-over-year increase in eighteen months. According to the BLS, Consumer Price Index (CPI) inflation rose 6.0 percent year over year in February before seasonal adjustment. That’s down from January’s year-over-year increase of 6.4 percent, and February is the twenty-fourth month in a row with inflation above the Fed’s arbitrary 2 percent inflation target. Price inflation has now been above 6 percent for seventeen months in a row.
Meanwhile, month-over-month inflation rose 0.4 percent (seasonally adjusted) from to January to February. That's down from January's month-over-month gain of 0.5 percent, which had been a six-month high.
January’s year-over-year growth rate is down from June’s high of 9.1 percent, which was the highest price inflation rate since 1981. But February’s growth rate still keeps price inflation above growth rates seen in any month during the past thirty years. February’s increase was the nineteenth-largest increase in forty years.
The ongoing price increases largely reflect price growth in food, energy, and especially shelter. In other words, the prices of essentials all saw big increases in February.
For example, in February “food at home”—i.e., grocery bills—was up 10.2 percent compared to February of the previous year. Energy services were up 13.3 percent, while new vehicles were up 5.8 percent. The largest decrease, by far, was found in used cars and trucks which fell 13.6 percent over the period. This hardly returned car prices to 2019 levels, however. Used car price growth reached seventy-year highs throughout much of 2021, increasing year over year by over 20 percent or more in every month from April 2021 to April 2022.
As of February, there was no sign of price growth in shelter slowing down. Last month, shelter prices increased by 8.1 percent year over year, which was the highest growth rate since June 1982. Month-over-month growth in shelter costs also remained among the highest we’ve seen since the 1980s.
Meanwhile, February was yet another month of declining real wages, and was the twenty-third month in a row during which growth in average hourly earnings failed to keep up with CPI growth. According to new BLS employment data released last week, nominal wages grew with hourly earnings increasing 4.57 percent year over year in February. But with price inflation at 6 percent, real wages fell.
Inflation Is Not “Falling”With the year-over-year reading on price inflation down from January, we're likely to hear that inflation is "falling." Many will suggest this even though the CPI actually went up from January to February.
It is quite a stretch to say that price inflation is "falling" by any measure, of course, and many who say it is falling really just mean "the rate is increase is getting smaller." Nonetheless, even if we were to find next month that price inflation had turned negative during March, we would still be a very long way from undoing the price inflation that has occurredover the past two years. Indeed, since February 2021, the consumer price index has increased by 14 percent, and shelter prices have increased by 13 percent. Average earnings over that period, on the other hand, increased by only 10 percent. Even worse, that is an average of earnings, and tells us little about the millions of Americans on fixed incomes who have not been able to take advantage of wage inflation over that period. Many of those living off returns from investments are getting poorer as well. Since February 2021, the Down Jones has increased by only 8 percent.
Even with all the "robust" job growth we are told about by administration and Federal Reserve mouthpieces, it is clear there is already no "soft landing" for Americans who have seen their spending power only fall over the past two years.
Nor is there much reason to believe that rates of increase in price inflation will soon collapse, given recent events in the banking sector. With the failure of Silicon Valley Bank and Signature Bank over the weekend, the Federal Reserve is now under enormous pressure to moderate any plans for any continued quantitative tightening. Before the bank failures, market sentiment had leaned toward an increase of 50 basis points to the next FOMC meeting, scheduled for March 21-22. Now, with many investors and banks fearing a liquidity squeeze, the FOMC will be pressured to ease financial conditions for the sake of the banking sector. Even assuming that Jerome Powell is sincere in his repeated claims that he plans further substantial action to rein in price inflation, the last twenty years have made it clear that the Federal Reserve's policymakers quickly cave to demands from the Treasury Department that the Fed intervene to lower interest rates in times of financial crises.
[Read More: "Yes, the Latest Bank Bailout Is Really a Bailout, and You Are Paying for It." by Ryan McMaken]
If this scenario repeats itself, we can expect an end to the Fed's current tightening cycle, and that will mean today's elevated rates of inflation will continue well into the foreseeable future. Or, to use the vocabulary of Chairman Powell: the medium-term prospects for price inflation are looking much less "transitory" and much more "entrenched."
Unfortunately, thanks to more than a decade of extremely loose monetary policy, the US economy has been heavily financialized, and entire sectors from tech to real estate to banking have become heavily reliant on ultra-low interest rates and easy money. Current layoffs in the tech sector, falling home prices, and failing banks have made it clear just how fragile the economy has become.
Adam Smith published The Wealth of Nations in 1776, at the beginning of the Industrial Revolution. The book was the result of twenty years of observation of human action and identification of the mechanisms and processes that lead to economic efficiency and to our well-being.
The book was written at a time when guilds had not yet completely disappeared, even though it was already known that the guild system was a brake on innovation and freedom of trade, that guilds were a limitation of economic freedom. This is precisely why Smith wrote:
Meetings of people in the same trade ought not to be facilitated, people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.
Smith went on to say that the imposition by law of a professional register only facilitates meetings between members of the same profession. The state imposition of professional obligations, even at-first-glance-positive ones such as helping orphans or widows and professional taxes, means nothing more than an opportunity for the guild to manage a certain profession’s common interest, thus preparing it for further actions against the public interest.
In other words, Smith warned us loud and clear against professional organizations. But it is important to underline the nuance in his warning. Smith specified that guilds can only become harmful with the help of the government. Thus, we have been warned against professional organizations, against their mingling with the state, since 1776.
How is it possible that those of us who doubt institutionalized medicine, the instrumentalization of medicine against freedom, those of us who doubt the recommendations of the World Health Organization (WHO), the Centers for Disease Control and Prevention (CDC), the American Medical Association (AMA), Pfizer, and GSK to be accused of being conspiratorial, of being extremists, of being against science, of being primitive and fundamentalist, have forgotten our founding books to the point that we cannot see the inherent imposture and conspiracy that comes with institutionalized science?
Are not we who defend our freedom the moderns who defend ourselves from the consequences of the existence of guilds in the twenty-first century? Are not science and philosophy on our side and not on the side of the guilds? Are we indeed the primitives and fundamentalists?
We need only read Smith to convince ourselves that there is nothing wrong with us. Our oppressors are primitive, unscientific, extremist, and fundamentalist. The Middle Ages, the guilds, are obsolete. We are at the beginning of the twenty-first century not the beginning of the fourteenth century. Why we are so demoralized and doubtful? Why can we not understand that we are not the conspirators but the members of the guilds of various denominations?
The modern practice of medicine bears the stamp of guilds all over. The warnings of the economists have been abundantly proved. If the Left is complaining about regulatory capture, classical liberals and conservatives can complain about company capture, which is subordinating the interests of private companies to the interests of state bureaucracies.
Discouragement of innovation; bureaucratization of innovation by imposing treatment protocols and standards; delegation of innovation from the guild to various pharmaceutical corporations; fluid and evanescent boundaries between the state, corporations, and the guild system; excessive formalism; elimination of internal competition; demonization and discouragement of alternatives to medicine that has become orthodoxy; universal corruption (it is already impossible to discern who is corrupting whom—the state, the guild, the regulatory authority, or the pharmaceutical corporations); and anomie and nihilism should all have been predictable. It should come as no surprise to any educated person, to any person with a classical education.
As a matter of principle, the intention of this text is not to justify the above statements with examples, not only because examples are plenty and available to anyone, but also to underline that we shall change the way we do medicine because economic judgment is a priori. The fact that the state of medical practice is criminal and disastrous does not justify changing the principles that govern medical practice. The change in the way we do medicine is dictated by economic theory as it so clearly appears in the writings of Adam Smith.
Political and medical authorities rightly and legitimately blame conspiracy theories for public reluctance to various policies they want to impose upon us. On the other hand, we the people rightly and legitimately point out that the practice of conspiracy involves the state in connivance with medical guilds of all kinds—the WHO, CDC, AMA, Pfizer, GSK, CDC . . . the list of acronyms is almost endless. It is true that we the people may consider paying attention to the theory of conspiracy, but we always have to remember that it was written 250 years ago by Adam Smith, one of the fathers of modern economics.
Resources are scarce even when money is not.
Original Article: "A Permanent Wartime Economy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
“Economics,” wrote Henry Hazlitt, “is haunted by more fallacies than any other study known to man.”
True. No epoch is immune to the scourge of economic illiteracy.
Yet, we find ourselves in a moment of especially unprecedented economic ignorance. We’ve come a long way since the days of Hazlitt’s editorializing in the New York Times. In the 1930s, believe it or not, the Times held the line on economic orthodoxy in the face of emergent quackery.
Fast forward and here are but a few favorite examples of economic illiteracy, ripped from the headlines of our most prominent rags:
- Corporate greed causes inflation
- Price controls are an effective way of “controlling” said inflation
- The minimum wage is a free lunch to low-skilled workers
- Racial discrimination is costless to the discriminator
- China is “beating” us at trade
- Profits are a wealth “transfer” from consumers to producers
- Prices are arbitrary and “set” by sellers
- Rent control expands housing availability for the poorest
- Trade or immigrants “steal” domestic jobs
- Women earn less than men for performing the same work
- Capitalism degrades the environment
- Material standards of living are falling in industrialized societies
- Monopolists can charge whatever they want
- Our economy is positively bristling with said monopolists
- Socialism generates higher living standards and more equitable economic outcomes than capitalism
Where to begin? Each of these statements is demonstrably false—economists propounding them are in a small minority—yet each also boasts many fervent exponents, not to mention shrill Twitterati advocates and an apparent majority of the public.
Take the first vapid claim. It possesses all the analytical horsepower of an engineer proclaiming that a plane fell from the sky due to gravity. For those of us taking our cue from Moses or Solzhenitsyn, we believe greed is a constant running through the center of every human heart. And a basic causal principle holds that explaining variation (changing prices) by appealing to a constant (greed) is a scientific non-starter. The economic point of view directs our attention toward the constraints or opportunities which must have changed to allow for rising prices.
My favorite on this list is the claim about rent control—a recently resurgent policy. You’ll search high and low before finding an economist who believes rent control exhibits a tight link between intentions and outcomes. (For evidence of my claim, see this rent control poll of dozens of the world’s top economists).
And for good reason. Rent control generates a shortage—more people want housing units than there are units available. Housing isn’t special in this regard; we’d see the same outcome if oranges were compelled to sell for a penny a piece. This shortage throws open a Pandora’s Box of social pathologies that certainly no price control advocate intends. I’ll mention just two.
On the supply side, landlords seek to exploit the housing queue to their benefit. Like a careful grocery shopper sorting through the orange bin, the shortage enables landlords to become extra choosy. Unlike a careful grocery shopper, the selection criteria may expand to include arbitrary tenant characteristics like race, sex, or religious creed. Rent control doesn’t make anyone a racist (like greed, racism cuts through the human heart). But rent control does lower the costs of the prejudiced expressing their bigotry.
On the demand side, potential renters often devise clever schemes for nabbing an apartment before it’s occupied. Under rent control, apartments go like hot cakes. In New York City, applicants are known to search the obituaries. In post-WWII Paris, young women stalked the oldest, sickest residents they could find on the presumption that when one failed to appear at his favorite café a room had opened courtesy of the Grim Reaper.
In the long run, rent control devastates the housing stock as landlords are taken to the cleaners. Some owners set fire to their own buildings. Better to collect the one-time insurance payout than to be bled dry by the rent control ordinance. Others simply flee. The predictable result is that the low-income housing stock crumbles. Economist Assar Lindbeck speculated that rent control can be as effective a means of razing a city to the ground as is aerial bombing.
Meanwhile, the relative rate of return to investing in luxury apartments or condominiums, both exempt from rent control, begins looking more attractive. Entrepreneurs respond by redirecting their investments. The supply of high-end housing expands; rent control (can) provide a subsidy to billionaire Manhattanites.
I hesitate to mention it because I don’t want to give a politician the wrong idea, but economics does prescribe a straightforward recipe for boosting the housing supply. It’s simple: Place price ceilings on every other good—oranges, TVs, t-shirts, baby formula, doctors’ salaries—anything and everything but housing. Henceforth, entrepreneurs will invest in nothing but housing, dramatically increasing its availability. Of course, another option for policymakers is to slice through the forest of regulations which have shackled America’s housing supply.
With more colorful examples like these, my 2021 book, No Free Lunch: Six Economic Lies You’ve Been Taught and Probably Believe, pushes back against our culture’s increasingly dominant paradigm which sees society as so much Play-Doh for policymakers to mold.
The great economist Armen Alchian once observed, “Fortunately, societies have progressed despite almost universal ignorance of economic principles.” True.
I wonder, however, if ours hasn’t succumbed to a Gladwellian “tipping point.” After all, economic knowledge needn’t be explicitly articulated for the citizenry to possess a tacit, intuitive “horse-sense” about how the world works. To my mind, that’s been lost in recent years.
Alchian also rightly observed that “economic law cannot be suppressed by legislated law.” With the majority of U.S. citizenry evidently believing that economic reality can be repealed with the stroke of a pen, and substituted by legislative fiat, we may be on the brink of putting Alchian’s first claim to the test. Just how much economic ignorance is compatible with human flourishing?
Welcome to Whose Economy Is It, Anyway?, where the rules are made up and the dollars don’t matter. Or at least that seems to be the view of the Yellen regime.
As Doug French noted last week, Silicon Valley Bank (SVB) was the canary in the coal mine. Over the weekend, Signature Bank became the third-largest bank failure in modern history, just weeks after both firms were given a stamp of approval by KPMG, one of the Big Four auditing firms.
While some in the crypto community are suggesting that the closure of Signature Bank has more to do with a larger war on crypto, the regulatory action was enough to push coordinated action from the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Treasury to do what they do best, ignore clearly established rules to flood a financial crisis with liquidity.
Out: FDIC insurance limits on bank deposits lower than $250,000, haircuts for the largest bank depositors, and Walter Bagehot’s golden rule to lenders of last resort, “Lend freely, at a high rate of interest, against good collateral.” In: emergency financing to secure all deposits, accepting collateral at face value (rather than its current diminished market value) with no fee.
long_tweet.png Don’t worry, the government promises this is only a year-long program. It definitely won’t become a standing policy. They promise.
It is poetic that Barney Frank was serving as the director of Signature Bank at the time of its capture. This emergency action from the feds signals the failure of Frank’s key legislative accomplishment, the 2010 Dodd-Frank Act. The bill designated large financial institutions as “systemically important financial institutions,” with an additional layer of regulatory scrutiny as a means to end “too big to fail.”
Instead, the bill consolidated community banks into larger regional banks and empowered financial regulators that have now proven to be blind to the underlying risks of the banks. After all, it was state bank regulators, not the feds, that raised the flag on both SVB and Signature. Meanwhile, the hyper-fragile environment of the post-2008 financial crisis has created an environment where most financial institutions are treated as too big to fail, with no one too small to bear the costs.
Federal bank regulators and KPMG auditors aren’t the only ones blind to the underlying problems facing these large regional banking institutions. Just last week, Jerome Powell said that he saw no systemic risk in the banking sector from the Fed’s aggressive rise in interest rates and signaled confidence that they would continue in the near future. Less than a week later, few buy Powell’s projection.
While Powell deserves a level of credit for his willingness to take inflation risks more seriously than many of his peers, the instability we’re witnessing was predictable. As is repeated regularly on the Mises Wire, the decade-plus reign of low interest rates didn’t only incentivize financial risk but necessitated it. The benefactors were tech firms, the real estate market, and a variety of other financial markets. The consequence has been corporate consolidation and the creation of numerous overly leveraged, unprofitable zombie companies that depend upon refinancing at low interest rates to function. The Fed’s rising interest rates have always been a threat to these parts of the economy.
In defense of Powell, lying about the state of the economy is a necessary part of the modern financial system. Regardless of one’s opinion about the virtues of free banking, state intervention has created a fractional reserve banking system saturated with risk and moral hazard. Since no bank is equipped to deal with a significant increase in demand for deposits, even relatively conservative banks can be brought down by a confidence crisis fueled by the instantaneous communication of social media.
The feds have signaled a bailout for all because everyone is at risk.
It doesn’t have to be this way. Caitlin Long has been fighting the financial regime for years in her quest to create Custodia Bank, a full-reserve bitcoin bank in Wyoming. There has been a coordinated attempt to stop her efforts, ironically including voicing concerns that Custodia could fuel “systemic risk.” Honk honk.
The short-term question is whether the efforts of the Fed and the Treasury are enough to prop up confidence and prevent escalating pressure on financial institutions. However, these are not solutions to the underlying systemic problems that these bodies have created.
Unfortunately, the consequence of the complete politicization of the economy is that financial policies are necessarily focused on the short term at the expense of the long term.
There is no serious solution until there is the political will to deal with our monetary hedonism.
Silicon Valley Bank (SVB) failed on Friday and was shut down by regulators. It was the second-largest failure in US history and the first since the global financial crisis. Almost immediately, the calls for bailouts started to come in. (Since Friday, First Republic Bank has failed, and many other banks are facing collapse.)
In fact, on March 9, even before SVB failed, billionaire investor Bill Ackman took to Twitter to insist a federal “bailout should be considered” if the private sector could not save the bank. Hours after SVB officially failed, Ackman was still at it, and in a 646-word panicky screed, he demanded that the federal government “guarantee SVB deposits” and essentially backstop the entire banking industry to keep failing, inefficient, and poorly managed banks afloat.
Now, many readers might be saying to themselves, “I thought bank deposits were insured!” That, of course, is correct, but deposits are only legislatively insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Given that most normal people keep less than this in their bank accounts, that means the majority of bank users are not going to lose any of their money should their banks fail. Moreover, it is extremely easy to acquire deposit insurance on much more than $250,000 by simply keeping money at more than one bank. That $250,000 limit applies to the deposits at each bank where a depositor keeps funds. For customers with high liquidity needs, the financial sector offers tools for dealing with the risk of exceeding FDIC limits.
In an illustration of the laziness and arrogance that so characterizes our modern financial class, however, many of the wealthiest depositors at Silicon Valley Bank couldn’t be bothered with managing their deposits, and they essentially ignored the deposit-insurance rules that even a ten-year-old understands when opening his first bank account.
As a result, many venture capitalists and other wealthy SVB customers stand to a lot of money. At least, they stood to lose a lot of money before Sunday evening, when the Federal Reserve announced its new “Bank Term Funding Program” (BTFP), which promises to flood the banking system with new money and shore up the personal finances of wealthy depositors.
This is part of a two-pronged effort to both make banks appear more financially sound, and to greatly expand FDIC payouts to depositors who have their funds in these banks.
The official propaganda coming out of the administration, and from the usual Fed fanboys, is that none of this is a bailout. That’s a lie. The new steps being taken by the Fed and by the Treasury Department's FDIC are indeed ultimately bailouts for billionaires and other wealthy depositors. Moreover, this new program will require at least a partial return of quantitative easing. There’s no way to guarantee such huge sums of money without having to fall back on inflationary monetary policy yet again. This also means price inflation won’t be going away. Here is why.
Propping Up Asset Prices with New MoneyThe first prong of the bailout plan is to use extremely low-cost loans to shovel more money at banks in order to make them look more financially sound. The idea here is to head off depositor panics over uninsured deposits before they start. The first indication that this scheme is a bailout comes from the text of the press release on the creation of the BTFP. It states that the new program will be
offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities [MBS], and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.
The key phrase is “These assets will be valued at par.” That’s important because these banks are facing huge unrealized losses, many stemming from losses on assets whose market prices plummeted as interest rates rose. Part of the reason these banks are in trouble is because their assets are no longer worth anywhere near par value in the marketplace:
Yet, the Fed has decided to simply declare that banks assets sit at par value and thus far more valuable than is really the case. It will let banks use these assets as collateral at the imaginary (higher) prices.
Moreover, the terms of the BTFP loans reiterate how these are loans designed to hand money to banks for little in return. According to the Fed, “there are no fees associated with the Programs” and there is no penalty for prepayment. Foreign banks are also eligible, by the way. And, of course, “the Department of the Treasury . . . [will] provide $25 billion as credit protection.” If history is any guide, we can expect that Treasury backstop to get a lot bigger. If and when some of these banks default on the loans, the collateral won’t come close to covering the value of the loans. The banks are essentially getting free money.
[Read More: "Why the Fed Is Bankrupt and Why That Means More Inflation" by Ryan McMaken]
Where will the money to provide these loans come from? It will be printed, of course. The Fed is already bankrupt and has no extra money lying around. The Fed can’t just start selling off its $8.5 trillion hoard of Treasurys and MBS to get cash. That would drive down the prices of those assets even further, and this would make balance sheets at banks—who also own Treasurys and MBS—even worse. So, new loans and guarantees will have to come from new money. Another phrase for that is "monetary inflation."
The FDIC Will Need a BailoutThe second prong of the bailout is the FDIC's promise to cover all depositors at troubled banks, rather than just those with deposits up to the usual limit. The not-a-bailout narrative claims that the new promised expansion of insurance will all be funded by FDIC fees and imposes no costs on taxpayers. "The banks will pay for it," we are told.
That’s not how it will actually work. In this three-minute video, Peter St. Onge explains the real problem:
Is the FDIC bailout a bailout? pic.twitter.com/MHuEsEe3Z1
— Peter St Onge, Ph.D. (@profstonge) March 13, 2023
St. Onge notes that the FDIC fund available for backstopping deposits is less than $130 billion. Yet deposits in US banks total approximately $22 trillion. The FDIC fund is equal to about 0.6 percent of all the deposits. And it appears that even at the banks with the highest proportion of FDIC-covered accounts, only 42 percent of deposits are covered by insurance. So, clearly, extending FDIC coverage to all deposits means the FDIC will have nowhere near the funds it needs to cover potential depositor losses. The FDIC was never intended to insure rich people with deposits well in excess of FDIC insurance maximums. Yet that is exactly what is now happening.
When the FDIC runs out of money, what happens? The FDIC runs to the US Treasury to get a bailout. Where does the money to bail out the FDIC come from? It comes either from current tax revenues or from borrowed money. Either way, the taxpayers are on the hook. Moreover, if the Fed intervenes to buy up some of that new government debt—to keep federal interest obligations low, of course—then taxpayers will also pay via the inflation tax.
[Read More: "How the Fed Is Enabling Congress's Trillion-Dollar Deficits" by Ryan McMaken]
When we consider all this, we can see how the grift works: the Fed or the Treasury Department creates a “fund” and claims that it will be financed by fees and other nontax revenue sources. Thus, when the FDIC or the Fed rush to bail out banks, the politicians can claim the taxpayers will pay nothing. That is only true if the programs themselves receive no backstopping from the Treasury or from monetary inflation. But if we’ve learned anything since 2008, it’s that these programs all enjoy implicit guarantees of taxpayer backing, and that any “caps” on these amounts can be increased at any time.
Expect More Price InflationIn any case, the ordinary taxpayer will certainly feel the pain in terms of ongoing price inflation. Current bailout efforts are inflationary and are thoroughly opposed to the Federal Reserve’s recent attempts at “quantitative tightening.” The whole point of the bailouts, after all, is to loosen financial conditions for banks. So the Fed will almost certainly be backing off whatever it had planned in terms of raising the target interest rate and reducing its portfolio at the next Federal Open Market Committee meeting. Now the Fed will be looking at whatever strategy it can find to increase the flow of dollars to banks, and that will mean more money creation, even if the Fed’s official position remains ostensibly hawkish. Put another way, get ready for more entrenched price inflation. But don’t forget that the primary focus of all of this is to bail out wealthy depositors and bankers. On top of it all, there’s no guarantee that it will even work. There’s a reason the financial technocrats are in panic mode. They don’t know what will happen next.
Two "distinguished" healthcare analysts have examined the medical system in the USA and conclude that the REAL problem is . . . large hospitals. Dale Steinreich applies economic analysis to their claims.
Original Article: "Are Large Hospitals the Problem with US Healthcare?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The second-largest collapse of a bank in recent history after Lehman Brothers could have been prevented. Now the impact is too large, and the contagion risk is difficult to measure.
The demise of the Silicon Valley Bank (SVB) is a classic bank run driven by a liquidity event, but the important lesson for everyone is that the enormity of the unrealized losses and the financial hole in the bank’s accounts would not have existed if not for ultra-loose monetary policy. Let me explain why.
As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits, according to their public accounts. Their top shareholders are Vanguard Group (11.3 percent), BlackRock (8.1 percent), StateStreet (5.2 percent) and the Swedish pension fund Alecta (4.5 percent).
The incredible growth and success of SVB could not have happened without negative rates, ultra-loose monetary policy, and the tech bubble that burst in 2022. Furthermore, the bank’s liquidity event could not have happened without the regulatory and monetary policy incentives to accumulate sovereign debt and mortgage-backed securities (MBS).
SVB’s asset base read like the clearest example of the old mantra “Don’t fight the Fed.” SVB made one big mistake: follow exactly the incentives created by loose monetary policy and regulation.
What happened in 2021? Massive success that, unfortunately, was also the first step to demise. The bank’s deposits nearly doubled with the tech boom. Everyone wanted a piece of the unstoppable new tech paradigm. SVB’s assets also rose and almost doubled.
The bank’s assets rose in value. More than 40 percent were long-dated Treasurys and MBS. The rest were seemingly world-conquering new tech and venture capital investments.
Most of those “low risk” bonds and securities were held to maturity. SVB was following the mainstream rulebook: low-risk assets to balance the risk in venture capital investments. When the Federal Reserve raised interest rates, SVB must have been shocked.
Its entire asset base was a single bet: low rates and quantitative easing for longer. Tech valuations soared in the period of loose monetary policy, and the best way to “hedge” that risk was with Treasurys and MBS. Why bet on anything else? This is what the Fed was buying in billions every month. These were the lowest-risk assets according to all regulations, and, according to the Fed and all mainstream economists, inflation was purely “transitory,” a base-effect anecdote. What could go wrong?
Inflation was not transitory, and easy money was not endless.
Rate hikes happened. And they caught the bank suffering massive losses everywhere. Goodbye, bonds and MBS prices. Goodbye, “new paradigm” tech valuations. And hello, panic. A good old bank run, despite the strong recovery of SVB shares in January. Mark-to-market unrealized losses of $15 billion were almost 100 percent of the bank’s market capitalization. Wipeout.
As the bank manager said in the famous South Park episode: “Aaaaand it’s gone.” SVB showed how quickly the capital of a bank can dissolve in front of our eyes.
The Federal Deposit Insurance Corporation (FDIC) will step in, but that is not enough because only 3 percent of SVB deposits were under $250,000. According to Time magazine, more than 85 percent of Silicon Valley Bank’s deposits were not insured.
It gets worse. One-third of US deposits are in small banks, and around half are uninsured, according to Bloomberg. Depositors at SVB will likely lose most of their money, and this will also create significant uncertainty in other entities.
SVB was the poster boy of banking management by the book. They followed a conservative policy of acquiring the safest assets—long-dated Treasury bills—as deposits soared.
SVB did exactly what those that blamed the 2008 crisis on “deregulation” recommended. SVB was a boring, conservative bank that invested its rising deposits in sovereign bonds and mortgage-backed securities, believing that inflation was transitory, as everyone except us, the crazy minority, repeated.
SVB did nothing but follow regulation, monetary policy incentives, and Keynesian economists’ recommendations point by point. SVB was the epitome of mainstream economic thinking. And mainstream killed the tech star.
Many will now blame greed, capitalism, and lack of regulation, but guess what? More regulation would have done nothing because regulation and policy incentivize buying these “low risk” assets. Furthermore, regulation and monetary policy are directly responsible for the tech bubble. The increasingly elevated valuations of unprofitable tech and the allegedly unstoppable flow of capital to fund innovation and green investments would never have happened without negative real rates and massive liquidity injections. In the case of SVB, its phenomenal growth in 2021 was a direct consequence of the insane monetary policy implemented in 2020, when the major central banks increased their balance sheet to $20 trillion as if nothing would happen.
SVB is a casualty of the narrative that money printing does not cause inflation and can continue forever. They embraced it wholeheartedly, and now they are gone.
SVB invested in the entire bubble of everything: Sovereign bonds, MBS, and tech. Did they do it because they were stupid or reckless? No. They did it because they perceived that there was very little to no risk in those assets. No bank accumulates risk in an asset it believes is high risk. The only way in which banks accumulate risk is if they perceive that there is none. Why do they perceive no risk? Because the government, regulators, central banks, and the experts tell them there is none. Who will be next?
Many will blame everything except the perverse incentives and bubbles created by monetary policy and regulation, and they will demand rate cuts and quantitative easing to solve the problem. It will only worsen. You do not solve the consequences of a bubble with more bubbles.
The demise of Silicon Valley Bank highlights the enormity of the problem of risk accumulation by political design. SVB did not collapse due to reckless management, but because they did exactly what Keynesians and monetary interventionists wanted them to do. Congratulations.
Keynesians and other economists believe the central bank can influence economic growth via monetary policy but that it may bring inflation. Thus, if the goal is faster economic growth and lower unemployment, then the economy may pay the price with a higher inflation rate. There is supposedly a tradeoff between inflation and unemployment, described by the Phillips curve: the lower the unemployment rate, the higher the rate of inflation; conversely, higher unemployment rates come with less inflation.
Some commentators maintain that once the unemployment rate falls below what’s known as the nonaccelerating inflation rate of unemployment (NAIRU), it sets off an inflationary spiral. This acceleration in the inflation rate takes place through increases in the demand for goods and services, lifting demand for workers and putting pressure on wages, which increases prices.
The NAIRU, however, is an arbitrary measure, derived from a statistical correlation between changes in the consumer price index (CPI) and the unemployment rate (i.e., whether a decline in the unemployment rate below the NAIRU results in the acceleration in the inflation rate). Using a statistical correlation as the basis of a theory means anything goes. For example, assume that a high correlation is found between the income of Mr. Jones and the CPI, such that the higher the growth rate of Mr. Jones’s income, the higher the rate of increase in the CPI. We could conclude from this information that in order to exercise control over the inflation rate, the central bank must control the rate of increase in Mr. Jones’s income.
Can We Ascertain the Facts of Reality in Economics by Means of Correlations?One can use statistical and mathematical methods to organize historical data into a useful body of information which can help assess of the state of an economy. However, knowledge secured from assessing the data is likely to be tentative, since one cannot establish the true nature of the facts.
Milton Friedman wrote that since one cannot establish how things really work, the underlying assumptions of a theory don’t matter. What matters is that the theory yields good predictions. In his Essays in Positive Economics, Friedman wrote,
The ultimate goal of a positive science is the development of a theory or hypothesis that yields valid and meaningful (i.e., not truistic) predictions about phenomena not yet observed. . . . The relevant question to ask about the assumptions of a theory is not whether they are descriptively realistic, for they never are, but whether they are sufficiently good approximation for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions.
For example, an economist believes that personal disposable income determines consumer outlays. He then constructs a model, which is validated via statistical methods and then used to predict the future direction of consumer spending. The model’s accuracy is based on how consumer outlays are correlated with other variables.
However, should we accept or reject a theory based only on its ability to make accurate forecasts? For instance, we can say that all other things being equal, an increase in the demand for bread will raise its price; this conclusion is true and not tentative. But will the price of bread go up tomorrow or later? The laws of the theory of supply and demand cannot determine when the price will increase, only that it will increase. Should we then dismiss this theory as useless because it cannot predict the future price of bread?
According to Friedman, we form our view of the real world according to how portions of information correlate with each other. Noting that changes in the CPI are inversely correlated with the unemployment rate does not establish the causes behind the growth rate of consumer prices. It only establishes that during a particular period the unemployment rate and the growth rate of prices had an inverse correlation.
Theory Must Precede the Data to Make Sense of the DataTo make sense of historical data, one must have a theory that stands on its own and that does not originate from the data. The theory must originate from something real that cannot be refuted. A theory that rests on the foundation that human beings are acting consciously and purposefully complies with this requirement.
The statement that human beings act consciously and purposefully cannot be refuted, for anyone who tries to refute it does so consciously and purposefully, an obvious self-contradiction. Ludwig von Mises, the founder of this approach, called it praxeology, and he derived the entire body of economics from it. Mises concluded that in economic analysis—in contrast to the natural sciences, where true causes are not known to us—the knowledge that human beings act consciously and purposely permits us to determine causality: the causes emanate from human beings themselves.
According to Murray Rothbard in his preface to Mises’s Theory and History,
One example that Mises liked to use in his class to demonstrate the difference between two fundamental ways of approaching human behavior was in looking at Grand Central Station behavior during rush hour. The “objective” or “truly scientific” behaviorist, he pointed out, would observe the empirical events: e.g., people rushing back and forth, aimlessly at certain predictable times of day. And that is all he would know. But the true student of human action would start from the fact that all human behavior is purposive, and he would see the purpose is to get from home to the train to work in the morning, the opposite at night, etc. It is obvious which one would discover and know more about human behavior, and therefore which one would be the genuine “scientist.”
Furthermore, according to Mises in Human Action:
The physicist does not know what electricity “is.” He knows only phenomena attributed to something called electricity. But the economist knows what actuates the market process. It is only thanks to this knowledge that he is in a position to distinguish market phenomena from other phenomena and to describe the market process.
Economic Activity and InflationContrary to popular thinking, strong economic activity does not cause a general rise in goods prices and cause economic “overheating.” Regardless of the unemployment rate, as long as expenditure increases are supported by production, no overheating can occur. Overheating emerges once spending increases without the backup from production—for instance, when the money stock is increasing. Once money supplies increase, they generate exchanges of nothing for something (consumption without preceding production), leading to the erosion of wealth.
Increases in the money stock are followed by rises in consumer prices, all other things being equal. Prices are another name for money that people spend on goods. If the stock of money in an economy increases while the number of goods remains unchanged, more money will be spent on the given amount of goods, so prices will increase. Conversely, if the stock of money remains unchanged, it is not possible to spend more on all the goods and services; hence, no general rise in prices is possible. By the same logic, a growing economy with an unchanged money stock will see prices decline.
ConclusionSome economists believe there is a trade-off between inflation and unemployment, which is described by the Phillips curve: the lower the unemployment rate, the higher the inflation rate will be and vice versa. However, the Phillips curve cannot determine a causal relationship between inflation and unemployment, which makes it useless for most economic analysis. It is an interesting observation, but that is all it is.
Get beyond the PhDs running the Federal Reserve or the way people treat the Fed with deference. In the end, it is nothing but a legal counterfeiting ring.
Original Article: "We Are All Counterfeiters Now"
This Audio Mises Wire is generously sponsored by Christopher Condon.
People say government is corrupt. If it were corrupt, it would be acting in ways contrary and detrimental to its purpose, and it would be possible to right the course. In truth, it acts in ways that befit its nature.
Today’s governments are states, ruling by legal coercion. There is another, unacknowledged “government” that works to govern our behavior peacefully, and it’s usually called the free market. But to states, the market whether free or otherwise is the farm from which they extract wealth and distribute it according to their perceived needs. States are plundering gangs that wouldn’t exist without something to plunder — a market. But can markets exist without states?
We might never know. States will not step aside — the set-up is far too rewarding for those in charge. So, we watch as it runs off the rails in its drunken pursuit of power.
Given this arrangement, how is it possible states can maintain their grip on the minds of its captives? From the perspective of those under its thumb it is an elaborate interwoven mix of claims accepted as truths.
Let’s touch on a few.
Captives view everything government does as the fruits of democracy, as if the world around them came into being by free choice at the polls. Democracy is how people maintain their freedom, they believe — it’s their check on state power.
Every Fourth of July they wave their sparklers in government’s honor, as if today’s rulers were intellectual descendants of the revolutionaries of 1776, rather than the counter-revolutionaries of 1787. Government schools have done their job.
The state watches as some of its captives shoot and rob each other and propose that it’s only right to make it difficult for everyone to acquire guns. The thugs cheer and the crime rate goes up. And states feel uncomfortable with their captives owning guns.
Some captives try to stick the Bill of Rights in government’s face. The Bill of Rights is a tourist attraction. Who sweats a document sequestered in the National Archives? Even so, who interprets and enforces the Bill of Rights? Elected stiffs from Woodrow Wilson onward, as well as a few appointed ones, have been telling them the Constitution is alive. In other words, their rights are dead.
Some captives still refer to government officials as their servants. How many politicians have the demeanor of servants? Politicians respect money and votes. Since most voters aren't organized, it's the politicians' rich supporters who help pull the levers of power.
Captives believe it’s only logical that the state should have complete control of the military, police, and courts. What saints do they know personally who could be trusted with such power? And how will the state fund these various functions? Through voluntary trade on the market? Why should it mess with production and exchange when all it has to do is nudge them with a gun? The state is a monopoly of crime, a fact too shameful for them to admit.
Almost all captives complain about high taxes. But the state posts signs to assuage their grief: “Your tax dollars at work.” And it points to the military and its global presence, stirring patriotic fever. Thus, some captives console themselves with what taxes provide, failing as always to look at the alternatives.
If they had better schooling, they might know something about Randolph Bourne, who in 1918 wrote the following:
The modern State is not the rational and intelligent product of modern men desiring to live harmoniously together with security of life, property, and opinion. It is not an organization which has been devised as pragmatic means to a desired social end. All the idealism with which we have been instructed to endow the State is the fruit of our retrospective imaginations. What it does for us in the way of security and benefit of life, it does incidentally as a by-product and development of its original functions.
But the captives, some of them, still have hope for freedom under state rule. They revive the memory of the Gipper, their sole purported savior in recent history, who promised to get government off their backs. He pledged to abolish the departments of Energy and Education. Somehow it didn’t happen.
And rather than ditch the bankrupt Ponzi scheme called Social Security, he followed Alan Greenspan's advice and increased taxes to postpone the bankruptcy. During the Gipper's eight-year reign, the federal debt almost doubled and civil liberties diminished. Oh, those aching backs.
But wait — many captives point to Abe Lincoln as a freedom fighter.
Let’s see. No Union lives were lost during the Confederacy's 36-hour shelling of Fort Sumter, an incident provoked by Lincoln 's ordering the fort reprovisioned instead of abandoned. A month earlier, he had ignored a Confederate peace commission that had traveled to Washington , D.C. to negotiate a peaceful secession. But Lincoln had his 'incident,' got his war, and some 800,000 people died, including civilians and slaves.
The end of slavery was never Lincoln 's objective, as he repeatedly stated, but rather one of the byproducts Bourne refers to. By 1840, the British Empire had ended slavery peacefully through compensated emancipation. During the 19th Century, dozens of other countries ended slavery without war. If manumission was Lincoln 's goal, why did the master statesman need a long, bloody war to achieve it?
Lincoln invaded the South to regain lost tariff revenue when the southern states seceded. Lincoln, in other words, murdered and imprisoned people to carry on his policy of predation, aka Union mercantilism.
Moving ahead a half-century, President Wilson imposed a maximum 20-year prison sentence for anyone criticizing the government during World War I? “Civil liberties” were synonymous with treason. “Make the world safe for democracy”? Why not “Make the world safe for freedom”? Why did Wilson ship a million conscripts packed like sardines overseas to join a war that had already killed five million men?
World War II was different - the so-called Good War, even if it was the costliest conflict in human history. Civilian deaths outnumbered military deaths by over 16 million and total deaths on both sides exceeded 72 million. The Good War saw the guys in white hats set the precedent for dropping nuclear weapons on mostly civilian populations. Who was being defended when we incinerated two hundred thousand people whose leaders had earlier asked to negotiate a conditional surrender, a condition we ultimately agreed to?
Was the State defending its citizens during the build-up to war when FDR neglected to tell Pearl Harbor commanders Short and Kimmel an attack was imminent? Twenty-four hundred troops lost their lives in that attack to join a war the president promised we would never join. The man who made the promise had an eight-point provocation plan to get Japan to attack us.
Did the war in Vietnam stop communism in its tracks and keep other dominoes from falling? The only thing it stopped were the lives of 58,209 American soldiers and several million Vietnamese civilians. And these figures don't include countless others who suffered and perished from Agent Orange exposure.
Were their trillions of dollars in taxes at work on 9-11 defending Americans from terrorist hijackers? And did they get their money's worth later, when the president invaded a country posing no threat to their security and having no connection to the attacks?
They grumble about inflation and never mention its role in the State's growth and wars. They come out of college believing the Federal Reserve is our number one inflation fighter. Ironically, it's true but only because the Fed is the sole source of inflation. It's a little like saying Al Capone was Chicago 's number one crime fighter. To lower the incidence of crime, all Capone had to do was let up on it.
So, there you have it — the State in a nutshell. It is systematically anti-freedom but poses as its defender. And the captives buy it. The only way they can eliminate their overlords is with ideology, but the state has the majority of ideologists, both left and right, on its side. They’ll have to educate themselves and enough others to pose a threat. And they’ve been trying since 1576 if not earlier.
You would think freedom would be an easy sell, but it isn’t. We keep trying because we can’t live without it.
President Biden's executive order to "strengthen equity" in the federal government is doomed to fail. It will create a lot of havoc in the meantime.
Original Article: "Biden's Executive Order on Equity: It Will Create Greater Inequality"
This Audio Mises Wire is generously sponsored by Christopher Condon.
There is no denying the awful history of slavery in the Western Hemisphere. However, to better understand its legacy, we must rely on truth, not myths.
Original Article: "Slavery in the Americas: Separating Fact from Fiction"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Bureau of Labor Statistic (BLS) released new jobs data on Friday. According to the report, seasonally adjusted total nonfarm jobs rose 311,000 jobs (seasonally adjusted) in February, which was nearly 100,000 jobs above expectations. The unemployment rate rose slightly from 3.4 percent to 3.6 percent (month over month) but this partly reflected a rising labor participation rate which rose to 62.5 percent, the highest estimate since March 2020.
These numbers point to continued resilience in the job market, even if the employment numbers are not nearly as good as the Biden Administration has attempted to claim. The total number of employed persons, for example, is up less than one percent over two years. Nonetheless, this report suggests we have yet to see widespread layoffs extend beyond the growing layoff totals in the tech sector.
The current relative strength in the job market partly reflects the ongoing monetary overhang from years of breakneck growth in money-supply inflation. It is apparent that the $6 trillion in money that was newly created since 2020 is still very much a factor in the present economy. Even with a historic collapse in the money-supply growth since last fall, the economy appears to still be in only the very early phases of an economic bust that is to be expected in the wake of a monetary slowdown.
In spite of the "good" news of continued job growth, however, markets fell on Friday. This is partly due to the fact that in the current policy environment, good news is bad news because Wall Street interprets strong jobs numbers as an indicator the Federal Reserve will continue raising interest rates. Wall Street, the real estate industry, and the investor class in general want the opposite: a return to an environment of very low interest rates and easy money. (Markets also fell because of the failure of the massive Silicon Valley Bank on Friday morning.)
Once we take a closer look at the employment numbers and other economic indicators, however, we find plenty of indicators that recession is indeed on the way within the next year. Weak economic data in manufacturing, real wage growth, and home prices all point toward overall economic decline.
Weakness in Full-Time Employment Month-over-month job growth was generally positive. February brought an end to a six-month trend in employment in which growth in full-time employment was consistently weaker than growth in part-time work. In February, full-time employment grew (month over month) by 998,000 jobs (not seasonally adjusted) while part-time employment grew by only 24,000 jobs:
When comparing year-over year growth, however, the numbers suggest ongoing economic turbulence. Full-time work outpaced part-time work by a remarkably small 151,000 jobs. In most months, this number ranges from one to four million. When this gap between year-over-year growth in part-time and full-time growth approaches zero, that usually indicates that a recession is coming. We saw it happen in 1981, 1990, 2001, 2008, 2020. Now it’s happened again in 2023:
Job Openings from Other Sources Another sign of trouble in the jobs economy are recent declines in job openings in private-sector jobs listing sites. While federal survey data suggests job openings remain near 2022's multi-decade highs, data from job-posting site Indeed suggests new openings have fallen off considerably since early January, with the index dropping to the lowest post reported since July 2021.
This is especially concerning because federal survey data continues to worsen in terms of the response rate to surveys. Over the past three years, the Job Opening and Labor Turnover Survey (JOLTS), which provides job openings estimates, has seen its response rate fall from nearly 60 percent down to 31 percent. It is unclear whether this survey tells us much about the broader economy anymore.
Falling Real WagesAccording to February's employment data, it looks like February will mark the 23rd month in a row during which wage growth has failed to keep up with price inflation. In February, average hourly wages incresed (year over year, not seasonally adjusted) by 4.57 percent. Yet, the Cleveland Fed's Nowcast estimate of price inflation for February suggests price inflation in February was 6.2 percent. This the Nowcast number proves to be close to the official CPI print next week, that means wage growth was negative in real terms, yet again, in February:
Home Prices Naturally, as real wages have fallen, the ability to keep up with home-price growth has also been impacted. Last Friday, residential real estate brokerage firm Redfin reported a decline in home prices for the first time since 2012. The most recent Case-Shiller home price data shown continues softening in home prices, dropping to 5.8 percent in December. Meanwhile, the number of new single-family homes sold fell 19 percent in January, year over year. During the same period, housing starts were down 21 percent.
These trends are part of the reason why Fannie Mae's economists now expect a recession in 2023.
To find other troubling trends, we might point to the fact credit card debt has climbed to new all-time highs over the past year while the personal savings rate remains well below the post-2009 average.
Bad economic news also arrived on Friday in the form of the collapse of Silicon Valley Bank which ended in regulators forcing the bank to shut down. SVB's collapse is the first since the financial crisis of 2008, and is the second-largest ever. It is still unknown how this will affect the larger economy.
For now, though, February’s jobs report would seem to back up Fed Chaiman Jerome Powell’s claim that overall, the full effects of a falling money supply have yet to be fully felt. Even with rapidly slowing dollar flows, many sectors of the economy remain flush with cash. Moreover, consumer spending is receiving a sizable boost this year with the largest increase in Social Security's cost of living adjustment since 1981. These factors are all inflationary and, for now, continue to feed labor demand. Job data always looks fine until it doesn't however, and increases in job losses and unemployment often begin only after a recession is in full swing. For example, the unemployment rate did not exceed five percent during the Great Recession until March 2008. That was 4 months after the recession officially began.
February's ongoing job growth shows just how long it can take for long periods of monetary inflation to unwind. Inevitably, years of malinvestment, bubbles, and price inflation eventually take their toll and lead to economic bust. The timing, however, is always impossible to predict.
Progressivism is collectivist, anti-individual, and ultimately destroys civilization itself. Austrian economics stands against this force.
Original Article: "Austrian Economics Stands against the Collectivism of Progressive Thought"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Mark discusses how the Federal Reserve and Covid restrictions greatly increased the price of cardboard boxes; but, with online sales softening, we should expect suppliers to shift the raw materials used to make boxes (wood pulp) into the production of other paper goods, such as toilet paper. Because our demand for toilet paper is relatively inelastic, we should see a decline in the price of toilet paper and better availability.
The market will reallocate toward consumer wants and lower prices.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
[This article is excerpted from volume 2, chapter 10 of An Austrian Perspective on the History of Economic Thought (1995).
Another important reason for Marx's failure to publish was his candid depiction of the communist society in the essay "Private Property and Communism." In addition to its being philosophic and not economic, he portrayed a horrifying but allegedly necessary stage of society immediately after the necessary violent world revolution of the proletariat, and before ultimate communism is to be finally achieved. Marx's postrevolutionary society, that of "unthinking" or "raw" communism, was not such as to spur the revolutionary energies of the Marxian faithful.
For Marx took to heart two bitter critiques of communism that had become prominent in Europe. One was by the French mutualist anarchist Pierre-Joseph Proudhon, who denounced communism as "oppression and slavery," and to whom Marx explicitly referred in his essay. The other was a fascinating book by the conservative Hegelian monarchist Lorenz von Stein (1815–1890), who had been assigned by the Prussian government in 1840 to study the unsettling new doctrines of socialism and communism becoming rampant in France. Not only did Marx show a "minute textual familiarity" with Stein's subsequent book of 1842, but he actually based his concept of the proletariat as the foundation and the engine of the world revolution on Stein's insights into the new revolutionary doctrines as rationalizations of the class interests of the proletariat.1
Most remarkably, Marx admittedly agreed with Proudhon's, and particularly Stein's, portrayal of the first stage of the postrevolutionary society, which he agreed with Stein to call "raw communism." Stein forecast that raw communism would be an attempt to enforce egalitarianism by wildly and ferociously expropriating and destroying property, confiscating it, and coercively communizing women as well as material wealth. Indeed, Marx's evaluation of raw communism, the stage of the dictatorship of the proletariat, was even more negative than Stein's:
In the same way as woman is to abandon marriage for general [i.e. universal] prostitution, so the whole world of wealth, that is, the objective being of man, is to abandon the relation of exclusive marriage with the private property owner for the relation of general prostitution with the community.
Not only that, but as Professor Tucker puts it, Marx concedes that
raw communism is not the real transcendence of private property but only the universalizing of it, not the overcoming of greed but only the generalizing of it, and not the abolition of labour but only its extension to all men. It is merely a new form in which the vileness of private property comes to the surface.
In short, in the stage of communalization of private property, what Marx himself considers the worst features of private property will be maximized. Not only that, but Marx concedes the truth of the charge of anticommunists then and now that communism and communization is but the expression in Marx's words, of "envy and a desire to reduce all to a common level." Far from leading to a flowering of human personality as Marx is supposed to claim, he admits that communism will negate it totally. Thus Marx:
In completely negating the personality of men, this type of communism is really nothing but the logical expression of private property. General envy, constituting itself as power, is the disguise in which greed re-establishes itself and satisfies itself, only in another way … In the approach to woman as the spoil and handmaid of communal lust is pressed the infinite degradation in which man exists for himself.2
All in all, Marx's portrayal of raw communism is very like the monstrous regimes imposed by the coercive Anabaptists of the sixteenth century.3
Professor Tucker adds, perhaps underlining the obvious, that "these vivid indications from the Paris manuscripts of the way in which Marx envisaged and evaluated the immediate postrevolutionary period very probably explain the extreme reticence that he always later showed on this topic in his published writings."4
But if this communism is admittedly so monstrous, a regime of "infinite degradation," why should anyone favor it, much less dedicate one's life and fight a bloody revolution to establish it? Here, as so often in Marx's thought and writings, he falls back on the mystique of the "dialectic" — that wondrous magic word by which one social system inevitably gives rise to its victorious transcendence and negation. And, in this case, by which total evil — which interestingly enough, turns out to be the postrevolutionary dictatorship of the proletariat and not preceding capitalism — becomes transformed into total good.
To say the least, Marx cannot and does not attempt to explain how a system of total greed becomes transformed into total greedlessness. He leaves it all to the wizardry of the dialectic, now a dialectic fatally shorn of the alleged motor of the class struggle, which yet somehow transforms the monstrosity of raw communism into the paradise of communism's "higher stage."
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- Stein treated French socialism and communism as ideologies of the propertyless proletariat, aiming to destroy the historical foundations of European society based on the principles of individual personality and private property. The difference of course, is that Marx, in contrast to the other "classless" socialists and communists, embraced this connection to the proletariat, whereas Stein condemned and warned against it. See the excellent and illuminating work by Robert C. Tucker, Philosophy and Myth in Karl Marx (Cambridge: Cambridge University Press, 1961), pp. 114–7. Stein's book, Lorenz von Stein, Der Socialismus und Communismus des Heutigen Frankreichs (Leipzig: 1842), remains untranslated. (Later editions were entitled Geschichte des socialen Bewegung in Frankreich, 1850, 1921). Stein spent his mature years as professor of public finance and public administration at the University of Vienna, 1855–88.
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- Quoted in Tucker, op. cit., note 8, pp. 155. Italics are Marx's.
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- Indeed, it is no accident that Marxian historians, from Engels to Ernst Bloch, have been great admirers of these regimes and movements, first, because of their communism, and second, because they were certainly "people's movements," bubbling up from the lower classes.
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- Tucker, op. cit., note 8, pp. 155–6.
Progressives view all aspects of human life as a struggle against forces of oppression. Earlier this week on BBC, Professor Mariana Mazzucato suggested governments across the West should simply print money not only to help Ukraine, but also to finance other "wars" against climate change, inequality, and more. Should national treasuries essentially adopt a permanent wartime footing and print far more money, as Mazzucato and Warren Mosler recommend? Hint: Jeff and Bob say "No."
Jeff's article "A Permanent Wartime Economy": Mises.org/HAP386a
Bob's debate with Warren Mosler: Mises.org/HAP386b
Bob's article in The American Conservative on the Greenbacker movement: Mises.org/386c
The foreign policy "elites" have been wrong about regime change, sanctions, "the lesson of Munich," a "rules-based order," and pretty much everything else.
Original Article: "One Year Later in Ukraine: Washington and NATO Got It Very Wrong"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Yearning for Beauty in the Truth of Economic Thinking
We as a human race have a natural desire for beauty, and we as academics have a tendency to get lost in the weeds and forget this. Mises Institute president Jeff Deist has articulated this better than perhaps anyone before him in a speech (“We Need Truth and Beauty”) where he stated:
We know Austrian economics is fundamentally true; in fact, truth is its most important and fundamental responsibility. Yet we cannot afford to ignore the corollary to truth, namely, beauty. Without beauty, divorced of any higher human longings, economics devolves from a beautiful theoretical edifice into a bastard cousin of accounting and finance, a business discipline. Or even worse, it becomes nothing more than an intellectual veneer for so-called public policy, which is really just a sanitized euphemism for politics.
This is the state of economics today. We are at best this bastard cousin of business disciplines and at worst—and more commonly—a worthless backup for politics, which certainly has no beauty these days. Henry Hazlitt even spoke on this lack of beauty in economics in his novel Time Will Run Back. Hazlitt writes of a world where communism has overtaken life as we know it, and the leaders of this nation—through Socratic dialogue—must reinvent capitalism, almost as if by accident, in order to rescue the world from the dangers of this system they are now under. But in order to explain how it was that communism came to be victorious, Hazlitt writes through his communist character Bolshekov:
We began with apparently every possible disadvantage. The enemy started with better arms, more technical advancement, more production, more resources. And yet we beat them in the end because we had the one tremendous weapon that they lacked. We had Faith! Faith in our own Cause! Faith that never wavered or faltered! We knew that we were right! Right in everything! We knew that they were wrong! Wrong in everything! The enemy never had any real faith in capitalism. They started out with little and began rapidly to lose what they had. Those who had once embraced the gospel of communism were willing to die for it; but nobody was willing to die for capitalism. That would have been considered a sort of joke. Finally, the best thing our enemies could think of saying for capitalism was that it wasn’t communism! Even they didn’t seem to think that capitalism had any positive virtues of its own. And so they simply denounced communism.
We as economists today face a similar problem. We offer that capitalism is the best we have had, and we make excuses for things that sound like shortcomings. When we hear someone thinks it falls short, we commit a “no true Scotsman” fallacy just as quickly as the communists to say that it was not real capitalism. Instead, our defense of economics should be much more like Frédéric Bastiat’s claim regarding economic harmonies: “Surely they would give up in their dull and stupid utopias if they did know the beautiful harmonies of the dynamic social mechanism instituted by God.”
Bastiat clearly understands the lesson expressed by Deist stating that beauty is the corollary to truth. Something cannot just be true in old books but must be truly beautiful and appreciated. But Austrians like Bastiat, Hazlitt, and Deist are not the only ones who have seen the importance of beauty. The yearning for beauty has gone back through the entire course of history, so much so that great men and great leaders have always strived for beauty as they lead their empires. In Andrew Roberts’s book Napoleon: A Life, he explains:
At its height, Napoleon’s imperial household covered thirty-nine places, almost amounting to a state within a state, even though he never visited several of them. Taking Louis XIV as his model, he reintroduced public Masses, meals and levées, musical galas and many of the other trappings of the Sun King. He was certain that such outward displays of splendour inspired feelings of awe in the populace—“We must speak to the eyes,” he said.
That inspired awe in the populace motivates them for a cause that facts alone cannot. We cannot have truth alone because truth cannot exist without beauty. This is why Deist is overwhelmingly correct in his call. We need truth and beauty. Brilliant intellectuals like Hazlitt and Bastiat have shown us the truth to this, and great men like Deist and Napoleon have shown us the beauty of this truth.
Napoleon once stated, “I have dethroned no one. I found the crown lying in the gutter. I picked it up and the people put it on my head.” In a similar vein, beauty is currently lying in the gutter. As Deist has stated, “Progressives abandoned beauty a long time ago.” With it lying in the gutter, it is long past time for us to pick it up and push forward for both truth and beauty.
If you watched the Fed Chair Jerome Powell testify before the senate and the House, you heard over and over that banks are well capitalized. The non-sequitur should inspire the Shakespearean quote “Methinks you protest too much.” The very next day after the hearings, shares of SVB Financial Group, parent of Silicon Valley Bank, fell 60 percent (and another 30 percent in afterhours trading at this writing) after a Wall Street Journal article revealed, the bank “had sold large portions of its securities portfolio and would raise fresh capital, highlighting a broader problem for U.S. lenders who have seen rising interest rates hammer the values of their bond holdings.”
In What Has Government Done to Our Money? Murray Rothbard reminded us:
The bank creates new money out of thin air, and does not, like everyone else, have to acquire money by producing and selling its services. In short, the bank is already and at all times bankrupt; but its bankruptcy is only revealed when customers get suspicious and precipitate “bank runs.”
Silicon Valley Bank depositors ran for the exits along with shareholders the same day the WSJ article appeared and the FDIC promptly closed the bank Friday morning saying:
Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.
While the bank was a lender to the venture capital industry and tech sector, the investments that did the bank in were bonds backed by the full faith and credit of the U.S. government. However, the value of those bonds has plunged as interest rates have increased dramatically.
Banks are able to use a little accounting trickery pokery as it concerns bonds designated “available-for-sale,” as opposed to “held-to-maturity.” The available-for-sale label allows banks to “exclude the paper losses on those holdings from its earnings and regulatory capital, although the losses [do] count in equity.” Held-to-maturity allows banks “under the accounting rules to exclude paper losses on those holdings from both its earnings and equity.”
This problem is not particular to the bank serving techland. The Federal Deposit Insurance Corp. reported that U.S. banks’ unrealized losses on available-for-sale and held-to-maturity securities totaled $690 billion as of Sept. 30, up 47 percent from a quarter earlier, reported the WSJ.
Bank analyst Christopher Whalen wondered in a tweet:
Is it possible that nobody has asked Chair Powell about the deteriorating solvency of US banks due to QE? Where do you think that -$600 billion number will be at the end of Q1 23? (emphasis added)
MarketMaven’s Stephanie Pomboy weighed in on the same subject with this tweet, “I'm puzzling to understand how THIS isn't the only thing people are talking about today????????? Someone tell me about the rabbits. and fast!”
But, again, on Capitol Hill and at the Eccles Building no one was uttering a discouraging word. However, FDIC Chairman Martin Gruenberg said in a December 1, 2022, speech:
The combination of a high level of longer-term asset maturities and a moderate decline in deposits underscores the risk that these unrealized losses could become actual losses should banks need to sell investments to meet liquidity needs.
Now Gruenberg’s prophecy is coming to fruition. Silicon Valley said it decided to bite the bullet and sell holdings and raise fresh capital “because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.”
Nobody has been on high alert expecting a banking crisis, but as Rothbard pointed out:
No other business can be plunged into bankruptcy overnight simply because its customers decide to repossess their own property. No other business creates fictitious new money, which will evaporate when truly gauged.
Silicon Valley Bank had $91.3 billion in securities classified as “held to maturity” on its year-end balance sheet. In a footnote to its financials the bank reported the value of those securities were $15.1 billion below their balance-sheet value. “The fair-value gap at year-end was almost as large as SVB’s $16.3 billion of total equity.” Gulp.
The bank promises they are holding these securities to maturity. Memo to Silicon Valley Bank, your depositors will decide that.
Economics in Action
By Brian Balfour
Thales Press, 2022; 306 pp.
“Public” high schools are for the most part rotten to the core, and it is widely recognized, if not quite “a truth universally acknowledged,” that they need to be replaced. But what should students in private schools or homeschooling programs be taught? If we wish to rescue our young people from the socialist and “woke” propaganda inflicted on them in government institutions, it is essential that they have sound textbooks and other programs of learning. In the effort to provide these, no one has done as much as the renowned entrepreneur and friend of the Mises Institute Robert Luddy, who has established the Thales Academies, which are based on a classical curriculum.
One of the key subjects high school students ought to learn is economics. As Ludwig von Mises pointed out in Human Action, “All present-day political issues concern problems commonly called economic. . . . Everybody’s mind is preoccupied with economic doctrines.” Students must possess the basic concepts of economics that will enable them to understand the benefits of the free market and the errors of socialism and interventionism. But an obstacle stands in the way. Economics is commonly taught as a technical subject, putting it beyond the grasp of most students of high school age.
Brian Balfour, the senior vice president for research of the John Locke Foundation, has found the way past this obstacle, and the result is Economics in Action, the textbook he has written for the Thales Academies. The solution is to teach Austrian economics, which is based on simple, readily graspable concepts and has the additional advantage of being true. As Balfour explains, “Before discussing what economics is, it is important to point out a couple of things that economics is not: It is not a complex web of mathematical models. . . . Instead, economics is a social science studying the implications of human acts of choice. Properly understood, economics utilizes deductive logic to arrive at timeless ‘economic laws’ to provide an intellectual framework to understand the world around us. Indeed, this course will not involve the use of long math equations or countless and complex graphs. Economics begins with the basic axiom (a self-evident truth) that humans act, and employs deductive logic to construct the implications of that truth into many ‘economic laws’ which enable us to understand how the economy works” (emphasis removed).
The concept of action may be simple to grasp, but spelling out its many implications in a way high school students can understand is no easy task. Balfour ably accomplishes the job through patient exposition accompanied by judicious repetition; in doing so, he shows clear mastery of the relevant Austrian concepts. The book contains three sections: “Introduction to Economics,” “How an Economy Works,” and “Why Economics Matters.” In what follows, I’ll discuss a few key insights contained in the book.
Balfour is fully alive to the deductive character of Austrian economics, best brought out by Mises and Murray Rothbard. We grasp immediately that we act; we know it “from the inside” and it is immune from doubt. “The fundamental axiom—or self-evident truth—that provides the foundation upon which much of the science of economics is built is: Humans act, and do so with a purpose in mind. More specifically: humans employ means according to ideas to accomplish ends. This is known as the action axiom” (Emphasis removed).
Balfour rightly says that to deny the axiom is self-refuting, since saying “It’s false that human beings act” is itself an action. It isn’t the case, though, that self-refutation is always the way to identify a self-evident truth, as Balfour claims: “But how do we know if something is a self-evident truth, or undeniable fact? When any attempt to refute it must prove it to be true.” It’s self-evident that 2 + 2 = 4, but saying “2 + 2 5” doesn’t show that 2 + 2 = 4.
Probably the most remarkable feature of Austrian economics is the great amount of vital material that can be derived from the action axiom. For example, action arises from felt uneasiness; each person is trying to bring about an improvement in his situation. If so, a trade (i.e., an exchange of goods or services) will take place only if the parties involved expect to benefit: “We can say that voluntary exchange is mutually beneficial. A mutually-beneficial exchange is one where both parties are better off than they were before the exchange. When the trade is made, both parties can achieve an end they value more.” And from this, we can deduce something else that has crucial importance for policy. If an exchange is not voluntary, those coerced to make it would not have engaged in it of their own volition. We cannot, then, say that government measures that are enforced coercively make people better off.
Someone might object to this that even if the person coerced doesn’t choose what the government forces him to do, it might still benefit him. Maybe people don’t always know what is good for them and the government knows better. The response to this brings out another crucial feature of the Austrian approach. “Good” and “bad” are subjective: people act to gain certain ends, and they shun other things according to their own views of what is good and bad. In other words, value is subjective. Whether “objective values” (i.e., things that people ought to want) do or do not exist, they are irrelevant to economics. As Balfour says, “From the action axiom, we have deduced that only individuals act, and the choices involved in acting imply that individuals have preferences. Thus, we can now deduce that preferences are tied to specific individuals, therefore they can be considered subjective. A subjective preference refers to personal values that are from the point of view of the actor. Goods and services derive their value from the subjective value assigned to them by the individuals considering using them.” But when he says that “an objective value refers to measures or observations that are inherent characteristics in an object and universal to all observers,” he is not altogether correct, as his examples—“the car is red, the table weighs 20 pounds, or the ladder is ten feet tall”—are not value judgments, subjective or objective, but straightforward facts.
Mutually beneficial exchange makes possible the division of labor, in turn enabling enormous gains in productivity and wealth, and Balfour does a fine job of explaining that such exchange is beneficial even if one person involved in the exchange is “better” than the other in producing everything. This is the famous “law of comparative costs,” expounded by David Ricardo in the early nineteenth century and later extended by Mises into a general law of association. “This law informs us that there are still gains to be made from the division of labor/specialization and exchange, even in cases when one producer is more productive than others in all lines of production. But how could the producer who is more efficient at producing all relevant goods (whether it be an individual or country) still benefit from trading with the less efficient producer?” To answer this question, Balfour turns to opportunity cost, which is the highest value you have to give up to get something you’ve chosen: he says that to produce all goods, the superior producer would have to give up more of what he values than he loses by trading what he produces best for goods that the inferior producers make.
Balfour ably brings out another aspect of the Austrian approach that is prominent in the work of Rothbard and Hans-Hermann Hoppe. In order to reap the benefits of the division of labor and exchange, people must have stable control over what they trade; they must, in other words, have the right to own property. “Private property is essential when it comes to interpersonal exchange and the formation of prices. Without clearly defined, stable and exchangeable private property, economic goods would be unable to acquire prices that reflect their relative scarcity. If people weren’t allowed to own goods and as such price them according to the quantity they own relative to the amount of demand there is for that good, then prices for goods would be arbitrarily set by a government agency and have little meaning.” Private property thus becomes a category of economics as well as of law and political philosophy.
Economists outside the Austrian school sharply separate demand, determined by individual preferences, from supply, determined by objective costs, but Austrians dissent. In their view, costs are also subjective. Demanders of a good will first endeavor to satisfy their most valued use for it. Each further unit will satisfy a less valued use—this is the law of diminishing marginal utility—and, as a result, the demanders will purchase additional units only at a lower price. And here is the Austrian insight: the supplier of a good operates according to a comparable rule. As he lowers the price of what he sells, he gives up higher-valued alternative uses of his productive activities and lessens the amount he offers for sale. Balfour terms this the law of increasing opportunity costs: “This law stipulates that when people must do without an additional unit of a good, they will forego their least valued end that good can satisfy. As a result, as the supply of a good decreases, a more highly valued end will be foregone with each successive marginal unit of that good that is reduced from the supply.”
I’ll close with one further strength of the book. In his account of the fallacies of socialism, Balfour is quite clear that two antisocialist arguments often conflated are in fact separate. One of these is the knowledge argument, most notably advanced by Friedrich Hayek. This holds that central planners lack the local knowledge, often tacit, that participants in the free market can transmit to others through their pricing decisions. “Knowledge about very specific and changing demands of consumers is vast and impossible for any central planning board to capture. Entrepreneurs involved in specific industries and in specific locations possess the unique information regarding their consumers and are far better positioned to try and profitably meet the needs of consumers in the most efficient means possible.”
But this argument, though entirely valid, is not the deepest and most fatal blow to socialism. Even more fundamental than the knowledge argument is Mises’s calculation argument, which holds that in the absence of the monetary prices of the market, socialist planners have no means to allocate resources efficiently. A fully socialist society will collapse into chaos. “Without prices that emerge from the exchange of privately owned means of production, there is no rational way by which to choose between the countless ways the available factors of production that could be utilized. Without this ability to calculate, planners and managers are completely in the dark and as such resources are wasted on a grand scale because they are not directed to their most efficient uses.”
There is a great deal more of value in the book, but I hope to have said enough to indicate its high quality. I highly recommend it not only to high school students but to all those who want to acquire a sound knowledge of the basics of Austrian economics. As usual, Robert Luddy has backed a winner.
President Biden's call for more protectionism isn't aimed improving the US economy. Instead, it is about creating a war-footing autarky.
Original Article: "Readying the War State: Biden Recommits to Protectionism in the SOTU"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Thus, the nearly half the adults in America who haven’t saved remain childlike and live in barbarism.
For those who are saving, volatile markets point to a less-than-cozy retirement for the majority. Last year’s beat down of the average 401(k) plan was 20 percent, which didn’t help. But retirement participants are keeping the sunny-side up, believing “they’ll move closer to their retirement goal by ending 2023 with more in retirement savings than at the end of 2022.” We can only wonder what makes folks believe that.
Most retirement savings are invested in index funds which track the S&P 500 and, “particularly for older savers, in actively managed equity funds heavily weighted in the benchmark index’s top stocks,” writes Woolley.
Shares of giant tech companies, fueled by zero-percent interest rates, fooled individual investors into believing these stocks would go straight up forever, or at least until they retire, funding carefree years of traveling the world, going on cruises, and blissfully falling asleep while watching golf on weekends.
“Most investors aren’t adjusting their retirement plans despite the uncertain economic outlook and recent losses in their accounts,” writes Woolley. “Some 56 percent of survey respondents said they were sticking with their retirement plans.”
Only 8 percent are thinking about never retiring. More people need to think again. That number will increase.
There are fewer 401(k) millionaires after last year’s stock and bond market thumping. That club shrank by a third. At the end of last year, accounts at Fidelity with million-dollar balances declined to 299,000, from the previous year’s year-end total of 442,000, reports Bloomberg’s Woolley.
There may be even fewer at the end of this year. Rob Arnott, cofounder of Research Affiliates, told Bloomberg this year’s early bounce in tech names is a “dead cat bounce” and you shouldn’t rush back into these stocks. “The crash is far from finished.”
As mentioned above, nearly half of Americans haven’t saved a penny for retirement—those people don’t know or care what Fidelity and Vanguard are. They may not have a bank account. According to our friends at the FDIC, “An estimated 4.5 percent of U.S. households were ‘unbanked’ in 2021, meaning that no one in the household had a checking or savings account at a bank or credit union. This represents approximately 5.9 million U.S. households, compared to 7.1 million in 2019.”
“Thus, by virtue of the saver’s saving, even the most present-oriented person will be gradually transformed from a barbarian to a civilized man,” Hoppe explained. “His life ceases to be short, brutish, and nasty, and becomes longer, increasingly refined, and comfortable.” It doesn’t take $3 to $5 million to be civilized, but nonsavers have little comfort to look forward to.
While the Biden White House claims we are on a steady course of prosperity, the more realistic future is that of a global recession.
Original Article: "The Coming Recession Will Be a Global One"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Ryan McMaken and Tho Bishop look at how the regime's narrative on foreign policy is failing, and how some in Congress are finally standing up to the warfare state. Yet, the regime wants more US wars in Syria, Ukraine, and now even Mexico. And you will pay for it all. Will the voters demand a more sane foreign policy in 2024?
Recommended Reading"The Costs of War in Syria" by Ryan McMaken (2013): Mises.org/RR_124_A
"A Permanent Wartime Economy" by Jeff Deist: Mises.org/RR_124_B
The War, Economy, and State Podcast with Ryan McMaken and Zachary Yost: Mises.org/WES
"Mission Accomplished: Seymour Hersh, Nordstream, and What’s Left on the Cutting Room Floor" by Tom Luongo (LewRockwell.com): Mises.org/RR_124_C
"Meanwhile in Yemen, the US Government Supplies Weapons to Continue the Carnage" by Trenton Hale: Mises.org/RR_124_D
"House Votes Down Resolution to Withdraw Troops from Syria" by Dave DeCamp (AntiWar.com): Mises.org/RR_124_E
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
The Censored Generation
Incredulity. Astonishment. Disgust. Anger.
It is these feelings—amongst others—that describe the general reaction to the revelations of the Twitter Files and other egregious episodes of Big Tech censorship of the electronic public square.
The implicit deal with companies like Twitter, Facebook, Google, etc. is very simple: we will look at your ads if you give us a service for free. The deal did not include censorship.
But what is society to expect when those doing the censorship seem to see absolutely nothing wrong with it, and that it didn’t even occur to them that what they were engaged in—often at the specific request of governmental agencies—was at all a problem?
For a generation that has grown up with speech codes, enforced nicety, automatic deference to the feelings of others, and has been swaddled in bubble wrap against the vagaries of life, censoring of speech is not only not an ethical leap, it is the right thing to do.
Couple that with a permanent, purposeful self-infantilization that makes them defer to (or incoherently rage at for NOT censoring speech) anyone they perceive to be a grown-up—such as former FBI bigwig James Baker at Twitter—and the stage is not only set, but the terrifying end of the play writes itself.
This generation is not necessarily Y, or X, or millennial—it’s a bit of a mix of those aged from about sixteen to about thirty-six, numbers that will, sadly, most likely become lower and lower on the low end and higher and higher on the high end as time marches on.
It is a subcohort (I thought it best to learn their language) of people who have much in common—first, they have come from the now de rigueur smaller families, hence they do not have the thick skin and personal combat skills that one acquires when one has siblings.
They have usually grown up relatively comfortably and are uncomfortable with confrontation. They went to the right schools, but they do not understand how other people can think differently. They are overcredentialed but actually vastly undereducated. They feel twinges of guilt when the grocery store delivers but are absolutely certain that a twenty-five-minute trip to the store is a waste of their valuable time.
While there are many, many examples, two events stand out as exemplar moments for the censored generation. First, this rather well-known incident from Yale University in which a college student is angrily demanding to be treated like a child, and this chilling tale of a professor struggling to deal with the “best and the brightest” demanding to be lectured to rather than participate in a thoughtful seminar.
Professor Vincent Lloyd, director of black studies at Villanova University, writes:
Like others on the left, I had been dismissive of criticisms of the current discourse on race in the United States. But now my thoughts turned to that moment in the 1970s when leftist organizations imploded, the need to match and raise the militancy of one’s comrades leading to a toxic culture filled with dogmatism and disillusion. How did this happen to a group of bright-eyed high school students?
This remembrance of things past, as it were, should not be viewed as garden variety “Get off my lawn!” generational angst. This is not, when complaining about Elvis Presley’s hips, purposefully failing to remember exactly how much underwear was visible at a 1940s swing dance.
These two examples starkly show that a sea change has occurred in just the past ten or fifteen years. It is simply unimaginable that students prior would have demanded more boundaries, more restrictions, more lectures, more being told what to think, and, especially, more being told how to think.
It literally has never happened before.
This, to quote Alan Furst’s book The Foreign Correspondent, “doctrinal agony over symbols” has always existed, but it only flourished in insular monomaniacal environments, like the cloisters of a medieval monastery or a dingy backroom full of bickering Bolsheviks. Now, these ultimately meaningless disputes capture much of the globe’s attention and involve a race to the bottom of dogma, to a purity purgatory which, thanks to the speed of social media, has engulfed us all.
The past has seen its share of equivalent events and trends, but the speed at which “facts” and thoughts and concepts move on the internet essentially destroys the usual “predators” of bad ideas—nuance, history, research, reason, time to reflect, reliable sourcing, and proper context. This has allowed people to simply ignore or dismiss anything they think may contravene their own ideations and the ideations of whatever happens to be ascendent that particular day. It is this permanent state of flux, intentionally unmoored from the evil past and its expectations, that allows the unthinkable to not only be thought but to be acted upon.
And because this is the only world—a world in nonchalant destruction—the censored generation has ever known, it is only natural that they are so terrified of saying the wrong thing, doing the wrong thing, straying too far from the dictate of the day that they cannot grasp the enormity of their actions.
The astonishment of North Korea defector Yeomani Park as she has wound her way through Columbia University—“I realized, wow, this is insane. I thought America was different but I saw so many similarities to what I saw in North Korea that I started worrying.”—is a warning that should be heeded but has not. It is the ultimate outsider noticing what others cannot or will not, and it is disturbing to the core. Or at least it would be if it were not so dejectedly unsurprising.
This abandonment by putative progressives of the most cherished progressive position—all can speak, all can be heard, and you can decide to listen or not—is beginning to wear thin on even the older left-of-centers. Joyce Carol Oates touched off a Twitter storm—of course, sigh—when she savaged the recent announcement of the posthumous reediting of the work of Roald Dahl by sensitivity readers hired by the publishing house.
For his part, Richard Dawkins—again, not a card-carrying conservative—said recently when asked about proposed elimination of the use of words like “man” or “woman” from scientific papers, “I am not going to be told by some teenage version of Mrs. Grundy which words of my native language I may or may not use.”
But it will take more than shame for the censored generation to understand its own aggressive emptiness. It is not until the system that created them, credentialed them, and now employs them changes itself that they will be able to see themselves differently, as discrete individuals capable of freedom of thought and capable of allowing others that same basic right.
And those systems—educational, governmental, financial, social, cultural—have no reason to change.
For now.
As the Biden administration continues to inflate the dollar, other nations are questioning the existence of the petrodollar.
Original Article: "Saudi Arabia’s Quandary: The End of the Petrodollar"
This Audio Mises Wire is generously sponsored by Christopher Condon.
As the State of the Union address and subsequent pronouncements have made clear, American politics is in the firm grip of fiscal illusion.
One example is President Biden’s bragging that “In the last two years, my administration has cut the deficit by more than $1.7 trillion—the largest deficit reduction in American history,” which implied that we should only look at a short run effect which had little, if anything, to do with the policies he adopted, in evaluating his fiscal policy.
However, he did not mention that the CBO estimates that the average yearly federal deficit over the next decade will be $1.6 trillion (under current policies, not including any expansions that have not yet been enacted), which implies his current policies continue to massively rip off future generations.
Understanding such issues in terms of fiscal illusion was a major contribution of Nobel Prize-winning economist James Buchanan, who died just over a decade ago. As Romina Boccia described the issue:
Fiscal illusion arises when the true costs of public policies are obscured or hidden from view, leading individuals to underestimate the policies’ impact. Government programs appear less costly to taxpayers than they are because the current generation bears only part of the burden. Deficit-financing transfers some of the burden to future generation in the form of government debt obligations. This fiscal illusion leads current taxpayers to demand more government than they otherwise would and harms future taxpayers in the process.
As that description reveals, the most common example of fiscal illusion, for the few that ever talk about it (particularly rare among those inside the Washington beltway), is federal deficit financing. It increases the national debt, forcing some of the price tag onto future Americans, a price tag that grows each year with the size of deficits. And it works to the extent that people don’t take into account the future costs imposed by the debt created.
Another way of viewing it that is even more directly related to the federal debt is to consider someone who has a Treasury bond in their financial portfolio. They would consider that bond as an asset, adding to their wealth. That is correct from their perspective alone, which doesn’t recognize the future consequences of that debt for others. But that personal asset is really a promised transfer of wealth to the bondholder from the future taxpayers who must pay for it, not greater wealth for society. Counting such bond holdings as net wealth rather than as a transfer from others in the future is a fiscal illusion. And if Americans believe they are wealthier than is really the case, one of the effects is an increased demand for more government spending.
However, as important as the fiscal illusion associated with government debt is, a very strong argument can be made that it is an even bigger problem for the unfunded liabilities created by the Social Security and Medicare programs.
First of all, the unfunded liabilities of Social Security and Medicare are far larger than the national debt, and growing faster, making the stakes even larger. Second, it is far harder to “see” their future burdens than those of federal debt. Rather than a single cumulative number called debt and even a “debt clock” that is keeping track of its level over time, the precise dollar extent of unfunded liabilities depends on many assumptions about the future.
What is expected to happen to birth rates, lifespans, retirement ages, economic growth, interest rates, labor force participation, etc., will change the magnitude of unfunded liabilities and so will how far a study looks into the future. And even if those unfunded liabilities overmatch the federal debt under a very wide range of assumptions, the absence of any single definitive number often severely handicaps those who want people to pay attention to the problems.
Yet we know we should begin addressing those shortfalls now, because they are very, very large under almost any plausible set of assumptions about the world of inherent uncertainty we face, and doing something to begin to address their harm to future Americans does not require that we know an exact number now.
The fiscal illusion of unfunded liabilities is illustrated by Biden’s attacks on Republicans for supposedly wanting to cut Social Security and Medicare, in search of more senior citizen votes in 2024, by claiming a sharp contrast with him, because “I will not cut a single Social Security or Medicare benefit.” However, given those programs’ massive (estimated) unfunded liabilities, the status quo is not in fact a sustainable option, so doing nothing now about the programs means imposing an even larger hit on seniors beginning in the very near future.
That is even clearly noted by the Social Security Administration, and referred to in individual’s benefit statements. Consequently, Biden’s promise that no one’s benefits will be cut while he is in office just means imposing a far bigger fiscal hit to those in the program, whether as contributors or recipients, soon thereafter.
An even clearer indicator of the fiscal illusion being manipulated in the unfunded liabilities discussion is the Democrat support for the Social Security 2100 Act, which, in the guise of protecting a “Sacred Trust,” increases current benefits in the program. Doing so in a system which we know will not be able to pay its accumulated bills is to raise its future liabilities, increasing its generational unfairness, but by portraying themselves as “saving” Social Security, rather than as increasing more burdens on future Americans, they are doubling down on their manipulation of the fiscal illusion involved.
As a result of his studies of fiscal illusion, James Buchanan and his co-author of Democracy in Deficit, fellow public finance scholar Richard Wagner, wrote, “Budgets cannot be left adrift in the sea of democratic politics.” Further constraints on the degrees of freedom that democratic election of representatives gives those in power are necessary.
That is still true, especially when we are further off-course from fiscal responsibility than ever. But we should recognize that manipulating fiscal illusion, with even larger stakes, is also at work in the political treatment of entitlements programs. And as we see demonstrated before our eyes today, those programs cannot be trusted to the sea of democratic politics either.
Money supply growth fell again in January, falling even further into negative territory after turning negative in November 2022 for the first time in twenty-eight years. January's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years.
Since April 2021, money supply growth has slowed quickly, and since November, we've been seeing the money supply contract for the first time since the 1990s. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996.
During January 2023, YOY growth in the money supply was at –5.04 percent. That's down from December's rate of –02.19 percent and down from January 2022's rate of 6.82 percent. With negative growth now dipping below -5 percent, money-supply contraction is approaching the biggest declines we've seen in the past thirty-five years. Only during brief periods of 1989 and 1995 did the money supply fall as much. At no point for at least sixty years has the money supply fallen by more than 5.6 percent in any month.
The money supply metric used here—the "true," or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2.
The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates, although TMS has fallen faster than M2. In January 2023, the M2 growth rate was –1.76 percent. That's down from December's growth rate of –1.16 percent. January's rate was also well down from January 2022's rate of 11.6 percent.
Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession.
Negative money supply growth is not in itself an especially meaningful metric. But the drop into negative territory we've seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen in recent months. That is generally a red flag for economic growth and employment.
The fact that the money supply is shrinking at all is so remarkable because the money supply almost never gets smaller. It is important to keep some perspective, however, on just how much the money supply has shrunk compared to overall growth. The money supply has now fallen by $1.5 trillion since the peak in April 2022. In raw numbers, that's certainly the largest fall we've seen. But we can see in the next graph why, in percentage terms, the drop doesn't beat those of the late 80s and early 90s. Money creation since 2009—and especially since 2020—has been so large that even a drop of $1 trillion is not especially momentous. Rather, the money supply would have to drop another $5 trillion or so—or more than 25 percent—just to return to the pre-2009 trend.
In fact, since 2009, the TMS money supply has grown by 203 percent. (M2 has grown by 151 percent in that period.) Out of the current money supply of $20.2 trillion, $5.9 trillion of that has been created since January 2020—or 29%. Since 2009, $13.5 trillion of the current money supply has been created. In other words, two-thirds of the money supply have been created over the past 13 years.
With these kinds of totals, a five percent drop puts only a small dent in the huge edifice of newly created money. The US economy still faces a very large monetary overhang from the past several years, and this is partly why after nine months of slowing money-supply growth, we are not yet seeing a sizable slowdown in the labor market, or even in consumption.
Nonetheless, the monetary slowdown has been sufficient to considerably weaken the economy. Home prices have fallen. Credit card debt has soared, consumer loan delinquencies are up, job openings are falling, and the manufacturing outlook is falling.
Money supply growth also appears to be connected to yield-curve inversion—itself a recession indicator. For example, the 3s/10s yield spread often heads toward zero as money supply growth moves in the same direction. This was especially clear from 1999 through 2000, from 2004 to 2006, and during 2018 and 2019, and beginning in 2022. This is not surprising because trends in money supply growth have long appeared to be connected to the shape of the yield curve. As Bob Murphy notes in his book Understanding Money Mechanics, a sustained decline in TMS growth often reflects spikes in short-term yields, which can fuel a flattening or inverting yield curve.
It's not especially a mystery why short-term interest rates are headed up fast, and why the money supply is decelerating. Since January 2022, the Fed has raised the target federal funds rate from 0.25 percent up to 4.75 percent.
This means fewer injections of Fed money into the market through open market operations. Moreover, although it has done very little to sizably reduce the size of its portfolio, the Fed has stopped adding to its portfolio through quantitative easing and allowed a small amount (about 6 percent of $8.9 trillion) to roll off.
It should be emphasized that it is not necessary for money supply growth to turn negative in order to trigger recession, defaults, and other economic disruptions. With recent decades marked by the Greenspan put, financial repression, and other forms of easy money, the Federal Reserve has inflated a number of bubbles and zombie enterprises that now rely on nearly constant infusions of new money to stay afloat. For many of these bubble industries, all that is necessary for a crisis is a slowing in money supply growth, brought on by rising interest rates or a confidence crisis.
We can be sure that the "natural elites" of which Hans Hoppe wrote are not among the Davos crowd. That group of "elites" has an agenda, and it is not liberty and free markets.
Original Article: "The Attack of the Subversive Elites"
This Audio Mises Wire is generously sponsored by Christopher Condon.
“Governments create money all the time. We do that for war.”
“This whole notion that you run government like you run a household…is a complete myth”
Economist Prof Mariana Mazzucato tells #Newsnight Government’s should address social issues through taxhttps://t.co/P0zxS1DNGF pic.twitter.com/I6NLtXgDqN
— BBC Newsnight (@BBCNewsnight) March 6, 2023
This is the argument for more money printing, and perhaps unlimited money printing, recently advanced by Professor Mariana Mazzucato on prime-time BBC.
Channeling Warren Mosler, the godfather of modern monetary theory, Dr. Mazzucato argues against “austerity”—by which she means any natural restraints on government spending. In order to spend, sovereign states need not “earn” tax revenue like a household must earn money, nor do they need to borrow.1 There is a third option: they can print new money at will and enjoy the profit of seigniorage. Just look at Germany, she says approvingly, which recently conjured up €100 billion by executive edict for the war effort in Ukraine!
She certainly is correct that governments print money to pay for wars. America was effectively born into debt during the Revolutionary War, and borrowed/printed money for every war thereafter.
But beyond that she is entirely and embarrassingly wrong. The fundamental reality is that more money does not create any new goods or services in the economy. Money is not wealth. Wealth is productive capacity; the ability to create actual goods and services. Germany and the European Central Bank can create euro stretching to the moon, but that will not produce a single missile or aircraft for the Ukrainians.
Actual production requires the allocation of real resources and real capital. Resource allocation requires choices, whether made by political edict or in the marketplace. In both cases there are inherent opportunity costs to not allocating those resources and capital to other uses. Politics doesn’t magically eliminate tradeoffs. Resources are scarce even when money is not.
A case in point, courtesy of economist Peter Schmidt: “During WWII, the Germans fielded an airplane that made every other aircraft obsolete—the ME262. Even though the German government faced no limits on how much currency it could create, it couldn’t conjure into existence the fuel the planes needed.” In fact, the Germans used oxen to put this most advanced fighter in takeoff position to save fuel!
One gets the sense that all of modern economics is dedicated to refuting Say’s law. The melding of economics and politics promises the proverbial free lunch, where demand creates its own production. Mazzucato is a worthy exemplar of this thinking.
An economist at University College London, Mazzucato wrote an oxymoronically titled book, The Entrepreneurial State. Not surprisingly, she urges greater “investment” by governments to innovate where the private sector supposedly cannot or will not. She is also a graduate of the New School for Social Research, an institution which truly lives up to its radical progressive history. Only of its early leading lights, the noxious reformer John Dewey, was a particular bête noire in Murray Rothbard’s critique of postmillennial pietism. Of course, neither Mazzucato’s background nor her political views alone negate her arguments. But it is worth noting how the Left consistently elevates its radicals and how mainstream outlets like BBC are entirely comfortable featuring them. This only works one way. We cannot imagine a scenario where BBC interviews Per Bylund on the topic of entirely eliminating central banks in favor of private money. Yet Mazzucato’s MMT prescription for almost unlimited political provision of money is at least as radical relative to the status quo in monetary and fiscal policy.2
But money creation is not magic. It certainly does not create any new wealth, and in fact destroys wealth by directing resources toward inherently inefficient (nonmarket) uses. It benefits early recipients and the political class at the cost of higher prices and terrible distortions in the invaluable structure of production which makes the West so wealthy.
Progressives of all political stripes would happily put America and the West on a permanent wartime footing. Mazzucato and her contemporaries are political people, and politics is war by other means. Inequality, climate change, racism, transphobia, pandemics, and a host of other issues—none of which ever should have been politicized—are now tantamount to battlefields. War costs money, and magic economics wants us to believe national treasuries and central banks can foot any bill.
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- Per Mosler, taxes are simply a tool to cool the economy when it "overheats." They pull money (and hence demand) out of the economy in inflationary periods and stimulate it (via tax cuts) in deflationary periods. From his paper “Seven Deadly Innocent Frauds of Economic Policy”:
Question: If the government doesn’t tax because it needs the money to spend, why tax at all?
Answer: The federal government taxes to regulate what economists call “aggregate demand” which is a fancy word for “spending power.” In short, that means that if the economy is “too hot,” then raising taxes will cool it down, and if it’s “too cold,” likewise, cutting taxes will warm it up. Taxes aren’t about getting money to spend, they are about regulating our spending power to make sure we don’t have too much and cause inflation, or too little which causes unemployment and recessions.
- Per Mosler, taxes are simply a tool to cool the economy when it "overheats." They pull money (and hence demand) out of the economy in inflationary periods and stimulate it (via tax cuts) in deflationary periods. From his paper “Seven Deadly Innocent Frauds of Economic Policy”:
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- And when it comes to showcasing women in the male-dominated field of economics, only left-wing women receive attention or airtime: Lael Brainard, Janet Yellen, and Stephanie Kelton, for example.
What if America’s elite told the truth?
It seems a ridiculous question to ask. It’s obvious to most of us here that our politicians, bureaucratic managers, and state-associated business leaders hardly ever tell the truth. What use is it for us to ask, “What if?”
There seems to be a considerable amount of social pressure urging us to abandon our better judgment, not for the sake of reason, but for cooperation. If we don’t, the uncritical mob will label us “conspiracy theorists,” placing us in a box with schizophrenics in tinfoil hats who babble on about aliens and flat earth.
Any mature person notices the obvious discrepancy between what we see with our own eyes and what our country’s elites tell us.
When covid-19 hit, we knew from the beginning that “fifteen days to slow the spread” was fraudulent, yet the masses blindly expected us to give our leaders the benefit of the doubt. When the feds churned out as much as 80 percent of the money supply in a matter of two years and they said inflation was merely “transitory,” we again knew better yet were expected to remain silent.
Sure, we might not always know exactly what the truth is, but we can generally get an idea about what it isn’t. Something is telling us that the truth is not what the people in charge say it is.
The proper thing to do is to accept what we can’t know and home in upon what we do. We should take what our public officials do and say and ask ourselves, “How does this compare to what they would say and do if they were telling the truth?” By performing this thought experiment, we can be sure our skepticism is well guided.
When we ask ourselves this question, let’s place ourselves in the shoes of the elite: our legislatures, judges, executives, and bureaucrats, particularly those on the federal level. Let’s also consider the state-sponsored business leaders, the spokespeople of the corporate press, and established celebrities.
Let’s assume (against our strongest inclinations) we are incorrect in thinking what they tell us is dishonest. We can even take at face value that they are acting in good faith in everything they say and do, intending wholeheartedly to be completely honest both in their words and their actions.
What would they say and what would they do?
They Would Be TransparentFirst of all, an honest elite would be completely transparent, and they certainly wouldn’t silence their opponents. Why hide something if there is nothing to hide? Wouldn’t an honest person be open to an honest investigation? If being transparent provided an answer to us pesky skeptics, what would be the cost?
Yet, this is not what they do. The very leaders who claim to be the bastions of progress and virtue seem to keep plenty of secrets.
After over half a century of questions, President Biden continued to withhold documents about the assassination of President John F. Kennedy.
Nearly every edition of the Twitter Files exposed how public officials intentionally colluded with a so-called private company to silence particular narratives, some of which turned out to be likely true, such as the story about Hunter Biden’s laptop and the lab-origin theory of covid-19. Moreover, the federal government is consistently predatory toward whistleblowers and investigative journalists like Edward Snowden and Julian Assange.
They Would Avoid AmbiguityIf they were honest, the elites would also speak as clearly as possible. Their PR professionals would advise them to avoid all ambiguity and maintain clear and simple language.
After all, the goal of honest communication is to deliver a message, not to obscure it. If a subject is complicated—such as that of economics, warfare, or virology—that is all the more reason to simplify it.
But we know the elites don’t do this either. Perhaps there’s a reason. In his great essay “Politics and the English Language,” George Orwell explains how politicians can use meaningless words to cover up their real actions and intentions. As an example, he cites the use of the word “democracy”:
In the case of a word like democracy, not only is there no agreed definition, but the attempt to make one is resisted from all sides. It is almost universally felt that when we call a country democratic we are praising it: consequently the defenders of every kind of regime claim that it is a democracy, and fear that they might have to stop using that word if it were tied down to any one meaning. Words of this kind are often used in a consciously dishonest way.
This sounds familiar to us. It wasn’t so long ago when scripted corporate news anchors around the country repeated “this is extremely dangerous to our democracy” to warn us about what they deemed to be “disinformation.”
How many times have we heard other meaningless buzzwords—“unity,” “equality,” “equity,” and even “patriotism”—repeated time and time again as justifications for things like war, taxation, and mass surveillance?
They Would Admit Their MistakesThough this experiment requires us to assume that our elites are never ill willed or intentionally incorrect, we don’t have to assume they’re always right. We can and should explore how they deal with honest mistakes.
Of course, an honest person admits he’s wrong when he makes a mistake. He would never ask other people to accept a contradiction by forcing them to pretend like a mistake was never made, like the draconian Ingsoc regime does to Winston Smith in the book 1984, another one of Orwell’s great works.
When have the public officials who botched their response to covid-19 apologized for being wrong about “gain-of-function” research or suggesting that the covid-19 vaccines would prevent the spread of the disease? Did Bush or Cheney ever apologize for completely missing the mark about weapons of mass destruction in Iraq?
LimitationsThere certainly are limitations to our experiment. Our public officials could act irrationally. They could, at heart, be good, good people but act out of fear of being falsely discredited.
But shouldn’t we want leaders with some degree of fortitude? Either way, it seems they are in the wrong and it seems we’re in the right to take what they say with a grain of salt.
The elite could also simply believe that society isn’t intelligent enough to handle the truth, which, though perhaps false, isn’t such an unreasonable opinion. After all, a large part of our society is stupid enough to believe everything they say.
However, many of us are catching on. Plenty know they are being misled but care more to avoid conflict than to point out the discrepancies. The truth is good in its own right. Justice can’t be rooted in falsehood.
We know that our nation’s elites aren’t acting like people who are both honest and rational. Therefore, it’s safe to say that our public officials are either dishonest, irrational, or both. Regardless, they shouldn’t be blindly trusted, and anyone who tells us we are delusional for thinking so is wrong.
Out of respect for the truth, we ought to think critically about what our elites say and do, and we shouldn’t feel guilty at all for doing so.
The answer lies not in doubling down on political unity, maintained through endless violence or threats of violence. Rather, the answer lies in peaceful separation.
Original Article: "Secession Is Inevitable. War to Prevent It Is Optional."
This Audio Mises Wire is generously sponsored by Christopher Condon.
From March 17, 2022, to the end of January 2023, the US Federal Reserve (Fed) increased its federal funds rate from practically zero to 4.50–4.75 percent. The rise in lending rates came in response to skyrocketing consumer goods price inflation: US inflation rose from 2.5 percent in January 2022 to 9.1 percent in June. Notwithstanding inflation falling to 6.4 percent in January 2023, the Fed continues to signal to markets that it will continue to hike rates to bring down consumer price inflation.
This is understandable. The Fed wants to maintain its inflation-fighting credentials; it wants people to believe it is really determined to bring inflation back to 2 percent. It is presumably well aware that the US dollar’s world reserve currency status needs to be protected more than ever, as it gives the US government (and the powerful special interest groups that harness it for their purposes) tremendous power, not only nationally but internationally.
Higher nominal (and real—i.e., inflation-adjusted) interest rates are now necessary to support the US dollar. These higher rates make the greenback more attractive against other unbacked currencies such as the euro, the Chinese renminbi, the Japanese yen, the British pound, and the Swiss franc. And with other central banks worldwide unable or unwilling to catch up with the Fed’s rate hike sprint, the US dollar exchange rate is expected to remain strong, attracting capital from abroad and allowing the US to run a massive trade deficit with the rest of the world.
However, there is concern that the Fed’s tightening could trigger another bust. Why? From sound economic theory, we know that issuing fiat currency through bank loans that are not backed by real savings creates an artificial upswing (“boom”), which sooner or later must end in a recession (“bust”). This is because the initial increase in the supply of bank credit artificially suppresses the market interest rate below the level that would prevail without an increase in bank credit. This artificially suppressed market interest rate entices consumers and producers to live beyond their means, leading to overconsumption and malinvestment.
All this ends once the inflow of new credit and money stops; then the market interest rate rises. Consumption decreases, savings increase, and investment projects are liquidated. Firms go bankrupt, and unemployment rises. Asset prices, such as the prices of stocks and real estate, which had been inflated during the period of artificially lowered interest rates, plummet. Deflated asset prices squeeze the equity capital of private households, firms, and banks. Higher credit costs put borrowers under increasing pressure to service their debt. The number of loan defaults increases, causing banks to tighten their lending standards. A downward spiral begins: tightening credit market conditions lead to more defaults and even tighter credit market conditions. At the extreme, the credit crunch, asset price deflation, and output and employment losses could collapse the fiat money system.
Where are we right now? At 4.50–4.75 percent, the Fed’s interest rate is still relatively modest by historical standards. Also, adjusted for consumer price inflation, the Fed’s key interest rate is still at −1.8 percent. However, the restrictive impact of the Fed’s latest series of interest rate hikes is much more pronounced than many market observers believe. Most importantly, the US money stock M2 is declining for the first time since 1959. In December 2022, it fell by 1.3 percent on an annualized basis (by a hefty 7.3 percent in inflation-adjusted terms).
thorsten_picture1.png The current contraction in nominal M2 is not caused by a contraction in bank lending. What is happening is that the Fed is pulling central bank money out of the system. It does this in two ways. The first is by not reinvesting the payments it receives into its bond portfolio. The second is by resorting to so-called reverse repo operations, in which it offers “eligible counterparties” (those few privileged to do business with the Fed) the ability to park their cash with the Fed overnight and pays them an interest rate close to the federal funds rate.
The Fed does business not only with banks but also with nonbanks (such as asset management firms). When nonbanks move their bank and/or client deposits to the Fed, the banking sector loses central bank money as well as commercial bank money. As a result, the money stock M2 drops. The Fed is sucking liquidity out of the financial system, a move that is at least disinflationary: it will slow the rate of goods price increases in the economy. It may even be deflationary, that is, exerting downward pressure on goods prices across the board.
thorsten_picture2.png The Fed has announced that it intends not only to continue to raise interest rates further but also to continue to reduce its balance sheet and sponge up central bank money. What is concerning in this context is that Fed chairman Jerome H. Powell—and presumably the rest of his team—does not really pay attention to the developments in monetary aggregates when making policy decisions. This, in turn, implies a real risk that the Fed will overtighten, meaning contract the quantity of money further.
The Fed appears to be taking current inflation into account when setting its policy. However, it is fair to say that future inflation is ultimately determined by past or current monetary expansion. And since the nominal (and real) money supply is now contracting—not only in the US but also in many other currency areas, by the way—a deflationary shock is building up, which would then become really problematic if the money stock continues to shrink as bank credit supply starts dwindling. It’s a recipe for disaster (aka the next bust).
Interestingly, financial markets have remained relatively optimistic of late, as various market stress indicators suggest: credit spreads are contained, and stock prices have been drifting higher since their recent low in October 2022. Perhaps markets are confident that the Fed will orchestrate a “soft landing,” bringing sky-high inflation down without tipping the economy into recession and financial markets into turmoil. Or they bet that, should the credit pyramid really start to falter, the Fed will reverse its tightening policy and bail out the system, as it has done so many times in the past, regardless of inflation.
In fact, this is what Murray N. Rothbard (1926–1995) saw coming a long time ago. He wrote in America’s Great Depression, “The American economy will be increasingly faced with two alternatives: either a massive deflationary 1929-type depression to clear out the debt, or a massive inflationary bailout by the Federal Reserve.” In view of the politics of his time, he concluded, “We can look forward, therefore, not precisely to a 1929-type depression, but to an inflationary depression of massive proportions.”
I firmly believe Rothbard’s conclusion is particularly relevant to our times, that markets are right to bet on a Fed bailout in times of trouble but that they grossly underestimate the economic damage and inflationary impact it would have.
On Friday, residential real estate brokerage firm Redfin released new data on home prices, showing that prices fell 0.6 percent in February, year over year. According to Redfin's numbers, this was the first time that home prices actually fell since 2012. The year-over-year drop was pulled down by especially large declines in five markets: Austin (-11%), San Jose, California (-10.9%), Oakland (-10.4%), Sacramento (-7.7%), and Phoenix (-7.3%). According to Redfin, the typical monthly mortgage payment is now at a record high of $2,520.
The Redfin numbers come a few days new numbers from the Case-Shiller home price index showing further slowing in home prices growth since late last year. The market's expectation December's the 20-city index had been -0.5 percent, month over month, and 5.8 percent, year over year. But the numbers came in worse (from the seller's perspective) than was hoped. For December—the most recent monthly data available—the index ended up showing a month-over-month drop of -1.5 percent (seasonally adjusted), and a year-over-year gain of 4.6 percent (not seasonally adjusted).
By most accounts, the rapidly-slowing market faces headwinds thanks to rising interest rates, including the standard 30-year fixed mortgage, which is now back up over 6 percent. This puts homeownership out of reach for many first-time buyers, and is also a big disincentive for current owners to "move-up" into higher priced houses since any new home would come with a much higher mortgage rate than was available a year ago.
Not surprisingly, demand for new mortgages has plummeted. CNBC reported last week:
Mortgage applications to purchase a home dropped 6% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was 44% lower than the same week one year ago, and is now sitting at a 28-year low.
So, sales have fallen and, at least according to Redfin, prices are falling too. This is what we should expect to see in any environment where the real estate market is not being incessantly fueled by easy money from the central bank. After all, easy money for real estate markets had been the main story since 2009. In recent months, however, the Fed has allowed interest rates to rise while pausing efforts to add more mortgage-backed securities (MBS) to the Fed's portfolio. Without those key supports from policymakers, the real estate market simply lacks the market demand that is necessary to sustain rapid growth. Contrary to what countless mortgage brokers and real estate agents tell themselves and each other, there is precious little capitalism in real estate markets. It is a market that is thoroughly addicted to, and dependent on, continued stimulus and subsidization from the central bank.
Without the central bank propping up MBS demand in the secondary market, primary-market mortgage lenders have fewer dollars to throw around. That means higher interest rates and fewer eligible buyers. Similarly, by setting a higher target rate for the federal funds rate that banks must pay to manage liquidity, markets face less monetary growth in general. That comes with a lessening overall demand that—in the short term, at least—drives up incomes for both current and potential homebuyers.
Even worse, that continued nominal income growth that does exist is not keeping up with price inflation. The result has been 22 months in a row of negative real wage growth, and that will translate to falling demand.
This close connection between easy money and demand for homes can be seen when we compare growth in the Case-Shiller index to growth in the money supply. This has been especially the case since 2009. As the graph shows, once money-supply growth begins to slow, a similar change occurs in home prices one year later.
As money-supply growth rapidly slowed after January 2021, we then saw a similar trend in home prices 12 months later, with a rapid deceleration in the Case-Shiller index. Remarkably, in November of last year, money-supply growth turned negative for the first time since 1994. That points toward continued drops in home prices throughout this year. If Redfin's February numbers are any indicator, we should expect price growth to turn negative in the Case-Shiller numbers this spring.
Now just image how much more lackluster real estate markets would be without the Fed buying up all those trillions in MBS over the past decade. It's now been more than a decade since we had any idea what real estate prices actually would be without enormous amounts of stimulus from the Fed. The money-printing-for-mortgages scheme entered its first phase throughout 2009 and 2010, and then was almost non-stop from 2013 to 2022, topping out around $1.7 trillion in 2018. The Fed had begun to pull back on its MBS assets in 2018 and 2019, but of course reversed course in 2020 and engaged in a frenzy of new MBS buying. In that period the Fed purchased an additional $1.4 trillion in MBS. That finally ended (for now) in the fall of 2022. The Fed still holds over $2.6 trillion in MBS assets.
If we look at year-over-year changes in these MBS purchases along side Case-Shiller home prices, we again see a clear correlation:
It's clear that once markets think the Fed may again increase its MBS purchases, home prices again surge. This close relationship should not surprise us since the volume of MBS purchases is a sizable portion of the overall market. Since 2020, the Fed’s MBS stockpile has equaled at least 20 percent of all the household mortgage debt in the United States. In early 2022, Fed-held MBS assets peaked at 24 percent of all US mortgage debt, but they still made up over 20 percent of the market as of late 2022.
Lest we think that real estate markets seem to be weathering the storm fairly well, let's keep in mind this is all happening during a period when the unemployment rate is very low. Yes, the federal government has greatly exaggerated the amount of job growth that has occurred in the economy over the past 18 months. However, it's also fairly clear that real estate markets are not yet seeing large numbers of unemployed workers who can't pay their mortgages. When that does occur, we can expect an acceleration in falling home prices. For now, most mortgages are being paid, and even as real wages fall, most homeowners are cutting in places other than their mortgage payments. Once job losses do set in, all bets are off, and a wave of foreclosures will be likely. Many jobless workers won't be able to sell quickly to avoid foreclosure either. With so few borrowers who can afford rising mortgage rates, there will be relatively few buyers. That's when prices will really start to come down—when there is a mixture of motivated sellers and rising interest rates.
For now, though, the investor class remains relatively optimistic. Marcus Millichap CEO Hessam Nadji was on Fox Business last week flogging the now well-worn narrative that we should expect a "small recession," but Nadji did not even entertain the idea that there might be sizable layoffs. Instead, he suggested that there is now a mere temporary softening of demand, and that will reverse itself once the Fed reverses course and embraces easy money again. In other words, the Fed will time everything perfectly, and it will be a "soft landing."
This well captures the attitude of the "capitalists" heading the real estate industry right now. It's all about the Fed. Without the Fed's easy money, demand is down. Once the Fed pivots back to forcing down interest rates and buying up more MBS, well then happy times are here again. Gone is any discussion of worker productivity, savings, or other fundamentals that would drive demand in a areal capitalist market. All that matters now is a return to easy money. The real estate industry will get increasingly desperate for it. In 2023, it's become the very foundation of their "market."
Neo-Calvinist economic thought claims that prices and private property cause scarcity. However, they provide no methodology for their claims.
Original Article: "Making Nonsense from Sense: Debunking Neo-Calvinist Economic Thought"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The American Left has decided that the so-called meritocracy is a bad thing. In a typical example from the Los Angeles Times this week, Nicholas Goldberg points to a number of issues exploring how merit is not actually the key to power and riches in America:
The United States is supposed to be a meritocracy. The story goes that if you work hard and play by the rules, especially with regard to education, you can compete, rise and succeed here. . . . But Americans are realizing that’s not always the case. The playing field just isn’t level.
Goldberg claims that the much-lauded meritocracy is less about merit and more about controlling access to elite institutions. It’s hard to argue with some of this. It’s easy to see the lie behind the claims of meritocracy when we look to the very top of the artificial hierarchy. It’s likely not a mere coincidence people like George W. Bush and Al Gore—a son of a US president and a son of a US senator, respectively—went to elite Ivy League schools. All of Al Gore’s four children, and one of Bush’s, went to Harvard. To think that these seven people got into these schools because they had more “merit” than all the rejected applicants requires gargantuan levels of credulousness.
Much of the Left’s rhetoric against the meritocracy has been in the service of justifying racial preferences and standardized testing in university admissions. Defenders of the status quo have subsequently fallen all over themselves to support the supposed meritocracy of the government-university complex. For example, Victor Davis Hansen, in a meandering and unconvincing article, recently attempted to blame the United States’ repeated foreign policy failures on an alleged decline of meritocracy. Meanwhile, Alan Dershowitz insists that today’s law schools are full of mediocrities—unlike when he and his friends filled elite universities with untrammeled brilliance.
Note that these examples from Hansen, Goldberg, and Dershowitz have nothing to do with the true meritocracy of the marketplace that made America a prosperous place where ordinary people could make comfortable lives for themselves. Rather, the pundits tend to focus on the fake meritocracy, which is all about government and quasi-government institutions: standardized tests, elite universities controlled by the ruling class, and what amounts to government-controlled professional licensing. In these cases, what constitutes merit is defined by technocrats. Most of what we now consider to be the official meritocracy was developed and popularized by the regime’s social reformers of the Progressive Era in the early twentieth century.
The Only Real Meritocracy Is the Market MeritocracyThe real meritocracy is something else entirely. The real meritocracy exists only in the marketplace, where there is no objective ideal of merit at all. Rather, in the marketplace, merit is determined by the extent to which a person provides value according to the subjective values of market actors. The value—i.e., “merit”—of a worker, an entrepreneur, or a business enterprise is determined by the client. Did an entrepreneur deliver a valued good or service? If so, he will be rewarded with both revenue and a good reputation. Did an attorney provide valued services to clients and defendants? If so, he or she will be richly rewarded in the marketplace. If markets were actually allowed to function in the areas of medicine, we’d find a similar relationship there between “merit” and value delivered to others. Those with the most merit are the most successful in the marketplace. But it’s the consuming public that determines what constitutes merit. In other words, true “merit”—which should be regarded as just another word for “market value”—is not at all determined by the ideals of government technocrats and their allies in academia.
Where Standardized Tests Come FromOne prominent example of the reach of the official meritocracy is the bar exam. In a 2015 article, free-market advocate (and law professor) Allen Mendenhall pointed out that the exam is not really about merit, but is
a form of occupational licensure that restricts access to a particular vocation and reduces market competition.”. . . The bar exam tests the ability to take tests, not the ability to practice law. The best way to learn the legal profession is through tried experience and practical training, which, under our current system, are delayed for years, first by the requirement that would-be lawyers graduate from accredited law schools and second by the bar exam and its accompanying exam for professional fitness.
Before the rise of official meritocracy, practitioners of law entered the profession through several paths, only one of which required law school. The marketplace was the ultimate referee in whether or not a lawyer added value. Similarly flexible standards characterized many fields, from barbering to medical schools. Over time, however, various professional cartels managed to convince governments to tightly control access to a variety of professions. New “objective” measures—which weren’t objective at all, but determined by government bureaucrats—were imposed on the public.
The bureaucrats themselves introduced an alleged meritocracy to protect their own jobs. In 1883, Congress passed the Pendleton Civil Service Reform Act. This imposed mandatory standardized testing for potential government employees in return for job security provisions under which federal workers could not be terminated for political reasons. This replaced the old “spoils system” in which the federal bureaucracy was tied to public accountability through elections. The Pendleton reform has long been sold as a change that “professionalized” the federal bureaucracy. Murray Rothbard, however, saw through this ruse and noted that the supposed meritocracy created a new permanent government class “insulated” from the public: “With the advent of Civil Service reform, the once temporary set of bureaucrats are now converted into a permanent and self-conscious class or caste, set aside from, and in fundamental opposition to, the mass of the citizenry.”
We’re told this all made bureaucrats perform “better.” Yet there is no objective measure for “bureaucratic performance” other than the arbitrary goals and protocols set out by politicians. The only undeniable result of the bureaucratic meritocracy is that it helps federal policy makers cripple public skepticism and political opposition to federal agents, thus paving the way for immense growth in federal employment and spending.
Testing Spreads to the General PublicBy the early twentieth century, social reformers wanted to spread the meritocracy to the entire population. Government planners saw the potential of testing as a means of helping them plan society and the economy. This eventually came in the guise of standardized testing for all students and its related phenomenon, the IQ test.
The idea itself was not new. Like so many other innovations in freedom-destroying bureaucratization and political centralization, this idea came from Prussia:
In the mid-1800s, Boston school reformers Horace Mann and Samuel Gridley Howe, modeling their efforts on the centralized Prussian school system, introduced standardized testing to Boston schools. The new tests were devised to provide a “single standard by which to judge and compare the output of each school” and to gather objective information about teaching quality.
However, through the end of the nineteenth century, implementation remained haphazard. The US’s education system was very decentralized, and many school districts simply chose not to participate. Nonetheless, standardized testing was gaining ground in tandem with the new field known as psychology.
Adoption of standardized testing—like so many other trends in American society geared toward government planning—was accelerated by the First World War. With the war came a military draft on a scale that far surpassed any previous conscription efforts. This new draft turned millions of Americans into government employees, and governments sought ways to more “efficiently” manage them:
WWI provided the setting for the first large-scale application of psychology. The United States and the other countries on both sides faced the daunting task of processing millions of people to serve as soldiers. U.S. President Woodrow Wilson called upon psychologists to help in this endeavor and in May 1917, his administration formed the Psychological Examination of Recruits Committee consisting of the top people in psychological research on individual differences. . . . Within two months, they had constructed a written paper-and-pencil test, the Army Alpha test, to assess recruits.
Thus began the age of mass standardized testing. This paved the way for the application of mass testing in many other areas as well:
By the end of WWI, over two million army recruits had taken the [tests]. . . . these were the first practical tests administered to large groups of people. Within two decades of the development of the Army Alpha, cognitive ability testing became a major tool used in hiring and college admissions decisions.
Federal planners were also happy to work with psychologists to develop what have come to be known as IQ tests. These tests were first developed by French psychologist Alfred Binet. In 1904, the French state—long a world leader in political centralization and mandatory state schooling—asked Binet to help the Ministry of Education evaluate students. The “promise” of Binet’s invention was immediately seen by government planners elsewhere.
Binet’s methods were expanded during the war. Standardized tests thus became a new category of government data, along the lines of household income data, employment data, and gross domestic product data. And like all data collection schemes, it became a tool for government planning.
Enter Eugenicist Central PlannersThe most notorious of the Progressive central planners who gravitated toward these tests were the eugenicists. Naturally, the new age of cognitive testing allowed the government to justify any number of new government plans to manage populations and government resources. One of the most prominent eugenicists was Lewis Terman, a psychologist who developed his own IQ test in 1916. The test
defined intelligence in purely quantitative terms and was used to justify the forced sterilization of minority groups in the United States. . . . Carl Brigham, a Princeton psychologist and fellow member of the American Eugenics Society, built on Terman’s work to develop the SAT [based heavily on the Army Alpha Test] with the College Board in 1926. The test became a ubiquitous tool in college admissions by the end of World War II.
A Key Tool in Federal-Corporate-Academic PartnershipsIt is no accident that talk of the “meritocracy” tends to revolve around institutions that are tightly regulated by government agencies and enjoy close partnerships with the federal government. Major universities, heavily dependent on federal grants, have long worked with governments hand in hand to enforce the whims of powerful industrial interest groups and cartels. The public funding of higher education helps private industry transfer the costs of training and screening to taxpayers. Moreover, universities have long helped ensure that countless students have “correct” ideological views, in line with those of the regime. It is exactly the sort of outcome we should expect from schemes developed by and for reformers of the Progressive Era. This fact should also help us realize that the modern Left doesn’t really have a problem with the meritocracy overall. The Left merely wishes to control the meritocracy implemented by their ideological forebears so as to produce a different mix of “elites.” This plan is nothing more than a tweaking of the established system of “merit.”
On the other hand, if we really want to find the people who are the most productive, the most skilled, and the most beneficial to our daily lives, we must look far beyond the official meritocracy, which only tells us how well people have performed according to the regime’s standards. We must look to market competition instead.
Intellectuals and politicians often try to verbally summarize or justify conventional thinking in pithy ways. Milton Friedman (in 1965) and Richard Nixon (in 1971) both said different versions of the phrase “we are all Keynesians now.” . . . Friedman and Nixon were describing the thoughts behind the implementation of Great Society redistribution programs and an inflationary monetary policy designed to offset the cost of those programs.
—Brian Wesbury and Robert Stein, We Are All Keynesians Now
If there is one central myth supporting the folly that passes for monetary policy and by extension fiscal policy, it would have to be the unchallenged assumption that money should be defined and controlled by government.
Given the role of money in the economy—that it serves as a trade intermediary, one half of virtually every transaction—nothing has been more destructive to the well-being of most people than the government’s usurpation of money from the market.
Money was once the most marketable commodity, albeit a special commodity. Unlike other commodities such as oil or corn,
gold lasts forever. If someone uses gold, it remains to be used again. . . . If oil production stops, so does our supply of oil. If gold mining stops, we don’t lose our supply. All gold ever mined is still here with us and will stay with us forever.
Today, money is whatever the government says it is, and since 1933 in the US, it has been pieces of paper or their digital substitutes issued by the central bank and its members, the commercial banks.
What’s wrong with having the government or its agent, the central bank, define money and regulate its supply, which in practice means regulating the rate at which the supply is increased?
First, the money is not theirs—it doesn’t belong to the government or the central bank. Banks legitimately get their funds from depositors or investors. Anything they create on their own through fractional-reserve lending is fraudulent because they’re guaranteeing the same dollar to both a borrower and a depositor. Government gets its revenue through the threat of violence (taxes) and cannot rightfully claim ownership of any of it.
Property rights violations notwithstanding, why is this a harmful arrangement economically? Because the government-supported banking system is a counterfeiting racket. The act of counterfeiting money consists of duplicating the legal tender or standard currency and passing it off as legitimate. The counterfeit money does not represent goods or services produced. The subsequent increase in the supply of money puts downward pressure on the purchasing power of the monetary unit so that holders of previously existing money are in effect paying for the counterfeiter’s purchases.
Murray Rothbard discusses the counterfeiting process in his book What Has Government Done to Our Money?:
Counterfeiting is evidently but another name for inflation—both creating new “money” that is not standard gold or silver, and both functioning similarly. And now we see why governments are inherently inflationary: because inflation is a powerful and subtle means for government acquisition of the public’s resources, a painless and all the more dangerous form of taxation. (emphasis added)
And according to Keynes, not “one man in a million” is able to detect the theft—which apparently includes economists who believe “inflationary monetary policy . . . offsets the cost of those [Great Society] programs.”
Kings of old could debase their coins and pass them off as the real thing, but this was a slow, tedious process that didn’t yield much revenue. Not only that, people grew wise to it and found ways to tell a cheat from a genuine article. And they saw it as a cheat, not as a way of increasing gross domestic product, or making the price of exports more competitive, or stabilizing the price level.
Paper money changed all that.
People deposited their gold and silver in banks for safekeeping, then used the paper claims to the metal as convenient substitutes for money. Bankers soon proved they couldn’t be trusted. When note holders and depositors came running to redeem their rightful claims and the banks proved unable to comply, the government allowed the banks to turn them away empty-handed while remaining in business.
Slamming the doors on legitimate note holders and depositors was embarrassing to the banks, not to mention unprofitable. Thus, in the US the biggest bankers got the government to impose the Federal Reserve on our lives. Economist Joe Salerno describes Rothbard’s view of the Fed as “a cartelizing device that limits entry into and regulates competition within the lucrative fractional-reserve banking industry and stands ready to bail it out, thus guaranteeing its profits and socializing its losses.”
“Socializing its losses”—that’s where we come in.
For a few years there was a serious problem with this arrangement: gold stood in the way. From the counterfeiters’ perspective, the beauty of paper money was that it all looked the same.
Gold was subsequently framed as one of the causes of the Great Depression, and by decree paper, the money substitute, became money itself. The president the people elected seized their gold and locked it up in the United States Bullion Depository at Fort Knox. As dollars can now be created with a few keystrokes, it has proven trivial to fund trillion-dollar deficits.
Today, the rich are getting richer and the poor are getting poorer not because of “capitalism,” but because of a government-supported monetary system that enriches designated counterfeiters and their beneficiaries at the expense of other dollar holders.
Milton Friedman, in my view, penned the most important statement ever on monetary policy: “If a domestic money consists of a commodity, a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself.”
Given that monetary policy today consists of varying degrees of counterfeiting, we need to get government out of the way and let the market-designated money—whatever it may be—take care of itself.
In the name of "fighting racism," a number of writers and pundits are making social relationships between people of different races and ethnic groups more contentious.
Original Article: "The New Racism of the Elect"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Is the main problem with the US healthcare system that hospitals have gotten too large since the 1990s? That seems to be the remarkable conclusion of two of the nation’s most distinguished health-policy analysts, David Dranove and Lawton R. Burns. Dranove is an economist and Walter J. McNerney Distinguished Professor of Health Industry Management at the Kellogg School of Management at Northwestern University. Burns is a sociologist and James Joo-Jin Kim professor of health care management at the Wharton School at the University of Pennsylvania. Dranove and Burns’s joint effort, Big Med: Megaproviders and the High Cost of Health Care in America, purports to offer special insights into the pathologies of the American healthcare system via an interdisciplinary approach.
I. From Hospitals to Integrated Delivery Networks (1811–2000)The following is a summary of the complex evolution of hospitals in the US from 1811 to 2000, broken into four parts.
A. Hospitals (1811–1960)
The hospital story in the US begins in the early nineteenth century with the founding of Massachusetts General Hospital in 1811. More than a half century later, New York Presbyterian was founded in 1868 and Presbyterian Hospital was founded in 1893 (not 1883, as Dranove and Burns claim) to become no less than the flagship facility of today’s massive University of Pittsburgh Medical Center.
As Dranove and Burns aver, American hospitals in the nineteenth century were institutions where the sick were isolated from the rest of society or the injured or infected had their limbs removed. Hospitals only slowly evolved from dungeons of death and dismemberment to oases of life-saving treatments after the steady arrival of many innovations: the first and increasing use of nitrous oxide and ether as anesthetics (1844–46); the first use of vaccines for cholera, anthrax, rabies, typhoid fever, and plague (1879–97); the development of ABO blood typing and the first successful blood transfusion (1901–07); the use of insulin for the treatment of diabetes (1922); the first blood bank (at Cook County Hospital in Chicago, 1937); the use of penicillin from first dose to a production level of 650 billion units per month (1942–45); the first cardiac pacemaker (1952); and the first kidney transplant (1954).
B. Hospitals and Their Economic Enemies (1960–93)
The second era in hospital history consisted mostly of hospitals fighting or adapting to five major nemeses: health maintenance organizations (HMOs), price and supply controls, outpatient surgery centers, and selective contracting, ending with the Health Security Act of 1993.
HMOs. HMOs offered care that was prepaid and provided by staff working in teams. There was also an emphasis on illness prevention in some of them—hence the name “health maintenance organizations.” By 1950, they had caught on mostly in the West Coast states of California and Washington. Despite this limited success, hospitals and doctors saw them as serious threats to their incomes and profits and thus swung into action, lobbying state legislatures to forbid HMOs from advertising in any medium. HMO physicians came under severe persecution: many saw local medical societies revoke or deny them membership while some hospitals cancelled or denied them admitting privileges. Nevertheless, the industry slowly grew with the help of the HMO Act of 1973 and several regulatory and court victories.
Price controls. The back-and-forth fight between governments and the healthcare sector over the level and rate of healthcare spending came after the passage of the Medicare and Medicaid programs in 1965. Medicare overnight became the top buyer of health services in the nation while Medicaid became one of the largest components of each state’s budget. With federal and state budgets experiencing immediate stress and hospitals being a prime factor behind spending (more than a third by 1970), governments targeted hospitals. According to Robert Murray and Robert Berenson’s 2015 Hospital Rate Setting Revisited: Dumb Price Fixing or a Smart Solution to Provider Pricing Power and Delivery Reform?, the State of New York implemented fixed payments per day in 1971. Seven other states, Medicare, and private insurers copied the program, and hospitals responded by increasing the number of days per stay (i.e., patients stayed longer for care.)
Outpatient surgery centers. Until the early 1970s, surgery usually entailed a stay of at least a few days in a hospital. Outpatient surgery was an innovation for quick, minimally invasive surgeries (e.g., tonsillectomies and hernia repairs) that allowed a patient to be discharged the same day or early the next. The first independent facility was Surgicenter, founded in Phoenix, Arizona, in 1970. Patients liked ambulatory surgical centers (ASCs) because they were smaller, quicker, and easier to check in and out of than hospitals. Public and private payers liked their lower charges. According to Dranove and Burns, by 1980, a decade after Surgicenter was founded, about two hundred ASCs were operating in the US, and by 1988, more than a thousand.
Because ASCs posed a serious threat to hospitals’ inpatient surgery services, hospitals fought back in two ways: first, they opened their own ASCs connected to their main campuses. Second, while these new facilities were contiguous to the main hospitals, many were built with separate entrances to mimic the convenience of the independent centers. This convenience, wedded to close proximity to a hospital should complications arise, was the carrot dangled to patients, which was effective. The stick was wielded against insurers: all outpatient surgeries must be done at our hospital or we will not do business with you. Coming from hospitals with good reputations, these were serious and effective threats. After many insurers caved to these demands, independent ASCs sued hospitals, contending that hospitals were abusing their market power to hinder local competition. Hospitals argued that their markets were not local, and courts bizarrely and continually agreed with them, dismissing the lawsuits.
Selective contracting. Despite large insurers’ having five to seven times the revenue of the largest hospitals, insurers had little power over hospitals and physicians. Before the 1980s, insurers rotely paid all bills with nary an objection. Patients had few if any copayments and few if any obstacles to continually patronizing the costliest physicians and facilities. Only enrollees in stingy HMOs faced narrow provider networks. Dranove and Burns report that in this environment, “every provider, even small community hospitals and solo physicians, could price like a monopolist.”
Selective contracting in the 1980s changed this: in response to states’ no longer requiring insurers to reimburse all licensed providers, insurers formed preferred provider organizations (PPOs). PPOs arranged networks of providers, and enrollees seeking care outside their network paid high costs; thus, providers had a strong incentive to be network members. In return, insurers demanded and usually received significant discounts for letting providers into their networks. Enrollees gained lower-cost coverage but little or no change in access. Dranove and Burns report that PPO enrollment skyrocketed from close to zero in 1983 to approximately 28 million by 1987.
C. Hospitals Become Integrated Delivery Networks (1993–98)
The early years of the 1990s were a watershed. The hospital industry, especially after selective contracting, felt that it had lost the upper hand in its relationship with insurers. More and more, the answer seemed to lie in vertical integration, meaning that hospitals merged with physician practices, insurance plans, or both.
The year 1992 saw the election of Bill Clinton. First Lady Hillary Clinton and her healthcare advisor Ira Magaziner led the crafting of the Health Security Act, “Act” being a misnomer because the bill never passed Congress. The plan consisted of three main components: the establishment of regional state health alliances, the creation of insurance plans by local insurance firms and providers, and prices for services that would be set by the alliances. As Dranove and Burns state, “While the Clinton Plan died on arrival in Congress in the spring of 1994, it nevertheless frightened providers into a variety of integration efforts.”
One result of these efforts was that in just a few years hospitals turned into massive health systems, or, in the parlance of industry consultants and executives, integrated delivery networks (IDNs). There was horizontal integration, where hospitals bought or merged with other hospitals; vertical integration where hospitals bought physician practices and the physicians became hospital employees; and vertical integration where hospitals created their own health insurance plans. By one estimate, while only 16 percent of hospitals were part of an IDN in 1994, 50 percent were part of an IDN by 1998. So effective was the threat of the Clinton Health Security Act in driving consolidation that, while from 1980 to 1993 about three hundred hospitals merged, in 1994 alone there were over six hundred mergers. Then from 1995 to 1998 there were over five hundred mergers per year. After this, the merger craze lost steam.
D. Integration Fizzles (1998–2000)
After the fog cleared in the wake of the integration bacchanal came the mundane task of providing healthcare services. This proved rocky at best: in the eternal hunt for the economies-of-scale unicorn, costs soared and revenues nosedived. This was seen nowhere better than at three particular systems: the Allegheny Health, Education, and Research Foundation (AHERF) in Pittsburgh; Detroit Medical Center in Detroit; and Allina Health in Minneapolis. While each of the three is a complex case study in and of itself, the upshot is that while AHERF declared bankruptcy in July 1998 owing about $1.3 billion in debt in the largest healthcare nonprofit bankruptcy in US history, the two other systems performed little better than barely surviving.
II. History, Causality, and IntegrationDranove and Burns’s history of the industrial organization of the US hospital industry from 1993 forward is unquestionably second to none. A sweeping and thorough account of recent history, though, in no way necessarily evinces a sound etiology of industry dysfunction. The next section will juxtapose Dranove and Burns’s version of events with the classical free-market perspective, noting the differences and implications.
III. Methodenstreit over HealthcareThe “method struggle” in healthcare that is actually occurring is over how to best treat the sector’s economic malfunctions: high and volatile costs, costly access, exorbitant insurance premiums and high deductibles, pricey and too tightly controlled prescription drugs. The mainstream health economics and policy approach is to ignore the supply-and-demand factors that led to each of these problems and propose new interventions to alleviate them. A second approach is to examine the state of the industry before these malfunctions arose, analyze what led to each one of them over time, and then base reform on the resulting facts and knowledge. Dranove and Burns clearly embrace a version of the mainstream approach.
A. Was All Well before IDNs?
Clearly the two accounts (Dranove and Burns’s and the free market version) are not commensurate in their ability to explain the changes in prices, costs, output, and affordability of healthcare over time. The first question that Dranove and Burns’s account elicits is, “If US healthcare had few problems before IDNs (driven by the Clinton Health Security Act) appeared in the early 1990s, what spurred the creation of the Clinton Health Security Act?” Puzzling is Dranove and Burns’s account of the 1991 rise of Pennsylvania US Senate candidate Harris Wofford and 1992 presidential candidates Bob Kerrey and Paul Tsongas. All three candidates proposed significantly changing the US healthcare system in terms of improving affordability, access, or both. Instead of explaining why so many politicians made healthcare a campaign issue in 1991 and 1992 before the IDN wave came about, Dranove and Burns just drop the three candidates’ names on the way to introducing Bill and Hillary Clinton and the Clinton Health Security Act. The obvious answer to the question of why healthcare was a major campaign issue in the political races of 1992 is the American public’s widespread dissatisfaction with the pre-IDN US healthcare system. Dranove and Burns overwhelmingly focus on the high and runaway costs, limited access, and mixed quality of the post-IDN sector instead.
B. Kenneth, What Is the Frequency?
And then there are some seriously head-scratching statements about markets. “Before 1960, government largely stayed out of healthcare markets” is a stunning statement, given all the state actions in the wake of the Flexner Report (1910) and the establishment of Blue Shield and, later, Blue Cross. And then there’s “As much as we hate to admit it, there are limits to what we can accomplish through unfettered markets. We are even tempted to revive certificate of need (CON), despite its many shortcomings.” Unfettered markets? The current IDN-dominated sector? That is indefensible, especially given the authors’ own theory that mere proposed intervention (in the form of the Clinton Health Security Act) drove the initial IDN wave in the early 1990s. More of these contradictions and confusions are littered throughout the book, which is part of the reason why it is such a difficult book to read and follow. The experienced reader begins to wonder, Is it me or is it them?
IV. ConclusionWhile Dranove and Burns implicitly promise that their book will provide special insights into the pathologies of US healthcare because they are taking an interdisciplinary approach, that assurance could not be more unfulfilled. Chapters 1–6 (at most) form a worthy contribution to the history of the evolution of the American hospital from 1811 to today, with the chronicling of the IDN era from 1993 to the present particularly seminal.
However, selective history, regardless of its merits per se, in no way necessarily and accurately identifies the causes of the US healthcare industry’s many serious economic malfunctions. Thus, again, megaproviders are another symptom rather than a root cause of industrial disease. In that sense, Big Med is another all-too-typical contemporary analysis in health economics and policy. What is a priori ruled out is true market allocation of goods and services. New interventions and de facto central planning inevitably become the only acceptable solutions. Further, if Dranove and Burns are the “good guy” free marketeers, who needs interventionists and their state-monopoly Medicare for All? As Francis Jeffrey famously wrote in 1814 about William Wordsworth in the Edinburgh Review, “This will never do.”
[A longer version of this article was published in the Quarterly Journal of Austrian Economics.]
Of all the leading libertarian French economists of the mid- and late nineteenth centuries, the most unusual was the Belgian-born Gustave de Molinari (1819-1912). Born in Liege, the son of a Belgian physician and a baron who had been an officer in the Napoleonic army, Molinari spent most of his life in France, where he became a prolific and indefatigable author and editor in lifelong support of pure laissez-faire, of international peace, and in determined and intrasigent opposition to all forms of statism, governmental control and militarism. In contrast to British soft-core utilitarianism on public policy, Molinari was an unflinching champion of freedom and natural law.
Coming to Paris, the cultural and political centre of the French-speaking world, at the age of 21 in 1840, Molinari joined the Societe d'Economie Politique on its inception in 1842, and became the secretary of Bastiat's association for free trade when it was formed in Paris in 1846. He soon became one of the editors of the association's periodical, Libre-Echange. Molinari quickly began to publish widely in the free trade and free market press in Paris, becoming an editor of the Journal des Economistes in 1847. He published his first of many books in 1846, Etudes Economiques: sur I'Organisation de la Liberte industrielle et I'abolition de I'esclavage (Economic Studies: on the Organizaton of Liberty and the Abolition of Slavery).
The young Molinari, however, hit the laissez-faire-oriented Societe d'Economie Politique like a thunderclap in 1849, with his most famous and original work. He delivered a paper expounding, for the first time in history, a pure and consistent laissez-faire, to the point of calling for free and unhampered competition in what are generally called uniquely 'public' services: in particular, the sphere of police and judicial protection of person and private property. If free competition is better and more efficient in supplying all other goods and services, Molinari reasoned, why not for this last bastion, police and judicial protection—a view that over a century later would come to be called 'anarcho-capitalism'.
Molinari first set forth his view in the Journal des Economistes, the periodical of theSociete, in February 1849.18 This article was quickly expanded into book form, Les Soirees de la Rue Saint-Lazare, a series of fictional dialogues between three protagonists: the conservative (advocate of high tariffs and state monopoly privilege); the socialist; and the economist (clearly himself). The final, or eleventh, Soiree elaborated further on how his concept of free market protective services could work in practice.19
A meeting of the Societe d'Economie Politique in the Autumn of 1849 was devoted to Molinari's radically new theory as expounded in the Soirees. After Molinari had presented the essence of his proposal in a paper, the assembled libertarian dignitaries engaged in a discussion. Apparently the new theory threw them, because unfortunately no one dealt with the essence of the new doctrine. Charles Coquelin and Frederic Bastiat could only fulminate that no competition anywhere can exist without a back-up by the supreme authority of the state (Coquelin), and that the force needed to guarantee justice and security can only be imposed by a 'supreme power', (Bastiat). Both engaged in pure assertion without argument, and both here chose to ignore what they knew full well in all other contexts: that this 'supreme power' had scarcely proved to be a reliable guarantor of private property in the past or present (to say nothing, alas, of the future).
Of all the leading libertarian minds assembled, only Charles Dunoyer deigned to try to rebut Molinari's argument. He deplored that Molinari had been carried away by the 'illusions of logic', and maintained that 'competition between governmental companies is chimerical, because it leads to violent battles'. Apart from ignoring the truly violent battles that have always occurred between states in our existing 'international anarchy', Dunoyer failed to grapple with the very real incentives that would exist in an anarcho-capitalist world for defence companies to engage in treaties, contracts and arbitrations.20 Instead, Dunoyer proposed to rely on the 'competition' of political parties within a representative government—hardly a satisfactory solution to the problem of social conflict from a libertarian, anti-statist point of view. Dunoyer also opined that it was most prudent to leave force in the hands of the state, 'where civilization has put it' - this from one of the great founders of the conquest theory of the state!
Unfortunately, except for these few remarks, the libertarian economists assembled failed to deal with Molinari's thesis, their discussion largely criticizing Molinari for allegedly going too far in attacking all use of the power of eminent domain by the state.21
Particularly interesting was the general treatment of the maverick Molinari by his fellow French laissez-faire libertarian economists. Even though he persisted in advocating his anarcho-capitalist or free market protection views for many decades (e.g. in his Les Lois Naturelles de I'Economie Politique, 1887), Molinari was scarcely treated as a pariah for his heretical views. On the contrary, he was treated as he indeed was: the logical culmination of their own laissez-faire views which they respected even though they could not fully agree. On the death ofJoseph Garnier in 1881, Molinari became the editor of the Journal des Economistes, a post which he occupied until his ninetieth year in 1909.22 Molinari only backtracked on his anarchistic views in his very late works, beginning in his Esquisse de l'organisation politique et economique de societe future (1899). Here he retreated to the idea of a single monopoly defence and protection company, which service would be contracted out by the central state to a single private corporation.23
How Molinari was considered by his colleagues may be seen from the footnote by Joseph Garnier, the editor of the Journal, on introducing Molinari's first revolutionary article in 1849. Garnier noted:
Although this article may appear utopian in its conclusions, we nevertheless believe that we should publish it in order to attract the attention of economists and journalists to a question which has hitherto been treated in only a desultory manner and which should, nevertheless, in our day and age, be approached with greater precision. So many people exaggerate the nature and prerogatives of government that it has become useful to formulate strictly the boundaries outside of which the intervention of authority becomes anarchical and tyrannical rather than protective and profitable.24
Fifty-five years later, at the appearance of the first English translation of Molinari's work, his fellow-octogenarian, the laissez-faire attorney and economist, Frederic Passy (1822-1912), wrote a moving tribute to his old friend and colleague Molinari. He wrote of his 'esteem and admiration for the character and talent' of the man 'who is the doyen of our ...liberal economists—of the men with whom, though, alas! few in number, I have been happy to stand side-by-side during more than half a century'. Passy went on to state that these liberal principles had been proclaimed by Cobden, Gladstone and Bright in England, and by Turgot, Say, Chevalier and Bastiat in France. 'And my belief grows yearly stronger that, but for these principles, the societies of the present would be without wealth, peace, material greatness, or moral dignity.' Molinari, Passy added, 'has maintained these principles from his youth', from his Soiree de la Rue St. Lazare during the 1848 Revolution, though lectures and writings, to his editorship of the Journal des Economistes, where 'month-by-month the important Review of which he is editor-in-chief repeats them in a fresh guise'. And finally, Molinari's books, where: 'annually, so to speak, a further book, as distinguished for clearness of grasp as for admirable literary style, goes out to testify to the constancy of his convictions no less than to the unimpaired vigour of his mental outlook and the virile serenity of his green old age.'25
This article is a selection from An Austrian Perspective on the History of Economic Thought, Vol. 2.
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- Gustave de Molinari, 'De la production de la securite', Journal des Economistes, XXV (Feb. 1849), pp. 277-90. Translated as Gustave de Molinari, The Production of Security (trans. J. McCulloch, New York: Center for Libertarian Studies, May 1977).
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- See the complete translation ofthe eleventh soiree in 'Appendix', David M. Hart, 'Gustave de Molinari and the Anti-statist Liberal Tradition, Part III', The Journal of Libertarian Studies, VI (Winter 1982), pp. 88-102.
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- See Murray N. Rothbard, For a New Liberty: the Libertarian Manifesto (1973, rev. ed., New York: Libertarian Review Foundation, 1985). For an appreciative discussion of Molinari and of the concept of total privatization of protection from crime, see Bruce L. Benson, 'Guns for Protection and Other Private Sector Responses to the Fear of Rising Crime', in D. Kates (ed.), Firearms and Violence: Issues ofPublic Policy (San Francisco: Pacific Institute for Public Policy Research, 1984), pp. 346-56. Also see Benson, The Enterprise ofLaw (San Francisco: Pacific Institute, 1990).
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- For the discussion around Molinari's thesis, see the Journal des Economistes, XXIV (15 October 1849), pp. 315-6. For more on a summary of the discussion, see Murray N. Rothbard, 'Preface', Molinari, op. cit., note 18, pp. i-iii.
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- Molinari lived in Belgium during the decade of the 1850s. He returned to Belgium upon the coup d'etat of Louis Napoleon in December 1851, which precipitated Bonaparte's despotism in France. With the aid of his friend Charles de Brouckere, Molinari was appointed professor of political economy at the Belgian Royal Museum of Industry in Brussels, and at the Higher Institute of Commerce in Antwerp. His lectures at the museum formed the basis of Molinari's major theoretical work, his Cours d'Economie Politique (2 vols, Paris, 1863). Molinari continued to write articles and reviews for the Journal des Economistes .during his Belgian years, also founding the Economiste beige in 1855, an even more frankly radical journal which he continued to edit for another 13 years. Molinari returned to Paris in 1860, becoming editor-in-chief of the laissez~faire journal, the Journal des Debats, from 1871 to 1876.
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- This book was unfortunately the only one of Molinari's works to be translated into English, as The Society of Tomorrow (New York: G.P. Putnam's Sons, 1904). On Molinari's retreat in his later years, and for an elaboration of his views in general, see David M. Hart, 'Gustave de Molinari and the Antistatist Liberal Tradition, Part II', The Journal o.f Libertarian Studies, V (Autumn 1981), pp. 399-434.
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- Molinari, op. cit., note 18, pp. 1-2.
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- Frederic Passy, 'Prefatory Letter', in Molinari, op. cit., note 23, pp. xxviii-xxix. A prolific author on economics himself, Passy was at one point president of the Societe d'Economie Politique, as well as a member of the French Chamber of Deputies, 1881-88. Passy was a co-founder of the International Peace League in 1867, and, for his work on behalf of peace and international arbitration, was awarded the Nobel Peace Prize in 1901.
Thanks to copyright laws, the estate of Roald Dahl can not only rewrite his books, but can also essentially outlaw the old versions. Only books in the public domain are safe from this.
Original Article: "Roald Dahl and James Bond Books Are Getting Woke Rewrites. Copyright Law Ensures You Can't Stop Them."
This Audio Mises Wire is generously sponsored by Christopher Condon.
The history of transatlantic slavery is riddled with fables and errors. Erroneous claims have been propagated in the media because history is currently perceived as a political project that must justify present sensibilities. History has become so politicized that rigorous research is unable to disabuse activists of inaccuracies. Due to the rampant politicization of academia, noted scholars are usually cajoled into apologizing for defending historical standards.
After chiding fellow scholars for projecting modern sensibilities onto historical realities, historian James H. Sweet was shamed into penning an apology. Sweet was ruthlessly demeaned by his colleagues for noting the fallacy of using the narratives of identity politics to interpret historical events. Because academics are so willing to genuflect to unhinged mobs, propaganda is becoming history, and instead of digesting hard historical truths, many are fed fabrications.
One of the most pernicious myths is the argument that planters in the West Indies and the American South engaged in systematic and widespread slave breeding. After the abolition of the trans-Atlantic slave trade, planters in the West Indies pursued pronatal policies to increase reproduction. Some even offered women lighter work and cash incentives, but pronatal policies were more successful in the American South where plantations recorded a natural increase.
Planters were interested in multiplying the slave population because slaves reflected capital investment; however, evidence asserting that slaves were directly bred for sale or that stud farms were established to breed slaves is largely circumstantial. Although planters deliberately promoted intimate relations between slaves to ensure reproduction, we can’t comment on its frequency or conclusively state that it was done to manufacture slaves for export.
Kenneth Stampp, a pioneer researcher in this arena, admits that evidence corroborating the slave-breeding thesis is primarily circumstantial since planters hesitated to document such an atrocious act. Yet, Thomas Thistlewood documented many of his sadistic policies, and doing so was not usual for the planter class. Slave breeding is mild compared to the reprehensible punishments Thistlewood and others meted out to slaves. Nevertheless, this myth remains entrenched in academic circles despite evidence to the contrary.
For instance, David Lowenthal and Colin G. Clarke, in a landmark paper titled “Slave-Breeding in Barbuda: The Past of a Negro Myth,” contend that natural increase in Barbuda was driven by social and environmental conditions that were conducive to population growth rather than an orchestrated policy of slave breeding. Slavery was more brutal in places where sugar production was dominant; however, in regions where sugar was marginal, planters exerted less authority over slaves who proved to be more independent.
Lowenthal and Clarke explain that places with alternative economic structures during slavery tended to benefit from higher living standards and population increase:
Barbuda was not, however, wholly unique. Michael Craton has traced parallel slave circumstances on a cotton plantation in the Bahamian island of Great Exuma, owned by Lord Rolle. Here too, dry climate and thin soils precluded sugar cane, and a couple of hundred slaves enjoyed many of the same conditions as the Barbudans . . . Evidence from Union Island in the Grenadines likewise suggests that slave life in many such tiny islets, only tangentially connected with the society of the great estates, was generally more benign than most West Indian plantation conditions.
Another troubling myth is the proposition that slavery destroyed the family. Although this myth has been thoroughly debunked, the trope is still heavily promoted. The sale of slaves disrupted family relations when people were separated; however, even when slaves did not reside on the same plantations, they still formed unions and visited each other. Moreover, slaves often developed fictive relationships, and it was not uncommon for women to adopt other children.
There are several cases of slaves getting married or forming common-law relationships. In fact, nuclear families were not an anomaly during slavery in the American South. Further, the work of Michael Craton and Gail Saunders has shown that by 1822, 65 percent of slaves lived in nuclear families with both parents. Mike Meacham, in a breathtaking essay, easily supplants the myth that slavery destroyed the black family.
Drawing on the work of leading scholars such as Eugene Genovese and John W. Blassingame, Meacham shows that plantation slavery failed to destroy the black family. Interestingly, Genovese submits that planters encouraged stable unions and would use the fear of family separation to pacify slaves. On the other side of the spectrum, Blassingame suggests that slave unions were generally monogamous and maintained by affection rather than the force of law.
Moreover, using the case study of Berbice, Randy Browne and Trevor Burnard dispel the notion that enslaved men were marginal in family life. Their study portrays men as responsible actors who provided for their families and protected them from abuse. Some men even quarreled with planters who mistreated their spouses or children. Primary sources compiled by Browne and Burnard depict men as instrumental in the socialization of children as disciplinarians and nurturers. The Caribbean research has demonstrated that black men were active participants in family life, and stating otherwise is sheer propaganda.
Similarly, it is also believed that due to the brutality of slavery, slaves were unable to enjoy themselves, but nothing could be more fictitious. In the American South, slave parties were quite popular, and it was typical for slaves to attend parties on neighboring plantations, as David Wiggins's research documents. Their Jamaican counterparts were equally fond of parties, according to the research of Henrice Altink. Usually, these parties were held on a Saturday and slaves would enjoy themselves until midnight.
Altink aptly describes the nature of the Saturday night dance: “This dance was organised by the slaves themselves and took place in one of the slave houses. The guests, either invited or paid, were provided with live music, food and drink. . . . Evidence suggests that women not only took part in them as dancers and waitresses but also organised them.” Even more shocking is that planters rarely refused requests to host these parties. Not even slavery could quench the appetite for leisure.
Slavery was horrendous; however, magnifying its evils cannot ameliorate the current condition of blacks. Exaggerating the brutality of slavery to demonize white people might inflate the status of some activists, but it disempowers blacks by giving them a false sense of history.
Canadian political, academic, and media elites "worry" that democracy in that country may be under attack. Actually, democracy works all too well there.
Original Article: "Is Democracy under Attack in Canada? No, but It Should Be"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On February 16, 2023, President Joe Biden issued his second executive order to strengthen equity within federal agencies. Among other things, it ordered them to install equity officers and implement action plans with the superficial aim of making it easier for “underserved communities” to access federal resources.
Although there is plenty of commentary on the specific content of the new order, that is not what this article is about. Rather, the purpose of this article is to familiarize readers with the ideology behind equity. I do not intend, however, to come across as a doomsayer who believes all is lost. There are, after all, signs of improvement.
To begin with, it should be noted that equity isn’t unique to government. I am only highlighting the Biden administration because the executive branch is one of the most powerful institutions in the United States. Schools are another institution that consecrate equity. And although equity is usually referenced through diversity, equity, and inclusion (DEI), I will only focus on equity because it is the ultimate objective that the other letters are meant to serve.
First, let’s look at how the Biden administration defines equity. It is defined in section ten as, “The consistent and systematic treatment of all individuals in a fair, just, and impartial manner, including individuals who belong to communities that often have been denied such treatment.”
That doesn’t sound so bad, right? But one must ask: why is the word “just” there? Federal agencies should certainly be fair and impartial in carrying out their duties, but what does it mean for an office bureaucrat to do their duties in a just manner when, say, reviewing a student loan application? Moreover, why are community affiliations at the center of analysis? One would think that in disaster situations, such as the train derailment in East Palestine, Ohio, the primary metric for obtaining aid is individual need. Alas, no.
Despite the inoffensive sentiment, the words do not mean what the average person thinks they mean. Rather, words like fair and just have special meaning to equity officers. You see, equity is informed by neo-Marxist thoughts, such as critical race theory (CRT) among others. These theories seek to draw a straight line from observed injustices to the institutions of society itself. That is, they argue that oppression is not only ordinary but emerges directly from society’s structure. Thus, correcting injustices becomes an exercise in changing all of society, hence Biden’s call for a whole-of-government solution.
In his writings, Karl Marx articulated structurally determined oppression by linking it to the division of labor under capitalism. Today, Marx’s division of labor has been updated and repackaged as systemic racism, which makes an appearance in the first sentence of the new executive order. In this context, systemic racism is posited as the ordinary state of affairs that structures and determines all social relations. Additionally, Marx’s concept of the proletariat has been replaced by “people of color,” or “marginalized communities.” Indeed, as the name suggests, many strains of neo-Marxism lazily recycle legacy code and give it new names.
In short, the relevant point is that words like fairness or justice take on unique meanings in the Marxist worldview. To see how these words change meaning, it will be helpful to use a case study.
In June 2021, a federal judge halted the Biden administration’s policy of issuing aid to farmers based on race. The judge ruled that the policy was likely a violation of the plaintiff’s equal protection rights. However, Biden’s agricultural secretary, Tom Vilsack, defended the policy: “We know for a fact that socially disadvantaged producers were discriminated against by the United States . . . We have reimbursed people in the past for those acts of discrimination, but we’ve never absolutely dealt with the cumulative effect.” (italics added)
What Vilsack is saying is that violating equal protection today is equitable if it corrects past injustices. Notice also that past injustices include insufficient restitution. And of course, sufficiency is subjective. Moreover, given the “cumulative effect” of injustice, equitable correction means going beyond parity and creating a deliberate imbalance in favor of marginalized identity groups, hence the overt racism. That is, justice cannot be realized until the oppressed have been uplifted and the oppressor has seen the world from the standpoint of the oppressed, a task that requires coercion.
Relatedly, this belief in asymmetric redistribution is what Ruth Bader Ginsburg was referring to when she called for an all-female supreme court. It also helps explain why California’s proposed reparations plan is so gratuitous, despite the fact that California was never a slave state.
CRT celebrity Ibram Kendi puts the matter more bluntly: “The only remedy to past discrimination is present discrimination. The only remedy to present discrimination is future discrimination.”
This ugly conclusion flows from the belief that there is no such thing as a neutral application of law or policy. There are only racist or antiracist ways of running society. There are no gray areas. As a result, this radically changes the meaning of terms like fairness and justice.
To you or me, fairness and justice gain meaning when we adopt the rule of law to settle our conflicts where we face one another as dignified equals. But in CRT, the rule of law is racist because it has a hidden purpose of granting a special type of property called whiteness (capital under Marx) to white people. To solve this perceived problem, rule by discretion must be implemented where self-anointed mandarins like Kendi are empowered to reorder society. Consequently, concepts like justice are no longer impartial processes, but are instead an engineered state of affairs crafted by our enlightened betters.
To summarize, the ideology behind equity seeks to weaken the rule of law in favor of arbitrary discretion where you don’t get what you need. Instead, you get what is deserved, according to the haruspicy of a mystic council. Historically, the high priests have deemed the bourgeois to be deserving of privation and retribution.
Equity is better understood as a perpetual process of modifying societal “shares” between identity groups such that power is rebalanced to achieve justice. This process requires a system of top-down political economy where authority is centralized within a council of experts that don’t have skin in the game; the Russian word is soviet. Equity, therefore, can never be a positive-sum game because the centralized authority only reallocates existing shares, not create new ones. Thus, we must conclude that equity only equalizes downward. This description also holds outside the government context and explains discrimination against minorities like Asian-American students.
Although Biden’s order is a far cry from a Soviet-style central committee, the key takeaway is that equity constitutes a threat to the rule of law, especially the fourteenth amendment. We will have to see how the judiciary handles this challenge. However, the problem in the interim is that equity is moving ahead at full speed and lawsuits take time to bear fruit. In other words, the span of time between harm now and future restitution is sufficiently large enough for many people to be needlessly injured in the name of a pestilent ideology.
Secularists cheer the decline of religion in Western societies, but that loss comes at a huge cost: the decline of civilization itself.
Original Article: "Loss of Religious Belief Is a Greater Loss for a Civilized Society"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It is easy to dismiss Chinese advancements in electric vehicles as the result of government subsidies, but private entrepreneurship also is playing a major role.
Original Article: "China's Emerging Global Leadership Isn't Just the Result of Subsidies: Entrepreneurship Still Matters in This Market"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In our technocratic age, it is easy to dismiss the latest technological developments as an avenue toward freedom, but some of them still bode well for markets.
Original Article: "Artificial Intelligence Can Serve Entrepreneurs and Markets"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Mark talks about the recent price inflation reports, as well as reports of job openings from private sector job placement companies. Inflation was higher than expected and job openings declined. What will the Fed do? People are making painful adjustments—Domino's reported disappointing sales, because their customers are "eating in".
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Recently, I published an article in the Mises Wire, “Woke Egalitarianism and the Elites,” in which I presented the true intentions behind woke egalitarianism. The article also described how elites attempt to rebuild society through collectivism. But more than discussing the goals of progressivism, we need to discuss the intellectual basis of these attempts. What assumptions and intellectual framework guide these actions?
Progressivism is based on a disrespect of individuals, their actions, and their ability to choose. First, progressivism groups people into collectives based on a particular criterion (e.g., race, gender, and sexual orientation). Moreover, progressivism homogenizes their thinking, values, and actions based on these collective classifications. To progressivists, individuals cannot escape these classifications.
This homogenization reflects progressivism’s views about humankind. Progressivists misunderstand human action and human individuality. They don’t realize that each individual is unique and sovereign. Moreover, individuals have the ability and freedom to judge, choosing the options they see as better and behaving as they think most appropriate.
Austrians, in their debate with positivist objectivist researchers, have been asserting for a long time that individuals are not atoms. Individuals don’t react based on probabilistic objective causal relations that can be mathematically described.
Each individual mind has a unique ability to perceive and create opportunities, acting based on an individual preference scale and the ability to perceive the relation between means and ends.
Moreover, individuals can’t be classified into groups. Groups don’t act. What makes collective action a composition of individual actions? Collectives are abstractions created by the human mind to analyze phenomena. But they don’t have ontological existence.
Progressivism also misunderstands how these individuals can change their actions over time. Individuals are not machines that repeat some procedures imposed by some person or the environment. Individuals have autonomy and use their logical reasoning to change the course of their actions. In consequence, they also change history.
Individuals are not programmed to behave in a certain way. Individuals are continually creating knowledge. Individuals learn. This ability to learn is what guides institutional development. The trial-and-error mechanism that guides the evolution of individual action is what made possible the development of institutions such as money, the law, the price system, and so on.
To the progressivist elites, individuals are “stupid” and can be easily fooled. That is how progressivists explain why some individuals don’t support their actions: they lack consciousness (of class, gender, race, etc.). That is also how they justify their own existence: progressivist movements must defend these groups. Even if such groups don’t want support, these movements must exist to raise awareness of the existing oppression.
Progressivists completely disregard the role of individuals in making history. To them, people react as atoms. To them, people don’t create and don’t involve themselves in a process of social evolution. They don’t realize that men cannot be molded like clay. Individuals are unique, having the capacity to decide and create. The human world is not given but built through human actions.
This harmful disregard for the individual is based on an erroneous characterization of humanity. Progressivism is constructivism. Constructivism relies on the idea that men answer to external incentives and rules. Constructivism affirms that society can be molded top-down by a social engineer.
Constructivism does not conceive individuals as creative agents that build history. It disregards humans’ ability to develop institutions that rule their social behavior. It conceives individuals as toys with which regulators and social engineers can play.
Humankind is passing through one more socialist attempt to destroy Western civilization. In the twentieth century, they used the “proletarians”; now they use the “minorities.” To combat these attempts requires a structured defense of human freedom and creativity.
And that is the place of the Austrian school, with its understanding of human subjectivity. That is why we must spread the Austrian school across the world. Humankind needs ideas that empower individuals and respect their freedom such that it will be possible to challenge progressivism and its malefic consequences.
[Excerpted from chapter 6 "Antimarket Ethics: A Praxeological Critique" of Power and Market.]
One of the most common charges levelled against the free market (even by many of its friends) is that it reflects and encourages unbridled “selfish materialism.” Even if the free market—unhampered capitalism—best furthers man's “material” ends, critics argue, it distracts man from higher ideals. It leads man away from spiritual or intellectual values and atrophies any spirit of altruism.
In the first place, there is no such thing as an “economic end.” Economy is simply a process of applying means to whatever ends a person may adopt. An individual can aim at any ends he pleases, “selfish” or “altruistic.” Other psychic factors being equal, it is to everyone's self-interest to maximize his monetary income on the market. But this maximum income can then be used for “selfish” or for “altruistic” ends. Which ends people pursue is of no concern to the praxeologist. A successful businessman can use his money to buy a yacht or to build a home for destitute orphans. The choice rests with him. But the point is that whichever goal he pursues, he must first earn the money before he can attain the goal.
Secondly, whichever moral philosophy we adopt—whether altruism or egoism—we cannot criticize the pursuit of monetary income on the market. If we hold an egoistic social ethic, then obviously we can only applaud the maximization of monetary income, or of a mixture of monetary and other psychic income, on the market. There is no problem here. However, even if we adopt an altruistic ethic, we must applaud maximization of monetary income just as fervently. For market earnings are a social index of one's services to others, at least in the sense that any services are exchangeable. The greater a man's income, the greater has been his service to others. Indeed, it should be far easier for the altruist to applaud the maximization of a man's monetary income than that of his psychic income when this is in conflict with the former goal. Thus, the consistent altruist must condemn the refusal of a man to work at a job paying high wages and his preference for a lower-paying job somewhere else. This man, whatever his reason, is defying the signalled wishes of the consumers, his fellows in society.
If, then, a coal miner shifts to a more pleasant, but lower-paying, job as a grocery clerk, the consistent altruist must castigate him for depriving his fellowman of needed benefits. For the consistent altruist must face the fact that monetary income on the market reflects services to others, whereas psychic income is a purely personal, or “selfish,” gain.18
This analysis applies directly to the pursuit of leisure. Leisure, as we have seen, is a basic consumers’ good for mankind. Yet the consistent altruist would have to deny each worker any leisure at all—or, at least, deny every hour of leisure beyond what is strictly necessary to maintain his output. For every hour spent in leisure reduces the time a man can spend serving his fellows.
The consistent advocates of “consumers’ sovereignty” would have to favor enslaving the idler or the man who prefers following his own pursuits to serving the consumer. Rather than scorn pursuit of monetary gain, the consistent altruist should praise the pursuit of money on the market and condemn any conflicting nonmonetary goals a producer may have—whether it be dislike for certain work, enthusiasm for work that pays less, or a desire for leisure.19 Altruists who criticize monetary aims on the market, therefore, are wrong on their own terms.
The charge of “materialism” is also fallacious. The market deals, not necessarily in “material” goods, but in exchangeable goods. It is true that all “material” goods are exchangeable (except for human beings themselves), but there are also many nonmaterial goods exchanged on the market. A man may spend his money on attending a concert or hiring a lawyer, for example, as well as on food or automobiles. There is absolutely no ground for saying that the market economy fosters either material or immaterial goods; it simply leaves every man free to choose his own pattern of spending.
Finally, an advancing market economy satisfies more and more of people's desires for exchangeable goods. As a result, the marginal utility of exchangeable goods tends to decline over time, while the marginal utility of nonexchangeable goods increases. In short, the greater satisfaction of “exchangeable” values confers a much greater marginal significance on the “nonexchangeable” values. Rather than foster “material” values, then, advancing capitalism does just the opposite.
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- W.H. Hutt actually goes this far in his article, “The Concept of Consumers’ Sovereignty,” Economic Journal, March, 1940, pp. 66–77.
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- It is also peculiar that critics generally concentrate their fire on profits (“the profit motive”), and not on other market incomes such as wages. It is difficult to see any sense whatever in moral distinctions between these incomes.
With global worldwide debt now over $300 trillion and interest rates rising, the US dollar is once again a relative safe haven in a slowing economy. Currencies competing with the Dollar face a deadly race to stave off a sovereign debt crisis. Is the dollar now unbound, as the dominant political tool of the dominant nation?
The Dollar Milkshake Theory: Mises.org/HAP385a
Thorsten Polleit, The Global Currency Plot: Mises.org/HAP385b
Bob's book, Understanding Money Mechanics: Mises.org/Mechanics
President Biden's recent call to "buy American" is doomed to failure, just like all other protectionist schemes.
Original Article: "Biden versus Bastiat"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It is a great tragedy that many modern military leaders and strategists do not understand economics. If they did, I suspect that there would be a lot less war, a lot less military spending, and a lot less wastefulness. Certainly, there would be greater awareness of the appalling human and economic costs of war in a capitalist age.
Ludwig von Mises, the great Austrian economist, understood this point well. In his 1927 book Liberalism, he noted that as late as the French Revolutionary and Napoleonic Wars (1792–1815), the world was divided into self-sufficient economic blocks.1 This factor helps explain the failure of Napoleon Bonaparte’s Continental System, a blockade designed to ruin Britain by excluding it from Continental European commerce. The system was poorly run, but Mises emphasizes that even if it had been meticulously implemented, neither side would have starved for want of trade with the other. For example, Continental communities would have been able to rely on their own agriculture for necessities. Only certain luxuries, such as sugar, would have been unavailable or very difficult to obtain.
By the twentieth century, the situation had changed. The world had become more integrated; the division of labor, fostered by liberal ideals, meant that many territories were no longer self-sufficient. In particular, several industrialized countries relied on imported food and materials for food production. To deprive them of these goods would be catastrophic.2
Astonishingly, this economic shift – so plainly evident to Mises and other astute liberal economists – was lost on Rear Admiral Alfred Thayer Mahan of the United States Navy, the most influential naval strategist in modern times. Mahan became an international celebrity after the publication of the first volume of The Influence of Sea Power upon History in 1890, which proclaimed the geopolitical importance of maritime commerce and naval prowess. In an age of rampant imperialism, great powers across the world followed Mahan’s advice and constructed (or upgraded their existing) battle fleets of heavy ships to defend – and expand – their overseas interests.
Mahan has long been stigmatized as a proponent of big battleship battles aimed at seizing control of the sea. More recent scholarship has revealed that Mahan, a devout Christian and erudite thinker, was deeply concerned about waging war as ethically and decisively as possible.3 Seeking to minimize casualties in combat, he actually championed the neutralization of enemy seaborne commerce by establishing a close or distant blockade of enemy ports. This strategy would destroy the enemy’s economic base and compel their surrender. As he noted in 1899, “It has been the glory of sea-power that its ends are attained by draining men of their dollars instead of their blood.”4 He used a series of earlier wars to prove his point, such as the Anglo-Dutch Wars of the seventeenth century (when England strangled Dutch commerce) and the French Revolutionary and Napoleonic Wars (when Britain strangled French commerce).
One can appreciate Mahan’s humanitarian desire to lessen wartime casualties. However, Mahan should have learned from his study of maritime commerce that by the twentieth century, times had changed. Any serious blockade of an industrialized nation would wreak havoc not only on its economy but on its civilian population as well. Violence in battle would be replaced by violence on the home front. Astonishingly, Mahan never seems to have acknowledged this shortcoming in his thinking. As far as I can tell, scholars have not devoted sufficient attention to the issue either.
Mahan died in December 1914, shortly after the beginning of the First World War. It is tragic that Mahan did not live to see more of this conflict, because it illustrated the diabolical nature of his naval strategy. The British Royal Navy swiftly imposed a distant blockade on Germany, which relied on imported food as well as imported fertilizer for its agriculture. This blockade also affected Germany’s ally, Austria-Hungary. The consequences were catastrophic. It is estimated now that nearly one million civilians in these territories perished because of the blockade, not usually from direct starvation, but because malnutrition weakened their immune systems.5
Many more people in these countries experienced horrific health problems from eating ersatz products designed to replace basic staples like bread and sausage. These were concocted from a medley of ingredients that were frequently unsanitary, innutritious, and indigestible; some were downright poisonous.6 As if this suffering was not bad enough, the Germans’ anger toward the blockade influenced their pursuance of unrestricted submarine warfare and bombing raids against the British Empire, which caused numerous civilian and military deaths. It also influenced the manoeuvres of the German High Seas Fleet, which famously engaged the British Grand Fleet at Jutland in 1916 – a blood-spattered clash of the type Mahan had so desperately sought to avoid.
The historical lesson, in other words, is clear. Knowledge of economics is vital for understanding the world and acting ethically within it. Even military strategists ignore economics at their peril. Mainstream scholarly opinion of Mahan may have improved in recent years, but his support for blockades shows that despite his concern for ethics in wartime, he did not have a positive moral influence on world history.
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- Ludwig von Mises, Liberalism in the Classical Tradition, trans. Ralph Raico (Irvington-on-Hudson, NY and San Francisco: The Foundation for Economic Education, Inc., and Cobden Press, 2002), 26.
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- Ibid., 27.
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- On Mahan’s moral worldview, see Suzanne Geissler Bowles, God and Sea Power: The Influence of Religion on Alfred Thayer Mahan (Annapolis: Naval Institute Press, 2015); Jon Tetsuro Sumida, Inventing Grand Strategy and Teaching Command: The Classic Works of Alfred Thayer Mahan Reconsidered (Washington and Baltimore: The Woodrow Wilson Center Press and The Johns Hopkins University Press, 1997).
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- Alfred T. Mahan, Lessons of the War with Spain and Other Articles (Boston: Little, Brown and Company, 1899), 106.
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- Alexander B. Downes, Targeting Civilians in War (Ithaca and London: Cornell University Press, 2008), 87.
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- Alexander Watson, Ring of Steel: Germany and Austria-Hungary in World War I (New York: Basic Books, 2014), 334, 435.
Human Rights: Fact or Fancy?
by Henry B. Veatch
LSU Press, 1985; xii + 258 pp.
Henry Veatch was one of the foremost philosophers of the twentieth century, though sadly neglected by most contemporary analytic philosophers. He was a resolute defender of Aristotelian ethics against rival ethical systems, and in this week’s column, I’d like to look at an argument which he deploys against these rivals in his book Human Rights: Fact or Fancy?
The argument is this. A system of ethics must offer a convincing answer to the question “Why be moral?” Answers to this question must meet two requirements, but the requirements seem difficult to meet at the same time. Only Aristotelian ethics has an intellectually satisfying answer.
For Veatch, then, moral motivation is crucial. He says,
When it comes to a question of justifying anything like moral “oughts,” rights, duties, and the like, the teleologists, or partisans of a desire ethic, do appear to have the jump on the deontologists. For is it not true that with respect to any and every moral judgment of whatever kind . . . is not the question “Why?” always and in principle pertinent. . . . In other words, in a desire-ethic, “oughts” and obligations are held to be always and in principle relative to and conditional upon what our human desires, ends, and purposes happen to be.
He reiterates this point:
And yet how else can any “why”-question with respect to an “ought” be answered, unless one appeals to some purpose or end that one wishes to attain thereby and in terms of which the “ought” becomes intelligible as being that which one needs to do if one is to attain such-and-such an end or achieve such and such a purpose?
The deontologists who oppose a desire ethic have a point too. “There is no discernible necessary or rational connection, be it in fact or in logic, between my liking to do something or my enjoying it and its being the something that I ought to do.”
Veatch goes further. The two principles to which he has appealed are self-evidently true:
Very well, I suggest that both of these principles, which I would say are fundamental to moral philosophy, can never admit of demonstration through outside evidence. . . . Instead, the only way in which principles such as these may be evidenced is through their being seen to be evident simply in and through themselves. In other words, they are either self-evident or not evident at all.
How do we get out this bind? How do we get something that is both a desire and also more than a desire? Here we reach a key principle in Veatch’s philosophy. Ethics is not a free-standing science but must be grounded in metaphysics; moreover, human beings have the capacity directly to perceive reality and, by abstracting from it, to know its nature. Such abstractive inquiry, and here Veatch follows Aristotle and Thomas Aquinas, reveals that the world consists of substances, each with its own nature, and human beings are no exception. In the Aristotelian and Thomist view, Veatch summarizes, the good of a substance is “that thing’s own proper end or perfection. For how else may we understand ‘good’ or bonum, save as the good of something? And what is the good of a thing if not its full being, or its fulfillment or perfection, toward which it is ordered by nature or its own nature” (emphasis in original).
What, from this perspective, is the good of a human being? Veatch says that the good of each individual is his own flourishing as a rational being:
So be it: the natural end or telos of a human being is attained only insofar as one actually lives and functions in a certain way. But what is that way? . . . man’s characteristic activity must consist of the practical exercise or use of reason. That is, the distinguishing activity of a human being must consist not just of living but in living intelligently—in being guided in one’s day-to-day conduct by a knowledge of what ought or ought to be done in the particular case.
Followers of Ayn Rand will find themselves in familiar territory, but there are significant differences between the Objectivist outlook and Veatch’s position. For one thing, a person’s obligation to act to fulfill his nature does not rest on a supposed “choice to live.” For Veatch, you are obligated to fulfill your nature even if you do not make this mysterious choice, the nature of which has not been clarified by Leonard Peikoff and hoc genus omne.
Veatch holds that the requirement to fulfill your nature is categorical, not hypothetical. “So far from its being a case of mutually exclusive alternatives, either of desires or oughts, it now turns out to be an obligatory end: it is something that we come to desire because we see we ought to desire it.” He credits Robert Paul Wolff for recognizing, in his book The Autonomy of Reason, that a categorical imperative would have to appeal to obligatory ends, but Wolff did not claim to have arrived at such an imperative.
If Veatch is correct, he has shown how his two requirements can jointly be met: we have an objective requirement, not a subjective whim or caprice, but it also a rational desire. But before he can retire from the field of battle, Veatch must meet a challenge. He relies on an Aristotelian philosophy of nature, but many would say that this has been outmoded by modern physical science, which uses a concept of laws of nature very different from natural law in the Aristotelian sense. With great panache, Veatch argues that modern physical science poses no threat to the position he defends.
Has Veatch succeeded in his impressive project? He makes an excellent case, and in my view he very well may have. Further, the project has libertarian implications (which I hope to address on another occasion) as it has been developed and extended by his disciples Douglas Rasmussen and Douglas Den Uyl in an impressive series of books. (For further discussion of this project, I may be allowed to refer to my review of Rasmussen and Den Uyl’s The Realist Turn in the October 2021 Philosophical Quarterly.)
I shall conclude with two related challenges to Veatch based on an entirely different view of moral obligation. Considering these two views together helps to clarify both. To understand the competing perspective, let us turn to one of the most significant articles of twentieth-century moral philosophy, H.A. Prichard’s “Does Moral Philosophy Rest on a Mistake?” (Mind, 1912). Prichard argued that morality confronts us with direct demands—here is what you must do—and that seeking a motive to obey these demands other than the force of the moral “ought” itself trivializes morality. To view morality as Veatch does, is, from Prichard’s standpoint, to reduce it to advice on how to live well—where is the absolute demand? Veatch would no doubt respond by denying the existence of categorical “oughts” of Prichard’s kind, ungrounded in metaphysics, consigning them to the realm of the gorgons and harpies; but he is far from denying the existence of categorical oughts altogether. Prichard might be worried that answering the “Why be moral?” question by appeal to one’s flourishing takes the moral virtues to be a means to an end, in consequentialist fashion. But for Veatch this is not so. The virtues are constitutive of flourishing (i.e., they are part of being good) and what is to one’s advantage is to be understood in terms of that good. The fundamental issue between Veatch and Prichard, then, is whether “duty” is ontologically prior, as Prichard thinks, or whether it operates within a wider ontological context, as Veatch suggests.
And Veatch would press his attack by disparaging the supposed moral intuitions on which Prichard rests his case. Veatch says,
It would seem to be little better than an ad hoc, and hence highly dubious device, whereby we conjure up a seemingly mysterious faculty of moral insight, simply to assure ourselves that as human beings we can and do have a genuine knowledge of moral principles. And yet, unfortunately, why might not such a supposed intuition be the resource of just about any prejudiced or even fanatical Tom, Dick, and Harry, whenever the occasion might serve him to make appeal to it?
I think Prichard would respond that Veatch also appeals to the supposed self-evidence of his two principles of moral motivation and that it is not clear (not self-evident?) why one appeal is epistemologically better than the other.
Can Veatch overcome the Prichardian challenge? He has every prospect of success. (I am most grateful to Doug Rasmussen for helpful suggestions, which I have shamelessly incorporated into the text.)
Opponents of secession say secession is wrong if some people in the population don't want it and say they will be worse off. The American revolutionaries disagreed and seceded anyway.
Original Article: "Secession: Should the American Revolutionaries Have Quit to Appease the Loyalists?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The largest urban mass-transit systems across the US are entering an all too familiar point in their long history: another looming financial disaster caused by financial mismanagement and the consequences of covid. No urban transit system exemplifies this problem more than the Metropolitan Transportation Authority (MTA) in New York.
Ridership in New York has not rebounded to precovid levels, and the MTA is projected to have a funding gap of $1.6 billion in 2026 despite proposing a 5.5 percent increase in fares and tolls. At the same time, New York governor Kathy Hochul and MTA announced in January 2022 the second phase of the Second Avenue subway. The extension of the subway line in New York by 1.6 miles will cost an estimated $6.3 billion ($3.9 billion per mile), the highest cost of any subway extension project in the history of the world. Including financing, the total bill cost is $6.9 billion.
With almost prophetic knowledge reminiscent of communist propaganda on the upcoming utopian society, secretary of transportation Pete Buttigieg, the governor, senators, and representatives praised the project for its “sheer grandeur.” The fact remains that with each grandiose announcement of the upcoming utopian green mass-transit society, the reality of mismanagement ultimately will set in.
In his book Bureaucracy, Ludwig von Mises anticipates the potential problems of public enterprises in the market economy. He writes, “A socialist central board of production management will be helpless in the face of the problems to be solved. It will never know whether the projects considered are advantageous or whether their performance would not bring about a waste.”
He continues later:
The authorities are inclined to deviate from the profit system. . . . They consider the accomplishment of other tasks important. They are ready to renounce profit or at least a part of profit or even to take a loss for the achievement of other ends. . . . the result of such a policy always amounts to subsidizing some people to the burden of others.
Urban planners, politicians, and passenger advocates believe that the current system of funding public transit should be revamped. The majority paradoxically believes that public transit should not have to pay its own way. However, if the prime motive for undertaking a project is no longer for profit, other motives and principles must be adopted.
Mises writes, “With private profit-seeking enterprise this problem is solved by the attitudes of the public. . . . a sufficient number of citizens is ready to pay the price asked for them. . . . Its unprofitability is the proof of the fact that the consumers disallow it.”
But if an enterprise operates without regard to profits, the consumer no longer provides a criterion of its usefulness.
Mises continues, “The public enterprise’s duty is to render useful services to the community. But the problem is not so simple as this. Every undertaking’s sole task is to render useful services.”
However, how do you define useful services and who decides what they are? The central planners, MTA officials, and politicians, with their infinite wisdom and foresight, decide what is a useful service. If unprofitability is not proof of consumers disallowing a service, as Mises already pointed out, how much is society willing to pay for these services? Mises states that “every service can be improved by increasing expenditures,” but at what cost to society?
Again and again, public infrastructure proponents argue that with more money, mainly federal money, cities are able update their aging fleets, renovate worn out stations, improve service, add new lines, and make public transit more consumer friendly. Proponents argue that, ultimately, public transit could become a consistently reliable, affordable option, bringing people out of their cars and making a significant dent in our greenhouse gas emissions. But this is only possible after a significant injection of public money into the system.
According to a report by the Congressional Budget Office called “Federal Financial Support for Public Transportation,” in 2019 two thirds of transit agencies’ income came from government, with 75 percent from states and localities. This means only one third of the revenue by transit authorities comes from passenger fares along with taxes and tolls.
In addition, government funding accounts for 75 percent of spending on capital and 58 percent of spending on operations. Proponents of more funding for public infrastructure pin their hopes on the proposed congestion pricing for New York. In this proposal drivers would have to pay a fee entering certain parts of New York, similar to congestion taxes in other parts of the world. Other proposals ranging from interesting to outright ridiculous are special taxes on package deliveries, sales tax revenue, and taxes on cannabis sales and casino licenses.
What is even more troubling is the fact that mass transportation agencies like the MTA are very poor stewards of money. A recent report by New York University Marron Institute of Urban Management entitled “Transit Cost Project” provides a detailed account of transit infrastructure cost around the world and New York in particular. The report sheds light on the troubling fact of infrastructure projects by public enterprises. For the first leg of the Second Avenue extension, the MTA spent $4.5 billion. Three quarters of that ($3.8 billion) was spent on the design, engineering, and construction; another $655 million went to consultants and outside firms to oversee construction; and just $378 million was spent boring the tunnel itself.
It is very clear that the public infrastructure project should be privatized. Walter Block’s article “Free Market Transportation: Denationalizing the Roads” provides a great introduction to the topic of privatization, as does his book entitled Privatization of Roads and Highways. Gregory Bresiger, in a series of articles on the New York subway system (and many more on mises.org), provides great insight into the origins of the New York subway system as a privately funded enterprise. The Interborough Rapid Transit Company (IRT) was a private management company that had a subway franchise contract with the city that operated for many decades profitably until politics torpedoed a successful private solution to public transportation.
Mises concludes, “The taxpayers are virtually subsidizing those riding the trains.” Actually, low-income workers mostly without access to the subway system are subsidizing the proposed MTA expansion in New York. Ridership in the working-class neighborhoods of New York is recovering faster than the subway ridership to business districts.
Governors, senators, representatives, and even the transportation secretary like to showcase big-ticket items with great costs to society, while fixing and updating bus stations and improving service delivery are pushed into the background. The extension of a subway line by 1.6 miles at an enormous cost to taxpayers is eerily similar to the grandiose five-year plans by socialist planners, and we know how well those plans worked in the long run.
[Excerpt from chapter 7 of Power and Market in Man, Economy, and State with Power and Market, pp. 1308–12.]
Probably the most common ethical criticism of the market economy is that it fails to achieve the goal of equality. Equality has been championed on various “economic” grounds, such as minimum social sacrifice or the diminishing marginal utility of money (see the chapter on taxation above). But in recent years economists have recognized that they cannot justify egalitarianism by economics, that they ultimately need an ethical basis for equality.
Economics or praxeology cannot establish the validity of ethical ideals, but even ethical goals must be framed meaningfully. They must therefore pass muster before praxeology as being internally consistent and conceptually possible. The credentials of “equality” have so far not been adequately tested.
It is true that many objections have been raised that give egalitarians pause. Sometimes realization of the necessary consequences of their policies causes an abandonment, though more often a slowing down, of the egalitarian program. Thus: compulsory equality will demonstrably stifle incentive, eliminate the adjustment processes of the market economy, destroy all efficiency in satisfying consumer wants, greatly lower capital formation, and cause capital consumption — all effects signifying a drastic fall in general standards of living. Furthermore, only a free society is casteless, and therefore only freedom will permit mobility of income according to productivity. Statism, on the other hand, is likely to freeze the economy into a mold of (nonproductive) inequality.
Yet these arguments, though powerful, are by no means conclusive. Some people will pursue equality anyway; many will take these considerations into account by settling for some cuts in living standards in order to gain more equality.
In all discussions of equality, it is considered self-evident that equality is a very worthy goal. But this is by no means self-evident. For the very goal of equality itself is open to serious challenge. The doctrines of praxeology are deduced from three universally acceptable axioms: the major axiom of the existence of purposive human action; and the minor postulates, or axioms, of the diversity of human skills and natural resources, and the disutility of labor. Although it is possible to construct an economic theory of a society without these two minor axioms (but not without the major one), they are included in order to limit our theorizing to laws that can apply directly to reality.9 Anyone who wants to set forth a theory applicable to interchangeable human beings is welcome to do so.
Thus, the diversity of mankind is a basic postulate of our knowledge of human beings. But if mankind is diverse and individuated, then how can anyone propose equality as an ideal? Every year, scholars hold Conferences on Equality and call for greater equality, and no one challenges the basic tenet. But what justification can equality find in the nature of man? If each individual is unique, how else can he be made “equal” to others than by destroying most of what is human in him and reducing human society to the mindless uniformity of the ant heap? It is the task of the egalitarian, who confidently enters the scene to inform the economist of his ultimate ethical goal, to prove his case. He must show how equality can be compatible with the nature of mankind and must defend the feasibility of a possible egalitarian world.
But the egalitarian is in even direr straits, for it can be shown that equality of income is an impossible goal for mankind. Income can never be equal. Income must be considered, of course, in real and not in money terms; otherwise there would be no true equality. Yet real income can never be equalized. For how can a New Yorker's enjoyment of the Manhattan skyline be equalized with an Indian's? How can the New Yorker swim in the Ganges as well as an Indian? Since every individual is necessarily situated in a different space, every individual's real income must differ from good to good and from person to person. There is no way to combine goods of different types, to measure some income “level,” so it is meaningless to try to arrive at some sort of “equal” level. The fact must be faced that equality cannot be achieved because it is a conceptually impossible goal for man, by virtue of his necessary dispersion in location and diversity among individuals. But if equality is an absurd (and therefore irrational) goal, then any effort to approach equality is correspondingly absurd. If a goal is pointless, then any attempt to attain it is similarly pointless.
Many people believe that, though equality of income is an absurd ideal, it can be replaced by the ideal of equality of opportunity. Yet this, too, is as meaningless as the former concept. How can the New Yorker's opportunity and the Indian's opportunity to sail around Manhattan, or to swim in the Ganges, be “equalized”? Man's inevitable diversity of location effectively eliminates any possibility of equalizing “opportunity.”
Blum and Kalven lapse into a common error10 when they state that justice connotes equality of opportunity and that this equality requires that “the contestants start from the same mark,” so that the “game” be “fair.” Human life is not some sort of race or game in which each person should start from an identical mark. It is an attempt by each man to be as happy as possible. And each person could not begin from the same point, for the world has not just come into being; it is diverse and infinitely varied in its parts. The mere fact that one individual is necessarily born in a different place from someone else immediately insures that his inherited opportunity cannot be the same as his neighbor's. The drive for equality of opportunity would also require the abolition of the family since different parents have unequal abilities; it would require the communal rearing of children. The State would have to nationalize all babies and raise them in State nurseries under “equal” conditions. But even here conditions cannot be the same, because different State officials will themselves have different abilities and personalities. And equality can never be achieved because of necessary differences of location.
Thus, the egalitarian must not be permitted any longer to end discussion by simply proclaiming equality as an absolute ethical goal. He must first face all the social and economic consequences of egalitarianism and try to show that it does not clash with the basic nature of man. He must counter the argument that man is not made for a compulsory ant heap existence. And, finally, he must recognize that the goals of equality of income and equality of opportunity are conceptually unrealizable and are therefore absurd. Any drive to achieve them is ipso facto absurd as well.
Egalitarianism is, therefore, a literally senseless social philosophy. Its only meaningful formulation is the goal of “equality of liberty” — formulated by Herbert Spencer in his famous Law of Equal Freedom: “Every man has freedom to do all he wills, provided he infringes not the equal freedom of any other man.”11 This goal does not attempt to make every individual's total condition equal — an absolutely impossible task; instead, it advocates liberty — a condition of absence of coercion over person and property for every man.12
Yet even this formulation of equality has many flaws and could profitably be discarded. In the first place, it opens the door for ambiguity and for egalitarianism. In the second place, the term “equality” connotes measurable identity with a fixed, extensive unit. “Equal length” means identity of measurement with an objectively determinable unit. In the study of human action, whether in praxeology or social philosophy, there is no such quantitative unit, and hence there can be no such “equality.” Far better to say that “each man should have X” than to say that “all men should be equal in X.” If someone wants to urge every man to buy a car, he formulates his goal in that way — “Every man should buy a car” — rather than in such terms as: “All men should have equality in car buying.” The use of the term “equality” is awkward as well as misleading.
And finally, as Clara Dixon Davidson pointed out so cogently many years ago, Spencer's Law of Equal Freedom is redundant. For if every man has freedom to do all that he wills, it follows from this very premise that no man's freedom has been infringed or invaded. The whole second clause of the law after “wills” is redundant and unnecessary.13 Since the formulation of Spencer's Law, opponents of Spencer have used the qualifying clause to drive holes into the libertarian philosophy. Yet all this time they were hitting at an encumbrance, not at the essence of the law. The concept of “equality” has no rightful place in the “Law of Equal Freedom,” being replaceable by the logical quantifier “every.” The “Law of Equal Freedom” could well be renamed “The Law of Total Freedom.”
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- For a further discussion of these axioms, see Rothbard, “In Defense of Extreme Apriorism,” Southern Economic Journal, January, 1957, pp. 314–20.
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- Blum and Kalven, Uneasy Case for Progressive Taxation, pp. 501ff.
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- Spencer, Social Statics, p. 121.
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- This goal has sometimes been phrased as “equality before the law,” or “equality of rights.” Yet both formulations are ambiguous and misleading. The former could be taken to mean equality of slavery as well as liberty and has, in fact, been so narrowed down in recent years as to be of minor significance. The latter could be interpreted to mean any sort of “right,” including the “right to an equal income.”
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- “... the opening affirmation includes what follows, since, if any one did infringe upon the freedom of another, all would not be equally free.” Clara Dixon Davidson in Liberty, September 3, 1892, as quoted in Benjamin R. Tucker, Instead of a Book (New York: Benjamin R. Tucker, 1893), p. 137. Davidson's formulation has been completely neglected.
People are innovative—if government doesn't get in the way. Entrepreneurs in developing countries find alternatives for people cut off from commercial banking services.
Original Article: "Poor People in Developing Countries Find Alternatives to Commercial Banking"
This Audio Mises Wire is generously sponsored by Christopher Condon.
This episode of Radio Rothbard revisits a point in our previous episode about the popular claim on leftwing Twitter that red-state America would be a "third world country" without support from the federal government. Ryan McMaken and Tho Bishop discuss Ryan's recent article on the topic, as well as the legacy of populist politics, and the unseen consequences of uniparty addiction to DC money.
Recommended Reading"No, Red State Economies Don't Depend on a "Gravy Train" from Blue States" by Ryan McMaken: Mises.org/RR_123_A
"Selling Our Sovereignty: Alabama’s Federal Dependency" by Katherine Green Robertson: Mises.org/RR_123_B
"Why MTG Is Right About National Divorce" (Radio Rothbard with Ryan McMaken and Tho Bishop): Mises.org/RR_123_C
"How to Think about the Economy" (Mises Seminar in Tampa) featuring Jeff Deist, Dr. Joe Salerno, Dr. Per Bylund, Tho Bishop, and Brett Lindell: Mises.org/RR_123_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Over 100 years ago, Austrian economist Ludwig von Mises discovered what causes the boom-bust business cycle.
As Mises explained, the boom is caused by central and commercial banks creating money out of thin air. This lowers interest rates, which encourages businesses to borrow this newly created money to fund capital-intensive investment projects.
The bust is caused when the money creation process slows. It is then that businesses discover there are not enough scarce resources to complete their projects, so these projects must be liquidated to allow for labor and other resources to be allocated to where they are most desired by consumers.
As a result, not only does the boom-bust business cycle cause tremendous short-term hardship, but it also lowers long-term living standards by wasting scarce capital. This is another application of the fact of economics that “there is no such thing as a free lunch”. The only way to keep the business cycle from recurring is to prevent banks from creating money out of thin air in the first place.
This explanation of the business cycle is known as “Austrian Business Cycle Theory”, in honor of Mises and his Austrian School students who further developed his groundbreaking theory.
One of his best students was economist Murray N. Rothbard, who summarized the theory as follows:
When the government and its central bank encourages the expansion of bank credit, it not only causes price inflation, but it also causes increasing malinvestments, specifically unsound investments in capital goods and underproduction of consumer goods. Hence, the government-induced inflationary boom not only injures consumers by raising prices and the cost of living, but also distorts production, and creates unsound investments. The government is then faced repeatedly with two basic choices: either stop its monetary and bank credit inflation, which then will necessarily be followed by a recession which serves to liquidate the unsound investments and return to a genuinely free-market structure of investment and production; or continue inflating until a runaway inflation totally destroys the currency and brings about social and economic chaos.
As Rothbard noted, governments and banks have a choice: 1) either slow down their money creation and cause an economic bust or 2) accelerate their money creation and cause hyperinflation.
Thus, money supply growth holds the key to forecasting the boom-bust business cycle.
Money Supply Is Now Declining in the US…Rothbard defined the best measure of money supply, which we call “Austrian Money Supply.” It is shown in the chart below and is calculated as M2 less Small Time Deposits and Retail Money Market Funds (since they cannot be spent immediately on demand) plus Treasury Deposits with Federal Reserve Banks.
We placed red arrows on periods when money supply growth slowed before prior recessions (shaded gray). We also placed a red arrow on the current 2.2 percent decline in the money supply, which is likely to cause a recession this year. This decline follows the enormous 40 percent increase in money supply due to the Fed’s covid response in 2020 (green circle), which caused the highest inflation in 40 years.
picture1.jpg And Money Supply Growth Is Also Slowing in All Other Major EconomiesUnfortunately, central banks around the world have followed the Fed’s boom-bust monetary policies.
The following chart shows Europe’s M1 money supply growth is slowing rapidly and approaching zero.
picture2.jpg China’s M1 money supply growth is also slowing, although at a less dramatic pace, as shown below.
picture3.jpg M1 money supply growth is also slowing in Japan, as the following graph shows.
picture4.jpg Lastly, as this chart shows, Brazil’s M1 money supply is also declining, along with the US.
picture5.jpg Leading Economic Indicators Point Toward a Global RecessionDue to the broad-based slowdown in money supply growth over the past year in the major economies of the world, global leading economic indicators are falling into recessionary territory.
For example, the OECD Composite Leading Indicators for the G20 (the 20 largest economies in the world, including the US, Europe, China, Japan, Brazil, India, Australia, etc.) have fallen to levels only seen during global recessions, as shown below (red line).
picture6.jpg ConclusionGlobal recessions tend to be more severe than recessions confined just to the US, since there is no major country in the world to serve as a growth engine to help revive the global economy. Based on the message currently being sent from money supply growth and other leading economic indicators, now is the time to prepare for the bust phase of the boom-bust business cycle.
It’s been a year since the Russian invasion of Ukraine. In spite of claims from the regime and its media allies that Russia was the next Third Reich and would soon roll through half of Europe, it turns out that was never even remotely true.
In fact, things have unfolded more or less just like we predicted here at mises.org: the Russians aren’t even close to occupying any place in Europe beyond eastern Ukraine. It’s not Munich 1938. Economic sanctions have not crippled the Russian regime. Most of the world remains ambivalent on the conflict. The conflict will likely end with a negotiated settlement—contrary to what the Washington wants.
The fact is that in spite of the United States’ and North Atlantic Treaty Organization’s (NATO) efforts to turn Ukraine into World War III, the war in Ukraine remains a regional conflict. It seems most of the world is uninterested in making sacrifices to carry out US policy in Ukraine and that many see the inherent hypocrisy behind US talk about respecting national sovereignty.
There’s also an important lesson here about listening to the war maximalists who incessantly promote full-scale war as the “solution” to every international crisis. The US clearly wants to fight the war to the last Ukrainian, in what the US is packaging as a global crusade in the style of World War II. But, it seems now that more pragmatic thinkers—i.e., the French and the Germans—recognize that negotiations are the more humane solution.
They Wanted a “Munich Moment”Within days of the Russian invasion, the Western global hegemonists got to work claiming the invasion was essentially a war of global conquest. For instance, Matthew Kroenig in Foreign Policy stated that Vladimir Putin had shown a clear interest in “resurrecting the former Russian Empire, and other vulnerable Eastern European countries—Poland, Romania, or the Baltic states—might be next.” Kroenig immediately concluded that the US’s military budget should be doubled.
Another writer insisted the Ukraine invasion contained “a whiff of Munich.” John Storey at the Australian Strategic Policy Institute claimed that “the forgotten lesson of Munich” had allowed “Putin is [to do] his best impression of German dictator Adolf Hitler.” Storey ominously asked, “Will the Baltic states and Eastern Europe be next?” dutifully repeating the party line that Russian tanks might soon roll into central Europe.
Yet the “lesson of Munich”—which is invoked incessantly and certainly not “forgotten”—has never been appropriate for conceptualizing the war in Ukraine. That sort of thing has even led some pundits to proclaim that global nuclear war is "worth it." The real lesson to be learned here, however, is the lesson of 1914: that we should not allow military alliances to lead major powers into overreactions that lead to global disasters. The “Munich” crowd wanted mass mobilization against Russia in early 2022. They didn’t get it, and thank goodness.
Russia Was Never a Global ThreatIt has been clear from the very beginning that Russia has never had the capability to sustain an occupation of any areas that do not already contain a sizable number of ethnic Russians or Russian sympathizers. This hardly mirrors the military capabilities of the Third Reich. Thus, it is not surprising that Russia’s occupation endures only in southeastern Ukraine and the Crimea. At this point, Russia is attempting to push the frontiers of its occupation zone as deeply as possible into areas with a sizable Russian minority. Even this has proven difficult for the Russian regime. Russia simply lacks the resources to take on anyone but its impoverished neighbors.
What’s more, bogging down Russia has required only a tiny portion of the war-making resources available to the NATO coalition. Europe’s NATO members have mostly pledged older weapons, and precious little state-of-the art equipment. The Washington Post recently noted, for example, that the West “is still short on pledges.” Recent promises of Leopard tanks from Germany, Denmark, and the Netherlands turned out to be promises of “refurbished” tanks that are more than forty years old. Moreover, none of these tanks will even arrive before this summer. As of late November, contributions of military aid from Germany, the United Kingdom, and France combined totaled a paltry €5 billion. That’s 6.00 percent the size of Russia’s military budget, and a miniscule 0.05 percent of the combined gross domestic product (GDP) of $10 trillion that comes out of the UK, Germany, and France combined. But what of US military aid? Surely a huge amount is needed to counter the Russian juggernaut? Well, the US military aid totals no more than $50 billion as of early 2023. That’s 6.00 percent of the US military budget, and it’s 0.20 percent of the US’s GDP. In addition to this, the US regime now admits doesn't even know what happens to the weapons it sends to Ukraine. How much of that $50 billion actually goes to Ukraine's defense? Not $50 billion.
If that’s all it takes to keep Russia slogging it out in eastern Ukraine, it’s hard to see how the Russian regime poses an existential threat to even western Ukraine, let alone any other state in Europe. This helps illustrate how unnecessary the US is to the conflict. Russia poses no threat to the US—unless the US escalates to the point of nuclear war. If the Europeans feel threatened, they can easily defend themselves given the huge size of their economic bloc, relative to Russia. The Europeans have more than enough resources to "stand with Ukraine" however they wish to define that. Yes, that might require to Europeans to give up a bit of their government pensions and enormous welfare states in order to fund their own military defense. But there's absolutely no reason why American taxpayers need be on the hook to subsidize European taxpayers as they're swilling cappuccinos on month-long vacations.
The World Is Not United against RussiaPerhaps seeing that Russia presents no conventional military threat beyond its “near abroad,” most of the world has not signed off on starting a new cold war. Although NATO mouthpieces have been enthusiastic about the passage of United Nations resolutions condemning Russia, it’s notable how many countries chose to abstain from the vote. Last week, the UN general assembly voted again on a resolution condemning the Russian invasion and calling for Russia’s withdrawal. One hundred forty-one countries voted in favor, but, notably, thirty-two countries abstained from voting (seven states voted against the measure). Among those thirty-two countries were China, India, Pakistan, and South Africa. India, a US ally and the “world’s largest democracy,” was apparently uninterested in joining NATO on the resolution. South Africa, another major world economy and democracy, stayed out of the matter as well. In fact, the only member of the BRICS bloc to vote in favor of the resolution was Brazil.
This has partly been driven by practical matters. The political leadership in these countries is simply not prepared to impoverish its population in order to please Washington. But the resistance also comes from the fact that most of the world knows US pretensions toward respecting national sovereignty and international law are all an act. The US invasions and bombing campaigns against Iraq, Afghanistan, Libya, and Syria have made it clear the United States is perfectly at ease with violating national sovereignty when it suits US ambitions. The so-called rules-based international order obviously means nothing to the US when it becomes inconvenient to Washington. (It should also be noted the Ukraine regime supported invading Iraq and sent at least five thousand troops to help the US occupy that supposedly sovereign nation.)
What does this all mean for Russia? It means that some of the world’s largest economies have signaled they have no plans to cut Russia off from the global economy and that they refuse to cut themselves off from Russian oil, gas, and foodstuffs.
Sanctions Didn’t Ruin RussiaThe US has been unsuccessful in securing global compliance in isolating Russia economically. Thus, the US has been forced to rely on coercive sanctions—not just against Russia, but against those who choose to keep doing business with Russia. The US must now spend time and resources enforcing “secondary sanctions” designed to coerce countries that don’t play along, and now finds itself in the position of repeatedly threatening countries other than Russia with “consequences” for violating US sanctions.
But, for all the US bluster on this, US sanctions have clearly failed to ruin Russia economically. Recent numbers show that the US oil sanctions against Russia “have done little to curb the flow of Russia’s crude.” Or as this article as CNBC suggests, the oil sanctions “failed completely.”
This isn’t to say that the sanctions have had no effect. Yet it is clear that the sanctions—the harshest sanctions used since World War II—are not a “game-changer.”
Instead, the sanctions have created additional motivation for states to find ways to get around US sanctions in the future. As Agathe Demarais notes in Foreign Policy:
Russia, Iran, China, and other countries at odds with the United States are doubling down on efforts to vaccinate their economies against sanctions. These measures have little to do with sanctions circumvention: Instead, they represent preemptive steps to render potential financial sanctions entirely ineffective. Such mechanisms include de-dollarization efforts, the development of alternatives to SWIFT (the Belgian cooperative that connects all banks across the world), and the creation of central bank digital currencies.
That reference to “other countries” is key. The more the US employs its financial power as a weapon against other regimes, the further this will push the world’s regimes to find ways to break free of the US-centered financial world. Those efforts will put downward pressure on the dollar in coming years.
“Unconditional Surrender” was Never an OptionThe US has generally saved its “regime change” rhetoric for small, dirt-poor countries that are unable to fight back. Yet, following the Russian invasion, many Western commentators began calling for regime change in Russia as well. Most notably, on March 26, President Joe Biden said Putin “cannot remain in power,” although he was later forced to backtrack. Not only are the prospects for regime change in a nuclear-armed country fraught with immense danger, but many observers recognize the fact that toppling Putin is easier said than done. Nor would such a move guarantee that Putin’s regime would be replaced with a regime opposed to Russian expansionism. In fact, the new government could easily be “worse” by NATO standards.
This is a hard pill to swallow for Americans who are wed to a long-standing obsession with “unconditional surrender” in every military conflict. The model here is the Japanese surrender in the Second World War. The reality, however, is that the overwhelming majority of military conflicts are ended through negotiated settlements.
Nevertheless, throughout the first half of 2022, those who called for negotiations to end the war—for purposes of ending the bloodshed sooner—were branded Russian apologists. Only total victory, we were told, was an acceptable outcome.
Those days are swiftly coming to a close. “Total victory” for Ukraine, defined as the total withdrawal of Russia, was never likely. The reality is more along the lines of what French diplomats are privately willing to admit. As the Wall Street Journal reported last week, French and German leaders are now telling the Ukrainian regime that it needs to consider peace talks:
“We keep repeating that Russia mustn’t win, but what does that mean? If the war goes on for long enough with this intensity, Ukraine’s losses will become unbearable,” a senior French official said. “And no one believes they will be able to retrieve Crimea.”
Gen. Petr Pavel, president-elect of the Czech Republic and a former NATO commander, said at the Munich conference [last week]: “We may end up in a situation where liberating some parts of Ukrainian territory may deliver more loss of lives than will be bearable by society. . . . There might be a point when Ukrainians can start thinking about another outcome.”
The endgame is coming into view, and it’s a negotiated settlement. Unfortunately, it’s a settlement that will come only after an immense loss of life for both Ukrainians and Russians, and at the price of enormous loss of capital and infrastructure. A settlement could have likely been achieved sooner, and with the same territorial losses in Ukraine that likely would have resulted in any case. The US could have given up its obsession with making Ukraine a NATO outpost. The Ukraine regime could have given up trying to turn Ukraine into an ethno-state where Russian-speakers are second-class citizens. The US and Ukraine could have admitted they're not getting Crimea back. Instead, they chose to prolong the conflict, and the result has been perhaps hundreds of thousands of unnecessary deaths. The fact that the Russian regime is ultimately the aggressor here does not change this reality. Being a small, poor country next to Russia has always been just an unfortunate reality for some. Thus, responsible foreign policy for those states lies in taking positions that limit unnecessary bloodshed while finding ways to co-exist with the Russians. Instead, the US and Ukraine have chosen to wax philosophical about moral rectitude while NATO leaders recite their bullet points on regime change, total victory, Munich, and a “rules-based order.” None of this helps save lives.
Those who promoted a need for full-scale war and "no peace until total victory" have been stunningly wrong, and it has proven to be very costly.
Read More:
- We Must Now Learn the Lesson of 1914, Not the Lesson of 1938.
- A Brief History of Pundits Encouraging Nuclear War
- NATO Plans to Rip Off Americans Even More as Sweden and Finland Set to Join
- If Ukraine Joins the EU, It Will Be the Poorest Member by Far
- It's Time to Abandon America's Fetish for "Unconditional Surrender"
- Russia Isn't Nearly as Isolated as Washington Wants You to Believe
- Russian Weakness and the Russian "Threat" to the West
- No, Ordinary Russians Are Not Responsible for the Crimes of the Russian Regime
- Why Sanctions Don't Work, and Why They Mostly Hurt Ordinary People
- Will Biden Sanction Half the World to Isolate Russia?
Rest in peace, "technolibertarianism." There was a time when many believed tech entrepreneurs would usher in a new era of freedom. Unfortunately, the new tech elites are technocratic collaborators with the regime.
Original Article: "When the Private Sector Is the Enemy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In 1971 Richard Nixon took the US off the last feeble vestiges of the gold standard, otherwise known as the Bretton Woods Agreement. That system had been a bizarre gold-dollar hybrid where the dollar was the world reserve currency but the US agreed to keep the dollar backed by gold. Henry Hazlitt’s book From Bretton Woods to World Inflation explains the consequences of this situation well.
The end of this system left a vacuum at the heart of world financial affairs, one that needed to be filled quickly. The dollar, now unmoored by gold, remained the default currency for international trade, but without the confidence derived from its former gold backing, the US needed to bolster its credibility lest other more enticing options appeared to displace the dollar’s hegemony.
During the 1973 Arab-Israeli war, Organization of the Petroleum Exporting Countries (OPEC) had gained leverage by imposing an oil embargo, which caused serious disruptions in the global economy. In 1974 Henry Kissinger brokered a deal: Israel would back off its territorial ambitions, the Arab states would end the embargo, and oil would be traded in dollars. Thus, the petrodollar was born.
Every economy needs energy, and Saudi Arabia supplies plenty of oil, meaning that the dollar was backed up by a valuable commodity that would always be the recipient of demand. Everyone wants oil, and the Saudis would only trade it for dollars, so the dollar became unavoidable in international trade, reaffirming its status as the world reserve currency.
Even if others would have preferred a neutral, market-based currency not subject to manipulation, the opportunity cost of foregoing oil was far higher than the cost of having to use the dollar. A global medium of exchange selected by the market would have been more economically efficient, but given that the US and the Saudis possessed the ability to impose a politically motivated system, nobody was willing to bear the costs to create an alternative as long as the dollar was managed fairly sensibly.
Washington and the Gulf States benefit enormously from this situation. The petrodollar gives the Fed extreme license to print currency and export its inflation. If other countries are forced to use your currency, that gives you a lot more room to debase it. Imports are made cheaper with the high purchasing power of the dollar, and exports are propped up because the easiest way to spend dollars is to buy American products.
All this amounts to Washington essentially taxing world trade. The Gulf States benefit in the same ways by having enhanced access to the world reserve currency. Their oil is given priority in world markets compared to competitors opposed by Washington, such as Iran. They are also just simply given financial aid by Washington for participating in this scheme.
However, there are consequences for the countries involved. Even if the US has largely avoided extreme domestic consumer price inflation by circulating dollars around the world, the business cycle consequences of inflation are unavoidable. For example, the 2008 recession was severe yet unaccompanied by extreme inflation before or after. Holding the world reserve currency has also given the US a free ride with far less need to produce valuable goods and services. The dollar holds its value because there has always been global demand for it, so it has been possible to print money to prop up the US economy by consumer spending without an extreme loss of value in the dollar. But there is now very little worth in the underlying US economy.
The dollar is backed up as the world reserve currency by a series of secondary institutions: the International Monetary Fund, the World Bank, etc. On top of this, though unspoken, there exists a military and intelligence enforcement mechanism. Oppose the dollar and either Washington will invade you, or agents from the Central Intelligence Agency will appear and ask domestic radicals what color they would like their revolution.
Iraq persistently attempted to abandon the dollar, making a particularly assertive move in October 2000. Then they were invaded in 2003 without having attacked America or any other country. Libya’s Muammar Gaddafi attempted to create an Africa-wide gold-backed dinar and was assassinated in 2011. Of course, US involvement in these countries is not monocausal, and other factors like security guarantees for Israel and progressive crusading play a role. But securing the hegemony of the dollar is a critical issue in Washington’s foreign policy.
The corollary of the power granted by possession of the world reserve currency is the ability to break the rules of your self-proclaimed rules-based order. Saudi Arabia funds radical mosques around the world, and we have already mentioned the recent American invasions. Other states must acquiesce to this behavior because ending up on the wrong side of the dollar would be disastrous for their economies, and it could potentially mark them as a target for invasion or subterfuge.
But it seems like recent actions have been too extreme for other world powers to accept. The printing of more dollars in 2020–21 than in the entirety of the currency’s history up to that point destabilized the global financial system by creating mass inflation. And the sanctions imposed on Russia exacerbated the situation even further.
In the past thirty years there have been many post-Communist wars involving many deaths and frequently involving Russia (not that I am necessarily blaming Russia for these wars). Think of Chechnya and Georgia: nothing like the current sanctions were imposed on Russia for what were essentially parallel conflicts to the current stramash in Ukraine. The West’s reaction against Russia in 2022 was unprecedented.
The fact the West has turned a regional conflict into a proxy war and destabilized the world economy, seemingly due to ideological frenzy and a desire for one world government, has disturbed many other powers. They have suffered from the economic chaos and may encounter similar regional conflicts in their own future. They are concerned the West could leap into these disputes in the same way they have attempted to crush the Russians.
Thus, in the long run, the dollar is doomed as other world powers realize that Washington has abrogated its responsibilities, and the second and third world cannot ever allow what has transpired with the covid inflation and the Russia sanctions to happen again.
Russia has already linked the ruble to a semi–gold standard. China has also made moves regarding gold and is far ahead of the US in the race for an all-important central bank digital currency. Previous solid allies like India are backing away from the increasingly deranged Washington establishment. As countries refuse to go along with the bizarre social agenda and utopian eschatology of Washington, they will also have to seek alternative economic arrangements.
For Washington both the political and economic systems are nonnegotiable. It has hardly been trumpeted by the Western press, but if you have been paying attention this past year, you will have noticed stories of major countries agreeing to trade in currencies other than the dollar.
Decoupling is a tricky proposition as these countries’ economies have been tied up with the dollar for decades. There is also the risk of Washington violently lashing out to maintain its hegemonic status. Thus, the transition away from the dollar is likely a medium- to long-term trend. But the first decisive moves have occurred, and there is no turning back short of serious self-reflection on the part of Washington (which I would bet against).
However, much hinges on Saudi Arabia’s actions. As we discussed earlier, they made the petrodollar, and they will be the ones to break it if that is what transpires. Since it is their oil that underpins the value of the dollar, the more they trade oil in other currencies, the less value the dollar possesses. And in a momentous story, the Saudi minister of finance stated that they are open to trading oil in currencies other than the dollar. The Chinese and Saudi leadership have discussed this issue, and securing bilateral trade without the involvement of the dollar appears to be a top Chinese priority.
A failing dollar will have disastrous consequences for the US as there are not enough manufacturing or nonfinancial services in its economy. Imports will suddenly be expensive, and the quality of life will drop. Much of the establishment isn’t as hardheaded as those who came before and doesn’t conceive of the possibility of Washington losing.
How could they? Russia is mildly antigay, and they don’t believe in climate change. They’re the bad guys, and the bad guys always lose. Other quarters of the establishment seem to have retained a dose of realism and appear to be looting the government and the economy while the dollar still has value (think Biden’s gigantic crony-laden spending bills).
The good news is that Washington’s plans for world domination are bound to fail as China and Russia have a revived alliance, which also appeals to and is open to other powers. The bad news is that this will lead to the drawn-out collapse of the dollar, which Washington will attempt to parlay into a new central bank digital currency to accompany an increased crackdown on opposition within the dwindling empire. But ultimately, with visibly successful alternative systems elsewhere and less material comfort at home, more people will begin to question the first principles, foreign policy, and economic doctrines of the post–World War II order.
When we see real bipartisan action in Congress, it usually is for the worst.
Original Article: "Why You Should Fear "Bipartisan" Agreements in Congress"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It is tempting, as Naomi Wolf has done recently, to ascribe the breakdown of Western civilization to the debasing of “Judeo-Christian” ethics and the reemergence 0f malignant supernatural forces. Witnessing the many assaults on the infrastructure and social order of the United States of late, I wouldn’t rule out metaphysical causality either. But to blame the pagan gods, or, in specifically Christian terms, to blame Satan, is to take comfort in an obscured perspective on the current global arrangement. To lay culpability strictly on gaseous, unknowable forces is to let the global elite off the hook.
As I write in The Great Reset and the Struggle for Liberty, the Western world is in the grips and under the control of “subversive elites.” With inordinate power and influence, these people aren’t naturally superior but have as their object the undermining of Western civilization.
They can be found in such globalist “Round Table” organizations as the Royal Institute for International Affairs (Chatham House), the Council on Foreign Relations, the Bilderberg Group, the Club of Rome, and the World Economic Forum (WEF); in their main international intergovernmental counterpart, the United Nations (UN); and in the monetary organizations that fund the globalist regime, the International Monetary Fund and the World Bank. All these organizations have had as their objective the undermining of nation states, the destruction of the free market, and the control of the world economic system by a globalist elite. These objectives are now being conducted under the rubric of “stakeholder capitalism,” with the WEF running interference for and coordinating the “public-private partnerships” that are ushering in stakeholder capitalism, supposedly to combat “climate change.”
In the economic sphere, stakeholder capitalism is a cartel scheme that benefits the compliant and destroys the noncompliant. And the economics of stakeholder capitalism spill into a governance and geopolitical model: states and favored corporations in “public-private partnerships” in control of governance. The configuration yields a corporate-state hybrid largely unaccountable to the constituents of national governments. As Kurt Nimmo writes:
According to the Transnational Institute in the Netherlands, this “initiative” proposes a transition away from intergovernmental decision-making towards a system of multi-stakeholder governance. In other words, by stealth, they are marginalising a recognised model where we vote in governments who then negotiate treaties which are then ratified by our elected representatives with a model where a self-selected group of “stakeholders” make decisions on our behalf. (emphasis added)
The cozy relationship between multinational corporations and governments has even aroused the scorn of a few leftist academics. Some note that the UN-WEF partnership and the governance model of the WEF represent at least the privatization of the UN’s Agenda 2030, with the WEF bringing corporate partners, money, and supposed expertise on the Fourth Industrial Revolution (4-IR) to the table. And the WEF’s governance model extends well beyond the UN, affecting the constitution and behavior of governments worldwide. This usurpation has led political scientist Ivan Wecke to call the WEF’s governmental redesign of the world system “a corporate takeover of global governance.”
This is true, but the WEF model also represents the governmentalization of private industry. Under Schwab’s stakeholder capitalism and the multistakeholder governance model, governance is not only increasingly privatized, but also and more importantly, corporations are deputized as major additions to governments and intergovernmental bodies. The state is thereby extended, enhanced, and augmented by the addition of enormous corporate assets. These include funding directed at “sustainable development” to the exclusion of the noncompliant as well as the use of Big Data, artificial intelligence, and 5G to monitor and control citizens.
But first the conditions for global government must be established and these conditions include the breakdown of national sovereignty, the abrogation of natural rights, and the reduction of the standard of living of the vast majority. “Affluence,” writes Sam Fleming for the WEF, “is the biggest threat to our world. . . . True sustainability will only be achieved through drastic lifestyle changes.”
Thus, these elites are not only subversive but also destructive. It is difficult to conclude that the many recent assaults on the infrastructure of the US are anything but part of a coordinated campaign to destroy productive capacities and terrorize the population. Consider the use of vaccine mandates to choke supply chains, the multiple train derailments and chemical bombs, the undetonated bombs on railroad tracks, the mysterious explosions at metals plants and oil facilities, the “coincidental” fires at food processing facilities and chicken egg farms, the hazardous materials explosions in public transportation facilities, the shutdown of a major baby formula production lab, etc.
Consider these in connection with the operations of cultural, social, and political demoralization—the covid lockdowns and vaccine mandates, the quasi-endorsed Black Lives Matter–Antifa riots, the election legerdemain, the January 6 show trials, the unfettered immigration, the foisting of the transgender movement and critical race theory on elementary school students, the differential treatment of crime along political lines (with the apparent rewarding of criminals carrying out subversive acts and the imprisonment of those who merely protest the regime)—and the effect is a politicized anarcho-tyranny unleashed on the populace. Do not all these phenomena have the common effect of producing social and economic insecurity and learned helplessness, while cowing any political opposition into submission?
Yet it is essentially impossible to prove that a coordinated campaign by subversive elites is afoot. As internal Twitter documents made available to the public in December reveal, one of the most powerful communications and ideological apparatuses on earth had gone to great lengths to snuff out and filter the visibility of any story that might provide a window into the coordination of the new world order.
If, however, as Pareto suggested, a governing elite is inevitable, then, as Jeff Deist has argued, we are certainly under the wrong elites. Whether a circulation of elites can be completed in time to save the world economic system from ruin and the majority from destitution and veritable slavery is a question of no little urgency.
At the heart of Keynesian business cycle theory is the so-called liquidity trap. Contra Keynes, however, economies don't falter because a sudden increase in the demand for money.
Original Article: "Forget the Liquidity Trap—Loose Monetary Policies Cause Recessions"
This Audio Mises Wire is generously sponsored by Christopher Condon.
We currently find ourselves in a bizarre wasteland of mainstream political discourse. These days no US institution, and indeed no corner of American life, is safe from politicization or even from becoming a mouthpiece for extreme activism.
Since last November, Yale, Harvard, and other top US law schools have opted out of participation in the annual rankings by US News & World Report, a long-established go-to reference for how the nation’s laws schools stack up against each other. While it has many competitors, the US News’ rankings are among the most well-known and prestigious.
These schools have issues with how their rankings are formulated, which is interesting given that the disputed calculations routinely rank them at the top. Exploring this question leads to bigger questions, pointing to troubling modern cultural tendencies leading beyond law school rankings.
Representatives of these schools say that the current standards are both flawed and unjust, claiming that US News places too much emphasis on Law School Admission Test (LSAT) scores and grade point averages of enrolled students. The US News graduate employment data focuses exclusively on the traditional pipeline of employment after graduation rather than alternative public service paths, neglecting to calculate student loan forgiveness and repayment programs of certain positions when totaling the debt of current and graduating classes.
These arguments suggest, in part, that US News isn’t accurately assessing the preparedness of the schools’ average graduate for the legal profession. If that were true they might have a point, but that is not the crux of the argument made by the elite schools.
Instead, these schools are pointing toward things one does not ordinarily associate with an elite law school education. Writes the dean of Harvard Law School in a blog post:
By heavily weighting students’ test scores and college grades, the U.S. News rankings have over the years created incentives for law schools to direct more financial aid toward applicants based on their LSAT scores and college GPAs without regard to their financial need. Though HLS and YLS have each resisted the pull toward so-called merit aid, it has become increasingly prevalent, absorbing scarce resources that could be allocated more directly on the basis of need.
And this is from a blog post by the dean of Yale Law School:
Millions of dollars of scholarship money now go to students with the highest scores, not the greatest need. At a moment when concerns about economic equity stand at the center of our national dialogue, only two law schools in the country continue to give aid based entirely on need—Harvard and Yale.
And so, the true agenda emerges.
While these universities are perfectly within their rights not to collaborate with US News or any outside organization they choose, their freedom doesn’t end there. How they select and admit students—whether by exam results, grade point average, or what have you—is strictly an internal affair. If they wish to bolster the enrollment of economically challenged students with lower grades and test scores, that’s their prerogative.
The data with which US News chooses to rank them in no way precludes them from offering such opportunities or conducting their admissions programs however they see fit. It’s also entirely up to them how much to prioritize their rankings and situate their standards accordingly.
So then, why does their tone sound suspiciously like they want to dictate not only the standards of US News but even the policies and practices of other law schools? Because there’s something broader at work here.
These schools are demanding a new set of values. High grades and exam scores, ample educational resources, and stellar references don’t reflect ability, initiative, or work ethic, but rather unearned privilege and unjust enrichment, according to leaders of the most elite law schools. These qualities are to be de-emphasized in favor of politically trendy criteria: ethnicity and financial need.
It’s hard to argue the nobility of providing aid to candidates from modest means who have fulfilled the academic requirements of these institutions, and there’s a lot to be said for such programs. Exactly how much is to be said? Well, apparently the Harvard and Yale administrations believe they should be the arbiters of that.
This is part of a larger movement that has migrated outside the confines of the most extreme university campuses into elite law schools and far beyond. It’s an affront to the notion that competence should decide who earns a position as a student, worker, craftsman, educator, and so on.
Griggs v. Duke Power Co., a Supreme Court decision, litigated the issue of employment competency tests for skills directly related to an applicant’s prospective job. The court struck down the tests as discriminatory, creating a legal precedent that, while not prohibiting them, created enough fear in the human resources landscape to render such tests de facto illegal. With proof of one’s aptitude off the table as a gauge of suitability, where could the employers turn to assess their applicants? Transcripts and test scores. And now those are being targeted for termination under similar guises.
This is a war on meritocracy. Not any particular method, application, or standards, but the very idea itself. These people don’t just seek to fill positions based on some new metrics of ability. They want to render ability completely irrelevant.
In the immortal words of Jerry Seinfeld, “Who are these people?” I don’t believe it’s some conspiratorial secret society. There’s no need for all of that as more and more they’re doing this right out in the open. It’s a loose, nebulous association of intellectual elites, academic elites as in this case, and even some among the scientific and business elites. Perhaps their high stations didn’t exactly come about through pure capability, so they have a certain disdain for such a notion and a plan for all of us that’s meant to stamp out and supplant the meritocracy.
But why would they want to do this? What could possibly be the endgame? Surely they don’t desire an infrastructure staffed by the incapable! It doesn’t seem so nihilistically destructive as that—more like a good old-fashioned power grab. They want the infrastructure to be meticulously, centrally planned by guess who? And what is the appropriate criteria for employment? Being handpicked by this enlightened party that operates on the mantra of every great tyranny in history: they know what’s best for you.
It doesn’t seem that any field or aspect of society is safe from the current spreading of this ideological virus, so resistance is a moral imperative. Whatever your sphere of influence—your family, your department, your company, your franchise, etc.—draw a line in the sand and don’t accept these crimes against value, logic, and morality. If we don’t stop making apologies, capitulations, and accommodations to such premises, they’ll come to define this country.
One of the fundamental tenets of Austrian economics is the ordinal value scale. Augustine articulated the idea more than a thousand years before Carl Menger wrote his pathbreaking Principles of Economics.
Original Article: "Saint Augustine, Proto-Austrian"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Never is a very, very long time in politics. Yet whenever the topic of secession or so-called national divorce comes up, how often do we hear that “secession will never happen.” It’s difficult to tell if people using the term “never” actually mean it. If they mean “not in the next ten or twenty years,” that’s plausible. But if they truly mean “not in the next 100 (or more) years,” it’s clear they’re working on the level of absolutely pure, unfounded speculation. Such statements reflect little more than personal hopes and dreams.
Experience is clear that the state of most polities often changes enormously in the span of a few decades. Imagine Russia in 1900 versus Russia in 1920. Or perhaps China in 1930 versus China in 1950. If someone had told the Austrian emperor in 1850 that his empire would be completely dismembered by 1919, he probably would have refused to believe it. Few British subjects in 1945 expected the empire to be all but gone by 1970. In the 1970s, the long-term survival of the Soviet Union appeared to be a fait accompli. For a visual sense of this, simply compare world maps from 1900 and 1950. In less than the span of a human lifetime, the political map of the world often changes so as to be unrecognizable.
Yet there are always those who are quite comfortable with the status quo and who tell themselves it will continue indefinitely. Many find comfort in the hope that their favorite national regime will be a thousand-year reich, living on indefinitely into the rosy future of “progress.” Claims to political immortality are also frequently important as rallying cries in support of the state. As French Marxist philosopher Régis Debray noted, the idea that “France is eternal” may be empirically untrue, but the sentiment nonetheless serves to motivate the French soldier or French nationalist to preserve his regime.
Meanwhile, the opposite impulse, a recognition of the regime’s mortality is seen by many as a kind of heresy against the national political idols. It may be obviously true, but to say it out loud is “treason.” The cry of “traitor,” of course, has long been the go-to strategy for those with an emotional attachment to the regime. Like many heresies before it, this one must not go unpunished. Thus, “traitor” was the cry of the French republican who thought it better to butcher women and children in the Vendée rather than allow that portion of France to be independent. It was the cry of the Turkish imperialist who carried out a genocide against Armenian separatists.
The reality is that the current shape of any regime is more tenuous than many hope. The debate is not whether the US regime will fundamentally change in size and nature. The question is when and in what way. Those who are willing to examine the possibility of gradually unwinding state power peacefully through decentralization—rather than letting internal national conflicts explode into violence and revolution eventually—display a far better grasp of political history than the knee-jerk unionists.
The emotional nature of this opposition to secession can be seen in the fact that the opposition grants no middle ground in the debate. The only allowable options are the status quo or war.
Options for the “middle ground” include a confederation built on a consensus model in the style of the old Dutch Republic. There is the model of the very loose confederation in the style of the old Swiss confederation. There is the option of a customs union with voluntary membership, such as the European Union. There is the option of a mutual defense compact among independent polities, as we find in a multitude of defense leagues. None of these options require a state that imposes nationwide regulation and taxation in the manner of the enormous administrative state that we have today.
Yet most of those who oppose secession also oppose all of these options. We don’t hear, “Well, secession is too far, so let’s move toward a much more decentralized model.” Why do we never get this olive branch from the centralizers? Because their opposition to secession is more about supporting the status quo. They want a national government to impose nationwide policy in a way that reflects the national ruling class’s values. It’s the colonialist mindset all over again: “Oh, we can’t let those people in state X set their own rules for elections/abortion/trade. Those people are too unenlightened/racist/stupid to be allowed local autonomy.”
[Read More: "Why the US Supports Secession for Africans, but Not for Americans" by Ryan McMaken]
This intransigence can also be found in the way that the opposition often delights in the idea of using violence against potential separatists. Congressman Eric Swalwell, for instance, suggested the US government use nuclear weapons against internal separatists. And then there are those who make light of the idea of a second blood-soaked civil war. Indeed, the insistence on tying twenty-first-century decentralization to a war in the mid-nineteenth century (160 years ago) implies that the unionist “solution” back then justifies the same solution now. Note the emphasis is always on the American Civil War and not on the many examples of peaceful secession movements: Iceland from Denmark, Norway from Sweden, Singapore from Malaysia, Malta from the British Empire, and the Baltic states from the Soviet Union (to name a few). Instead, the average American antisecessionist is apparently obsessed with making war against this own neighbors.
I guess Marjorie Taylor Greene and the rest of Northern Georgia did not learn their lesson about secession the first time.
SHERMAN INTENSIFYING pic.twitter.com/ivz4NYEAVf
— Nunca Trumpismo (@NeverTrumpTexan) February 20, 2023
Of course, that sort of thing can only be carried out today if modern Americans are willing to die and kill—or have their children die and kill—in the name of “preserving the union.” How many are willing to do this? Hopefully not many. Those who are willing to do it can only be described as fanatics.
The presence of these proviolence antisecessionists does remind us of the continued danger of political union, however. Those who favor union may interpret mere discussions of disunity as a sign of the need for ever-greater federal control over the population. This is also the strategy preferred by states: tendencies toward disunion are countered by an ever-stronger and ever-more-unyielding state. The strategy is tried and true. This is how a fragmenting Roman Empire was preserved for another 150 years after a breakup seemed all but assured during the third century. The emperor turned the empire into a military dictatorship. The same method of imposing unity has been employed countless times across countless polities—and at great cost to human rights and self-determination. Yet not even Diocletian’s dictatorship could ultimately prevent the secession of the western regions of the empire. (Justinian’s later attempts at reunifying Italy with the empire failed as well, and only brought enormous and unnecessary death and destruction.) Secession and disintegration have always been inevitable for large diverse states. The Romans were not immune. The Americans are not immune.
[Read More: "The Greatest Thing the Roman Empire Ever Did Was Go Away" by Jason Morgan]
The answer lies not in doubling down on political unity, maintained through endless violence or threats of violence. Rather, the answer lies in peaceful separation through expanded self-determination, regional autonomy, confederation, and consensus. The choice we now face is between a rearguard attempt at preserving political unity “forever” and facing the inevitable reality. On one side, there are the unionists with their devotion to the status quo and their colonialist mindset. On the other side are those who seek to temper the power of the central state and pursue local self-determination. The centralizers are on the wrong side and will ultimately be on the losing side as well.
As it always does, the State of the Union (SOTU) address dominated the media cycle for several days before and after. Now that the period has (gratefully) passed, and the issues raised have faded from the headlines into the background, it is worth taking a look at some of the policies that featured heavily in Biden’s speech, and which have reemerged to become so vogue among both Democrats and Republicans.
Specifically, protectionism.
Indeed, with practically the only bipartisan moments of applause during Biden’s SOTU coming after the predictable paeans to the great moral virtues of “Buying American,” the protectionism made mainstream by Trump looks set to continue.
So how are these efforts faring?
Further, why have the policy, business, and political establishment suddenly climbed on board, as is evidenced by Biden’s wholesale adoption?
Let’s start with the latter: why, with the American public having been generally somewhere between lukewarm to resistant to so-called “free trade” deals for over thirty years, have the decision-making elite of both parties finally come around?
For example, as he spoke the other night, tying the nation’s loss of “pride and self-worth” to “the loss of manufacturing jobs,” ignoring the dubious causal link, one must ask as a supporter of the North American Free Trade Agreement (NAFTA) and increased trade with China whether Joe Biden really is senile, stupid, or thinks we’re stupid.
The politically opportunistic choices of Biden’s speechwriters aside, and the general lack of commitment to firm principles, which more than anything else has so defined Biden’s six-decade career as a politician, a confluence of other factors have combined to essentially see the field ceded to the protectionists of both parties and their respective interest groups.
First, Hillary Clinton’s abandonment of her own free trade agreement, the Trans-Pacific Partnership, on her way to losing the White House showed domestic political resistance was becoming increasingly costly to overcome.
Second, and relatedly, the strategy of trading American manufacturing jobs for geostrategic advantage was beginning to run the other way; first covid and then the Russian invasion of Ukraine saw massive supply shortages and exposed critical weaknesses in global capitalism’s intricate networks of interrelated producers. Girding for the next round of great power conflict, Washington was embarrassed to find its own industrial base greatly diminished and strategists clambered aboard the protectionist bandwagon in the name of national security, hence the CHIPS Act.
Critically, free trade’s historically biggest champions, big business, have been largely absent from the field. Frankly, many in the corporate world have undergone a change in thinking regarding China: while it was nice increasing profit margins by offshoring factories to exploit the cost savings of cheaper labor and lower environmental standards, the real prize was always open access to the Chinese domestic market.
Like the mid-nineteenth-century British imperialists who daydreamed about British manufacturers selling each of China’s billion residents a “mere square inch” of Lancaster fabric, they ignored intellectual property theft and blatantly unfair trading practices in pursuit of access to a Chinese market that they finally realized was never forthcoming—at least not on anything like acceptable terms, with heavily subsidized Chinese companies already having secured dominance in their domestic market by churning out replicas of Western products.
With the consensus of free trade having been abandoned by the business community, the race among interest groups to line up at the public trough was always going to commence in earnest. With small, powerful, coordinated interest groups easily able to shape legislation to tax the mass of uncoordinated and uninformed voters, it is little surprise more corporate welfare than usual has been piled into such recent “landmark” bills as the so-called Inflation Reduction Act.
As an aside, while its name may have fooled a significant portion of the domestic audience, passage of the Act caused enough consternation that it was one of the primary subjects of Emmanuel Macron’s visit last year to Washington.
Credit the Europeans, they know subsidies when they see them.
And while the Europeans’ complaints are that their sellers face an unfair advantage, US consumers are the ones who actually pay the (unseen) tax, which results from the increased market power of sheltered domestic firms.
As a fact, freer trade will produce lower prices and more goods than similar, more autarkic arrangements, where the priorities of the state and crony patronage networks matter more than actual prices and demand.
Of course, NAFTA and similar agreements are not “free trade” agreements in any real sense. A real free trade agreement could fit on a bar-napkin: it would say no tariffs, so subsidies, no quotas, etc. While NAFTA, the EU common market, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership seek to standardize certain regulations and taxes to facilitate easier commerce between private businesses within each participating state, the agreements run thousands of pages precisely because they also include plenty of protection for political favorites (think US and French farmers).
Using trade to pander to domestic political constituencies has increasingly given way, however, to weaponizing trade in the name of geopolitical advantage. For example, Trump’s trade war with China has been taken to the technological cutting edge, with the Biden administration seeking to prevent China from making or having access to the high-grade microchips necessary for the most advanced computer and military technology.
And while the Biden administration has trumpeted its ramping up of pressure on the governments of, ostensibly independent, states like the Netherlands and United Kingdom, to prevent or block the actions of domestically based private companies that might dare to do business with Chinese counterparts in these critical wares, American observers should note two things: First, China has taken note and objected at the World Trade Organization to Washington’s drastic escalation of its existing trade war; and second, and that in the digital age trying to cut China off from its supply of high-grade microchips is the functional equivalent of cutting 1930s Japan off from oil and mineral resources.
Apart from the dangerous and bullying nature of such tactics, and its negative effects on US-China relations and American soft power, such apparent power to redistribute and rearrange reality at will by government fiat produces less than impressive results in reality.
For example, though Biden’s SOTU remarks fell on fertile domestic soil, his “Buy American” mandates are already running into trouble. Apparently, per the Washington Post, no one bothered to check whether anyone produced a given product or part before mandating that no projects could proceed without purchasing the necessary factor of production from the (nonexistent) domestic producer.
Though the state may command, as a nonproductive entity itself it must rely on market participants adjusting to the changed market environment brought about by the abrupt change in state policy. Investment, plant construction, and skills training take time to put in place. Apart from the opportunity cost, the government’s sudden distortion of the market can cause potential headaches even for those that stand to benefit. Expanding capacity to meet the sudden surge in demand could prove disastrous were that demand to be withdrawn, after all.
In practice, however, once in place the concentrated benefits and diffuse costs of these corporate entitlements makes them extremely difficult to eradicate. They create their own interest groups, whose own existence in turn becomes predicated on the continuing existence of the appropriation in question. In the case of those industries and sectors related to Washington’s pursuit of great power conflict with Russia and China, they create a perverse incentive whereby a cessation in hostilities would be a major hit for shareholders: hence their sponsoring of the “think tanks” whose experts regularly call for more and more military spending to counter the fake threats of Chinese and Russian world domination.
Language matters and Americans should understand that calls by Washington to reshore, to “friend shore,” to “Buy American,” and to protect domestic producers are not due to some sudden desire to further the welfare of the average American manufacturing worker or producer. Whatever their political window dressing, these autarkic policies are intended to further state power and to insulate the American population from possible disruptions to the economy resulting from Washington’s pursuit of conflict abroad.
Just say no.
In the name of "economic development," San Antonio's government is seeking to seize a thriving business near the Alamo.
Original Article: "Remember the Alamo! Moses Rose's Last Stand"
This Audio Mises Wire is generously sponsored by Christopher Condon.
A new movement is emerging on the left. This movement sells guilt and self-flagellation and calls it antiracism. Its leaders present themselves as the absolute authority on race relations and claim that being a good white person means following their instructions. But when it comes to racism, “the elect” (to borrow Columbia University linguistics professor John McWhorter’s term for members of this movement) misdiagnose the problem and posit solutions that will make bigotry in the United States worse.
The commentators of the elect are myriad, but three books represent the face of the movement. The first is White Women: Everything You Already Know about Your Own Racism and How to Do Better, a New York Times bestseller by Regina Jackson and Saira Rao. The second is White Fragility, the bestseller by Robin DiAngelo that launched a movement. The third is lesser known but equally impactful. Is Everyone Really Equal? is a textbook for education graduate students in which DiAngelo and coauthor Özlem Sensoy lay out the intellectual underpinnings of this new movement.
The elect attempt to tackle bigotry, but their leaders assume we’re still stuck in the 1920s. Jackson is a black woman and Rao is a South Asian woman. They make a big deal of the fact that they’re willing to work together in spite of having different ethnicities. They call it an “incredibly radical act” that “can’t be overlooked.” The authors seem to think they live in a world where people of different skin colors all hate each other and that their personal willingness to bridge the gap is somehow transformative.
That’s a grim worldview, and luckily, it doesn’t match reality. In 2015, the Pew Research Center noted that 46 percent of newlywed US-born Asian Americans were in an interracial marriage and that 18 percent of African American newlyweds were married to someone of a different race. The plain fact is that lots of Americans are comfortable spending their lives with someone of a different racial background. What Jackson and Rao describe as “radical” is, for most of us, an ordinary fact of life.
It’s not just Jackson and Rao. DiAngelo sees racists everywhere. In White Fragility, she claims that all white people are racist. This is true, she stresses, even if you have a black spouse, have black children, or marched with Dr. Martin Luther King Jr. for civil rights in the 1960s. As she puts it, “Racism is unavoidable and . . . it is impossible to completely escape having developed problematic and racial assumptions and behaviors.” And if you think for whatever reason that you’re not racist, then you’re part of the group that “cause[s] the most daily damage to people of color.” God forbid we actually admit that people of different races can see each other as human beings.
In Is Everyone Really Equal? DiAngelo and Sensoy go even farther. They argue that different ethnic groups are locked in a bare-knuckle brawl for power. As an example, they note that children in wealthy schools often learn different things than children in poor schools, but they argue that children and parents in wealthy schools are actively maintaining this discrepancy.
“Because this system benefits the affluent child,” the authors claim, “she will be less invested in removing these barriers for others. In fact, she (and those who advocate for her) will most often resist removing these barriers.”
It’s true that people do advocate for their own interest, but DiAngelo and Sensoy go much farther. They posit a world of mustache-twirling villains who use their position on top to place a boot on the necks of the people on the bottom. DiAngelo and Sensoy seem blind to the possibility that people of different racial groups might have some empathy for each other, let alone friendship or love.
Fortunately, most of us don’t live in the hateful world that the authors imagine. In the real world, members of different races do in fact care for each other, as shown by (for instance) the multitude of white people who advocate for criminal justice reform because they believe that doing so will help minorities in addition to creating a more just society.
To be clear, the United States does have real problems with racism and other forms of bigotry. Conservative commentator David French talks about how having a black daughter opened his eyes to the frequent racism of his fellow Americans. The American Jewish Committee reported that one in four Jewish Americans experienced anti-Semitism in the past year.
But it’s also important to note that we no longer live in 1920. According to Gallup, 94 percent of Americans approve of interracial marriage. According to an index created by the Anti-Defamation League (a nonprofit dedicated to measuring and combating anti-Semitism), 10 percent of Americans harbor anti-Semitic attitudes, whereas 24 percent of Western Europeans harbor the same. These numbers reflect a country that’s completely at odds with what DiAngelo, Jackson, Rao, and Sensoy seem to see.
Not only do the elect misdiagnose the problem, but their proposed solutions would exacerbate bigotry and racial tensions in the United States. None of these authors aspire to treat people of all races, genders, and ethnicities with equal dignity. Jackson and Rao say terrible things about white women.
In an interview with Forbes, they sneer at how white women react when they’re confronted by the authors. They call this reaction “the full white woman” and describe it as, “the Broadway musical, crying, eye-rolling, arms folded, just the whole thing.” In White Fragility, DiAngelo claims openly that all 204 million white Americans are racist and dismisses anyone who disagrees with her as suffering from “white fragility.”
Is Everyone Really Equal? is, if anything, even worse. Early in the book, DiAngelo and Sensoy critique the idea that “people should be judged by what they do, not the color of their skin.” They call this idea “predictable, simplistic, and misinformed.” For DiAngelo and Sensoy, the goal seems to be the opposite of Dr. Martin Luther King Jr.’s dream that his “four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.”
For the elect, the goal is not a cosmopolitan society where everyone is seen as human first. Rather, the goal seems to be a world where we are defined by our immutable characteristics first and where those immutable characteristics determine how we may be treated. Some races must be treated with respect, while others can be derided.
The elect position their solution as the only way to combat racism, but they’ve got it exactly backwards. Commentators on every side of the political spectrum offer real solutions to tackle bigotry. But we’ll never get to the tolerant and cosmopolitan society most of us want until we stop listening to people who think our immutable characteristics define who we are and how we should be treated.
In 1991, India's political leaders moved away from socialism, embracing markets and improving the economy. But Indian elites continue to push socialism to the detriment of the people.
Original Article: "Capitalism Has Improved Life in India, but the Spirit of Collectivism Still Dominates"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The estate of Roald Dahl this month announced that it would be rewriting many of the long-dead author’s books to better suit a “modern” audience. Translation: The books will be rewritten so the text is more in line with the editors’ notions of politically correct language.
As a parent of four children, I’ve read my share of Roald Dahl books over the years, although I wouldn’t consider myself an especially big fan. Yet it’s hard to imagine what is so “offensive” in a Roald Dahl book that it needs to be rewritten. The Dahl books are not comparable to the original editions of, say, the Nancy Drew novels, whose depictions of the Drews’s black housekeeper contain a number of eyebrow-raising stereotypes.
No, it seems Dahl’s main offenses consist of crimes against modern orthodoxies about “nonbinary” gender rhetoric and related terms. For instance, as one British news service notes:
References to “female” characters have disappeared, as evidenced by Miss Trunchbull in Matilda, who is now referred to as a “most formidable woman”, having previously been “most formidable female”.
“Boys and girls” has been replaced by “children”, while The Cloud-Men in James and the Giant Peach have become Cloud-People, while Fantastic Mr Fox’s three sons have become daughters. . . .
Passages not written by Dahl have also been added, as evidenced by The Witches, where a paragraph that explains that witches are bald beneath their wigs ending with the new line: “There are plenty of other reasons why women might wear wigs and there is certainly nothing wrong with that.”
We’re also told that
Augustus Gloop, Charlie’s gluttonous antagonist in “Charlie and the Chocolate Factory,” which originally was published in 1964, is no longer “enormously fat,” just “enormous.” In the new edition of “Witches,” a supernatural female posing as an ordinary woman may be working as a “top scientist or running a business” instead of as a “cashier in a supermarket or typing letters for a businessman.”
The word “black” was removed from the description of the terrible tractors in 1970s “The Fabulous Mr. Fox.” The machines are now simply “murderous, brutal-looking monsters.”
(We’re now hearing that Ian Fleming’s James Bond novels are being “reviewed” for possible rewriting as well.)
This isn’t a new idea, of course. Mark Twain’s Adventures of Huckleberry Finn has already been rewritten. But there’s a key difference between Twain’s works and Dahl’s works. The text of Dahl’s books remains firmly under the control of Dahl’s estate and the corporations that have bought the “rights” to use the texts. Twain’s works, on the other hand, are in the public domain. (But this doesn’t stop legions of Mark Twain Project lawyers from claiming that the works are still copyrighted.)
That is, the law states anybody can read or reproduce the original text of Huckleberry Finn for free. Here’s an intact copy of the not-rewritten text. So, even if someone rewrites the book, anyone can access the old version of it with ease and at low cost.
That’s not so with works that are still protected by copyright. Thanks to copyright laws, the estate of Dahl can not only rewrite the books, but can also essentially outlaw the old versions. Yes, the old originals will persist in secondhand versions, but over time, these will become prohibitively expensive for casual readers and the new “corrected” versions will become the only ones available.
What’s more, now that Dahl is safely dead, there’s no danger of his objecting to having some corporate editor rewrite his books for the purposes of yet another cash grab by his heirs and the hack writers working on the latest Netflix adaptation.
This is all happening thanks to the invented, artificial, and dubious legal concept of “intellectual property.” Now even the works of creators that have been dead for decades continue to be controlled by heirs with a government-created monopoly over the use of a particular combination of words. In the case of Dahl’s books, copyright protects this monopoly for whoever “owns” Dahl’s texts, and this means that if parents want new and affordable copies of Dahl’s books, they will only be able to get what the monopolists say they can get. This has proven to be extremely lucrative, by the way.
It’s only thanks to a backlash over the proposed rewriting of Dahl’s books that the old texts remain available at all (for now). After countless complaints, the publisher recently announced it will issue “both” versions of the books. It’s extremely likely, however, that this is only a short-term measure and that once the critics of the rewrites pipe down, the publisher will eliminate the old versions altogether. Nor is there any end in sight to this sort of thing. Thanks to current US copyright law, monopoly protections over a text remain in effect for seventy years after the author’s death. This term is a massive expansion from the fourteen-year protection established by the US Constitution. The length of copyright protections after the author’s death is purely arbitrary and a good indicator of how the whole concept is just a matter of made-up monopoly power that doesn’t reflect any actual property rights based in natural law. Thanks to countless renewals, it will be several more decades until the US copyrights on Dahl’s works expire, assuming Congress does not extend the standard length of copyright protections yet again.
There has been a noticeable decline in the percentage of Americans identifying as religious. Some perceive this seismic shift as evidence of a secularizing culture. In some quarters, the secularization of America is viewed favorably as an agent of modernization. But researchers are theorizing that the erosion of religious beliefs portends negative consequences for society because religion cultivates meaningful social relationships by nurturing a sense of community.
Religious institutions hone social capital by fostering a strong sense of brotherhood that transcends tribalism. Religions also make it easier for societies to scale up by diminishing tribalism and promoting cooperation. Cooperative groups are more successful than divisive groups, and by engendering in-group solidarity, religious groups outperform their rivals. Essentially, dedication to religious norms and beliefs drives group solidarity and social cohesion. As a result, some of the largest and most successful institutions in the world are proudly religious.
Though religions are portrayed as conservative, history demonstrates that they have been the primary initiators of social change. Prior to Islam, few expected the Arabs to become architects of world empires, but the advent of Islam provided the fuel that motivated ordinary people and elites to conquer foreign territories. Likewise in Europe, the medieval church launched a legal revolution that upended the social order and established revolutionary universities.
As a social technology, religion is instrumental in shaping institutions, politics, and civil society. Education, welfare services, and even opportunities are usually provided by religious actors. Unlike state providers, religious institutions have an intimate relationship with beneficiaries and often emphasize moral and economic advancement. Seeing beneficiaries as part of a community helps to mitigate the isolating effects of poverty and marginalization.
The social connectedness embedded in religious institutions affords participants a higher sense of well-being. Naturally, social groups foster intimate relations, but most working-class people lack the resources and social capital to join elite social networks. Therefore, religious institutions serve as a safe space and a voice for the working classes. Interestingly, a recent article published in Psychological and Cognitive Sciences argues that policy makers should lament the decline in religion after observing that religion eases the burden of low socioeconomic status (SES).
As societies get richer, they become less religious; however, for those who remain poor, the psychology of religion acts as a coping mechanism that diminishes the emotional baggage of low SES. Poor people occupy a special position in several religions and are expected to reap rewards in the afterlife, whereas nonreligious people will judge themselves harshly if they fail to achieve. Quite unsurprisingly, the researchers concluded that lower SES diminished well-being, but the impact of SES on well-being was greatly attenuated in poorer countries.
Comparing Jamaica and Norway, the authors posited that “the psychological burden of lower SES was comparatively large in developed Norway . . . but that burden was non-significant in Jamaica.” Others have opined that plummeting rates of religious participation are linked to deaths of despair such as suicide, alcohol-related illnesses, and drug abuse. Religious involvement plays a pivotal role in making life meaningful, hence dwindling rates of religious participation indicate that many are deprived of community and a vital sense of purpose.
Deaths of despair have disproportionately plagued middle-aged, working-class whites who are disconnected from social networks, and increasing religious participation could thwart the demise of many working-class Americans. Using statistical analyses, the authors show that there is a direct link between deaths of despair and religious participation:
Religiosity and the rate of deaths of despair are negatively correlated across states; states with high levels of religiosity have suffered less from mortality due to alcohol, suicides, or drug poisonings. This negative relationship also holds when we consider changes in religiosity and mortality. States that experienced larger decreases in religiosity have had the largest gains in the rate of deaths of despair.
Additionally, scholars have also contended that religious institutions are more adept at serving the poor and minimizing moral hazards than government welfare. Religious institutions impose an obligation on all members to ensure that their requests for assistance are monitored to prevent the overuse of resources. Moreover, they are encouraged to improve the quality of welfare products.
Anthony Gill explains that religious charities are even more credible than secular nongovernment organizations due to norms of reciprocity:
The norms of reciprocity embedded within religious communities also contrast with the norms of secular NGOs, which generally distribute social benefits in a nonreciprocal fashion and expect little in return from the recipient. Recipients who are not members of that organization are less likely to restrain themselves from overusing the resource or to try to correct the problems that put them in need in the first place. As such, secular NGOs are more likely to generate moral hazard problems than religious groups that rely upon mutual community support.
Some celebrate the secularization of America, but it’s obvious that religions rejuvenate societies, and a more secularized population could result in a less dynamic America. Instead of seeing secularization as an indication of progress, policy makers should begin to prepare for the implications of a less religious society.
Three years after the covid virus hit the world, we are just starting to take a hard look at the damage caused by the covid restrictions. The "experts" not only were wrong; they were scandalously wrong.
Original Article: "Covid-19: Will the Political and Health Scandals Erupt into the Public Light?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
When the legacy media tells you that democracy is under attack in Canada, don’t believe it. Democracy is alive and well, working exactly as it was designed to work, which is to benefit the political class and their friends at the expense of average citizens who still believe that their vote actually means something. This is consistent with how democracy works in most democratic countries. Professors Martin Gilens and Benjamin Page tell us:
The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence. . . .
Clearly the median citizen or “median voter” at the heart of theories of Majoritarian Electoral Democracy does not do well when put up against economic elites and organized interest groups. The chief predictions of pure theories of Majoritarian Electoral Democracy can be decisively rejected. Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all.
Democracy gets its strength from the lack of political accountability. We are told that elections are an opportunity for voters to hold sitting politicians accountable for their performance. However, a losing politician is never required to personally compensate millions of voters who have been harmed by the loser’s actions when he was a sitting politician. Occasionally, the government provides financial compensation to various individuals or groups who have been harmed by the government’s actions. But this means that taxpayers are footing the bill, which means that taxpayers are the ones who are held accountable for the damage caused by previous politicians.
If you break your neighbor’s window, accident or not, you pay for the replacement. If you lost your job, your neighbor may sympathize with you, but he still expects you to pay for the window. You caused the damage, so you must fix the damage. The compensation comes out of your own pocket. You have been held accountable for your actions. Too bad you weren’t a politician, because you could have transferred accountability onto the backs of taxpayers.
People in the private sector are held legally accountable for their actions, but the political class makes the laws, and they say that it is illegal to hold politicians accountable for their own actions. Anyone with an ounce of common sense can see the immorality of this arrangement. It is wrong. It is unethical. It is unprincipled. It is dishonorable. It is dishonest. It is corrupt. It is villainous. It is self-serving. This is democracy.
Here is how the political class justifies their immunity from accountability: They say that society can grow and prosper only if government agents are granted legal immunity for actions they undertake in the performance of their public duties. For if they fear the personal consequences of their own mistakes, they may hesitate to take actions which they sincerely believe to be in the public interest. With this fear running through their minds, they would be frozen in a state of inaction, and citizens would suffer the effects of a rapidly decaying society. However, when granted the privilege of externalizing the costs of their actions onto the backs of taxpayers, then, and only then, are the government’s angels able to function. This is the gospel according to the state. This is democracy.
The truth is that those who are tasked with serving the public interest, while protected by legal immunity, are well positioned to serve whatever interests they choose. The doctrine of immunity is a ruse, a license to abuse, and a not-too-subtle confirmation that some of us will always be above the law. It encourages government actors to do bad things. It promotes a sense of invincibility, superiority, entitlement, and outrage toward others who forget to bow in the presence of their masters. This is democracy.
Society may be broken, but democracy is not.
Victims of DemocracyCountless Canadians were warned, scolded, harassed, fined, charged, and arrested by police for violating government pandemic edicts regarding lockdowns, face masks, social distancing, group gatherings, etc. Meanwhile, numerous politicians and bureaucrats got a free pass for violating the same edicts. This is a defining feature of democracy—laws for thee, but not for me.
The federal government is forging ahead with a national daycare program, a national dental program, and a national prescription drug program, despite the fact that a majority of Canadians polled are unwilling to absorb the cost of these programs. The political class will increase their power with these new bureaucracies while the middle and lower classes pay the price. Society suffers, but democracy is alive and well.
Among all the countries with a universal healthcare system, the efficiency of Canada’s system ranks near the bottom. Many emergency rooms have closed. We don’t have enough doctors. We don’t have enough hospital beds. Hallway medicine is common. Overworked, burned-out nurses are resigning. The time you must wait to see a specialist or to have surgery grows longer every year, and thousands of Canadians die while they are stuck on a waiting list for treatment. A majority of Canadians polled are in favor of private healthcare for those who are able to afford it, but politicians and highly paid bureaucrats won’t allow it. As William Gairdner wrote in his book The Trouble with Canada . . . Still!, “Thus does the State itself consume resources that might otherwise have gone to patients, forcing them to wait for care, many of them in pain, some of whom will die.” The annual degradation of Canada’s healthcare system will continue, a significant component of an increasingly fractured society. Currently 1.2 million unhealthy Canadians are waiting for healthcare, but democracy is in very good health.
Gairdner wrote:
We are led by a government and bureaucratic oligarchy that for a few generations has propagated values alien to the long-term interests of the Canadian people. It does this either by camouflaging its agenda or by simply proceeding in opposition to, or without much regard to, the expressed will of the people. Any comparison of government action with national poll results will illustrate this point. The people want capital punishment for especially heinous crimes? The government bans it, and rapists and killers are back on the street in twenty-five years or less. The people want lower taxes? The government raises them. The people want to reduce the size of government and the national debt? The government borrows more. The people do not want official (forced) bilingualism? The government forces it on them (though Quebec, to its credit, declines). The people want to slow immigration and to favour traditional stock? The government increases the flow, and disregards country of origin. The people want a better climate for free enterprise? The government vastly increases the regulation of business.
Democracy will remain strong as long as Canadian citizens continue to cede control over their lives to the political class.
The president's SOTU speech has become an annual presentation of a new set of White House lies. But official Washington believes it is worse to publicly boo false statements than to make them.
Original Article: "Decorum Propels DC Deceit"
This Audio Mises Wire is generously sponsored by Christopher Condon.
[An Austrian Perspective on the History of Economic Thought (1995)]
Jeremy Bentham (1748–1832) began as a devoted Smithian but more consistently attached to laissez-faire. During his relatively brief span of interest in economics, he became more and more statist. His intensified statism was merely one aspect of his major — and highly unfortunate — contribution to economics: his consistent philosophical utilitarianism. This contribution, which opens a broad sluice-gate for state despotism, still remains as Bentham's legacy to contemporary neoclassical economics.
Bentham was born in London the son of a wealthy lawyer, whiled away his youth at Oxford, and was admitted to the bar in 1772. But it soon became clear that Bentham was not interested in a career as an attorney. Rather, he settled down for life with his inherited wealth to become a cloistered philosopher, legal theorist, and "projector" or crank, eternally grinding out schemes for legal and political reform which he urged upon the great and powerful.
Bentham's first and enduring interest was in utilitarianism (which we shall examine further below), and which he launched with his first published work at the age of 28, the Fragment on Government (1776).
Most of his life, Bentham functioned as the Great Man, scribbling chaotically on endless and prolix manuscripts elaborating on his projected reforms and law codes. Most of the manuscripts remained unpublished until long after his death. The affluent Bentham lived in a capacious house surrounded by flunkies and disciples, who copied revision after revision of his illegible prose to get ready for eventual publication. He conversed with his disciples in the same made-up jargon with which he peppered his writings. While a cheery conversationalist, Bentham brooked no argument from his aides and disciples; as his precocious young disciple John Stuart Mill later recalled with kindly understatement Bentham "failed in deriving light from other minds." Because of this trait, Bentham was surrounded not by alert and knowledgeable disciples but by largely uncomprehending aides who, in the perceptive words of Professor William Thomas, "looked on his work with a certain resigned skepticism as if its faults were the result of eccentricities beyond the reach of criticism or remonstrance." As Thomas continues,
The idea that he was surrounded by a band of eager disciples who drew from his system a searching critique of every aspect of contemporary society, which they were later to apply to various institutions in need of reform, is the product of later liberal myth-making. So far as I know, Bentham's circle is quite unlike that of any other great political thinker. It consisted not so much of men who found in his work a compelling explanation of the social world around them and gathered about him to learn more of his thoughts, as of men caught in a sort of expectant bafflement at the progress of a work which they would have liked to help on to completion but which remained maddeningly elusive and obscure.1
What Bentham needed desperately were sympathetic and candid editors of his work, but his relationship with his followers precluded that from happening. "For this reason," adds Thomas, "the steadily accumulating mass of manuscripts remained largely a terra incognita, even to the intimate members of our circle." As a result, for example, such a major work in manuscript, Of Laws in General, astonishingly remained unedited, let alone unpublished, until our own day.
If anyone could have played this role, it was Bentham's outstanding follower, James Mill. In many ways, Mill had the capacity and personality to perform the task, but there were two fatal problems: first, Mill refused to abandon his own intellectual work in order to subordinate himself exclusively to aiding the Master. As Thomas writes, "Sooner or later all Bentham's disciples faced the choice of absorption or independence." Though he was a devoted follower of Benthamite utilitarianism, Mill's personality was such that absorption for him was out of the question.
Second, the slipshod and volatile Bentham desperately needed shaping up, and the brisk, systematic, didactic, and hectoring James Mill was just the man to do the shaping. But, unsurprisingly, Bentham, the Great Man, was not about to be shaped up by anyone. The personality clash was too great for their relationship to be anything but arm's length, even at the height of Mill's discipleship, before Mill achieved economic independence from his wealthy patron. Thus, in exasperation, Mill wrote to a close mutual friend about Bentham: "The pain he seems to feel at the very thought of being called upon to give his mind to the subject, you can have but little conception of." At the same time Bentham, even long afterwards, confided his lingering resentment of Mill to his last disciple, John Bowring:
He will never willingly enter into discourse with me. When he differs he is silent.… He expects to subdue everybody by his domineering tone — to convince everybody by his positiveness. His manner of speaking is oppressive and overbearing.
There is no better way to summarize the personality clash between them.2
Bentham's first published work, the Fragment on Government (1776), gained young Bentham an entrée into leading political circles, particularly the friends of Lord Shelburne. These included Whig politicians like Lord Camden and William Pitt the younger, and two men who were quickly to become Bentham's close friends and earliest disciples, the Genevan Etienne Dumont and Sir Samuel Romilly. Dumont was to be the main carrier of Benthamite doctrine to the continent of Europe.
While utilitarian political and legal reform continued to be his main interest throughout his life, Bentham read and absorbed The Wealth of Nations in the late 1770s or early 1780s, quickly becoming a devoted disciple. Although Bentham praised practically no other author, he habitually referred to Adam Smith as "the father of political economy," a "great master," and a "writer of consummate genius." In the early 1780s, Bentham's brother Samuel, a wealthy engineer, was engaged by the Empress Catherine the Great to organize various industrial projects. Samuel invited Jeremy to stay with him in Russia, which he did from the mid-1780s to the end of 1787, with a view to presenting an "all-comprehensive [legal] code" to enable that despot to govern her realm more efficiently.
Bentham characteristically never completed the code for Catherine, but, while in Russia he learned — falsely, as it turned out — that William Pitt, now prime minister, was preparing to urge a reduction in the legal maximum rate of interest from 5 to 4 percent. Agitated, Bentham wrote and soon published, in 1787, his first, and only well-known work on economics: the scintillating and hard-hitting Defence of Usury. Trying to bring more consistency into Smithian laissez-faire, Bentham argued against all usury laws whatever. He grounded his view squarely on the concept of freedom of contract, declaring that "no man of ripe years and of sound mind, acting freely, and with his eyes open, ought to be hindered … from making such a bargain, in the way of obtaining money, as he thinks fit." The presumption, in any situation, is for freedom of contract: "You, who fetter contracts; you, who lay restraints on the liberty of man, it is for you … to assign a reason for your doing so." Furthermore, how can "usury" be a crime when it is exchange by mutual consent of lender and borrower? "Usury," Bentham concludes,
if it must be an offence, is an offence committed with consent, that is, with the consent of the party supposed to be injured, cannot merit a place in the catalogue of offences, unless the consent were either unfairly obtained or unfreely: in the first case, it coincides with defraudment; in the other, with extortion.
In his appendix to the Defence of Usury, Bentham restates and sharpens the Turgot-Smith defense of savings. Savings results in capital accumulation: "Whoever saves money, as the phrase is, adds proportionately to the general mass of capital.… The world can augment its capital in only one way: viz by parsimony." This insight leads to the principle that "capital limits trade," that the extent of trade or production is limited by the amount of capital that has been accumulated. In short: "the trade of every nation is limited by the quantity of capital."
The laissez-faire implication, as Bentham saw, is that government action or spending cannot increase the total amount of capital in society; it can only divert capital from free market to less productive uses. As a result, "no regulations nor any efforts whatsoever, either on the part of subjects or governors, can raise the quantity of wealth produced during a given period to an amount beyond what the productive powers of the quantity of capital in hand … are capable of producing."
Defence of Usury had a great impact in Britain and elsewhere. Dr Thomas Reid, the distinguished Scottish "common-sense" philosopher who succeeded Adam Smith to the chair of moral philosophy at Glasgow, strongly endorsed the book. The great Comte de Mirabeau, the leading force in the early stages of the French Revolution, had the work translated into French. And in the United States, the tract went into several editions, and it inspired several states to repeal their laws against usury.
In the course of the Defence, there are hints of valuable analysis. Lending is defined as "exchanging present money for future," and other intimations of time-preference or waiting as a key to saving include such phrases as the saver having "the resolution to sacrifice the present to [the] future." Bentham also intimates that part of interest charged includes a risk premium, a kind of insurance premium for the risk of loss incurred by the lender.
During the 1780s, Bentham was also writing his "Essay on Reward," published only a half-century later as the Rationale of Reward. In it, Bentham expounded enthusiastically on "Competition as rewards," and hailed the "advantages resulting from the most unlimited freedom of competition." It was on this principle of free competition and opposition to governmental monopolies that "the father of political economy" had, in Bentham's over-enthusiastic words, "created a new science."
In his next economic work, the unpublished "Manual of Political Economy" (1795), Bentham continued the laissez-faire theme of "No more trade than capital." The government, he emphasized, can only divert investment funds from the private sector; it cannot raise the total level of investment. "Whatever is given to any one branch, is so much taken from the rest.… Every statesman who thinks by regulation to increase the sum of trade, is the child whose eye is bigger than his belly." Towards the end of the same work, however, a cloud no bigger than a man's hand appeared that would eventually take charge of Bentham's economic analysis. For Bentham began his rapid slide down the inflationist chute. In a kind of appendix to the work, he states that government paper money could increase capital if resources were not "fully employed." There is no analysis, as of course there never is in the inflationist canon, of why these resources were "unemployed" in the first place, i.e., why their owners withheld them from use. The answer must be: because the resource owner demanded an excessively high price or wage: inflation is therefore a means of fooling resource-owners into lowering their real demands.
It did not take long for Jeremy Bentham to slide down the slippery slope from Adam Smith and what would be Say's law back to mercantilism and inflationism. Shortly afterwards, in an unpublished "Proposal for the Circulation of a [New] Species of Paper Currency" (1796), Bentham happily wedded his "projecting" and constructivist spirit to his newfound inflationism. Instead of floating bonds and paying interest on them, the government, he proposed, should simply monopolize all issue of paper notes in the kingdom. It could then issue the notes, preferably non-interest bearing, ad libitum and save itself the interest.
Bentham was scarcely at his best answering the question of what limit there might be to this government paper issue. The limit, he answered, would obviously be "the amount of paper currency in the country." Bentham's modern editor is properly scornful of this patent claptrap: "It is like saying "the sky's the limit" when we do not know how high the sky may be."3
In his later writings on the subject, Bentham searched for some limits to paper issue, if unsuccessfully. But his commitment to a broadly inflationist course deepened further. In his unfinished "Circulating Annuities" (1800), he developed his government paper scheme further, and hailed the serviceability of inflation in wartime. Indeed, Bentham makes an all-out assault on the Turgot-Smith-Say insights and actually declares that employment of labor is directly proportional to the quantity of money: "No addition is ever made to the quantity of labor in any place, but by an addition made to the quantity of money in that place.… In this point of view, then, money, it should seem, is the cause, and the cause sine qua non, of labor and general wealth." Quantity of money is all; so much for Smithian doctrine! In fact, Bentham went further in Circulating Annuities, heaping scorn on his alleged mentor for denouncing the mercantilist preoccupation with the state's piling up of gold and silver and with a "favorable" balance of trade. There is no absurdity, averred Bentham,
in the exultation testified by public men at observing how [great] a degree of what is called the balance of trade is in favour of this country.… Seduced by the pride of discovery, Adam Smith, by taking his words from the kitchen, has attempted to throw an ill-grounded ridicule on the preference given to gold and silver.
After once again calling for the elimination of bank paper for the benefit of a government monopoly of paper issue (in the fragmentary "Paper Mischief Exposed," 1801), Bentham reached the acme of inflationism in his "The True Alarm (1801). In this unpublished work, Bentham not only continued the full-employment motif, but also grumbled about the allegedly dire effects of hoarding, of money saved from consumption that went into hoards instead of investment. In that case, disaster: a fall in prices, profits and production. Nowhere does Bentham recognize that hoarding and a general fall in prices also means a fall in costs, and no necessary reduction in investment or production. Indeed, Bentham worked around to the Mandeville fallacy about the beneficial and uniquely energizing effects of luxurious spending. In the mercantilist and proto-Keynesian manner, saving is evil hoarding while luxury consumption animates production. How capital can be maintained, much less increased, without saving is not explained in this bizarre model.
James Mill and David Ricardo have been considered loyal Benthamites, and this they were in utilitarian philosophy and in a belief in political democracy. In economics, however, it was a far different story, and Mill and Ricardo, sound as a rock on Say's law and the Turgot-Smith analysis, were firm in successfully discouraging the publication of the "The True Alarm." Ricardo scoffed at almost all of later Benthamite economics and, in the case of money and production, asked the proper questions: "Why should the mere increase of money have any other effect than to lower its value? How would it cause any increase in the production of commodities.… Money cannot call forth goods … but goods can call forth money." Bentham's major theme — "that money is the cause of riches" — Ricardo rejected firmly and flatly.
In his penultimate work of importance on economics, Jeremy Bentham came full circle. He had launched the economic part of his career with a hard-hitting attack on usury laws; he ended it by defending maximum price control on bread. Why? Because the mass of the public would favor cheap bread (assuredly so!), and so there would then be a "rational" and "determinate standard" for the good and moral price of bread, a standard which apparently free contract and free markets cannot set. What would such a standard be? Showing that for Bentham his ad hoc utilitarianism and cost-benefit analysis had totally driven any sound economics out of his purview, he answered that it would have to be empirical and ad hoc. Casting economic logic to the winds, Bentham maintained that the authorities should set a "moderate" maximum price, which would weigh the costs and benefits, the advantages and disadvantages, of each possible price. And Bentham assured his readers of his moderation: he did "not mean it [his proposal] as a whip or scorpion for the punishment of the growers or vendors of corn." But that would be the inevitable result.
Ad hoc empiricism was now rampant in Bentham. Admitting that all previous attempts at maximum price control were disasters, like any later institutionalist or historicist Bentham denied any relevance, since the circumstances of each particular time and place are necessarily different. In short, Bentham denied economics altogether — that is, denied the possibility of laws abstracting from particular circumstances and applying to all exchanges or actions everywhere.
In arguing against the opponents of price control, Bentham often used reasoning that was tortuous and even absurd. For example, to the charge that maximum price control would lead to attempted consumption exceeding supply (one of the greatest problems with price control), Bentham insisted that this could not happen in Britain, where the Poor Law ensured welfare payment to the poor with an increase in the price of bread. The opinion that, at some time or other, the demand curve can be vertical and not falling is in every century the hallmark of an economic ignoramus, and Bentham now passed that test. For centuries, writers and theorists knew that demand increased as price fell, and Bentham was now writing as if economics had never existed — and could never exist.
Since consistency was the realm of despised deductive logic, Bentham denied that his opposition to usury laws had any relation to his defense of price control on bread. But while he still maintained that his earlier analysis had been correct, he now offered a crucial revision: he had overlooked that a notable advantage of a usury law is that the government can then borrow more cheaply (at the expense, of course, of squeezing out marginal private borrowers). And he went on to admit that he now found this "advantage" decisive, so that now he would place usury laws on the governmental agenda: "I should expect to find the advantages of it in this respect predominate over its disadvantages in all others." In short, Bentham, the alleged "individualist" and exponent of laissez-faire, finds that advantage to government outweighs all private disadvantage!
Again treating his earlier views on usury, Bentham denied that he had ever believed in any self-adjusting and equilibrating tendencies of the market, or that interest rates properly adjust saving and investment. He went on in a revealing diatribe against laissez-faire and natural rights, to demonstrate to one and all the incompatibility between utilitarianism on the one hand and laissez-faire or property rights on the other:
I have not, I never had, nor shall have, any horror, sentimental or anarchical, of the hand of government. I leave it to Adam Smith, and the champions of the rights of man … to talk of invasions of natural liberty, and to give as a special argument against this or that law, an argument the effect of which would be to put a negative upon all laws. The interference of government, as often as in my jumbled view of the matter the smallest balance on the side of advantage is the result, is an event I witness with altogether as much satisfaction as I should its forbearance, and with much more than I should its negligence.
One wonders by what mystical standard the "scientific" Bentham managed to weigh the advantages and disadvantages of every particular law.
Three years later, in 1804, Jeremy Bentham lost interest in economics, a fact for which we must be forever grateful. It is only unfortunate that this waning of zeal had not occurred a half-decade before. The case of Jeremy Bentham, however, should be instructive to that host of economists that attempt to weld utilitarian philosophy with free market economics.
One would think that the master of utilitarianism would have contributed to utility analysis in economics, but oddly enough Bentham proved to be interested only in the "macro" realms of economic thought. The only exception came in the largely unfortunate True Alarm (1801), in which Bentham not only declared that "all value is founded on utility," but also enters into a cogent critique of Adam Smith's alleged "value paradox." Water, Bentham noted, can and does have economic value, while diamonds do have value in use as a foundation of its economic value. Continuing on, Bentham approaches the marginalist refutation of the value paradox:
The reason why water is found not to have any value with a view to exchange is that it is equally devoid of value with a view to use. If the whole quantity required is available, the surplus has no kind of value. It would be the same in the case of wine, grain, and everything else. Water, furnished as it is by nature without any human exertion, is more likely to be found in that abundance which renders it superfluous; but there are many circumstances in which it has a value in exchange superior to that of wine.
This article is excerpted from An Austrian Perspective on the History of Economic Thought (1995), volume II, chapter 2.1.
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- William E.C. Thomas, The Philosophic Radicals: Nine Studies in Theory and Practice 1817–1841 (Oxford: The Clarendon Press, 1979), p. 25.
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- See, ibid., pp. 35–6.
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- Werner Stark, "Introduction," in Stark (ed.), Jeremy Bentham's Economic Writings (London: George Allen & Unwin, 1951), II, 18–19.
American and European political elites seem to be wanting the Russia-Ukraine war to be fought to the last Ukranian and have done nothing to bring peace. It's time for a change.
Original Article: "Just Say No to the New Forever War"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Mark uses Intel Corporation, the computer chip manufacturer, as a barometer of the business cycle. He looks at the stock price in recent years, its production capacity expansion, and the company's very recent cost- and dividend-cutting moves.
Check out Mark Thornton's free book, The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century: Mises.org/Curse
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A few years ago I wrote about some of the errors made by economists who try to apply what they believe are Christian principles to both Austrian and neoclassical economic analysis. These economists believe that the standard economic way of thinking is not only fatally flawed but actually immoral, and that an entire new paradigm must be brought to economics.
In the mid-1990s, I taught economics as an adjunct at a Christian college near Chattanooga, being essentially the entire department. For the most part, it was a good experience, and the students were attentive and talented. However, in the spring of 1995, I was asked to teach a course (along with other faculty members) from a neo-Calvinist perspective, which meant presenting a very different view of economics using a neo-Calvinist book, Responsible Technology, which is an attempt to explain modern technology and its role in society from a neo-Calvinist perspective.
(My father taught at this college for thirty years and many members of my family are alumni, so this was a place that was central to me in my formative years. My disagreements with their approach to teaching economics are not a condemnation of the entire college or the people I knew there.)
It was not long before I was at odds with others teaching the same course, as the neo-Calvinist perspective came from a worldview that closely resembles what Jeff Deist has called “The New Antieconomics.” Deist writes that instead of approaching economic analysis from the perspectives of scarcity, choice, and opportunity cost, the “antieconomics” movement approach turns things upside down:
Antieconomics . . . starts with abundance and works backward. It emphasizes redistribution, not production, as its central focus. At the heart of any antieconomics is a positivist worldview, the assumption that individuals and economies can be commanded by legislative fiat. Markets, which happen without centralized organization, give way to planning in the same way common law gives way to statutory law. This view is especially prevalent among left intellectuals, who view economics not as a science at all, but rather a pseudointellectual exercise to justify capital and wealthy business interests.
Indeed, the economics chapter of Responsible Technology declares:
Conventional wisdom views economic activity as being imposed by the rigors of scarcity, even if the only conception of such scarcity is that of too little money with which to purchase too many goods. This view implies that if only there were enough of the stuff of this world provided for us, no economic necessity would be imposed on us. There would be no need to make economic choices, and economists would be unemployed. But we are in fact faced with what has been described as the “niggardliness of nature,” which at times threatens our very existence and always withholds some of the fruits we want.
The technological-economic path leading from this starting point is the arduous, anxious wrestling with nature to wring out of it its reluctantly gained fruits. The tools in this struggle are something like the implements of warfare, and the result is frequently violent, leaving scars on both sides: the exploitation and the degradation of nature—sometimes described in terms of rape and pillage—and disharmony and angst in the lives of human beings. No one expects economic life to be pretty. In any case, the fundamental underpinning for economic activity in this view—whether Western or Communist—– is the need to overcome scarcity.
A radically different view of the nature of economic activity begins with God’s entrusting the care and use of the earth to humankind. This care began in the Garden of Eden, and although that paradise did not last long, the activity itself continued, though tainted by sin after the Fall. To be entrusted with an endowment of resources and to be given the responsibility to choose how those resources should be used is an awesome yet delightful task.
After establishing the idea that scarcity and choice are inappropriate terms for the discussion of economics, the book presents a straw man interpretation of standard economic theory:
The conventional view of economics takes as its most fundamental proposition the assertion that economic behavior is the result of autonomous individuals making choices so as to maximize some subjective quality, such as their psychological satisfaction or pleasure. Those individuals are presumed to be cut off not only from any transcendent norms for governing economic activity but also from human community; they are supposed to make only independent decisions about their own, but no one else’s, economic condition. As a result, they never engage in or value the underpinnings of community: cooperation, concern for one’s neighbor, or public-spiritedness. Even the place of justice in the good economic life is left in doubt.
Economic theory claims that persons compete and struggle for the maximum individual benefit that can be garnered from any given situation. Altruism becomes the antithesis of economic rationality: Either it makes no sense at all, or it interferes with achieving economic purposes. This is the economic theory that for more than two hundred years has served to teach those who seek to gain more economic wisdom. According to this view, servanthood is abdication, a surrendering of the battle for supremacy and freedom. Stewardship is for the weak, the losers.
Thus, the neo-Calvinists castigate those of us who favor free markets with a straw man and a non sequitur rolled into one: since we see the necessity of a price system, we must not value anything that can’t be priced. Once scarcity as economists describe it is debunked, the book declares,
scarcity will not necessarily be vanquished, although its painful consequences may be reduced. In addition, certain present forms of contrived scarcity—developed through persuasive efforts to increase desire or through monopolistic efforts to restrict supply—may be eliminated. The finiteness of the creation remains a reality under all circumstances, but to the Christian, economics is simply the care for a garden of limited size.
Prices also come under scrutiny; the book labels them a cause, not an effect, of scarcity:
Economics—strongly affected by a mechanical rationalism borrowed from Cartesian influences and Newtonian mechanics—sought both a precise measuring rod for economic value and . . . a deterministic view of how economic value comes into being. The result was a price theory of value that today pervades both the halls of academia and everyday consciousness. Price theory holds that economically valuable things are those with prices, that economic value is proportional to price, and that nonpriced entities are economically valueless.
I politely but vociferously objected to the economics chapter of the book, telling the other professors that nothing could be salvaged from it that was academically useful. At that point, I probably was the least popular member of the college faculty. That was my last semester, as I left for graduate school at Auburn University, where I received my PhD in economics.
Again, this viewpoint reflects the Deist critique of “antieconomics.” Scarcity according to neo-Calvinists is caused by prices and profit-seeking capitalists, who hold back supply to enrich themselves. Neo-Calvinist Loren Wilkinson outrightly declares that private property is itself the source of scarcity. In fact, the application of basic economic theory such as marginal utility is illegitimate from the neo-Calvinist perspective. Addressing the classic example of how people, facing different constraints, might choose food differently at a cafeteria (where one pays a separate price for each item) than at a smorgasbord (where one pays up-front and can eat what one wishes), Wilkinson writes:
We have adopted the scarcity mentality: no scarcity, no economizing. . . . Contrast this with the entrustedness view of the same choice: If it is God’s creation—here in the form of food—shouldn’t wise and frugal use of it, as a response to the Creator, follow, regardless of how we are paying?
Any serious economist (as opposed to an antieconomist) recognizes this statement as near-meaningless rhetoric. As in most of the neo-Calvinist economic literature, there are proclamations and high-minded statements, but no meaningful method for how an economy can operate under such a worldview.
The upshot of neo-Calvinist thinking is that through rhetoric and special revelations, they can “solve” the Misesian socialist calculation problem. In the neo-Calvinist way of thinking, we need not depend so heavily on prices for information about relative scarcities to learn how best to steward our time and resources. We need only have a more enlightened, selfless conscience. In fact, according to them, once the world is rid of capitalism, markets, prices, and trade, scarcity itself either disappears or is strongly diminished.
In almost three decades since I taught at that college, the anticapitalist bent in economics has become only stronger, and the economics program at that school is no exception. In a recent posting, a student wrote the following about the microeconomics course she took there:
This class got me hooked on Econ and was the first place I fell in love with markets, only to fall out of love again later. Regardless, it was easily the most gratifying introduction class I’ve taken, and Dr. XXX’s tests are truly a (college) right [sic] of passage. Also this class will open your eyes to the evils of capitalism, which is the gift that keeps on giving. (emphasis mine)
She also wrote approvingly about the international economics course:
To be honest, I was not going to recommend this one until I realized how much it actually affected the way I thought about international politics. Any class that examines the entire world will necessarily only scrape the surface of the issues involved, and this class is no different. For an Economics elective it is not terribly dense, making it an ideal class for non-majors to take and gain some insight into how global trade and monetary policy make everyone’s life hell. (emphasis mine)
Now, one always must be careful of judging the content of an entire course from one student’s musings, but others familiar with what is taught at the school have given me similar accounts. One can conclude that neo-Calvinists do not even have to acknowledge the Misesian socialist calculation problem because their theology allows them to declare that economic theory itself is responsible for most of the scarcity. Do away with these constraints, and the world is one happy place. In making decisions, moral certitude substitutes for information about relative scarcities.
The source of such reasoning comes from the belief that while God’s original creation was tainted by the sins of Adam and Eve, God’s overall plan remains unchanged. In fact, despite a few shortcomings, such as floods, earthquakes, killer storms, droughts, and erupting volcanoes, the earth is pretty much what it was the day that God declared it to be good.
Thus, argue neo-Calvinists, economic thought must conform to the world as God originally intended it to work before what is called the Fall. If the world before original sin was one of abundance, then we must view the present world in the same way and all economic analysis must be in line with such thinking. God, after all, did not place Adam in a world of scarcity; why would He do any less for us?
Those that have gone to conferences attended by neo-Calvinists can attest to how they interact with “less enlightened” economists—that is, those who believe that scarcity and choice really are essential to better understanding our world. They do not engage the rest of us; they instruct us in the Truth, and those that fail to listen are deemed knaves and fools.
In 2002, Timothy Terrell and I presented a paper on valuation in environmental matters at a Christian economics conference and later had it published in the Journal of Markets and Morality. The paper deals with these issues in much more detail than is possible here.
As I see it, neo-Calvinists have created a fantasy world and demand the rest of us believe in it. Indeed, to antieconomists of this stripe, it is our very belief in scarcity that causes scarcity in the first place. Not surprisingly, neo-Calvinist views on economics ultimately degenerate into a statism in which socialism not only provides a holy antidote to conventional economic thinking, but also does God’s work of ridding the world of scarcity and want.
Gloria Steinem declared, "The personal is political." Today, politics has reached into family life and even procreation itself, an unhappy trend for unhappy people.
Original Article: "The Politicization of Procreation: The Ultimate in "the Personal Is Political""
This Audio Mises Wire is generously sponsored by Christopher Condon.
China has become a global leader in the electric vehicles (EVs) sector, and Western governments are worried that its comparative advantage will become entrenched. Once again, mainstream pundits blame China’s success on government subsidies and unfair competition. This is just a pretext to argue for more government support in a sector which, from the very beginning, has not been driven by genuine consumer demand but by a political green agenda.
China Leads in the Global EV RaceAbout a decade after overtaking the US automotive market, China has become the world’s largest EV market and producer. According to analyst forecasts, domestic EV sales are expected to surge to about eight to ten million cars in 2023, up from record sales of 6.5 million in 2022. This exceeds by far sales of nearly three million electric cars in Europe and two million in the US. At a global level, seven out of every ten electric cars are sold in China, which also boasts one of the highest market shares of EVs in total car sales. In the first half of 2022, EV sales accounted for 21 percent of total car sales in China, compared to 18 percent in Europe and 6.5 percent in the US. It is estimated that about half of all cars sold in China would be EVs by the end of 2025.
Graph 1: EV sales and percent growth for 2022 H1 versus 2021 H1
macovei_ev1.png ###### Source: EV-volumes.com.
The winners of the domestic EV boom are fast-growing Chinese carmakers that accounted for more than 80 percent of domestic EV sales in 2022, whereas a decade ago foreigners occupied 70 percent of the market. Among the top fifteen EV producers in China, only four can be considered to have foreign ownership today. In global markets, BYD, the Warren Buffett–backed local EV star, has outsold Tesla, forcing Tesla to slash prices by around 20 percent this year to stay competitive.
Graph 2: Global EV sales by car group for 2022 H1
macovei_ev2.png ###### Source: EV-volumes.com.
Prospects look good for BYD which expects to sell three million plug-in vehicles in 2023 after selling more than 1.85 million last year. A dozen other Chinese EV manufacturers have outperformed global automakers domestically and are targeting international markets now, Europe in particular. Unlike internal combustion engines (ICs), the Chinese electric cars enjoy both affordable prices and good quality. They are also eligible for high purchasing subsidies in Europe where tariffs are relatively low and local producers are focused on making higher-margin IC cars before they are phased out in 2035.
Most importantly, China’s EV sector has become increasingly innovative and capable of domestic technological advances. The EV technology originated primarily in the West, and initially the Chinese government pushed a few state-owned enterprises into joint ventures with foreign producers to kickstart domestic production. Private independent producers gradually entered the market and around three hundred EV producers emerged while several of them leapfrogged established carmakers. The Chinese companies can now produce technologically advanced EVs which are also safe and reliable. Technology flows seem to have reversed within joint ventures during the last decade. Many foreign producers such as Volkswagen, Mercedes-Benz, and BMW are teaming up with Chinese partners to draw on their superior know-how in batteries, battery swapping, automotive software solutions, and autonomous driving. They are also channeling significant investments into local R and D centers in order to tap into China’s innovation ecosystem.
Graph 3: German carmakers increase R and D activities in China macovei_ev3.png ###### Source: MERICS.
Chinese carmakers plan to absorb large parts of global value chains, capitalizing on their leadership in the production of key EV components such as batteries and smart car technologies. They have set up R and D and design centers in Europe and are planning to open production sites for both cars and batteries. Batteries are the most valuable part of EVs, accounting for 35 to 50 percent of its value. China has caught up technologically with the world’s leading producers Panasonic, Samsung, and LG in an industry that has undergone immense technological change in the last three decades.
Today six out of the ten largest global battery producers are Chinese with about 60 percent of the global market share, with CATL (37 percent) and the carmaker BYD (13.6 percent) in the lead. Internet and tech giants like Baidu, Alibaba, and Xiaomi have also entered the EV market bringing digital solutions and almost halving the car development cycles to two to three years. Supported by them, the Chinese EV carmakers have converted cars into smart devices on wheels, catering to the specific taste of Chinese consumers.
What Is Driving China’s EV Success?Most analysts concur that the Chinese EV sector would not exist at all without substantial government support. In only a decade, the EV sector took off helped by central and local governments. Some measures stimulated car demand (purchasing subsidies, favorable tax treatment, and tightening of emissions standards), while others targeted supply (R and D subsidies to producers, public procurement, mandatory joint ventures for foreign carmakers, and import tariffs).
But few analysts admit that the industrial policy 101 approach yielded suboptimal results despite its huge fiscal cost. The Chinese government spent about $60 billion between 2009 and 2017 to jumpstart the car sector. Almost $37 billion went toward consumer subsidies, representing a whopping 25 percent of total EV sales over the period. Although EV firms mushroomed to more than three hundred, only about 15 percent of them were actually manufacturing high-quality cars. The majority could not reach the production stage and probably entered the market mostly to benefit from generous subsidies. Ironically, independent producers, such as BYD, Geely, Chery, Xiaopeng, and NIO, emerged as the most successful EV carmakers and not the pampered state-owned enterprises.
In 2016 Beijing changed course and moved away from the subsidies regime to a more market-based one in order to stimulate competition. Direct price subsidies were phased out and the government support shifted to building charging infrastructure. Beijing introduced a credit-based mechanism, similar to the carbon market, which allows carmakers to sell surplus EV credits to other companies. This is also how Tesla managed to turn profitable in 2020–21. But the most important step was to allow foreign EV manufacturers to enter the market with wholly owned enterprises. The entrance of Tesla has been a game changer for the industry because it pushed the Chinese manufacturers to design EVs with smart driving features from scratch.
In the same way China’s massive subsidies were not the recipe of its EV success, the West is not a newcomer to the interventionist game. Western governments’ support to EV producers in terms of loans, grants, tax rebates, and generous consumer subsidies has been as comprehensive as China’s. They even went further by setting targets for phasing out IC cars. The only difference is the scale of government funding which set China apart.
But instead of realizing that China’s oversized intervention was flawed, Western pundits regard the EV race as a “proxy war between the West and China” which calls for more government support. The US government announced a China-like $174 billion program to accelerate the transition to EVs, part of its gigantic Inflation Reduction Act. In turn, the European Union fears that the US subsidies will lure away green tech from Europe, and Europe plans to respond by beefing up its own generous green subsidies and relaxing state-aid rules. This threatens to unleash a green subsidies war across the Atlantic.
ConclusionIt is hypocritical to blame the current splurge of subsidies to the EV sector on China. The West has driven the green global agenda, and the development of the electric car sector is not hampered by unfair competition from China but by insufficient market demand for EVs. For a vast majority of consumers (more than 90 percent in the US), electric cars remain less attractive than traditional cars, not least because of their high prices and other practical inconveniences.
This is also why established Western carmakers are still focused on producing more profitable traditional cars despite the governmental push for a green agenda. And make no mistake, even in the emerging green EV sector artificially revved up by government decree, the global winners will not be determined by generous subsidies but by unhampered market competition.
Tom Woods joins the show for a look at the hottest political topic of the day, namely national divorce. This is a spirited discussion of the politics, economics, and mechanics of how America might break up.
Watch 'The Economics of National Divorce Part I' with Ryan McMaken": Mises.org/HAP352
Western intellectuals and their political allies are pushing relentlessly toward a unipolar world. Freedom lies in the multipolar direction.
Original Article: "Why Libertarians Should Support the Multipolar World"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Marketplace competition is reaching a new high with the era of artificial intelligence—deep machine learning capabilities offered to the entrepreneur as specialized services. AI tools as services spanning the marketplace are popping up at a rate that is seemingly increasing firms’ productivity and competitiveness.
However, what implications do offering AI and deep learning as a service have for market operations, buyers, and sellers? When AI services and custom stacks of them become widely used tools in the marketplace, will the entrepreneur’s competitive advantage be access to AI as a service for everything? What is AI as a service (AIaaS) for everything?
Just imagine systems such as AIaaS, DevOps shortening the development cycle, and ChatGPT creating content in the blink of an eye. All of these marketplace improvements will most likely amplify the institution of the market, significantly expand entrepreneurial opportunity, and lower barriers to entry in some markets.
AIaaS for everything is a concept that I see as improving the conditions of the marketplace in addition to the human’s energy through the division of labor, whereby the entrepreneurial class will be enabled by AI to be productive, creative, and much more effective in value creation for consumers.
In one of my classes, a student asked if AI service systems cognitively understand different types of market. Is it possible that AI services will socialize the marketplace, or in other words, undermine private ownership of the means of production? On the other hand, who owns the code and predictive output generated by the software programs; i.e., the ability to stack AI services in custom configurations?
To answer this question, we have to realize there has been a proliferation of small enterprises entering the AI fray obtaining and providing cloud-based services—or machine learning as a service—that will alter the human response to marketplace adjustments in ways we cannot deny are making markets more free.
What happens when AI becomes a customizable tool that everyone can access and becomes a standard feature of the marketplace? This is AIaaS for everything! The marketplace for entrepreneurship as we have known it historically will not in the future consist of insular small shops ; rather, AI will amplify markets, increasing the flow of capital between buyers and sellers, opening up exchange and the flow of knowledge and information. This will lead to new production technologies that will span the globe—basically enabling free markets.
Case in point, Howard Baetjer Jr., in his book Free Our Markets, mentions the importance of competition in a free market:
The essential requirements for meaningful competition are freedom of sellers to enter into a business, if they can find willing buyers, and freedom of buyers to take their business where they will. Consumers must have others to turn to and be free to turn to them in order for markets to punish businesses that offer shabby service or shoddy goods.
What is a free market economy? A free market economy is an economic system in which prices are determined by unrestricted competition between privately owned businesses. What about privately owned AI service products’ impact on free markets? What is the difference between a free market economy and a market enabled by AIaaS for everything?
To me, it is all about entrepreneurs’ “spontaneous stacking” of AI systems services (AI infrastructure, development, and software services) to create custom bundles for their businesses and the effect that this customization will have on exchange and return on investment. Holding a global market share of 9 percent, IBM is currently the most significant AI user, not including AI startups, which expanded fourfold globally between 2015 and 2018.
There is a foreseeable race of big businesses and countries to be the AI superpower. Here we are talking about who is faster, stronger, and better than competitor in deploying AI software, development, and infrastructure services.
A 2019 article published by Deloitte agrees that the leading firms sharea level of FOMO regarding AI. However, how will the AI race and complementary technologies affect the entrepreneurial class?
As of today, I assume the AI capability gap is closing, but it won’t be by much until entrepreneurs can customize their approach to serving customers and creating jobs for others—different jobs than previously provided—via AIaaS for everything. AIaaS for everything can expand to general usage, which allows and encourages customizable work tools for the regular folks to participate in the marketplace.
Since we know that preferences reveal themselves in market transactions, what are the options for using AIaaS for everything? AIaaS can mean fully automated systems for management, manufacturing, storage, and payments, which would fixed capital requirements for these systems and increase capital generation between buyer and seller.
AI service stacking in a free market economy will not be based on dependent stacking but instead on spontaneous stacking (i.e., customizable to the entrepreneur), which is based on marketplace flows and adjustments, price changes, and customer requirements. In this free market environment, AI services will change capital from a fixed component into a fluid one.
If entrepreneurs have access to customizable AI stacking (i.e., spontaneous—independent—stacking) to funnel data and support inputs, notwithstanding the expert knowledge and the time required for setup and model conceptualization—also known as infrastructure as a service (IaaS)—their propensity to compete in a free market will increase. Any entrepreneur will be able to customize their data stacks (i.e., interface, frameworks, tools, infrastructure, and machine learning) without expertise in AI modeling. Spontaneous stacking, where one can stack AIaaS to resemble a latticework instead of sequential dependencies, will therefore expand the opportunities open to entrepreneurs.
AIaaS for everything sounds like a free market economics proposition. Contrary to the conventional cloud-based services, AIaaS for everything allows entrepreneurs to run all-inclusive operations full throttle solely on the power of machine-learning applications. A single person (or entrepreneur) using relying on AIaaS to increase sales and profitability fits the bill for is the solution to elimination barriers to entry.
This idea of service for everything changes the nature of supply and demand, competition, prices, and human productivity. Human instinct and the desire to help others in order to reach our goals are the only difference between AI and human energy. Once entrepreneurs have their own customizable AIaaS for everything, will a free market be possible? Indeed!
When Congresswoman Marjorie Taylor Greene called (again) for "national divorce" this week, a common retort among her detractors on Twitter was to claim that so-called red states are heavily dependent on so-called blue states to pay for pretty much everything. Reporter Molly Knight claimed, for example, that "Red states get their money for roads and cops and schools from blue states. You cut off that gravy train and you e [sic] got a third world country."
twitt2.jpg Others claimed that red states would be "entirely broke" without blue states. America's social democrats have apparently fully gone over to pushing the narrative that the "red states" are poor band backward while the "blue states" are productive and economically sophisticated.
twitt1.jpg The implication here is that red states would never survive any sort of separation from the blue states because the red states would then miss out on the presumably large amounts of free money transferred from blue states to red.
Unfortunately for these critics, the data doesn't really back them up. While it is certainly true that a handful of red states receive much more in federal spending than their residents pay in federal taxes, this is not at all the situation across most red states. This is especially not the case in states with states with larger metropolitan areas such as Florida and Texas.
The real story is more complicated, and to see the details, we can look at state-by-state comparisons in terms of "return on taxes paid." This is a measure of how much each state receives in federal spending for every dollar extracted in federal taxes. States with a "return" above one dollar are getting back more than their residents paid in federal taxes. Residents in a state with a "return" below a dollar pay more than they receive.
To do this analysis, we start with the tax collections from each state, as reported by the Internal Revenue service. Then, we look at federal spending in each state. There are some smaller categories of spending that are difficult to track, but we can capture the overwhelming majority of federal spending in each state by looking at several key categories:
- State revenues from federal intergovernmental transfers (2019).
- Department of Defense spending by state (2019).
- Federal share of Medicaid by state (2021).
- Medicare spending by state (2019).
- Social security spending (OASDI) by state1 (2021).
Once we add it all up we can see the "return on taxes paid" in graph form below:
By this analysis, the federal spending in Minnesota only amounted to 48 cents for every tax dollar extracted from the state. On the other hand, Mississippi received more than three dollars for every tax dollar paid by residents. Contrary to the idea that most red states are more or less like Mississippi, however, we find that most states—both red and blue—are much closer to the middle on this. The states that are within a few cents of receiving a dollar for a dollar—i.e., "breaking even"—include the Dakotas, North Carolina, Nevada, Wisconsin, Missouri, Utah, Maryland, Kansas, and Florida. Meanwhile, California and Texas are more of less equal with each other, receiving about 80 cents in federal spending for every dollar paid by residents in taxes.
My findings here are similar to the study that was repeatedly sent to Rep. Greene by many of her scoffing critics. Specifically, Green was instructed to read this Moneygeek article which purportedly "proves" that the red states depend heavily on blue-state largesse to survive. Yet, with both our analysis here, and with the Moneygeek article, we will find that the characterization of red states as an economic drain on the country requires quite a bit of hyperbole.2
After "National Divorce": A Red State vs. Blue State BreakdownJust how badly would red states fare if they were to break off from the blue states? Well, only a minority of these states would be "in the red" and get back significantly more than they pay in. 15 out of 27 red states are either net tax-paying states or within a few cents of "breaking even." In other words, with the exception of states like Mississippi and West Virginia and Alabama, most of these states could realistically expect to be self-funding in case of a national break-up. Moreover, viewed as a single bloc, the red states' overall "return" on taxes paid is only $1.02. Were these states to become an independent region of their own, it would hardly be impossible to manage with current tax resources. In fact, if a "Red States of America" wanted to ensure available revenues exceeded current tax liabilities, the bloc could simply exclude the less productive states. If Mississippi and West Virginia don't bring much to the table, there's no immutable law of nature requiring the "Red States of America" to include them.
Some of the current net tax receiver states could also easily change their fortunes by simply splitting off the less productive areas such as southwest Alabama, western Mississippi, and eastern Kentucky. The blue states would surely be happy enough to have those areas as dependencies
How Much GDP Do the Red States Produce? One other tactic used to portray the red states as a bunch of impoverished welfare queens is to claim that the overwhelming majority of the US's GDP is produced in the blue states. Again, this is a sizable exaggeration. Breaking out the blue and red states as we did above, we find that the blue states naturally produce more GDP because they have more people. Specifically, the blue states contain about 54 percent of the US population and they produce about 59 percent of GDP. In contrast, the red states contain about 46 percent of the US population and produce 40 percent of GDP. In this scenario, a red state bloc would still have a GDP over $8 trillion and would have the world's third largest economy behind China and the "Blue States of America." It would have an economy larger than Germany, Japan, and India.
Looking at GDP per capita, we find the red state bloc would remain on a par with western Europe and Canada. If divided up, the blue states today would come in around $69,000 per capita. The red states would come in at about $55,000. Taken as two groups, this would place the blue states on a par with Denmark (at approximately $68,000), and the red states a little above Finland (at approximately $54,000).
Why Some States Are Net Taxpayers, and Some Aren'tWhy do we have these large disparities among states? Federal tax revenues are driven heavily by the number of high-earning and full-time workers in each state. States with large numbers of retirees and elderly will thus produce less tax revenue while receiving more in federal spending. States with large low-income populations (relative to overall size) will receive a proportionally higher amount of federal spending. Thus, it's not surprising that Mississippi, with its large low-income population in the Delta region, is a net recipient of federal spending. Similarly, the population in West Virginia is relatively low-income and elderly. Neither of these states have notably large metropolitan areas to balance out these lower-income households. On the other hand, Florida, Texas, Utah, and Ohio have the productive metropolitan areas necessary to balance out populations of pensioners and the unemployed.
It should also be noted that when I say "metropolitan area" I don't mean "urban core." Activists on the Left often likes to promote the idea that the most entrepreneurial, productive, and dynamic sectors of society are necessarily concentrated in urban cores. But the data does not show this. Rather "suburbanization" of both employment and labor is a longstanding trend, meaning that many sectors of the economy in recent decades have been decentralized out of the urban core, and each state's most productive centers are often found in the suburban counties—where political leanings are not at all necessarily "blue." Moreover, many of a state's most productive workers—engineers, medical personnel, entrepreneurs, financial workers, for example—choose to live in suburbs. Thus, the most productive states are often states with large sprawling suburban areas, and not necessarily "big cities" in the twentieth-century sense.
The Red States Would SurviveRep. Greene's Twitter critics are clearly very enthusiastic about portraying Americans in red states as impoverished unsophisticated welfare queens unable to get by without wealth transfers from the blue states. It's a convenient narrative, although an inaccurate one. It is likely in most scenarios, however, that secession would come with short-term economic dislocations and disruptions. Yet, short-term economic troubles have never been an insurmountable obstacle to secession and revolution. The American revolutionaries, after all, voluntarily cut themselves off from trade and took on huge debts to achieve political independence. Short term economic realities also do not dictate long-term prospects. If a Red States of America embraced global trade and a reduced regulatory burden, it could expect to see its economy accelerate in the medium and longer term. Moreover, cultural issues often trump economic ones, and residents may be willing to sacrifice some amount of wealth (measurable in dollars) for the perceived advantages of political self-determination. Were red-state Americans given the option to secede in exchange for per capita GDP levels similar to those of Germany, I suspect that many would take that bargain.
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- I have taken the December 2021 spending totals and multiplied by 12 to get an approximate annual total. This gives us a plausible total of approximately $1.1 trillion across all states.
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- The chief problem with the Moneygeek analysis is that it attempts to partly define red state "dependence" on blue states in terms of federal distributions as a percentage of state revenues. This is a faulty type of analysis because this "dependence" ranking depends just as much on state tax levels as on federal spending, and the ranking thus penalizes states with low taxes. Given that state tax rates are fully within control of the state itself, a low-tax state is not actually "dependent" on federal funds since the state could raise taxes at any time without federal consent.
Judge Andrew Napolitano looks at the history of government and race relations in our nation's history. It's not a pleasant or uplifting story.
Original Article: "The Forgotten Lessons of Government-Enforced Race Relations"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In a past Mises Wire article, I’ve written about how Saint Thomas Aquinas’s definition of hope correlates incredibly well with what Carl Menger would describe in his definition a good six centuries later. This trend of religious figures like Aquinas and his later followers, the late Spanish scholastics, discovering economic truths despite studying theology, not economics, can be found often throughout the course of history. Tom Woods has explained this by stating:
One of the characteristic features of Catholic thought over the centuries has been its emphasis on reason. Man’s mind, according to this tradition, is capable of apprehending a world of order that exists outside itself. Man is able to abstract “universals” from the myriad objects and sense data that appear to him and thus bring order to the chaos of mere data above which mere brutes can never ascend.
However, it feels easy to apply this emphasis on reason to these scholastics. They were of a very scholarly (as the name scholastic implies) tradition, so it makes sense that whatever they study, they would likely happen upon economic truths. I’d like to take Woods’s reasoning that this thought leads to economic discoveries and apply it instead to the fourth-century mystic Saint Augustine.
To fully appreciate Saint Augustine’s economic contribution, we must remember that we often give the late scholastics credit for being the proto-Austrians to have first discussed what may be the most important Austrian principle: subjective value. This can be seen in Jesús Huerta de Soto’s first chapter of Fifteen Great Austrian Economists:
We should note how [Juan de] Mariana refers to the fact that the “common estimation” of men is the origin of the value of things, thus following the traditional subjectivist doctrine of the scholastics, which was initially proposed by Diego de Covarrubias y Leyva. Covarrubias (1512–1577), the son of a famous architect, became bishop of the city of Segovia and a minister to King Philip II. In 1554, he set forth better than anyone before the subjectivist theory of value, stating that “the value of an article does not depend on its essential nature but on the subjective estimation of men, even if that estimation is foolish,” illustrating his thesis with the example that “in the Indies wheat is dearer than in Spain because men esteem it more highly, though the nature of the wheat is the same in both places.”
Mariana and Covarrubias were both brilliant in their own right and most certainly deserve the credit Huerta de Soto gives them in this passage. Covarrubias most certainly stated the concept of subjective value more explicitly than anyone before and perhaps better than anyone before; however, the concept itself was far from new, even back in the sixteenth century. Eleven hundred years before Covarrubias, Saint Augustine had presented a similar point in his book The City of God. He presented a concept regarding the natural order of the universe in hierarchies. Among his hierarchies, he stated that living things are preferable to nonliving things. However, this led him to a question: “Who would not rather have bread in his house than mice, gold than fleas?”
Saint Augustine properly noted that it would be absolutely ridiculous to make the claim that a man would desire a mouse over bread or fleas over gold on the simple basis that fleas and mice are living, and bread and gold are not. In an almost praxeological instinct, Saint Augustine even went on to examine actual exchanges that were occurring in his day in which nonliving things were being traded for far more than many living things. To square this circle in his claim, Saint Augustine further explains:
Thus, the reason of one contemplating nature prompts very different judgments from those dictated by the necessity of the needy, or the desire of the voluptuous; for the former considers what value a thing in itself has in the scale of creation, while necessity considers how it meets its need.
Saint Augustine, one of the early church fathers long before the School of Salamanca was making its brilliant economic discoveries, was already discussing the subjective theory of value as he explained that there was a difference between value in the scale of creation and value as how something that meets a need. It was certainly not as explicitly stated as Covarrubias would later brilliantly put it, but the idea was already beginning to take shape. This shows, by the very nature of approaching reality with a mind focused on reason, Saint Augustine—a fourth- and fifth-century mystic, most certainly not an economist—inherently dove into the same ideas that Austrians look at today.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop discuss this week's Twitter and media campaign by Congresswoman Marjorie Taylor Greene promoting the idea of national divorce. Ryan and Tho read through some of the tweets that the Representative from Georgia made about the practical advantages of a soft secession, as well as comments made by "Very Serious People" deeply offended at the suggestion.
Is Marjorie Taylor Greene guilty of unforgivable high treason? Tune in to find out.
Recommended Reading"January 6 Trials Remind Us Why We Must Abolish Seditious Conspiracy Laws" by Ryan McMaken: Mises.org/RR_122_A
"Secession: Should the American Revolutionaries Have Quit to Appease the Loyalists?" by Ryan McMaken: Mises.org/RR_122_B
"The Economics of American Gerontocracy" (Human Action Podcast with Jeff Deist and Bob Murphy): Mises.org/RR_122_C
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
While artificial intelligence has its merits, it still cannot perform the job of the Misesian entrepreneur. That is a good thing.
Original Article: "Will AI Learn to Become a Better Entrepreneur than You?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Whether well-intentioned or otherwise, a “Made in China” ban for construction materials on federally funded infrastructure projects will benefit a chosen political class to the detriment of all else.
“This rival, which is none other than the sun, is waging war on us so mercilessly . . . We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights.”
Frédéric Bastiat’s scathing satire of the absurdity of protectionist policies, written over 170 years ago, hammers the point home: sunlight is free so no wonder the candlemakers need regulation to compete with the sun.
It would appear President Joe Biden’s economic advisers have not only ignored Bastiat but also the centuries-old fundamental economic insights of specialization and gains from trade. The Biden administration’s plan to force all federal infrastructure projects to only use US-made materials must be called out for what it is: not really possible.
Once again, a policy with an undeniably patriotic name like “Buy American” does the exact opposite of its goal. If only the Biden administration would try to encourage, lure, entice, treat, or even negotiate with the construction industry. Perhaps the administration believes such behavior is antiquated.
The unintended consequences of “prosperity by decree” are as varied as rationality is homogenous. Here are just some the plan’s expected outcomes in the construction industry:
- Higher prices. If Americans were making the materials for less, then American companies would already be using these materials.
- Carve outs or Sold Out signs. The US needs construction materials that are made overseas. Every construction industry in the world needs imported materials to avoid a “tractors without gas” scenario. Without them, there may be shortages as local manufacturing is forced to reinvent the wheel to build said wheel.
- Diverted resources. There are only so many resources in the economy at any time, so some resources will have to be diverted from already internationally competitive US manufacturers and exporters to meet the new demand for US-made materials.
- Lower output. Higher prices mean less material can be afforded. The public construction contractors can’t use German widgets. The “Made in the US” widgets cost more. The contractors must build with fewer widgets.
We could hope that those who deliver the government construction contracts are all laissez-faire at heart and decide to push back against this absurd policy at their operational level. The bureaucrats, lawyers, engineers, architects, electricians, builders, and plumbers could all ignore the orders. That’s not a realistic answer, and incentives matter. There are contractors providing employment and helping their workers try to survive the cost-of-living crisis. They haven’t read Human Action. Who can blame them? There may be others close to the spigots; the pottage tastes too good for them.
Not to worry. The ideas of the Austrian school have put these protectionist policies to bed time and again. We just pray these wealth-destroying policies are short-lived.
Ludwig von Mises's contributions to the development of the technical methods and apparatus of monetary theory continue to be neglected today, despite the fact that Mises succeeded exactly eight decades ago, while barely out of his twenties, in a task that still admittedly defies the best efforts of the most eminent of modern monetary theorists, viz., integrating monetary and value theory. Such a unified and truly "general theory" is necessary to satisfactorily explain the functioning of the market economy, because the market economy, or any economy based on social cooperation under the division of labor, cannot exist without monetary exchange and calculation.1
Mises's work on monetary economics is not only ignored by the roiled mainstream of neo- and "new" Keynesians, monetarists, and new classicists, it is also considered passé by many Austrian-oriented economists and policy analysts, especially those whose primary influence is the post-World War II writings of Mises's former student F. A. Hayek. A typical example of this flippant and uncomprehending dismissal of Mises's monetary thought is provided by a review of The Gold Standard: An Austrian Perspective, which appeared in the publication of a free-market think tank (review of The Gold Standard [1986], pp. 14–15.) In commenting on this edited volume of mainly Misesian papers on the gold standard, the anonymous reviewer opined that "large parts of the book are unsatisfactory when considered as contributions to modern economic theory. Many of the essays have a strongly anachronistic flavor and do not succeed in integrating their arguments with the (often relevant) debates in modern monetary theory." Mirabile dictu, the reviewer then goes on to endorse as superior to the gold standard bizarre "laissez-faire" schemes such as the issuance of private fiat moneys and the separation of the unit of account from the medium of exchange, which have been resurrected under the rubric of the "New Monetary Economics" but which still emit the unmistakable musk of their association with obscure and long-dead monetary cranks.2 Had the reviewer enjoyed even passing familiarity with Mises's regression theorem, he would have instantly realized the untenability of these schemes.3
But the problem goes beyond Hayekian epigones laboring as policy analysts in think tanks. Prominent economists, too, in the wake of the collapse in rapid succession of the Keynesian and then monetarist paradigms, have been recently casting around for non-gold, "laissez-faire" alternatives to central bank manipulations of the money supply. There is, of course, Hayek's proposal for the issue of private fiat currencies; and recently Milton Friedman (1992, pp. 126–56) endorsed bimetallism as superior to a mono-metallic gold standard, while the plan coauthored by Yeager and Greenfield (1983) to dissolve the link between the monetary unit of account and the medium of exchange has recently been endorsed by another former monetarist, Richard Timberlake (1991), himself a former advocate of a parallel gold standard.4 Even the supporters of a gold-based free-banking system, such as Lawrence White and George Selgin, who drew their initial inspiration from Mises, who himself advocated such a system because he believed it would severely restrain the issue of fiduciary media, now argue that such a system would give rise to an "invisible-hand" maturation process that eventually culminates in the complete and "spontaneous" withering away of the monetary gold base to yield a fiat bank money.
Unfortunately, all such schemes are based on a failure by their authors to perceive money as an outgrowth and driving force of "micro" market processes, a perception that can only be gained from Mises's monetary theory with its unification of real and monetary analysis. What is urgently needed then, and what I will attempt to supply in this paper, is a fresh evaluation of Mises's monetary theory and a clarification of its relationship to modern monetary thought. With this endeavor, I hope to demonstrate to Austrian-oriented and other economists that Misesian theory provides fresh and relevant answers to the seemingly intractable problems still confronting modern monetary economists.
In 1985, James Rolph Edwards (1985) published an insightful and stimulating work in which he attempted a doctrinal assessment of Mises's contributions to monetary theory. As I shall indicate in detail below, while Edwards shed important light on Mises's originality as a monetary theorist and brilliantly defended him against some modern detractors, he failed in his main effort to portray Mises as the prototypical modern monetary economist, with an analytical tool kit that included an asset demand for money, the natural-rate hypothesis, the accelerationist view of lagged adjustment of nominal wages during inflation, a consistent modern monetary approach to the balance of payments and the exchange rate, rational expectations, etc. Nonetheless, Edwards's book does provide a useful framework, which I will employ for comparing Misesian with modern monetary theory. Specifically, I will use Edwards's topical development in organizing my own paper and employ some of his comments on Mises's theory as a point of departure for my own evaluation.
In the next section, "The Nature, Development, and Supply of Money," I address Mises's approach to defining money, classifying its different forms and components, and measuring the money supply. I also briefly discuss Mises's development of a consistent ordinalist approach to value theory as a foundation for his monetary theory. The following section, "The Regression Theorem and the Demand for Money," deals with Mises's formulation of a cash-balance demand for money, a supply-and-demand explanation of the determination of money's purchasing power, and his arguments in favor of the non-neutrality of money. It concludes with a consideration of Mises's regression theorem and its defense against criticism by Don Patinkin and others. In the concluding section "The Monetary Adjustment Process: The Inter-Spatial Equalization of the Value of Money, and the Determination of Exchange Rates," I focus on Mises's approach to the inter-spatial equalization of the purchasing power of a single money and the determination of the exchange rate between independent but co-existing moneys. In the case of the former, I significantly elaborate on Mises's view that the market's arbitrage processes rapidly re-establish monetary equilibrium after it has been disturbed, while demonstrating the importance to monetary analysis of Mises's methodological devices of the plain and final states of rest. I also draw attention to important methodological contributions by Philip Wicksteed and Arthur Marget which facilitate a better analytical grasp of the monetary adjustment process. In the discussion of exchange-rate determination, I carefully distinguish between the Misesian version of the purchasing-power-parity theory and the Casselian version adopted by modern economists, explaining why the former version is immune to many of the criticisms commonly raised against the latter.
The Nature, Development, and Supply of MoneyIn chapter two, Edwards (1985, pp. 29–43) reviews Mises's Brobdingnagian, though unhappily neglected, efforts in preparing the conceptual groundwork necessary to a full statement of the theory of money. These include the development of a purely ordinal theory of subjective value and of marginal utility more than two decades before the celebrated "ordinalist revolution" of the 1930s, which ended up totally and erroneously expunging the very concept of marginal utility from economics. As Edwards (ibid., p. 34) points out, compared to the equilibrium condition yielded by the indifference curve analysis embraced by the later Anglo-American ordinalists, which assumes infinitely divisible goods, the equilibrium condition derived from Mises's approach is "more general and correct," because "real trade more often than not [I would say "always"] involves discrete goods." Unfortunately, despite Mises's clear doctrinal priority in formulating a purely and consistently ordinal theory of value and in completely eliminating the notion of measurable utility from economics, "To this day the major historians of economic thought appear unaware of Mises's contributions here."5
As Edwards (1985, pp. 31–32) points out, Mises built on Carl Menger to develop a theory of the nature and origin of money. As the most generally saleable good in society or "the general medium of exchange," money emerges step by step from an evolutionary market process driven by the actions of individuals consciously striving to obtain the maximum benefit from their cooperation in exchange and the division of labor. All other functions of money, e.g., as a "store of value," "unit of account," "standard of deferred payments," etc., are and must remain subsidiary to money's primary function as a medium of exchange. As we will see below, Mises's regression theorem goes beyond Menger in demonstrating that, logically, money can only come into being as a product of voluntary catallactic processes.
Under the rubric of "Definitions and Components of the Money Stock," Edwards (ibid., pp. 36–38) draws attention to Mises's original and indispensable taxonomy of money, which yields a statistical definition of money that is consistent with the one employed by modern economists. Before Mises wrote, economists generally distinguished between bank notes and token coins on the one hand and demand deposits or checking account balances on the other.6 The former only were included along with specie in the category of money. Mises rejected this distinction as useless for the purposes of economic science. Mises's repudiation of the older classification accords with his staunchly Mengerian "essentialist" approach to economics, which finds expression in his dictum that "The greatest mistake that can be made in economic investigation is to fix attention on mere appearances, and to fail to perceive the fundamental difference between things whose externals alone are similar, or to discriminate between fundamentally similar things whose externals alone are different" (Mises [I953] 1971, p. 62).
In formulating a new and more useful classificatory framework, Mises draws a distinction between standard money—whether of the "commodity," "credit," or "fiat" variety—and "money substitutes," defined as perfectly secure and immediately convertible claims to money, such as bank notes and demand deposits, which substitute for money in individuals' cash balances. Within the class of money substitutes, Mises further distinguishes between "money certificates," or notes and deposits fully covered by reserves of the standard money, and "fiduciary media," which denote uncovered money substitutes. Mises employs the term "money in the narrow sense" to denote the aggregate stock of standard money in the economy, corresponding to what is today called "the monetary base." "Money in the broad sense" is Mises's term for the monetary aggregate equal to standard money plus money substitutes minus bank reserves or, alternatively, equal to standard money (including reserves) plus fiduciary media. This latter aggregate is roughly approximated by the current definition of M1.7
In noting the similarity between Mises's broader definition of money and modern MI, Edwards commits minor errors of commission and omission, but they are worth noting because they elucidate Mises's essentialist approach to theoretically defining money and identifying its empirical counterpart. Respecting the first error, Edwards (1985, p. 38) states that "in modern times, money consists of fiat currency, token coins, and credit money with fractional reserves." The error here is that checkable deposits, to which the words I emphasized clearly refer, are not considered by Mises to be credit money, but fiduciary media, a subclass of money substitutes. Credit money, on the other hand, as noted above, is one of the three categories of standard money, which also includes fiat and commodity money. Mises ([I953] 1971, pp. 61–62) defines credit money as "a claim against any physical or legal person [which] must not be both payable on demand and absolutely secure. . . . Credit money . . . is a claim falling due in the future that is used as a general medium of exchange." Generally, credit money emerges when an issuer of fiduciary media suspends redemption of these media for a definite or indefinite period of time.
The essential economic distinction between the two resides in the fact that the value of a money substitute, considered as a perfectly secure and instantaneously redeemable claim to money, is completely dependent upon and always equal to the value of the sum of standard money to which it entitles its holder. In contrast, the value of credit money is established by an "independent process of valuation" (Mises ibid., p. 61). For example, Bank of England notes denominated in gold pounds were money substitutes during the periods of their unqualified convertibility prior to 1797 and after 1821, while they circulated as credit money for the duration of suspended specie payments from 1797 to 1821. As we would expect of credit money, during the latter period, the purchasing power of the paper pound fluctuated independently of the purchasing power of the quantity of gold which corresponded to its original definition. The fact that the prospects and timing of future redeemability influenced these fluctuations marked the currently inconvertible notes as credit rather than fiat money.
A proper understanding of the concept of credit money is important, because Mises seems inclined to classify most historical instances of non-commodity money as credit rather than fiat money. For example, in Theory of Money and Credit, which was translated from the second German edition published in 1924, after the German hyperinflation had run its course, Mises (ibid., p. 61) writes: "It can hardly be contested that fiat money in the strict sense of the word is theoretically conceivable. . . . Whether fiat money has ever actually existed is, of course, another question, and one that cannot off-hand be answered affirmatively. It can hardly be doubted that most of those kinds of money that are not commodity money must be classified as credit money. But only detailed historical investigation could clear this matter up." Even as late as 1966 in the third edition of Human Action, Mises (1966, p. 429) stops short of categorically affirming the historical existence of fiat money, declaring that "It is not the task of catallactics but of economic history to investigate whether there appeared in the past specimens of fiat money or whether all sorts of money which were not commodity money were credit money."
The omission in Edwards's discussion—partly explained by his narrow focus on Theory of Money and Credit—involves a failure to recognize Mises's ambivalent attitude toward the inclusion of saving deposits in his broader definition of money. A strong case can and has been made for the view that saving deposits in the contemporary U.S. economy constitute "perfectly secure and immediately convertible claims to money" and, therefore, according to Mises's own criterion, are to be identified among the components of money in the broad sense.8
As early as 1924, Mises ([I953] 1971, p. 270) recognized that institutional developments had led banks "to undertake the obligation to pay out small sums of savings deposits at any time without notice." This circumstance, according to Mises (ibid., p. 270), induced some people, for example, "small business people and not very well-to-do private individuals," to utilize these deposits as "current accounts" notwithstanding their technical status as "investment deposits." Thus Mises implies that at least some portion of saving deposits function economically as money substitutes and warrant inclusion in his broad concept of money.
During the 1920s and into the 1930s, there was tremendous growth in the volume and economic significance of savings deposits both in the U.S., due to Federal Reserve policies, and through- out the world economy (Phillips, McManus, and Nelson [I937] 1972, pp. 29, 95Ý103; Rothbard 1975, pp. 92–940). In an important but neglected article written in the early thirties, Mises ([I933] 1990) places much of the blame for the financial and exchange-rate instability of the early 1930s on the pandemic treatment of savings deposits as money substitutes, a development actively sought and encouraged by the banks. As Mises (ibid., pp. 528–29) argues:
The bank which receives [saving deposits] has to lend it to business. A withdrawal of the money entrusted to it by the saver can only take place in the same measure as the bank is able to get back the money it has lent. As the total amount of the saving deposits is working in the country's business, a total withdrawal is not possible. The individual saver can get back his money from the bank, but not all savers at the same time. . . . Since the saver does not need the deposited sum at call or short notice it is not necessary that the savings banks or the other banks which take over such deposits should promise repayment at call or at short notice. Nevertheless, this is what they did. And so they became exposed to the dangers of a panic. They would not have run this danger, if they had accepted the saving deposits only on condition that withdrawal must be notified some months ahead.
Mises also demonstrates that it was the egregiously inflationary and foredoomed attempt made by central banks to insure the instantaneous redeemability of saving deposits promised by the commercial banks, and not the spontaneous and generalized "capital flight" that is usually alleged, which was the root cause of the destructive exchange-rate gyrations of the 1930s. Writes Mises ([I933] 1990, pp. 108–9):
Capital invested in real estate or industrial plants or in shares of companies holding property of this nature cannot fly. You can sell such property and leave the country with the proceeds. But—unless there is no expansion of credit—the buyer simply replaces you. . . . One person or another can withdraw his capital from a country, but this can never be a mass movement. There is only one apparent exception, i.e., the saving deposit which can be withdrawn from the bank at once or at short notice. When the saving deposits are subject to instant withdrawal and the bank of issue renders the immediate withdrawal possible by advancing credits for these savings to be withdrawn, then credit expansion and inflation cause the exchange ratio to rise [the domestic currency to depreciate]. It is obvious that not the flight of capital but the credit expansion in favor of the savings banks is the root of the evil. . . . If the Central Bank were to leave [the banks] to their fate, their peculiar embarrassment would not have any effect on the foreign exchanges. That the additional issue of great amounts of bank notes for the sake of the repayment of the total amount or of a great portion of a country's saving deposits makes the foreign exchange go up is easy to understand. It is not simply the wish of the capitalists to fly with their capital, but the expansion of the circulation, that imperils monetary stability.
Despite his brilliant and pathbreaking analysis of the causes and effects of the progressive transformation of saving deposits into de facto money substitutes, Mises was still unprepared in 1966, in the third edition of Human Action, to include these deposits in his broader definition of money. There Mises (1966, p. 460 n. 23) refers to them as "demand deposits not subject to check," but then inconsistently denies that they are money substitutes. Instead, he identifies saving deposits as foremost among "secondary media of exchange," a category encompassing highly marketable financial assets, such as government bonds and blue chip stocks, which permit their owners to economize on the holding of cash balances. Unlike money substitutes, secondary media of exchange "must first be exchanged against money or money substitutes if one wants to use them—in a roundabout way—for paying or for increasing cash holdings" (Mises 1966, p. 461). Uncharacteristically, Mises never addresses the momentous institutional fact, clearly recognized in his 1933 article, that, unlike stocks and bonds whose exchange values in terms of money fluctuate according to market forces, saving deposits are "exchanged" on a market in which their money "price" is virtually fixed (at par value) and guaranteed by the practically inexhaustible resources of the central bank.
The Regression Theorem and the Demand for MoneyMurray N. Rothbard (1988, p. 179; 1977) has characterized the regression theorem as the "pons asinorum" for critics of Mises's monetary theory and as the "keystone of monetary theory" in general. And, as Edwards (1985, p. 49) points out, Mises himself "considered the integration of monetary and value theory by the application of marginal analysis to be the central problem, and his solution to be the most important contribution of [The Theory of Money and Credit]." In this spirit, Edwards (ibid., p. 24) refers to the third chapter of his own book, which comprises trenchant defenses against critics of Mises's regression theorem and approach to the demand for money, as "perhaps the heart of the study."
Against the allegation of Patinkin (1965, p. 79) and, later, Laurence S. Moss that Mises confused the marginal utility of holding money with the marginal utility attaching to the goods for which it exchanges, Edwards (1985, p. 53) definitively demonstrates that the confusion is the critics' and that "The entire context of Mises's discussion unequivocally bears on the derivation of the individual and market demands for money to hold as stock." While Edwards (ibid., p. 65, n. 35) affirms that Patinkin and Moss are "respectful in their treatment of Mises's contributions," one would surely be hardpressed to identify a single instance in the history of economic thought in which an eminent economist's position was interpreted less sympathetically than in the present case, especially when one considers Patinkin's unsurpassed scholarship in the history of monetary theory.
Edwards also neatly disposes of the absurd charge by "real balance" theorists such as Howard S. Ellis (1934, p. 163) and Moss (1976, p. 32) that Mises conceives the demand for money as a demand for nominal units of money without regard to the purchasing power or exchange value of these units. As Edwards (1985, pp. 53–54) argues, "If a unit of money has a value, then the individual can, for an additional unit of money income, compare the marginal utilities of the additional present or future goods obtainable with that of adding that unit's worth of purchasing power to his/her cash balance, and it is precisely the magnitude of real balances that Mises is talking about determining by such a marginal calculation. The individual simply expresses that demand by demanding nominal units of money with a given purchasing power each."
Indeed we may go further than Edwards and turn the tables on those who insist that money demand analysis must proceed via a "real value calculus" and in terms of the utility of "resources held in the form of money." In his outstanding but unduly neglected tome on monetary theory, which includes an encyclopedic review of the development of the cash balance approach to the demand for money, Arthur W. Marget ([I938–42] 1966, 1, pp. 414–83) conducts a remarkable running defense of the Menger-Mises-Cannan "money balance" variant against the claims of the Walras-Pigou-Keynes "real balance" variant. First, Marget argues that the real balance approach is unrealistic, because it rests on the assumption that the holders of cash explicitly utilize an index number to "deflate" their money balances. According to Marget (ibid., p. 446 n. 88), "The real issue, so far as the question of realism is concerned, is whether the element of price change enters the 'calculations' of the cash-balance administrator as a matter affecting 'his prospective receipts and payments in monetary units,' as Hawtrey [as well as Mises] holds, or whether it enters as part of a kind of 'deflation' process—in the statistical sense of 'deflation'—represented by the division of a cash balance by a price index. The question . . . is whether, from the standpoint of realism, it is helpful to think of cash-balance administrators as taking 'express account of any index number relating their cash to its equivalent in products.'"
Marget's second objection to the real balance approach stems from the fact that "demand for 'resources in the form of currency' which is held to determine the price level, needs, in order that a given amount of 'money' may be translated into 'real' terms, a 'price-level' which assigns to 'resources in the form of currency' a given 'real' value" (ibid., pp. 450—51 n. 99). Without dated price levels, à la Mises's regression theorem, however, exponents of this approach, which was developed as a means of escaping the so-called "Austrian circle," are themselves trapped in a logical circle. Finally, Marget (ibid., p. 451) contends that, in deflating money balances to their "real" equivalent in terms of products, many real balance theorists equate "the utility of a cash balance" to "the utility of the goods that might be purchased by the expenditure of the cash balance." The result is that these theorists are unable to explain why anyone should ever choose to hold cash instead of other forms of wealth, given that equal utilities generate indifference among alternatives.
Edwards successfully counters another criticism advanced both by Ellis (1934, p. 164) and Moss (1976, p. 32). The latter argue that Mises's theory of the demand for money yields a demand curve that is drawn as a rectangular hyperbola in nominal cash balance space. A demand curve of this shape, they note, is logically inconsistent with Mises's repeated and vigorous denials that an addition to the stock of money—even when this increment is distributed so as to equi-proportionally increase all individual cash balances—causes an equi-proportional increase of all prices. Edwards (1985, p. 55) thoroughly demolishes this criticism by demonstrating that it rests on a clearly erroneous interpretation of Mises's theory "as saying that the individual values units of money only with a view to maintaining a predecided and given level of purchasing power, and that utility calculation is not applied to the level of real balances. From this perspective they find his non-proportionality argument contradictory. It does not occur to them that his non-proportionality argument is evidence against their interpretation of his theory of the demand for money."
Edwards (1985, p. 56) himself falls into error, however, when he charges Mises with "a failure to step from a non-rectangularly-hyperbolic demand for nominal balances to the rectangularly-hyperbolic market equilibrium curve." Edwards initiates his criticism by concurring with Mises that an equi-proportional addition to cash balances, let us say a doubling, will not lead initially, i.e., immediately prior to the first round of spending of the excess balances, to an inversely proportional variation or halving of marginal utilities of money on individual value scales. Thus, as Edwards recognizes, the overall elasticity of Mises's "instantaneous" demand curve for nominal balances, which is derived from instantaneously existing marginal utility schedules for goods and money, may properly take on (absolute) values less than, greater than, or equal to unity. Or, in other words, the instantaneous demand curve for money only fortuitously traces out a rectangular hyperbola.9
Edwards (ibid., p. 56) proceeds to argue, however, that Mises erred "in assuming that it followed that prices would not rise proportionately with M. This would occur because, as prices increased, real balances would decline, reversing all of the initial wealth effects, until equilibrium was attained at the initial level of real balances, ceteris paribus." Edwards is here contending, à la Patinkin, that, notwithstanding the non-unitary elasticity of the "instantaneous" demand curve for money, real balance effects generated by an increase of money will initiate a dynamic adjustment process that culminates in an equi-proportional increase in overall prices. But Patinkin's demonstration that an increase in money accomplished via an equi-proportional increase in everyone's cash balances brings forth an increase of all prices in the same proportion rests either on his arbitrary assumption of the constancy of the real data, i.e., relative prices and real wealth, during the transition from one Walrasian equilibrium position to the next, or on his equivalent simplifying assumption that "prices rise during the tatonnement in an equi-proportionate manner" (Patinkin 1965, p. 44).10
In contrast, the very time-embracing "step-by-step" method which Mises (1978a, p. 59) consistently applies in analyzing monetary phenomena leads inevitably to a denial that the real data of the system could, under any conceivable initial set of circumstances, remain unaltered during a disequilibrium adjustment or tatonnement process. For Mises (1966, p. 414), "The process is always uneven and by steps, disproportionate and asymmetrical." In fact, Mises ([I953] 1971, pp. 141–42) rigorously demonstrates the long-run nonneutrality of money even under the most stringent and highly unrealistic assumption that new money is injected into the economic system in a way that does not disturb the pre-existing relative distribution among individuals of total wealth.
Writing in Human Action, Mises (1966, pp. 412–13) concludes that
Changes in the supply of money must necessarily alter the disposition of vendible goods as owned by various individuals and firms. . . . We may, if we like, assume that every member gets a share of the additional money right at the moment of its inflow into the system, or shares in the reduction of the quantity of money. But whether we assume this or not, the final result of our demonstration will remain the same. This result will be that changes in the structure of prices brought about by changes in the supply of money available in the economic system never affect the prices of the various commodities and services to the same extent and at the same time.
The main fault of the old quantity theory as well as the mathematical economists' equation of exchange is that they have ignored this fundamental issue. Changes in the supply of money must bring about changes in other data too. The market system before and after the inflow or outflow of a quantity of money is not merely changed in that cash holdings of the individuals and prices have increased or decreased. There have been affected also changes in the reciprocal exchange ratios between the various commodities and services which, if one wants to resort to metaphors, are more adequately described by the image of price revolution than by the misleading figure of an elevation or a sinking of a "price level." (Emphasis added)
Thus for Mises, "real balance effects" are inextricably bound together with "distribution effects." The very process by which the market adjusts the (positive or negative) excess demands for money of individuals necessarily "revolutionizes" wealth positions and the price structure. And this is the case even if these (nonzero) individual excess demands sum to zero in the aggregate. Writes Mises (1966, pp. 417–18):
Every change in the money relation alters—apart from the effects on deferred payments—the conditions of the individual members of society. Some become richer, some poorer. It may happen that the effects of a change in the demand for or supply of money encounter the effects of opposite changes occurring by and large at the same time and to the same extent; it may happen that the resultant of the two opposite movements is such that no conspicuous changes in the price structure emerge. But even then the effects on the conditions of the various individuals are not absent. Each change in the money relation takes its own course and produces its own particular effects. If an inflationary movement and a deflationary one occur at the same time or if an inflation is temporally followed by a deflation in such a way that prices finally are not very much changed the social consequences of each of the two movements do not cancel each other. To the social consequences of an inflation those of a deflation are added. There is no reason to assume that all or even most of those favored by one movement will be hurt by the second one, or vice versa.
Edwards (1985, p. 56) also argues that Mises's "nonproportionality argument" contradicts Mises's own no less vigorously stated position that an increase in the aggregate money stock would leave human welfare unchanged, because "a change in M would result in a proportional change in P." Edwards here implies that Mises derives his proposition that money always yields to society its full utility as a medium of exchange from a "process" analysis of the effects of a change in the quantity of money on a given economic system. For Mises, however, the proposition regarding the welfare effects of additions to the money stock is derived from a purely "comparative static" analysis of two simultaneously existing but unconnected economic systems which are based on identical real data and differ only in the magnitudes of their nominal money stocks. While the discussion by Mises which Edwards cites to support his interpretation is admittedly ambiguous on this point (Mises [I953] 1971, p. 85), elsewhere in the same work Mises (ibid., pp. 142,145) draws a clearcut distinction between the two forms of analysis:
the level of the total stock of money and of the value of the money unit are matters of complete indifference as far as the utility obtained from the use of the money is concerned. Society is always in enjoyment of the maximum utility obtainable from the use of money. Half of the money at the disposal of the community would yield the same utility as the whole stock, even if the variation in the value of the monetary unit was not proportioned to the variation in the stock of money. But it is important to note that it by no means follows from this that doubling the quantity of money means halving the objective exchange-value of money. . . .
If we compare two static economic systems, which differ in no way from one another except that in one there is twice as much money as in the other, it appears that the purchasing power of the monetary unit in the one system must be equal to half that of the monetary unit in the other. Nevertheless, we may not conclude from this that a doubling of the quantity of money must lead to a halving of the purchasing power of the monetary unit; for every variation in the quantity of money introduces a dynamic factor into the static economic system. The new position of static equilibrium that is established when the effects of the fluctuations thus set in motion are completed cannot be the same as that which existed before the introduction of the additional quantity of money.
In the course of rebutting Moss's astounding contention that Mises "saw the demand for real balances as constant and given by the state of the world . . . [and] did not apply subjective cost and benefit considerations to the demand for real balances," Edwards (1985, p. 57) himself seriously misconstrues Mises's position on the relationship between the demand for money and the interest rate. Edwards correctly characterizes Mises's overall approach to the problem as "the classic one of long-run interest rate neutrality, based on a view that the rate of interest and the demand for money had essentially different determinants."11 This, Edwards (ibid., p. 57) implies, accounts for the fact that Mises "did not generally regard interest foregone as the cost of holding money." This is incorrect on both exegetical and logical grounds.
First of all, Mises identified three basic categories of opportunity costs which may be incurred in the decision to hold cash balances. These include "interest foregone" as well as the foregoing of "instantaneous consumption" and of "plain saving" i.e., the accumulation of stocks of durable consumers goods.12 That the foregoing of an interest return is one of the potential "costs" of holding money is logically implied in the very application of marginal utility theory to the explanation of the purchasing power of money. In this approach, the opportunity cost of allocating a sum of money to cash balance is the renunciation of the marginal utility of the most highly valued alternative use of this money, which may or may not be the investment of the sum in interest-bearing securities. The assertion by Edwards (1985, p. 57) to the contrary, this is readily deducible from Mises's analysis in Theory of Money and Credit of the manner in which individuals adjust to a disequilibrating influx of newly-created money into their cash balances. Writes Mises ([I953] 1971, pp. 139,134–35):
For these persons, the ratio between the demand for money and the stock of it is altered; they have a relative superfluity of money and a relative shortage of other economic goods. The immediate consequence of both circumstances is that the marginal utility to them of the monetary unit diminishes. This necessarily influences their behavior in the market. . . . He who has more money on hand than he thinks he needs, will buy, in order to dispose of the superfluous stock of money that lies useless on his hands. If he is an entrepreneur, he will possibly enlarge his business. If this use of the money is not open to him, he may purchase interest-bearing securities; or possibly he may decide to purchase consumption goods.
If we assume that one of the individuals in Mises's example does in fact allocate his increment of new money to the purchase of interest-bearing securities—assuming that his value rankings of the utilities derived from the various uses of the money have remained constant—it is to be inferred from this purchase that the foregone interest on these securities constituted the opportunity cost of holding an equal-sized unit of money prior to the infusion of new money into his cash balance.
Mises (1966, p. 430) is even more explicit on this point in Human Action, where he states that:
The keeping of cash holding requires sacrifices. To the extent that a man keeps money in his pockets or in his balance with a bank, he forsakes the instantaneous acquisition of goods he could consume or employ for production. In the market economy these sacrifices can be precisely determined by calculation. They are equal to the amount of originary [or pure] interest he would have earned by investing the sum. The fact that a man takes this falling off into account is proof that he prefers the advantages of cash holding to the loss in interest yield.13
Not only does Mises conceive the interest rate as a potential cost of holding money, he also recognizes that it is a monetary phenomenon in a real and important sense. That is, in a barter economy, where monetary calculation does not exist, it would be impossible to even conceive the difference in value between present and future goods as a unitary rate. The reason, as Mises (1990b, p. 65) points out, is that "Only within a money economy can this value difference be comprehended in the abstract and separated from changes in the valuation of individual concrete economic goods. In a barter economy, the phenomenon of interest could never be isolated from the evaluation of future price movements of individual goods."
Of course, recognizing that the interest rate is an outgrowth of monetary exchange and calculation expressible only in monetary terms and that, as an element determined within the system of interdependent money prices, it functions as an opportunity cost of holding money does not imply that "real balances [are] a function of wealth and the interest rate." That Edwards does not fully comprehend this point is attributable to his failure to appreciate that Mises's methodological approach is worlds apart from the neoclassical methodology of mutual determination that Edwards himself apparently espouses. The analytical framework of Mises's monetary theory is the general interrelationships and interdependencies of the system of market prices. Within this framework, there are multifarious opportunities for money expenditures on consumer goods which, in addition to the opportunity to hold ready cash, compete with opportunities to invest money at interest. Thus it might be argued that a fall in the interest rate, ceteris paribus, lowers a given individual's cost of currently consuming, let us say, apples. But it is an impermissible leap of logic from this formally unexceptionable statement to the conclusion that the interest rate is one of the functional determinants of the demand for apples.
Edwards does make an important contribution, however, in his defense of Mises's regression theorem against Patinkin and his demolition of the latter's alternative "Walrasian solution" to the circularity problem in monetary analysis. Employing the methodology of simultaneous mutual determinism, Patinkin is able to formally demonstrate that no specific prior value of money need be assumed in deriving a market demand schedule or "excess demand function" for money. Moreover, Patinkin's demonstration implies that if economic agents form their subjective valuations of cash balances on day two with reference to the unique purchasing power of money prevailing on day one, as Mises assumes, the outcome is not a schedule of quantities demanded of money at varying purchasing powers but a single quantity demanded. Thus Patinkin (1965, pp. 115–16) concludes that writers such as Mises who believe that there is a circularity problem to be addressed in explaining the determination of the purchasing power of money fall victim to a "basic misunderstanding of the theory of price determination" and to an elementary "confusion of 'demand' with 'amount demanded."'
In defending Mises, Edwards argues that, before Patinkin's "individual-experiment" can proceed, i.e., before each individual can establish his indifference map for goods and (nominal) money balances, money itself must have utility and therefore a known and pre-existing purchasing power, because the very existence of indifference curves implies that the individual is able to maintain a given level of utility by substituting at the margin determinate quantities of goods for determinate quantities of money. Edwards's insightful argument on this point is worth quoting at length (Edwards 1985, pp. 59–60):
note that [Patinkin's] method of generating a demand curve for money assumes the indifference curves to exist and have the normal properties. Yet, translating into modern terms, the whole essence of the problem, as recognized by all parties to the [circularity] debate at the time, was precisely that without some specific value of money no such indifference curves could even exist. Consider: we have goods on one axis, with a given intercept (the endowment), and money on the other. But money is only money when it is a medium of exchange, that is, when it has a value (purchasing power) in terms of other goods. Then it can be valued for storage purposes and the utility curves can exist.
We might place pieces of paper with a number on them on the axis, but if they have no nonmonetary utility and no purchasing power they would have no utility. The indifference curves can only exist when we place a budget line on the graph, that is, postulate a goods price of money, and that is precisely Mises's point. . . . Mises would argue that since the indifference curves cannot exist until the budget line does, the latter is logically prior. His interpretation of such a graph would be that the budget used is yesterday's exchange value of money, while the indifference curves embody today's subjective valuations of money.
Presumably, Patinkin would counter this critique by arguing that the temporal and causal approach to explaining the demand for money followed by Mises—referring as it does to a particular value of money—would be incapable of generating more than a single point on a demand curve in nominal money space. Edwards's reply to this objection, although it points us in the right direction, is not completely satisfactory. Thus he argues, somewhat tentatively, that the Patinkinite charge "is not quite correct," because, while the formation of individuals' subjective valuations for money with reference to "some particular prior value of money" yields only a single quantity demanded, "there is an infinite number of such possible prior values, and if their tangencies with individual's [sic] existing indifference curves were plotted, demand functions of the normal shapes would result" (Edwards 1985, p. 66 n. 47).
But the point that Edwards should have made is that market participants, in deciding upon the size of their cash balances, are interested in the future purchasing power of money. In attempting to forecast the future structure of prices, which is the inverse of the purchasing power of money, they resort to the prices of the immediate past, let us say, yesterday. They do not mechanically project the realized prices of yesterday into the future, but use them as the basis for appraising the structure of prices which will emerge and prevail today as a result of the anticipated changes intervening in yesterday's constellation of the qualitative economic data.
Based on their appraisements of money's prospective purchasing power and their anticipated uses for a general medium of exchange today, market participants rank units of money on their subjective value scales and thus establish the marginal utilities that underlie today's market demand for money. For each individual, the marginal utility of money will decline as successive units of a given purchasing power are added to his cash balance. Consequently, an increase in the total stock of money, ceteris paribus, will lead to a decline in individual marginal utilities of money and this will translate into a rightward shift in demand curves in goods markets and higher money prices offered and paid, i.e., a decline in the purchasing power of money. In other words, the instantaneous demand curve for money that emerges from Mises's analysis is multi-valued and negatively-sloped and interacts with the vertical line representing the current stock of money to determine today's purchasing power of money.
Contrary to Patinkin's assertion, then, in Mises's analysis, the demand for money is not logically constrained to a single quantity dependent on a specific realized purchasing power, but describes a schedule of quantities that responds inversely to variations in the current purchasing power of money. To illustrate this, if we assume that the total quantity of money that market participants desire to acquire and hold, based on their forecasts of the future purchasing power of money, is insufficient to completely absorb the current stock of money, then there will result a temporal process involving variations in total money expenditures on goods and services, i.e., "real balance effects," that drive the price structure and therefore the purchasing power of money to the level at which the stock of and demand for money are equated. Abstracting from distribution effects, the inverse response of the amount of money demanded to the alterations in its purchasing power, which occurs during this adjustment process, will trace out a segment of the instantaneous demand curve.
Summing up the differences between the Misesian and Patinkinite methods for solving the circularity problem, Edwards (1985, p. 60) sees a distinct advantage in the Misesian method, because it allows for the possibility of disequilibrium occurring between the actual and desired stock of cash balances and the operation of an adjustment process that eventually restores equilibrium. In contrast, the Walrasian solution offered by Patinkin effectively precludes the emergence of monetary disequilibrium and a dynamic adjustment process. As Edwards (ibid., p. 61) argues: "Where demand and excess demand functions are derived using given preferences and hypothetical alternative values of money, and the value of money determined by the market demand and supply functions determines the actual quantities demanded simultaneously, the individual is always at equilibrium. . . . The solution to a simultaneous equation set never yields anything but equilibrium values."
The Monetary Adjustment Process: The Interspatial Equalization of the Value of Money, and the Determination of Exchange RatesIn chapter four, Edwards (1985, p. 69) examines Mises's contributions to international monetary theory, and, in the process, goes a long way towards establishing that Mises anticipated "every major element of the modern monetary approach to international adjustment (MAIA)." Indeed, Edwards (ibid., p. 133) argues that "This is true to such an extent that Mises might justly be designated the founding father of the MAIA in the twentieth century."
The central proposition of the modern monetary approach is that "the balance of payments and currency exchange rate changes are essentially monetary phenomena equilibrating the stock demands for and supplies of national currencies" (ibid., pp. 69–70). Proponents of this approach have traced the roots of the MAIA back to the writings of classical monetary theorists including David Hume and British "bullionist" pamphleteers John Wheatley and David Ricardo. Edwards argues, however, that in their eagerness to identify and credit the classical forebears of the monetary approach, doctrinal historians have given a partly distorted account of its development, which completely overlooks Mises's unquestioned precedence in formulating important elements of the uniquely "modern" version.
As Edwards (ibid., pp. 77–78) points out, before Mises, proponents of the monetary-oriented classical and neoclassical approaches to balance-of-payments adjustment, including prominent cash-balance theorists such as Alfred Marshall and Knut Wicksell, explained the international distribution of the money commodity using a macro "expenditure flow" concept of the demand for money. According to this conception, each nation's equilibrium share in a given global stock of money is determined, given the payments habits of its population, by the relative volume of business it transacts at the exogenously given level of world prices. Or, in terms of the Fisherian Equation of Exchange, a nation's demand for money is conceived as a demand for a flow of money payments (M x V) needed to support an aggregate expenditure flow (P x T).
Mises, in contrast, builds up his explanation of the distribution of the stock of money among nations from the Mengerian (and modern) conception of the individual's demand to hold a stock of the general medium of exchange. For Mises, individuals' subjective value rankings of money and goods hold the ultimate explanation for the allocation of the global stock of money among individual cash holders and thus among nations, obviating any reference to disembodied averages and aggregates such as a nation's velocity of circulation of money or total volume of business transactions. Thus in Mises's view, as in the modern MAIA, "international monetary flows (that is, deficits and surpluses in the balance of payments) act to equilibrate the stock demands and supplies of money" and, therefore, assuming a fixed global monetary stock, "only changes in the demands for money (resulting in net excess demand, positive or negative) can produce a surplus or deficit" (Edwards 1985, p. 77). Conversely, "If the state of the balance of payments were such that international movements of money were required independent of any altered estimation of money on the part of those involved (that is, in the absence of change in the stock demands), operations would be induced to restore equilibrium" (ibid., p. 76).
Unfortunately, in his own eagerness to establish Mises's rightful and preeminent position in the MAIA tradition, Edwards glosses over several significant differences between the Misesian and the rational expectations-based modern approaches. These differences are important enough to warrant critical comment.
Edwards (ibid., pp. 70–71, 73–74) points out that Mises, like the modern proponents of the monetary approach, holds that "the law of one price" applies to money as well as to commodities. In other words, in the case of a single money, the purchasing power of the monetary unit tends to be geographically uniform. For adherents of the modern monetary approach, such as Laffer and Miles (1982, p. 232), this means that, assuming profit maximization and no barriers to trade, "All commodities' prices should be fully arbitraged in each and every numeraire at each and every moment in time." This concept of instantaneous arbitrage for an individual good then "can be extended to the overall price indexes of two countries by taking a weighted average of the prices of goods consumed in both countries" (ibid., p. 232).
But the rational expectationist conception of instantaneous arbitrage is inconsistent with the step-by-step method employed by Mises in his analysis of the monetary adjustment process. As Mises (1978a, p. 59) emphasizes, "The step-by-step analysis must consider the lapse of time." Moreover, Mises ([I953] 1971, pp. 187–94; 1966, pp. 219–23) criticizes and deliberately eschews the use of price indexes to measure changes in the purchasing power of money, except for rough historical estimates.14 Therefore, when Mises ([I953] 1971, p. 176) states that "The purchasing power of money is the same everywhere," he is not referring to a tendency to equalization of national price indexes, as Edwards (1985, p. 77) seems to imply at one point. For Mises, interspatial equalization of the value of money refers to an equilibration of the vast and unaveraged array of alternative quantities of goods which are purchasable by a unit of money.
Furthermore, from Mises's perspective, equilibration of money's purchasing power array cannot necessarily be expected to yield equality between the prices of physically identical goods available in different locations, let alone between the arbitrarily selected and weighted price indexes of different nations or regions. The reason is to be found in Mises's pathbreaking subjectivist insight that the situation of a good in space may affect its perceived usefulness and thus its subjective value in satisfying human wants.15
Edwards (1985, p. 74) properly recognizes the implication of this insight for the case in which a "good has a subjective value as consumption good where it is, and a different one as production good in those places to which it may be transported." The good available at its place of production, for example, coffee-in-Brazil, is evaluated by coffee drinkers in New York City as a capital good which must be combined with further complementary capital goods, that is, the means of transportation, before it can attain the (higher) subjective value of the consumption good, coffee-in-New York. As Edwards (ibid., p. 74) also notes, Mises distinguishes money from nonmonetary commodities in this respect, because, in the case of the former, the use of money substitutes and clearing systems operate to render its position in space indifferent to economic agents. For Mises, then, stocks of money, wherever they may be situated within the unitary market area, for all practical purposes, comprise a perfectly fungible commodity whose transference between market participants is virtually costless. Thus the Law of One Price fully applies to money, and Edwards (ibid.) concurs with Mises's conclusion that "the purchasing power of money is the same everywhere, only the commodities offered are not the same."
Edwards defends Mises against Ellis's criticism that Mises has only proved the international equalization of "utility flows per unit of purchasing power" rather than of the purchasing power of money itself (Ellis 1934, p. 224). However, Edwards's defense itself rests on a failure to comprehend the full scope of Mises's insight regarding the influence of the spatial element on the quality of (nonmonetary) goods. Thus, in response to Ellis's critique, Edwards (1985, p. 74) upholds Mises's proposition that the objective value of money tends to equality and supports this position with the following example: "Consider a good sold in any number of locations in different directions from the factory, and at distances and elevations such that their transportation costs are the same. On Mises's assumptions it is clear that though such physically identical goods are at different locations they are economically the same and their prices would not differ in equilibrium."
Edwards's conclusion is not fully consistent with Mises's conception of the spatial quality of goods, because this conception does not merely embrace the pure distance between the location of the consumer and the location of the good, but also the consumer's positive or negative psychic response to the very location of purchase or consumption. For example, the same brand of men's shirt may simultaneously sell for a significantly higher price at a mall boutique than at a downtown clothing store, because, at the margin, consumers are prepared to offer a higher price for the good purchasable at the more accessible and pleasant location. Or consider that alcoholic beverages consumed in a restaurant situated atop one of the towers of the World Trade Center, which offers a breathtaking view of Manhattan and its surroundings, command much higher prices than drinks mixed with the same ingredients and imbibed in a street-level pub located a few blocks away. Surely, we do not expect would-be bar patrons at the World Trade Center to react to knowledge of such price discrepancies by a mad scramble to the elevators in order to take advantage of the higher purchasing power of money at ground level. This is not to deny, of course, that whenever consumers are neutral between stocks of a technologically identical good ready for consumption or purchase at two different locations, the spatial equilibration of the purchasing power of money will imply the complete eradication of inter-local price differences.
The proper response to Ellis's critique is to point out that, for Mises, the equilibration of the purchasing power of money is accomplished within the same process that gives rise to the structure of relative prices. This process culminates in a state in which, barring further change in the data, mutual gains from further exchange between any two market participants are impossible, because the ordinal value rankings of equal units of the various goods and money are identical for all those possessing them. This state also reflects the absolute equalization of the objective exchange value of money between any two locations, because it implies both that inter-local differences between prices of technologically identical goods do not exceed their costs of transportation (abstracting from time in transit) between their consumption and production centers, and, more generally, that no individual can achieve a more desirable outcome from the exchange process by diminishing his expenditures on goods available at one location and substituting expenditures on goods, whether physically indistinguishable or not, offered at alternative locations. Thus, contrary to Ellis, interspatial equalization of the objective value of money can only exist when there also exists common utility rankings for goods and money on the individual value scales of all market participants or, less accurately, when "utility flows per unit of purchasing power" are equalized.
It is instructive to analyze in more detail the market adjustment process which produces the tendency to the interspatial equilibration of the purchasing power of money, because it elucidates the reasons for Mises's insistence, as against Wieser, that such a tendency strongly and rapidly reasserts itself amid the ceaseless fluctuations of the underlying economic data (Mises [I953] 1971, pp. 173–75). Or, more loosely speaking, it explains why monetary equilibrium is much more quickly established than the final equilibrium position of the real sector of the economy. This analysis also permits us to answer the question of whether the occasional unqualified statements by Mises (ibid., pp. 201, 210) to the effect that "the purchasing power of money is the same everywhere" are intended as merely polemical flourishes or represent what Mises believed to be a close approximation to the actual moment-to-moment situation in the economy, as when we speak of "the" market price for wheat or for oil.
Mises's analysis of the market process is predicated on the indisputable premise that the process has an unavoidable spatial, as well as temporal, dimension, because the individual sellers and buyers whose actions constitute it are spatially diffuse and possess different capacities for forecasting, learning of, and adapting to the ceaseless change that characterizes human life (Mises 1966, p. 328). At each moment in time, the unitary market process produces a structure of money prices which is determined by consumer valuations (including, of leisure and of present versus future goods) and entrepreneurial price appraisements interacting with the currently existing total stocks of goods of various orders. The exchanges which take place as a result of these subjective valuations and appraisements produce a situation in which no individual perceives that he can improve his situation by further exchange at prevailing prices, because the marginal utility of any good he might offer exceeds the marginal utility of the good he will receive in exchange. On every market in the economy, therefore, the situation is the same as it is at the close of Böhm-Bawerk's famed horse market (Böhm-Bawerk 1959, pp. 217–30). This "momentary equilibrium," as Böhm-Bawerk (ibid., p. 231) refers to it, or "plain state of rest" (PSR), as it is designated by Mises (1966, p. 244), will persist only so long as the prevailing state of valuations of the marginal pairs in each market remain constant. But these valuations are bound to change precisely because, in many cases, they are formulated on the basis of inaccurate forecasts and incomplete information regarding market opportunities. The result is that the actual market prices which we observe are always in disequilibrium in two related but logically distinct senses. First, the array of realized prices embodies inter-local discrepancies in the exchange value of goods and money, which present the opportunity for arbitrage profits, whether in terms of money or of enhanced consumer surplus.16 Second, for many of the goods exchanged, the prices that clear the market exceed or fall short of their respective monetary costs of production, including an interest return to time preference, thereby generating pure or entrepreneurial profits and losses.
In analyzing adjustment of the first type of disequilibrium, we must abstract from the inevitable changes in production decisions that will be initiated by capitalist-entrepreneurs consequent upon their experience of pure profits and losses. The analytical device which is ready made for our purpose is Wicksteed's country fruit market in which the stocks of the various (perishable) commodities as well as consumer valuations are fixed for the duration of the "market day," during the course of which buyers exercise their demands. This market is, moreover, assumed to be "imperfect" in two senses. First, buyers and sellers are spatially constrained and, hence, neither group is instantaneously and fully informed of current transaction prices at all locations or "stalls." And second, neither buyers nor sellers have perfect knowledge of what Wicksteed calls the "ideal market" or "equilibrating" price for any commodity, which, when once established, will not vary for the remainder of the market day.17
In the absence of these imperfections of knowledge about the current and future state of the market, the prices established for the first set of transactions of the market day would invariably result in a PSR characterized by spatial equality in the purchasing power of money: the same commodity would have the same price at different stalls and each and every buyer would allocate his income among the different commodities available at different locations so that, at prevailing prices, no alteration in his spatial pattern of expenditures would result in an increase in his "total utility" or the utility-ranking of the aggregate collection of goods he purchases. Until sellers' stocks are completely exhausted and the market comes to a close, this identical "Wicksteedian state of rest"18 (WSR) will be repeatedly disrupted and then re-established as each new group of perfectly informed buyers arrive and undertake transactions at the prevailing equilibrium set of prices.
However, the inescapable spatial and temporal constraints on market participants would prevent the initial pricing process from culminating in a WSR. Aware of the deficiencies of their information and foresight, both buyers and sellers arrange the temporal pattern of their exchanges according to speculative anticipations of the course of actual market prices. Buyers seeking psychic arbitrage profits devote time to comparison shopping and forego purchases offering a consumer surplus in one location while speculating on the availability at another location either of a higher-ranked good for an equal monetary expenditure or of the same good for a lower price. On their side, sellers may exercise a speculative reservation demand for their own commodities. Thus, the constellation of actual market prices that emerges at any moment early on in the market day will diverge from the equilibrating constellation as a result of ignorance and speculative errors. During the PSR which succeeds each set of transactions undertaken at "false" prices during the early going, market participants begin to discover spatial inequalities in the purchasing power of money and to exploit these opportunities for arbitrage profits. (For analytical convenience, we are assuming; as Wicksteed did, that trading at false prices does not alter the structure of market demand.) As their experience of the market grows during the course of the day, the continually revised transaction plans of buyers and sellers come to reflect more accurate and complete information and eventually give rise to the equilibrium set of prices. The lull or WSR which succeeds this latter set of transactions describes a situation in which the spatial divergences in the purchasing power of money have been completely eradicated and the prices of all goods fully arbitraged. For the rest of the market day, each successive set of transactions takes place at equilibrium prices and thus generates a momentary WSR until the arrival of the next group of buyers on the scene.
Wicksteed's analysis, with its assumptions of given consumer value scales and fixed stocks of goods and money, thus allows us to disentangle the complex phenomena of entrepreneurship and production from those of arbitrage. It also serves to emphasize that the determination of money's purchasing-power array is a pure exchange phenomenon: since everyone is a "dealer" in money and money is always "in inventory," a perfectly adequate explanation of the actual exchange ratio between money and goods may be made without reference to problems of production. In the same way, the Böhm-Bawerkian and Wicksteedian explanation of actual, moment-to-moment market prices of individual nonmonetary goods completely and correctly abstracts from production phenomena, due to the fact that the exchanges taking place at any moment in time are determined exclusively by the stocks of goods in existence and prevailing subjective valuations. As Böhm-Bawerk (1959, p. 229) has written: "I do really believe we have here hit upon the simplest and most natural, and indeed the most productive manner of conceiving exchange and price. I refer to the pricing process as a resultant derived from all the valuations that are present in society. I do not advance this as a metaphorical analogy, but as living reality." And, as Mises (1966, p. 245) himself stresses, "The theorems implied in the notion of the plain state of rest are valid with regard to all transactions without exception. . . . The notion of the plain state of rest is not an imaginary construction but the adequate description of what happens again and again on every market."
Perhaps the most powerful defense of the analysis of momentary positions of rest and of their relevance for monetary analysis was presented by Marget. According to Marget ([1938–42] 1966, 2, pp. 222, 240):
The ultimate goal of any theory of prices [theory of indirect exchange], like that of any part of economics which undertakes to explain economic reality, is to explain why realized prices are what they are. "Quoted prices," the prices which are included in the "ex ante" schedule of the general theory of value [theory of direct exchange], "expected" prices, "equilibrium" prices (in most of the senses of the concept of equilibrium), or any kind of prices other than realized prices are to be introduced into the argument only insofar as they help to explain why prices actually realized on the market are what they are. . . .
In a fully developed monetary economy, a realized price represents the passage of money for an article sold for money. And the "passage of money for articles sold for money" is precisely what constitutes the subject matter of those aspects of the theory of money and prices which undertake to explain why the dimensions of the stream of money which "passes" for a given commodity or group of commodities is relatively large at one time and relatively small at another. . . .
But it also constitutes the subject matter of that part of the "general" theory of value which is built upon the proposition that any realized price is what it is as a result of the conformation and position of the market demand curve and market supply curve prevailing at the moment the price is realized.
Or, as Marget ([I938–42] 1966,2, pp. 239–40) summarizes it, "the prices which we must ultimately explain are the prices 'realized' at specific moments in clock time [and] the only demand and supply schedules which are directly relevant to the determination of these 'realized' prices are market demand and supply schedules prevailing at the moment the prices are 'realized.''' The only sense in which Margetian "realized" prices may be characterized as "equilibrium" prices is in the sense of an "equality between demand price and supply price for a given quantity of a commodity in all cases in which prices are actually realized in the market for this quantity of the commodity" (ibid., p. 253).
With respect to the "market" demand curves, whose variations account for "changes in realized money prices," Marget (ibid., p. 176) conceives them as instantaneous curves, whose shape and position are influenced by forecasting errors and incomplete knowledge of arbitrage opportunities. Thus, each such curve represents "a set of 'plans' by prospective purchasers of a given commodity at the time that they reach the decision to purchase or refrain from purchasing that commodity at a given price. [And] the mere fact that these plans may themselves change between successive realized decisions to purchase or not to purchase does not alter the further fact that the actual purchases themselves may be assumed to be based on calculations whose results are embodied in 'plans' the resultant of which is the decision to purchase a given amount if the price is at one level and another amount if the price is at another level" (Marget [1934–42] 1966, 2, p. 177).
Analogously, Marget (ibid., pp. 255–56, 553–56) construes the "market" supply curve, which interacts with the market demand curve to yield realized prices, as the momentary, Wicksteedian "curve of reserve prices," which is the reversed portion of the general demand curve representing sellers' reservation demand for the existing stock of the good. As Marget (ibid., pp. 554, 556) points out, the concept of sellers' reserve prices embodies recognition of the element of expectation and of the all-important distinction between "amount supplied" and "amount produced," which is necessary when "accounting for prices realized and the amount of sales realized within a given historical ('clock-time') period."
The analytical significance which Marget assigns to momentary (disequilibrium) positions of rest is not intended to belittle the usefulness of equilibrium analysis, nor does it imply a lack of interest in market adjustment processes unfolding over time. To the contrary, it is precisely because the experienced outcomes of the market process do not coincide with expected outcomes that the participants are induced to revise their expectations and plans during each succeeding lull in the market process, thereby precipitating another round of realized transactions. Assuming the underlying data are unchanged, the Wicksteed-Mises-Marget approach yields a coherent explanation of how, as information becomes more complete and speculation more accurate, PSRs succeed one another until the intermediate equilibrium situation represented by a fully-arbitraged state of rest (or WSR) is brought into being. Thus as Marget (ibid., pp. 235–36) argues:
without the use of [instantaneous] market demand and supply curves . . . it is impossible to explain either (1) why, of a given range of possible "ex ante" prices, only one is "realized in a given market situation; or (2) how the goals of dealers and consumers, even when these goals are short-period goals, are approached (if they are approached at all) through successive realized market transactions. And without a conception of an "equilibrium" price, even over a period as short as [Marshall's market day], it is in many cases impossible to understand what these goals are, and therefore why the successive market demand and supply schedules show the direction and the type of change that they do, and therefore lead to the successive realized prices actually registered in successive market transactions.
It should be added that the "short-period" equilibrium implied in Marget's dealer-consumer market is the WSR, which, as I argued above, is appropriate to analyzing the short-period arbitrage processes and nonproduction speculative activities involved in the adjustment of the purchasing-power array of money. The WSR must not be confused with the concept of what Mises (1966, pp. 246–47) calls the "final state of rest" (FSR), which is an imaginary construction of the position of the economy when prices and production have been completely and finally adjusted to a given alteration in the economic data, including a change in the quantity of money. Any account of the economy's approach to the FSR must refer to the specific function of the capitalist-entrepreneur or "promoter" who actively seeks to profit by allocating factors of production among time-consuming, capitalist production processes, a function which is ignored in the pure exchange analysis of the WSR, dealing as it does with fixed stocks of goods. But, as Marget teaches, the analysis of the temporal path to the FSR must also refer to the successive realized price structures that emerge momentarily and then are displaced by a successor as the equilibrating changes occurring in production continually alter the available stocks and marginal utilities of goods until production has been fully adjusted and the structure of "final" prices emerges.
The usefulness of the imaginary construct of the FSR in monetary theorizing and its relationship to the concepts of the PSR and WSR is illustrated when we trace out the consequences of a change in the quantity of money. To fully analyze this adjustment process, we must completely abstract from all other exogenous changes and processes of adjustment, and so we must begin our analysis from an FSR in which not only the distribution of cash balances and the value of money but also relative prices and production have been fully adjusted to the existing economic data. An unanticipated increase in the total stock of money will disrupt the prevailing FSR as the initial recipients of the new money suddenly discover their cash balances to be in excess of their needs. On the very next market day, they begin to disgorge the excess money balances by increasing their demands for various goods and services according to their subjective marginal utility rankings of additional units of money and goods. If we maintain our assumption that arbitrage processes work themselves out over the course of the Wicksteedian market day, the final set of transactions of the day yields a fully-arbitraged purchasing power of money. Not only will this purchasing-power array be lower than that existing at the end of the previous market day, it will also embody a different relative price structure, which reflects the altered pattern of relative demands caused by money's nonneutrality and which, to the extent that it has not been anticipated, results in entrepreneurial profits and losses.
Thus, while the purchasing power of money has been interspatially equalized, it is far from being fully equilibrated by the end of the first market day. The second round recipients of the additional money—those sellers who are the first to be favored by the inflation-fueled increase in the demand for products and services—seeking to rid themselves of their excess cash balances, return to market the next day with their own increased demands for goods and this brings about another revolution in the price structure, with yet a new WSR emerging by the end of the day. Each succeeding market day likewise will dawn with a revised structure of demands for goods and will terminate in a WSR featuring an altered purchasing power of money, until all prices and incomes have been affected to a greater or lesser extent by the injection of the new money. As noted above, however, the permanent redistributions of income and wealth brought about by the sequential nature of the monetary adjustment process, constituting what Mises (1966, pp. 416–19) calls money's "driving force," will result in a permanently altered structure of relative demands for consumer goods as well as permanent alterations in the structure of individual time, liquidity, and leisure preferences. But even after the newly-injected money has percolated throughout the entire economy and exhausted its driving force in a general but uneven increase of prices, the adjustment process will not be complete, because it will take additional time for the production processes and capital structure of the "real" economy to be fully adapted by capitalist-entrepreneurs to the money-induced changes in consumer demands, time preferences, etc. It is only after the complete adaptation of production that the monetary adjustment process comes to an end and the "final" price structure and purchasing power of money emerges.
A Misesian analysis of the monetary adjustment process hence depends upon a number of concepts of rest or equilibrium. The PSR explains the purchasing power of money prevailing at any moment and embedded in the structure of "realized prices." The WSR is an imaginary construct which serves to isolate and illuminate the arbitrage and speculative forces that are constantly propelling the market to rapid convergence upon a single price for each and every commodity (taking into account differences in spatial quality) and a geographically uniform value of money. While the overall economy is unlikely to ever come to rest in a fully-arbitraged state, historical insight leads to the conclusion that arbitrage processes run their course relatively rapidly in clock time, especially where there exist professional arbitrageurs and commodity speculators, organized commodity and retail markets, sophisticated communications and transportation, and consumer advertising. Thus, the interspatial equalization of the purchasing power of money does not wait upon the culmination of the overall monetary adjustment process, which may take years, but is a powerful tendency exhibiting itself at every step of the process. For Mises ([I953] 1971, p. 174) not only is such a tendency deduced "from the principles of the theory of prices," it is "clearly demonstrated day by day in the market." Therefore, it is an historical judgment and not polemics which prompts Mises (ibid., p. 176) to declare that "the exchange ratios between money and economic goods of completely similar constitution in all parts of a unitary market area . . . are at any time equal to one another." Wicksteed ([I932] 1967, 1, pp. 144), in fact, reaches a similar conclusion, stating that "this ideal state of equilibrium [i.e., the WSR] never exists; but a sense of mutual advantage is perpetually bringing about approximations to it."
However, as I argued above, the monetary adjustment process cannot be completely accounted for without reference to the FSR, because variations in the monetary data inevitably modify relative income and wealth positions and hence bring about an alteration in relative prices. These money-driven changes in the structure of relative prices account for the profits and losses realized in the transactions that establish the PSR at any point in the uncompleted adjustment process. The emergence of profits and losses impels entrepreneurs to immediately begin revising purchase, sale, and production decisions and so to drive the economy through a series of temporary states of rest toward a final position of full adjustment and zero profits. Unlike the geographically uniform value of money of the WSR, which is closely approximated in actually prevailing market conditions, at any point of historical time, the economy is always far from reaching the FSR. The FSR only indicates the direction of movement of the historical market process at any moment. As Mises (1966, p. 245) writes: "the final state of rest will never be attained. New disturbing factors will emerge before it will be realized . . . the market at every instant is moving toward a final state of rest. Every later new instant can create new facts altering this final state of rest."
In addition to this pathbreaking analysis of the international adjustment process and formulation of the law of one price under the conditions of a single money, Mises also pioneered in the early twentieth-century revival of the purchasing-power-parity (PPP) theory of exchange rates and in the formulation of what is now known as the "asset market" view of the influence of expectations on the formation of the exchange rate, two key elements of the MAIA when applied to the case of independent but co-existing moneys.
Edwards (1985, p. 73) points out that Mises rediscovered the PPP theorem four years before Cassel published the first of his many statements of it.19 Edwards, unfortunately, does not perceive the fundamental difference between the Casselian and Misesian formulations of the theorem, which is crucial to explaining why Mises continued to rigorously maintain the "absolute" version of the theorem long after Cassel and almost all other economists abandoned it for the empirically testable "relative" version. Nor does he remark on the fact that Mises never vitiated the explanatory significance of the theorem by restricting it to a situation in which "real shocks" to the economy and therefore alterations in relative prices are assumed absent, as Cassel apparently did (Officer 1982, p. 254).
For Mises, the equilibrium exchange rate, or what he initially called the "static" and later the "final" exchange rate, between two currencies exactly equals the inverse of the ratio between the purchasing powers of the two currencies. In the Misesian version of the theorem, moreover, a given depreciation of the overall purchasing power of currency A relative to currency B effects an increase of the final price of B in terms of A in precisely the same proportion, despite the permanent revolution in relative prices that is invariably produced by the depreciation process.
The differences between Mises and Cassel ultimately stem from Mises's analytical coup in perceiving the artificiality of the distinction long maintained in classical monetary analysis between the case of a parallel standard, i.e., two different moneys circulating side by side in domestic use, and the case in which there is only one kind of money employed in domestic transactions while another kind is in use abroad. According to Mises ([I953] 1971, p. 179), although "prevailing opinion" treats the two cases separately, "there is no theoretical difference between them as far as the determination of the exchange-ratio between the two sorts of money is concerned." Where economic relations exist between a gold-standard country and a silver-standard country, "from the economic point of view, both metals must be regarded as money for each area" (ibid., p. 180). Furthermore, according to Mises (ibid.), whether traders utilize both moneys or the "foreign" money along in carrying out an international transaction, "the only important point is that the existence of international trade relations results in the consequence that the money of each of the single areas concerned is money also for all other areas."
One of the few economists who appreciated Mises's theoretical breakthrough in this area was Lord Robbins (1971, p. 22) who wrote: "As von Mises pointed out years ago, the theory of the foreign exchanges can be viewed simply as a special case of the theory of parallel currencies."20
As simple and compelling as Mises's insight is, it has revolutionary implications for the analysis of exchange-rate determination. Most importantly, the exchange rate between two different national currencies is no longer determined, as it was for Cassel (quoted in Officer 1982, p. 252), by the "quotient between the general levels of prices in the two countries." National price levels, each of which include purely domestic goods, e.g., houses and haircuts, whose spatial quality components render their prices interlocally, and a fortiori, internationally incommensurable, are wholly irrelevant to the issue, because there is no longer a reason to distinguish between internationally "tradable" goods and domestically produced and consumed "nontradable" goods. As in the case of domestically co-existing parallel currencies, each and every spatially-differentiated good finds expression in the purchasing-power array of each of the two national currencies.
The Misesian exchange-rate theorist would thus reject out of hand the claim of modern macro theorists such as Jeffrey D. Sachs and Felipe B. Larrain (1993, pp. 657–58) that the presence of nontradable goods "affects every important feature of an economy, from price determination, to the structure of output, to the effects of macroeconomic policy [and] undermine[s] the case for purchasing power parity." In fact, all goods can be and are traded internationally, even though many are "immovable" or "nontransportable." Certainly, one of the lessons learned from the exchange-rate gyrations of the 1980s was that American real estate and consumer services, when rendered sufficiently cheap by a depreciated dollar, are purchasable by foreign speculators and tourists. For the Misesian, the apparent problem presented to the PPP theorem by the existence of goods whose position in space is fixed is easily soluble when the spatial dimension of quality is taken into account.
Thus, for example, if the final or PPP exchange rate between the US dollar and the British pound is two-to-one, then the pound price of a house located in London must be exactly one-half the dollar price of this same house. Of course, due to consumer perceptions of the difference in quality between the two cities as residential locations, the final price in dollars (pounds) of an identically constructed house situated in Manhattan may be triple that of the London house also expressed in dollars (pounds). To maintain purchasing power parity, therefore, it is not necessary that technologically identical but immovable goods available in different locations maintain equal prices in the same currency, but only that the ratio of the prices in two different currencies of an immovable good in the same location equal the inverse of the exchange rate between these two currencies. If the ratio of currency prices for any given commodity diverges from the prevailing exchange rate, then the final state of rest has not yet been attained, and profit opportunities will exist for selling goods for the relatively overvalued currency, purchasing the undervalued currency, and using it to repurchase the original good. These arbitrage operations will drive the exchange rate and the ratio of currency purchasing powers toward a mutual and final adjustment.21
Another feature which significantly distinguishes Mises's formulation of the PPP theorem from Cassel's involves the question of whether the exchange rate is exclusively a monetary phenomenon, or whether changes in the nonmonetary data are capable of bringing about a permanent departure of the equilibrium exchange rate from the rate which maintains strict PPP between the two currencies. As alluded to above, especially in his later writings, Cassel himself seems to have hinted at what might be termed an "inclusive" approach to exchange-rate determination, i.e., one which includes references to non-monetary factors as codeterminants of the exchange rate.22
More recently, proponents of the modern MAIA have been sharply criticized for writing out models of exchange-rate determination that embody an absolute version of the PPP theorem along Casselian lines and that exclude any reference to the influence of real factors on the formation of the exchange rate. Thus, for example, Thomas M. Humphrey ([I980] 1983, pp. 195, 200) has argued that "The main shortcoming of the monetary approach is that it ignores the effect of real relative price changes on the exchange rate. In particular, it ignores the influence of changes in the real terms of trade (i.e., the relative price of imports and exports) and internal relative prices (i.e., the relative price of exports and domestic nontradeable goods). . . . [R]eal structural changes in tastes, technology, and market structure . . . operating through real relative prices . . . necessitate real equilibrium changes in the exchange rate and thereby produce systematic divergences from purchasing power parity."
Whatever the validity of this criticism of the PPP theorem formulated in terms of relative national price levels, it has no bearing whatever on a theorem relating to the relative purchasing powers of independent currencies coexisting in a unitary market area. The Misesian version of the PPP theorem remains intact in its absolute and exclusively monetary formulation.
To illustrate, let us consider the case of a monopolistically-induced increase in the price of oil, the U.S. import, relative to the U.S. export, wheat. While the "terms of trade" turn against the U.S., ceteris paribus, i.e., in the (unlikely) absence of any induced changes in the monetary data, there will be no long-run depreciation of the U.S. dollar against the Saudi riyal, because both currencies experience an equal reduction of their purchasing powers in terms of oil and, assuming the demand for oil is inelastic along the relevant segment of the global demand curve, equal increases of their purchasing powers in terms of wheat. Of course, this is not to deny that short-run and self-reversing fluctuations in the exchange rate may accompany the market's adjustment to the alteration in relative prices. Thus U.S. consumers may initially respond to the increased price of oil by increased expenditures on oil without a corresponding reduction in their spending on wheat, allowing their cash balances to temporarily run down.23 This will cause an "overabsorption" of output relative to their shrunken real income by U.S. residents, creating an excess demand for riyals in the foreign-exchange market and necessitating a temporary rise in the exchange rate and a depreciation of the dollar. The movement in the exchange rate will thus assist in clearing excess demands in output markets and adjusting the terms of trade to prevent overabsorption and preserve balance of payments equilibrium, but only until U.S. residents' expenditures adjust, cash balances are reestablished at their former equilibrium levels, and the exchange rate floats back down to its unchanged PPP level.
Moreover, other things are not likely to remain equal; in particular, we can expect a change in the relative demands for the two currencies which results from the redistribution of income and wealth from U.S. entrepreneurs and laborers to their Saudi counterparts and leads to a long-run depreciation of the dollar. But it is the relative decline in the cash-balance demand for the dollar and therefore in its purchasing power vis-à-vis the riyal, and not the deterioration of the U.S. terms of trade, which is the direct cause of the change in the final exchange rate.
There remains to be noted Mises's status as a forerunner of the modern explanation of the effect of expectations on the exchange rate. The modern "asset market view," as it is called, treats foreign exchange markets as efficient asset markets in which current prices and exchange rates adjust promptly to changing expectations regarding the prospective development.of the relative purchasing powers of the various currencies. Modern writers in the MAIA tradition, who have been responsible for reviving this view, generally give credit for its origination to such writers as Cassel, Keynes, and Dennis Robertson, and to German-speaking writers, including Walter Eucken, Fritz Machlup, and Melchior Palyi (Kreinin and Officer 1978, pp. 28–31; Humphrey [I980] 1983; Edwards, 1985, p. 79).
These economists writing in the 1920s arrived at this view while seeking to explain the significant discrepancy that they observed between the rates of price inflation and exchange-rate depreciation toward the end of the German hyperinflation. While Mises has been recognized as meriting inclusion in the group who pioneered the asset market view, and even as "perhaps its strongest proponent" (Humphrey [I980] 1983, p. 192), Edwards (1985, pp. 80–81) discovers a sophisticated statement of the view presented by Mises in the first German edition of the Theory of Money and Credit published in 1912, two years before the inception of the German war inflation. Amazingly, while Mises thus enjoyed a temporal advantage over the other expositors of the asset market view, he suffered the distinct disadvantage vis-à-vis those writing in the 1920s of not having had the direct and stark experience of the hyperinflation available to guide his inquiry.
In re-evaluating the main elements of Mises's monetary theory, one thing especially stands out. Mises took great pains to establish his theory of money on the bedrock of value and price theory. However, the value-theoretic concepts that Mises relied upon in pursuing his monetary analysis were not derived from Walras, Pareto, or Marshall but from Menger, Böhm-Bawerk, and Wicksteed. This fact goes a long way toward explaining the lack of comprehension that Mises's monetary theory has generally met with among mainstream monetary economists. While it represents an added burden to those who seek to present the Misesian approach to a wider audience, it also offers an opportunity to acquaint neoclassical economists with the fruitfulness of an alternative, but not unrelated, tradition in value and price theory.
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- The first to make this point was Ludwig von Mises ([1920] 1990) in his classic article demonstrating the impossibility of economic calculation under socialist central planning. For recent reviews and elucidations of the socialist calculation debate from a Misesian perspective which emphasize the same point, see Rothbard (1991); Salerno (1990a, pp. 45–49; 1990b).
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- For an overview of the forerunners of the New Monetary Economics by two of its proponents, see Cowen and Kroszner (1987).
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- A critique of Hayek's scheme for privately issued paper fiat currencies is provided by Rothbard (1992b, pp. 2–5).
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- For a critique of the Timberlake twist on the Greenfield-Yeager proposal, see Rothbard (1992a); Timberlakes' earlier, and much sounder, proposal is evaluated by Salerno (1982, pp. 16–18).
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- This oversight is just beginning to be redressed in the mainstream economic literature. See, for example, High and Bloch (1989) for recognition of Mises and other neglected Austrian forerunners of the ordinalist revolution of the 1930s.
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- This is true even of such allegedly revolutionary monetary theorists as Irving Fisher, hailed by Milton Friedman as the "greatest economist that America has ever produced." While Fisher ([I913] 1985, pp. 47, 53) identified bank deposits as an "excellent substitute" for money, he insisted that they "are not money." Even Edwin Cannan, who was one of the pioneers in formulating the demand for money as an asset or stock demand and whom Mises (1990a, pp. 23, 172) referred to more than once as "the great British economist," maintained a rigid distinction between bank deposits and money. See, for example, Cannan (1929, pp. 64–85); a good survey of Cannan's contributions to monetary theory can be found in Gregory (1927).
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- Lawrence H. White (1986, p. 314 n. 23) criticizes Mises's use of the term "money substitutes" to designate secure and instantaneously redeemable claims to money, i.e., money certificates plus fiduciary media, as "confusing" because the term suggests "nonmoneyness." But it is precisely Mises's point in using such a term to indicate that claims to the standard money, e.g., gold, whether fully backed by gold or not, as long as they are perceived by the issuing institution's clients as instantaneously redeemable for gold at face value, are not money in themselves, because their value is not determined by a valuation process independent of that which determines the value of gold. In contrast, in suggesting as replacements for Mises's "money substitutes" and "money-in-the-narrower sense" the terms "inside money" and "outside money," respectively White himself might be charged with sowing confusion for implying that the instantaneously redeemable bank notes and deposits he denotes by "inside money" constitute a separate money whose value is determined independently of the value of the money commodity. But if we look more closely at White's free banking position, we discover that this is precisely what he intends to imply. For the free bankers, from the very moment of their first issue, bank notes and deposits are considered a fiat money in embryo, whose "invisible-hand process"-driven by evolution to maturity will result in the full and final expulsion of gold from its monetary role. Thus, the contractual suspension of specie payments and option clauses that free banks allegedly will negotiate with their clients, when they are implemented or even if they are widely expected to be, will establish "bank money" (another favored term) as an independently-valued credit money. Eventually, in the "mature free-banking system," according to White and Selgin ([I987] 1989, p. 235), there would emerge a situation in which, "At the limit, if inter-clearinghouse settlements were made entirely with other assets . . . and if the public were completely weaned from holding commodity money, the active demand for the old-fashioned money commodity would be wholly nonmonetary," and the public would presumably be finally freed from its shackles of gold to enjoy the virtues of an invisible-hand-generated private fiat money.
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- This case has been made by Rothbard (1978) and Salerno (1987), who argue for inclusion in the money supply of all currently spendable dollars in the economy, i.e., those immediately obtainable without penalty or risk of capital loss. As reported by the Federal Reserve Bank of Cleveland (1992, p. 3) recently, Shadow Open Market Committee member William Poole has endorsed a monetary aggregate, MZM (for "money of zero maturity") which seeks to identify and capture those dollars "immediately available without penalty or risk of capital loss" and which comes close to the TMS (for "true money supply") aggregate developed by Rothbard and Salerno. The main difference between the two is that TMS excludes, while MZM includes, all Money Market Mutual Fund shares; both include, in addition to items in M1, savings deposits and Money Market Deposit Accounts, at the same time excluding small time deposits. White (1986), on the other hand, beginning from a Misesian medium-of-exchange definition of what constitutes money, similar to Rothbard and Salerno's, arrives at a much narrower empirical measure of the money supply which excludes non-checkable demand deposits, such as, passbook savings accounts, on the grounds that the passbooks themselves do not literally pass from hand-to-hand in the payments process. Israel M. Kirzner (1976), in a critique of Rothbard, raises the same objection as White to the inclusion of non-checkable deposits in the money supply, and then goes further to express skepticism of any attempts to produce a statistically unweighted aggregate of the nominal stock of money. It is ironic that Kirzner's thoroughgoing commitment to subjectivism should lead to his rediscovery of and support for a Divisia-type monetary aggregate in advance of its modern reintroduction into mainstream monetary economics in the 1980s. For a brief critique of the White-Kirzner position on excluding non-checkable demand deposits from a monetary aggregate based on the medium-of-exchange definition of money, see Salerno (1987, pp. 2-3).
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- Rothbard's analysis of the demand for money implies that it tends to be basically inelastic due to the high inelasticity of what he calls the "exchange" or "pre-income" component of monetary demand, which is distinguished from the "reservation," "cash-balance" or "post-income" component. The former is expressed in the exchange for money of the services of the original productive factors, land, and labor, and of existing inventories of capital and consumer goods, for which the reservation demands of their producers are usually highly inelastic. See Rothbard ([I962] 1970, 1, pp. 662–67; 2, pp. 350–56). The inelasticity of the exchange demand for money is similarly accounted for by Herbert J. Davenport ([I913] 1968, pp. 267–73). Davenport (ibid., pp. 301–3, 316–21) also provides a surprisingly modern account of the reservation demand for money, as a short-run, speculative phenomenon, but ultimately fails to integrate the two components into a satisfactory overall theory of the demand for money.
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- On the key role played by the assumption of the constancy of relative prices for deriving the neutrality of money in Patinkin's system, see Rousseas (1972, pp. 53, 72).
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- For a recent, vigorously-argued vindication of this position, see Hans-Hermann Hoppe (1992).
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- On the nature of plain saving as distinguished from capitalist saving, see Mises (1966, pp. 530–31).
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- Also see Mises (1966, pp. 404, 463), for similar statements.
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- Even the practical usefulness of index numbers for judging day-to-day variations in the purchasing power of money is severely limited. As Mises (1966, pp. 222–23) points out, "A judicious housewife knows much more about price changes as far as they affect her own household than the statistical average can tell. She has little use for computations disregarding changes both in quality and in the amount of goods which she is able or permitted to buy at the prices entering into the computation. If she 'measures' the changes for her personal appreciation by taking the prices of only two or three commodities as a yardstick, she is no less 'scientific' and no more arbitrary than the sophisticated mathematicians in choosing their methods for the manipulation of the data of the market."
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- Mises arrived at this insight independently of Nassau Senior, whose work containing the treatment of this problem was not published until 1928. On this point and for a discussion of Senior's contribution, see Wu (1939, pp. 126–28); also see Bowley ([I937] 1967, pp. 205–8).
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- I am using the term "consumer surplus" in a purely psychic sense to denote the ordinal difference in value ranking between a good and its monetary purchase price. This is the sense in which Mises (1966, p. 388) uses the term.
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- The classic discussion of the country fruit market can be found in Wicksteed ([I932] 1967,1, pp. 219–28). A very good analysis of a pure exchange economy can also be found in Kirzner (1963, pp. 105–35). In contrast to Wicksteed's methodological focus on an isolated "market day" in a full production-and-exchange economy, however, Kirzner (ibid., p. 106) begins his analysis with an "imaginary economy" in which he assumes "no production is possible"; all commodities are obtained costlessly by natural endowment. Unfortunately, Kirzner's methodological construct is inferior to Wicksteed's, because it serves to divert attention from the vitally important point that the analysis applies just as fully to the real-world economy of continuing and costly production, since the market's pricing process always proceeds on the basis of stocks of goods that have already been produced and are therefore fixed or in inventory for the given moment.
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- Athough this construction of a fully-arbitraged, but not final, state of rest is implicit in much of Mises's monetary theorizing, he never formally analyzes it, as he does the PSR.
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- According to Officer (1982, p. 251 n. 1) Cassel devoted at least parts of twenty-five English-language publications to expounding the PPP theorem. Officer (ibid., p. 252) reports that Cassel claims to have perceived the main point of the theorem in 1904 and to have incorporated its main ideas into his classroom lectures as early as 1905.
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- Rothbard ([I962] 1970, p. 725) also follows the Misesian approach in theorizing about exchange rates.
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- A good explanation of this arbitrage process is given by Rothbard ([I962] 1970, pp. 725–26).
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- Officer(1976, p. 9) has argued this, while Paul Samuelson (1966) has denied it. For a brief description of this "milder approach,"see Krueger (1983, p. 68).
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- Hayek ([I937] 1971, p. 18) in his earlier incarnation as a Misesian monetary and business-cycle theorist discusses cash balances as cushions permitting market participants to soften and delay the adaptation of their real incomes to their altered money incomes. This function of cash balances has recently been rediscovered in the literature on the "buffer" or "shock-absorption"approach to the demand for money. See, for example, Kanniainen and Tarkka (1984), Knoester (n.d.1, and Laidler (1984).
Money is simple. The political program of monetary "policy" is not.
Original Article: "Money versus Monetary Policy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
“It’s an important part of society whether you like it or not,” lexicologist Tony Thorne, referring to “wokeness,” told The New Yorker’s David Remnick in January. That’s an understatement.
Wokeness is poisoning the Western workplace and constraining small and family businesses, midsized banks, and entrepreneurs while enriching powerful corporations and billionaires. It’s eating away at the capitalist ethos and killing the bottom-up modes of economic ordering and exchange that propelled the United States of America to prosperity during the nineteenth and twentieth centuries. It’s infecting Gen Z and millennials, who, suffering high depression rates and prone to “quiet quitting,” are not as well off as their parents and grandparents, and who feel isolated and alone even as they enjoy a technological connectivity that’s unprecedented in human history.
What, exactly, is wokeness, and how does it impact business and the wider society?
The term as it’s widely used today differs from earlier significations. “Woke,” which plays on African American vernacular, once meant “awake to” or “aware of” social and racial injustices. The term expanded to encompass a wider array of causes from climate change, gun control, and LGTBQ rights to domestic violence, sexual harassment, and abortion.
Now, wielded by its opponents, it’s chiefly a pejorative dismissing the person or party it modifies. It’s the successor to “political correctness,” a catchall idiom that ridicules a broad range of leftist hobbyhorses. Carl Rhodes submits, in Woke Capitalism, that “woke transmuted from being a political call for self-awareness through solidarity in the face of massive racial injustice, to being an identity marker for self-righteousness.”
John McWhorter’s Woke Racism argues that wokeness is religious in character, unintentionally and intrinsically racist, and deleterious to black people. McWhorter, a black linguist, asserts that “white people calling themselves our saviors make black people look like the dumbest, weakest, most self-indulgent human beings in the history of our species.” Books like Stephen R. Soukup’s The Dictatorship of Woke Capital and Vivek Ramaswamy’s Woke, Inc. highlight the nefarious side of the wokeism adopted by large companies, in particular in the field of asset management, investment, and financial services.
Wokeism, in both the affirming and derogatory sense, is predicated on a belief in systemic or structural forces that condition culture and behavior. The phrases “structural racism” or “systemic racism” suggest that rational agents are nevertheless embedded in a network of interacting and interconnected rules, norms, and values that perpetuate white supremacy or marginalize people of color and groups without privilege.
Breaking entirely free from these inherited constraints is not possible, according to the woke, because we cannot operate outside the discursive frames established by long use and entrenched power. Nevertheless, the argument runs, we can decenter the power relations bolstering this system and subvert the techniques employed, wittingly or unwittingly, to preserve extant hierarchies. That requires, however, new structures and power relations.
Corporate executives and boards of directors are unsuspectingly and inadvertently—though sometimes deliberately—caught up in these ideas. They’re immersed in an ideological paradigm arising principally from Western universities. It’s difficult to identify the causative origin of this complex, disparate movement to undo the self-extending power structures that supposedly enable hegemony. Yet businesses, which, of course, are made up of people, including disaffected Gen Zs and millennials, develop alongside this sustained effort to dismantle structures and introduce novel organizing principles for society.
The problem is, rather than neutralizing power, the “woke” pursue and claim power for their own ends. Criticizing systems and structures, they erect systems and structures in which they occupy the center, seeking to dominate and subjugate the people or groups they allege to have subjugated or dominated throughout history. They replace one hegemony with another.
The old systems had problems, of course. They were imperfect. But they retained elements of classical liberalism that protected hard-won principles like private property, due process of law, rule of law, free speech, and equality under the law. Wokeism dispenses with these. It’s about strength and control. And it has produced a corporate-government nexus that rigidifies power in the hands of an elite few.
Consider the extravagant spectacle in Davos, the beautiful resort town that combined luxury and activism at the recent meeting of the World Economic Forum, perhaps the largest gathering of self-selected, influential lobbyists and “c suiters” across countries and cultures. This annual event occasions cartoonish portrayals of evil, conspiratorial overlords—the soi-disant saviors paternalistically preaching about planetary improvement, glorifying their chosen burden to shape global affairs. The World Economic Forum has become a symbol of sanctimony and lavish inauthenticity, silly in its ostentation.
The near-ubiquitous celebration of lofty Environmental, Social, and Governance (ESG) strategies at the World Economic Forum reveals a seemingly uniform commitment among prominent leaders to harness government to pull companies—and, alas, everyone else—to the left.
ESG is, of course, an acronym for the nonfinancial standards and metrics that asset managers, bankers, and investors factor while allocating capital or assessing risk. A growing consortium of governments, central banks, nongovernmental organizations (NGOs), asset management firms, finance ministries, financial institutions, and institutional investors advocates ESG as the top-down, long-term solution to purported social and climate risks. Even if these risks are real, is ESG the proper remedy?
Attendees of the World Economic Forum would not champion ESG if they did not benefit from doing so. That plain fact doesn’t alone discredit ESG, but it raises questions about ulterior motives: What’s really going on? How will these titans of finance and government benefit from ESG?
One obvious answer involves the institutional investors that prioritize activism over purely financial objectives or returns on investment (for legal reasons, activist investors would not characterize their priorities as such). It has only been a century since buying and selling shares in publicly traded companies became commonplace among workers and households. The U.S. Securities and Exchange Commission (SEC), created in response to the Great Depression, isn’t even 100 years old.
Until recently, most investors divested if they owned stock in a company that behaved contrary to their beliefs. They rarely voted their shares or voted only on major issues like mergers and acquisitions. In 2023, however, institutional investors such as hedge funds and asset management firms engage boards of directors, exercise proxy voting, and issue shareholder reports with the primary goal of politicizing companies. As intermediaries, they invest pension funds, mutual funds, endowments, sovereign wealth funds, 401(k)s and more on behalf of beneficiaries who may or may not know what political causes their invested assets support.
If a publicly traded company “goes woke,” consider which entities hold how much of its shares and whether unwanted shareholder pressure is to blame. Consider, too, the role of third-party proxy advisors in the company’s policies and practices.
Big companies go woke to eliminate competition. After all, they can afford the costs to comply with woke regulations whereas small companies cannot. Institutional investors warn of prospective risks of government regulation while lobbying for such regulation. In the United States, under the Biden Administration, woke federal regulations are, unsurprisingly, emerging. Perhaps publicly traded companies will privatize to avoid proposed SEC mandates regarding ESG disclosures, but regulation in other forms and through other agencies will come for private companies too.
The woke should question why they’re collaborating with their erstwhile corporate enemies. Have they abandoned concerns about poverty for the more lucrative industry of identity politics and environmentalism? Have they sold out, happily exploiting the uncouth masses, oppressing the already oppressed, and trading socioeconomic class struggle for the proliferating dogma of race, sexuality, and climate change? As wokeness becomes inextricably tied to ESG, we can no longer say, “Go woke, go broke.” Presently, wokeness is a vehicle to affluence, a status marker, the ticket to the center of the superstructure.
ESG helps the wealthiest to feel better about themselves while widening the gap between the rich and poor and disproportionately burdening economies in developing countries. It’s supplanting the classical liberal rules and institutions that leveled playing fields, engendered equality of opportunity, expanded the franchise, reduced undue discrimination, eliminated barriers to entry, facilitated entrepreneurship and innovation, and empowered individuals to realize their dreams and rise above their station at birth.
When politics is ubiquitous, wokeness breeds antiwokeness. The right caught on to institutional investing; counteroffensives are underway. The totalizing politicization of corporations is a zero-sum arms race in which the right captures some companies while the left captures others.
Soon there’ll be no escaping politics, no tranquil zones, and little space for emotional detachment, contemplative privacy, or principled neutrality; parallel economies will emerge for different political affiliations; noise, fighting, anger, distraction, and division will multiply; every quotidian act will signal a grand ideology. For the woke, “silence is violence”; there’s no middle ground; you must speak up; and increasingly for their opponents as well, you must choose sides.
Which will you choose in this corporatized dystopia? If the factions continue to concentrate and centralize power, classical liberals will have no good options. Coercion and compulsion will prevail over freedom and cooperation. And commerce and command will go hand in hand.
We're still living with the consequences of the massive monetary inflation by Trump and Biden. Prices are stubbornly high, and falling real wages are driving Americans to say things are getting worse.
Original Article: "Food and Shelter Prices Keep Climbing as CPI Growth Hits a Three-Month High"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Nobel Prize–winning economist George Stigler once wrote of economists as preachers, which he described as involving offering “a clear and reasoned recommendation (or, more often, denunciation) of a policy or form of behavior by men or societies of men,” particularly with respect to the ethics of market competition. With regard to defending those ethics (i.e., defending mutually voluntary arrangements that individuals make with one another versus involuntary arrangements forced on some by others), I fit in his preacher category. I find the violation of people’s rights and of public policies that impose or necessitate such abuses immensely grating.
When Donald Trump announced his intent to “Make America Great Again” (soon advertised on MAGA hats), the preacher in me applauded the tax reductions (unfortunately not matched with spending reductions) and the rein on unnecessary and unnecessarily costly regulations. However, when it came to his assertion that his protectionist policies would achieve his intent, when they would actually impose harms on Americans to protect special interests, I had a severe allergic reaction. I even joked to one of my classes that his protectionist policies could only make America grate again—by making America less great and poorer.
Now President Joe Biden, proving his ability to seize on bad ideas, is following the same protectionist path, despite being elected in large part because he was not Trump. As James McCarten, of the Canadian Press (a useful person to get a viewpoint from, since Canadian producers as well as American consumers and taxpayers would be harmed), wrote of the State of the Union address: “He didn't just defend Buy American. He doubled down on it, promising new rules for federal infrastructure projects that would require all construction materials—not just iron and steel, but copper, aluminum, lumber, glass, drywall and fibre-optic cable—be made in the U.S.”
This address followed Biden’s earlier bragging that his forthcoming plan would be even more tilted toward American producers than earlier plans.
Biden’s protectionism, closely following Trump’s and many before him, relies on a false patriotism argument. Imports are attacked as harming American industry, which is then used as the rationale for “we must defend America” protectionist policies. Since imports always harm American producers of competing products in the sense of reducing demand for their output, those wanting protection for themselves find that argument convincing, as do many who overlook the logical cheat. But in their roles as consumers (which is what Americans have most in common economically), Americans are cheated by that cheat.
The conflict is framed as a mano-a-mano fight between foreign producers and American producers, where patriotism should lead America to favor American producers. If that were accurate—if that was all that was involved—and Americans cared more about “our” producers, Americans would give them preference, other things being equal. That is not all it is. At its heart, protectionism is actually a conspiracy between American producers and the American government to rip off American consumers (and taxpayers in this case) and foreign suppliers.
Besides getting patriotism backward, the presumption that such policies will increase demand for American producers isn’t actually implied either. The higher costs such policies impose will decrease output in industries that use the affected inputs. That will be particularly true for producers who compete in export markets with countries that do not similarly penalize their producers. Then, reduced export earnings will put fewer dollars in the hands of people in other countries, reducing their demand for American exports as well. However, “patriotic” protectionists never seem to notice such realities.
Depicting protectionism as domestic producers versus foreign producers ignores the central issue—Why would American consumers prefer to buy from foreign producers rather than domestic ones? Because foreign producers offer a better price, quality, and service deal. Consequently, when trade restrictions take away those superior options, they make American consumers poorer. Patriotism does not imply our government should help American producers beggar American consumers.
Making protectionism even worse is that it is a negative-sum game. The resources represented by the difference between lower-cost imported goods and higher-cost domestic goods are simply wasted for each unit of domestic output inefficiently “protected.”
Our founders, undeniably patriotic, saw through the protectionist farce. For instance, Thomas Paine, the fiery rhetorician stoking America’s revolution, argued in The Rights of Man: “When . . . attack is made upon a common stock of commerce, and the consequence is the same as if each had attacked his own. . . . [E]ach nation . . . increases [its] riches by something which it procures from another in exchange.”
Even before America was founded, Charles Louis de Secondat, Baron de Montesquieu, who Robert Wokler called “perhaps the most central thinker . . . of the Enlightenment,” wrote in his 1748 The Spirit of Laws of free trade, derived from our ownership of ourselves, as a core application of liberty: “the riches it produces have no bad effect.” Quite the opposite. “In republics . . . merchants having an eye to all the nations of the earth, bring from one what is wanted by another,” so that “it is much better to leave [trade] open, than by exclusive privileges, to restrain the liberty of commerce.”
Free trade is simply the liberty of every one of us to choose who we will associate with in productive ways and how we will arrange those associations, without artificial limitations. It is an essential part of self-ownership, which is an essential element of freedom.
Behind the boilerplate protectionist bragging of Joe Biden, just like that of Donald Trump and fellow protectionists before him, protectionist policies actually represent the forced imposition of tyranny. Free trade provides benefits to each willing participant, whether or not it crosses borders. America’s founders recognized that, since the Commerce clause in the Constitution created the largest internal free trade zone then on earth by banning state restrictions on interstate commerce. If free trade is good across state borders, reflecting valid principles of freedom, those same principles make it good when it crosses federal borders as well.
We should remember that, as Henry George put it in his 1886 Protection or Free Trade: “Free trade consists simply in letting people buy and sell as they want to buy and sell. It is protection that requires force, for it consists in preventing people from doing what they want to do. . . . What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.”
Doing to ourselves what enemies try to do to us in war is not patriotic. It instead reflects what Thomas Paine recognized as “the greedy hand of government thrusting itself into every corner and crevice” for favored interests against those the government are supposed to represent. If Americans really want America to be great rather than to grate more, they should not let rhetorical misrepresentation and misdirection prevent them from choosing what they want for themselves.
When advocates of secession in the United States bring up “national divorce,” a common objection we hear is that secession can’t be allowed because it would make some people worse off. For example, we’re told that if, say, a majority of Floridians voted to secede, that still can’t be allowed because there would still be a minority that opposes secession. We especially hear this in the context of so-called red states—where, presumably, a majority of residents are some sort of conservative or Republican. It is assumed that if those states seceded, “progressives” or Democrats would be worse off. But this works in the other direction also. Several years ago, when the topic of California secession was in the news, we were told that if the presumably left-wing state of California were allowed to secede, that would harm the conservative minority. Thus, California secession cannot be allowed even from the “red state” perspective.
Sometimes, advocates of secession respond to this objection by suggesting that the borders of the seceding region could be redrawn to account for variations in demographics within the population. For example, this might mean splitting Illinois between the “blue” Chicago area and the “red” southern part of the state. Opponents of secession are ready for this one, too: we’re told that doesn’t work because there are likely to be no clean lines of demarcation between population groups on both sides of the secession question. Even when the majority supports secession, opponents are likely to live alongside secessionists, and the antisecession minority’s wishes must not be disregarded. This “minority rights” position, we are told, makes secession an impossibility. After all, there will always be some minority population that opposes secession everywhere.
For some insight into this reality, we need look no farther than the American Revolution itself. The United States is the product of a secession movement in which there was a sizable minority population on the losing side. This minority is known today as the Loyalists, and they failed to prevent secession in spite of the fact that they numbered perhaps as much as half the population in some parts of the colonies during the secession crisis that began in 1775. In other words, the Americans who voted for the Declaration of Independence in 1776 ignored the Loyalist opposition and doubled down on their secessionist position anyway. In the end, many Loyalists emigrated to avoid living under the new republican governments. This was all exacerbated by the fact the British government chose war over negotiation. The war empowered the most fanatical and violent segments of the secessionist population, and this led to more reprisals against Loyalists. (This was not inevitable, of course. Secession is not in itself a violent act, but only brings violence when the established regime chooses violence to prevent separation.)
Yet even if a peaceful transition had been allowed, this leaves us with an important question: Should the American secessionists—people like Thomas Jefferson and John Adams—have let the Loyalists veto the Declaration of Independence? If we accept the claim that the presence of antsecessionist minorities in Florida, California, or any other state today renders secession a nonstarter, then the answer must be yes. We must conclude that the Continental Congress should have listened to the Loyalists and scrapped the idea of American independence.
Even today, however, most Americans apparently disagree. In a recent YouGov survey, only 5 percent of Americans said they “have regrets” about the United States’ secession from the British Empire. Even after years of increased focus on the Loyalists in scholarship and in school curricula, disapproval of the American Revolution remains very much a minority position. As far as the American public is concerned, at least, there are apparently some times when the antisecessionist minority does not get to dictate the workability of a secessionist movement.
Yet the outcome of the revolution was nothing like the massacre that modern opponents of secession often imagine will necessarily be inflicted on the losing side in any modern secession movement. The example of the Loyalists does show that even after independence from Britain was secured, and when other British colonies were open to Loyalists, only a small minority of Loyalists actually chose to leave the United States. Most Loyalists successfully sought reintegration into the general public in the new American republics.
The Loyalist Minority in the RevolutionSome historians contend that less than half of the population actually supported the revolution. Even accounting for an unusually high degree of enthusiasm among those who did support secession—as John Ferling suggests was the case—that leaves about half the population either neutral or actively opposed. Demographic information about North America in the late eighteenth century is not exactly robust, but most estimates suggest that those who did actively oppose the revolution likely amounted to about one-fifth of the population. This amounted to about five hundred thousand Loyalists in a population of approximately 2.6 million in the early years of the war. In other words, this is no insignificant number.
Of those half a million Loyalists, it appears around twenty thousand were opposed to secession to the point that they were willing to fight and die by taking up arms in the British army.
The number of Loyalists varied by colony, but Loyalists were represented in communities across the colonies and were neither overwhelmingly rural nor urban. Many were farmers, but many were not. Thousands of them owned slaves. New England appears to have enjoyed the most support for the “patriots,” while the Mid-Atlantic and Southern colonies saw more Loyalist support. Yet Loyalists could be found in sizable numbers in all the colonies and in all cities. They are believed to have been especially numerous in New Jersey and New York—perhaps totaling nearly half the population—but were also clearly a significant portion of the population in Pennsylvania and the Southern colonies.
Loyalists were not a well-defined interest group, however. Those who explicitly opposed American secession did so for a variety of reasons, and it’s difficult to calculate their numbers because “loyalism meant different things to different persons in different situations.” There does not appear to be any single unifying factor “beyond a general hostility to all things patriot.”
The Cost of the War for the LoyalistsIn any case, those who did actively oppose secession paid a price. As historian Maya Jasanoff put it:
Loyalists expressed their views passively and actively: they refused to swear loyalty oaths to the new assemblies; they moved to cities and regions under British control; and nineteen thousand joined loyalist regiments to fight for their vision of British colonial America. In retaliation they faced harassment from their peers—most vividly, if rarely, by tarring and feathering—and sanctions from state legislatures, which could strip them of their land and possessions or imprison or formally banish them.
Consequently, once it became clear the secessionists were likely to win, many Loyalists relocated to areas where they found the local environment more inviting. Proportionally, the dislocations were very large:
The American Revolutionary War appears to stand alone in one important respect. In total numbers of displaced persons, it seems to represent the apex, at least during the second half of the eighteenth century. . . . [I]n comparison to the much bloodier and more costly civil wars associated with revolutionary France, in proportion to total population, the American Revolutionary War produced a much higher number of refugees.
How many of the five hundred thousand Loyalists actually left? Jasanoff concludes: “Sixty thousand loyalists with fifteen thousand slaves in tow left the thirteen colonies to build new lives elsewhere in the British world. This figure represents roughly one in forty members of the population (compared with one in two hundred who emigrated from revolutionary France).”
Only a Minority of Loyalists Actually EmigratedMany went to Britain, and more than half went to Canada. In the far south of the American colonies, many moved to the British Floridas and to the Bahamas.
The fact that the American Revolution produced more refugees per capita than the French Revolution is often held up to highlight Loyalist deprivation. Yet the Loyalists never faced anything remotely comparable to the terrors imposed on the outgoing French ruling class by the Jacobins. Rather, the high number of Loyalist refugees at least partly reflects the fact that surviving British colonies gave Loyalist refugees positive incentives to move. For example, those who fled the colonies could apply to the British government, which offered to compensate many Loyalists for lost property. Canada, of course, provided cheap land, English-speaking neighbors, and streamlined legal immigration for tens of thousands of Loyalists. In some areas of upper Canada in the late eighteenth century, Loyalists made up the majority of the population. Loyalist slave owners could take their slaves to the British domains of the Caribbean, where slavery would remain legal for several more decades.
In spite of these options, however, it appears that less than 15 percent of Loyalists actually chose to emigrate. Put another way, in spite of the many Loyalists who were victimized by the more fanatical elements of the secessionist cause, a lopsided majority of Loyalists—perhaps 80 percent or more—apparently chose to stay in the new United States.
The Loyalists Had Options, but The Secessionists Didn'tWhile many Loyalists were targeted by locals during the revolution, many others were at least left alone to the point that emigration was not worth the trouble.
Moreover, once the war was over, wartime discrimination against Loyalists abated and state legislatures created avenues for former Loyalists to become full citizens. Among Loyalists, “attempts to become part of a newly independent America were generally successful. Thus, after several years of struggle most former Loyalists who wanted to return were able to do so.”
On the other hand, had the secessionists lost the conflict, they would have been on the receiving end of harassment for being “rebels” and “traitors.” Indeed, had the secessionists lost, they would have likely faced far worse options than the Loyalists did. The Loyalists, after all, had access to jurisdictions that were still within the empire. They were welcomed into these areas and even offered compensation. The political decentralization of the English-speaking world following American secession offered the Loyalists options among culturally English areas. Had the secessionists failed, they would have had nowhere to go except distant places where English was not spoken and where the legal, cultural, and political realities were entirely different. Those who remained would have faced arrest for “treason” and other crimes. In other words, the price paid by the Loyalist minority was likely relatively far less than the price that secessionists would have paid had the revolution failed.
Majority Will versus Minority WillYet the minority-rights objection suggests that the potential unappealing fate of the Loyalist minority would have been sufficient to cancel American independence. It remains unclear, however, why the Loyalist minority was entitled to hold the larger secessionist population hostage.
After all, there is no political principle that tells us the minority is always right. Such an assertion is no more true than the dangerous claim that the majority is always right. Moreover, if a minority in opposition to secession is sufficient to veto secession, why is majority secessionism not sufficient to veto the status quo? Opponents of secession don’t tell us. Ultimately, the answer cannot be found in slavish devotion to the current political borders. In real life, political realities change. Regime legitimacy fades. Just as Jefferson notes in the Declaration of Indenpendence, sometimes it “becomes necessary for one people to dissolve the political bands which have connected them with another.” Jefferson also notes, of course, that this is not always prudent, and he is right. There are many practical reasons in many circumstances to not favor secession. Not among these reasons, however, is the idea that we must never support secession because a minority group in the seceding territory might oppose it.
Politicians and the media are blaming businesses for inflation when, in fact, the skyrocketing prices of nearly everything have a government stamp on them.
Original Article: "The Price-Gouging State"
This Audio Mises Wire is generously sponsored by Christopher Condon.
A student goes into a bank. He tells the personal loan banker, “I want to borrow $7,500 per year for the next four or five years.”
“That’s at least $30,000 over time,” the banker says. “Personal loans have a 10 percent interest factor.”
“For my loan,” says the student, “I need an interest rate close to a home mortgage, like 6 percent. Also, I don’t want to be charged interest for the first four or five years of the loan.”
The banker asks, “How long will this loan be for?”
“A twenty-year payoff after graduation or shorter,” replies the student.
The banker asks, “Do you have any collateral assets to secure the loan?”
The student says, “No collateral, but I promise to pay it off when I get a job.”
The banker is incredulous. “Anything else you want to tell me about your plans?”
“Yes,” the student says, “there is a 10 percent chance that I will totally default in the first year and a 30 percent chance that I won’t finish my degree. And I may default a few times paying off my loan.”
The banker looks ready to pass out.
The student is not finished. “In case of low earnings, I want you to adjust the new payment amount to 5 percent of my disposable income. If I miss a payment, you won’t compound the interest either.”
The banker is unable to speak for a moment. Finally recovering his voice, he says, “What do you mean by disposable income?”
“Oh, it’s simple,” replies the student. “I subtract $2,200 from my monthly salary, and then I pay 5 percent of what is left.” The student pauses. “And if I qualify and pay for twenty years, I want a loan forgiveness option on the balance.”
The banker is weak, but asks, “Anything else you want for this loan?”
“Well, I may not be able to get a job that has a first-year salary more than my total student loan.”
The banker asks, “The university approved your application based on good grades and test scores, right?”
The student looks condescending, “No, it’s all open admission.”
The banker further inquires, “What will your degree be in?”
“I’ll know more for sure after two years.” The student admits, “I need to find my passion. Of course, there’s a 50 percent chance my job won’t be in my major, and I may be underemployed.”
The banker is mentally exhausted, looking at the clock, wishing for the first time today that someone would telephone so he can cut the discussion short.
“Why did you come to our bank?” The banker adds, “You will never pay this loan off with those terms.”
The student replies, “I wanted to see who had the best rates for a student loan, and if I go through a bank, I might get a new credit card as well; my current one is maxed.”
“So,” the banker says, “I can’t waive compounding interest on your $30,000 loan. The payoff amount will be $35,000 or more by the time you graduate. Even at a 6 percent rate, you have twenty years of payments at $250 a month. If you only pay 5 percent of your disposable income, you will need to be earning more than $5,000 a month to ever pay it off. Where will the bank get the money to satisfy the remaining balance?”
The student nods, thinks, and then says, “That’s great. Let’s sign!”
But the banker says, “I cannot loan you a dime; you’ll need to use federal student loans.”
Entrepreneurship and innovation are the keys to economic growth and higher standards of living. The USA has long enjoyed leadership status on these dimensions — people see the USA as the land of entrepreneurs and the source of new ideas and advances in business. Is the reputation still deserved? Or is it being eclipsed as part of the general decline in standards and capabilities that we observe? Lipton Matthews is a global economic and geo-political analyst who brings deep knowledge and expertise to address our concerns.
Knowledge CapsuleBorrowing a framework from the Global Innovation Index published by the World Intellectual Property Organization, we can examine the state of entrepreneurship and innovation in the US relative to both other countries and its own history, under the headings of institutions, human capital and research, infrastructure, market sophistication and business sophistication.
Institutions: The private sector institutions of the USA continue to excel for entrepreneurship and innovation.When we think of American institutions for the encouragement of entrepreneurship and innovation, we must examine private sector institutions, not those of government. Ordinary people in civil society build the institutions that promote innovation. Private scientific research is robust in responding to market signals of consumer and business needs. Financial institutions such as venture capital and angel investors support innovative development. Policymakers mistakenly believe they can conjure up a creative economy by fiat, but they’re wrong. It’s private institutions that support and cultivate innovation. Even if the public sector tries to encroach, the private sector maintains its innovative edge.
Professor Sam Gregg warned us recently that the United States of today more closely resembles a European social democracy than many Americans are willing to admit, but Lipton Matthews is confident that America is still winning the entrepreneurship contests because the forces of democratic socialism can’t overpower the higher-energy force of the private sector drive for creative innovation in return for market reward.
Human capital and research: The ability to execute overcomes any shortcomings in education.If we look through the declinist lens, it’s easy to become gravely concerned about the state of education at all levels in the US, which directly impacts the development and deployment of what economists refer to as human capital. Do we under-allocate resources to teaching schoolkids business and entrepreneurship skills and tools, and at the college level, do we turn out too many English and philosophy grads compared to market needs, and not enough engineers and STEM grads?
Lipton Matthews cautions us against worrying about the wrong things. The educational qualifications of the products of American schools and universities matters less than their executional and implementational capabilities. America is a nation of do-ers, and that type of expertise is embedded and innate, from the time of the founding fathers and early immigrants who built the America economy. We prize innovators more than inventors — the ones who successfully turn ideas into marketable products and services. Entrepreneurship is action, and American business capitalizes the talent for execution, combining scientific learning with creative action to generate innovation. Executional capacity comes more from a market orientation than from formal learning.
A concern about the research component of the Global Innovation Index’s “human capital and research” classification is, perhaps, more justified. Government-directed research dominates formal research budgets — directed to fields such as climate change — for universities in the US, and the historical evidence is clear that this pool of research is inappropriate for the support of entrepreneurship, despite European aspirations to an entrepreneurial state. Brilliant scholars and researchers who could be entrepreneurs and innovators are diverted into unproductive activities.
It’s difficult to quantify private sector R&D we must hope that it is sufficient to counter-balance the state’s diversion of research funds. In fact, Lipton Matthews points out, we must expect the state and innovators to be in competition. The former prefers control and stability versus the latter’s pursuit of disruption and change.
Infrastructure: Think local and regional, not national.We are frequently presented with stories about the crumbling of US infrastructure. That’s the wrong level of focus, according to Lipton Matthews. First we should compare US infrastructure to other countries, where the quality of engineers and engineering may be lower, and so roads, bridges and communications networks are inherently superior in the US. Second, we should focus on infrastructure in our localities and regions. Local communities can manage infrastructure well in support of local businesses. Some towns and cities will have better-managed and better-maintained infrastructure than other parts of their state, and businesses will be attracted there.
Market sophistication: capital flowing to best entrepreneurial uses.Lipton Matthews interprets the Global Innovation Index’s category of market sophistication to refer to the financing of startups, scale-ups and innovative entrepreneurial businesses. American deployment of venture capital and the widespread networked access to investment funds are examples of market sophistication in practice. Ordinary people can invest in startups and innovation, and entrepreneurs at every stage of their journey can arrange access to investors.
While these investment funding networks may not be perfect, and while we may encounter some challenges in moving capital to the bottom of the pyramid, nevertheless, the private financial sector in the US is effective in directing funds towards innovation. While there may be some erosion of purpose, from long term funding of innovation to making money via short term trading in-and-out of markets, this does not detract from America’s lead in market sophistication.
Business sophistication: The ability of business to absorb new knowledge and use it to innovate.Bart Madden called knowledge-building proficiency the central differentiating function of the successful firm. Our businesses are learning machines, continuously generating new knowledge via R&D, marketplace experiments, interactions with customers and feedback from all business activities. While it’s possible that Americans might be eclipsed by some other countries in the race to produce patents, this is not a relevant measure. Marketplace innovation is the test of business sophistication, not patent registration. Knowledge accumulation must be accompanied by knowledge application.
America’s entrepreneurial nation of doers not only engages in eternal learning but in the adaptive entrepreneurial method of act-learn-improve. The rest of the world has not fully caught up.
SummaryIn Lipton’s eyes, America was oriented for entrepreneurial success by the founding fathers and early immigrants, and will continue to innovate and grow as a result of entrepreneurship. Only if we get in our own way through excessive statism, regulation and government intervention that misdirects our energy and resources will we break the well-established historical track record.
Additional ResourcesGlobal Innovation Index: Mises.org/E4B_209_Index
"For Now, Entrepreneurship And Innovation Still Hold A High Place In The USA" by Lipton Matthews: Mises.org/E4B_209_Article
While the 1979 default was relatively small, the 1934 default affected millions of Americans who had bought Liberty Bonds mistakenly thinking the government would make good on its promises.
Original Article: "Yes, the US Government Has Defaulted Before"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Advocates of Keynesian economics believe the Federal Reserve should pursue policies that will prevent the possible decline of the economy into a liquidity trap. But what is a liquidity trap?
Economic activity often is presented in terms of a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings. Recessions, by this thinking, occur because consumers—for whatever reason—have decided to cut spending and increase their savings.
For instance, if people become less confident about the future, they are likely going to lower their outlays and hoard money. Therefore, if an individual spends less, this is going to worsen the situation of some other individual, who in turn also cuts spending. A vicious cycle sets in—the decline in an individual’s confidence causes him to spend less and to hoard more money, and this lowers economic activity further, thereby causing individuals to hoard more, and so on.
Keynesians believe that to prevent a recession from expanding, the central bank must lift the growth rate of money supply and aggressively lower interest rates. Once individuals have more money in their pockets, their confidence will increase, and they will start spending again, thereby reestablishing the circular flow of money.
However, a situation could emerge where an aggressive lowering of interest rates by the central bank brings rates to a level from which they cannot fall further, keeping the central bank from reviving the economy. Because individuals believe interest rates have bottomed out and that interest rates should rise, there are capital losses on bond holdings.
As a result, demand for money would rapidly increase, meaning people would hoard money and refuse to spend it no matter how much the central bank tried to expand the money supply. John Maynard Keynes wrote:
There is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest.
Keynesians believe that once a low interest-rate policy becomes ineffective, government should increase spending. The spending can be on any projects as what matters is pumping money into the economy to boost consumers’ confidence. With more confidence, consumers will lower their savings and increase spending, thereby reestablishing the circular flow of money.
Does a Liquidity Trap Emerge Because of Lack of Spending?Thus, according to Keynesians, the ever-expanding monetary flow is the key for economic prosperity. Spending drives economic growth, and when people spend more of their money, they save less.
Conversely, when people reduce spending, they usually save more, which Keynesians believe is bad news for the economy. The more individuals save, the worse things become. The liquidity trap comes from too much saving and too little spending.
Note, however, that in a real economy, individuals actually pay for purchases with goods that they have produced. Money performs the role of the medium of exchange. Hence, the demand for goods is constrained by production, not by the amount of money which exists to facilitate the exchange.
The implication of a liquidity trap is that no one would be exchanging goods. (It would mean that individuals do not exchange money any longer for goods.) Obviously, this is not a realistic proposition given the fact that individuals require goods to support their lives and well-being. (Please note that individuals demand money not to accumulate it but to employ it in exchange.)
As a medium of exchange, money only assists in exchanging the goods of one producer for the goods of another producer. The service that money provides has nothing to do with the production of final consumer goods, nor with real savings. An increase in capital goods permits increases in real savings and in the production of goods that improve quality of life.
Real savings sustain individuals employed in the stages of production. The demand for money cannot increase the amount of final consumer good; only the expansion of real savings can boost the production of these goods. Likewise, an increase in the supply of money cannot grow the real economy. Contrary to popular thinking, a liquidity trap does not emerge in response to consumers’ massive increase in the demand for money, but it comes as a result of very loose monetary and fiscal policies which inflict severe damage to real savings.
Liquidity Trap and the Shrinking Pool of Real SavingsAccording to Ludwig von Mises:
The sine qua non of any lengthening of the process of production adopted is saving, i.e., an excess of current production over current consumption. Saving is the first step on the way toward improvement of material well-being and toward every further progress on this way.
As long as the savings growth rate stays positive, the economy can continue to sustain productive and nonproductive activities. Trouble erupts, however, when loose monetary and fiscal policies cause a structure of production to emerge that ties up more consumer goods than what it releases. (The consumption of final consumer goods exceeds the production of these goods.) This excessive consumption relative to the production of consumer goods leads to a decline in real savings, which weakens the support for individuals employed in the production structure, resulting in the economy plunging into a slump.
Once the economy falls into a recession, any attempts by government or central bank to revive the economy will fail. Not only will these attempts fail to revive the economy, but they will also deplete real savings further, thereby prolonging the economic slump. The shrinking pool of real savings exposes the commonly false view that loose monetary and fiscal policies can grow an economy.
The fact that central bank policies become ineffective in reviving the economy is not due to a liquidity trap but rather the decline of real savings. This decline emerges because of previous loose monetary and fiscal policies.
The ineffectiveness of loose monetary and fiscal policies to generate the illusion that the central authorities can grow an economy has nothing to do with liquidity traps. Policy ineffectiveness is always relevant whenever the central authorities are attempting to “grow an economy.” The only reason why it appears that these policies “work” is because real savings are still expanding.
Monetary Liquidity and the Stock MarketWhen the money supply increases, it enters various markets, including the stock market. Whenever new money enters a particular market, there is a greater amount of money per unit of goods in that market.
A price of a good or asset is the amount of money per unit. Hence, an increase in money supply results in an increase in the prices of goods and assets. For a given amount of money, the value of stocks is going to be determined by the real wealth produced by activities that stocks represent. With the expansion and the enhancement of the capital goods infrastructure, wealth and economic growth will emerge.
Central bank tampering with the money supply misleads investors. They perceive the increase in money as an increase in wealth, which leads them to push the stock market higher. As long as real savings expands, central bank monetary policies appear to be driving the stock market. Once savings decline, the stock market will follow suit. The attempt by the central bank to counter a liquidity trap will prolong the economic slump and the bear market in stocks.
ConclusionContrary to popular thinking, if the US economy were to fall into a liquidity trap, the reason would not be a sharp increase in the demand for money, but it would be because previous loose monetary and fiscal policies had depleted the pool of real savings. Pumping more money into the economy once it has fallen into a liquidity trap, as suggested by some economists, will only weaken the pool of real savings further and likely guarantee that the economy is going to stay in a depressed state for a prolonged time.
Policy ineffectiveness is always present when the central authorities attempt to increase economic growth. The only reason why the illusion that central authorities can expand the economy seems real is because of a temporary expansion of real savings. When savings decline, then these monetary policies create an economic downturn.
Every time the United States reaches its debt limit, we read that it is important to reach an agreement to lift it. The narrative is that the debt ceiling must be raised, or the US economy will suffer a severe contraction. There is even an episode of a TV series, “Designated Survivor”, where the character played by Kiefer Sutherland places lifting the debt ceiling as the priority to get the U.S. economy on track. The debt ceiling is viewed as an evil and anachronistic burden on growth. It is not.
Analysts all over the world consider the debt ceiling a non-event because Congress always agrees to increase it. As such, markets do not even care. Congress has raised the debt ceiling on time on over eighty occasions since 1960, according to S&P Global. The rating agency points out that Congress has passed legislation to raise or suspend the debt ceiling seven times in the last twelve years (in 2011, 2013, 2017, 2018, 2019, and twice in 2021).
The U.S. Treasury has announced it will start implementing “extraordinary measures” to fulfill its legal obligations. These extraordinary measures would give the government the possibility of extending the deadline until early June. Analysts and commentators say that Congress faces two options: either raise the debt ceiling or suspend it. Really? No one seems to think of the urgent need to cut spending.
The problem of the United States’ debt is not one of receipts. It is created by the constant increase in mandatory spending. Governments continue to raise taxes, and when the economy grows, they spend more. However, when the economy stalls or declines, they spend even more. In fiscal year 2022, the government spent $6.27 trillion. In 2015, it was $4.7 trillion. There is no revenue measure that would cover an increase of such magnitude and maintain it every year. Blaming the deficit on tax cuts makes no mathematical sense and assumes a confiscatory and extractive view of the economy, where the private sector must always provide rising revenues to a government that always spends more.
It is interesting to see how the debate has shifted to tax cuts, which did not reduce receipts, instead of spending that never generates the announced fiscal multiplier or reduces the deficit.
Those who say that the deficit would have been solved by eliminating the last tax cuts have a problem with mathematics. There is no way that any form of revenue measure could have covered a $1.6 trillion spending increase. Even if you believe in the idea that the government will always collect higher receipts from massive tax increases, which is false, only one year of mild recession would balloon the deficit and debt again.
The solution to the United States budget deficit is not more taxes. Even in the most optimistic receipt scenario, there is no tax hike program that would even start to address the structural deficit, estimated at one trillion dollars a year. Expenses are annual and consolidated, but receipts are cyclical and depend on the health of the economy. Therefore, revenue measures never reduce debt.
When governments say they will only tax the rich, they are treating citizens as if they were children. There is simply no way in which the government would collect every year between half a trillion to a trillion more only from a handful of rich people whose wealth is mostly in shares.
Deficits are always a spending problem. However, none of the parties want to address the ballooning levels of US debt by reducing expenditure. Therefore, they always agree on increasing public debt, which makes the economy weaker.
The solution for many is printing money and raising taxes. More taxes hurt the recovery, damage the job improvement potential, and reduce investment in the economy. More taxes mean less growth and no deficit improvement. More taxes and more printing mean that, added to those negatives, real wages decline, deposit savings evaporate, and the inflationary tax destroys the middle class.
Those that say deficits are reserves that the government creates for the private sector and that deficit spending is good for growth because a monetary sovereign country like the United States can spend and borrow as it pleases are simply lying. If deficit spending were a source of reserves that benefited the private sector, the United States’ productivity, growth, investment, and consumption in real terms would be off the charts, not sluggish, and real wages would be rising, not falling. The United Kingdom and Japan have proven that pushing the limit on debt, taxes, and spending only brings stagnation and declining real wages.
Printing and raising taxes are not social policies. It is profoundly anti-social, as it destroys the middle class and makes the economy weaker. Raising the debt ceiling is also extremely negative for the middle class because it means more taxes, lower purchasing power of the currency, and stagnation in the future.
There is plenty of room for efficiency in the United States budget. However, if there is an incentive to pass the imbalances to the next generation, governments and voters will agree to do it. There will be a point where the United States’ ability to disguise its massive imbalances using the currency and debt markets will evaporate as confidence in the economy and the government diminishes. If uncontrolled spending is not addressed, that moment may come sooner than many think.
Anticapitalist politicians claim intervention can "level the playing field," but when we look closely, we realize that government itself creates the imbalances.
Original Article: "Does Government Create a "Level Playing Field" or Does It Make the Field More Uneven?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
After the recent midterm election, when it became apparent that Americans would have a divided new Congress, it wasn’t long before the word bipartisan started showing up as an adjective to modify a whole host of legislative proposals and discussions. While in many cases the word has been aspirational rather than descriptive—as in, “the other side should follow our lead in agreeing to this”—it has often also been used as a magic modifier in an effort to reduce criticism and grease the skids to more political support for proposals.
Unfortunately, especially with the country as sharply divided as it is now, what is advertised as political efforts at bipartisanship often founders on the shoals of claims that only “comprehensive” reforms are worthy of support. And President Biden’s State of the Union address, reported as beginning with “an appeal for bipartisanship” and a call for Congress to “pass comprehensive immigration reform,” is a good illustration. Unfortunately, calls or proposals for bipartisan comprehensive reform proposals often justify Americans’ apprehension.
Consider some common abuses that grow out of the supposed need for bipartisan comprehensive political reforms or plans.
Groups that oppose a policy because they think it will harm them disguise their self-interested objections by claiming reform fails to be comprehensive enough. That sounds far less selfish. It also carries the unjustified implication that more-comprehensive reforms, of the sort they would support, would make such harms disappear.
Groups whose agendas are somehow connected with or related to proposals that have some prospect of passage, but who have not been brought or bought into the supporting coalition, use these proposals as levers to advance their interests. They hold their support hostage to extract what they want, as with “must pass” legislation, so often transformed into “Christmas tree” bills. They rationalize their demand to be included in the sausage making by simply seeking more-comprehensive reform rather than “insufficient” piecemeal approaches.
This mechanism then complements efforts to put together political coalitions of barely over 50 percent to jointly extract benefits from the rest of their fellow citizens. Unfortunately, the results of such efforts may be bipartisan in the sense that just enough of the most cheaply buyable members of the other side were induced to agree, but they are not bipartisan in the sense that there is general agreement about it. Neither do they advance our general welfare in the sense our constitution intended (benefiting all Americans, not political winners at political losers’ expense).
Politicians looking to extract more political payoffs from interested parties, even those who have no direct interest in the proposed legislation, also hide behind “comprehensive” rhetoric. Particularly when outcomes are in doubt, delays for reconsideration, further negotiations, more public input, hearings, etc., can always be created in the name of more comprehensiveness. But these tactics primarily provide another opportunity to get “players” (swing voters) and thus put more into the pot in the game of political poker.
Good examples include entitlements, in which the government has promised benefits far in excess of the proposed taxes to fund them (with Medicare and Social Security topping the list). Such situations are unsustainable to the tune of tens of trillions of dollars, but there is no fair way out of such situations. Sustaining them requires that some will have to bear substantial new unequal and unanticipated burdens.
But speaking of the need for comprehensive reform allows politicians to dodge the hot seat of having to offer solutions where no good ones may really exist (or where better ones than they have in mind exist, but they want to keep them off the table). Politicians can talk about how much they care and the urgency of reform, but they strategically wait for others to offer specific proposals (or criticize them for not doing so), then reject each one that would hurt anyone who might vote for them (i.e., every actual proposal) as not comprehensive enough.
Similar results also arise when the gains received by the winners from policies have been capitalized into asset prices via sale (e.g., agricultural price supports that pushed up agricultural land prices, or taxi restrictions that pushed up the value of existing permits), making even-handed reform impossible. When A has already benefitted from such a policy and then sells the asset to B, the expected future benefits of the current policy are incorporated in the price B pays. Ending the policies afterward would unfairly harm B without undoing the windfall A received, compromising “comprehensive” reform efforts.
Still other common examples are in the many areas where politics divides into an adamant “A” camp and an equally adamant “not A” camp. Politicians can endorse or vow to push reforms, but they can evade accountability because no comprehensive policy proposal ever makes it through the political gauntlet, which can always conveniently be blamed on opponents’ intransigence.
Supposed searches for comprehensive political reform are also frequently inconsistent with the process actually employed. If the intent was really to seek better, broader reforms beyond just barely meeting the 50-percent-plus-one threshold, you wouldn’t need surprise and closed-door secrecy (which often is extended to all those not part of the created cabal, as well as to all the citizens members are supposed to be representing) to keep the process out of view and avoid outside accountability until it is too late to do anything about it. Honest attempts to benefit all Americans wouldn’t keep the details—without which they cannot be evaluated—under a “cone of silence,” exclude the “other” party and the public from any involvement, or force votes before representatives have had time to read, much less digest, the bills considered by lawmakers.
Can private markets only be regulated by government? Hindenburg Research's successes against corporate corruption suggest otherwise.
Original Article: "How Markets Are Better than Government Regulators at Fighting Corporate Corruption"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Banking is a complicated process for working-class people who fail to comply with anti–money laundering regulations. Know your customer (KYC) requirements mandate prospective clients to provide their source of funding and possible employment history. Such policies make it difficult for working-class entrepreneurs to formalize and access funding. By restricting poorer people to informality, KYC requirements sap the growth potential of small businesses.
However, the ingenuity of working-class entrepreneurs has allowed them to compete by creating an alternative to the financial system. Due to the success of rotating savings and credit associations (ROSCA), informal entrepreneurs have managed to build lucrative businesses. In developing countries, these informal institutions are a pivotal source of capital formation. For example, in Nigeria, credit contribution clubs are quite popular, especially among the Igbo and Yoruba people.
Such associations have a formal structure and rules barring members from the arbitrary use of funds. In fact, payments to members are guided by a schedule and premature payouts only occur in the context of an emergency and are sanctioned by officers. Because of the vitality of these associations, working-class entrepreneurs have been able to procure capital for expansion, pay debts, and acquire properties.
In several cases, these informal groups in Nigeria function as a source of insurance and welfare. People use their contributions to cover medical expenses, get married, and educate their children. Likewise, in the Caribbean various versions of these programs exist, such as su-su and partner. Some sociologists argue that the entrepreneurial dominance of West Indian migrants in twentieth-century America is attributable to these informal banking networks.
Professor Eleanor Marie Lawrence Brown shows that Bajan migrants employed such networks to ascend socially:
In New York, a prominent Barbadian businesswoman, Louise Burnham, bought a home in Harlem and financed the purchase of two boarding houses in part from money obtained from a susu. Also in New York, Constance Payne, a Barbadian businesswoman, rented a three-story home that she turned into a profitable boarding house using the proceeds of a transnational susu which included participants living in Barbados.
Brown points out that some informal credit associations became so prosperous that they evolved into leading financial institutions, such as the Paragon Federal Credit Union in Brooklyn and the United Mutual Insurance Company. Partner, the Jamaican equivalent of su-su, has been equally adept at positing entrepreneurs to raise capital and venture into new terrains. The success of Jamaican higglers has attracted much international attention.
In Jamaica, higglers are primarily females who sell goods in the market; however, they have become key players in the economy due to their involvement in the importation business. William Tantam, in an intimate portrayal of Jamaican higglers in Black River, Saint Elizabeth, gives an account of how the typical partner is organized by its banker:
Janet was the “banker” for the market’s partner. She kept a red book with the thirty-six names of the members of the partner, and how many hands each had. Each person stopped by her stall daily and gave her J$200 (around £1.50), and she made a mark next to their name in the book. At the end of each day, Janet would give the “draw,” the total sum collected, to one person. The draw would be J$7,200 (around £54) with thirty-six “hands.” The next day, each member would again pay J$200 and the round would “rotate” for another person to receive the draw. . . . Janet was fastidious in her running of the partner, and her use of the red book revealed the organization required to maintain a ROSCA of such scale.
Partner schemes have also been responsible for the revitalization of slum communities in Jamaica. Divorced from government programs and the formal banking systems, entrepreneurs in Jamaica’s inner cities have resorted to partners to finance their cookshops and other microbusinesses. Due to the resourcefulness of banker ladies in Jamaican ghettos, scores of entrepreneurs have received loans to rejuvenate struggling businesses. There is even evidence that inner-city entrepreneurs prefer to collaborate with politically neutral partner clubs rather than relying on government assistance or corrupt private actors.
Caroline Shenaz Hossein, in a 2013 article lauding the efficacy of informal banking networks, explains why such networks are liberating for average Jamaicans:
Politicians implicate themselves in formal funding programs for the poor and citizens know they are “behind the scenes.” Banks and pro-poor financial programs who meet with and work with Dons to implement projects also inform hustlas that their financial growth is within the purview of the local strongman. . . . These independent business people in slum communities exclude themselves by choice from commercial banks and microfinance programs on the perceived grounds that such programs may be a component of those politics significantly harmful to their social and economic interests. Jamaican banker ladies are aware of this sentiment and fill the gap by offering services people can trust.
Informal banking networks thrive because they imbibe working-class people with a sense of agency and belonging that’s rarely experienced in transactions with formal organizations. Interestingly, they also demonstrate the libertarian spirit of downtrodden folks who eschew being exploited by politics and crony capitalists. With their ingenuity, the working classes have taught us that under capitalism there is always an alternative.
Contrary to the claim that taxpayer subsidies for higher education provide great social benefits, these subsidies actually are a wealth transfer from the less-well-off to wealthy people.
Original Article: "Subsidizing Higher Education Is Not Creating Widespread External Benefits"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Economists and pundits mistakenly call the Federal Reserve System's security holdings a portfolio. It is anything but.
Original Article: "The Fed’s Portfolio Is Nonexistent: The Fed Does Not Invest. It Destroys Investments"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The debate between the Federalists and the Anti-Federalists in the late eighteenth century was fundamentally a debate over whether or not Americans wanted or needed a large national state. Thus, in their effort to push ratification of the new constitution, the Federalists employed a wide variety of arguments designed primarily to convince the public that the United States, as it stood in 1787, was not politically centralized enough.
We often find words like "licentiousness" and "anarchy" used by the Federalists to describe what will afflict the United States if it does not embrace a larger and stronger national government. The Federalists often argued that abuse of power was less of a threat than "too much" freedom and therefore a stronger state is a better guarantor of wealth and order. (The Anti-Federalists, of course, took the opposite position.) Indeed, Madison, in Federalist No. 48, essentially accuses the states of being paranoid about the dangers to liberty posed by a more robust federal regime. Hamilton takes this sneering attitude toward the fears of anti-Federalists to the next level by claiming in Federalist No. 84 that there wasn't even a need for a bill of rights in the constitution. After all, Hamilton claims, there is no danger of the national government attempting to claim any powers that are not explicitly written into the text. If the term "gaslighting" had existed in the eighteenth century, it would have applied here.
A great many Americans in 1787, however, were generally confident that their own republican constitutions—plus the national constitution already in place—would be sufficient to protect both their liberties and their property. It had only been a few years, after all, since the loose American confederation had defeated the powerful British Empire in a military conflict.
On the other hand, in The Federalist Papers, the federalist spokesmen Madison and Hamilton claimed repeatedly that republics have historically been too often subject to "unceasing agitations," foreign influence, and "frequent revolutions." The implication here is that if the Americans do not embrace a much stronger national government, the American republics will end up on the ash heap of ancient and medieval republics which were supposedly both short-lived and uncommonly violent.
This narrative never went away. We see it repeated yet again in a 2020 essay by historian Stephen Klugewicz, editor of The Imaginative Conservative. Klugewicz provides a helpful summary of the Federalist position:
Americans had every reason to be pessimistic about their experiment in republicanism. History taught that republics were inherently unstable and vulnerable to decay. ... The histories of the Florentine and Venetian republics of Renaissance Italy too had been glorious but short-lived. Theorists ... warned that republics suffer from particular dangers that monarchies and despotisms do not. ... Republics were assumed to burn brightly but briefly because of their inherent instability. ... One element of society always usurped power and established a tyranny.
But there's a problem with these claims. They're not true.
To be sure, European history has experienced many short-lived republics, just as there have been many short-lived kingdoms and principalities. The Kingdom of the Two Sicilies, for example, isn't exactly known for a long history as a sovereign state.
Moreover, it would be absurd to point to the monarchies of Europe in centuries before the American Revolution as mostly examples of unremitting peace and stability. In many cases, a large "stable" monarchy was simply a state that excelled at putting down rebellions through massacres and torture. They were often regimes, to paraphrase Ronald Hamowy, of "the rack and the thumbscrew." Any judgement passed on republics in the centuries leading up to the time of the Federalists must be seen in this context.
Not all monarchies were equally despotic, of course, just as not all republics were equally unstable. By the time of the Federalists, Europe had already had its share of republics that provided examples that contradict the popular Federalist notions of all republics being "glorious but short-lived." Some of these were even important European powers who held their own against some of the most powerful monarchies of the time.
The Venetian RepublicOne of the most obvious examples that must be mentioned is the Venetian Republic, which lasted a thousand years and which dominated much of the eastern Mediterranean for centuries. That Klugewicz would list the Republic among "short-lived" polities is nothing short of mystifying. By the 1780s, the Republic was more than 800 years old. It was so old, in fact, that the Republic had gained a reputation for "immortality" due to its remarkable ability to maintain political stability.
Some may claim the Venetian Republic was not really a republic because it was not a liberal republic, and had very few popular elements in its central government. Yet, liberalism and popular elections have never been a requirement for a regime to be considered republican. Even in his denunciation of the Venetians, Hamilton in Federalist No. 6 refers to it as "that haughty republic" for its presumed excessive reliance on a merchant oligarchy. Hamilton's dismissal of Venice as tyrannical, however, merely reflects the historical mythology of the time, which alternated between views of the Venetians as either remarkably prudent statemen, or as conniving tyrants.
We should not be surprised we get a rather shallow analysis of the Venetians from Hamilton here. The essays in the Federalist Papers were essentially propaganda pieces designed less to inform than to manufacture consent for a new constitution.
For a more reliable view on Venice and other republics of the time, we can look to John Adams's more serious work A Defense of the Constitutions of Government of the United States of America. Adams would eventually become a Federalist, of course, but when he wrote the Defense, he was writing before the new US constitution was written and was not pushing any particular political agenda. As such, Adams sought to provide a more informational historical analysis of the world's republics.
So, with Adams, we find a more balanced and sophisticated view of the Venetians. Adams notes Venice was not liberal, but that this "aristocratical republic" was notable for its "sagacity" and a well-established rule of law which contributed to "the long duration of this aristocracy." Especially notable to Adams was Venice's use of many layers of checks and balances on the ruling factions to ensure no one group or person could rule through the chief executive known as the "doge." As twenty-first-century historian Thomas Madden has shown, the Venetian Republic was not quite the despotism it is often assumed to be:
[By the late twelfth century] Venice, the republic where powerful doges ruled powerful people, was becoming something different—a government in which a distinct body of elites ...began to draw into themselves the powers of both people and doge. It was not, and never would be, an oligarchy. Rather, the Venetian republic was being outfitted with new bodies and procedures, which ensured that it would act prudently, cautiously, and predictably.
The Dutch RepublicThe Venetian example obviously contradicts the myth that republics tend toward internal disorder and collapse. The Venetian polity, however, tells us little about confederations. For those seeking information on more liberal, decentralized republics, however, there is the Dutch Republic. At the time of the ratification debate, the Dutch Republic was more than 200 years old in spite of the immense handicap of sharing a land border with France—the largest military power in Europe.
The Republic was characterized by relatively high levels of religious tolerance, an unusually large amount of economic and political freedom, a high standard of living, and a decentralized political system. Or as, Joop de Jong puts it:
The Dutch Republic adopted a rather atypical form of government. It was neither a city-state like Venice, nor a modern (equating modern with centralization) territorial state, such as France. Instead, the seven United Provinces constituted a confederation without a strong central authority and in which the nobility was less prominent than other elites.
The elites, rather, were largely commercial, bourgeois elites. The central power relied largely on a consensus model, and individual member republics were almost completely free in their own internal affairs. Yet, strangely, James Madison contends in the Federalist No. 20 that the Dutch Republic was a terrible model for the United States, and was marked by "imbecility in the government." The main problem for Madison? The central government of the Dutch confederation was not nearly strong and centralized enough. For Madison, the fact that the Dutch Republic's constitution more closely resembled that of the US Articles of Confederation, rather than the new proposed constitution, apparently impelled Madison to wave it aside. Yet, the Dutch "state" had already held its own in a number of military conflicts against major powers, and even in its eighteenth-century period of relative decline, remained one of the most economically vibrant areas of Europe.
For his part, John Adams in his Defense speaks well of the Dutch Republic, listing some of the member republics among the "aristocratical republics" and some among the "democratical republics." Of course, "democracy" was a relative term, and suffrage was hardly universal. Yet, Adams in the Defense describes the popular elements present in the Republic this way:
With all the sagacity, and more wisdom than Venice or Bern, it has always had more consideration for the people than either, and has given more authority to the first magistrate. It has never had any exclusive preferences of families or nobles. Offices have, by law at least, been open to all men of merit.
The Swiss Republics Like the Dutch republics, the Swiss republics were also joined together in a confederation. The Swiss however, being largely rural and landlocked during the days of the old confederation, never achieved the commercial success of the Dutch. Nonetheless, the Swiss, in their own way, did manage to illustrate how even a loose confederation of small republics could keep powers like the Habsburgs at bay for centuries.
The Swiss confederation was considerably older than the Dutch, and at the time of the American ratification debate, the confederation had been in existence for more than 400 years.
As with the Dutch model, Adams finds the Swiss model to be a laudable mixture of both democratic and aristocratical republican elements. He concludes that public order is "well regulated ... throughout Switzerland" and repeatedly uses the term "liberty" to describe the state of affairs in several of the Swiss republics. He is especially complimentary of the republican government in Glarus of which he states:
[In Glarus,] Liberty does not degenerate into licentiousness. Liberty, independence, and an exemption from taxes, amply compensate for a want of the refinements of luxury. There are none so rich as to gain an ascendency by largesses. If they err in their counsels, it is an error of the judgment, and not of the heart. As there is no fear of invasion, and they have no conquests to make, their policy consists in maintaining their independence and preserving the public tranquillity.
Yet, here again, Madison employs much hand waving to distract readers from an example of the benefits of a decentralized confederation. He claims in Federalist No. 19 that "whatever efficacy the [Swiss] union may have had in ordinary cases, it appears that the moment a cause of difference sprang up, capable of trying its strength, it failed."
More modern observers, however, have found that the historical record doesn't quite support Madison's contempt. For example, historian Andreas Würgler, in attempting to answer the question of how the Swiss Confederation managed to survive for so long, writes:
As a league of republics, the cantons for the most part could avoid the dynastic mechanisms of succession and hereditary wars that plagued much of the rest of early modern Europe. The threat was, nonetheless, that the country would be divided between the great neighbouring countries ... European observers were often sceptical about the enigmatic Swiss federalist system. They doubted its ability to establish and maintain order, or as contemporaries used to say, "good policing." Early modern commentators pointed to the lack of a monarch as an obvious sign of disorder, while today’s historians prefer to emphasise Switzerland’s large number of social conflicts. But the number of domestic conflicts does not necessarily condemn a political system. The number of disputes is less important than how they get resolved. Swiss conflict-management was for the most part characterised as smooth and successful.
The fact that the Confederation was remarkably flexible and adept at handling internal conflicts does not prove it "failed" in periods when conflicts arose. The Swiss, after all, avoided the sort of civil war that destroyed half of the more centralized United States in the nineteenth century. The endurance of the confederation in various forms merely proves the Swiss were skilled at dealing with the unfortunate realities of being sandwiched between the French and the Habsburgs.
The modern, observer, of course, might claim these states were somehow weak because they fell under the military might of the French in the late 1790s. Yet, the fact that the Dutch and the Swiss were subjugated by Napoleon hardly proves anything, as the same was true of every polity—monarchy or not—that shared a land border with France at the time. The same fate would have befallen Madison's preferred American republic had it been at the same geographic disadvantage.
As to the matter of republican longevity overall, Madison's more centralized constitution failed to impress. The republic he and Hamilton hammered together required less than a century to descend into a failed state and bloody civil war in 1861. After that, the US was based no longer on the same alleged social contract that had been the basis of the 1787 constitution. The old constitution endures today in a de jure sense only. The post-1861 de facto republic has always been based on military conquest and newly invented "law" by federal judges declaring federal state to no longer be composed of a voluntary union of republics.
Today's supporters of the Federalist project, however, tend to unquestioningly accept the superficial and dismissive "analysis" of other republics offered in The Federalist Paper by its authors. Hamilton and Madison, however, were likely driven less by a desire for honest inquiry than a desire to get through their political platform of a new centralized national government. That often required painting the proposed constitution in an unjustifiably good light while discounting the proven workability of less centralized federal systems abroad.
As Murray Rothbard wrote, inflation is not an increase in prices. It is, instead, an increase in the supply of money in circulation. The distinction is important.
Original Article: "How Fast Should the Money Supply Grow?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Mark Thornton explains the target as another smokescreen that was originally intended to stabilize monetary policy, currencies, and exchange rates, but has become a justification for inflation and central bank manipulation.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
On April 23, 2003, in South Side Chicago, Reverend Jeremiah Wright cursed America for treating blacks as less than human.
Such harsh rhetoric should not seem surprising given the US government’s history of involvement in race relations. Judge Andrew P. Napolitano takes us through that history in his book Dred Scott's Revenge: A Legal History of Race and Freedom in America.
Most readers have heard about black lynchings that gripped the South for generations following the War for Southern Independence. But how many know lynchings were often a major social event? “Witnesses often included the entire white community,” Napolitano tells us,
and, in many cases, the victim's body was cut up and pieces were handed out as souvenirs. . . .
The local police, governments of each Southern state, and every American president from Ulysses S. Grant to Harry S. Truman allowed this to take place. . . .
Blacks were lynched for being economically successful, being more than minimally educated (they were “too uppity”), failing to step aside for a white man’s car, being politically active, staring whites in the eye, and even for protesting against lynchings. Many victims were innocent bystanders guilty of only being in the wrong place at the wrong time. The men and women who committed these crimes . . . were educated merchants, laborers, machine operators, teachers, physicians, lawyers, policemen, and students; they were family men and women who came to believe that keeping black people “in their place” involved nothing less than pest control.
Dred Scott v. SandfordSlavery and its proliferation were two of the most contentious issues in early nineteenth-century America. Abolitionists claimed that any slave taken to a free state was thereby freed. But slaves were regarded as the property of their masters, and one's property cannot legally be forfeited by crossing a state line.
Dred Scott and his wife, seeking the status of citizens, “had to show that they had become free while in Illinois or the Wisconsin territory and that they remained free when they were brought back to Missouri,” a slave state. In 1852 the Missouri Supreme Court ruled against Scott, who then appealed to the US Supreme Court in 1857.
Chief Justice Roger B. Taney “did not always rule against slaves,” Napolitano tells us. For instance:
In the Amistad case, the Court freed a group of Africans in 1841 who were seized as slaves and rebelled aboard a slave trip. Because the slave trade had been constitutionally outlawed in 1808 pursuant to the Importation Clause, the Court found that the Africans had been illegally seized and their status as slaves could not be justified by the plain text of the Constitution.
In Dred Scott, two of the nine justices wrote opinions that sided with Scott. Writing in the majority, however, Chief Justice Taney, a former slaveholder, claimed that blacks were not citizens and were therefore not entitled to the rights and privileges accorded to citizens. The court later ruled that the Reconstruction Amendments superseded Taney’s ruling, but the damage had been done. Blacks had been stamped as second-class citizens.
Taney's decision, Napolitano concludes, was “government-endorsed racism.”
Lincoln and ReconstructionAbraham Lincoln came into office, and the South seceded; he told them they had no right to leave and tricked them into firing the first shot. Four years and a million casualties later, the South surrendered. As a voluntary association of free states, the Union was dead. The South lay in ruins, and the slaves, by virtue of the Thirteenth Amendment ratified on December 18, 1865, were no longer slaves. But were they free?
The Reconstruction era (1865–77) was, among other things, an attempt to elevate blacks to full citizenship.
Following a year of violent attacks against Blacks in the South, in 1866 Congress federalized the protection of civil rights, and placed formerly secessionist states under the control of the U.S. military, requiring ex-Confederate states to adopt guarantees for the civil rights of freedmen before they could be readmitted to the Union.
President Andrew Johnson pursued a lenient Reconstruction policy that angered radical Republicans. Congress overrode Johnson's veto twice in 1867 to pass bills prolonging military occupation of the South in every state except Tennessee, Johnson's home state. The goal was to create loyal governments.
The acts were about power, not freedom or equality. Congress passed another bill authorizing anyone but former Confederates to write the new state constitutions. In other words, only blacks, carpetbaggers, and scalawags were qualified. White Southerners seethed with resentment.
Organizations of white militants began to flourish, especially when Ulysses S. Grant became president in 1869. Groups such as the White League, the Red Shirts, and the Ku Klux Klan used violence and intimidation to keep blacks from holding political office or voting for anyone supporting Reconstruction.
By 1877, all federal troops had left the South. Reconstruction had been a failure. Republicans could not force the South to bow to their decrees. On the contrary, their orders inflamed passions against the Union and especially against blacks.
To white Southerners, blacks came to personify federal intervention.
Jim CrowThe period known as Jim Crow ran from the 1890s to the Civil Rights Act of 1964. During this period, “Southern states began to reinforce, in law and state constitutional provisions, the subordinate position of blacks in society.” Jim Crow “became shorthand for the continued lawful degradation of blacks.”
Racial ostracism extended to every place where the two races might come together, even cemeteries. “As witnesses in court, blacks and whites had to swear on different Bibles.” Factory workers in Alabama had to look out different windows than whites. By 1910, legalized segregation had taken hold in every state of the South.
Among the reasons for the extreme racism, Napolitano cites the terrible violence of the war, the Union's wanton destruction of private property in the South, Sherman’s “scorched earth” policy, and the military occupation during Reconstruction, in which the rule of law was abandoned.
In Plessy v. Ferguson (1896), eight of nine Supreme Court justices refused to rule against Jim Crow. Plessy was “used to defend Jim Crow laws from judicial scrutiny until the second half of the twentieth century.” The majority reasoned that separate but equal accommodations did not violate the Constitution because both races were treated equally under the law.
Roughly seven million black people quit the South between 1900 and 1970, even though in doing so they faced unfriendly conditions up North. It was government that perpetuated the endless years of discrimination, Napolitano claims. It afforded “no relief or justice for persecuted blacks.”
He goes on to tell us about the plight of blacks in the World Wars, the infamous Tuskegee syphilis experiment, Brown v. Board of Education, oppressive aspects of the civil rights legislation, the ’60s riots, Barry Goldwater, and Jackie Robinson—Major League Baseball’s first black player.
In 1947 Jackie Robinson turned out to be both the best player and the best person to endure the threats and harassment of playing in the majors:
By having nothing to do with his triumph, the government, albeit unknowingly, let Jack Roosevelt Robinson become a black hero with whom whites could identify. Without such a hero, white Americans may have never cared enough about black Americans to be bothered by racial injustice. Jackie Robinson did for his country what its federal government could not: he renewed the civil rights revolution. (emphasis added)
Judge Napolitano’s book is an engaging, informative read about race relations and government, subjects we need to know as much as possible if we are to avoid repeating the mistake of government-enforced racism in today’s America.
[In this chapter from Man, Economy, and State, Murray Rothbard explains how government employees consume productive resources, while both taxes and government spending distort the economy.]
For years, writers on public finance have been searching for the “neutral tax,” i.e., for that system of taxes which would keep the free market intact. The object of this search is altogether chimerical. For example, economists have often sought uniformity of taxes, so that each person, or at least each person in the same income bracket, pays the same amount of tax. But this is inherently impossible, as we have already seen from Calhoun's demonstration that the community is inevitably divided into taxpayers and tax-consumers, who, of course, cannot be said to pay taxes at all. To repeat the keen analysis of Calhoun (see note 6 above): “nor can it be otherwise; unless what is collected from each individual in the shape of taxes shall be returned to him in disbursements, which would make the process nugatory and absurd.” In short, government bureaucrats do not pay taxes; they consume the tax proceeds. If a private citizen earning $10,000 income pays $2,000 in taxes, the bureaucrat earning $10,000 does not really pay $2,000 in taxes also; that he supposedly does is simply a bookkeeping fiction.1 He is actually acquiring an income of $8,000 and paying no taxes at all.
Not only bureaucrats will be tax-consumers, but, to a lesser degree, other, private members of the population as well. For example, suppose that the government taxes $1,000 away from private people who would have spent the money on jewels, and uses it to purchase paper for government offices. This induces a shift in demand away from jewels and toward paper, a decline in the price of jewels, and a flow of resources from the jewelry industry; conversely, paper prices will tend to increase, and resources will flow into the paper industry. Incomes will decline in the jewelry industry and rise in paper.2 Hence, the paper industry will be, to some extent, beneficiaries of the government budget: of the tax-and-expenditure process of government. But not just the paper industry. For the new money received by the paper firms will be paid out to their suppliers and original factor-owners, and so on as the ripples impinge on other parts of the economy. On the other hand, the jewelry industry, stripped of revenue, reduces its demands for factors. Thus the burdens and benefits of the tax-and-expenditure process diffuse themselves throughout the economy, with the strongest impact at the points of first contact—jewelry and paper.3
Everyone in the society will be either a net taxpayer or a tax-consumer and this to different degrees, and it will be for the data of each specific case to determine where any particular person or industry stands in this distribution process. The only certainty is that the bureaucrat or politician in office receives 100 percent of his governmental income from tax proceeds and pays no genuine taxes in return.
The tax-and-expenditure process, therefore, will inevitably distort the allocation of productive factors, the types of goods produced, and the pattern of incomes, from what they would be on the free market. The larger the level of taxing and spending, i.e., the bigger the government budget, the greater the distortion will tend to be. And moreover, the larger the budget in relation to market activity, the greater the burden of government on the economy. A larger burden means that more and more resources of society are being coercively siphoned off from the producers into the pockets of government, those who sell to government, and the subsidized favorites of government. In short, the higher the relative level of government, the narrower the base of the producers, and the greater the “take” of those expropriating the producers. The higher the level of government, the less resources will be used to satisfy the desires of those consumers who have contributed to production, and the more resources will be used to satisfy the desires of nonproducing consumers.
There has been a great deal of controversy among economists on how to approach the analysis of taxation. Old-fashioned Marshallians insist on the “partial equilibrium” approach of looking only at a particular type of tax, in isolation, and then analyzing its effects; Walrasians, more fashionable today (and exemplified by the late Italian public finance expert, Antonio De Viti De Marco), insist that taxes cannot be considered at all in isolation, that they may be analyzed only in conjunction with what the government does with the proceeds. In all this, what would be the “Austrian” approach, had it been developed, is being neglected. This holds that both procedures are legitimate and necessary to analyze the taxing process fully. In short: the level of taxes-and-expenditures may be analyzed and its inevitable redistributive and distortive effects discussed; and, within this aggregate of taxes, individual types of taxes may then be analyzed in isolation. Neither the partial nor the general approaches should be overlooked.
There has also been a great amount of useless controversy about which activity of government imposes the burden on the private sector: taxation or government spending. It is actually futile to separate them, since they are both stages in the same process of burden and redistribution. Thus, suppose the government taxes the betel-nut industry one million dollars in order to buy paper for government bureaus. One million dollars’ worth of resources are shifted from betel nuts to paper. This is done in two stages, a sort of one-two punch at the free market: first, the betel-nut industry is made poorer by taking away its money; then, the government uses this money to take paper out of the market for its own use, thus extracting resources in the second stage. Both sides of the process are a burden. In a sense, the betel-nut industry is compelled to pay for the extraction of paper from society; at least, it bears the immediate brunt of payment. However, even without yet considering the “partial equilibrium” problem of how or whether such taxes are “shifted” by the betel-nut industry onto other shoulders, we should also note that it is not the only one to pay; the consumers of paper certainly pay by finding paper prices raised to them.
The process can be seen more clearly if we consider what happens when taxes and government expenditures are not equal, when they are not simply obverse sides of the same coin. When taxes are less than government expenditures (and omitting borrowing from the public for the time being), the government creates new money. It is obvious here that government expenditures are the main burden, since this higher amount of resources is being siphoned off. In fact, as we shall see later when considering the binary intervention of inflation, creating new money is, anyway, a form of taxation.
But what of that rare case when taxation is higher than government spending? Say that the surplus is either hoarded in the government's gold supply or that the money is liquidated through deflation (see below). Thus, assume that $1,000,000 is taken from the betel-nut industry and only $600,000 is spent on paper. In this case, the larger burden is that of taxation, which pays not only for the extracted paper but also for the hoarded or destroyed money. While the government extracts only $600,000 worth of resources from the economy, the betel-nut industry loses $1,000,000 of potential resources, and this loss should not be forgotten in toting up the burdens imposed by the government's budgetary process. In short, when government expenditures and receipts differ, the “fiscal burden” on society may be very approximately gauged by whichever is the greater total.
Since taxation cannot really be uniform, the government in its budgetary process of tax-and-spend inevitably takes coercively from Peter to give to Paul (“Paul,” of course, including itself). In addition to distorting the allocation of resources, therefore, the budgetary process redistributes incomes or, rather, distributes incomes. For the free market does not distribute incomes; income there arises naturally and smoothly out of the market processes of production and exchange. Thus, the very concept of “distribution” as something separate from production and exchange can arise only from the government's binary intervention. It is often charged, for example, that the free market maximizes the utility of all, and the satisfactions of all consumers, only “given a certain existing distribution of income.” But this common fallacy is incorrect; there is no “assumed distribution” on the free market separate from the voluntary activities of every individual's production and exchange. The only given on the free market is the property right of every man in his own person and in the resources which he finds, produces, or creates, or which he obtains in voluntary exchange for his products or as a gift from their producers.
The binary intervention of the government's budget, on the other hand, impairs this property right of every one in his own product and creates the separate process and the “problem” of distribution. No longer do income and wealth flow purely from service rendered on the market; they now flow to special privilege created by the State and away from those specially burdened by the State.
There are many economists who regard the “free market” as only being free of triangular interference; such binary interference as taxation is not considered intervention in the purity of the “free market.” The economists of the Chicago School—headed by Frank H. Knight—have been particularly adept at splitting man's economic activity and confining the “market” to a narrow compass. They can thus favor the “free market” (because they oppose such triangular interventions as price control), while advocating drastic binary interventions in taxes and subsidies to “redistribute” the income determined by that market. In short, the market is to be left “free” in one sphere, while being subject to perpetual harassment and reshuffling by outside coercion. This concept assumes that man is fragmented, that the “market man” is not concerned with what happens to himself as a “subject-to-government” man. This is surely an impermissible myth, which we might call the “tax illusion”—the idea that people do not consider what they earn after taxes, but only before taxes. In short, if A earns $9,000 a year on the market, B $5,000, and C $1,000, and the government decides to keep redistributing the incomes so that each earns $5,000, the individuals, apprised of this, are not going to keep foolishly assuming that they are still earning what they did before. They are going to take the taxes and subsidies into account.4
Thus, we see that the government budgetary process is a coercive shift of resources and incomes from producers on the market to nonproducers; it is also a coercive interference with the free choices of individuals by those constituting the government. Below, we shall analyze the nature and consequences of government spending in more detail. At this time, let us emphasize the important point that government cannot be in any way a fountain of resources; all that it spends, all that it distributes in largesse, it must first acquire in revenue, i.e., it must first extract from the “private sector.” The great bulk of the revenues of government, the very nub of its power and its essence, is taxation, to which we turn in the next section. Another method is inflation, the creation of new money, which we shall discuss further below. A third method is borrowing from the public, which will be discussed briefly in Appendix A below.5
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- It will be more convenient to use dollars rather than gold ounces in this section; but we still assume complete equivalence of dollars and gold weights. We do not consider monetary intervention until the end of this chapter.
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- This does not mean that resources will flow directly out of jewelry and into paper. It is more likely that resources will flow into and out of industries similar to each other, occupationally and geographically, and that resources will readjust, step by step, from one industry to the next.
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- In the long run of the ERE, of course, all firms in all industries earn a uniform interest return, and the bulk of the gains or losses are imputed back to the original specific factors.
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- For a further discussion of the economic effects of taxation, see the next section below.
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- A fourth method, revenue from sale of governmental goods or services, is a peculiar form of taxation; at the very least, to acquire the original assets for this “business,” taxation is needed.
With Yale economics professor Yusuke Narita suggesting mass suicide—seppuku—as the answer to Japan's rapidly aging demographics, Jeff and Bob take a hard look at the economics and humanity of greying America.
Richard Hanania, "Gerontocracy Versus Western Civilization": Mises.org/HAP383a
Bob on opting out of Social Security: Mises.org/HAP383b
These days, the Fed and Chairman Jerome Powell are claiming the title of "inflation fighters." The more appropriate moniker should be "inflationists."
Original Article: "Fighting Inflation Really Means Fighting the Federal Reserve"
This Audio Mises Wire is generously sponsored by Christopher Condon.
No good deed goes unpunished claims the old proverb, and twenty-four-year-old YouTuber Jimmy Donaldson’s recent charity act of helping one thousand blind people see again has the world divided on the moral circumstances surrounding his private charity. Some would go so far as calling his benevolence a “stunt.” They are utterly wrong, and understanding his reasoning and motives behind the charity acts should negate any critique.
A Successful, Yet Risky, Entrepreneurial StoryDonaldson, also known as MrBeast, is currently the owner of the most watched noncorporate YouTube channel (in regards to subscriber number, which stands at over 133 million people). His entrepreneurial endeavor started when he was only thirteen years old. By sixteen, he had already amassed thirty thousand subscribers to his channel, entertaining his audience by hilarious critiques of YouTube video introductions.
Using his charisma and rising popularity, he went on to furthering the development of his channel, focusing on stunt-based content. In order to stand out from other YouTubers and to increase viewer engagement, MrBeast’s able-minded innovation came by offering increasingly large prize incentives to participants in his videos (covered by the video’s incomes, largely ad revenues from YouTube and featured sponsors).
Although he is a millionaire given his capital assets (e.g., a mobile game, restaurant franchises, high-value brand), he admits that the wild cash flow of his business makes him technically “poor” (e.g., in liquid capital). His success formula includes a high-risk, high-reward model, under which a large amount of profit is reinvested. In his own words: “If I make $3–4 million a month I just spend it on videos next month. We literally have razor-thin margins and just reinvest it all.” This is referring to the exceptionally large prize money given to competitors of up to one million dollars. He openly acknowledges that giving money away is his innovative way of continuing his career and generating more views on his content.
Mixing Business with Personal CausesDonaldson’s philosophy is not limited to entertaining people. He is also keen to use his money for good and to be remembered for making the world a better place. He has even pledged to give away all his money to charity after his passing.
For example, MrBeast wanted to focus his attention on environmental protection issues. He founded the Team Trees project in late 2019 with the goal of raising $20 million for planting twenty million trees around the world. The goal was surpassed, and the highly publicized project even attracted donations from Elon Musk and large corporations such as Discovery and Verizon. In late 2021, another ambitious goal of raising $30 million dollars to remove human-made marine debris through a new project (Team Seas) was not only successful, but also quick and efficient.
MrBeast’s environmental initiatives were a big success and were fueled by private sector factors such as lack of bureaucracy, transparency, brand trust, profits, economies of scale, and clear-cut, sound objectives (e.g., $1 equals one tree planted, $1 equals one pound of cleared waste). When people around the world voluntarily donated to MrBeast’s projects, they were confident that their money would be wisely spent up to the last dollar.
Left-leaning individuals could be offended seeing words such as “profits” and “private” used in conjunction with goods such as forests and oceans. But Donaldson developed efficient private solutions to failures of the “commons” while also raising awareness. Contrast this to the failures of public (tax funded, also known as coercive) initiatives, such as the recent failure of planting eleven million trees in the Republic of Turkey, or the known problem of “recycling” US-made trash by exporting it to east-Asian countries which, in Angela Logomasini’s words, “lack the market institutions—such as private property, market pricing, and economic freedom in general—necessary to efficiently manage waste. And these governments often don’t pay too much attention to waste disposal, allowing trash to migrate from dumps into waterways.”
Paying for Curing Blindness Attracts BacklashThe most recent philanthropic deed by MrBeast is paying for cataract surgery of a thousand people, including children, around the world. These people could not afford it, and their visual impairment limited their ability to educate themselves, do basic daily chores, or even work to earn a living.
However, his latest philanthropic act received not only praises, but also considerable backlash in social and mainstream media. Opponents of MrBeast’s good deed call him an exploiter of human problems. The anticapitalistic say that he takes advantage of poor, unhealthy people to make profits and become richer. Remember, MrBeast’s acts of generosity are paid for with his hard-earned money and would not have been possible without profits made by providing services to others. As he summarizes, “Every dollar I’ve ever made came from YouTube.” Even the benefactor was perplexed.
No, There Is Nothing Evil in Making Profits by Helping OthersProfit seeking in the first place is what brought Donaldson here, and he did so by firstly providing consumers with quality entertainment. This alone does not explain his rise to fame (thus, a position from which he can enact changes). As an entrepreneur, he found a niche by risking and pioneering new forms of video entertainment based on large prize incentives.
Watching this video, I could not see any hidden cameras or sad people. But I learned that people are miserable due to the inefficiency of public healthcare. I could not find any source mentioning any lack of consent by the beneficiaries of the treatments (most of which do not even appear in the video). All I could see in the video were happy people, patients and caretakers crying with the relief of leaving behind a hard mental and physical struggle.
I can’t find any argument for why a diseased person would refuse free treatment if it is conditioned by appearing in a show whose main purpose is to raise awareness about the problems faced by similar patients around the world. Neither can I find how profit making is evil when the profit is made through the consent of both parties involved. Even more so when knowing that that money will be reinvested for other causes.
ConclusionPrivate charity is an efficient solution to pressing economic problems deriving from the lack of private ownership. All private charity is fundamentally paid through previous profits. It does not follow that private charity itself must be done behind the scenes. On the contrary, if acts of profit-driven private charity are well managed, they can raise awareness, attract new money, and increase the popularity of a brand; in turn, these can be utilized for the better.
The Global Currency Plot: How the Deep State Will Betray Your Freedom, and How to Prevent It
by Thorsten Polleit
Ludwig von Mises Institute, 2023; 190 pp.
Thorsten Polleit’s outstanding new book is packed with insights about both the philosophy of economics and economic policy, and as he shows, his philosophical standpoint enables him to grasp the essence of the financial world, of which he is a master.
Polleit is a follower of Ludwig von Mises, Murray Rothbard, and Hans-Hermann Hoppe, and like them, he argues that economics offers us a priori truths about the world. “What is meant by the term a priori theory? The term a priori means that something is evident, that can be regarded as true and universal, independent of experience.” By “independent of experience,” Polleit of course doesn’t mean that a priori truths have no bearing on experience—the point of a priori truths is that they’re known to be true of experience just by thinking about them—but rather that their truth doesn’t depend on empirical testing. In economics, unlike the physical sciences, we don’t have adequate empirical grounds to establish laws: “there are “too many” variables and no quantitative constants.
In this connection, Polleit makes a brilliant observation. Because many socialists do not understand the relevant a priori laws, they fail to recognize that socialism is inherently tyrannical.
Even the worst experiences with socialism—think of Stalin, Hitler, Mao Zedong, Pol Pot—are not enough to discredit it once and for all. This is mainly due to the following reason: in the field of human action, of human history, experience can never provide the convincing and conclusive proof that something had to proceed as it did. . . . It is precisely this insight that the socialists make active use of. They explain that socialism, where and when it was put into practice, did not produce the hoped-for results, with the following: socialism has not been implemented consistently enough.
To refute this defense requires resort to the a priori in two ways, one of which will be well known to most readers of the Mises Wire. I refer of course to Mises’s calculation argument, which shows that in the absence of money prices, a socialist system cannot engage in economic calculation and is doomed to collapse.
But this argument by itself does not suffice to answer so-called democratic socialists, who do not call for full-scale central planning but want a “mixed” system that does not entirely dispense with the market. To close the gap, Mises makes effective use of a “slippery slope” argument against such people—interventionism can quickly lead to socialism. Polleit reinforces Mises’s logic by raising another point as well. It is an a priori truth that the state is an oppressive institution that by its nature violates rights; furthermore, over the course of its existence, it will become more oppressive:
From the point of view of the logic of action, the state—if it is a territorial compulsory monopolist to which the individual is subjected to, for better or worse—is contradictory and thus literally wrong. It de facto degrades the individual to a slave, and this is incompatible with the logic of human action—because property, self-ownership, is an indispensable category of human action. . . . The modern democratic state especially is continuing to expand. Attempts to tame and enclose it prove to be an illusion. Even a minimal state becomes a maximal state sooner or later. (emphasis original)
Here Polleit draws on the great German sociologist Franz Oppenheimer (who, Polleit tells us, was the doctoral supervisor of Ludwig Erhard, the man responsible for the German “economic miracle” after World War II) and Hans Hoppe. I’d advise readers to pay particular attention to the sentence Polleit has italicized, as the book’s central argument depends on taking the proposition it expresses to be an a priori truth.
What does the contemporary state have in store for us? In answering this question, Polleit relies on another of the most important of the a priori laws of human action: because human beings differ, they benefit from specialization and trade. Given this undeniable truth, we must next endeavor to determine the requirements of extensive trade, and here we soon come to money, the commonly accepted medium of exchange.
Because the advantages of trade increase the wider the market is, a free market world would ideally use the same money:
[The thoughts presented in this book] are based on a central insight: if there were a global system of free markets in which everyone could freely buy what they wanted to buy, and in which producers could freely produce what consumers wanted, there would be a free market for money, and—through a voluntary agreement of all parties—a single world currency would emerge. This is because that would be economically optimal. If everyone in the world uses the same money, the productive effect of money is exploited to the full: the economic calculation carried out with money—calculating with money prices—is thus optimized for everyone. (emphasis original)
Polleit now combines this insight with his earlier argument that the ever-expanding state seeks to bring more and more resources under its control. In order to accomplish this, the state must seize total control of the monetary system, not allowing any commodity currency to compete with its own fiat money. And—another crucial point—because national currencies can be traded against each other, it becomes imperative to establish a unique world fiat currency that allows no evasion or escape.
In other words, our current world monetary order parallels the free market tendency toward a single world currency:
If states monopolize money production, there is no free market for money on which a single world currency could develop through voluntary decisions by people. In that case, national fiat currencies exist for the time being. But this is not a stable equilibrium. Rather, here too, there is a tendency to create a single world currency, because, as I said, it is optimal if everyone trades and calculates with the same currency.
A fiat money of the sort imagined here would subject the world to a dictatorship of socialistically inclined global bankers. As Polleit explains, only free market money in a “private law society” offers lasting refuge from the “dystopian nightmare” the globalists have in mind for us. Polleit’s book will encourage resistance to their plans.
By itself, the end of the petrodollar won't destroy the dollar. But it will continue a trend that weakens both the dollar and the US regime's power.
Original Article: "Why the End of the Petrodollar Spells Trouble for the US Regime"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In her article “Multinationals Make Obscene Profits Out of Global Crises—Tax Them to Defend Human Rights,” Magdalena Sepúlveda called for more taxation of multinational corporations and the rich as a means to finance policies that are aimed at protecting the most vulnerable from what she calls “the cost of living crisis.” In this piece, I would like to respond to Sepúlveda by saying that taxation is theft and any attempt at justifying taxation, especially for charity, will lead to irrational conclusions.
From my understanding of Sepúlveda’s piece, it appears that she adopts the philosophy of social democracy. Such a philosophy is a subcategory of socialism and distinguishes itself by advocating for relatively stronger private property rights when compared to Marxism and Leninism, both of which reject private property rights entirely.
Furthermore, social democracy advocates (SDA) believe that some of the income earned from property owners belongs to society, hence their continued calls for either more taxation, a new wealth tax, or any other tax aimed at achieving egalitarian purposes (which include but are not limited to either “reducing inequality” or “more equitable wealth distribution”). Those interested in knowing more on the origins of social democracy can read Hans-Hermann Hoppe’s book titled Social Democracy. In Sepúlveda’s piece, there is one instance where she, in my opinion, displays her affiliations with social democracy. She states, “Pandemics, wars and recessions do not exempt states from meeting their human rights commitments. They must tax multinationals and the richest more to finance targeted policies protecting the most vulnerable against the cost-of-living crisis.”
Taxation is theft and SDAs like Sepúlveda face a moral problem when advocating for taxation irrespective of the purposes of the proposed taxation. The reason is derived from the natural law theory of property, which was popularized by Murray Rothbard, Walter Block, and Hoppe. Natural law provides four simple and logically connected rules for private property:
- A person is the owner of his/her own body.
- A person owns every scarce nature-given good that he/she has put to use by means of his/her own body before anyone else. Such is known as the concept of original appropriation.
- A person owns all new products that he/she has created by means of his/her own originally appropriated goods and his/her own body, provided that the property of others was not damaged during the production process.
- Ownership of goods that have either been originally appropriated or produced can only be transferred from the previous owner to the later owner by means of a voluntary contractual agreement.
Taxation is theft because it violates the fourth rule which requires that property be transferred by means of a voluntary contractual agreement. Taxation requires no contractual agreement to be in place for the transfer of property from the taxpayer to the state. Effectively, taxation is a claim on citizens’ portion of property by the state, and failure by citizens to adhere to such a claim can result in imprisonment, which is a threat of violence. This is no different from being robbed by a thief who uses a gun to elicit cooperation.
The SDAs might rebut by stating that the proceeds obtained by means of taxation are used to fund the justice system and other state functions that are meant to assist with social order and charity, which from here are referred to as “social causes.” However, such a rebuttal does not address the violation of natural rights brought on by taxation. If such a rebuttal were to be accepted, then it follows that common thieves, including those who use the threat of violence to coerce cooperation, are justified in forcibly taking property from their victims as long as the proceeds of such a crime are used for social causes.
Given the problem of the “social causes” rebuttal, the SDAs will have to use another argument which is that taxation does not violate natural law because there exist “implicit” or “conceptual” contracts between property owners and the state that account for taxation. Such a rebuttal fails in justifying taxation because these “implicit” or “conceptual” contracts do not exist. For a contract to exist, there must be at least two agreeing parties and, more fundamentally, the parties must be aware of the contract that is being agreed upon.
However, if such contracts do exist then the SDAs will have to also prove how citizens agree to such contracts. In other words, the SDAs will have to show how a citizen agrees to a nonterminable agreement with the state where the state is granted sweeping powers over a citizen’s private property. In my opinion, proving that “conceptual” or “implicit” agreements between the citizen and the state exist and that citizens enter into such agreements by means of expressed or tacit consent is an almost impossible task.
Hoppe, in chapter fifteen of his book titled The Economics and Ethics of Private Property, further justifies my point on one entering into such an agreement.
It is inconceivable how anyone could ever agree to a contract that allowed someone else to determine permanently what he may or may not do with his property, for in so doing this person would have effectively rendered himself defenseless vis-à-vis such an ultimate decision maker. Likewise, is it inconceivable that anyone would ever agree to a contract that allowed one’s protector to determine unilaterally, without consent of the protected, the sum that the protected must pay for his protection.
Given the above quote and my above objections, arguing that taxation does not violate natural law because of “implicit” or “conceptual” agreements between the state and property owners should be abandoned because property owners’ agreeing to such contracts is inconceivable.
With regard to Sepúlveda’s article and her call to increase taxation on multinational corporations and the rich, it must be noted that taxation violates natural rights despite the intentions of taxation because it effectively allows for the state to forcibly take a portion of one’s property without one’s consent. Natural law requires that property be transferred by means of voluntary contractual agreements.
Furthermore, the provided reasons used in an attempt at justifying taxation—whether it be for social causes or that taxation is accounted for in “implicit” or “conceptual” agreements between the state and property owners—should be rejected because the former effectively justifies theft in general while the latter is inconceivable.
[A version of this article was originally published at ManPatria.]
—from the Summary ...
Democratic socialism—the ideology that dominates the world today—aspires to become a world state. The route toward it requires a single world currency to be created. That would undoubtedly create a dystopia. Might this become a reality? And if so, how can it be averted? This book aims to find answers to these questions.
Part 1
1. Concerning Right Thinking: Logic
The arguments in this book claim to be strictly logical. For a better understanding, a few basics of logic—the doctrine of correct thinking—are presented. These show the possibility of making use of the incorruptible power of judgment.
2. What We Know for a Fact: Humans Act
The phrase “humans act” is logically undeniably true; it applies a priori. From it further true statements can be derived—so-called action categories—which help to think through the political-economic questions raised in this book with impartiality.
3. What is Indispensable for Human Action: Private Property
Private property is not an arbitrary variable, as many believe. It is a category of human action and cannot be denied without contradiction; unconditional respect for property also proves to be an ethically convincing norm of action.
4. Interpreting History: The Role of Theory
To understand history, one must necessarily resort to theories; without theory, there is no grasp of reality. The insights provided by a priori theory are an indispensable ingredient in the unbiased interpretation of historical events.
5. Driving Force of Civilization: Inequality
The prerequisite for peaceful and productive cooperation, and economic and cultural human progression, is humans’ inequality with regard to their abilities and goals. This is also a logical insight regarding action, and it explains the process of civilizing humanity.
6. The Perfection of Exchange: Money
The modern economy and society based on the division of labor are particularly fostered when people use money. Money developed spontaneously in the free market without the intervention of a state, and having a currency for the whole world would be economically optimal.
7. The Decivilizing Force: The State
The state is a territorial monopolist with ultimate decision-making power over all conflicts in its territory. It doesn’t solve interpersonal conflicts; rather, it is the cause of many and increasing numbers of social disputes.
8. The State and the Deterioration of Money: From Commodity to Fiat Money
Out of self-interest, the state obtains the monopoly over the production of money, and by force it replaces commodity money with its own fiat money. As a result, its power expands enormously, thereby becoming basically uncontrollably large.
9. Anatomy of Disruption: What Fiat Money Causes
State fiat money suffers from economic and ethical defects: it hampers economic progress and is socially unjust. Fiat money leads to a “transvaluation of all values.” It is not compatible with a liberal and prosperous economy and society.
10. A Destructive Ideology: Democratic Socialism
Democratic socialism has become the dominant ideology worldwide. It relativizes and undermines property in many ways, making the state increasingly powerful, thus destroying the conditions for free and prosperous social and economic life.
11. Impact Assessment: A Case for the A Priori Theory
The a priori theory can be used to reliably estimate the consequences of human actions: it can be used to derive conditional statements about the future that are valid under specific conditions, and it can also be used to trace action—logical path dependencies.
Part 2
12. The Progression Theorem: Toward a World Government
States want to expand their power internally and externally. This applies above all to states that follow democratic socialism: they are working toward creating a worldwide uniform democratic socialism, a uniform world state with a uniform fiat world currency.
13. The Nation: Community of Language and Values
The nations—the language and value communities—are an impediment to democratic socialism’s aspiration of establishing a unified world state. Therefore, democratic socialists try to vanquish the nations, and especially the principle of nationality.
14. Migration: Natural and Unnatural
The proponents of democratic socialism use migration as a means to abolish nations and the nation-state and to pave the way for a worldwide democratic socialism under a unified leadership. But this will not be achieved by a politicized migration.
15. The Illusion of Democracy: The “Iron Law of Oligarchy”
As in every democracy, an oligarchic elite rule is also formed in democratic socialism. It has a particularly strong incentive to create a uniform fiat world currency in order to come closer to the goal of creating a uniform world government, a world state.
16. US Dollar Imperialism: The Bretton Woods System
The Bretton Woods system was the first attempt to establish a single politicized world currency. It was doomed to fail because the nations had sufficient room for maneuver to escape the abuse made possible by the Bretton Woods system.
17. The Campaign against Currency Choice: The Euro
In Europe, states have succeeded in abolishing the last remnants of monetary competition and introducing a single currency. This example shows how a political world currency can be created: with the irrevocable fixing of exchange rates between national currencies.
18. The Secret and Sinister Power: The World Central Bank Cartel
The national central banks form an international cartel in line with the democratic socialists’ ideas. Their monetary policy is making the global financial and economic system increasingly dependent on a globally unified monetary policy, the logical end of which is a unified world currency.
19. Blueprints for a Single World Currency:
Bancor, Unitas, US Dollar, INTOR, and the Libra
There are many specific proposals to create a single world currency—brought about by a political decision, not by free market forces, for the democratic socialists want a monopolized single fiat world currency.
20. The Dystopia: A Single Fiat World Currency
A single fiat world currency would threaten freedom and prosperity on this planet to an extent that many probably cannot even imagine: with a single fiat world currency, the path would be open to a totalitarian world state.
21. Technological Disruption: Cryptocurrencies
The emergence of cryptocurrencies could prove to be the crucial disruption and achieve what economic and ethical insight has not yet been able to achieve: the opening of a free market for money, and making it impossible to establish a world state.
22. A Ray of Hope: Free Market for Money and Private Law Society
A free market for money provides people with the best possible money. It would also effectively put an end to the freedom-destroying program of democratic socialism and make possible a private law society, in which the same law applies to all.
EPILOGUE: A Better World Is Possible
We have been walking the ominous path toward a world state with a fiat world currency for decades. It is not an inevitable result, but to prevent it, essential things have to change. These will include rejecting false doctrines in modern social and economic theory and firmly reestablishing the a priori theory.
The great Dr. Ron Paul has been right about all the major issues that confront the world today. He is right about the Fed, the Ukraine war, the FBI, and so much else. How has he managed to do that? What has given him wisdom unique on the political scene today? The answer is simple. He has consistently applied the teachings of the greatest political thinker of the twentieth century, Murray Rothbard. Ron Paul is a consistent Rothbardian.
Let’s look at a few cases where Dr. Paul has been right. Here is what he said about the Ukraine war last October:
Last week the New York Times ran a shocking article claiming that the US intelligence community believes the Ukrainian government to be responsible for the August attack that killed Darya Dugina, the daughter of a prominent Russian philosopher.
Surely the established narrative that Ukraine is a model western democracy standing strong for our shared values against an aggressive Russian invader is damaged with reporting that Kiev conducted an al-Qaeda style attack on an innocent civilian inside Russia. The murder of Dugina was a textbook definition of terrorism, which is, “the use of violence or the threat of violence, especially against civilians, in the pursuit of political goals.”
Just over a month later, the Nord Stream pipelines were blown up, seemingly ending at least in the near term the possibility that Germany may find a way to save its economy by mending fences with its main energy supplier. A leading Polish politician thanked the US for doing the job.
Then over the weekend, the bridge connecting mainland Russia to Crimea was bombed, killing at least six civilians and leaving part of the bridge under water. Traffic was restored hours after the attack, but Russian President Vladimir Putin placed the blame on Ukraine’s intelligence service. We all know that Ukraine relies on its US masters, so we can assume the US provided the intelligence allowing the targeting of the bridge.
There is a pattern here. More and more brazen attacks are being launched against Russia and Washington is doing little to hide US fingerprints. Why?
The Biden Administration seems to be moving us closer to nuclear war over Ukraine and Biden himself seems to know it. Last week he said, Putin “is not joking when he talks about potential use of tactical nuclear weapons or biological or chemical weapons . . .” For the “first time since the Cuban missile crisis, we have a direct threat of the use [of nuclear weapons] if in fact things continue down the path they are going.”
So the question is if he knows that his proxy war against Russia is moving us closer to the unthinkable—nuclear annihilation—why does his Administration persist in crossing red line after red line? Apparently, Biden’s “experts” believe that Putin is bluffing and will do nothing about the Dugina assassination, the Nord Stream pipeline sabotage, and the Kerch Bridge attack.
But what if they’re wrong?
Normally foreign policy action should be weighed on a cost/benefit basis. Will adopting one particular policy benefit the United States more than the risks involved? In this case there is absolutely nothing on the positive side of the ledger. Will the security and prosperity of the United States benefit more from regime change in Russia than it would suffer should nuclear war break out?
It doesn’t seem all that hard. No.
So what’s going on here? Why does the US Administration—with the support of most Republicans in Congress—continue to send tens of billions of dollars in military aid and move us toward nuclear war over a conflict that has nothing at all to do with the United States?
The time to end US participation in this war is yesterday. And if it takes millions of Americans in the streets peacefully protesting while demanding that their representatives stop this madness, then bring it on. Tomorrow may be too late.
The situation has only gotten worse since Dr. Paul wrote, and now brain-dead Biden has further increased the chances of nuclear war by shipping more weapons to the Ukraine.
Here is Dr. Paul on one of the themes of his career in Congress, the dangers of the Fed:
The Federal Reserve was no doubt troubled by July’s decline in the US unemployment rate to 4.5 percent and increase in job openings to 11.2 million. This is because the Fed’s strategy for reducing the historic price inflation now plaguing the economy—caused by the Fed’s unprecedented low or zero interest rate policies—is to increase unemployment in order to decrease consumer spending. In his speech to the annual monetary policy conference in Jackson Hole, Wyoming, Fed Chair Jerome Powell reiterated his commitment to increasing unemployment, or, as he puts it, “softening the labor markets.”
Powell is correct that reducing price inflation is urgent. He is also correct that doing so will increase unemployment and slow economic growth. The Fed’s efforts to bring down inflation by increasing interest rates will also make it harder for average Americans to obtain home mortgages, purchase a car, or even pay their utility bills. Those hardest hit by the Fed’s “softening of labor markets” are also the primary victims of the Fed-created price inflation. This demonstrates the insanity and cruelty of the fiat money system, which enriches the elites while [impoverishing] the masses.
Well-connected members of the financial elite and crony capitalists benefit from the Federal Reserve’s money creation, as they are the first recipients of the new money. This enables them to increase their purchasing power before the new money has caused general price inflation. By the time the money creation has impacted the middle and working classes, the economy is racked with widespread price inflation. Therefore, a nominal gain in wages is not enough to compensate for the real price increase. So average Americans suffer from both Fed-created inflation and the Fed’s attempts to rein in that inflation.
It is amazing that more individuals do not question the idea that inflation, recessions, unemployment, and booms and busts are necessary features of a sound monetary system. Even many otherwise staunch defenders of free markets maintain a child-like faith in central banking. Some conservatives support “reforming” the Fed by making it follow a “rules-based” monetary policy. These conservatives do not understand that the problem is the existence of a central bank with the power to manipulate the currency.
Many progressives recognize the damage the Fed does to average Americans when it increases interest rates. However, their “solution” is a cure worse than the disease: make the Fed maintain low interest rates (and thus high inflation) in perpetuity—or until the continued devaluation of the currency via inflation causes a dollar crisis, leading to a major economic calamity. The main victims of this crisis will, of course, be the very Americans progressives claim to care about.
The Federal Reserve’s failure to fulfill its dual mandate of producing stable prices and full employment, combined with the damage it inflicts on the American people, make the best case for changing our monetary policy. A stable currency, safe from manipulation by politicians or central bankers, would provide the basis for long term prosperity that benefits everyone, not just the crony capitalists and the power-hungry politicians. The first steps in this transition are to finally pass audit the Fed legislation and continue the efforts to pass state laws recognizing precious metals as legal tender.
Unlike the pretentious “Dr.” Jill Biden, Ron Paul is a real doctor—a physician—and thus is in an excellent position to expose the lies behind covid:
After two years of unprecedented government tyranny in the name of fighting a virus, the prime instigators of this infamy are walking free, writing books, and openly pretending they never said the things they clearly said over and over.
Take Trump’s White House Covid response coordinator Deborah Birx, for example. She was, as the Brownstone Institute’s Jeffrey Tucker points out in a recent article, the principal architect of the disastrous “lockdown” policy that destroyed more lives than Covid itself. Birx knew that locking a country down in response to a virus was a radical move that would never be endorsed. So, as she admits in her new book, she lied about it.
She sold the White House on the out-of-thin-air “fifteen days to slow the spread” all the while knowing there was no evidence it would do any such thing. As she wrote in her new book, Silent Invasion, “I didn’t have the numbers in front of me yet to make the case for extending it longer, but I had two weeks to get them.”
She was playing for time with no evidence. As it turns out, she was also destroying the lives of millions of Americans. The hysteria she created led to countless businesses destroyed, countless suicides, major depressions, drug and alcohol addictions. It led to countless deaths due to delays in treatment for other diseases. It may turn out to be the most deadly mistake in medical history.
As she revealed in her book, she actually wanted to isolate every single person in the United States! Writing about how many people would be allowed to gather, she said: “If I pushed for zero (which was actually what I wanted and what was required), this would have been interpreted as a ‘lockdown’—the perception we were all working so hard to avoid.”
She wanted to prevent even two people from meeting. How is it possible that someone like this came to gain so much power over our lives? One virus and we suddenly become Communist China?
Last week in a Fox News interview she again revealed the extent of her treachery. After months of relentlessly demanding that all Americans get the Covid shots, she revealed that the “vaccines” were not vaccines at all!
“I knew these vaccines were not going to protect against infection,” she told Fox. “And I think we overplayed the vaccines. And it made people then worry that it’s not going to protect against severe disease and hospitalization.”
So when did she know this? Did she know it when she told ABC in late 2020 that “this is one of the most highly-effective vaccines we have in our infectious disease arsenal. And so that’s why I’m very enthusiastic about the vaccine”?
If she knew all along that the “vaccines” were not vaccines, why didn’t she tell us? Because, as she admits in her book, she believes it’s just fine to lie to people in order to get them to do what she wants.
She admits that she employed “subterfuge” against her boss—President Donald Trump—to implement Covid policies he opposed. So it should be no surprise that she lied to the American people about the efficacy of the Covid shots.
The big question now, after what appears to be a tsunami of vaccine-related injuries, is will anyone be forced to pay for the lies and subterfuge? Will anyone be held to account for the lives lost for the arrogance of the Birxes and Faucis of the world?
One of Dr. Paul’s greatest features is that he is willing to adopt a radical position outside of “mainstream” opinion. For example, many people have criticized the abuses of the FBI. Ron wants to get rid of it.
As we learn more and more from the “Twitter Files,” it is becoming all too obvious that Federal agencies such as the FBI viewed the First Amendment of our Constitution as an annoyance and an impediment. In Friday’s release from the pre-Musk era, journalist Matt Taibbi makes an astute observation: Twitter was essentially an FBI subsidiary.
The FBI, we now know, was obsessed with Twitter. We learned that agents sent Twitter Trust and Safety chief Yoel Roth some 150 emails between 2020 and 2022. Those emails regularly featured demands from US government officials for the “private” social media company to censor comments and ban commenters they did not like.
The Foreign Influence Task Force (FITF), a US government entity that included the FBI as well as other US intelligence agencies expressly forbidden from domestic activities, numbered 80 agents engaged regularly in telling Twitter which Tweets to censor and which accounts to ban. The Department of Homeland Security brought in outside government contractors and (government-funded) non-governmental organizations to separately pressure Twitter to suppress speech the US government did not like.
US Federal government agencies literally handed Twitter lists of Americans it wanted to see silenced, and Twitter complied. Let that sink in.
This should be a massive scandal and likely it would have been had it occurred under a Trump Administration. Indeed, Congress would be gearing up for Impeachment 3.0 if Trump-allied officials had engaged in such egregious behavior. But since these US government employees were by-and-large acting to suppress pro-Trump sentiment, all we hear are crickets.
What is interesting about these Twitter revelations is how obsessed the FBI and its government partners were with satire and humor. Even minor Twitter accounts with small numbers of followers were constantly flagged by the Feds for censorship and deletion. But knowledge of history helps us understand this obsession: in Soviet times the population was always engaged in joking about the ineptitude, corruption, and idiocy of the political class. Underground publications known as samizdat were rich with satire, humor, and ridicule.
Tyrants hate humor and cannot withstand satire. That is clearly why the FBI (and CIA) was determined to see a heavy hand raised against any American poking fun at the deep state.
There is good news in all of this, however. As Constitutional Law Professor Jonathan Turley wrote over the weekend, a new Harvard CAPS/Harris Poll found that even though the mainstream media has ignored the “Twitter files,” Americans have not. Nearly two-thirds of respondents believe that Twitter was involved in politically-motivated censorship in advance of the 2020 election. Some 70 percent of those polled believe Congress must take action against this corporate/state censorship.
As Professor Turley points out, although the First Amendment only applies to the US government, “it does apply to agents or surrogates of the government. Twitter now admits that such a relationship existed between its former officials and the government.”
So now we have proof that the FBI (along with US intelligence agencies and the Department of Homeland Security) have been acting through “private” social media companies to manipulate what Americans are allowed to say when they communicate with each other.
Is there anything more un-American than that? Personally, I find it sickening.
We do not need the FBI and CIA and other federal agencies viewing us as the enemy and attacking our Constitution. End the Fed . . . And End the Federal Bureau of Investigation!
How has he managed to be right so often? As I said at the start, it’s by his consistent application of the teachings of Murray Rothbard. He is a brilliant expositor of basic Rothbardian principles about the free market and a noninterventionist foreign policy.
It’s Ron’s truth-telling and his urge to educate the public that should inspire us as we carry on into the future. Little did he know that those thankless years of pointing out the state’s lies and refusing to be absorbed into the Blob would in fact make him a hero one day. To see Ron speaking to many thousands of cheering young people, when respectable opinion had been warning them to stay far away from this dangerous man, is more gratifying and encouraging than I can say. I was especially thrilled when a tempestuous Ron, responding to the establishment’s description of his campaign as “dangerous,” said, You’re darn right—I am dangerous, to them.
Even the mainstream media has to acknowledge the existence of a whole new category of thinker: one that is antiwar, anti-Fed, anti–police state, and promarket. The libertarian view is even on the map of those who despise it. That, too, is Ron’s doing.
Young people are reading major treatises in economics and philosophy because Ron Paul recommended them. Who else in public life can come close to saying that?
No politician is going to trick the public into embracing liberty, even if liberty is his true goal and not just a word he uses in fundraising letters. For liberty to advance, a critical mass of the public has to understand and support it. That doesn’t have to mean a majority, or even anywhere near it. But some baseline of support has to exist.
That is why Ron Paul’s work is so important and so lasting.
Americans spend billions of dollars on treating heart disease. Prevention is cheaper, but thanks to perverse government incentives, preventing heart disease takes a backseat to medical spending.
Original Article: "The Government Throws Money at Heart Disease, but Prevention Is Better than Cure"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Since 2014, the tiny country of Yemen has been devastated by the ongoing civil war following the Houthi takeover of the government. It only worsened in March 2015, when President Barack Obama began to aid the Saudi Arabians in the war effort. As of February 2022, over 370,000 people have lost their lives due to the lack of food, the lack of medical necessities, and the bombings from the war.
Despite the severity of the war, the press has covered very little of it. Between 2015 and 2019, the media only covered about ninety-two minutes of the conflict. Based on the atrocities, this is shockingly low, especially when the media chose to cover the false Russian election meddling around the same time. MSNBC even went an entire year without mentioning what was happening in Yemen.
One might ask why the media isn’t covering this war. The reasoning for this is because the United States would be seen as bad guys.
Ever since its involvement in the war, the United States has done nothing but harm to the region. Not even a year into US involvement, the US was already being accused of war crimes by Human Rights Watch. They reported ten unlawful airstrikes in 2015 by the Saudi-led coalition, which led to over three hundred civilians dying and four hundred more wounded.
In October 2016, a Saudi Arabian bomb was dropped on a funeral ceremony in Sanaa, Yemen’s capital. Over one hundred people died and five hundred were wounded, many of whom were children. Footage shows charred and mutilated bodies strewn in and outside of the funeral hall.
Another horrible incident occurred in September 2018, when a bomb was dropped on a school bus out on a field trip. Many of the children on board were under the age of fifteen, most of whom died. To make things worse for the United States, these bombs were manufactured by the American company Lockheed Martin.
The Saudi-led coalition continued to harm the people of Yemen. They would target grain silos, livestock, horses, irrigation systems, trucks, and other components of the food distribution infrastructure.
The coalition has continued to make the humanitarian crisis even worse by installing a naval blockade on Yemen, which had become 90 percent dependent on international imports, thanks to the destruction of domestic food distribution.
If these pieces of news became more mainstream, then the American people would be irate at the US government. If any other country were doing the same thing (think Russia’s invasion of Ukraine), the American media would accuse that country of war crimes. Yet the US turns a blind eye to the crisis that it helped start.
The media can spin some events to make it seem like the Americans are the good guys, like in Syria, where the main antagonist of the American people was ISIS, a terrorist organization that had performed multiple attacks on American civilians and performed public beheadings. With the claims that Syrian president Bashar al-Assad was gassing his own citizens, it was easy to find support for the efforts of the US to oust ISIS from the region.
In contrast, Yemen is not so seemingly black and white. Between the Houthis wanting to seize power from the government and the conflict between the Houthis and Saudis, observers must process a lot of information.
None of the sides of the war are virtuous. The Houthis have killed zero American citizens. However, they have committed numerous human rights abuses and have engaged in torture.
The Saudis, on the other hand, have a vast military power, have committed mass executions that did not conform to international human rights and humanitarian laws, and have taken part in numerous war crimes. The American-made bombs that they are using to commit such crimes also complicate the issue.
Former secretary of defense, James Mattis, tried to justify the war by saying Iran was backing the Houthis in the war. News sites like Business Insider also claimed that the Houthis are being backed by Iran.
While it is true that Iran and the Houthis are friendly with each other, that does not mean the Houthi takeover of the government was backed by Iran. In fact, Iran had warned the Houthis against storming the capital city because it would provoke the Saudis.
The media also falsely claimed Iran was sending weapons to aid the Houthis. While there was a case where arms were found, it was leaving Yemen and entering Somalia. A former United Nations ambassador tried to prove Iran guilty of sending the weapons that were fired at Riyadh to the Houthis. However, the bomb she showed was a Burkan-2, which was locally fabricated. Iran has displayed Scud derivatives with shuttlecock-shaped warheads, but they do not match the Yemeni version, according to Scott Horton.
The situation is Ukraine has left the media even more unwilling to cover the war in Yemen. The situation has drawn much interest, with the United States sending over $100 billion in aid to Ukraine. With the war including the United States and Russia in some capacity, many have begun worrying about a nuclear war breaking out if the scenarios spin out of control.
With the media being silent about the ongoing conflict in Yemen, one wonders what other foreign policy atrocities the United States is hiding from the public.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop address whether the Ohio train disaster is an example of "capitalism gone amuck". They discuss Murray Rothbard's views on pollution, the secondary consequences of the regulatory state, and the decaying qualities of modern financialization.
Also, join the Mises Institute in Tampa this month for a special event featuring Per Bylund, Jeff Deist, Tho Bishop, and Brett Lindell, on February 25. Learn more at Mises.org/Tampa.
Recommended Reading"Are Libertarians Too Anti-Pollution?" by Ryan McMaken: Mises.org/RR_121_A
"Financialization: Why the Financial Sector Now Rules the Global Economy" by Ryan McMaken: Mises.org/RR_121_B
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
With all due respect to Niall Ferguson, whom I've heard of, and Huw van Steenis, whom I've not, this tweet is quite preposterous. I've personally met more than five people who understand money just in my own circles.
What they mean is “monetary policy,” which is in fact very difficult to understand—given it effectively operates as a political program within the muddled field of macroeconomics. Monetary policy, unlike money per se, is ad hoc, highly technical, reliant on vast amounts of data, and dictated by political expediency.
As for money itself, there is nothing so difficult about it conceptually. A hundred and fifty years ago Carl Menger explained how money arose as the most saleable commodity in the marketplace, with the best properties to be a store of value and medium of exchange. Thus money solved the problems and inefficiencies of barter. Forty years later Ludwig von Mises relied on Menger’s subjective marginal utility theory to solve the circular problem of explaining how money obtained value in the first place. Mises’s regression theorem introduced the element of time into the discussion, explaining how commodities’ “moneyness” value evolved from their preexisting nonmonetary uses. No government or central bank was necessary, as money is a market phenomenon just as surely as houses or wheat or shoes.
These two concepts give us the baseline conceptual understanding of money’s origin and value. But every shrewd merchant and trader over the centuries already understood money instinctively. From ancient Mesopotamia to medieval Holland and the Silk Road, money evolved in the marketplace to facilitate exchange as an alternative to war and plunder. Today Turkish and Zimbabwean shopkeepers can rapidly calculate multiple (favorable) exchange rates in their head.
Many people intuitively understand money. What they don’t understand is monetary policy. The idea that exceedingly intelligent people at central banks and national treasuries must “run” complex monetary “systems” surely is one of the greatest swindles ever perpetrated. It nonetheless remains widely accepted across the world, though less so every day as central bankers lose public confidence in the face of rising inflation. And what we might call early monetary policy is nothing new; Roman emperors “clipped” coins to enrich themselves while diluting the metal content of such coins.
At its core, economics is conceptually simple: humans make choices in an environment of scarcity to achieve ends. Money is a means to those ends, not an end in itself. It is the market’s answer to the inefficiency of barter. We all have wants; goods and services help us with “want satisfaction.” Money is the best way to trade goods and services we produce for goods and services we wish to consume. And money simply held in an account or under a mattress also yields a benefit to the holder, despite what the consumption fetishists say about “velocity.”
Today, however, the concept of money is overwhelmed and completely obscured by politics. Modern money is political (fiat) money, which is to say it is a tool of government and an instrument of political power. Political money is radically different from commodity money and can be understood only in the context of the perverse incentives afforded to the political class in a supposed democracy. The US dollar is untethered from redemption in gold, unbacked by real assets; politicians are unhinged from any market discipline. When money creation and debt issuance appear almost unlimited, the tendency is always to secure votes by printing or borrowing now. Austerity is for the future. Maybe. And central bankers, certainly those at the highest levels, like Jerome Powell and Christine Lagarde, are inarguably political figures.
Political money converts an asset into a liability. Physical gold, which carries no counterparty risk when held properly, is an asset with no risk of default. The only risk is economic: What goods and services can be exchanged for it? US dollars, by contrast, are forever subject to political forces favoring devaluation as a policy. Most Americans lack the wealth to truly diversify their holdings across currencies, and thus are left holding dollars as creditors to Uncle Sam. As Keith Weiner makes clear, dollar holders have only three unholy choices: hold physical cash as a creditor to the Federal Reserve, hold dollars in a commercial account as a creditor to the bank, or hold US bond debt as a creditor to the Treasury.
Thanks to political money, confusion reigns. We hear money described as “energy” zooming around in a closed system and thus subject to the laws of thermodynamics (talk about physics envy!) We hear money described as “information,” which confuses its origins with its uses. We read a description of money as an “agreement about value,” which is partially true but understandable only with reference to Mises’s aforementioned theorem. And mostly we hear confusion between wealth and money, rooted in the politicized, zero-sum nature of monetary policy. More money and credit do not magically create more goods and services, more capital investment, or a more productive economy. Prosperity cannot be legislated by politicians or engineered by central bankers.
What to do? The best approach in a confused world is a return to fundamentals. Mises’s The Theory of Money and Credit is a great place to start, as is Rothbard’s What Has Government Done to Our Money? and Robert Murphy’s Understanding Money Mechanics. For most lay readers, any of these books would be sufficient to puncture today’s money mythology. Circulate them among friends and family to help build the future cadre of monetary policy deniers. What the world needs today is champions of commodity money, sound money, hard money with a high stock-to-flow ratio, all of which is to say money that retains or increases purchasing power even when held in a simple savings account. This will require all of us—Austrians, gold bugs, bitcoiners, capitalists, businesspeople, investors, and anyone worried about the future of money—to push for a great awakening.
Money is simple, but opposing the political tool of monetary “policy” is not.
Australia is famous for its laid-back culture and for being founded by convicts from Great Britain. It also should be famous for its embrace of entrepreneurship.
Original Article: "Australia: The Nation Founded by British Convicts Embraced Entrepreneurship"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Contemporary businesses use artificial intelligence (AI) tools to assist with operations and compete in the marketplace. AI enables firms and entrepreneurs to make data-driven decisions and to quicken the data-gathering process. When creating strategy, buying, selling, and increasing marketplace discovery, firms need to ask: What is better, artificial or human intelligence?
A recent article from the Harvard Business Review, “Can AI Help You Sell?,” stated, “Better algorithms lead to better service and greater success.” The attributes of the successful entrepreneur, such as calculated risk taking, dealing with uncertainty, keen sense for market signals, and adjusting to marketplace changes might be a thing of the past. Can AI take the place of the human entrepreneur? Would sophisticated artificial intelligence be able to spot market prices better, adjust to expectations better, and steer production toward the needs of consumers better than a human?
In one of my classes this semester, students and I discussed the role of AI, deep machine learning, and natural language processing(NLP) in driving many of the decisions and operations a human would otherwise provide within the firm. Of course, half of the class felt that the integration of some level of AI into many firms’ operations and resource management is beneficial in creating a competitive advantage.
However, the other half felt using AI will inevitably disable humans’ function in the market economy, resulting in less and less individualism. In other words, the firm will be overrun by AI. We can see that even younger college students are on the fence about whether AI will eliminate humans’ function in the market economy. We concluded as a class that AI and machine learning have their promises and shortcomings.
After class, I started thinking about the digital world of entrepreneurship. E-commerce demands the use of AI to reach customers, sell goods, produce goods, and host exchange—in conjunction with a human entrepreneur, of course.
However, AI—machine learning or deep machine learning—could also be tasked with creating a business-based model, examining the data on customers’ needs, designing a web page, and creating ads. Could AI adjust to market action and react to market uncertainty like a human? The answer may be a resounding yes! So, could AI eliminate the human entrepreneur?
Algorithm-XLab explains deep machine learning as something that “allows computers to solve complex problems. These systems can even handle diverse masses of unstructured data set.” Algorithm-XLab compared deep learning with human learning favorably, stating, “While a human can easily lose concentration, and possibly make a mistake, a robot won’t.”
This statement by Algorithm-XLab challenges the idea that trial and error leads to greater market knowledge and better enables entrepreneurs to provide consumers with what they are willing to buy. The statement also portrays the marketplace as a process where people have perfect knowledge and an equilibrium point, and it implies that humans do not have specialized knowledge of time and place.
The use of AI and its tools of deep learning and language processing do have their benefits from a technical standpoint. AI can determine how to produce hula hoops better, but can it determine whether to produce them or devote energy elsewhere? If entrepreneurs discover market opportunities, they must weigh the advantages and disadvantages of their potential actions. Will AI have the same entrepreneurial foresight?
The acquisition of market knowledge can take humans years to acquire; AI is much faster at it than humans would be. For example, the Allen Institute for AI is “working on systems that can take science tests, which require a knowledge of unstated facts and common sense that humans develop over the course of their lives.” The ability to process unstated, scattered facts is precisely the kind of characteristic we attribute to entrepreneurs. Processes, changes, and choices characterize the operation of the market, and the entrepreneur is at the center of this market function.
There is no doubt that contemporary firms use deep learning for strategy, operations, logistics, sales, and record keeping for human resources (HR) decision-making, according to a Bain & Company article titled “HR’s New Digital Mandate.” While focused on HR, the digital mandate does lend itself to questioning the use of entrepreneurial thinking and strategy conducted within a firm. After AI has learned how to operate a firm using robotic process automation and NLP capacities to their maximum, might it outstrip the human natural entrepreneurial abilities?
AI is used in everyday life, such as self-checkout at the grocery store, online shopping, social media interaction, dating apps, and virtual doctor appointments. Product delivery, financing, and development services increasingly involve an AI-as-a-service component. AI as a service minimizes the costs of gathering and processing customer insights, something usually associated with a team of human minds projecting key performance indicators aligned with an organizational strategy.
The human entrepreneur has a competitive advantage insofar as handling ambiguous customer feedback and in effect creating an entrepreneurial response and delivering satisfaction. We seek to determine whether AI has replaced human energy in some areas of life. Can AI understand human uneasiness or dissatisfaction, or the subjectivity of value felt by the consumer? AI can produce hula hoops, but can it articulate plans and gather the resources needed to produce them in the first place?.
In what, if any, entrepreneurial functions can AI outperform the human entrepreneur? The human entrepreneur is willing to take risks, adjust to the needs of consumers, pick up price signals, and understand customer choices. Could the human entrepreneur soon become an extinct class? If so, would machine learning and natural processing AI understand the differences between free and highly regulated markets? If so, which would it prefer, or which would it create?
When the Soviet Union collapsed more than thirty years ago, US and European political elites sought to isolate and threaten Russia. The result has been war, destruction, and death, none of it necessary.
Original Article: "Make No Mistake, War Hawk American Policy Helped Start This War in Ukraine"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The federal government’s Bureau of Labor Statistics (BLS) released new price inflation data today, and according to the report, price inflation during the month decelerated slightly, coming in at the lowest year-over-year increase in sixteen months. According to the BLS, Consumer Price Index (CPI) inflation rose 6.4 percent year over year in January before seasonal adjustment. That’s down very slightly from December’s year-over-year increase of 6.5 percent, and January is the twenty-third month in a row with inflation above the Fed’s arbitrary 2 percent inflation target. Price inflation has now been above 6.0 percent for sixteen months in a row.
Meanwhile, month-over-month inflation rose to a three-month high, with the CPI rising 0.5 percent (seasonally adjusted) from December to January.
January’s year-over-year growth rate is down from June’s high of 9.1 percent, which was the highest price inflation rate since 1981. But January’s growth rate still keeps price inflation above growth rates seen in any month during the 1990s, 2000s, or 2010s. January’s increase was the fourteenth-largest increase in forty years.
The ongoing price increases largely reflect price growth in food, energy, transportation, and especially shelter. In other words, the prices of essentials all saw big increases in January over the previous year.
For example, in January “food at home”—i.e., grocery bills—was up 11.3 percent compared to January of the previous year. Energy overall was up 8.7 percent, while new vehicles were up 5.8 percent. Services saw some of the largest increases, with energy services up 15.6 percent and transportation services up 14.6 percent. The only category that showed a drop over the period was used cars and trucks, which was down 11.6 percent. This hardly returned car prices to 2019 levels, however. Used car price growth reached seventy-year highs throughout much of 2021, increasing year over year by over 20 percent or more in every month from April 2021 to April 2022.
As of January, there was no sign of price growth in shelter slowing down. Last month, shelter prices increased by 7.9 percent year over year, which was the highest growth rate since July 1982. Month-over-month growth in shelter costs also remained among the highest we’ve seen since 1983.
Meanwhile, so-called core inflation—CPI growth minus food and energy—has slowed slightly from the forty-year high reached in September. In January, year-over-year growth in core inflation was 5.6 percent. That’s down slightly from December’s growth rate of 5.7 percent. September’s year-over-year increase of 6.6 percent was the largest recorded since August 1982. January’s month-over-month growth in this measure was positive as well, with prices minus food and energy growing 0.4 percent (seasonally adjusted). That’s equal to December’s month-over-month change of 0.4 percent, and up from October’s and November’s growth rates of 0.3 percent. Month-to-month growth has been positive in every month since May 2020.
Meanwhile, November was yet another month of declining real wages, and was the twenty-second month in a row during which growth in average hourly earnings failed to keep up with CPI inflation. According to new BLS employment data released last week, hourly earnings increased 4.35 percent year over year in January, meaning wage growth fell behind inflation.
Inflation Is Not “Falling”The Biden administration today—which has long been rather free and easy with how it slices and dices inflation numbers—said inflation is “coming down.” Joe Biden framed it like this:
Today’s data confirm that annual inflation has fallen for seven straight months. Inflation for food at the grocery store came down again last month. Gas prices are down about $1.60 from their peak last year. And real wages for working Americans are up over the last seven months, delivering welcome breathing room for American families.
This is a rather tortured description of the situation. With the CPI rising both month over month and year over year, it’s a bit of a stretch to say price inflation “came down” in January. It would be more accurate to say that the rate of increase slowed very slightly.
This hasn’t stopped President Biden from declaring that the economy has already achieved a “soft landing” as Politico suggested yesterday.
The markets apparently disagreed, as both the S&P 500 and the Dow Jones ended the day down. Markets likely fear that—in spite of Biden’s narrative—price inflation looks stubborn, suggesting the Fed will continue to move interest rates up. Wall Street, heavily dependent on easy money, wants to see inflation fall so that the Fed will begin loosening again. If price inflation is seen to be slowing, this could be interpreted as an excuse for the Fed to force interest rates back down and resume asset purchases. If a soft landing were already in the cards, Wall Street would be planning for an acceleration of monetary loosening.
The Fed has signaled that it is ready to end its current cycle of rate hikes if it can come up with a political excuse to do so. But with year-over-year CPI inflation still above 6 percent, the Fed is clearly a long way from its arbitrary 2 percent target rate. With this latest CPI report, markets are probably now expecting another 25 basis point rate hike in March.
Nonetheless, until we start to see obvious job losses that cannot be hidden or denied, we should expect to hear plenty from the White House about how “strong” the economy is. Yesterday, Cecilia Rouse of the US Council of Economic Advisers claimed that “these are extraordinary times for America’s economy,” suggesting that the job growth occurring during Biden’s tenure is unparalleled in recent decades. The truth, of course, is that this “job growth” is nothing more than a recovery of jobs that were destroyed by the lockdowns and the covid panic long supported by Biden. In other words, Biden supported breaking the economy’s legs and now wants credit for the fact that those legs have somewhat healed.
In spite of ongoing negative real wage growth, crippling price inflation in rents and home prices, and a notable decline in full-time work, we’ll keep hearing about the strength of the economy. Millions of Americans aren’t exactly feeling prosperous, however. As ABC reported this month, four in ten Americans polled say they are worse off financially since Biden took office. Of course, Biden is hardly the only one to blame. Donald Trump repeatedly called for massive amounts of monetary inflation, complaining on numerous occasions that the Federal Reserve was not inflating the money supply enough. Later, Trump’s record-breaking peacetime government deficits drove even more inflation. We are now living with the consequences of the Trump profligacy. Biden, however, will do nothing to reverse these policies and is thus making inflation and declining real wages part of his own legacy.
On the heels of rising stock markets, record low unemployment rates, and even the plunge in the price of gasoline, Mark discusses the latest government economic reports including the hot retail sales numbers, recent increases in the CPI, and the increases in business inventories. What can be made of these confusing numbers?
Be sure to follow Minor Issues at Mises.org/MinorIssues.
The constitution has not protected our natural rights, nor did it prevent the US from becoming a blood-soaked failed state a mere 73 years after the constitution was ratified.
Original Article: "The Constitution Failed. It Secured Neither Peace nor Freedom."
This Audio Mises Wire is generously sponsored by Christopher Condon.
As former Federal Trade Commission (FTC) chairman Timothy J. Muris has recently noted, “President Biden rejects the economics-driven antitrust policies of the past 40 years.” In contrast, President Joe Biden “promised to return to earlier antitrust traditions.” Unfortunately, “those traditions were abandoned for good reason: they harmed consumers.”
An important illustration Muris uses is the 1936 Robinson-Patman Act (RPA), which used to be a lynchpin of antitrust enforcement. After “withering” and “devastating” academic and legal criticisms that “excoriated” FTC enforcement, the agency began moving away from the act half a century ago. However, despite the fact that, in the words of Richard Posner, “The Robinson-Patman Act . . . is almost uniformly condemned by professional and academic opinion, legal and economic,” both the FTC chair, Lina Khan, and the FTC’s newest commissioner, Alvaro Bedoya, have endorsed it.
So what does the RPA prohibit? Among other restrictions limiting the means of creating economies of scale and extending such savings to consumers (i.e., to keep more efficient, larger producers and suppliers from outcompeting smaller ones to the detriment of buyers), it outlaws price discrimination between customers not based on provable cost differences, “where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly.” Its most important application was to large-volume discounts, particularly involving large chain stores that were revolutionizing product distribution—the RPA was commonly called the “anti-chain store act,” and A&P, the largest chain store when the RPA was adopted, was the main target.
While the words of the act read like a defense of competition, the effect of its restrictions was to reduce competition because the quantity discounts and other efficiency-enhancing mechanisms attacked in the act actually benefited consumers by leading to lower retail prices.
How do quantity discounts help consumers? To get these discounts, retailers such as chain stores must sell a huge volume of products. How do retailers do that? Through lower retail prices, a wider selection and larger inventory, more rapid responsiveness to changes in conditions and consumer tastes, more stores, etc. That these features benefit consumers compared to other vendors is shown by the increased patronage of stores that provide them. Threatening to take away the quantity discounts, which help enable the lower prices and better offerings that consumers prefer, would undermine such advantages.
That is the core of the earlier recognition that the RPA is a bad law. Former federal judge Robert Bork famously called it “the misshapen progeny of intolerable draftsmanship coupled to a wholly mistaken economic theory.”
Rulings under the act have often, without economic logic, held that quantity discounts somehow hurt competition. Those rulings confused harm to competitors who lose out to preferred suppliers with harm to the competitive process. But superior offerings from competitors—the essence of competition—necessarily “harm” less efficient rivals in the process of benefiting consumers. As a result, this semantic confusion has frequently undermined the competitive process and its consumer benefits by protecting inefficient rivals from competition—all the while claiming to be defending competition.
It must be noted that the RPA supposedly allows firms to defend their quantity discounts by showing that specific cost savings justify different prices. However, that defense is little more than an illusion. The courts virtually never find the cost data sufficient, because as Richard Posner put it, the “cost savings to the manufacturer could not be demonstrated with the precision required.”
Of course, given that costs (opportunities forgone) are subjective and given the limitations of historical accounting data for forward-looking decisions, especially for multiproduct firms with no clear “right” way to allocate overhead costs, advertising, storage costs, and so on, to particular products, unambiguous proof that costs justify price differences is impossible. Essentially, in Walton Hamilton’s analysis, “No accountant has been able to devise a method yielding . . . figures which does not embody a dominance of arbitrariness and guesswork.”
That, in turn, may explain a good part of the resurgence of the Biden administration’s interest in reviving the RPA. If the government can get the courts to again accept the false claim that large, successful competitors harm competition when they draw customers who benefit away from other competitors, then the large producers that the RPA always put in the crosshairs would be forced to turn to the cost defense.
And given the court’s historical refusal to accept cost defenses, not because of their logic but because accounting data is insufficient to “prove” exactly what cost savings there are, the targeted firms would not be able to “escape” efforts to punish them, even when they benefit consumers (successful RPA cases almost always resulted in higher consumer prices). That anti-consumer result, wrapped in pro-consumer language but actually about punishing superior competitors, is precisely what those who want to revive the RPA wish to return to.
History is no kinder to the RPA. It was introduced just fifteen days after the Supreme Court ruled that Franklin Delano Roosevelt’s National Industrial Recovery Administration (NIRA), which essentially cartelized much of American industry to every consumer’s detriment, was unconstitutional. That initial version of the RPA, which was essentially an effort to resurrect the restrictions of the codes written under NIRA, did not attract sufficient support to pass. Only then did supporters turn to the RPA’s language, which Muris summarizes as “to say the least, vague, frequently self-contradictory, and subject to varying interpretations.” No one would be able to defend resurrecting such a law on a rational basis.
In fact, the RPA was, and efforts to resurrect its use now are, nothing less than attempted violations of what a law should be. It is, as Frédéric Bastiat wrote in The Law, “the conversion of the law into an instrument of plunder . . . under the pretense of organization, regulation, protection, or encouragement.” However, “this act is exactly what the law is supposed to suppress, always and everywhere.” There is no way such a law that violates The Law can advance American’s well-being. It is more of a special interest illustration of what Ronald Reagan called the nine most terrifying words in the English language—“I’m from the government, and I’m here to help.”
The recent case of retired megastar Usain Bolt losing millions of dollars to bad investments highlights the importance of sound money management.
Original Article: "Managing Money Is as Important as Making It: The Sad Case of Athletes Going Broke"
This Audio Mises Wire is generously sponsored by Christopher Condon.
India is currently the seventh-largest country in the world with the largest youth population. There are many elements that make this country unique, the foremost being diversity—diversity of culture, race, ethnicity, and linguistics. India faced an era of colonialism under the British, who would take raw material from India at cheaper rates and import the finished products.
India and Nigeria are both countries that gained independence from Britain in the same period, but India is now rising much more effectively than Nigeria. Indians saved their culture and their religion but adopted the technologies of the West, whereas Nigeria adopted Western culture and religion but failed to utilize Western technologies. Indians adopted British discipline in their army, which is seen clearly and was successful in many aspects on an individual level, but India took the wrong road to economic development.
India was declared a mixed economy after its independence in 1947, but it was largely socialist leaning, with its first prime minister, Pandit Jawaharlal Nehru, being fond of socialism. Socialism was admired in theory, but very few were ready to embrace it practically. In a way, the socialist path was also chosen to oppose the “evil” system of the colonizer, Great Britain. F.A. Hayek published his article “The Use of Knowledge in Society” in 1945, two years before India became independent.
Unfortunately, Indian intellectuals did not read Hayek’s article, just as they had failed to read Ludwig von Mises’s book Socialism more than twenty years before. Mokshagundam Visvesvaraya wrote the book Planned Economy in India, and in 1950, India’s Planning Commission was established and chaired by freedom fighter Nehru. The fact that India went with central planning and continued it for more than sixty years despite its failures is baffling.
If Indian economy was really “mixed,” then why was the other side of the argument highly neglected? One might argue that the condition of the country was very poor and therefore protectionism and government involvement in allocation were needed. Even if we agree with this, why was the planning intensified over the years?
In India’s fourth five-year plan (1969–1974) the banks were nationalized, and in 1975 a national emergency was declared by the prime minister. The Emergency of 1975 reflected Hayek’s insight: in planning there might be commission, but due to the heterogeneity of committee members, central planning eventually leads to a single person’s making the decisions, leading to a totalitarian rule. Hayek’s book The Road to Serfdom mentions things about democratic collectivism that did later happen in India and some of which still happens today.
In 1991, the Liberalisation, Privatisation and Globalisation (LPG) model was finally introduced, and India took a capitalistic approach under Prime Minister P.V. Narasimha Rao. After the 1991 reform, India had more development and prosperity.
India adopted Western technologies but only when they were bound to do so. The Indian Planning Commission aimed for self-reliance in the third five-year plan, but the vision was always collective. Finally, the Planning Commission was dissolved, but it was replaced by the newly introduced NITI Aayog which believes in a bottom-up approach.
The bottom-up approach advocates decentralization and individualism, starting with the people rather than putting those already in power at the top of the pyramid. But NITI Aayog’s bottom-up approach is funding the state governments as they replace the Union Government’s old planning. Decentralization means power is transferred from the union to the local government (the word delegation is probably assumed to not exist). This is what is called “The End of Truth.”
The situation keeps getting worse as time goes on. India’s government itself doesn’t know how much is lost in depriving the nation of the brilliant minds that leave and take their talents elsewhere. Usually it is the culture that is blamed in political discussions, but what hindered India’s development is the intellectuals’ superiority. It is a misfortune that those intellectuals weren’t like Hayek, Mises, James M. Buchanan, and Thomas Sowell, who are less known in the social structure of India. The monopolized education system is such that it still keeps the collectivist values alive and has made people still consider socialism as a sign of morality.
On the positive side, the growing entrepreneurial spirit has encouraged self-employment. It was probably never about the incompetency of individuals in the skills but always about the system’s inclination toward the collective spirit.
Last Wednesday’s House Oversight Committee meeting provided some much-needed insight into how corporate personnel at Twitter (before Elon Musk’s takeover) had essentially turned the company into an adjunct of the federal government and its intelligence agencies.
Present to testify were high-ranking company personnel who oversaw Twitter during the covid panic and in the early days of the Hunter Biden laptop controversy. Specifically, they were former employees Yoel Roth, Anika Collier Navaroli, and Vijaya Gadde. All three had titles with words like “trust” and “safety” in them. There was also James Baker, a former Twitter attorney and a former FBI agent who promoted the now-disproven “Russiagate” theory. It was clear from their testimony that all four saw themselves as righteous arbiters of truth and that anyone who disagreed with their views was guilty of “misinformation.” Conveniently, this “misinformation” overwhelmingly tended to coincide with these employees’ personal political views.
In practice, however, these keepers of “trust” and “safety” did not function as disinterested fact-checkers, journalists, or stewards of any kind. They certainly weren’t entrepreneurs focused on delivering the highest value for their owners. Rather, they were acting as extensions of the US administrative state, the FBI, and the Democratic Party.
This became clear as they admitted to banning certain articles on their corporation’s platform and “shadow banning” countless stories. They did this either at the explicit urging of federal officials or in a way that just happened to support the regime’s preferred positions and policies. Moreover, it’s clear that these Twitter agents were happy to do this. (But explicit pressure from the regime would certainly not be anything new. It is now well documented that the Roosevelt administration heavily pressured the press and Hollywood to support US entry into World War II.)
Yet even if we accept the Biden administration’s shaky claims that there is no smoking gun tying the administration to Twitter policies, this only makes Twitter look worse. It would demonstrate that this private company is actively and voluntarily engaged in the business of using its position in the market to assist with pushing the regime’s efforts to silence dissent.
Corporate America’s Willing CooperationUnfortunately, Twitter is not alone in these sorts of activities. Throughout the covid panic, social media corporations including Alphabet (Google) and Meta (Facebook) routinely banned users and deleted posts that contradicted the “official” positions on a variety of policies. These three corporations worked tirelessly to promote those policies and “facts” favored by the federal Centers for Disease Control and Prevention (CDC) while hiding or explicitly denouncing as “misleading” or “misinformation” anything that dissented from the “official” position.
Thus, Twitter’s ban on the Hunter Biden laptop story was absolutely what we’ve come to expect from social media. Rather than carry information that corporate leaders didn’t agree with, they banned it or silenced it in a variety of ways. This occurred while the companies fraudulently claimed to be neutral “platforms,” although these companies are actually media companies that employ user-generated content to push the company’s preferred positions. These positions, of course, reliably coincided with what the FBI and other “intelligence” personnel—hardly a disinterested or unbiased bunch—claimed was the “correct” position.
All of this serves as an important reminder that private companies will often actively seek to serve the regimes they live under, and not just as a result of active regulation or “pressure” from regime officials. Contrary to the old myth that “big business” is a “persecuted minority,” the truth is that tech companies—and corporate America in general—have often shown they are enthusiastic supporters of the technocracy and its efforts to control and plan society.
Technolibertarianism, RIPTwenty years ago, one still commonly encountered the opinion among advocates of free markets that the advent of the internet would make it far more difficult for governments to control the flow of information—and even the flow of goods and services. This “technolibertarianism,” as it is sometimes called, placed a great amount of hope in the notion that companies like Google and Amazon would enable ordinary people to publish and distribute ideas and goods that legacy media and other major corporations had no interest in fostering.
These were the days when Google’s motto was “Don’t Be Evil” and many people actually believed that workers at Google were somehow tribunes of ordinary people. Such a notion sounds outlandish and naïve today, but many reasonable people believed this in the heady days of the early 2000s, when anyone could start his own website and there was a flowering of antiestablishment online publications that did depart from what could be had in the so-called mainstream economy.
Moreover, thanks to the fact there was no dominant aggregator of the content produced by these sites, online news and commentary functioned in a much more egalitarian environment in which there was no final say on which web sites offered the “correct” view. Internet users, if they wanted to move beyond the usual mainstream media outlets at all, largely needed to curate their own information sources. The result was a highly decentralized internet with countless information sources that functioned on a more or less equal footing.
Social Media Centralized Online InformationThen came social media. Early on, this too was heralded as a new development that would make it even easier for antiestablishment and off-beat ideas to gain some traction with large numbers of people. In the early days of social media, after all, it was possible to post a narrative-bashing article or photo that might go viral if readers found it interesting.
In those days, the masters of social media had not yet begun their widespread efforts to manage and channel content in ways that suited their ideological preferences.
But here we are in 2023, and it’s quite a different story. Social media companies have managed to replace old-school self-curation with controlled “news feeds.” This is more “convenient” for casual users, so rather than place their trust in dozens of independent news sources, readers rely on one or two social media companies to tell them what to read and what to believe.
The new “entrepreneurs” who were supposed to usher in a new era of techno-rebellion against the state took on a very different form. Today, the tech “elite” looks like those Twitter executives. They are militant conformists who collaborate with the regime. They demand compliance—both in thought and in deed—with their preferred technocrats, ranging from CDC bureaucrats to shadowy intelligence personnel.
The dreams of technolibertarianism thus proved to be founded on very little. It is true that if one goes looking for it, one can find all sorts of information online that exposes state lies and corruption. Yet the regime has also found ways to distract from all this by amplifying its own positions at the expense of dissenting views, which are labeled “misinformation.” Countless millions, too lazy to investigate anything beyond their Facebook feeds, consume what they are told to consume.
Why They Favor the RegimeBut why do the managers and officials of these companies seem to overwhelmingly side with the regime and its policies?
Much of the answer lies in the fact that these executives and other members of the elite have been educated to have the “correct” views. In recent years, it has become all the more apparent that voters with the most years of formal schooling are more likely to vote Democrat. If we assume that voting Democrat is a proxy for unquestioningly supporting the official government positions on most everything—not an outlandish position—then we can see the nexus between formal schooling and support for government mandates, lockdowns, and FBI meddling and spying.
This makes sense, of course. The faculty rolls at American colleges and universities are dominated by those who subscribe to a center-left ideology, tend to vote Democrat, and view the Washington technocracy favorably. People who spend a lot of time as students in these places tend to drift in the same direction. Unsurprisingly, the panel of former Twitter execs assembled for the House Oversight Committee meeting had numerous graduate degrees between them. It may be that some billionaires never finished college, but the reality is that these billionaires tend to hire people with graduate degrees to run their companies.
One might say it is all going to plan. As Julian Assange wrote back in 2013, the “new digital age” ushered in by the heroes of the technolibertarians is actually a blueprint for technocratic imperialism. It was founded largely on an ever-closer union between the US government and Silicon Valley.
This union was on full display at the House Oversight Committee meeting last week. Those who viewed the testimony were able to see what the masters of tech really believe about freedom and dissent. It turns out they think freedom of speech is dangerous. They think a tiny corporate elite is morally obligated to guide and control public discourse.
The Exploiter Class versus the Productive ClassThis is all a helpful reminder that the true divide in society is not between the “private sector” and the “government sector.” Since at least the days of mercantilism, the private sector has often been eager to assist the regime in imposing more controls on the public. Rather, the true divide is between the exploiter class and the productive class. The productive are the true entrepreneurs, the net taxpayers, and those who receive no special favors from the regime. The exploiter class is the FBI, the bureaucracy, the tax collectors, and the other enforcers of the state’s regulatory apparatus. But the exploiter class also includes those “private sector” entities that seek to help the exploiters carry out their mission. Clearly, this includes a sizable portion of today’s corporate class, especially in Silicon Valley.
One of the modern progressive buzzwords is "stakeholder capitalism," in which people with no direct connection to a firm somehow have a "stake" in what the firm does. It is an incoherent term.
Original Article: ""Stakeholder Capitalism" Is an Incoherent Term"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The recent revelations surrounding the covid-19 pandemic in the West are so shocking that it is necessary to first summarize them to keep on track. Secondly, it is important to try to understand why these political and health scandals are unlikely to have the political consequences hoped for by those who wish to see truth and justice triumph.
Covid-19 Political ScandalsIt is necessary to mention the ambiguous roles played in the origin of the covid pandemic and its subsequent policies by the World Economic Forum of Klaus Schwab, the World Health Organization, the foundation of Bill Gates, and the Centers for Disease Control and Prevention (CDC) of Anthony Fauci, among others. Recent books, for example by Robert F. Kennedy Jr. and Dr. Peter Breggin, strongly suggest a nefarious and self-interested globalist influence in this regard.
In Europe, the allocation of the huge $35 billion contract between the European Union and Pfizer for its covid vaccine is a simmering political scandal involving the personal relationships between the EU commission president, Ursula von der Leyen, and her husband, and Albert Bourla, the CEO of Pfizer. The conflicts of interest seem so obvious that a group of members of the European Parliament have publicly exposed them but so far with little impact. The lack of transparency surrounding these contracts is stunning.
Further, Pfizer has admitted to the EU Commission that no test was done to check whether the vaccine prevents, or at least reduces, contamination. However, the coercive vaccination policies were largely based precisely on the argument of “vaccinating oneself to protect others.”
The lockdown policies enacted across the world are just as scandalous since a recent study by the Johns Hopkins Institute concludes that these policies “have had little or no effect on mortality from COVID-19. . . . They have imposed enormous economic and social costs where they were adopted.” In addition, many studies and testimonies prove the severe impact of these restrictions of freedom on the physical and psychological health of the population.
Covid-19 Health ScandalsPerhaps the most shocking health scandal of this pandemic is the way in which covid-19 prevention methods have been concealed or undermined, starting with vitamin D and zinc. Dr. Pierre Kory and Dr. Tess Lawrie have exposed this and shown the preventive effects of ivermectin. In a study of a strictly controlled population of 88,012 Brazilian subjects, regular use of ivermectin as a preventive measure against covid-19 reduced the covid-19 mortality rate by 92 percent.
Further, Dr. McCullough in the US and Professor Raoult in France have shown the preventive effect that hydroxychloroquine has against covid-19, which even the prestigious Lancet journal scandalously tried to discredit.
The health scandal continues with the current excess mortality that mainstream media is hardly reporting. The British Heart Foundation indicated an excess mortality currently of 15 percent compared to the average in the British population (thus there were twenty-five thousand more deaths in the United Kingdom in 2022 than normal). Similar levels of excess mortality compared to the period 2016–19 are also noted in Europe (according to Eurostat). This excess mortality is mainly due to cardiovascular causes and is superior to the excess mortality produced by covid-19 itself. Also, there’s a strong correlation between the population vaccination rate and this excess mortality, which for the time being is unexplained.
In addition, a significant increase in myocarditis rates among vaccinated young men was measured globally, to the extent that the Florida Department of Health asked to stop the vaccination of men under forty years of age. The covid-19 vaccine seems to be the cause of this increase in myocarditis because a study of nearly two hundred thousand adults showed “post COVID-19 infection was not associated with either myocarditis . . . or pericarditis.”
A Policy of Emergency and Technocratic ProgressWhy do these revelations not become scandals with significant political consequences? Why do they not inspire widespread public condemnation among the majorities that directly suffer the consequences of these policies?
One reason is the lack of information about them, a lack for which the mainstream media is largely responsible. Indeed, control and manipulation of information are fundamental to the ruling elites, especially in a so-called democratic political system where the governed majorities have the illusion of making important decisions through its elected representatives. Edward Bernays, the father of modern propaganda, even suggested that this control is necessary: “The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society.”
However, it seems difficult to believe that this media control is sufficient to explain, especially in the internet age, why the vast majority of Western populations unflinchingly accept policies so clearly harmful and contrary to their interests. In a notable recent essay, political science professor Matthew Crawford convincingly described the current societal and cultural conditions that allowed this surprising subjugation of the majorities during the pandemic.
Through what Crawford calls a new “politics of emergency,” the “state of exception” has become almost the rule in Western “liberal democracies.” Thus, martial language is often invoked to pursue ordinary domestic politics, also in the case of the covid pandemic. Indeed, after the “wars” against poverty, drugs, and terrorism, it is hard to disagree with Crawford.
The author denounces the modern belief in “technocratic progressivism” in the West, which manages to justify to the citizens a “transfer of sovereignty from representative bodies to unelected agencies located in the executive branch of government.” The extraordinary power of the CDC in the US, and other unelected institutions around the world, are typical of this transfer of power.
This new authoritarianism has made it possible to, again in Crawford’s words, “remove agency from skilled practitioners on the grounds of incompetence, and devolve power upward toward a separate layer of information managers that grows ever thicker. It also removes responsibility from identifiable human beings who can be held to account for their decisions.”
The principle of equality before the law is now seriously violated by this “system of privileges for protected classes,” as well as by the introduction of mandatory health passes and vaccination obligations.
Western populations are thus witnessing the “slow-motion desertion of liberal principles of government” of John Locke. These principles are being replaced by a Hobbesian security ideology using a “priestly form of authority.” This authority requires “a credulous, fearful person,” who, when they “believe in science,” are then considered by the authorities to have a good “perception of the risks of covid.”
This is reminiscent of the totalitarian regimes of the twentieth century for which the goal was making a homo novus with morally improved behavior—in this current case, it is one who adopts barrier gestures, wears masks, cares for the carbon footprint, and is “woke.” Such fake responsibilities are likely to produce an artificial sense of guilt in the population, which “might explain why our embrace of illiberal politics has met with so little resistance.”
In sum, Western societies are undergoing “an ever-deeper penetration of society by bureaucratic authority in both the public and private sectors.” Crawford then concludes that “the self-image of the liberal West—as based on the rule of law and representative government—is in need of revision.”
A Necessary and Inevitable Libertarian ReactionLibertarians, ever distrustful of statism in any political system, were less surprised than Crawford seemed to be by this development. They know that the image of the West as an unshakable bastion of freedom and democracy has always been exaggerated at best, untrue at worst. Yet, this does not prevent libertarians from being the first to be concerned about the frightening but very real decline in freedom described by Crawford.
There is a glimmer of hope, however, when a nonlibertarian intellectual like Crawford makes quite a libertarian analysis of this situation. This is not surprising in a sense, since the intellectual framework of libertarianism is ideal to scrutinize and criticize governments. Crawford even comes close to the libertarian conclusion that it is the growth of the national and supranational states that gives rise to the political abuses and health crimes described above.
This new technocratic authoritarianism in the West could thus paradoxically help to spread libertarian ideas so they once again become a source of inspiration for Western societies drained of freedom and searching for an explanation to their current political and cultural predicaments. It is therefore important that these political and health scandals erupt into the public light.
Fifty years ago, a remarkable libertarian, personal friend, witty Georgite, then editor of Human Events, came out with a landmark book, The Income Tax: Root of All Evil (text and PDF). Its author was Frank Chodorov who saw raging about him—what’s new?—interventionism, welfarism, political mischief and corruption galore, an ongoing mangling of the limited government model of the Founding Fathers. Hence the "all evil" in his subtitle, which he described to me privately as "the rape of society."
But what was new, then and now, goes beyond many a neocon’s plea today for a renewed Taxpayer’s Bill of Rights or a flat-rate income tax. Instead, Chodorov called for radical surgery: outright repeal of the Sixteenth (Income Tax) Amendment of 1913. Then Uncle Sam was suddenly armed with a tax supercannon, one financing the federal takeover of America, one sinking states' rights mainly via "grants-in-aid" (read payola) to states and localities (further sunk by the Seventeenth Amendment, also of 1913—this amendment requiring popular election of U.S. senators formerly appointed by the state legislatures).
The Chodorov call for repeal of the Sixteenth Amendment was seconded by J. Bracken Lee, governor of Utah, who introduced the book and noted how the states were losing "more and more of their autonomy," how the federal income tax empowered Washington "to bribe the state governments, as well as its citizens, into submission to its will." Submission then and now, if now much more so.
For here in fiscal 2004, which began last October 1st, that bribery comes to a pretty penny. Commerce Department data show that transfer payments to citizens (in such forms as Social Security and Medicare) in the 3rd quarter of calendar 2003 came to $1000.4 billion, annualized, while transfers via "grants-in-aid" to states and localities amounted to $341.6 billion. Add to those totals, $51.9 billion for subsidies to farmers and others and you find that Uncle Sam is spending more than three-fifths of the federal budget, then at $2.2 trillion, in welfare "transfers"—or in "legal plunder," as Frederic Bastiat more honestly put it in his book, The Law, in 1848.
So does this Everest of taxpayer money talk, if not shout, to 200 million adult Americans, many of them bunched into special interests, as Uncle Sam cleverly seizes their money with one hand and then bribes them with it in the other, as he saps further and further the incentives to work and produce, save and invest, while politically sapping further and further the very republic that Founding Father Benjamin Franklin cited when asked outside Independence Hall in 1787 what kind of government the Founders were providing. His famous hedged answer: "A republic, if you can keep it."
How presient was Franklin with his iffy hedge. As Chodorov wrote: "Thus, the immunities of property, body, and mind have been undermined by the Sixteenth Amendment. The freedoms won by Americans in 1776 were lost in the revolution of 1913." For originally, as Chodorov reminds us, the Founders, smelling a rat, had wisely foreclosed an income tax in the Constitution where they stipulated in Article 1, Section 9:
"No capitation, or other Direct Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be undertaken."
To be sure, the Lincoln regime most arbitrarily declared its Civil War income tax to be but an "excise" tax. But that pretense is no longer necessary in view of the sweeping language of the Sixteenth Amendment in force today:
"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration."
Sweeping indeed. Chodorov held the absolute right of property, the very heart of a free society, was violated, that income and inheritance taxes imply loss of the integrity if not the very denial of private property, and so they differ radically in impact from all other taxes. The ability-to-pay doctrine, for example, breaks with the equality-before-the-law principle; it spells class warfare between the so-called "rich" and "poor." Yet, as Ludwig Mises notes in Human Action, the rich capitalist or entrepreneur is broadly the poor's best friend as he boosts capital formation.
No wonder, noted Chodorov, that Marx and Engels in their Communist Manifesto of 1848 urged on capitalistic countries like America "despotic inroads on the rights of property." So the Manifesto pushed a heavily progressive income tax as one of ten key ways to undermine the market order and advance the march toward socialism.
After all, capitalism swings almost entirely on the sanctity of private property rights so that capital creation and a market system of free entrepreneurship and market supply and demand can work its wonders of economic growth and higher living standards for society. On the question of human rights over property rights, Chodorov sagely held it was a false dichotomy, that at base human rights are private property rights, led by an individual’s innate human right to self-ownership. At last, such Chodorov wisdom is available again online in both text and PDF.
A monster tax and spending state? And how. Sheldon Richman, in his successor volume to Chodorov, eyes the IRS and you the taxpayer closely and asks: Who’s the master? Who’s the servant? To be sure, the taxpayer is under the protection of the Fourth and Fifth Amendments prohibiting unreasonable searches and seizures, and forced self-incrimination. But IRS Form 1040, assorted schedules, and submitted supporting evidence, such as cancelled checks and monthly credit card company lists of charges, has its limitations: The IRS, backed by the courts, is empowered to demand further corroboration and documentation. As it does, especially via a personal one-on-one audit. So, as Mr. Richman reminds us, the IRS arsenal of weapons is "awesome."
Chief Justice John Marshall thus had quite a point when he held that "the power to tax involves the power to destroy" in McCulloch v. Maryland in 1819. Vast political and economic destruction has ensued since 1913, as Frank Chodorov and Sheldon Richman attest. Both come up with a lasting—and perhaps the only—fiscal solution: Repeal the Sixteenth Amendment.
This article was originally published April, 2004.
For nearly three decades, the Japanese economy has slowly imploded under low interest rates and heavy government debt. It may soon be time to pay the piper.
Original Article: "Is the Japanese Low Inflation–Low Interest Rate Model at an End?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In contemporary America, the success of immigrants is celebrated as a source of American vitality. Indeed, immigration is frequently lauded by American elites as a tool to raise economic growth and living standards. Many marvel at the success of Indian and Nigerian Americans, who are superbly educated. Some immigrants enhance American prosperity, but critics argue that mass immigration has an adverse impact on American institutions.
However, economists in a slew of new studies are arguing that immigration fails to degrade economic institutions in America. In a 2020 paper, Meg Tuszynski and Dean Stansel examined the proposition that immigrants transfer bad institutions and policies from their country of origin into the host country and concluded that immigration is not associated with a decline in economic institutions in the United States. Their analysis shows that immigrants are likely to relocate to countries with better institutions than their home country.
The primary message of Tuszynski and Stansel is that high-quality institutions tame the corrosive effects of immigration from countries with defective institutions. Invariably, good governance in richer countries incentivizes immigrants to become more productive and law abiding. More recent research has shown that poor countries with higher immigrant concentrations and cultural polarization exhibit lower levels of institutional quality. However, the impact on countries with robust institutions is negligible. Evidently, better governance mitigates the negative effects of immigration.
A further companion to these studies is a 2022 paper by Alex Nowrasteh and coauthors. In this study, Nowrasteh and his coauthors test the thesis that immigrants undermine the dynamism of economic institutions in the United States. Instead of agreeing with the theory, they contend that institutions in the home countries of immigrants have been improving, and the quality of American institutions would be higher if the economy was more responsive to changes in immigration. A recurring leitmotif in these studies is that the strength of American institutions orients immigrants to become more industrious citizens.
Therefore, if American institutions were to weaken immigration, it would have a deleterious effect on American society. On average, immigrants do assimilate in America, but recently there has been a campaign to smear American culture as racist and hostile to the interests of non-whites. Moreover, cultural attributes that promote economic success such as punctuality, scientific thinking, and rationality are perceived as instruments of white supremacy by cultural activists.
Clearly, some cultural beliefs hamper development. Since it’s becoming politically untenable to encourage assimilation, how can we say that all immigrants enrich America? Scholars have known for decades that diversity is negatively associated with trust, and even the Cato Institute admits that immigration curbs the growth in state-level taxation because the amplification of racial and ethnic diversity by immigrants reduces social solidarity and discourages politicians and voters from supporting larger budgets that serve immigrants.
Immigration has failed to undercut America’s prosperity due to the strength of its institutions. Without immigrant assimilation, these institutions will surely get weaker because immigrants migrate with their cultures. The studies explored earlier show that immigrants have a negligible effect on the quality of economic institutions, but this effect is minute only because American institutions are durable. For example, research indicates that groups from countries with higher economic development and with cultural traits that favor cooperation have a positive impact on the county-level gross domestic product (GDP) per worker in America.
However, many immigrants will not come from such countries. If American institutions implode due to the failures of assimilation, it will become unlikely for such people to thrive in America. At some point, immigration activists should concede that not all people contribute positively to America. As such, America must not court all immigrants. Activists are fond of saying that immigrants are entrepreneurial, but most studies specifically examine the ingenuity of European immigrants.
Likewise, Nigerians are star performers in America, although some Nigerians in their home country engage in unscrupulous activities. Similarly, Indians who come to the United States tend to vote for progressive politicians, yet India itself has a reputation for corruption, which progressives supposedly stand against. So, despite the success of some Indian Americans and Nigerian Americans, there may also be rogue actors that come here.
Companies, civic groups, and churches are free to sponsor immigration schemes to the United States, and people who wish to reside in America must do so legally by proving that they will be productive citizens. However, advocates should desist from acting like all immigrants are desirable because nothing could be further from the truth. Immigration has benefits, but not all immigrants contribute to our economy and society equally.
The government can't return the SS money it stole in the past. It's impossible. That money's gone. Taxing today's workers to "pay back" pensioners is just creating a new group of tax victims.
Original Article: "Social Security Taxes Aren't "Your" Money"
This Audio Mises Wire is generously sponsored by Christopher Condon.
During Tuesday’s State of the Union address, President Joe Biden uncorked a series of howlers that eventually spurred heckling from Republican members of Congress. Pundits raced to condemn the backlash to Biden “You saw real white trash on display,” declared James Carville on MSNBC. Carville, who served as President Bill Clinton’s hit man, claimed he had a “the equivalent of a Ph.D. in white trashology.” When Paula Jones charged Clinton with sexual assault in 1994, Carville responded, “You drag $100 bills through trailer parks—there's no tellin' what you'll find.”
The uproar over the State of the Union heckling illustrates how DC standards of decorum in DC can subvert any effort to put a leash on politicians.
Pundits were far more upset about the Republican pushback during the speech than about the eight-foot-high black metal fence that was speedily erected around the Capitol grounds before Biden’s visit to the Hill. It was the third year in a row Congress was barricaded for a Biden appearance. When the fence (initially installed after the January 6, 2021 Capitol clash) was reerected last year, Rep. Eleanor Holmes Norton (D-DC), complained last year that the fencing “makes the United States look like a totalitarian regime trying to keep its own people out.” The American Civil Liberties Union declared that Congress hiding behind a fence projects “the kind of message that heads of autocratic regimes send by cloistering themselves away from their populaces in armored fortresses.” But Washington’s Guardians of Decorum had no trouble with “window dressing” that prevents common folk from approaching the “Temple of Democracy” when sacred rites are occurring.
State of the Union addresses put presidents on a pedestal and good citizens are supposed to be in awe—or at least defer to the commander in chief. For one night, citizens are obliged to swallow his promises to solve all the nation’s problems. But this prerogative provides an entitlement to delude the American people. What is good for Washington is not good for democracy. Deference has produced disaster after disaster.
In his 1996 State of the Union address, President Bill Clinton announced "the era of Big Government is over." In his State of the Union the following year (after he was reelected), Clinton opened the floodgates, calling for a "national crusade for education standards," creating a “citizen army” of one million volunteer tutors, urging federal subsidies for private health insurance, criminalizing any parent who crossed a state line allegedly to avoid paying child support, advocating a constitutional amendment for "victims' rights,” and ramping up the war on gangs and the war on drugs—as well as expanding NATO.
In his 2002 State of the Union address, President George W. Bush revealed that Iraq, Iran, and North Korea were an “axis of evil.” Bush put the nation on a path to a ruinous war from which the Middle East has still not recovered.
In his 2016 State of the Union address, President Barack Obama notified Congress that
"there are outdated regulations that need to be changed.” He had been president for seven years at that point but he apparently considered all his prior time in the White House to be a “mulligan”—a golf swing that missed and can be politely disregarded.
In his 2019 State of the Union, President Donald Trump waved a rhetorical magic wand to proclaim that Americans “stay free” from “government coercion, domination, and control.” (Plenty of folks were riled up that I criticized Trump’s hokum in a Mises piece.)
Biden uncorked plenty of howlers in his speech on Tuesday. He also donned the mantle of therapist in chief—a role pioneered by President Bill “Feeling Your Pain” Clinton. Biden declared that Americans had lost their “pride” and “sense of self-worth.” But thanks to Biden’s endless decrees and interventions, people could respect themselves again
In his State of the Union address last year, Biden declared, "When dictators do not pay a price for their aggression, they keep moving." That's why the Founders enacted the Bill of Rights to put a leash on Washington. Law professor Jonathan Turley observed, “President Biden has arguably the worst record of losses in [federal court] the first two years of any recent presidential administration.” And his list of planned power grabs in his SOTU signals he will “keep moving.”
The standards for DC decorum in discussing foreign policy practically guarantee that presidential lies will receive a pass, regardless of how many people perish as a result of their perfidy. For instance, the establishment media was shamelessly craven when Bush conned America into the Iraq war. CNN chief Walter Isaacson explained: “Especially right after 9/11. . . . There was a real sense that you don't get that critical of a government that's leading us in war time.” Jim Lehrer, the host of government-subsidized PBS’s Newshour, justified kowtowing in 2004: “It would have been difficult to have had debates [about invading Iraq] . . . you'd have had to have gone against the grain.” When journalists dug up the truth, editors sometimes ignored or buried their reports. Washington Post Pentagon correspondent Thomas Ricks complained that, in the lead-up to the US invasion of Iraq, “There was an attitude among editors: ‘Look, we’re going to war, why do we even worry about all this contrary stuff?’” New York Times White House correspondent Elisabeth Bumiller explained the press’s conduct at a Bush press conference just before he invaded Iraq: “I think we were very deferential because . . . nobody wanted to get into an argument with the president at this very serious time.” NBC news anchor Katie Couric stated that there was pressure from “the corporations who own where we work and from the government itself to really squash any kind of dissent or any kind of questioning” of the Iraq War.
Despite the Iraq debacle, the Washington establishment remained more concerned about offenses against decorum than about human rights atrocities. In December 2014, the Senate Intelligence Committee finally released a six-hundred-page summary of its report on the CIA torture regime. CIA abuses included death resulting from hypothermia, rape-like rectal feeding of detainees, compelling detainees to stand long periods on broken legs, and dozens of cases where innocent people were pointlessly brutalized. From the start, the program was protected by phalanxes of lying federal officials. A New Yorker commentary noted that “comparisons to Nazi and Communist tortures” were treated as “being some kind of wild violation of decorum.” President Obama held a press conference just after the report came out, and just before leaving for a Hawaii vacation. Instead of asking him about the torture report and the White House role in seeking to suppress the evidence, White House reporters hollered out: “What is your New Year resolution?”
Actually, the most dangerous breach of decorum in American democracy nowadays is pervasive federal secrecy. Is President Biden recklessly dragging the US into war with Russia—or Iran—or China? Average Americans have no way of knowing because the feds are creating trillions of pages of new secrets each year, shrouding almost all the most controversial foreign policy decisions. Americans are not even entitled to know whether their government blew up the Nord Stream pipeline from Russia to Europe. Instead of self-government, the Washington elite offer a parody of democracy in which citizens are liable for any disasters their rulers secretly inflict on the world.
But back to the State of the Union. There is an easy fix to prevent future breaches of decorum by testy members of the opposition party. The president should begin his speech by taking the same oath to testify honestly that is routinely required of witnesses at congressional hearings. If a president makes a false statement in the State of the Union, he could then be prosecuted and face to up to five year in prison. The provision could be crafted to permit citizen lawsuits that the Justice Department could not stifle to shield presidential deceits.
Personally, I would find that much more satisfying than hollering at the president.
Mark Thornton takes a look back at US stock markets, the national debt, and Fed policy (ZIRP, money supply, and its balance sheet).
"After the Boom Must Come the Bust" (Radio Rothbard): Mises.org/MI_06_A
Austrian Economic Research Conference: AustrianEconomics.org
Be sure to follow Minor Issues at Mises.org/MinorIssues.
China has created a crackdown cycle that is hurting the entrepreneurial spirit.
Original Article: "The Chinese Communist Party Is Creating a Crackdown Economy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While President Joe Biden's White House continues to give happy talk about the economy, some major economic storm clouds are brewing. The future does not look good.
Original Article: "You Think the Global Economy Is Brightening? Beware: The Big Hit Is Yet to Come"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The fact the money supply is actually shrinking serves as just one more indicator that the so-called soft landing promised by the Federal Reserve is unlikely to be a reality.
Original Article: "More Recession Signs: Money Supply Growth Went Negative Again in December"
This Audio Mises Wire is generously sponsored by Christopher Condon.
[This article is the Introduction to Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities.]
The world is now, and has always been, politically decentralized. At no time in history has all of humankind been ruled by a single political regime. Although the Roman Empire claimed to be universal, the Romans never even conquered all of Europe, let alone the whole inhabited world. Roman power never extended to India, China, Sub-Saharan Africa, or the Americas. In other words, political power was never wielded from any single place by any single state.
Today, we see decentralization at work in the fact that there are more than two hundred separate sovereign states in the world. Nearly all of them enjoy a sizable amount of political power over their own citizens: imposing taxes, regulating daily life, and exercising police powers. Many of these states command enough military power to compete with other states and exercise true de facto independence even in the international sphere.
In other words, political power in the world is spread across dozens of independent political regimes and national power centers, most of which jealously guard their own powers and prerogatives from other regimes—and from domestic challengers to each state’s power.
The decentralization doesn’t end there. States themselves are often internally politically decentralized, most obviously in states that employ a federal political structure, such as Switzerland or the United States. Historically, we also find enormous variation in these arrangements. The Holy Roman Empire, for instance, contained more than 1,800 nearly-sovereign subdivisions within its borders during the eighteenth century. In Austria-Hungary in the nineteenth century, political power was divided among a number of internal ethnic, religious, and linguistic groups. Th e Dutch Republic of the seventeenth century was a confederation of seven self-governing provinces. It was also the most prosperous state of its time.
In these cases of internal decentralization, political power is divided among numerous jurisdictions and sub-national units. Some of these sub-units enjoy a high degree of autonomy. Some do not. But in these cases, political powers are never entirely reserved only to a single national power center.
Thus, we find that the norm in human affairs and in human history is a political system that is globally decentralized. It is the norm because most people recognize on an instinctual level that it is impractical—and likely impossible—to fashion a single global polity and regime that can direct all political institutions from a single political center. History suggests that this cannot be done without provoking an endless series of rebellions attempting to implement more local autonomy. Were all of Asia ruled from Tokyo, for example, this regime would be incessantly consumed with the challenges of imposing the regime’s will on a culturally and linguistically diverse population spread across millions of square miles. Thus, throughout, human history, the number and size of states in the world frequently changes adjusting to the ability of local interests to achieve autonomy from centers of power, and often to reflect cultural differences from place to place. Th is reality has not disappeared in our own time, and in many ways it has even accelerated. In fact, since the end of the Second World War, the number of independent states in the world has nearly tripled.1
Secession as a Type of DecentralizationThis breaking up of human societies into a number of independent polities and countries is a type of decentralization, and secession is a key tool in this process.
Sometimes states get bigger through state-building processes. But sometimes the opposite happens. When states are broken down into a larger number of relatively smaller states, this is accomplished through secession—the act through which a portion of a state breaks off to create a new state. It’s easy to fi nd examples. When the American revolutionaries successfully broke away from the British Empire in the eighteenth century, new states were created, and the borders of the empire were profoundly changed. The Dutch Republic was formed following its secession from the Spanish Empire.
Similarly, as the European colonial powers abandoned—or were forced to abandon—their empires in the nineteenth and twentieth century, new independent states were created. Borders changed and maps were re-drawn.
The same thing happened when the Soviet Union collapsed in the late twentieth century.
So, while the political power in the world is already decentralized to a degree, it could still be decentralized to a far greater extent. Th e question of further decentralizing political power remains very much a timely topic and an ongoing question.
In 2016, for example, a majority of British voters elected to leave the European Union in favor of maintaining a fully independent and separate British state. In other words, British voters elected to reverse the political centralization that had been growing in the EU’s European Commission in Brussels. Two years earlier, in 2014,
Scottish voters went to the polls to vote yes or no on this question: “Should Scotland be an independent country?” At the time, a majority of Scottish voters voted “no” to the proposed separation. The matter is not resolved, however, and the question of Scottish independence continues to be debated both in Scotland and throughout the United Kingdom. Catalonian secessionists in Spain continue to press for a split from Madrid as well.
Political Centralization and the Question of Human RightsGiven the ubiquitous nature of decentralization and secession throughout history, we are faced with an important question: what is the ideal size of a state, and how much of a state’s power should reside in the central government? Is it a good thing when a state is broken up into smaller autonomous provinces and regions? Should states be broken up into independent smaller states?
In order to answer these questions, we must first ask by what standard we can judge regimes and political institutions to be “good” or “bad.”
For those of us who are adherents of the ideology known as liberalism—also known as “classical” liberalism or libertarianism—the preservation and protection of universal human rights is of exceptional importance, and serves as a central standard by which to judge a regime. At the core of these rights—also known as “natural rights”—are basic freedoms such as the freedom to own private property, freedom of speech, and the freedom to practice one’s religion. Only slightly less important in evaluating a regime is the question of ensuring a rising standard of living and preserving conditions for human flourishing.
Why Decentralization Is a Good ThingThe purpose of this book is to illustrate in a variety of ways that decentralization is a good thing and is generally beneficial for the preservation of human rights and economic prosperity. Moreover, it is my position there is not nearly enough decentralization. All too often policymakers accept there are at least some benefits to decentralization or its cognates such as “subsidiarity” and “federalism.” Yet in countless cases, professed respect for principles of decentralization amounts to little more than a token nod in favor of localism. Ultimately, centralized state institutions in these cases end up with the lion’s share of political power.2
This isn’t to say that factors other than the degree of centralization of power are unimportant to matters of human rights and natural rights. For instance, ideology and tradition both play important roles. A population that is ideologically and traditionally inclined toward the protection of universal rights is more likely to live under regimes that respect these rights. This is true regardless of size. All else being equal, however, we will find that more political decentralization leads to more responsive, less abusive political institutions.
The benefits of political decentralization can be primarily found in three areas.
One: Smaller States Allow for More Choice and More Opportunities for Exit The first benefit of decentralization is that smaller states and decentralized states allow residents to make more choices as to what sort of regime they wish to live under in order to better meet their needs and protect their rights.
Within the United States, for example, businesses and private citizens move from state to state in order to avoid taxes, regulations, or to otherwise change the nature of the government under which they live.
Th is occurs at the international level as well, as can be seen in the phenomenon of migrant workers, refugees, asylum-seekers, and businesses all seeking to improve their situations.
Polities that are physically smaller allow for easier relocation and more choice. For example, were the United States composed of just two or three member states, residents would have far fewer choices of governments under which to live. As it is, residents have dozens of choices, at least in terms of policy areas that are not dominated by the federal government.
Similarly, were Europe or South America composed of just one or two sovereign states, residents would have to travel much farther to escape the regimes under which they live. They would also have fewer choices overall.
A large number of independent polities from which to choose also tends to encourage competition among states. In his essay “What We Mean by Decentralization,” Lew Rockwell notes:
under decentralization, jurisdictions must compete for residents and capital, which provides some incentive for greater degrees of freedom, if only because local despotism is neither popular nor productive. If despots insist on ruling anyway, people and capital will find a way to leave.3
Smaller states are less able to monopolize and control the movement, production, and activities of residents when a number of other choices beckon from across the border.
We can put this another way: In the private sector, an industry with a large number of firms offers more choices, and the individual firms themselves possess less monopoly power. The same is true in the “marketplace” of states. More states mean more variety, more choice, and less monopoly power enjoyed by any single state.
Two: Protecting Minority Rights When Democracy FailsFor centuries, political reformers have sought ways to shape political institutions in ways designed to protect minority groups from being overwhelmed by the majority.
Even in non-democratic political institutions, majority groups tend to exercise far more power than minority groups. This can be magnified in democratic regimes where elections often only serve to solidify policies favored by the majority. Many strategies have been employed to address this problem. Examples include an independent judiciary, and a variety of “checks and balances” designed to allow minority groups a chance to shape policy.
These efforts can often fail if a minority group is unable to win influence in at least some key political institutions. When this happens, minority groups may find themselves as a part of a permanent minority and that means the minority group is locked out of power indefinitely.
When that happens, the only solutions that can be found are in acts outside the realm of institutional political activism. Such acts include boycotts, passive resistance, and armed rebellion. This, of course, can lead to civil war, and it’s why secession and decentralization must be on the table as a means of providing minority groups with a chance at self-determination and self-government.
Three: Limiting the Power of Aggressive StatesA third benefit of decentralization and secession is that they tend to limit the power of regimes and states overall. When regimes seek to increase their own power through conquest, confiscation of property, or other outrages, their potential for damage is limited by the size and scope of the state itself.
According to Rockwell, “tyranny on the local level minimizes damage to the same extent that macro-tyranny maximizes it.” That is, “If Hitler had ruled only Berlin, [and] Stalin only Moscow” the history of the world may have been considerably less bloody.4 Large states are playgrounds for despots and dictators, while small states provide far fewer opportunities for ambitious politicians to spread their mayhem beyond their local communities.
On the whole, small and decentralized states are less likely to abuse their power, destroy their economies, and disregard basic human rights. Large, centralized states, on the other hand, are more easily able to abuse their residents and deny their rights, leading also to more dysfunctional economies and diminished economic opportunity.
The end goal of all this secession and decentralization is—to use a phrase employed by the libertarian economist Murray Rothbard— “universal rights, locally enforced.” As Rockwell explains, these two concepts—universalism and localism—are frequently in tension. But, he concludes:
if you give up one of the two principles [i.e., universal rights and local control] you risk giving up liberty. Both are important. Neither should prevail over the other. A local government that violates rights is intolerable. A central government that rules in the name of universal rights is similarly intolerable.5
States tend to pursue certain goals regardless of size. Regimes want to protect their own prerogatives and ensure the staying power of the state itself. Thus, both large and small states are willing to abuse their powers in pursuit of these goals—if they can get away with it. Small and decentralized states, however, face more limitations when it comes to expanding power and limiting the freedoms of taxpayers and residents. It is these de facto limitations on political power that lead to the benefits of decentralization that I will discuss throughout the book.
[This article is the Introduction to Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities.]
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- Alberto Alesina and Enrico Spolaore, “What’s Happening to the Number and Size of Nations?” E-International Relations, November 9, 2015, https:// www.e-ir.info/2015/11/09/whats-happening-to-the-number-and-size-of-nations/.
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- Subsidiarity is a term often used in Catholic and European contexts which is largely synonymous in its usage with “local control,” “federalism,” or “local sovereignty” in the American context. I will not use the term extensively here, however, because the term is itself imprecise and its meaning is contested among scholars who study subsidiarity. That is, it is no more precise than similar terms like “decentralization” or “localism.” Policy prescriptions for a political system adhering to principles of subsidiarity can vary wildly because a commonly accepted defi nition of subsidiarity is simply that powers should be allocated to the individual or institution that can best or most appropriately exercise them. This is sometimes interpreted to favor giving more power to lower levels of government hierarchy, but not in many cases. Standards for determining what constitutes the best or most appropriate exercise of this power is quite malleable and even those claiming to desire subsidiarity often support further centralization of power because the central authority is in many cases deemed to be the “appropriate” or “best” institution to exercise the power in question. Other standards used to determine whether subsidiarity should favor local control or central control include economic effi ciency and justice, but opponents of decentralization need only insist that the central government can deliver more efficiency or more just outcomes. Thus, advocating for subsidiarity (or decentralization) broadly understood, doesn’t necessarily advance the position that more decentralization is better. The goal of this book, rather, is to illustrate why greater decentralization is desirable—a position that does not necessarily follow from favoring subsidiarity or decentralization in general terms. For more on why subsidiarity is regarded as “vague” and “slippery” see Markus Jachtenfuchs and Nico Krisch, “Subsidiarity in Global Governance,” Law and Contemporary Problems 79, no. 2 (2016): 5; Andreas Føllesdal, Competing Conceptions of Subsidiarity,” Nomos 55 (2014): 214–30; Michelle Evans, “The Principles of Subsidiarity as a Social and Political Principle in Catholic Social Teaching,” Solidarity: The Journal of Catholic Social Thought and Secular Ethics 3, no. 1 (November 2013): 45–46
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- Lewellyn H. Rockwell, Jr., “What We Mean by Decentralization,” Mises Daily, July 21, 2005, https://mises.org/library/what-we-mean-decentralization.
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- Ibid.
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- Ibid.
Mark Thornton looks at how much money Americans will spend on the Super Bowl this year and discusses the accuracy of the Super Bowl Stock Market Indicator.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Now that a few days have passed and the hysteria has come down slightly, perhaps a few sane thoughts might be added to what has otherwise been a microcosm of everything that is wrong with America’s warmongering media and political class.
As everyone is by now well aware, a data-gathering balloon of Chinese origin passed over the continental United States last week.
According to the Pentagon, it is not the first. They say China has launched some two dozen over the past five years, several of which passed over either Florida, Texas, or Guam during that time. Far from being cause for alarm, however, the Pentagon initially reported that the balloons’ “signals collection ability isn’t radically different from other systems available to the Chinese,” and did not pose “a significantly enhanced threat.”
In other words, though this particular balloon passed over several sensitive military installations in the central United States, the Chinese government likely did not learn anything of interest—if that was even their intention.
Beijing claimed it was an off-course weather balloon with “limited” maneuverability. With the incident described as an “accident” and a case of “force majeure,” the stage seemed set for a simple apology.
That was last Tuesday.
By Wednesday, with the fake China threat live on every channel, it was clear that deescalating the situation, as when a US spy plane collided with an intercepting Chinese jet over Chinese airspace in 2001, resulting in the death of the Chinese pilot, wasn’t on the table.
The media talked of little else the rest of the week, while Republicans, ignoring that the Pentagon had declined to shoot the balloon down over Idaho for fear of damage caused by falling debris, took to the lowest fear-mongering imaginable. Marco Rubio, Kevin McCarthy, J.D. Vance, Marjorie Taylor Greene, Donald Trump, Ron DeSantis—nobody could get out quickly or emphatically enough how much of a threat China was and how weak Joe Biden was for not acting completely belligerent.
About what might have been a surveillance balloon, and which in any case had no extraordinary capabilities and posed no threat.
But, of course, Biden caved—turning what could have been a minor incident into an escalating diplomatic spat at a moment when Sino-American relations have scarcely been worse.
Because Washington and Beijing do so much overhead surveillance of one another, this incident, intentional or not, could have gone on to form a platform for dialogue ahead of Antony Blinken’s (now cancelled) visit. Yet rather than taking the opportunity to discuss the important norms of overhead surveillance in the wake of the Open Skies Treaty, which Trump’s administration foolishly ripped up, the Biden administration caved to domestic political pressure, cancelling what would have been the first ever face-to-face meeting between Xi Jinping and a cabinet-level member of the Biden administration.
Biden’s final decision to shoot down the admittedly harmless balloon (leaving China to observe goings-on in the United States from their many equally effective low-orbiting surveillance satellites), squandered any potential opportunity for diplomatic settlement.
Indeed, after a muted week, Beijing responded to the final downing of the balloon by a missile off the Carolina coast by threatening to act accordingly under similar circumstances.
Obviously, there are a lot of questions, but even just considering what we know, it seems clear the reason-distorting impact of the fake China threat caused Washington to ignore better options in favor of one that would satiate a riled-up domestic audience.
Making matters worse, the Biden administration has attempted to spin the capture of what remained of the balloon as a major intelligence coup, while the US House followed up with a rare unanimous resolution condemning the “brazen violation” of US sovereignty. Never mind that Beijing maintains the balloon was a weather balloon thrown off course and that Xi has gestured at firing the head of China’s weather service. The Pentagon, too, changed its tune. As reported in the Washington Post, the balloon has transformed into “part of [a] vast aerial surveillance program” overnight.
These days, with every general or admiral with any stars taking a turn on Capitol Hill to issue breathless warnings about impending war with China over Taiwan, one is only surprised the Pentagon acted so reservedly earlier in the week. A libertarian-realist reading of the situation is that the Pentagon was quite content to see the admittedly harmless airship float in clear view over the country for a week in order to stoke the predictable mindless media frenzy.
Setting aside the question of why trillions of dollars in defense spending to protect against (much faster moving) incoming flying objects was inadequate to safely bring down a slow-moving hot air balloon over some of the least densely populated stretches of the industrialized world, would Beijing have welcomed the opportunity to close the matter with a formal apology had the Biden administration publicly ignored the hawks?
While the Wall Street Journal did (briefly) mention that the incident may have been a response to recent so-called freedom of navigation acts by the US Navy and its allies through disputed waters claimed by China, and indeed Xi has been under pressure from China’s own hawks over what they view as his timidity in response to high-level US delegations’ repeated visits to Taiwan, Xi has been recently preoccupied with trying to reassure and woo Western investors and businesses. With supply chain issues and extended arbitrary lockdowns having already prompted many multinational corporations to shift away from China, rapidly deteriorating relations between Washington and Beijing are prompting more moves.
Considering Xi’s need to address these concerns, to say nothing of managing his myriad domestic difficulties, it is hard to imagine, particularly given what has been stated publicly, that he purposefully ruined his own sit-down with Blinken. Again, it is possible that he did, or that rogue hawks within the Chinese establishment manufactured the incident in order to sabotage the meeting to prevent any potential détente. The observable facts just seem to mitigate the possibility.
We’ll never know. Beyond any potential retaliation on the part of Beijing for Washington’s response, what is most alarming about the situation is the ease with which such a level of public hysteria seized all levels of the corporate media and political elite.
Even worse to consider, is that the climate Washington wants?
Is it supposed to foster a thought climate more permissive of a military response to any potential move by Beijing against Taiwan?
The time to speak out against any potential changes to the status quo policy vis-à-vis Taiwan is now. Already the one-China policy has been seriously eroded without any public debate, and much more serious changes were nearly smuggled into one of the annual “must-pass” appropriations.
We have come to a dangerous place. It was by choice. We could and should choose otherwise.
The following is excerpted from Man, Economy, and State, with Power and Market, by Murray N. Rothbard (Mises Institute, 2004), pp. 1297–1327 (notes removed).
There are two types of ethical criticisms that can be made of the free-market system. One type is purely existential; that is, it rests on existential premises only. The other type advances conflicting ethical goals and protests that the free market does not attain these goals...
Number 1: Knowledge of Self-Interest: An Alleged Critical AssumptionThis criticism of the market is more existential than ethical. It is the popular argument that laissez faire, or the free-market economy, rests its case on the crucial assumption that every individual knows his own self-interest best. Yet, it is charged, this is not true of many individuals. Therefore, the State must intervene, and the case for the free market is vitiated.
The free-market doctrine, however, does not rest on any such assumption. Like the mythical "economic man," the Perfectly Wise Individual is a straw man created by the critics of the theory, not implied by it.
First, it should be evident from our analysis of the free market and government intervention throughout this work that any argument for the free market rests on a far deeper and more complex doctrine. We cannot enter here into the many ethical and philosophical arguments for freedom. Secondly, the laissez-faire or free-market doctrine does not assume that everyone always knows his own interest best; it asserts rather that everyone should have the right to be free to pursue his own interest as he deems best.
Critics may argue that the government should force men to lose some ex ante or present utility in order to gain ex post utility later, by being compelled to pursue their own best interests.
But libertarians may well reply in rebuttal: (1) that a person's resentment at coercive interference will lower his ex post utility in any event; and (2) that the condition of freedom is a vital, necessary prerequisite for a person's "best interests" to be attained. Indeed, the only lasting way to correct a person's errors is by persuasive reasoning; force cannot do the job. As soon as the individual can evade this force, he will return to his own preferred ways.
No one, certainly, has perfect foresight into the uncertain future. But free entrepreneurs on the market are better equipped than anyone else, by incentive and by economic calculation, to foresee and satisfy the needs of the consumers.
But what if the consumers are mistaken with regard to their own interests? Obviously, they sometimes are. But several more points must be made. In the first place, every individual knows the data of his own inner self best—by the very fact that each has a separate mind and ego. Secondly, the individual, if in doubt about what his own true interests are, is free to hire and consult experts to give him advice based on their superior knowledge. The individual hires these experts and, on the market, can continuously test their helpfulness. Individuals on the market, in short, tend to patronize those experts whose advice proves most successful. Good doctors or lawyers reap rewards on the free market, while poor ones fail. But when government intervenes, the government expert acquires his revenue by compulsory levy. There is no market test of his success in teaching people their true interests. The only test is his success in acquiring the political support of the State's machinery of coercion.
"What incentive does the government expert have to care about the interests of his subjects?"
Thus, the privately hired expert flourishes in proportion to his ability, whereas the government expert flourishes in proportion to his success in currying political favor. Moreover, what incentive does the government expert have to care about the interests of his subjects? Surely he is not especially endowed with superior qualities by virtue of his government post. He is no more virtuous than the private expert; indeed, he is inherently less capable and is more inclined to wield coercive force. But while the private expert has every pecuniary incentive to care about his clients or patients, the government expert has no incentive whatever. He obtains his revenue in any event. He is devoid of any incentive to worry about his subject's true interests.
It is curious that people tend to regard government as a quasi-divine, selfless, Santa Claus organization. Government was constructed neither for ability nor for the exercise of loving care; government was built for the use of force and for necessarily demagogic appeals for votes. If individuals do not know their own interests in many cases, they are free to turn to private experts for guidance. It is absurd to say that they will be served better by a coercive, demagogic apparatus.
Finally, the proponents of government intervention are trapped in a fatal contradiction: they assume that individuals are not competent to run their own affairs or to hire experts to advise them. And yet they also assume that these same individuals are equipped to vote for these same experts at the ballot box. We have seen that, on the contrary, while most people have a direct idea and a direct test of their own personal interests on the market, they cannot understand the complex chains of praxeological and philosophical reasoning necessary for a choice of rulers or political policies. Yet this political sphere of open demagogy is precisely the only one where the mass of individuals are deemed to be competent!
Number 2: The Problem of Immoral ChoicesSome writers are astute enough to realize that the market economy is simply a resultant of individual valuations, and thus they see that, if they do not like the results, the fault lies with the valuations, not the economic system. Yet they proceed to advocate government intervention to correct the immorality of individual choices. If people are immoral enough to choose whiskey rather than milk, cosmetics rather than educational matter, then the State, they say, should step in and correct these choices. Much of the rebuttal parallels the refutation of the knowledge-of-interests argument; i.e., it is self-contradictory to contend that people cannot be trusted to make moral decisions in their daily lives but can be trusted to vote for or accept leaders who are morally wiser than they.
Mises states, quite rightly, that anyone who advocates governmental dictation over one area of individual consumption must logically come to advocate complete totalitarian dictation over all choices. This follows if the dictators have any set of valuational principles whatever. Thus, if the members of the ruling group like Bach and hate Mozart, and they believe strongly that Mozartian music is immoral, they are just as right in prohibiting the playing of Mozart as they are in prohibiting drug use or liquor consumption. Many statists, however, would not balk at this conclusion and would be willing to take over this congenial task.
"If a man is not free to choose, if he is compelled by force to do the moral thing, then he is being deprived of the opportunity of being moral."
The utilitarian position—that government dictation is bad because no rational ethics exists, and therefore no person has a right to impose his arbitrary values on someone else—is, we believe, an inadequate one. In the first place, it will not convince those who believe in a rational ethics, who believe that there is a scientific basis for moral judgments and that they are not pure whim. And furthermore, the position involves a hidden moral assumption of its own—that A has no right to impose any arbitrary values on B. But if ends are arbitrary, is not the end "that arbitrary whims not be imposed by coercion" just as arbitrary? And suppose, further, that ranking high on A's value scale is the arbitrary whim of imposing his other values on B. Then the utilitarians cannot object and must abandon their attempt to defend individual liberty in a value-free manner. In fact, the utilitarians are helpless against the man who wants to impose his values by coercion and who persists in doing so even after the various economic consequences are pointed out to him.
The would-be dictator can be logically refuted in a completely different way, even while remaining within Wertfrei praxeological bounds. For what is the complaint of the would-be dictator against free individuals? That they act immorally in various ways. The dictator's aim, therefore, is to advance morality and combat immorality. Let us grant, for the sake of argument, that an objective morality can be arrived at. The question that must be faced, then, is: Can force advance morality? Suppose we arrive at the demonstrable conclusion that actions A, B, and C are immoral, and actions X, Y, and Z are moral. And suppose we find that Mr. Jones shows a distressing propensity to value A, B, and C highly and adopts these courses of action time and again. We are interested in transforming Mr. Jones from being an immoral person to being a moral person. How can we go about it? The statists answer: by force. We must prohibit at gunpoint Mr. Jones from doing A, B, and C. Then, at last, he will be moral. But will he? Is Jones moral because he chooses X when he is forcibly deprived of the opportunity to choose A? When Smith is confined to a prison, is he being moral because he doesn't spend his time in saloons getting drunk?
There is no sense to any concept of morality, regardless of the particular moral action one favors, if a man is not free to do the immoral as well as the moral thing. If a man is not free to choose, if he is compelled by force to do the moral thing, then, on the contrary, he is being deprived of the opportunity of being moral. He has not been permitted to weigh the alternatives, to arrive at his own conclusions, and to take his stand. If he is deprived of free choice, he is acting under the dictator's will rather than his own. (Of course, he could choose to be shot, but this is hardly an intelligible conception of free choice of alternatives. In fact, he then has only one free choice: the hegemonic one—to be shot or to obey the dictator in all things.)
Dictatorship over consumers' choices, then, can only atrophy morality rather than promote it. There is but one way that morality can spread from the enlightened to the unenlightened—and that is by rational persuasion. If A convinces B through the use of reason that his moral values are correct and B's are wrong, then B will change and adopt the moral course of his own free will. To say that this method is a slower procedure is beside the point. The point is that morality can spread only through peaceful persuasion and that the use of force can only erode and impair morality.
We have not even mentioned other facts that strengthen our argument, such as the great difficulty in enforcing dictatorial rules against people whose values clash with them. The man who prefers the immoral course and is prevented by the bayonet from acting on his preference will do his best to find ways to circumvent the prohibition—perhaps by bribing the bayoneteer. And, because this is not a treatise on ethics, we have not mentioned the libertarian ethical theory which holds that the use of coercion is itself the highest form of immorality.
Thus, we have shown that would-be dictators must necessarily fail to achieve their professed goal of advancing morality because the consequences will be precisely the opposite. It is possible, of course, that the dictators are not really sincere in stating their goal; perhaps their true purpose is to wield power over others and to prevent others from being happy. In that case, of course, praxeology can say no more about the matter, although ethics may find a good deal to say.
Number 3: The Morality of Human NatureIt is very common to assert that the advocates of the purely free market make one fundamental and shaky assumption: that all human beings are angels. In a society of angels, it is commonly agreed, such a program could "work," but not in our fallible world. The chief difficulty with this criticism is that no libertarian—except possibly those under Tolstoyan influence—has ever made such an assumption. The advocates of the free market have not assumed a reformation of human nature, although they would certainly have no objection to such a reformation if it took place. We have seen that libertarians envision defense services against predators as provided by private bodies rather than by the State. But they do not assume that crime would magically disappear in the free society.
Statists concede to libertarians that no State would be required if all men were "good." State control is allegedly required only to the extent that men are "evil." But what if all men were "evil"? As F.A. Harper has pointed out:
Still using the same principle that political rulership should be employed to the extent of the evil in man, we would then have a society in which complete political rulership of all the affairs of everybody would be called for. . . . One man would rule all. But who would serve as the dictator? However he were to be selected and affixed to the political throne, he would surely be a totally evil person, since all men are evil. And this society would then be ruled by a totally evil dictator possessed of total political power. And how, in the name of logic, could anything short of total evil be its consequence? How could it be better than having no political rulership at all in that society?
"The existence of the State apparatus provides a ready, swift channel for the exercise of evil."
Is this argument unrealistic because, as everyone agrees, human beings are a compound, capable of both good and evil? But then, at what point in this mixture does State dictation become necessary? In fact, the libertarian would reason that the fact that human nature is a mixture of both good and evil provides its own particular argument in his favor. For if man is such a mixture, then the best societal framework is surely one in which evil is discouraged and the good encouraged. The libertarian maintains that the existence of the State apparatus provides a ready, swift channel for the exercise of evil, since the rulers of the State are thereby legitimated and can wield compulsion in ways that no one else is permitted to do. What is considered "crime" socially, is called "exercise of democratic power" when performed by an individual as a State official. The purely free market, on the other hand, eliminates all legitimated channels for the exercise of power over man.
Number 4: The Alleged Need for EqualityProbably the most common ethical criticism of the market economy is that it fails to achieve the goal of equality. Equality has been championed on various "economic" grounds, such as minimum social sacrifice or the diminishing marginal utility of money (see the chapter on taxation above). But in recent years economists have recognized that they cannot justify egalitarianism by economics, that they ultimately need an ethical basis for equality.
Economics or praxeology cannot establish the validity of ethical ideals, but even ethical goals must be framed meaningfully. They must therefore pass muster before praxeology as being internally consistent and conceptually possible. The credentials of "equality" have so far not been adequately tested.
"Equality cannot be achieved because it is a conceptually impossible goal for man."
It is true that many objections have been raised that give egalitarians pause. Sometimes realization of the necessary consequences of their policies causes an abandonment, though more often a slowing down, of the egalitarian program. Thus: compulsory equality will demonstrably stifle incentive, eliminate the adjustment processes of the market economy, destroy all efficiency in satisfying consumer wants, greatly lower capital formation, and cause capital consumption—all effects signifying a drastic fall in general standards of living. Furthermore, only a free society is casteless, and therefore only freedom will permit mobility of income according to productivity. Statism, on the other hand, is likely to freeze the economy into a mold of (nonproductive) inequality.
Yet these arguments, though powerful, are by no means conclusive. Some people will pursue equality anyway; many will take these considerations into account by settling for some cuts in living standards in order to gain more equality.
In all discussions of equality, it is considered self-evident that equality is a very worthy goal. But this is by no means self-evident. For the very goal of equality itself is open to serious challenge. The doctrines of praxeology are deduced from three universally acceptable axioms: the major axiom of the existence of purposive human action; and the minor postulates, or axioms, of the diversity of human skills and natural resources, and the disutility of labor. Although it is possible to construct an economic theory of a society without these two minor axioms (but not without the major one), they are included in order to limit our theorizing to laws that can apply directly to reality. Anyone who wants to set forth a theory applicable to interchangeable human beings is welcome to do so.
Thus, the diversity of mankind is a basic postulate of our knowledge of human beings. But if mankind is diverse and individuated, then how can anyone propose equality as an ideal? Every year, scholars hold Conferences on Equality and call for greater equality, and no one challenges the basic tenet. But what justification can equality find in the nature of man? If each individual is unique, how else can he be made "equal" to others than by destroying most of what is human in him and reducing human society to the mindless uniformity of the ant heap? It is the task of the egalitarian, who confidently enters the scene to inform the economist of his ultimate ethical goal, to prove his case. He must show how equality can be compatible with the nature of mankind and must defend the feasibility of a possible egalitarian world.
But the egalitarian is in even direr straits, for it can be shown that equality of income is an impossible goal for mankind. Income can never be equal. Income must be considered, of course, in real and not in money terms; otherwise there would be no true equality. Yet real income can never be equalized. For how can a New Yorker's enjoyment of the Manhattan skyline be equalized with an Indian's? How can the New Yorker swim in the Ganges as well as an Indian? Since every individual is necessarily situated in a different space, every individual's real income must differ from good to good and from person to person. There is no way to combine goods of different types, to measure some income "level," so it is meaningless to try to arrive at some sort of "equal" level. The fact must be faced that equality cannot be achieved because it is a conceptually impossible goal for man, by virtue of his necessary dispersion in location and diversity among individuals. But if equality is an absurd (and therefore irrational) goal, then any effort to approach equality is correspondingly absurd. If a goal is pointless, then any attempt to attain it is similarly pointless.
Many people believe that, though equality of income is an absurd ideal, it can be replaced by the ideal of equality of opportunity. Yet this, too, is as meaningless as the former concept. How can the New Yorker's opportunity and the Indian's opportunity to sail around Manhattan, or to swim in the Ganges, be "equalized"? Man's inevitable diversity of location effectively eliminates any possibility of equalizing "opportunity."…
Human life is not some sort of race or game in which each person should start from an identical mark. It is an attempt by each man to be as happy as possible. And each person could not begin from the same point, for the world has not just come into being; it is diverse and infinitely varied in its parts. The mere fact that one individual is necessarily born in a different place from someone else immediately insures that his inherited opportunity cannot be the same as his neighbor's. The drive for equality of opportunity would also require the abolition of the family since different parents have unequal abilities; it would require the communal rearing of children. The State would have to nationalize all babies and raise them in State nurseries under "equal" conditions. But even here conditions cannot be the same, because different State officials will themselves have different abilities and personalities. And equality can never be achieved because of necessary differences of location.
Thus, the egalitarian must not be permitted any longer to end discussion by simply proclaiming equality as an absolute ethical goal. He must first face all the social and economic consequences of egalitarianism and try to show that it does not clash with the basic nature of man. He must counter the argument that man is not made for a compulsory ant heap existence. And, finally, he must recognize that the goals of equality of income and equality of opportunity are conceptually unrealizable and are therefore absurd. Any drive to achieve them is ipso facto absurd as well.
Egalitarianism is, therefore, a literally senseless social philosophy. Its only meaningful formulation is the goal of "equality of liberty"—formulated by Herbert Spencer in his famous Law of Equal Freedom: "Every man has freedom to do all he wills, provided he infringes not the equal freedom of any other man." This goal does not attempt to make every individual's total condition equal—an absolutely impossible task; instead, it advocates liberty—a condition of absence of coercion over person and property for every man.
Yet even this formulation of equality has many flaws and could profitably be discarded. In the first place, it opens the door for ambiguity and for egalitarianism. In the second place, the term "equality" connotes measurable identity with a fixed, extensive unit. "Equal length" means identity of measurement with an objectively determinable unit. In the study of human action, whether in praxeology or social philosophy, there is no such quantitative unit, and hence there can be no such "equality." Far better to say that "each man should have X" than to say that "all men should be equal in X." If someone wants to urge every man to buy a car, he formulates his goal in that way—"Every man should buy a car"—rather than in such terms as: "All men should have equality in car buying." The use of the term "equality" is awkward as well as misleading.
And finally, as Clara Dixon Davidson pointed out so cogently many years ago, Spencer's Law of Equal Freedom is redundant. For if every man has freedom to do all that he wills, it follows from this very premise that no man's freedom has been infringed or invaded. The whole second clause of the law after "wills" is redundant and unnecessary. Since the formulation of Spencer's Law, opponents of Spencer have used the qualifying clause to drive holes into the libertarian philosophy. Yet all this time they were hitting at an encumbrance, not at the essence of the law. The concept of "equality" has no rightful place in the "Law of Equal Freedom," being replaceable by the logical quantifier "every." The "Law of Equal Freedom" could well be renamed "The Law of Total Freedom."
Number 5: The Problem of SecurityOne of the most common ethical charges leveled at the free market is that it fails to provide "security." It is said that the blessings of freedom must be weighed against the competing blessings of security—to be provided, of course, by the State.
The first comment to make is that this world is a world of uncertainty. We shall never be able to forecast the future course of the world with precision. Every action, therefore, involves risk. This risk cannot be eliminated. The man who keeps cash balances suffers the risk that its purchasing power may dwindle; the man who invests suffers the risk of loss; and so forth.
Yet the free market finds ways of voluntarily relieving risk as much as can possibly be done. In a free society there are three prime ways that men can alleviate uncertainty about the future:
(1) By savings. These savings, whether invested in production or kept in cash balances, insure money for future needs. Investing in production increases one's future assets; cash balances insure that funds will be immediately available.
"The State cannot provide security for all, but only for some at the expense of others."
(2) By entrepreneurship. The entrepreneurs, i.e., the capitalist-entrepreneurs, assume the bulk of the risks of the market and concomitantly relieve laborers of a great deal of risk. Imagine the universal risk if laborers could not be paid until the final product reached the consumers! The pain of waiting for future income, the risk in attempting to forecast consumer demands in the future, would be almost intolerable, especially for those laborers toiling in the most remote processes of production. It is difficult to see how anyone would embark on longer processes of production if he were forced to wait the entire length of the production period to earn any income. But the capitalist-entrepreneur pays him, instead, immediately and himself adopts the burden of waiting and forecasting future wants. The entrepreneur then risks loss of his capital. Another method of entrepreneurial assumption of risk takes place in futures markets, where hedging allows buyers and sellers of commodities to shift the risk of future price changes onto a body of specialized traders.
(3) By insurance. Insurance is a basic method of pooling and abating risks on the market. While entrepreneurs assume the burdens of uncertainty, insurance takes care of actuarial risks, where stable collective frequencies can be arrived at and premiums can be charged accordingly.
The State cannot provide absolute security. The slaves may have believed that their security was guaranteed by their master. But the master assumed the risk; if his income fell, then he could not provide security for his charges.
A fourth way to provide security in a free society is by voluntary charity. This charity, of necessity, comes out of production. It has been maintained that the State can provide security for the people better than the market because it can guarantee a minimum income for everyone. Yet the government can do no such thing. The State produces nothing; it can only confiscate the production of others. The State, therefore, can guarantee nothing; if the requisite minimum is not produced, the State will have to default on its pledges. Of course, the State can print all the money it wants, but it cannot produce the needed goods. Furthermore, the State cannot, in this way, provide security for every man alike. It can make some secure only at the expense of others. If A can be made more secure only by robbing B, B is made more insecure in the process. Hence, the State, even if production is not drastically reduced, cannot provide security for all, but only for some at the expense of others.
Is there no way, then, that government—organized coercion—can provide security? Yes, but not in the absolute sense. Rather, it can provide a certain aspect of security, and only this aspect can be guaranteed to every man in the society. This is security against aggression. In fact, however, only a voluntary, free-market defense can provide this, since only such a non-Statist type of defense agency does not itself engage in aggression. With each man acquiring security of person and property against attack, productivity and leisure are both immeasurably increased. Any State attempt to provide such security is an anachronism, since the State itself constantly invades individual liberty and security.
That type of security, then, which is open to every man in society, is not only compatible with, but is a corollary to, perfect freedom. Freedom and security against aggression are two sides of the same coin.
It might still be objected that many people, even knowing that slavery or submission to dictation cannot bring absolute security, will still wish to rely on masters. But if they do so voluntarily, the libertarian asks, why must they force others, who do not choose to submit to masters, to join them?
Number 6: Alleged Joys of the Society of StatusOne common related criticism of the free market and free society (particularly among intellectuals who are conspicuously not craftsmen or peasants) is that, in contrast to the Happy Craftsmen and Happy Peasants of the Middle Ages, it has "alienated" man from his work and from his fellows and has robbed him of his "sense of belonging." The status society of the Middle Ages is looked back upon as a Golden Age, when everyone was sure of his station in life, when craftsmen made the whole shoe instead of just contributing to part of its production, and when these "whole" laborers were enmeshed in a sense of belonging with the rest of society.
In the first place, the society of the Middle Ages was not a secure one, not a fixed, unchanging hierarchy of status. There was little progress, but there was much change. Dwelling as they did in clusters of local self-sufficiency, marked by a low standard of living, the people were ever threatened by famine. And because of the relative absence of trade, a famine in one area could not be countered by purchasing food from another area. The absence of famine in capitalist society is not a providential coincidence. Secondly, because of the low living standards, very few members of the population were lucky enough to be born into the status of the Happy Craftsman, who could be really happy and secure in his work only if he were a craftsman to the King or the nobility (who, of course, earned their high status by the decidedly "unhappy" practice of permanent violence in domination over the mass of the exploited population). As for the common serf, one wonders whether, in his poverty-stricken, enslaved, and barren existence, he had even sufficient time and leisure to contemplate the supposed joys of his fixed post and his "sense of belonging." And if there were a serf or two who did not wish to "belong" to his lord or master, that "belonging," of course, was enforced by violence.
"Did the poverty-stricken common serf, in his enslaved and barren existence, have sufficient time and leisure to contemplate the supposed joys of his fixed post and his 'sense of belonging?'"
Aside from these considerations, there is another problem which the society of status cannot surmount, and which indeed contributed a great deal to breaking up the feudal and mercantilist structures of the precapitalistic era. This was population growth. If everyone is assigned his appointed and inherited role in life, how can an increased population be fitted into the scheme? Where are they to be assigned, and who is to do the assigning? And wherever they are allocated, how can these new people be prevented from disrupting the whole assigned network of custom and status?
In short, it is precisely in the fixed, noncapitalistic society of status that the Malthusian problem is ever present, at its ugliest, and where Malthusian "checks" to population must come into play. Sometimes the check is the natural one of famine and plague; in other societies, systematic infanticide is practiced. Perhaps if there were a modern return to the society of status, compulsory birth control would be the rule (a not impossible prognosis for the future). But in precapitalist Europe, the population problem became a problem of an ever increasing number of people with no work to do and no place to go, who therefore had to turn to begging or highway robbery.
The proponents of the theory of modern "alienation" do not offer any reasoning to back up their assertions, which are therefore simply dogmatic myths. Certainly, it is not self-evident that the craftsman, or better still, the primitive man who made everything that he consumed, was in some sense happier or "more whole" as a result of this experience. Although this is not a treatise on psychology, it might be noted that perhaps what gives the worker his sense of importance is his participation in what Isabel Paterson has called the "circuit of production." In free-market capitalism he can, of course, participate in that circuit in many more and varied ways than he could in the more primitive status society.
Furthermore, the status society is a tragic waste of potential skill for the individual worker. There is, after all, no reason why the son of a carpenter should be particularly interested or skilled in carpentry. In the status society he faces only a dreary life of carpentry, regardless of his desires. In the free-market, capitalist society, though he is of course not guaranteed that he will be able to make a livelihood in any line of work that he wants to pursue, his opportunities to do work that he really likes are immeasurably, almost infinitely, expanded.
As the division of labor expands, there are more and more varieties of skilled occupations that he can engage in, instead of having to be content with only the most primitive skills. And in the free society he is free to try these tasks, free to move into whatever area he likes best. He has no freedom and no opportunity in the allegedly joyful society of status. Just as free capitalism enormously expanded the amount and variety of consumers' goods and services available to mankind, so it vastly expanded the number and variety of jobs to be done and the skills that people can develop.
The hullabaloo about "alienation" is, in fact, more than a glorification of the medieval craftsman. He, after all, bought his food from the nearby land. It is actually an attack on the whole concept of the division of labor and an enshrining of primitive self-sufficiency. A return to such conditions could mean only the eradication of the bulk of today's population and complete impoverishment for those remaining. Why "happiness" would nonetheless increase, we leave to the mythologists of status.
But there is one final consideration which indicates that the vast majority of the people do not believe that they need primitive conditions and the slave's sense of belonging to make them happy. For there is nothing, in a free society, to prevent those who wish from going off in separate communities and living primitively and "belongingly." No one is forced to join the specialized division of labor. Not only has almost no one abandoned modern society to return to a happy, integrated life of fixed poverty, but those few intellectuals who did form communal Utopias of one sort or another during the nineteenth century abandoned these attempts very quickly. And perhaps the most conspicuous nonwithdrawers from society are those very critics who use our modern "alienated" mass communications to denounce modern society. As we indicated at the end of the last section, a free society permits any who wish to enslave themselves to others to do so. But if they have a psychological need for a slave's "sense of belonging," why must other individuals without such a need be coerced into enslavement?
Number 7: Charity and PovertyA common complaint is that the free market would not insure the elimination of poverty, that it would "leave people free to starve," and that it is far better to be "kindhearted" and give "charity" free rein by taxing the rest of the populace in order to subsidize the poor and the substandard.
In the first place, the "freedom-to-starve" argument confuses the "war against nature," which we all conduct, with the problem of freedom from interference by other persons. We are always "free to starve" unless we pursue our conquest of nature, for that is our natural condition. But "freedom" refers to absence of molestation by other persons; it is purely an interpersonal problem.
Secondly, it should also be clear that it is precisely voluntary exchange and free capitalism that have led to an enormous improvement in living standards. Capitalist production is the only method by which poverty can be wiped out. As we stressed above, production must come first, and only freedom allows people to produce in the best and most efficient way possible. Force and violence may "distribute," but it cannot produce. Intervention hampers production, and socialism cannot calculate. Since production of consumer satisfactions is maximized on the free market, the free market is the only way to abolish poverty. Dictates and legislation cannot do so; in fact, they can only make matters worse.
The appeal to "charity" is a truly ironic one. First, it is hardly "charity" to take wealth by force and hand it over to someone else. Indeed, this is the direct opposite of charity, which can only be an unbought, voluntary act of grace. Compulsory confiscation can only deaden charitable desires completely, as the wealthier grumble that there is no point in giving to charity when the State has already taken on the task. This is another illustration of the truth that men can become more moral only through rational persuasion, not through violence, which will, in fact, have the opposite effect.
Furthermore, since the State is always inefficient, the amount and direction of the giving will be much different from what it would be if people were left free to act on their own. If the State decides from whom to take and to whom to give, the power residing in the State's hands is enormous. It is obvious that political unfortunates will be the ones whose property is confiscated, and political favorites the ones subsidized. And in the meantime the State erects a bureaucracy whose living is acquired by feeding off the confiscation of one group and the encouraged mendicancy of another.
"It is hardly 'charity' to take wealth by force and hand it over to someone else. Indeed, this is the direct opposite of charity, which can only be an unbought, voluntary act of grace."
Other consequences follow from a regime of compulsory "charity." For one thing, "the poor"—or the "deserving" poor—have been exalted as a privileged caste, with an enforceable claim to the production of the more able. This is a far cry from a request for charity. Instead, the able are penalized and enslaved by the State, and the unable are placed on a moral pedestal. Certainly, this is a peculiar sort of moral program. The further consequence will be to discourage the able, to reduce production and saving in all of society, and beyond this, to subsidize the creation of a caste of poor. Not only will the poor be subsidized by right, but their ranks will be encouraged to multiply, both through reproduction and through their moral exaltation and subsidization. The able will be correspondingly hampered and repressed.
Whereas the opportunity for voluntary charity acts as a spur to production by the able, coerced charity acts as a drain and a burden upon production. In fact, in the long run, the greatest "charity" is precisely not what we know by that name, but rather simple, "selfish" capital investment and the search for technological innovations. Poverty has been tamed by the enterprise and the capital investment of our ancestors, most of which was undoubtedly done for "selfish" motives. This is a fundamental illustration of the truth enunciated by Adam Smith that we generally help others most in those very activities in which we help ourselves.
Statists, in fact, are really opposed to charity. They often argue that charity is demeaning and degrading to the recipient, and that he should therefore be taught that the money is rightly his, to be given to him by the government as his due. But this oft-felt degradation stems, as Isabel Paterson pointed out, from the fact that the recipient of charity is not self-supporting on the market and that he is out of the production circuit and no longer providing a service in exchange for one received. However, granting him the moral and legal right to mulct his fellows increases his moral degradation instead of ending it, for the beneficiary is now further removed from the production line than ever.
An act of charity, when given voluntarily, is generally considered temporary and offered with the object of helping a man to help himself. But when the dole is ladled out by the State, it becomes permanent and perpetually degrading, keeping the recipients in a state of subservience. We are not attempting to argue at this point that to be subservient in this way is degrading; we simply say that anyone who considers private charity degrading must logically conclude that State charity is far more so. Mises, furthermore, points out that free-market exchange—always condemned by statists for being impersonal and "unfeeling"—is precisely the relation that avoids all degradation and subservience.
Number 8: The Charge of "Selfish Materialism"One of the most common charges leveled against the free market (even by many of its friends) is that it reflects and encourages unbridled "selfish materialism." Even if the free market—unhampered capitalism—best furthers man's "material" ends, critics argue, it distracts man from higher ideals. It leads man away from spiritual or intellectual values and atrophies any spirit of altruism.
In the first place, there is no such thing as an "economic end." Economy is simply a process of applying means to whatever ends a person may adopt. An individual can aim at any ends he pleases, "selfish" or "altruistic." Other psychic factors being equal, it is to everyone's self-interest to maximize his monetary income on the market. But this maximum income can then be used for "selfish" or for "altruistic" ends. Which ends people pursue is of no concern to the praxeologist. A successful businessman can use his money to buy a yacht or to build a home for destitute orphans. The choice rests with him. But the point is that whichever goal he pursues, he must first earn the money before he can attain the goal.
"The greater satisfaction of 'exchangeable' values confers a much greater marginal significance on the 'nonexchangeable' values. Rather than foster 'material' values, then, advancing capitalism does just the opposite."
Secondly, whichever moral philosophy we adopt—whether altruism or egoism—we cannot criticize the pursuit of monetary income on the market. If we hold an egoistic social ethic, then obviously we can only applaud the maximization of monetary income, or of a mixture of monetary and other psychic income, on the market. There is no problem here. However, even if we adopt an altruistic ethic, we must applaud maximization of monetary income just as fervently. For market earnings are a social index of one's services to others, at least in the sense that any services are exchangeable. The greater a man's income, the greater has been his service to others. Indeed, it should be far easier for the altruist to applaud the maximization of a man's monetary income than that of his psychic income when this is in conflict with the former goal. Thus, the consistent altruist must condemn the refusal of a man to work at a job paying high wages and his preference for a lower-paying job somewhere else. This man, whatever his reason, is defying the signalled wishes of the consumers, his fellows in society.
If, then, a coal miner shifts to a more pleasant, but lower-paying, job as a grocery clerk, the consistent altruist must castigate him for depriving his fellowman of needed benefits. For the consistent altruist must face the fact that monetary income on the market reflects services to others, whereas psychic income is a purely personal, or "selfish," gain.
This analysis applies directly to the pursuit of leisure. Leisure, as we have seen, is a basic consumers' good for mankind. Yet the consistent altruist would have to deny each worker any leisure at all—or, at least, deny every hour of leisure beyond what is strictly necessary to maintain his output. For every hour spent in leisure reduces the time a man can spend serving his fellows.
The consistent advocates of "consumers' sovereignty" would have to favor enslaving the idler or the man who prefers following his own pursuits to serving the consumer. Rather than scorn pursuit of monetary gain, the consistent altruist should praise the pursuit of money on the market and condemn any conflicting nonmonetary goals a producer may have—whether it be dislike for certain work, enthusiasm for work that pays less, or a desire for leisure. Altruists who criticize monetary aims on the market, therefore, are wrong on their own terms.
The charge of "materialism" is also fallacious. The market deals, not necessarily in "material" goods, but in exchangeable goods. It is true that all "material" goods are exchangeable (except for human beings themselves), but there are also many nonmaterial goods exchanged on the market. A man may spend his money on attending a concert or hiring a lawyer, for example, as well as on food or automobiles. There is absolutely no ground for saying that the market economy fosters either material or immaterial goods; it simply leaves every man free to choose his own pattern of spending.
Finally, an advancing market economy satisfies more and more of people's desires for exchangeable goods. As a result, the marginal utility of exchangeable goods tends to decline over time, while the marginal utility of nonexchangeable goods increases. In short, the greater satisfaction of "exchangeable" values confers a much greater marginal significance on the "nonexchangeable" values. Rather than foster "material" values, then, advancing capitalism does just the opposite.
Number 9: Back to the Jungle?Many critics complain that the free market, in casting aside inefficient entrepreneurs or in other decisions, proves itself an "impersonal monster." The free-market economy, they charge, is "the rule of the jungle," where "survival of the fittest" is the law. Libertarians who advocate a free market are therefore called "Social Darwinists" who wish to exterminate the weak for the benefit of the strong.
In the first place, these critics overlook the fact that the operation of the free market is vastly different from governmental action. When a government acts, individual critics are powerless to change the result. They can do so only if they can finally convince the rulers that their decision should be changed; this may take a long time or be totally impossible. On the free market, however, there is no final decision imposed by force; everyone is free to shape his own decisions and thereby significantly change the results of "the market."
In short, whoever feels that the market has been too cruel to certain entrepreneurs or to any other income receivers is perfectly free to set up an aid fund for suitable gifts and grants. Those who criticize existing private charity as being "insufficient" are perfectly free to fill the gap themselves. We must beware of hypostatizing the "market" as a real entity, a maker of inexorable decisions. The market is the resultant of the decisions of all individuals in the society; people can spend their money in any way they please and can make any decisions whatever concerning their persons and their property. They do not have to battle against or convince some entity known as the "market" before they can put their decisions into effect.
"The jungle is a brutish place where some seize from others and all live at the starvation level; the market is a peaceful and productive place where all serve themselves and others at the same time amidst rising wealth."
The free market, in fact, is precisely the diametric opposite of the "jungle" society. The jungle is characterized by the war of all against all. One man gains only at the expense of another, by seizure of the latter's property. With all on a subsistence level, there is a true struggle for survival, with the stronger force crushing the weaker. In the free market, on the other hand, one man gains only through serving another, though he may also retire into self-sufficient production at a primitive level if he so desires. It is precisely through the peaceful co-operation of the market that all men gain through the development of the division of labor and capital investment. To apply the principle of the "survival of the fittest" to both the jungle and the market is to ignore the basic question: Fitness for what? The "fit" in the jungle are those most adept at the exercise of brute force. The "fit" on the market are those most adept in the service of society. The jungle is a brutish place where some seize from others and all live at the starvation level; the market is a peaceful and productive place where all serve themselves and others at the same time and live at infinitely higher levels of consumption. On the market, the charitable can provide aid, a luxury that cannot exist in the jungle.
The free market, therefore, transmutes the jungle's destructive competition for meagre subsistence into a peaceful co-operative competition in the service of one's self and others. In the jungle, some gain only at the expense of others. On the market, everyone gains. It is the market—the contractual society—that wrests order out of chaos, that subdues nature and eradicates the jungle, that permits the "weak" to live productively, or out of gifts from production, in a regal style compared to the life of the "strong" in the jungle. Furthermore, the market, by raising living standards, permits man the leisure to cultivate the very qualities of civilization that distinguish him from the brutes.
It is precisely statism that is bringing back the rule of the jungle—bringing back conflict, disharmony, caste struggle, conquest and the war of all against all, and general poverty. In place of the peaceful "struggle" of competition in mutual service, statism substitutes calculational chaos and the death-struggle of Social Darwinist competition for political privilege and for limited subsistence.
Number 10: Power and CoercionA very common criticism of the libertarian position runs as follows: Of course we do not like violence, and libertarians perform a useful service in stressing its dangers. But you are very simpliste because you ignore the other significant forms of coercion exercised in society—private coercive power, apart from the violence wielded by the State or the criminal. The government should stand ready to employ its coercion to check or offset this private coercion.
In the first place, this seeming difficulty for libertarian doctrine may quickly be removed by limiting the concept of coercion to the use of violence. This narrowing would have the further merit of strictly confining the legalized violence of the police and the judiciary to the sphere of its competence: combatting violence. But we can go even further, for we can show the inherent contradictions in the broader concept of coercion.
A well-known type of "private coercion" is the vague but ominous-sounding "economic power." A favorite illustration of the wielding of such "power" is the case of a worker fired from his job, especially by a large corporation. Is this not "as bad as" violent coercion against the property of the worker? Is this not another, subtler form of robbery of the worker, since he is being deprived of money that he would have received if the employer had not wielded his "economic power"?
"Every man has the same right to refuse to make a proffered exchange."
Let us look at this situation closely. What exactly has the employer done? He has refused to continue to make a certain exchange, which the worker preferred to continue making. Specifically, A, the employer, refuses to sell a certain sum of money in exchange for the purchase of B's labor services. B would like to make a certain exchange; A would not. The same principle may apply to all the exchanges throughout the length and breadth of the economy. A worker exchanges labor for money with an employer; a retailer exchanges eggs for money with a customer; a patient exchanges money with a doctor for his services; and so forth. Under a regime of freedom, where no violence is permitted, every man has the power either to make or not to make exchanges as and with whom he sees fit. Then, when exchanges are made, both parties benefit. We have seen that if an exchange is coerced, at least one party loses. It is doubtful whether even a robber gains in the long run, for a society in which violence and tyranny are practiced on a large scale will so lower productivity and become so much infected with fear and hate that even the robbers may be unhappy when they compare their lot with what it might be if they engaged in production and exchange in the free market.
"Economic power," then, is simply the right under freedom to refuse to make an exchange. Every man has this power. Every man has the same right to refuse to make a proffered exchange.
Now, it should become evident that the "middle-of-the-road" statist, who concedes the evil of violence but adds that the violence of government is sometimes necessary to counteract the "private coercion of economic power," is caught in an impossible contradiction. A refuses to make an exchange with B. What are we to say, or what is the government to do, if B brandishes a gun and orders A to make the exchange? This is the crucial question. There are only two positions we may take on the matter: either that B is committing violence and should be stopped at once, or that B is perfectly justified in taking this step because he is simply "counteracting the subtle coercion" of economic power wielded by A. Either the defense agency must rush to the defense of A, or it deliberately refuses to do so, perhaps aiding B (or doing B's work for him). There is no middle ground!
B is committing violence; there is no question about that. In the terms of both doctrines, this violence is either invasive and therefore unjust, or defensive and therefore just. If we adopt the "economic-power" argument, we must choose the latter position; if we reject it, we must adopt the former. If we choose the "economic-power" concept, we must employ violence to combat any refusal of exchange; if we reject it, we employ violence to prevent any violent imposition of exchange. There is no way to escape this either-or choice. The "middle-of-the-road" statist cannot logically say that there are "many forms" of unjustified coercion. He must choose one or the other and take his stand accordingly. Either he must say that there is only one form of illegal coercion—overt physical violence—or he must say that there is only one form of illegal coercion—refusal to exchange.
We have already fully described the sort of society built on libertarian foundations—a society marked by peace, harmony, liberty, maximum utility for all, and progressive improvement in living standards. What would be the consequence of adopting the "economic-power" premise? It would be a society of slavery: for what else is prohibiting the refusal to work? It would also be a society where the overt initiators of violence would be treated with kindness, while their victims would be upbraided as being "really" responsible for their own plight. Such a society would be truly a war of all against all, a world in which conquest and exploitation would rage unchecked.
Mises Institute scholar and Troy University business school Dean Allen Mendenhall is among the leading critics of woke capital. He leads a new initiative against the perverse investment practices demanded by ESG/DEI commissars, and joins Jeff Deist to discuss both the origins of "stakeholder" capitalism and what we can do to push back against ideological purity tests in capital markets and corporate America.
AllenMendenhall.com
"Troy University tackles 'woke' business practices head-on with new program": Mises.org/HAP382a
Are asset inflation and its bellwether, the euro, really heading into a new spring following a winter marked by the now-fading scare of Fed disinflation (alternatively described as “restrictive monetary policy”)? A computer powered by artificial intelligence might well conclude so, based on reading a million websites.
Yet there are grounds for skepticism. The laboratory of financial history is replete with examples of both Indian summers of asset inflation that fade quickly (so-called bear market rallies) and alternatively of premature celebration about disinflation when in fact a new virulent inflation episode is emerging.
In considering which diagnosis is appropriate to the present global monetary condition, let’s focus on the superlong credit and business cycle that started in the aftermath of the last great recession. This cycle continuously mocks those who predict its coming end. Pessimists announcing the end of the long cycle have cried wolf too often.
Impostor downturns have been lavishly received most of all by the “stimulus makers,” whether by central banks deploying their nonconventional toolbox or by finance ministers pursuing the path of fiscal expansion. Impostors include the “great recession” starting in spring 2020 and then the “disinflation bust” of summer/autumn 2022. Some commentators warn that the true great recession is now emerging.
As of now, late winter 2022/23, it is not fanciful to ask whether there was any disinflation at all. In today’s broken-down monetary system, where “monetary policy” is made by piloting short-term interest rates and the system has no solid anchor (which must be tied to a functioning monetary base), who could be sure whether monetary conditions are tight?
Yes, we might be reasonably sure about monetary tightness if there had been a huge discontinuous interest rate adjustment, as in the famous or infamous Volcker episode of disinflation (1980–82). But when the two-year T-bill yield only rose to 4 percent last July (from below 3 percent in the spring) and is now barely higher than that (having peaked at 4.5 percent in November), it’s difficult to be remotely confident that monetary conditions have been tight.
Yes, the Fed’s so-called terminal rate (according to the “dot plots”) is some 100–150 basis points above the most recently reported quarterly personal consumption expenditures (PCE) or Consumer Price Index (CPI) inflation rates. Under a sound money regime, however, these real rates would move around considerably without signifying monetary inflation or monetary disinflation. In our bad money system, by extension, estimated real rates and their gyrations may say little about the evolution of monetary conditions.
Ideally, when performing monetary diagnosis, we would decipher whether money supply is veering ahead or below demand. Some market monetarists assure us that monetary disinflation is now underway, based on recent sharp slowdowns or falls in broad money supply. Yet the amount of overhang from the pandemic mega–money expansion coupled with the neutering of the monetary base by quantitative easing, quantitative tightening, and the resulting interest payments on reserves makes any fine judgment impossible.
Yes, reported measures of goods and services inflation are falling, but trendspotting is not a good way forward in monetary diagnosis. Additionally, a falling reported inflation rate may in fact be symptomatic of serious monetary inflation if the “natural rhythm of prices” is downward, which is likely the case now as the supply constraints of the pandemic continue to ease and the war-related natural gas shortage diminishes.
As regards to the second key symptom of monetary inflation, asset inflation, we could say that actual experience (the rebound of beaten-down tech, buoyant high-yield credit, and bitcoin up 40 percent from its crypto-winter low) is consistent with the diagnosis of a new virulent phase—the asset inflation symptom often historically emerges well before in the form of goods and services inflation. Also, we know from history that asset inflation often forms when the central bank takes advantage of a downward rhythm of prices to pursue a policy of lower interest rates.
In making a diagnosis of monetary inflation under present circumstances, it is instructive to consider three scenarios.
First, monetary disinflation by the Fed is still underway and will bear down on goods and services prices further, while present froth in some asset markets will fade as this continues. The monetary disinflation will prove a catalyst to an economic downturn, intensified most likely by the process of asset deflation (and related unwinding of credit excesses, including financial engineering).
Second, monetary inflation is still in process. We enter another growth cycle upturn, with the already superlong cycle extended yet again. There are open questions as to whether this new extension will end in a more substantial monetary tightening than in the past year as well as how much further inflation damage will be done first.
Third, monetary conditions might not be at present ostensibly “stimulatory” or “disinflationary.” However, the business cycle is turning down under the weight of endogenous factors—prominently, the accumulation of malinvestment during the past decade and the advance of monopoly capitalism. Peak valuations in credit and some real asset markets might succumb to a crash as income falls below expectations and financial engineering marvels of the past lose their wonder.
In Europe, the likelihood of monetary conditions already being disinflationary is less than in the United States—given the European Central Bank’s (ECB) long delay in raising rates from still-negative levels last year amidst a second big “fiscal expansion.” This expansion was ostensibly to subsidize personal incomes otherwise squeezed by the terms of trade losses inflicted by the Russian war. The big rebound of the euro in recent months is evidence of a prevalent view in the marketplace that in “playing catch-up,” the ECB will cause monetary conditions in Europe to become disinflationary just at a time when the Fed’s “disinflation grip” is lessening.
Even so we should note the now-high likelihood that the euro’s cumulative loss of purchasing power through the pandemic and war will be of a higher order than for the dollar. The tightening of monetary conditions in Europe came later than in the US, and it may well not be as tough. The scope for the eurozone to divorce monetary policy from ailing public finances given the evident “fragmentation risks” is limited. The fiscal theory of inflation, of which the future potential bankruptcy of governments is a factor in present inflation (due to the anticipation of eventual money printing to service the debt), has greater plausibility in the eurozone than the US.
Present escalation of the Russia-North Atlantic Treaty Organization (NATO) conflagration is surely a source of rational concern for the euro’s future purchasing power. Some euro-optimists might scoff at this, confident that NATO’s military buildup in Ukraine will bolster the likelihood of a Russian defeat. Euro-pessimists by contrast are troubled by the escalation.
One of their concerns is that the mounting cost of rebuilding Ukraine is already estimated at nearly $350 billion. The US and its NATO allies will encounter great domestic political difficulties joining this effort.
In the European Union, we can imagine a heightened tension between “New Europe” (Poland, the Czech Republic, the Baltic States, and of course Ukraine) on the one hand and “Old Europe” (primarily Germany) on the other on the question of the aid needed for rebuilding Ukraine. Washington will be siding with “New Europe” as has been the case since the early 2000s. Berlin-Warsaw relations, already difficult and bitter, have no counterbalance elsewhere, especially given the virtual snapping of the Paris-Berlin axis. The willingness of the German public to continue its bankrolling of an ailing Italian government and its bank finances is questionable under these circumstances.
Yes, there is the potential for the NATO allies to “direct” seized Russian assets, including central bank reserves, toward rebuilding in Ukraine. There are weighty legal obstacles to this without Russian agreement in a peace deal—not imaginable at this stage of the conflict. In sum, the euro’s present ebullience as a cheerleader for yet another extension of a superlong business cycle and the related asset inflation could succumb to the menace of the European credit and currency crisis.
The empty shopping mall: a story of how government actions created a huge malinvestment in western Pennsylvania.
Original Article: "Empty Malls and Shopping Centers: How Government Fuels Malinvestments"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Robert Kagan is a well-known neoconservative historian who believes that America ought to exercise a “benevolent hegemony” over the rest of the world. In his just-published book, The Ghost at the Feast: America and the Collapse of World Order, 1900–1941 (Knopf, 2023), he presents an odd argument for America’s takeover of the Philippines after the Spanish-American War.
When United States armed forces arrived in the islands, many Filipinos hoped for American support in setting up an independent state. The American forces instead suppressed the independence movement and tortured and killed a great many people in the course of fighting a long guerilla war. The US government then established a protectorate over the Philippines, which was not granted independence until after World War II. Kagan doesn’t defend the atrocities, but he argues that American policy was on the whole justified. In this week’s article, I’ll examine his argument.
In essence, Kagan’s argument is this: because of the brutal Spanish colonial policy in Cuba, America was justified in freeing Cuba from Spanish rule. Since the Spanish wouldn’t give up control of Cuba voluntarily, America was required go to war with Spain. This in turn required that America strike at the Spanish Pacific fleet, which was stationed at Manila. Once the fleet was destroyed, the Philippines were open to a takeover by stronger imperialist powers, such as Germany. Such a takeover would have been contrary to America’s interests, and the Philippine people were incapable of resisting colonization by a European imperialist power.
In spite of all this, many Filipinos wanted independence. America thus had an interest in blocking Philippine independence, and since the independence movement was fighting for just that, in suppressing that movement by force. Although the use of force was regrettable and the use of torture wrong, Kagan argues, the American occupation of the islands brought many benefits to the Filipinos and was on the whole justified. In my view, each step of this argument is mistaken.
First, it is without doubt true that Spain’s attempt to maintain control of Cuba led to a great loss of life, but it does not follow that America was justified in going to war with Spain to free Cuba. Spanish control of Cuba posed no threat to American independence, and from a Rothbardian perspective, there was inadequate cause for war. (See Murray Rothbard’s article “Just War.”)
Many people accept war for “humanitarian” reasons, contrary to Rothbard, but the argument for American colonization of the Philippines does not meet that standard either. Kagan writes that the destruction of the Spanish fleet would have opened the Philippines to German control and that this was not in America’s interests:
The only great power eager for some or all of the Philippines was Germany, but this was not an attractive option. . . . To Americans, it seemed that Germany had its eyes on “every beachhead in Latin America and every atoll in the South Pacific.” These concerns only grew when, just after [Admiral George] Dewey’s victory, a potent German naval force arrived in the waters of Manila Bay, commanded by the same officer who had taken [the Chinese port of] Kiaochow. . . . Even in the unlikely event a stable government could be established, . . . . [i]t would only be a matter of time before either Germany intervened or the competing powers began struggling for control. (pp. 46–47)
Suppose Germany had colonized the Philippines and that Germany would have been much harder to dislodge than Spain had been. Why would this have been against America’s interests? Kagan offers no evidence that Germany posed a military threat to America, and he offers no other characterization of “interests” by which we can assess the claim that Germany threatened American interests.
But supposing that Germany would have posed something beyond a military threat, such as the potential ability to interfere with American commerce and naval maneuvers in the area, why is that a justification to take over the Philippines? Is a nation always justified in using force to halt a move against its “interests”? Further, the assumption that Germany would attempt to seize control of the Philippines was speculative. Why not delay preventive action until such an attempt was in the offing? And even if an independent Philippine state could not have prevented a German takeover, why not offer military assistance to a Philippine government rather than assume direct control?
Suppose, however, that one thought American control of the Philippines justified, at least until the nation was capable of adequate defense against foreign invasion. (Doesn’t this supposition sound ridiculous? “We are a foreign country who must control you so that other foreign countries won’t control you.”) If the moral costs of doing something are bad enough, the policy is wrong, even if the policy is otherwise justified. The Filipino independence movement was determined to resist the American occupying forces, and putting down that resistance involved killing and torturing many people:
The costs did rise, including the moral costs. . . . From the end of 1900 through the summer of 1901, the army conducted increasingly large and effective operations against the insurgents in over half of the Philippine provinces. . . . American brutality also increased. American forces began taking “punitive” measures against both insurgents and suspected supporters, destroying crops and property, without much concern for who actually owned them. More than one Civil War veteran compared the army’s tactics to Sherman’s devastation of the South. They moved civilians into “protected zones” to separate them from insurgents, drawing comparisons with Weyler’s reconcentrado policies in Cuba. . . . Captured prisoners were sometimes subjected to “the water cure.” (pp. 56–57)
For Kagan, America’s gross violations of human rights are excusable in a way that the offenses of Spain and Germany, discussed throughout the book, are not. Those of us who accept the requirements of ordinary morality will not follow him in this.
How do societies determine who their heroes are? We know that often those seen as heroes actually made a country worse off.
Original Article: "How Should a Nation Determine Its Heroes?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
When proposing alternatives to the state, libertarians should look back at the basics of political philosophy and find historical examples that illustrate the achievement of the goals of individual freedoms and self-government.
The most common mistake is to think of the modern state, the managerial leviathan we oppose, as a synonym of government in general.
Not many intellectuals can make that distinction, but in his book The History of the Forms of the State, Spanish liberal-conservative professor Dalmacio Negro Pavón outlines a theoretical and historical distinction between what we currently call the state (a late, artificial form of government) and earlier organic polities found in different but common forms in Western history.
By taking this distinction into consideration, some historical examples of governance start to appear as models of Austro-libertarian ideas. We can think of classic examples, such as Cospaia, Acadia, and even Liechtenstein, but the scales of these polities are far too small to provide examples for a good nonstate governance.
There is, however, a case that should be considered further: the Polish-Lithuanian Commonwealth in the years of its Golden Liberty—from 1559, the year the polity was officially established to consolidate the union of the Kingdom of Poland and the Grand Duchy of Lithuania before the death of its childless monarch, to 1795, the year that it was partitioned out of existence by its neighbors Austria, Prussia, and Russia.
During its almost two and a half centuries of existence, the Polish-Lithuanian Commonwealth was not only a prosperous territory, but it was also one of the freest ones in Europe. It had political features unseen elsewhere, compared to France, where absolutism and the Enlightenment were shaping the country into a centralized state and then to Jacobinism and revolution.
In Poland, the system set forth by the Union of Lublin, called both the Golden Liberty (or Golden Freedom) and the Nobles’ Commonwealth, included a combination of elements that was seen again in the founding of the United States, namely federalism and confederation, religious freedoms, property rights, elections, and civil organization, as well as many other elements that were unique to the Commonwealth. These aspects of the Polish political system during its so-called First Republic (the Najjaśniejsza Rzeczpospolita Polska, or in Latin, Serenissima Res Publica Poloniae) made the Golden Freedom a system unlike any other in its time.
The most important liberties highlighted in the Nobles’ Commonwealth were provided by various constitutional documents. These included the Henrician Articles of 1573 (signed by the first elected king, Henry de Valois, later king of France), the Warsaw Confederation of 1573, and the pacta conventa, which was was essentially a contractual charter (agreed by the nobles and each elected king) that bound the king and defined his policy. These documents’ achievements are visible in the following institutions:
- Szlachta, the nobility, with allodial property rights over the land they owned, meaning that their property was fully their own and not subject to the monarch’s will as with fiefdoms. The szlachta were composed of formally equal members with the same rights and duties, all able to hold offices and magistratures (and with wealthier families composing an informal class of magnates).
- Wolna elekcja, the free election of the monarch (whose children could not inherit the throne) by all szlachta members wishing to participate.
- Sejm, the parliament, which was required to be held by the king every two years and was composed of selected szlachta members. It had legislative powers to approve the king’s decisions to create taxes, conscript soldiers, fight foreign wars, and declare war or peace, as well as judicial powers over high court hearings to judge their own members. There were also sejmiks, local assemblies composed of members of the local nobility, dealing with issues at the level of governorship and county (called respectively in Polish województwo and powiat).
Originally, a group of about sixteen resident szlachta Sejm representatives were resident magistrates and had to serve as royal advisers. These supervisors were to ensure that the monarch was acting and ruling according to the laws of the Commonwealth, with many of them holding chancellorial offices—akin to modern public notaries—to counterstamp all royal decrees. Over time, this institution evolved into a proper Senate within the Sejm with the following rights:
- Liberum veto, directly known by its Latin name, which was the right that any representative of the Sejm, and later also in sejmiks, had to oppose majority decisions in parliamentary sessions and nullify all legislation approved. This permitted the nobility to disrupt and sabotage the workings of the Sejm and the will of the monarch by merely opposing it during parliamentary sessions.
- Konfederacja and rokosz, the rights of confederation, as in free association, and of insurrection, respectively, when the nobility, as well as the clergy, cities, and organized military forces, formed an organization to attain a common political aim. This was usually an armed rebellion against any monarch perceived to have abused his authority and violated the freedoms and liberties stated in law, either in the Henrician Articles themselves or in their respective pacta conventa.
- Religious freedom, which guaranteed the geopolitical importance of the Polish-Lithuanian Commonwealth as a refuge between Orthodox Russia, Muslim Ottoman Turkey, and a Western Europe torn apart by the Reformation and the Counter-Reformation, as well as attracting many expelled Jews from other countries.
With all these institutions constituting the basis of the Polish-Lithuanian constitution, the question here would be how all these political features could fit into the proposal of Austro-libertarianism for a prosperous and free society?
Simply enough, these elements that made Electoral Poland such an example of economic, political, and social freedoms are a practical demonstration that the tenets of freedom and civilization, found in the Western tradition, could be arranged in the best way to maximize freedom for its members.
Contrary to many still-repeated criticisms of the Polish-Lithuanian Commonwealth, the Kingdom of Poland was not a “purgatory for townspeople” and “hell for peasants” but a vibrant community, welcoming peoples from all backgrounds into an ordered society that promoted dignity and opportunity for all, to the point Russian serfs were known to escape into Polish-Lithuania for the better conditions under which they would live and work.
Another critique of the weak points of the Polish Golden Freedom was that they prevented the formation of a modern state, capable of surviving the partitions and the end of its political existence. However, critics tend to forget than even in times of struggle, such as during the many wars against the Muslim Ottoman Empire, the Polish-Lithuanian Commonwealth would arrange ways to protect itself and help neighboring communities from its own institutions.
Such was the case with the election of Jan III Sobieski as king and grand duke in 1674, a rare nonforeign candidate and an accomplished military commander. Nine years later, at the Siege of Vienna in 1683, he would not only come to the help of Holy Roman Emperor Leopold of Austria, but he would also come as the leader of a multinational military coalition.
Sadly, Poland-Lithuania, due to its strong attachment to the liberty achieved in its golden age, couldn’t stop its ultimate fate, first by becoming weakened through the influence of the centralizing French Enlightenment on its magnates and then by ending up partitioned by its neighbors from 1772 to 1795. Its existence, however, proved the historical viability of establishing political forms other than the modern state, forms that also meant higher levels of organic institutionality and freedom for its members.
Progressives like to claim that "America" has a "gun violence problem." However, the "gun violence problem" happens to exist in places where progressives dominate the government.
Original Article: "Concentrate Where the Murders Are Concentrated"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop feel obligated to discuss the State of the Union address. Was anything of value learned? Tune in to find out.
Also, join the Mises Institute in Tampa this month for a special event featuring Per Bylund, Jeff Deist, Tho Bishop, and Brett Lindell, on February 25. Learn more at Mises.org/Tampa.
Recommended Reading"Raise the Social Security Age to (at Least) 75" by Ryan McMaken: Mises.org/RR_120_A
"Another Recession Sign: Part-Time Work Is Growing Faster than Full-Time Work" by Ryan McMaken: Mises.org/RR_120_B
"Yes, the US Government Has Defaulted Before" by Ryan McMaken: Mises.org/RR_120_C
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Life on Earth is gradually getting better in every way, shape, and form. Dark times—like the present—are the major reason why that’s a hard sell for most people; energy crises, inflation, wars, deficits, and pandemics seem to suggest that things are bad. When people (like yours truly) repeat the established observation that human life is gradually improving, such statements often fall on deaf ears. It doesn’t look like things are getting better, and it certainly doesn’t feel like it. Sometimes, you must zoom out to see progress, fast-forward a few decades to appreciate it, and accept temporary tradeoffs in certain areas.
Some people suffer while others don’t; some demographics, regions, and industries are hit by shocks that decimate them for generations. Some countries developed from subsistence farming to heavy industry and then to top-notch financial service centers in a generation and saw many of their ancient, cherished cultural tropes replaced in a heartbeat.
Humans flourish when commodity prices are low. These days, prices are mostly high, as is familiar to anyone buying groceries or facing towering electricity bills. In a pretty somber take on Latin America, The Economist recently noted that “over these past nine years the region has seen no growth in [gross domestic product] GDP per person. Investment has fallen, productivity languishes, and poverty has risen again.” Loudly professing an ever-improving world seems unrealistic during a decade of stagnant growth.
Since 2020, Europe has faced a somewhat similar scenario (or since 2012, if you’re in Italy or Greece): high and rising commodity prices, rampant government deficits and excesses, record-low establishment trust, accelerating private indebtedness, and stagnating or declining (real) incomes. In the United States, real incomes have been flat for three years, wobbling drunkenly through covid panics, government income policies, and the inflation and shortages that followed. Confidence in society’s institutions is already terrifyingly low, but more importantly, it’s continuing to decrease.
The Economic Freedom Index, released annually by the Heritage Foundation, showed a sharp, global decline between 2021 and 2022. The world’s economies are noticeably less free than in recent years. The “good” news is that it only sets us back to levels seen around ten years ago. For some countries, like Sweden and Germany, the upward trend since the 1990s remains intact; these two countries saw their highest recorded score in 2022. For the US and the United Kingdom, 2022 noted lower scores than these countries had ever seen.
The Human Freedom Index, a competing metric from Canada’s Fraser Institute, is even less hopeful about the direction of civil liberty around the world: “Human freedom deteriorated severely in the wake of the coronavirus pandemic. Most areas of freedom fell, including significant declines in the rule of law; freedom of movement, expression, association and assembly; and freedom to trade.”
Perpetuated Pessimism and Cemented StagnationWhat happens to optimism, sanity, society, or even life itself when human progress suddenly stops? Has the Western ship turned around? “Is the dream dead?” as declinists since time immemorial have asked. Not necessarily. As the excellent macro analyst Lyn Alden recently observed,
We occasionally have periods of pullback and disorganization, and thus a decreased standard of living, due to underinvestment or malinvestment or external shocks. Supply chains get messed up. Commodities encounter supply shortages. Wars happen. Sometimes cultures degrade and reduce their rate of innovation, or technology in a certain area reaches inherent limits for a while until some breakthrough in another industry gives another opportunity for improvement.
The American entrepreneur and vocal bitcoin proponent Michael Saylor also spoke quite romantically on Lex Friedman’s podcast about humanity’s great achievements: “Our ability to cross the ocean, our ability to grow food, our ability to live—it’s technology that gets the human race from, you know, a brutal life where life expectancy is 30 to a life where life expectancy is 80.”
Perhaps we haven’t reached the end of the ever-expanding progress that economists, doctors, and researchers have mapped and chronicled for decades.
The most balanced and convinced response to the charge laid at progress’ door is that the jury is still out—though an acquittal looks likely. Sometimes progress pauses, even for long stretches of time, and so far, it’s hard to see why the current era’s regress should be viewed differently.
Consider the destruction of capital and resources between 1938 and 1945—to speak nothing of the human suffering experienced through bombings, scarcity, and death camps. The peak that civilization had reached by 1913, in terms of culture, wealth, art, and prosperity took decades to return to after humanity’s first encounter with global, total war and the totalitarian ideologies that serviced big government.
Even so, gender equality and civil rights movements didn’t seriously begin for another half century; most global improvements in health, wealth, income, and life expectancy occurred after Europeans and their allies had stopped blasting each other to pieces in what economic historian Deirdre McCloskey sometimes calls the “European Civil War, 1914–1989.”
If you were Chinese, however, the 1950s was the most disastrous decade to be alive—even if the labels used to describe Mao Zedong’s Great Leap Forward were ones of progress and achievement. China’s many current infractions of human rights aside, it’s now the most successful example of growth and poverty eradication in modern history.
If you were Ukrainian during Joseph Stalin’s purges in the 1930s (or Vladimir Putin’s more recently), you’d know only the progress of death, destruction, and starvation. For about a decade in the 2000s, Ukraine was a growth miracle, rapidly approaching European standards of living. If we endure, life eventually gets better—even this time.
If you are a white American, the rising mortality rate and subsequent decline in life expectancy that the rest of the world experienced during the pandemic has been your reality for close to a decade. Unemployment, undereducation, and opioids are usually cited to explain white America’s deaths of despair.
If you’re a young person in Britain and we take property prices into account, you’ve had a negative real household income for most of your professional life. Materially speaking, you’re falling behind. Cheaper electronics and the collapsing risk of infant mortality are great, but they are of very little comfort when you can’t build a life that even approaches what your parents built.
All is not well, and most importantly, the arrows are no longer pointing in the right direction. Something broke—whether by our own hands, chance, technology, or incompetent leadership. What more than two centuries of global enrichment tell us is that sometimes progress pauses. Sometimes things get worse—seriously worse—for quite a while.
Battling pessimism is a never-ending task for us moderns. Even John Maynard Keynes wrote in 1930 that “we are suffering just now a bad attack of economic pessimism.” And Keynes and his fellow economic theorists had still another decade and a half of mayhem, impoverishment, and destruction to look forward to, courtesy of the Great Depression and World War II.
Then life got better. Much better.
Nobody today or during our recent civilizational peak in the late 2010s would trade today’s material comforts and economic standards for what was considered top-notch in 1930. “On my deathbed,” reflects astrophysicist Neil DeGrasse Tyson in his new, popular book Starry Messenger, “I’d be sad to miss the clever inventions and discoveries that arise from our collective human ingenuity, presuming the systems that foster such advances remain intact.”
The charge that we somehow broke the mystical force that has propelled human progress for centuries is, at best, premature. We may yet emerge stronger, on the far side of the current decline, should we manage to endure its terrifying hardship.
Monetary authorities have come up with numerous clever ways of measuring money. However, they are unable even to define money, much less measure it.
Original Article: "Do Correlations Help Define Money?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Biden administration has increased federal government spending by a record $3.4 trillion since January 2021. That includes such signature bills as the American Rescue Plan Act of $1.8 trillion, the Inflation Reduction Act of $50.6 billion, and the Infrastructure Investment and Jobs Act of $764.9 billion.
As well as providing official costings for those bills, the Congressional Budget Office has found that a number of executive orders contribute nearly another $1 trillion of spending including college student debt cancellation, the end result being an additional $4.8 trillion to the net deficit.
To make a bad situation worse, there has since been the Consolidated Appropriations Act omnibus of $1.7 trillion which includes, until September 2023, $772.5 billion in nondefense discretionary spending, plus $858 billion in defense nondiscretionary spending.
In December 2022, the America First Policy Institute provided the top ten reasons to reject this omnibus. Three key points were
- The omnibus contains $15 billion in pork-barrel spending on over thirty-two hundred special lawmaker projects, which is swamp spending on steroids.
- Nondefense spending increases 9.3 percent from last year when the national debt is more than $31 trillion.
- The text of the omnibus is 4,155 pages long compared to the King James Bible of eleven hundred pages. Some members of Congress would be voting on this within two to three days.
nelson1.png As the political Left has so often preached, especially in the 2020s, context matters. The minor context is that it personally took this author all 365 days of 2022 to read the New King James Bible cover to cover. The major context can be seen in the above chart (from Downsizing Government), which shows that since 1970, actual spending reductions, not just slower growth, are—to say the least—few and far between.
Government Spending Harms . . . Again and AgainIn his book Power and Market, economist Murray Rothbard wrote,
There are fundamentally two ways of satisfying a person’s wants: (1) by production and voluntary exchange with others on the market and (2) by violent expropriation of the wealth of others. The first method [is] termed “the economic means” for the satisfaction of wants; the second method, the “political means.”
The former means is driven by Say’s law which, in short, is the economic reality that markets “produce in order to consume.” In similar fashion, the latter means is driven by the political reality that governments “spend in order to control.”
Greater government spending by its very nature, scale, and scope reduces the private sector by diminishing
- wealth on both Main Street and Wall Street, respectively by extracting ever more goods and services and by crowding out debt and equity;
- liberty through greater regulation, taxation, and inflation, which grants monopoly and cartel power to big government and woke capitalists, respectively; and
- morality as businesses increasingly seek political privilege and consumers seek welfare from the state.
Don’t Look to Washington for Inspiration; Look to Maine . . . Yes, MaineThe Maine Policy Institute recently published the Maine Policy Budget, a landmark report for the lobster state largely modeled and written by this author. This blueprint did two main things (no pun intended) in terms of spending:
- Provided a budget methodology (based on regulatory economics and objective statistics) not just for slowing spending growth but for reducing actual spending over a reasonable period of four financial years
- Delivered an actual budget, based on official data and simple formulas, that will produce budget surpluses (taxes minus spending) over the course of over four financial years
The 2019 Maine Policy Institute report entitled Cracking the Code provided the essence of the Maine state budget problem:
Figure 8 [below] shows the difference between actual government spending and spending based on inflation from the FY 2005 budget to present. The results show that the current proposal would be approximately $7.06 billion, a difference of $973 million, if the increases over previous budgets had not exceeded inflation. This would be more than enough to fill the Budget Stabilization Fund to its maximum capacity and still have a surplus available for subsequent budgets. In addition, state government would be able to reduce taxes or implement other significant reforms that could help all Mainers.
nelson2.png So-called natural monopolies, such as alleged public utilities, have been regulated in the United Kingdom since the 1980s and in Australia since the 1990s using a CPI-X approach. CPI is a measure of price inflation called the consumer price index. The X factor is derived from benchmarking efficiency. Sound economics and history clearly demonstrate that the only natural monopoly is government itself, especially government spending. CPI-X best applies to such spending, and in an innovative world-first, this was the main approach to reducing state spending in the Maine Policy Budget.
CPI, along with gross domestic product and the unemployment rate, are the “big three” of economic statistics. However, surprisingly, there is no official CPI for Maine nor for any other American state.
The Bureau of Labor Statistics does provide CPI metrics for the Boston-Cambridge-Newton area, the New England states, the Northeast Region’s population centers of under 2.5 million, and the USA as a whole. The Bureau of Economic Analysis provides the CPI-related regional price parity and implicit regional price deflator.
The 2016–17 to 2021–22 data for these six metrics were combined and tested in Microsoft Excel using objective statistical formulas for the maximum, average, and minimum. The result was an expected CPI of 7.2 percent. This number is also in line with inflationary expectations and modern monetary theory influences.
Internal X-factor benchmarking was based on Maine’s government agencies—thirty-three umbrellas and 351 units—which were categorized into nineteen departments, eight offices, and six independents. That is a lot of bureaucracy, given a 2020 state population of less than 1.4 million, which, by the way, only grew by 2.6 percent from 2010 to 2020. The statistical maximum, median, and minimum were modeled in terms of four-year money materiality, four-year index change (I = 100), and a one-year percentage change, resulting in three umbrella-agency tiers: ruinous, reckless, and restrained. For example, labor agencies are classified as ruinous, education agencies as reckless, and regulatory agencies as restrained.
For the four most recent historical financial years, external X-factor benchmarking was calculated in the same way as internal benchmarking, with the difference the nine Maine spending policies (for the thirty-three umbrellas) were mapped onto thirteen state spending policies from the US Census Bureau. The Census Bureau keep record of all fifty states’ spending policies, but only thirteen states were chosen, not including Maine itself. These were the New England six, the rural six, and the fiscal six (of two best, two mid, and two worst). Ruinous states included Pennsylvania, reckless ones Rhode Island, and restrained ones South Dakota.
The combined internal and external benchmarks formed the basis for the potential X factors in CPI-X. Only the restrained agencies ones were used as actual X factors to calculate the three spending options of cautious, sensible, and ambitious. In a very similar way objective measures of maximum, minimum, average, and median, and the midpoint between the latter two were calculated. Standard deviation was also employed.
This led to a set of CPI-X multipliers—cautious, sensible, and ambitious—for each of the three spending tiers of agencies (ruinous, reckless, and restrained), which yielded three possible significant spending reductions for each type of agency: −16.7 percent, −23.8 percent, and −30.4 percent over a four-year period.
nelson3.png If Maine Can Slash Spending, So Can Washington . . . and Sooner, Not LaterAs they say, “Where there is a will there is way.” This year and next should show whether there is a will to cut federal spending, at least in the US House of Representatives. Nonetheless, the watershed Maine Policy Budget report has certainly provided a main way, or perhaps even the main way, to finally cut government spending.
As life expectancy has risen, so have runaway costs. Raising the age won't make Social Security just, prudent, or wise. But cutting federal spending is always the right thing to do.
Original Article: "Raise the Social Security Age to (at Least) 75"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Between 2019 and 2022, the fortune of India’s Gautam Adani swelled from $9 billion to $127 billion. As the value of his seven publicly traded companies—providers of everything from natural gas to digital services—soared, he was briefly the world’s second-richest person. His meteoric rise caught the attention of Hindenburg Research, a small US investment firm devoted to profiting by exposing corporate malfeasance.
Viewing with suspicion the several-hundred-percent year-on-year gains of many of Adani’s companies, Hindenburg Research secretly began a two-year investigation into his sprawling corporate empire. Last week, they published their findings: Adani and his associates, many of them close family, have been engaged in a series of massive frauds.
The report, which runs over a hundred pages and includes several hundred sources, alleges numerous offenses, from accounting fraud to stock price manipulation, corruption, and intimidation. Hindenburg details first-hand accounts describing a network of Mauritius-based shell companies whose purpose is to move money covertly between Adani’s corporate entities, thereby making each firm’s financials look much better than they are, and they accuse Indian regulators of purposefully looking the other way while Adani and his cronies enrich themselves in this and other ways.
When the news surfaced, Adani quickly issued a blanket denial and threatened legal action. Markets weren’t reassured, however. Since Hindenburg’s report was published, Adani Group has shed 25 percent of its value, and Adani’s combined losses on the week amount to nearly $48 billion.
Investors are likely right to take heed. After all, though Hindenburg is only a few years old, its track record is fast becoming the stuff of legend.
Hindenburg exposed electric vehicle maker Nikola as a fraud, ultimately landing its founder, Trevor Milton, in jail—and this after the C-suiters at GM had agreed to take a huge partnership stake in the small firm. Hindenburg also blew the whistle on another electric vehicle maker, Lordstown, resulting in a massive overhaul of the company’s leadership and a lawsuit by shareholders.
In both cases, Hindenburg’s research team took its suspicions about Nikola’s technology and Lordstown’s reservation numbers and launched intensive investigations, interviewing former employees and investigating on site. Discovering numerous falsehoods, Hindenburg took large short positions in each company before releasing its reports, netting a bundle as the prices of both Nikola and Lordstown plummeted.
In the case of Adani’s empire, other than the eye-popping, several hundred–fold price increases (pictured below), Hindenburg spotted several immediate red flags. Among them was that the company couldn’t keep anyone in the chief financial officer position (with five in as many years). Also, the only independent audit outfit Adani Group listed on its payroll was a shadowy offshore entity with only a few apparent employees—this to oversee several hundred entities and their thousands of individual transactions.
Figure 1: Stock gains for Adani Group entities
solis_mullen_1.png After tracking down former employees, scoring interviews with several former senior executives, and pulling public corporate records, researchers at Hindenburg concluded that, all criminal conduct aside, Adani’s combined ventures are likely 85 percent overvalued given their actual debt-to-capital ratios.
To confirm whether or not these businesses are so overvalued would require a true accounting of each firm.
This may be forthcoming.
With markets having failed to be calmed by Adani’s initial statements, or by the four-hundred-page defense Adani’s team published over the weekend (which answered almost none of Hindenburg’s eighty-eight concluding questions), the Economic Times reported early January 31 that Adani’s companies would engage one of the “big four” internationally recognized accounting firms to come in and do an independent audit.
Whether Adani follows through once his company’s secondary issue is concluded, something he says must happen first, will remain to be seen.
As things stand at the time of writing, with just days to go before the secondary offering closes, just 3 percent of the subscription has been filled.
Like with FTX, the predictable calls for more and new regulations are sure to come as this story unfolds. It is worth pointing out that apart from distorting markets, regulators, for all the powers they are given, are often asleep, captured, or otherwise ineffective. And even the higher accounting standards since the Sarbanes-Oxley Act haven’t eliminated corporate fraud.
Activist short sellers like Hindenburg represent the cutting edge of an alternate means of market regulation. Any distortions caused by a single firm could be quickly corrected, even in the event that an investigating firm released inaccurate information, tremendously improving markets’ efficiency. That a profit-seeking firm does a better job patrolling the market and informing investors of fraud than comfily protected bureaucrats should come as no surprise.
And as always, the rule of the market should always be the old caveat emptor, buyer beware!
Americans often have defended the atomic bombings of Hiroshima and Nagasaki as regrettable but necessary for ending World War II. The actual record tells us a much different story.
Original Article: "Questioning the Military Necessity of Dropping Atomic Bombs on Japanese Cities"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Bernie Sanders and other politicians have made socialism attractive to voters, especially young ones, because it promises to eliminate the injustices of capitalism. As to what socialism and capitalism mean, no one seems to care much, other than that by socialism, they mean a kinder, caring society without income extremes, whereas capitalism is the preferred system of ruthless exploiters who amass obscene fortunes while real workers struggle to survive.
In recent times capitalism has been broadly disparaged, including for attacks on Mother Earth and the air Al Gore breathes.
This has to stop. Today’s socialists simply want to make America great—but for everyone.
And that starts with taxation. The very, very rich pay almost no income taxes, and many of the biggest corporations pay nothing. According to the Institute on Taxation and Economic Policy,
Tax-avoiding companies represent various industries and collectively enjoyed almost $40.5 billion in U.S. pretax income in 2020, according to their annual financial reports. The statutory federal tax rate for corporate profits is 21 percent. The 55 corporations would have paid a collective total of $8.5 billion for the year had they paid that rate on their 2020 income. Instead, they received $3.5 billion in tax rebates.
Clearly, income taxation as it exists is grossly unfair even if it is legal. Something must be done if society is to have a future. If taxes are the price we pay for civilization, and society is demonstrably uncivilized, there’s a bug in the system somewhere. But where? Today’s socialists think they know.
It’s not necessarily a case of the super-rich wanting to exert their power over the poor. According to Forbes, “At least a dozen billionaires have made public statements that call for the super-rich to pay more in taxes.” Some mega-rich individuals such as Warren Buffet apparently feel guilty and want government to swipe more of their income. However, surrendering income to a mega thief whose appetite is insatiable doesn’t balance the scales.
If people, regardless of income, had the choice of keeping what they earned, how many would instead turn it over to the government? In all likelihood, they would avoid all thieves, who have a way of wasting what they steal. Instead, people would likely direct more of their money into philanthropic activities, as the super rich did before the Sixteenth Amendment made income theft legal.
So, What Is the Solution?We need to ask ourselves: Is thievery necessary for civilization? Does making it legal make it any less larcenous? Does stealing more from those who have it add a luster of righteousness to theft?
Most of us were raised with the notion that theft is theft and theft is wrong. If a thief can be duped, so much the better.
The super rich, well aware of their vulnerability, have used the law to protect themselves, as Donald Trump’s now-famous remark to Hillary Clinton, that he was “smart” for not paying federal taxes, reminds us. If you were super rich, you would do the same. It’s merely a matter of buying the right politicians and bureaucrats to complicate the tax code.
Clearly, the oddball organization in all this is the government. It has more guns than Trump—a lot more—plus near-unanimous support from the media. The government could, if it believed its rhetoric, bring any billionaire to his knees. Alas, we are dealing with a corrupt government, easily swayed by the prospect of obscene monetary gains.
Corruption Raised to a VirtueOnce upon a time, governments discovered there are more ways to steal than through direct taxation. Kings and other tyrants noticed that their citizens trusted government coins and began diluting their precious metal content or falsifying their stamped content. The peasants caught on and hoarded the good ones, while using the king’s coins in trade. But the kings caught on and made the peasants pay taxes in good coins.
Much later, when banks got into the act, they noticed their depositors had begun using gold receipts in trade instead of the gold itself. Depositors trusted the banks, but then the banks decided to issue receipts for gold they didn’t have. Unlike the debased coins, a phony receipt looked the same as a good one. People were fooled, but eventually the banks were caught and had to shut down, at least temporarily.
Because banks dealt with money and governments could never get enough of it, the two became close friends. Government passed laws declaring that the banks owned the gold in their vaults, not the hapless depositors. It also created central banks that could control all or most of the banks of the country, as well as the economy itself.
Vera C. Smith addressed the topic of central banking in her 1936 book, The Rationale of Central Banking and the Free Banking Alternative. In the book’s preface, economist Leland Yeager tells us, “A central bank, as Smith noted, is not a product of natural development. It originates through government favors and bears special privileges and responsibilities.” Leland continues,
Typically, it serves as banker for the government and for the ordinary banks and monopolizes or dominates the issue of paper money. From this privilege derive the secondary functions and characteristics of a modern central bank: it guards the bulk of its country’s gold reserve, and its notes and deposits form a large portion of the cash reserves of ordinary banks. It is constrained under a gold standard, though less tightly than competing banks would be, by the obligation to keep its notes redeemable. When unable to meet this obligation, it typically suspends payments and goes off the gold standard, while its notes acquire forced currency. Control over the volume of its own note and deposit issue gives the central bank power over the size or scale of the country’s money and banking system and over the general credit situation. (emphasis mine)
In the US, the Federal Reserve and the federal government have had a cozy relationship for over a century. With gold redemption gone, the only receipts the Fed issues are fake ones, yet they pass as money, by decree. And by purchasing government debt, the Fed helps fund the government’s welfare-warfare expenses.
Given that the Fed has bought the economics profession, its operations are protected from reasonable scrutiny. Inflation, for instance, is usually defined as a volatile rise in the general price level—see the explanations of the Federal Reserve Bank of St. Louis, Investopedia, and the Peter G. Peterson Foundation, for example—not an increase in the money supply, as it was originally understood. The economists tell us a 2 percent price increase is not only acceptable but necessary for a healthy economy. And with its 2 percent target, the Fed is seen as an inflation fighter rather than an inflation creator.
Inflation eats away at the purchasing power of the dollar. Check it out for yourself. It’s effectively a hidden tax. Who is hurt the most: the few holding lots of dollars or the rest holding a few?
And if the few are big enough and can’t pay their bills, who do you suppose bails them out with its power of the printing press?
With the big players protected and even encouraged through what was originally termed the Greenspan put, is it any wonder large discrepancies in income result?
People say they want a level playing field. Rather than giving the known thieves more power, as today’s socialists and progressives want, the thieves should be ousted to achieve this goal.
The Bureau of Labor Statistic (BLS) released new jobs data on Friday. According to the report, seasonally adjusted total nonfarm jobs rose 517,000 jobs, which was well above expectations. The words used by the media to describe the report included “stunner” and “wow.” President Joe Biden claimed the number proves his administration has delivered economic prosperity. The administration has also noted that in the official numbers, the unemployment rate is at a multidecade low. This, Biden and his supporters insist, proves the economy is remarkably strong.
There are at least a few things going on that are problematic for this narrative, however. For one, the Fed is actively taking steps to reduce the money supply in an effort to slow price inflation. A second problem is that the federal government’s own numbers show that total employment actually fell in January. A third issue is the fact that what job growth exists is in part-time employment. Taking these together—and considering what they tell us about where we are in the current economic cycle—it’s very difficult to buy into any narrative that attempts to paint the economic situation as strong, much less “wow.”
Even the Fed Is Predicting Bad Employment NewsEven Fed chair Jerome Powell refuses to use last month’s employment report as any sort of indication of the future state of the employment market. At Wednesday’s Federal Open Market Committee (FOMC) press conference, for example, Powell was careful to state that the effects of the Fed’s (mild) tightening—i.e., raising the target interest rate, shrinking the Fed’s balance sheet—have yet to be seen. This is remarkable given that Fed personnel virtually always paint a rosy picture of the economy regardless of the timing. Rarely will one find a Fed chairman saying “We see a recession on the horizon.” Yet Powell last week admitted that he expects more unemployment soon (although he insisted it would be mild and stuck to the “soft landing” scenario.)
At this point, however, many industries rely heavily on continued easy money from the Fed. In the face of rising interest rates, we can expect layoffs. We can already see the effects in the tech sector, and without ultralow interest rates, demand for real estate services is plummeting as well. Housing slumps are often a sign of coming employment slumps.
Part-Time and Full-Time Employment Have Inverted, and That Means RecessionIn recent months, employment growth has increasingly been driven by part-time rather than full-time employment. Since September, in fact, month-to-month employment growth in full-time jobs has been negative, while growth in part-time jobs has been positive.
We see a similar trend in year-over-year job growth as well. In fact, in January’s jobs report, year-over-year growth in part-time jobs totaled 1.6 million, while growth in full-time jobs was only 1.4 million. The reverse is usually true in a time of economic expansion. For example, for much of 2018, year-over-year growth in full-time jobs numbered in the millions, while part-time employment actually fell.
Sometimes this situation reverses. Indeed, a switch from full-time-driven employment to part-time-driven employment usually indicates that a recession is coming. We saw it happen in 1981, 1990, 2001, 2008, 2020. Now it’s happened again in 2023.
This rarely gets reported in the headlines about job growth. We only hear about the establishment survey of total jobs at big employers (seasonally adjusted), which makes no distinction between full-time and part-time work. It also tells us nothing about whether people are taking on second jobs.
But if we look at the household employment survey, which looks at employed persons and part-time status, we find that many of the jobs we’re hearing about in last month’s “wow” jobs numbers are actually part-time work. Most of the reported job growth, in fact, was apparently part-time.
This could be due to several factors, not least of which is the fact that nominal year-over-year wage growth slowed in January—and real wages likely went down as well. As inflation continues to take a bite out of the family budget, more workers will need to take on extra work. At the same time, employers may be reluctant to shoulder the cost of full-time workers as the economy softens.
In fact, the lack of real wage growth should cause us to question the narrative of the “robust” economy overall. Average hourly earnings in January were up 4.35 percent year over year. But according to the Cleveland Fed’s inflation nowcast, Consumer Price Index (CPI) inflation in January was 6.4 percent. That means real wage growth fell by 2.1 percent. The cost of living is going up, and real wages have now fallen for twenty-two months in a row.
realwages.jpg Apparently, the “wow” job growth isn’t enough to actually get wage growth to exceed price inflation.
All That Job “Growth” Is Just Seasonal AdjustmentAnother reason to doubt the job-growth narrative is the fact that all the job growth reported by the BLS obscures the fact that total jobs in the real world actually went down last month. That actual jobs fell last month isn’t shocking, however, as total employment almost always goes down in January. It is reported as positive only due to sizable seasonal adjustments. But when the economy is in a transitional period, as it is now, seasonal adjustments may or may not actually reflect the current situation. In fact, as we can see in the next graph, when not seasonally adjusted, month-to-month January employment usually falls by at least two million jobs. Many Januarys in recent years have seen job losses of 2.8 million or more. In many cases, the BLS’s adjustments bring these numbers up by approximately three million.
Is the current adjustment appropriate under the circumstances? We don’t know. It’s pure guesswork. And this all brings to mind Murray Rothbard’s observation about some of the trouble we encounter with these adjustments:
The further one gets from the raw data the further one goes from reality, and therefore the more erroneous any concentration upon that figure. Seasonal adjustments in data are not as harmless as they seem, for seasonal patterns, even for such products as fruit and vegetables, are not set in concrete. Seasonal patterns change, and they change in unpredictable ways, and hence seasonal adjustments are likely to add extra distortions to the data.
With numerous indicators pointing toward recession and with the Fed in the middle of a tightening period, the BLS is applying more or less the same January seasonal adjustment as usual. Will that prove to be the “correct” adjustment in 2023? It’s impossible to say, and it’s certainly impossible to take the make-believe number of “517,000 new jobs” as evidence of the underlying economic fundamentals at all. This sort of extrapolation is especially dangerous when job growth is increasingly all about part-time work.
Taken all together, January’s jobs report would seem to back up Powell’s claim that overall, the full effects of a falling money supply have yet to be fully felt. Looking at January’s jobs numbers as evidence of a strong job market requires that we ignore what we know about real wages, part-time jobs, falling home prices, and more.
In its unending quest for power, the state has no problem traumatizing the innocent.
Original Article: "The State Uses Trauma as a Weapon against Innocent People"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Friends and family are talking, on Facebook, about the rapid rise in the price of eggs. Their posts also report that there are plenty of eggs in the dairy sections of local grocery stores. A few people, along with some reporters, blame this rapid increase in the price of eggs on price-gouging corporations.
State governments take price gouging seriously. Section 396-R of New York’s General Business law defines price gouging as “unconscionably excessive pricing of essential goods and services during any abnormal disruption of the market, such as severe weather, power outages, strikes, or national or local emergencies.” This law also prohibits price gouging “by all parties in the chain of distribution, including retailers, manufacturers, wholesalers, suppliers and distributors.”
Price gouging in a free, open market is a myth concocted by people who benefit from state interventions. When demand for a good suddenly jumps, for whatever reason, the price and quantity sold increase. If the supply of a good suddenly falls, the price rises as the good becomes scarce. Prices increase even more if rising demand and scarcity occur simultaneously. In all of these scenarios, there will be plenty of eggs in the dairy section of grocery stores provided markets are allowed to adjust. Adjustments, however, will result in higher prices, which encourage consumers to economize or seek substitutes.
Could rapidly rising prices be the result of firms colluding or merging to become the sole supplier of a product? Yes, but only over a short period when there are no substitutes. A sole supplier, in either form, does this by restricting output, which pushes the price up, results in above-normal profits, and attracts entrepreneurs who see a potential entry point. If entrepreneurs are free to innovate and profit from their efforts, they will jump into this market.
A fascinating example of this is Phil and Jenn Tompkins’s business. It rents egg-laying chickens to consumers. Its sales are booming. Consumers save money by gathering freshly hatched eggs from the rented hens in their backyards rather than buying expensive eggs from grocery stores.
Since price gouging cannot occur in free markets, even when firms collude or merge with their competitors, it follows that government intervention must be the cause of rising prices.
If a price increase is substantial, some voters will demand their representatives act. Legislators that blame corporations call for taxes on the “windfall profits,” consumer subsidies to offset higher expenses, or capping prices at previous lower levels. None of these proposals would lower prices. A windfall tax pushes prices even higher by reducing supply. A consumer subsidy does the same by boosting demand. A price cap would result in a shortage—no eggs in the dairy section—as consumers would demand more than firms can supply at a level that generates a minimal return on investment.
Despite these realities, legislators intervene in markets by creating product and service scarcities on one side of transactions and excessive money growth on the other.
In late 2008, legislators gave the Fed the authority to pay interest on reserves (IOR). The IOR rate serves as a price floor, resulting in trillions of dollars in unemployed reserves. It allows the Fed to print trillions of additional dollars to paper over the multi-trillion-dollar budget deficits of the Trump and Biden administrations. To keep unemployed reserves bottled up in the banking system and prevent excessive inflation, the Fed simply lifts IOR rates when reserve outflows become excessive. This, however, is not foolproof. Reserves leak out to prime borrowers in an arbitrage facilitated by big banks, which borrow from the Fed at the IOR rate and lend to these borrowers at the prime rate.
Progressive income taxation punishes those who are most productive and innovative. Low interest rates and corporate subsidies extend the lives of malinvestments and the zombie firms owned and operated by well-connected, powerful individuals. And antipoverty programs pay people to work less than they otherwise would. These interventions result in a national output that is lower than what would have prevailed in their absence. These policies thus create an artificial scarcity that pushes prices upward.
As mentioned above, firms that collude to act as, or merge to become, the sole supplier of a product require a neomercantilist economy and cannot occur in a free market. The state has been and continues to be the creator of monopolies. For example, kings and queens gave producers of ships and textiles the sole right to supply their kingdoms with these products in exchange for collecting taxes.
Today, monopoly-making mechanisms work in similar ways. The state restricts entry via licensing, patents, subsidies, and convenience of necessity (CON) laws. Republic Services and Waste Management, for example, both spent five hundred dollars to purchase a “competitor’s veto” to block a young entrepreneur from providing trash delivery services to homebuilders in Montana. Likewise, intensive care unit beds were in short supply during the pandemic because CON laws allowed incumbent hospitals to block competitors from entering the market.
The World Economic Forum (WEF), no matter what rhetoric it uses to hide its agenda, is a cartel of corporatists who use government allies throughout the world to create rules and restrictions on trade and production. These restrictions are sold to us as a means of saving the planet, when in reality, they save corporatists from present and future competitors. Because their policies create shortages and cause mass protests, like in Sri Lanka and the Netherlands, the WEF understands that they need to label opinions and conversations that hinder their efforts as misinformation and make this misinformation illegal.
The utopia Western governmental elites, top universities, corporate media, and the WEF’s desire will be an Orwellian dystopia for us. Its foundation has been laid. We voluntarily walk around with its telescreens in our hands. These devices, which are occasionally used to make phone calls, track our movements and thoughts and subject us to the Two Minutes Hate of Nineteen Eighty-Four through perpetual and outrageous social media. The agents of these institutions change the meaning of words and send history down the memory hole.
Price gouging is not a result of firms competing in a free and open marketplace. It is the result of governments creating artificial scarcities via taxes, subsidies, regulations, and licensing, and it will only get worse if the WEF gets its way.
The regime is trying to whip up maximum hysteria or the chances that the US government could default on its debts if the debt ceiling is not raised.
Anyone whose been paying attention for a while, however, knows there's a 99.99% change that the parties involved will soon raise the debt ceiling and the US will go back to adding to its $30-trillion-plus debt hoard as usual. Yet, the political posturing over the debt ceiling always offers the media and Democratic politicians a chance to assure us that any default will bring about a second Great Depression and financial collapse.
One key component of this strategy is convincing people that the United States has never defaulted before, and has always made good on its financial obligations. This is key because it helps create the impression that were the United States to default, the result would a step into the great unknown, and a “financial crisis and a calamity.”
As part of this strategy, Treasury secretary Janet Yellen is at again, and repeating her often-used claims the US has never defaulted. This week, she's telling the usual story on ABC news, claiming "America has paid all of its bill on time since 1789."
America has paid all of its bills on time since 1789, and not doing so would produce an economic and financial catastrophe. Every responsible member of Congress must agree to raise the debt ceiling. It's something that simply can't be negotiable. pic.twitter.com/bQeclv7Bba
— Secretary Janet Yellen (@SecYellen) February 6, 2023
Yet the United States government has most certainly defaulted on debts before—more than once. Moreover, if we expand the idea of default slightly, to encompass the idea of inflating away a government's debt in real terms, default is even more common.
First, let’s look at the most notorious case of US default on its debt obligation.
The 1934 Default on Liberty BondsIn 1934, the United States defaulted on the fourth Liberty Bond. The contracts between debtor and creditor on these bonds was clear. The bonds were to be payable in gold. This presented a big problem for the US, which was facing big debts into the 1930s after the First World War. As described by John Chamberlain:
By the time Franklin Roosevelt entered office in 1933, the interest payments alone were draining the treasury of gold; and because the treasury had only $4.2 billion in gold it was obvious there would be no way to pay the principal when it became due in 1938, not to mention meet expenses and other debt obligations. These other debt obligations were substantial. Ever since the 1890s the Treasury had been gold short and had financed this deficit by making new bond issues to attract gold for paying the interest of previous issues. The result was that by 1933 the total debt was $22 billion and the amount of gold needed to pay even the interest on it was soon going to be insufficient.
So how did the US government deal with this? Chamberlain notes “Roosevelt decided to default on the whole of the domestically-held debt by refusing to redeem in gold to Americans.”
Moreover, with the Gold Reserve Act of 1934, Congress devalued the dollar from $20.67 per ounce to $35 per ounce—a reduction of 40 percent. Or, put another way, the amount of gold represented by a dollar was reduced to 59 percent of its former amount.
The US offered to pay its creditors in paper dollars, but only in new, devalued dollars.1 This constituted default on these Liberty Bonds, since, as the Supreme Court noted in Perry v. United States, Congress had “regulated the value of money so as to invalidate the obligations which the Government had theretofore issued in the exercise of the power to borrow money on the credit of the United States.”
This was clearly not a case of the US making good on its debt obligations, and to claim this is not default requires the sort of hairsplitting that only the most credulous Beltway insider could embrace.
Indeed, Carmen Reinhart and Kenneth Rogoff in their book This Time Is Different list this episode as a “default (by abrogation of the gold clause in 1933)” and as “de facto default.”2
The Short Default of 1979A second, less egregious case of default occurred in 1979. As Jason Zweig noted in 2011:
In April and May 1979, amid computer malfunctions, heavy demand from small investors and in the wake of Congressional debate over raising the debt ceiling, the U.S. failed to make timely payments on some $122 million in Treasury bills. The Treasury characterized the problem as a delay rather than as a default. While the error affected only a fraction of 1% of the U.S. debt, short-term interest rates—then around 9%—jumped 0.6 percentage point and the U.S. was promptly sued by bondholders for breach of contract.
Apparently, the United States sometimes does not pay its debts. While the 1979 default was relatively small, the 1934 default affected millions of Americans who had bought Liberty Bonds mistakenly thinking the government would make good on its promises. They were very wrong.
So, it is simply untrue that the US has never defaulted as Yellen claims. But this claim remains a useful tactic in sowing fear about “unprecedented” acts that would bring the entire US economy crashing down.
Default through DevaluationBut outright repudiation of contracts is only one way of defaulting on one’s obligations. Another is to deliberately devalue a nation’s currency—i.e., inflate it—so as to devalue the amount of debt a government owns in real terms.
And Zweig writes investors view this as a real form of avoiding one’s debt obligations:
Perhaps the biggest worry [among investors] isn't default but … "financial repression." In dozens of cases, governments have dug out from under burdensome debts not by refusing to pay interest but rather through other harsh means. For example, by keeping short-term interest rates below the level of inflation, a government can pay off its bondholders with cheapening money. Through regulations, it can compel banks and other financial firms to buy its own debt, much like geese being force-fed for foie gras. As a result, current yields and future inflation-adjusted returns on government bonds fall.
This strategy, Zweig concludes, “stiffs bond investors with negative returns after inflation.”
Zweig categorizes this as something separate from default, but Reinhart and Rogoff clearly consider it a form of de facto default. They write: “The combination of heightened financial repression with rises in inflation was an especially popular form of default from the 1960s to the early 1980s” (emphasis added).3
(In the United States, a key event in this respect occurred in 1971 when Nixon closed the gold window. This was an explicit repudiation of the US’s obligation to repay dollars in gold to foreign states, and it also greatly enabled the US government in terms of financial repression and monetary inflation.)
Since the Great Recession, financial repression is popular again. This method of de facto default has enabled the federal government to take on massive amounts of new debt at rock-bottom interest rates. In real terms, the US government—or any government using this tactic—pays back its debts in devalued currency, essentially enabling the government to make good on the full extent of its debts. The cost to the public manifests in asset price inflation, goods price inflation, and a “hunt for yield” driven by a famine of income on safe assets. Americans of more modest means are those who suffer the most, and the result has been a widening gap of inequality in wealth.
It may very well be that a default could lead to significant economic and financial disruptions. But let's stop pretending that a default is unprecedented or that the United States always pays its bills. It's true that the US's current debt machine, enabled through financial repression, is a form of slow-motion default. But that doesn't make the US government any less of a deadbeat.
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- The Supreme Court summed it up this way: “The Joint Resolution of June 5, 1933, had enacted that such bonds should be discharged by payment, dollar for dollar, in any coin or currency which, at time of payment, was legal tender for public and private debts. The bondholder, having been refused payment in gold coin of the former standard or in an equal weight of gold, demanded currency in an amount exceeding the face of the bond in the same ratio as that borne by the number of grains in the former gold dollar to the number in the existing one—or $1.69 of currency for every dollar of the bond. The Treasury declined to pay him more than the face of the bond in currency, and he sued in the Court of Claims.”
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- Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009), pp. 111, 117.
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- Ibid., p. 117.
A recession looks more likely every day, and the latest sign of this is slowing price growth in producer prices. After all, price inflation usually slows as the economy weakens and consumers run out of easy money.
Original Article: "Wholesale Price Inflation Is Slowing as Economy Worsens"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Current international tensions have intensified a debate that has existed for at least a decade between two radically different views of the world and international relations: the unipolar world and the multipolar world. When libertarians disagree on foreign policy, the underlying cause is often this difference in worldview. The purpose of this article is to show that a unipolar world is contrary to the principles of libertarianism and that a multipolar world is an important step toward global liberty.
Unipolar versus MultipolarA unipolar world is a world led by a single pole of power, for example, the current, liberal, rules-based international order centered in Washington DC. This international order is a flexible, fuzzy concept, distinct from international law (even though the two sometimes coincide). This is the world that the United States, with its Western allies, created in 1945 and has tried to expand since the fall of the Soviet Union in 1991.
The underlying idea is that Western political systems, “liberal democracies,” have a moral superiority that justifies their global rule. It is, by definition, a power of hegemonic ambition. The unipolar world is a world in which nation-states lack independence; they are dominated—for their own good of course—not only by the center of power but also indirectly by the supranational institutions that lend their allegiances to the central pole.
A multipolar world is the opposite of the world described above. It is a world that much more strictly respects international law, in particular as expressed in the Charter of the United Nations. No value judgment is applied to political systems in this view of international relations. On the contrary, political systems are seen as consequences of specific political cultures and histories. The multipolar world is not universalist. Global political power is divided and shared between a multitude of poles, and nation-states are not subjected to supranational institutions.
As these short descriptions show, the multipolar and unipolar visions are mutually exclusive. This largely explains the tensions that currently exist in international relations.
Why Not Support the Unipolar World?At first glance, it might seem strange that libertarians should prefer a multipolar world. Indeed, the unipolar world is centered on the West, which is often deemed more respectful of civil liberties than the rest of the world. Moreover, libertarians are ideologically committed to an open world that minimizes the political and legal obstacles hindering free trade between companies and individuals from different political spheres.
Would it not be natural for libertarians to prefer a unipolar system where a single political entity manages the world, ensures peace, and weakens the political boundaries between nation-states? The answer to this question is, emphatically, “No!” Support for a unipolar world is an error caused by classical liberalism’s universalist, Enlightenment roots. There is never a guarantee that the winning pole of power will be benevolent and peaceful. What if it is not? In fact, support for a unipolar world can often be explained by ignorance of the true nature of the federal government of the United States (even though it has been exposed over many decades by intellectuals and journalists such as John T. Flynn, Robert Higgs, Noam Chomsky, Eduardo Galeano, and John Perkins).
Moreover, the current unipolar world is neither economically nor politically as free as it presents itself. Examples of illiberal policies (such as crushing taxation) abound in the West. Western elites have never really been willing to implement free trade, for example, between the West and the developing world, to the detriment of the latter. Additionally, the problems of democratic legitimacy in the West have become all too common; decisions are often made by leaders in opposition to the will of the majority.
Furthermore, the unipolar world is heading toward political globalization, which is undeniably a form of international fascism, as professor Michael Rectenwald has shown in a brilliant series of articles. From the beginning, the unipolar world was unfair and unstable because it favored the Western financial system based on the US dollar. Different forms of coercion exist for nations that do not cooperate. The threat of military use is obvious, but the extraterritoriality principle of US law (such as the Foreign Corrupt Practices Act) is also a threat. By its very nature, the unipolar world cannot exist without constant, illegal, and unsolicited interventions in the internal affairs of countries that do not wish to fully adhere to the political positions of the center of power. This is the only way the unipolar world can be maintained and extended.
Nonintervention and DecentralizationThe unipolar world, therefore, goes directly against the principle of nonintervention, which is fundamental to libertarianism. The principle of nonaggression, and thus the peaceful exchange between nations so important to libertarians, is much better represented and protected by international law.
Libertarians fundamentally recognize the decentralization of political power within nation-states. These same libertarians should accordingly support the decentralization of political power among nations. This is, of course, tantamount to supporting a multipolar world. The benefits of decentralization have been demonstrated by libertarian historians such as Ralph Raico and Donald Livingstone; centuries of competition between small European political entities were key to the economic development and political liberalization of these societies.
The multipolar world is, however, not a sufficient development from a libertarian point of view because of the statism that persists in such a world, but it is an important step toward freedom compared to the unipolar world. Libertarians must, therefore, support the multipolar world and reject the unipolar world for the previously outlined reasons. This position needs to be expressed strongly, even if it is not so popular at present, because the multipolar world is still poorly understood and poorly accepted by a West accustomed to its dominant position.
The "True" Money Supply (TMS), developed by Professor Murray Rothbard and myself,1 is an admitted imperfect attempt to provide a statistical measure of money that is consistent with the theoretical definition of money as the general medium of exchange in society.2
Measure of the U.S. money stock in current use in economic and business forecasting and in applied economics and historical research are flawed precisely because they are not based on an explicit and coherent theoretical conception of the essential nature of money. Given the all-pervasive role of money in the modern market economy, existing money-supply measures therefore tend to impede, rather than to facilitate, a clear understanding of the past or future development of actual economic events. Each one of the familiar set of M's calculated by the Federal Reserve System, for example, both excludes some items that are identifiable as money by our definition and includes other items that lack the essential properties of general medium of exchange.
As the general medium of exchange, money is a good universally and routinely accepted in exchange by market participants; or, put another way, it is the one good that is traded for all other goods on the market. One important implication of this fact—and an important empirical test of whether or not a thing can be counted as money—is that money serves as the final means of payment in all transaction. For instance, credit cards are not counted as part of the TMS, because use of a credit card in the purchase of a good does not finally discharge the debt created in the current transaction. Instead, it gives rise to a second credit transaction that involves present and future monetary payments. Thus the issuer of the card or lender is now bound to pay the seller of the good immediately with money on behalf of the card-holder or borrower. The latter, in turn, is obliged to make a monetary repayment of the load to the issuer at the end of the month or at a later date, at which time the transaction is finally completed.3
In the case of a paper fiat money, such as the current U.S. dollar, there is a second test that can be applied to determine whether a particular item should be counted in money supply statics. Unlike any good produced in the market, including a commodity money, whose quantities are ultimately determined by the interaction of supply and demand, 4 the quantity of government fiat money (but not its purchasing power) at any point in time is determined solely by decisions if suppliers of the good, i.e., government central banks, without respect to the desires and actions of the demanders. The fact that money is routinely accepted as the final means of payment by all participants in the market means that fiat money can be literally lent and spent into existence regardless of the public's existing demand for it. For example, if an additional quantity of Fed notes is printed up and spent by government on various goods and services, an excess supply of money will temporarily be created in the economy. The initial recipients of the new money will quickly get ride of the excess cash simply by increasing their own spending on goods; those who eagerly receive the new money as payments in the second or later rounds of spending will do likewise, in the process bidding up the prices of goods, reducing the purchasing power of the dollar, and consequently, increasing the quantities of dollars that each individual desire to keep on hand to meet expected future payments or for other purposes. In summary, any excess supply of fiat money does not go out of existence, but is spent and respent and continually passed on like a "hot potato" throughout the economy until the surplus money is finally and fully absorbed by the resulting increase in general prices and in desired dollar holdings.5 It is this criterion which is applied below in resolving the apparent inconsistency of including demand deposits and money market accounts (MMDAs) in the TMS, while excluding checkable money market mutual fund (MMMF) equity shares.
In what follows, I explain briefly why various items have been included in or excluded from the TMS. To simplify the exposition, I organize my explanation around the several Fed definitions of the money supply and of total liquid assets.
Components of M1Currency in the hands of the nonbank public, i.e., excluding currency held by the U.S. Treasury, the Fed, and in the vaults of commercial banks, is counted in the TMS, precisely because it is the physical embodiment of the generally accepted medium of exchange in the U.S. economy. Federal Reserve notes of various dollar denominations (as well as token coins and paper notes issued by the U.S. Treasury) are the "standard money" or ultimate "cash" of the U.S. monetary system, having replaced gold in this function, at least for American citizens, in 1933.
Demand deposits or checking account balances at commercial banks and other checkable deposits, such as NOW accounts held at S&Ls, are included in the TMS by virtue of the fact that they are claims to the standard money redeemable at par on demand by the depositor or by a third party designated by the depositor. Despite the fact that these deposits are only fractionally backed by cash or immediately cashable reserve deposit at the Fed, their instantaneous redemption at par is effectively guaranteed by two factors. First, there is federal deposit insurance, which legally insures up to $100,000 of each and every depositor at a given bank or thrift against loss, hue which, in practice, has almost always guaranteed the full worth of all deposits, usually by subsidizing the merger of an ailing institution with a healthy one.6 Second and more importantly, there is the Fed itself, which, in its much-publicized function as the "lender of last resort," always stands ready to head off a banking panic by simply printing up and lending the needed quantities of Fed notes to banks or thrifts unable to meet their demand liabilities.7 For reasons, checkable deposits held at federally-insured banks and thrifts are readily acceptable in exchange as perfect substitutes, dollar for dollar, for Federal Reserve notes.8
In contrast, travelers' checks issued by nonbank financial institutions, such as American Express, are excluded from the TMS because they neither are riskfree claims to immediate cash nor serve as final means of payment in transactions. What a travelers' check represents from an economic point of view is a credit claim on the investment portfolio of the issuing company. The purchase of travelers' checks from American Express involves, in effect, a "call" loan by the purchaser to American Express, which the latter pledges to repay to the purchaser or to a designated third party at an unspecified date in the future. In the meantime, most of the proceeds of such loans are invested by American Express on its own account in interest bearing assets, while a fraction is held in the for of demand deposits to meet anticipated payments of its travelers' check liabilities they "mature." In exchange for the foregone interest (an a small fee) the purchaser receives access to an alternative payments system which avoids the risk of loss associated with carrying cash payments and the potential delay or nonacceptance involved with payment by personal check drawn on a distant bank. But the travelers' checks themselves are not the final means of payment in a transaction;9 the sellers who receive travelers' checks in exchange quickly and routinely present them for final payment at a bank and obtain either cash or a credit to their demand deposit accounts, with the sums paid out ultimately being debited to the demand deposit account of American Express. Moreover, in the highly unlikely event that financial reverses force the issuing company into institutional liquidation, the holders of its outstanding stock of travelers' checks would be, economically and legally, in the same boat as debtholders of any insolvent business firm, having no political guarantee of a dollar-for-dollar payoff of their debt claims, such as that provided by federal deposit insurance and privileged access to the lender of last resort.
Components of M2 Not Included in M1Savings deposits, whether at commercial banks or thrift institutions, are economically indistinguishable from demand deposits and are therefore included in the TMS. Both demand and savings deposits are federally insured under the same conditions and, consequently, both represent instantly cashable, par value claims to the general medium of exchange. The objection that claims on dollars held in savings deposits typically do not circulate in exchange10 (although certified or cashier's checks may be readily drawn against such deposits and are certainly generally acceptable in exchange), while not unimportant for some purposes of analysis, is here beside the point. The essential , economic point is that some or all of the dollars accumulated in, e.g., passbook savings accounts are effectively withdrawable on demand by depositors in the form of spendable cash.11 In addition, savings deposits are at all times transferable,12 dollar for dollar, into "transactions" accounts such as demand deposits or NOW accounts.13
The common-sense case for the inclusion of savings deposits in the stock of general media of exchange was cogently presented by the eminent German banker and economist, Melchior Palyi:
In their own minds, money is what people consider as purchasing power, available at once or shortly. People's "Liquidity" status and financial disposition are not affected by juristic subtleties and technicalities. One kind of deposit is as good as another, provided it is promptly redeemable into legal tender at virtual face value and is accepted in settling debts. The volume of total demand for goods and services is not affected by the distribution of purchasing power among the diverse reservoirs into which that purchasing power is placed. As long as free transferability obtains from one reservoir to the other, the deposits cannot differ in function or value ...
A source of confusion is the identification of savings deposits with savings. The former are no more and no less "saved" than are the funds put on a checking account or the currency held in stocks. In all three cases, someone is refraining from consumption (for the time being); in all three, the funds constitute actual purchasing power. And it makes no difference in this context how the purchasing power is generated originally: dug out of a gold mine, "printed" by a government agency, or "created" by a bank loan. As a matter of fact, savings banks and associations do exactly what commercial banks do: they build a credit structure on fractional reserves.14
Overnight repurchase agreements or "RPs" were devised in the mid-1970s as a means of evading the legal prohibition against the payment of interest on demand deposits. They are, in essence, interest bearing demand deposits held by business firms at commercial banks and therefore are included in the TMS. In a repurchase agreement, a firm, in effect, makes a loan to a bank which is collateralized by government securities. The bank "sells" government securities to the firm with an agreement to "repurchase" them the following day at a slightly higher price, i.e., repay the loan plus interest. When the purchase or loan is initially made, the bank debits the firm's demand deposit balance and credits its RP account by the amount of the loan. On the following day the bank repays the loan with interest by reversing the process and crediting the firm's demand deposit with a sum that exceeds the previous day's debit by the amount of the interest payment. Since the loans are mating daily, the firm has virtually instant access to the full amount of its dollars on deposit with the bank.15
Overnight eurodollars are counted in the TMS for the same reason as overnight RPs: they are basically an accounting fiction that permit U.S. banks to pay interest on their business demand deposits and are therefore virtually redeemable on demand. In the case of overnight eurodollars, deposits are made by U.S. firms in interest bearing accounts at the Caribbean bank of a U.S. bank, where U.S. interest-rate regulations have no legal force. The dollars thus deposited plus interest earned are credited daily to the firms' demand deposit accounts held at the parent bank.16
Money market deposit accounts, as a hybrid of demand and savings deposits, are considered pare of the TMS. MMDAs are federally insured up to $100,000 per account, feature limited checking privileges, and offer par value cashability upon demand of the depositor.
Although MMMF share accounts at first glance look like MMDAs, they are clearly excludable from.the TMS, because they are neither instantly redeemable, par value claims to cash, nor final means of payment in exchange. This requires a brief explanation of the nature of MMMFs.17
Each MMMF share represents a claim to a pro rata share of a managed investment portfolio containing shore-term financial assets, such as high-grade commercial paper, certificates of deposit, and U.S. Treasury notes. Although the value of a share is nominally fixed, usually, at one dollar, the total number of shares owned by an investor (abstracting from reinvested dividends) fluctuates according to market conditions affecting the overall value of the fund's portfolio.18 Under extreme circumstances, such as a stratospheric rise in shore-term interest races or the bankruptcy of a corporation whose paper the fund has heavily invested in, the fund's investors may well suffer a capital loss in the form of an actual reduction of the number of fixed-value shares they own. Unlike a check drawn on a demand deposit or MMDA, therefore, an MMMF draft does not simply represent a direct transfer of current claims to currency, but a dual order to the fund's manager to sell a specified portion of the shareowner's asset holdings and then to transfer the monetary proceeds to a third party named on the check.19 Note that the payment process is not finally completed until the payee receives money, typically in the form of a credit to his demand deposit.20
Another feature that distinguishes checkable MMMF shares from demand deposits and MMDAs is the fact that the former cannot be permanently expanded beyond the limit set by the public's willingness to hold such assets. If an excess supply of fund shares happens to emerge, the consequence would not be the general rise in prices occasioned by people's attempts to rid themselves of surplus dollars through increased spending.21 Unwanted MMMF shares simply go out of existence, as fund investors directly redeem them for money or use MMMF drafts to purchase alternative investment assets or consumers' goods. In the extreme case, if the public suddenly preferred to invest directly in the short-term credit market, without the intermediation of managed mutual funds, checkable MMMF shares would simply disappear from existence.
It is important to realize that the existence of MMMFs does have an effect on overall prices in the economy, but not because checkable fund shares constitute an addition to the money supply. Rather, the liquidity and checkability features of these assets permit their holders to reduce the amount of money they need to keep on hand to meet anticipated payments and to insure against future contingencies. This is also true, as we saw, of credit cards, which similarly provide their holders with access to an alternative payments system that economizes on money. By thus reducing the overall demand for money, MMMFs and credit cards encourage a higher rate of aggregate spending in the economy that results in a general rise in prices. However, the price increase associated with a given expansion of MMMFs is a "one-shot" phenomenon, whose magnitude is strictly governed by the corresponding reduction in the aggregate desired money balances of market participants. This sharply contrasts with inflation, which typically refers to a money-supply phenomenon involving a persistent decline in the purchasing power of the monetary unit that results from the creation of additional quantities of government fiat money, which, in theory, is limited only by the onset of a hyperinflationary currency breakdown.
Small-denomination time deposits refer mainly to federally-insured certificates of deposit (CDs) in denominations of less than $100,000 and are excluded from the TMS because they involve loans by the public to banks and thrifts.22 As time deposits, CDs nominally are not cashable on demand, but are payable in dollars only after a contractually fixed period of time ranging from thirty days to a number of years. However, the fact that issuing institutions stand ready to redeem these liabilities in current dollars at any time prior to maturity does constitute a theoretical argument for their inclusion in the TMS at their current redemption value. On the other hand, depositors do have a strong incentive to abstain from cashing small CDs before their maturity dates, because issuing institutions typically assess heavy penalties—varying from forfeiture of accrued interest to loss of the original principal—in the event of premature redemption. The ultimate decision to exclude this item was also heavily influenced by the practical problem of obtaining the data necessary to permit a reasonable estimate of its value in current dollars, i.e., net of penalty assessments.
Components of M3 Not Included in M2Large-denomination time deposits, such as CDs issued in denominations of at least $100,000, are bona fide time liabilities, because they are not payable by the issuing institution before maturity.23 Since they are not par value claims to immediately available dollars, they are excluded from the TMS. The same reasoning applies to the exclusion of term RPs and term eurodollars from the TMS. The shares of "institution-only" MMMFs are excluded from the TMS for the same reasons as the shares of the "general purpose & broker/dealer" MMMFs included in M2.
Components of L Not Included in M3U.S. Savings Bonds are instantly cashable at the U.S. Treasury (or at banks and thrifts acting in its behalf) at a fixed discount from their face value.24 As U.S. Treasury liabilities, moreover, their redeemability is "insured" by the full faith and credit of the Federal government. U.S. Savings Bonds are therefore included in the TMS at their redemption value, because they represent secure and current claims against the Treasury for contractually fixed quantities of the general medium of exchange.25 In fact, U.S. Savings Bonds may usefully be treated as specific claims against "Treasury Cash," since this provides a rationale for the conventional omission of the latter item from money-supply statistics.26
In contrast to savings bonds, shore-term Treasury securities are not payable before maturity and are therefore excluded from the TMS.
Memorandum ItemsThree items which are not included in any Fed measure of the money supply (Ml, M2, M3) or even of overall "liquidity" (L) find a place in the TMS. These are the demand and other deposits held by the U.S. government, foreign official institutions, and foreign commercial banks at U.S. commercial and Fed banks.
The somewhat mysterious exclusion of these items from money-supply measures is typically justified by one recent writer who claims that the deposits of these institutions "... serve an entirely different purpose than the holdings of the general public" or are "... viewed as being held for 'peculiar' reasons."27 This overemphasis on the particular "motives" for holding money, as opposed to the importance of the quantity of money itself, is one of the modern legacies of the Keynesian revolution.28
Moreover, there is nothing at all "peculiar" about the reasons for which such deposits are held. As one modern advocate of their inclusion in money-supply statistics points out:
The Treasury's deposits are not part of its reserve against money that it has issued, but are rather part of the general fund of the Treasury available for meeting general expenditures. Output is purchased and taxes are collected with the help of these deposits, and they would seem to be as much a part of the money stock with which the economy operates as are the deposits of state and local governments, which are included in adjusted demand deposits. Much the same may be said of Treasury deposits at Federal Reserve Banks. Also foreign-owned deposits at commercial banks are included, so why not foreign-owned deposits at the Federal Reserve?29
Finally, pre-Keynesian monetary theorists routinely and properly counted "U.S. Government Deposits" in the "Total Deposits" component of the money supply. 30 This was and is the proper procedure, because it is variations of the total stock of money owned by all economic agents that are of vital importance in analyzing and attempting to forecast inflation and business-cycle phenomena.
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- Professor Rothbard presents the theoretical framework for this statistic in the following works: Murray N. Rothbard, America's Great Depression (Princeton, NJ: D. Van Nostrand, 1963), pp. 83–86; idem, "Austrian Definistions of the Supply of Money," in Louis M. Spardaro, ed., New Directions in Austrian Economics (Kansas City: Sheed Andrews & McMeel, 1978), pp. 143–56; and idem, The Mystery of Banking (New York: Richardson & Snyder, 1983), pp. 254–62.
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- For a sample of recent contributions that have emphasized general acceptability in exchange as the defining characteristic of money, see: Lawrence H. White, "A Subjective Perspective on the Definition and Identification of Money," in Israel M. Kirzner, ed., Subjectivism, Intelligibility and Economic Understanding: Essays in Honor of Ludwig M. Lachmann on His Eightieth Birthday (London: The Macmillan Press, 1986), pp. 301–14; Dale K. Osborne, "What Is Money Today?" Federal Reserve Bank of Dallas Economic Review (January 1985), pp. 1–15; idem, "Ten Approaches to the Definition of Money," Federal Reserve Bank of Dallas Economic Review (March 1984), pp. 1–23; Leland Yeager, "What Are Banks?" Atlantic Economic Journal 6 (December 1978): 1–14. Also see the classic article, Leland Yeager, "The Medium of Exchange" in R.W. Clower, ed., Monetary Theory: Selected Readings (Baltimore, MD: Penquin Books, 1970), pp. 37–60.
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- For a similar view of credit cards see: Paul A. Meyer, Monetary Economics and Financial Markets (Homewood, IL: Richard D. Irwin, 1982), p. 34; and White, "Definition and Idenfication of Money," pp. 310–11.
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- On this property of a pure commodity money, see, for example, Milton Friedman, "Commodity-Reserve Currency" in Milton Friedman, Essays in Positive Economics (Chicago: The University of Chicago Press, 1953), pp. 206–10.
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- For a description of the unique process by which, in nominal terms, "the supply of money creates its own demand," see Yeager, "The Medium of Exchange," pp. 42–43; and idem, "What Are Banks?" pp. 6–7.
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- As a former FDIC Chairman has recently written: "The pendulum has swung once again toward 100 percent protection of depositors and creditors. Despite the fact that Congress made it clear in the 1950 Act that FDIC was not created to insure all deposits in all banks, in the years since Congress has gradually increased the insured amount to $100,000. In addition, the regulators have devised solutions that protect even the uninsured in the preponderance of cases." (Irving H. Sprague, Bailout: An Insider's Account of Bank Failure and Rescues [New York: Basic Books, 1986], p. 32.) Moreover, the uninsured depositors who incurred losses in a dandful of recent bank failires were mainly holders of deposits in the category of "large time deposits," which, for the reasons stated below, are not included in the TMS definition of the money supply. The FDIC's recent attempt to enforce market discipline on the banking industry by leaving the uninsured holders of large time deposits in small (but not large) banks unprotected appears to have had little substantive effect. One this, see R. Alton Gilbert, "Recent Changes in Handling Bank Failures and Their Effects on the Banking Industry," The Federal Reserve Bank of St. Louis Review 67 (June/July 1985): 21–28.
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- In his refusal to include "transactions balances," including demand deposits, in his statistical definition of the U.S. money supply, because they allegedly all cannot be spent simultaneously in any conceivable pattern of payments, Osborne ignores these institutional considerations. Thus, contrary to Osborne's contention, demand deposits in the U.S. today are indeed "means of simultaneous payment," precisely because, as the lender of last resort, the Fed is empowered to created base money ad libitum and would exercise this power to prevent a wholesale collapse of the fractional-reserve, multibank system. By neglecting this momentous institutiona factor, the strict application of Shackle's "simultaneity" criterion to the empirical identification of the money stock leaves Osborne with only the monetary baseas the "generally acceptable means of exchange," i.e. money, in the U.S. See Osborne, "What Is Money Today?" pp. 3–5.
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- As Barger observers, "... it is the bank deposit which is money—not the check which transfers the deposit. Bank deposits are always acceptable: checks may not be, for sometimes they turn out to be make of rubber. If your creditor refuses your check, it's not doubt because he's not convinced he's getting title to a bank deposit." (Harold Barger, Money, Banking and Public Policy, 2nd ed. [Chicago: Rand McNally, 1968], pp. 16–17.) This is an obvious point, but White appears to overlook it in the significance he attaches to the limited "sphere of acceptance" of "ordinary bank checks [emphasis mine]." (White, "Definiation and Identification of Money," p. 305.)
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- Meyer is inconsistent in counting nonbank travelers' checks as part of the money supply merely because they are "means of payments." As Meyer recognizes in his discussion of credit cards, however, it is not enough that an item is able to serve as a means of payment in most transactions for it to be considered money; it must also serve, in his words, "to extinguish obligations between two parties," that is, serve as the final means of payment, to deserve the classification of money. See Meyer, Monetary Economics, pp. 33–34.
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- For example, White argues that, because time deposits "... are not directly transferable, they do not serve as media of exchange, let alone as generally accepted media." (White, "Definition and Identification of Money," p. 310.) Yeager holds that the liabilities of nonbank financial intermediaries, such as deposits at S&Ls, are not money because they are not "routinely exchange." (Yeager, "The Medium of Exchange," pp. 40–46, 53–56.)
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- As Rothbard pertinently remarks, "... the 30-day notice [of withdrawal of savings deposits] is a dead letter; it is practically never imposed, and, if it were, there would be a prompt and devasting run on the bank. Everyone acts as if his time deposits were redeemable on demand, and the banks pay out their deposits in the same way they redeem demand deposits. The necessity for personal withdrawsl is merely a technicality; it may take a little longer to go down to the bank and withdraw the cash than to pay by check, but the essence of the process is the same. In both cases, a deposit at the bank is the course of monetary payment." (Rothbard, America's Great Depression, p. 84.)
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- Today, many institutions permit such transfer to be effected by means of telephone. lnterestingly, one weighted aggregate of "transactions assets," the "MQ" measure, includes "savings deposits subject to telephone transfer" while excluding conventional savings deposits. See Dallas S. Batten and Daniel L. Thornton, "Are Weighted Monetary Aggregates Better Than Simple-Sum Ml?" The Federal Reserve Bank of St. Louis Review 67 (June/July 1985): 29–40.
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- ln an early, though unfortunately neglected, contribution, Lin clearly recognized the economic equivalence of currency, demand deposits, and savings deposits, based on their "interchangeability" within the modern banking system. Thus, according to Lin,
The term "means of payment" describes but one phase of the meaning of money. It indicates only in what form money is "spent," but not in what form it may be 'kept.' In the modern banking and monetary system money may be kept in one form and spent in another. This is possible and is always done today [1937] because all forms of money issued either by banks or by the state must be interchangeable to maintain parity.... Money in whatever form it is kept and spent must be of general acceptability and of free interchangeability. By these criteria, all other credit devices are automatically eliminated because they are not generally acceptable and cannot be freely interchanged into one another. Treasury currency, bank notes, time and demand deposits are ... constantly interchanging into one another unit per unit without altering the total supply of money. (Lin Lin, "Are Time Deposits Money?" American Economic Review 27 [March 1937]:85.)For one of the earliest hints of recognition of the monetary function of time deposits, see Frank A. Fetter, Economics, vol. 2: Modem Economic Problems, 2nd ed. (New York: The Century Co., 1923), pp. 102–103.
- ln an early, though unfortunately neglected, contribution, Lin clearly recognized the economic equivalence of currency, demand deposits, and savings deposits, based on their "interchangeability" within the modern banking system. Thus, according to Lin,
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- Melchior Palyi, An Inflation Primer (Chicago: Henry Regnery, 1961), pp. 137–38.
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- For a discussion of overnight RPs, see Meyer, Monetary Economics, p. 28.
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- On overnight eurodollars, see ibid., pp. 28–29.
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- The next three paragraphs, with some alterations are drawn from Joseph T. Salerno, "What Investors and Depositors Should Know about Banks and the Financial Services Revolution," Jerome Smith's Investment Perspectives 2 (June 1984): 3–4. A more detailed analysis of the nature of MMMFs and their relationship to the supply and demand for money under the gold standard may be found in Joseph T. Salerno, "Gold Standards: True and False," The Cato Journal 3 (Spring 1983): 255–58.
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- For a similar characterization of MMMFs, see Meyer, Monetary Economics, p. 29; and White, "Definition and Indentification of Money," p. 310.
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- Typically, the funds establish a central clearning account at a bank. When checks, really drafts, written by individuals are presented to the bank, it notifies the mutual fund of the number of fund shares that must be liquidated to cover the check." (Monica Langley, "Holds on Checks Annoy Investors in Money Funds," The Wall Street Journal (November 11, 1986), p. 39.
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- As White points out, "... the item that the check-writing MMMF customer relinquishes (ownership of shares in a portfolia of assets) is not what the payee accepts (ownership of an inside-money claim to bank reserves). Because the actual MMMF shres are not what the second part accepts (or intends to accept), MMMF shares cannot be considered a generally accepted medium of exchange; hence, they are not money." (White, "Definition and Identification of Money," p. 310.)
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- See above, pp. 2–3, for the description of this process.
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- For details on institutional features of CDs, see Lester V. Chandler and Stephen M. Goldfeld, The Economics of Money and Banking, 7th ed. (New York: Harper & Row, 1977), pp. 148–49; also see Meyer, Monetary Economics, p. 88.
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- Chandler and Goldfeld, Money and Banking, pp. 148–49.
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- Meyer, Monetary Economics, p. 152.
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- In 1946, Fetter recognized savings bonds as "immediate purchasing power," and, as part of a comprehensive anti-inflation package, recommended the absorption of savings bonds "redeemable on demand" by exchanging them for long-term bonds and life annunities. (Frank A. Fetter, "Inflation's Basic Causes: Too Much Money," Saturday Evening Post [July 13, 1946], p. 124.) Palyi adopts a definition of the U.S. money supply that includes U.S. Savings Bonds at redemption value. However, from our medium-of-exchange perspective, Palyi goes too far afield by including in the money supply "highly liquid" assets such as Treasury securities of less than one year's maturity, commercial paper and bankers' acceptances. On the other hand, we sympathize with Palyi's apparent support for the inclusion of the cash surrender value of life insurance policies in money-supply figures. See Melchior Paly, The Twilight of Gold, 1914–1936: Myths and Realities (Chicago: Henry Regnery, 1972), pp. 301–15. Albert G. Hart and Peter B. Kenen present a statistical definition of "liquid assets of the nonbank public," including U.S. Savings Bonds and the "net cash values of life insurance," which comes very close to the TMS. There are no significant omissioins, and the only clearly objectionalbe item is short-term government securities. See Albert G. Hart and Peter B. Kenen, Money, Debt and Economic Activity, 3rd ed. (Englewood Cliffs, NJ: Prentice-Hall, 1948), pp.3–6.
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- Actually, "Treasury cash" refers to the small amount of Treasury-held gold which has not been monetized by the issue of gold certificates to the Fed in exchange for Treasure deposits. Nonetheless, since this "nonmonetized" gold stock may be converted into a stock of dollars at any time, via the issue of gold certificates to the Fed, it may be considered a monetary reserve for the redemption of savings bonds. On Treasury cash, see John G. Ranlett, Money and Banking: An Introduction to Analysis and Policy, 3rd, ed. (New York: John Wiley, 1977), pp. 60–67/
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- Meyer, Monetary Economics, pp. 26–27.
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- In analyzing the Keynesian motives for holding money, Hart and Kenen cogently argue that "We cannot divide the cash balance of a given holder into definite parts representing each of these motives.... If, for example, he also has accumulated cash for speculative pruposes, he also has a margin of safety, so that he needs under the [precautionary] motive are swallowed up in those under the [speculative motive]. Besides, the different motives shad into one another. In analyzing them, it is less important to keep them distinct than to keep track of the common element that binds them all together—the adaption of business dealings to uncertainty." (Hart and Kenen, Money, Debt and Economic Activity, pp. 223–34.)
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- Barger, Money, Banking and Public Policy, p. 53.
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- See, for example: Edwin Walter Kemmerer, High Prices and Deflation (Princeton, NJ: Princeton University Press, 1920), p. 27; Benjamin M. Anderson, Economics and the Public Welfare: A Financial and Economic History of the United States, 1914–1946, 2nd ed. (Indianapolis: Liberty Press, 1979), pp. 98, 183, 265; and Palyi, The Twilight of Gold, p. 36.
There is an undeniable negative trend in European employment and wages that is a direct consequence of constantly increasing intervention in the economy.
Original Article: "European Shadow Unemployment Is a Real Problem"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Until the publication in 1920 of Ludwig von Mises’s work on the problem of economic calculation in socialism, there was no scientifically useful analysis of the economics of the socialist economy. With that work , and its development in the comprehensive treatise Die Gemeinwirtschaft (1922 and 1932, published in English in 1951 as Socialism: An Economic and Sociological Analysis), Mises demonstrated that because of the absence of private ownership of the means of production, rational economic accounting is not possible under socialism.
This insight is relevant still today. Mises’s principle of economic rationality is not only valid for a full-fledged socialist system but also for mixed economies; any step away from the private ownership of the means of production and monetary calculation based on market prices sets the economy on a path away from economic rationality.
Role of Money and MarketsMoney is indispensable for economic activity if that activity extends beyond the limits of a household or simple activities. A society based on the division of labor needs money because the coordination of individuals’ economic activity requires prices, which serve as signals for economic action. According to Mises: “Money is not a measure of value, nor is it a measure of price. The value is not measured in money. Prices are also not measured in money; they consist in money.”
Money has its shortcomings, but for the practical purposes of economic life, money works sufficiently well for economic transactions. Without monetary calculation, rational economic activity would be impossible. The inadequacy of monetary accounting comes from the fact that economic calculation is based on exchange value and not on subjective use value. Therefore, one must not apply monetary calculation to all aspects of life.
But monetary calculation does give the economic agent a guide to find his way through the abundance of economic possibilities. Money prices allow individual subjective value judgments to be extended to a wide range of market goods in the developed economy. Thus, money makes value calculable beyond the limited range of personal experience and extends business possibilities beyond immediate consumption to the production of capital goods.
Without monetary calculation, all production as a far-reaching process would be a “grope in the dark.” Economic man would be blind to the long detours of production that are typical of an advanced economy. Without money, the human mind would not be able to cope with the confusing abundance of intermediate products and production possibilities. One would be at a loss as to where to invest in the face of all the procedural and location issues to consider.
Carrying out economic calculation in monetary terms requires that two conditions be met. First, both consumer and intermediate goods must be included in the market economy. Exchange relations must take place on markets. Second, a medium of exchange must be used to create a common denominator for goods prices.
The Impossibility of Rational Calculation in the Planned EconomyIf, as in the socialist system, there are neither free markets nor private ownership of the means of production, it becomes impossible to carry out rational economic calculations, as Mises explains:
Consider the situation of the socialist commonwealth. There are hundreds and thousands of workshops where people labor. Very few of them produce ready-to-use goods but mainly means of production and semi-finished products. All these companies are interconnected. Through these companies pass the economic goods one after the other until they are ready for consumption. In the restless gears of this process, however, the socialist economic manager lacks any possibility of finding the right way. . . . What possibility has the management to know whether this or that type of production is the more advantageous? It can, at best, compare the quality and quantity of the final usable results of production, but it will rarely be able to compare the efforts involved in their production.
In their role as consumers, the market participants determine the ranking of goods ready for being used in consumption. In their role as producers, businessmen select those capital goods that promise to render the highest yield. This way, not only the consumer goods but also the production goods, receive a ranking according to the present urgencies and the given state of the production technology. The interplay of the two evaluation processes ensures that the economic principle prevails everywhere, in consumption as well as in production.
Mises continues:
In a socialist economy, these essential conditions are missing. The planning authority may surmise which goods are most urgently needed, but it can only find that part that falls into the economic budget of the consumer. The other part, the evaluation of the means of production, escapes the knowledge of planners. It is true that the planning authority may determine the value of the totality of the means of production and the planners may also be able to determine the value of a single means of production, but the planning committee cannot attribute these estimates to a uniform price expression. This would require a market economy in which the prices can be traced back to a common expression, namely money.
No matter how strong their will, it is not possible for the masters of the planned economy to carry out the calculations necessary to reconcile production and consumption in such a way that the sum of capital is preserved and the surpluses obtained benefit the consumers.
Capital CalculationThe concept of “capital” has a firm place in economic accounting. A commercial economy’s capital is a summary of its capital assets that is expressed in monetary values. Such asset summaries and their regular review make it possible to determine how the value of assets has changed over time. The origin of the concept of capital lies in economic calculation. Its home is capital accounting, “this noblest means of the trained rationalization of action,” in Mises’s words.
When markets are abolished, as in a socialist economy, or are eroded by government intervention and monetary manipulation, as happens in the modern “mixed economy,” capital calculation loses its basis as a tool of economic rationality. Misallocations increase as the severity of the dissolution of property rights and other state interventions increases. Productivity declines and the standard of living sinks.
Capitalism, then, is that economic mode of production in which money is used for calculation so that the quantity of goods devoted to production can be summarized as capital and calculated according to its monetary value. Herein lies the distinction between capitalist and socialist production, and thus the difference between capitalism and socialism. Socialism is necessarily defined by the absence of capital calculation because of the abolishment of the private ownership of the goods of production. In contrast, the capitalist mode of production consists in determining the success or failure of specific economic actions by using monetary calculation to evaluate changes in the value of capital.
Because they do not consider the central issue of economic calculation, all other kinds of analyses of the socialist economy are inadequate and indeed worthless. After all, the fact that Karl Marx never analyzed the economic feasibility of socialism, and even banned his followers from doing so, had a devastating effect on the socialist movement. Thus, Marxism got stuck in the pure negativism of criticizing capitalism without developing a concept of socialism other than a dreamworld.
ConclusionWithout market transactions, there is no pricing, and without pricing, there is no economic accounting. Both conditions are necessary for rational economic calculation and depend on the private ownership not only of consumer goods but of producer goods as well. Any economic system, including a mixed economy, that deviates from the principles of private property, free markets, and sound monetary order will suffer from the decline of economic rationality. Consequently, both productivity and the standard of living will be lower.
Mark Thornton discusses the history of record low unemployment rates and the business cycle.
See "Unemployment Rate" (UNRATE) from the Federal Reserve Bank of St. Louis: Mises.org/MI_04_Chart
Be sure to follow Minor Issues at Mises.org/MinorIssues.
The imposition of minimum wages harms the economy, although there are nuances in how much harm they cause. It is better not to impose minimum wages at all.
Original Article: "Yes, the Minimum Wage Harms the Economy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Lacking a solid team is a recipe for organizational failure, and those intending to excel in business—or any other sector—must invest in management. Considering that many professional athletes encounter bankruptcy shortly after retiring, they are a demographic that could greatly benefit from quality financial management teams. Elite athletes earn millions of dollars during a short time, but few succeed at multiplying their earnings to create wealth. An investigation by the Global Financial Literacy Center found that 16 percent of National Football League (NFL) players declare bankruptcy within twelve years of retirement. Quite startling is that some athletes report bankruptcy as early as two years after retirement.
The results of the study also showed that NFL stars were just as likely to experience bankruptcy as other NFL players. Bankruptcy figures are equally daunting for basketball players. Research reveals that National Basketball Association (NBA) players who file for bankruptcy do so within 7.3 years after retirement, and 6.1 percent of all NBA players go bankrupt within fifteen years of exiting their profession. The emotional trauma of bankruptcy can lead to distress. Research indicates that 78 percent of NFL players experience financial distress two years after retirement.
Inept management of finances is the easiest strategy for losing wealth. Professional athletes can avert financial calamities by investing in a better management team. There is a stark difference between managing a junior athlete and managing a superstar who earns millions of dollars yearly. A professional who manages a junior athlete could be an excellent manager for a player at that stage, but the transition to elite status requires people with greater expertise.
In business, a manager should possess the relevant skills. They don’t have to be your friend. Elite athletes need elite managers to help them navigate stratospheric wealth. If a manager doesn’t have expertise in managing successful athletes or businesses, then he is unfit to manage an elite athlete. Athletes who succeed at expanding their empires are reluctant to rely on the services of amateurs.
Magic Johnson credits his success to investing in capable people rather than to the “wisdom” of family members and old friends. Pablo S. Torre paints Johnson as a serious businessman in a piece highlighting the failures of professional athletes:
Johnson started out by admitting he knew nothing about business and sought counsel from . . . men such as Hollywood agent Michael Ovitzand and Peter Guber. Now, Johnson says, he gets calls from star players “every day” . . . and cuts them short if they propose relying on family and friends.
Johnson’s strategy is even more relevant in light of the recent financial scandal involving the disappearance of over twelve million dollars held by sprinting legend Usain Bolt in Jamaican investment firm Stock and Securities Limited (SSL). Venting to reporters, Bolt’s attorney Linton Gordon argues that the Financial Services Commission (FSC) should be held liable for the mishap because the agency lapsed in providing proper oversight:
They should bear responsibility to some extent, if not entirely, because all along they kept quiet and did not alert the public, including Mr. Bolt, to the fact that the company was not operating in a way compliant with the law. It’s 10 years now they say they have been red flagging this company. Had he known that he would have withdrawn his money and he would not have lodged anymore.
Blaming the regulator is easy, but the debacle reveals deficits in Bolt’s management team. Usain Bolt did not need to know that SSL was deemed unsound years ago because his management team should have furnished him with that information. Some years ago, I was at an event where fellow investors argued that SSL was irredeemable. Bolt’s managers were out of the loop. Moreover, Jamaica is known for institutional weakness and fraud, so it’s a bit weird that a man of Bolt’s stature would have so much money stored in a Jamaican institution to begin with.
Some say that the FSC must be accountable for the misappropriation of Bolt’s money, but the FSC penned a report that Bolt’s managers would have seen if they were doing research. Moreover, in a country where agencies are frequently compromised by politics, there is a possibility that the FSC did not suspend the operations of SSL because it was constrained by rogue actors. Bolt’s managers should have shown some insight by recommending that the superstar limit his Jamaican investments and by soliciting the services of leading wealth management firms like UBS Wealth Management or Baird.
The case study of Usain Bolt demonstrates that even athletes with good managers should never hesitate to upgrade when their employees are not equipped for bigger challenges. Money is hard to make, but with a bad manager, it’s easy to lose. Therefore, athletes interested in keeping their money must invest in the right team or face the consequences.
All people of goodwill have an obligation to fight the escalation of politics in American life.
Original Article: "The New Rules of Engagement"
This Audio Mises Wire is generously sponsored by Christopher Condon.
All too often we are told that government employment equals selflessness and working for profit constitutes greed. It's time to reassess the meaning of certain words.
Original Article: "Producers Should Reject Calls to "Give Back"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The only reason central banks buy gold is to protect their balance sheets from their own monetary destruction programs; they have no choice but to do so.
Original Article: "Central Banks Turn to Gold as Losses Mount"
This Audio Mises Wire is generously sponsored by Christopher Condon.
President Biden’s student debt relief proposal created a storm of controversy. That is not surprising, since it was a transparent (and apparently successful) attempt to buy the votes of an important Democratic constituency, even though it created a target-rich environment for critics.
It is sharply pro-rich at the expense of those far poorer, from a party pretending to stand for the opposite. It is very costly to everyone else (the National Taxpayers Union put the average burden at just over $2500 per taxpayer). The income cutoffs, designed to make it appear it is less pro-rich than it is, are misleading because most affected are in the early parts of their careers, when their incomes are lower, even though their average lifetime incomes (wealth, in present value terms) are likely to be far higher. It will encourage more people for whom the costs of going to college exceed the benefits to go anyway. It will raise the cost of college further, transferring many of the benefits claimed for students to the providers of education.
Oral arguments to Constitutional challenges to Biden’s plan will be heard at the Supreme Court in February, with much at stake.
What I have found surprising, however, is that the arguments and evidence for how ineffective, poorly targeted, inequitable and probably unconstitutional the student debt forgiveness plan is have not gone one seemingly obvious step further--to ask why we subsidize higher education so heavily in America, even without the currently proposed additional debt relief. After all, student loan forgiveness would only be the ex post icing on the cake of very large subsidies of other people’s money that already go to higher education.
Thirty-one years ago, a Congressional Budget Office study found that tuition subsidies alone averaged more than 80 percent of the cost of providing an education at 4-year public colleges and universities. And despite claims by Elizabeth Warren and others that there has been reduced investment of in higher education, the evidence does not support that.
And that is just one part of what Gordon Tullock called “a highly regressive scheme for transferring funds from the people who are less well-off to those who are well-off.” Economists Edgar and Jacqueline Browning put it similarly, in their classic Public Finance and the Price System: “Subsidies to higher education effectively benefit the brightest and most ambitious young people, and this group will on the average have the highest lifetime incomes even without assistance.” So, the question becomes whether the supposed benefits of college attendance to others in society are great enough to justify the huge subsidies. And careful thinking makes that highly doubtful.
As Peter Passell has written:
“The prospect of heavy debt after graduation would no doubt discourage some students from borrowing,” but “that may be the wisest form of restraint. Someone has to finally pay the bill, and it is hard to see why that should be the taxpayers rather than the direct beneficiary of the schooling.”
An important thing to recognize in this situation is that subsidies supposedly going to students increase the market demand for education, so that the incidence (who actually captures the gains from subsidies) is often quite different than claimed. As Adam Smith noted over two centuries ago, education subsidies increase college demand and go in large part to education providers in better wages and working conditions.
Market forces (in addition to serious barriers to entry into becoming an accredited and respected higher education provider) largely transform student aid into education provider aid. The case made for higher education subsidies to the rest of us has also long included a thicket of highly questionable arguments.
Many have argued that subsidizing higher education results in higher productivity, benefiting others. But competitive labor markets mean that higher productivity is captured by the workers in higher compensation, not by others in society. Consequently, it does not justify subsidies from others. It has also been argued that subsidies are justified because they increase the supply of skilled workers, lowering costs. However, the greatest part of that “gain” is actually a transfer from existing workers forced to accept lower wages for their skills than otherwise, not a net gain to society.
Still others have argued that added education provides cultural benefits to society. Again, however, such benefits primarily accrue to the students themselves (e.g., the ability to appreciate art), providing little or no justification for public subsidies from others.
There are other problems with the “external benefits” argument for government provision of education. “Skate” or “Easy A” classes do not provide substantial external benefits because they do not teach much of value. In contrast, law, medical, and dental training may teach a great deal, but as mentioned above, the benefit of such training goes to graduates in higher incomes, not society.
Furthermore, one must confront the fact that courses in some fields actually seem to make students less productive in the eyes of many potential employers. It is hard to see external benefits rather than external costs to others in such areas. Sizable external benefits to others would also require, at a minimum, that schools successfully teach valuable truths and skills and that students retain such wisdom past graduation, yet both conditions frequently go unmet.
There may be some social benefits, though difficult to articulate and measure, that one might argue justifies government higher education subsidies. But most plausible illustrations come at lower levels of education, not college (e.g., learning your ABCs and basic times tables in primary school), with few if any added benefits from higher education subsidies.
And even if there are some benefits to others from further education, those benefits to others would have to be greater than the costs imposed on others to fund the subsidies, a comparison few proponents consider seriously. With current subsidies already very large, before any consideration of loan forgiveness, costs are often far larger than benefits. And given our tax burdens and the vastly expanded future tax burdens implied by the recent explosion of government debt (that will also now need to be financed at much higher interest rates), the arguments for leaving the money in citizens’ hands, where they could always invest in added education if they believed it was the highest valued use of their funds, become even stronger.
Arguments against President Biden’s student loan forgiveness plan are plentiful and powerful.
The substantial number of Swiss-cheese arguments long put forward in defense of higher education subsidies also lay bare what is only sensible as an effort to buy millions of votes from what has become a major Democrat interest group.
But those same arguments should also confront the massive higher education subsidies that would remain even in the absence of loan forgiveness. That would also bring us back to the Constitution. Not only does our supposed “highest law of the land” fail to grant the President unilateral executive power to cancel loan debts, nowhere does it enumerate education as a legitimate function of the federal government. We need less government involvement in both dimensions, not more in either.
Every so often, I check my investment portfolio to see how it is doing. (I stay out of stocks these days, but that is due to my personal situation and is not to be taken as investment advice.) Portfolios are collections of various financial instruments that one is holding, and one always hopes that their value will head in the right direction over time.
When I purchase a financial instrument, I do so because I hope it will perform well in the future. I certainly do not purchase such securities because I believe that they are underperforming and that perhaps my purchase will prop up its price. (Of course, I don’t have the deep pockets that would be needed to be able to manipulate the price of anything.)
Instead, when I sink my money into a financial instrument, I hope that I am investing, not just buying something for its own sake. Given that none of us are endowed with an internal crystal ball, we don’t know how something will perform until, well, it performs. That is the way things are with securities.
The Fed Claims Its Own “Portfolio”When I first took academic courses in macroeconomics and money and banking, we covered the actions of the Federal Reserve System. One of the things we constantly were told about the government’s “monetary policy” was that when the Fed wanted to increase or decrease the monetary base, it would involve its “portfolio.”
We knew the drill. When the Fed wanted to increase the monetary base, it would purchase US government bonds in the secondary market (mostly six-month Treasury bills) and deposit the funds in the accounts of the previous bondholders, which increased the monetary base.
However, when the Fed wished to decrease the monetary base, it would sell bonds from its “portfolio” in the secondary market and hold the money it gained from sale of the bonds, keeping it out of circulation. In order to understand the Fed’s operations, one had to understand how secondary government bond markets work.
As the diagram below demonstrates, Fed holdings of government bonds stayed at close to a trillion dollars for a long time. Note that the Fed was not holding government bonds as an “investment,” but rather held them for purposes of manipulating the nation’s monetary base. Then came September 2008.
Figure 1: Assets held by the Federal Reserve System
anderson_picture1.png We remember the meltdown of 2008 and, more importantly, the reason it happened. The question that dominated the immediate aftermath of the massive failures on Wall Street was: What should the US government do about it? The much less asked question was: Should government do anything at all?
The Fed’s Response to the Crisis It Helped CreateThose who followed the paradigm of Austrian economics knew the government should nothing. It should allow the massive amounts of malinvested capital to be liquidated or directed to new uses determined by consumer choice. However, those in economic leadership, beginning with then Fed chairman Ben Bernanke, believed that economic salvation lay a different direction: continue expanding the malinvestments and spend our way out of the crisis.
In the early, heady days of the Fed’s breakout policies, Bernanke’s Fed went on a buying spree, guided by laws passed during the New Deal years, when Congress decided to defer almost entirely to the executive branch. Included among the private securities gobbled up by the Fed were more than $22 billion worth of shares of American International Group (better known as AIG) stock.
This was not because Bernanke saw AIG stock as a good investment, but rather because the company was crashing because of its involvement with credit default swaps, which covered mortgage securities whose value had plummeted to near zero during the crisis. Furthermore, the Fed loaned AIG $85 billion to stay afloat.
Unless one is a disciple of Paul Krugman or Stephanie Kelton, it is not difficult see the huge moral hazard in Bernanke’s approach to the crisis. While Time Magazine magazine declared that Bernanke “saved the world” with these unprecedented mass purchases of stocks, government bonds, and mortgage securities, what he really did was block the real recovery that could have come about had the Fed allowed the markets to do their job and redirect capital to its most profitable uses.
Instead, we got not only the Great Recession, but also a moribund recovery that needed Keynesian stimulus action time and again. Furthermore, as one can see from the diagram of Fed “assets,” in order to provide new economic “stimulus,” the Fed had to buy more and more securities to engage in “quantitative easing,” which is Fedspeak for printing money, lots of money.
Although the Fed later sold its AIG shares and ended its purchases of private securities, it went heavily into the market for mortgage securities in order to reinflate the housing bubble. Ryan McMaken’s recent article on the details of the Fed’s purchases is instructive, as it lays out the outright fraudulence of calling the combination of Fed holdings a portfolio. Indeed, it is anything but a portfolio. He writes:
While the Fed has long bought government debt in its soo-called open-market operations to manipulate the interest rate, wholesale buying of financial assets began in 2008. This included both US government Treasurys and—in a new development—private-sector mortgage-backed securities (MBSs). This was done to prop up banks and other firms that had bet on the lie that “home prices always go up.” The value of mortgage-backed securities was falling fast, so beginning in 2008, the Fed bought up MBSs to the tune of $1.7 trillion.
As stated earlier, investors hold portfolios in hopes that the value of the held securities will increase. The Fed, on the other hand, holds securities because they otherwise would fail in the market. Fed purchases can artificially inflate these securities’ value. These so-called assets also help the Fed underwrite its latest set monetary expansion.
With a recession looming and the economic effects of the Fed’s ongoing stimulus racket diminishing, it is time to tell the hard truth about what the Fed has been doing and the economic peril it has caused. Because Bernanke and his successors at the Fed have refused to acknowledge the damage they have caused since 2008, it will be much more difficult to deal with the pile of malinvestments the Fed has helped create.
ConclusionHad the Bush and Obama administrations permitted the malinvestments that characterized the first housing boom to be liquidated or directed elsewhere, the initial recession would have been deeper than what the economy experienced in 2009. However, there also would have been a stronger recovery and an economically sound path for entrepreneurs and investors to follow.
Instead, in its efforts to create yet another temporary fix, the Fed kicked the proverbial can down the road, and now it is more difficult than ever to do what is necessary to right the ship. Despite the so-called confidence from Fed and Biden administration officials and their court economists, the economic prognosis is not good. It will take courage to liquidate the malinvested capital, to make capital markets real markets again, and to take the heat when the economy suffers a recession before it can begin a glorious recovery.
That kind of courage no longer exists in Washington. Instead, we are given happy talk and false promises of prosperity if only we’ll let the “experts” be in charge. This does not end well.
Back in January Jeff Deist joined the Austrian Economics Discord Server for a live event concerning trends in 2023. Jeff makes the case for viewing today's economy as quite unlike that of 2007—due to steady increases in CPI, more fiscal stimulus relative to monetary stimulus, and ongoing supply shock issues from COVID.
This is a far-ranging discussion of the landscape for the Fed, persistent inflation, and a looming recession. Includes Q and A from the audience.
Whether you like it or not, central bank digital currencies (CBDCs) are coming. That’s the message in a recent tech column in the Wall Street Journal. A similar tone can be found coming from organizations like the World Economic Forum, the International Monetary Fund, and the Atlantic Council.
Reading these sources could lead you to conflate so-called CBDCs with autonomous trucks or artificial intelligence (AI) writers—technology that meets the needs of consumers so well that it’s hopeless to resist. But that isn’t true. CBDCs are not a groundbreaking new development in financial technology. They’re the next step in the government’s corruption of money and a severe threat to liberty.
Money evolved organically on the free market. People working toward their own ends, constrained by scarcity and economic law, settled on different commodities to help them transcend barter and engage in indirect exchange. Cattle, cowrie shells, leather, and bronze were all early forms of money. But as the nations dotting the world’s surface began to interact and trade, precious metals like gold and silver arose as the dominant form of money.
Private mints began shaping the metals into coins, staking their reputations on their ability to accurately label a coin’s weight and fineness—attributes important to traders. Later, merchants figured out they could avoid the hassle of lugging heavy coins around by storing their money and trading with the deposit receipts.
Money developed without a central authority, but as with law and language, the political class hijacked this stateless institution to serve its own ends. State control represented a turning point for money from bottom-up evolution to top-down corruption. It started with state-run mints and legal tender laws, which allowed governments to debase coins.
Next came central banking, a partnership between the government and banks to inflate the number of deposit receipts beyond the supply of money they’re meant to represent. With that, money was further decayed until governments severed the tie between banknotes and actual money by suspending the gold standard. That happened in most of the Western world in the 1930s and the US in 1971. Doing so ushered in the era of money by government decree, or fiat money, that we live under today.
So how do central bank digital currencies fit into this story? They would represent the next stage of monetary decay. So far, governments have slowly granted themselves direct control over the money supply. CBDCs would go even further and give the government control over the distribution and circulation of money. The setup would bypass the banking system and require Americans to hold digital dollars in an account with the Federal Reserve.
The fact that politically connected banks would be abolished with the adoption of retail CBDCs is probably the biggest barrier facing the program. The CBDCs being tested today are wholesale CBDCs, or digital reserves for banks to deposit at the Fed. The rollout of retail CBDCs straight to individuals would most likely occur during a national banking collapse when Washington could drop the nation’s banks without fear of reprisal.
But notice the difference between the economic evolution and political corruption of money. One is chosen, and the other is imposed. And if something is imposed, it can be resisted. There is nothing natural or inevitable about CBDCs, despite what some tech columnists say. If enough people stood up and said “no,” there would be no CBDCs. Just look at what happened to President Joe Biden’s Occupational Safety and Health Administration (OSHA) vaccine mandate.
People of all political persuasions should oppose CBDCs. This new nationalized banking system would allow the federal government to add or remove digital dollars from people’s bank accounts and trace where these dollars go. Stimulus checks could be deposited and monitored, perhaps even given a time limit. Sanction-happy Washington could make foreign boycotts mandatory. The federal government could freeze anyone’s money anytime for reasons ranging from suspected crime to political dissent. There’s no shortage of concerning implications. And even if some seem far-fetched, it’s naïve to hand the government total control over money and then just hope they’ll refrain from using all that power for their own benefit.
Like any government program, the time to quash CBDCs would be before they are implemented. Another argument for retail CBDCs is that they will help the unbanked access the global financial system. There are plenty of ways to solve that problem without violating anyone’s rights. But if CBDCs are used, those who rely on these currencies will be used to vilify anyone trying to roll back the program. “Take away our control over money, and the poor will be cut off from the economy” will be the implicit threat used by the political class, cloaked in compassionate language.
Central bank digital currencies are not a new, innovative financial technology. They represent the next stage in the corruption of money brought about by governments. But if enough people are made aware of the dangers posed by a nationalized banking system, the retail CBDC program may never get off the ground. As it’s much harder to roll back a government program than it is to stop the implementation of one, the time to loudly and assertively berate the government for even daring to consider such a blatant power grab is now.
Forget minding your own business. Ours is the age of invasive politics, demanding we take sides no matter how much we would like to be left alone.
Original Article: "They Won't Leave Us Alone: The Invasion of Politics"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Forty years ago, I reviewed Leonard Peikoff’s Ominous Parallels very negatively, and with one exception, of which the less said, the better, this proved to be the most controversial review I have ever written. Perhaps it is time for a second look. In what follows, I’ll discuss some of the book’s main points and then offer a few critical remarks.
The philosopher Leonard Peikoff was a member of Ayn Rand’s inner circle, and she considered him her intellectual heir. He has been the guiding light of the “official” Objectivist organization, the Ayn Rand Institute, since its inception. His aim in Ominous Parallels is to interpret Nazism from the standpoint of Objectivist philosophy and then, as the title suggests, to show that the philosophical errors that led to Nazism threaten America.
Peikoff begins by calling attention to a startling fact. During the years the Nazis held power, a very large number of Germans gave Hitler unquestioned obedience. They put aside their own self-interest because they believed it their moral duty always to obey the state, even if what the state commanded violated ordinary morality, and this led to horrible crimes. Why did they believe this? Peikoff’s answer leads him to a broad survey of Western thought, undertaken in the first part of the book, “Theory”; this is followed by the second part, “Practice,” which gives a detailed account of the decay of the Weimar Republic, the rise and fall of the Nazi regime, and the parallels with developments in America.
Peikoff states the basic premise of his analysis succinctly: “An evil of such magnitude cannot be a product of superficial factors. In order to make it, and its German popularity, intelligible, one must penetrate to its deepest, most hidden roots. One must grasp its nature and its causes in terms of fundamentals” (emphasis in original). Philosophy is the science of fundamentals, and thus the requisite deep understanding of Nazism must be sought in that discipline.
Objectivists believe that the universe consists of “concretes” that we perceive directly and that our concepts come from abstracting from these concretes. There are no innate concepts. Unlike nonhuman animals, who behave instinctively to secure their survival, humans have no instincts. For this reason, each person must choose to live in order to survive, and, if he does choose this, his own survival is his standard of value. This egoistic ethics is antipodal to the altruistic ethics of self-sacrifice to the collective that lies at root of Nazism.
In the ancient world, Aristotle came closest to the correct philosophy, although his account of universals and his ethics and politics contained mistakes, but unfortunately, other philosophers have derailed correct thought. Peikoff says, “If we view the West’s philosophical development in terms of essentials, three fateful turning points stand out, three major philosophers who, above all others, are responsible for generating the disease of collectivism and transmitting it to the dictators of our [twentieth] century. The three are: Plato—Kant—Hegel. (The antidote to them is: Aristotle.)”
The key mistake of these thinkers is that, in different ways, they claimed that a supernatural world, which does not consist of concretes, exists in addition to the ordinary world. We do not have access to this world through reason, but it is more important than the world of concretes. Indeed, compared with this supernatural world, the ordinary world doesn’t exist. Philosophers can gain access to this “higher” world through nonrational means, and people must sacrifice their own well-being to act in accordance with the “higher” world as these philosophers direct.
Peikoff finds the same mindset in religion, and he accordingly takes a dim view of the Middle Ages, in which the church, influenced by Saint Augustine, claimed access to the supernatural world and deprecated reason. Thomas Aquinas, to his credit, took a different view. “Aquinas’s reintroduction of Aristotelianism was the beginning—the beginning of the end of the medieval period, the beginning of the beginning of the era of reason.” (Aquinas is usually thought to be at the center of the High Middle Ages, but Peikoff thinks rigidly within his scheme of things. Since the Middle Ages were “bad” but Aquinas was “good,” Aquinas cannot be medieval in the full sense.)
While the Renaissance and the rise of modern science struck blows at medieval darkness, real liberation was not at hand until the Enlightenment. “The development from Aquinas through Locke and Newton represents more than four hundred years of stumbling, torturous, prodigious efforts to secularize the Western mind, i.e., to liberate man from the medieval shackles. It was the buildup toward a climax: the eighteenth century, the Age of Enlightenment. For the first time in modern history, authentic reason became the hallmark of a culture” (emphasis in original).
Unfortunately, in the German-speaking world, the Enlightenment suffered a near-fatal blow. Immanuel Kant was the dominant figure of the German Enlightenment, but ironically so, Peikoff holds, because Kant was in essence an opponent of the Enlightenment, denying reason in order to make room for faith. Kant thought human understanding can lead us only to the world of appearances constructed by our innate concepts; knowledge of the world in itself, the noumenal world, is inaccessible to us. In ethics, Kant held that if we aim for our own happiness, our actions lack moral worth; only if we struggle against our individual desires can we be strengthened for, as Kant said, “whatever sacrifice a man’s respect for his duty may demand of him.”
If one adds to this G. W. F. Hegel’s call for everyone to obey the state unconditionally, Nazism is not far away:
No weird cultural aberration produced Nazism. No intellectual lunatic fringe miraculously overwhelmed a civilized country. It is modern philosophy—not some peripheral aspect of it, but the most central of its mainstreams—which turned the Germans into a nation of killers. The land of poets and philosophers was brought down by its poets and philosophers.
Peikoff acknowledges that “Kant is not a full-fledged statist, . . . Kant accepts certain elements of individualism, not because of his basic approach, but in spite of it, as a legacy of the Enlightened period in which he lived. This merely suggests that Kant did not grasp the political applications of his own metaphysics and epistemology.”
Peikoff maintains that the “heroism of the Founding Fathers was that they recognized an unprecedented opportunity, the chance to create a country of individual liberty for the first time in history,” but although in “the deepest philosophical sense, it is Aristotle who laid the foundation of the United States of America,” the Founding Fathers lacked the philosophical resources for an adequate defense of their achievement. America soon fell prey to misguided Kantian errors, and today “we are drifting as Germany moved, in the same direction, for the same kind of reason.”
I have tried to present Peikoff’s main argument in as neutral a fashion as I can; with what success I leave others to judge. I shall now venture a few critical remarks. Peikoff presents his argument very systematically, and he writes with clarity and force. He is certainly right that the notion that one ought to obey the state unconditionally played an important role in the Nazi state, and, more generally, he is right that philosophical ideas are important. But by no means has he proved that they occupy the central role he assigns to them. He does no more that reiterate, again and again, that because philosophy is the “science of fundamentals,” its causal role in history must be primary. I entirely fail to feel the force of that “must.”
His ungrounded assertion of this doctrine of causal primacy, when combined with another mistake, makes this book a failure. This mistake is that he describes the philosophical views of those he blames for the Nazis in a fashion that makes these views seem ridiculous. Sometimes philosophers do come up with ridiculous ideas, but it is a sound maxim that one should expound major thinkers in a way that makes readers see their rational appeal.
Peikoff asks this question: How can one explain the fact that so many Germans acted against their self-interest by giving the Nazi state unconditional obedience? In asking this question, he ignores the fact that many supporters of the Nazi program thought that they would gain from supporting it. (Peikoff does recognize that the Nazi movement included people who profited from graft, but this he thinks of minor importance.) As Ludwig von Mises pointed out, many Nazis thought that Hitler’s policies would bring prosperity. Their error lay in bad economics rather than bad philosophy. I hope I will not meet with the reply that the ultimate source of the bad economics must be bad philosophy because “philosophy is the science of fundamentals.”
Money supply growth fell again in December, falling even further into negative territory after turning negative in November for the first time in twenty-eight years. December's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years. During the thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent year over year, well above even the "high" levels experienced from 2009 to 2013.
Since then, the money supply growth has slowed quickly, and since November, we've been seeing the money supply contract for the first time since the 1990s. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996.
During December 2022, YOY growth in the money supply was at –2.4 percent. That's down from November's rate of –0.55 percent and down from December 2021's rate of 6.44 percent.
The money supply metric used here—the "true," or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2.1
The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates. In December 2022, the M2 growth rate was –1.3 percent. That's down from November's growth rate of –0.01 percent. December's rate was also well down from December 2021's rate of 12.5 percent.
Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession.
Negative money supply growth is not in itself an especially meaningful metric. But the drop into negative territory we've seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen in recent months. That is generally a red flag for economic growth and employment.
Money supply growth also appears to be connected to yield-curve inversion—itself a recession indicator. For example, the 3s/10s yield spread often heads toward zero as money supply growth moves in the same direction. This was especially clear from 1999 through 2000, from 2004 to 2006, and during 2018 and 2019, and beginning in 2022. This is not surprising because trends in money supply growth have long appeared to be connected to the shape of the yield curve. As Bob Murphy notes in his book Understanding Money Mechanics, a sustained decline in TMS growth often reflects spikes in short-term yields, which can fuel a flattening or inverting yield curve.
It's not especially a mystery why short-term interest rates are headed up fast, and why the money supply is decelerating. Since January 2022, the Fed has raised the target federal funds rate from 0.25 percent up to 4.75 percent.
This means fewer injections of Fed money into the market through open market operations. Moreover, although it has done very little to sizably reduce the size of its portfolio, the Fed has nonetheless stopped adding to its portfolio through quantitative easing and allowed a small amount (about 5 percent of $8.9 trillion) to roll off.
It should be emphasized that it is not necessary for money supply growth to turn negative in order to trigger recession, defaults, and other economic disruptions. With recent decades marked by the Greenspan put, financial repression, and other forms of easy money, the Federal Reserve has inflated a number of bubbles and zombie enterprises that now rely on nearly constant infusions of new money to stay afloat. For many of these bubble industries, all that is necessary for a crisis is a slowing in money supply growth, brought on by rising interest rates or a confidence crisis.
Numerous indicators now point toward recession along with the falling money supply and the inverted yield curve. The Leading Economic Index is in recession territory. Real wages have fallen for twenty-one months. Home builder confidence fell every month of 2022. The Philadelphia Fed's manufacturing index has been negative since September. Home price growth has been cut in half. The fact that the money supply is actually shrinking serves as just one more indicator that the so-called soft landing promised by the Federal Reserve is unlikely to ever be a reality.
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- Beginning this month, I have slightly re-calculated all periods of the TMS measure presented here to conform to the changes suggested by Robert Murphy and Ryan Griggs in “The Inverted Yield Curve, Austrian Business Cycle Theory, and the True Money Supply,” Quarterly Journal of Austrian Economics 24, no. 4 (December 2021): 523–41.
Inflation at an annual rate of 5 percent is not a positive, and it is certainly not falling prices. Inflation is accumulative, and this means we are becoming poorer faster.
Original Article: "Governments Will Make You Poorer Again"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On Sunday, January 22, Argentine minister of economy Sergio Massa told the Financial Times that Argentina and Brazil were starting preparations for a common currency. We know that this is an old idea as it has been floating at least since the 1980s. But is it a good idea?
The way that this news was reported was somewhat confusing. In the Financial Times interview, Massa seemed to suggest that both countries would abandon their current currencies in favor of a new one, just like countries in the eurozone. But a few days later, Brazil’s President Lula da Silva said both countries were in talks over a ‘trading currency,’ which is quite different.
The idea is that a trading currency would boost bilateral trade between Brazil and Argentina, which at first glance seems positive but is actually problematic. Indeed, one only needs to look at recent South American history to notice where the problem lies: neither country is interested in free trade and, instead, both are quite interested in supporting crony capitalists. The example of Mercosur, the bloc that both Brazil and Argentina created along with Uruguay and Paraguay in the 1990s, is notable because it has failed to expand trade beyond its borders. Mercosur has simply turned some protectionist countries into one big protectionist bloc that hurts consumers, something that has become so evident that Uruguay is now threatening to sign free trade agreements with other nations.
The one time that Brazil and Argentina came close to advancing freer trade was during the negotiations between Mercosur and the European Union (EU), which resulted in an agreement in 2019, but circumstances are different now. Back then, the two countries were ruled by relatively pro free-market governments, and the only reason why the agreement never went into effect was because of environmental concerns and protectionist worries on the part of the EU. Today, though, the Left is back in South America. Lula da Silva has already said he will seek to renegotiate the deal in favor of his country’s industrial development, while Argentina’s President Alberto Fernández has similar concerns and is even more reluctant to move forward. It does not seem, then, as though free trade is in the plans of either administration.
Citing free trade as an advantage, in the case of Argentina, some officials have stated that an increased level of trade with Brazil would remove the only barrier to economic growth in the country, but this is blatantly false. Although Argentine consumers would certainly benefit from cheaper goods and services, they are unlikely to get them just from Brazil, which is already the country’s main trading partner. Most importantly, however, most of Argentina’s long-standing economic issues have nothing to do with trade but with irresponsible fiscal and monetary policies that have caused several debt crises and an annual inflation rate of just under 100 percent. It is not lack of trade but rather persistent fiscal deficits which cause stagflationary conditions as well as the ‘lack of dollars’ to which the government alludes. When the government takes 100 percent of commercial profits, people keep their money away from it at all costs.
What Brazilians and Argentines need are fiscal reforms that let individuals keep more of their earnings and not just half of them, as is currently the case, but the leftist administrations that now rule both countries are unlikely to advance tax cuts. In the Brazilian case, minister of economy Fernando Haddad has also said he plans to significantly boost public spending, something that the Argentine government has also tried to do in recent years more limitedly as it seeks to abide by a bailout deal with the International Monetary Fund. More taxes, more public spending—neither administration is thinking of fiscal reforms to address their fiscal deficits.
If anything, rather than a good idea, the initial announcement by Sergio Massa and the later comments made by other Brazilian and Argentine officials seem to have been a smokescreen designed to avoid discussing actual reform. Indeed, neither side is interested in advancing free trade or in making their countries more attractive to local and foreign investors. But as long as those goals are off the agenda, economic growth is likely to elude Brazil and Argentina, and their quality of life is unlikely to improve, no matter how strong their protectionist ties get.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop discuss Jay Powell's exercise in Fed-speak this week. While political pressure mounts at home for the Fed to turn dovish, growing international challenges to the dollar's dominance mount. Ryan and Tho also examine the Saudi's willingness to question the petrodollar and recent rumblings down south of a South American monetary union.
Also, join the Mises Institute in Tampa this month for a special event featuring Per Bylund, Jeff Deist, Tho Bishop, and Brett Lindell, on February 25. Learn more at Mises.org/Tampa.
Recommended Reading"The Fed Is Already Flashing Signs It's Done Raising Rates" by Ryan McMaken: Mises.org/RR_119_A
"How FedGov Destroyed the Housing Market" (Human Action Podcast): Mises.org/RR_119_B
"Why the End of the Petrodollar Spells Trouble for the US Regime" by Ryan McMaken: Mises.org/RR_119_C
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday raised the target policy interest rate (the federal funds rate) to 4.75 percent, an increase of 25 basis points. With this latest increase, the target has increased 4.5 percent since February 2022, although this latest increase of 25 basis points is the smallest increase since March of last year.
Indeed, the FOMC has slowed its rate of increase over the past three months. After four 75 basis point increases in 2022, the committee approved a 50 point increase in December, followed by the 25 point increase this week.
In other words, the FOMC has been slowed down in its monetary tightening. The committee was careful to deny that it plans on ending or reversing rate increases, however. In its press release, the FOMC noted:
The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
Of course, the FOMC’s publicly stated predictions of its own future behavior are essentially useless as accurate predictors of future events. This has been illustrated over and over. For example, a year ago, not a single member of the FOMC predicted that the target rate would rise above 4 percent in either 2022 or 2023. By September 2022, every member but one had switched to predicting that a rate above 4 percent would be necessary to bring down inflation. This came after years of flat denials that the Fed would raise the target rate at all through 2023 and that inflation was “transitory.” Of course, these predictions proved to be so wrong that the Fed abandoned forward guidance in 2022, and the FOMC embraced a month-by-month strategy of guessing a new target rate each month. In other words, they’re making it up as they go.
So, the fact that the FOMC is now saying it will keep raising rates means nothing in the sense that there’s no reason to believe this information is even reliable. It’s entirely possible the committee will raise rates again. But, given the information we have, it’s also just as likely that they won’t. We won’t know until the next meeting.
The committee also predicted:
The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
Predictions of what the FOMC plans to do with the portfolio are even more volatile and unreliable given that changes in the portfolio tend to get less attention in the press. As an example of the Fed’s lack of any real plan for the portfolio, we can remember that in 2019, the Fed was also “committed” to “normalizing” the portfolio. Yet it quickly became clear in late 2019 that the economy was too weak to tolerate much quantitative tightening at all, and soon the Fed was back to buying up more assets yet again.
This disconnect between Fed predictions and reality also extends to the economy. Let it not be forgotten, for example, that months after the Great Recession had already begun, Ben Bernanke was still predicting there would be no recession in 2008. These elite forecasting “skills” were on display in the second half of 2021 as well: inflation began to surge above 5 percent, but the Fed did nothing and said it was all transitory.
Note, for example, how Consumer Price Index (CPI) inflation began to surge in July 2021 and yet the target rate remained at 0.25 percent for eight more months. The Fed was so behind the curve on inflation that even after raising the target rate by 450 basis points, it is still well below the CPI inflation rate.
Considering the circumstances, monetary policy is still remarkably loose.
It’s best to think of these FOMC predictions as little more than an exercise in public relations and as part of an effort to remove market froth without actually raising the target rate or reducing the size of the portfolio, which we’ve seen is generally too much for the easy-money-addicted market to stomach.
This is all part of the plan to engineer a “soft landing.” So at the FOMC press conference on Wednesday, as part of this dog-and-pony show, Jerome Powell repeatedly emphasized that the Fed plans to keep raising rates and that it won’t stop until “the job is done.” The basic intended takeaways from Wednesday’s meeting included:
- The Fed can’t yet declare victory over price inflation.
- Disinflation in some areas has begun, butnonhousing services have yet to see slowing prices.
- More rate hikes are in store.
- No cuts in the target rate are planned for this year.
- A “soft landing” is still very much possible.
Powell stuck doggedly to this message in spite of a multitude of repetitive and tired questions from the reporters in the room that essentially amounted to “Why haven’t you stopped raising rates, and when will you?”
Yet it appears that, in spite of Powell’s cross-my-heart-and-hope-to-die claims, the markets expect the Fed to stop raising rates and then bring rates back down in coming months. This could be seen in the fact that the S&P 500 began to surge on Wednesday almost as soon as Powell started talking.
So, if Powell was hoping to send a hawkish message while also reducing rate increases to 25 basis points, he apparently failed, and Kathy Jones is probably right:
Seems like Powell flubbed this one. Meant to send a cautious, hawkish message but ended up doing the opposite.
—Kathy Jones (@KathyJones) February 1, 2023
On the other hand, Powell is right about one thing. He emphasized in the press conference that the full extent of the Fed’s (mild) tightening in 2022 has yet to be felt. The economy has been so fragile and so based on little more than easy money since 2006, that it only takes some minor tightening to throw a major monkey wrench into financial markets—and then the larger economy.
Indeed, the signs of recession are everywhere. Money supply growth actually turned negative for the second month in row in December. The yield curve is more inverted now than it’s been in forty years. Home prices are slowing. The Leading Economic Index is well into recessionary territory. Powell apparently believes this is just the beginning.
So, if Powell is right about the lagging effects, the economy will more obviously be in dire straits soon and the Fed will embrace easy money. Unfortunately, if the lagging effects are just now getting warmed up, both Powell and markets are wrong to keep hoping for a “soft landing” (whatever that even means). At this point, employment is the only major economic indicator that looks “good,” although real wages have been falling for nearly two years.
This leaves two likely scenarios. One is that Powell is actually telling the truth and the FOMC is not going to stop raising rates until price inflation really is back to the arbitrary 2 percent standard. That will have to mean a real recession with real monetary deflation for more than a month or two. The other is that if the Fed does panic and jump back to easy money at the first sign of a surging unemployment rate, that will probably mean a second wave of inflation, as occurred in the late 1970s, when Arthur Burns tried the same easy way out for the Fed. And, as in the late seventies, inflation may also come with ongoing economic stagnation. Powell pretty clearly wants to avoid being another Burns, but it’s unclear if he can pull it off.
Because government officials do not worry about the consequences of making mistakes, the government should not be permitted to regulate anything as important as vaccines.
Original Article: "Governments Cannot Effectively Regulate Vaccines"
This Audio Mises Wire is generously sponsored by Christopher Condon.
True story: Many weekends during my studies in Changzhou, China, my friends and I would go out to have a drink only to realize that our favorite bar was not open that night. In fact, all of the city’s clubs would be closed. The reason? Police had decided to crack down on these nightclubs. These would mostly be drug-related crackdowns, but other reasons such as prostitution would make the list. This seemed to happen in cycles. Once the crackdown happened, things would cool down and gradually build up again to reach a climax, in which another crackdown would happen.
Crackdowns are a well-known theme in the Chinese economy as well. Nowadays, any online search about the Chinese economy will show results that include the word “crackdown.” There is a pattern of occasional crackdowns on big sectors, specific companies, and even individuals. The reasons are different, but the story stays the same. Sometimes a random company is deemed incompliant by some regulatory agency. Other times, an influential businessperson becomes too vocal and criticizes the government. In many cases, a scapegoat is needed to bring peace during a government crisis.
taulant_picture1.png The crackdowns come in different shapes. A common one is the implementation of a new set of regulations. Another one is just stricter enforcement of regulations that are already in place. Every now and then, it has suited the country's leaders to relax their iron grip on the economy and allow a degree of economic liberty. Corruption also plays a big role in these relaxations. The libertarian in me thinks also that sometimes, the lax enforcement is just the government’s incompetence and its inability to enforce regulations on everyone, all the time.
China was once the leading country in crypto mining. In May 2021, the Chinese government vowed to put an end to crypto mining and trading in China, which from a regulatory point of view had been illegal since 2019. Soon enough, videos of hundreds of processors being destroyed, sometimes with road rollers, were released. The data from the Cambridge Bitcoin Electricity Consumption Index, which tracks the IP addresses of mining-facility operators that connect to the servers of bitcoin mining “pools,” shows that China’s mining operations hash rate went from 75.73 percent on September 2019 to 21.11 percent as of January 2022.
Similar crackdowns have been happening since 2013. The crackdowns have been defended as protecting the stability of China’s economic growth, but with the growing state surveillance of transactions, the crackdown in 2021 seems to have been caused by the growing fear of the government and the central bank of losing their grip on monetary sovereignty. This crackdown was the first time the central bank and Beijing-based regulators joined forces to explicitly ban all crypto activities, definitely not a union to mess with. Moreover, cryptocurrencies would have been in direct competition with the sovereign digital yuan, which is in advanced pilot stage—not exactly a situation preferred by the government.
DiDi, the Uber-like app, fell under the regulators’ radar when it tried to list its shares at the New York Stock Exchange, most likely without the blessing of Beijing bureaucrats. Government officials soon deployed their regulatory forces against DiDi, which had five hundred million users at the time (far more than Uber). Accusations started to emerge, such as the claim that DiDi had violated personal data rules. These accusations were enough for the app to be banned from all mobile app stores in China.
As usual, the regulations were in place for quite some time, and the crackdown happened when it suited the government. It tumbled DiDi stock by over 20 percent. Almost all the largest Chinese tech firms list their shares on American or Hong Kong stock exchanges. There are hundreds of start-ups that have yet to follow giants like Alibaba, Tencent, and DiDi in listing their shares and that now have to worry about going down the same path as DiDi if do what is best for their company.
The famous Jack Ma suffered the same fate for criticizing China’s financial sector, and he seemed to have lost more than anyone. Jack Ma was a former English teacher who led the tech boom that forever transformed China’s economic sphere and built an incredible empire. The Alibaba Group, initially founded as a business-to-business marketplace site, later expanded into a wide range of areas. Jack Ma’s story inspired a generation of Chinese entrepreneurs. Alibaba includes e-commerce, technology, and online payment companies, the most important being Ant Group, which owns Alipay, the world’s largest payment platform at more than 1.3 billion users, eighty million merchants, and a total payment volume of ¥118 trillion in June 2020.
In late 2020, Ma was preparing for Ant Group’s stock market flotation in a $37 Billion IPO, which would have been the largest ever at the time. But on October 24, 2020, just weeks before the listing, Ma gave a now infamous speech at the Bund Finance Summit in Shanghai in which he compared China’s state-owned banks to pawn shops and blamed Chinese regulators for stifling innovation. “The competition tomorrow will focus on innovation, not regulatory capabilities,” he said in the speech. On November 3, 2020, Chinese regulators suspended Ant’s IPO. Ant was fined $2.78 billion in April 2021 and forced to undergo a systematic restructuring, and Ma stepped down. Another company appeared to bite the dust.
We cannot say for sure that all this happened because of the speech or that Ma’s time had come due to his ever-growing influence in China. What we can say is that the Chinese government will not allow any individual to hold that much power. Over the past several years, many of China’s top tech figures have stepped down from their leadership roles amid Beijing’s sweeping crackdowns on the sector.
The effects of these crackdowns vary widely, from not being able to access a favorite club to billions of dollars being wiped out. The most concerning of all is the state of uncertainty faced by entrepreneurs and the Chinese private sector as a whole. The era that Jack Ma led is over, and what is happening in China could shut all the doors to innovation.
With a crackdown cycle in place, the future does not look good for China. But even though crackdowns are hurting China’s business prospects, if the Chinese regime abandons this approach, a rebound has every opportunity to occur.
What at first seem like gifts from the state (handouts for some at the expense of others) lead to unfortunate events that cannot be stopped once begun.
Original Article: "Corporate Welfare for Farmers Is Swell until It's Not: The Case of Arizona Reservoirs"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Relief is spreading among economic analysts and stock market experts. Energy prices are decreasing noticeably. The energy supply this winter seems secure; in Europe, government support for consumers and producers is available if needed. China is turning away from its zero-covid policy, and production is ramping up again. High goods price inflation is still a major concern for consumers and producers, but central banks are delivering at least some interest rate hikes to hopefully reduce currency devaluation. So should we bid farewell to crisis and recession worries? Unfortunately, no.
Because there is an overall economic development that is tantamount to a storm but remains unnamed by many experts and investors. And that is the global contraction of the real money supply. What does that mean? The real money supply represents the actual purchasing power of money. For example: You have ten dollars, and one apple costs one dollar. So with your ten dollars, you can buy ten apples. If the apple price increases to, say, two dollars per piece, the purchasing power of the ten dollars falls to five apples. It becomes obvious that the real money supply is determined by the interplay between the nominal money supply and the prices of goods.
The real money supply in an economy can decrease when the nominal money supply goes down or goods prices rise. This is exactly what is currently happening around the world. The chart below shows the annual growth rate of the real money supply in the Organization for Economic Cooperation and Development (OECD) from 1981 to October 2022. The real money supply recently contracted by 7.3 percent year on year. There has never been anything like this before. What is the reason?
polleit_picture1.png The enormous rise in goods prices, i.e., the high inflation, is a consequence of central banks’ monetary policy. In the course of the politically dictated lockdowns, central banks have increased the money supply enormously. For example, the US Federal Reserve has expanded the M2 money stock by around 40 percent since the end of 2019, and the European Central Bank has increased the M3 money supply by 25 percent. As the growth in the supply of goods has not kept pace, a huge money supply overhang has emerged, which is now met with cost-push effects—such as the consequences of green policies, lockdowns, and the Ukraine war—unleashed in sky-high goods price inflation.
In the meantime, however, nominal money supply growth has fallen sharply again. In the US, it fell by 1.3 percent year on year in December 2022 and to 4.1 percent in the euro area. The reason: loan demand is declining, commercial banks are granting fewer loans, and consequently, the new money supply generated by bank lending is falling. Furthermore, central banks are no longer buying government bonds, which is one reason why the inflow of new money into the economy is drying up.
It may sound paradoxical, but in economic terms, the current high goods price inflation is reducing the money supply overhang, and along with now significantly reduced money supply growth, downward pressure on future inflation is already increasing.
However, if the real money supply continues to shrink as sharply as it is currently, the signs point to at least an economic slowdown and, more likely, a recession. When the real money supply in the economy shrinks, those holding cash become poorer. They can now no longer purchase the quantities of goods they previously bought and need to adjust their spending: stop buying more expensive goods, or continue buying more expensive goods while forgoing other things. The result is a drop in aggregate demand.
This phenomenon is, by the way, well known in theory as the “real balance effect.” It goes back to the Israeli-American economist Don Patinkin (1922–95). Patinkin wanted to show, among other things, that the national economy can, so to speak, heal itself in crises without the need for government intervention. If, for example, goods prices fall in a recessionary depression, this strengthens the purchasing power of market players if and when the money supply remains unchanged. They can expand their demand for goods, and the economy works its way out of the crisis more or less automatically.
Applied to current conditions, we can see that a rather powerful negative money balance effect is unfolding: The initial increase in the quantity of money results in a rise of the real money supply, which fuels consumption and production. Then, goods price inflation takes off, and, at the same time, monetary expansion slows down. The result is a very sharp decline in the real money stock, which, in turn, leads to lower economic activity, even recession.
The contraction of output and employment, in turn, exerts downward pressure on rising goods prices, establishing a new relation between the outstanding money stock and goods prices in accordance with peoples’ preferences. Once this adjustment has run its course and the nominal money stock remains unchanged, goods price inflation dies out. The economy ends up with a higher level of goods prices when compared with the situation before the nominal money supply had been increased.
So why do central banks want to raise interest rates even further? Monetary authorities fear that doing nothing and waiting in the current regime of sky-high inflation could erode peoples’ trust in unbacked paper currencies. That, in turn, would push up market participants’ inflation expectations—which, incidentally, is already happening—and create an even bigger inflation crisis further down the road. Moreover, central bank councils usually base their monetary policy on current inflation; they typically have little or no regard for the development of the real money supply.
The central banks thus—consciously or unconsciously—trigger a stabilization recession, an economic contraction to break the inflationary wave. At first glance, their plan could most likely work out. Because if the demand for goods drops, companies can only reduce their inventories by cutting prices. The leeway for passing on costs and speculation on future price increases diminishes. Higher wage demands fail to materialize. And most importantly, credit and money supply growth ebb away in a recession, mitigating future inflationary pressure. But at second glance, this is a very explosive approach in the current monetary environment.
A recession will likely put highly indebted economies under severe stress. Many debtors will no longer be able to service their debts. Loan defaults increase. As a result, banks become reluctant to grant new loans and demand repayment of expiring loans. Investor confidence in debt-ridden economies and financial markets is dwindling. The result would be a fulminant credit crisis, at least at the scale of the one in 2008/9. Investors fear that their interest and principal payments will not be made. Credit markets freeze and the unbacked monetary system is headed for collapse.
The economic pain would be enormous, and the political pressure on central banks to lower interest rates again and keep the economy afloat with new credit and more money would be foreseeable. In the hour of need, governments and the public at large will likely see the policy of the least evil in increasing the money supply. Even a sky-high inflation policy becomes acceptable from their point of view to escape a perceived even greater evil. There are quite a few examples of this tragic handling of the unbacked paper money system.
Just think of 2008/9 (the global financial and economic crisis) and 2020/21 (the crisis after the politically dictated lockdowns). To ward off the crises or keep them as small as possible, central banks lowered interest rates and drastically expanded the money supply. The outcome was inflation—asset price inflation from early 2009 or consumer goods price inflation, which reared its ugly head toward the end of 2021. From this perspective, it is not unlikely that history will repeat itself.
If central banks are not stopped from doing what they are doing—causing booms and busts by manipulating market interest rates downward and relentlessly expanding the quantity of money created out of thin air—their actions will eventually lead to a level of inflation well beyond what we have witnessed over the past year and a half. From this perspective, the sharply contracting real money stock in the world economy is—it has to be feared—the harbinger of a new round of super-easy monetary policy and super-high inflation, even hyperinflation, further down the road.
Fiat money is the fuel of the modern Leviathan state. If we wish to have freedom, we must have sound money.
Original Article: "The Modern State Cannot Exist without Fiat Money"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The macroeconomic situation in Japan seems to be coming to a head. When the Bank of Japan, under its President Haruhiko Kuroda, announced on December 20, 2022, that it would raise its interest rate ceiling on ten-year Japanese government bonds from 0.25 percent to 0.50 percent, share prices in Tokyo plummeted and the Japanese yen appreciated sharply.
The “Kuroda shock,” which in the eyes of some observers heralded a turning point in Japan’s thirty-year low, zero, and negative interest rate policy, sent shock waves through the international financial markets. Meanwhile, the markets are betting against the Bank of Japan being able to keep its self-imposed interest rate ceiling. Is Japan heralding an end to low inflation and low interest rates? We have examined the Japanese model and see some evidence for this.
Figure 1: Bank of Japan key interest rate, stock, and property prices
picture1.png ###### Source: Macrobond.
The East is ahead of us not only in time of day, but sometimes also in time of history. A head start of a different kind occurred when the Japanese “bubble economy” burst in the late 1980s. Overly loose monetary policy had created a bubble in the stock and property markets in the second half of the 1980s (see figure 1). As the Bank of Japan kept cutting interest rates in response to the bursting bubble from the early 1990s onward, an environment of low inflation combined with meagre economic growth emerged. The low growth–low inflation environment only reached the West after almost two decades because of the global financial crisis of 2007/8.
Japan was not always a country of low inflation and interest rates. During the period of the Bretton Woods exchange rate system (1944–73), in which the yen was firmly pegged to the US dollar, inflation in Japan—driven by the economic catch-up process—was higher than in the US. After the collapse of the Bretton Woods system in the early 1970s, inflation rose to more than 25 percent during the oil price shock of 1973/74.
From the early 1980s, inflation in Japan also fell in the wake of the global slowdown, while Japanese stock and property prices exploded in the second half of the 1980s. After this asset-price bubble burst, the Japanese model of low inflation, low interest rates, and low growth emerged. It has four elements:
First, since the 1990s, the Bank of Japan’s interest rate cuts, extensive government stimulus programs, and a growing mountain of subsidized loans to ailing companies have prevented not only a major recession but also the adjustment of outdated structures. The resulting zombification of many Japanese companies led to low growth, declining real wages, and thus low inflationary pressure from the demand side.
Second, low inflation over a long period of time depressed the inflation expectations of all economic agents, while seemingly cemented low interest rates blurred the difference between hoarding money (in liquid bank deposits) and saving money (in financial assets). The Bank of Japan was able to finance rising government debt through money issuance without risking a loss of confidence in money.
Third, the state helped cement low inflation by keeping the prices of an increasing number of goods and services low through subsidies. The government was able to raise the funds for the subsidy payments through new debt without raising interest rates. This is because the Bank of Japan was able to turn many government bonds into money that people were willing to hold. Meanwhile, the national debt is about 260 percent of gross domestic product, while about 50 percent of the outstanding Japanese government bonds are held by the Bank of Japan.
Fourth, the financing of rising public debt through money issuance and hoarding came at the expense of riskier investments. The stock and real estate markets, corporate investment, and economic growth languished for a long time. Even the “Abenomics” starting in 2013 did not bring about a turnaround. Despite an unprecedented flood of money, neither growth nor inflation returned to the levels seen before the bubble burst.
The Japanese model not only pioneered the global low inflation and low interest rate environment, but it was also supported by it until the recent past, because all other industrialized countries kept interest rates very low as well. Yet, with the steep rise in inflation in the US and many other Western industrialized countries, this support has fallen away. The yen came under depreciation pressure as the Fed, European Central Bank, and many other central banks increased interest rates. The weaker yen reinforced inflationary pressures in Japan.
In principle, the Japanese government could counter the latest rise in inflation to 3.8 percent in November 2022 in the tried and tested manner of extending price subsidies. The price would be more government debt, which would have to be financed with even more money issuance. But this would only work if the inflation expectations of economic agents remained firmly anchored at a low level and their willingness to hoard money remained unwavering. Trade unions would have to remain cautious on wage demands despite higher inflation, for example, due to fears of large-scale restructuring of Japanese zombie companies. However, surveys by government agencies show that most consumers expect prices to rise over the year. Wages and prices seem to be following expectations.
Figure 2: Inflation, wage changes, and inflation expectations
picture2.png ###### Source: Macrobond. Wage changes for Tokyo smoothed. Inflation expectations is defined as the share of respondents expecting higher prices over the year minus the share of respondents expecting prices to stay the same or fall.
Consequently, an alternative development is coming into focus. Higher inflation expectations could now fuel wage demands against the backdrop of labor shortages in the rapidly ageing Japanese society after many years of wage austerity. Rising wage cost pressures and a weak currency could lead to a spiral of higher inflation and higher inflation expectations. With government debt already very high, the state could be overburdened to keep prices down with subsidies. If the Bank of Japan had to counter the rise in inflation with significant interest rate hikes, it would not only suffer substantial losses on its securities holdings, but other financial institutions such as banks, insurance companies, and pension funds could get into trouble. Japan’s numerous zombie companies, which have so far survived thanks to low interest rates and wage restraint by the unions, would be in trouble.
Ultimately, the government would be faced with the choice of allowing higher inflation up to hyperinflation to devalue the abundant national debt and the money overhang it has generated. Or it would eliminate this overhang through economic and monetary reform. Should the government seek templates for the reduction of debt, economic history offers a broad spectrum of case studies. Particularly, German history after the First and Second World Wars as well as the liquidation of the German Democratic Republic during German reunification offer rich illustrative material.
Government interference into money creation and production harms the economy in a number of ways, including skewing the organization of division of labor.
Original Article: "Fiat Money Inflation Not Only Raises Prices but Also Undermines Division of Labor"
This Audio Mises Wire is generously sponsored by Christopher Condon.
At the annual World Economic Forum meeting in Davos this year, Klaus Schwab gave a televised interview where he said that stakeholder capitalism will become the ideal economic system for efficiently allocating resources in order to “master ze future.” However, the problem with Schwab’s stakeholder capitalism is that it is inconsistent with its stated ends. Furthermore, Schwab’s ideas are not new. Most of them are variations of old ideas like social responsibility and fixing market failures.
In an article from March 2021, Schwab argues there are three types of capitalism: shareholder, stakeholder, and state. However, in formal comparative economics, neither shareholder nor stakeholder capitalism is recognized as its own system. Shareholder capitalism just means capitalism (or liberalism, formally). Since stakeholder capitalism claims to respect the private property regimes of capitalism, its difference lies in proposing alternative institutional arrangements that structure market activity. On the other hand, state capitalism is closest to political capitalism or fascism in the literature.
In developing his argument, Schwab says that stakeholder capitalism is capitalism in that
private actors own and control property in accord with their interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society.
To him, the difference is whether shareholders, stakeholders, or the state are the dominant group in society. Curiously, this framing deviates from most macroeconomic textbooks which propose four actors: households, firms, the state, and the rest of the world. Nevertheless, Schwab writes:
In both shareholder and state capitalism, the dominance of one stakeholder over the others is the system’s greatest flaw. . . . But stakeholder capitalism does fundamentally differ from the other forms of capitalism we saw. . . . First, all those who have a stake in the economy can influence decision-making. . . . Moreover, a system of checks and balances exists, so that no one stakeholder can become or remain overly dominant. Both government and companies . . . thus optimise for a broader objective than profits: the health and wealth of societies overall. (emphasis added)
Let us unpack his claim about interest-group dominance under capitalism. Generally, it is true that shareholders as a category direct firm activity to earn profits. However, there is no single group of shareholders that directs all economic activity. In fact, there are many shareholder groups that compete against each other. Moreover, shareholders can also be stakeholders under different contexts; it is all specific to time and place. But to the degree that economics recognizes a dominant group in capitalism, it must be the consumer. It is the consumer that must be satisfied for shareholders to earn a profit. So why does Schwab emphasize the firm? Well, it’s simple: is it easier to change the consumption preferences of the entire market or is it easier to change the rules that guide firm activity?
By framing the discussion in terms of interest groups that compete for shares of society, Schwab is making a political case, not an economic one. By promoting the idea that there are shares of society up for grabs, this invites zero-sum thinking about what is a “fair” share. After all, if one group “wields too much power,” this implies it must come at the expense of others. In short, this persuasion trick is designed to get people to view capitalism as unfair and demand an alternative. Sound familiar? Additionally, it allows Schwab to promote the idea of market failure.
Schwab insists that shareholder dominance results in myopic competition, which often causes social disorders like pollution. This view is hardly original. John Maynard Keynes made a similar argument in 1926:
It is not a correct deduction from the Principles of Economics that enlightened self-interest always operates in the public interest. . . . More often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these.
In short, the complaint is that real-world markets frequently fail to live up to the standards of perfect competition (itself a dubious standard). As a result, the market is deemed incapable of fixing the problem and thus requires outside forces, like government, to intervene.
However, Schwab takes a different approach in addressing market failure in two ways. First, he argues that shareholder interests must be weighed against those of “stakeholders” in firm activity. To Schwab, if these stakeholders are included in company decision-making, then negative externalities like pollution could be avoided altogether. Second, Schwab argues that a system of checks and balances is necessary to prevent any one interest group from becoming dominant.
For the remainder of the article, I will focus the analysis on the first “solution.” The reason is that the second ultimately requires a political process that utilizes political knowledge. And as I will show below, political knowledge cannot rationally allocate resources, so we can ignore it.
Although there are myriad practical issues in diluting shareholder interests with those of third parties, I want to focus on where Schwab ends up in his logic. He says that “government and companies . . . optimize for a broader objective than profit.” First, governments are not residual claimants to their activity and therefore do not incur economic profits or losses. Second, if stakeholder capitalism is supposedly more efficient, then how will this be accomplished if profit and loss signals are diluted by “broader” considerations? What other than profit will leverage the self-interest of entrepreneurs to take risks? Schwab never answers this part; it is left up to the reader’s imagination.
This is the core problem with stakeholder capitalism. Schwab is in effect arguing that the process of economic calculation can be improved with arbitrary metrics. And somehow, these metrics will lead to a more efficient allocation than in a market economy.
Socialist economists tried the same trick by promoting labor time as a substitute for market prices. However, as Ludwig von Mises and Friedrich Hayek showed, the only type of information that communicates economic realities are market prices that are generated from a system of private property. Since owners of private property fully bear the costs and benefits of ownership, these prices communicate all entrepreneurial discoveries up to that point and all entrepreneurial errors currently being made.
Or, in the efficient market hypothesis, market prices fully reflect all available information. Therefore, using these market prices is the only way to engage in economic calculation such that profits can be obtained and a rational allocation achieved. Since arbitrary metrics like labor time, or “health” as Schwab proposes, do not communicate concrete economic realities like scarcity of resources or the opportunity costs of ownership, they are fundamentally useless for economic calculation. And it is on this basis that stakeholder capitalism is incoherent.
Furthermore, even if you believe that firms should be socially responsible, however defined, having them optimize for something other than profit impairs their ability to be responsible! Since arbitrary metrics have no economic foundation, they will have to be articulated by political authorities. And because political authorities wield monopoly power of imposing costs through regulation, this encourages firms to compete against one another to satisfy the preferences of the political authorities, otherwise known as rent seeking. Since rent seeking is a negative-sum process that destroys wealth, it is therefore inconsistent with socially responsible behavior.
After French protestors took the street to complain about the increase in the retirement age, I read quite a few jokes in social media about how protesting in France is the local pastime.
protests.jpg That may be true, but let it not be said that Americans don't feel very, very strongly about their own national pension program. I say this because in response to my article last week on raising the Social Security age, I received more furious responses than I have for any other article in many years. Here's one example from a man whose initials are MF:
What are you, just nuts??? Having paid in to SS for over 40 years and experiencing big gov losing my records for some of my most productive years, so my stipend has been reduced; And after my wife and I planned for retirement and saved while contributing to SS, my wife died 2 months after her 65 birthday never having received a single payment from SS after paying in for 42 years. There are no spousal survivor benefits. All the contributions she paid in are gone. Age of qualification isn’t the issue. Corruption, graft and top heavy bureaucracy, while incompetents administer at the front line are the problems. Either wise up, do your research or stay away from topics you seem totally ignorant about.
Here's one from reader RG:
I didn’t make the promise [to pay a pension at age 65] the guvvmint did. ... You are a useless fk wasting computer ink. Get your head out of your a and breath the gathering doom. My father fought in France in WW2 and Korea, didn’t live long enough to collect his benefits nor my mother-in-law. F**k you again.
A less emotional reader suggested that instead of reducing Social Security payouts—as I suggested—the better plan would be to "to do away with the social security program and give me the money I contributed over the past 45 years, with interest of course."
These sorts of responses all share a common thread. Many are under the impression that they have some sort of promise or agreement with the federal government about pension funds. The supposed agreement is that money these former workers "paid into" the Social Security "trust fund" will be paid back to them. Some seem to even believe that the money is stored somewhere, earning interest, and can be returned.
Well, I have bad news for everyone who sincerely believes the government lie and thinks they have some sort of claim to today's tax revenues due to a "promise" from the feds decades ago: there is no promise, no agreement, and you have no legal claim to money that was "paid in."
It's Not Insurance. There Is No Trust Fund. Your Money Is Gone. This is because Social Security is not "insurance." It's not a "trust fund." It's just a tax and a welfare program. The money current pensioners paid in was spent on other people years ago. It's gone.
The legal realities behind Social Security were well summarized by Charles Rounds twenty years ago:
Social Security is not an insurance program. A Social Security "account" bears no legal resemblance whatsoever to a bank checking or saving account. Social Security bestows no contractual rights or any other type of property right on workers.
In other words, Social Security as it is currently structured has nothing to do with legally enforceable promises or guarantees. There is no "trust fund" as that term is commonly understood, no funded segregated accounts, no IOUs or bonds stored in some lockbox, or anywhere else for that matter. Social Security is neither solvent nor bankrupt.
In Flemming v. Nestor, 363 U.S. 603 (1960), the U.S. Supreme Court set the record straight. Social Security is actually nothing more than an umbrella term for two schemes that are legally unrelated: a taxation scheme and a welfare scheme.
Workers and their families have no legal claim, grounded in the Fifth Amendment or elsewhere, on the FICA tax payments that they make into the U.S. Treasury, or that are made on their behalf. Those funds are gone, commingled with the general assets of the U.S. government and fully available for purposes unrelated to Social Security. Being mere welfare recipients—not creditors or holders of equitable property rights—workers have hopes or expectations of future benefits, but no enforceable rights to them.
Nestor stood on the shoulders of a previous case, Helvering v. Davis, 301 U.S. 619 (1937). In Davis, the Court had confirmed that Social Security is not an insurance program. During the Helvering oral arguments, the Chief Justice had anticipated Nestor when he speculated from the bench that Congress would have the authority to abolish the welfare component while keeping the taxation component in place.
Thus, it is inappropriate either for the left to call Social Security "solvent" or for the right to call it "bankrupt." A welfare program funded by general tax revenues cannot go bankrupt because its sponsor is a governmental entity with the power to tax and print money, not to mention reduce or eliminate altogether future benefits. The terms "solvency" and "bankruptcy" are appropriately applied to human beings, corporations, trusts, and the like. But not to Social Security. Social Security is not an entity.
This is why raising the retirement age for Social Security has nothing to do with what is "paid in." The federal government could abolish Social Security altogether, yet keep the Social Security tax in place.
People tend to get really worked up about this because they believe on some level that they are "owed" a return on their Social Security taxes. The special status of the Social Security tax in the minds of many people is illustrated by the fact that people rarely claim to be owed the money they "paid in" to other tax schemes such as the income tax, or the gasoline excise tax, or tariffs. In reality, though, these are all just taxes of exactly the same sort with no tie to any specific type of spending. Congress and the President have total control over how to spend all of it. They always have.
It's Impossible to "Pay Back" Social Security Revenues to Those Who "Paid In"The angriest readers do get at least one thing right. They correctly see that raising the retirement age for Social Security is indeed a reduction in benefits. That, of course, is why they're so angry in the first place. They understand that raising the age means a reduction in spending that they're likely get less of "their" money.
Oddly, though, one can often find people who claim to be for "small government" or lower taxes, but still insist they want "their" money. Unfortunately, it is not possible to "pay back" the people who paid the tax in the past. "Restitution" would amount to nothing more than taxing current taxpayers to benefit past taxpayers. In other words, the government can't return the money it stole in the past. It's impossible. The money's gone. Taxing today's workers to pay off pensioners is just creating a new group of tax victims. There's nothing fiscally sound or moral about such a scheme. It's just more state-controlled wealth redistribution.
The right thing to do with Social Security is what is also the right thing to do when it comes to all federal programs: reduce both spending and taxation. Merely cutting the Social Security tax doesn't solve anything because that only increases deficits, and thus increases taxation via price inflation while requiring more taxation and spending to pay interest on the growing debt. The only real answer lies in cutting spending, and one way to do that is to raise the age to receive benefits. That's something many Social Security recipients apparently don't like to hear.
On January 17, the Saudi minister of finance, Mohammed Al-Jadaan, announced that the Saudi state is open to selling oil in currencies other than the dollar. “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal,” Al-Jadaan told Bloomberg TV.
If the Saudi regime does indeed embrace substantial trade in currencies other than the dollar as part of its oil-export business, this would signal a shift away from the dollar as the dominant currency in global oil payments. Or measured another way, this would signal the end of the so-called petrodollar.
But how large of a shift is this? With the increasingly frequent Saudi comments about trading in nondollar currencies, we’ve also seen an increasing number of pundits announcing the “collapse” of the dollar or the imminent implosion of the dollar’s currently outsized global power.
Will a shift away from the dollar in the global oil trade really lead to a big relative decline in the dollar? Probably and eventually. But a number of other dominoes would need to fall first, most especially the domino we call “Eurodollars.”
On the other hand, it would be foolish to simply dismiss the potential end of the Saudi preference for the dollar with hand-waving. The end of the petrodollar would indeed weaken the dollar, even if this would not be a mortal blow in itself. Moreover, it is especially foolhardy to ignore the status of the petrodollar because that status also has geopolitical implications. Saudi comments on the dollar signal that the Saudis no longer consider its alliance with the United States to be as important as it has been since the 1970s. What’s not an immediate economic problem for the US regime or the dollar may nonetheless be an immediate geopolitical problem.
In context, probably the best way to look at the potential end of the petrodollar is to see it as one piece of the dollar-based portion of the global economy. Since the 1950s, the dollar has experienced an immense amount of support in terms of global trade and investment and in terms of dollar reserves held by foreigners. This has greatly propped up demand for US debt and for dollars, and this has had enormous disinflationary effects in the domestic US economy. That is, newly created dollars are soaked up by foreigners who both want and need dollars to pay off dollar-denominated debt and to pad bank reserves. But if global dollar dominance truly is in decline, we could potentially expect both higher domestic price inflation and higher interest rates than what Americans have become accustomed to over the past thirty years. In other words, as the dollar declines, the US regime will no longer be able to monetize debt and heap up immense new deficits without fear of high price inflation or falling Treasury prices. The end of the petrodollar is not a reason to panic right now, but it is the latest sign that the US regime’s power via the dollar is being reined in.
What Is the Petrodollar?The petrodollar is the result of US efforts to secure access to Middle Eastern oil while also lessening the slide of the dollar in the early 1970s.
By 1974, the US dollar was in a precarious position. In 1971, thanks to profligate spending on both war and domestic welfare programs, the United States could no longer maintain a set global price for gold in line with the Bretton Woods system established in 1944. The value of the dollar in relation to gold fell as the supply of dollars increased as a byproduct of growing deficit spending. Foreign governments and investors began to lose faith in the dollar.
In response to these developments, Richard Nixon announced that the US would abandon the Bretton Woods system. The dollar began to float against other currencies. Not surprisingly, this devaluation did not restore confidence in the dollar. Moreover, the US had made no effort to rein in deficit spending. So the US needed to continue to find ways to sell government debt without driving up interest rates. That is, the US needed more buyers for its debt. Motivation for a fix grew even more after 1973, when the first oil shock further exacerbated the deficit-fueled price inflation Americans were enduring.
But by 1974, the enormous flood of dollars from the US into Saudi Arabia, the top oil exporter, suggested a solution. Nixon secured an agreement in which the US would buy oil from Saudi Arabia and provide the kingdom military aid and equipment as well. In return, the Saudis would use their dollars to purchase US Treasurys and help finance US budget deficits.
From a public finance point of view, this appeared to be a win-win. The Saudis would receive protection from geopolitical enemies, and the US would get a new place to unload large amounts of government debt. Moreover, the Saudis could park their dollars in relatively safe and reliable investments in the United States. This became known as “petrodollar recycling.” By spending on oil, the US was creating new demand for US debt and US dollars.
As time went on, thanks to Saudi Arabia’s dominance in the Organization of the Petroleum Exporting Countries (OPEC), the dollar’s dominance was extended to OPEC overall, which meant that the dollar became the preferred currency for oil purchases worldwide.
This petrodollar arrangement proved to be especially important in the 1970s and 1980s, when Saudi Arabia and the OPEC countries controlled more of the oil trade than they do now. It also closely tied US interests to Saudi interests, ensuring US enmity toward the kingdom’s traditional rivals, such as Iran.
The Petrodollar Is a Type of EurodollarIn terms of its economic role, however, the petrodollar has always just been a type of Eurodollar.
What is a Eurodollar? According to Robert Murphy:
The term Eurodollar actually refers to any US dollar-denominated deposit held at a financial institution outside of the United States, or even a USD deposit held by a foreign bank within the US. It thus has nothing to do with the euro currency, and is not restricted to dollars held in Europe; they are dollar deposits that are not subject to the same regulations as US dollars held by American banks, nor are they guaranteed by FDIC (Federal Deposit Insurance Corporation) protection (and hence they tend to earn a higher rate of return).
The trade in Eurodollars is huge, although it’s difficult to quantify exactly how huge. One estimate puts Eurodollar assets at around $12 trillion. For context, we can consider that all assets in US banks total about $22 trillion. Or put another way, “offshore dollar banking now amounts to about half of the US total.” So, the Eurodollar economy is very large, and this “dollar zone” is also a key component of many of the world’s leading economies, given that half or more of the world economy lies in that zone.
In contrast, in 2020, the petrodollar trade amounted to less than $3.5 trillion annually. That’s not insignificant, of course, but even a sizable reduction in this amount will not on its own cause global demand for the dollar (relative to other currencies) to collapse. With so many trillions in dollar-denominated loans floating around the global economy, the petrodollar remains only a piece of a larger pie.
Nevertheless, we could also conclude that the end of the petrodollar is part of a larger and important trend away from the dollar. The relative size of the Eurodollar market has decreased since 2008, dropping from a peak of 87 percent of the size of the US banking system to under 60 percent. Meanwhile, the share of US dollars in the reserves of foreign central banks has fallen, dropping from 71 percent twenty years ago to 60 percent today. This is a twenty-five year low. Russia, China, and India all have shown interest in freeing the global economy from the dollar.
Even if this trend continues, demand for the dollar will most certainly not disappear next week or next month, or next year. There is still a hoard of trillions of dollars’ worth of dollar-denominated debt in the global economy, and—for now, at least—that means continuing demand for dollars. Moreover, the dollar remains one of the safest currencies to keep on hand, given that the central banks in Japan, Europe, the United Kingdom and China, are hardly embracing “hard money.” Given that the US economy remains enormous, and US Treasurys remain at least as safe as other regimes’ bonds, foreigners will still keep a lot of dollars on hand to buy American assets. This is also true because—in spite of the myth that “America doesn’t make anything anymore”—foreigners also buy US products and services.
This certainly doesn’t mean everything is just fine for the dollar, though. A movement away from the dollar—even in slow motion—will mean a rising cost of living for Americans. With fewer foreigners holding on to dollars, the US regime’s current runaway monetary inflation will create more domestic price inflation. In other words, movement away from the dollar will mean the US regime must engage in less monetization of the nation’s debt if it wishes to avoid runaway inflation. It also likely will lead to a need to pay higher interest rates on US government bonds, and that will mean a need for more taxpayer money to service the debt. It will mean that it will become more difficult for the US regime to finance every new war, program, and pet project that Washington can think up.
The Geopolitics of the PetrodollarThe more obvious short-term effects of the move away from the petrodollar will be in geopolitics rather than in the currency order. In addition to signaling that it is no longer wedded to the dollar, Saudi Arabia has also recently announced its openness toward Russia and a willingness to join the Brazil, Russia, India, China, and South Africa (BRICS) nations. This shift in strategic interests for Saudi Arabia potentially poses an immediate threat to US strategic interests, in that the US regime has become accustomed to dominating the entire Persian Gulf region through the US’s Saudi ties. A Saudi turn away from the petrodollar will magnify this shift. That will be enough to further threaten the American standard of living, but not enough in itself to end the dollar. After all, the pound sterling did not cease to exist after its own fall from its vaunted position as the preferred global reserve currency. But it did become far less powerful. The dollar is headed in the same direction.
The Fed is insolvent, and that means that it will bail itself out by printing money. For ordinary people, that means inflation and a rising cost of living.
Original Article: "Why the Fed Is Bankrupt and Why That Means More Inflation"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Does cheap money and credit make us richer? Does more money and credit create more stuff, or better stuff? Do they make us happier and more productive? Or do these twin forces actually distort the economy, misallocate resources, and degrade us as people?
These are fundamental questions in an age of monetary hedonism. It is time we began to ask and answer them. Millions of people across the West increasingly recognize the limits of monetary policy, understanding that more money and credit in society do not magically create more goods and services. Production precedes consumption. Capital accumulation is made possible only through profit, which is generated by higher productivity, thanks to earlier capital investment. At the heart of all of it is hard work and human ingenuity. We don’t get rich by legislative edict.
How we lost sight of these simple truths is complex. But we can begin to understand it by listening to someone smarter! The great financial writer James Grant probably knows more about interest rates than anyone on the planet. So we should pay attention when he suggests America’s four-decade experiment in rates that only go down, down, and down appears to be over.
The striking thing about the bond market and interest rates is that they tend to rise and fall in generation-length intervals. No other financial security that I know of exhibits that same characteristic. But interest rates have done that going back to the Civil War period, when they fell persistently from 1865 to 1900. They then rose from 1900 to 1920, fell from 1920 or so to 1946, and then rose from 1946 to 1981—and did they ever rise in the last five or 10 years of that 35-year period. Then they fell again from 1981 to 2019–20.
So each of these cycles was very long-lived. This current one has been, let’s say, 40 years. That’s one-and-a-half successful Wall Street careers. You could be working in this business for a long time and never have seen a bear market in bonds. And I think that that muscle memory has deadened the perception of financial forces that would conspire to lead to higher rates.
—James Grant, speaking to the Octavian Report
Do the brilliant young Ivy League quants working at central banks and investment houses really understand this history? Why should they? The baseline cost of capital has been less than 3 percent throughout their careers. Cheap credit and rising stock markets are all they know. Lots of projects make sense when funded with debt rather than equity; or as we might say, with other people’s money. And when those projects go public, the numbers go up!
Until they don’t.
One fears our under-forty financiers really have little understanding of the basic function of interest rates, a function Mises explained so clearly more than one hundred years ago. Interest rates should act as “prices,” as Mr. Grant states, or more precisely, as exchange ratios. They bring together borrowers and savers, thus performing a critical function of capital markets and allocating resources to their best and highest uses.
Yet, in 2022, interest rates are widely viewed as policy tools. They are economic controls, determined and tinkered with by technocratic central bankers when the economy overheats or chills. We expect central banks to “set” interest rates, an impossibility in the long run but also a perverse goal in a supposedly free economy.
What other prices do we want centrally planned? Food, energy, housing? Should the Fed direct how many cars GM produces in 2022, the price of a bushel of wheat, or the hourly wage for an Amazon warehouse employee? Is this the Soviet Union?
Of course not. But those who view money as a political creation are once again prone to fundamental errors. They don’t understand money qua money. They certainly cannot imagine a world without “monetary policy,” which is plainly a form of central planning.
Austrian economists like Carl Menger and Ludwig von Mises illustrated how money can arise on the market as simply the most tradeable commodity, with the most desired features of “moneyness.” We don’t need state treasuries or public banks to issue it. And we should care about the quality of money, much as we care about the quality of the goods and services we exchanged for it.
But in fiat land, that quality goes down, down, and down. Everything politics touches gets worse; why would we expect money to be an exception?
This four-decade experiment in price fixing of interest rates, described as cyclical by Mr. Grant, not surprisingly corresponds with a dramatic rise in the US M1 money supply. In January 1982, the Fed’s “narrow money” was less than $450 billion. In January 2022, it was more than $20 trillion—roughly forty-four times bigger!
We can call this monetary hedonism: a combination of low rates and ever-growing money supply designed to create an illusion of real wealth. Monetary hedonism is an arrangement which encourages our whole society to live beyond its means, using monetary policy rather than direct tax-and-spend policy. It directly benefits both the Beltway and the banking classes, who enjoy an exorbitant political privilege due to their proximity to newly created cheap money. After all, Congress can service $30 trillion+ of debt with interest payments of less than $400 billion—thanks to a weighted average interest rate of only about 1.6 percent on that debt. And it’s awfully nice for spendy politicians to know the Fed stands ready to create an instant market for Treasurys owned by commercial banks.
To be sure, cheap money and low rates benefit all of us in a shortsighted sense. They make the cost of doing business lower and enable corporations to carry more (tax-deductible) debt. They make house payments and mortgages more affordable. They make college and cars and dinners and vacations purchased on credit cheaper. They make it easy and fun to spend.
Yet there is always a price to be paid for unearned profligacy. The hangover follows the party. We all sense it. A reckoning is coming for the inflationary US dollar. That reckoning will come for entitlements, for congressional spending, for deranged US foreign policy, and for Treasury holders.
But this economic reckoning is not the full story. We must also consider the incalculable but rarely considered social and cultural costs.
What happens to society when spending is encouraged and saving is for chumps?
Our grandparents understood the power of compound interest rates. They could save 10 percent of their income at, say, 10 percent interest rates, and their nest egg doubled roughly every seven years. They could get ahead simply, if not easily, through sheer thrift. They could follow the most human of compulsions, the deep-rooted desire to put money away for a rainy day. They could leave something for future generations. Even when consumer inflation approached 10 percent in the 1970s and ’80s, they could get 14 percent on a simple CD or money market account!
Compare their experience to that of a hapless young person today, attempting to save up a 20 percent down payment on a modest $300,000 house. In 2022, with inflation at least 6 points above simple savings rates, this seems like a pipe dream.
This is the perversity of our times: with inflation rates higher than savings rates, the overwhelming incentive is to spend and borrow rather than produce and save.
Bitcoiners already understand the problem. The simple economic concept of time preference explains so much: some people are more than willing to forego consumption today to reap a larger reward later—even if that “later” is beyond their lifetimes. Time preference is the only way to make sense of interest rates and their critical function in society; interest rates reflect the relative preferences of borrowers and savers. Manipulation of interest rates by central banks severs this critical mechanism, allowing bubbles to occur in the form of new credit without new saving.
Without interest rates determined by time preference, society’s signals become mixed up. We all understand, axiomatically, why humans prefer something today (certain) over something in the future (uncertain). We may die unexpectedly, our financial positions could change radically due to unforeseen events, or external conditions could influence our desires. We all understand borrowing money to buy a dream home at age forty instead of paying cash at age ninety. We all understand why lenders, given the uncertainty and forbearance that goes with lending, want to be paid interest for their risk.
It is a matter of time.
Everything we do in this corporeal world has a temporal element. When governments or central banks interfere with money and interest rates, they distort the vital information provided by real people’s relative time preferences.
Hans Hoppe, in his infamous Democracy: The God That Failed, goes further—describing time preference as the essential civilizing or decivilizing element in society.
The saver-investor initiates a “process of civilization.” In generating a tendency toward a fall in the rate of time preference, he—and everyone directly or indirectly connected to him through a network of exchanges—matures from childhood to adulthood and from barbarism to civilization.
When lots of people save and invest, across society, we call it capital accumulation. And as Hoppe posits, this is not just economic—it is cultural and civilizational. Thrifty people like our grandparents, generation after generation, bequeathed to us an almost unimaginable world of affordable food, water, habitation, transportation, communication, medicine, and material goods of every kind. They did this out of love and sacrifice, but they also did it because the monetary system rewarded saving.
Today, the opposite is true. Monetary policy across the West is an agent of decivilization. It upends the natural, innate human impulse to save for a rainy day and leave our children better off. It encourages consumption over production, profligacy over thrift, and political promises today that will be paid for by savers and taxpayers tomorrow. Monetary policy degrades and deforms the economy, but ultimately its corrosive effects impact the broader culture.
In short, it makes us worse people.
Does bitcoin fix this? Maybe. In the eyes of many maxis (or “bitcoin realists,” per Cory Klippsten), certainly. But time is running short. We face a toxic mix of high–time preference junkie politicians and central bankers who are only too willing to provide the fix. We are depleting capital and borrowing against the future. We consistently display high time preference, both as individuals and as a society. This cannot end well for our children and grandchildren.
It is past time for all of us to demand better money, not better monetary “policy.” It is time for money to comport with human nature and reward the saving impulse. It is time for us to reconsider our bequest to future generations and make their lives better and more prosperous than ours.
Monetary hedonism, in the form of low interest rates, is coming to an end. The hangover will not be pretty. Readers would be well served to prepare themselves and act accordingly. Politicians and bankers are unlikely to do this for us.
[This article first appeared in the fall 2022 issue of Bitcoin magazine]
If you live in the United States, you are most likely familiar with empty storefronts, especially in malls. Once-great shopping centers are now suffering vacancies and a lack of patrons. To the readers of mises.org, it should not be surprising that the government is largely responsible. The state, through various interventions, has led to more vacant storefronts and financially struggling malls than there would be otherwise. Let me explain using a personal anecdote.
One of the malls close to me is the Galleria at Pittsburgh Mills, in Fraser Township, Pennsylvania. I used to stop at this mall with friends all the time. Recently, I revisited the mall while I happened to be in the area, and what greeted me was an endless procession of empty stores and a vacant food court. The sight was depressing, and I wondered what caused this languishing idleness. There are two things that might explain the unfortunate state of the Galleria: tax incentives and credit expansion.
The creation of the Galleria was welcomed with much fanfare due to its lavish promise of success. Possibilities as grand as a water park and even a nearby National Association for Stock Car Auto Racing (NASCAR) track were said to be right around the corner. Estimates of the mall’s future revenue excited local government officials, spurring a twenty-year tax agreement “defer[ring] a portion of property taxes to pay for the new $21 million Route 28 interchange leading to the mall as well as needed infrastructure like water and sewer lines.”
A portion of the tax revenue produced by the mall would thus be kept in-house, producing infrastructure vital to the mall’s prosperity. Initially, this sounds good; exclusive tax breaks can be holes through which the free market breathes, but keep in mind that they are grants of special privilege. Whether the Galleria agreement was just or unjust is another matter. Countless other businesses and malls are not given the same luxury of deciding how the government spends their tax money; therefore, there must be some market distortion occurring.
Unfortunately, the promises of the mall never materialized, despite the exuberance of the government officials who invested in it. Now, the township is being punished; tax revenue that was “owed” to them never came.
Tax incentives encouraged the mall, but overconfidence fueled its creation. What caused this overconfidence? The second cause of the mall’s current state, credit expansion, is likely the culprit.
The mall was built and opened during the real estate boom that culminated in the crash of 2008, and it received a $133 million loan in 2006, near the apotheosis of the bubble. It was planned with the expectation that the market would continue to boom; the developers likely believed they could get a loan if they needed one, and so they did.
The loan itself is of a questionable character. The mall was an ambitiously large project; in fact, it is the third-largest mall in the state of Pennsylvania and, to make matters worse, only has one floor. The amount of walking to traverse the mall is absurd. It is a nice place to go to stretch one’s legs but not a good place to shop. Such a project would be laughable if undertaken today, but during the real estate bubble, it seemed perfectly rational.
Adding to the mall’s woes, it is only twenty minutes away from Pittsburgh, which has plenty of shopping centers, and thirty minutes away from Ross Park Mall, which has been a much more successful venture. Why such a large and overbearing complex was built close to better shopping centers is beyond me.
We cannot entirely know the motivations behind the mall, but in a free market, loaning money to this endeavor would more than likely have been a no go; however, during the irrational exuberance of the real estate bubble that came crashing down in 2008, it seemed like a good deal.
Credit expansion and the aforementioned tax incentives deemed the unnecessary and inefficient mall necessary and efficient, and a history of closures and empty storefronts began. This all culminated in 2021, when the mall, unable to pay back its loan, was sold at auction for a whopping one hundred dollars. Wells Fargo Bank, who made the 2006 loan, bought the mall with the hope of turning it around; however, as my recent visits indicate, this effort was more than likely a failure.
Today, the mall’s value stands at $11 million, whereas its original value in 2006 was $190 million, a drop of nearly 200 percent. The former owner of the mall cited the recession of 2008 as the cause of the property’s issues, but as we know, 2008 was not the problem, but the cure.
The recession purged errors from the system, correcting market overvaluations. The mall itself was a massive error; 2008 merely exposed the mistake for what it was.
Malls are clearly facing a war on multiple fronts; online shopping is one of the American mall’s biggest competitors. However, the distortions that governments caused through tax incentives and credit expansion led to malinvestment in malls, therefore creating more struggling malls than there would be otherwise. The Galleria is not the only mall in the country financed during the real estate bubble (the Lazarus / Urban Redevelopment Authority saga and the Mall of the Bluffs are similar cases).
Ultimately, the malls were going to die; that’s the nature of a competitive system, but governments with their myriad interventions caused the past to clash with the future, and now we are left with more empty storefronts than would exist without government intervention.
A saddening picture, but one that is all too familiar. The only way that this mistake will not be made in the future is if the government ceases its interventions.
It is no secret that freedom, both socially and economically, are disappearing in the USA and Great Britain. The consequences will be most severe if we do not reverse these patterns.
Original Article: "How Can We Restore Freedom and Sound Money in the US and the UK? Some Ideas"
This Audio Mises Wire is generously sponsored by Christopher Condon.
There are surely other worlds than this—other thoughts than the thoughts of the multitude—other speculations than the speculations of the sophist.
—Edgar Allan Poe, “The Assignation”
Nothing brings out misleading or false narratives like the subject of money.
Prices over the last twenty-five months have shot up, and this development is roundly called inflation. Why? Because prices have shot up. The criminals running the government even passed an inflationary omnibus spending bill under the pretext of fighting inflation. The logic is that they can do whatever they want because we can’t stop them.
In today’s fiat world of make-believe, inflation is an increase in the money supply and is synonymous with counterfeiting (an exchange of nothing for something). As Ryan McMaken reports, “During the thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent year over year, well above even the ‘high’ levels experienced from 2009 to 2013.”
Money supply metrics are not front-page news. Most accounts give us the hand-wringing figure of higher prices or Consumer Price Index (CPI) inflation. Everyone seems to use the terms “inflation” and “CPI inflation” interchangeably, as if the two were synonymous.
They aren’t. A CPI increase is an effect caused by inflation.
Among other things, prices are influenced by changes in the money supply. More money puts upward pressure on prices. Improvements in production and distribution efficiency do the opposite. The two work simultaneously. Sometimes prices remain constant while the Federal Reserve System inflates the money supply, as happened prior to the Crash of 1929.
Given that the bureaucrats who control the money supply, the Fed’s Federal Open Market Committee, want an annual CPI inflation rate of 2 percent, they have to figure out how to assess the infinite complexity of the market to adjust the money supply accordingly. No wonder one Fed official thinks economics is really hard.
But wait. Joe Biden wants the Fed to ensure the woke goal of racial equity along with its dual mandate of “maximum employment and price stability.” Is this a call for reparations? Who better to provide the necessary funds than a government agency that can create money at will?
What would happen to price inflation if that happened?
Reparations aside, the Fed has been intentionally inflating the currency for a while. Using an inflation calculator, I found that from 2017 to 2019, prices increased annually at a rate of 2.13 percent. The Federal Open Market Committee would cheer. However, beginning in 2020, the year of covid hysteria, prices have gone up 4.67 percent annually. Oops.
How Did We Get into This Mess?One of the most prosperous eras in our history—in all of history perhaps—came after the Civil War. It was a period without a central bank or an income tax. No entity was tasked with maintaining macroeconomic or racial goals. No entity served as a lender of last resort. Monetary policy was left mostly in the hands of the market rather than a shuffle of bureaucrats. Gold (and to some extent silver) coin was money, and paper currency acted as a convenient substitute.
What about price inflation during this period? From 1870 to 1900, there was none. The purchasing power of the dollar increased. According to the Bureau of Labor Statistics CPI, the country had a deflation rate of −1.47 percent per year.
By 1900, prices were 35.88 percent lower than the average prices of 1870. Saving was rewarded, and the economy thrived. Unlike the myth that a committee must inflate the money supply to avoid deflation and downturn, the American economy did its absolute best without any committee or CPI inflation.
During the late 1800s, banks ignored the requirements of demand deposits and engaged in fractional reserve banking (as banks have always done almost without exception, including today under the Fed). They held only a fraction of deposits in reserve and loaned the rest, but this created panic when many banks were caught without sufficient reserves.
Instead of acknowledging the pitfalls of fractional reserves (see here and especially here), bankers condemned commodity money for its lack of “elasticity.” A few of the biggest bankers—along with key politicians—decided to address this problem. In late 1910, they met secretly on Jekyll Island, Georgia, and worked out the structure for a banking cartel that essentially became the Federal Reserve Act of 1913.
Senator Nelson Aldrich of Rhode Island was one of those present at Jekyll Island, and the plan that emerged bore his name. Unfortunately for the bankers, Aldrich was a Republican, and getting a Democrat-controlled congress to embrace the plan proved futile. When Democrat Woodrow Wilson became president in 1912, the so-called Aldrich Plan reemerged under the auspices of Democrat congressman Carter Glass of Virginia, who like other politicians, lacked technical knowledge of banking and relied upon hired hands for assistance.
If truth were to dominate, the banking bill should have borne the name of banker Paul Warburg of Kuhn, Loeb since he was the chief architect of the Aldrich Plan. One writer referred to Warburg as “the mildest-mannered man that ever personally conducted a revolution.”
For nearly a century, government officials denied the authenticity of the Fed’s furtive foundation, but in 2010, Ben Bernanke and his colleagues celebrated the Fed’s founding on Jekyll Island.
Murray Rothbard describes the bankers’ victory this way:
Following the crucial plank of post–Peel Act Central Banking, the Fed was given a monopoly of the issue of all bank notes; national banks, as well as state banks, could now only issue deposits, and the deposits had to be redeemable in Federal Reserve Notes as well as, at least nominally, in gold. . . . The Fed was now in place as lender of last resort; and with the prestige, power, and resources of the U.S. Treasury solidly behind it, it could inflate more consistently than the Wall Street banks under the [previous] National Banking System, and above all, it could and did, inflate even during recessions, in order to bail out the banks. The Fed could now try to keep the economy from recessions that liquidated the unsound investments of the inflationary boom, and it could try to keep the inflation going indefinitely. (emphasis added)
Beginning with World War I, the Fed has also proved indispensable for conducting war.
What’s the moral of the story? When you talk about inflation, talk about the Fed, the entity solely responsible for inflating the money supply and thereby creating social and economic havoc.
Once upon a time, the USA had sound, reliable money. Then, a small group of "really intelligent" people decided to "improve" it. We know the rest of the story.
Original Article: "The Rise and Fall of Good Money: A Tale of the Market and the State"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Some economists have suggested that inflation results when the money supply expands faster than the rate at which goods and services are produced. They correctly point out that this expansion of the money supply will generally lead to rising prices. But what most economists fail to mention is that inflation can exist even when prices are stable.
Stable prices can mask underlying inflation in cases where, absent an increase in the money supply, prices would have declined. In fact, for most of the nineteenth century, at a time of great industrial and agricultural expansion, prices did indeed decline. Price declines were then considered normal—the result of greater efficiencies in production and distribution—and a benefit of the Industrial Revolution.
In fact, during the latter part of the nineteenth century, the US economy grew “at the fastest rate in its history, with real wages, wealth, GDP, and capital formation all increasing rapidly.” And this occurred at a time of falling prices!
Efficiencies in power generation, production, and distribution resulted in the manufacture of more and better goods, which led to a reduction of the hourly work week. Prices fell as less labor, materials, and energy were required to produce and transport goods. At the same time, workers’ real wages rose, enabling them to markedly improve their standard of living.
It should be noted that the United States’ economy was able to accomplish this feat with its currency closely tied to gold and without an income tax or a central bank. According to economist Milton Friedman, the 1880s produced the highest rate of growth in reproducible, tangible wealth per capita of any ten-year period. Real annual growth for that decade was 3.8 percent.
As can be seen from the chart below, there was virtually no inflation during America’s first one hundred years—except for a brief period during the Civil War when the US government resorted to printing greenbacks. Inflation began in earnest after World War II because of the abandonment of the gold standard for domestic purposes in 1933 and skyrocketed in the early 1970s, when the US abandoned the gold standard for international settlements.
The average annual inflation rate since 1913 has been 3.42 percent. Because rising prices are the flip side of a depreciating currency, one must wonder how soon before we pay eight dollars for a gallon of gas or four dollars for a loaf of bread?
apolito_picture_1.gif Today, we have come to see price increases as normal, and fret when, in rare instances, general price levels actually decline. As economist Murray Rothbard pointed out, any increase in fiat money over the quantity of gold is inflationary. As a result, even when prices are stable, inflation may be at work, robbing us of the benefits of improvements in technology, production, and distribution.
Inflation also discourages saving because even a relatively low rate of inflation destroys the value of money. The Federal Reserve System’s stated goal is to maintain an annual inflation rate of 2 percent. But even this seemingly low rate of inflation eats away at the value of dollar-denominated savings accounts: a dollar discounted at the rate of 2 percent a year will only be worth eighty-two cents in ten years, sixty-seven cents in twenty years, and just fifty-five cents in thirty years. Faced with this prospect, the would-be saver gives up or is forced to take outsized risks to counter the corrosive effects of the Fed’s monetary policy.
To be sure, inflation produces winners as well as losers. Those who get to spend the new counterfeit money first (before the inevitable rise in prices) benefit. Included in this lucky group are those the government deems “too big to fail.” Debtors benefit because they get to retire their debts with “cheap” money—and of course, speculators who are able to game the system benefit. The rest of us, especially those on a fixed income or who are trying to save for retirement are punished. It stands to reason that if some are too big to fail, there must be others too small to care about. Which group are you in?
The Fed has been managing (or mismanaging) our monetary system since 1913, and the US dollar had lost over 95 percent of its value as of 2000. That year, it took a buck to buy what four cents did in 1913, before the creation of the Federal Reserve System—the United States’ private central bank. Was that by design or by accident? I, for one, haven't made up my mind, but it does not seem accidental. After all, who is the biggest debtor of them all and, therefore, benefits the most from cheap money and low interest rates?
HOW WELL HAS THE FED MANAGED OUR MONEY?
picture_2.jpg As of 2022, it took almost thirty dollars to buy what a single dollar could buy in 1913. That means that a dollar is now only worth 3.3 cents. The cumulative price change from 1913 to 2022 was a staggering 2,856 percent. Consider that a Ford Model T initially cost $825 when it went on sale in 1908. That’s today’s money equivalent of $24,750—the same car, but different currency!
The official inflation rate for 2022 was 8 percent (CPI Inflation Calculator). Most promarket commentators agree that official inflation rates have been jiggered to provide a more favorable patina to our failed fiscal and monetary policies. The government is slowly destroying what little remains of the value of our money. Perhaps one day soon, we will have to retire the US dollar and replace it with something else, the way Germany retired the inflated and devalued papiermark, first with the reichsmark in 1924 and then with the deutsche mark after World War II. With the conversion to the deutsche mark, Germans lost 90 percent of the value of their monetary holdings!
Of course, all this raises the question: Why do we need to expand the money supply at all? If four cents in 1913 could buy more than a dollar’s worth of goods and services today, why do I need a new counterfeit dollar to go shopping? Why not put the counterfeiting of new money aside and instead mint halfpennies to facilitate making change?
Murray Rothbard came to the insightful conclusion that “it doesn't matter what the supply of money is. Any supply will do as well as any other.” He noted further that unlike an increase in the quality and quantity of goods and services, an increase in the quantity of fiat money reduces its quality and confers no general societal benefit. Fiat currency, having no intrinsic value, is simply a yardstick. Adding an inch to the yardstick so that a yard is now thirty-seven inches doesn’t make one faster, taller, or thinner—it just gaslights those who want (or need) to be fooled!
It would appear the Fed’s primary job is to counterfeit money for the US Treasury whenever the need arises—and the need has been arising a lot lately. This is done under the guise of “economic stimulus,” but I am not fooled by this ruse. Someone’s pocket is being stimulated, but it sure as heck is not mine. The Fed recently held about $9 trillion in paper “assets” consisting mostly of US Treasury notes, mortgage-backed securities, and similar financial bric-a-brac—a massive exchange of paper for paper.
The Fed got into the “quantitative easing” racket in 2008 and, by all accounts, having painted itself into a corner, is looking for an easy way out—but none, apparently, exists. Every time the Fed tries to unload some of its securities, it spooks the financial markets.
No one will read For a New Liberty and not see the world with very different eyes afterward.
Original Article: "Hans-Hermann Hoppe on For a New Liberty at 50"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Myths are crucial for nations to develop a sense of identity and civic pride. In many countries, national myths are centered around the charisma of heroes. Heroes are depicted as phenomenal individuals who uplift society through their determination and self-sacrifice. An empirical survey conducted by Scott T. Allison and George R. Goethals demonstrated that participants associated heroism with eight adjectives: intelligent, strong, reliable, resilient, caring, charismatic, selfless, and inspiring.
Of all these characteristics, self-sacrifice seems to be the one most prominently linked to heroism. Typically, it’s assumed that the failure to exhibit self-sacrifice makes one ineligible to become a hero. Because of this perception, heroes are primarily political and military figures, but Barbados deviated from the norm in 2021 when the state officially declared pop star Rihanna a national hero.
This ignited debates in Jamaica about the suitability of declaring reggae icon Bob Marley a national hero. Marley’s status has made Jamaica a cultural superpower, and out of reverence for the late icon, some Jamaicans argue that he should be recognized as a national hero. Although entertainers like Rihanna and Bob Marley have improved the well-being of millions through their music, critics contend that such people are unqualified to be styled as heroes because their contributions do not reflect the sort of sacrifice people normally associate with heroism.
Critics are correct that Bob Marley and Rihanna are ineligible to become heroes, but their reasoning is flawed. Entertainment is important, but it cannot be a country’s highest value. Furthermore, it is also a matter of taste; to some people, Rihanna is a great singer, yet to others, she is bland. Meanwhile, while Bob Marley is heralded as a revolutionary for his socially conscious songs, some disagree with his endorsement of Rastafarianism and what they consider to be anti-Christian values.
Seeing as art is usually controversial, any proposal to make an entertainer a national hero will lead to an uproar. Yet this does not suggest that entertainers are always unfit to become heroes. If they pursue activities that lead to the advancement of society, then they are eligible for heroic status. So, a poet whose works and political engagement result in improved social and economic conditions is a suitable candidate for the honor of being named a national hero.
People find the image of a person who sacrificed himself for the greater good to be quite mesmerizing, but self-sacrifice alone cannot be the measure of a national hero. Most people can understand a man’s sacrificing his life to save his child, since biologically humans are wired to perpetuate their genes. Outside of this context, however, self- sacrifice can be detrimental to individuals and society.
Throughout history, people have sacrificed themselves for dangerous and foolish causes. Millions, for example, died under Communist regimes, yet the fatalities did not deter their sympathizers and activists. One can sacrifice oneself for a cause without advancing society or freedom; therefore, self-sacrifice is not inherently noble. Surprisingly, although philosophers and innovators advance society, many of them are not considered heroes. The ideas of men like Adam Smith, Baron de Montesquieu, and John Locke have fundamentally transformed how we think about politics and economics, and yet none of them were martyred for expressing their beliefs. Their promarket writings on economics and governance have positively influenced numerous societies, but people rarely describe these men as heroes. Likewise, the inventions of James Watt and Richard Arkwright spurred the Industrial Revolution, thereby initiating long-term economic growth and a steady rise in living standards, but Watt and Arkwright are respected as world-class inventors rather than heroes, even though society is better off because of their industrial prowess.
It’s quite unfortunate that in several cases, those who have been named heroes made their societies worse off. For instance, in Jamaica, Paul Bogle was posthumously rewarded for his influence in the 1865 Morant Bay Rebellion.
The horrendous social and economic conditions in nineteenth-century Jamaica justified the anger of the black Jamaicans; however, Bogle’s incendiary rhetoric incited the violence that led to the rebellion and the brutal response of Governor Edward Eyre. Due to his vicious response, Eyre was later relieved of his duties, but many innocent Jamaicans who did not participate in the rebellion experienced his vengeance. People lost their properties, livestock, and homes because of the leadership of Paul Bogle.
Bogle was executed for his role in the revolution and today is cherished as a national hero for sacrificing his life. But Bogle did not die for a noble cause, since the people of Saint Thomas Parish were made worse off because of the rebellion. Bogle was described as a “dangerous man” by the Jamaican historian Douglas Hall in his classic book Free Jamaica, and for years, the Bogle name invited reproach in Saint Thomas. Admittedly, advocating for reforms would have resulted in slower progress, but legal advocacy is a superior option to violent rebellions.
To the average citizen, people like Paul Bogle are appealing due to their flamboyance and mystique, but those who do not uplift society through their sacrifice are unworthy to be named heroes. People should never be rewarded for making society worse off. Those who derail progress by sacrificing themselves for flippant causes are misguided villains rather than heroes.
Now would be a great time to stop pretending that the financial sector is "free market" or that price inflation and cost-of-living surges are somehow all the fault of "capitalism."
Original Article: "Don't Call It Capitalism: The Fed's $8 Trillion Hoard of Financial Assets"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Remember Lady Justice, who wears a blindfold and holds the scales? She is a state creation, too, and when it comes to state wrongdoing, her thumb holds the scales down.
Original Article: "The State Will Always Set the Rules in Its Favor"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Federal Reserve is no more "private" than the Environmental Protection Agency, and through its special government status, the Fed inflicts many economic crimes on regular people.
Original Article: "The Fed Is a Purely Political Institution, and It's Definitely Not a Bank."
This Audio Mises Wire is generously sponsored by Christopher Condon.
One of the principles of good public policy is to focus efforts on understanding social problems and searching for effective responses where those problems are serious, not where they are minor or missing. Local problems justify locally focused and decided policies, problems that have effects that are more widely spread justify geographically broader policies, and the broadest problems justify national policies, as illustrated by the federalism of the US Constitution, particularly the Tenth Amendment.
That such a principle is well established is illustrated by t Edgar K. Browning and Jacquelene M. Browning’s textbook, Public Finance and the Price System, which I used when teaching my first such class over four decades ago and which said, “The key issue here is the geographic area over which persons necessarily benefit [or are harmed],” which requires that “care is needed in determining what types of policies are more suitable for local governments.”
However, that principle is often honored in the breach today, as politicians at higher-level governments are always trying to regulate and legislate issues that are more local in character. Why? It lets politicians in areas where the problems are greatest pretend they are a national problem rather than ones tied to their jurisdictions and policies. Further, the power to vote on national-level plans gives politicians representing other areas the leverage to “rent” their support for such programs in exchange for more of what they want through the legislative pork barrel.
Just think how many times a single event in one place starts trending, then immediately gives rise to proposals for new state or national policies as “the solution,” as is so common with issues of crime. The Monterey Park mass shooting is a good illustration. The same day it was reported in the Los Angeles Times, they ran an editorial about mass murder shootings becoming “a sickeningly frequent occurrence in America” arguing that mass shootings “have one thing in common: They have guns” and asserting that we must limit the Second Amendment in the US Constitution—not only federal law, but the highest law of the land—because “national suicide is not the compulsory price of freedom.”
The result of such broad, national responses is also poor “target efficiency,” because too little attention focuses on the more local reasons for where the problems are worse.
An excellent example of this is provided by recent research on the US murder rate by the Crime Prevention Research Center, and its president, John R. Lott Jr., whom I have known since we overlapped many years ago in the UCLA Economics PhD program. I would note that John’s work is often controversial, which also makes him a frequent subject of ad hominem attacks, because the empirical data he develops can strongly contradict what others are “selling” as the truth in some area, particularly with regard to crime. However, I have never seen him abuse logic and statistics to get a particular answer he set out to find (or was paid to, as many “researchers” are). His focus, which strongly reminds me of the work of Harold Demsetz, who taught both of us, is on designing empirical tests to differentiate among alternative explanations, then following where the evidence leads, rather than torturing evidence to create the “right” wrong answer.
Increases in homicide rates tend to be treated by state and federal politicians as if they are broadly distributed national problems to scare Americans into supporting overly broad-brush “solutions.” But Lott’s research shows instead that “homicide rates have spiked, but most of America has remained untouched.” Or as David Strom summarized the results, “There are vast swathes of the country where violent crime is very, very rare, and small areas of the country where it is common.” If that is true, we should focus our attention on those small areas, not on national policies poorly focused on where the actual problems are most severe.
Lott’s research, which used 2020 homicide data, examined the concentration of homicides in particular areas to see whether America’s increasing homicide problem is national or local. He let that data tell its story.
First, he focused on county-level data rather than national data. Some of the dramatic results he found:
- The worst five counties (Cook, Los Angeles, Harris, Philadelphia, and New York) accounted for about 15 percent of homicides.
- The worst 1 percent of counties (31), with 21 percent of the US population, accounted for 42 percent of the homicides.
- The worst 2 percent of counties (62), with 31 percent of the population, accounted for 56 percent of the homicides.
- The worst 5 percent of counties (155), with 47 percent of the population, accounted for 73 percent of the homicides.
- In contrast, over half of US counties (52 percent) had zero homicides in 2020, and roughly one-sixth of the counties (16 percent) had only one.
Continuing his investigation, Lott looked at even finer-scale zip code data for Los Angeles County. He found that the worst 10 percent of zip codes in the county accounted for 41 percent of the homicides, and the worst 20 percent accounted for a total of 67 percent of the homicides.
From such data, Lott concluded that: “Murder isn’t a nationwide problem.” Instead, “It’s a problem in a small set of urban areas, and even in those counties murders are concentrated in small areas inside them, and any solution must reduce those murders.”
Despite the constant political and media drumbeat to portray homicides as a national problem that threatens everyone everywhere, and thus demands national solutions in line with what the political Left wants, the evidence points us in a far more local direction.
That may well explain the political reason for the volume and persistence of that drumbeat. It provides camouflage for those whose policies (and those who support them) would come under far greater scrutiny if people recognized just how concentrated homicides are and then asked what is different in those places, rather than the “blame America first” bromides they are routinely misdirected toward today.
But that means if we really cared about those most harmed by the murder rate, rather than imposing broader-than-necessary restrictions on Americans, it is important to follow the evidence so many would prefer to keep hidden.
According to popular thinking, the government’s definition of money is of a flexible nature. Sometimes it could be M1, and at other times it could be M2 or some other M money supply. M1 includes currency and demand deposits. M2 includes all of M1, plus savings deposits, time deposits, and money market funds. By popular thinking what determines whether M1, M2, or some other M is considered money is whether it has high correlation with key economic data such as the gross domestic product (GDP).
However, since the early 1980s, correlations between various definitions of money and the GDP have broken down. The reason for this breakdown, many economists believe, is that financial deregulation has made the demand for money unstable. Consequently, the usefulness of money as a predictor of economic activity has significantly diminished.
Some economists believe that the relationship between money supply and the GDP could be strengthened by assigning weights to money supply components. The Divisia indicator, named after the French economist François Divisia, adjusts for differences in the degree to which various components of the monetary aggregate serve as money. This, in turn, supposedly offers a more accurate picture of what is happening to money supply.
The primary Divisia monetary indicator for the US is M4. It is a broad aggregate that includes negotiable money market securities, such as commercial paper, negotiable CDs, and T-bills. By assigning suitable weights, which are estimated by means of quantitative methods, it is held that one is likely to improve the correlation between the weighted monetary gauge and economic indicators.
Consequently, one could employ this monetary measure to ascertain the future course of key economic indicators. However, does it make sense?
Defining MoneyNo definition of money can be established by means of a correlation. A definition is supposed to present the essence of the subject being identified.
To establish the definition of money, we must determine how a money-using economy came about. Money emerged because barter could not support the market economy. A butcher who wanted to exchange his meat for fruit would have difficulty finding a fruit farmer who wanted his meat, while the fruit farmer who wanted to exchange his fruit for shoes might not have been able to find a shoemaker who wanted his fruit.
The distinguishing characteristic of money is that it is the general medium of exchange. It has evolved from the most marketable commodity. According to Murray Rothbard:
Just as in nature there is a great variety of skills and resources, so there is a variety in the marketability of goods. Some goods are more widely demanded than others, some are more divisible into smaller units without loss of value, some more durable over long periods of time, some more transportable over large distances. All of these advantages make for greater marketability. Eventually, one or two commodities are used as general media—in almost all exchanges—and these are called money.
With money, the butcher can exchange his meat for money and then exchange money for fruits. Likewise, the fruit farmer could exchange his fruit for money. With the obtained money, the fruit farmer can now exchange it for shoes. The reason why all these transactions become possible is because money is the most marketable commodity (i.e., the most accepted commodity).
According to Rothbard:
Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a “claim on society”; it is not a guarantee of a fixed price level. It is simply a commodity.
It follows then that all other goods and services are traded for money. This fundamental characteristic of money is contrasted with other goods. For instance, food supplies the necessary energy to human beings. Capital goods permit the expansion of the infrastructure that, in turn, permits the production of a larger quantity of goods and services. Contrary to the mainstream thinking, the essence of money has nothing to do with financial deregulation as this essence will remain intact in the most deregulated of markets.
Some commentators maintain that money’s main function is to fulfill the role of a means of savings. Others argue that its main role is to be a unit of account and a store of value. While all these roles are important, they are not fundamental. The basic role of money is to be a medium of exchange, with other functions such as unit of account, a store of value, and a means of savings arising from that role.
Through an ongoing selection process over thousands of years, individuals have settled on gold as money. In today’s monetary system, the money supply is no longer gold, but metal coins and paper notes issued by the government and the central bank. Consequently, coins and notes constitute money, known as cash, that is employed in transactions.
Distinction between Claim and Credit TransactionsAt any point in time, an individual can keep money in a wallet or somewhere at home or deposit the money with a bank. In depositing money, an individual never relinquishes ownership over the money having an absolute claim over it.
This contrasts with a credit transaction, in which the lender of money relinquishes a claim over one’s money for the duration of the loan. As a result, in a credit transaction, money is transferred from a lender to a borrower. Credit transactions do not alter the amount of money. If Bob lends $1,000 to Joe, the money is transferred from Bob’s demand deposit or from Bob’s wallet to Joe’s possession.
Why Are Various Popular Definitions of Money Misleading?Consider the money M2 definition, which includes money market securities, mutual funds, and other time deposits. However, investing in a mutual fund is, in fact, an investment in various money market instruments. The quantity of money is not altered because of this investment; only the ownership of money has temporarily changed. Hence, including mutual funds as part of money results in double counting.
The Divisia monetary gauge is of little help in establishing what money is. Because this indicator was designed to strengthen the correlation between monetary aggregates such as M4 and other Ms with an economic activity indicator, the Divisia gauge can better be seen as an exercise in curve fitting.
The Divisia of various Ms, such as the Divisia M4, does not address the double counting of money. The M4 is a broad aggregate and includes a mixture of claim and credit transactions (i.e., a double counting of money). This generates a misleading picture of what money is.
Applying various weights to the components of money cannot make the definition of money valid if it is created from erroneous components. Furthermore, even if the components were valid, one does not improve the money definition by assigning weights to components.
The introduction of electronic money has supposedly introduced another confusion regarding the definition of money. It is believed that electronic money is likely to make the cash redundant. We hold that electronic money is not new money, but rather a new way of employing existing monetary transactions. Regardless of these new ways of employing money, definitions and the role of money do not change.
ConclusionThe attempt to strengthen the correlation between various monetary aggregates and economic activity by using variable weighting of money supply components defeats the definition of money. The essence of money cannot be established by means of a statistical correlation, but rather by understanding what money is about.
Professor Per Bylund of Oklahoma State University, author of How to Think About the Economy joins Jeff and Bob to dissect how economics went so badly wrong. A discipline rooted in theory, axioms, and deduction has devolved into statistics, models, and hard science envy. Is the economics profession doing any good, or active harm?
Per's new book How to Think About the Economy*:Mises.org/Primer*
Gary North and Walter Block debate "Is it Smart to Get a PhD in Economics": Mises.org/HAP380a
The move from feudalism to the relatively free capitalist societies occurred slowly, beginning with the emergence of the city-states in Italy in Medieval Europe.
Original Article: "The Italian City-Republics Were the Manhattan of the Twelfth Century"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The recent inflationary episodes in the USA have led to the emergence of several different explanations, ranging from overexpansion of the money supply to supply-side constraints, not to mention the role of rising markups along with price gouging and greed for profits. Each emphases the unique role that the category has played in the elevated price level.
However, the various explanations are more than alternative accounts of the same phenomenon. The latter phenomenon of rise in markups, so-called price gouging, and elevated profit levels being experienced today are, in effect, results that have arisen out of adjustments between market participants in response to the unexpected shock of increased “real scarcity” through sudden increases in effective demand because of expansive fiscal and monetary policies.
Covid inflation and expansionary monetary policy The unemployment rate in the US was 3.5 percent in February 2020 before the stringent lockdowns were implemented and production was effectively closed, except for “essential” services selected by the government. Following the draconian lockdowns and government-mandated closures of production, unemployment skyrocketed to levels unseen since the great depression of the 1930s. Real GDP fell by 4.1 percent in the first quarter and subsequently by 29.9 percent in the second quarter and since the demand for labor is a derived demand for output, the unemployment rate increased from 3.5 percent to 4.4 percent in March and to 14.70 percent in April.
Many economists predicted a fall in the level of output and employment due to a total collapse in consumer spending. These sentiments were bolstered by their belief in the “paradox of thrift” (where an increase in savings causes a reduction in the spending that the economy depends for growth), and as a result, they had advised the governments to hand huge monetary help to consumers.
Thus, consumers had more money at their disposal than they had previously or would have had if they lost their business or their job. This was a problem from the beginning, as the real purchasing power of money in terms of actual goods did not increase corresponding with the distribution of fiat money. There was, instead, a redistribution from savers to people who had received the additional help.
It led to various efforts by both congress as well as the fed to adopt an expansionary monetary stance. First by an outgoing trump administration who signed a $900 billion pandemic relief package and later by the Biden administration who ensured new fiscal spending of around $1.9T of stimulus, which included another $1,400 in cheques.
The combination of these factors meant additional consumer income was spent by consumers on increasing their consumption, which sporadically jumped during lockdowns, while the flow of output decreased due to the closure of production in form of lockdowns. According to the Bureau of Labor Statistics, when the pandemic began, consumer spending in the second quarter of 2020 had fallen and was down 9.8 percent from the same period in 2019.
One year later (post-injection of monetary stimulus), however, consumer expenditures were 15.7 percent higher than a year earlier. Consumer expenditures in the first and second quarters of 2021 were even higher than in the first quarter of 2020, which was largely unaffected by the pandemic because it began late in the first quarter.
Prices and Market adjustment to the expansionary shockThe facts of economic life that we see around us at any point in time in form of quantities of goods, and prices are the result of a process of coordination where order appears spontaneously out of the voluntary interactions of millions of economic agents each economizing on resources and pursuing their own private good. Individuals acting as consumers choose particular goods and services on the basis of their preferences which are in turn dependent on their past learning experiences with those products as well as expectations about their future availability and future price. Similarly, producers and sellers operate their production and output plans based on historical demand, historical availability of their inputs at particular prices, and future expectations about the same.
The smooth functioning of the market thus depends on the degree of coordination of plans between various market participants, the order which emerges out of such coordination also depends on the regularity and surrounding economic environment, for example, a producer would be able to better carry out his plans and coordinate with its buyers and suppliers if there were no sudden jumps in prices of his inputs and output.
The effect of lockdowns and covid led to disruptions in supply chains and production. The capacity utilization index does a great job of highlighting the effects of lockdown on a fall in production activity. The capacity utilization index (which measures the output currently produced as a percentage of its full capacity) dipped below 65.0 percent, whereas in the United States, the long-run average (1972–2019) has been 80.1 percent. The index during the lockdown was just 1.9 percentage points above its trough during the Great Recession of 2007-09.
The resultant increased consumption due to the increased money balances with the public as a result of expansionary monetary and fiscal policy in effect led producers to ramp up production to meet this demand eventually, which led to increasing demand for the inputs that those companies use. But the producers of these inputs did not see any reason to increase their production level or capacity from previous periods because their supply being dependent on final consumer demand was not expected to experience increasing levels during lockdowns. These expectations were only genuine as such increases in consumer demand would have been impossible without the government’s monetary intervention which was unforeseen and was at best temporary.
This growing scarcity of real goods and available labor versus the corresponding demand for labor and goods in turn led market participants to form future expectations concerning present and future scarcity. The rise in prices during such times acted as coordinating signals, that had the specific role to signal increasing relative scarcity which should have in turn conveyed crucial information about important economic data scattered around in a decentralized manner to bring forth more supply.
Price increases by economizing firms in response to increased conflict over existing and future distribution of resources were necessary as without such increases there would be forthcoming shortages of the goods as a whole in the market due to excess demand, this is due to the fact that higher prices also incentivize increasing production capacity for prospective profits and lower prices in light of increasing scarcity creates more demand than can be brought forth at those prices.
Thus, in light of such considerations, the actions of firms increasing their markups over cost in response to increased demand turns out thus to be an equilibrating action consistent with the role of prices signaling relative scarcity. However, had there been no artificial expansion of the money supply, there wouldn’t have arisen the conditions which later led to jumps in markups and profits.
The Moral Foundations of Civil Society
by William Röpke
Transaction Publishers, (1948) 1996; xxxvii + 235 pp.
In an earlier column, I discussed Wendell Berry’s stress on land and locality, and. among Austrian school economists, Wilhelm Röpke is most sympathetic to these themes. In The Moral Foundations of a Civil Society, first published three years after the end of World War II, Röpke says: “The proletariat is lacking in precisely that which characterizes the peasants and the craftsmen, wholly apart from the purely material aspects of life; the independence and autonomy of their whole existence, their roots in home, property, environment, family and occupation; the personal character and the traditions of their work” (p. 140). He often denounces the “cult of the colossal.”
Röpke recognizes, though, that the large population of the contemporary world makes it impossible to return to the type of society he most prefers, perhaps best exemplified by Switzerland in the eighteenth and nineteenth centuries. The relevant question then becomes how we can come closest to his ideal society, given modern conditions, and. here, he says, we confront two alternatives: the free market and collectivism.
To any lover of liberty, the choice is a simple one. Collectivist central planning can’t coexist with the regime of small landholders which Röpke favors. Some people, including Wendell Berry, have sought the salvation of agriculture from fluctuating market prices in part through state-mandated price controls, but Röpke warns against this:
Experience and consideration convince us that agrarian monopoly and agrarian collectivism have the effect . . . of bringing about the paradoxical result of sharpening the crisis through the production of unsaleable surpluses if peasant production is not effectually regulated by the familiar methods of coercive economy (forced restriction of production or collectivization pure and simple). But since peasant economy owing to its sociological structure opposes the strongest resistance to such regimentation and will hit upon ever new evasions in order to ensure the full exploitation of all members of the family to assure their incomes, the State instruments of agrarian collectivism will find themselves forced to employ ever wider and more formidable methods of coercion. (p. 189)
One might at first be inclined to object that the process Röpke describes here has not taken place in the United States. Whatever the defects of the government’s agricultural programs, American farmers have not become transformed into Soviet collective farmers or the like. But Röpke could respond that American farm subsidies do not aim to maintain a substantial number of small farmers but instead benefit a relatively small group of the wealthy.
Röpke extends his point to collectivism more generally:
Collectivist economy must always be coercive and can never be anything else. . . . No other system save that of market economy which conveys every particle of demand as an immediate impulse to the producers has been or can be found for getting consumers constantly to vote upon the use of the forces of productivity. That which in a collectivist economy necessarily takes its place is that procedure which has been designated the “Politicalization” of economic life. This means nothing less than that the most important decision in the daily life of the community, the question of the quantity and quality of production, can be determined not democratically but only despotically. (p. 20)
Like Ludwig von Mises, Röpke argues that socialism cannot work. The problems of deciding which goods to produce, “the solution of which untold individuals count through cooperation in the market, . . . . [i]n a collectivist economy . . . must all be solved centrally and consciously by a single head watching over the whole economic process down to the very smallest detail. This task is simply insoluble” (p. 14).
The argument against socialism applies also to the fascist notion of general control of the economy through government regulation, which leaves private property to exist in name only; and, in this connection, Röpke, who was forced to leave Germany by the Nazis in the 1930s, makes a most valuable point, based on his intimate knowledge of that country:
A collectivist economic system will attempt in the beginning to continue the economic process on the basis of prices and costs taken over from the market economy, as happened in Germany by means of the price stop in 1936, and to maintain these as rigid as possible in an attempt to stave off economic chaos. Were all economic data to remain unchanged. . . . [t]he price structure would still retain its significance. Since however this presupposition is more utopian than ever today it is inevitable that sticking to the historical price levels is bound to lead to ever greater dislocation of the economic system. . . . This is precisely the picture that developments offered in Germany after 1936. (pp. 14–15)
Given these problems, what can a collectivist economy do? Here Röpke offers an important insight. He says that the leaders of a collectivist country will be driven to war. In that way, the cohesion lacking in the population because of diverse views about what should be produced can be overcome, since a nation will usually unite against a foreign foe; and, he prospect of territorial gains offers a chance to secure new resources:
In contrast with [the] market economy, since nation and the economic system have only now become merged, the economic well-being of the nation becomes a function of the size of territory and the national resources within the territory. . . . Only now does imperialism as a struggle for the maximal size of the autarkic and collectivistically ruled economic territory become an absolutely inherent and inescapable law of national existence. (p. 228, emphasis removed)
Again, like Mises, Röpke argues that there is no intermediate system between the free market and collectivism:
In this way the government must be drawn with progressive speed along the slippery slope of collectivism. For the more it takes over the “guidance” of the economic system, all the less capable of functioning must what remains of the market system become, and the greater the necessity to submit even this remainder to economic “guidance,” that is to say, the collectivist economy of coercion. (p. 209)
I cannot help thinking that Röpke, in his eagerness to secure a “humane economy” against the dangers of “proletarianization” and the “cult of the colossal,” sometimes recommends government interventions, such aa antitrust action, that would be subject to the same slippery slope.
Those sympathetic to the agrarian concerns of Wendell Berry will find the work of Röpke, whose knowledge of economics far surpasses Berry’s, a source of illumination.
For all of the political "reforms" being tossed about, the truth is that government is slowly strangling the life out of our society.
Original Article: "Political Salvation Is Slow Suicide"
This Audio Mises Wire is generously sponsored by Christopher Condon.
One of the most devastating moments in American history took place on August 6 and August 9, 1945, with the bombings of Hiroshima and Nagasaki. Approximately three hundred thousand civilians, forty-three thousand soldiers, forty-five thousand Korean slave laborers, and over a thousand American citizens (including twenty-three prisoners of war) would die.
The pilots watched in horror. Tail gunner Bob Caron described the horrific annihilation as a “peep into hell.” Captain Paul Tibbets, remembered thinking, “My God, women and children are getting killed!” The radio broadcaster Abe Spitzer witnessed the bombing in the accompanying plane, and his description of the smoke covering Hiroshima is truly haunting. Dwight D. Eisenhower confessed that “never has the matter ceased troubling me.”
While there is no doubt the bombings were horrific, they have been justified as needed to bring the surrender of Japan. However, this is not the case.
The Japanese culture held surrendering as the weakest thing a man could do and dying in battle as the most honorable. Despite these values, it looked like surrender was their only chance. By the end of 1944, the Japanese navy had been decimated by the loss of a substantial number of battleships, aircraft carriers, submarines, cruisers, and destroyers. Food supplies were diminishing as rapidly as public morale.
“I regret to say that Japan’s defeat is inevitable,” said Prince Fumimaro Konoe to Emperor Hirohito in February 1945. One of his biggest concerns was that “a Communist revolution that might accompany defeat.” Henry Mace, who had visited the Pacific in the spring of 1945, saw how they were “ready to surrender.”
The reasoning for their apparent unwilling to surrender was their unwillingness to accept the terms of “unconditional surrender.” The term used by presidents Franklin D. Roosevelt and Harry S. Truman was surprising to leaders like British prime minister Winston Churchill.
For many Japanese, unconditional surrender suggested that their emperor would be tried as a war criminal and executed. That scenario was too much for them to contemplate. Due to the Japanese tradition of worshipping their emperors, the execution of the emperor would have been comparable to the crucifixion of Jesus Christ to Christians, according to Oliver Stone and historian Peter Kuznick in The Untold History of the United States.
Many in his cabinet urged Truman to soften his terms to get the Japanese to surrender. US officials had not failed to understand the intercepted Japanese coders’ emphatic willingness to surrender. There has been loads of evidence proving that Truman and the government knew the Japanese were ready to surrender. They presented this to Truman.
Truman listened to longtime friend James Byrnes, who urged him to change the terms of surrender to allow Japan to keep their emperor. Truman and Byrnes had a decade-long relationship, which had led to his becoming foreign policy advisor and secretary of state in 1945. Truman listened to him, as evidence has shown.
The main reasoning behind dropping the bomb was not just Byrnes’s influence, but also the deep hatred of the Japanese among the nation and Truman.
Historian John Dower has shown that Americans believed the Japanese were the equivalent to cockroaches, rattlesnakes, and rats. War correspondent Ernie Pyle noted that while Americans felt a hatred of our European enemies, they believed the Japanese were much more repulsive.
Anti-Japanese racism really began to pick up due to the Japanese victory over Russia in the Russo-Japanese War. In 1906, California forced Japanese descendants to be segregated in their schools. Other forms of racism were present in the Immigration Act of 1924, which severely restricted people from migrating to the United States, including Japanese immigrants. The Japanese invasion into China in 1937 made racism against the Japanese even worse with the deaths and war crimes.
Obviously, Japan’s actions and wanton cruelty were unjustifiable, but it does not justify racism toward Japanese people or the desire to bomb countless innocent Japanese civilians.
Weeks before the bombs were dropped, the US officials were informed again that the Japanese would surrender if the terms were conditional. That they recognized the signals emanating from Tokyo is unassailable. But Truman decided to interpret their message as meaning that unconditional surrender was the only obstacle to peace. Office of Strategic Services officials and future Central Intelligence Agency head Allen Dulles reported this information to Secretary Henry L. Stimson. Truman chose to ignore the pleas, wanting to deny Stalin promised territorial and economic concessions in Japan.
When Truman was informed of the successful bombings, he exclaimed, “This is the greatest thing in history!” He claimed his announcement of the bombing in Hiroshima was the happiest announcement he ever made. Quickly after this, the Soviets invaded Japan.
When Japanese leaders met on August 9, 1945, it had nothing to do with Hiroshima or Nagasaki but with the Soviet invasion. It has been reported that US officials believed a single atomic bombing was the equivalent of thousands of bombs being dropped. They could burn down the cities all they wanted to if the Soviets did not invade. Once the invasion was underway, the Soviet army’s remaining morale was completely wiped out.
In Tsuyoshi Hasegawa’s words, “The Soviet participation in the war had the most impact on Japan’s decision to surrender.” While the bombings may have increased the urgency of surrendering, the outcome of a Japanese surrender could have been achieved without the bombings.
This is worth mentioning again because of the ongoing conflict in Ukraine. President Joe Biden signed a version of an Obama administration policy that leaves the option of nuclear weapons on the table and modernizes the nuclear arsenal. Nuclear weapons can now be used in “extreme circumstances.” Biden has claimed that he will enact forceful responses against Russia in response to their attack.
The situation is all too similar to the 1945 moment, especially with the spike in anti-Russian sentiment: a country committed horrible atrocities against another country, the descendants of people from the aggressor country face racial prejudice, and in the heat of war, nuclear weapons have been brought up. In the case of Japan, they were used. While the United States has not used any nuclear weapons against Russia, the situation and the language being used are all too similar. It is worth mentioning that nuclear weapons were not necessary the first time, and I am willing to bet that nuclear weapons aren’t necessary this time either.
On January 10, the French government announced plans to raise the retirement age from 62 to 64. The change would mean that after 2027, workers in France would have to work 43 years to qualify for a government pension, instead of 42 years. French workers promptly took to the street in protest decrying even this very small reduction government welfare.
Like many countries in Western Europe and North America, France faces a major demographic problem in that its population is aging and demanding ever larger amounts of public pension funds. Meanwhile, the younger working-age population is shrinking as birth rates continue to fall. So, the French state is looking for ways to stay relatively solvent.
For Americans who follow our own old-age social benefits systems, this problem will seem quite familiar. Although the US regime is not in as dire fiscal straits as the French one, the US's federal government nonetheless faces huge and growing obligations to current and future pensioners. This will only grow more urgent as the population continues to age and as the numbers of prime-age workers stagnates.
Indeed, the Social Security scheme is an excellent example of how government programs, once established, gradually become far more costly—in real per capita terms, not just aggregate terms—as time goes by. Many recipients now spend decades collecting benefits on a program that had been sold as a program only for people who were too old, exhausted, and injured to work at all. Meanwhile, fewer and fewer workers are called upon to foot the inflated bill.
At the center of this mission creep for Social Security is the fact that Social Security benefits originally began at age 65. Yet, at that same time, the life expectancy at birth was below 65. (It's much higher now.) Many people lived well past 60 back then, of course, but not nearly as many as do today. In other words, a far smaller fraction of the work force collected Social Security, and for a shorter period. Today, however, more workers live long enough to collect Social Security, and they now receive payments for longer. That's a sure way to inflate the cost to taxpayers of old-age benefits. (It's also a sure way to encourage able-bodied workers to leave the workforce, thus tilting the economy more toward consumption rather than production.)
Even if we ignore the moral problems presented by transferring huge amounts of income from current workers to pensioners, the realities of demographics in the twenty-first century mean the minimum "retirement age" should really be at least 75. Too long has a shrinking pool of workers been forced to fund pensioners who start collecting government benefits in their 60s and can now expect to be on the dole for 20 years or more. Moreover, this phenomenon is growing. Social Security increasingly forces today's workers to shoulder an ever-greater burden on their ability to earn a living and support their families. The days of subsidized extended vacations for able-bodied 65-year olds must come to an end, but until that day comes, the damage can at least be limited by raising the age of eligibility.
The Original Justification for Social Security When it was being sold to the public in 1935, those promoting Social Security took advantage of sentiments that people over age 65 were essentially too old to work, and thus would soon fall into poverty. This certainly would have seemed plausible at the time. Most jobs in 1935 involved significant amounts of physical labor whether we're talking about cleaning laundry, waiting tables, farming, mining coal, or building houses. Work was also more dangerous—as historical work injury data makes clear—and workers were more likely to sustain injuries that would render one unable to work. For example, a 65-year-old simply could not safely perform much of the work required at a steel mill. (As shown in this 1944 video on the steel industry.)
Especially important to efforts at presenting Social Security as fiscally prudent was the fact that with a minimum age of 65, the number of Social Security beneficiaries would also be limited by the realities of life expectancy. In 1940, for example—the first year that pensioners could receive benefits—life expectancy at birth was only 61 for men and 65 for women. Indeed, even if we eliminate the toll of childhood diseases on life expectancy, the numbers do not change dramatically. In 1940, total life expectancy for persons over 15 years of age was 68. Moreover, in 1940 the percentage of the population surviving from age 21 to 65 was only 54 percent for males and 61 percent for females. But what about those who actually made it to age 65? In 1940, a male at age 65 would, on average live another 13 years. A female would live another 15 years. So, when looking at the work force in 1940, we can eliminate nearly half of the men and about 40 percent of the women as likely future Social Security recipients. About half of those who actually made it to 65 would then collect benefits for no more than 15 years.
Now let's contrast that with life expectancy realities in our own time.
Life expectancy at birth today is 78 years, and for those who reach age 15, it is 80. for both men and women, more than 75 percent of the population reaching 21 will survive to age 65. That's an increase of 50 percent for men, and around 30 percent for women. For those reaching age 65 in 2022, males will live another 18 years on average, while females will live another 20 years.
These growing commitments from Social Security are further aggravated by the fact that while the retiree population is growing, growth in the work force is stagnating. Since 1960, the total number of Social Security recipients has increased by 364 percent. Meanwhile, the prime age population (age 25-54) has grown by only 90 percent. Put another way, in 1960, there were 4.6 prime age workers per Social Security recipient. In 2020, that number was 1.9.
Now let's look at this in dollar terms. Per prime-age worker, inflation-adjusted dollars spent on SS amounted to $9,590 in 2022. That's up from $4,814 in 1980, or an increase of 99 percent over the period. During the same period, inflation-adjusted weekly earnings for workers increased 16 percent. Part of this discrepancy is due to the fact SS payments are consistently—as mandated by law—bumped up by cost-of-living adjustments to account for price inflation. Wage workers enjoy no such guarantees.
Social Security benefits are rapidly outpacing both population growth and earnings growth. In the aggregate, the program is more generous (toward pensioners) than ever.
To stanch some of the bleeding from today's workers who get an increasingly raw deal on this, the time has come to stop the ever-upward creep in how much Social Security recipients collect.
As noted above, we see that, on average, mean and women collect Social Security for a period that has grown by five years since 1940—an increase of 38 percent for men, and 33 percent for women. To even put a dent in this, the minimum age for SS needs to rise to 70. Yet, even this is much too low given how turning 65 in 2022 is nothing like what it was in 1940. Ever since it was first put forward, Social Security has assumed that reaching the age of 65 is also closely associated with disability. That may have been a good assumption in 1935 when work was more often dangerous, likely to produce disability, and medical care was much less adept at addressing these disabilities.
In 2022, however, the word "disabled" hardly describes the majority of Americans in the 65-74 age range. Indeed, only one quarter of this population reports having any disability at all. The share of Americans from 65-74 who report poor health has been declining, as has the proportion of workers in physically demanding jobs. It's unclear why 100% of these workers would require government income subsidies. In any case, workers who are actually disabled would qualify for disability benefits even if the age is raised. Moreover, a male worker today who reaches age 75 can still expect to live another 11 years. A female can expect to live even longer. Raising the age to 75 still wouldn't eliminate a taxpayer-subsidized "official" retirement, but the change certainly would reduce the length of time today's workers toil in a state of indentured servitude to today's pensioners.
One thing raising the age has going for it, of course, is that it's been done before. A 1983 change very gradually increased the full-benefits age from 65 to 67. That's much too little, and even an increase to age 75 would be a mild reform. Other reforms, up to and including abolition, should include means-testing pensions and totally defederalizing and decentralizing the program. But it's also easy to imagine the tidal wave of opposition from activists who vehemently oppose even a very mild reduction in Social Security payouts. Raising the age is no cure-all. But it's a start.
The Federal Reserve has created a huge boom full of bubbles. But after the boom must eventually come a bust. Ryan and Tho talk to Mises Institute Senior Fellow Mark Thornton about what to expect from the next recession and how we got ourselves into our current inflationary mess.
Recommended Reading"Eliminating Economic Crises" by Mark Thornton: Mises.org/RR_118_A
"The REAL Solution to the Coming Economic Crisis" by Mark Thornton: Mises.org/RR_118_B
"Wholesale Price Inflation Is Slowing as Economy Worsens" by Ryan McMaken: Mises.org/RR_118_C
The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century by Mark Thornton: Mises.org/RR_118_D
"Will the Fed Pop the Everything Bubble?" by Daniel Lacalle: Mises.org/RR_118_E
"The Trillion-Dollar Coin Idea Is Just Another Way to Rip Us Off" by Ryan McMaken: Mises.org/RR_118_F
"The Fed's Real Mandate" by Mark Thornton: Mises.org/RR_118_G
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
It's only a good time to be a worker in America if one confuses falling real wages and falling full-time employment with robust employment conditions.
Original Article: "Biden Is Lying about the Jobs Data"
This Audio Mises Wire is generously sponsored by Christopher Condon.
I am sorry to have to report that Yuri Maltsev has passed away. He was a professor of economics at Carthage College in Wisconsin. He held various government and research positions in Moscow, Russia. Before defecting to the United States in 1989, he was a member of a senior economics team that worked on President Mikhail Gorbachev's reforms package of perestroika. Before settling in the Midwest, he was a senior fellow at the United States Institute of Peace in Washington, DC. a US federal research agency.
His work involved briefing members of Congress and senior officials of the executive branch on issues of national security and foreign economic and military assessment. He also testified before the US Congress and appeared on CNN, PBS NewsHour, C-SPAN, CBC, and other American, Canadian, Spanish, South African, and Finnish television and radio programs. He wrote and coauthored fifteen books and over a hundred articles. He was a recipient of the Luminary Award of the Free Market Foundation and was a Senior Fellow of the Mises Institute.
I first met Yuri at a Mises conference in the early 1990s and was immediately struck by his warmth and good humor. In his frequent talks at Mises events, he offered an inside look at the failures of socialist planning, vividly making Ludwig von Mises’s calculation argument before his audiences, and for this he was much appreciated by Murray Rothbard. Maltsev lectured for many years at Mises University, where he was very popular with students and formed lasting friendships with a number of them.
Yuri delighted in life and always had funny stories to tell about the many adventures in his life and about the people he had known, such as the Russian economist Yegor Gaidar, whom he called the world’s fattest economist. He once pulled from his coat about six or seven passports he used, many of which had different names. But beneath his humor was an abiding devotion to the free market and individual liberty.
In recent years, he faced some serious health problems, but he always managed to surmount them, and his friends thought he was indestructible. I will miss him.
It’s theoretically impossible for government to regulate vaccines effectively. To see why, consider the following thought experiment: Imagine you were an expert employed somewhere in the government’s sprawling healthcare apparatus, and further imagine that you received incontrovertible evidence that every single person who took the covid vaccines would die as a result of those vaccines at some point in the next five years.
First, notice that I’ve loaded this experiment in favor of the government. There’s no such thing as dispositive evidence on such complex issues, and there’s no such thing as 100 percent fatal vaccines (after all, if nothing else, somebody would die of something else while waiting to die from the vaccine).
Well, what could you do with that information? Nothing. After all, who’s going to risk their career over something as trivial as massive deaths? If government workers were inclined to risk their careers to save lives, we’d have far fewer wars.
But let us assume you’re willing to take that risk. So what? How would you make your voice heard? After all, lots and lots of experts came forward with dire warnings about those vaccines, so why would your efforts be any more successful than their efforts? Put another way, you could—quite reasonably—argue that those experts failed because they were wrong, but how could you—our hypothetical whistleblower—know that you’re right AND that you would succeed merely because you’re right? Surely, even the most naïve person cannot believe that truth and justice always prevail, so everyone must admit that even if you were right, you’d be taking a terrible risk.
But there’s another problem: Would you personally benefit from preventing the disaster or allowing it to transpire? If these vaccines proved disastrous, what would be the response? Well, obviously, a massive expansion of government power in order to remedy whatever “market failure” caused this disaster. How long would it take for fans of big government to realize the problem was the private sector’s involvement in the development and approval process? How long until some massive bipartisan bill invested billions in creating new levels of bureaucracy to ensure the next vaccine was safe and effective?
Remember the housing crisis? Rarely, if ever, has there been a more clear and more obvious government failure, and yet one is considered delusional for blaming the government for that crisis. Instead, we created vast new bureaucracies to administer thousands of new regulations to “fix” the private sector’s “failures.” Now it’s conventional wisdom that the housing crisis “proves” that markets can’t work.
Wouldn’t millions of dead people “prove” that markets can’t respond to pandemics? Wouldn’t some new government agency, like the Consumer Financial Protection Bureau (CFPB), that’s almost entirely immune from political oversight “fix” these problems? Wouldn’t some Dodd-Frank for pharma do wonders, ensuring no more vaccine failures?
That is, government always benefits from government’s failures, which are invariably cited as proof that more government is needed. If World War I doesn’t end all wars, surely World War II will. If Fannie and Freddie and a million other interventions can’t fix the housing crisis, then surely CFPB will. If central banking causes the Great Depression, then surely more central banking will fix the market’s supposed propensity for causing great depressions—a propensity that curiously enough had never actually caused a great depression prior to central banking.
I could go on, but this point should be obvious to any reasonable person: government has no reason whatsoever to prevent its own failures. If these vaccines kill everybody, that’s great for them—another reason to expand their power.
This means that they simply cannot regulate vaccines effectively. Indeed, they can’t regulate anything effectively. If we really wanted regulations to work, we’d need them to be created and administered by people who had skin in the game.
If, for example, vaccine manufacturers had to pay for every injury or side effect and were required to have insurance for such losses, then they and their insurance companies would ensure that vaccines were safe and effective. But the moment you introduce a third party who suffers no consequences for its failures, you ensure the system cannot work.
Let me illustrate the point by analogy. Imagine a football team for which the coach cannot be fired no matter what. How do you think that team would perform? No one would suggest such a system, but that’s precisely what government is—a coach who cannot be fired. In theory, the coach “regulates” the team, but in practice, the coach does not and cannot fulfill that function because she has no reason to do so and every reason to fail.
Does any of this prove that covid vaccines are unsafe or ineffective? No, but it does prove that government regulation doesn’t ensure that vaccines—or anything, really—is safe or effective. If regulations work, it’s merely by chance because this tool (government) simply cannot do what it’s being asked to do.
If you want to argue that government workers are brave altruists who will do the right thing at great cost and risk to themselves merely because it is the right thing, then I have to wonder why you think government is necessary at all. As James Madison wrote, “If men were angels, no government would be necessary.” And why would such people congregate in government? How would they get power? How would they keep it?
Government, even in theory, has a massive adverse selection problem in which the unscrupulous tend to garner more power than the ethical, so how could a system that depends on angels controlling the government ever work?
Of all the things we ask government to do, regulating vaccines must be the task to which the government is most ridiculously ill suited as it requires government “experts” to understand the most difficult questions in science and to question the results at great personal risk and cost to themselves. To think that they will do that on any consistent basis is farcical.
The similar challenges facing America and Brazil, including concerns about the state of their democracies, is worthy of exploration, as is the global response to the protest and what that response means for those opposed to the current “neoliberal” international order.
Original Article: "America, Brazil, and the Illegitimacy of Weaponized Democracy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Whenever an armed conflict breaks out, regardless of where it is, we are instantly presented with the number of people killed, along with how many families and entire communities have been forced from their homes. As regrettable as it sounds, those of us who have been so lucky to remain safely distant from such conflicts throughout our lives have become relatively inured to them. Ukraine, to put it coldly and crudely, is the folie du jour in this regard.
As a result, the only violence toward the displaced communities we tend to discuss is the immediate physical damage: the harm done to individuals through murder, torture, and sexual assault, and the violation of their property rights by either the armed forces or revolutionary militias. However, regimes will often utilize a lesser known, or rather, less understood, tactic against these vulnerable communities that some may argue does not constitute violence as it is not an overt physical attack.
Rather, the strategy employs what psychiatrist Mindy Fullilove, in her 2004 work, Root Shock: How Tearing Up City Neighborhoods Hurts America, and What We Can Do about It termed the “root shock of forced displacement,” which she defines as the traumatic stress reaction to the destruction of all or part of one’s emotional ecosystem. This root shock is often the precursor to a plethora of other mental illnesses, such as depression. Regimes of all shades and labels have often forced communities from their own lands and capitalized on the subsequent trauma resulting from such violence to categorize them as undesirable elements within society in order to alienate them and enact subtler forms of discrimination.
The Mentally Ill as the “Other”It’s never been uncommon for those suffering from mental illnesses to be vilified and identified as less than human; it is customary for regimes to define what makes people dangerous to the rest of society and use the state apparatus to target them. In their 2004 book, Violence in War and Peace, anthropologists Nancy Scheper-Hughes and Philippe Bourgois assert:
The mad, the differently abled, the mentally vulnerable have often fallen into this category of the unworthy living, as have the very old and infirm, the sick-poor, and, of course, the despised racial, religious, sexual, and ethnic groups of the moment.
This is not a stance unique to either end of the political spectrum, as Murray Rothbard pointed out in For a New Liberty: when afforded the powers of coercion inherent to the state, both liberals and conservatives will use their newfound powers to impose their own vision of what behaviors and lifestyles are acceptable, or “sociable,” and antagonize, or even criminalize, whatever does not meet their criteria.
British political commentators Peter Hitchens and Owen Jones, the former an ardent conservative thinker and the latter a left-leaning journalist and activist, have even agreed on the point that governments deliberately inflate incarceration figures with mentally ill inmates, classifying them as violent. In an interview, Hitchens glibly remarked that while conservative icon Enoch Powell was rightly loathed for his “Rivers of Blood” speech, he committed a more atrocious act when he closed residential facilities for people suffering from mental health issues. This placed the burden of their care on law enforcement, which in turn resulted in mentally ill people’s being moved into correctional institutions.
Regimes similarly provide the legal grounds to label refugees and others fleeing persecution in their native regions as “violent,” “unstable,” or “abnormal,” which in turn leads to their alienation from a society that does not permit their integration.
No Hearth, No HealthTo first understand how mental health, or rather illness, is used by the state against displaced communities, one must first understand the role that homelands as a concept play in the social, mental, and emotional well-being of individuals. While this role may differ from region to region due to cultural, socioeconomic, and linguistic contexts, we can find parallels that point to the homeland as representing normality and harmony. In Narratives of Exile and Identity (2018), in which he describes the experiences of deported Lithuanians after the expansion of the USSR into the Baltic states in 1940, Tomas Balkelis found that Lithuanian refugees associated their native region with ordinary civilian life and freedom as citizens. Similarly, the Korwa, a displaced tribal community originating in central India, are described by Mokshika Gaur and Soumendra M. Patnaik in their 2011 study in the following manner:
The Korwa, both young and old, consider the forest as their actual “home” and associate all of their maladies with the new living space. In the forest, their economic pursuits were in direct relationship with nature, required working together as a community, and kept them close to their ancestors, which is not possible in the current set-up.
The association developed between the onset of new diseases, both physical and mental, and forced relocation, is not unique to tribal lifestyles. It is a phenomenon that seen in a multitude of groups, across several generations, and under a variety of circumstances, whether colonization, civil war, or ethno-religious persecution. In their 1997 work, Social Suffering, Arthur Kleinman, Veena Das, and Margaret Lock cite Jews and other minorities’ fleeing the Holocaust, Native Americans’ growing up on reservations in the United States, and Iraqi refugees’ fleeing militarized conflict as examples of communities who have been rendered vulnerable as a result of war and forcibly evicted from their lands and homes.
This vulnerability allows state institutions to further undermine sociocultural bonds and dynamics, which causes several behaviors to repeat themselves across generations; the very same psychological phenomena that Sir William MacGregor observed in Fiji while serving as a medical officer in the 1870s, are reported in refugees in Sri Lanka who fled their villages due to escalated conflict during the Sri Lankan civil war, and in the Chagossians, who were exiled to Mauritius from their islands in the Chagos Archipelago by the British government between 1968 and 1973, as described by David Vine in Island of Shame (2011). In all three instances, depression, mania, anger, and “melancholia” all contributed to an uptick in figures for institutionalization, incarceration, and last, but not least, suicide.
ConclusionIt can be easy to understand the injustices committed toward civilians in a war or conflict merely as physical damages, but when there are state institutions or government-funded bodies that actively discriminate against and stigmatize the “abnormal” behavior of displaced communities, further scrutiny is required. In order to better understand how, why, and when regimes target certain groups, it is necessary to determine how state institutions inflict longer-lasting scars and wounds that transcend generations, beginning with the physical damage to their bodies and homes.
Government and monetary authorities claim that the worst of the postcovid lockdown disruptions are past and a "return to normal" is just around the corner. It will be a very long corner.
Original Article: "The Chimera of a Postpandemic Postwar Return to Monetary Normal"
This Audio Mises Wire is generously sponsored by Christopher Condon.
We like to think of the "deep state" as a conspiratorial entity. In reality, the term describes much of what the federal government does in broad daylight.
Original Article: "Yes, Virginia, There IS a Deep State—and It Is Worse than You Think"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Ryan McMaken and Zachary Yost discuss new estimates of just how costly a US-China war over Taiwan would be. Things are made even worse by the fact the US is already shopping most of its weapon stockpiles to Ukraine. The US government simply refuses to acknowledge that scarcity exists.
Additional Resources"The First Battle of the Next War: Wargaming a Chinese Invasion of Taiwan" by Mark F. Cancian, Matthew Cancian, and Eric Heginbotham: Mises.org/WES_07_A
"Taiwan Is Not Ukraine" by Zachary Yost: Mises.org/WES_07_B
"Victory Without Battle: A Smarter Vision for US-Taiwan Policy" by Zachary Yost: Mises.org/WES_07_C
"Rebuilding U.S. Inventories: Six Critical Systems" by Mark F. Cancian: Mises.org/WES_07_D
"Taiwan has nearly US$19 billion in arms sales backlogged in US" by Eric Chang: Mises.org/WES_07_E
"Costs of War" (The Watson Institute for International and Public Affairs): Mises.org/WES_07_F
Be sure to follow War, Economy, and State at Mises.org/WES.
The latest jobs report in the United States shows strengths and weaknesses. Total nonfarm payroll employment increased by 223,000 in December, and the unemployment rate fell to 3.5 percent. However, the United States job market continues to show negative real wage growth, the employment-to-population ratio is 60.1 percent, and the force participation rate is 62.3 percent. According to the Bureau of Labor Statistics (BLS), both measures have shown little net change since early 2022 and each remain 1.0 percentage point below their values in February 2020.
The United States jobs figures are constantly dissected by analysts and there is a healthy criticism in independent research which certainly helps enormously when it comes to understanding the health of the labor market. However, in the European Union things are much worse.
The latest unemployment figures are very concerning, but what is even more worrying is to analyze the “shadow unemployment.” In its latest Economic Outlook or Europe 2023–24 report, UBS shows the significant difference between official unemployment in the euro area and the hidden unemployment coming from furloughed jobs and unoccupied workers that do not count as official unemployed. The official unemployment rate in the euro area is still elevated, at 6.5 percent. The highest unemployment rate is in Spain, at 12.5 percent, followed by Greece, 11.4 percent and Italy, at a much lower 7.8 percent.
Youth unemployment is also extremely elevated. European Union average youth unemployment stands at 15.1 percent, led by Spain at 32.3 percent, Greece at 31.3 percent and Italy at a distant 23 percent.
However, shadow unemployment in the euro area according to UBS stands at 8.8 percent, with Spain at 15 percent, Italy at 8 percent, and Germany well above 5 percent compared with the official 3 percent.
There are diverse ways in which European economies leave unoccupied workers out of the official unemployment rate. These include deducting from the unemployment figure those who are not working but are receiving training, zero-hour contracts, and mini jobs and those who have a long-term contract but only work a few months out of the year. They do not appear as unemployed even if they have access to unemployment benefits.
However we want to look at these figures, they show the mistakes of heavy intervention and rigidity in the labor market. The first source of rigidity is labor costs. The high social security and labor taxes make it more challenging for businesses to reduce unemployment. The tax wedge on work is so elevated in countries like Spain and Greece that a business pays almost €1,800 on a net salary of €1,000. If we add to a high tax wedge a strong of regulatory burdens and penalties, it shows that a system designed to protect workers is, in fact, leaving millions behind, particularly the young.
There are also important barriers to reduce unemployment that include very high direct and indirect corporate taxes as well as the language and cultural barriers.
Europe’s furloughed jobs scheme was widely praised as a great way to protect workers during the misguided lockdowns of the covid-19 crisis. While it certainly reduced the official unemployment rate, shadow unemployment rose to 21.7 percent. In the United States, a very flexible labor market still saw unemployment rise to 14.7 percent in April 2020. However, in the United States the reopening led to a rapid reduction with faster wage growth, while in the euro area wage growth remained poor and continues to be negative in real terms, with a significant loss of purchasing power of salaries worsened by the inflationary spike in 2021–22. While in the United States real wage growth has declined 1.1 percent according to the BLS, in the euro area the nominal figure in the third quarter of 2022 was just 2.1 percent wage growth, which means a 6.8 percent negative real figure.
There are many different challenges that need to be taken into account, and comparisons are always difficult, but there is an undeniable negative trend in Europe that is a direct consequence of constantly increasing intervention in the economy: elevated youth unemployment, much higher unemployment in rigid labor markets compared with more flexible ones, and a concerning trend of destruction of purchasing power of salaries. My friends in the United States should take note. If you copy European economic policies, you get European unemployment and real wage levels.
The Federal Reserve has yet to get price increases anywhere near its own arbitrary 2-percent goal, but a mild slowing in growth rates has Biden claiming that price inflation is "falling."
Original Article: "Real Wages Fall for the Twenty-First Month as Rent and Food Prices Keep Rising"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The fifty-third annual meeting of the World Economic Forum (WEF) brought together fifty-two world leaders, seventeen hundred corporate executives, sundry artists, and other personalities to address “Cooperation in a Fragmented World.” Fragmentation is the nemesis of the World Economic Forum and its United Nations (UN) and corporate partners. “Fragmentation” means that segments of the world population are not adhering to the agenda of climate change catastrophism and the precepts of the Great Reset.
The Great Reset, meanwhile, amounts to a hybrid state-corporate woke cartel administering the global economy (and by extension the world’s political systems) under the direction of the WEF, the UN, the International Monetary Fund (IMF), the European Central Bank (ECB), and the World Health Organization, as well as top corporate decision-makers like BlackRock’s CEO, Larry Fink.
Lest we imagine that the WEF and its meetings merely represent the grandiose delusions of some ineffectual clowns, it should be noted that the WEF’s “stakeholder capitalism”—introduced in 1971 by Klaus Schwab, the WEF founder and chair, and Hein Kroos, in Modern Enterprise Management in Mechanical Engineering—has been embraced by the UN, by most central banks, as well as by the world’s leading corporations, commercial banks, and asset managers. Stakeholder capitalism is now considered to be the modus operandi of the world economic system.
In the 1971 book, Schwab and Kroos suggested that “the management of a modern enterprise must serve not only shareholders but all stakeholders to achieve long-term growth and prosperity.” The stakeholders are the compliant and complicit corporations and governments, not the citizenry.
BlackRock, the world’s largest asset manager, holds upwards of $10 trillion in assets under management (AUM), including the pension funds of many US states. In 2019, BlackRock’s CEO, Larry Fink, led the US Business Roundtable on stakeholder capitalism. CEOs from 181 major corporations redefined the common purpose of the corporation in terms of Schwab’s brainchild, stakeholder capitalism, signaling the supposed end of shareholder-driven capitalism. In his 2022 letter to CEOs, Fink made BlackRock’s own position on investment decisions quite clear. “Climate risk is investment risk,” Fink declared. He promised a “tectonic shift in capital,” an increased acceleration of investments going to “sustainability-focused” companies.
Fink warned CEOs: “And because this will have such a dramatic impact on how capital is allocated, every management team and board will need to consider how this will impact their company’s stock”(emphasis mine). According to Fink, stakeholder capitalism is not an aberration. Fink provides evidence of stakeholder capitalism’s woke imperative in his denial of the same: “It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism.” This definition of capitalism would certainly have come as news to Ludwig von Mises.
Fink sits on the board of trustees of the WEF, along with former US vice president Al Gore; IMF managing director Kristalina Georgieva; ECB president Christine Lagarde, and Canadian deputy prime minister and minister of finance Chrystia Freeland, among others.
In his 2023 welcoming remarks and special address, Schwab pointed to the multiple crises facing the world: “the energy transformation, the consequences of covid, the reshaping of supply chains are all serving as catalytic forces for the economic transformation.” Incidentally, these are all factors that the WEF has promoted and/or exacerbated. And together they have added to the “high inflation, increasing interest rates, and growing national debt” that Schwab also decried.
Schwab pointed to the problem of social and geopolitical fragmentation and “a messy patchwork of powers,” alluding to the war in Ukraine. But Schwab also bemoaned “large corporate and social media powers, all competing increasingly for power and influence. As a result, the trend is again moving toward increased fragmentation and confrontation”—no doubt referring, at least in part, to the recent takeover of Twitter by Elon Musk, the loss of a major platform for propaganda and censorship. Naturally, Schwab referred to “climate change” and “viruses” as existential threats that could lead to “the extinction of large parts of our global population.” The question is whether “climate change” and “viruses” or rather the responses to these supposed menaces will be the cause of mass extinctions.
But “the most critical fragmentation” threat, Klaus argued, is posed by those who “go into the negative” and hold a “critical and confrontational attitude” to the Davos agenda—those with the temerity to oppose a global agenda of climate change catastrophism, with its attendant control over production and consumption and the virtual elimination of property and property rights for the vast majority.
A central issue that the fifty-third annual meeting addressed was “the Current Energy and Food Crises in the Context of a New System for Energy, Climate and Nature.” The theme accords with the WEF’s earlier and repeated claims that the agricultural supply chain is too “fragmented” for “sustainable” farming. “A resilient, environmentally-friendly food system will require a shift away from our current fragmented supply chains,” wrote Lindsay Suddon, chief strategy officer of Proagrica, in 2020. In Suddon’s and many other WEF papers, the “fragmentation” refrain is repeated. Sustainable farming cannot be achieved under the “fragmented” agricultural conditions that currently obtain.
One paper—entitled “Can Collective Action Cure What’s Ailing Our Food Systems?,” part of the 2020 WEF annual meeting—argued that fragmentation represents the ultimate barrier to sustainability:
As the heads of leading multilateral and commercial agricultural finance institutions, we are convinced that fragmentation within the current food systems represents the most significant hurdle to feeding a growing population nutritiously and sustainably.
Written by Wiebe Draijer, then chairman of the managing board at Rabobank, and Gilbert Fossoun Houngbo, the director general–elect of the International Labour Organization (ILO), the paper was quite telling. It warned that unless fragmentation is addressed, “we will also have no hope of reaching the Sustainable Development Goal of net zero emissions by 2050, given that today’s agricultural supply chain, from farm to fork, accounts for around 27% of greenhouse gas (GHG) emissions.”
Rabobank is one of the financial sponsors of the WEF’s Food Action Alliance (discussed below). On its website, Rabobank notes that it operates in the Netherlands, serving retail and corporate clients, and globally, financing the agricultural sector. The ILO is a UN agency that sets labor standards in 187 countries.
What interests could an international bank and a UN international labor agency have in common? According to their jointly authored paper, they have in common a resolve to eliminate fragmentation in agriculture. The banking interest in defragmentation is to gain a controlling interest in fewer and larger farms. The labor union management interest is to have more workers under its supervision and control. The banking and labor interests combined result in large farms worked by organized farm laborers—nonowners—under the controlling interest of the bank. A bonus rationale (more likely the main one) for this “scheme” is that the sustainable development goals (SDGs) of the UN’s Agenda 2030 can thereby more easily be implemented across “agricultural value chains and farming practices.” The authors conclude: “Most critically, we need to aggregate opportunities, resources and complementary expertise into large-scale projects that can unlock investment and deliver impact” (emphasis mine). “Collective action” is the “cure.”
In terms of agriculture, that is, “fragmentation” means too many discrete and disparate farms. The solution to this problem is consolidation, or the ownership of agricultural assets by fewer and fewer entities. Enter Bill Gates in the US. The “large-scale projects” will be owned by those who can afford to abide by the European Commission’s (EC) Farm to Fork Strategy. “The Farm to Fork Strategy is at the heart of the European Green Deal.” The goal of the European Green Deal is “no net emissions of greenhouse gases by 2050.” (More on the Farm to Fork Strategy and its effects on hunger and starvation below.)
The issue of food supply was addressed in a session entitled “Sustainably Served.” The summary caption for the session notes that “nearly 830 million people face food insecurity and more than 3 billion are unable to afford a healthy diet. Challenges to human and planetary health have been further compounded by rising costs, supply chain disruptions and climate change.”
The highlight of the “Sustainably Served” panel, which otherwise amounted to virtue signaling, came in the form of questions posed by an audience member, “Jacob, from America”:
I want to ask a question about food production. Last year the Dutch government announced harsh restrictions on the use of nitrogen fertilizers. Such restrictions forced many farmers to put much of their land out of production. And these policies led to 30,000 Dutch farmers protesting these government policies. And this was being done at a time when food production was already being severely curtailed because of the war in Ukraine. My questions are, one, does the panel support similar policies being implemented throughout the world? And do you support the Dutch farmers who are protesting? Do not such strict policies leading to reduced food production ultimately harm the poorest people of the world and exacerbate the problem of malnutrition?
The questioner was one of four, yet his questions dominated the rest of the session and led the moderator, Tolu Oni, and panelist Hanneke Faber, the president of nutrition at Unilever, which is based in the Netherlands, to become quite defensive. The latter replied:
I am Dutch, and our business is based in Holland. It’s a very difficult situation in Holland. I have a lot of sympathy for the farmers who are protesting, because it’s their livelihoods and their businesses at risk. But I also have a lot of sympathy for what the government is trying to do, because the nitrogen emissions are way too high. . . . So, something needs to be done. . . .
But it’s a very Dutch problem. I don’t think that you have to worry that those same solutions will have to go somewhere else.
This last statement is belied by the fact that the Netherlands is the headquarters of the WEF’s Food Action Alliance program and the site of the Global Coordinating Secretariat (GCS) of the WEF’s Food Innovation Hubs. Launched at the Davos Agenda meeting in 2021, the Food Innovation Hubs have as their goal alignment with the UN Food Systems Summit: “The role of the GCS will be to coordinate the efforts of the regional Hubs as well as align with global processes and initiatives such as the UN Food Systems Summit.” And the stated goal of the UN Food Systems Summit is to align agricultural production with Agenda 2030’s SDGs: “The UN Food Systems Summit, held during the UN General Assembly in New York on September 23 [2021], set the stage for global food systems transformation to achieve the Sustainable Development Goals by 2030.”
“Sustainability” and “sustainable development” do not mean, as the words seem to suggest, the ability to withstand shocks of various kinds—economic crises, natural disasters, etc. They mean development constrained by utopian, unscientific environmentalist imperatives, inclusive of reduced production and consumption in the developed world and the thwarting of development that would result in the production of additional GHGs in the developing world. In terms of agriculture, this entails a reduction in the use of nitrogen-rich fertilizers and their eventual elimination and the phasing out of methane- and ammonia-producing cattle. In the Netherlands, the Food Hubs initiative has already led to the government’s compulsory buyout and closure of as many as three thousand farms, which will lead to dramatically reduced crop yields from the world’s second-largest exporter of agricultural products.
The situation in the Netherlands is also part of the European Commission’s Farm to Fork Strategy. Under the Trump administration, the United States Department of Agriculture (USDA) found that adopting the plan would result in a decline in agricultural production of between 7 percent and 12 percent for the European Union, depending on whether the adoption is EU-wide or global. With EU-only adoption, the decline in EU agricultural production was projected to be 12 percent, as opposed to 7 percent should the adoption become global. In the case of global adoption, worldwide agricultural production was projected to drop by 11 percent. Further, the USDA reported:
The decline in agricultural production would tighten the EU food supply, resulting in price increases that impact consumer budgets. Prices and per capita food costs would increase the most for the EU, across each of the three scenarios [a middle scenario of adoption of Farm to Fork by the EU and neighboring nation-states was included in the study]. However, price and food cost increases would be significant for most regions if [Farm to Fork] Strategies are adopted globally. For the United States, price and food costs would remain relatively unchanged except in the case of global adoption.
Production declines in the EU and elsewhere would lead to reduced trade, although some regions would benefit depending on changes in import demand. However, if trade is restricted as a result of the imposition of the proposed measures, the negative impacts are concentrated in regions with the world’s most food-insecure populations. . . .
Food insecurity, measured as the number of people who lack access to a diet of at least 2,100 calories a day, increases significantly in the 76 low- and middle-income countries covered in our analysis due to increases in food commodity prices and declines in income, particularly in Africa. By 2030, the number of food-insecure people in the case of EU-only adoption would increase by an additional 22 million more than projected without the EC’s proposed Strategies. The number would climb to 103 million under the middle scenario and 185 million under global adoption. (emphasis mine)
Thus, we see that “sustainably served” means sustainably starved.
Another panel of note was “Stewarding Responsible Capitalism,” which featured Brian T. Moynihan, CEO of Bank of America and chair of the WEF business council, among others. An arch proponent of stakeholder capitalism, Moynihan suggested that companies that do not meet environmental, social, and governance (ESG) criteria will simply be left behind. No one will do business with such companies, he said.
Moynihan’s comments revealed the extent to which stakeholder capitalism and the metric for measuring it, the ESG index, have penetrated commercial banking. In fact, over three hundred major banks are signatories of the UN’s “Principles for Responsible Banking,” “representing almost half of the global banking industry.” Meanwhile, forty-seven hundred asset management firms, asset owners, and asset service providers have signed the UN’s six “Principles for Responsible Investment.” These principles are entirely focused on ESG compliance and meeting the UN’s Agenda 2030 sustainable development goals. ESG indexing now pervades every aspect of banking and investment businesses, including what companies they invest in, how they adhere to ESG metrics themselves, and how they cooperate with competitors to promote ESGs. Thus, the goal of the principles is to universalize ESG investing. ESG indexing raises the cost of doing business, starves the noncompliant of capital, and creates a woke cartel of preferred producers.
In the “Philanthropy: A Catalyst for Protecting Our Planet” session, US climate envoy John Kerry suggested that he and the people at Davos were “a select group of human beings, [who], because of whatever touched us at some point in our lives, are able to sit in a room and come together and actually talk about saving the planet.” Betraying the religious, cultlike character of the Davos group, Kerry suggested that his and others’ anointment as saviors of the planet was “almost extraterrestrial.” If you tell them you are interested in saving the planet, “most people,” Kerry continued, “they think you are a tree-hugging leftie liberal do-gooder.” But I submit that “most people” think Kerry and his ilk are not do-gooders at all but rather control freaks and megalomaniacs bent on controlling the world’s population.
On other panels, the speakers stated that eating meat, driving cars, and living outside the bounds of fifteen-minute cities should be disallowed.
In short, with the Davos agenda, we are confronted with a concerted, coordinated campaign to dismantle the productive capabilities in energy, manufacturing, and farming. This project, driven by elites and accruing to their benefit, is amounting to the largest Great Leap Backward in recorded history. If it is not stopped and reversed, it will lead to economic disaster, including dramatically reduced consumption and living standards. And it will almost certainly result in more hunger in the developed world and famines in the developing world. WEF chairman Schwab may outdo Chairman Mao. If we let him.
The US Bureau of Labor Statistics released new Producer Price Index (PPI) data on Wednesday, and it looks like the rate of increase in price inflation is slowing. Nonetheless, year-over-year price inflation in December remained near 40-year highs, and shows the marketplace is still dealing with the nearly six-trillion-dollar surge in the money supply that took place during 2020 and 2021.
The PPI is a measure of prices at the production phase of goods and services. Prior to 1978, the index was known as the Wholesale Price Index.
In December, year-over-year PPI growth came in at 6.2 percent which was a 21-month low. The PPI had most recently peaked in March of 2022 at 11.6 percent. December's print was a (seasonally-adjusted) drop of 0.8 percent, month, over month. According to this measure, it does indeed seem that price inflation is slowing.
Of course, if we look at the index overall, and not just at rates of increase, we find wholesale prices are up 17 percent from where they were in early 2020. This generally reflects a similar trend in the CPI index which is up about 15 percent over the same period. Notably, the 17-percent increase in wholesale prices also outpaces the increase in the Dow which is up 14 percent over the same period.
At appears both workers and businesses need growth of 15 percent or more during this period just to keep up with consumer prices, and 17 percent or more to keep up with wholesale prices. These numbers also belie the popular narrative on the Left that consumer prices are only rising because of "greedflation" or corporate greed. By that narrative, inflation is fueled by sellers arbitrarily marking up their prices to exploit workers and consumers. Yet, if growth in wholesale prices is similar to consumer price growth, it's hard to see how sellers are enjoying a windfall from rising prices. Rather, one could interpret this is a matter of sellers attempting to keep up with their own rising costs.
So why are PPI prices slowing now? There's good reason to believe it reflects a slowing economy. Indeed, the economic data pointing toward a slowing economy and recessions continues to pile up. December's Leading Economic Indicators measure is flashing recession. Homebuyers are canceling purchases at levels exceeding what we saw in 2008. The New York Fed's recession modeling shows the highest recession probability since 1982. The yield curve is inverted to a depth not seen in more than 40 years.
Indeed, once PPI growth takes a sustained downward turn, the US is often already in a recession or headed into one. We can see this pattern in 1982, 1990, 2000, 2008, and 2019. And now in 2022.
Expect Wholesale Prices to Fall as Easy Money Dries UpChanges in wholesale prices often are described as an early indicator of where consumer prices are headed. One way to interpret this is to conclude that as wholesale prices change, retailers are forced to respond with higher prices themselves. This isn't quite right, however. Ultimately, the prices of wholesale or "production goods" are actually determined by the prices of goods at the final retail, consumer stage. That is, it's the reverse of the usual view of PPI inflation. After all, a retailer wouldn't pay for materials or wholesale goods at all if he didn't think he could sell them—or sell goods made with them—at a profit. Thus, beyond the short term, the prices of these production goods cannot be set without regard for the expected prices of retail goods. For example, a producer of wood furniture won't buy certain woods if the prices of that wood make it impossible to sell furniture as a price consumers are willing to pay. If the furniture maker does make the mistake of paying for wood at unprofitable prices, then he will go out of business, and he will no longer demand any of that wood at all. Thus, those firms that provide unfinished wood wholesale to furniture makers cannot dictate prices to the furniture makers. Ultimately, it is the consumers of the finished furniture who dictate the price.
On the other hand, in an inflationary environment consumers, flush with cash from money-supply inflation will bid up the prices of furniture while depleting the furniture makers' inventory. In turn, furniture makers will bid up the prices of wood in order to build more furniture. We'll then see increases in both consumer prices and producer prices. It is possible we could observe cases in which changes in producer prices appear to cause changes in consumer prices. Thanks to competition at the retail level, many retailers may attempt to keep down prices to maintain customer loyalty, even while bidding up producer prices.
Nonetheless, given that producer prices are heavily affected by consumer spending, slowing growth in producer prices is exactly what we'd expect to see right now. After all, fundamentals in consumer buying power continue to show growing weakness. Credit card debt is mounting. Disposal income is falling. Real wages have fallen for twenty-one months in a row.
It appears that consumers are finally reaching their limits in terms of willingness to pay higher prices. The Wall Street Journal reported last week that unit sales of general merchandise fell 7 percent year over year in 2022, even though sales in dollar terms fell only 2 percent. Similarly, unit sales of food and beverage fell 3 percent during the same period, but dollars spent on these items rose ten percent.
In other words, people paid more money for goods, but bought fewer items. According to the Journal, many retailers now report they can't afford to keep raising prices. The consumer well is drying up. That's a recipe for slowing price inflation, both at the producer and consumer levels.
President Biden is likely to celebrate slowing inflation as some sort of great achievement on the part of the administration. But it's just what we'd expect from from a weak economy.
No matter the historical era, governments have excelled at one thing: debasing their own currency. Rome was no exception, as Roman government excesses required inflation—lots of inflation.
Original Article: "Rome's Runaway Inflation: Currency Devaluation in the Fourth and Fifth Centuries"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On the dedication page of Ron Paul’s The Revolution: A Manifesto, we find these words:
“To my supporters: I have never been more humbled and honored than by your selfless devotion to freedom and the Constitution.”
The modifier “selfless” is intended as a moral tribute. Imagine instead if he had written “selfish.” How would that go over?
What are the facts? Can we really say that people who fight for freedom are acting in self-denial? Wouldn’t freedom be an infinitely better condition to live under than the controlled society we now have or the totalitarian slave state we’re edging toward? And if this is true, wouldn’t it be correct to say Paul’s supporters act in their conscientious self-interest, and therefore their support should be considered selfish?
So why didn’t he use that word?
As authors Yaron Brook and Don Watkins argue in their stimulating book, Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government, it is the widespread inability to affirm the self that accounts for the continuing decline of freedom. And since political freedom implies economic freedom, traditional selfless morality becomes capitalism’s greatest enemy.
The Triumph of Greed?When the financial crisis arrived in 2007–2008, capitalism’s enemies had no trouble spotting whom they believed were the culprits: greedy businessmen and speculators. Once again, the government had trusted them with freedom, and once again their insatiable greed brought the economy to its knees. But Brook and Watkins point out what should be obvious, that freedom in economic affairs had been increasingly restricted for decades:
Because the conventional view of selfishness remained entrenched, it was not the “public servants” in Washington who took the blame. . . .
The true lesson of the financial crisis is exactly the opposite of what the pundits concluded. The conventional view is that the free market failed. In fact, it was the unfree market that failed, and it is more freedom that is the solution.
As they tell us later while discussing soaring healthcare costs:
It’s no accident that we don’t have a computer crisis, or a hair salon crisis, or a veterinary crisis. Nor is it an accident that we did have a housing and financial crisis. Along with housing and finance, medicine is one of the most regulated industries in the United States. (emphasis added)
But wait—Bernie Madoff was selfish, was he not? He was trusted and left free to gain as much money as he could, which for him meant cheating his clients through an elaborate Ponzi scheme. Could it not be argued that the combination of freedom and selfishness cost his clients billions?
Ask almost anyone to name an example of a selfish person, and Madoff becomes a prime candidate. “To be selfish is to be like Madoff,” the authors write, “to screw anyone, even family and friends, in order to get more, more, more for me, me, me. Madoff is just the latest poster boy for the evil of selfishness.”
But there’s a problem with this portrayal of selfishness—it includes people who don’t swindle others to get ahead. It includes people who make a lot of money by producing goods that others value. It includes people like Steve Jobs, “who was routinely derided as selfish” and was condemned for focusing on profit rather than philanthropy. A 2006 column in Wired put it more bluntly: Jobs was “nothing more than a greedy capitalist who’s amassed an obscene fortune. It’s shameful,” adding that “he skates away from the responsibilities that come with great wealth and power.”
Brook and Watkins reject this analysis:
Does it really make sense to equate producers like Jobs with criminals like Madoff—to accuse them of the same dark motive and the same moral crime (in spirit, if not in scale)? One creates wealth; the other steals it. One thrives by trading with other people; the other destroys the lives of everyone he touches. One works incredibly hard to build a product or company he can be proud of; the other spends his time trying to cover up the fact that he has nothing to be proud of.
Anyone who takes the time to look at how businesses actually succeed will find, in most cases, “not ruthless exploitation but mutually beneficial production and trade; an Apple economy, not a Madoff economy.”
This view of trade runs counter to the conventional notion of trade as a zero-sum (win/lose) game. Yesterday, I bought groceries at a local supermarket. If trade is a zero-sum game, then one of us lost. I came home with the groceries I wanted, and the supermarket had the money it wanted—a win/win exchange. What we each gave up in trade, we gave up voluntarily. I didn’t have to settle on that supermarket; I could have gone elsewhere. No one forces the supermarket to stay in business; if it can’t make a profit, it will close. Right now, it’s mutually beneficial for me to shop there and for the store to stay open.
In this sense, each of us was pursuing his own rational self-interest, what Ayn Rand defined as selfish. The store doesn’t sell groceries under cost as a matter of charity, nor do I shop there to do it a favor.
Should the supermarket do more than offer goods I want at prices I can afford? Should it be “skating” toward other goals that the “right” people regard as its “social responsibilities”?
To get them to swallow the idea that it’s their duty to serve and sacrifice, the altruistic push for corporate “social responsibility” has taught businessmen that their choice is either some monomaniacal focus on the “bottom line”—one that involves ignoring many of the factors that determine a company’s bottom line—or a mawkish pursuit of a “service” agenda. . . .
Any company that achieves productive success [such as my local supermarket or Apple] should self-confidently reject calls to “give back.” It created wealth—it has nothing to atone for.
As the authors conclude, “the path to profits is paved in principle,” not chicanery or crime—something the skaters of this world will likely never understand.
Not that long ago, my grandparents explained to me why they never discussed politics, religion, or sex in mixed company. Politeness was their currency. And why antagonize people or create ill will over private matters?
Fast-forward to 2023, and their advice seems needed more than ever. Today nothing is private; everything is political. And American politics is characterized by a perverse degree of bad faith.
Whether the country really is more divided than any time since the Civil War or this is merely our perception—thanks to social media rancor, nonstop cable news, and rabid political partisanship—scarcely matters. Either way, the psychology is clear. Anger directed toward the “other” delivers the desired dopamine hit. Under conditions of extreme distrust, scapegoating is far easier and more satisfying than cooperation. We see this clearly with attitudes toward Brexit, Hillary versus Trump, covid lockdowns, vaccines, Ukraine, Antifa, January 6, the 2022 midterm elections, and a host of other manufactured issues. Americans are watching at least two different movies.
So does this political polarization cause, or merely reflect, broader social and cultural rifts? The late Andrew Breitbart insisted politics is downstream from culture, which seems broadly correct when we observe the progressive near monopoly over cultural institutions. But there has been a concurrent quiet revolution in law and politics, creating a “rival constitution” and placing politics more squarely at the center of American life. Today we live today in a crass and hyperpoliticized reality where every facet of life—race, sex, sexuality, family, marriage, money, career—is seen as a political statement. This aids and abets the progressive project, which leverages the Leninist/Stalinist “Who, Whom?” distinction as carrot and stick.1
Operating effectively in this environment requires us to be clear eyed and honest about the rules of engagement. Politics is not war, but it suggests violence. People who simply don’t want to fight, or who don’t recognize the fight taking place, are at a tremendous disadvantage. Ideas, debate, logic, and persuasion satisfy our sense of fairness and honor. But they are effective only when widely accepted and their results adhered to. We are not required to delude ourselves about this or to turn the other cheek to retain our humanity.
These rules of engagement may seem obvious and commonsense but nonetheless may be helpful for your family and friends who do not fully grasp the situation.
- Assume bad faith in political matters.
Many politicians, especially at the federal level, have dropped any pretense of working to achieve democratic consensus. Lying, gaslighting, and subterfuge are the operative tools to win elections and vanquish the other side. This is not the simple cynicism of my grandfather’s day, when the whole political charade might well have been viewed as a gang of crooks fighting over spoils. This is not a period scandal like Watergate, Iran-Contra, or Teapot Dome. Today we must entirely rework our understanding of modern US politics, understanding it as a precursor to violence rather than a mechanism for governance and dispute resolution. Americans acutely feel this brutal winner-take-all element in our politics. Consensus has nothing to do with it. “Democracy” is nothing more than a cheap moniker for “when progressives win.” So your default position regarding any political statement or proposal must be disbelief.
- Assume institutions are politicized.
Like it or not, the nonmarket, nongovernmental institutions of civil society no longer operate as a buffer between individual and state. They have been almost entirely captured by progressive ideology, from mainline Protestant denominations and Catholic leaders to the American Civil Liberties Union and Boy Scouts of America. We no longer can assume their stated purpose is their actual purpose or that their public stances can be separated from politics. Thus, Robert Conquest’s third law can be updated slightly to reflect bureaucratic control of institutions that not only places them at odds with their original raison d’être but tasks them with an entirely new agenda of serving the progressive project.
- Assume business is politicized.
Medicine, education, law, banking, accounting, insurance, pharmaceuticals, arms manufacturing, and much of the tech world have been enormously affected. Firms operating in these industries often resemble what Michael Rectenwald terms “governmentalities,” in which ostensibly private market actors willingly take on the role and imperatives of the state. Add DEI (diversity, equity, and inclusion) and ESG (environmental, social, and governance) to the mix, and virtually all US public companies now at the very least toe the government line when it comes to all manner of political positions. This means heroic smaller and privately held companies must be the true “private sector” drivers of the economy, a bright spot where real win-win social cooperation can take place.
- Treat public policy as politics.
Beware of those advancing a particular agenda under the guise of “public policy.” In a hyperpolitical environment, this is simply code for preferred politics. There may have been a time in American history when there actually were nonpartisan policy wonks laboring away in the basements of federal agencies or in think tanks, but that time clearly is past. Politics, not policy, drives federal lawmaking and the administrative state. If Joe Biden manages to enact his student loan forgiveness bill, for example, it won’t have anything to do with some study or statistical analysis provided by the Brookings Institution. It will reflect raw politics and patronage toward younger voters, just as George W. Bush’s Medicare Part D bill pandered to older voters. And remember, we don’t need “policy” at all, whether monetary policy or housing policy or energy policy. We need markets. This is not to say we cannot participate in policy debates or support a particular measure (e.g., an actual tax cut) and oppose another. But we should no longer allow a pseudoprofessional class of people in and around DC to claim an expertise or neutrality they don’t possess. And we should never elevate politics with the window dressing of “policy.”
- Assume religiosity, not reason, in public discourse.
We like to think logic rules the day, but every indication says otherwise. Consider Al Gore’s unhinged rant at Davos last week, a fire-and-brimstone homily which would have elicited mirth from attendees had it been delivered by an evangelical preacher. Or consider the religious zeal with which a National Hockey League player was attacked not for any action or statement concerning LGBT (lesbian, gay, bisexual, and transgender) issues, but merely for his forbearance—refusing to wear a rainbow flag jersey before a designated game. Progressives live in an emotional, faith-based universe, every bit as removed from pure reason as the religious observers they mock. Simply appealing to reason rather than hearts and minds is a surefire way to lose in the current environment. This is especially true for young people. Effective argumentation today recognizes and adjusts for this reality without sacrificing principle or truth.
- Never confuse the imposers with the imposed upon.
Progressives not only won the twentieth century handily but enjoyed a rout. Now they are winning the culture wars handily while capturing young people for their cause in alarming numbers. And top to bottom, progressives have more money and power than conservatives. Yet still progressives get away with presenting themselves as victims and underdogs fighting some mysterious oppression or nonexistent WASP power structure. It is important to understand the dynamics at play, because any worthwhile concept of justice differentiates between aggression and self-defense.
- Take responsibility for your own information gathering.
At this point it scarcely needs to be said that large media organizations promote government narratives almost without exception. Deep skepticism is the order of the day, but with this comes the responsibility to go beyond easy headlines and social media to become informed on the pressing matters of the day. And always remember it is OK not to have opinions on issues that you lack understanding about.
- Take responsibility for your own education.
Learning and improving is a lifelong endeavor, and it has never been easier, thanks to digital platforms. Relentless reading is one of the keys to your personal and professional development. You can choose to constantly improve and expand your knowledge using the principles of kaizen, as personified by Robert Luddy.
- Application and activism beat debate and theory.
Whether we like it or not, most Americans are not interested in political history or economic theory. They are interested in the what—primarily the material quality of their lives—more than the how or the why. And we won’t counter the activist progressive project with books and philosophy alone. Now is the time to get active in civil society, to make the case for applied theory, and to approach politics at the most local levels. A single voice can reach outsized audiences with the right digital platforms and the right message. And entrepreneurship may be the single best form of activism against state propaganda, demonstrating the win-win alternative to politics on a daily basis.
So how do we even begin to depoliticize America? This is a fundamental question if we hope to improve conditions. All people of goodwill have an obligation to fight the escalation of politics and reduce the likelihood of outright political violence (as we’re seeing this week in Atlanta). Yet as stated many times before, we won’t vote our way out of this and we should not expect help from Washington, DC. The incentives for politicians are all wrong. Division sells. In fact, division makes the very politicians promoting it appear more necessary than ever to a fearful and gullible electorate. So we should turn our backs on DC, work to ignore mainstream media and captured institutions, and build out parallel structures wherever possible. We have new rules of engagement, but they conjure up an old one from economist Herb Stein: “If something cannot go on forever, it will stop.” Better to realize this ahead of time.
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- “Progressive” generally connotes “left wing” today, as most progressive impulses are animated by leftist cultural ambitions. But there are right progressives (neoconservatives) in the broader sense of the word. Both varieties believe mankind can and should be perfected to serve broader state or societal goals.
The Federal Trade Commission seeks an anti-trust judgment against Microsoft for its move to acquire Activision. Like all other anti-trust action, this one has no economic merits.
Original Article: "Again the Government Is Taking Antitrust Action against Microsoft. Again This Is Wrong."
This Audio Mises Wire is generously sponsored by Christopher Condon.
In 2022, central banks will have purchased the largest amount of gold in recent history. According to the World Gold Council, central bank purchases of gold have reached a level not seen since 1967. The world’s central banks bought 673 metric tons in one month, and in the third quarter, the figure reached 400 metric tons. This is interesting because the flow from central banks since 2020 had been eminently net sales.
Why are global central banks adding gold to their reserves? There may be different factors.
Most central banks’ largest percentage of reserves are US dollars, which usually come in the form of US Treasury bonds. It would make sense for some of the central banks, especially China, to decide to depend less on the dollar.
China’s high foreign exchange reserves are a key source of stability for the People’s Bank of China. But the high amount of US dollars ($3.1 trillion) may have been a key stabilizing factor in 2022, but it could be too much if the next ten years bring a wave of money devaluation that has never happened before.
Central banks have been talking about the idea of issuing a digital currency, which would completely change the way money works today. By issuing a digital currency directly into a citizen’s account at the central bank, the financial institution would have all access to savers’ information and, more importantly, would be able to accelerate the transmission mechanism of monetary policy by eliminating the channels that prevent higher inflation from happening: the banking channel and the backstop of credit demand. What has kept inflation from going up much more is that the way monetary policy is passed on is always slowed down by the demand for credit in the banking system. This has obviously led to a huge rise in the prices of financial assets and still caused prices to go through the roof when the growth in the money supply was used to pay for government spending and subsidies.
If central banks start issuing digital currencies, the level of purchasing power destruction of currencies seen in the past fifty years will be exceedingly small compared with what can occur with unbridled central bank control.
In such an environment, gold’s status as a reserve of value would be unequalled.
There are more reasons why a central bank might buy gold.
Central banks need gold because they may be preparing for an unprecedented period of monetary devastation.
The Financial Times claims that central banks are already suffering significant losses as a result of the falling value of the bonds they hold on their balance sheets. By the end of the second quarter of 2022, the Federal Reserve had lost $720 billion while the Bank of England had lost £200 billion. The European Central Bank is currently having its finances reviewed, and it is predicted that it will also incur significant losses. The European Central Bank, the US Federal Reserve, the Bank of England, the Swiss National Bank, and the Australian central bank all “now face possible losses of more than $1 trillion altogether, as once-profitable bonds morph into liabilities,” according to Reuters.
If a central bank experiences a loss, it can fill the gap by using any available reserves from prior years or by requesting help from other central banks. Similar to a commercial bank, it may experience significant difficulties; nevertheless, a central bank has the option of turning to governments as a last resort. This implies that the hole will be paid for by taxpayers, and the costs are astronomical.
The wave of monetary destruction that could result from a new record in global debt, enormous losses in the central bank’s assets, and the issuance of digital currencies finds only one true safe haven with centuries of proven status as a reserve of value: Gold. This is because central banks are aware that governments are not cutting deficit spending.
These numbers highlight the enormous issue brought on by the recent overuse of quantitative easing. Because they were unaware of the reality of issuer solvency, central banks switched from purchasing low-risk assets at attractive prices to purchasing any sovereign bond at any price.
Why do central banks increase their gold purchases just as losses appear on their balance sheets? To increase their reserve level, lessen losses, and foresee how newly created digital currencies may affect inflation. Since buying European or North American sovereign bonds doesn’t lower the risk of losing money if inflation stays high, it is very likely that the only real option if to buy more gold.
The central banks of industrialized nations will make an effort to shrink their balance sheets in order to fight inflation, but they will also discover that the assets they own are continuing to depreciate in value. A central bank that is losing money cannot immediately expand its balance sheet or buy more sovereign bonds. A liquidity trap has been set. Quantitative easing and low interest rates are necessary for higher asset values, but further liquidity and financial restraint may prolong inflationary pressures, which would then increase pressure on asset prices.
The idea that printing money wouldn’t lead to inflation served as the foundation for the monetary mirage. The evidence to the contrary now demonstrates that central banks are faced with a serious challenge: they are unable to sustain multiple expansion and asset price inflation, lower consumer prices, and fund government deficit spending at the same time.
So, why do they buy gold? Because a new paradigm in policy will unavoidably emerge as a result of the disastrous economic and monetary effects of years of excessive easing, and neither our real earnings nor our deposit savings benefit from that. When given the choice between “sound money” and “financial repression,” governments have forced central banks to choose “financial repression.”
The only reason central banks buy gold is to protect their balance sheets from their own monetary destruction programs; they have no choice but to do so.
Economic factors are only some of the reasons why men are leaving the workforce. The decline of marriage has also lowered the supply of workers by lessening incentives for workers.
Original Article: "Why Are So Many Men Leaving the Workforce?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The spectacular success of Chinese entrepreneurs in multiple regions across the globe has produced a litany of studies. Surprisingly, Chinese immigrants have done remarkably well despite enduring economic constraints and discrimination in foreign countries. Throughout the world, the Chinese are legendary for their prominence in the retail sector and acumen as restaurateurs. From Southeast Asia to Africa, Chinese entrepreneurs are a powerhouse in business.
Due to their eminence in business, the success of the Chinese warrants an investigation. However, explanations are diverse and range from cultural attributes to professional expertise. According to researchers from French Polynesia, the dynamism of Chinese entrepreneurs is a consequence of cultural evolution. Comparing Chinese Tahitians and indigenous Tahitians, these researchers theorized that long winters with annual harvests fostered a culture of long-term planning and saving in China, rather than the sharing culture that inhibits entrepreneurship in French Polynesia.
The researchers concluded that in French Polynesia, the Chinese Tahitians preferred saving to sharing and exhibited a higher rate of entrepreneurship than Tahitians. In contrast, Tahitian culture confers a premium on sharing resources with extended family members to the detriment of entrepreneurial pursuits. Because of the demands imposed on entrepreneurs by family members, the potential for capital formation is more limited in native communities.
Sharing is so ingrained in local culture that entrepreneurs often sever ties with relations to strive toward success in their businesses. People who reject traditional beliefs are condemned by the group and are referred to as “Demi” (mixed people): physically they appear to be Polynesian and speak Tahitian, but in outlook they resemble whites. Now, Chinese culture is also collectivistic. The difference is that in contrast to the Tahitian experience, among the Chinese, entrepreneurial acumen reflects a commitment to the group.
Depending on a group’s cultural values, collectivism can be either positive or negative. Collectivism mandates conformity to communal values, and the Chinese value thrift, entrepreneurship, and financial success. Too often, people think that collectivism must promote low productivity because they forget that collectivism is about conforming to communal values and that invariably some values will encourage entrepreneurship and productivity. In fact, the collectivism of the Chinese has aided entrepreneurship by enabling high rates of savings.
Kenneth Chan and his coauthors proposed in a 2022 paper that due to a collectivistic culture, the Chinese are motivated to save for the future to ensure the success of the wider group. For the group to thrive, individuals must postpone consumption by thinking about the future. Without planning, groups become unviable, and entrepreneurship is one strategy to sustain the viability of groups. Chinese immigrants are hesitant to venture into new terrains without a long-term plan.
As such, ethnic and professional networks have been crucial for the success of diasporic Chinese. After settling in a new country, the Chinese will build benevolent associations, business groups, and schools to educate newcomers. These networks serve to propel the growth of Chinese human capital and entrepreneurship. Moreover, by assiduously studying new markets, within a short time the Chinese succeed in out-competing rivals. Researchers observed that shortly after relocating to Jamaica to work as indentured laborers, the Chinese became the primary players in the retail sector by providing goods at reduced prices and selling larger quantities that compensated for lower profit margins.
This practice was referred to as a “farthing trade” in Jamaica, but Panamanians called it “penny business.” As clever strategists, the Chinese also pursued assimilation to improve their business prospects. Researchers raised this point in a presentation on Chinese entrepreneurship delivered in 2015:
The largely Hakka speaking Chinese in Jamaica in the 19th and early 20th century engaged in creolization or acculturation soon after arrival . . . by taking local women as wives or concubines, learning the local language(s) and adopting local names. . . . This process of creolization clearly at least partially localized Chinese businesses, and likely contributed to their success.
Diasporic Chinese become economic magnates quite quickly because their immigration patterns are strategic rather than random. After scouting out the host country, the Chinese expand operations and recruit peers with the relevant human capital. When enterprises in one country succeed, Chinese venture elsewhere and select other peers to manage the original businesses. The Chinese have secured a comparative advantage in business by catering to niche markets. Due to the payoffs, they are now positioned to provide prospective entrepreneurs with high levels of startup capital.
An advantage of Chinese culture and professional networks is that despite the fact that Chinese are a minority in host countries, they dominate large portions of the economy. Some estimates point out that they control up to 73 percent of the Indonesian economy, and as major players in Asia, Africa, and North America, they occupy an enviable position. The Chinese are a classic example of underdogs thriving despite hostilities.
Hence, lagging groups should be implored to study the achievements of the Chinese so that these groups can replicate this success. Disparities reveal gaps in human capital and productivity, and laggards will only rise by acquiring technical expertise and business acumen. Blaming deficits on racism or on the government will consign laggards to a fate of permanent poverty.
The migration data from 2020 to 2022 backs up the idea that a great many people are moving from restrictionist covid states to states where the public health technocrats have less power.
Original Article: "Since Covid Lockdowns, New York Lost More of Its Population than Any Other State"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It is no coincidence that the boom in mass-produced goods made specifically for children, "coincided closely with the rise of the middle-classes, industry, and capitalism."
Original Article: "How Capitalism Made Christmas a Holiday for Children"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While an increase in the supply of gold money would lead to higher consumer prices, such increases in the gold supply do not lead to boom-bust cycles.
Original Article: "Can Increases in the Supply of Gold Lead to Boom-Bust Cycles?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The International Monetary Fund (IMF) has warned about the optimistic estimates for 2023, stating that it will likely be a much more difficult year than 2022.
Why would that be? Most strategists and commentators are cheering the recent decline in price inflation as a good signal of recovery. However, there is much more to the outlook than just a moderate decline in price inflation rates.
Price inflation is accumulative, and the estimates for 2023 and 2024 still show a very elevated level of core and headline inflation in most economies. The longer it remains this way, the worse the economic outcome. Citizens have been living on savings and borrowing to maintain current levels of real spending. But this cannot last for many years.
Politicians all over the world are trying to convince us that an annual inflation rate of 5 percent is a success, when it is a calamity.
In the current estimates, US citizens will continue to lose purchasing power. According to the Bureau of Labor Statistics, from November 2021 to November 2022, real average hourly earnings decreased 1.2 percent, seasonally adjusted. However, these bad figures are nowhere as bad as those of the euro area. In the euro area, wages and salaries per hour worked increased by 2.1 percent in nominal terms in the third quarter of 2022, which means a staggering decline in real terms of 7.1 percent.
The outlook for 2023 is widespread impoverishment while governments continue to spend and raise taxes, which means an even worse destruction of real disposable income.
What is happening in the so-called recovery from the pandemic is nothing else but a global destruction of the middle class at an unprecedented speed.
The worst policies have been implemented and all have decimated real savings and wages. Money printing and tax hikes have not made the rich poorer and they have certainly not damaged the wealthy. The entire negative impact of the widespread increase in taxes has fallen, yet again, on the shoulders of the middle class.
Politicians always sell their interventionist measures with the promise that they will only hurt the rich, but it is you who pays. They know that the middle class is the one that depends on a wage and tries to save for the future. The ultrarich are also highly indebted and can navigate a period of rising taxes moving capital and looking for options to preserve wealth. Those that rely on a salary and a bank account are the ones that cannot escape the global policy of impoverishment.
We must remind of the obvious: Artificial money creation is never neutral. It negatively affects wages and savings in deposits and only benefits deficit-spending governments and the highly indebted. Rising taxes always hurts the middle class and makes it more difficult for those that are starting to make a better living through hard work to invest and save for the future.
Interventionism always says that every unit of government spending goes back to society and therefore it is positive. The concept makes no sense. Bloating bureaucracy and entitlement spending does not strengthen growth or productivity and becomes a massive transfer of wealth from the productive to the unproductive. One thing is to have a portion of the productive sector aimed at social issues and a completely different one is to put the “social” banner on any government spending and make the productive sector a cash machine for governments to tap into at any and every time.
When you buy the narrative that the government will give you free stuff by making the rich pay more you are opening the door for the government to consider you rich and take more from you.
When you demand more government, this is what you get. An extractive and confiscatory view that always blames those who invest and create jobs for the problems yet creates a larger bureaucracy to administer the so-called benefits you never get.
The interventionist narrative is to try to tell you that everything and anything is to blame for inflation except the only thing that makes all prices rise in unison: Printing money well above demand.
Inflation at an annual rate of 5 percent is not a positive and certainly not falling prices. Inflation is accumulative, and what it means is we are becoming poorer faster.
The US federal government has a long history of intervening in voluntary human action, frequently tilting the scales to favor some over others. This is perhaps more apparent when vital resources, like water and marginally productive land, are involved. The US West, and in particular the southwestern US, provide great examples, some of which have been documented at mises.org over the years (see here and here). Politicians and interest groups go out of their way to prop up their sides and support their interests, even if at least some of those interests would not exist at all without state support. After all, no politician wants to be accused of betting against America (whatever that means). But eventually government benefits have unintended consequences.
Arizona is not often thought of as an agricultural paradise. Plants can’t be intensively grown in dry, sandy soils—the desert was simply not designed for this purpose. Water is a precious commodity here. And yet acres and acres of cotton, alfalfa, and sorghum (as well as other crops) are produced here. The reason for this apparent abundance is that massive federal spending has created numerous diversion and dam projects that allow water to be used for agriculture at prices that would not be supported in a free-market situation. So, agriculture and other users of this precious commodity are incentivized to expand production. The problem, of course, is that you can’t magically make more water appear below the desert just by spending money and building irrigation projects. There are natural limits at work here. The US Southwest really is running out of water due to the artificial situations set up by the state.
Of course, one could make the argument that these grains, oilseeds, and forage crops are putting the water and the nutrients from the soil to better use by helping local farmers and feeding local animals. And most of these precious resources remain close to where they came from. But, as was made clear in a recent article, this is an oversimplification of the situation.
A large amount of farmland in Arizona, about ten thousand acres, is now owned by an agricultural company in Saudi Arabia. The company produces crops in Arizona and ships them to Saudi Arabia, where they have their own issues with water and nutrient-rich soil, to feed large dairies. And this appears to be a growing trend—foreign-owned farmland in the West totaled about three million acres in 2020.
The result has been that limited local resources in Arizona are further stressed. Production at the farms has increased, using more water and nutrients. Local officials have had to repair roads due to increased agricultural traffic. And perhaps most apparent to those who live there is the deterioration of houses and town roads in the area. One local shop has sunk a few inches into the ground. More common now is the “dirt wall” of soil and dust that blows in from vast fields. And flooding and water runoff on town roads are more pronounced.
But, long term, the effects will be more devastating. Local officials are concerned by recent evidence that water within deep aquifers, thousands of feet below ground, is starting to move because of water pumping for crop production. After all, in the desert, when deep reservoirs are being pumped to the surface and sold at rock-bottom prices, it shouldn’t be surprising that more shallow sources of water have begun to dry up.
All of this is the natural progression of state-sponsored projects. Gifts from the state (handouts for some at the expense of others) often set in motion a complex series of consequences that cannot be stopped once started. If you don’t manage resources through a free-market process, others will take notice of these new and artificial (and often guaranteed) business opportunities. If resource use is not limited through free-market mechanisms, there will eventually be shortages, plain and simple. No amount of investment, new technology, or painful local experiences will change this.
[Reprinted with permission of the authors.]
The year 2023 is shaping up to be a challenging one for the Federal Reserve System.
The Fed is on track to post its first annual operating loss since 1915. Per our estimates, the loss will be large, perhaps $100 billion or more, and this cash loss does not count the unrealized mark-to-market losses on the Fed’s massive securities portfolio. An operating loss of $100 billion would, if properly accounted for, leave the Fed with negative capital of $58 billion at year-end 2023.
At current interest rates, the Fed’s operating losses will impact the federal budget for years, requiring new tax revenues to offset the continuing loss of billions of dollars in the Fed’s former remittances to the U.S. Treasury.
The Federal Reserve has already confirmed a substantial operating loss for the fourth quarter of 2022. Audited figures must wait for the Fed’s annual financial statements, but a preliminary Fed report for 2022 shows a fourth-quarter operating loss of over $18 billion. The weekly Fed H.4.1 reports suggest that after December’s 50 basis point rate hike, the Fed is losing at a rate of about $2 billion a week. This weekly loss rate when annualized totals a $100 billion or more loss in 2023. If short-term interest rates increase further, operating losses will increase. Again, these are cash losses and do not include the Fed’s unrealized, mark-to-market loss, which it reported as $1.1 trillion on Sept. 30.
The Fed obviously understood its risk of loss when it financed about $5 trillion in long-term, fixed-rate, low-yielding mortgage and Treasury securities with floating-rate liabilities. These are the net investments of non-interest-bearing liabilities—currency in circulation and Treasury deposits—thus investments financed by floating rate liabilities.
These quantitative easing purchases were a Fed gamble. With interest rates suppressed to historically minimal levels, the short-funded investments made the Fed a profit. But these investments, so funded, created a massive Fed interest rate risk exposure that could generate mind-boggling losses if interest rates rose—as they now have.
The return of high inflation required the Fed to increase short-term interest rates, which pushed the cost of the Fed’s floating-rate liabilities much higher than the yield the Fed earns on its fixed-rate investments. Given the Fed’s 200-to-1 leverage ratio, higher short-term rates quickly turned the Fed’s previous profits into very large losses. The financial dynamics are exactly those of a giant 1980s savings and loan.
To cover its current operating losses, the Fed prints new dollars as needed. In the longer run, the Fed plans to recover its accumulated operating losses by retaining its seigniorage profits (the dollars the Fed earns managing the money supply) in the future once its massive interest rate mismatch has rolled off. This may take a while since the Fed reports $4 trillion in assets with more than 10 years to maturity. During this time, future seigniorage earnings that otherwise would have been remitted to the U.S. Treasury, reducing the need for Federal tax revenues, will not be remitted.
While not widely discussed at the time, the Fed’s quantitative easing gamble put taxpayers at risk should interest rates rise from historic lows. The gamble has now turned into a buy-now-pay-later policy—costing taxpayers billions in 2023, 2024 and perhaps additional years as new tax revenues will be required to replace the revenue losses generated by quantitative easing purchases.
The Fed’s 2023 messaging problem is to justify spending tens of billions of taxpayer dollars without getting congressional pre-approval for the costly gamble. Did Congress understand the risk of the gamble? The Fed tries to downplay this embarrassing predicament by arguing that it can use non-standard accounting to call its growing losses something else: a “deferred asset.” The accumulated losses are assuredly not an asset but properly considered are a reduction in capital. The political fallout from these losses will be magnified by the fact that most of the Fed’s exploding interest expense is paid to banks and other regulated financial institutions.
When Congress passed legislation in 2006 authorizing the Fed to pay interest on bank reserve balances, Congress was under the impression that the Fed would pay interest on required reserves, and a much lower rate of interest—if anything at all—on bank excess reserve balances. Besides, at the time, excess reserve balances were very small, so if Fed did pay interest on excess reserves, the expense would have been negligible.
Surprise! Since 2008, in response to events unanticipated by Congress and the Fed, the Fed vastly expanded its balance sheet, funding Treasury and mortgage securities purchases using bank reserves and reverse repurchase agreements. The Fed now pays interest on $3.1 trillion in bank reserves and interest on $2.5 trillion in repo borrowings, both of which are paid at interest rates that now far exceed the yields the Fed earns on its fixed-rate securities holdings. The Fed’s interest payments accrue to banks, primary dealers, mutual funds and other financial institutions while a significant share of the resulting losses will now be paid by current and future taxpayers.
It was long assumed that the Fed would always make profits and contribute to Federal revenues. In 2023 and going forward, the Fed will negatively impact fiscal policy—something Congress never intended. Once Congress understands the current and potential future negative fiscal impact of the Fed’s monetary policy gamble, will it agree that the looming Fed losses are no big deal?
[Reprinted with permission of the authors.]
Here we go again. Every few years in Congress there is a purely political battle over the debt ceiling. We're supposed to be horrified and worried that the US might default on some of its debt. Some commentators will insist the US has never defaulted, and that default be a disaster. (That's wrong, by the way. The US has defaulted before.)
But these debt ceiling debates always end the same way. Congress ends up increasing the debt ceiling and the US's national debt continues to spiral upward.
During all the theatrics over the debt ceiling, however, many strange ideas are put forward as a supposed means to avoiding a shutdown. One of these is the "trillion-dollar coin" idea. The general premise is that the government can do an end run around the debt ceiling altogether if it can find a way to raise revenue without borrowing. Thus, the scheme goes more or less like this, as explained by Yale law professor Jack Balkin back in 2011:
Are there other ways for the president to raise money besides borrowing?
Sovereign governments such as the United States can print new money. However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time.
Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds....
The "jumbo coin" [strategy works] because modern central banks don't have to print bills or float debt to create new money; they just add money to their customers' checking accounts.
Put another way, by minting a trillion-dollar coin, Congress could simply deposit the coin at its bank account at the Federal Reserve and then start spending money from the account which now has a trillion-dollar (or even larger) credit.
But here's the rub: in no version of this scheme is the trillion-dollar coin actually made with a trillion-dollars-worth of platinum. Were that the case, the "coin" would be huge and weigh millions of pounds. Rather, the coin we're talking about in this scheme would just have a face value of $1 trillion. It would be a commemorative or numismatic coin. The coin would be nothing more than a kind of legal fiction that's used to credit the Treasury with a trillion dollars without going deeper into debt.
So, there's really no reason for there to be any platinum in the coin at all, except for the legal (and perhaps political) advantages of calling it a platinum coin. From an economic standpoint, the coin might as well be a paperclip, as explained by Robert Murphy:
The Federal Reserve has the power to buy whatever assets it wants at whatever price it wants. In principle, [the Treasury Secretary] could sell a paperclip to the Fed for $2 trillion. The Fed would simply write a check made out to the Treasury, drawn on the Fed itself.
When the Treasury deposited this check with its own bank — which just so happens to be the Fed — then its own "checking account" balance would go up by $2 trillion. This money wouldn't come from anywhere in the sense that some other account would need to be debited $2 trillion. On the contrary, the system's total reserves (and what is called the "monetary base") would have swelled by $2 trillion. The Treasury would be free to start paying bills by writing checks on the $2 trillion in its account.
The only kink in the plan would be the state of the Fed's balance sheet. Initially it could value the paperclip at $2 trillion — what the Fed paid for it — and list the paperclip among its other assets such as Treasury bonds and mortgage-backed securities.
It seems absurd, but the difference between the paperclip idea and the trillion-dollar coin scheme is one merely of degree. Both are ways of depositing something of relatively small value into a bank account and then withdrawing sums of money far exceeding the value of what was deposited.
Two Ways of Taxing the PublicBut what is the difference between the usual raise-the-debt-ceiling option and the paperclip/coin idea? Perhaps the most meaningful difference between them is the way in which the taxpayers are exploited to pay for more government spending. Were the government to simply go more deeply into debt, the government would sell bonds and get cash in return. The bonds would be added to the national debt, formally increasing both the future and present obligations of the taxpayers. Taxpayers would be on the hook for paying off the bonds at the maturity date at some point in the future, but would also be on the hook in the near term for paying interest on the new debt.
In the case of the trillion-dollar coin, however, the taxpayer is exploited via the inflation tax. The coin scheme essentially forces the Federal Reverse to credit the Treasury with money and resources that doesn't exist. The scheme ends, as Murphy notes above, by expanding the money supply—i.e., "printing" money.
The result of this inflating the money supply is either rising asset prices or rising consumer prices, or both. For example, we're already living with 40-year highs in price inflation which is the consequence of the massive amounts of monetary inflation that occurred since 2008—and especially since 2020.
Admittedly, the trillion-dollar coin idea is good for the government itself. It provides the regime with yet another option for quickly accessing and spending even more money. But for taxpayers, there's nothing beneficial or special about the coin scheme. It's just a different way of ripping us off.
Jeff and Bob break down this week's Davos WEF conference and consider whether global elites really have the mechanisms to impose their plans.
Johnny Vedmore's analysis of Schwab's origins:Mises.org/HAP379a
Scott Greer says America's right-want needs to stop dwelling on Schwab:Mises.org/HAP379b
Schwab bragging about penetrating Cabinets:Mises.org/HAP379c
It's been more than 150 years since most state boundaries were drawn in the US. Since then, demographic and political realities have changed enormously. The boundaries should change too.
Original Article: "The Borders Between US States Are Obsolete"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The temptation and crucial flaw of a totalitarian mind are that everyone must play a part in a superstructural battle between good and evil. Standing on the sidelines or taking a neutral position on present topics is not allowed; one may not merely observe or ignore the madness played out among the power hungry.
As a not-so-proud carrier of a Swedish passport, I last year lost track of how many times I was asked about Sweden’s membership in the North Atlantic Treaty Organization (NATO), the overreaching military alliance among Western nations. Apparently, there was a war going on somewhere. NATO countries were scrambling, and Finland and Sweden (thoroughly Western social democratic countries) were decades-old NATO holdouts. I did not know; I took pride in not knowing.
The chattering classes and the corporate press were full-on politicking. An insider-diplomacy battle raged between Stockholm, Helsinki, and Washington, DC. At some point even, Ankara, Turkey, was involved. I did not know; I had no opinion. My friends, my colleagues, my neighbor, my barber, my friends’ friends, and various other acquaintances all wanted in on the sordid business of political commentating.
I did not know. That was exactly it. I had no position to offer, which I quickly realized was a social mistake in this brave new world of symbolic wars for all that is “good.” I did not know anything about military matters, defense capabilities, international relations, or threat assessments regarding the various countries involved. I did not live in any of the places previously mentioned. I had no interest in their nation-state status. I did not know what the implications of NATO membership were or why it concerned me. Politicians politick with or without my input.
Everyone needs a take; everyone needs to “be informed” on the grand, irrelevant events of our broken times. Everyone needs a flag in their profile picture—a not-so-grand gesture indicating that they support the “latest thing.”
Paraphrasing Murray Rothbard’s quote on economic ignorance, why should I politick “a loud and vociferous position” on the diplomatic/military questions that so many of my fellow humans keep asking me for?
On most current affairs, I imagine I am a little bit like most people; we have our own lives and our own interests to pay attention to. Everything else takes a backseat. Rather than play the hot-take-on-everything game, I just want to be a good libertarian and be left alone. Unfortunately, that does not fly in a politicized society flirting with totalitarianism. Society has lost its shared values and its unifying religious frameworks and instead elevated politics (as Friedrich Nietzsche’s old quote goes, “God is dead. . . . And we have killed him”).
F.A. Hayek taught us in his famous 1945 “The Use of Knowledge in Society” that market prices carry information. I do not need to know anything about faraway affairs. I am perfectly capable of reading gasoline prices, suffering electricity price shocks, or paying elevated prices at the grocery store. That is the beauty of a capitalist division of labor and a market system. We do not need top-down control. We do not need the chattering classes opining about what one owes, deserves, or ought to know. All we need is the reality of what we experience as market actors.
Like a good libertarian, I instead try to purge politics from my life; no watching the news. I only read slow news in quality magazines by authors I trust, and I routinely skip every topic that does not belong to my core interests. Life is too short. And as I have said in the past, the sum of “humanity’s current (and future) literary, statistic and economic treasure” is more valuable than the unexciting, outdated information that is tumbled, diluted, and filled with omissions, via my propaganda machine (sorry, TV news).
In what political scientists would consider apex “political ignorance,” I take pride in not being able to name the prime minister of my native Sweden or the rulers of the other lands in which I reside. I do not know, care, or want to elevate their theater into my cognitive space.
At a recent party, my team lost a trivia competition, partly because we could not name the United Kingdom’s last three prime ministers (They change so often that it is not worth learning their names.). When my father called on an eventful Sunday last fall, and in passing, mentioned that he had met an acquaintance at the voting booths, I learned for the first time that it was Election Day. Epic!
Twenty-five years ago, James Dale Davidson and William Rees wrote about the public’s relationship to politics and corrupt institutions in their long-lived treatise The Sovereign Individual:
Moral outrage against corrupt leaders is not an isolated historical phenomenon but a common precursor of change. It happens again and again whenever one era gives way to another. . . . This widespread revulsion comes into evidence well before people develop a new coherent ideology of change. As we write, there is as yet little evidence of an articulate rejection of politics. That will come later. It has not yet occurred to most of your contemporaries that a life without politics is possible. (emphasis added)
Foreshadowing the rise of internet dominance, remote work, financial revolutions, and Bitcoin, the authors precociously reasoned about big-picture societal shifts of power. When technology allows, new societal constellations become available. Whether or not we grab onto them is up to us.
And all meaningful changes begin at home: fix that which you can fix, clean your room, etc. A flourishing future without politics requires us to purge from our lives the corrupting features of politics, which only enrage us and separate us from our fellow humans.
Politics is cancer, and the best you can do is to exit from it in every way you can.
Aeon J. Skoble is an outstanding political philosopher, and, to my mind even better, he has honored me by contributing an excellent essay, “Anarchy, Nozick, and Gordon,” to my festschrift, Defending Liberty. In his essay, Skoble responds to my 2009 objection to his discussion of Robert Nozick’s minimal statism in Deleting the State (2008). He is kind enough to say that my objection led him to rethink Nozick’s argument for the minimal state, but Skoble concludes that the basic point of his objection is right. In what follows, I’ll try to respond to what he says.
First, though, a clarification. Skoble opposes the minimal state and argues that Nozick’s defense of the minimal state fails. Skoble says that “Gordon’s sympathies appear to fall on the side of polycentricity, though we’ve never actually had a chance to discuss this aspect of [what leads to the most stable social order]” (p. 197; by “polycentricity,” Skoble means a system of competing protective agencies). I agree with him entirely that Nozick’s defense of the minimal state fails and also concur with the arguments for anarchism given in Deleting the State. Our dispute concerns only the nature of Nozick’s argument.
As Skoble sees it, Nozick falls into a common pattern of libertarian opponents of anarchism. These opponents acknowledge that the state, even a minimal state, violates rights; but, they say, an anarchist society won’t work. It will lead to social chaos, so, to our regret, we must put up with the state. Without a state, we would find ourselves in a Hobbesian jungle, where life is “nasty, brutish, and short.” Skoble says, “I was attempting to argue that Nozick can only make this move if he’s tacitly appealing to a kind of Hobbesian worry that if the dominant protective agency has competition, it would produce a decline in social order as they found themselves in conflict” (p. 190; as we’ll see, the reference of “this move”—i.e., the restrictions that Nozick thinks the dominant agency can impose on competing agencies—is a matter of dispute between us).
Skoble is insightful in suggesting that minimal statists fear that anarchism will lead to chaos, and I would extend his point by adding that anarchists also sometimes ask themselves, “Will anarchism really work? Will it degenerate into a battle of competing protective agencies or a seizure of power by an ‘outlaw’ agency?” Skoble is also wise to specify that he has in mind a tacit appeal by Nozick to the “Hobbesian worry.” This blocks the response “Nozick doesn’t say this.” Skoble can answer that he acknowledges this but Nozick’s argument doesn’t make sense without the implicit “Hobbesian worry.” It is the “best explanation” of his argument.
Skoble’s essay has led me to think over what I wrote so many years ago, and I now see matters differently. There is a much simpler point that I did not mention then that shows what is wrong with Skoble’s understanding of Nozick’s argument. In part 1 of Anarchy, State, and Utopia, Nozick assumes as a starting point that anarchy works. His “state of nature” is a condition in which most people, including those who have established protective agencies, respect rights. He says,
More to the point, especially for deciding what goals one should try to achieve, would be to focus upon a nonstate situation in which people generally satisfy moral constraints and generally act as they ought. Such an assumption is not wildly optimistic; it does not assume that all people act exactly as they should. Yet this state-of-nature situation is the best anarchic situation one reasonably could hope for. (p. 5)
Moreover, Nozick explicitly rejects a Hobbesian starting point:
Given the enormous importance of the choice between the state and anarchy, caution might suggest one use the “minimax” criterion and focus upon a pessimistic estimate of the nonstate situation: the state would be compared with the most pessimistically described Hobbesian state of nature. But in using the minimax criterion, this Hobbesian situation should be compared with the most pessimistically described possible state, including future ones. Such a comparison, surely, the worst state of nature would win. (p. 5)
Thus, not only does Nozick reject the Hobbesian starting point, but he agrees with Skoble that taking it into account might very well lead to the rejection of the state, since a bad state would be worse than the Hobbesian state of nature. Skoble says,
No social order, stateless or otherwise, can guarantee that there will be no ill-tempered individuals who prefer violence. The question is, which sort of social order offers the most stable institutions with the least propensity for corruption and the greater incentives for peaceful cooperation. For all the reasons Nozick thinks this points towards the minimal state, it points towards the polycentric legal order envisioned by individualist anarchists. (p. 197)
I would suggest that Nozick isn’t offering a comparative stability argument for the state and that, though he would word it differently, he would have no reason to reject the thrust of Skoble’s argument.
But, if I am right that Nozick isn’t concerned with the Hobbesian fear of social chaos, doesn’t this leave his argument for the minimal state without any firm basis? Skoble thinks so.
If Nozick has no argument for the state beyond that one could conceivably arise without violating anyone’s rights, merely a logical possibility as opposed to an inevitability, then that means he thinks that no competitive set of such agencies could be fair and feasible; that is, he rejects polycentrism because of a Hobbesian fear of social chaos. (p. 192, emphasis in original)
Skoble has overlooked another alternative: Nozick thinks the clients of the dominant agency would prefer a minimal state to its absence, and he also thinks the dominant agency violates no one’s rights in creating a minimal state.
If this is what Nozick is getting at, though, Skoble would respond to me, Isn’t Nozick mistaken? Skoble says that the minimal state does violate rights. It compels those who would prefer to form other agencies to join it and then forces them to pay taxes to support its activities. Further, the assertion that the state doesn’t violate the rights of other protective agencies because it compensates them for putting them out of business is ludicrous. One isn’t acquitted of charges of violating rights because one offers compensation for doing so.
Here I confess to a fundamental difference from Skoble about the way to interpret Nozick, who expressly denies that he is arguing that the dominant agency can ban other agencies or compel anyone to join it. The dominant agency can, though, prohibit anyone from imposing risky decision procedures on its clients, and for this it must compensate independents whose position is worsened by this limit on the decision procedures that can be applied. (By “decision procedures,” Nozick means an agency’s methods for determining whether someone accused of a rights violation is guilty. Within limits, he thinks that agencies can legitimately have different opinions on which procedures are too risky and that in cases of conflict, each agency can try to prevent other agencies from imposing procedures it deems risky. The dominant agency, however, will win such conflicts, so its opinion will prevail.) Skoble is right that in most circumstances, offering compensation does not excuse a rights violation, but Nozick maintains that where risky decision procedures are concerned, a special sort of fear arises among agency clients because of the chance that other agencies will apply risky decision procedures to them if they are charged with a rights violation. If the dominant agency prohibits these risky procedures, Nozick claims, it doesn’t violate the rights of independents who can no longer apply these procedures, so long as it compensates them.
Skoble says,
I do see that much hangs on the modality of whether the dominant agency would act a certain way as opposed to might act a certain way. But Nozick certainly seems to be saying that it would have to prohibit [the existence of competing agencies]. . . . If the dominant protective agency says to a potential competitor “we will forcibly prevent you from starting a new rival firm, but will compensate you to make up for it,” the would-be rival’s rights have in fact been violated. . . . Why would the dominant protective agency feel it necessary to say something like this? . . . [I]t would have to be the idea that allowing the rival firm to operate reduces the security of everyone. That would make it a necessity to prohibit, and that is indeed the fear of social chaos. (p. 193)
It is because he thinks that Nozick has in mind averting social chaos that Skoble claims that the logic of Nozick’s argument requires him to endorse the dominant agency’s prohibition of other agencies and its taxation of everyone who has been forced to become its client: Nozick fears the insecurity of social chaos, and the dominant agency must act in these ways to prevent it. If, though, one takes Nozick to be arguing, as I do, that a dominant agency’s prohibition of risky decision procedures can enhance the security of a nonchaotic starting point (Nozick’s state of nature) for its own clients its, one need not evoke the fear of social chaos. One can take Nozick’s argument to mean what he says it does. None of this of course, is to say that Nozick’s argument is right; the question is only what that argument is.
After reading Skoble’s response, I have a much better idea than before of how he looks at Nozick’s argument, and I hope that he will forgive me for remaining unconvinced by his interpretation. Everyone interested in Nozick’s argument ought to read Skoble’s well-argued essay, and I am most grateful to him for his contribution.
In a market economy, gold is sound money. There is no need for monetary authorities when gold rules.
Original Article: "A Short Essay on Sound Monetary Policy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The line for the self-checkout registers at my neighborhood Albertsons stretched into the store’s produce section. Is this human progress? I wondered, scanning my groceries—this just after I had filled my car’s gas tank at a not-so-convenient convenience store near work.
Not long ago, someone not only pumped your gas and cleaned your windshield but also checked your oil and tire pressure while you waited comfortably behind the wheel of your car. Gas retailers were once called service stations for a reason. Someone provided service. Now, gas is sold at convenience stores or big box membership stores, with consumers handling the hose.
Grocery stores are newer to the customers-do-it-themselves model and are still phasing it in. The few visible cashiers are always busy enough to encourage people to do the scanning themselves rather than wait for precious human help.
Locally, once it gobbles up Albertsons (which has already absorbed Vons) and Smith’s, Kroger may attempt to squeeze customers harder. Given grocery’s tight profit margin, asking for a bag of apples might garner the response “Here’s a sack. The ladder is over there, and the trees are out back.” Once upon a time, grocers had employees who wheeled groceries to your car and placed them inside, sometimes with a smile.
In the words of Murray Rothbard:
The developing division of labor is a key to the advance of any economy above the most primitive level. A necessary condition for any sort of developed economy, the division of labor is also requisite to the development of any sort of civilized society. . . . Without the opportunity to specialize in whatever he can do best, no person can develop his powers to the full; no man, then, could be fully human.
I suppose saying out loud that pumping my own gas and scanning my own groceries keep me from being fully human would trigger a passing Marxist. After all, Karl Marx himself said,
While in communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticize after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic.
In class, Rothbard quipped, “Marx never seemed to worry about who was going to take out the trash.”
This breakdown of the division of labor, caused by the production of government fiat money, has had more damaging consequences than the disappearance of service stations and grocery store cashiers. People now have to worry they might run out of money before they run out of breath. Jörg Guido Hülsmann explains in The Ethics of Money Production that
the prevailing legal order is itself the very problem that causes perennial inflation. Legal monopolies, legal-tender laws, and the legalized suspension of payments have unwittingly become instruments of social injustice. They breed inflation, irresponsibility, and an illicit distribution of income, usually from the poor to the rich.
Without fiat inflation, Hülsmann explains, hoarding gold or silver would be a perfectly acceptable form of saving. There would be no need to become proficient at stock and bond analysis. Money would not evaporate:
Most importantly, [precious metals] were extremely suitable for ordinary people. Carpenters, masons, tailors, and farmers are usually not very astute observers of the international capital markets. Putting some gold coins under their mattress or into a safe deposit box saved them many sleepless nights, and it made them independent of financial intermediaries.
In today’s fiat world, one must become competent at either judging the direction of financial markets or judging the opinion of financial intermediaries who may turn out to be know-nothing hucksters or frauds. Hülsmann writes,
Old people with a pension fund, widows, and the guardians of orphans must invest their money into the financial markets, lest its purchasing power evaporate under their noses. Thus, they become dependent on intermediaries and on the vagaries of stock and bond pricing.
Most people are not emotionally equipped to handle their investments. Richard Oxford lists four mistakes individual self-investors make:
- Self-investors tend to buy too early and for the wrong reason!
- Investors tend to buy because someone else bought and has done well!
- Investors tend to hold stocks longer than they should and ignore market signals.
- Investors can be emotionally attached to their decisions.
There are likely many more.
The tech world has put all sorts of gadgets in our hands, but prosperity and human progress depend on the accumulation of capital and the division of labor. The production of fiat money destroys both.
Socialists don't just want to take your property; they also are demanding control of your children and loved ones.
Original Article: "Family Destruction and Its Socialist Cheerleaders"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It’s a sure bet that as the economy worsens, unemployment surges, foreclosures rise, defaults climb, and economic misery ensues, we’ll be told it’s all capitalism’s fault. The question one must ask, however, is, “What capitalism?”
The claim that “too much” capitalism drives every economic calamity is standard among anticapitalists on both the left and the right. They have many bullet points claiming government programs and government spending are everywhere retreating while free-market capitalism is experiencing a resurgence. This can be easily shown to be empirically false. Evidence can be found in everything from the continual flood of government regulations to rising per capita taxation and spending to the growing army of government employees. That’s all in the United States, mind you, the supposed headquarters of “free-market capitalism.” We might also point to how the US welfare state, including the immense amounts of government spending on healthcare and pensions, is on a par with European welfare states in terms of size. The supposed lack of social benefits programs in the US has long been a myth. The trend in spending, taxation, and regulation is unambiguously upward.
In recent years, though, one additional indictor of just how little capitalism is actually going on has surfaced: central banks around the world are buying up huge amounts of financial assets in order to subsidize certain industries, inflate prices, and generally manipulate the economy. This is certainly true of the American central bank, the Federal Reserve.
How the Federal Reserve Came to Dominate Financial Asset MarketsWhile the Fed has long bought government debt in its so-called open-market operations to manipulate the interest rate, wholesale buying of financial assets began in 2008. This included both US government Treasurys and—in a new development—private-sector mortgage-backed securities (MBSs). This was done to prop up banks and other firms that had bet on the lie that “home prices always go up.” The value of mortgage-backed securities was falling fast, so beginning in 2008, the Fed bought up MBSs to the tune of $1.7 trillion. That was all before covid.
Source: Federal Reserve Economic Data (FRED) (“Balance Sheet: Total Assets: Securities: U.S. Treasury Securities” [QBPBSTASSCUSTRSC], Federal Deposit Insurance Commission [FDIC], last modified December 2, 2022; and “Assets: Securities Held Outright: Mortgage-Backed Securities: Wednesday Level” [WSHOMCB], Board of Governors of the Federal Reserve, last modified January 12, 2023).
The Fed attempted to begin selling off its portfolio in 2019, but by then the market was already so addicted to Fed money that the economy began to slow and a liquidity crisis in repos ensued. The covid panic was what prevented a full-blown recession in 2020: the federal government began a spree of deficit spending, and the Federal Reserve hoarded even larger amounts of assets, bringing totals to new record-breaking highs.
The MBS portfolio climbed to $2.7 trillion.
These sorts of volumes of assets are not an insignificant part of the overall market, either. Since 2020, the Fed’s MBS stockpile has equaled at least 20 percent of all the household mortgage debt in the United States. In early 2022, Fed-held MBS assets peaked at 24 percent of all US mortgage debt, but they still made up over 20 percent of the market as of late 2022.
Source: Federal Reserve Bank of New York Research and Statistics Group, Quarterly Report on Household Debt and Credit, 2022:Q3 (Center for Microeconomic Data, November 2022); and FRED (“Assets: Securities Held Outright: Mortgage-Backed Securities: Wednesday Level” [WSHOMCB], Board of Governors of the Federal Reserve, last modified January 12, 2023).
One can only speculate as to the full extent to which markets are distorted by the central bank holding one-fifth of mortgage debt, but one thing is for sure: one cannot say that this is any sort of “capitalism” at work.
The story is similar with Treasury debt, and the timeline is largely the same as with the MBS assets. The Fed bought up about $2.5 trillion in US government bonds from 2008 to 2015. An attempt at scaling this back was aborted when the economy proved to be too fragile in late 2019. Then, the Fed gorged on Treasury debt in 2020 and 2021, bringing its government bonds total to nearly $6 trillion.
As a percentage, the Fed’s share of all Treasury debt has totaled more than 15 percent since 2020. It peaked at 19 percent in 2021. All foreign holders combined hold 33 percent of Treasury debt. This makes the Fed, by far, the largest domestic holder of US government debt: the Fed holds nearly 40 percent of all domestically held Treasury debt, putting it far ahead of entire sectors, such as mutual funds, which hold “only” around 22 percent of this debt.
Source: FRED (“Balance Sheet: Total Assets: Securities: U.S. Treasury Securities” [QBPBSTASSCUSTRSC], Federal Deposit Insurance Commission [FDIC], last modified December 2, 2022).
It’s also helpful to keep in mind that US Treasurys are a huge portion of the debt markets overall. For example, corporate debt in the US totals around $11 trillion. Even if we add this to the US Treasury debt, we still find that the Fed holds more than 10 percent of debt assets.
Of course, it would be absurd to call this situation anything resembling even “mostly” laissez-faire, let alone a free market. Imagine if a federal government agency—which is all the Fed is—owned 10 percent of all supermarkets or 10 percent of all Wal-Marts or 10 percent of all stocks. We would say that the agency in question possessed an enormous amount of power to move and manipulate markets as it willed.
That is where we are with these debt markets, and it’s become increasingly so since 2008.
Fannie and Freddie Do It TooNor is the Fed the only federal agency involved. We might also point to how the government-sponsored enterprises (GSEs) have come to dominate the secondary markets in mortgages. For example, Fannie Mae, Freddie Mac, and Ginnie Mae have been going on annual mortgage debt shopping sprees:
From 2009 to 2020, Fannie and Freddie’s annual share of the total MBS market averaged 70 percent. If we include Ginnie Mae securities, those that are backed by FHA [Federal Housing Administration] mortgages, the federal share of the MBS market averaged 92 percent per year.
Much of these MBSs, naturally, have ended up in the hands of the Fed.
So, now would be a great time to stop pretending that the financial sectors are “free market” or that price inflation and cost-of-living surges are somehow all the fault of “capitalism.” Federal agencies are the biggest players here, and their role is to manipulate markets to achieve centrally planned government goals. Private markets are growing more irrelevant every day.
On this week's Radio Rothbard, Ryan McMaken and Tho Bishop celebrate World Economic Forum week by discussing the Managerial Revolution. While James Burnham's disinterest in economics made his criticism of capitalism cringey, modern financialization has manipulated the profit and loss mechanisms that any fan of his work can appreciate. Also, what is the lasting impact of the political capture of corporate power? Will the next crisis allow for a needed re-evaluation of insidious neoliberalism, or will "hypercapitalism" get the blame? Tune in for this and more on the latest episode.
Recommended Reading"The Fed Is a Purely Political Institution, and It's Definitely Not a Bank" by Ryan McMaken: Mises.org/RR_117_A
"Financialization: Why the Financial Sector Now Rules the Global Economy" by Ryan McMaken: Mises.org/RR_117_B
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
The emergence of money is a market phenomenon. By surrendering fewer marketable goods for more marketable goods, individuals move closer to the goods they ultimately wish to consume but cannot acquire through direct exchange. The most marketable goods become common media of exchange (i.e., money).
With money on one side of every transaction, the number of relevant prices is reduced, the division of labor expands, and specialization in the stages of production becomes possible. The basic function of money, then, is to facilitate exchange. Contrary to this purpose, the substitution of national paper currencies for commodity money has made trade more difficult.
Hans-Hermann Hoppe has described this as a system of partial barter. With this understood, the purpose of global fiat money may be said to be entirely different.
Under a commodity money standard, such as gold, the state’s power is limited. Ludwig von Mises explains that
the excellence of the gold standard is to be seen in the fact that it renders the determination of the monetary unit's purchasing power independent of the policies of governments and political parties. Furthermore, it prevents rulers from eluding the financial and budgetary prerogatives of the representative assemblies.
However, once the state controls the monetary system, it can issue its own paper notes. The paper notes are accepted because they represent a claim to commodity money with established purchasing power. While the state is obliged to redeem its notes, its inflationary power is ostensibly limited.
The purpose of fiat money is to remove this limitation in order to increase government spending. To illustrate this, we will review some of the major events that transformed the US from a limited, decentralized confederation into a large, centralized state. As we shall see, these events coincided with steps toward a pure fiat currency.
Thomas DiLorenzo has convincingly argued that Lincoln’s presidency laid the foundation for the modern welfare-warfare state. Most significantly, the War Between the States crushed the right of secession, thereby removing the means by which the states could check federal power. In order to fund the war, however, new sources of revenue were needed. To this end, the Revenue Acts of 1861 and 1862 imposed the first federal income tax on Americans and established an internal-revenue bureaucracy.
Still, there’s only so much direct taxation citizens will tolerate. Consequently, the Legal Tender Act of 1862 was passed empowering the secretary of the treasury to issue inconvertible “greenbacks.” The National Banking Acts of 1863 and 1864 then created a system of nationally chartered banks. Such a system was inherently inflationary and the greenbacks depreciated rapidly.
The income tax eventually expired in 1872, and the Specie Payment Resumption Act of 1875 paved the way for a gold standard. However, there was now a precedent for an income tax and a nationalized paper currency. Moreover, the Pacific Railroad Acts of 1862 had provided direct federal subsidies for the construction of a transcontinental railroad.
Government subsidies led to much corruption and inefficiency and, as Misesians would expect, these effects led to calls for further intervention. Thus, the Interstate Commerce Act of 1887 established the first federal regulatory agency in US history and the Sherman Antitrust Act followed three years later.
This increased regulation of the economy was ushered in with the Progressive Era, which culminated in 1913 with the establishment of a central bank and the income tax as permanent institutions. While the top marginal tax rate began at 6 percent, by 1918 it had soared to 77 percent following US entry into the First World War. Wartime inflation was followed by a depression in 1920, but a relatively laissez-faire response allowed for a speedy recovery by the middle of 1921.
Nevertheless, by early 1922, the Federal Reserve had once again embarked upon an inflationary policy that would only level off at the end of 1928. This fueled an inflationary boom but culminated in the October 1929 stock market crash.
A year after the crash, the economic crisis was no more severe than the 1920 depression had been. However, President Herbert Hoover would pursue an unprecedented interventionist program of high wage rates and expanded investment, farm subsidies, public works, and a policy of cheap money and credit expansion. Hoover’s interventions further aggravated the depression, and he was defeated in the 1932 election by Franklin Roosevelt (FDR).
Nevertheless, Roosevelt’s New Deal would expand upon his predecessor’s programs, but not before he officially took the United States off the gold standard. With American citizens no longer able to redeem dollars in gold, one of the major checks on the federal government’s inflationary power had been removed.
Roosevelt would subsequently cartelize industry and agriculture, empower labor unions, spend billions on public works, and establish a federal welfare state with programs such as Social Security, minimum wage laws, and national unemployment insurance. As Robert Higgs points out, this was “the largest peacetime expansion of federal government power in [the 20th] century.”
However, FDR’s expansion of power would not be limited to peacetime, and the Second World War established the US as the dominant world power. Thus, in 1944—toward the end of the war—a conference was convened in Bretton Woods, New Hampshire, to establish a new global monetary system with the US dollar as the reserve currency. Under the Bretton Woods Agreement, only foreign governments and central banks could redeem dollars in gold. The US would pyramid dollars on top of gold while European countries pyramided their currencies on top of dollars.
The United States began the postwar era with an undervalued dollar and a large stock of gold. However, as the US continued its inflationary policy, the purchasing power of the dollar declined and gold flowed out of the US. By the mid-1960s, Bretton Woods was beginning to unravel. Simultaneous with the war in Vietnam was the expansion of the welfare state by Lyndon Johnson’s Great Society programs. To finance these expenditures, the government resorted to unprecedented inflation.
But as the amount of dollars increased rapidly, European governments grew dissatisfied with subsidizing an overvalued dollar and opted to redeem dollars in gold. This accelerated the flow of gold out of the US until the US severed the dollar’s final link to gold in August, 1971.
Bretton Woods was replaced by the Smithsonian Agreement in December, 1971, but this system proved unworkable. After a little more than a year, it was replaced by the system of pure fiat currencies and fluctuating exchange rates that remains in place today. By this time, the welfare-warfare state as we know it had been established.
It should be clear that the ability to increase government spending by issuing its own paper notes enabled the large expansion of US government power. However, a national currency backed by a commodity is still controlled by the state. The state can therefore suspend the commodity-based standard whenever its fiscal needs require it. Thus, the classical gold standard could not prevent the establishment of the modern leviathan. Indeed, Ryan McMaken argues that by solidifying state control over the monetary system, the classical gold standard set the stage for floating fiat currencies.
Only if we return to private commodity money can we repeal the twentieth century. If we fail to do so, any hopes of limiting government power will remain illusory.
Does the regulatory system help guarantee safe and effective drugs? Does the system protect drug consumers? Court cases tell us otherwise.
Original Article: "The FDA and the Courts Fail to Truly Discipline the Pharmaceutical Industry for Exploiting the Mentally Ill"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Johan Smit wrote an opinion piece in which he highlighted the double standards of treatment in situations where the private sector was treated more harshly than the state when both parties committed similar offenses. To prove his point he referenced the Jagersfontein dam collapse and the Emfuleni Local Municipality’s chronic pollution of the Vaal River.
In the former example, the Department of Water and Sanitation’s (DWS) minister David Mahlobo stated that he would lay criminal charges against the owners of the Jagersfontein dam after its collapse. It should be noted that many compliance irregularities were found in the audits of the dam which were conducted prior to its collapse.
In the latter example, a report compiled by the South African Human Rights Commission (SAHRC) found that Emfuleni and others were the cause of the chronic sewage pollution of the Vaal River. However, in the case of Emfuleni, it appears that no action was taken despite the report.
According to Smit, such is the case because of section 139 of the South African constitution where it allows for the effective absolution of responsibility from municipalities by means of either provincial or national government taking over the responsibilities of a local municipality when the local municipality cannot fulfill its duties. Smit summarized his opinion piece in the following manner:
From Jagersfontein to UPL’s Cornubia and failing municipal sewerage systems, South Africa’s water disasters continue to mount. The Department of Water and Sanitation is supposed to police the sector, but DWS is both referee and player.
Given the above context, this is the question that I wish to answer: Is it a mere coincidence that there exist laws that effectively favor the state even in situations where the state fails to fulfill its duties?
The short answer is that no, it is not mere coincidence. My answer is based on the definition of the state according to Hans-Hermann Hoppe. In his essay “The Idea of a Private Law Society,” Hoppe defines the state as
an agency that possesses two unique characteristics. First, the state is an agency that exercises a territorial monopoly of ultimate decision-making. That is, it is the ultimate arbiter in every case of conflict, including conflicts involving itself, and it allows no appeal above and beyond itself. Furthermore, the state is an agency that exercises a territorial monopoly of taxation. That is, it is an agency that unilaterally fixes the price private citizens must pay for its provision of law and order.
The characteristic relevant here is the state’s possession of a territorial monopoly of ultimate decision-making, which has two implications. First, the state has the final word in every conflict that it arbitrates including conflicts involving itself. Second, and most important, the state can cause conflict in which it can rule in its own favor and create laws that favor itself. Hoppe explains that
the government is the ultimate judge in every case of conflict, including conflicts involving itself. Consequently, instead of merely preventing and resolving conflict, a monopolist of ultimate decision-making will also provoke conflict in order to settle it to his own advantage. That is, if one can only appeal to government for justice, justice will be perverted in the favor of government, constitutions and supreme courts notwithstanding. Indeed, these are government constitutions and courts, and whatever limitations on government action they may find is invariably decided by agents of the very same institution under consideration. . . . The idea of eternal and immutable law that must be discovered will disappear and be replaced by the idea of law as legislation—as flexible state-made law.
Given Hoppe’s definition of the state, the situation involving Emfuleni’s chronic pollution of the Vaal River with sewage has a logical outcome. Referencing section 139 of the South African constitution, higher forms of government, including provincial governments and the national government, can easily absolve Emfuleni’s responsibility while abstaining from holding those responsible for the pollution of the Vaal River because the state has the last word.
Furthermore, the SAHRC Act states that the SAHRC, an organization recognized by the South African constitution, can make recommendations to all organs of the state if the commission holds that such recommendations will promote human rights. However, there is no mention of such recommendations being binding for the state.
In the context of the pollution of the Vaal River, the SAHRC’s report lists many recommendations to the state. However, given the SAHRC Act, the state can effectively ignore such recommendations because they are not binding, which effectively puts the state in the position of having the final say.
The SAHRC Act and section 139 of the South African constitution are textbook examples of Hoppe’s claim that the state is a monopolist of ultimate decision-making. Furthermore, it is important to note the implication that justice will be perverted in favor of the state despite the existence of constitutions, courts, and agencies designed to deliver justice since those very institutions are created by the state. Such a scenario leads one to conclude that the state will create laws which favor it, creating unjust results.
[A version of this article was originally published at ManPatria.]
The fiat monetary system is slowly breaking down, taking the economy with it.
Original Article: "The Present Fiat Monetary System Is Breaking Down"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The purpose of this essay is not to convince the reader of the necessity for change. It is to present some commonsense policy changes to attempt to mitigate the economic harm that has been done to Western economies, especially to the United States and the United Kingdom, since the end of World War II. Please watch Godfrey Bloom and Alasdair Macleod’s recent interview with Sonia Poulton.
The video describes the current financial and reputational weaknesses of the West. For a more in-depth analysis of the financial threat to the West, please read any of Alasdair Macleod’s weekly essays from the past few months.
In the Poulton interview, Macleod ably describes the financial implications of the West’s deindustrialization policies and currency debasement. Bloom describes the reputational damage stemming from the West’s “sanctions” against Russia plus the consequences of deindustrialization due to the foolish pursuit of a Green New Deal.
This essay’s goal is not to convince the reader of the seriousness of the current situation, which Bloom and Macleod do so well, but rather to present policies that must be changed to stop the destruction of the West’s economies and reverse the harm to their reputations. Western nations need to build a reputation for honesty, fair dealing, and adherence to the rule of law in the international arena by embracing free trade and neutrality.
There is no need to point out that in the US and the UK, none of the policy changes listed below will be enacted by either of the two main political parties in their current state. Either one of the leading parties in each country must change leadership or a third party must emerge. There is precedence in both America and Britain for the emergence of a new party. In the mid-1850s, America’s Whig Party was thrown on the scrap heap of history when it was supplanted by the antislavery Republican Party. In the first half of the twentieth century, the Labour Party supplanted Britain’s Liberal Party. It has happened before, and it can happen again.
The following “policy imperatives” assume that such internal change has occurred and that the new ruling party must mitigate and eventually reverse the damage done by its predecessors over several years. The task will not be easy, nor will it be painless, but it must be done.
Policy Imperatives1. Drastically cut government spending. The purchasing power of the dollar and the pound is being steadily weakened by the Treasury’s need to borrow more money than taxes and the bond markets will offset. Currently the central banks “buy” the excess debt with money created out of thin air. This leads inevitably to more money chasing fewer goods, which results in higher prices and the boom/bust credit cycle, among other economic damages. 1. Abolish the so-called Green New Deal, which is based upon the schlock science surrounding “climate change.” The Western economies not only must end the destruction of their industrial economies, but they must revive the entrepreneurial spirit in individuals by eliminating regulations on business activity that does not directly cause real harm to people. For example, the West must stop mandating costly and time-consuming environmental impact studies, which elevate nonhuman life above human life. The US should abolish the Occupational Safety and Health Administration (OSHA), and the UK should abolish the Health and Safety Executive (HSE). Both countries have well-established common-law precedents that protect and compensate workersfor on-the-job injuries. 1. Reinstitute the gold standard. The dollar and the pound must be seen as proxies for real money; i.e., gold. This means that currency cannot be issued unless the central bank has gold with which to back it. There is a long list of economic benefits to be derived from a stable currency, but perhaps the most important benefit is spending discipline. The government’s myriad spending orgies will face real-time discipline from the taxpayers and the markets. 1. House the nation’s gold, which is used to back its currency, in a neutral and internationally supervised place—for example, Switzerland—that will redeem the nation’s currency for gold upon demand. The government must not be allowed to suspend currency redemption. Remember, gold is money and all else is credit. If a nation’s credit is in question—i.e., the market fears that there is insufficient gold to redeem all the currency or that the government may suspend redemption—then demand to hold its currency for settlement purposes will drop or even evaporate completely. 1. Return stolen property to its rightful owners. Theft is a violation of law at every level. The Western powers confiscated Russian property as part of the so-called sanctions following Russia’s invasion of Ukraine. This insult to justice must end. Neither country has declared war on Russia, yet the sanctions are well-known tools of war. Ending sanctions is both a moral and an economic issue. If the world believes that its property can be seized for some act for which a country’s government disapproves, international trade of all varieties will fall drastically for such a country and become difficult to recover. Who in the world can trust such a country again? 1. Adopt a noninterventionist foreign policy. The world is full of controversies that often lead nations to war. Unless their interests are directly threatened, the US and the UK must not intervene in foreign disputes but remain neutral, even if these disputes lead friendly foreign nations to war. There is no way that the Western powers can honestly adjudicate these never-ending disputes. The West should encourage diplomacy rather than war making. Otherwise, keep out.
ConclusionThe Western world has violated international norms of fair dealing to the point that its reputation is nearing long-term destruction. The West’s currencies are poised to fall in value due to unprecedented money printing over several decades. Western governments foolishly believe that there is nothing that the rest of the world can do. They believe that the rest of the world must kowtow to whatever international norms the US and the UK dictate.
But they are horribly wrong. The rest of the world is moving beyond dollar hegemony and beyond the reach of US and UK sanctions. It is building a new reserve currency for settlement of international trade. The non-Western world is much larger than the West in terms of population and commodities. More importantly, the non-Western world is willing to exploit its commodities for the benefit of its citizens, whereas the West has placed its commodities off limits due to its belief in and commitment to schlock environmental science that posits impending environmental doom.
The process can be reversed, but such a reversal requires new leadership. Nothing can be done unless new leaders can change policy. The West does not need to “rule the world” in order to be peaceful and prosperous.
I was born shortly after the end of World War II, in 1949, in the British occupied zone of West Germany. My parents were both refugees, endangered at or forcibly expelled from their original homes in Soviet-occupied East Germany. As countless others of my generation, then, I was raised by a generation of parents and teachers who had just experienced some horrific military defeat and were then subjected to harsh and often brutal treatment by hostile foreign occupiers. Humiliated, abused and intimidated, then, the generation of my parents kept largely quiet and obediently went with the “flow” as increasingly dictated in the West by the US. Hence, the “education” of my generation was to a large extent the result of Anglo-American propaganda and indoctrination. Every fad or fashion over there, in the lands of the victors, cultural or intellectual, was immediately imported and eagerly adopted by my generation.
From the mid-1960s to the early 1970s, during my last years at school and the beginnings of my university studies, when my intellectual curiosity first arose and grew, the US had experienced the so-called civil-rights movement, widespread anti–Vietnam War demonstrations, massive student protests demanding “free speech” and some spectacular “race” and “anti-establishment” riots. The ideas and motivations underlying these events quickly swept across the Atlantic and took hold in West Germany and many other European countries. As a young man full of vigor and blessed with an American “education,” I, as countless others of my generation, later labeled the 68-ish generation, was converted to the fashionable leftist causes represented by such events, convinced as Paul Samuelson, at the time the Western world’s most prominent economist, of the economic superiority of socialism over capitalism.
To the delight of my parents, my leftist phase did not last for long, however. I first encountered Milton Friedman, then occasionally mentioned in the German press as Samuelson’s major counterpart in the US, and became a vaguely defined “free marketeer.” From Friedman I found my way to Friedrich A. Hayek, who further strengthened my newfound convictions and who impressed me above that with his wide-ranging interdisciplinary knowledge, largely missing in Friedman. Then, through Hayek, by way of various footnotes, I discovered his own mentor, Ludwig von Mises, who, in my estimation, had to be placed in an intellectual league of his own and through whose work I was turned into a radical, uncompromising advocate of free market capitalism.
In none of my readings, however, not even in Mises, had I ever encountered any serious doubt regarding the necessity of the institution of a tax-funded state as a provider of law and order. It was an intellectual shock, then, when I finally discovered Mises’ most prominent American student, Murray N. Rothbard, and read his For a New Liberty, first published fifty years ago, in 1973. Therein, in the clearest of terms, with the utmost analytic rigor and with impeccable logic, Rothbard presented the full-blown case for a stateless society, of free market anarchism, or “anarcho-capitalism.” Taxes were explained as theft and the state as a criminal gang, a protection racket or a mafia writ large. And the state was unmasked not only as a moral perversion but also as an economic monstrosity creating nothing but waste. Compelling economic reasons were presented for the state’s inefficiency not just in all the areas typically held to be prerogatives of state activity, from education and money to welfare, but also regarding the production of law and order in particular. Law and order, too, Rothbard demonstrated in great detail, could and should, for moral as well as economic reasons, be produced by freely financed and competing private producers.
Upon reading the book I became an anarchist, or as I later preferred to characterize my intellectual position, a proponent of a pure private law society. In my judgment, Rothbard with his work had brought the intellectual edifice inherited from his own mentor Mises to its ultimate completion. And in my very own personal eyes he had also finally redeemed America.
Of course, mankind being what it is, reading For a New Liberty now, for the first time, will not have the same effect on everyone that it had on me many years ago. But I am certain that no one will come away from such a reading without seeing the world with very different eyes.
[This article is published with the permission of the author and recently appeared in the Italian journal StoriaLibera.]
Keynesian economists fantasize that a market economy cannot "gain traction" without "stimulus" schemes from the government. In the end, the only thing stimulated are inflation and recession.
Original Article: "Why Economic Stimulus Can't Work"
This Audio Mises Wire is generously sponsored by Christopher Condon.
theory. Despite being written in the early twentieth century, its arguments and conclusions are still valid and interesting today. Mises describes five characteristics that are vital to the function of money: marketability, durability, fungibility, trustworthiness, and convenience.
The history of money is straightforward. Markets developed and expanded as long as the private sector controlled the money supply. A decline followed once the state took hold of the monetary system. This arc can be illustrated by looking at a few broad examples of historical money.
Barter produces serious bottlenecks. The double coincidence of wants is a high barrier to trade. Primitive societies gravitated toward the use of various commodities as media of exchange. Iron hoes, salt, sugar, animal hides, and even animals themselves were given monetary applications in places around the world; bits of shell were even strung together for this purpose.
However, while each of these goods satisfied some of the requirements for good money, they also had significant shortcomings: living creatures require expertise to assess their quality and can die; salt and sugar can be eaten by animals or washed away by floods; animal hides rot; base metals corrode; and bits of shell can be broken into smaller pieces, either erasing their value completely or turning them into more, equally valued pieces. The existence of multiple types of money in different countries effectively reduced international trade to barter. Clearly, a more universal solution was needed.
Coinage of noble metals, most notably silver and gold, was the solution the market arrived at. Noble metals have several advantages. First, they are far less susceptible to damage from the elements. As such, they do not need to be individually examined for rust or other blemishes during trade, improving their fungibility. Further improving their fungibility, noble metals could be coined in specific and precise weights by private mints.
As far as trustworthiness and convenience were concerned, noble metals served well-known mints with good reputations quite well. The use of metals with unusually high densities (such as gold) made several types of counterfeiting easier to discern. However, the potential for clipping or sweating coins often led to them being measured and valued by mass anyway, limiting their convenience.
As the monetary system matured, systems of token coins and banknotes came into common use. Private mints and banks had a new incentive to produce more money substitutes than their holdings could justify, but the threat of bank runs kept institutions in check as long as the state opposed bailouts. However, the state, seeing an opportunity, gradually seized the administration of the monetary system. This point marked the apex of money from the perspective of the market. From here, the state systematically made things worse.
In theory, state arrogation of the minting process can have both positive and negative effects. In the positive direction, a single trustworthy state mint could reduce traders' need to evaluate and remember the trustworthiness of many private mints. Laws against defacing the currency could reduce the chance coins used in trade were adulterated or counterfeit. Free coinage allows the supply of money to grow and shrink in response to market needs.
However, in the negative direction, untrustworthy state mints could adulterate their coins and enforce legal tender laws, creating a strong profit motive for the state and debasing the currency for everyone else. Nearly all large states eventually monopolized the minting process and engaged in negative policy behavior, making state coinage a mixed blessing—at best—for the monetary system. (The inertia of value regression combined with legal tender laws was, however, able to keep many monetary systems from collapsing.)
Once the state had taken complete control of money, it continued to operate on a fractional reserve basis, allowing redemption for gold or silver for some time. However, the tendency was toward a drastic reduction in the movement of metal. State treasuries encouraged conversion to notes and token coins for both retail and wholesale trade, as far as was practicable. Fiat notes were made nearly indistinguishable from money certificates, so most people would consider them generally indistinct.
Fiat notes were marketable because they were made legally equivalent to money certificates. The notes were much less durable than gold coins. While durable enough for a period of circulation, fiat notes were fragile enough that damaged notes had to constantly be collected and reprinted, giving the state an opportunity to replace money certificates with fiat. The notes, having set face values, were fungible, convenient, and even offered a degree of anonymity.
It is also worth noting that fiat notes and money certificates were as trustworthy as their issuing authority, the state. Eventually, the richest states managed to completely pull the gold backing out from under their currencies without causing a collapse.
When he wrote The Theory of Money and Credit, Mises was not sure a pure fiat system could even be sustained, but pure fiat systems arose during his lifetime and have persisted ever since. An attractive aspect of fiat notes to the state is that they can be printed with any face value. This has some market attractiveness, but the state often uses this ability to inflate. Inflation would prove to be the downfall of several currencies, most notably Zimbabwe's.
The American public was mostly unaware of these incentives or convinced they were a minor factor. The relentless debasement of even relatively good fiat currencies continues to this day, in stark opposition to the natural tendencies of the market.
Trade is a vital force toward the enrichment of mankind. The division of labor and accumulation of capital make us more productive and improve our lives. When the market had control of the monetary system, we saw a gradual but consistent increase in its complexity and scale.
However, once the state monopolized the monetary system, we watched that long-standing trend reverse as the trustworthiness of money was reduced. Finally, the monetary system was disconnected completely from the gold standard, and the state used subterfuge and inertia to give itself broader power. As the state seeks more power over the people and the market, we can expect the money imposed upon us to further deteriorate. The question is, how far will the state be allowed to go?
Progressives claim that poor nations are that way because wealthy nations exploit them through the capitalist system. Cultural institutions, it turns out, are the most important indicators of wealth and poverty.
Original Article: "When It Comes to National Prosperity, Don't Forget the Culture"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In 2011, the Federal Reserve invented new accounting methods for itself so that it could never legally go bankrupt. As explained by Robert Murphy, the Federal Reserve redefined its losses so as to ensure its balance sheet never shows insolvency. As Bank of America’s Priya Misra put it at the time:
As a result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible.
That was twelve years ago, and it was all academic at the time. But in 2023, the Fed really is insolvent, although its fake post-2011 account doesn’t show this. Nevertheless, the reality is that the Fed’s assets are losing value at the same time that the Fed is paying out more in interest than it is making in interest income.
This became clear last week, when the Fed released a new report showing that its interest payments on bank reserves skyrocketed in 2022. The press release states:
Total interest expense of $102.4 billion increased $96.6 billion from 2021 total interest expense of $5.7 billion; of the increase in interest expense, $55.1 billion pertained to interest expense on Reserve Balances held by depository institutions and $41.5 billion related to interest on securities sold under agreements to repurchase.
As this graphic from the Fed shows, the cost of operations also exceeded earnings in 2022 because remittances have fallen from 2021:
For the year overall, the Fed still managed to achieve a positive net income, thanks to positive inflows in the first half of the year. But since September, as Reuters notes, the Fed began recording what’s called a deferred asset, which tallies up the Fed’s loss; the deferred asset stood at $18.8 billion at the end of the year.
The “deferred asset” phrase basically means “losing money” in Fedspeak: the Fed is supposed to make remittances to the US Treasury out of its surplus, but when it has no surplus, the Fed “defers” its payments. We can see how these remittances plummeted into negative territory beginning in September:
The trend of falling remittances is unlikely to reverse in 2023, unless the Fed takes a very dovish turn and forces interest rates down again. What is more likely is that the Fed will hold rates flat or only slightly reduce them. In either case, the Fed will have to keep paying out more in interest than it makes in income.
Why Is the Fed Insolvent Now?A sizable part of the reason that the Fed has become insolvent in recent months (and almost certainly will be in 2023 overall) stems from the fact that since 2008, the Fed has bought up trillions of dollars in Treasury debt and mortgage-backed securities (MBSs). The Fed has done this to prop up the prices of real estate and government bonds (i.e., to subsidize Wall Street, banks, and the real estate industry.)
Yet it bought these fixed-rate assets when interest rates were very low, and most of those assets have a maturity of over a year. That means that even as interest rates have risen in the past year, the Fed’s income from these assets has not risen sizably. Yet the Fed is also paying banks interest on reserves and reverse repos. That interest rate is not fixed and changes rapidly. So although total reserves at the Fed have fallen by 25 percent in recent months, that won’t bring interest payments down to 2021 levels because interest rates have increased 4,300 percent, from 0.1 percent to 4.4 percent.The end result? The Fed is now paying out more interest to banks than it earns in income from the MBSs and government bonds that it holds in its portfolio. Thus, as we saw in the Fed’s Friday release, outflows in interest payments have surged but income has not, and the Fed is now forced to defer its promised payments to the Treasury.
Another complicating factor driving the Fed deeper into the red is the fact that its portfolio is also losing value.
(The key to understanding how this becomes a problem is to remember that bond prices move in the opposite direction of interest rates. So, as newly issued bonds’ interest rates [i.e., yields] move up, the prices of existing bonds move down.)
As interest rates have moved up in the past year, the value of the Fed’s MBSs and Treasury debt has fallen. So now the Fed also has less capital. Thanks to Enron-like accounting, however, the Fed’s bankruptcy is legally just a matter of “deferred assets,” so it’s not a legal problem for the Fed.
Nonetheless, that the Fed’s losses are likely to mount further and require a bailout can be seen in the fact that we’ve seen this sort of problem before. As noted by Alex Pollock in a 2022 lecture at the Mises Institute, the Fed has put itself in a situation similar to the one that sank the savings and loans in the early 1990s. Like the S and Ls, the Fed “invested” in large amounts of long-term debt at low fixed interest rates. But then interest rates went up. The fixed-rate interest income stayed largely the same, but interest payment obligations increased sizably. That’s where the Fed is now.
For a normal financial institution, this situation leads to bankruptcy. But the Fed will bail itself out by printing money. In the end, that means price inflation, either in assets like stocks and real estate or in consumer goods like eggs and auto parts. Ordinary people will see their cost of living go up and their real wages fall, and they’ll get poorer. Through it all, though, the Fed and the regime itself will benefit. As the Fed has been careful to say in recent days, its de facto bankruptcy does not impede its ability to carry out its usual inflationary monetary policy. Never fear—because the Fed can create its own income at will via monetary inflation, the regime will continue to benefit from the Fed’s usual tricks. The regime will be able to run higher deficits, spending on “free” benefits for the voters and on corporate welfare for the politically powerful. It’s all a great scam for the parasitical class. For the productive classes? Not so much.
The number one threat to our lives and prosperity is the US government.
How could it otherwise be? Loaded with trillions of dollars acquired through legalized theft, the US government has gone beyond mere incompetence and foreign adventurism; it now colludes with other governments to reduce populations through the manufactured covid crisis.
Governments are now killing their citizens . . . deliberately.
Taking the House of Representatives away from the Democrats will not cut it. How many “radical” Republicans have called out the covid crisis as the genocidal program it is? How many Republicans were elected on a platform of eliminating government programs or agencies? How many Republicans see the government, with its power to ignite nuclear Armageddon, as a threat to our lives?
How often have you heard a politician call for more personal freedom? For eliminating the income tax and federal reserve? For disbanding government as we know it and relying on the free market for our safety and prosperity?
What If Life Really Could Get Better?We have to begin by recognizing the government for what it is. See Robert Higgs’s essay “Ten Reasons Not to Abolish Slavery.”
Admit that freedom is what you want, otherwise you will not know what it is you are after. To believe in freedom is to believe that good government only results in the absence of the state.
What if, as Murray Rothbard has written, the sstate is nothing more than a criminal gang, regardless of which party is in power?
Is it scary to contemplate life without the great god state? Can a state-free economic system provide everything we need? What if it could? What about other concerns such as biological warfare? Do we not need a state to protect us and tell us what to do?
What if we do not? What if we can deal with all threats through market institutions?
What if the state is incompatible with a free society?
What if the state’s elections, regardless of the candidates, make a free society impossible?
What if the estimated fourteen billion dollars spent electing politicians in 2020 could have been invested into economic growth?
What if a free society (based on property rights) includes the necessary incentives to govern itself?
What if a free society is the best means of defending the country from foreign attack?
State Control of Money and BankingWhat if a free society provides a safe medium of exchange?
What if our government criminalizes the market’s choice of money, which has historically been gold and silver coins, so that it can expand control over our lives?
What if our government criminalizes society’s choice of money so it can reward preferred constituencies through central bank inflation?
What if central banks cannot exist in a free market because they require government support for their operation?
What if “government support” amounts to forcefully prohibiting any competition to the central bank or the money it issues?
What if peace and prosperity are the hallmarks of a market-selected money, as shown in the last half of the nineteenth century?
What if the nineteenth century robber barons were a result of government favors rather than an indictment of the free market?
What if war, debt, and money devaluation are the hallmarks of the central bank’s fiat money?
What if banking crises result from the practice of fractional reserve banking?
What if fractional reserve banking satisfies the definition of embezzlement but is not regarded as such legally?
What if banks that practiced fractional reserve banking turned to the government to establish a central bank for protection?
What if banks that practiced fractional reserve banking could be criminally prosecuted?
State Control of EducationWhat if the government takes control of the country’s educational institutions?
What if people are taught from day one that their government exists to defend their natural rights as human beings?
What if events unfavorable to the government are sanitized or excluded from its recorded history?
What if adults accept the idea that the government as we know it is a naturally evolving social phenomenon that strives to serve our best interests?
What if the closed-door Constitutional Convention was not a step in the direction of freedom but a revolt against freedom? (See this as well.)
What if the Constitution provides for the expansion of government power through ambiguous clauses that the government itself gets to interpret?
What if the rationale that the Constitution is not a suicide pact renders the Bill of Rights null and void during “emergencies”?
What if the state evolved from a raiding party set upon a peaceful society? What if the raiding party used its superiority to force the conquered into a protection racket? What if they called the racket government?
What if Big Tech, Big Pharma, Big Money, and other “Big” influences derive their power from favors bestowed by the state?
ConclusionWhat if enough people make known their wish for a state-free existence? What if they make known the supreme advantages of a state-free society? What if the state then begins to weaken through attrition in its ranks?
What if the people, under the control of a weakening state, demand the state dissolve itself completely, perhaps by refusing to pay taxes?
What if people surrender victimhood and graft and begin to take full responsibility for their lives?
John McWhorter takes on the present infatuation with wokeness and shows the real harm it is doing to our social fabric.
Original Article: "Spelling Out the Problem with W-o-k-e-n-e-s-s"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The beautiful Italian town of Bologna is famous for its vast historical center full of medieval buildings, palaces, churches, and elegant porticoes. The visitor is left speechless by the remaining twenty-two towers out of about 180 erected between the twelfth and thirteenth centuries. The Asinelli tower, the tallest of them at 97 meters, compares to the standard height of a modern skyscraper. It is truly amazing that in the early Middle Ages, Bologna’s spectacular towers made it look very much like Manhattan today.
Such towers were built in many northern Italian towns by rich families for defensive purposes when rivalries between oligarchic clans turned deadly. They were also a status symbol, and their construction, which was quite onerous, bears witness to the economic miracle that took place in that period. Starting from the fourteenth century, many towers were demolished, and others simply collapsed. The rise and fall of the towers illustrate very well the early Middle Ages experiment of independent Italian city-republics with capitalist and democratic institutions.
Breaking from the Oppressive Feudal SystemThe feudal economic system was rigidly based on people’s predetermined status in the feudal hierarchy in terms of obligations and rewards. The majority of the population was engaged in subsistence agriculture around self-sufficient manors, and most of the agricultural workers were bound to the land in a system of serfdom. Wages and prices were set by the political and religious authorities or by towns’ guilds, which restricted free competition. There was limited room for entrepreneurship, and economic growth was dismal.
Starting from the eleventh century, cracks opened in the feudal system, and many European towns started to develop as major centers of trade and manufacturing. The so-called free cities or independent city-states purchased charters granting various degrees of self-government from their sovereigns through negotiations, which sometimes implied violent uprisings.
Independent cities prospered from free exchanges and greater labor division, gradually lifting the rural economy too. The free towns also became directly involved in the liberation of serfs in the surrounding countryside. They began to dominate economically and militarily.
Ralph Raico and Robert Higgs underlined several factors contributing to the emergence of merchant capitalism in Europe. Unlike other great civilizations, especially the Chinese, Indian, and Islamic ones, Europe was decentralized into a system of divided powers and jurisdictions, such as kingdoms, principalities, city-states, and ecclesiastical domains. The constant rivalry among kings, feudal nobility, and the powerful Catholic church reduced the rulers’ capacity to oppose the struggle for the freedom of the townspeople.
Christianity and Christian philosophers mitigated serfdom and justified the legitimacy of resistance to unjust rulers, recognizing the moral superiority of natural over positive law. In addition, the Italian city-states benefitted from the rugged terrain of the Alps, which prevented the Holy Roman Empire from defeating them militarily.
Sovereigns were limited by charters, such as the Magna Carta, granting political and economic rights to their subjects and strengthening the rule of law. Already by the twelfth century, many communes had issued elaborate legislative codes protecting property rights and free trade. This stimulated capital accumulation and technological progress, unlike in imperial China, where a feudal bureaucracy suppressed entrepreneurship and the use of inventions in market production. Florence and Venice also played a crucial innovative role in banking and in the development of instruments for trade and finance, such as double-entry bookkeeping, bills of exchange, insurance, and commercial law and courts.
The advance of merchant capitalism in northern Italy led to a swift increase in population, which doubled from the eleventh to the thirteenth centuries. A substantial migration from the countryside led to the emergence of big cities of over one hundred thousand inhabitants such as Venice, Florence, and Milan. Northern Italy was the most urbanized and literate society in the world at that time and the economic capital of Western Europe. The maritime republics Venice and Genoa became international trading hubs and acquired vast naval empires in the Mediterranean and Black seas. Architecture, town planning, arts, culture, science, and education also flourished.
Checks on Oligarchic and Absolute PowerMajor advances in terms of economic and political freedom needed appropriate governance systems. Early democratic forms of government emerged: the so-called “communes” based on the broad political participation of the towns’ citizens and in particular of the rising middle class.
Initially, the communes struggled to replace the earlier lay lord and episcopal authorities by designating some “law-worthy men” (boni homines) to perform various jobs. With time, the boni homines formed a permanent executive called the “consulate.” The consuls were elected either directly by the town’s general assembly of the people or indirectly by electors from the various strata of the population, including non-nobles. The main purpose in the selection of the consuls was to “hinder the domination of city politics by cliques.”
In smaller towns, it was feasible to hold meetings with all the citizens. In bigger towns, a great council counting four hundred to four thousand members acted like a parliament (arengo), sometimes helped by a smaller council of around forty members that directly supervised the work of the executive. Given the relatively small size of a town’s population, a large share of it, including the majority of the wealthy people, was directly involved in decision-making. A lot of administrative duties were undertaken by the citizens themselves in their free time, strengthening the civic spirit and political accountability, as well as reducing corruption.
Many cities were de facto governed by oligarchies of the rich families. As the communes succeeded in asserting their external autonomy, it became harder and harder to prevent internal conflicts between oligarchs (vendettas). To mitigate this, many communes hired an independent head consul (podesta) from outside of the town to serve as chief justice with police powers. In addition, common people organized themselves into associations called “societas populi” or “popolani.” Their members were “merchants, craftsmen and men between wealth and poverty,” broadly equivalent to today’s middle class. Manual workers and people in very humble circumstances, who could have been easily bought or intimidated by the nobles, were not accepted into these political groups. In many cities, the “popolani” could raise an infantry of a thousand to two thousand men against the nobles. This institution played an important role in checking violent vendettas and preventing the commune from being captured by vested interests.
Other private protection associations emerged as well. “Consorzeria” was an alliance for private defense, both in terms of mutual military assistance and judicial support, which was accessible to nobles and common people alike. It was very useful in dealing with the violent quarrels of communal life and settling disputes among their own members. Its main features resemble those of private protection agencies that could operate in a libertarian society, according to Murray Rothbard.
Decline of Democratic InstitutionsEventually internal conflicts among oligarchs and external warfare brought incessant military and fiscal crises that undermined the democratic forms of government. The communes turned for protection to a strong man, either a local lord or a foreign king, granting them temporary special powers. In many cases, the special powers were prolonged indefinitely, leading to a regime of a single ruler (signoria).
Other communes became heavily indebted to lords and were subdued through economic means or were taken over by nobles leading mercenary troops (condottieri). By the end of the fourteenth century, most cities became “signorie.” Republican regimes survived longer in very few city-states, most notably in Venice, which was de facto ruled by numerous patrician families forming the Great Council.
In principle, “signoria” did not usher in tyrannies, but the nobility got the upper hand again in suppressing the common people. Although the difference between a commune under a tight oligarchy and a “signoria” proper was not always that large, a considerable expansion in the power of governments took place from the fourteenth century on. The productive wealth was increasingly diverted into bureaucratic institutions, military expenditures, and the pockets of the oligarchs. The fiscal burden increased through new and more onerous taxes, forced loans on wealthy citizens (prestanze), and a surge in state debts.
In Florence, for example, revenues rose from around 130,000 florins in the 1320s to more than 400,000 florins in the 1360s. Expenditures varied greatly and multiplied in periods of wars, recording a significant increase over time as well.
ConclusionThe successful break of Italian city-republics from feudalism illustrates the crucial role played by economic freedom and participatory democracy in fostering prosperity and human development. Key contributors were the decentralized powers in Europe and the people’s struggle to gain and preserve political and economic liberties through active civic and political participation.
But, within two centuries, single ruling families rose to power and captured the democratic and market institutions. This is a useful lesson of how unchecked domestic violence, militarism, and external wars can lead to the aggrandizement of the government and loss of freedom.
Unfortunately, when governments all over the world decided to “spend now and deal with the consequences later” in 2020, they also sowed the seeds of a 2008-style problem.
Original Article: "2023: You Wanted Endless Stimulus, You Got Stagflation."
This Audio Mises Wire is generously sponsored by Christopher Condon.
In the ultimate example of “the personal is political,” families form, break up, or expand due to US presidential elections according to a recent article in the American Economic Review. Apparently, the alternative responses of doom or elation that occasions electoral politics is so extreme that the losers couldn’t bear to bring a child into such a world, while the winners . . . well, you know.
In setting the stage for this phenomenon, the authors noted that
when Trump was elected, Democrats’ satisfaction with “the way things are going in the United States” fell from 43 to 13 percent, while Republicans’ surged from 12 to 46 percent . . . these swings by partisan orientation are large, immediate, and persistent and especially so after the unexpected victory of President Trump in the 2016 election. Similarly, after the 2020 Presidential election, Democratic and Republican optimism rapidly exchanged positions.
But are these electoral mood swings enough to alter peoples’ decisions about bringing new life into the world? In short, yes.
In a thymological exercise, the authors explain that electoral outcomes alter peoples’ views about potential policy changes and their effects on everyday life, economic optimism, and changing beliefs about the political and social climate. Put simply, beliefs about future conditions are a part of the “valuations and volitions” behind human action, including marriage, sex, and childbearing. As Ludwig von Mises put it,
The sex impulse and the urge to preserve one’s own vital forces are inherent in the animal nature of man. If man were only an animal and not also a valuing person, he would always yield to the impulse that at the instant is most powerful. The eminence of man consists in the fact that he has ideas and, guided by them, chooses between incompatible ends. He chooses between life and death, between eating and hunger, between coition and sexual abstinence.
Mises says nothing about the accuracy of peoples’ ideas on how to achieve future outcomes, rather that such assessments guide their choices. One’s ideas about the impending doom of a particular candidate’s election and family planning choices that emerge from such thoughts are rational in that they follow a logic, no matter how mistaken one’s predictions might be. Certainly, such beliefs will obviously reduce one’s desire for having more children.
The authors conclude that there is
a new consequence of elections and a new determinant of fertility. We are the first to causally link political partisanship to fertility choices . . . our findings could be due to affordability concerns but also the quality of a potential child’s life.
They further state that the impact of this partisanship in procreation led to eighteen thousand more Republican babies and forty-eight thousand fewer Democrat babies than would have otherwise been the case.
As it turns out, the fertility shift after the Trump election isn’t the only aspect of family life that has been affected by political polarization. Just six years ago, 30 percent of US marriages were “politically mixed.” In less than a decade that number has dropped to 21 percent. But when it comes to the percentage of marriages between Democrats and Republicans specifically, these are rare. According to the Institute for Family Studies, in 2017, 4.5 percent of married couples were spilt between team red and team blue, but just three years later only 3.6 percent of marriages had the same makeup.
Such dramatic changes in marital matching in such a short time have two basic explanations. First, many politically mixed marriages have ended in divorce, and second, fewer politically mixed marriages are forming since the Trump election. Evidently, presidential politics has some explanatory power when it comes to marriage avoidance and divorce. But when it comes to fertility choices among same-party marriages, those who have the belief that their candidate’s loss is proof of an eminent apocalypse have given over to a kind of rationalization that views the future as a place that isn’t fit for newborns.
Such beliefs and corresponding actions are further evidence of the poisonous nature of political polarization. If couples are so animated by the political partisanship to destroy or avoid marriage, or to refuse to bring new life into the world, then perhaps love doesn’t conquer all—but politics does.
One may ask, what if one of these sides is correct in their estimation of the world that their political opponents would create? As I’ve written previously, the progressive left is a political force that calls for state control of child-rearing. However, the solution isn’t to have fewer children or to avoid marriage due to fear over future economic conditions. Rather, the solution is to defeat the agenda and ideology that is genuinely antifamily, not deprive oneself of familial bonds.
Those who know Wall Street lore sometimes recall that Fed chairman William Miller—Paul Volcker’s immediate predecessor—joked that most Americans believed the Federal Reserve was either an Indian reservation, a wildlife preserve, or a brand of whiskey. The Fed, of course, is none of those things, but there’s also one other thing the Federal Reserve is not: an actual bank. It is simply a government agency that does bank-like things.
It’s easy to see why many people might think it is a bank. “Bank” is right there in the name of the twelve regional banks that make up the system: for example, the Federal Reserve Bank of Kansas City. The Fed also enjoys many titles that make it sound like a bank. It’s sometimes called the “lender of last resort.” Or it is sometimes called “a banker’s bank.” Moreover, many people often call the Fed “the central bank.” That phrase is useful enough, but not quite true.
Moreover, even critics of the bank often repeat the myth that the Federal Reserve is “a private bank,” as if that were the main problem with the Federal Reserve. And then there are the economists who like to spread fairy tales about how the Fed is “independent” from the political system and makes decisions based primarily on economic theory as interpreted by wise economists.
The de facto reality of the Federal Reserve is that it is a government agency, run by government technocrats, that enjoys the benefits of being subject to very little oversight from Congress. It is no more “private” than the Environmental Protection Agency, and it is no more a “bank” than the US Department of the Treasury.
It’s a Purely Political InstitutionIn its early decades, Congress and the Fed went to some pains to make the Fed look like a private organization that was self-funding, economically solvent, and subject to market forces.
For example, the Federal Reserve System was created—at least on paper—as a very decentralized organization. To this day, it has “shareholders,” which are the private “member” banks of the Federal Reserve. In the early years, the Federal Reserve System’s district banks operated fairly independently. Moreover, these shareholders were (and legally still are) supposed to incur losses when the Federal Reserve is in the red. Back in the days of the gold exchange standard, the Fed had gold reserves and its “banknotes” were supposed to be truly tied to those reserves in the banks. The Fed banks made revenue from discounting bills of exchange and from charging interest on government bonds. These relatively simple organizations were supposed to loan reserve funds to ensure banks had enough liquidity to remain solvent and help deal with financial crises.
The idea of ensuring Fed banks had real capital reserves made some sense when there was a domestic gold standard. But that all changed in a big way with the Great Depression. When Franklin Roosevelt ended the gold standard, the Federal Reserve Banks were forced to hand their gold over to the US Treasury. (To this day, the Fed has no gold.) Then came an enormous expansion of the regulatory state’s role in financial matters, and the Fed became a big part of this. Today, the Fed is far more a regulatory agency than it is any sort of “bank.”
It Monetizes Government DebtThen, during the Second World War, the mask completely came off the ruse that the Federal Reserve was something other than a way to essentially launder government debt. As the federal government issued enormous amounts of new debt to finance the war, the federal government exhausted the market demand for government bonds at the interest rates the government was able to pay on its debt. So, the Federal Reserve stepped in to buy up large amounts of debt, which kept down interest rates. Fed chairman Henry Morgenthau “simply decreed that interest rates on the federal debt would be ‘pegged’ at low levels.” This pegging required the Fed to buy up a lot of government bonds. But, of course, by then, the Fed had no gold and no reserves in any meaningful sense. It simply created money to buy up those bonds—thus “monetizing” the debt. There was no economic theory or savvy commonsense “banking logic” at work. This was simply an organization doing what it was told: financing a war for politicians. Moreover, with the dollar no longer tied to gold—especially after the closing of the gold window in 1971—the Fed could create money largely at will.
All of this became progressively normalized in the decades after the war. But it all took an additional great leap away from market-based sanity after the financial crisis of 2008. Since then, the Federal Reserve has routinely bought up both government debt and mortgage securities as a means of both propping up asset values for politically connected banks and enabling ever-larger amounts of deficit spending by the federal government. For example, when federal politicians in 2020 and 2021 wanted to spend trillions of dollars to pay people to not work during the covid lockdowns, the Federal Reserve was there yet again to make it possible the federal government to issue trillions of dollars in new debt without pushing interest rates up. The Fed did this by adding more than $3 trillion in government bonds to its portfolio. This monetized the new debt in a similar way to what had been done during the Second World War.
Through it all, the Fed has just been there to assist the US regime in implementing a variety of policies.
It Can’t Go BankruptIn spite of its record, the Fed continues to keep up the fiction that it is some kind of private organization with a real balance sheet, real assets, and real liabilities. But the Fed also doesn’t adhere to any of the accounting standards that a real bank would employ. As Paul Kupiec and Alex Pollock put it, “Unlike other financial institutions that must comply with GAAP [Generally Accepted Accounting Principles] accounting standards, the Federal Reserve Board decides on the accounting standards it uses to report the Federal Reserve System’s income and balance sheet positions.”
This reality has become important in the past year because, for the first time in a century, the Federal Reserve is losing money. Kupiec and Pollock note, “If the Fed was a bank or other regulated financial institution, it would be closed because it is already deeply economically insolvent.” Yet “‘Innovations’ in accounting policies adopted by the Federal Reserve Board in 2011 suggest that the Board intends to ignore the law” and carry on as if there were nothing wrong. It can do this, of course, because the post-gold-standard Fed can create money at will. These “innovations” are described in detail by Robert Murphy, who noted back in 2011 that the Fed had deliberately changed the way it does its accounting to ensure that bankruptcy is a legal impossibility.
[Read More: “Ac-cent-tchu-ate the Positive: The New Accounting at the Fed” by Robert Murphy]
The fake accounting didn’t matter much in 2011, when the Fed was still essentially solvent. But in 2022, honest accounting showed that the Fed was insolvent. How did this happen? It’s a result of the fact that the Fed now has a very similar problem to what the savings and loans had in the late 1980s and early 1990s.
But whatever its cause, the Fed’s current bankruptcy is simply the latest example of how the Fed is in no way a real bank or a private organization that funds itself through prudent self-management in the marketplace. Even worse, the Fed funds itself while in bankruptcy by printing money and inflating away the value of the dollars held by ordinary people. The Fed is just another tax-funded government agency, except that the tax that funds the Fed is the “inflation” tax, in which the Fed steals pieces of wealth from savers and workers as it devalues the dollar for the Fed’s own benefit. Or, as Kupiec and Pollock note, the Fed can “monetize Federal Reserve losses, thereby transferring them indirectly through inflation to anyone holding Federal Reserve notes, dollar denominated cash balances and fixed-rate assets.”
The Fed: it’s not private, it’s not financially sound, it’s not a bank. It’s just another government technocracy that’s ripping us off.
The Gary G. Schlarbaum PrizeFor excellence in research and teaching for a promising young scholar.
- 2022 Per Bylund
- 2021 Jonathan Newman
- 2021 Karl-Friedrich Israel
- 2020 Patrick Newman
- 2019 Timothy D. Terrell
- 2018 Lucas Engelhardt
- 2017 Carmen Dorobat and Matthew McCaffrey
- 2016 David Howden
- 2015 Philipp Bagus
- 2014 Tom Woods
For lifetime defense of liberty, awards $10,000 to a public intellectual or distinguished scholar (1999-2012).
- 2012 Butler Shaffer
- 2011 Walter Block
- 2010 Jim Rogers
- 2009 Jesus Huerta de Soto
- 2008 Pascal Salin
- 2007 Robert Higgs
- 2006 Hans-Hermann Hoppe
- 2005 William H. Peterson
- 2004 Hans F. Sennholz
- 2003 Ron Paul
- 2002 Bettina Bien Greaves
- 2001 Antony GN Flew
- 2000 Ralph Raico
- 1999 Otto von Habsburg
Murray N. Rothbard Medal of FreedomIn recognition of significant and wide-ranging libertarian leadership, as a scholar or public intellectual, established through the generosity of George W. Connell.
- 2017 Judge Andrew P. Napolitano
- 2015 Robert Higgs
- 2015 Hans-Hermann Hoppe
- 2012 Douglas E. French
- 2008 Ron Paul
- 2006 David Gordon
- 2005 Walter Block
- 2004 Gary North
- 2003 Burton Blumert
The Peterson-Luddy Chair in Austrian Economics at the Mises InstituteEstablished through the generosity of William H. Peterson and Robert L. Luddy to support research, teaching, and leadership in Austrian economics.
- 2021 Mark Thornton
- 2018-2020 Jörg Guido Hülsmann
- 2015-2017 Joseph T. Salerno
The Lawrence W. Fertig Prize in Austrian Economics$1,500 to the author of a paper that best advances economic science in the Austrian tradition
- 2022 Vytautas Žukauskas Measuring the Quality of Money
- 2020-2021 Kristoffer Mousten Hansen The Menger-Mises Theory of the Origin of Money—Conjecture or Economic Law
- 2019 Jeffrey M. Herbener Time and the Theory of Cost
- 2018 Arkadiusz Sieron The Non-Price Effects of Monetary Inflation
- 2017 Jeffrey M. Herbener and David J. Rapp Toward a Subjective Approach to Investment Appraisal in Light of Austrian Value Theory
- 2016 Patrick Newman The Depression of 1873-1879: An Austrian Perspective
- 2015 Per Bylund Ronald Coase's 'Nature of the Firm' and the Argument for Economic Planning
- 2014 Andreas Hoffmann and Gunther Schnabl Monetary Nationalism and International Economic Instability
- 2013 Laura Davidson Against Monetary Disequilibrium Theory and Fractional Reserve Free Banking
- 2012 Malavika Nair Money or Money Substitutes? Implications of Selgin's Small Change Challenge
- 2011 Xavier Méra, "Factor Prices Under Monopoly"
- 2010 Matthew McCaffrey, "Entrepreneurship, Economic Evolution, and the End of Capitalism: Reconsidering Schumpeter's Thesis"
- 2009 Mateusz Machaj, "Market Socialism and the Property Problem: Different Perspectives of the Socialist Calculation Debate"
- 2007 Renaud Fillieule, "The 'Value-Riches' Model: An Alternative to Garrison's Model in the Austrian Macroeconomics of Growth and Cycle"
- 2005 Samuel Bostaph, "Wieser on Economic Calculation under Socialism"
- 2003 Nikolay Gertchev, "The Case Against Currency Boards"
- 2001 Joseph Salerno, "The Place of Human Action in the Development of Modern Economic Thought"
The O.P. Alford III Prize in Political Economy$1,500 to the author of the paper that best advances libertarian scholarship.
- 2022 Joseph T. Salerno, Carmen Elena Dorobăț, and Matthew C. McCaffrey Monopoly as a 'Culture-history Fact': Knight, Menger, and the Role of Institutions
- 2020-2021 Tate Fegley Police Unions and Officer Privileges
- 2019 Mark Thornton Incorporating Cantillon: A Face and a Family for the First Modern Economist?
- 2018 Pavel Ryska Deflation and Economic Growth: The Great Depression as the Great Outlier
- 2017 Philipp Bagus, David Howden, and Amadeus Gabriel Reassessing the Ethicality of Some Common Financial Practices
- 2016 David Howden and Yang Zhou Why Did China's Population Grow So Quickly?
- 2015 Carmen Elena Dorobat Foreign Policy and Domestic Policy Are But One System: Mises on International Organizations and the World Trade Organization
- 2014 G.P. Manish Market Reforms in India and the Quality of Economic Growth
- 2013 William Butos Monetary Orders and Institutions: A Hayekian Perspective
- 2012 Thorsten Polleit and Jonathan Mariano Credit Default Swaps from the Viewpoint of Libertarian Property Rights and Contract Theory
- 2011 Philipp Bagus: “Austrian Business Cycle Theory: Are 100 Percent Reserves Sufficient to Prevent a Business Cycle?”
- 2010 Gil Guillory and Patrick C. Tinsley, "The Role of Subscription-Based Patrol and Restitution in the Future of Liberty"
- 2008 Robert F. Mulligan, "Time Preference and Property Rights"
- 2006 J.G. Hülsmann, "Fact and Counterfactuals in Economic Law"
- 2004 Thomas E. Woods, "Symposium on Federalism, War, and Reconstruction"
- 2002 Stephan Kinsella, "Against Intellectual Property"
Ludwig von Mises Entrepreneurship AwardCertificate and beautifully inscribed medallion awarded to businesspeople exhibiting entrepreneurial success and devotion to the free-market ideal.
- 2023 Benard Koether, Kitchen Brains
- 2018 William Lowndes III, Tindall Corporation
- 2017 Francisco Garcia Parames, Cobas AM
- 2016 James M. Rodney, Detroit Forming, Inc.
- 2014 Louis E. Carabini, Monex
- 2013 Henry Getz, Morton Buildings
- 2010 James M. Wolfe, Pasco Washington
- 2006 Robert L. Luddy, Econ-Air, Inc.
The George F. Koether Free-Market Writing AwardA medal and a $2,500 honorarium, presented for an outstanding book or essay.
- 2019 Patrick Newman: Editor, Conceived in Liberty, Volume 5
- 2018 Hunter Lewis: Economics in Three Lessons and One Hundred Economic Laws
- 2016 Ron Paul: Swords into Plowshares
- 2012 Thomas J. DiLorenzo: Organized Crime: The Unvarnished Truth About Government
- 2009 Thomas Woods: Meltdown
- 2008 Judge Andrew Napolitano: A Nation of Sheep
The Elgin Groseclose Award$20 Liberty Head Double Eagle, goes to the best piece of money writing in the previous year.
The Douglas E. French Prize$2,500 for the student who emerges from the Mises University oral examinations with the best record, as chosen by the examining committee.
- 2022 Benjamin Seevers, Grove City College
- 2021 Chase Roycroft, Mises Institute Graduate School
- 2020 David Hoffa, Michigan State University College of Law
- 2019 Christian Mullins, George Mason University
- 2018 HJ Lee, University of Wisconsin-Madison
- 2017 Kristoffer Hansen, University of Angers
- 2016 Hunter Morris, Baylor University
- 2015 Karl-Friedrich Israel, University of Angers, France
- 2014 Kyle Marchini, Grove City College
- 2013 James Chappelow, University of Missouri
- 2012 Patrick Newman, Rutgers University
- 2011 Jakub Wisniewski of Queen Mary, University of London
- 2010 G.P. Manish of Suffolk University
- 2009 Ed Perry of Indiana University
- 2008 David Howden of Universidad Rey Juan Carlos, Spain
- 2007 Benjamin Darrington of Yale University
- 2006 Mateusz Machaj of the University of Wroclaw, Poland
Kenneth Garschina Prizes at Mises University and the Austrian Economics Research Conference $1,500 for the student who emerges from the Mises University oral examinations with the second best record, as chosen by the examining committee.
- 2022 Luan Valério, Universidade Federal de Minas Gerais
- 2021 Porter Burkett, University of South Carolina
- 2020 Porter Burkett, University of South Carolina
$750 for the student who emerges from the Mises University oral examinations with the third best record, as chosen by the examining committee.
- 2022 Reece Smith, Allegheny College
- 2021 Samuel Cartagena-Sergenian, Raritan Valley Community College
- 2020 Benjamin Bies, Hillsdale College
Kenneth Garschina Prize at the Austrian Economics Research Conference
$1,500 for the best graduate student paper at the Austrian Economics Research Conference
- 2022 Jeffery L. Degner, University of Angers, "Cantillon Effects and the 'Coming Apart' of the American Family Experience: How Inflationary Monetary Policy Alters Family Life"
- 2021 Kesong Wang, Hokkaido University, "A Further Clarification of Ludwig von Mises as a Currency School Free Banker"
- 2021 Second place $500, Pedro Alemida Jorge, Universidad Francisco Marroquín , "The Two Traditions of Marginalist Thought"
- 2021 Third place $250, Jeffrey Degner, University of Angers, "Family Economics and the Socialist State: The Calculation Problem Applied to Eastern Bloc Fertility Economics"
- 2020 Kristoffer Hansen, University of Angers, "Are Free-market Fiduciary Media Possible?"
- 2020 Second place $500, Bernardo Ferrero, Universidad Rey Juan Carlos, "The Myth of the Developmental State: An Austrian Perspective"
Grant Aldrich Prize $1,000 for the best graduate student paper at Austrian Economics Research Conference
- 2019 Nicholas Cooper, George Mason University, "Reinterpreting the Historical Episode of the Bank of Amsterdam"
- 2018 Tate Fegly, George Mason University, "Policing and Economic Calculation"
- 2017 Louis Rouanet, Paris Institute of Political Studies, "Monetary Policy, Asset Price Inflation and Inequality"
$1,000 for the second-highest score on the Mises University oral examination
- 2019 Vytautas Zukauskas, University of Angers
- 2018 Bernardo Ferrero, School of Oriental and African Studies, London
- 2017 Joakim Book, University of Glasgow
$500 for the third-highest score on the Mises University oral examination
- 2019 Antón Chamberlin, Troy University
- 2018 Yannis Petrzak, Hillsdale College
- 2017 Benjamin Juhlin, Stockholm Sweden
- 2016 Daniel Sánchez Piñol Yulee, Universidad Rey Juan Carlos, Spain
George and Joele Eddy Prize$1,500 for the second-highest score on the Mises University examinations, and $750 for the third-highest score. (2007 - 2015). $1,800 for second-highest score (2016)
- 2016 George Pickering, London School of Economics
- 2015 Louis Rouanet, Paris Institute of Political Science
- 2014 Matei Apavaloaei (2nd Place), Academy of Economic Studies, Bucharest; and Edgar Duarte Aguilar (3rd Place), Francisco Marroquin University
- 2013 Daniel Costa (2nd Place), University of Porto School of Economics, Portugal, and Michael Leahy (3rd Place), Saint Joseph's University
- 2012 Matthew McCaffrey (2nd Place), University of Angers, and Wolf von Laer (3rd Place), University Rey Juan Carlos
- 2011 Samuel Selikoff (2nd Place), Boston College, and Robyn Harte-Bunting (3rd Place), University Rey Juan Carlos and University of Angers
- 2010 Jakub Wisniewski (2nd Place), Queen Mary, University of London,
Matthew McCaffrey (3rd Place), University of Angers - 2009 G.P. Manish (2nd Place) of Suffolk University, Christopher Oppermann (3rd Place) of Holy Spirit Preparatory School
- 2008 Gary Danelishen (2nd Place) of Auburn University, Gennady Stolyarov (3rd Place) of Hillsdale College
- 2007 Helene Haabegaard of the University of Copenhagen (2nd Place), Jack Parker of the University of Alabama (3rd Place)
Mündliche Prüfung Conference ExaminationsMises University 2022 overall results
- 57 students took the preliminary written exam, 16 proceeded to oral exams
- Passed oral exams: Evelyn Grant (Stirling University), Daniel Luster (Regent University), Joshua Mawhorter (Mises Institute Graduate School), Alexander Zeilstra (Grove City College), Ryan Turnipseed (Oklahoma State University), David Crego (Hampden-Sydney College), and Liam McCollum (University of Montana)
- Passed oral exams with honors Zachary Wood (Grove City College), Joshua Schubert (Trinity School for Ministry), Benjamin Seevers (Grove City College), Reece Smith (Allegheny College), and Luan Valério (Universidade Federal de Minas Gerais)
- Douglas E. French Prize for Most Learned: Benjamin Seevers (Grove City College)
- Kenneth Garschina Second Prize: Luan Valério (Universidade Federal de Minas Gerais)
- Kenneth Garschina Third Prize: Reece Smith (Allegheny College)
Mises University 2020 overall results
- 40 students took the preliminary written exam, 13 proceeded to oral exams
- Passed oral exams: Marcel Gautreau (George Mason University); Antòn Chamberlin (Troy University); Devin Cooper (McNeese State University); Mitchell Robson (University of Chicago); Karras Lambert (George Mason University); Levi Edwards (University of California, Irvine)
- Passed oral exams with honors Benjamin Bies (Hillsdale College); Porter Burkett (University of South Carolina); David Hoffa (Michigan State University College of Law)
- Douglas E. French Prize for Most Learned: David Hoffa (Michigan State University College of Law)
- Kenneth Garschina Second Prize: Porter Burkett (University of South Carolina)
- Kenneth Garschina Third Prize: Benjamin Bies (Hillsdale College)
Mises University 2019 overall results
- 78 students took the preliminary written exam, 19 proceeded to oral exams
- Passed oral exams: Juan Ignacio Ibañez (Catholic University of Cordoba); Thomas McGugin (Tenneessee Tech University) ; Noah Mickel (Missouri Univerisity of Science and Technology); Rohan Rai (Washington University in St. Louis); Nate Strum (University of Mobile); Evan Vincent (Oakland University)
- Passed oral exams with honors Katherine Agent ; Antón Chamberlin (Troy University); Jacob Dowell (Saint Louis University); Levi Edwards (State Univerity of New York at Potsdam) ; Alan Futerman (Torcuato Di Tella University); Gor Mkrtchian (Texas Tech University); Christian Mullins (George Mason University); Ohad Osterreicher (University of Bayreuth); Vytautas Zukauskas (University of Angers)
- Douglas E. French Prize for Most Learned: Christian Mullins (George Mason University)
- Grant Aldrich Second Prize: Vytautas Zukauskas (University of Angers)
- Grant Aldrich Third Prize: Antón Chamberlin (Troy University)
Mises University 2018 overall results written exam, 18 proceeded to oral exams
- 83 candidates took the preliminary written exam, 18 proceeded to oral exams
- Passed oral exams: Chris Calton (University of Florida); Benjamin Juhlin (Stockholm, Sweden); Luke Marcus (Bowling Green State University); Vitor Melo (Gettysburg College); Agnieszka Plonka (Utrecht University); James Reilly (Carthage College); and Julius Uotila (University of Nottingham Ningbo)
- Passed oral exams with honors: Anton Chamberlin (Troy State University); Bernardo Ferrero (Soas University of London), Marcel Gautreau (George Mason University); Kevin Hitchings (George Washington University); HJ Lee (University of Wisconsin-Madison); Mohammed Younes Megrini (Paris-Diderot University); and Yannis Petrzak (Hillsdsale College)
- Douglas E. French Prize for Most Learned: HJ Lee (University of Wisconsin-Madison)
- Grant Aldrich Second Prize: Bernardo Ferrero (Soas University of London)
- Grant Aldrich Third Prize: Yannis Petrzak (Hillsdale College)
Mises University 2017 overall results
- 59 candidates took the preliminary written exam, 19 proceeded to oral exams
- Passed oral exams: Alexander Cline (The Independent School), Michael DeGan (Ivy Tech College), Nathan Keeble (Walters State College), Luke Marcus (Bowling Green State University), HJ Lee (University of Wisconsin, Madison), Curtis Williams (San Diego State University)
- Passed oral exams with honors: Fernando D'Andrea (Politecnico di Milano), Bernardo Ferrero (Soas University of London), Christian Newman (University of Arkansas, Fort Smith), Kurtly Wallace (Monash University)
- Douglas E. French Prize for Most Learned: Kristoffer Hansen (University of Angers)
- Grant Aldrich Second Prize: Joakim Book (University of Glasgow)
- Grant Aldrich Third Prize: Benjamin Juhlin (Stockholm University)
Mises University 2014 overall results
- 64 candidates took the written exam, 30 were admitted to oral exams, 6 proceeded to final
- Finalists: Edgar Duarte Aguilar, Matei Apavaloaei, Davis Bourne, Kyle Marchini, Jonathan Newman, and Arkadiusz Sieron
- Passed Oral Exam with Honors: Edgar Duarte Aguilar (Francisco Marroquin University, Guatemala), Matei Apavaloaei (University of Economic Studies, Bucharest), Davis Bourne (Millsaps College), Blaine Kelley (Illinois Central College), Paulo Kogos (Insper Institute of Education & Research, Brazil), Kyle Marchini (Grove City Colllege), Jonathan Newman (Auburn University), Brice Rothschild (Paris XI University), Arkadiusz Sieron (University of Wroclaw, Poland)
- Passed Oral Exam: Matt Battaglioli (John Tyler College), Guilherme Benezra (Escola Superior de Popaganda e Marketing, Brazil), Joakim Book (University of Glasgow), Georg Buhler (University of Mannheim, Germany), Douglas Calder (Clemson University), Joel Crenshaw (Liberty University), Eric Faden (Florida International University), Darrell Falconburg (College of Idaho), Juan Igarzabal (Broward College), Lasse Kristensen (Aalborg University, Denmark), Savannah Liston ( Veritas et Libertas), Daniel Rothschild (San Jose State University), John Soriano (Duke University), Carel van der Linden (Tilburg University, Netherlands), Jonathan Wilbur (University of Florida)
Mises University 2013 overall results
- 85 candidates took the written exam, 21 were admitted to oral exams, 6 proceeded to final
- Finalists: Edgar Duarte Aguilar, James Chappelow, Daniel Costa, Michael Leahy, Matthew Schaffer, Wolf von Laer
- Passed Oral Exam with Honors: James Chappelow (University of Missouri), Daniel Costa (University of Porto), Edgar Duarte Aguilar (Francisco Marroquin University), Michael Leahy (Saint Joseph's University), Jonathan Newman (Auburn University), Matthew Schaffer (Central Michigan University), Wolf von Laer (King's College London)
- Passed Oral Exam: Matthew Advent (Benedictine College), Daniel Bennett (Wofford College), Davis Bourne (Millsaps College), Joseph Diedrich (University of Wisconsin, Madison), Ryan Griggs (Mises Academy Intern), Jared Hausmann (Saint Louis University), Andrew Herbener (Grove City College), Blaine Kelley (Illinois Central College), (Alexander Kelly (Wofford College), Jan Skapa (Brno University of Technology), Christopher Zimny (State College of Florida)
Mises University 2012 overall results
- 79 candidates took the written exam, 25 were admitted to oral exam, 6 proceeded to final exam
- Finalists: Mattheus von Guttenberg, Wolf von Laer, Christopher Oppermann, Patrick Newman, Mateusz Benedyk, Matthew McCaffrey
- Passed Oral Exam with Honors: Christopher Oppermann (Harvard University), Kristoffer Hansen (University of Oxford), Patrick Newman (Rutgers University), Wolf von Laer (University Rey Juan Carlos), Gabriel Oliva (Unversity Sao Paulo), Matthew McCaffrey (University of Angers), David Grzybowski (Case Western Reserve University), Mateusz Benedyk (University of Wroclaw)
- Passed Oral Exam: Tabor Barranti (Johns Hopkins University), Justin Bradfield (Johns Hopkins University), Stephen Farrington (University of Central Florida), Walter Melnik (Michigan State University), Andy Herbener (Grove City College), Ted Sonnier (Carnegie Mellon University), Mattheus von Guttenberg (Flagler College), Edgar Carlos Duarte Aguilar (Universidad Francisco Marroquin), Eric Perkerson (University of Georgia)
Mises University 2011 overall results
- 125 candidates took the written exam, 33 were admitted to oral exam
- Passed Oral Exam with Honors: Danny Hintze, Thomas Vergote, Ed Dehm, Jose Mora, Raymond Walter, David Grzybowski, Abhinandan Mallick, Matthew McCaffrey
- Passed Oral Exam: Bardhyl Salihu, David Bholat, Walter Melnik, Daniel Rodrigues Carreiro, Anita Acavalos, Ted Sonnier, Patch Newman, Daniel Krawisz, Cameron Belt, Michael Wiebe, Brent Myren, Hendrik Hagedorn
Mises University 2010 overall results
- 122 candidates, 28 admitted to oral exam after written test
- Honors: Zachary Caceres, Lode Cossaer, Robyn Harte-Bunting, Stan Kwiatkowski, G.P. Manish, Matthew McCaffrey, Xavier Mera, Chris Oppermann, Leonid Shapiro, Jacub Wisniewski, Ken Zahringer
- Passed: Dante Bayona, Mateusz Benedyk, Maciej Bitner, Aaron Brown, Oscar Rodriguez Carreiro, Daniel Danta, Paul Labro, Dion MacDonald, Michael Marsocci, Sam Selikoff, Raymond Walter
- Douglas French Prize for Most Learned ($3,000): G.P. Manish
- George and Joele Eddy Prize, Second Place ($1000): Jakub Wisniewski
- George and Joele Eddy Prize, Third Place ($500): Matthew McCaffrey
Mises University 2009 overall results
- 129 candidates; 22 admitted to the oral exam after written test
- Honors: Grant Babcock, Lode Cossaer, G.P. Manish, Matt McCaffrey, Xavier Mera, Malavika Nair, Christopher Oppermann, Ed Perry, Toban Wiebe
- Passed: Michael Douma, Philip Impellizzeri, Guillem Laporta, David Leighton, Abhinandan Mallick, Ted Phalan, Raymond Walter, Michael Wiebe, Guillaume Vuillermey
- Douglas French Prize for Most Learned ($3,000): Ed Perry
- George and Joele Eddy Prize, Second Place ($1000): G.P. Manish
- George and Joele Eddy Prize, Third Place ($500): Christopher Oppermann
Mises University 2008 overall results
- 82 candidates; 29 admitted to the oral exam after written test
- Honors: Serenity Wang, Stanislaw Kwiatkowski, Gary Danelishen, Jeff Henderson, David Howden, Gennady Stolyarov, Matt McCaffrey, Marcin Zielinski
- Passed:David Snead, Marco Brun del Re, Jorg Merret, Jordan Carley, Norman Horn, Daniel Luna, Max Raskin, Anne Longman, Toban Wiebe, Ed Perry, Christopher Oppermann, Kelsey Winther, Sebastian Quick, Matt Mortellaro, Brandon Harnish, Graham Neary
- Douglas French Prize for Most Learned ($2,500): David Howden
- George and Joele Eddy Prize, Second Place ($1000): Gary Danelishen
- George and Joele Eddy Prize, Third Place ($500): Gennady Stolyarov
Mises University 2007 overall results
- 51 candidates; 20 admitted to the oral exam after written test
- Honors: Daniel D'Amico, Benjamin Darrington, Helene Haabegaard, Jack Parker
- Passed: Eduard Braun, Marco Brun del Re, Dmitry Chernikov, Nick Curott, Benjamin Eberlei, Martin Fronek, Karl Gregory, Daniel Halvarsson, Juliusz Jablecki, Robert Orndofff, Robert Rahn, Max Raskin, Nathan Shore, Alex Weller
- Douglas French Prize for Most Learned ($2,500): Benjamin Darrington
- George and Joele Eddy Prize, Second Place ($1000): Helene Haabegaard
- George and Joele Eddy Prize, Third Place ($500): Jack Parker
Mises University 2006 overall results
- 53 candidates; 23 admitted to the oral exam after written test
- Honors: Aaron Singleton, Philipp Bagus, Philip Ruijs, Carl Jacobsson, Jack Parker, David Heinrich, Mateusz Machaj
- Passed: Daniel Carreiro, Tomasz Maslanka, Anthony Gregory, Elliot Olson, Matt Simpson, Manny Glover, Manuel Abalo, Amadeus Gabriel, Eric Phillips, Marcin Zielinski
- Douglas French Prize for most learned ($2,500): Mateusz Machaj
Mises University 2005 overall results (out of 34) H-4, P-15
- Honors: Pavel Chalupnicek, Devin Gould, Juliusz Jablecki, Randall McElroy
- Passed: Jan Krepelka, Geoffrey Plauche, Mike Dougherty, Allan Medwick, Marissa Slany, William Mullen, Ron Brown, Lukasz Szostak, Daniel Halvarsson, Christopher Byrnes, Art Moy, Francis Dumouchel, Rafael Raciborski, David Heinrich, David van der Goes
Mises University 2004, Session Two overall results (out of 28): H-5, P-10
- Honors: Lisa Casanova, Matt Machaj, Jacob Lyles, Peter van Maanen, Barret Snipes
- Passed: Remigijus Simasius, Daniel D'Amico, Anthony Batty, David Skarbek, Bretigne Shaffer, Cameron Carswell, Miloslav Zajicek, Matt Bower, Jeffrey Zhang, Pawel Skrzynecki
Mises University 2004, Session One overall results (out of 16): H-1, P-6
- Honors: Adam Martin
- Passed: David Heinrich, Rafal Raciborski, Simon Bilo, Ale Hartmann, Aaron Gunn, Harry David
Mises University 2003 overall results (out of 23): H-2, P-7
- Honors: Juan Fernando Carpio, Lucas Engelhardt
- Passed: Juan Fernando Aldana, Peter Anderson, Josh Bachmann, Nicholas Curott, James William Kimball, Andrew Neumann, Braden Robinson
Rothbard Graduate Seminar 2003 overall results (out of 6): H-2, P-2
- Honors: Jan Havel, Peter van Maanen
- Passed: Brad Barlow, Stephen Carson
Mises University 2002 overall results (out of 34): H-5, P-15
- Honors: Michael Boyle, Philipp Bagus, Andrew Kashdan, Dag Rowe, Noah Tyler
- Passed: Bibiana Gomez, Art Carden, Jack Estill, Scott Rosen, Jim Massey, Ben Kelly, Justin Newton, Carl-Magnus Ewerhard, Scott Bushee, Jeremy Livingston, Radek Nemecek, Brad Barlow, Marcus Epstein, Arthur Foulkes, Matus Petrik
Rothbard Graduate Seminar 2002 overall results (out of 9): H-3, P-3
- Honors: Philipp Bagus, Oskaari Juurikkala, Matus Petrik
- Passed: Art Carden, Gustavo Souza, Tibor Silber
Human Action Seminar 2002 overall results (out of 6): H-1, P-3
- Honors: Gustavo Matta y Trejo
- Passed: Jan Havel, Oskaari Juurikkala, Luis Lopez
History of Liberty 2002 overall results (out of 6): P-2, H-2
- Honors: Brad Barlow, Jason Jewell
- Passed: Ed Zeman, Howard Schmidt
Austrian Economics Research Conference Named Lectures
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| . | Year | Hazlitt | Hayek | Mises | Rothbard | Lou Church | Special Guest Lecture | | 2021 | Steve Mariotti | Douglas Rasmussen | Samuel Bostaph | Matthew McCaffrey | Francis Beckwith | | 2020 | cancelled due to Covid | | 2019 | Robert Luddy | Randy Holcombe | Michael Rectenwald | David Durr | Daniel Ajamian | Hans-Hermann Hoppe | | 2018 | James Bovard | Roger Garrison | Kevin Dowd | Richard Ebeling | Shawn Ritenour | | 2017 | David M. Hart | Paul Rubin | Glenn Fox | Per Bylund | Yousif Almoayyed | | 2016 | David Cowan | Bruce Yandle | Jeffrey Herbener | Paul Gottfried | Guido Hulsmann | | 2015 | John Tamny | Patrick Byrne | Hans-Hermann Hoppe | William Boyes | John Mueller | | 2014 | Jim Grant | Edwin Dolan | J. Huston McCulloch | Peter Klein | Judge Andrew P. Napolitano | | 2013 | Robert Wenzel | Nikolay Gertchev | Dominick Armentano | Brendan Brown | Gary North | | 2012 | Hunter Lewis | Nicolai Foss | Renaud Fillieule | David Howden | David Gordon | | 2011 | David Stockman | William Butos | Helio Beltrao | Philipp Bagus | Mustafa Akyol | | . | 2010 | Caroline Baum | Robert Murphy | Steven Kates | Mark Thornton | Gerard Casey | Paul Cantor and John Papola | | . | 2009 | Peter Schiff | George Selgin | Thorsten Polleit | Roberta Modugno | Daniel Lapin | | . | 2008 | Martin Fridson | Lorenzo Infantino | Larry Sechrest | Stephan Kinsella | Laurence Vance | | . | 2007 | Declan McCullagh | Gerald Steele | Antony Mueller | Edward Stringham | n/a | | . | 2006 | William L. Anderson | Robert Higgs | Josef Sima | Roderick Long | Robert Murphy | Michael Rozeff | | . | 2005 | Alberto Mingardi | Edward Feser | Thomas DiLorenzo | Mark Thornton | Robert Nelson | Martin van Creveld | | . | 2004 | Sean Corrigan | Toby Baxendale | Richard Ebeling | Joseph Stromberg | Thomas Woods | Yuri Maltsev | | . | 2003 | Gene Callahan | Sudha Shenoy | John Cochran | Butler Shaffer | Timothy Terrell | | . | 2002 | James Bovard | Ronald Hamowy | Paul Cantor | Walter Block | n/a | | . | 2001 | Tom Bethell | Chandran Kukathas | George Reisman | David Gordon | n/a | | . | 2000 | Gene Epstein | Donald Livingston | David Conway | Joseph Salerno | n/a | | . | 1999 | Charles Adams | Roger Backhaus | Morgan Reynolds | Hans-Hermann Hoppe | n/a | | . | 1998 | James Glassman | Jeremy Shearmur | Leland Yeager | Henri LePage | n/a | | . | 1997 | lectures not named | Jesus Huerta de Soto, Barry Smith, Irving Louis Horowitz, Raimondo Cubeddu | | . | 1996 | lectures not named | Anthony de Jasay, Michael Prowse, Hans Sennholz, JoAnn Rothbard | | . |
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Relatively free trade and capital mobilization have greatly raised living standards in recent years. Yet those that call themselves globalists are less interested in trade than in unipolar political power, pushing violent, disastrous schemes.
Original Article: "Globalization, Not Globalism: Free Trade versus Destructive Statist Ideology"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Whenever asked about whether the US will change its policy regarding the conflict in Ukraine, to start pushing for Kyiv to enter negotiations rather than apparently providing as much money and as many weapons as they ask for, the Biden administration’s refrain has been a consistent variation of “We’re going to keep doing what we’re doing as long as it takes.”
As long as it takes for what?
For Ukraine to “win” its war against Russia, taking back all land occupied or annexed by Russia since 2014.
While it isn’t clear this is possible, and even less clear that pursuing such a maximalist outcome is in the American national interest, Joe Biden and his administration officials continually play dumb at the notion they could end the war, or they feign offense at the suggestion that the decision isn’t one entirely up to the Ukrainians, a decision the Biden administration cannot and should not in any way influence—it was the Ukrainians, after all, who elected Volodymyr Zelenskyy on a war platform.
Except, of course, that he was voted in on a peace platform.
As is now openly acknowledged, instead of then backing Zelenskyy when he tried to get the ultranationalists in the eastern part of Ukraine to submit to central authority and agree to elections per the Steinmeier Formula to implement Minsk II, as negotiated by the governments of Ukraine, Russia, France, and Germany, the Trump administration shrugged and told Zelenskyy to take a hike. The frontline ultranationalists who told Zelenskyy to go to hell—those are the guys the US government has been working with since 2014 and arming with heavy weapons since 2017.
Not that all the weapons are getting to them, as no one was surprised to find out—nor much of the money for that matter. The situation has gotten so unacceptable that the Washington Post, while it still cheers the hurried passage of every new appropriation earmarked for Ukraine, has dared to openly question where all the guns and money that aren’t going to Ukraine are going. CBS released an entire documentary, which was then almost immediately partially retracted under pressure, casting a critical eye on the policy, which is corporate media speak for “This is a huge problem!”
Rather than halting or slowing the process in response to these justified objections, the Pentagon went ahead in October and put US troops in Ukraine to supervise.
Um. What?
But while the deaths pile up and the stalemate continues, Americans should keep in mind that this is all part of the plan: to get other people killed so the US government can weaken Russia and intimidate China. At least, that is what they think the plan is doing. It is hard to say for sure. Russia will be economically and technologically less robust over the long term, and no one likes running afoul of the US Treasury, but it obviously seems to push Russia and China closer together. Was that part of the plan? If so, was it a good plan?
Other than finally admitting what we already knew, which was that flushing weapons down a black hole half a world away in one of the most corrupt countries in the industrialized world was a bad idea, the so-called Fourth Estate really has been failing abysmally. Though predictable, the corporate press has never met a war it doesn’t love; the copy the Wall Street Journal and Washington Post have been publishing is naked war porn: daydreams about the North Atlantic Treaty Organization (NATO) blowing up the Russian ships blockading Odessa or about seizing the advantage from China and militarizing, or rather further militarizing, the Taiwan Strait in order to show Beijing that Uncle Sam isn’t going to be intimidated.
Because, you know, that’s how the Cuban Missile Crisis was resolved without blowing up the world.
Yikes.
Then there are the tragically misnamed “think tanks,” the ones usually funded by some combination of foreign money and kindly donations by such equally disinterested third parties as Lockheed Martin and Northrup Grumman—all of which are so totally and obviously legitimate, they aren’t required to state any conflicts of interest as they breathlessly bang out their jeremiads about the dangers of repeating Munich, of the necessity of maintaining the credibility of American security guarantees—no matter how previously ill thought out, ambiguous, or now plainly inappropriate these guarantees are given the changed circumstances of the present.
Even if Tom Cotton doesn’t think we should question whether a security policy designed seventy years ago under very different circumstances merits questioning, it seems a prudent thing to do.
What’s the war even over, again? Membership in a security alliance Ukraine didn’t qualify for nor would have strengthened, which is already too big by half and which doesn’t even concretely serve American interests anymore? Democracy? Democracy everywhere is on the line if it vanishes in one of the most peripheral and corrupt countries in all of Europe, rated on par with Russia itself?
Let’s chance it.
Let’s say “NO!” to another forever war. Because while the endless conflicts of the terror wars could sit and simmer neglected and safely out of sight, quietly costing just a few extra trillion dollars and couple of thousand (American) lives, at no point did any of these conflicts approach the inherent dangers of a possible direct exchange between NATO and Russia, nor did their carry-on effects threaten the starvation and impoverishment of so many around the globe.
This has gone on long enough.
Mistakes were made—fine, that happens. No one is going to own up to them—predictable, but that too hardly matters anymore.
What matters is that multipolarity is a fact, see Olaf Scholz in Foreign Affairs, and that Washington’s own terrible example did more than anything else to undermine the “liberal rules-based international order,” see every other invasion of one country by another over the last thirty years. And while Washington’s capacity for resisting facts is almost as legendary as its penchant for making them up, there still remains time and hope that Americans will be able to rein in their government. The majority still can’t find Ukraine on a map, know a blank check isn’t a good policy, and don’t believe Ukraine will win.
The prospect of American political leadership with the bravery and vision necessary to chart a new course may be dim, but that should not stop those who oppose the current policy from voicing their opposition.
Far from it.
As reports by the Times of London on the Pentagon “tacitly endorsing” Ukrainian strikes deep into Russia make clear, the current precarious balance between belligerents could shift suddenly and with horrifying consequences.
The only way this was ever going to end, outside of escalation to a war between Russia and NATO and the likely end of human civilization, was through a negotiated settlement. It seems preferable that any division be done with a pen rather than a gun.
If nothing else has been made clear by Russia’s invasion of Ukraine, the rest of Europe is in no danger. If deals could be struck with the likes of Joseph Stalin and Mao Zedong, the greatest mass murderers of the twentieth century, and direct support given to the repressive, dictatorial regimes of Suharto, Anastasio Somoza Debayle, Mobutu Sese Seko, and Syngman Rhee, to name just a few, surely a deal can be done with the current occupant of the Kremlin.
Federal protectionism and bailouts makes it easier for US airlines to survive terrible service, such as mass cancellations or when Southwest imposed a private mask mandate and threw families off flights.
Original Article: "Southwest's Meltdown Reminds Us We Must End Airlines' Corporate Welfare"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Americans typically are told that private enterprise wastes resources while government preserves them. Economic truths turn that canard upside down.
Original Article: "Paradise Valley, Montana: A Study in Free Market Land Conservation"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Central bankers follow inflation "target" in their pursuit of "price stability." Not surprisingly, they usually miss their targets -- quite badly -- and we now are living one of those moments.
Original Article: "Central Bankers Are Poor Archers: The Problems and Failures of Inflation Targeting and Price Stability"
This Audio Mises Wire is generously sponsored by Christopher Condon.
You’re more likely to die of heart disease than anything else, partly because, well, if nothing else gets you, your heart will give out. And a heart attack could cost you upwards of $760,000 these days, when you consider hospital charges, prescription drugs, additional care for the rest of your life, and then indirect costs like loss of time at work.
Up to 80 percent of premature heart disease can be prevented simply by the adoption of a healthy diet, regular exercise, and avoiding tobacco. In 1999, The Lyon Heart Study demonstrated that a change of diet could lead to 70 percent less heart disease—about three times the reduction in risk achieved with statins—and a 45 percent reduction in death rate.
But the state keeps throwing vast quantities of public funds at statins, despite years of mounting evidence that they do not reduce all-cause mortality in patients who have not had a heart attack already. As for stents and coronary bypass surgery, prevention is better than cure.
A major problem with the government colonization of healthcare is that, while people certainly don’t like the government telling them to put down the corn chips or get off the sofa for a run around the block, they sure like free treatment. Once the “right to be treated” becomes the accepted norm, paying for preventable diseases makes sense, and then becomes an approach backed by a coalition of medical lobbyists and willing patients.
There is a prevailing cultural view that people are not capable or willing to make lifestyle changes or take better care of their health, and it certainly suits the medical industry for people to believe this as it allows them to sell endless numbers of statins, stents, and perform costly operations like bypass surgery. But we have some case studies proving that, with the right support, people can take better care of themselves.
In Ribera, New Mexico, a private company was licensed to deliver the government-provided healthcare. To keep costs down (and turn a profit), it provided lots of active, preventative care to keep people away from hospitals.
For example, the hospital took note of who would come in with chronic bronchitis in the winter, and then contacted them the following October offering them a visit. If they were suffering from poor health, they were given preventative treatment making them less likely to end up in the hospital later, saving money and a traumatic trip to the emergency department on a cold winter night. They also monitored people with known heart conditions to offer early treatment and consequently managed to admit a staggering half as many heart attacks as in the past.
In 1995, Duke University Medical Center instituted a program to prevent congestive heart failure, which was the most common diagnosis leading to hospitalization among the elderly. Nurses would call heart failure patients at home to check on their breathing and make sure they were taking the right medication properly. Nutritionists helped patients improve their diets. Doctors shared information about them and came up with new ways to improve care. The number of hospital admissions for congestive heart failure at Duke declined, and patients who were admitted spent less time at the hospital, bringing the costs down for insurers by 37 percent.
One would think with such astonishing results to boast, programs like these would have become commonplace in the two and a half decades since. But they haven’t. And under the current system they likely won’t because Duke lost money as a consequence of the program.
In a free market there would be a huge incentive for companies to find innovative ways to prevent the $760,000 waste on a preventable heart attack and to help people realize the benefits of greater health. People love being fit. They love being able to run around with their kids on their back without getting out of breath and being able to roll around with their partners without getting exhausted.
But so long as government funds continue to prop up the “firefighting” model of healthcare, where we wait until people get really sick and then treat them with expensive drugs and surgery, we are unlikely to see the emergence of many “fire prevention” programs.
Australia’s superb performance on measures of international development has earned her the admiration of many. Few countries can boast such stellar achievements in economic and social affairs. Currently, Australia has the highest median wealth per adult in the world and outperforms the Organisation for Economic Co-operation and Development (OECD) average in civic engagement, health, education, and other dimensions of well-being.
Australians are equally lauded for their responsiveness to changes in the digital economy and their inventive abilities. However, the spectacular success of Australians has puzzled onlookers who find it unfathomable that a colony settled by convicts could become so prosperous. But what they forget is that most convicts sent to Australia were not hardened criminals. Many were implicated in work-related crimes, for example, theft of tools or other materials from employers.
These convicts were not irredeemable and became oriented toward pursuing productive goals. In England and Ireland, such people were often working-class individuals, who engaged in economic crimes due to desperation. On average, the convicts were also young, literate, and healthy. Some estimates argue that literacy rates among convicts were similar to British levels. Also, it is of note that some of these convicts were university-educated social activists.
Because these convicts were young and healthy, they could afford to extend their working years, thus enhancing national productivity. Moreover, groundbreaking research pioneered by gender historians has dispelled the myth that women shipped to Australia were mostly prostitutes lacking valuable skills. Instead, new information has shown that women were instrumental in Australia’s early development. Female convicts were literate and possessed an impressive array of skills. Many were talented seamstresses or hucksters in England, and these skills proved beneficial to the Australian economy.
Economist Noel George Butlin remarks that Australia in the nineteenth century was blessed with a high proportion of industrial skills in a wide variety of sectors. He notes that although textile skills were undersupplied, settlers compensated for this deficiency by being productive in metalworking, woodworking, and transportation. Further, as Butlin points out, the conditions imposed by colonialization fostered the cultivation of new skills by settlers: “Pioneering conditions imposed the need for many skills and the possession of one by each member of the workforce could mean the ability to deploy that skill for important purposes. Thus, in establishing farms, a carpenter or bricklayer who may have been an indifferent ploughman or shepherd could nevertheless deliver needed construction labour. A blacksmith turned publican still had considerable scope for the exercise of skills in taverns and transport activity.”
Convicts proved to be adaptable to new circumstances. The skills of most people complemented the economy, since they were allocated work commensurate with their skills. This led to greater efficiency because the abilities of convicts were cohered with the economy’s demands.
Even more amazing is that the entrepreneurial ability of convicts catapulted many into the upper echelons of society. Moving to Australia liberated working-class people from the constraints of socially conscious England. In Australia, they could chart a fresh path unencumbered by classist restrictions, and many did so successfully. For example, Mary Reibey was deported to Australia at fourteen, and by thirty-four she was widowed and owned ships, farms, and a warehouse. Like Reibey, other settlers were endowed with entrepreneurial and business skills that made Australia dynamic.
Solomon Wiseman became an outstanding businessman after concluding his sentence, and he was not unusual in this regard. The entrepreneurial success of ex-convicts seems shocking, but it is understandable. Entrepreneurs, like criminals, are risk tolerant, and a popular study published in the Quarterly Journal of Economics titled “Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?” actually posits that people who participated in illicit activities as youngsters are more likely to become successful entrepreneurs.
The explanation is that successful entrepreneurship requires people to be bold, and sometimes this results in breaking established norms. Interestingly, other studies have confirmed these findings by showing that misbehavior in high school predicts higher earnings in adulthood. Rule breaking is often problematic, but intelligent rule breakers with an appetite for risk can go on to lead positive transformations in society.
Therefore, Australia’s success seems less baffling when we begin to appreciate the link between delinquency and achievement. Nineteenth-century Australia with its egalitarian ethos and socially ambitious, but mildly deviant population created the perfect ingredients for economic prosperity. Analysts should not be shocked that criminals built Australia; it is successful precisely because it was populated by socially ambitious criminals.
On December 21, the president of Ukraine, Volodymyr Zelenskyy, spoke to Congress in an effort to get more financial and military support from the American government. Zelenskyy spoke of peace, freedom, and interconnection as the main goals of the Ukrainian fight but that Ukraine needed American resolve. Zelenskyy stated:
From the United States to China, from Europe to Latin America and from Africa to Australia, the world is too interconnected and interdependent to allow someone to stay aside and at the same time to feel safe when such a battle continues. Our two nations are allies in this battle, and next year will be a turning point . . . when Ukrainian courage and American resolve must guarantee the future of our common freedom.
After his speech, Congress passed a $1.7 trillion spending plan with $45 billion going to Ukraine. This money is supposed to be used for the Ukrainian war effort, but President Biden insists that he has no intention of sending US combat troops to Ukraine; he was not the first leader to make such a promise.
Parallels in HistoryJust as in World War I, World War II, and Vietnam, it is never just military support. President Wilson, President Roosevelt, and President Johnson all promised that they would not send Americans into a war. President Wilson created a campaign slogan of “he kept us out of war.” FDR created the lend-lease program to arm the British and later the Soviets, all the while keeping “neutrality.” Presidents Kennedy and Johnson sent military aid and advisors to support the South Vietnamese government until the United States sent combat troops after the Gulf of Tonkin incident. Despite the promises of these politicians, war was the result.
Although we don’t know the plans of Western government officials, we can analyze their previous plans and policies: broken promises, broken treaties, sanctions, and coups that built up the mistrust between East and West and caused the harmful consequences we see today.
Western Expansion in the EastOn February 24, 2022, just hours after the initial invasion, President Putin went on TV and gave his reasons for the invasion, stating:
I am referring to the eastward expansion of NATO, which is moving its military infrastructure ever closer to the Russian border. It is a fact that over the past thirty years we have been patiently trying to come to an agreement with the leading NATO countries . . . In response . . . we invariably faced either cynical deception and lies or attempts at pressure and blackmail.
NATO expansion has always been a concern for the Russian Federation since its start in 1991, when American, British, French, and German diplomats promised not to expand NATO. But this was a broken promise, as Alan Sabrosky, former head of strategic studies for the US Army War College, put it:
Well, it was the sort of thing where we could do it. There was a drunken lout named Yeltsin as president of Russia, and there was very little we couldn’t do. We plundered Russia economically and plundered it politically. Yeltsin was completely incapable of responding in an effective way to any expansion of NATO beyond its borders. We could do it, and so we did.
Bill Clinton would bring countries such as Poland and Hungary into NATO, breaking earlier promises, but would deny a Russian request for NATO membership in 2000. President George W. Bush extended membership to the Baltic countries and Slovakia in 2004, and he worked toward adding Georgia and Ukraine into the fold in 2008. But this was not the start of the war in Ukraine; that war would begin in 2014 with the NATO-backed overthrow of the Ukrainian government.
Known as the Maidan Revolution, this NATO-backed coup overthrew the Ukrainian president Viktor Yanukovych. We know this was backed by NATO because of a recorded phone call from the Estonian foreign minister Urmas Paet to the EU head of foreign policy, Catherine Ashton. In the call, Minister Paet talks of suspicious members of the new government coalition ordering the sniper murders in Independence Square that killed protesters and police alike. In fact, Maidan activist Ivan Bubenchik confessed that during the massacre, he had shot Ukrainian police officers. After this coup, Russia annexed Crimea, and secessionist rebels seized Donbass from Ukraine, which sparked a civil war that rages on to this day.
These suspicious members were from neo-Nazi parties like Azov and Svoboda, the same groups that led violent clashes with the police. In a phone call whose transcript was leaked in 2014, assistant secretary of state Victoria Nuland and US ambassador to Ukraine Geoffrey Pyatt discussed whom they favored in the new opposition government and agreed that Vice President Biden should give them an “atta-boy.” The transcript states:
Pyatt: So let me work on Klitschko and if you can just keep . . . we want to try to get somebody with an international personality to come out here and help to midwife this thing. The other issue is some kind of outreach to Yanukovych but we will probably regroup on that tomorrow as we see how things start to fall into place.
Nuland: So, on that piece Geoff, when I wrote the note [US vice-president’s national security adviser Jake] Sullivan’s come back to me VFR [direct to me], saying you need [US vice president Joe] Biden and I said probably tomorrow for an atta-boy and to get the deets [details] to stick. So, Biden’s willing.
In the call, Nuland and Pyatt also talked about working with Oleh Tyahnybok and his neo-Nazi Svoboda party; members of this party as well as members of the Azov Battalion once again spearheaded the attacks on police. In the call, Nuland said that Tyahnybok would “be a problem” but that members of the Svoboda party like Oleksandr Sych would get positions in the new government’s cabinet.
ConclusionOne of the best analogies that came out of this war was from Scott Horton from antiwar.com: if the Russian government overthrew the Canadian government and the now anti-American government threatened to kick US naval bases out of Alaska and started a war with secessionists in Vancouver, British Columbia, we would be plotting regime change within hours.
This war is a direct result of war hawk American policy, which installed an anti-Russian government in Ukraine; expanded a military alliance on Russia’s doorstep; gave billions of dollars’ worth of weapons to fight Russian-backed secessionists in Donbass, ending missile treaties and installing silos in Poland and Romania; and waged an economic war on the Russian population through sanctions. We now see the consequences of the US government’s actions.
Because police protection of students is inadequate, Temple University of Philadelphia has hired private police to help keep students safer from crime.
Original Article: "Police Failures in Philadelphia Have Made Private Policing More Attractive"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Need to Be Whole: Patriotism and the History of Prejudice
by Wendell Berry
Shoemaker and Company, 2022; x + 513 pp.
Wendell Berry, a poet, novelist, and philosopher well known for his protests against mechanized agriculture and for his defense of the “land ethic,” is not a thinker one would immediately associate with Ludwig von Mises, and indeed, in economic theory the two are far apart. But there is nevertheless a passage in Mises’s Socialism that is central to Berry’s concerns.
The passage I have in mind is this:
When society’s existence is threatened, each individual must risk his best to avoid destruction. Even the prospect of perishing in the attempt can no longer deter him. For there is then no choice between either living on as one formerly lived or sacrificing oneself for one’s country, for society, or for one’s convictions. Rather, must the certainty of death, servitude, or insufferable poverty be set against the chance of returning victorious from the struggle. War carried on pro aris et focis [for hearth and home] demands no sacrifice from the individual. One does not engage in it merely to reap benefits for others, but to preserve one’s own existence.
Berry uses a similar idea to explain and defend the South’s standpoint in the Civil War, but he does not do so in the way one might expect. Far from extolling the virtues of antebellum slavery, he condemns it as a grievous sin. In this connection, he makes an interesting criticism of John C. Calhoun, who deemed manual labor beneath the dignity of gentlemen, fit only for slaves. Berry argues that it was in part the unwillingness of elements among the Southern planter elite to acknowledge the virtue of work that led them to turn away from the Jeffersonian position that slavery is a great evil. In this connection, Berry quotes John Quincy Adams, a great opponent of slavery whom he admires: “I told Calhoun I could not see things in the same light—It is in truth all perverted sentiment—mistaking labor for slavery, and dominion for Freedom” (Adams, quoted on p. 298).
If slavery was wrong, why, then, does Berry defend the South’s position in the Civil War? His answer is that the great bulk of those who fought for the South did so not to entrench slavery but rather to protect their land and homes from invasion: “But from the point of view of the Confederate soldiers, the great fact of the war, once it had begun, was that their country had been, and was going to be invaded. They shared with [Robert E.] Lee a settled determination to defend their homelands and their people” (p. 203).
In arguing in this way, Berry agrees with Murray Rothbard, another thinker not usually coupled with him. Like Berry, Rothbard argues that the Southerners were defending their lands from invasion:
In 1861, the Southern states, believing correctly that their cherished institutions were under grave threat and assault from the federal government, decided to exercise their natural, contractual, and constitutional right to withdraw, to “secede” from that Union. The separate Southern states then exercised their contractual right as sovereign republics to come together in another confederation, the Confederate States of America. If the American Revolutionary War was just, then it follows as the night the day that the Southern cause, the War for Southern Independence, was just, and for the same reason: casting off the “political bonds” that connected the two peoples. In neither case was this decision made for “light or transient causes.” And in both cases, the courageous seceders pledged to each other “their lives, their fortunes, and their sacred honor.”
If it is objected that without the war, the end of slavery might have been indefinitely postponed, Berry admits that he has no easy answer but that he does know that the violence of war exacts tremendous costs. He reminds us that the “crusade” mentality led to later disasters:
[The Civil War] remains popularly credited as the solution, entirely good, of our worst national problem. So successful were we at solving our own great problem that we have generously undertaken to solve international problems and the problems of other nations also by force of war and with the same assurance of our goodness in doing so. If we have a sort of notion of preventability, we are not long detained by it. We appear never to bother with the question of net good. We went to war in Iraq and Afghanistan as if such questions could not be asked, as if no useless war had ever been fought, and in a nationalist confusion of pride, fear, moral certainty, and (never dismissible) the allure of profits in the war industries. (p. 85)
In condemning the stern moralism of the Northern aggressors, Berry again finds himself at one with Rothbard.
The Civil War seems to me to have been, to an extent sufficiently noticeable, a conflict of patriotism, which is to say love for one’s actual country or the land under one’s feet, against nationalism, which is to say allegiance just short of worship to a political idea or ideal and to a government. The difference is well illustrated by the anthems of the two sides: the jaunty “Dixie,” which celebrates the “land where I was born,” versus “The Battle Hymn of the Republic,” a hymn sure enough of a sanctified nationalism, in which the misfortunate Jesus once again shows up in uniform. (p. 250)
In like fashion, Rothbard says:
The Northern war against slavery partook of fanatical millennialist fervor, of a cheerful willingness to uproot institutions, to commit mayhem and mass murder, to plunder and loot and destroy, all in the name of high moral principle and the birth of a perfect world. The Yankee fanatics were veritable [Isabel] Patersonian humanitarians with the guillotine: the Anabaptists, the Jacobins, the Bolsheviks of their era. This fanatical spirit of Northern aggression for an allegedly redeeming cause is summed up in the pseudo-Biblical and truly blasphemous verses of that quintessential Yankee Julia Ward Howe, in her so-called “Battle Hymn of the Republic.”
We have much to learn from Berry’s profound defense of the local and particular against militarism and fanaticism.
Dr. Peter Klein, professor of entrepreneurship at Baylor University and co-author of the new book Why Managers Matter, joins Jeff and Bob to explain the huge disconnect between supply and demand for labor in post-COVID America.
Dr. Klein's new book Why Managers Matter:Mises.org/HAP378a
Despite worries that foreign "competitors" will surpass economic production in the United States, innovation and entrepreneurship are still important here. For now.
Original Article: "For Now, Innovation and Entrepreneurship Still Holds a High Place in the USA"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Mention the term “deep state” in polite company and most likely no one will want to speak to you the rest of the evening. The deep state is what Wikipedia calls “discredited,” something reeking of conspiracies, false accusations, and the substitution of fantasy for the truth.
After the FBI raided Donald Trump’s home in Florida, Trump alluded to “deep state” actions, which brought predictable ridicule from the mainstream media. Trump was speaking conspiratorially, and if one follows the mainstream media these days, the only conspiracies are on the right. (You know, like the one in which the unarmed, ragtag January 6 rioters nearly overthrew the US government.)
After the recent revelations about how Twitter worked to hide the story of the infamous Hunter Biden laptop, Trump attributed the secrecy to a plot by the “deep state.” However, while the facts of the story really are outrageous, I don’t believe it was as much a secret conspiracy as a case of people being able to engage in certain actions with no political consequences.
Furthermore, journalist Matt Taibbi’s regarding FBI and CIA agents’ outright interference in the 2020 election via Twitter on the pretense that Russian operatives were spreading disinformation has further exposed both the involvement of federal law enforcement agents in partisan activities and the sad fact that those agents need not worry about being held accountable—especially if they are engaged in a “progressive” cause.
The Standard Deep State NarrativeOne does not have to believe in a single conspiracy (not even about the 9/11 attacks) to understand that there really is what we can call a deep state. Indeed, what we might call the real deep state has nothing to do with conspiracies, secret meetings, and the like. Instead, this deep state operates in the open and in broad daylight, and that makes the deep state narrative an even greater threat than the secret cabal narrative.
When I was a young adult, I read a novel by two anticommunist journalists called The Spike, in which a young, liberal, and crusading journalist uncovers a nest of Soviet agents embedded in the US government. The journalist’s story on the affair, however, is spiked by his employer (a Washington Post–like paper), but the protagonist manages to get the story out elsewhere. The result is that a compromised president is brought down and the federal government is able to ferret out the Soviet agents.
Thus, in a dramatic moment, a motivated journalist and political allies expose the equivalent of the “deep state” and the US government makes a rightward turn. The deep state goes away.
The Hard TruthUnfortunately, no novelist can write out our present deep state because that would be a bridge too far. The reason is that our present deep state simply is the executive branch of government, which has been written into our laws and our courts, and this branch has taken over much of the role originally assigned to the judicial wing of government, that of interpreting the laws.
The real power of the modern state is in its civil service, which is composed of employees of all the federal departments and agencies—employees who hardly are neutral ideologically and politically, employees who are protected by civil service laws and by unions. When progressive regimes such as the Biden and Obama administrations occupy the West Wing and Congress, the federal courts become almost irrelevant. The president and his political appointees govern by executive orders, which, not surprisingly, the allegedly neutral government employees enthusiastically support.
Much of modern lawmaking is by executive order, with many orders not even having to square with the statutes underlying them, something that has gone on for a long time. For example, when President Franklin Roosevelt seized private gold holdings in 1933, he based his executive order upon the 1917 Trading with the Enemy Act. When President Biden announced student loan forgiveness, he based his order on the 9/11 Heroes Act, stretching that law and its obvious intent to the point that it was unrecognizable.
While not all executive orders have the effect of Executive Order 6102, they nonetheless involve the executive branch of the US government assuming powers that well may violate the Constitution yet are carried out without a worry that any outside agency—including the US Supreme Court—will intervene. (Yes, the courts so far have slapped down Biden’s student loan forgiveness scheme, but the litigation process is not complete, and the courts can be unpredictable.)
All-Powerful Bureaucracy Has Progressive SupportOne would think that educated Americans would blanch at the prospect of federal agencies making policies independent of congressional or court oversight, but the opposite is true, especially when federal agents pursue progressive policies. For example, when the Supreme Court placed some legal fences around the Environmental Protection Agency’s powers to regulate carbon dioxide emissions, the progressive establishment exploded in anger.
For example, the New York Times, which carries the progressive standard, declared that the court had placed American lives in danger:
Regulatory agencies staffed by experts are the best available mechanism for a representative democracy to make decisions in areas of technical complexity. The E.P.A. is the entity that Congress relies upon to figure out how clean the air should be, and how to get there. Asserting that it lacks the power to perform its basic responsibilities is simply sabotage.
Governance by “experts” has been the progressive mantra for more than a century, the idea being that so-called experts embedded deep in government should be free to make whatever decisions they believe best to govern the rest of us. The assumption of the editors of the NYT is that the “experts” always (or at least usually) know what is best for everyone else and how to achieve those important social and economic ends.
Likewise, the revelations that the FBI and CIA were coercing social media companies to censor anything that contradicted certain progressive narratives coming from Washington, DC, should have been banner headlines everywhere and the lead story on the evening news. Instead, mainstream progressive journalists attacked Matt Taibbi, or like David French, they downplayed the seriousness of what happened and made excuses for federal agents.
(French argued that the only real question was whether federal agents had “violated the First Amendment” and that anything else was not fit for discussion. And, yes, he concluded that those agents probably had not violated the Constitution, missing the more important point that federal agents were trying to influence the outcome of an election.)
ConclusionWe are not speaking of secret conspiracies in which nefarious actions are carried out in the darkness. These things are carried out in daylight, complete with the names of the characters involved, yet people who raise serious questions about the legality of these actions, let alone the question of right and wrong, are praised and encouraged by our institutional gatekeepers.
That is why I say that this version of the deep state is much worse than whatever the authors of The Spike might have believed to exist. The people involved do what they darn well please, all the while claiming they are the soul of democracy, and many Americans seem to either believe them or no longer care.
The federal government’s Bureau of Labor Statistics (BLS) released new price inflation data today, and according to the report, price inflation during the month decelerated slightly, coming in at the lowest year-over-year increase in fifteen months. According to the BLS, Consumer Price Index (CPI) inflation rose 6.5 percent year over year during December, before seasonal adjustment. That’s the twenty-second month in a row of inflation above the Fed’s arbitrary 2-percent inflation target, and it’s fifteen months in a row of price inflation above 6.0 percent.
Month-over-month inflation fell for the first time in five months, with the CPI falling 0.1 percent from November to December.
December’s year-over-year growth rate is down from June's high of 9.1 percent, which was the highest price inflation rate since 1981. But December’s growth rate still keeps price inflation above growth rates seen in any month during the 1990s, 2000s, or 2010s. December’s increase was the fourteenth-largest increase in forty years.
The ongoing price increases largely reflect price growth in food, energy, transportation, and shelter. Gasoline and used car prices, on the other hand, fell and mitigated the overall CPI increase. Nevertheless, the prices of essentials overall saw big increases in December over the previous year.
For example, “food at home”—i.e., grocery bills—was up 10.4 percent in December over the previous year. Energy services were up 15.6 percent. Shelter was up by 7.5 percent.
As of December there is, as of yet, no sign of price growth in shelter slowing down. Last month, shelter prices increased by 7.1 percent, and YoY growth only continued into December having now reached the highest growth rate since July of 1982. Month-over-month growth in shelter costs also remains among the largest we've seen in 40 years. In the seasonally adjusted numbers, shelter prices rose 0.8 percent, the highest since June 1982:
Meanwhile, so-called core inflation—CPI growth minus food and energy—has barely fallen from the forty-year high reached in September. In December, year-over-year growth in core inflation was 5.7 percent. That's down slightly from November's growth rate of 5.9 percent. September's year-over-year increase of 6.7 percent was the largest recorded since August 1982. Month-over-month growth in this measure was positive from November to December as well, with prices minus food and energy growing 0.3 percent. Month-to-month growth has been positive in every month since May 2020.
Meanwhile, December was yet another month of declining real wages, and was the twenty-first month in a row during which growth in average hourly earnings failed to keep up with CPI inflation. According to new employment data released last week by the BLS, hourly earnings had increased 4.6 percent in December year, over year, meaning wage growth fell behind inflation:
Celebrate a 6.5 Percent Inflation Rate? Many pundits and politicians were quick to claim the slowing CPI inflation numbers show that inflation is "falling." The Biden Administration, for example, repeatedly uses variations on the words "fall" or "falling" to describe price inflation. Of course, this is only true if one ignores the year-over-year change, and certainly ignores the larger trend in which the CPI is up 15 percent since December of 2019. For those whose wages have increased by 15 percent over the past three years, they may be keeping up (barely) with rising prices. But as for people on fixed incomes? Forget about it. Moreover, ordinary people trying to build up savings are taking a financial beating. Since December 2019, the Dow Jones has gone up 14 percent. Savvy traders are perhaps managing to almost keep up with price inflation. But more mundane investments are very much in the hole, and savings in savings accounts is rapidly losing value. Savers are earning 4 percent on some of the best high-yield accounts, but regular savings accounts are still paying under 1 percent. With price inflation at 6.5 percent, savers are simply losing money. Moreover, retirement accounts and other investments that are heavily invested in Treasurys are losing money. The ten-year bond is at a measly 3.4 percent. For most of 2022—when CPI inflation was coming in from 7 to 9 percent—the ten-year bond was often below 3 percent. In other words, savings and investment funds held by regular people—people who can't afford the risky process of "chasing yield"—are shrinking.
Will the Fed Pivot to Lowering Interest Rates Again?Nonetheless, some corners of Wall Street are optimistic that even a minor slowing inflation is a very good sign. This isn't because Wall Street is especially opposed to price inflation, but because Wall Street interprets slowing inflation as a sign the Federal Reserve will soon force down interest rates again if inflation is seen as ebbing. Wall Street has become so addicted to easy money from the Fed now that nearly all economic news is interpreted through the lens of "what will the Fed do next?" (There's very little actual capitalism going on among the financial classes in America in 2022.)
The slowing in CPI inflation, of course, has been partly due to the fact the Federal Reserve has eased up on quantitative easing and other efforts to force down interest rates. That means less new money entering the economy, but both Wall Street and Washington hate that. Yet, price inflation is bad enough that the Fed worries it could get out of hand, which would lead to political instability. So, even with today's numbers showing a slight slowing in price inflation, many investors remained unconvinced the Fed is about to turn back to an easy-money regime. After all, as we note above, food, shelter, and energy, are all still rising at brisk rates. Biden was quick to focus on gasoline in his public remarks, but the fact that gasoline has fallen to the non-bargain price of around $3.30 a gallon is hardly a reason to declare inflation pain dead or dying.
What really remains to be seen is how fast the Fed will cave to pressure from the Washington to push interest rates back down so as to keep payments on the national debt manageable. It easy to see why the Federal government needs a return to a low-interest regime. In the third quarter, the Federal government's current expenditures for interest payments rose by 13.6 percent, year over year, which was the largest since 1960. If that continues, the need to pay interest will force Congress to cut back spending on popular programs like Medicare. Thus, current growth in interest payments—fueled by higher interest rates—is a political problem. After all, Congress and the White House have no plans to scale back deficit spending, and they need government debt at low interest rates to keep the gravy train going at full speed.
The monetary regime in power now—the so-called 2 percent inflation standard—is promising us a “return to normal” after the great pandemic and war inflation of 2021–22. At this time of powerful propaganda—the dismal accompaniment of natural disaster and war—we should be on our guard against such messaging. Even more so when we consider the success of this regime in repudiating blame for the great asset inflation culminating in the global financial crisis of 2008, going on to win widespread applause for the low consumer price inflation and ultimately low unemployment in the subsequent decade.
Readers of Mises Wire doubtless count among their New Year resolutions a determination to resist propaganda, and in the monetary sphere this means a readiness to assess in sober-rational mood a full range of scenarios, albeit focusing on what is most likely. We should retain our skepticism about the popular narrative of a return to a monetary normal which never existed under this regime and is unlikely to dawn anytime soon. But we should not exclude altogether way-out possibilities. After all, 2023 is the one-hundredth anniversary of two extreme monetary episodes, one of dark despair and one of great hope—the one hundredth of the German hyperinflation and the fiftieth of the launch (via a free float) of the hard deutsche mark in defiance of dollar monetary inflation.
According to the present-day Fed-orchestrated narrative, the looming return to normal has two dimensions. First, Consumer Price Index (CPI) inflation in the US will be down to 2 percent as early as late 2023. At this rate it will stay, as it did during the quarter century up until the eve of the pandemic. Second, interest rates will be close to what they were under the US monetary regime’s first decade (say, 1996–2006) rather than at the abnormally low levels of the 2010s.
The average reported outcome of 2 percent CPI inflation during the regime’s first quarter century (until the eve of the pandemic) is not evidence of any intrinsic merit. Quite the contrary, under sound money we should expect there to be episodes of falling prices matched over the long run by episodes of rising prices. The steady 2 percent outcome was evidence of monetary malaise which will most likely mean volatile and overall high CPI inflation in the future (together with a continuing sequence of asset inflations and eventual busts) rather than a resumption of “lowflation.”
During this quarter century there were largely coincidental factors that held down reported CPI inflation, even though the overall setting of monetary policy was strongly inflationary for much of the time. The monetary system under the regime has lacked any solid anchor (a device which restrains money supply and prevents its veering ahead of demand), not least because there has been no functional base to which an anchor could be attached. Instead, top officials have piloted official interest rates ostensibly as prompted by a supereconometric model based on the highly flawed Phillips curve and by versions of the Taylor rule (whose applications require that the officials know the equilibrium real interest rate and the natural rate of unemployment).
In the first decade of the regime, the information technology revolution and related productivity miracle meant that reported CPI inflation remained stable and “low” despite strong monetary inflation reflected in virulent asset inflation. Apparently “normal” interest rates were, in fact, on average well below the level consistent with sound money at a time of economic miracle. Under this regime, interest rates have been anything but normal—if this means in line with an absence of monetary inflation (or deflation). The concept of “normal interest rates” is nonsense for a regime that emits monetary inflation on a continuous but highly uneven path.
We can turn to the decade of the 2010s for further evidence of pervasive abnormality. Underneath the camouflage of the “steady 2 percent inflation” was a resumed monetary inflation. In the early years (say, 2010–13), structural changes had jolted upward the demand for money. These changes included sharply expanded deposit insurance, interest paid on reserve deposits at the Fed, and the downward manipulation of treasury-bond yields by application of the regime’s notorious nonconventional toolbox (including quantitative easing [QE]). On its own this increased demand for money would have borne down on prices of goods and services. Instead increases in money supply and, in particular, the fantastic bulge in monetary base went with a modest rise in consumer prices alongside a virulent asset inflation.
Then when a new recession threatened amidst the sharp economic slowdown and brief asset deflation of late 2014 and early 2015 in the wake of the first China bust, the Fed administered a new dose of monetary inflation (aborting plans for rate rises from zero and quantitative tightening) which reached its crescendo in 2016, an election year, under Chair Yellen (in office since early 2014).
Finally, amid concerns that continued low interest rates and prospective big business tax cuts could cause consumer price inflation to accelerate, a hawkish turn emerged during 2017–18. But this did not last long as evidence accumulated that the US economy was indeed suffering from a form of sclerosis, a side effect of all the monetary drugging of the previous two decades and the associated buildup of malinvestment and monopoly capitalism.
The bottom line here is that any of the regime’s reputation for achieving a stable monetary norm, as evidenced by stable, low CPI inflation during the prepandemic, prewar era, is derived from the tale “The Emperor’s New Clothes.” Normal for this regime is virulent monetary inflation. The likelihood of coincidental factors causing this to be consistent with low-reported CPI inflation in the future is small at best. The regime’s promised land of a “return to normal,” whether expressed in levels of inflation or interest rates, is a chimera.
Yes, in the scenario now dominant in the marketplace, CPI inflation falls far this year. Supporting factors include some supply side adjustments, slowed or even negative money supply growth, and (less mentioned if at all) bolstered demand for money in real terms by the state of economic uncertainty and pessimism. But there would be no reversal of the giant cumulative price gains of 2020–22, meaning a permanent real loss in money’s purchasing power.
Beyond this inflation decline during 2023, anything is possible in the actual unanchored monetary system, with a strong tilt in likelihood toward new upward price spirals. There is just so much scope for officials to artfully use inflation forecasts so that they can steer policy rates to fit with a strong political current. In any case, there are plenty of mistakes to be made when monetary conditions are determined by the piloting of rates rather than a set of mechanisms in a well-anchored system to constrain the growth of money supply in a meaningful way.
What about the unlikely scenario of hope? That might include the passage of a bill in the House with some cross-aisle support to ban the future use of the Fed’s toxic toolbox (the key instruments here being QE, interest on reserves, and zero-rate policy). And the scenario of despair? Let’s call this the continuation of high inflation, perhaps after a brief cyclical dip. Perhaps that scenario of despair has a greater chance of starting first in Europe than the US, given the further monetary inflation dose which occurred there in response to the gas famine of the Russian war.
Unemployment remains low but for the wrong reasons. Low unemployment rates are not a sign that the economy is doing well.
Original Article: "US Labor Market: Help Wanted!"
This Audio Mises Wire is generously sponsored by Christopher Condon.
[This article originally appeared in the January 4 edition of Lewrockwell.com.]
The culprit responsible for the Wall Street crash of 1929 and the Great Depression can be easily identified—the government.
To protect fractional reserve banking and generate a buyer for its debt, the US government created the Federal Reserve System in 1913 and put it in charge of the money supply. From July 1921 to July 1929, the Federal Reserve inflated the money supply by 62 percent, resulting in the crash in late October. The US government, following an aggressive “do something” program for the first time in American history, intervened in numerous ways throughout the 1930s—first under Herbert Hoover, then more heavily under Franklin D. Roosevelt. The result was not an easing of pain or an acceleration of recovery but a deepening of the Great Depression, as Robert Higgs explains in detail.
The preceding is not, of course, the generally accepted explanation. In conventional discourse, one of the main culprits behind the Depression—or at least responsible for exacerbating it—was the international community’s adherence to a gold standard. Economist Barry Eichengreen popularized this view. The Wikipedia entry for Eichengreen includes Ben Bernanke’s summary of Eichengreen’s thesis:
The proximate cause of the world depression was a structurally flawed and poorly managed international gold standard. . . . For a variety of reasons, including among others a desire of the Federal Reserve to curb the US stock market boom, monetary policy in several major countries turned contractionary in the late 1920’s—a contraction that was transmitted worldwide by the gold standard.
Why would a contractionary monetary policy be harmful? Because fractional reserve banking is a house of cards, and such policy risked toppling it. When inflation is exposed and the gold is not there, bankers do the Jimmy Stewart scramble. In Bernanke’s words, “what was initially a mild deflationary process began to snowball when the banking and currency crises of 1931 instigated an international ‘scramble for gold.’”
The State’s Classical Gold StandardThe classical gold standard that operated throughout the West from the 1870s to 1914 was in fact a fiat gold standard—meaning it operated at the pleasure of the state. When the state was not pleased with the gold standard’s operation, gold convertibility was suspended to allow banks to break their promise to redeem paper currency and deposits in gold coins on demand.
But even under the auspices of the state, the classical gold standard kept a lid on inflation. Gold was money, and national currencies were named after certain weights of gold; a dollar was the name for one-twentieth of an ounce of gold for example. A dollar was not backed by gold because a dollar was not money. A dollar was a conditional substitute for the real thing. The only thing governments and their central banks could directly inflate was their currencies, but if governments and their central banks inflated their currencies too much, they would lose gold to countries that inflated less. In other words, they could not stay on the classical gold standard and print a lot of money.
With the arrival of World War I, the belligerent governments ordered their central banks to stop redeeming their currencies in gold. The gold standard would not permit a long war; unlike currencies, gold could not be created on demand. By inflating their currencies, governments not only killed millions of people but also the classical gold standard. As I’ve said previously, “Sound money had to die before men could die in such large numbers.”
After the war, the inflated money supplies and price levels presented governments with a choice: return to the classical gold standard at lower exchange rates or return to the pars existing before the war. Britain, in an attempt to reestablish London as the world’s financial center, chose to go back to its prewar par of $4.86. To make this work, monetary concessions were required from other countries—especially the United States.
The New Gold StandardAt the Genoa Conference of 1922, with the architecture of the monetary order firmly in the governments’ hands, representatives from thirty-four countries met to discuss what to do about money. The problem was obvious. When governments had needed money the most (to engage in war), gold had let them down. Gold had proved exceedingly unpatriotic. On the other hand, paper money, like the “girl from Oklahoma,” could not say no. Paper money saluted whatever plans the government devised. The problem, therefore, was not too much paper; it was too little gold.
Gold’s scarcity was now its fatal flaw. But the economists in charge of its fate were not ready to announce that the money people had been using for twenty-five hundred years had suddenly become dangerous to their economic well-being. So gold was given a small supporting role, but its name was displayed prominently on the marquee of the economists’ new scheme, the gold exchange standard. Here was the deal they cut:
- The United States would stay on the classical gold standard. This meant people could exchange $20.67 in currency and coin at the Treasury for a one-ounce gold coin. The gross inconvenience was intentional.
- Britain would redeem pounds in gold and US dollars while other nations would pyramid their currencies on pounds.
- Britain would redeem pounds only in large gold bars. Gold was thereby removed from the hands of ordinary citizens allowing a greater degree of monetary inflation.
- Britain also pressured other countries to remain at overvalued parities.
To summarize, the US pyramided on gold; Britain, on dollars; and other European countries, on pounds. When Britain inflated, other countries inflated on top of pounds instead of redeeming them for gold. Britain also induced the US to inflate to keep Britain from losing its stock of dollars and gold to the US.
This international inflationary arrangement brought gold along for the ride to give it the appearance of stability and prestige. When the arrangement collapsed, as it was bound to do, gold served as the scapegoat.
Gold Gets a Prison SentenceKeynesians and other monetary scientists claim to have a smoking gun.
gfsmith1.jpg ###### Source: Barry Eichengreen, “The Origins and Nature of the Great Slump Revisited,” Economic History Review 45, no. 2 (May 1992): 213–39.
In this chart, taken from a paper by Barry Eichengreen and reproduced by Robert Murphy, the output for each country is set to one hundred. Subsequent measures are a percentage of deviation from the 1929 benchmark.
The chart reflects the order in which countries went off gold. Japan was first; then Britain, Germany, the US, and finally France went off gold. The chart superficially appears to support the connection between prosperity and an irredeemable currency. But look closer. In Germany and the US, industrial output experienced a significant rebound from 1932 to 1933. The US did not “go off gold” until almost mid-1933, yet industrial output was already rising in 1932.
As Murphy notes, whatever the discrepancies in the chart, it allegedly shows the beneficial effects of devaluation over time. Yet the Great Depression lasted well beyond 1937, with double-digit unemployment rates persisting throughout the 1930s.
Previous depressions had ended in two or three years and without the confiscation of people’s gold. Why did gold suddenly become a major culprit in the 1930s?
And what did it mean to “go off gold”? It meant that US citizens who disobeyed Roosevelt’s order to turn in gold were subject to a ten-thousand-dollar fine and a ten-year prison sentence. This was the punishment for possessing the money chosen by tens of millions of market participants. Roosevelt’s order meant people around the world holding dollar-denominated assets and thinking they could redeem them in gold got stiffed.
Also, is it really surprising that economic conditions improved after “going off gold”? Murphy likens going off the gold standard to a homeowner’s declaring he is “going off his mortgage.” He says to his mortgage holder, “I’m not paying you anymore. And I have more guns than you, so tough.”
With no mortgage to pay, it is unsurprising that the homeowner’s standard of living rises. Achieving short-term prosperity by relieving yourself of certain contractual obligations does not prove those obligations were unfounded.
ConclusionThe government never wants to lose the ability to inflate (counterfeit). As we have seen, a gold standard frustrates the government’s ability to inflate.
A free-market monetary system, which would be devoid of a central bank, is the only way to restrict the government’s ability to affect us.
[This article originally appeared in the January 4 edition of Lewrockwell.com.]
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop call for breaking up the US into smaller states. While this idea sounds radical to some, there has been growing conversation about shifting state borders, including proposals to break up California and a recent vote on the Greater Idaho project. Ryan and Tho discuss what lessons the Swiss model of federalism, as well as consider the cynical political considerations of this humble proposal.
Recommended Reading"If American Federalism Were like Swiss Federalism, There Would be 1,300 States" by Ryan McMaken: Mises.org/RR_116_A
"The Borders Between US States Are Obsolete" by Ryan McMaken: Mises.org/RR_116_B
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
While behavioral economics claims to be an effective way of measuring individual economic behavior, it actually sets back authentic economic analysis.
Original Article: "Behavioral Economics Challenges the Rationality of Consumer Choices"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Looking beyond the “aw, neat, what a great person” façade of effective altruism, one clearly finds a level of narcissistic cynicism and a drive to the permanent power that financial immortality affords that is only matched by the amount of funds being dispersed.
The gifts offered by today’s billionaires—the Silicon Valley crowd, et al.—sound great (-ish—very -ish), but to discount the obvious underlying reason is to fail to grasp the insidious nature of their beneficence.
In the past, the rich tended to fund things—museums, schools, libraries, parks—when they gave their money away. These things were meant to accomplish two goals: to keep the benefactors’ names alive so future generations would “look them up” and to generally uplift society. Museums were given to the masses not as a monolithic lump, but as discrete individuals who could choose—except for fourth graders on field trips—to take advantage of them or not.
But effective altruism eschews such methods, focusing on causes and organizations—organizations that can be controlled indefinitely by controlling the flow of funds—in an effort to exert current and future societal control. Joining the Silicon Valley obsession with physical immortality is now the idea of financial—and therefore sociopolitical—immortality.
The creation of philanthropic LLCs to divvy up tech and other zillionaire dollars perpetuates the “lives” of donors by allowing them to forever control politics, policies, and culture. This control also becomes a form of eternal nepotism, as it has the side benefit of really, really helping donors’ individual descendants keep at the center of power and finance (the “Smith Initiative” will always hire a Smith and will always have a Smith on its board).
A key aspect of this “maltruism” is its ability to extend control through soft-sounding enterprises. How can something with “open” and “democracy” and “save” in its name—and a nonpartisan, nonprofit entity to boot—be anything but good?
As to philanthropic LLCs, they are seemingly the preferred way of doing the charity business of our current (and, they hope, forever) overlords. In a nutshell, they are not traditional charities, but organizations that can mix for-profit and nonprofit activities under the same umbrella. For example, in theory, by making money investing in x, you can give more money to y.
Even better, you can decide whether or not to leave your profits in the “charity,” enjoy certain (admittedly limited) tax benefits, and—unlike regular charities—you don’t really have to tell anyone where the money comes from or, more importantly, where it is going.
Better still, you can do something charities really can’t: play politics. Such LLCs are legally entitled to engage in political activities like advocacy, lobbying, and, in the case of Silicon Valley’s own Chan Zuckerberg Initiative (CZI), significantly impact present-day elections (a very big more better).
A guilt-ridden-but-not-THAT-guilt-ridden plutocrat can get helpful advice on how to create LLCs from many sources, including the California-based Milken Institute (yes, also ironically, THAT Michael Milken). The handy fact sheet notes that “(A)n LLC structure provides not only flexibility but also greater integration of various social change efforts to expedite progress . . . LLCs hybridize for-profit and charitable activities, allowing philanthropists to generate financial and social returns.” All are advantages very much tailored to accomplish the goal of building a for-profit charity.
The donors who control where the money goes are insulated from any internal or external criticism by their ability to turn off the spigot whenever they wish. In other words, don’t irk, for example, the Gates Foundation because they are going to be around forever, and your grandkid may need a job someday.
The politics of this putative philanthropy are brazened. If one looks at those who have taken the Giving Pledge, one sees a list that could easily be mistaken for a list of the owners of the private planes that jet to Davos for the annual World Economic Forum (WEF) meeting.
The WEF, it seems, could be called the hub of the many rich and important spokes in the wheel that have fundamentally changed international politics in the past twenty years. From the Great Reset pandemic response to emphasizing the growth of the social economy, the influence of the WEF and the people who support it cannot be underestimated. (Note—10 percent of the economy of the European Union is now classified as social economy or the third sector, so guess what types of entities, what stakeholders, make up the social economy.)
It should also be noted that personal direct campaign donations are also part of the overall program of sociopolitical power; though in the United States, the 537 people elected by the public to federal office are seen as mere speed bumps to be gotten around or avoided entirely (hence the growth of the regulatory and deep state and their intimate ties to the tech community).
Certain government exceptions are made, though. In the case of the sandy nations of the Middle East, the government’s money is actually theirs. And in the case of poorer leaders, all they have to do is bow down to hedge fund and NGO-driven Environmental, Social, and Governance (ESG) financial processes like Sri Lanka did, and then they get to sit at the big kids’ table.
In fact, the web that weaves from WEF to NGO to foundations to media to government to consultants to stakeholders to experts to the financial world to politics and back to effective altruism is both unmistakable and intentional.
Some of the moneyed meddlers do not exactly fit the above mold. George Soros, at least, is extremely up-front about using his money to buy influence, destroy the American justice system, corrupt the media, and, in general, attempt to bring down Western civilization as we know it. Soros made his money in finance, including his infamous shorting of the pound in 1992 which netted him $1 billion in a day or so, even if it came at the expense of the British people—and here’s his website.
Sam Bankman-Fried (SBF) also practiced effective altruism; of course, he did it with stolen money, but he says he meant well. Bankman-Fried, however, could be seen as a mirror universe of a Soros or a Zuckerberg or Bezos or eBay’s founder Pierre Omidyar or Reed Hastings and his wife, what’s her name, all of whom really began buying global power—sorry, donating to worthy causes—only after they had actually made a ton of real money.
SBF clearly knew early on that he was going to need legal, social, political (the amount of money handed over to Democrat/woke causes is enough to make eyes water), and media protection at some point . . . and he clearly got it as he is now sitting in his (also very politically/Silicon Valley–connected) parent’s multimillion-dollar home in Palo Alto instead of rotting in a rat infested, nonvegan Bahamian jail. (It’s also clearly why he was arrested the day before he was scheduled to testify in front of Congress—nobody “on the inside” wanted that to happen, no way no sirree.)
It is the future that is at the center of this issue. The organizations and people involved talk about impact investing, data-driven giving, and using evidence and reason to plan their permanent programs.
They don’t talk about giving for today—they talk about investing in the future.
Because they don’t think it is our future. They know it is already theirs.
The roots of Austrian economics go back to the great theologian Thomas Aquinas, whose view of what constitutes a good was a prototype of Menger's pathbreaking theory of the good.
Original Article: "Defining a Good: The Intersection of St. Thomas Aquinas and Carl Menger"
This Audio Mises Wire is generously sponsored by Christopher Condon.
After years spent toiling as an activist against the tide of Czech politics, Vít Jedlička concluded that it would be easier to build a libertarian nation from scratch somewhere else. In April 2015, he declared that a new country called the Free Republic of Liberland would be founded on unclaimed land on the Danube River.
Legal scholars Harry Hobbs and George Williams reject the prevailing perspective that Liberland and other similar initiatives are “mere oddities” that are “more suited to humour than serious study.” The status of micronations under international law and their prospects in the years ahead are the focus of Hobbs and Williams’s book Micronations and the Search for Sovereignty, published in 2022 by Cambridge University Press.
Micronations and the Search for Sovereignty is the first comprehensive book-length academic treatment of micronations. The challenge of defining a micronation speaks to why the topic has garnered limited scholarly interest. The lack of a universally accepted legal definition of a state leaves upstart entities like micronations with an ambiguous legal status.
The book provides a coherent definition of micronations that fits within the current realities of international law. The authors consider micronations to be state-like entities that fall short of statehood but can be placed on a “statehood spectrum.” The central feature of micronations is that they “express a claim of sovereignty despite the absence of any basis in domestic and international law for that claim or for their existence.” Micronations declare themselves nations. They “perform and mimic acts of sovereignty” by, for example, defining citizenship rules, writing constitutions, and printing currencies. They “adopt many of the protocols of nations,” such as deploying diplomats around the world.
Using this criteria, Hobbs and Williams identify about 135 territorial micronations that have operated throughout history, albeit in widely varying form and function. These do not include virtual or simulated micronations, which are generally beyond the scope of the book’s inquiry.
Common motivations for launching a micronation help explain why libertarianism is at the heart of the global micronationalism story. The primary motivation is frustration with state authority. Although libertarians are hardly the only political faction with grievances over taxes and regulation, statist trends throughout the West have led influential libertarians to conclude that conventional political engagement is unlikely to yield sufficient progress in downsizing government. Starting a new nation is a natural extension of the principle of the libertarian exit. Libertarian billionaires such as Peter Thiel have devoted not only financial resources to micronations, but also the skill and capabilities needed to promote them through tourism, attention-seeking stunts, and acts of resistance. Libertarian civil-society groups around the world are advocating for the expansion of diplomatic ties with micronations.
The authors’ analysis leads them to mixed but mostly pessimistic forecasts for micronations. On the one hand, they argue that the “future of micronationalism is bright” because even the mixed success of micronations to date will continue to inspire further activity. These efforts are bolstered by appeals for legitimacy that raise compelling questions about international legal personality. Technological advances are turning floating autonomous sea colonies into a more realistic prospect, yet the status of artificial structures existing outside national jurisdictions remains unresolved. Micronationalist ambitions also add another facet to the overarching international law question, unsettled in the International Court of Justice and other venues, of when precisely secession is legal. The persistence of micronations in litigating these types of issues, Hobbs and Williams maintain, forces “renewed consideration as to why some political communities are accepted as states, and others are not.”
Ultimately, however, Hobbs and Williams regard micronations’ quest for sovereignty and statehood as an “impossible dream.” They point to the ways states tend to respond to micronationalist ambitions. Fearful that micronations will encourage secessionist challenges, states routinely seek to “decisively quell incipient challengers” without fear of sanction by international organizations and other nation-states. For this reason, no micronation to date has successfully transitioned into a recognized state. These ongoing attempts Hobbs and Williams assess are “remote.”
Although precedent supports the authors’ conclusions, Hobbs and Williams might have foreseen a wider array of scenarios had they given more consideration to the revisionary potential of United States statecraft. In an American-led world order, US policy has the potential to shift international norms unilaterally. US recognition of micronations is highly unlikely in contexts where such a step would conflict with the foreign policy of powerful US allies. But in its traditional spheres of influence, the US may have a freer hand to legitimize micronations in the context of different legal regimes and multilateral relations.
Consider autonomous model cities and special economic zones, which enjoy autonomy but remain under the jurisdiction of states. Hobbs and Williams see little prospect for these entities transforming into micronations because their backers “are not interested in international legal personality but in commerce.” Hobbs and Williams cite as a case study Honduras’s Zones for Employment and Economic Development (ZEDEs). The Honduran ZEDEs’ disproportionately libertarian investors, the authors predict, would be satisfied with the framework negotiated by the Honduran National Congress in 2013, in which investing companies oversee tax regimes and domestic services while remaining subject to Honduras’s constitution and the country’s foreign policy. Statehood, the authors argue, is not only unnecessary but could distract from the “primary goal” of making money.
However, Honduras’s decision to repeal the ZEDE framework shows how the tenuous legal status of special economic zones can invite US concern. Threats by Honduras’s far-leftist Castro administration to expropriate American investments in Próspera and other ZEDEs have drawn notice in Washington. Letters by senators on the Foreign Relations Committee as well as the State Department’s Investment Climate Statements argue that a Honduran expropriation of US investments would violate the Dominican Republic–Central America–United States Free Trade Agreement and the US-Honduras bilateral investment treaty.
US investors in Próspera are not currently pushing for independence from Honduras. Likelier responses by Washington would involve tamer measures aimed at withdrawing US and International Monetary Fund aid to Honduras. Yet with tens of millions of dollars in foreign investment at stake, a hard left turn in Honduran politics and insufficient remedies through international arbitration institutions could push Próspera to contemplate the micronation route over time.
US recognition of micronations could be destabilizing, but findings in Micronations and the Search for Sovereignty lend credence to moves in this direction. Failures by the international community to recognize demands for national sovereignty have led secessionist movements around the world to adopt violent strategies of resistance, resulting in civil wars, refugee crises, and the proliferation of black markets. Micronations are taking a different approach. While challenging traditional concepts of statehood, they do so, in the authors’ words, “largely by engaging in the rituals of statehood rather than contesting them.” These strategic choices may reflect micronationalists’ philosophical commitments, but micronationalists’ rationale may weaken if international actors persist in denying even micronations’ most benign aspirations.
If one cares to look, it's not difficult to find numerous columns written for mainstream news outlets announcing that the US Constitution has failed. This ought to raise the question of "failed to do what?" The answer depends largely on the one claiming the constitution has failed. On the Left, claims of constitutional failure generally revolve around the idea that the constitution doesn't empower the federal government enough. For example, Chris Edelson of the American Constitutional Society believes the constitution has failed because the US government hasn't done enough about global warming and racial injustice. Ryan Cooper at The Week says the constitution is a failure because of gerrymandering and not enough "democracy." On the other hand, many classical liberals (i.e., libertarians) have declared the constitution a failure because it has failed to restrain the US government from violating human rights such as life and property.
We see there are many standards we might employ to show that the constitution has failed, depending on what metric we wish to use. But let's ask what the politicians pushing the new constitution of 1787—i.e., the "Federalists"—promised as the benefits of the new constitution. They promised three things: that the constitution would ensure the government would respect the freedoms of the citizenry, that it would provide a means of keeping the peace among the member states, and that it would provide a strong military defense.
Sadly, the constitution long ago failed on two counts out of three. A mere 73 years after its ratification, the constitution failed to prevent a bloody civil war. The Federalists had promised that wouldn't happen. When it comes to the matter of freedom, of course, the record is even worse, and the constitution has been used to justify countless assaults on liberty from Japanese internment to unleashing armies of spies against the American people.
The only area in which the constitution has "succeeded" has been in growing the size of the central government in Washington. The enormous state that has grown out of the constitution of 1787 has indeed rendered invasion by foreign powers virtually impossible. But this has been done at the cost of numerous elective wars, trillions in waste, and an out-of-control national security state.
Yet, nostalgic appeals to the alleged greatness of the constitution—and the brilliance of the so-called "Founding Fathers"—continue to be a fixture in defending the status quo while granting legitimacy to the regime. Any real challenge to federal power, however, will require we stop clinging emotionally to this failed legal document that has secured neither peace nor freedom.
The Constitution Does Not Protect FreedomWhen it comes to the Constitution's ability to restrain government power, it is apparent that the text of the document is insufficient to counter efforts to empower the federal government rather than limit it. We need only look around us to see how the federal government taxes, regulates, spies, sues, and imprisons countless Americans with federal powers that are in no way authorized in the constitution itself.
It is also apparent that the public and their representatives are uninterested in limiting federal power. I claim no novelty in pointing this out, of course. More astute observers recognized the impotence and failure of the US Constitution decades ago. As Murray Rothbard wrote in 1961:
From any libertarian, or even conservative, point of view, it has failed and failed abysmally; for let us never forget that every one of the despotic incursions on man’s rights in this century, before, during and after the New Deal, have received the official stamp of Constitutional blessing.
And before Rothbard, there was Lysander Spooner, who noted:
the Constitution is no such instrument as it has generally been assumed to be; but that by false interpretations, and naked usurpations, the government has been made in practice a very widely, and almost wholly, different thing from what the Constitution itself purports to authorize….But whether the Constitution really be one thing, or another, this much is certain—that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist.
In our modern day and age, anything that the regime's federal judges decide is "constitutional" is, in fact, de facto constitutional. In other words, appealing to the text of the Constitution to claim illegitimacy for the latest government power grab is pointless and irrelevant to the task of actually limiting the power of the state.
Everything the federal government wishes to do is ultimately "constitutional." So long as the public tolerates it. Public opinion is the only true restraint.
The Constitution Failed to Prevent Civil WarMoreover, the US constitution didn't even last three generations before a civil war broke out. If the constitution were ever nearly as magnificent as its defenders claim, the US Civil War would never have occurred at all. Many defenders of the current constitution prefer to distract from this fact by attempting to dwell on the blame game: "oh, if those dastardly guys on the other side hadn't done those bad things, there would have been no war!"
Who is to blame, however, is irrelevant to the fact that the constitution failed to provide for a peaceful way out of the conflict that boiled over by 1860. That is, the constitution's failure can be seen in both the fact that the secessionist states concluded exit was the only option, and in the fact that the unionists felt a bloody war of conquest was constitutionally acceptable.
Decades earlier, the constitution had been pushed on the masses by the Federalists with the promise that the constitution would manage competing interests and conflicts in such a way that the new nation would be able to overcome such differences. This is part of James Madison's argument in Federalist No. 51. He insists that even assuming self-serving motives among various groups—i.e., assuming men are not "angels"—the federal government would somehow be balanced against itself to prevent the need or impetus for civil wars.
Instead, by 1861 the United States fit the definition of a violent failed state. Much of the country rejected the authority of the central government which could no longer claim to exercise authority over all of the nation's regions and borders. The central government's response was to rely on military force. In this regard, from 1861 to 1865—and arguably throughout Reconstruction—the United States was no different from many of the failed states in similar situations we have seen in Latin America and Africa. We find many cases in these countries in the last century in which separatists rejected rule from the center. This often resulted in civil war and military occupation of the losing side's territory. When this happens in other countries, we often conclude (correctly) that the country's constitution has failed. For some reason, when the same thing happens in the United States, we declare the constitution to have been "preserved" and a stunning success.
As with many other failed states, the crisis in the US was only brought to an end by a bloodbath. The numbers were so large, in fact, that were a similar proportion of the US population to be killed in a war today, it would amount to seven million people. Moreover, as usually occurs in the wake of a conflict of that magnitude, a drastically changed constitution replaced the old one with political institutions that were far more centralized than what had come before. The union was no longer a matter of voluntary membership among states, but was now based on threats of military intervention from the center.
The Constitution's Only "Success" Has Been in Increasing State PowerOf course, it is always possible to label the constitution a "success" if we view the constitution primarily as a means of growing the power of the national regime. In this endeavor, the constitution and its supporters have been enormously successful. The seeds of this development were already apparent even in the days of the ratification when the Anti-Federalists greatly feared the national government would overwhelm the member-state governments. Their opposition was strong enough that the Federalists resorted to a number of dirty tricks, as noted by Murray Rothbard:
The Federalists, by use of propaganda, chicanery, fraud, malapportionment of delegates, blackmail threats of secession, and even coercive laws, had managed to sustain enough delegates to defy the wishes of the majority of the American people and create a new Constitution.
The Federalists managed to win the day, although their promises of freedom did not even survive the eighteenth century. Rather, the central government immediately got to work abusing its own powers with vicious attacks on freedom such as the Alien and Sedition acts. By the mid eighteenth century, the nation was on the verge of civil war. The "solution" to this was to have one half of the country invade the other half.
Yet, we're told the constitution behind all this has been a wonderful success, the "Founding Fathers" were geniuses, and we must never break up this sacred union by means of "national divorce" or any radical departure from the status quo.
The reality is far more disappointing.
The belief that a free market economy needs an authoritarian state to support it is mistaken. Mises said it best when he wrote that "freedom is indivisible."
Original Article: "Authoritarianism Is Not Compatible with Economic Progress: Freedom Is Indivisible"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In recent years, it has become popular in parts of conservative discourse to discuss the “Brazilianization of America,” a reference to the challenges a large country faces in governing an increasingly multicultural “universal nation.” But this weekend, it was the Americanization of Brazilian politics that took center stage as pro-Bolsonaro forces rose up in aggressive protest against the newly inaugurated Lula regime, in a move reminiscent of what played out in Washington on January 6, 2021. The similar challenges facing America and Brazil, including concerns about the state of their democracies, is worthy of exploration, as is the global response to the protest and what that response means for those opposed to the current “neoliberal” international order.
At a time of concerns regarding covid, the policy ambitions of globalist institutions like the World Economic Forum, and the consequences of decades of America-led military involvement (and the immigration waves it inspires), there has been growing coordination between various right-wing political movements around the globe. The result in America has been increased fascination with countries like Victor Orban’s Hungary, right-wing celebrations over the success of Italy’s Giorgia Meloni, and skepticism of figures celebrated on the international stage, like Ukraine’s Volodymyr Zelensky.
Perhaps the American Right has no more direct parallel than the Bolsonaro faction in Brazil.
These similarities are not simply intellectual in nature. Jair Bolsonaro and his sons have become established figures at American conservative events such as the Conservative Political Action Conference (CPAC) and were considered some of the strongest international allies Donald Trump had as president. Olavo de Carvalho, who was referred to in the United States as the “Rush Limbaugh of Brazil” prior to his death last year, was an influential popular philosopher for the Brazilian Right who shared intellectual curiosities (and dinners) with former Trump strategist Steve Bannon. And Gettr, one of the Twitter alternatives favored by the MAGA crowd before Elon Musk’s purchase of Twitter, has even invested in Brazil as a market of particular focus.
Brazil’s 2022 presidential election offered yet another commonality: the controversial election of a corrupt leftist politician following a political campaign marked by heavy, one-sided political censorship.
The recent release of the Twitter Files confirmed what was long obvious: America’s 2020 election was manipulated by a deliberate campaign to hide factual information detrimental to the campaign of Joe Biden. Twitter and other Big Tech companies acted in explicit coordination directed by Joe Biden’s campaign and DC bureaucracies. This possibly influenced the political behavior of voters even before additional concerns about the constitutionality of covid-inspired election law changes, the security of nontraditional voting methods, and general fears about the integrity of voting machines.
In Brazil, the 2022 election was shaped by more explicit and obvious political manipulation. While Bolsonaro, like Trump, had the power of presidential incumbency at the time of the election, Brazilian politics had become shaped by the tension between the elected executive office and the nation’s supreme court, which was dominated by political rivals.
It was the court that vacated previous president Luiz Inácio Lula da Silva’s corruption conviction, allowing him to run for office. Additionally, in 2019, the Brazilian supreme court granted itself the authority to police “disinformation.” As the New York Times noted last September,
[Supreme Federal Court justice Alexandre de] Moraes has jailed five people without a trial for posts on social media that he said attacked Brazil’s institutions. He has also ordered social networks to remove thousands of posts and videos with little room for appeal. And this year, 10 of the court’s 11 justices sentenced a congressman to nearly nine years in prison for making what they said were threats against them in a livestream.
The power grab by the nation’s highest court, legal experts say, has undermined a key democratic institution in Latin America’s biggest country as voters prepare to pick a president on Oct. 2. Luiz Inácio Lula da Silva, a leftist former president, has led Mr. Bolsonaro in polls for months, while Mr. Bolsonaro has been telling the country, without any evidence, that his rivals are trying to rig the vote. In many cases, Mr. Moraes has acted unilaterally, emboldened by new powers the court granted itself in 2019 that allow it to, in effect, act as an investigator, prosecutor and judge all at once in some cases.
These Supreme Court–led challenges escalated after Bolsonaro and his party vastly exceeded polling expectations in the first round of the presidential election. In order to compensate for an environment of extreme political censorship, creative Bolsonaro-supporting businesses began to promote sales by emphasizing Bolsonaro’s green and yellow party colors and his number, 22.
22_car.png The justification for these breaks from political norms is familiar to any Trump supporter: they were necessary to combat “misinformation” and the extreme “threat to democracy” that the “fascist” Bolsonaro represented. The result was the same, a close defeat for the Brazilian Right and a collapse in confidence in the nation’s political institutions.
This loss of perceived legitimacy has created an environment in which many view the results of the election as explicitly rigged by bad actors who desire political control. Given the abuses of power documented prior to the election, anyone who categorically rules out all concerns regarding the security of the election is engaging in a reflexive defense of the political status quo, not high-minded critical thought. This does not mean that every criticism of the election process is valid, but concerns about the integrity of elections should be taken seriously if one wants to avoid violence. Brasília, like Washington, failed to do so. The result is Brazil got its own native-dressed shaman.
These concerns, however, are secondary to the clear illiberal nature of the 2022 Brazilian election. If democratic legitimacy is based on the consent of an informed public, America’s 2020 and Brazil’s 2022 elections cannot be considered legitimate. They were clearly manipulated by political agents to achieve specific desired political ends.
The notion that “democracy” is only sacred when it produces the results elites want is nothing new to the Mises Wire. Still, it is worth noting the international response to Brazil’s election and this weekend’s protest as illustrative of the challenges faced by those who desire true national self-determination.
The election of Lula was quickly celebrated by global leaders last October. At a time when global tensions have created new divisions between leaders around the world, the defeat of Bolsonaro was a rare unifying moment of 2022. European leaders hated Bolsonaro’s Trumpian style and his rejection of environmental hysterics. Lula actively campaigned on his relationship with China’s Xi Jinping, a pivot from Bolsonaro’s America-forward preference. To the Biden State Department, the integrity of Brazil’s election was a perfect proxy war for the administration’s own lingering domestic clash with Trump and his supporters.
America’s shift is a key international development shaped by the change in Washington’s administration. A Trump-led White House may have had an interest in assisting Bolsonaro’s political faction. Instead, Washington officials openly cheered the election of the sort of corrupt socialist leader backed by some of Brazil’s most violent criminals.
This weekend’s unorganized rebellion has only further distanced the pro-Bolsonaro factions from international support.
The international disinterest in the plights of political opponents victimized by systemic censorship and the undermining of democratic norms creates real political problems for those seeking to oppose the global order’s prevailing ideology.
While there are plenty of historical examples of South American military coups against leftist nominally elected governments, the reality is that a successful reactionary movement would quickly find itself treated as a pariah state globally. As the Russian invasion of Ukraine has highlighted, some of the most powerful weaponry of the neoliberal order is economic. One can imagine the sanctions that would follow a modern right-wing coup that threatened the policy aims of Washington or Davos.
Too many on the American Right mistakenly clung to the belief that “white hats” in the deep state would save them from a class of elites that despises them. It seems that too many in Brazil placed similar faith in the nation’s military and were also betrayed. More troubling are the real fears that this weekend’s events will justify political crackdowns on opponents, as January 6 did in the United States. American Democrats are proposing extraditing Bolsonaro, who is currently visiting Florida, to Brazil, where he would potentially face charges from his political rival.
Going forward, the Brazilian Right—like its American counterpart—needs to rally behind serious political leaders. Institutions like Mises Brasil and Instituto Rothbard have helped raise a generation of Brazilians equipped with a serious understanding of the dangerous economic and political trends we find ourselves in the midst of.
To take on the neoliberal order, we need a global network of successful, like-minded individuals dedicated to creating a freer world—not the distractions of high–time preference tantrums that do not offer tangible plans for success.
In the words of Jeff Deist:
We win with a focus on the long term, not the short run.
We win by building better elites and better institutions.
We win by going out unapologetically and forcefully into the world.
The concept of risk provides us with an excellent opportunity to bridge between formal economic theory and personal business experience. Economics provides us with rigorous understanding of risk and uncertainty and the distinctions between them and their various types. But risk — the word that we use in everyday conversation — bring with it subjective feelings that affect how we approach it.
Knowledge CapsuleIt’s appropriate for entrepreneurs to reframe the concept of risk so that they can embrace it wholeheartedly.Risk has traditionally been framed as the downside of a choice. It’s the potential negative outcome for anything we try. But we just have to look at our own lives to see that a lot of risks we’ve taken have generated upside, whether that’s choosing a college, getting married, or taking a particular job. If we feel good about the outcome, then risk is a path to reward.
Part of the reframing of risk is to see it as a process rather than a single choice.Risk can sound like it comes at us as a single choice, or an event, or a once-and-for-all decision. It’s much better to think of risk as a process — a behavioral process rather than a decision-making threshold. The risk process is one of experimentation —taking small steps, trying different things, getting feedback from the market, making adjustments, then trying some more things.
Instead of “starting a business”, we can think of setting out on the pathway to entrepreneurship. Instead of “committing to a future new product launch”, we can think initiating an exploration with low resource commitment until we have better feedback knowledge in order to take the next step and commit more resources. We can think of a new initiative as an experience gap that we look to fill with knowledge from experts and experience from mentors or advisors who’ve done something similar.
The key to this reframed risk process is a courageous commitment to perpetual learning.Through learning, we can all redefine our understanding of risk and re-establish our relationship with it. A part of risk is the ego-bruising realization that we don’t know everything and can therefore make mistakes, or take actions that have unintended consequences.
By embracing learning, we establish a social reward for not knowing — learning is viewed positively, as a reward. Developing new knowledge is one of the primary roles of the entrepreneur. While it may take intellectual courage to own up to not knowing, the courage is rewarded with new understanding and new advantages. There’s always opportunity to learn more.
Imagination is an antidote to risk.Imagination can overcome risk. We all have the capability of imagining future achievements — “future wins”, as Angie Morgan Witkowski put it. Imagination can be an exercise in creativity, and it’s OK to let it run wild, releasing our minds from the restraints that risk can impose. Taking the time for free-thinking can be very beneficial.
The pathway to the imagined future is to marry possibility with probability. In our exercise in imagination, it’s easy to eliminate the impossible. But we shouldn’t limit the possible. We can start from the imagined possible future and then work back through probabilities about whether we can accomplish it. Angie stimulated her business imagination vi a sidewalk margarita bar in Florida and ultimately opened a successful coffee shop in Traverse City, Michigan. It was a process of working backwards from what was possible to what was more probably, given her circumstances.
Similarly, her consulting business started by imagining writing a book about a better style of leadership than is taught in business school. She contacted literary agents, who encouraged her not only to write the book but to also start a speaking business. The audience for her speaking engagements sought consulting help, and she developed a series of workshops as part of the delivery system. Her consulting business is now cross-industry, from startups to the oil-and-gas majors, and worldwide. It started with imagination.
Imagination is complemented by hard work and realistic capacity assessment.It would be wrong to think that the reframing of risk to action and perpetual learning comes additional without costs. Angie mentioned two. One is hard work. All learning pathways must be undertaken with the commitment to working as hard as it takes to advance. It requires time, effort, and continuous review. The intellectual courage that Angie highlighted is hard work in itself — the cognitive work of thinking about how to think, exercising cognitive discipline, exploring flexible options such as design thinking, that require the effort of looking at problems from many different perspectives.
The second cost Angie mentioned is the honest assessment of our capacity. We can imagine future wins and assess the probability of achieving them, but we must be honest about our capacity. Do we have the resources, do we have the skills, can we assemble the right team, are we willing to undertake the hard work?
Putting hard work and capacity together means we don’t risk an inadequate attempt to solve the target problem. As Angie put it, using Marines language, don’t be “half-assed”.
Action is more important than planning.Angie’s prescription in her book, Bet On You, is for one-third of time to be allocated to planning and two-thirds making things happen. The make-things-happen part is what generates the feedback loop and learning that is so important. Here are Economics For Business, we’d probably relegate planning to 10% or less of resource allocation, but the point is the same. Action is the more important.
There is one aspect of planning that can deliver extra value, and that’s planning for failure, or contingency planning. Our imagination should be partially applied to imagining what could go wrong. How would the contingency transpire? What would we do next if it did? We should prepare for resilience in the aftermath of a setback.
A plan, in Angie’s words (which, in turn, come from the Marines), is a reference point for change.
Ultimately, risk must feel good.If the antidote to the downside of risk is imagining future wins, then we can also benefit from a focus on the wins we experience every day. Choose the path that feels good both tomorrow and today, and that makes all efforts worthwhile.
Additional ResourcesBet On You: How To Win With Risk by Angie Morgan and Courtney Lynch: Mises.org/E4B_203_Book
Bet On You Podcast: Mises.org/E4B_203_Podcast
Angie Morgan Witkowski on LinkedIn: Mises.org/E4B_203_LinkedIn
Public health agencies tend to be treated like authoritative sacred cows. In reality, they have politicized health policies to the point where they really are a health hazard.
Original Article: "The Case for Disbanding Public Health Agencies"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Legislators have a strange relationship with magic. To achieve that which physically cannot be done, they like to wave magic wands and pretend that it can. Reality puts a limit on political power, a realization that always sits poorly with those in charge of our trillion-dollar bureaucratic machinery.
Senator Elizabeth Warren is a stunning case in point, and she’s had her aim at the magic-seeming world of digital assets like bitcoin for a while. Last month she cosponsored The Digital Asset Anti-Money Laundering Act of 2022 with Roger Marshall which attempts to put those assets under rules that echo the regulatory system that cryptocurrencies were created to escape.
The bill’s purpose is “closing loopholes and bringing the digital asset ecosystem into greater compliance with the anti–money laundering and countering the financing of terrorism (AML/CFT) frameworks governing the greater financial system.”
This turns tens of thousands of node runners, wallet users, or bitcoin holders into licensed money service businesses for running software on their computers. The bill’s text especially rallies against “unhosted” wallets, which are just assets that are not under the custody of a regulated exchange or bank-like entity—that are owned outright instead of being counterparty to a censorable banking contract. There can be no financial privacy in the senator’s world.
Money transmitter entities would be required to perform the sort of identification and counterparty checks that banks submit to, but the bill takes things one step further:
Prohibit financial institutions from using or transacting with digital asset mixers and other anonymity-enhancing technologies and from handling, using, or transacting with digital assets that have been anonymized using these technologies.
An old-world analogy of the absurdity of this is physical cash, where using an ATM and then making a bank deposit is the most rudimentary form of “anonymity enhancing technologies.” If the senators get their way, the kind of privacy that cash permits would be ruled out in the new world of bitcoin: we must see what you’re up to and make sure you’re not spending any funds we disapprove of.
Reality Reasserts ItselfNever before was a piece of proposed legislation so resolutely defeated by reality. Reality doesn’t go away simply because you label it “money laundering” or tangentially connect it to criminal behavior by the rogue states that ostensibly motived the bill.
Warren cannot do this for three reasons: Bitcoin doesn’t work the way she thinks. Congress is constitutionally barred from doing it. And because the bitcoin protocol doesn’t care about her magic-wand waving.
While bitcoin attempts to be money, it doesn’t conform to the physical properties of pieces of paper (or regulated banking institutions) that Warren pretends to understand. Paper dollars are handed over in trade, and bank transfers clear between banks or on the Federal Reserve’s balance sheet; something that has monetary value moves, and we therefore get money transmitter laws to keep tabs on who is moving funds to whom.
On the surface it seems that bitcoin operates in the same way: I have satoshis in a mobile app or a hardware wallet, I press send, and then you have sats in your wallet. Something money-like moved, right?
Wrong. What shifts are the open sesame–like secret words that allow a transaction to be accepted by the tens of thousands of nodes running bitcoin, recognizing that now someone else is in command of the protocol address existing all over the world at the same time. It’s like passing secret notes to the entire world, enciphered by a secret code.
There’s no bank for Warren to lean on for regulatory purposes. What shifts is the protocol-level recognition that someone else now has access to the funds, whereas the funds themselves never move. L0la L33tz writes in Bitcoin Magazine that “non-custodial wallets transmit Bitcoin the currency as much as the key to one’s door moves the house around.”
And words are speech which Congress has long been forbidden from interfering with. The counterintuitive notion of a monetary system that operates without money moving has yet to reach the offices of America’s legislators. Money transmission laws are as unfit to regulate bitcoin as they are regulating the janitors in the Capitol.
Bitcoin doesn’t move, so how can the software that manages one’s balance be subject to money transmitter laws? Warren faces problems on three levels:
You can’t achieve it. Bitcoin was made for attacks like these, attempts to regulate or control it. It is resilient; its ledger and block confirmations are completely unresponsive to any magician’s waving. Last spring, China tried to ban bitcoin mining—a physical process more difficult and obvious than just holding, transacting, or validating bitcoin—in a state much more authoritarian than the US, and they couldn’t do it. A year and a half later, plenty of covert mining operations exist in China, not to mention the exodus of machinery that set up in the US, Canada, Kazakhstan, and Russia. A huge authoritarian crackdown with zero impact on bitcoin.
Good luck subduing the mere transactions and privacy-enhancing methods that people run on their phones and computers.
You’re not allowed to. The First Amendment says that government cannot abridge the freedom of speech, and since Bernstein v. United States in the 1990s, the Supreme Court has said that code is speech. Every aspect of bitcoin is code: The validators running bitcoin is code. The “unhosted” wallets and the mixers the bill laments are code. The mobile apps that allow spending is code. At no point does anything related to bitcoin cease being code. End of discussion.
You’re not supposed to. Money is a neutral entity, a system that exists entirely to facilitate trade between humans. If it performs its role well, some unsavory types are going to use it (cue criminals and cash). When you meddle with it, it performs that function less well, and you harm the rest of society. Senators in a galaxy far, far away have no business interfering with it.
You cannot make words illegal—primarily because they’re nonrivalrous and exist in the human mind, available for anyone to use. When Harry Potter’s enemies in J.K. Rowling’s fantastic world enforce the “Taboo”—an enchantment that lets the Death Eaters punish anyone who utters Voldemort’s name—they do so via the use of magic, a realm that Congress thankfully has not yet uncovered.
Not for lack of trying, as we learned a few weeks ago when Senator Warren tried to regulate the code that people run when they use bitcoin. Central planners always try to plan that which is beyond their understanding—and frequently beyond their capacity.
Good news is that it won’t pass; it’s the sort of Hail Mary marketing tool for which Warren has become quite known. Bad news is that it reflects the mistaken view held by many a legislator and plenty more everyday people.
You can be in favor of bitcoin, oppose it, or be lukewarm or uninterested. What you can’t do is straw man its operation and then try to use government power to magically make it behave the way you want. Ignorance is not a good reason to mistakenly overstep one’s authority.
The personal savings rate is near seventeen-year lows. Credit card debt is at record levels. Millions of prime-age workers have quit the job market, and full-time employment continues to wither. On the other hand, the Biden Administration wants you to think things have never been better.
Last week, following the release of December's jobs data by the Bureau of Labor Statistics, Biden crowed that “Real wages are up in recent months ... and we are seeing welcome signs that inflation is coming down as well." Biden concluded by saying "it's a good time to be a worker in America."
Unfortunately, things aren't nearly as good as the White House and its accomplices in the corporate media would have us believe.
It's only a "good time" to be a worker in America if one equates falling real wages and falling full-time employment with "robust" employment conditions.
Moreover, the numbers that the administration continued to cherry-pick to burnish its political image are themselves quite suspect. Response rates to employment surveys sent out by the BLS have gone into steep decline, and the Philadelphia Federal Reserve has recently accused the BLS of vastly overstating employment growth in 2022.
A more sober look at broader economic trends continues to point toward economic pain in 2023, and there is less reason than ever to think that the Federal Reserve will engineer a fabled "soft landing" for the economy after years of record-breaking monetary inflation.
Falling Real Wages, Falling Full-Time Employment In spite of what Biden may say, real wages in the United States fell, year-over-year from April 2021 to November 2022. That's likely to also be the case for December once we get the inflation growth numbers for December. Put another way, wages are falling in real terms because the inflation rate has been outpacing wage growth during all that time. Nominal wage growth actually slowed in December according to the new BLS numbers, so unless the inflation rate suddenly collapsed to below 4.5 percent in December—which is unlikely—we will find that real wages fell in December for the twenty-first month in a row.
Another factor pointing to weakness in job markets is the fact that the number of full-time workers fell in December. Nearly all of the gains in workers were part time.
Specifically, full-time employees dropped by 1,000 workers while part-time workers rose by 679,000 (month-over-month). The total gain in all workers for the period was 717,000. Moreover, the overall trend since 2021 is one in which growth in full-time work in general is falling—and turning negative in some months—while part-time employment represents most of the growth.
What does this mean overall? David Rosenberg summed it up in a recent tweet, these are jobs "gains" characterized by part-timers, side giggers, and multiple job holders:
rosenberg.jpg An important aspect of the "household survey" Rosenberg mentions is that it considers part-time workers and barely-employed self-employed people as among the "employed" on a par with full-time workers. Yet, when we consider the reality of slowing wages combined with a lack of growth in full-time workers, one suspects that the employment situation isn't exactly lucrative for a great many workers. There is also good reason to believe that many workers who are now taking on part-time work are doing so because the cost of living has increased substantially. For example, over the past year, the average hourly wage increased 4.6 percent while CPI prices rose 6.4 percent. Workers are falling behind, and it's hard to square this with Biden's claim that workers are doing unusually well.
Stagnant Labor Force ParticipationAnother reason to suspect the labor market isn't as great as we're being told is the fact that total prime-age (i.e., age 25-49) workers are hardly flocking to join the labor force. People leaving the work force could be a sign of a very robust economy, of course, as people can scale back working hours when real wages surge. But its extremely unlikely that's what's happening in our current period of rising costs, falling wages, and rising debt.
In fact, the number of prime-age workers "not in the labor force" is still up from where it was before the covid panic of 2020. In January 2020, about 21.3 million workers labeled themselves "not in the labor force." That is, these people reported not working for market income at all during the previous year. As of December, the number had risen to 22.2 million. Since the Great Recession began in late 2007, the number of workers not in the labor force is up by more than a million. Biden may think it's a great time to be a worker in America, but apparently many prime-age workers don't agree.
This all reflect a larger historical trend in which workforce participation has fallen, with men especially prone to leaving the work force. This all helps to push down the unemployment rate as the pool of potential unemployed workers continues to shrink.
"Jobs" vs. Employed PeopleBut why is it that we keep hearing about how there is so much job growth? Those "good" numbers are based mostly on a separate job survey which looks only at the number of jobs created, as opposed to the number of employed persons. This means a large number of part-time jobs could be created, with few new employed persons, and this could be reported as robust job growth. In fact, in terms of cumulative employment growth since January 2021, we find a persistent gap between the two surveys. This gap narrowed in December 2022, but, as noted above, this was mostly driven by part-time work. In every month since April 2022, this unexplained gap between employed persons and "new jobs" has ranged from 96,000 up to 1.8 million:
This gap could theoretically be explained by a rising number of multiple job holders, but it seems this need not explain all of the gap, as it seems the establishment survey has been overestimating job growth considerably. According to a new report released by the Philadelphia Federal Reserve the total number of new jobs added during the second quarter was closer to 11,000 than the 1.1 million that the establishment survey had shown. This doesn't tell us much about the second half of the year, of course, but it does suggests there's something very wrong with the survey that's been repeatedly used to "prove" the job market is excellent.
The iffy numbers might have something to do with declining response rates to the BLS's surveys. Since the covid panic, the surveys used to collect this data have seen sizable drops in response rates. The establishment survey (CES) response rate has fallen from 59 percent in early 2020 to 45 percent today. The "JOLTS" survey, which produces many rosy estimates about job openings, has fallen to a 30-percent response rate since 2020. In contrast, the Household Survey (CPS) still has a response rate over 70 percent.
Without parsing the data sources, it's impossible to guess how much the establishment survey's narrowing data sources are affecting the numbers. In any case, the establishment survey is increasingly delivering estimates that appear questionable given larger economic indicators. The "good" employment data still leaves us wondering why the savings rate is falling and why disposable income is below trend. Why is credit card debt mounting if households are enjoying the fruits of a "strong" labor market?
The writers of Biden's press releases offer us no answers. Once we take a broader view, however, the numbers point to recession and declining fortunes for a great many of America's workers. In November, the money supply actually fell, continuing a trend of rapidly falling money-supply growth. That's a strong recession signal. An even more reliable recession signal is the yield curve showing the 3-month/10-year yield spread. When this goes negative, a recession has been assured in every case for decades. This spread is now the deepest in negative territory it's been in more than 40 years.
Misplaced Trust in the Federal ReserveAt this point, Wall Street and the regime are both banking on the hope that the Federal Reserve will engineer a "soft landing" through its monetary policy. The idea here is that the Fed will somehow figure out how to allow interest rates to rise just the perfect amount to rein in inflation while also not triggering a recession. This is hope based on fantasies, however. It's entirely possible a recession may somehow be averted this year or next, but if that occurs, we hardly have any reason to assume the Federal Reserve planned it all. After all, the Fed has made it abundantly clear in the past two years that it has absolutely no special insights when it comes to economic trends or how monetary inflation will affect the economy. After record breaking amounts of monetary inflation in 2020 and 2021, Fed economists were still insisting that price inflation would be no problem and would be "transitory." Numerous Fed economists from Neel Kashkari to Jerome Powell continued to state that the Fed should keep interest rates low well into 2022, or even into 2023.
By the end of 2021, however, it was clear the Fed has been very wrong about price inflation and was forced to raise rates and promise monetary tightening. Now, they continue to insist they can do so without triggering a recession. The Fed also continued to insist it has no data predicting a recession. This is just par for the course for the Fed which has always predicted good economic times even when the country is in recession. Ben Bernanke, for example, was still denying there would be any recession at all in 2008, even after the US had been in recession for months.
In other words, the Fed is winging it, and the data points to both anemic jobs data and a stagnating economy. The Fed has given us every reason to believe it doesn't even know what's going on, and we certainly should not assume it has a secret plan to assure a robust economy into the future
Forty years ago, American politicians claimed that Japanese economic success was due to government economic planning. Unfortunately, the myth of industrial policy never seems to die, no matter how many times it is discredited.
Original Article: "Industrial Policy Did Not Bring Prosperity to Asia"
This Audio Mises Wire is generously sponsored by Christopher Condon.
President Barack Obama returned from the 2010 G20 Summit held in Toronto having failed to convince world leaders that more “economic stimulus” was needed to cure what ails the world’s economies. Walking a seeming tightrope between too much spending and spiraling deficits, on the one hand, and too little spending and economic recession, on the other, world leaders reluctantly agreed to err on the side of fiscal and monetary caution and to halve deficits in three years.
Economist Paul Krugman in response to this decision cautioned that this policy of deficit reduction is a mistake. In his opinion, the world suffers from too little spending, not too much spending. Without further stimulus, he opined, the world is headed for another depression.
Of course, the coronavirus put an end to whatever reluctance the world’s governments and its central banks had about fiscal and monetary “stimulus,” and caution was thrown to the wind. The latest addition to the debt stockpile will be the $1.7 trillion proposed US omnibus government funding bill. We are now all awash in debt and fiat money. With the US inflation rate running north of 8 percent a year and recession (or worse) still hanging over the US economy, we may yet get a recurrence of ’70s style stagflation!
Is this call for more “economic stimulus” sound or just more Keynesian nonsense from statists and their court jesters? Most calls for economic stimulus are based on the so-called multiplier effect.
John Maynard Keynes believed that spending (consumption) was the engine of economic activity. A dollar spent, he opined, would ripple through the economy creating new wealth worth many times the value of the original dollar. He called this the “multiplier effect.”
It is supposed to work something like this:
Joe is given $100. Joe is in the habit of spending 90 percent of his income, saving the rest for a rainy day. Joe buys a new coat for $90. The shop owner Max, from whom he bought the coat, now has Joe’s $90, but he too is in the habit of spending 90 percent of his income, saving the rest. Max spends $81 (90 percent of $90) taking his wife out to dinner. The restaurant owner Mario now has $81 to spend. Like Joe and Max, Mario spends his income, buying various items for $72.90 (90 percent of $81) for his restaurant at the local hardware store.
This chain of buying and selling continues until someone spends the last dime. According to Keynes’s multiplier, Joe’s $100 increased the wealth of society by $1,000 (ten times $100). Put another way, the value of all goods and services in society increased by $1,000 because of the chain of buying and selling started by Joe.
What would happen if the savings rate jumped to 20 percent?
The multiplier would be only half as much, and each new dollar of income would create five dollars in newfound “wealth.” Joe’s $100 would increase the value of goods and services bought and sold in society by only $500. The multiplier effect is the reciprocal of the demand for money, or rate of savings. In this case, 1 divided by 0.20, or 5.
In the Keynesian view, therefore, the act of saving must be discouraged if the general goal is to increase production and reduce unemployment. As a result, frugality is labeled “hoarding.” Not a good thing. On the other hand, government profligacy is good—at least when the government needs to stimulate the economy.
With the magic of the multiplier effect dancing in his head, Keynes came to the rather novel conclusion that all that is necessary to cure economic depressions and unemployment is for the government to print and spend money. Keynes wrote (with obvious contempt for market-based economic theories) as follows:
If the Treasury were to fill old bottles with banknotes [fiat paper money], bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again . . . there need be no more unemployment and with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.
And what can we reasonably conclude from this statement? We can conclude that the most influential economist of the twentieth century does not know beans about the value of money!
Why bother hiding banknotes in old bottles? Do away with the charade and give everyone a printing press so we can print our own banknotes. Everyone will be busy counterfeiting money until all hours of the morning. We will have solved the problem of unemployment, idleness, and scarcity in one fell swoop and become millionaires in the process. How’s that for economic stimulus?
Of course, this is but a fairy tale. You cannot print your way to wealth and economic prosperity. Wealth does not lie in the amount of paper money floating around the economy, but rather in the available supply of goods and services. An increase in wealth is made possible by technological innovations, which result in more efficient uses of scarce resources. Society is more prosperous when more and better goods and services are available at prices people can afford to pay. By Keynes’s standard, Greece should be rich, while Switzerland should be well on its way to the poorhouse!
As Jean-Baptiste Say pointed out, “commodities are ultimately paid for not by money, but by other commodities. Money is merely the commonly used medium of exchange; it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities.”
Trying to “stimulate” the economy by flooding the market with new money makes matters worse. Any increase in the money supply is inflationary, even when prices are stable. Stable price levels often mask underlying inflation in cases where prices would have declined absent an increase in the money supply. In fact, for most of the nineteenth century, at a time of great industrial and agricultural expansion, prices did decline. Price declines were then considered normal—the result of greater efficiencies in production—and a benefit of the Industrial Revolution.
In the current context, general price declines would clear the market of excess goods and services (e.g., unsold houses) and lay the foundation for true economic recovery. Increasing the money supply—even when it results in no discernible general price increases—prolongs the beginning of economic recovery, sets the stage for the next boom-bust cycle, erodes the value of money, and robs us of the benefits of improvements in technology, production, and distribution.
The creation of new money out of thin air will not increase society’s real wealth. The effect of more fiat money has more to do with illusion than reality. People will have more money to spend, but they will soon discover that their money buys less. And when the multiplier runs its course, society will find that the placing of new banknotes in old bottles was just another government con game.
Yuval Noah Harari, who teaches history at Hebrew University in Jerusalem, denies that free will exists. However, to deny free will is to deny human action itself.
Original Article: "Objection, Professor Harari! Logic Proves the Existence of Free Will"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The heart of economic growth is an expanding subsistence fund, or the pool of real savings. This pool, which is composed of final consumer goods, sustains individuals in the various stages of the production process. The increase in the pool of real savings permits the expansion and the enhancement of the infrastructure, and this strengthens economic growth. An increase in economic growth for a given stock of money implies more goods per unit of money. This means that economic growth, all other things being equal increases the purchasing power of money.
Note that most individuals are likely to strive to improve their living standards. This means that individuals are likely to aim at expanding the pool of real savings, which will in turn strengthen economic growth and the purchasing power of money. In the framework of market-selected money such as gold, the purchasing power of money is likely to strengthen over time.
According to Joseph Salerno,
Historically, the natural tendency in the industrial market economy under a commodity money such as gold has been for general prices to persistently decline as ongoing capital accumulation and advances in industrial techniques led to a continual expansion in the supplies of goods.
Hence, in the framework of a gold standard, the purchasing power of financial assets such as stocks and bonds is likely to strengthen alongside economic growth. Note that stronger economic growth, all other things being equal, implies a strengthening in the pool of real savings; i.e., the pool of final consumer goods.
Under the present monetary standard—i.e., the paper standard—an increase in the quantity of money, because of the loose policy of the central bank, undermines the pool of real savings and in turn undermines economic growth. (Observe that loose monetary policy sets in motion an exchange of nothing for something.)
As long as the pool of real savings is expanding, the increase in the money supply creates the illusion that the central bank can generate real economic growth and strengthen assets’ purchasing power. However, once the pool of real savings comes under pressure because of the monetary pumping, the growth in assets’ purchasing power starts to slow. According to Richard von Strigl,
Let us assume that in some country production must be completely rebuilt. The only factors of production available to the population besides labourers are those factors of production provided by nature. Now, if production is to be carried out by a roundabout method, let us assume of one year’s duration, then it is self-evident that production can only begin if, in addition to these originary factors of production, a subsistence fund is available to the population which will secure their nourishment and any other needs for a period of one year. . . . The greater this fund, the longer is the roundabout factor of production that can be undertaken, and the greater the output will be.
The Subsistence Fund and MoneyWhen producers exchange their produce for money, they can then exchange their money for various consumer goods; i.e., they can access the subsistence fund whenever they deem this necessary. When an individuals exchanges their money for goods, this is an act of exchange and not an act of payment—money is just the medium of exchange. Payment is made by means of various goods.
For instance, a baker pays for shoes by means of the bread he produced, while the shoemaker pays for the bread by means of the shoes he made. (Both shoes and bread are part of the subsistence fund, as they are final consumer goods.) When the baker exchanges his money for shoes, he has already paid for the shoes with the bread that he produced prior to this exchange.
Trouble erupts when, on account of loose monetary policies, a structure of production emerges that ties up much more consumer goods than it creates. This excessive consumption relative to the production of consumer goods leads to a decline in the subsistence fund, meaning that there is less economic support for the individuals that are employed in the various stages of the production structure. This results in an economic slump.
Intermediate GoodsWhat about a producer of intermediate goods, like a producer of a special tool—what is his contribution to the subsistence fund?
An individual who exchanges his money for the tool will employ the tool in the production of final consumer goods or in the production of other tools and machinery that, in turn, will contribute to the production of final consumer goods sometime in the future. The producer of the special tool does not directly supply final consumer goods. However, he does offer means to secure these goods. He also offers time.
According to Murray Rothbard:
Crusoe without the axe is two hundred fifty hours away from his desired house; Crusoe with the axe is only two hundred hours away. If the logs of wood had been piled up ready-made on his arrival, he would be that much closer to his objective; and if the house were there to begin with, he would achieve his desire immediately. He would be further advanced toward his goal without the necessity of further restriction of consumption.
Now, what about education and the arts? Should we include them in the subsistence fund? Without the availability of consumer goods that sustain individuals, education and the arts are likely to be lower on individuals’ priority lists.
Once the individuals’ living standard increases, all these things become affordable to them. Hence, anything that undermines the subsistence fund undermines the ability to live like human beings, as opposed to existing like other animals.
The Purchasing Power of Financial Assets and Monetary Liquidity An important factor that causes fluctuations in financial asset prices is monetary liquidity. Monetary liquidity depicts the interaction between the supply and the demand for money. Now, the increase in liquidity—an increase in the supply of money relative to the demand for money—does not enter all asset markets instantaneously. It enters various markets sequentially. Note that the price of an asset is the amount of money paid for the asset.
When money enters a particular asset market, there is now more money per unit of the asset. This means that the price of the asset in this market has gone up. After a time lapse, once investors have adopted the view that the asset is overvalued, they move the monetary liquidity to other asset markets. This shows that there is a time lag between changes in liquidity and changes in the average price of assets.
Observe that the increase in the momentum of asset prices is driven by the increase in the lagged liquidity momentum. Conversely, a decline in the liquidity momentum after a time lag results in a decline in the momentum of asset prices. It would appear that the monetary liquidity is the key driver of asset prices. This is not the case. The pool of real savings, which gives rise to economic growth, determines the purchasing power of assets in money terms.
Notwithstanding the popular view that increases in the money supply can help grow the economy, money cannot do such things. More money cannot replace real savings that sustain individuals in the various stages of production. According to Rothbard, this is revealed once the pool of real savings starts to decline and the central bank’s monetary pumping becomes ineffective in reviving the pace of economic activity.
In the framework of market-selected money such as gold and in the absence of a central bank, an increase in assets’ purchasing power is going to reflect an increase in the pool of real savings and thus economic growth.
Central bank policies, however, curtail investors’ ability to distinguish wealth-generating activities from non-wealth-generating ones; i.e., bubble activities. An increase in money supply masquerades as an increase in real wealth. This results in erroneous investment decisions. Hence, all other things being equal, the exchange value of assets is set by the pool of real savings. Changes in monetary liquidity because of central bank policies cause disruptions known as bull-bear markets.
Summary and ConclusionsAn important factor that appears to drive financial asset prices is monetary liquidity, defined as the growth rate in money supply minus the growth rate in the demand for money. This is not the case. The pool of real savings gives rise to economic growth, which for a given stock of money determines the purchasing power of assets.
Modern progressives are not "reformers." Instead, as Murray Rothbard wrote, the progressive method is to seize control of the state and impose their own agenda on everyone.
Original Article: "Woke Egalitarianism and the Elites"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Federal budget deficits are increasing, but the Biden administration shows no signs of restraining its spending. This is not going to end well.
Original Article: "Budget Deficit Hits Monthly Record Due to Biden’s Policies"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Not satisfied with hamstringing the oil and gas industries, environmentalists now are shutting down farms and production of livestock, all in the name of fighting climate change. But people still need to eat.
Original Article: "Forget Oil. Now They Are Coming for the Cows"
This Audio Mises Wire is generously sponsored by Christopher Condon.
This will be brief, appropriate to the topic at hand. It consists of a quote from Milton Friedman found in Joseph Salerno’s outstanding book, Money: Sound and Unsound:
If a domestic money consists of a commodity, [such as] a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself. (emphasis added)
Imagine that. If we have sound money, we don’t need the Fed. Or Congress. We just need sound money.
End of essay.
Postscript:
Economist Nouriel Roubini once attacked the gold standard:
Roubini raises the following question: If you are on a gold standard, or modified gold standard, what do you do in the event of a bank run—if you don’t have enough gold to fully back the currency?
Translated: What happens if the banks have created bogus IOUs for their depositors’ gold? Suggestion: Have them indicted for fraud. Gold doesn’t “back” anything. It is the money. The banks issue IOUs for the money. When they issue more IOUs than they have gold on hand, they’re cheating.
Murray Rothbard:
In my view, issuing promises to pay on demand in excess of the amount of the goods on hand is simply fraud, and should be so considered by the legal system . . .
This is legalized counterfeiting; this is the creation of money without the necessity of production, to compete for resources against those who have produced.
In short, I believe that fractional-reserve banking is disastrous both for the morality and for the fundamental bases and institutions of the market economy.
Roubini also says that a “gold standard limits the flexibility and range of actions that central banks can take.” He thinks it’s a shortcoming, but that alone should recommend it.
At the start of World War I, the belligerent governments went off the gold standard so they could fight the bloodiest war in human history. Gold, since it can’t be created on demand, would have severely limited the “flexibility and range of actions” governments could take.
Sound money is not a product of central bank policy decisions. But who cares about sound money when you want to engage in massive human slaughter?
More recently, Roubini said, “The world is on a slow-motion train wreck.”
The unmolested gold coin standard avoids train wrecks, “Dr. Doom,” by staying on track.
A gold standard doesn’t need Roubini. It doesn’t need Jerome Powell. It doesn’t need Congress. It doesn’t need the World Bank or the International Monetary Fund. It doesn’t need the WEF, the FOMC, or AOC.
It just needs to be left alone.
The gold standard “requires nothing else than that the government abstain from deliberately sabotaging it,” Ludwig von Mises wrote in The Theory of Money and Credit.
What all the enemies of the gold standard spurn as its main vice is precisely the same thing that in the eyes of the advocates of the gold standard is its main virtue, namely its incompatibility with a policy of credit expansion. The nucleus of all the effusions of the anti-gold authors and politicians is the expansionist fallacy.
Credit expansion—inflation—is indispensable to a growing government. From Human Action:
The gold standard removes the determination of cash-induced changes in purchasing power from the political arena. Its general acceptance requires the acknowledgment of the truth that one cannot make all people richer by printing money. The abhorrence of the gold standard is inspired by the superstition that omnipotent governments can create wealth out of little scraps of paper.
If wealth could be created out of scraps of paper or their digital equivalent, world poverty would be a thing of the past.
Remember, the commodity money takes care of itself—and us too, if we let it.
If anyone believes that it is reactionary hysteria to claim the radical Left wishes to destroy the traditional family, then let Sophie Lewis’s 2022 book, Abolish the Family, allay such concerns. This “Manifesto for Care and Liberation” sets forth the why and the how of the erasure of traditional households.
As to the why, it won’t come as a surprise that the goal is to destroy the productivity and wealth that capitalism creates. Lewis cites others, like Pat Parker, who state definitively that the family must go, as it is “the basic unit of capitalism and in order for us to move to revolution it has to be destroyed.” Lewis further notes that the reason for abolishing marriage is deeply intertwined with abolishing private property, which would put an end to voluntary exchange.
It’s the “how” of family nihilism that Lewis presents that provides bizarre yet shockingly effective challenges to traditional family life. She recounts the various—and completely failed—attempts at socialist utopias. She hails Joseph Fourier’s phalanstery buildings (vast dormitories housing precisely sixteen hundred people assigned to live there), where “regular carefully curated sex parties are presided over by special ‘fairies.’” She continues, “The original feminism, then, is inseparable from family abolition, queer sex, and socialist utopianism. Good to know, right? Vive le phalanstère!”
Lewis doubles down on this statement in a section entitled “The Queer Indigenous and Maroon Nineteenth Century.” She claims that Native Americans exhibited superior ways of being and practiced “no forms of patriarchy; raising children collectively, honoring more than two genders, placing only loose social strictures on sexual pleasure, counting nonhuman relatives among their kin, and sometimes conceptualizing mothering-practices (such as breast-feeding) as gender-inclusive.”
For Lewis, all of these practices are to be lauded as grassroot forms of resistance to the nuclear family. The view that the normalization of such practices does indeed contribute to the dissolution of the traditional family is certainly agreeable to this author. One should not believe the practices Lewis hails merely represent a bacchanalian desire for bizarre sexual expression for its own sake. Rather, the author presents these practices as a deliberate methodology through which the traditional family may be annihilated.
Other attempts to destroy the family that Lewis seems to fancy include the “cooperative, group-marriage based model” of Robert Owen, a model that failed in spectacular fashion. Other alternative living arrangements include the machinations of comrade Alexandra Kollontai, who assured her followers that women and children would be better off because “communist society takes care of every child and guarantees both him and his mother material and moral support. Society will feed, bring up and educate the child.” Indeed, in this respect, we can agree at least in part with Karl Marx and Friedrich Engels, whose first footnote in The German Ideology stated unequivocally, “That the abolition of individual economy is inseparable from the abolition of the family, is self-evident.”
Not to be outdone by these comrades and their dreams of the elimination of the family, Lewis directs us to a section on “Gay and Lesbian—and Children’s—Liberation.” Fifty years ago, activists made a list of demands to the Democratic National Convention in Miami, and the sixth part of their manifesto declared, “Rearing children should be the common responsibility of their whole community. Any legal rights parents have over ‘their’ children should be dissolved, and each child should be free to choose its own destiny. Free twenty-four hour child care centers should be established where faggots and lesbians can share the responsibility of child rearing.”
Not to be outdone by the gay activists of the ’70s, today’s comrades against kinship Michele Barrett and Mary McIntosh present a vision of complete nihilism. They boldly state, “We hope that by now it will be clear that we would put nothing in the place of the family.” The total absence of traditional family structures in practice is something that Lewis saw with her own eyes—and celebrated. She recounted a covid-policy-induced tent encampment in central Philadelphia where inhabitants had the socialist blessings of “an occupation, complete with a kitchen, distribution center, medical tent, substance use supply store, and even a jerry-rigged standing shower—a militant village led by unhoused Philadelphians and working-class rebels.” This apparently was a preferable form of living, as it was a “home—in a new, true, common sense of the word . . . a practice of planetary revolution.”
In a final rhetorical flourish, Lewis describes the goal of the final demolition of the family. She insists that
the state return especially dependent humans to the arms of the few caregivers it tends to recognize and insist on deprivatizing care, contesting “parental rights,” and imagining a world in which all people are cared for by many by default. What we are saying is that KEEPING FAMILIES TOGETHER and ENDING FAMILY SEPARATION are political imperatives. (emphasis in the original)
Put another way, this is the end of parents raising their own children and the end of free association, replaced by the state as parent and with centrally controlled living arrangements.
In light of the decay of the traditional family in the West, one might be tempted to think these changes are accidental. As Lewis’s work explains, they most assuredly are not. Ryan McMaken is right in saying that there are multiple causes for family decay and alienation. There are economic, political, and moral catalysts. But make no mistake, it is anything but accidental. Lewis and her comrades on the radical Left have stated their intentional attempts to destroy the family, and it behooves people of goodwill everywhere to take these threats to take possession of your children and property seriously by exposing the work of antifamily pseudointellectuals.
Can you imagine giving people who are already suffering from mental illness a drug that you know will make them worse? Sounds like something out of a sadistic horror movie. Long-term mental illness sufferers experience such torturous states of mind that they might try just about anything to escape them—from the extreme of suicide to taking just about any drug their doctor says holds the hope of helping them. It takes a particular brand of evil to exploit that condition. But that’s exactly what Pfizer did with Neurontin (also prescribed as gabapentin.)
Pfizer’s own studies showed that manic symptoms were significantly worse in bipolar patients on gabapentin than in those on a placebo, but that didn’t stop Pfizer from doing everything they could to get doctors to prescribe it off label at very high doses for people suffering from bipolar disorder. This included publishing claims they knew were false or misleading, misrepresenting one study, rigging another, and suppressing the results of two more, according to John Abramson, author of Sickening (2022), who was an expert witness in court proceedings against Pfizer. In one leaked email, Pfizer’s own medical director referred to Neurontin as “snake oil.”
Pfizer was eventually found guilty of fraud for the illegal off-label marketing of Neurontin. Foundation Health Plan, America’s largest HMO, sued them. But given that sales of Neurontin had reached $2.1 billion in the US by 2003, the total penalty of a paltry $142 million could not serve as much of a deterrent from committing future fraud. No one was jailed, and the trial was barely mentioned in the news. So, guess what? Neurontin is still being prescribed off label to treat bipolar disorder by doctors who are just used to prescribing it.
Is this just a one-off incident of a bad drug slipping through the net?
Hardly. GlaxoSmithKline suppressed negative findings about the effects on suicide and depression caused by their drug paroxetine (Paxil/Seroxat). This only came to light because they were dragged through court and forced to release internal documents.
One document gave instructions to “effectively manage the dissemination of these data in order to minimise potential negative impact,” which is a really nice way of saying “make sure no one finds out that this drug will make depressed people suicidal or we won’t be able to keep making money selling this drug.” They were fined $3 billion, but that only represented a quarter of the total sales of paroxetine over the years.
When it’s more profitable for pharmaceutical companies to break the law than to follow it, being fined just becomes another expense to take account of. A drug can pass the regulator on flimsy or fraudulent evidence without anyone even noticing. Even if someone notices and sues the pharmaceutical companies, there is no guarantee that your doctor will even know these companies have been sued! They might just keep on prescribing the drug for no other reason than that they are used to doing it.
By all measures, the economic downturn that began in 1920 was worse than what occurred in 1930, yet the economy recovered quickly in 1921. Why the difference?
Original Article: "The Economic Superbowl: 1920–21 versus 1930–31"
This Audio Mises Wire is generously sponsored by Christopher Condon.
There is no real housing market in the US. Instead, an unholy trinity of Fannie/Freddie, the US Treasury, and the Federal Reserve Bank operate to distort the market at every turn and drive home prices up dramatically. Mises Institute Senior Fellow Alex Pollock, an economist and former mortgage banker, joins Jeff to describe the reality few Americans know.
Alex Pollock's new book Surprised Again: The Covid Crisis and the New Market Bubble :Mises.org/HAP377a
Alex Pollock on how the Fed became the world's biggest S&L:Mises.org/HAP377b
Once again, after two decades of silence, the Federal Trade Commission (FTC) is cracking down on Microsoft. For what? Microsoft is accused of monopolistic tendencies in their recent bid to acquire the company Activision Blizzard.
What is ironic about the FTC’s move is that Microsoft’s acquiring Activision will not even give Microsoft a majority market share in the industry. As of 2020, Microsoft’s share in the gaming market was 6.5 percent. Acquiring Activision Blizzard would then put Microsoft at 10.7 percent. This is a far cry away from a majority share in the market, let alone a total monopoly of 100 percent.
The definition of monopoly power is too broad. Any element of a good which sets it apart from another is said to give monopoly power. Consequently, every market participant is a “monopolist” to some extent. This is not a useful definition for the term.
What does the FTC mean when they use the term? In their own words: “[The] maker of Xbox [Microsoft] would gain control of top video game franchises, enabling it to harm competition in high-performance gaming consoles and subscription services by denying or degrading rivals’ access to its popular content.”
The FTC goes on to accuse Microsoft explicitly of trying to gain monopolist status in “multiple markets.” However, Microsoft would hardly go above a 10 percent market share in the gaming industry, the market relevant to this debate. But if you read article titles such as “Microsoft to gobble up Activision in $69 billion metaverse bet” or “Netflix will be next on Microsoft’s shopping list,” you get the sense that Microsoft is a giant, greedy leviathan, selfishly and recklessly devouring up smaller companies in an effort to become the fattest man in the room. In short, the antitrust crusaders want you to think this deal would make Microsoft too big.
Of course, the FTC will block this deal while having ignored Microsoft’s acquisition of Bethesda in 2021. There are special interests at play, namely Sony, the producer of the PlayStation. The Activision property at stake here is the Call of Duty franchise, which, according to Sony court documents, has a competitor in Electronic Arts’ Battlefield franchise, which is not as popular.
In a free market, Sony might be encouraged to purchase EA’s Battlefield franchise or to enter into a closer relationship with EA in order to provide better alternatives to Call of Duty; however, Sony is opting to use the government to strongarm Microsoft into abandoning the acquisition or at least to make concessions. This cronyist begging by Sony can be dismissed entirely.
On the other hand, all this talk of bigness and monopolies obfuscates the benefit of Microsoft’s acquiring Activision. At its core, this deal aims to increase the welfare of consumers, not add to their detriments.
To elaborate on this, one must keep in mind the concept of consumer sovereignty. Whether an entrepreneur makes a profit or makes a loss is ultimately dependent on the preferences of consumers. Entrepreneurs are engaged in an everlasting struggle in trying to fulfill consumer desires better. Microsoft is no different.
Microsoft would not have initiated this acquisition if they did not foresee that it would increase profits. In a free market, an increase of profits is attributable solely to an increased fulfillment of consumer desires. Microsoft is attempting to take the assets of Activision and arbitrage them across time, increasing its monetary value by increasing the satisfaction of consumers.
If Microsoft is mistaken, losses will ensue. At that point, Microsoft may decide to take a different approach: perhaps they might be willing to sit at the bargaining table with Sony over the rights to some of Activision’s properties.
Microsoft is now being forced to make concessions in order to win regulatory approval. This will sour the acquisition deal and harm consumers in the end.
When it comes to monopoly, we should only really be concerned about privileges on part of the state. This is how Murray Rothbard understood it: “Monopoly is a grant of special privilege by the State, reserving a certain area of production to one particular individual or group. Entry into the field is prohibited to others and this prohibition is enforced by the gendarmes of the State.”
As long as there are no legal impediments to new competition, the market remains free and competitive. If Microsoft fails horribly, there are always preexisting and potential competitors ready to take advantage of the opportunity. Microsoft may have its fair share of legal monopolies in the form of patents, but efforts should be focused on trying to dismantle the various intellectual monopolies they have as well as those held by their competitors. Instead, public outcry has been aimed at preventing mergers, even though these are beneficial, not detrimental, to consumers.
Microsoft is gearing up to fight the FTC’s injunction. In a rare case, a large company is taking up the free market cause, albeit temporarily. We should wish them luck.
Woke Racism: How a New Religion Has Betrayed Black America by John McWhorter Portfolio/Penguin, 2021, xv + 201 pp.
John McWhorter is an eminent linguistics professor who teaches at Columbia. He is himself black, and he argues that “woke” racism does not help blacks and other minorities. It has, he says, become a religion, and those who question it are dealt with severely by its acolytes, to the detriment of a free society. He does not confine the book to criticism but also proposes a three-step program aimed to help blacks succeed.
What is “woke” racism? According to McWhorter, it holds that all aspects of American society are racist, having as their function the suppression of nonwhites to the advantage of the dominant white elite. Society consists entirely of a struggle for power.
It is rarely stated explicitly, but decisively steers its adherents’ perspective on existence and morality. Third Wave Antiracism’s homily par excellence would be the following: Battling power relations and their discriminatory effects must be the central focus of all human endeavor, be it intellectual, moral, civic, or artistic. Those who resist this focus, or even evidence insufficient adherence to it, must be deeply condemned, deprived of influence, and ostracized. (pp. 10–11)
A particularly insidious part of the “woke” ideology is an extension of the notion of “white privilege,” under which whites are condemned for virtually anything they do or say, and which often rejects their anxious efforts to show their antiracism as inept or “actually” racist.
To anticipate a question, yes, I do believe that to be white in America is to automatically harbor certain unstated privileges in terms of one’s sense of belonging. Figures of authority are the same color as you. You are thought of as the default category. You are not subject to stereotypes. Although, these days, you actually are subject to one—that of the menacing, anal “whiteness” monster the Elect tar you as—but we shall not quibble. But the issue here is not whether I or anyone else thinks white privilege is real, but what we consider the proper response to it. The Elect are to ritually “acknowledge” that they possess white privilege, with an awareness that they can never be absolved of it. Classes, seminars, and teach-ins are devoted to corralling whites into this approach to the matter. (pp. 30–11)
McWhorter calls our attention to a large number of incidents in which people have lost their jobs because they have said something to which a proponent of the “woke” ideology takes exception. For example, in 2020,
David Shor, a data analyst at a progressive consulting firm, lost his job. He had tweeted a study by a black Ivy League political science professor, Omar Wasow, showing that violent black protests during the long, hot summers of the late 1960s were more likely than nonviolent ones to make local voters vote Republican. Shor’s intent was not to praise this, but to disseminate the facts themselves as a glum announcement—one that had been covered eagerly by liberal media shortly before this. Certain parties on Twitter, though, didn’t like a white man tweeting something that could be taken as criticizing black protest in the wake of George Floyd’s murder. The consulting firm took heed and expelled Shor. (p. 4)
I have so far confined myself to reporting McWhorter’s account of “wokeness,” as it seems to me in large part convincing, but at one point in his analysis, he goes astray, though fortunately this does not weaken the main thrust of his argument. He says that the insistence that absolute credence be given to the “woke” doctrines, without regard to evidence, makes the “woke” movement a religion. He is free to define “religion” in this way, but he intends more than this. He thinks that his characterization applies to Christianity and other theistic religions, and from that he goes on to suggest that the separation of church and state mandated by the First Amendment should apply to the “woke” ideology as well.
He says,
Certain questions are not to be asked, or, if asked, only politely. The answer one gets, despite being somewhat half-cocked, is to be accepted. The Christian is allowed to ask why the Bible is so self-contradictory, or why God allows such terrible things to happen. But no one has had a smackdown answer for two millennia anyway, and what’s key is that you believe. One internalizes an etiquette that it stops there. (p. 25)
One could well ask McWhorter whether his account of the Abrahamic religions rests on evidence. It is my impression, for what it is worth, that some Christians and Jews do have what they take to be satisfactory answers to the problem of evil, and the many who do not usually would not say that they are commanded to believe in God despite the absence of a satisfactory explanation, in defiance of reason, though there are no doubt some who do say this. Rather, I would think the more common view of believers is that the weight of the evidence favors belief, though the existence of evil does indeed count as a problem.
When he turns from theology, McWhorter does much better, and especially so in his suggestions on how to improve the lives of blacks. He argues that the “woke” ideology impedes black progress in that that it encourages blacks to blame all their problems on racism rather than to consider what positive steps they can take their condition.
If it is objected that this is “blaming the victim,” McWhorter responds that he has a positive program that will enable young blacks to succeed, and his program has great merit. First, he calls for an end to the war on drugs because the illegal market in drugs tempts young black men to a life of violent crime. “Its eclipse would create a black American community in which even men dealt a bad hand would likely work legally, spells in prison would be rare, and thus growing up fatherless would be occasional rather than the norm” (p. 141). Second, he favors teaching reading through phonics—i.e., sounding out the letters of a word, with concentration on a word’s spelling rather than the “whole word” method, which is difficult for children who come from homes in which books are not an important part of daily life. Finally, he proposes encouraging vocational training rather than going to college, which is not suitable for everyone. “We must revise the notion that attending a four-year college is the mark of being a legitimate American, and return to truly valuing working class jobs” (p. 143).
McWhorter deserves our thanks for his thoughtful account of “wokeness.”
Ah yes, the Tea Party. Fifteen years after it was established by followers of Ron Paul, the so-called antiestablishment organization has been co-opted by establishment Republicans. Dale Steinreich is not surprised.
Original Article: "The Tea Party, Fifteen Years Later"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The late Douglas North was correct to assert that institutions are a determinant of long-term economic growth. However, despite his genius in perceiving connections between economics and other fields, North wrote little on culture. Although leading economists are now beginning to take culture seriously, there is still a strong perception that all people are basically the same.
Unlike the legendary David Landes, who fearlessly classified some cultures as detrimental to progress, most economists jettison value judgments by arguing that culture is either functional or maladaptive. For instance, in a preindustrial setting where people are primarily concentrated in rural communities, sharing resources helps to insure against risks. However, in a post-industrial context where individualistic and commercial values are paramount, sharing could be perceived as a burden or an impediment to entrepreneurship. Hence, cultures that were once useful can inhibit progress and essentially become negative.
Therefore, countries and individuals would be better off if they shelved some practices. Without cultural change, modernization is impossible, but out of fear of arousing the anger of politically correct mobs, most economists are unwilling to recommend cultural change. Telling people that their culture is an obstacle to progress could invite charges of racism, and being a racist is the worst sin one can commit in our present climate.
But cultural evolution is just a path on the road to modernity, as the sociologist Georg Oesterdiekhoff reminds us in several articles and books. Premodern Europeans believed in magic and animism, but the advent of the Enlightenment and better schooling made such beliefs obsolete. Rejecting long-held cultural beliefs is hard but necessary in order for lagging countries to attain higher levels of development.
Japan became the first non-Western country to modernize because its intellectual elites had the intelligence to recognize that local institutions were defective relative to their Western counterparts. Fukuzawa Yukichi, who was a leading intellectual and institution builder in nineteenth century Japan, never hesitated to inform his countrymen that unless Japan transitioned to an innovative and industrious country with modern laws like its Western competitors, it would remain an economic backwater.
Today, similar musings would earn intellectuals the ire of the academy. However, economists are doing poor countries a disservice when they discount the relevance of culture. Rich and poor countries attract multinational corporations, but poor countries rarely have the culture and human capital to sustain foreign direct investment. David Morawetz, in his controversial book Why the Emperor’s Clothes Are Not Made in Colombia: A Case Study in Latin America and East Asian Manufactured Garments, contends that punctuality, productivity, and management quality best explain the superiority of manufacturing in East Asian countries.
Even though poor countries still attract foreign capital without a culture of performance and the human capital to fuel productivity, they will not ascend to first world levels. A classic example of the paradox of high foreign direct investment and low growth is Jamaica. Getting investments is quite easy for Jamaica, but like many poor countries, it is plagued by low levels of human capital, weak governance, and people who are unable to produce at the highest level.
Although Jamaica is a relatively poor country, Chinese and other ethnic minorities there have done spectacularly well. Most Jamaican-Chinese are the descendants of the Hakka Chinese, who migrated to the country in the nineteenth century to work as indentured laborers. The Hakka Chinese are revered for their work ethic and entrepreneurial insights, so despite relocating to Jamaica as laborers, they have succeeded in building intergenerational wealth.
People with the right cultural traits will create economic opportunities in harsh environments. East Asians score quite high on tests of long-term orientation, and there can be no capital formation without long-term planning. Entrepreneurship itself is a risky process requiring patient work and years of planning, so automatically, groups that are long-term oriented will excel at entrepreneurship regardless of their circumstances.
Unlike the Chinese, native Jamaican culture embraces wanton materialism and conspicuous consumption. Columnist Ian Boyne laments the materialism of Jamaicans in a Gleaner column:
As a people we are not culturally attuned to sacrifice and the postponement of gratification the way people in the Far East are. That is why they are capital surplus peoples and we are among the most indebted in the world. . . . That is why our education minister, whose philosophical sophistication is eclipsed by no Jamaican politician, can so easily talk to inner-city people about spending on their children’s education rather than . . . dancehall fashion and rum. Go into some ramshackle dwelling in the ghetto and observe appliances and gadgets. In some of these homes you see flat-screen TVs, and they are not bought by drug money.
Essentially, Jamaican culture fosters intergenerational poverty, and instead of reforming local culture, politicians cultivate a welfare- rather than wealth-oriented culture by professing their love for the poor. Idealizing poverty, however, will only encourage the immiseration of the poor because entrepreneurs, progressive intellectuals, and innovators, not poor people, move countries forward. Poverty is the natural condition of mankind and is more akin to indignity than achievement.
Societies that struggle to evolve culturally will fail to modernize and sustain economic growth. Africa is experiencing some growth, but academics worry that its success will be hampered by conspicuous consumption. Even recent studies measuring patience show that Africans are the least patient people in the world.
It is therefore conclusive that poor countries need cultural reform and not just more money and empty platitudes about decolonization. By discounting the significance of culture, politically correct economists have only been preventing poor countries from becoming developed. The truth is that a country reflects its people, so if you put Jamaicans in Singapore, you would get an economic backwater, but if Singaporeans relocated to Jamaica, you would get Switzerland.
In recent years, we've seen the issue of changing US state borders come up repeatedly. For example, activists in some Colorado counties in 2013 proposed breaking off to form a new state. Since 2021, a similar idea has persisted in having Weld County, Colorado join the State of Wyoming. In 2016, California activists sought a vote on splitting the enormous state into 6 states. It failed to get enough signatures, but in 2018, a similar proposal for 3 new states did get enough signatures. A statewide vote was only avoided because the State Supreme Court panicked and pulled the measure form the ballot with little legal justification.
This year, voters in San Bernardino County in California approved a proposal to "study" secession as a first step in separation. Meanwhile, in Oregon, voters in 11 counties have voted to direct county officials to pursue "relocation of the state border." In Illinois, activists in Madison County (near St. Louis) have led an effort in which voters in three counties have voted to "explore" secession from Illinois.
When activists propose changes to the current boundaries of US member states, a common reaction from supporters of the political status quo is to scoff. "Not gonna happen" is what they often say, and it's assumed that such measures are both impractical and unnecessary. As usual, we're told that "democracy" will somehow magically solve any conflicts that have been growing between the states' metropolitan cores and their distant, outlying frontiers far from the seats of power.
The knee jerk opposition we so often encounter to such measures is rather odd given that the nation's current state borders were drawn, in most cases, well over a century ago. In many cases state boundaries were drawn more than two centuries ago. During that time, changes in migration, demographics, and political institutions have re-drawn the political landscape in a myriad of ways. Nonetheless, state boundaries are often treated as if they were created by the hand of the Almighty, and that it would be an unspeakably radical move to simply allow modern state boundaries to reflect modern demographics and populations.
This policy of clinging to the lines on a map drawn many decades ago is a recipe for political conflict and resentment.
State Boundaries Have Become Functionally Obsolete Functional obsolescence occurs when a something no longer serves the function for which it was originally designed. For example, a bridge can become functionally obsolete when it becomes too narrow or too weak to support the types of new vehicles most people now drive. A canal can become functionally obsolete when it is too narrow to allow passage for the types of ships preferred by merchants. Historically, houses could also fall prey to similar problems. For example, a home with asbestos, ancient wiring, or a coal furnace no longer is compatible with modern needs and realities.
Such is the case with many state boundaries as drawn decades or centuries ago. After all, we can see the arbitrary nature of state boundaries out west where many boundaries are simply straight lines drawn by committees. For example, when Colorado residents sought to form a separate territory—which would later become a state—the mapmakers more or less just drew a big trapezoid around the Denver area. Much of the boundary between California and Nevada is similarly arbitrary. And, of course, the state lines that are also international borders—such as the border between Arizona and Mexico—is simply the product of a treaty born out the US's brutal war of conquest against the Mexicans.
These lines, however, endured without much controversy for decades because so much of the Western US was so sparsely populated for so long. Populations tended to be small, agricultural, and driven by similar economic interests. Moreover, small populations often tend to have less diversity, and when Colorado was added to the Union in 1876—for instance—it had fewer than 150,000 people. When Idaho became a state in 1890, it has fewer than 90,000 people. California, when it became a state, had fewer than 100,000 people spread over 163,000 square miles.
These populations in the nineteenth century were also spread out more evenly within states. When the borders of most western states were drawn—when they were territories and not even yet states—only a handful of areas had population densities above 18 people per mile. Most areas had far fewer than that. After the twentieth century, began, however, inequalities in population density took off. Some counties reached densities well over 50 people per square mile while many other counties at this time continued to have agricultural populations with densities below 5 people per square mile. The divergence has only grown since then, and this has fueled political conflict as populations became less uniform.
The End of Territorial Representation and the Switch to Purely Majoritarian PoliticsThe problem this presented was often mitigated, however, by the fact that at least one house in many state legislatures were apportioned based on territory or factors other than population. Most states apportioned representatives based on population in their houses of representatives, but in the state senates, representation was often apportioned regionally. This was recognized as a means of providing an electoral counterbalance to highly populated urban areas within the state.
Critics often framed this a matter of rural areas having "disproportionate political power." That, of course, was the idea. The goal was to provide a means for populations outside the urban centers to veto especially objectionable legislation at the state capital. This could been seen in very large differences in the size of legislative districts. In Nevada, Idaho, and Utah, for example, some districts had populations that were more than 50 or 100 times the size of other districts. This meant some agricultural districts with only a few hundred people might enjoy their own state senator, equalizing their representation with a state senator from an urban district with 10 times as many people. This served an anti-majoritarian function similar to that seen in the US senate today.
This system was swept away in 1964 by the Warren Court (in Reynolds v. Sims), however, when it ruled that all legislatures must be apportioned in line with a one-man-one-vote principal. This means all legislative districts within the states have to be roughly the same size in terms of population. This has turned the state senates into nothing other than smaller versions of each state's house of representatives. (The US Senate's two-per-state scheme survived only because the chamber's make-up is so explicitly stated in the US constitution.)
Since then, regional populations that may be economically or demographically unlike the major population centers have had few ways to be heard in state governments. This has accelerated conflict between state metros and the periphery in each state.
What is the Answer? Unless state governments are willing to press the issue in federal courts of returning to representation based on factors other than population, the only reasonable solution is to redraw state boundaries to better reflect demographic and ideological realities.
This is hardly a novel idea, given that the classical liberals of the nineteenth and early twentieth century recognized that it only makes sense to change political boundaries as populations changed. This idea can be seen in the work of Ludwig von Mises who recognized that if populations are to enjoy rights of "self-determination" they cannot be locked into any particular political association by immovable borders. For Mises, self-determination means populations ought to be able to vote for themselves as to which government they will live under. This could be done at the regional level or even down to the village level. These preferences will change over time as the realities of local economic and cultural conditions change. In his examination of Mises's views of nationalism and migration, Joseph Salerno notes that Mises advocated for "the continual redrawing of state [by which Mises meant a national state] boundaries in accordance with the right of self-determination and the nationality principle." In this scheme, Salerno concludes, "the borders of states would move with the migration of peoples and nations." Activists seeking to re-draw state boundaries are far less radical than this. They' not even seeking to change any national boundaries that might have repercussions to global trade or geopolitics. The size or shape of the United States as a political entity wouldn't change. Yet, the opposition to the idea of changing these arbitrary lines is quite feverish, indeed.
It's been more than 150 years since most state boundaries were drawn on the US map. That's an eternity in political terms as can seen by consulting a map of Europe or Asia from 150 years ago. Since then, factors such as domestic migration, foreign immigration, urbanization, industrialization, and the rise of the federal welfare state have enormously changed population and settlement patterns across most states. The idea that today's state lines drawn so long ago represent the "correct" borders should be regarded as absurd and obsolete.
Remember those dystopian futuristic films in which the evil people try to electronically erase the heroes? Social media companies are trying to recreate that scenario.
Original Article: "Notes from the Digital Gulag"
This Audio Mises Wire is generously sponsored by Christopher Condon.
By the beginning of the fourth century, the Roman Empire had become a completely different economic reality from what it had been at the beginning of the first century. The denarius argenteus, the empire’s monetary unit during the first two centuries, had virtually disappeared since the middle of the third century, having been replaced by the argenteus antoninianus and the argenteus aurelianianus, numerals of greater theoretical value, but of less and less real value.
The public excesses in the civil and military budgets, the incessant bribes and gifts, the repeated tax increases, the growth of the state bureaucracy, and the continuous requisitions of goods and precious metals had exhausted the Roman economy to incredible levels. To cap this disastrous reality, inflation had risen from 0.7 percent per year in the first and second centuries to 35.0 percent per year in the late third and early fourth centuries, impoverishing all social strata of the empire by leaps and bounds.
In 301, Diocletian sought to put an end to this out-of-control situation by promulgating the Edictum de pretiis rerum venalium (Edict Concerning the Prices of Goods for Sale), which prohibited, on pain of death, the raising of prices above a certain level for almost thirteen hundred essential products and services. In the preamble to the edict, economic agents were blamed for inflation, labeled as speculators and thieves, and compared to the barbarians who threatened the empire.
Most producers and intermediaries, therefore, opted to stop trading the goods they produced, to sell them on the black market, or even to use barter for commercial transactions. This weakening of supply drove real prices even higher, in an upward spiral that further deteriorated the complex Roman economic system. Just four years later, in 305, Diocletian himself, overwhelmed by his political and economic failures, abdicated in Nicomedia and retired to his palace in what is today Split, Croatia.
A year after Diocletian’s abdication, a young Constantine, son of the tetrarch Constantius Chlorus, was proclaimed emperor by his troops at Eburacum, now York, England. Six years later, in 312, he took control of the West and then, in 324, also of the East, reunifying the empire once again under his rule. Considered the new Augustus, Constantine, like the first emperor, carried out an ambitious and far-reaching monetary system reform. In 310, he created a new solidus, lowering its weight to 4.5 grams and titling it 96–99 percent pure gold. This coin became the new centerpiece of the later Roman Empire’s monetary system, replacing the devalued silver numerals of the past.
The Constantinian solidus became the official unit for prices and accounts, and new taxes were levied exclusively in this currency. Thus, thanks to the confiscation of key gold reserves hoarded in pagan temples, which had become unprotected by the Roman state, the real value of this new currency, issued in large quantities, could be maintained, to the extent that it served as a haven in the Byzantine Empire until the eleventh century.
Alongside the solidus, Constantine also created two other gold numeraires in 324: the semis, weighing 2.25 grams and with a 96–99 percent title, and another coin weighing 1.7 grams at 96–99 percent pure gold. The system was completed both by three new supposedly “silver” coins—the heavy miliarensis (5.45 grams), the light miliarensis (4.50 grams), and the siliqua or argenteus (3.40 grams)—and by two more silver-plated bronze coins—the nummus (3.40 grams) and the centenionalis (between 2.70 and 1.70 grams).
However, these “silver” and bronze denominations were minted in enormous quantities and were continually devalued over the years, to the detriment of their most common users, the middle and lower social classes. The gold coins, however, used by the Roman state and the higher social classes, retained their original title and weight throughout. In this way, Constantine established gold monometallism for the first time in Roman history.
The death of Constantine in 337 and the subsequent division of the empire among his sons Constantine II, Constans, and Constantius II did not radically change the monetary system, but it did cause the “silver” and bronze numerals to be altered again: in 348, there appeared a new coin of 5.0 grams bronze and 2.5 percent silver, called pecunia maiorina by the Theodosian Code, as well as two others of 4.0 and 2.5 grams bronze and 1.0 and 0.1 percent silver, respectively. In 355, a new coin of 9.0 grams of bronze and 2.0 percent of silver appeared, called AE 1 by the specialists, while the siliqua was reduced in weight to 2.0 grams of “silver.”
The last great monetary reform of the empire was enacted by Valentinian I and Valens around 368. Gold was established as the stable axis of the later Roman Empire’s monetary system. Both the solidus and the semis reached a title of 99 percent pure gold. After the death of the two emperors, the system incorporated the tremis, at 1.5 grams of gold. This coin achieved great popularity and diffusion in the following decades.
This stabilization of the weight and grammage of gold numerals, the various reforms against corruption in the bureaucracy, a constant program of tax increases, and the withdrawal of excess liabilities still circulating in the empire all helped considerably to slow down inflation on an annual basis. However, this control of the gold numeraires did not apply to the rest of the “silver” and bronze systems. The siliqua, for example, was increasingly downgraded to 1.14 grams of “silver” and became an increasingly rare coin, while the newly created AE 1 lost virtually all of its precious metal content and the custom of silver-plating bronze coins was abandoned forever.
This monetary system remained largely unchanged until the fall of the Western Roman Empire in 476 and until the reforms of Anastasius in the East in 498. The gold monometallism of Constantine, on the other hand, survived until the last decades of the eighth century, when Charlemagne replaced it with an argent monometallism.
During the fourth and fifth centuries, the Roman economy finally deteriorated completely, taking with it society and, consequently, the ambitions of the politicians of the time. The Roman Empire was now a failed and outdated project. The persistent excess of public spending between the first and third centuries forced Roman rulers to devalue the currency continuously. This chronic devaluation, together with the decline in population and economic activity throughout the third century, triggered price inflation throughout the empire, a phenomenon that the Romans did not know how to handle.
Roman rulers attempted to use harmful price controls in order to mitigate the decline in the effective purchasing power of the middle and lower classes. For instance, the Edictum de pretiis rerum venalium of 301 ended up withdrawing what little supply of products remained on the white market, making them more expensive on the black market. It is truly shocking to note how many politicians and populist parties of all ideological stripes continue to propose these same “remedies” even today.
At the same time, the Roman emperors created a rigid system of taxes based on payments in kind to guarantee some annual income of the state. These public requisitions restricted the free supply of goods in the common market and thus impoverished artisans and merchants throughout the empire. To guarantee the tax revenue, Roman rulers prevented peasants and professionals from leaving their originally registered domiciles and activities, thereby creating hereditary castes of workers and preventing productive factors and capital from flowing to the sectors most in need of labor and capital investment.
To put an end to the galloping inflation, Constantine established a golden monometallism by controlling the weight, dimensions, and title of the different gold numerals. The tight control of the production of gold coins curbed the escalation of prices and eased the strains on the state’s accounts. Similarly, some countries today choose to combat the inflation of their currencies by dollarizing their economies, as in the recent case of the Bolivarian Republic of Venezuela.
However, the remaining silver and bronze numerals—the ones most used by the middle and lower classes—were left at the mercy of unyielding inflation, causing poverty and the continuous decapitalization of the poorest classes in the Roman Empire. As a result, numerous local currencies were minted, different from place to place and all of them of poor quality, while barter or exchange in kind was increasingly favored. This discouraged long-distance trade and large-scale industrial production, increasingly turning the different areas of the empire into local subsistence economies. City dwellers, overwhelmed by excessive tax burdens and lack of work, increasingly moved to the countryside, where the economy was organized in luxurious rustic villas, which gradually became castles.
Taken together, the aggregate effects of public overspending and inflation on the Roman economy in between the first and third centuries ultimately led to an unprecedented structural weakening of the economic capacity of fourth- and fifth-century society, reflected in the incompetence of its rulers and elites to hold the empire together in the face of external threats, which, to quote Ludwig von Mises himself, “were not more formidable than the armies which the legions had easily defeated in earlier times. But the Empire had changed. Its economic and social structure was already medieval.”
Two days before Christmas, 1913, the infamous "creature from Jekyll Island," the Federal Reserve System, was birthed into our body politic. It has been devouring the economy ever since.
Original Article: "Woodrow Wilson's Christmas Grift of 1913"
This Audio Mises Wire is generously sponsored by Christopher Condon.
After more than $20 trillion in stimulus plans since 2020, the economy is going into stagnation with elevated inflation. Global governments announced more than $12 trillion in stimulus measures in 2020 alone, and central banks bloated their balance sheet by $8 trillion.
The result was disappointing and with long-lasting negative effects. Weak recovery, record debt, and elevated inflation. Of course, governments all over the world blamed the Ukraine invasion on the nonexistent multiplier effect of the stimulus plans, but the excuse made no sense.
Commodity prices rose from February to June 2022 and have corrected since. Even considering the negative effect of rising commodity prices in developed economies, we must acknowledge that those are positives for emerging economies and, even with that boost, the disappointing recovery led to constant downgrades of estimates.
If Keynesian multipliers existed, most developed economies would be growing strongly even discounting the Ukraine invasion impact, considering the unprecedented amount of stimulus plans approved.
Now we face a 2023 with even more disappointing estimates. According to Bloomberg economics, global growth will decline from a poor 3.2 percent in 2022 to a worrying 2.4 percent in 2023, significantly below the pre-covid-19 trend but with higher global debt. Total global debt rose by $3.3 trillion in Q1 2022 to a new record of over $305 trillion—mostly due to China and the US, according to the Institute of International Finance.
However, consensus estimates show an even worse outlook. Global growth should stall at +1.8 percent, with the euro area at zero growth and the United States at just 0.3 percent, with inflation reaching 6 percent globally, 6.1 percent in the euro area, and 4.1 percent in the United States.
Only a handful of countries are expected to reduce debt in 2023, with most nations continuing to finance bloated government spending with elevated deficits and tax hikes. A world where governments are constantly eroding the purchasing power of currencies and slashing disposable income of taxpayers with rising taxes is likely to show weaker growth trends and worsening imbalances.
The narrative all over the world is to try and convince us that past-peak but elevated inflation is “falling prices” and that everything is good when debt increases, growth stalls, and the purchasing power of salaries and savings is wiped out slowly.
There is no success in stagflation. It is a process of impoverishment that hurts the middle classes immensely while excessive government spending is never curbed.
Twenty twenty-two was the year that killed the science-fiction fallacy of modern monetary theory (MMT). Countries with monetary sovereignty like Japan or the UK found themselves in an unprecedented turmoil created by the illusion that rising deficit and debt would never cause significant problems. It only took a few rate hikes to dismantle the illusion of perennial money printing as the solution to everything.
Twenty twenty-two also showed that it is false that massive deficits are reserves that strengthen the economy. The United States suffered the most severe inflation blow in thirty years even being energy independent and benefitting from exporting natural gas and oil to the rest of the world. If the ludicrous MMT narrative was true, the United States should have not suffered any inflationary pressure.
Twenty twenty-three is expected to be the year of stagflation. Of course, most strategists are betting on inflation falling rapidly in the second part of the year, but that seems inconsistent with their estimates of deficit spending and growth.
The uncomfortable reality is that nations have created a long-lasting decline by pushing the limits on demand-side policies and government intervention.
Many celebrated the decision to use governments and central banks as the lenders of first resort instead of the last option, and what has been created is a problem with difficult solutions.
There seems to be no incentive to reduce the fiscal and monetary imbalances built through two decades, and therefore the result will be weaker growth and impoverishment.
No government wants to acknowledge the risk of central banks reducing their balance sheet. Even the most aggressive strategist fails to dare to estimate a three trillion US dollar quantitative tightening because they all know that the effects could be devastating. However, to truly normalize, central banks should reduce their balance sheet by at least five trillion US dollars. Governments and investment banks fear a gradual three trillion tightening because it can lead to a financial crisis. Those same market participants know that a five trillion tightening would undoubtedly lead to a financial crisis.
The reason why everyone expects a 2023 divided in two parts, a first half of poor data and a second where growth picks up and inflation plummets, is because market participants need to create a narrative that shows a quick fix to the above-mentioned disaster. However, there is no quick fix, there is no soft landing and there is not a chance of solving the problem by keeping elevated deficits, massive central bank balance sheets and real negative rates. If we want to look at the options, there are only two: Fixing the problem created in 2020, which means a global recession but probably not a financial crisis, or not fixing it, which means elevated inflation, weaker growth, and another bad year for risky assets which can lead to a financial crisis.
Unfortunately, when governments all over the world decided to “spend now and deal with the consequences later” in 2020 they also created the seeds of a 2008-style problem.
Southwest Airlines experience an enormous meltdown over the Christmas holiday week last month, cancelling thousands of flights, and losing track of—or outright losing—countless pieces of luggage. The airline was full of excuses, of course. As has become fashionable for government and corporate screw-ups, airline management attempted to blame covid for staffing problems. Southwest also blamed the weather. It's amazing they didn't also try to somehow blame "Russia's war in Ukraine"—as the stock phrase now goes—as well.
Yet, no other major airline had nearly the troubles that Southwest had in terms of either weather delays or staffing problems. Rather, the operational problems apparently stem from the fact that Southwest couldn't be bothered with spending money to improve its own operating capabilities over the past decade. This occurred in spite of the fact that Southwest—like other major US airlines—collected billions of dollars in bailout funds. The company then reported large profits thanks in part to the funds stolen from taxpayers.
Already, we're hearing about lawsuits from paying customers, and fines from federal regulators. The only real solution, however—in addition to civil suits to recover real damages—lies in forcing Southwest to submit to more market competition. In addition to periodic bailouts from taxpayers, Southwest—like all US airlines—is protected from foreign competition by protectionist US laws. Combining these protections with bailouts—airlines got free money in both 2001 and 2020—we have an airline industry that's complacent, wasteful, and prone to mistreating its customers.
Mask Mandates and Southwest's Mistreatment of its own Customers As stranded customers sought to reschedule their flights at the Nashville airport las week, Southwest employees called in the police to threaten customers with arrest if they didn't immediately leave the area. The airline later claimed they were merely trying to "help" customers contact reservation agents elsewhere in the airport.
Resorting to police coercion, of course, is a tactic we've seen employed by airline employees on many occasions. Perhaps, most famously, United Airlines employees in 2017 called in police to beat up a paid customer, David Dao, who refused to give up his seat on a flight after airline employees mismanaged booking. Some conservatives rushed to defend the airline, even claiming that United Airlines was the victim, or insisting that the passenger should have just meekly followed orders.
That case became an interesting prelude to the debate over "following orders" from airline employees in light of covid mask mandates. Three years later, airlines rushed to unilaterally adopt covid mask mandates for customers, forcibly removing customers who didn't comply with every minute detail.
This was done without federal mandates, mind you. In April of 2020, private airlines began imposing their own mask mandates, and airlines were free to adopt—or not adopt— their own mask policies well into 2021. Southwest was happy to jump on the mask bandwagon early, however, and adopted a mask policy even more stringent than those policies imposed by many governments. In Colorado, for example, the government-imposed mask mandate applied only to children 11 years of age, or older. Southwest, on the other hand, saw fit to impose a mask mandate on children as young as two years old. There was absolutely no scientific basis for this, of course, but Southwest enthusiastically enforced the mandate, even tightening restrictions in the summer of 2020. The airline stated that even those with verifiable medical conditions preventing masking would not be allowed to fly at all.
Airline employees proceeded to throw an autistic 3-year old and his family off a plane in one case. On another occasion a Southwest flight attendant booted a 2-year old and his mother because the small child was taking too long to eat his gummy bears. Although the mask policy was only private corporate policy at that time, Southwest's stated policy was that customers not be given much leeway to eat: "we expect these instances to be very brief, and customers should put their face covering back on as soon as possible."
Southwest Gets Billions in Taxpayer Money At the same time Southwest was voluntarily throwing toddlers off planes for eating incorrectly, it was receiving billions in taxpayer money as part of the federal government's bailout of US airlines. This was the second bailout for Southwest in twenty years, an earlier bailout having come in 2001. In the 2020 bailout, Southwest received $7 billion in subsidized loans, grants, and tax relief:
On April 14, Southwest announced that it had reached an agreement with the government in which it will receive $2.3 billion in grants, as well as a $1 billion low-interest loan backed by warrants that could dilute Southwest shareholders only minimally, even if fully exercised.
Months later, in April 2021, Southwest announced $116 billion in profits. According to the Chicago Tribune, this was largely attributable to the infusion of taxpayer money handed over to Southwest: "Without the federal money, Southwest would have lost $1 billion in the quarter."
This doesn't distinguish Southwest from other major US airlines, of course. Those airlines received bailouts as well. Yet, in spite of its net revenues, Southwest did very little to address the problems of scheduling flights which it knew could lead to mass flight cancellations. Southwest's passengers were victimized twice: once when their hard-earned money was stolen by the state to pay for Southwest's bailout, and a second time when Southwest stranded thousands of taxpayers on Christmas.
How Governments Limit Airline CompetitionIt is likely that last week many thousands of Southwest customers declared "I'll never fly southwest again." Such declarations have a way of being short-lived when passengers enjoy few alternatives.
Unfortunately, thanks to costs imposed by federal regulations, and by federal protectionism, American airline passengers don't have as many alternatives as they should. There were no new-entrant airlines from 2007 to 2021, and a small number of firms dominate the airline business in North America. Investopedia claims the three top carriers enjoy 70 percent of the business, and Salon and the NYT say the top four enjoy 80 percent.
Governments limit competition in several ways, including:
- Air traffic control is a monopoly run by the FAA and services are limited by political considerations.
- Airports are owned by local governments, and thus allocate airport amenities and services according to political needs and not market needs.
- The FAA rations "slots" which give "an airline the right to either takeoff or land at the airport in a specified time period, and airlines [can] only access the airport with a slot. These slots are generally distributed to the largest and most powerful incumbent firms.
Moreover, the generally-high level of bureaucratization in the airline business means that airlines spend a sizable amount of effort satisfying government bureaucracies rather than concentrating on their own customers. As Per Bylund has explained, regulated markets destroy consumer sovereignty.
So, yes, there are multiple government-imposed constraints that indirectly limit competition in the airline industry—to the benefit of incumbent firms like Southwest.
The Ban on Domestic Routes for Foreign CarriersBut there is also one big government regulation that directly protects all domestic airlines from competition: the US ban on foreign carriers. USAToday reports:
International airlines do operate in this country, of course, but they're forbidden from flying point-to-point destinations domestically. These laws, which are meant to protect American consumers and jobs, are having the exact opposite effect. Eliminating — or at least partially lifting — outdated restrictions could significantly increase competition and improve customer service.
The author of the above is wrong about at least one thing. The protectionist laws eliminating foreign competition are not "outdated." They were never a good idea to begin with. Protectionist laws such as the ban on foreign carriers have always favored the owners of domestic firms at the expense of their customers.
Were free trade allowed in the airline business, customers could potentially elect to fly the Irish carrier Aer Lingus — for example — between Dallas and Chicago rather than Southwest. This would, of course, drive down prices and give more choices to consumers.
Southwest's debacle has shown just how much more competition is needed.
Wall Street has convinced itself that the Fed will soon engineer a "soft landing" by bringing down inflation without an accompanying recession. They need to rethink their beliefs.
Original Article: "History Shows High Inflation Can Last Over Ten Years"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Commentators worry that the United States might lose its dominance in innovation to Asian countries like China and Singapore. Many policymakers are intimidated by the R&D budgets of Asian countries and by their superior performance on international academic assessments. However, these concerns are misguided because the United States still dominates innovation.
The United States ranks second on the Global Innovation Index and scores the highest in the world on fifteen of eighty-one innovation indicators. The US innovation ecosystem continues to lead in the commercialization of research, and its universities are on the cutting edge of academic research. Other countries are expanding research budgets, but the United States’ genius is its ability to commercialize relevant innovations.
Innovations are only useful when they disrupt industries by transforming society and altering consumer preferences. Because innovations respond to market changes, anything can become an innovation, and the process is highly spontaneous. Unfortunately, too many countries are laboring under the assumption that government plans inevitably lead to innovation. Finding the next game changer is tremendously difficult due to the dynamism of consumer preferences.
US entrepreneurs appreciate that innovation is a freewheeling process rather than an object of grand design. That is why Silicon Valley, with its reverence for risk and failure, has been known for innovation. In her 2014 book, The Upside of Down: Why Failing Well is the Key to Success, Megan McArdle argues that the United States’ tolerance toward failure is a crucial pillar of prosperity because it promotes self-actualization, risk, and the continuous quest for innovation.
The United States’ rivals have eloquent five-year plans and extravagant budgets, but US innovation is undergirded by private institutions with a strong appetite for risk and iconoclastic thinking. Private venture-capital associations and research institutions searching for future pioneers are the primary players in US innovation. Government innovation plans are inherently conservative because they hinge on the success of targeted industries.
But, in the private sector, entrepreneurs are deliberately scouting for disruptors to undercut traditional industries by launching breakthrough products. The conformity of government bureaucracies is an enemy of the unorthodox thinking that spurs innovation. China is known for having a competent and meritocratic civil service, yet scholars contend that it lacks an innovative environment.
A key problem is that China focuses on competing with western rivals instead of developing new industries; innovation is perceived as a competition between China and its rivals rather than an activity pursued for its own sake. Consequently, US companies remain market leaders and are more adept at converting market information into innovative products than their Chinese counterparts. Unlike China, US entrepreneurship is not a function of geopolitics.
Meanwhile, some commentators suggest that the US education system is better at deploying talent due to its encouragement of unorthodox thinking. In contrast, Singapore and China have been criticized for emphasizing rote learning at the expense of critical thinking. For example, Singapore’s public sector is a model of excellence; however, despite government support, Singapore is yet to become an innovation hotbed.
Bryan Cheung, in an assessment of industrial policy in Singapore, comments on the failure of Singapore to translate research into innovation: “Even though Singapore ranks highly on global innovation indices, closer scrutiny reveals that it scores poorly on the sub-component of innovation efficiency.” A recent edition of the Global Innovation Index, using a global comparison, declared that “Singapore produces less innovation outputs relative to its level of innovation investments.”
Cheung explains that Singapore is heavily reliant on foreign talent to boost innovation: “Even the six ‘unicorns’ that Singapore has produced (Grab, SEA, Trax, Lazada, Patsnap, Razer) were all founded or co-founded by foreign entrepreneurs. In the Start-Up Genome (2021), Singapore also performed relatively poorly in ‘quality and access’ to tech talent, research impact of publications, and local market reach, which is unsurprising since innovation activity is concentrated in foreign hands.”
Asian countries are growing more competitive, but it will take decades before they develop the United States’ appetite for risk, market-driven innovations, and the uncanny ability to monetize anything. The United States’ spectacular economic performance and business acumen are based on its unique culture. Those who bet against the United States by downplaying its culture are bound to lose. The United States’ rivals are still catching up.
University of Chicago professor Martha C. Nussbaum wants to save the world by preventing animals from eating each other in the wild. David Gordon (after pulling himself off the floor) comments on her proposal.
Original Article: "You've Got to Be Kidding: Professor Demands Animals Stop Eating Each Other"
This Audio Mises Wire is generously sponsored by Christopher Condon.
After the 2008 financial crisis, calls rang out across establishment publications and the executive offices of Wall Street that we were witnessing the death of globalization. The calls grew louder and more numerous after Brexit, the election of Donald Trump, the pandemic, and Russia’s invasion of Ukraine. Yet the data appears to dispute this narrative. Global trade hit a record $28.5 trillion last year with projections to grow in 2023. The pace, however, is expected to slow. The reason for this is less a problem with globalization itself and more the historic setbacks that globalism has faced.
Before continuing, it is important to define some terms. Globalization occurs when societies around the world begin to interact and integrate economically and politically. The intercontinental trade experienced during the Age of Sail and via the Silk Road are early examples of globalization. Globalization really took off after World War II and received a recent boost with the widespread adoption of the internet. Importantly, globalization in common discourse includes both the voluntary economic activities between peoples of different nations and the involuntary geopolitical activities of governments.
In contrast, Ian Bremmer defines globalism as an ideology that calls for top-down trade liberalization and global integration backed by a unipolar power. Statists believe that market exchange between people is literally impossible without government; only when a group claims a legal monopoly on violence and then builds infrastructure, provides security, documents property titles, and serves as the final arbiter of disputes can a market come into existence. Globalism is the application of this perspective to international trade. Globalists believe that top-down global governance enforced and secured by a unipolar superpower enables globalization.
But, like statists on a more local scale, the globalist view is logically and historically flawed. Global trade was well underway before the first major attempt at global governance, the League of Nations, in 1919. The league’s stated aim was to ensure peace and justice for all nations of the world through collective security. Falling apart at the outset of World War II, it failed miserably. But globalism as an ideology found its footing after the war. Europe was devastated. This left the US and the USSR as the only two countries with the ability to exert power globally.
So began the fastest era of globalization in history. Trade exploded as people moved on from the war. The globalist project also got off the ground with the founding of the United Nations and the World Bank. Globalism was limited only by the ideological differences between the two superpowers. The USSR wanted to support revolutions while the US aimed for top-down trade liberalization—which drove the recent allies apart and plunged the world into the Cold War.
In the United States, the neoliberals and neoconservatives dominated the political mainstream through their shared mission to bring markets and democracy to the world at gunpoint and financed by US taxpayers. Fortunately for them, the rate at which their interventions at home and abroad were wrecking US society was slower than that of the Soviets. The abolition of prices and private property eventually led to the collapse of the USSR in the early 1990s. With its main adversary defeated, the United States had achieved one of the central tenets of globalism, unipolarity.
From the outset, the US establishment gorged itself on its new globe-spanning influence. Through new international organizations like the World Trade Organization, “free trade” agreements were introduced. Some ran for hundreds of pages, yet all free trade really requires is an absence of policy. The United States sailed its navy around the world’s oceans promising to secure shipping lanes like a global highway patrolman. Through the promise of US military security and the bankrolling of international governance organizations, US taxpayers were forced to subsidize global trade.
As Murray Rothbard highlights in Man, Economy, and State with Power and Market, there is no such thing as international trade in a truly free market. Nations would still exist, but they would be pockets of culture instead of economic units. Any state restrictions on trade between people based on location are a violation of their liberty and a cost to society. Most free-market economists understand this and advocate against state restrictions accordingly. But subsidies to international trade are also antithetical to the free market. The proper free-market position is the complete absence of policy on both sides. No restrictions and no subsidies. Let people freely choose who they do business with. There should be no hand on either end of the scale.
Economic integration was far from the only focus of the US regime during its unipolar moment. Too many people had gained wealth, power, and status during the Cold War as part of the US war-making class. Despite the USSR’s total collapse, the last thing the United States wanted to do was declare victory and give up its privileged position. Instead, the United States scrambled to find a new enemy to justify the continuation of those privileges. Their eyes settled on the Middle East where they would, in time, launch eight unessential wars that killed any notion of a “rules-based international order.” US unipolarity proved Albert Jay Nock correct; governments are only as peaceful as they are weak.
This institutional desire for war would sow the seeds of destruction for the United States’ unipolar moment. As the United States eviscerated any notion that it stood for a rules-based order through its adventurism in the Middle East, tension was brewing in Eastern Europe and East Asia. To the doubtless joy of weapons companies and foreign policy elites, the Russian and Chinese governments were transformed back into the United States’ enemies.
The Russian invasion of Ukraine in February was a huge win for the US war machine, but it also represented an enormous step backward for globalism. The Russians seceded from the global order the United States had led for three decades. The West’s reaction, grounded in strict sanctions and forced economic divestment, deepened the rift in the global system.
What the future holds is anyone’s guess, but the globalist dream of a singular system of global governance is surely wrecked for the near future as the Russo-Chinese bloc breaks away. There will be pain because so many connections between nations are controlled by governments; however, a significant degree of globalization is still valued by the world’s consumers. The data contradicts any idea that globalization is reversing. It is only slowing as governments attempt to drag consumers along on their quest to divest from the other side.
Despite the claims that globalization is dead, international trade is alive and well. But the drive toward an interconnected world is slowing down as the ideology of globalism experiences its biggest setback in decades. The statist conflation of unipolar global governance and international trade explains where these claims are coming from and why they are flawed.
[From the Austrian Economics Newsletter, Spring 1987]
The Austrian School of economics did not develop out of thin air. It built upon the work of a number of other economists and philosophers going back as far as Aristotle. Among the precursors of the Austrian School were a number of Spanish and Italian scholastic economists.
Several early Italian economists influenced the development of continental European economic thought in the centuries before Carl Menger.
Gian Francesco Lottini (1512–1572) had a rough idea that people value present wants higher than future wants — the basis of time-preference theory. Bernardo Davanzati (1529–1606) applied subjective-value theory to money, and solved the "paradox of value." He also pointed out that the price increases of his time were caused by the influx of gold from America, thus anticipating the quantity theory of money. Geminiano Montanari (1633–1687) had a fairly well developed quantity theory of money, and realized that there is a subjective factor involved in the valuation of money.
The Italian economist who had perhaps the most influence on the Austrian School was Ferdinando Galiani (1728–1787). Born in Chieti, he became a leader of the Italian Neopolitan School. His economic thinking was influenced by Aristotle, Davanzati, Locke, and Montanari, among others.
Galiani is most noted for his contributions to value theory, interest theory, and economic policy, topics that were explored a century later by Menger, Böhm-Bawerk, Jevons, Walras, Marshall and the German Historical School.
He recognized that there was a dichotomy between utility and scarcity, a concept that had been kicked around by philosophers since Aristotle. His most notable work, On Money, was written when he was in his early 20s, but was not widely read then because it was available only in Italian. It is in that treatise that his interest and subjective-value theories were included.
In the mid-19th century, Francesco Ferrara, another Italian, expanded on the subjective value theory and, according to Buchanan, surpassed the subjective-value theorists in some respects.
Value TheoryGaliani observed that a commodity's price regulates consumption, and consumption regulates price. As the price of a commodity falls, the demand for it increases, and vice versa. If a country producing and consuming 50,000 barrels of wine is suddenly invaded by a foreign army, the price of wine will go up because there are now more people to drink it.
The value of a good is not intrinsic; it is a calculation or ratio between goods that people make in relation to other goods. Men compare one good to another, and make an exchange only when their level of satisfaction will be equal as a result of the exchange. (Adam Smith and others have improved on this view, by observing that an exchange takes place when the value given up is subjectively less than the value received.) These views seem elementary now, but they were not so elementary when Galiani made them two centuries ago.
He also recognized the existence of the elasticity of demand. If the price of shoes increases, consumers can delay purchasing a pair and continue to wear the shoes they already have until the price comes down. But if the price of grain rises, consumers will continue to buy bread anyway. Otherwise, they would starve. The demand for shoes is highly elastic, whereas the demand for grain is inelastic. Marshall made a similar observation a century later.
Galiani also recognized the existence of a relationship between the price of a good and the demand for it. Rich people can afford a good that poorer people cannot. As the price of a good decreases, people from the less-affluent income categories begin to purchase it, thus increasing total demand. If the price rises, some of these people will stop buying it.
The rich make some purchases because it is fashionable to do so, even though the good purchased has little or no utility. It is fashionable to purchase diamonds, and unfashionable to purchase water or air. That is one reason why diamonds have a high price and water and air have a low price (or no price). This example also shows that there is a difference between value and utility. He realized that value is not intrinsic but subjective. A good's price varies with the taste and purchasing power of each individual.
Galiani was also aware of the law of diminishing marginal utility. When Davanzati stated that a living calf is both nobler and cheaper than a golden calf, and that a pound of bread is more useful than a pound of gold, Galiani replied that "useful" and "less useful" are relative concepts, and depend on individual circumstances.
For someone who is in need of both gold and bread, bread is more useful. Choosing gold over bread in this case would lead to starvation. But once the individual has eaten his fill of bread, gold would be chosen over more bread. A single egg would be valued more highly by a starving man than all the gold in the world, and would be valued much less by the same man who had just finished eating. Thus, Galiani was aware of the ranking of goods, substitution of goods, and diminishing marginal utility, topics discussed by Gossen, Walras, Jevons, and Menger one hundred years later. Menger was aware of Galiani's views, as evidenced by his citation of Galiani in his Principles of Economics.
Interest TheoryBöhm-Bawerk pointed out that Galiani was the first to see that interest was not a surplus, but is instead a supplement that is needed to equalize service and counterservice. According to Galiani, interest equalizes present and future money. It is a means to compensate for the palpitations of the heart that a creditor must endure until the money is returned. It is a just payment to a creditor for the risk taken. This payment is for the convenience of the debtor, and compensates the creditor for the inconvenience that is incurred by not having the money for a certain period of time. The values are subjectively equal, but numerically different because they are separated by time.
Böhm-Bawerk criticized Galiani's theory because Galiani viewed interest only as the price of palpitations or the price of insurance. Böhm-Bawerk expounded on the time-preference aspect of interest, an area Galiani neglected.
Economic PolicyGaliani believed that government generally should not interfere in the natural workings of the economy. A government that attempts to stimulate all sectors of the economy, agricultural and industrial, stimulates nothing. Stimulation means that a particular sector is given preference over the other sectors, and how can one sector be given preference over another if all sectors are stimulated?
Another aspect of his economic-policy theory is that an economic policy must be formulated by taking time and place into account; an economic policy that may be appropriate in one country or at one time may be inappropriate in another.
Unlike the physiocrats, Galiani argued that agriculture need not always be viewed as supreme. The view that economic models must be adjusted for time and place later became a basic principle of the German Historical School, the school that later debated the validity of Carl Menger's methodology. But, unlike the German Historical School, Galiani did not reject abstract theory.
This article was originally published in the Austrian Economics Newsletter, Spring 1987.
As crime rates rise and government policing fails, more and more people are turning to private security, which is more effective in preventing crime than government police.
Original Article: "Private Security: An Effective Method to Prevent Being a Crime Victim"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While “private policing” is in many people’s minds a feature of dystopian science fiction or the fantasies of libertarian economists, the reality is that private security is far more common than most think. Indeed, as Georgetown professor John Hasnas points out, it is all around us. Unfortunately, the impetus for much of the growth in the private security industry has been the inadequacies of state-provided protection.
An example of this phenomenon is JNS Protection Services, which recently garnered attention in the Philadelphia Inquirer. JNS provides a variety of security services in Georgia and Pennsylvania, including North Philadelphia, where Temple University is located.
Temple Students living off campus fear for their safety. This is understandable, considering the amount of crime North Philadelphia is experiencing. On November 28, 2021, Temple senior Samuel Collington was fatally shot in a parking lot near campus during what appears to have been an attempted robbery. Less than two weeks earlier, on November 16, high school senior Ahmir Jones was also killed during a robbery attempt just blocks from Temple. In 2021, Philadelphia as a whole surpassed its murder record; the previous peak of over five hundred murders annually was during the crack cocaine epidemic of the early 1990s.
After a broad-daylight armed robbery took place outside one student’s residence, his mother decided to hire JNS to patrol his neighborhood. Although JNS was initially hired to patrol the area three days per week, the plan came to the attention of a Facebook group of Temple parents, and they contributed funds to expand the service to five days per week.
An opinion column detailing the events included a former Philadelphia police officer’s views on parents’ move to hire private security:
“They’re just a town watch,” pointed out David Fisher, a retired Philadelphia police officer and president of the National Black Police Association, Greater Philadelphia chapter. “They are more eyes and ears on the streets that they’re patrolling. It’s good. But will it be effective? I’m not sure.”
While we would not expect Fisher to apologize on behalf the Philadelphia Police Department for failing to maintain public safety to such an extent that the parents of students at a premier research university feel the need to hire private security, his condescending attitude is notable for two reasons.
The first is that it provides further evidence suggesting that, despite the rhetoric and billions spent on community-oriented policing (COP), a significant contingent of police officers never bought into it and its emphasis on police-community partnerships. Rather, COP became popular among police departments mainly because of the gibs being handed out by the Department of Justice. Instead of being a vital component in the production of public safety, nonpolice are “just a town watch” who are, at best, “more eyes and ears on the streets” that can be useful to the real police.
The second reason is that while Fisher expressed concerns over whether private security will be effective, the Philadelphia Police Department is able to escape such scrutiny despite the record number of murders and students being killed by armed robbers. In contrast to JNS Protection Services, the city police do not have to demonstrate their effectiveness to Philadelphians in order to get paid. Local (as well as US) taxpayers will continue to fund them regardless.
Perhaps parents will find that JNS’s services are ineffective or unsatisfactory. Perhaps a competitor will provide a better service at a lower price. But just as school choice creates financial incentives for public schools that give parents more control, security providers are more responsive when parents have police choice.
While some politicians preach populism, that usually means protectionism and increased business regulation, along with high marginal income tax rates. Grover Cleveland showed a better way.
Original Article: "Grover Cleveland Presented the Best Example of a True Liberal Populist"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The famous quote, “Insanity is doing the same thing over and over again and expecting different results,” is usually attributed to Albert Einstein. While intended as a parable for quantum insanity, such a quote could equally be a parable for inflation policy. With the Bank of England and the Federal Reserve seeking to maintain target rates of 2 percent, the UK inflation rate has only fallen to 10.7 percent from 11.1 percent. Considering inflation is still exceptionally high, it may be time to acknowledge the problems of inflation target policies.
The UK first began inflation targeting as a monetary policy in 1992 to maintain a predicted level of inflation for future economic planning, persistent inflation rate acknowledgment, and price stability maintenance. There are, however, many troubles with inflation targeting. It is important to fully understand the problems with inflation targeting and to define inflation more comprehensively. The common definition of inflation is a general increase in the price level; however, this definition neglects to address the cause of inflation and deals only with the effect.
Inflation has always been an excess increase in the money supply leading to a depreciation in the purchasing power (real value) of money. This definition most accurately explains the cause of inflation whereby the effect of an inflationary policy is a general increase in prices. Prices will not rise uniformly since people demand different goods at different quantities and timeframes, and some goods are more demand inelastic than others.
To use the common definition of inflation is to ignore that the general price level may change due to a shortage of some good used in multiple production periods and processes. As Nicolás Cachanosky, an assistant economics professor at Metropolitan State University, states, “defining inflation by describing a movement of a variable that can have multiple reasons invites confusion. This confusion can eventually lead to errors in monetary policy. More accurate would be to define inflation by its cause rather than its effect.” An inflation target policy simply provides a positive rate of inflation over a prolonged, consistent period of time; this is otherwise known as secular inflation. Keeping in mind a definition of inflation that focuses on the cause rather than the effect, as well as the depreciation of purchasing power, we see that a policy of inflation targeting (secular inflation) leads to a shorter timeframe for the utility of money (expiration date of money).
To explain the expiration date of money, suppose an individual has two Great British pounds. Let us assume that this individual, named A, saves 50 percent of every pound he earns; A will spend one pound and save one pound. Under a 2 percent policy of inflation targeting, the pound A saves will have its value depreciated to ninety-eight pence after one year. To hold the same level of purchasing power and same real value of his savings, A must earn an additional two pence per pound next year. Due to this annual 2 percent inflation target, two years from now, A will have to earn an additional four pence per pound to hold the same real value or risk his money being worth ninety-six pence per pound.
Due to the nature of individual time preference, whereby there is a tendency for people to prefer current consumption over future consumption, A is likely to alter his consumption preferences toward current consumption. This is particularly true if A sees the opportunity cost of not consuming today as being unable to consume as much next year because his money’s real value has fallen. This would lead A’s savings rate to drop to thirty pence for every pound and his consumption rate to rise to seventy pence for every pound.
This ultimately leads to the velocity of money rising and the demand to hold money falling as excess money circulates. Consequently, this leads to an artificially high level of consumption, a lack of saving, and a finalization of the effect of inflation (a general rise in prices). While many Austrian economists do not view velocity as a useful concept, the velocity of money is simply a measurement of the rate at which money is spent throughout the economy. It is difficult to deny that, if velocity were at zero (no one spends anything), the general price-raising effect of inflation would cease.
What about the goal of price stability? Is it not desirable to have stable prices? The answer concerns the fact that inflation targeting fails when there are large supply shocks such as an increase in productivity. In fact, such price stability measures, via inflation targeting, provide faulty signals over the value of entrepreneurial endeavors and mask real productivity gains.
Central banks look to combat deflation since most economists believe deflation is negative for the economy. A consumer good falling in price here or there is no issue, but, when all (or most) goods are falling in price, it is a sign of economic depression.
In the UK, from March 2014 to December 2015, consumer and producer prices fell consistently which would have surely been seen by the Bank of England as a twenty-two-month depression. The consumer price index (CPI), from March 2014 to December 2015, is shown below. Over a twenty-two-month period, the CPI fell roughly 67 percent.
picture1.png ###### Source: Data from OECD Data (Inflation [CPI], accessed December 22, 2022).
Over the same twenty-two-month period, the producer price index (PPI) fell by 5 percent.
picture2.png ###### Source: Data from OECD Data (Producer Price Indices [PPI], accessed December 21, 2022).
However, looking at gross domestic product’s (GDP) monthly changes over the same twenty-two-month period, the economy was not depressed. In fact, GDP gradually increased.
picture3.png ###### Source: D. Clark, “Monthly Index of Gross Domestic Product in the United Kingdom from January 1997 to October 2022f” (data set), December 12, 2022, Statista.
The dotted lines represent the progression of CPI, PPI, and GDP. The CPI and PPI show a gradual decline, but, instead of falling GDP, the economy actually grew. Inflation targeting and price stability policies veil real changes in productivity. By attempting to maintain nominal prices at a stable level, real changes in productivity, both negative and positive, are either dampened down or fully obscured.
Price stability and positive inflation rates should not be the goals of monetary authorities as such policies create financial instability. Prices should fluctuate to reflect the productivity of individual industries, the economy, and the efficient (or inefficient) allocation of resources. Instead, monetary authorities should seek to maintain a stable money supply. Such a rule, aspiring to achieve monetary equilibrium and financial stability, has existed in the past. Unfortunately for the UK, the Peels Act of 1844 saw an end to that. The future is (and always will be) inflation.
Money supply growth fell again in November, and this time it turned negative for the first time in 33 years. November's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years. During the thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent year over year, well above even the "high" levels experienced from 2009 to 2013.
Since then, the money supply growth has slowed quickly, and we're now seeing the first time the money supply has actually contracted since the 1980s. The last time the year-over-year change in the money supply slipped into negative territory was in February of 1989. At that time, negative growth continued for 12 months, finally turning positive again in February of 1990.
During November 2022, year-over-year (YOY) growth in the money supply was at -0.28 percent. That's down from October's rate of 2.59 percent, and down from November 2021's rate of 6.66 percent.
The money supply metric used here—the "true" or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates. In November 2022, the M2 growth rate was -0.03 percent. That's down from October's growth rate of 1.25 percent. November's rate was also well down from November 2021's rate of 12.40 percent.
Money supply growth can often be a helpful measure of economic activity, and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession.
Another indicator of recession appears in the form of the gap between M2 and TMS. The TMS growth rate typically climbs and becomes larger than the M2 growth rate in the early months of a recession. This occurred in the early months of the 2001 and the 2007–09 recession. A similar pattern appeared before the 2020 recession.
Notably, this has happened again beginning in May this year as the M2 growth rate fell below the TMS growth rate for the first time since 2020. Put another way, when the difference between M2 and TMS moves from a positive number to a negative number, that's a fairly reliable indicator the economy has entered into recession. We can see this in this graph:
In the two "false alarms" over the past 30 years, the M2-TMS gap reverted to positive territory fairly quickly. However, when this gap firmly enters negative territory, that is an indicator that the economy is already in recession. The gap has now been negative for 6 of the past 7 months. Moreover, in both September and October, the gap was greater than -1. There is only one case—1998—in more than 30 years during which the gap was greater than -1 and the US not in recession.
Interestingly, this indicator also appears to follow the pattern of yield curve inversion. For example, the 2s/10s yield inversion went negative in all the same periods where the M2-TMS gap pointed to a recession. Moreover, the 2s/10s inversion also fell into negative territory in 1998. This is not surprising because trends in money supply growth have long appeared to be connected to the shape of the yield curve. As Bob Murphy notes in his book Understanding Money Mechanics, a sustained decline in TMS growth often reflects spikes in short-term yields, which can fuel a flattening or inverting yield curve.
It's not especially a mystery as to why short-term interest rates are headed up fast, and why the money supply is decelerating. Since January of 2022, the Fed has raised the target federal funds rate from .25 percent up to 4.0 percent.
This means fewer injections of Fed money into the market through open market operations. Moreover, although it has done very little to sizably reduce the size of its portfolio, the Fed has nonetheless stopped adding to its portfolio through Quantitative Easing, and allowed a small amount (about $358 billion out of $8.9 trillion) to roll off.
It should be emphasized that it is not necessary for money-supply growth to turn negative in order to trigger recession, defaults, and other economic disruptions. With decades marked by the Greenspan put, financial represssion, and other forms of easy money, the Federal Reserve has inflated a number of bubbles and zombie enterprises that now rely on nearly constant infusions of new money to stay afloat. For many of these bubble industries, all that is necessary is a slowing in money-supply growth, brought on by rising interest rates or a confidence crisis.
Thus, a growth rate in money supply turning negative is not in itself an especially meaningful metric. But the drop into negative territory does help illustrate just how far and how rapidly money-supply growth has fallen in recent months. That is generally a red flag for economic growth and employment. It also serves as just one more indicator that the so-called "soft landing" promised by the Federal Reserve is unlikely to ever be a reality.
Modern progressive governance claims it has science on its side. Hayek's Nobel speech put holes in that viewpoint.
Original Article: "Hayek on the Difference between Science and Scientism"
This Audio Mises Wire is generously sponsored by Christopher Condon.
I first became aware of the Property and Environment Research Center (PERC) after moving to Montana and was immediately intrigued by their work. The more I dug into PERC’s research, the more I realized they aligned with my worldview of free market conservation. The CEO of PERC, Brian Yablonski, graciously met with me to discuss PERC’s initiatives. Even after two hours, we had barely touched the surface of PERC’s free-market, conservation initiatives.
Brian caught my attention when he told me about a new insurance fund concept they were working on for the ranchers of Paradise Valley. He explained that ranchers in Paradise Valley, directly North of Yellowstone National Park, were having issues with cattle getting brucellosis from the wintering elk herd. Brucellosis can be financially devastating to a ranching operation and was one of the core issues troubling the ranching community when surveyed by PERC.
The question for PERC became, How do we create a free-market solution to solve this problem? This is when the Paradise Valley Brucellosis Compensation Fund was created. When Brian outlined the concept to me, that would allow for the ranchers’ cattle and wintering elk to coexist, I told him on the spot I wanted to support this innovative solution. In an era of extreme government controlled environmentalism, it is crucial to highlight private market solutions for conservation. This is a great opportunity to do so!
It is important to respect the opinions of farmers and ranchers since they understand the greater natural ecosystem. They are the nation’s greatest conservationists and stewards of our precious land and resources. There has been an onslaught of attacks against ranchers and farmers from the environmental community; thus, it is crucial to illustrate examples of why this community is not at odds with conservation. In fact, their preservation of large areas of land is crucial task in maintaining a healthy ecosystem (a task not easily accomplished in a nation that is fixated on urban sprawl).
Simply put, farming, ranching, and conservation are not at odds with each other and, if approached properly, can flourish together. Growing up in a small ranching community, I saw firsthand the role that ranchers and farmers play in conservation. As stewards of the land, I have seen the government fail time and time again.
When my wife and I were exploring new places to live, what really struck us about Montana was its deeply rooted culture of land preservation. Montana remains home to a multitude of large multithousand-acre ranches; many are in conservation easements to ensure they stay protected for years to come. We immediately resonated with this culture and were relieved to see a western state that was pushing back against uncontrolled growth.
One of the major contributing factors to why we moved from Nevada to Montana was the quality of hunting and fishing. As a hunter and angler, I value healthy populations of wild game and fish. Eating wild game is at the center of our family’s diet. The ability to hunt and procure our own food is extremely important to us. I want my son to have the same opportunities to hunt and fish as I did growing up; I do not believe this opportunity is still viable in Nevada, the state where I was born and raised.
Montana boasts some of the healthiest big game, waterfowl, and fish populations in the United States. I believe this to be a testament of the conservation work being done by ranchers and farmers. When comparing Montana to other western states there is a stark difference in the ratio of private to public land.
For example, 80 percent of Nevada’s land is owned by government agencies compared to Montana’s 35 percent. Less public land certainly limits access, but I believe it promotes a healthier ecosystem. Privately owned land, specifically large ranches and farms, is managed carefully to drive efficient returns from renewable resources like crops, cattle, and wild game.
In contrast, government-run public lands do not have the same incentives or pricing data as do private lands which typically leads to misallocation and mismanagement of renewable and natural resources. As a Nevada resident, I could not draw a quality tag to hunt and procure food each year for my family. I attribute this to the years of mismanagement of the animal resources by the government. In Montana, I can buy over the counter tags and hunt throughout the state. Thanks to the conservation efforts in Montana, my freezer is full of wild game for my family.
This argument highlights Ludwig von Mises’s economic calculation problem as described in his 1920 essay, “Economic Calculation in the Socialist Commonwealth.” A society devoid of private property and market pricing is also devoid of economic calculation (profit and loss) and will misallocate resources. The terrible twentieth-century food shortages inherent in socialist countries emphasize this point. Economists at PERC understand this and use working case studies as proof. Even beyond PERC, there are other private organizations in Montana that are rethinking free-market conservation.
One such company is Land Trust. Founded in Bozeman, Montana, it connects landowners with outdoor recreationalists seeking land access through an easy-to-use online marketplace. Think Airbnb for the outdoor recreation community. One can go online to book a day of bird watching, fishing, foraging, or hunting on several private ranches and farms.
The customer experience is remarkable since this is a true private marketplace for outdoor recreationalists and landowners. The timing could not be better to help alleviate the pressure between public land advocates and private landowners. Most importantly, what will come out of the Land Trust platform is price discovery. The public land access argument is, by this model, demonstrated in a positive way. Years from now, I am confident that we will have the market data to prove our resources for outdoor recreation access and conservation are better spent in the free market.
Quality and access will start to converge thanks to platforms like Land Trust and funds like the Paradise Valley Brucellosis Compensation Fund. Organizations like PERC and Land Trust are rethinking how we approach conservation in the free market. These are radical organizations in a world where legislation like the Green New Deal is presented as conservation. Legislation like the Green New Deal puts conservation in the hands of those furthest removed from the environment they are claiming to protect. Even more troubling is that their concept of conservation is based on excess spending without any economic calculation. This flavor of conservation will only lead to further misallocation of resources (which is ironically the very antithesis of conservation).
I am proud to be a Montanan and live alongside the ranchers and farmers protecting this amazing land. I will continue to work alongside groups like PERC and Land Trust to help foster free-market conservation so my son will have the same opportunities I had to hunt, fish, and explore untouched wilderness—something I am unwilling to trust or leave in the hands of the state!
Introduction: Division, friction and polarization have been on the rise in the West for at least a decade, but the escalation we saw during the “covid years” was especially worrying. Over the last year, this “worry” has become a truly pressing concern, even a real emergency one might argue, as inflationary pressures and an actual war were added to the mix of political and social tensions.
Going into 2023, there are many reasons for responsible investors and for hardworking savers to adopt a cautious, bearish outlook. If anything, it’s hard to tell what to be concerned about the most and what to prepare for first: an escalation to the Ukraine-Russia war? Inflation persisting or even reaching new highs? Fuel and heating costs exploding even further? Growing government overreach and suppression of individual liberties and financial sovereignty?
In an effort to answer questions like these, that are keeping countless Americans and Europeans up at night, I turned to Jeff Deist, President of the Mises Institute in Alabama. Jeff has been one of the most impressive thinkers and speakers that I have personally encountered, and I’ve always found his clarity of thought particularly enlightening, but also very helpful in this day and age. After all, the ability to plainly and honestly communicate a great idea is just as important as the ability to conceive it – especially when it can be communicated to the public and change some open minds in the process, just like the Mises Institute has been doing for four decades.
Claudio Grass (CG): After the extreme trespasses, power abuses and irrational policies and U-turns we saw during the pandemic, many citizens hoped that 2022 would prove to be the year of “normalization”. What we got instead was a war, a fuel and food crisis, and a world more divided than any time before in recent memory. What was, in your estimation, the most worrying development we saw in 2022?
Jeff Deist (JD): 2022 may be remembered as the year we fully understood how elites and the political class never intend to allow a return to “normal.” The covid flu virus created the excuse for lockdowns, controls, and spying; and as Robert Higgs explained, the “Ratchet Effect” means crisis measures don’t go away when the crisis ends.
Covid will be the excuse for attempts to impose a whole new battery of state mandates in areas of health (vaccines, masks, testing), business (closures), money (central bank digital currencies, capital controls), and movement (quarantines, travel restrictions). It’s up to us in the fight to restore normalcy and decency; the politicians will always go in the other direction.
CG: We both warned for a long time that there would be a very high price to pay for the more-than-a-decade-long monetary and fiscal policies of the Fed and most of its peers. Why do you think it took so long for inflation to make the comeback we’re suffering though today? What triggered it and why now?
JD: The current price inflation engulfing the US and other western nations results more from fiscal stimulus in 2020 and 2021 than monetary policy. In America alone, national politicians pumped more than $6 trillion into the domestic economy in the form of direct payments—subsidies—to state and local governments, preferred industries (insurance, airlines), businesses (payroll “loans”), and individuals in the form of stimulus checks.
All this new money was created even as Covid lockdowns dramatically reduced the production of goods and services and disrupted global supply chains. So unlike monetary stimulus, where central banks push interest rates down and buy government bonds from commercial banks, the price inflation we are suffering today is directly tied to fiscal stimulus. It’s a simple matter of more money chasing fewer goods and services. Paying people to stay home and not work was a recipe for disaster.
CG: After numerous unsuccessful attempts to simply deny its existence, central bankers were forced to acknowledge that inflation is indeed a problem, but still, quite unsurprisingly, nobody seems too keen to take any responsibility for it. Together with politicians, they simply blame Putin for it and pretend that the reckless “print, borrow and spend” approach of the past years had nothing to do with it. Given the relatively low levels of financial literacy among the general public, do you think most voters and taxpayers believe this narrative?
JD: The question is not only whether average people still believe in the technical competence of central bankers to “manage” the economy, but whether they still believe central bankers even intend to help average people. Increasingly the answer to both appears to be “No!”
We are fewer than 15 years removed from the last economic crisis of 2008, so the idea that central banks prevent crises and crashes is hardly supported by the evidence. Of course, the poorest people suffer most from inflation, as a larger portion of their income for basics—food, utilities, transport, and rent. So, I do think average people sense something is deeply wrong with the financial and monetary system, even if they don’t understand the underlying technical issues.
CG: Apart from the thousands of human lives the Ukraine war has already claimed or uprooted and the inestimable damage to private and public property, there was another causality: Whatever was left of the legal protections for private property or of the free market in Europe vanished seemingly overnight. We saw gas and nuclear power companies nationalized, unprecedented interventionism in the oil and gas market and redistribution policies, fining energy companies for being profitable to pay for “inflation checks” to the public. Do you see a similar trend in the US?
JD: The US has been more insulated from the energy shocks cause by sanctions against Russia simply because we have vast amounts of domestic oil and natural gas. But we lack sufficient refining capacity to make full use of our oil, due to environmentalist pressure. We also lack sufficient nuclear capacity for a country of 330 million people.
So yes, I think events in Ukraine will advance the narrative of the “Green New Deal,” which effectively nationalizes energy policy to promote so-called renewable fuels while banning—or regulating into oblivion—fossil fuels. This is all a pipe dream, of course, as coal, oil, and natural gas still account for more than 80% of our energy use. And we are many decades away from having the grid capacity for widespread use of electric vehicles, even if you ignore the terrible issues of lithium mining and battery disposal.
Unless we are prepared to suffer a significant loss of material living standards, politicians in the West better stop fantasizing about green energy and start getting serious about the real market for reliable and cheap fossil fuels. Let’s hope and pray this winter does not result in the freezing deaths of people in Ukraine or Europe due to energy shortage.
CG: Speaking of the US, what’s your assessment of the fiscal and regulatory policies adopted since Joe Biden took office? Do you think there’s anything his administration could have done to avert the current inflationary spiral or was it always going to be inevitable, after so many years in the making?
JD: Biden certainly is responsible for the increase spending under his administration, which has enormous inflationary consequences. But most of the mischief in our economy was created by fiscal and monetary policies enacted while he was a cronyist US Senator for many decades. In that sense his Senate record is far worse than his presidential record. He is a buffoon, and easily led, which means he is not capable of challenging the “print, borrow, and spend” approach you mentioned. But I hope people understand Biden is a symptom of a much deeper problem, which is a hopelessly corrupt system with all the wrong incentives.
CG: Focusing on the sociopolitical situation, at least from an outsider perspective, we’re certainly seeing less outrage and controversy reflected in the international press compared to when Trump was in the Oval Office. Does that mean that the “wounds have healed” and that Americans are actually more united today or is the rift still widening, just more quietly?
JD: From my perspective the rift has widened. Biden’s narrow victory is viewed by the Left as a mandate to punish and vanquish the Deplorables, especially in rural areas. That’s the nature of politics, which is a form of proto-violence. Markets and civil society are win-win institutions, government and politics are zero-sum. So, unless and until we reduce the importance of political outcomes—unless and until we make life less political—we should expect division to grow.
CG: Both in US and in Europe, there is well-documented and growing mistrust of the media, social- and legacy organizations alike. My own hope had been, especially after the pandemic, that the obscene amount of bias would cause more and more people to do their own research and to “educate themselves”. Have you noticed such a shift in the US, perhaps reflected in a heightened interest in the educational content and programs that the Mises Institute offers?
JD: Absolutely. The digital age provides us the ability to seek out and find voices of reason and peace amidst the white noise of mainstream media. I hate to think it takes a real calamity to wake people up, but perhaps this is human nature. The more worried people become about the economy and their future, the more they seek out alternative sources of news and information. The Mises Institute works to be an alternative source for economic news and education.
CG: Another trend we have in common is the “green agenda”. Even as the present crisis made it abundantly clear that the energy transition in Europe was catastrophically premature, bringing about the “cold, dark winter” that millions of citizens are now facing, there is still extreme pressure for more “green” policies, including a war on farmers at a time of unprecedented food price increases. Is that something you expect to see continue in the months and years to come and if so, what’s the impact you expect to see?
JD: Food and energy crises certainly are possible. In keeping with the “new normal,” elites will use such crises to increase their own power and force us to suffer for problems they caused. We know, because they tell us plainly, their plans to have us stop using fossil fuels, stop traveling so much, stop eating meat, and stop owning homes. They are quite explicit about this.
The fastest and most effective way to achieve this is to make houses, gasoline, and meat so expensive only the very rich can afford them. We already see consolidation of home ownership by private equity firms, for example, to create a nation of renters in the US. We see billionaires like Bill Gates investing in fake meat substitutes. We see recipes in gourmet magazines for dishes featuring bugs!
None of this is normal or natural, but must be imposed by incentives, either positive or negative. If we hope to maintain any personal or family sovereignty in the coming decades, we have to recognize and resist this new program of imposed austerity.
CG: What’s your outlook for the US economy in 2023? What are the main threats that worry you the most and what would be your advice for responsible savers that seek to protect all they’ve worked for from their government’s incompetence or intentional abuses?
JD: Biden and company will face an increasingly tough economy, but given the Democrat's tepid success in the midterm elections I suspect the administration will simply double down on fake statements about how well the country is doing. Politics is contra-reality, so by definition Biden cannot accept or admit what's really going on.
I predict the US Fed will “pivot” in 2023 on interest rate hikes, meaning they will revert to their usual (true) status of worrying more about equity and bond markets than consumers and inflation.
Inflation will remain will us, higher than admitted by government statistics, and will become a permanent feature of the 2020s across the West. Government spending and deficits will continue to grow. As a result, it will be a very trying decade for savers! Gold and silver, commodities, and bitcoin are the obvious suggestions for those looking to protect themselves from devaluation, but for a variety of reasons the US dollar will remain strong against other currencies. And of course, the most important thing is to “harden” yourself against uncertainty by improving your skills and practicing self-education.
[This interview first appeared here at ClaudioGrass.ch.
Self-determination means the ability to make laws for one's own community free from intervention by Washington, DC. Most of the world can do this. Why can't Americans?
Original Article: "Secession: Why the Regime Tolerates Self-Determination for Foreigners but Not for Americans"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While the average person thinks economics begins with Adam Smith and his Wealth of Nations, readers of the Mises Wire know that the story goes back much further than that. Members of the Austrian school commonly describe their earliest intellectual predecessors, the late Scholastics, as “proto-Austrians.” In Jesús Huerta de Soto’s chapter on Juan de Mariana in 15 Great Austrian Economists, Huerta de Soto writes of ten major contributions to what would go on to be important Austrian school concepts:
- The subjective theory of value
- The proper relationship between prices and costs
- The dynamic nature of the market and the impossibility of the model of equilibrium
- The dynamic concept of competition understood as a process of rivalry among sellers
- The rediscovery of the time-preference principle
- The distorting influence of the inflationary growth of money on prices
- The negative economic effects of fractional reserve banking
- That bank deposits form part of the monetary supply
- The impossibility of organizing society by coercive commands
- The tradition that any unjustified intervention on the market by the state violates natural law
In fact, Huerta de Soto goes on to further say that
the greatest merit of Carl Menger was to rediscover and take up this continental Catholic tradition of Spanish scholastic thought that was almost forgotten and cut short as a consequence of the black legend against Spain and the negative influence on the history of economic thought of Adam Smith and his followers of the British Classical School.
However, these contributions were not the only discoveries that Menger’s founding of the Austrian school seems to echo. Murray Rothbard writes, in An Austrian Perspective on The History of Economic Thought, about another brilliant Catholic who preceded Juan de Mariana by about three centuries,St. Thomas Aquinas. Rothbard describes Aquinas as “the towering intellect of the High Middle Ages, the man who built on the philosophical system of Aristotle, on the concept of natural law, and one Christian theology to forge ‘Thomism,’ a mighty synthesis of philosophy, theology, and the sciences of man.”
Despite Aquinas’s brilliant natural law philosophy, Rothbard focuses more on his economic contributions regarding the just price, usury, and money (on which Rothbard has both positive and negative things to say). Ultimately, Rothbard considers Aquinas to be a supremely important influence. However, one point that Rothbard does not address is that Aquinas and Menger seem to share, whether intentionally or unintentionally, the definition of a good. Menger defines a good as something satisfying the four following prerequisites:
- It satisfies a human need
- It has such properties as to render the thing capable of being brought into a causal connection with the satisfaction of this need
- There is human knowledge of this causal connection
- The command of the thing is sufficient to direct it to the satisfaction of the need
The definition of a good was the fundamental point of Menger’s Principles of Economics. However, much like with the work of the proto-Austrians of the school of Salamanca, Menger’s definition is largely reminiscent of what St. Thomas Aquinas wrote in the 1200s in A Shorter Summa:
We should observe that hope presupposes desire. Before a thing can be hoped for, it must first be desired. . . . Secondly, we must judge that what is hoped for is possible to obtain; hope includes this factor over and above desire. True a man can desire things he does not believe he is able to attain; but he cannot cherish hope with regard to such objects. Thirdly, hope necessarily implies that the good hoped for is hard to get: trifles are the object of contempt rather than of hope.
Menger’s first criteria of a good directly correlates to Aquinas’s first criteria of hope. Menger insists a good must have a human need, whereas Aquinas states (somewhat synonymously) that a hope is something that is desired. Next, Aquinas explains that man must believe he can attain the thing for which he hopes. This combines parts two and three of Menger’s definition. Similarly, Ludwig von Mises explains that the belief in a connection between the good and the need is more important than the outright knowledge of it.
Menger’s last point, concerning the “command of the thing,” does not necessarily relate to Aquinas’s observation that the good should be “hard to get.” However, Aquinas’s last point does relate to what Mises explains makes something a specifically economic good, scarcity. Scarcity is the very thing Aquinas is describing. Everything Aquinas says regarding hope is directly relevant to the later Austrian definition of a good.
These Catholic theorists made such impressive proto-Austrian statements, uninformed by economics, because, as Tom Woods explains in The Church and the Market,
One of the characteristic features of Catholic thought over the centuries has been its emphasis on reason. Man’s mind, according to this tradition, is capable of apprehending a world of order that exists outside itself. Man is able to abstract “universals” from the myriad objects and sense data that appear to him and thus bring order to the chaos of mere data above which mere brutes can never ascend.
The school of Salamanca, St. Thomas Aquinas, and Carl Menger have one thing in common; they use reason to try to comprehend objective reality. As a result, even though some approach theology and some approach economics, these brilliant individuals come to the same conclusions because they are all taking steps toward understanding objective reality.
The Chinese Community Party's crackdown in Christian churches reflects the perceived antiauthoritarian nature of Christianity and the party's fear of a competing alternative worldview.
Original Article: "Historical Christianity as a Liberating Force in China"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While socialists posit socialism as a humane and ethical system, it is anything but that. Mises understood its brutality long before socialism gripped the world.
Original Article: "How Marxism Abuses Ethics and Science to Deceive Its Followers"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Progressives demanding that the government forgive student debt forget that student loans were made voluntarily by students that promised to pay back what they owe.
Original Article: "Student Debt: It Is and Has Been a Personal Choice"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Is it possible, or even desirable, for economic freedom and progress to be compatible with authoritarianism? Although some may believe so, this is a fallacy. Freedom is indivisible. Political and economic freedom cannot be separated.
This is the position of Ludwig von Mises himself. In Planning for Freedom, he says, “Tyranny is the political corollary of socialism, as representative government is the political corollary of the market economy.” Regarding a citizen’s reaction to such tyranny, he writes in Planned Chaos that “If one master plan is to be substituted for the plans of each citizen, endless fighting must emerge. Those who disagree with the dictator’s plan have no other means to carry on than to defeat the despot by force of arms.” Mises contrasts the tyranny of socialism with capitalism in Bureaucracy when he writes,
Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individual’s life and the unrestricted supremacy of the government in its capacity as central board of production management. There is no compromise possible between these two systems.
Some may challenge Mises’s assertion. After all, referral to authority, even to one as great as Mises, does not prove that he is right. Some may say that economic progress surely depends upon the safety of one’s person and one’s property. “Is it not clear,” they say, “that authoritarian regimes provide better internal security, however harsh punishments may be, than their more permissive democratic neighbors?” Some authoritarian countries, such as China and some Arab countries, validate that premise. As long as one obeys the rules, business can prosper. Or so it is claimed. Instead of simply throwing Mises’s claims against the claims of others, let us look at some other issues with authoritarianism.
One of the main problems with authoritarian rule is deciding who gets to choose the dictator. Western society has passed beyond the “divine right” of kings; although noble succession still prevails in some Middle Eastern countries. Most authoritarians base their right to rule on the violent overthrow of the preexisting regime. China, Cuba, Iran, and North Korea come to mind. But this hardly provides a solid intellectual foundation for either current or future rule. Mises claims that democracy is the best form of government because it allows peaceful transitions between administrations. The people decide who rules via periodic elections. When society seems to be going in the wrong direction, a peaceful change of leadership is preferable to attempting a coup.
Dynamism is the essence of a progressing economy. It involves adopting new ways of meeting the demands of consumers and discarding the old ways. Joseph Schumpeter called this process “creative destruction.” This is anathema to authoritarian societies. Authoritarian societies are supported by incompetent sycophants who were placed in favorable positions by the dictator himself. However, where there is no creative destruction there is no progress. My trip to the Soviet Union in the early 1970’s, while an officer in the air force, confirmed what I already knew. The Soviet Union was crumbling from within. There were few consumer goods, and goods available to the ordinary Soviet citizen were shoddy beyond my worst expectation. In Yuri Maltsev’s excellent introduction to Requiem for Marx, he points out that one of the reasons that the Iron Curtain fell was that the people simply gave up trying to live in an increasingly insane society.
Hayek reminds us that the authoritarian has no better insight than anyone else into how to order an economy; neither is it possible for any group of planners armed with the most powerful tools. The billions of decisions required are unknown and unknowable. Few know more than what their industry specialization allows them, and the need for continuous adaptation to market forces is beyond any particular person’s perception. We must all be willing to throw out the old and adopt the new in order to keep pace with changing markets. The law is “change or die.” Death may be slow or sudden, but there is no substitute for change.
The Importance of Understanding That Freedom Is IndivisibleFive years of fiat money expansion has so disrupted economies worldwide that a serious recession is on the horizon. Prices are rising. World trade is under attack. The world is on the brink of nuclear war. Sovereign debt has reached absurd levels. All these insults toward ordinary people are brought to us by out-of-control governments who have no understanding of real economics and, of course, no real understanding of wealth creation.
An example of this is how lavish unemployment benefits have discouraged workers from seeking employment. Do not blame them. It is rational self-interest for millions of people to take handouts when they can. Please instead blame politicians for making it all possible with fiat money expansion. Unfortunately, when the bitter fruits of these failed policies can no longer be ignored, too many will call upon government to take a strong hand and “do something.” The problem is that the government caused the problem in the first place and, therefore, has no viable solution. But that will not stop them. They must appear to be doing something.
The only answer is total freedom in both the economic and political spheres. The economy must go through wrenching adjustments to redirect capital to its best use as determined by consumers and not as determined by the government. Reality must prevail. This fiat money expansion has destroyed much capital by directing it to less productive uses than the public would determine in an environment of total freedom.
We must resist the temptation to believe that a strong man can save us. We can only save ourselves. The modern West is characterized by laziness, frivolous spending, and living beyond one's means. We must do the opposite. Working hard, living frugally, and saving money are solutions all people can adopt to protect themselves from the encroachments of authoritarianism.
In the research paper Egalitarianism and the Elites, published in 1995 in the Review of Austrian Economics, one of Murray Rothbard’s most brilliant insights was that even the implementation of an egalitarian society requires leadership. As the fall of one system to the implementation of a new model of society cannot come out of nowhere, someone must command and lead this process. And naturally, these leaders will occupy powerful positions.
Indeed, Rothbard’s affirmation demonstrates how human existence is unequal and how some are naturally more qualified to lead the social processes. In a free-market society, the leaders are the entrepreneurs. With their ability to forecast future needs, they generate new solutions and create new productive arrangements. As a consequence, they create profit for themselves and value for their customers.
On the other hand, in a statal society, naturally someone will stand out and command the conquest and maintenance of power. In this sense, there are a lot of possible arrangements, as there are a wide variety of situations in which leaders can be involved. Recently, Western civilization is living a moment in which social constructivism has reappeared, now under the name of “progressivism.” However, even with a new name, progressivism is nothing more than an attempt to refound society.
For those more concerned with the failures of constructivism, Ludwig von Mises in his book Theory and History has already explained why constructivism is arbitrary, in contrast to the complex social process in which individuals are involved. Thus, constructivist movements (as Black Lives Matter, for example) are nothing more than the instruments of people who want to achieve power and determine the path of our society.
They do not just deny the social process of institutional development. The leaders of these movements, using the excuse of the need to create a new society, want to create a new scenario in which they are the dealers. If the actual institutions do not allow them to be in power, they want to break the institutions and create new ones they can control.
As a matter of fact, the leaders of these movements are focused on political power, which will reward them with power and wealth. Improvements in society as a whole don’t matter to them: they are just concerned with the improvements for the group that commands the mass. And all these “social” movements, generally aligned with the radical progressivist Left, attempt to solve any problem through state intervention.
Each problem of private life becomes a public question, and over time, the Leviathan expands more and more, both in terms of income and influence. Allied with the government and the establishment, the leaders of these movements thus achieve relevance in the public debate, occupying positions and being paid to produce nothing.
They are the opposite of entrepreneurs: instead of producing welfare and improving people’s lives, they disseminate chaos to harvest institutional rewards while annihilating the institutions. Family, religion, and market ethics are more and more under attack, and these social movements are working to substitute these private arrangements with state influence and social engineering.
Is also crucial to note that these kinds of movements are legitimized in the public sphere. In general, the mainstream press treats them as the genuine representatives of certain segments of our society. Moreover, the media presents the leaders of these movements as specialists in particular subjects, masking their organizations’ real interests.
Rothbard could not be more on the mark. In the woke progressive movement, there are elites that in reality are not concerned with the agenda they are supposed to support (e.g., racial and gender equality). Indeed, these movements generally end up involved in politics and becoming state parasites while the great mass is fooled and receives only disappointments and worse material conditions.
It happened in the socialist twentieth century, which promoted the biggest mass murders in human history in countries such as China, Soviet Union, and Cuba. And it will happen again under the woke progressive socialism of the twenty-first century: the leaders want to be new kings, and they use the masses as infantry to be sacrificed on the battlefields.
Those in the antiwar movement are accustomed to disappointment in this long-standing environment of militarism, but this one truly stings. Up until the middle of December, there had been a strong push across many grassroots organizations to urge the US Congress to invoke the War Powers Resolution and end military support for the War in Yemen. Hopes were high that America would finally pull the plug on this terrible conflict.
That momentum was dashed just a week prior to Congress going on break for the winter holidays when Senator Bernie Sanders withdrew his call on the matter at the final hour, shortly before it was going to come to a Senate vote, due to the Biden White House expressing its opposition. It goes to show that voices of reason can reach within a whisper of the halls of power, but the thunderous bellow of empire still dominates the room.
Grassroots Efforts on a Pressing CrisisIn the months leading up to the anticipated Senate vote, more than one hundred organizations including The Friends Committee on National Legislation (FCNL), Demand Progress, Just Foreign Policy, Concerned Vets for America, Defense Priorities Initiative, Bring Our Troops Home, and the Quincy Institute for Responsible Statecraft came together to let lawmakers know that a significant number of Americans want the US to stop supporting the Saudi-led campaign in Yemen, the poorest country in the Middle East region which has been suffering under war and blockade for years. The United Nations Office for the Coordination of Humanitarian Affairs (OCHA) estimates a quarter of a million people have died from violence, disease, and starvation.
Certainly, the War in Yemen is one of the most complex conflicts to understand as it involves a myriad of opposing groups and foreign intervention. This resolution would have ended US involvement in hostilities against the Houthi rebels who are in conflict with the Yemeni government.
Still, it would not affect operations against al-Qaeda and its affiliates in the country, a set of entirely different problems altogether as the US previously helped the Houthis target al-Qaeda in Yemen, but then switched sides and opposed the Houthis in support of Saudi Arabia’s foreign policy. This came in the wake of the US signing a nuclear deal with Iran even while Obama administration officials acknowledged that the conflict would be “long, bloody, and indecisive.”
Bipartisan Support to End the WarAfter many years of fighting between the multiple factions and the hardship of the humanitarian crisis, a ceasefire brokered by the UN was in effect for six months until it expired in October of 2022. With the backdrop of the ceasefire and shifting geopolitical realities, the US Congress put together bipartisan efforts to activate the War Powers Resolution on US involvement in the war. This would be their second attempt after the first bill sponsored by Senators Sanders, Democrat Chris Murphy, and Republican Mike Lee was vetoed by President Donald Trump in 2019.
For Democrats, opposition to the US role in Yemen falls directly in line with the party and key Biden officials’ views as they pushed back against President Trump’s veto in the first use of the War Powers Resolution on the Yemen War. For Republicans, this campaign against the Houthis was the fault of the Democratic president Obama who threw US support behind al-Qaeda’s side in the conflict. Although ending America’s role in the war is popular across the political aisle and among the people, that doesn’t seem to be enough to get in the way of the American imperial motives.
Interests of EmpireThe Biden administration’s turn against ending support for the Saudi-led campaign in Yemen stems largely from geopolitical considerations. Relations between the US and Saudi Arabia have soured in the recent term over disagreements on oil production and Iran policy. The kingdom has turned toward China, a major US adversary, for future collaboration.
Although not completely doing away with the long-standing relationship with Washington, Saudi Arabia is quickly considering the benefits of diversifying into China in this new multipolar world order. Riyadh has recently hosted a summit with China and other Gulf states to deepen ties in their strategic partnerships. In this era of increasingly fierce competition with China, Washington is keeping all of its allies as close as it possibly can by catering to the leadership even though the fact of the matter is that Saudi Arabia is the client state here to the US world empire.
The lucrative trade implications for US arms manufacturers sit at the core of decision-making for the American empire on involvement in Yemen. Indeed, the lobbying efforts by Lockheed Martin, Boeing, and Raytheon led to the Trump veto of the first attempt to end US involvement in the conflict. The defense industry’s mutual financial benefit with Washington exemplifies the notion that war is the health of the state.
All of this amounts to a sense of business-as-usual resignation with this chance to put a stop to just one of America’s foreign interventions snatched away by the hand of the empire at the last moment. Perhaps the vote will come up again in Washington at some point. Meanwhile, the people of Yemen head into another new year of dread as the light at the end of the tunnel fades.
Economists like Paul Krugman have claimed that practice of austerity in government would damage the US economy. As Mark Thornton points out, the opposite is true: austerity works.
Original Article: "Austerity: A Real Solution to Help Heal the US Economy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Bob and Jeff make their provocative 2023 predictions for the economy, the Fed, politics, world events, and cultural issues.
What We Owe the Future
by William MacAskill
Basic Books, 2022; 333 pp.
William MacAskill, a philosophy professor at Oxford and a leading light of the effective altruism movement, has recently been in the news owing to the frenzied and fraudulent finance of his protégé Sam Bankman-Fried, who now awaits trial. The “effective altruists” took seriously the implications Peter Singer drew from his famous thought experiment: Suppose you come across a small child who is drowning in a pond. You can easily rescue the child, but if you do so, you will ruin the expensive pair of shoes you are wearing. If you refuse to save the child, wouldn’t this show you are a heartless brute? But, Singer says, nothing in the moral point of the example depends on your close physical proximity to the child. If you had given the cost of the shoes to charity, you could have saved a child living in the third world from death. Singer, relying on a utilitarian framework, next argues that you are morally obliged to give all your income above subsistence to charity, though he recognizes that few will be willing to do so. Further, in order to maximize the effect of your donations, you should investigate which charities are most effective, a prescription the effective altruists enthusiastically embrace. But they have done Singer one better. In order to maximize our charitable donations, we need to make as much money as possible, and that will often require us to seek employment in high-paying jobs and then give as much as we can to charity. Following this advice led Bankman-Fried to his career in investments.
It would be unfair to blame MacAskill for Bankman-Fried’s peculations, as there is no indication of MacAskill’s involvement in them, but his ethical manifesto merits attention in its own right. As its title suggests, it is a radical extension of effective altruism that emphasizes the future. To be “up-front” about it, What We Owe the Future takes a view of ethics detached from our common human lives and, in its endeavor to assume what Henry Sidgwick called “the point of view of the universe,” is utterly bizarre, much more in its theory than in its rather banal practical recommendations.
The key to MacAskill’s ethics is what he calls “longtermism, the idea that positively influencing the longterm future is a key moral priority of our time. Longtermism is about taking seriously just how big the future could be and how high the stakes are in shaping it. If humanity survives to even a fraction of its potential life span, then, strange as it may seem. . . . [w]hat we do now will affect untold numbers of future people” (pp. 4–5). If human beings live the lifespan of a typical mammalian species, billions and billions of future people remain to be born, and their interests swamp our own.
If you object, “Why should I care about that? I care about my family and friends, not possible people in the far future,” MacAskill’s response is one of disarming moderation: “Special relationships and reciprocity are important. But they do not change the upshot of my argument. I’m not claiming that the interests of present and future people should always and everywhere be given equal weight. I’m just claiming that future people matter significantly” (p. 11).
If you adopt MacAskill’s standpoint, though, you will be unable to maintain the distinction he suggests here. Suppose you give the existence of each possible future person a minute weight compared to persons you value. MacAskill takes utility to be additive; if there are enough future people, the sum of their utilities will outweigh the utility of those close to you. No matter how great the initial disparity between the utility of a person close to you and a future person, the numbers will render a verdict in favor of the future. And, judged from a commonsense standpoint, the situation is even worse. Given the vast numbers of future people, even a slight probability of improving their lot will outweigh the actual interests of those near and dear. MacAskill says that he does not demand that people sacrifice the interests of those close to them in this way but cannot avert this by the logic of his argument. If he seeks to escape by contending that the utilities of all possible future people should be taken as an indivisible whole rather than as a sum of individual utilities, then he cannot block people from giving the interests of those in the present a virtually infinite weight, very much counter to the spirit of his approach.
It is worth looking further at MacAskill’s moral mathematics, which he draws from the great Oxford philosopher Derek Parfit, though MacAskill takes it to an extreme that Parfit sought to avoid. As MacAskill rightly says, population ethics is very difficult and technical, but, to simplify grossly, Parfit sought to show that, on certain plausible assumptions, a situation in which some people have very high utilities and others lower ones can be shown to be inferior to an equal distribution of utilities if enough people are added to the distribution. (I ought to say that for this column, we must put aside the Austrian demonstrated preference notion of utility; more’s the pity.) If this process is repeated enough times, we will arrive at the “Repugnant Conclusion”:
Consider two worlds we’ll call Big and Flourishing and the second Enormous and Drab. Big and Flourishing contains ten billion people, all at an extremely high level of wellbeing. Enormous and Drab has an extraordinarily large number of people, and everyone has lives that have only slightly positive wellbeing. If the total view is correct. . . . [t]he wellbeing from enough lives that have slightly positive wellbeing can add up to more than the wellbeing of ten billion people that are extremely well-off. Parfit himself thought this was a deeply unpalatable result, so unpalatable that he called it the Repugnant Conclusion. (p. 180)
MacAskill argues that the most plausible way to avoid the Repugnant Conclusion, the critical level view, leads to equally counterintuitive results:
In the critical level view, adding lives that have low but positive wellbeing is a bad thing. . . . This view escapes the Repugnant Conclusion. . . . However, the critical level view has its own counterintuitive implications. . . . It leads to what’s called the Sadistic Conclusion: that it can be better to add to the world lives full of suffering than it is to add good lives. . . . The critical level view regards the addition of lives that only just have positive wellbeing as a bad thing; so adding enough such lives can result in worse overall wellbeing than adding a smaller number of lives that are full of suffering. (p. 185)
This objection to the critical level view fails because it remains in the grip of utility maximization over total populations. The critical level view is best taken not as a way to compare populations below the critical level of well-being with other populations, as MacAskill does, but rather as a bar to making any such comparisons at all once the critical level is reached. This avoids the Sadistic Conclusion, since the comparisons in that scenario are not allowed. If MacAskill responds that this limit is arbitrary, the objection may be turned against him. Why should we assume that comparisons of populations’ utility levels are always allowable, an assumption all the more questionable because declining to make it permits us to avoid both the Repugnant and Sadistic Conclusions?
Impatient readers may long ago have been anxious to object, “Even if we were to accept MacAskill’s future-oriented ethics, we know little about what will happen hundreds of thousands of years from now. Of what use in day-to-day practice are MacAskill’s speculations?” Here, for once, we may come to our author’s defense. He is well aware of the uncertainty of the future, indeed insists on it, and the policies he recommends are hardly radical, putting aside a few issues, such as a more-than-mild mania about artificial intelligence taking over the world.
Though I fully recognize that this is not an argument, I confess to a strong aversion to this weird band of “effective altruists,” who devote their lives to “doing good,” while largely confining their human relationships to fellow members of the cult and thanking God “that they are not as other men are” (Luke 18:11, KJV). Let us leave them as they anxiously compute their “carbon footprints,” and seek the foundations of ethics in a more human way.
Only Father Time helps us cut through the policy nonsense and understand interest rates conceptually.
Original Article: "Father Time versus Central Bankers"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The latest estimates from consensus for the main Latin American economies show a continent facing a lost decade. The region GDP growth has been downgraded yet again to a modest 1.1% for 2023, with rising inflation and weakening gross fixed investment. Considering that the region was already recovering at a slower pace than other emerging markets, the outlook is exceedingly worrying.
The poor growth and high inflation expectations are even worse when we consider that consensus estimates still consider a tailwind coming from rising commodity prices and more exports due to the China re-opening.
How can a region with such high potential as Latin America be condemned to stagflation? The answer is simple. The rise of populist governments in Colombia, Chile and Brazil have increased the concerns about investor security, property rights and monetary discipline.
Argentina is expected to post a modest 0.2% GDP growth in 2023 with 95% inflation and a debt to GDP of 72%. Years of monetary and fiscal excess have destroyed the purchasing power of the local currency and dilapidated the prospect of real growth. In Argentina, poverty has escalated to 36.5% of the population and the government policies double down on interventionism, price controls and higher taxes with the expected negative result. Despite the tailwind of high demand for soja and cereals globally, Argentina dives deeper into Venezuela territory, where consensus expects another year of weak 3% bounce after destroying 80% of the output in a decade, with enormous inflation, 132%.
The problem? The new governments in Chile and Colombia are announcing policies that resemble those of the “Peronist left” in Argentina and the Fernandez government in Argentina is looking more like Maduro’s Venezuela each day.
Chile is expected to post no growth in 2023 despite an estimated higher copper price, and 15% inflation. Colombia, which showed the strongest recovery from the covid-19 crisis until 2022, in which consensus expects a 7% growth, is feared to stop on its tracks and deliver a poor 1.6% GDP growth with elevated inflation, close to 7%.
In Brazil, consensus expects a poor 0.9% growth with 5% inflation. It does not look as bad as Argentina, but the first major announcement of newly elected president Lula has already triggered all alarm bells. Lula stated that he wanted to change the constitution to lift the spending limit and increase government spending even more. The Brazil currency and 10-year bond reacted aggressively to this risk because everyone can remember that Lula’s “economic miracle” a decade ago came from massively high oil prices and, when the commodity bonanza ended, his successor Rousseff sent the country to a deep crisis where spending soared and growth stagnated.
You may say that the rise of populism in Latin America is the consequence of the failed classic liberal policies implemented before, but that would be a grave mistake. Most of these countries have not seen open and liberal economies but crony states. Statism failed and more statism fails even faster.
Global investors see the enormous potential of Latin America. However, when governments start to impose interventionist policies, put at risk property rights with expropriation threats and at the same time massively increase monetary imbalances printing currencies with no real global and diminishing local demand, the combination is destructive.
Why do citizens vote for politicians that implement confiscatory and extractive policies? In many economic debates in Latin American media one can hear the word “redistribution” repeated incessantly. Many believe that wealth is like a pied that can be cut and distributed at will, but ignore that wealth is either created or destroyed, it does not stay flat.
Interventionist policies destroy wealth in three ways: First, attacking independent institutions and introducing political random decisions in legal and investor security which erodes growth potential, investment, and employment. Second, by increasing taxes on the productive sector to pay for massive subsidies paid in a constantly depreciated currency, which creates a double negative of lower growth, weaker local businesses and a dependent subclass that rarely emerges. The productive sector ends forced to operate in the underground economy to avoid confiscatory taxes. Third, interventionism destroys the purchasing power of the local currency by breaking all the rules of prudent monetary policy and financing an ever-increasing government size printing a constantly devalued currency. The combination of these three factors means poverty and stagnation.
Why do interventionist governments do this when they know -and they do- it does not work?
Monetary destruction is the easiest and most effective way of nationalization of an economy. Printing currency is a form of expropriation of wealth, as money creation is never neutral, it benefits the government and hurts real wages and savers.
Why would “populist” governments impose policies that perpetuate poverty and hurt the people? Interventionism does not aim to increase prosperity but take full control of a nation. The three mentioned policies are aimed at grasping full control of a country and make the population dependent, not deliver growth and improve social conditions.
Extractive and confiscatory policies are not social measures, they are profoundly anti-social. The worst is that once implemented, it becomes difficult to unwind. We should learn the lesson everywhere because it is coming to your country soon.
While monetary authorities and progressives would like to have a digital currency implemented, it is a backward step for monetary freedom.
Original Article: "And So It Begins: Digital Currency Becomes Possible in our Future"
This Audio Mises Wire is generously sponsored by Christopher Condon.
During March of 2020, Sweden’s state epidemiologist, Anders Tegnell, showed us how public health can be managed ethically by refusing to lockdown Sweden’s residents. The rest of the public health discipline, however, entered the territory in which we now place the universally castigated discipline of eugenics. Eugenics breaches ethics and causes enormous harm to the fabric of mankind. Likewise, lockdowns breach ethics and have terrorized or killed millions of people worldwide.
I recently assisted Professor Gigi Foster in preparing a cost-benefit analysis of Australia’s response to covid-19. This analysis, published as a book, shows that the harm caused by lockdowns in Australia exceeds any benefits by at least sixty-eight times. Magnifying these to the rest of the world, I estimate that between three to ten million people have been killed, trillions of dollars have been destroyed, and billions of people have been harmed worldwide by lockdowns; a “gift” that will keep on giving well into the future.
Lockdowns did not only increase noncovid related deaths. A study I carried out jointly with Jason Gavrilis in mid-2022, published by the India Policy Institute, shows that lockdowns also increased covid-19 deaths. Countries which implemented lockdowns and related measures have experienced, on average, more covid-19 deaths than Sweden. If the findings of this study are validated by other researchers, then the sheer evil of these lockdowns and associated policies will baffle future generations.
In this article, I show that the public health response to covid-19 is not the exception but the rule. The evil policies of public health are the inevitable outcomes of the intrinsic information failures and incentives deeply embedded within its structure.
A Pattern of DepredationsWhat happened in 2020 is typical of public health. As Luc Bonneux and Wim Van Damme explained in the World Health Organization’s (WHO) 2011 bulletin, a “culture of fear” and “worst-case thinking” were the hallmarks of public health during the avian and swine flu of the early 2000s: “The pandemic policy was never informed by evidence, but by fear of worst-case scenarios.” Sweden’s ethical covid-19 response must not mislead us into thinking that public health can somehow be reformed. Tegnell is not representative of public health.
As a remedy, Bonneux and Van Damme asked that public health be “accountable for reasonableness in a process of openness, transparency and dialogue with all the stakeholders, and particularly the public.” But true to its character, public health did none of this during covid-19 and instead imposed extreme censorship across the world.
Exaggerations and Breach of Pandemic PlansThe pre-2020 public health literature was explicit that policies involving lockdowns must never be pursued since their harms vastly exceed their benefits. The WHO pandemic guidelines of 2019 insisted on proportionate measures, had an extensive discussion of the ethics of each measure, and ruled out reckless measures like lockdowns and border closures. I summarized this literature in The Great Hysteria and The Broken State and in a complaint to the International Criminal Court.
But what happened during the swine flu was multiplied a thousandfold with covid-19. Fixated on the worst-case scenario once again (recall the Neil Ferguson model), public health stoked what I call the Great Hysteria.
It has been evident since around April 2020 that covid-19 is not particularly lethal. Professor John Ioannidis of Stanford University wrote to me on April 9, 2022, that covid-19 is 50–500 times less lethal than the Spanish flu. Covid-19 is essentially as lethal as the seasonal flu. Sweden’s official mortality statistics, which adjust the death rate for population size, show no evidence of excess mortality in Sweden in 2020 once we control for the dry tinder effect of 2019 (The mild flu season of 2019 meant that many more of the elderly were vulnerable to respiratory disease in 2020.). We have a so-called pandemic with a lethality similar to the seasonal flu; therefore, covid-19 caused virtually no excess deaths in Sweden during 2020.
Nonetheless, practitioners of public health, except in Sweden, drummed up hysteria by grossly exaggerating covid-19 (calling it a once-in-a-century pandemic) to support the adoption of Chinese Communist Party inspired lockdowns in breach of long-standing, well-established public health findings.
Power without AccountabilityPublic health practitioners claim that they require the power to destroy property rights and curtail freedom of movement to achieve their goals. In the chapter, “Pubic Health Law,” from Public Health & Preventive Medicine, Edward Richards and Katherine Rathbun explicitly claim that without coercion modern society itself cannot exist: “Public health depends on the power of the state. Public health authorities must seize property, close businesses, destroy animals, or involuntarily treat, or even lock away, individuals. Without the coercive power of the state, public health and modern society would be impossible.” Note carefully their use of the word “impossible.” They claim that, without sacrificing control over our freedom and property, we cannot be saved. But public health also insists that its power (over our freedom and property) must never be subjected to a cost-benefit analysis, thus, precluding itself of any accountability.
The Impossibility of Public HealthThe logic of public health and economic collectivism closely overlap; so do their limitations. Both are hindered by a lack of market feedback and insufficient information.
Ludwig von Mises wrote about the impossibility of socialist calculation. Hayek argued that there is a knowledge problem that afflicts central planners. A bureaucrat in a socialist system does not have the capacity to collate and comprehend even a microscopic proportion of the information embedded in the price system. Consequently, decisions in socialist countries are always flawed and inevitably cause great harm.
Similarly, while health is necessarily an individual matter, public health has no capacity to make precise recommendations for each individual. Inevitably, speculative mathematical models underpin public health. These models, like socialist input-output models, are never based on real information so they always end up harming society.
By real information, I mean detailed information about each individual virus particle, the immunity levels, mental health status, and economic circumstances of each individual within a jurisdiction. Yet, without considering the etiology and progression of a disease in the context of such detailed individual information, there is no possibility of a scientifically valid recommendation for individuals. One example of the delusion of public health is contact tracing. Advocates believe they can track every case of respiratory disease using QR codes. Public health is based on the same fiction which sustains socialism and communism. A pretense of knowledge is public health’s fatal conceit. Its “experts” boldly offer solutions to a problem which they can never precisely understand.
ConclusionPublic health cannot be trusted. Its practitioners have shown us repeatedly that they will never choose less restrictive policy options, undertake cost-benefit analyses of their actions, or accept accountability for the massacres and harms they cause. Our only option is to excise this cancerous discipline. Disarming public health is the next major frontier in the advancement of human liberty. If we fail to disband it, the biomedical state that is now in control of the world will devour all of our remaining freedoms.
Dear Friend,
In the midst of this busy Christmas season, I want to make sure you received our year-end letter from Lew Rockwell.
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We are all thankful to have the political season of 2022 over, but now the 2024 presidential election looms like a bad moon. The midterms solved nothing and brought no relief to a divided and angry America.
But as a supporter of the Mises Institute, you know a better world is possible.
Democrats are insane and full of hate, doubling down on their every failed idea. Conservatives, for their part, are clueless about money, markets, property, and the crucial need for peace. Democracy itself is a huge failure, despite all the nonsense about our sacred political system.
In the midst of it all, the Mises Institute stands as a beacon of sanity in a politicized world. Please take a moment today to support us.
There is trouble around the globe. But there is tremendous cause for optimism. The Great Pushback (challenging progressivism) and the Great Relocation (voting with your feet) show no signs of slowing. Americans now question control by DC and central banks like never before. The covid and Ukraine narratives are collapsing. A handful of governors are asserting state sovereignty. Businesses and capital exit the crazy states. Momentum for our view grows!
History shows how things can change very quickly. But we need spirited Americans like you to help the Mises Institute reach more people than ever in the New Year.
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Keynesians believe that economic growth can occur only with an expanding supply of money. Growth doesn't need more money; it needs more savings.
Original Article: "Economic Growth Requires Savings, Not Money Pumping"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop look ahead to 2023 with a handful of predictions for the new year. They even manage to find one reason for optimism!
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
A relatively new area of study in economics, behavioral economics, has started to gain popularity. The behavioral economics framework emerged because of dissatisfaction with the neoclassical theory regarding consumer choice. A major problem with the neoclassical theory is that human beings are presented as if hardwired with a scale of preferences. Regardless of circumstances, this scale is considered to remain the same at all times.
Mainstream economics argues that, if preferences are constant, it is possible to compress preferences into a mathematical formulation called a utility function. Similarly, the assumption of constancy is considered an important characteristic of rationality.
According to behavioral economics, however, human beings are not considered rational actors. behavioral economists consider emotions to be the key drivers of consumer choices. Furthermore, whether or not consumers are patient determines whether they are inclined to spend or save money on a given day. If they patient and save more money, entrepreneurs can generate funds for new investment projects.
Also, behavioral economists emphasize the importance of personality. Emphatic people are more likely to make altruistic choices. Impulsive people are more likely to be impatient and less likely to save money for retirement. Venturesome people are more likely to take risks and gamble. Behavioral economics reduces people to emotional archetypes and assumes they act in accordance with their emotional type in a consistent manor.
Obviously, once reason is dismissed, humans can be treated like objects. Human action is driven by external factors. By means of a given stimulus, one can observe various human responses and draw all sorts of conclusions regarding the world of economics. According to Ludwig von Mises, “it is impossible to describe any human action if one does not refer to the meaning the actor sees in the stimulus as well as in the end his response is aiming at.”
Introducing Psychology in Economics Will Not Make Economics More RealisticPsychology plays an important role in behavioral economics; however, there is a distinct difference between these two. Psychology deals with the content of ends and values. Economics starts with the premise that people pursue purposeful action. It does not deal with the particular content of various ends. According to Murray Rothbard,
A man’s ends may be “egoistic” or “altruistic,” “refined” or “vulgar.” They may emphasize the enjoyment of “material goods” and comforts, or they may stress the ascetic life. Economics is not concerned with their content, and its laws apply regardless of the nature of these ends.
Whereas, Rothbard continues, “psychology and ethics deal with the content of human ends; they ask, why does the man choose such and such ends, or what ends should men value?” Economics deals with the formal implications of the fact that human beings have ends and utilize means to attain these ends. Consequently, economics is a separate discipline from psychology.
Contrary to popular economics, Rothbard held that valuations do not exist by themselves (regardless of the things to be valued). On this, he suggested, “there can be no valuation without things to be valued.” According to this thinking, valuation is the outcome of the mind valuing things; it is a relation between the mind and things.
It follows that an individual’s scale of preferences, supposedly hardwired, is a fiction. Whenever an individual is confronted with a thing, he assesses it according to how it might benefit his life or well-being. Benefits are likely to vary with changes in the individual’s circumstances. What was acceptable to the individual yesterday may not be acceptable today.
Obviously, humans do change their minds. It is not surprising that human behavior deviates from the machine model of behavior depicted by mainstream economics. Rather than dismissing the assumption of constant preferences, behavioral economists have retained the assumption and instead modified the utility function in order to bring supposedly more realism to the mainstream model. This means that the erroneous foundation of mainstream economics is left unchanged.
Furthermore, since in behavioral economics reason is not the key driver of individuals’ choices, evaluations of goods are not connected to reality. The reason why someone chooses a particular good over another is not much different that the preference scale advocated by popular economics. Does it make sense to discuss the goods individuals choose without also discussing the purpose those goods are meant to serve?
The Misesian Framework of Consumer ChoicesAccording to Mises, the fact that individuals have a certain knowledge about themselves can assist in ascertaining a logically driven choice theory. For instance, one can observe that people engage in a variety of activities. They may perform manual work, drive cars, walk on the street, or eat in restaurants. All activities are conscious and purposeful.
Using that knowledge, we can establish the meaning of individual conduct. Thus, manual work may be a means to earn money which can then be used to achieve various goals like buying food or clothing. Dining in a restaurant can be a means for establishing business relationships. Driving a car may be a means for reaching a particular destination. People operate within a framework of means and ends; they use various means to secure ends.
The assertion that individuals pursue purposeful action implies that causes in economic analysis emanate from human beings and not from outside factors. The knowledge that human action is conscious and purposeful is certain not tentative. Anyone who objects to this contradicts himself, for he is engaging in a purposeful and conscious action to argue that human actions are not conscious and purposeful.
Conclusions derived from this knowledge are valid, and there is no need to subject them to laboratory tests as is done in experimental economics. Something that is certain does not require empirical verification.
Purposeful action implies that individuals assess or evaluate means against their ends. Individuals’ ends set the standard for human valuations and choices. By choosing a particular end, someone also sets a standard of evaluating various means.
For example, If John intends to buy a car, and cars are available on the market, John will specify the specific ends that the car will help him to achieve. For example, John may consider whether he plans to drive long distances or short distances. John’s ends will dictate how he will evaluate various cars. Perhaps, John will conclude that, for short distances, a secondhand car will do the trick. Since an individual’s ends determine the evaluation of means and, thus, his choices, the same good will be valued differently by different individuals.
At any point in time, individuals have numerous ends they wish to achieve. What limits the attainment of various ends is the scarcity of means. Hence, once more means become available, a greater number of ends can be accommodated.
If a preference scale is not hardwired in the human mind, it is futile to conduct experiments to extract this nonexistent scale. Therefore, results obtained from laboratory tests or from questionnaires do not advance our understanding of human action as far as economics is concerned. On the contrary, this kind of thinking prevents the acquisition meaningful knowledge.
ConclusionBy casting doubt on human reason, behavioral economics emphasizes the importance of emotion as the fundamental factor determining human actions. Using psychological analysis, behavioral economists have supposedly demonstrated that individual economic conduct is irrational. Consequently, behavioral economists may have unintentionally laid the foundation for the introduction of government controls that strip citizens of their rights and freedoms to protect them from their own irrational behavior.
The Pilgrims tried socialism at Plymouth. After two years, they returned to private enterprise. Likewise, Israel was founded as a socialist state but has back turned toward free markets.
Original Article: "A (True) Thanksgiving Tale of Socialism in America and Israel"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Twenty-six years ago, the debate was over whether or not the target inflation rate should be raised from zero to 2 percent. Now we're being told it should be 4 or 6 percent.
Original Article: "No Surprise: Wall Street Wants to Raise the Target Inflation Rate above 2 Percent"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Industrial policy is earnestly touted by democrats and conservatives as a tool to rejuvenate the US economy. Some argue that innovation will flounder unless the US applies industrial policy to major sectors. The success of East Asian countries is often cited to bolster the case for industrial policy, however, advocates have been selling a simplistic story.
While it is sometimes noted that there is a correlation between high growth rates and industrial policy investment, this is not the case. During the 1980s, Japan was the poster child for industrial policy, and many feared that failing to embrace industrial policy would relegate the US to second-class status. But these doomsday predictions proved themselves wrong. Instead of eclipsing America, Japan entered a long economic slump.
Rather than propelling economic growth in East Asia, industrial policy was costly and resulted in several failures. In Japan, for example, industries that were abetted by industrial policy failed to become globally competitive. Coal mining received tremendous support from the 1950s to the 1960s, yet it declined from the 1950s to the 1970s. Output fell from fifty-four million metric tons in 1954 to nineteen million metric tons in 1978.
Landmark studies of industrial policy in Japan show that distributing resources was largely a political activity that benefited connected firms and fostered an atmosphere of corruption. Moreover, new research continues to cast doubt on the efficacy of industrial policy in Japan. According to a study by the National Foundation for American Policy, industrial policies had no effect on the productivity of Japan’s most dynamic industries between 1955 and 1990.
The findings reveal that a disproportionate amount of government efforts went to slow-growth and declining industries. Richard Beason, in his review, exposes the defects of industrial policy by pointing out the success of industries that received limited support:
The industries that we associate with Japan during the high growth period, electrical machinery (most of the “tech” sector), general machinery (most capital goods industries) and the transportation equipment sector (which includes autos) were generally toward the bottom in terms of government support between 1955 and 1990. . . . government policy acted as an impediment to the more rapidly growing sectors because such sectors had higher rates of effective taxation than slow growers.
Furthermore, other research on the topic has shown that industrial policy did not alter the sectoral structure of industry or rates of productivity change in East Asian countries. Even without industrial policies, East Asian countries would still experience growth. Like Japan, South Korea is championed as a successful product of industrial policy, but growth rates indicate that the latter experienced more success in decades when government policies were sector neutral.
Arvind Panagariya, in an economic development bulletin, posits that the downsides of industrial policy are usually ignored by proponents:
When critics claim success for industrial targeting, they entirely eschew the discussion of the crucial decade of 1963–1973. Instead, they focus on the following decade, in which Korea did engage in a heavy and chemical industry (HCI) drive. But the growth rate during 1974–1982 actually fell to 6.9 percent. Moreover, toward the end of this period, the economy faced serious macroeconomic instability, culminating in the abandonment of the HCI drive and the restoration of a neutral policy regime. That in turn returned the country to 8.7 percent during 1983–1995.
Although a 2021 paper argues that the labor productivity of targeted industries and regions increased faster than nontargeted ones, over time these gains eroded due to a misallocation of resources. Without an industrial policy, the productivity of targeted industries would have been forty percent higher in 1980. It turns out that creating a favorable business environment is the best industrial policy. If the South Korean government was unsuccessful in removing barriers to exports, South Korea would not have established a thriving beauty industry.
For Taiwan, observers note that in the absence of private capital, public funding initiated commerce. By the 1980s, however, it became evident to policy makers that the benefits of industrial policies came at a considerable cost to the economy. Reviews of industrial policies in Taiwan have shown that they led to the emergence of politically connected interest groups that often resisted innovation and new management techniques.
Yet, despite the data on the deficiencies of industrial policy, many lobby for intervention. In fact, scholars attribute the East Asian miracle to high levels of human capital and market reforms. Industrial policies obviously coincided with the success of East Asian countries, but they were never the cause of prosperity.
[Originally published in the Housing Finance International Journal.]
The 21st century, only 23 years old, has already had two giant, international housing bubbles. It makes one doubt that we are getting any smarter with experience.
Among the countries involved in the second bubble, both the U.S. and Canada fully participated in the newest rampant inflation of house prices. Prices this time reached levels far above those of the last boom peak. In the U.S., the S&P/Case-Shiller National House Price Index by mid-2022 had risen to 67% over its 2006 bubble peak (130% over its 2012 trough). In Canada, the Teranet-National Bank House Price Index had soared to 143% over its 2008 peak (168% over its 2009 trough). What the Federal Reserve and the Bank of Canada both wrought with their hyper-low interest rate policies, were house prices which would be unaffordable as soon as mortgage interest rates returned to more normal levels. For a number of years, one could ask: When would that ever happen? Now we know: in 2022.
Now, in late 2022, with mortgage interest rates higher, housing bubbles are deflating, and house prices are dropping on a nationwide basis in both the U.S. and Canada. Here we go again into another house price fizzle following another house price boom.
How is it that we could find ourselves caught up in the problems of another housing bubble so soon? It is only ten years since 2012, the year house prices stopped falling in the U.S., and formed the trough of the painful bust which had followed the preceding bubble of 1999- 2006. Up to the point when house prices started falling across the U.S. last time, expert voices pronounced that U.S. house prices could fall on a regional basis, as they had numerous times, but that it was not possible for house prices to fall on a national basis in an economy so large and diversified. That theory could not have been more mistaken, and national average house prices fell 27%. In 2022, the theory is again being shown to be wrong, but how big the fall will be this time is not known or knowable.
We can take as a key ironic lesson that when large numbers of people believe house prices cannot fall, especially when they are emboldened by central bank behavior, it makes it more probable, and finally makes it certain, that the prices will ultimately fall. When they do, what had been built into everybody’s financial models as “HPA,” or “House Price Appreciation,” becomes instead “HPD”— “House Price Depreciation.” It would be better all along to refer to it as “HPC,” or “House Price Change,” thus reminding ourselves that prices of any asset can go both up and down, perhaps by a lot.
Ten years, it seems, is long enough to dim the memories that prices can move dramatically in both directions, even on a nationwide basis. A bubble market when extended for years makes a great many people happy, since they are making money and seem to be growing richer, and the higher their leverage, the faster they seem to be growing richer. As the great financial observer Walter Bagehot wrote 150 years ago, “the times of too high price” mean “almost everything will be believed for a little while.”
Then the reversal comes and different beliefs come to prevail. In just four months, from June to October 2022, U.S. median house prices dropped a remarkable 8.4%, with prices declining from their peak in all 60 of the largest metropolitan areas in the country. In October, sales of existing houses declined for the ninth month in a row, and were down 28% from a year earlier. Applications for a mortgage to buy a house were down 42% from the year before. Mortgage banks reported they were on average losing money on mortgage originations and many were laying off staff. The share price of 2021’s largest mortgage bank, Rocket Companies, was down 70% from its 2021 high. The CEO of the National Association of Home Builders stated, “We’re heading into a housing recession.”
In Canada, average house prices fell 7.7% from May to October, the largest five-month drop in the history of the Teranet index, which goes back to 1997. In Toronto, the country’s financial capital and a former star of rapid house price inflation, the May to October house price drop was a vertiginous 11.9%. Successive headlines in monthly Teranet-National Bank House Price Index announcements read: “Record price drop in August”; “Another record monthly decline in September”; “Another monthly decline in October.”
In spite of these rapid percentage rates of decline, house prices in both countries are still at very high levels. How much further can they fall from here? For the U.S., the Federal Reserve carefully stated in its latest Financial Stability Report, “With valuations at high levels, house prices could be particularly sensitive to shocks.” Coming to specifics, the AEI Housing Center predicts a 10%-15% nationalaverage fall in house prices during 2023. That would wipe out a lot of housing wealth that the bubble made people think they had, a reduction of perhaps $4 or $5 trillion of perceived wealth on top of the $3 trillion lost so far this year. It would put many houses bought near the top of the market, especially under government low- down payment programs, into no or negative owner’s equity.
For Canada, the Wall Street Journal suggested that its housing market is “particularly sensitive to monetary tightening,” and reported that Oxford Analytics “estimates that home prices in Canada could fall 30%.”
Recall that a price has no substantive reality: it is an intersection of human expectations, actions, hopes and fears. I like to ask audiences, “How much can the price of an asset change?” My proposed answer: “More than you think.”
Of course, nobody, including the Federal Reserve and the Bank of Canada, knows just where house prices will go, but we can all guess. Noted economist Gary Shilling wrote in November, “Price declines are just starting,” and “recent weakness probably has far to go.” This seems to me likely.
In any case, the second great housing bubble of this still young century is over and a new phase has begun.
Yuval Noah Harari, professor of history at Hebrew University in Jerusalem, is not only a best-selling author but also a top advisor to Klaus Schwab, founder and front man of the World Economic Forum (WEF).
In 2018, Harari wrote: “Unfortunately, ‘free will’ isn’t a scientific reality. It is a myth inherited from Christian theology.”
And, in a 2019 interview, Harari said:
Humans today are a hackable animal—an animal that can be hacked. . . . Hacking a person means understanding and seeing through them better than they can themselves. . . . The consequences are obvious: Anyone who knows people’s inner feelings can anticipate their actions. And, of course, manipulate their desires. Ultimately, these institutions (companies and states are meant here, TP) will make more and more decisions on our behalf because they understand our inner processes absolutely perfectly.
In a 2019 TV interview, Harari said:
Humans are now hackable animals. You know, the whole idea that humans have this soul or spirit and they have free will. So, whatever I choose, whether in the election or whether in the supermarket, this is my free will. That’s over—free will.
This article will challenge Harari’s statements that man has no free will, free will is “over,” and that free will can be “hacked.”
I believe this is necessary because Harari wants to discount rational autonomy, Immanuel Kant’s (1724–1804) important Enlightenment ideal. Moreover, it is important to address that the conceptualization of man that Harari promotes is epistemologically flawed and misanthropic.
Above all, I want to highlight the danger such a pseudoscientific image of man represents; it tempts proponents to degrade man to a creature that can be controlled and steered according to political goals thus encouraging tyrannical fantasies of power. Ideas such as the Great Reset, the New World Order, and transhumanism ultimately stem from such an image of human nature in the social and economic sciences.
Let us dive in.
Harari’s conjecture is based on scientism. Scientism is the basic attitude of applying the scientific method to social and economic science (the science of acting human beings). Scientism applies mechanical analogies to study the individual, and it applies organic analogies to notional collectives such as the state or the society. In doing so, scientism denies the existence of individual human consciousness and free will. The scientific method describes the procedure in science used to obtain knowledge. In the natural sciences, one usually forms hypotheses and examines their validity on the basis of data (observations obtained from laboratory experiments).
Knowledge is found in experience, and experience also serves to assess the veracity of the hypotheses that the natural scientist puts forward. The central assumption is the validity of determinism (that an event or an observation can be causally explained by one or more factors). This in itself is fairly unproblematic. In natural science, all experience we gain from the real world is subject to the action-logical category of causality (a condition of the possibility of objectified experience, Kant would say). And human action is determined insofar as it results from the actor’s personal history (background, talent, experiences, knowledge, etc.). But determinism is usually interpreted materialistically in the sense that observable phenomena are assumed to be determined by material, tangible factors (physical in nature or biological and chemical processes), while mental, explanatory factors are excluded as explanatory variables.
In natural science, the application of materialistic determinism is relatively unproblematic. Here we are dealing with atoms, molecules, and planets (objects of knowledge that do not act, have no goals, and do not choose between alternative courses of action but simply react to a cause because they have no consciousness or free will). But in the realm of human action, the application of materialistic determinism is highly problematic and must be dismissed as wrong because there are no behavioral constants. The field of human action is categorically different from the natural sciences.
Why?
The answer can be found in the phrase, “man acts.” This proposition cannot be denied without logical contradiction and is therefore true for human cognitive faculty; it applies a priori. One cannot say, “man does not act,” without acting and, therefore, contradicting oneself. Whoever denies that man acts already presupposes the validity of the statement. Further truths can be logically derived from acknowledging that man acts. For example, humans have goals. They choose means to achieve their goals. Means are scarce, and acting requires time, etc. If one applies materialistic determinism to human action, as proponents of scientism do, one assumes (consciously or unconsciously) that human action is not unconditional.
The notion that human action is not without presupposition is (as mentioned before) unproblematic in the following case. Human action, will, and volition of the agent are absolutely conditional. They are the results of an individual’s development, becoming in life, and previous history. Seen from this perspective, human action is not completely free, but that is a far cry from the notion that there is no free will.
Suppose one wants to deny the acting person free will. In that case, one must assume that there are factors (biological, physical, and chemical) that legitimately determine human action. How else could it be so? But the proof of this has not yet been provided, and it cannot be provided because man is capable of learning. Knowledge and ideas can change over time. The statement, “man is capable of learning,” cannot be denied without contradiction. It is, as noted earlier, valid a priori. Whoever says, “man is not capable of learning,” wants to convey something to the listener that the listener does not yet know but is obviously capable of learning (Otherwise, the speaker would not make this statement.). This is a performative contradiction.
But if one cannot deny man’s ability to learn, one cannot predict future human action today. After all, the knowledge and the ideas of an acting human, which determine their actions, can change over time. The future state of a person’s knowledge and ideas is unknown today; therefore, from today’s perspective, the agent’s future actions cannot be known either. Epistemologically speaking, ideas are the “ultimate given” if one wants to explain the reasons behind the acting person’s actions. The ideas are no longer accessible to any further explanation or letztbegründung (ultimate justification). A certain person acts because they have chosen a certain idea (concept or theory) and made it their own. If one wanted to deny this, one would have to prove that the emergence and the selection of ideas can be conclusively explained by internal and external factors. But due to the agent’s undeniable (a priori) ability to learn, this is also not possible.
“Unfree will,” as implied by material determinism (and as advocated by Harari), is logically contradictory and thus flawed. This can also be illustrated by the following simple consideration. Person X is a determinist, while person Y is a nondeterminist. Y believes in free will, but X is convinced of the opposite. If X believes that man has no free will, then it is absurd to try to convince Y that determinism is true. The determinist who tries to convince the nondeterminist of their position negates their position. The determinist must assume that the nondeterminist, whom they want to convince of their deterministic view, has free will to choose to adopt the position of the determinist.
We come to the following conclusions. Firstly, one cannot deny (without contradiction) that man acts. Secondly, one cannot argue (without contradiction) that human action is predictable or logically explainable by certain factors (qualitative/quantitative). Free will cannot be discounted or negated at the drop of a hat as Harari does. Rather, one cannot meaningfully deny that the agent (within certain limits) can influence the course of events and can cause a different outcome compared to a situation in which they would not act. In this sense, they do have free will through the choice of their actions.
Consequently, man cannot be thought of as a mindless automaton that always responds to an impulse in a specific manner. Their future actions cannot be predicted and controlled. Man is not, and will not be, “hackable” (by AI) in the sense Harari asserts. To deny man free will is highly problematic because it degrades man to a controllable automaton. Thinkers like Harari do this to promote the possibility and acceptability of managing people according to political and ideological considerations. And that opens the door to tyranny. One is advised to hold tightly to the idea of free will, especially, when the peaceful and productive coexistence of people is the goal.
Forty years ago, I was worried. I had had the honor of working with Ludwig von Mises. But, not long after his death, the greatest economist and defender of freedom in the twentieth century was being ignored.
Some years before, I had worked for the great Neil McCaffrey at his Arlington House Publishers. One day, I was called into his office and asked, “How’d you like to be Ludwig von Mises’s editor?”
I was to correct and bring back into print three of the great man’s books—Bureaucracy, Theory and History, and Omnipotent Government—and publish his new monograph on the history of the Austrian School.
When the books were published, Leonard Read held a celebratory reception, and I had a private dinner with Ludwig and Margit von Mises. They represented an old and better world.
I was just twenty-four, but I realized what an immense opportunity Neil was giving me. I thanked my boss and told him I was thrilled.
I was working, years later, for a “think tank” in Atlanta. Mises was mentioned occasionally, but there were far too many neoclassicals for me, though I was the number two person. Each day I had to drive past the CDC to get to work! My dad, a surgeon, despised the bureaucrats.
Finally, one day, I looked around and said to myself, “I can do this!”
So, I got to work on the future Mises Institute on weekends and evenings. First, I incorporated the Institute in Washington, DC, a great place, believe it or not, for such things. Then, I applied for 501(c)(3) tax-exempt status. When I got that, I gave my notice to the think tank.
Next, I wrote Mrs. Mises in New York City and asked her to lunch at her favorite restaurant, the Russian Tea Room. There, I told her of my plans and asked her to serve as our chairman. She agreed, but said, “I know you only want my name.”
“No,” I said. “I also want your guidance.” This great lady provided that for almost ten years.
Next, I asked the great Murray Rothbard—the greatest living Austrian economist—to be our academic vice president. We were walking in New York City to meet Neil and Joan McCaffrey at a jazz performance. Murray was so excited by my news that he clapped his hands and jumped in the air.
Another person essential to our success was Burton S. Blumert. He was a famed libertarian coin dealer in California and a man of such intelligence and integrity that people approached him to settle their disputes, and always accepted his advice. On Mrs. Mises’s passing, he became our second chairman. He and Murray also had the greatest senses of humor I have ever encountered.
I wrote everyone on my Rolodex, with good results. Many people loved and admired Mises, and wanted to see his name and ideas carried on into the future.
There was only one sour note. It involved a friend who was executive director of a multibillion-dollar libertarian charity.
When he got my fundraising letter, he phoned and said, “Do you realize how much money we’ve spent to make Hayek the main figure in Austrian economics, and not Mises? Nobody liked Mises,” he said.
“That’s baloney,” I responded, “as even my initial fundraising results show.”
“We’ll oppose everything you do,” he said, and hung up the phone. Some people are scared by such an attack. It only made me work harder.
Of course, Hayek became a member of our board. I didn’t give my friend our greatest news. Dr. Ron Paul, whom I had had the honor of serving as chief of staff for, did something unheard of in fundraising: he signed a letter to his own list, with the money going to the Mises Institute. No question about it. Dr. Paul’s endorsement was essential to our success. He serves on our board today.
As I look back over the past forty years, I have to thank our great donors. Without them, we wouldn’t exist, let alone be an independent organization of worldwide significance.
We would not have been able to do so many things that would make Mises and Rothbard proud, most recently our master’s in Austrian economics. Thanks to our donors, it’s far less expensive than the typical MA.
The Mises Institute is expanding and flourishing as never before. Its scholarly journals, high-level publications in the theory and applications of Austrian economics, serve to expand and develop the truths of Austrian economics. But it also nurtures and encourages new, young Austrians to read and to write for the journal, and finds mature Austrians heretofore isolated and scattered in often lonely academic outposts, stimulating them to write and submit articles. These men and women now know that they are not isolated, that they are part of a large and growing nationwide and even international movement.
In these days of communism on campuses, not all smart students want to go to college, and their parents and grandparents agree. For these students, we’re offering a six-month paid Mises Apprenticeship. We’ll teach these students how to write better, how to start a business, how to give a speech, and other valuable skills.
The Institute’s comprehensive program in Austrian education also includes publishing and distributing books, working papers, and monographs; holding conferences on a variety of important economic topics; and later publishing the conference papers in book form.
Last, but emphatically not least, the Institute sponsors a phenomenally successful weeklong summer conference in the Austrian School, Mises University. This program, which features a remarkable faculty, has attracted the best young minds from the world over.
Since 1995, our robust website has reached students, professors, and businesspeople across the world, through thousands of archived talks and interviews, livestreamed events, weekly podcasts, daily articles, homeschool resources, and free publications for download. Forbes magazine reported that the Mises Institute provides more “presence per dollar” around the world than any other free-market nonprofit organization.
Of course, our faculty and staff are also essential. Thanks to them, we’ve been able to educate thousands and thousands of students, enable others to finish their PhDs, build one of the greatest libraries of its kind, and do much more of lasting significance. We also publish important new books and our magazine, The Austrian. In addition, we hold an annual research conference for professors and advanced students.
We want to keep going. In these leftist and even commie days, our ideas need even more support. Please help.
With your generous tax-deductible donation, you can help build the foundations of liberty for the future. You can help us make sure that we reach all the good students and young professors who are dedicating their lives to freedom, private property, and free markets.
With your help, we are determined to fight and win the intellectual battle. Government cannot defeat ideas, and our ideas are both right and necessary.
Warmest regards,
Llewellyn H. Rockwell, Jr.
Chairman and Founder
PS: We can’t do anything without you. Please contribute as much as you can. The Marxists are on the march, and we must stop them. We have the ideas, but we need to put them into practice. Now more than ever.
[This piece is an excerpt from Chapter 13 of The Great Reset and the Struggle for Liberty: Unraveling the Global Agenda, to be released January 10, 2023.]
This chapter derisively refers to the notorious Great Leap Forward (1958–1961) as the Great Leap Backward. But China’s Great Leap Forward is not the ultimate object of my scorn. That scorn is reserved for the contemporary project conducted by people, who, if they knew anything about history, or cared about its results, would never propose this treacherous and potentially world-devastating campaign called the Great Reset—unless their intentions are evil and not merely misguided.
Meanwhile, I’m not the first to think of this appellation in connection with Mao’s Great Leap. That distinction may be held by a Soviet critic of Mao’s quixotic strategies. In an article entitled “The Great Leap Backward,” one A. Khan’kovskiy treated the Great Leap Forward as a major deviation from the “successful” Soviet socialist system that had followed “the Great October Socialist Rev0lution.”1
According to the Soviet writer, Khan’kovskiy, the Soviets had undertaken their glorious revolution under unfavorable conditions. They had established a socialist state against “the united front of the imperialist powers.”2 (Meanwhile, the Soviets were launched and kept afloat by Western—especially U.S.—financing and technology.3) In spite of these difficulties, the Soviets had set the standard and vouchsafed to the Chinese a blueprint and model that it might follow. In the case of China, “[t]he gigantic might of the Soviet state was on its side.” The Chinese benefitted from Soviet support as the Soviets treated the Chinese like a doting parent would its child. They had sent manpower, intelligence, material supplies, and money:
Our country gave China economic and political aid: For many years an entire army of Soviet specialists—over 10,000 people—worked in China. They helped build factories, automotive vehicle, tractor and machine building plants, electric power stations, radio stations, mines, bridges (the famous bridge across the Yangtse) River, highways . . .4
Even American politicians had acknowledged the Soviet Union’s largesse. According to Khan’kovskiy, a joint commission of the U.S. Congress wrote in a two-volume treatise on the Chinese economy: “‘history is unaware of a similar example in which a country [the Soviet Union] would offer on a plate an entire industrial system.’”5
With Soviet assistance and funding, the Chinese began to trudge the road of happy destiny. In the first several years since the establishment of the Chinese People’s Republic, Chinese economic output had increased by several factors. From 1949 to 1957, as noted by the U.S. congressional commission, the index of industrial production of the Chinese People’s Republic rose by over 400 percent. China was on track to become another “successful” socialist state. For China, “[a]ll possibilities existed for a progress toward communism, following the true and tried way laid by the Great October Revolution.”6
Mao’s Early CareerIn addition to the Soviet Union’s aid to Communist China, Mao benefitted personally and politically from Western and Eastern European assistance. Mao had been supported in his early communist career by Yale University vis-à-vis Yale-in-China.7 As Jonathan Spence, a professor of Chinese history put it:
In 1919, Mao, aged 26, was in Changsa, having his middle school education. He visited Peking and while there received his . . . serious introduction to communist theory in Li Ta-chao’s Marxist Study Group. Now, if he was to develop a reputation in socialist circles, he had to find a forum to propagate his views . . . At this crucial point the student union of Yale-in-China invited Mao to take over the editorship of their journal.8
The Yale Daily News noted that Mao accepted the offer. With Mao at the helm, the paper would now be refocused to include social criticism of contemporary issues and work toward “thought reorientation.”9
After studying Marxist theory in Peking, Mao moved to Shanghai, where he met Ch’en Tu-hsiu, who later became the Communist Party leader. Ch’en instructed Mao to form an area branch of the party in Peking, but Mao found that he lacked the funds. Yale-in-China intervened again. Spence noted that “Yale-in-China agreed to rent him three rooms, which Mao named his ‘culture bookshop.’” Business boomed as Mao rang up “high sales” with such titles in Chinese as “An Introduction to Marx’s Capital,” “A Study of the New Russia,” and “The Soviet System in China.” Mao established branches of his bookstore and from the profits was able to establish several socialist youth corps and fund the Communist Party. Due to his success, Mao was chosen as one of the delegates to the First Congress of the Chinese Communist Party at Shanghai in 1921. “From there it was only a small step to becoming one of the founders of the Communist movement in his country.”10 . . .
Mao’s Leap into MadnessKhan’kovskiy suggested that Mao’s voluntarism11 soon got the better of him. The 8th Congress of the Chinese Communist Party was held in 1956. The Congress approved the proposals for the second Five-Year Plan for 1958–1962. “There was no question of any adventuristic ‘leaps’ or of ‘communes.’”12 But the Maoists dismissed this original plan as Mao decided to accelerate development radically. “The Maoists simply threw it overboard, replacing a more or less efficient program with high sounding phrases of ‘great leaps’ and ‘red banners.’”13
A second session of the 8th Congress of the Chinese Communist Party was convened in May 1958. At this convention, Mao introduced his new revolutionary scheme. “The shrieking slogan which all of Mao’s stooges soon began learning by rote was: ‘By tensing all our forces, by striving forward, let us build socialism on the principle of more, faster, better and more economically!’”14 Mao aimed “to have China reach the production levels reached by the capitalist countries in the course of 100 to 200 years, in 10–20 or even less years.”15
The Great Leap Forward was an attempt to increase crop yields dramatically and to industrialize the countryside—to make local communities self-sustaining while increasing agricultural and industrial yields for the state. To accomplish these feats, the peasants were reorganized into massive communes of thousands and even tens of thousands, where all resources were communally shared, including food. Private ownership of land and free trade were abolished, along with the right to leave the collective.16 To avail women for farming, communal dining halls were established. With women working the communal farms, many men were likewise made available for small-scale “industrial” production. Communes were instructed to produce steel in homemade, backyard furnaces. A massive campaign to collect metal tools to transform everything into steel was conducted. Khan’kovskiy mockingly described this effort:
The Maoists intended to catch up with Britain by creating thousands and thousands of dwarf blast furnaces. It has been described already how everywhere, in cities and villages, on squares, streets and deserts, everywhere ore was to be smelted.17
On the agricultural front, to justify the overseeding of land, “Mao had proclaimed his belief that ‘in company grain grows fast; seeds are happiest when growing together’—attempting to impose class solidarity on nature.”18 Seeds were sown at five to ten times the normal density, with the predictable result that many young plants were choked off and died. The Chinese adopted farming methods from the Soviet “agrobiologist,” Trofim Lysenko, a neo-Lamarckian who rejected Mendelian genetics and instead held to the Lamarckian inheritance of acquired characteristics. The results were disastrous:
Wheat and maize never grow well together in the same fields, and the replacement of the traditional barley crop with wheat in the high, cold fields of Tibet was simply catastrophic. Other mistakes were made in the nationwide campaign. The extermination of the sparrows that ate the grain resulted in a massive increase in the number of parasites. A large amount of hydraulic equipment that had been hurriedly and carelessly built was found to be useless or even dangerous because of the increased erosion and the risk of flooding at the first high tide. Moreover, the cost of its construction in terms of human life had been enormous: more than 10,000 out of 60,000 workers had died on one site in Henan.19
The peasants exhausted themselves in everything but agriculture, having been drafted into engineering projects and small-scale steel production, the products of which were virtually worthless. As Khan’kovskiy put it, Mao had turned “millions of experienced grain growers into amateur metallurgists.”20 The mismatch of competence and assigned duties represented a devastating loss in productive output.
The Black Book of Communism, reviled by Western Marxists, sardonically described the overall efforts as follows:
In this happy dream that was to bring real Communism within reach, the accumulation of capital and a rapid rise in the standard of living were to go hand in hand. All that had to be done was to achieve the simple objectives set by the Party.21
When the crop yields fell and the death toll rose, the Maoist regime began a campaign of denial, doublespeak, torture, and mass murder. The secretary of the Xinyang district wrote: “The problem is not that food is lacking. There are sufficient quantities of grain, but 90 percent of the inhabitants are suffering from ideological difficulties.”22 Sound familiar?
There is much more to this history. Suffice it to say that the Great Leap Forward precipitated the worst famine in recorded history. Deaths attributable to the famine of 1958–1961 numbered between 20 and 43 million, including those children who were murdered, boiled, and turned into fertilizer.23
The Ultimate Great Leap BackwardBefore I point to the primary similarity between China’s Great Leap Forward and the Great Reset, some notable differences should be conceded. But even these differences do not weigh in favor of the Great Reset. Whereas the Great Leap Forward was a misguided attempt to increase crop yields dramatically and industrialize the countryside, the Great Reset aims deliberately at deindustrialization and will affect a reduction in agricultural output. The Great Leap Forward established the People’s Commune and enforced collective “ownership” of land and other resources. Great Reset–initiated policies will lead to the consolidation of farmland in the hands of fewer owners, those with sufficient capital to undertake agriculture under stifling regulations and policies to meet Agenda 2030’s sustainable development goals (SDGs).
Whereas during the early phase of the Great Leap Forward, eating meat was celebrated as a revolutionary act,24 under the Great Reset, eating meat is deemed reactionary and unsustainable while eating insects and synthetic meats is promoted and celebrated as environmentally conscious.25 The putative object of the Great Leap Forward was to increase gross domestic product to equal or surpass that of developed nations, particularly Great Britain, and to raise the standard of living of the peasants and the population at large. The Great Reset, on the other hand, represents deliberate de-growth and reduced standards of living of the lower and middle classes in the developed world and the squelching of growth in the developing world. While the Great Leap Forward was implemented to hasten the arrival of full communism, the Great Reset establishes corporate socialism, economic fascism, and neo-feudalism. (See Part I). Despite the technological innovations of the Fourth Industrial Revolution (discussed in Part IV), the Great Reset is a de-civilizational project.
Yet, the Great Leap Forward and the Great Reset share one essential feature: the arbitrary imposition of a collectivist unscientific ideology on all human activity and nature. During the Great Leap Forward, Lysenkoism was adopted from the Soviet Union for ideological reasons, despite its disastrous effects there. During the Great Reset, climate catastrophism has been adopted on equally ideological, unscientific grounds. “The science” we are told to follow is a sham. Against the facts of science and the benefits of technology, we are told that CO2 is pollution, that “sustainability” requires imposing an enormous tax on humanity for the respiration of plants, and that farming methods of the original Green Revolution, which have increased yields by many factors, must be eliminated and replaced with a new environmentalist Green Revolution. We are told that industrial production must be carried on using non-fossil-fuel inputs. These demands are as delusional as anything advocated by Chairman Mao.
Carbon neutrality by 2050 is an insanely impossible demand. Our industrial civilization and the population it supports depend on the advances made in fossil fuel extraction and use. Even Vaclav Smil, a believer in climate change, who is an otherwise credible source, agrees:
For those who ignore the energetic and material imperatives of our world, those who prefer mantras of green solutions to understanding how we have come to this point, the prescription is easy: just decarbonize—switch from burning fossil carbon to converting inexhaustible flows of renewable energies. The real wrench in the works: we are a fossil-fueled civilization whose technical and scientific advances, quality of life, and prosperity rest on the combustion of huge quantities of fossil carbon, and we cannot simply walk away from this critical determinant of our fortunes in a few decades, never mind years.
Complete decarbonization of the global economy by 2050 is now conceivable only at the cost of unthinkable global economic retreat, or as a result of extraordinarily rapid transformations relying on near-miraculous technical advances.26
In short, we risk returning to the pre-industrial era of drudgery and intermittent starvation if the planners of the Great Reset have their way. They must not have their way.
[This piece is an excerpt from chapter 13 of The Great Reset and the Struggle for Liberty: Unraveling the Global Agenda, to be released January 10, 2023.]
-
- A. Khan’kovskiy, “The Great Leap Backward,” Literaturnaya Gazeta, no. 36 (September 6, 1967): 14–15. Pages in the retrieved document do not maintain the original pagination. I will refer to the page numbers of the retrieved document.
-
- Ibid,, p. 1.
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- Antony C. Sutton, Wall Street and the Bolshevik Revolution, Forest Row: Clairview, 2016; Antony C. Sutton, National Suicide: Military Aid to the Soviet Union, Dauphin Publications Inc., 2021.
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- Khan’kovskiy, “The Great Leap Backward,” p. 1.
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- Ibid., p. 2.
-
- Ibid.
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- “Yale Group Spurs Mao’s Emergence,” Yale Daily News, February 29, 1972, p. 1.
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- Spence qtd. in ibid.
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- Spence qtd. in ibid.
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- Ibid., Spence qtd. in ibid.
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- In Marxist thought, voluntarism refers to an overemphasis on the subjective conditions (will, consciousness) for revolution. It deviates from the orthodox Marxist position, which emphasizes “objective conditions,” which are deemed to be determinative.
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- A. Khan’kovskiy, “The Great Leap Backward,” p. 2.
-
- Ibid.
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- Ibid., p. 3.
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- Ibid.
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- That is, the property rights of the peasantry were completely abrogated, the first instance of which is ownership of oneself.
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- A. Khan’kovskiy, “The Great Leap Backward,” p. 4.
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- Stéphane Courtois and Mark Kramer. The Black Book of Communism: Crimes, Terror, Repression. Cambridge, MA: Harvard University Press, 2004, p. 489.
-
- Ibid.
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- A. Khan’kovskiy, “The Great Leap Backward,” p. 4.
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- Stéphane Courtois and Mark Kramer, The Black Book of Communism, p. 488.
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- Qtd. in ibid., p. 492.
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- Ibid., pp. 492–493.
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- Ibid, p. 488.
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- See for example, Amrou Awaysheh and Christine J. Picard, PhD., “5 Reasons Why Eating Insects Can Reduce Climate Change,” World Economic Forum, February 9, 2022, https://www.weforum.org/agenda/2022/02/how-insects-positively-impact-climate-change/; Kate Whiting, “How Soon Will We Be Eating Lab-Grown Meat?” World Economic Forum, October 16, 2020, https://www.weforum.org/agenda/2020/10/will-we-eat-lab-grown-meat-world-food-day/.
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- Vaclav Smil, How the World Really Works: The Science Behind How We Got Here and Where We're Going, Viking, 2022, https://www.amazon.com/How-World-Really-Works-Science/dp/0593297067, pp. 5–6.
As we enter the holiday season stock owners have been the big losers of 2022, but jobs are still plentiful and nominal wages are rising rapidly. The Wall Street Journal reports “Stiff Demand Drives Gains in Jobs, Wages” (December 4). Faced with a stagnant stock market, nothing bolsters confidence more than the plethora of job openings, seemingly everywhere, and for all types of jobs.
The number of job openings is a statistic worth paying attention to as a gauge of the overall economy, but certainly not the only one. Here we examine it in relation to economic conditions and other statistics. This reveals some good, some bad, and some ugly insights into the economy, but overall, the signs all point to the business cycle and the turn toward economic crisis.
The GoodLet’s start with the overall unemployment rate, which is now below 4 percent, or about the same as the bubble low of the last business cycle in late 2019 and at the apex of the Tech Bubble of the late 1990s but did not drop that low during the Housing Bubble. The prior expansion was very long, and the recession of 2020 was the shortest on record, with most establishment economists considering it a covid phenomenon, rather than a true macroeconomic bust saved only by massive levels of governmental and Fed tampering interventions.
While politicians and Mainstream economists would like to think this sub–4 percent rate is “full employment” or the “natural rate” of unemployment, Austrian economists tend to view this level as the downward turning point in the boom-bust cycle and a harbinger of possible economic crisis.
Forward looking, the total number of job openings in the economy is more than 10 million for a labor force of 165 million. The recent peak of almost 12 million job openings dwarfs the previous historical peak of nearly 7.5 million in 2019. That was a record going all the way back to the beginning of the data series in 2000 and 50 percent higher than the tech- and housing-bubble peaks. These periods can be labelled “almost too good to be true.” For my part, I was on the lookout for another bust/crash/crisis going into 2020.
The BadThe labor force participation rate is of great concern to government economists. It reflects the number of eligible adults working or looking for work and that number is now hovering around 62 percent. During the 1990s it hit an historic peak above 67 percent. The “missing” 5 percent of the current workforce represents about eight million people who could be working and paying taxes! The complex reasons for this decline will be explained in a subsequent article.
To illustrate these matters, we can compare our situation to the Great Depression and World War II. The economy was being strangled during the 1930s by New Deal progressivism in the USA and other forms of fascism and communism globally. The war between the isms, known as World War II, resulted in seventy-five million deaths (3 percent of the world population) and untold dislocations, plus the destruction of most of the world’s fixed capital.
Subsequent generations of Americans have forgotten these woes and have been taught instead one of the top ten worst economic lessons of all time: “World War II got us out of the Great Depression.”
If you send millions of men overseas in uniforms, with hundreds of thousands dying, force homemakers into war production, impose wage and price controls and ration most important consumer goods, and produce zillion$ of otherwise worthless tanks, bombs, and bullets, then government statistics of inflation and unemployment rates will look very good!
People in the other belligerent nations were far worse off, but Professor Higgs has calculated that using traditional scientific methods that the geographically lucky Americans were no better off during World War II than during the Great Depression!
So, with the decline in labor participation, particularly among prime adult males, yes, extreme prosperity and wealth can allow us leisure and idleness—a “good thing,” but as Ludwig von Mises warns us about government policies: “War Prosperity is like prosperity that an earthquake or plague brings.” So, we want to know if the decline of work is the result of real prosperity or trumped-up government policies.
The UglyThis overview of labor statistics is critical for understanding the context of the business cycle. As pundits draw their hard lines in the sand concerning recession—yes, no, and maybe—I see theory sitting in the yes position. A recession is coming.
First and most basic, the reduction in labor force participation seems strongly influenced by policy. For example, policy has been strongly and artificially encouraging idleness because of welfare policies, unemployment insurance, disability benefits, etc. These types of anti-work-dependency policies exploded during the covid lockdowns. Ryan McMaken has pointed out that the decline of marriage among men in lower-wage occupations also has led to the male exodus from the workforce. Thisis an ongoing trend that will not change in the near future.
Policy has also been highly discouraging for workers because of high taxes and regulations. According to Phil Gramm, Robert Ekelund, and John Early, the result was that in the lowest-income 20 percent of American households in 2017, only 36 percent of prime-age adults worked, and on average they only worked half as many hours as those in the top 80 percent. This large decrease in labor force participation thereby undermines the supposed strength indicated by the overall low unemployment rate.
Second and crucially, let’s not forget the Fed and its inflationary policies. Under the cover of covid, the Fed unleased trillions of new credit moneys and the Treasury unleased trillions of new spending giveaways in the critical period of early 2020 when the covid-hysteria lockdown hit an economy that was already collapsing.
As that multitrillion-dollar cauldron of cash started to get spent, price inflation exploded to the highest rates in forty years! The rising Consumer Price Index means that buying gasoline, grocery shopping, and paying bills is much tougher by decreasing the purchasing power of our wages.
Price inflation has significantly exceeded wage rate growth causing “real wages” to decline in 2021–22. Consequently, this is a big part of the explanation of why employers who try to pay higher wages to attract workers are still having difficulties finding dependable employees. Inflation means that rising nominal wages is not the good sign for labor market strength we might have hoped.
When these factors are considered, the outward statistical signs of a strong labor market turn negative. Not surprisingly, three-fourths of Americans think we are already in recession and just about everyone not dependent on selling stocks or real estate, or who works for the Fed, admits fear of recession and this creates real trepidation about our economic future.
Other than government wars, mass unemployment is surely the worst economic situation an economy can face and it’s not a problem right now. It seems that the statistical unwinding of fiscal and monetary stimulus and the drawdown of personal savings can keep the economy afloat for a while. However, don’t be fooled by current statistics either. The record number of job openings has already fallen by more than 10 percent from the peak.
What’s Next?As job openings have noticeably declined, the decline is relatively larger in the jobs that produce tangible things and less so in paper pushing and service-oriented jobs. This would speak to the direction of expected change. In terms of magnitude, however, job openings would have to fall by almost another three million to get back to the precovid peak and another five million to get back to the post-housing-bubble low.
Total layoffs and discharges in the private sector have remained historically very low since the covid reopening, with September recording a record twenty-year low. That number has not yet turned up this Christmas season as expected, but the layoffs that have been announced have been in the typical bubble industries, such as technology, consumer discretionary, and finance, as well as in the covid-hysteria bubble products such as delivery and streaming services.
Within the context of current economic statistics and Fed policy, the economy is headed in the direction of an economic bust. Even with record low unemployment and record high territory for job openings, the labor market is headed for trouble with structural-dependency problems and possibly years of labor stagnation ahead. Combined with the current high rates of price inflation, one likely result is stagflation, the once unthinkable Keynesian outcome of simultaneous high unemployment and high price inflation.
We think of thieves as conducting their work when no one is looking, such as breaking into a house while the owners are away. But the most successful thieves have done their stealing in plain sight, on a grand scale, while the owners were home and often with their tacit approval, though with sleights of hand that few are able to detect. Such a theft occurred when Woodrow Wilson signed the Federal Reserve Act into law on December 23, 1913.
A central bank such as the Fed has a remarkable character. According to establishment boilerplate, its purpose is to stabilize the economy and ensure prosperity and “full employment.” The decision makers at the Fed are of necessity selected for their superhuman brilliance and neutrality of judgment, thus qualifying them to adjust the amount of money available to the banks so that they may in turn serve the interests of a public numbering some 330 million people.
If for some reason certain members of the public don’t reap the benefits of this policy—or worse, end up losing their jobs, their savings, their businesses, and their homes—it’s not because the Fed itself is a bad idea. How could it be? Without the Fed as an emergency lender, bankers threw the economy into panics in the nineteenth and early twentieth centuries.
But there’s another side to the Fed’s character that is somewhat less wholesome than its public image and is best revealed by the way it was founded.
The Bankers’ DreamBefore the Fed’s founding, bankers in general and Wall Street in particular complained about US currency’s lack of “elasticity.” “Elasticity” in this context is one of the great euphemisms of human history. According to lore, this missing feature of “hard” money, such as gold or silver, was responsible for the panics of 1873, 1884, 1893, and 1907. The supply of the coins that were behind the paper banknotes couldn’t be increased when needed. Gold and silver were therefore said to be inelastic. Because of this inelasticity, the legend persisted that banks were having trouble meeting the demand for farm loans at harvest time, as G. Edward Griffin explains in The Creature from Jekyll Island:
To supply those funds, the country banks had to draw down their cash reserves which generally were deposited with the larger city banks. This thinned out the reserves held in the cities, and the whole system became more vulnerable. Actually, that part of the legend is true, but apparently no one is expected to ask questions about the rest of the story.
Several of them come to mind. Why wasn’t there a panic every Autumn instead of just every eleven years or so? Why didn’t all banks—country or city—maintain adequate reserves to cover their depositor demands? And why didn’t they do this in all seasons of the year? Why would merely saying no to some loan applicants cause hundreds of banks to fail?
The Morgan and Rockefeller bankers on Wall Street dreamed of having a central bank that could supply money when needed, as a “lender of last resort.” A central bank would also control the banks’ inflation rate. If bank reserves could be maintained at a central bank and a common reserve ratio established, then no single bank could expand credit more than its rivals, and therefore there would be no bankruptcies caused by currency’s draining from overly inflationary banks. All banks would inflate in harmony, and there would be tranquility and profits for all.
The bankers who traveled a thousand miles to meet on Jekyll Island in November 1910 understood they needed a cartel to bring their dream to life. And they needed the threat of state violence for the cartel to work.
Thus, included in their secret meeting were two politicians serving as the bankers’ advocates in Washington. The bankers planned to establish their cartel over the Christmas holidays, while the American public was distracted, though for political reasons it was delayed until 1913.
The public would be a hard sell. Americans were profoundly suspicious of Wall Street and cartels. They distrusted anything big in business or government. A central bank operating for the benefit of the big banks had no chance of becoming law, unless it was promoted as shackling Wall Street itself. This could be accomplished, it was widely believed, through a government bureaucracy of overseers.
The Pujo CommitteeFrequent speeches by Wisconsin senator Robert LaFollette and Minnesota congressman Charles Lindbergh brought public outrage over the “money trust” to a boil. LaFollette charged that the entire country was under the control of just fifty men; Morgan partner George Baker disputed the allegation, claiming it was no more than eight men. Lindbergh pointed out that bankers had controlled all financial legislation since the Civil War through committee memberships.
Government, acting as the sword of justice, decided to act, with most people oblivious to the fact that the executioner and the accused were one and the same. In response to the accusations, it formed a new subcommittee, which held hearings from May 1912 until January 1913.
The Pujo Committee was headed by Louisiana congressman Arsène Pujo, then roundly considered to be a spokesman for the “oil trust.” The hearings followed the usual pattern, bringing forth immense quantities of statistics and testimonies from bankers themselves. Though the hearings were conducted largely because of the charges brought forth by LaFollette and Lindbergh, neither man was allowed to testify.
Under the direction of Paul Warburg, the principal author of the Jekyll Island plan that in its essentials became the Federal Reserve Act, the banks provided 100 percent financing for something called the National Citizens League, the purpose of which was to create the illusion of grassroots support for Warburg’s brainchild.
University of Chicago economics professor J. Laurence Laughlin was put in charge of the league’s propaganda, ostensibly to bring a measure of objectivity to the discussions. John D. Rockefeller, whose representatives at Jekyll were Senator Nelson Aldrich and bank president Frank Vanderlip, had endowed the university with $50 million.
Woodrow Wilson was an outspoken critic of the money trust in his 1912 presidential campaign, all the while receiving funding from the very trust he was condemning. Wilson said:
I have seen men squeezed by [the money trust]; I have seen men who, as they themselves expressed it, were put “out of business by Wall Street,” because Wall Street found them inconvenient and didn’t want their competition.
Benjamin Strong Runs the ShowWhen the Fed began operations in late 1914, the man in charge of the system was Morgan banker Benjamin Strong Jr., one of the Jekyll Island attendees. Strong served as president of the Federal Reserve Bank of New York from its inception until his death on October 16, 1928. Strong, in the Morgan tradition, was an anglophile who inflated the US money supply from 1925–28 to keep Britain from losing gold to the US. Details of Strong’s reign and the precrash conditions he created can be found in Murray Rothbard’s America’s Great Depression:
The long-run tendency of the free market economy, unhampered by monetary expansion, is a gently falling price level, falling as the productivity and output of goods and services continually increase. The Austrian policy of refraining always from monetary inflation would allow this tendency of the free market its head and thereby remove the disruptions of the business cycle.
The Chicago goal of a constant price level, which can be achieved only by a continual expansion of money and credit, would, as in [Benjamin Strong’s policy of the] 1920s, unwittingly generate the cycle of boom and bust that has proved so destructive for the past two centuries.
While Christians the world over look to the celebration as a way to remember the incarnation of Christ, some dismiss it as a Christianized version of the ancient Rome’s Saturnalia. Whatever one’s view happens to be, I humbly suggest that it ought to be used by Christians and non-Christians alike as a reflection upon a collision of two kingdoms and two forms of rule. One that makes the way for life, and the other for misery, suffering, and death.
If the celebration of Christmas is an acknowledgement of the Almighty’s offering of peace and goodwill to people everywhere, then it behooves all people to remember who it is that offers universal war and ill-will. No other earthly institution has so consistently offered the latter than the state. The advent story itself reminds us in the second chapter of Matthew that it was a state actor, Herod, who aimed to snuff out the Prince of Peace in his infancy. Truly, the state hates anyone who stands to challenge to their claims of omniscience and omnipotence.
In the West, it is safe to say that most Christmas gatherings don’t include an intentional acknowledgement of the birth of Jesus. Nonetheless, these too might serve at least as reminders of the non-necessity of the state. Our networks of family, friends, and co-workers who offer words and actions of generosity, kindness, and hospitality are rightful reminders that our voluntary associations are at the center of good living. These interactions are indeed anarchic, stateless, and free from threats of violence (unless your uncle Harold has one too many).
Whatever a secularized version of a Christmas celebration might look like, the simple acts of exchanging gifts, the sharing of food and drink, and of a sense of kinship may produce – at the very least – a reflection of the goodness of productive activity that allows such enjoyment. This sentiment is abundantly shared on Ayn Rand’s comments on the American celebration of Thanksgiving as a “celebration of successful production.” It is that voluntary act of productive enterprise that offers us the opportunity to take joy in experiencing the bounties of productive activity, even in spite of the state’s efforts to squash it, or at the least to intervene to favor some at the expense of others.
As for me and my house, we’ve taken Christmas celebrations to be an intentional pause to reflect on the various meanings of Christ’s advent. Certainly, we think through the themes of mercy, grace, and love that are lavished upon God’s creatures through the Word made flesh. Yet, as with every account of the words and actions surrounding the life of Christ, there are multiple lessons for people of goodwill to walk away with. It is our traditions and practices that may serve to draw out those lessons.
With this in mind, it is a sad state of affairs to recognize that most Christians fail to recognize the profoundly anti-state sentiments that are put forward in the nativity. Whether it is a failure to recognize the profound contrast between Christ’s kingdom and the kingdoms of men, or whether it is a vague sense of sentimentality that overtakes the minds of believers, I know not. It is my contention that habits of mind can, however, be forged through the habits of action. In acknowledgement of this, we have cultivated several regular practices that acknowledge the anti-state nature of true Christian worship.
In finding ways to practically remember the anti-state meaning surrounding Christ’s birth, our household has taken up the tradition of recounting the facts surrounding the Christmas Truce of 1914. Some years have included viewing the 2005 film, Joyeux Noel. On other occasions, we’ve recalled the exchange of gifts between soldiers on the western front by passing around a precious family memento, a brass gift box from Princess Mary to the soldiers of the British empire. Still another form of remembrance has been to recite a brief passage or two from Stanley Weintraub’s Silent Night as we meditate on common men’s unwillingness to murder one another (at least for a day) in the name of the state.
The point of each of these practices has been to probe our minds and hearts in order to identify our ultimate allegiance. In raising this question, it is my intention to remind my family that it is our duty as worshippers of the King of Kings to defy the tyrants of the earth, just as the wise men of Matthew 2 directly defied an order from Herod when they understood his evil intent. Their actions are certainly an apt illustration of the words of the Christian theologian Francis Schaeffer, “To resist tyranny is to honor God.”
Surely, the past several years have presented ample opportunity for Christians in the west to defy tyrants and their arbitrary edicts. While some have failed to uphold their Christian duty, others have faithfully defied the various forms of Covid-ocracy, raise our voices in condemnation of war-making and the military-industrial complex, or of the rampant cronyism that characterizes so-called modern capitalism, ultimately all of these forms of resistance and protest are an affront to the state, and an as such, are an honor to Christ. May these efforts boldly proceed.
It is because of this mixed record of Christian cowardice and courage that I suggest looking at Christmas afresh. In this season, it isn’t sufficient to think merely of how the individual Christian might look to God’s kindness in Christ to reform oneself or for the non-believer to demonstrate a vague sense of generosity and kindness. May it always include a call to all for courage, being reminded that the lowliest of people’s resistance to the power of the state is a precious offering to the King of Kings and brings a better chance for human flourishing. Further, may it serve as a reminder that the rulers of the state genuinely hate and seek to destroy all that comes from the Prince of Peace.
In this adopting this approach, both Christians and non-believers can take solace in knowing that their own voluntary associations (religious or otherwise), productive work, restful celebrations, and everyday acts of charity serve as foundational institutions that oppose the evil predations of the state. May such practices will grow ever stronger, and may the mere utterance of the phrase, “Merry Christmas” serve to remind the worshippers of the state that their gods and their traditions are truly antithetical to all human life, and as such are completely unnecessary.
During the 1980s, millions of American children pored over the Toys 'R' Us catalog, daydreaming about what toys we hoped to receive in a few weeks on Christmas morning. After all, by the mid twentieth century, Christmas—for countless middle-class households with children— had become more or less synonymous with an enormous number of gifts for children in the form of toys and games. Barbie playsets and a myriad of action figures were routinely advertised during Saturday morning cartoons and in Sunday print ads in the weeks before Christmas. We kids of the 80s were sure to tell our parents what toys we "needed."
We weren't the first generation with such thoughts, of course. As Jean Shepherd (1921-1999) recounts in the beloved film A Christmas Story—set in 1940—Christmas was the time to strategize on how to receive essential toys—such as a new BB gun—from Santa. The annual bacchanalia of gifts at Christmas meant the holiday had become something "upon which the entire kid year revolved."
Moreover, the copious number of gifts for children has been just one aspect of how Christmas in many ways has become a holiday focused on children. From Santa Claus to gingerbread houses to countless children's Christmas movies and picture books, Christmas has become a time for adults to invest enormous amounts of time, money, and energy into amusing and entertaining children as a means of expressing parental affection.
But, of course, as with so many modern rituals and cultural expressions, the extensive focus at Christmas time on children's amusement and gifts is a fairly young practice enabled by the wealth and disposable income made possible by modern economies.
Early Child-Centered Christmas RitualsGiving toys to children is not new. As noted by Nicholas Orme in his book Medieval Children, baby rattles date at least to Aristotle's time, and the philosopher himself praised rattles "as a means of allowing children to expend their energy without doing damage." Orme describes how by the Middle Ages, children had access to a variety of simple toys such as small windmills and spinning tops, which were called by a variety of different names by children with slang such as "prill" and "whirligig." Girls had dolls—called poppets in those days—which required more imaginative types of play.
Adults helped children access these toys, and adults produced these toys. Some adults made toys designed to be sold to others at markets. Some may have even been produced via mass production—employing craftsmen (and craftswomen) producing the toys at home for sale by merchants.
The question remains, however, as to how much emphasis adults of these earlier times put on providing amusements for children, and to what end.
In his influential book Centuries of Childhood (1960), Philippe Ariès contends that a change to how adults viewed childhood amusements in the late Middle Ages and in the early modern period. Ariès described how by the sixteenth century, Western Europeans had begun to leave behind the large communal festivals of earlier centuries at which children had a role, but were certainly not the focus of attention. This led to a shift in how children were integrated into holiday festivals as well. Evidence provided by Ariès includes the painting "The Feast of Saint Nicholas" produced by Dutch artist Jan Steen in the 1660s. In the scene chosen by Steen,
the grown-ups have organized the occasion to entertain the children: it is the feast of St Nicholas, the ancestor of "Santa Claus." Steen catches the moment when the parents are helping the children to find the toys which they have hidden all over the house for them. Some of the children have already found their toys. Some little girls are holding dolls. Others are carrying buckets full of toys. There are some shoes lying about: perhaps it was already customary to hide toys in shoes, those shoes which children of the nineteenth and twentieth centuries, in some countries, put in front of the fire on Christmas Eve? This is no longer a great collective festival, but a quiet family celebration; and consequently this concentration on the family is continued by a concentration of the family around the children. Family feasts became children's feasts. [emphasis added]
steen.jpg It is significant that this image was created by a Dutch painter. Such scenes were more common in the Dutch Republic where a merchant-focused, bourgeois political economy had transformed the Dutch population into one of the world's most prosperous. Ariès suggests this painting reflects the "same modern feeling for childhood and the family" that is today reflected in child-centered holiday rituals. Yet, this focus on delighting in children's play was not universally well received. Many moralists of the seventeenth and eighteenth centuries cautioned repeatedly against "coddling" children. One etiquette guide cautioned against becoming the sort of supposedly tiresome person "who never talk[s] of anything but their wives, their little children, and their nannies." St. Jean-Baptists de La Salle (1651-1719) condemned parents for treating their children "in an idolatrous manner" with the attitude of "what the children want, [the parents] want too."
As Orme shows, parents in every age felt affection toward their children and generally wished for their safety and happiness. This can manifest itself differently in different times and places, however. In some periods, both ordinary parents and elites regarded facilitating children's play as not only good for the child, but as delightful for the parents witnessing it. In other times and places, molders of public opinion have viewed such attitudes as prone to excess resulting in "spoiling the child."
To modern eyes, of course, the "problem" of spoiling children in the sixteenth century will appear as much ado about nothing. Thanks to centuries of slow capital accumulation, the textile trade, merchant shipping, and other forms of economic progress, England, northern France, and the Low Countries had enjoyed just enough prosperity to give their children "buckets full of toys." By modern standards, however, the standard of living in even the wealthiest parts of Europe remained far below what would come in the nineteenth century and afterward. In southern and eastern Europe, of course, the standard of living tended to be even lower.
In this period, child labor was also widespread out of necessity. Families often could not produce a comfortable income on just the labors of the mother and father. Farming and artisan families required help from children, and older children often became servants in other households. So, while small children were enjoying the fruits of economic progress, childhood remained much shorter than it is today thanks to the need for children to produce some form of income in the marketplace.
The Victorians Seek to "Preserve Childlike Innocence." Trends toward focusing on children accelerate in the nineteenth century. In her book on children's literature, Kimberley Reynolds writes that the role of the Victorians in "inventing childhood" has been much exaggerated. Yet, it is also true that during the Victorian period, "the middle and upper classes evolved a more self-conscious and sustained myth of childhood than any that had gone before."
Maaike Lauweart adds:
the 19th century saw a dramatic change in the image of and thinking about the child and childhood. The Pre-Raphaelite painter John Everett Millais has famously immortalized the new-formed ideas about children and the child’s culture in his 1886 Pears soap advertisement. The child depicted in the advertisement is a kind of cherub, a beautiful, innocent, vulnerable dreamer that had to be taken care of, washed, dressed, fed and cured. The Innocent Child was very much situated within the pastoral tradition – with its longing for and wish to preserve childlike innocence. The 19th century has been notably phrased the ‘Age of the Child’ by Swedish pedagogue Ellen Key because of its focus on the child and his/her well being, education and health.
soap_1.jpg It is remarkable that the nineteenth century might be known as the Age of Child because it is in this same period that we often hear of how countless children were forced to work in the factories—i.e., the "satanic mills." This, we are told, was brought about by the second wave of industrialization that had begun in the eighteenth century and become far more intense by Victorian times.
How could anyone call this period a time marked by new concerns for children when so many allegedly were being worked to death in factories?
The answer lies in the fact that the age of child labor was actually moving quickly toward its own demise by the late nineteenth century. This trend was brought about by the factories themselves. As Ralph Raico notes in his work on the industrial revolution, contrary to the Marxian myth of the working classes being impoverished by industrialization, the truth was that ordinary people were actually enjoying higher incomes and more access to goods and services as the second half of the nineteenth century advanced. This meant that child labor was becoming less necessary to secure a subsistence living, and as the economic lot of households improved, children worked less, at least less hazardous jobs. Many Victorians welcomed the trend.
This also meant that the falling cost of producing goods and services also made a wide variety of products more affordable. Markets were responding to Victorian ideals of childhood, and this "helped ensure that children’s goods would expand along with other markets." In turn, the availability of so many books and toys then reinforced Victorian views of childhood, and these ideas spread as "childhood innocence" became feasible for more and more people.
Thus, it is no coincidence that the boom in mass-produced goods made specifically for children, as historian Jennifer Sattaur puts it, "coincided closely with the rise of the middle-classes, industry, and capitalism."
The Modern-Child Centered Christmas ArrivesFor many, this new Victorian, middle-class emphasis on children affected the way they viewed popular holidays as well. The initial impulses reflected in Steen's "The Feast of St. Nicholas" were ultimately made more common, attainable, and opulent by growing economies in the nineteenth century. This was all finally translated into its modern form for American audiences by Clement Moore in his 1823 poem "A Visit from St. Nicholas," also known as "'Twas the Night Before Christmas." In it, "St. Nicholas" appears with "a sleigh full of toys" with which to fill the children's stockings. The poem was enormously popular and promoted a "homey, child-centered version of Christmas" that was embraced by many Americans who were themselves enjoying a rapid rise of living standards.
This trend only continued to accelerate into the twentieth century, and it is this image of Christmas that is the source of so much excitement and enjoyment for children and their parents today. Yet the child-focused abundance and leisure we now associate with Christmas was made possible by industrialization, capital, and the hard work of so many generations that came before us.
In his 1922 book on socialism, Die Gemeinwirtschaft, Ludwig von Mises attributes socialism’s attractiveness to the claim that Marx’s doctrine would be both ethical and scientific. In truth, however, Marxism represents a metaphysical dogma that promises an earthly paradise yet threatens civilization itself.
Thesis of the Inevitability of SocialismMarxism explains that immoral capitalist economies will necessarily be replaced by socialist systems that meet higher moral standards. Socialism promises to do away with the irrational private economic order and install a rational, planned economy. Socialists proclaim that hierarchical capitalist production will give way to a cooperative order without subordination:
Socialism appears as a goal towards which we have to strive because it is moral and because it is reasonable. It is a question of overcoming the resistance that ignorance and the ill will oppose to its coming.
Along with this treacherous combination of ethics and science comes the assertion that socialism is inevitable. Marx declares that communism’s arrival represents the end of history and the reward for all historical strife. Socialists believe that “a dark power, which we cannot escape, is gradually leading mankind to higher forms of social and moral existence. History is a progressive process of purification, at the end of which stands socialism as perfection.”
Karl Marx called his approach the “materialistic conception of history.” His theory asserts that socialism is the inescapable result of natural forces. Marx’s historical materialism entails several meaningful components. First, it refers to a specific methodology of historical-sociological research that aims at determining the overall social structure of historical epochs. Second, as a sociological doctrine, historical materialism includes the thesis that class struggle is the determining historical force. Finally, the Marxist historical perspective is a theory of progress that encompasses the purpose and goal of human life.
By asserting the scientific inescapability of a coming socialist system, the practical effectiveness of historical materialism unfolds. If socialism is the positive outcome of human civilization, all real and imagined critics of socialism are reactionaries. Therefore, the fight against the adversaries of socialism is an ethical fight. Socialism’s critics must be branded reactionaries because they block the path to paradise. In the eyes of Marx and his followers, fighting against socialism is particularly evil because of its superfluous nature. Socialism will win regardless; therefore, any opposition to the final victory would only prolong the deprivation of the working class under capitalism and delay the advent of the socialist paradise.
As Mises explains, few assertions have promoted the spread of socialist ideas more than the belief in the inevitability of socialism. Even socialism’s opponents have fallen under the spell of this doctrine. They often feel paralyzed by the perceived uselessness of resistance. The “educated,” particularly, tend to fear being perceived as old-fashioned when they do not champion the social and political progress socialism claims to represent. Mises observed this in his time, and little has changed since then. Public opinion increasingly labels classic liberals (those favoring private property and individual freedom) as reactionaries and assumes that more socialism means more progress.
Expectation of SalvationAlthough the idea that certain historical developments are inevitable is clearly metaphysical, it fascinates people to this day. Few can escape the spell of chiliasm with its religious promise of salvation. Yet cut from its religious roots, the Marxist promise of peace and prosperity under socialism becomes an incitement to political revolution. With this political turn, Marx reinterprets the Jewish-Christian eschatological expectation of salvation. In tune with eighteenth-century rationalists and nineteenth-century materialists, Marxism secularizes the event of salvation as a global sociopolitical revolution. In Marxism,the philosophical, anthropocentric metaphysics of historical development is essentially the same as the religious one. The strange mixture of ecstatically extravagant imagination and everyday sobriety, as well as the grossly materialistic content of its proclamation of salvation, has it in common with the oldest messianic prophecies.
As long as socialism is viewed as both scientific and metaphysical, its chiliastic claim to salvation will remain immune to rational critique. Therefore, it is pointless to deal with Marxism rationally or scientifically. Socialism’s critics unsuccessfully attempt to fight against socialism’s mystical beliefs: “One cannot teach fanatics,” writes Mises.
Socialism as Failed UtopiaMarxist political propaganda concerns the creeds that socialism is more productive, morally superior, and inevitable. As such, Marxism goes beyond chiliasm and justifies its teachings as a “science.” Marxism is opposed to free trade and private property. The socialists claim that the market economy is individualistic and thereby antisocial; although, nothing could be further from the truth. Marxism falsely claims that capitalism atomizes the social body. As Mises points out, the opposite is true because markets are inherently social phenomena:
It is only the division of labor that creates social ties, it is the ultimate social thing. Those who stand up for national and state economies seek to subvert the universal society. Anyone who seeks to destroy the social division of labor amongst the people through class struggle is antisocial.
Marxism claims to be a social philosophy, yet it opposes insights into the cooperative nature of liberal capitalism. On the contrary, Marxism is antisocial. Mises warns us “the demise of the liberal society based on the free-market division of labor would represent a world catastrophe that cannot even be remotely compared to anything in known history. No nation would be spared from this.” Despite the absurdity of reducing history to class struggle, Marxism has had a tremendous impact on politics that continues to this day.
Mises published Die Gemeinwirtschaft more than a hundred years ago, and the failures of socialism are even more evident today. The Soviet Union’s breakdown has already shown that communism delivers the opposite of what it promises. While early socialists believed that there would be higher productivity in a classless society than in a society based on private property, the Soviet revolutionary leader, Vladimir Lenin, had to admit shortly after the establishment of Soviet Russia that the dictatorship of the proletariat had brought greater suffering than had ever been known in history; and that the task ahead would be the just distribution of misery.
Socialism has failed in its promises. This doctrine has been refuted both in practice and in theory. Had the socialists heeded Mises's arguments, they would have also been spared the consequences of agricultural collectivization. The Holodomor or Great Famine of the early 1930s, with its millions of deaths, was the consequence of this socialist error. They believed they could increase productivity while abolishing property rights and collectivizing agriculture. They were terribly wrong.
Despite the horrendous legacy of socialism, anticapitalist movements show up time and again. Thus, Mises warns, the highly productive division of labor, which has experienced its greatest achievement in capitalism, will always remain endangered. Anticultural tendencies grow within capitalist society itself. One must be aware that every civilization risks succumbing to the spirit of decomposition that descends on societies where socialist movements succeed.
America’s “monthly federal deficit hit a record $249 billion in November—$57 billion more than the same month last year—with federal spending also hitting new heights in consecutive months, while tax revenues dropped,” reports the London Daily Mail.
The deficit is $57billion higher than it was in November of 2021—which is a record-breaking year-on-year change. Federal spending is up $28billion from last year to $501billion in November 2022, according to the Treasury Department. . . .
. . . [R]evenues are down $13billion year-to-year to $252billion. . . .
Spending was, in part, driven by an 18 percent—or $14billion—increase in Medicare spending and a 94 percent increase in education costs. . . .
The Treasury’s interest costs on public debt grew 53 percent or $19billion during November. . . .
For the first two months of fiscal 2023, the Treasury’s interest payments are up $48billion, or 87 percent. . . .
“. . . the deficit would have been almost $400 billion lower had the Biden Administration not decided to enact an inflationary, costly, and regressive student debt cancellation plan in August,” [Maya MacGuineas, president of the Committee for a Responsible Federal Budget,] noted.
Joe Biden’s costly plan to cancel student loan repayment for many students encourages colleges to raise tuition by making it more attractive to take out big loans to cover college tuition. When students are willing to borrow more to go to college, colleges respond by increasing tuition and hiring more unnecessary college bureaucrats. The Daily Caller notes that a report by the Federal Reserve Bank of New York shows that “each additional dollar in government financial aid translate[s] to a tuition hike of about 65 cents.”
Biden issued a plan to forgive $10,000 or $20,000 in student loan debt for many borrowers, at a cost of $500 billion to taxpayers. That plan was been declared illegal by a judge in Texas and also was temporarily blocked by the Eighth Circuit Court of Appeals. But the Biden administration has appealed these rulings to the Supreme Court, which will hear arguments in February about whether the people challenging the plan have legal standing to do so and, if so, whether the plan is legal or not.
Forgiving student loans increases inflation. Jason Furman, chairman of Barack Obama’s Council of Economic Advisers, called Biden’s debt cancellation plan “reckless.” He said, “Pouring roughly a half-trillion dollars of gasoline on the inflationary fire that is already burning is reckless.”
In addition to his $500 billion student loan cancellation plan, Biden also is changing income-driven repayment plans in ways that will also spur colleges to raise tuition and stick taxpayers with the tab. Biden’s changes “will make college much more expensive” for taxpayers and many students, reports Reason magazine.
Between the student loan bailout and the changes to income-driven repayment plans, the overall cost of Biden’s plan could be over a trillion dollars, according to analysts at the University of Pennsylvania.
Monthly budget deficits could rise further as recently passed spending bills go into effect. In early August, Congress passed the CHIPS and Science Act, which is likely to lead to a vast increase in corporate welfare, wasteful spending, and subsidies for uncompetitive businesses. The money is already starting to be awarded to politically favored businesses, as a November 27 article in the New York Times illustrated. Late last month, the Senate also voted along party lines to ratchet up government spending by passing the misnamed Inflation Reduction Act. Although it is described as a $740 billion spending package, it is likely to cost far more than that, judging by its fine print. For example, taxpayers will be on the hook for more bad loans.
As Phil Kerpen notes, the “bill authorizes” the commerce secretary, Jen Granholm, “to make $250,000,000,000 in loan guarantees for ‘energy infrastructure.’ That’s a lot of Solyndras. If any substantial portion of these loans go bad,” the budget deficit could rise further. The bill will also result in drug manufacturers raising the launch price of drugs. That will cost consumers more.
Massive government spending under Biden has caused inflation, according to economists like Bill Clinton’s Treasury secretary, Larry Summers, and Obama advisor Steven Rattner. As Rattner noted in the New York Times, Biden has spent “an unprecedented amount” of taxpayer money, which resulted in “too much money chasing too few goods.”
Money laundering is illegal in the USA, but like so many other federal crimes, it is difficult to identify and define. That is the perfect recipe for government abuse of innocent people.
Original Article: "Money Laundering: Another Noncrime Pursued by Criminal Authorities"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Florida Governor Ron DeSantis has frequently bragged that Florida is in high demand among people looking to relocate. In a new report released this week from the Census Bureau, it seems that he's been correct. According to the Bureau's report:
After decades of rapid population increase, Florida now is the nation’s fastest-growing state for the first time since 1957, according to the U.S. Census Bureau’s Vintage 2022 population estimates released today.
Florida's population increased by 1.9% to 22,244,823 between 2021 and 2022, surpassing Idaho, the previous year’s fastest-growing state.
In raw numbers, that amounts to an increase of about 416,000 people, which is the size of a medium-sized American city. This quickly leads to the question of why so many people are moving to Florida. Much of this narrative—at least among Florida boosters—has centered around the idea that Florida became a place to go to obtain freedom from lockdowns, mask mandates, business closures, and other covid-panic measures imposed by state governments.
Migration Since Covid Lockdowns in 2020Events like migration are always complex events, of course, but when we look at the Census Bureau's new migration data on changes from 2020 to 2022, it sure looks like the data backs up the idea that a great many people are moving from restrictionist covid states to states where daily life is a little less regimented. It is likely that these trends also reflect larger trends in which Americans are moving from high-tax, highly regulated, expensive states to more affordable regions.
To get a better view of the post-covid trend, let's broaden our scope to population trends from 2020 to 2022. (The data reflects a July estimate for each year, so we're talking about changes from July 2020 to July 2022.)
In this case, we find that Florida is in the top three of states with big population changes since 2020. But it's behind both Montana and Idaho. Idaho's population has grown 4.9 percent since 2020, while Montana and Florida have growth of 3.3 percent and 3 percent, respectively. The story coming out of Idaho has been that a very large number of Californians relocated there during Covid lockdowns, and also as a means of escaping California's increasingly interventionist state. Florida, on the other hand, apparently tends to get migrants from the northeastern United States.
The Census data at least supports the thesis that people are indeed leaving both California and New York in large numbers. As far as taxes and covid policies go, Illinois could be lumped in with California and New York as well. Indeed, looking at population change since 2020, California, Illinois, and New York are all in the top five for falling population. Since 2020, New York has lost more than 2 percent of its population while California has lost 1.2 percent of its population. Illinois is the second worst, losing 1.6 percent of its population. (The bottom five is filled out by the low-income states of West Virginia and Louisiana.)
Source: Census Bureau, State Population and Components of Change, 2020-2022.
When we look at raw numbers, we find that Texas tops the list. In fact, both Florida and Texas added more than half-a-million people from 2020 to 2022. Texas added more than 700,000 and Florida added more than 600,000. For context, we could note that the city of Memphis has 630,000 people. Milwaukee has 575,000 people.
Meanwhile, during this period, both New York and California lost more than 400,000 people each. Illinois lost more than 204,000. No other states come even close in terms of total number of people who moved away.
Source: Census Bureau, State Population and Components of Change, 2020-2022.
In fact, eight of the top-ten states for population growth from 2020 to 2022 are arguably so-called "red states," with blue Delaware and purple Arizona filling out the top ten. The bottom ten are either blue states or red states with stagnant economies.
These numbers reflect longer-term trends away from high-tax, expensive, Democrat-controlled states toward the south and West. For example, from 2010 to 2020, eight of the top ten states for population growth were arguably "red states." Utah and Arizona topped the list with 18.4 percent growth and 17.3 percent growth, respectively. Meanwhile, California's growth rate was one-third that of Utah, at a rate of 6.1 percent. New York grew 4.2 percent during the period.
Source: Census Bureau, Historical Population Change Data.
Indeed, the relative growth rates seen here were reflected in the new Congressional apportionment process in which Texas and Florida both gained seats in Congress while New York and California both lost seats.
The "Experts" Say New York Is One of the "Best" StatesInterestingly, these numbers repeatedly contradict what the "expert class" repeatedly tells us about how the "best" states in the Union are places like California, Massachusetts, and New York. For example, in September, Federal Reserve economists Elena Falcettoni and Vegard Nygaard published a new study purporting to provide an objective measure of "living standards across the United States" according to metrics like consumption, education, leisure, and inequality. The researches concluded that eight of the top ten "best" states were New England states, plus New York and New Jersey. North Dakota and South Dakota filled out the list. California and Illinois came in at 16th and 15th, respectively.
Many hundreds of thousands of American state-to-state migrants do not appear to have received this memo. Instead, of the top-ten "best states" in this list, North Dakota, New Jersey, Rhode Island, Massachusetts, and New York all lost population from 2020 to 2022. Meanwhile, the states that gained the most population during this period were all ranked within the bottom half of the "best" states according to Falcettoni and Nygaard.
Apparently, New York isn't quite as attractive to many Americans as Federal Reserve economists think it should be.
R.G. Collingwood, a philosopher, historian, and archaeologist who taught at Oxford in the first half of the twentieth century, was much esteemed by Ludwig von Mises, especially for his essay “Economics as a Philosophical Science” and, more generally, for his work in the philosophy of history. In this week’s column, I’d like to consider a point that Collingwood makes in his “Fascism and Nazism,” published in Philosophy in 1940, that helps us answer a vital question that confronts us today.
The question is this. The case for a complete free market and a noninterventionist foreign policy is an excellent one. Mises showed conclusively that socialism cannot work, and there is no intermediate system between capitalism and socialism that is sustainable in the long run. The failure of an interventionist foreign policy that leads to futile and horribly destructive wars is evident. Why, then, don’t we see these manifestly excellent policies in effect today? The answer may appear obvious. Our government is controlled by powerful elites who favor other policies. But this just pushes back the question: Why have these malign forces been able to take control?
Collingwood argued that the England of his day faced the same question:
Free speech and free inquiry concerning political and scientific questions; free consent in issues arising out of economic activity; free enjoyment of the produce won by a man’s own labour—the opposite of all tyranny and oppression, exploitation and robbery—these were ideals based on the infinite dignity or worth of the human individual. . . . All over the world liberal or democratic principles, having lost their “punch” and having become mere matters of habit, have lost their initiative and have been thrown on the defensive.
Why was so successful a polity now being attacked by the dark forces of Nazism and fascism? (Of course, communism should be added to the list, but Collingwood said that he didn’t know enough about Soviet Russia to comment on it. By 1940, there was more than enough evidence available about Communist tyranny, but he turned a blind eye to it.)
Collingwood’s answer was that the philosophical defenses of a free society offered at the time were bad ones, “bad” not only in the sense that the arguments had flaws but also in that they failed to inspire the defenders of freedom to effective action. There were two such defenses on offer.
The first of these was utilitarianism, and this failed because “liberty is or was an end in itself, an absolute value; and the only values recognized by utilitarianism were derivative values, the values of means.” The other defense appealed to moral intuitions; one could, in this view, directly grasp that liberty is a good. Collingwood dismissed intuitionism, in my view too quickly: it simply rests on unsupported opinions. “Intuitionism gave no grounds for anything at all: its only reason was the ‘woman’s reason,’ ‘It is so because it is so.’” (In these politically correct times, one could not say that, but Collingwood was slightly misquoting Lucetta in Shakespeare’s Two Gentlemen of Verona: “I think him so because I think him so.”)
The fundamental failing of these defenses was not philosophical inadequacy, though; it was rather that they did not inspire people. The free society, as Collingwood conceived it, was the outgrowth of a Christian culture that did inspire people; but a secularizing movement, which Collingwood called “Illluminism,” eroded the basis of a free civilization while at the same time extending and developing the principles of liberty inherent in it. Collingwood did not propose a religious restoration; long before the article was written, he had ceased to be a Christian believer, at least according to conventional understandings of that religion. But defenders of a liberal polity would need to capture the inspirational force that had been lost if the battle against fascism and Nazism was to be successful. Fascism and Nazism were able to use the emotional force that supporters of freedom no longer possessed.
Beliefs or habits long inculcated will survive for a time their logical grounds. All over Europe, during the nineteenth century, the grounds of the habits and beliefs called liberal or democratic were being destroyed by the anti-religious propaganda of Illuminism and its heirs. . . . Alike in Italy, Germany, and in Spain, the vast majority of the population is sympathetic to the liberal-democratic ideals and hostile to the Fascist or Nazi minority that has seized power. . . . And persons belonging to that majority know very well why power has been snatched from their hands. It is because their Fascist or Nazi opponents have somehow contrived to tap a source of energy which is closed to themselves.
To the extent that Collingwood is right in his diagnosis, what can contemporary supporters of freedom do? I believe that if we look to the Ron Paul movement, we can see the needed enthusiasm to which Collingwood drew attention. The movement is founded on a sound Rothbardian view of ethics and on a rigorously developed free-market economics, based principally on the works of Ludwig von Mises and Murray N. Rothbard. The movement includes both religious believers and nonbelievers, but both have proved that they have the necessary enthusiasm to halt and reverse the Leviathan state and its corporate allies.
In the efforts of Ron Paul and his supporters, we see precisely the enthusiasm that Collingwood attributed to religion:
The real ground for the “liberal” . . . devotion to freedom was religious love of a God who set an absolute value on every individual human being. . . . The doctrines concerning human nature on which liberal or democratic practice was based were not empirically derived from research into anthropological and psychological data: they were a matter of faith; and these Christian doctrines were the source from which they were derived.
If those of us devoted to Mises and Rothbard maintain our enthusiasm, we can hope for success in securing freedom against the dark forces that threaten it.
This week's show features a bare-knuckle discussion between Jeff and José Niño of "El Niño Speaks" on the biggest political, economic, and cultural events of 2022—and what they portend for 2023.
You don't want to miss Jeff's unvarnished thoughts on the Left, the Right, the economy, and what is sure to be a turbulent New Year.
Read José's Substack: josbcf.substack.com
Long before there was the infamous German inflation of 1923, the Reichsbank created the scenario of monetary debasement.
Original Article: "The Reichsbank: Germany's Central Bank Lays Foundation of Monetary Disaster"
This Audio Mises Wire is generously sponsored by Christopher Condon.
As the author of Google Archipelago: The Digital Gulag and the Simulation of Freedom, I guess I should not be surprised to find myself squarely in the digital gulag—banished, perhaps permanently, from Twitter and Facebook. Twitter permanently suspended my account several weeks ago, mere days before Elon Musk took over the helm. Although I cannot be sure, I may have been banned because I suggested that the transgender movement is part of a multipronged neo-Malthusian depopulation campaign. (Note that I said nothing to or about any transgender individuals and thus broke no “Twitter rules,” whatever they may be. I may have been mistaken, but surely being “correct” is not a condition for major social media use. Or is it? Of course it is.)
Now Facebook has demanded proof that I am who I say I am, and has completely barred me from my account, which has been, at least temporarily, utterly erased from the site. I submitted a picture of my driver’s license, which Facebook rejected, and then a picture of my passport along with my license. I await Facebook’s response, which I read could take anywhere from forty-eight hours to forty-five days to arrive.
I am considering deleting my account, so I will lose thousands of followers and contact with many people with whom I’ve become friends. That’s how the digital gulag system works. One is sucked into social media networks, and then the social media networks have control over your connections, which they can sever on a whim.
Excuse me if I find the timing of my banishment somewhat curious, since I have just written a new book on the global agenda of the Great Reset, with a foreword by Lew Rockwell, which is due to be released on Amazon in early January.
By now it should go without saying that the elements of Big Digital—the megadata services, the social media platforms, the artificial intelligence (AI) agents, the apps, and the developing internet of things, internet of bodies, digital identity, and central bank digital currencies (CBDCs)—are not only the products of monopolies or would-be monopolies but have also been incorporated by the state as apparatuses of a new corporate-state power.
With the ongoing publication of “the Twitter files” and other revelations, collusion between Big Digital and the state can no longer be credibly denied nor can data sharing and coordination among social media sites and Google. Google and Facebook track online and “offline” behavior (if “offline” can any longer be considered to exist) and essentially know everything imaginable about their users.
It is often suggested that this data is used exclusively for advertising purposes. But user data is also shared with the surveillance state, and this is far more troubling. Visited a verboten website? Imagine how the state might make use of such information.
One suggested solution is to go Galt—to seek a digital Galt’s Gulch and to remove oneself and thus one’s digital footprints, as much as possible, from Big Digital’s ambit. This is easy to say for those who do not rely on social media to promote their wares, but certainly extrication from the totalitarian Googleplex is possible, at least in principle.
In fact, for many true dissidents, it will likely become inevitable. But what will it mean? Will Big Digital make survival outside of its reach impossible? When does the digital gulag become more than virtual? At what point does your life depend on Big Digital? Digital identity and CBDCs will seal many fates; one will either opt into the totalitarian regime or face the consequences of complete exclusion.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop look back at 2022 and touch on some of the worst and underappreciated trends of the year. For those interested in a more holiday-themed episode, check out last year's debate on the virtues of Ebenezer Scrooge (Mises.org/RR_45).
Looking for Christmas gifts? Use promo code ROTHPOD for a 20% discount on select books featured on Radio Rothbard. Or, use code MURRAYCHRISTMAS for a special 10% discount on select new Mises apparel: Mises.org/RR_113_Store
Recommended Reading"Why Are So Many Men Leaving the Workforce?" by Ryan McMaken: Mises.org/RR_113_A
"The Jobs "Boom" Isn't So Hot When We Remember Nearly Six Million Men Are Missing from the Workforce" by Ryan McMaken: Mises.org/RR_113_B
"The Pandemic Is 'Over,' but the Feds Aren't Giving Up Their Emergency Powers" by Ryan McMaken: Mises.org/RR_113_C
"Ebenezer Scrooge: Hero or Villain?" (Radio Rothbard): Mises.org/RR_113_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Six years after the election of Donald Trump, the Republican Party is still adrift. On the one hand, the GOP has embraced an antiestablishment and populist message. On the other hand, Republicans have not quite figured out how to balance populism with classically liberal values like constitutionalism and free markets. Indeed, populism and classical liberalism seem to be in direct conflict.
Questions remain about how Republican populists will regulate (or not regulate) Big Tech, how they will protect blue-collar jobs without limiting economic freedom, and how they will push back against political elites without destroying vital institutions.
Ironically, the politician that populist-minded Republicans should look to for guidance was a Democrat: Grover Cleveland (1837–1908). Elected mayor of Buffalo, New York, in 1880, Cleveland was a political outsider who rode a wave of populist sentiment to the governor’s mansion and then to the White House in 1884. Working through many of the same challenges we face today, Cleveland molded a unique political model: one that was steadfastly populist, but true to classically liberal principles.
Best known today for being the only president to serve two nonconsecutive terms, Cleveland rose to prominence during a time of widespread political corruption. During the so-called Gilded Age of the 1880s, politicians routinely participated in graft, bribery, and collusion. Dim as things were, it also provided an opportunity for a political outsider like Cleveland to win votes by fighting back against the elites and their political machines.
As mayor of Buffalo, he worked hard to fulfill his duties without showing favoritism toward any particular individuals or groups, including his own friends. In a striking display of professional fidelity, Cleveland vetoed a street-cleaning contract that the city alderman had awarded to his close friend and former client, George Talbot. Talbot’s bid was not the lowest and it was clear to everyone that he intended to award kickbacks to the Aldermen—a classic example of Gilded Age corruption. Following his veto, Cleveland wrote to his friend, “While I was your attorney, I was loyal to your interests. Now the people are my clients and I must be loyal to them.”
As Troy Senik writes in his excellent new biography, A Man of Iron: The Turbulent Life and Improbable Presidency of Grover Cleveland, “in an environment as corrupt as Buffalo, being a classical liberal also made him a de facto populist.”
Cleveland’s populist-flavored classical liberalism can be seen most clearly in the two controversies that defined his presidencies: tariff reform and the silver debate. It may be difficult to imagine today, but in the nineteenth century, the tariff was a hot-button issue. Not only were tariffs the biggest source of federal revenue, making up 60 percent of total revenue in 1884, but they were also used as instruments of economic planning and privilege. High tariffs shielded powerful corporations from foreign competition.
Since the federal government enjoyed a large budget surplus in 1884, nobody could point to raising revenue as a justification for high tariffs. For President Cleveland, taxing American consumers more than was necessary was morally abhorrent and violated the government’s constitutional authority. “The right of the government to exact tribute from the citizens,” he said during a campaign speech, “is limited to its actual necessities, and every cent taken from the people beyond that required for their protection by the government is no better than robbery.”
That high tariffs were also used to enrich economic elites only made it worse. As Troy Senik writes in his biography, “in contrast to how the issue would often be framed in future generations, Cleveland came to the conclusion that lowering tariffs was the true populist position.” Though Cleveland was ultimately unsatisfied with it, a compromise bill was eventually passed that lowered tariffs on a few major goods.
More successful was his fight against the inflationists. At the time of Cleveland’s election, a fierce debate was raging about what the US dollar would be based upon. Already on a bimetallic standard, many wanted even more silver to be added to the monetary base in order to inflate the money supply, devaluing the dollar and thus making it easier for the working class (mostly farmers) to repay debts. By the 1890s, inflation had become the cause célèbre of populists like William Jennings Bryan who thought the gold standard was holding back the working class.
But Cleveland didn’t yield the populist angle so easily. He argued, contrary to the claims of the inflationists, devaluation would actually hurt the working poor. He sternly promised that he would protect the laborer and the farmer against any policy that would lead to a “shrinkage in the purchasing power of the dollar for a full dollar’s worth of work.” During his second term, he successfully repealed the Sherman Silver Purchase Act and restored America to the gold standard. Though the inflationist populists roared, to Cleveland there was no contradiction: protecting America’s monetary integrity was the key to helping the working class.
Cleveland would not have called himself a populist and he certainly didn’t fit the stereotype. He never riled up crowds with big, exciting speeches or engaged in demagogic grandstanding. The way he understood his role differed from that of other famous populists who railed against the status quo, but who had no real principles of their own.
Cleveland had rigid principles and did his best to stick to them. He didn’t see himself as a mere mouthpiece for the grievances of specific groups, but as an administrator hired by the people to serve the interests of the entire country. He served as a bulwark for the common man against the elites, but he made sure to stay within his constitutional limits. Indeed, modern Republicans who want to claim the populist label for themselves would do well to follow Cleveland’s example.
Investors should not care whether the Fed pivots or not if they analyze investment opportunities based on fundamentals and not on monetary laughing gas.
Original Article: "Why Investors Are Obsessed with the Fed "Pivot""
This Audio Mises Wire is generously sponsored by Christopher Condon.
In the face of rampant crime, many individuals and businesses turn to private security as an alternative to government protection. One example is the Karco gas station in Philadelphia, which has hired heavily armed guards from Pennsylvania S.I.T.E. Agents to patrol its premises. The guards are equipped with Kevlar vests and either AR-15s or shotguns, and the owner claims that since hiring the guards, the gas station has been free of loitering and other criminal activity.
The failure of state police and the justice system to effectively protect citizens is what has led many people to turn to private security and the use of firearms for self-defense. In some states, restrictive gun control laws and limitations on self-defense like “duty to retreat” laws have only further contributed to this trend. As a result, many individuals and communities have been forced to take matters into their own hands to feel safe and secure.
Hans-Herman Hoppe, in his work The Private Production of Defense, argues that the provision of security is best left to the private sector. He argues that private security firms have a stronger incentive to protect their clients, as their reputation and continued business depends on it. In contrast, state police are not accountable to the individuals they are supposed to protect, and therefore have less incentive to protect them effectively.
Economist Bruce L. Benson also argues in favor of private security, citing empirical evidence that shows private security to be more efficient and effective than state police. Private security firms can tailor their services to the specific needs of their clients, allowing for more effective protection. Additionally, private security firms can be held accountable through the market, with clients able to choose which firm to hire based on their performance.
Benson observes that the private security industry has seen a growth in demand and sophistication in the last few decades. This is due to the increasing use of technology such as closed-circuit television and laser technology, as well as the training of security personnel to take advantage of these technologies. Private residential and business developments are being designed with security in mind
Studies of the consequences of private-sector crime control activities are rare, but several informative ones exist. One such study, conducted in the ’80s, examined the actions and effects of the private security force in Starrett City, a high-crime area of Brooklyn. The study found that the private security force in the area was much more effective at reducing crime than the public security forces. This is likely due to the increased level of training and development of private security personnel, as well as the use of advanced security technologies.
Patel’s decision to hire guards to protect his business is a prime example of the benefits of private security. Not only did it effectively protect his business, but it also allowed him to choose the level of protection he deemed necessary. The failure of state police to adequately protect his business and property left him with no other option than to turn to the private sector. As the US continues to face harsh crime waves and criminal justice corruption, the realization of the public that private security is viable and necessary is a silver lining.
Last week, CNN featured a story called "Men are dropping out of the workforce. Here's why" The article went on to tell us virtually nothing at all about why so many men are leaving the workforce. Although as many as seven million men have stayed out of the workforce for varying reasons, the CNN piece was really about how more women are joining the workforce, and how wonderful it is that more women are working in "male dominated" fields. The fact that more women are joining the workforce, however, tells us nothing about why men are leaving. Indeed, the CNN piece offered only one reason to answer why men are leaving the workforce: they're becoming stay-at-home dads.
That category, however, is fairly small and numbers only in the hundreds of thousands. That leaves us wondering why millions of men have left the workforce for reasons other than raising children. If we look deeper into the available information on the question, the reality appears to be a lot less rosy than CNN's suggested reason of "their wives are so doggone successful, these men decided to stay home and raise the kids."
Source: Census Bureau, Table SHP-1: Parents and Children in Stay-at-Home Parent Family Groups.
Instead, the reasons driving the lion's share of missing men to leave the workforce appear to be illness, drug addiction, a perceived lack of well-paying jobs, government welfare, and the decline of marriage. None of these are reasons to celebrate, and few of these reasons lend themselves to any quick fixes through changes in law or policy.
At Least Six Million Missing Men As I noted earlier this month, there are at least six million men of "prime age" (age 25-54) who are out of the workforce for various reasons. Historically, this number has been getting larger at a rate faster than growth of total men in that age group. That is, fewer than 3 percent of prime-age men were "not in the workforce" in the late 1970s, but 5.6 percent of men in this group were out of the labor force in 2022. That translates into approximately 7.1 million men according to the Census Bureau's count of men "not in labor force."
###### Source: Bureau of Labor Statistics.
We could contrast this with the proportion of women who are not in the labor force. Fewer prime-age women today are out of the labor force than was the case in the late 1970s. Women tend to remain out of the labor force in much larger numbers of men, so we find that in 2022, the total number of women out of the labor force is approximately 15 million. That number is smaller than what was common in the late 1970's, however. As more women have joined the labor force over the past 40 years, more men have left.
Source: Bureau of Labor Statistics.
Again, it is important to emphasize we are talking about prime age men here, and we're excluding older and younger populations in which retirement and schooling remove large numbers of workers from the workforce.
Even including only prime age men, however, Alan B. Kreuger notes that the workforce trend in the US is headed downward faster than other wealthy countries:
Although the labor force participation rate of prime age men has trended down in the United States and other economically advanced countries for many decades, by international standards the labor force participation rate of prime age men in the United States is notably low.
Why Men Leave the Labor ForceDetermining reasons for leaving the labor force is not easy, as the data depends heavily on surveys and on extrapolation. According to the census bureau, however, number less than 250,000 men in recent years are outside the labor force in order to care for children full time. This is only a tiny fraction of the total number of parents who leave the labor force to be stay-at-home parents. That leaves more than six million men who have left the labor force for some other reason.
Wages and Social StatusOne thing is fairly clear: labor force participation is worse for men with less schooling. As Kreuger notes, labor force participation for prime age men has fallen for men at all education levels, "but by substantially more for those with a high school degree or less." Indeed, labor force participation has barely fallen for men with advanced degrees, but has gone into steep decline among high school dropouts and those with no college.
Source: Ariel J. Binder and John Bound, "The Declining Labor Market Prospects of Less-Educated Men," Journal of Economic Perspectives 33, no. 2 (Spring 2019): 170.
Closely connected to this is the relative wage growth among these groups. While inflation-adjusted wages have increased significantly for men with college-level schooling or more, the same is certainly not true for men with "some college" or less. In these latter groups, earnings have stagnated since 1965, having risen throughout the mid 1970s, falling below the 1965 wage by 1995, and then slowly returning to 1960s levels. While this does not represent a sizable fall in wages in real terms since 1965, it is a large drop relative to the wages of men with more schooling.
Source: Ariel J. Binder and John Bound, "The Declining Labor Market Prospects of Less-Educated Men," Journal of Economic Perspectives 33, no. 2 (Spring 2019): 165.
(Women, incidentally, have not seen nearly as large declines in wages based on levels of schooling.)
This growing earnings gap between men at various education levels has been blamed for driving the exit of so many men from the workforce. For example, in a report from the Boston Federal Reserve earlier this month, research Pinghui Wu concludes that relative decline in wages drives more men to leave the workforce than has the overall decline in real wages. Moreover, Wu ties the decline in relative wages to declines in "a worker’s social status." This effect is seen most strongly in non-Hispanic white men and younger men. Wu writes: "non-college-educated men are more likely to leave the labor force when the top earners in a state make disproportionately more than the other workers."
Falling social status has been tied to low job-satisfaction, disability, and higher mortality. All of this tends to lead to lower workforce participation. Moreover, men at lower education and lower wage levels tend to be more prone to workplace injury, given the nature of the work. Indeed, as Ariel Binder and John Bound have shown, men who have exited the labor force say they are frequently in pain, and take pain medication regularly. Men in this group who are over 45 years of age also tend to be more frequently eligible for government disability benefits. Binder and Bound suggest that the expansion of disability benefits in recent decades "could explain up to 25 percent of the rise in nonparticipation among 45–54 year-old high school graduates (without college)."
The Decline of MarriageWu, Binder, and Bound all also point to another important factor in falling male workforce participation: changes in marriage patterns.
Wu notes that men with lower social status fare more poorly in the marriage market, and that "marriage market sorting [a] potential channels through which relative earnings affect men’s labor force exit decisions." This would also help explain why declining social status also appears to especially affect younger men who are more likely to be active in pursuing a spouse.
Binder and Bound meanwhile note declining marriage rates are closely tied to workforce participation overall. This works in both directions: Declining incomes lead to declines in marriage. But unmarried men also have less incentive to actively seek employment. Marriage also may hamper a man's ability to draw income from existing relatives. Binder and Bound write:
As others have documented, family structure in the United States has changed dramatically since the 1960s, featuring a tremendous decline in the share of less educated men forming and maintaining stable marriages. We additionally show an increase in the share of less-educated men living with their parents or other relatives. Providing for a new family plausibly provides a man with incentives to engage in labor market activity: conversely, a reduction in the prospects of forming and maintaining a stable family removes an important labor supply incentive. At the same time, the possibility of drawing income support from existing relatives creates a feasible labor-force exit.
It's not just men with lower levels of schooling who marry less often, however. Marriage has indeed declined more for lower-income men than higher-income men. Declining marriage rates at the middle-class level and below, however, likely drive falling labor participation independent of wages. That is, "changing family structure shifts male labor supply incentives independently of labor market conditions" as unmarried men are simply less motivated to work."
What Is to Blame?The importance of relative wages points to the importance of economic factors in the decline of working men.
Enormous growth in government intervention in the twentieth century has led to a reversal of nineteenth century trends and led instead to capital consumption. It is notable that since the 1970s, savings and investment have declined, and Mihai Macovai notes " the real stock of capital per worker has grown in a clear and sustained manner only until the end-1970s and fell afterwards until the trough of the Great Recession." This has led to declining worker productivity and lower wages for many workers.
In more recent years, covid lockdowns impacted lower-income workers the most, and lockdowns are likely to raise overall mortality among these workers, as well, even years after the lockdowns ended. Unemployment and intermittent employment is tied to higher mortality rates and disability in both the medium and long terms.
Finally, a powerful factor is the central bank's monetary policy which has been linked to a rising gap between higher-income workers and lower-income ones. Easy-money policy has been especially damaging to wealth-building for lower-income groups, as Karen Petrou notes in her book Engine of Inequality:
Ultra-low [interest] rates fundamentally eviscerated the ability of all but the wealthy to gain an economic toehold; instead they lead investors to drive up equity and other asset prices to achieve their return … but average Americans hold little, if any, stock or investment instruments. Instead, they save what they can in bank accounts. The rates on these have been so low for so long that these thrifty, prudent households have in fact set themselves back with each dollar they save. Pension funds are just as hard-hit meaning not only that average Americans can't save for the future, but also that the instruments on which they count for additional security are unlikely to meet their needs.
But not all can be blamed on economic policy. The importance of marriage as a factor in workforce participation illustrates that some aspects of declining workforce participation lie beyond mere economics. Marriage rates for the middle class have continued to fall even in periods when median wages have increased—such as the 1990s. These trends are tied to changes in ideology, religious observance, and a host of social factors. Other factors such as rising drug addiction and obesity affect workforce participation as they are tied to disability and poor health, often at elevated rates among lower-income workers.
In other words, government policy certainly plays a sizable role in declining male workforce participation, but changing American culture cannot be ignored.
John Maynard Keynes derided gold-based money as a "barbarous relic," yet it was gold that enabled a long regime of honest money -- and the advance of civilization.
Original Article: "The "Barbarous Relic" Helped Enable a World More Civilized than Today's"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Attempts by the Chinese government to arrest the spread of Christianity have faltered since Christians are remaining steadfast in their faith. Over one hundred million Chinese are estimated to be Christians, and projections suggest that by 2030, China could have as many as 247 million Christians. However, instead of affirming the rise of Christianity, the Chinese government has ramped up efforts to clamp down on Christian missions.
In China, the Church is treated like another arm of the state that must be monitored to ensure conformity with the doctrines of the Communist Party. The “Administrative measures for religious groups” which was instituted in 2020 compels religious institutions to report activities to the Communist Party and propagate its political message. Officials rightfully perceive Christianity as a source of antiauthoritarianism and if left unchecked the growth of Christianity will pose a serious threat to the legitimacy of the Chinese state.
With its emphasis on individual salvation and equality, Christianity offers a liberal alternative to the rigid strictures of the Communist government. Christian churches have been instrumental in establishing civil society organizations that defend the rights of citizens from government abuse. Politically, Christianity in China has spurred change by acting as an agent of reform even during the turmoil of the Qing dynasty, as G. Tiedemann explains: “To a significant extent it was Protestant missionary involvement that provided the inspiration for the partial transformation of the Manchu Qing Empire into the Chinese state.”
Intellectuals inspired by Christianity introduced notions such as individualism, democracy, and international law to a curious Chinese population. Since Christianity has been a potent source of vitality in China for over a century, tolerating this instrument of subversion is politically untenable for many in the Communist Party. However, clamping down on Christianity could prove to be detrimental in the long term, because as we shall see Christianity has played a pivotal role in China’s socioeconomic development.
China is still benefitting from the seeds that were planted by missionaries in the nineteenth century. Historically, strong governments have presided over China, yet missionaries despite criticisms succeeded in establishing independent institutions that were free from the clutches of state intervention. Catholic and Protestant missionaries were devoted to evangelism, but their mission in China was broader than converting locals to Christianity.
Missionaries also spearheaded a modernization project in China through the avenue of education. Children were exposed to a modern curriculum in missionary schools and educated about the importance of governance and human rights. Moreover, the egalitarian approach of missionaries resulted in mass exposure to schooling thus uplifting women and the poor. Interestingly, the influence of missionaries motivated the Chinese government to fund higher education in the late 1890s, long after Protestants had built the Anglo-Chinese College.
Confirming Christianity’s positive effects on China’s development from 1920–2000, researchers from Peking University identify a positive association between the intensity of Christian activities and socioeconomic outcomes such as human capital formation and openness to foreign direct investment (FDI). As education reformers, Christian missionaries lobbied the Chinese government to offer relevant science courses and retire the archaic Confucian system to modernize education. Because of these efforts, China recorded exponential growth in education and by 1918, over thirteen thousand Christian schools were in operation thereby accounting for one-sixth of total schools in China.
Particularly, nursing education received a major boost due to the pioneering activities of Christian missionaries. By the late 1930s, the nursing profession had a membership of six thousand and trained prospective candidates in schools across the country. Missionary activity in China was holistic and afforded ordinary citizens access to superior nutrition and healthcare. Missionaries had successfully created over three hundred hospitals offering more than twenty thousand beds by 1937, and many of these facilities were in rural areas, where they catered to the poor for free.
By improving the quality of education accessible to locals and investing in social infrastructure, missionaries nurtured an urban middle class in nineteenth-century China. A study by Ying Bai and James Kai-sing Kung of the Hong Kong University of Science and Technology shows a link between missionary activity and urbanization. Using 1840–1920, as the baseline, they argue that by building learning institutions and hospitals, missionaries expanded the stock of useful knowledge necessary for sustaining economic growth. Crucially, they also report that for this period, Protestantism influenced the emergence of sophisticated industrial firms in China.
Furthermore, according to a 2015 study in the China Economic Review, among the various religions, Christianity had the most considerable effect on growth during 2001–11. Fascinatingly, no consistent conclusions could be drawn for other religions. The researchers contend that Christianity enables economic growth by promoting ethical business customs and prioritizing accountability to fellow humans and God.
On the other hand, the authors theorize that the link between Christianity and FDI is positive because historically Christian missionaries helped to narrow the gap between Chinese locals and the outside world, therefore resulting in greater openness to foreign ideas and businesses. Essentially, the relationship missionaries cultivated between locals and foreigners has a persistent effect on China’s ability to attract foreign investments.
Additionally, studies argue that Protestant entrepreneurs are heralding a new moral revolution in China by leveraging Christian principles to operate ethically sound businesses. Indeed, the higher ethical standards imposed on Chinese businesses due to Christianity will help China to attract FDI.
Invariably, Christianity is competing with the Chinese state and delivering for citizens, so obviously, its growing popularity worries government officials. However, based on the data presented, it is evident that Christianity is a liberating force in China, and it would be apt for the Chinese state to step aside and allow Christianity to help citizens thrive.
Lew Rockwell gave this talk, sponsored by the Future of Freedom Foundation and the George Mason University Economics Club, was delivered at George Mason University on September 9, 2009.
Critics of capitalism claim that it is responsible for creating inequality in society. Yet the precapitalist societies enforced inequality in a rigid social structure.
Original Article: "Capitalism Does Not Create Social Inequality"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Doing the same thing repeatedly and expecting different results is colloquially defined as insanity, per a quote attributed to Albert Einstein. Call me insane, but I wince whenever I hear this. As a rule of thumb, it’s fine but it can be slippery. I’m reminded of another quote from the Greek philosopher Heraclitus who is alleged to have said, “A man cannot step into the same river twice, for it is not the same river and he is not the same man.”
Heraclitus, in other words, would say it is not possible to do the same thing over and over. We may think we’re doing the same thing, but on closer inspection we’re not. We never are.
In matters of government there is a fundamental tension between Einstein and Heraclitus. Defenders of government tend to favor Heraclitus — it’s not the coercive approach that’s wrong, it’s the particulars of the approach. Better people and more money will move us forward. Especially more money.
If we look at particulars, we might get confused. A case can be made that the War on Poverty is the mother of all government programs in the extent of its failure, yet it’s been around since 1964. How failed is it? Economist Walter Williams writes (2014):
Since President Lyndon Johnson declared war on poverty, the nation has spent about $18 trillion at the federal, state and local levels of government on programs justified by the "need" to deal with some aspect of poverty. In a column of mine in 1995, I pointed out that at that time, the nation had spent $5.4 trillion on the War on Poverty, and with that princely sum, "you could purchase every U.S. factory, all manufacturing equipment, and every office building. With what's left over, one could buy every airline, trucking company and our commercial maritime fleet.
If you're still in the shopping mood, you could also buy every television, radio and power company, plus every retail and wholesale store in the entire nation". Today's total of $18 trillion spent on poverty means you could purchase everything produced in our country each year and then some.
It would seem the Einstein theory of insanity has taken center stage, but defenders of government programs take a dissenting view. For one, the idea of poverty is a river that flows with the times. As Williams notes, today’s poor have many of the things not usually associated with poverty, such as air conditioning and computers. But the poor are simply responding to a market that makes these things affordable for more and more people — but they’re still poor.
One of the engines of poverty is divorce, and the divorce rate, though trending downward since 1981, is much higher today than it was in the 1960s when Johnson launched his program. More evidence of a changing river. Einstein’s insanity doesn’t apply.
Coercion fails, over and over
Defenders of free markets note that any government attempt to interfere with the choices of individuals is a recipe for failure. From the point of view of an economist, the various kinds, shapes and sizes of government programs or agencies, or the level of rot in the culture, are all irrelevant. You do not solve problems with coercion. Government through its forced involvement in our lives is in fact committing the same error over and over and expecting positive results. In Einstein’s sense it is insane.
Worse, the voters are insane for putting up with it.
Year after year they go to the polls, and year-after-year government gets worse. Why do they do the same thing over and over? If voting changed anything they’d make it illegal, said Emma Goldman. But that’s unnecessary. Rather than make it illegal and cause a stir they simply screen out candidates that threaten the system.
In many ways we’re still free but this is not a matter of voters drawing a line and telling government don’t cross it. Voters don’t talk about freedom anymore. What freedom we have comes from a sober realization on the part of the parasitic class that they need to avoid killing their goose.
Thomas Paine observed this principle over two centuries ago:
The portion of liberty enjoyed in England, is just enough to enslave a country more productively than by despotism; and that as the real object of all despotism is revenue, a government so formed obtains more than it could do either by direct despotism, or in a full state of freedom, and is therefore, on the ground of interest, opposed to both. Thomas Paine, Rights of Man, p. 29
When given an unprecedented opportunity to vote for someone who actually opposes coercive means, they go along with the bought media and kick him like a dog. It seems that voters are insane.
More precisely, they’re graduates of government schools.
It is said that central planning has failed over and over, and this is the reason for its abandonment. Central planners therefore are not insane. But central planning has not been abandoned. It is enthusiastically endorsed by economists the world over in one area especially, central banking.
This one exception apparently refutes Einstein. Establishing a committee of bright people to force their monetary decisions on millions of market participants is better than allowing those participants to make monetary decisions on their own, notwithstanding the horrendous results.
It is better, but only for a privileged few.
In politics, the Einstein - Heraclitus distinction is useless because what’s good for the ruling elite is usually bad for the public. Communism imposed misery on millions but not on those holding the reins of power. As counterfeiting by another name, central banking is a means of piling up money and power in a few hands while draining wealth from the rest. But the cheat is invisible to the populace, so it stays, and with the blessings of economists it stays as a prestigious institution.
Federal Reserve inflation is only insane from the losers’ perspective, provided they understood the cheat. But they don’t.
Worse, they don’t try.
Opponents of secession in the United States often choose from several reasons as to why they think no member state of the United States should be allowed to separate from the rest of the confederation. Some anti-secessionists say it's bad for national security reasons. Others oppose secession for nationalistic reasons, declaring that "we"—whoever that is—shouldn't "give up on America."
For the Elites, Self-Determination Leads to "Bad" LawsOne of the most popular reasons to oppose secession is that opponents believe people will pass "bad" laws in places allowed to live under their own governments. That is, we're told that without federal "oversight" over state and local communities, independent states would deny basic "rights" such as getting an abortion, voting without ID, or guaranteeing that every cake-shop owner is forced to bake cakes for same-sex couples. These independent governments, we are told, would also fail to enforce "progressive" regulations such as bans on fossil fuels and paying workers below a federally-imposed minimum. Therefore, the story goes, these places must be forced—by military means if necessary— to comply with US's government's mandates and regulations.
Yet, far more tolerance is extended to the rest of the world—a place composed of 190-plus independent states—where governments adopt their own laws. Only in a select few cases—think Russia, Iran, and Syria—do we hear that the US government must intervene to ensure—by force, of course—that people in these parts of the world adopt the "right" laws. Everywhere else—as in Peru, India, Canada, or Poland—we are told it's perfectly tolerable that laws be set locally in accordance with local values. Those places are democracies, after all, and we're told democratic institutions establish "legitimate" government.
Why is it that some governments are "allowed" self-determination by the US government, but any area presently within the national borders of the US—including member states with democratically elected governments—is to be denied self-determination until the end of time? The answer appears to be a mishmash of nationalism, half-baked "social contract" theory, and the old-fashioned desire to dominate others "for their own good."
Anti-Secession Is about Extending Washington's ControlOpposition to secession in the name of preventing "bad" policy has many adherents across the political spectrum who place great faith in the ability of the US Supreme Court and other federal technocrats to "protect rights." This is supposedly accomplished by deciding whether or not states and local governments conform to federal notions of "good" law. The desire to deny self-determination to state and local governments, however, appears to be especially intense on the Left. For example, in a recent article in The Nation opposing "blue-state secession," Paul Blest contends that secession by blue states would be "cruel" because it would allow red-state governments to be unhampered by the US federal government. This, presumably, would enable conservatives to violate the human rights of "marginalized people" wholesale. More specifically, Blest believes secession should not be contemplated because it would limit the reach of federal mandates that "accommodate" transgender students and guarantee access to abortion (among other presumed benefits of federal control).
Indeed, the idea that American separatists might be able to run governments anywhere without a federal babysitter strikes much of the Left as abhorrent, to say the least. We can see this in a recent article from New Republic in which author Brynn Tannehill warns conservative state officials are "lining up" to pass new laws against birth control, "ban books," "rig democracy" and generally oppress groups conservatives allegedly hate. Tannehill contends that this is all part of a conservative plot to create "two Americas," or, as a CNN piece put it in July, build "a nation within a nation." Whether this leads to "soft secession" or "hard secession," Tannehill concludes the answer is for the left to re-assert federal control over these separatists and ensure that enlightened federal policies are imposed on red states. Otherwise, these states will continue their descent into a non-progressive "hellscape."
Most of the World Gets to Make Its Own LawsThe hysteria over abortion or voter ID never seems to extend to the world beyond the US border, however. This is true even though the "progressive" states of Europe often have gestational limits on abortion are more strict that was the case under Roe v. Wade, and abortion is largely illegal in Poland. Latin America employs a wide variety of restrictions on abortions that would be labeled intolerable by progressives in the US were such laws to be employed in the US. In Iraq, where thousands of Americans died to install a progressive democracy—or so we were told—abortion is illegal. In all this—so long as these countries are considered "allies" by the US regime—we never hear how the US must launch a humanitarian military operation there to preserve what the US Supreme Court has decided is a "right." Similarly, most democratic regimes require identification to vote in elections, although Americans leftists tell us this amounts to "rigging democracy." Meanwhile, same-sex marriage is banned in parts of Latin America and eastern Europe, and only civil unions are considered legal among same-sex couples in half a dozen European countries. Of course, it is banned in most of Africa and the Muslim world. Again, where are the calls to send in federal agents to ensure the protection of human rights in all these places? Certainly, advocates for abortion and same-sex marriage will demand that laws be "improved" in these foreign jurisdictions. But it is also generally accepted that these changes should be brought about through local institutions, and that local self-determination is to be—more or less—respected.
Three Reasons Why Most of the World Is Granted Self-Determination, but Not Americans Yet far smaller deviations from the progressive consensus are treated as grave violations of human rights should they take place in Texas or Idaho or Arizona. Just imagine if the government of Arizona were to declare "we're now subject to federal law in the same way as Mexico, and we will determine our laws in accordance with our own democratic institutions." That is, Arizona would be saying it gets to set its own policies without permission from Washington in the same way that most of the world does now under the status quo. Arizona has a democratically elected legislature, after all, and every other institutional feature that would qualify it as a "democracy" even according to global elites. Would Arizona then be afforded the same degree of self-determination as any other democracy somewhere else on the planet? Of course not. Rather, we would be sure to hear howls of protest from Washington elites and demands that the US government send in the Marines to ensure that these traitors and "authoritarians" in Arizona take orders from Washington. We would hear about how any attempt at defending local sovereignty would be a human rights disaster and must surely be motivated by nefarious goals—most likely racism.
In order to deny Arizonans the same self-determination afforded to Mexicans right across the border, opponents of secession have to make the case that there's something "special" about the people inside the US border drawn by politicians many decades ago.
There are several strategies employed here. One is to claim that there is no "need" for local self-determination in the United States because all residents of the US member states are "represented" in Congress. That is, in the case of Arizona, seven million people are "represented" by 9 people who sit in the House of Representatives and make up two percent of the voting population of the House. In the Senate, seven million Arizonans are "represented" by two US Senators. The US Congress consists of 11 Arizonans and 524 non-Arizonans. For many opponents of secession, this is what passes for democracy and political representation and it supposedly justifies the denial of local self-determination. Rather than have any real say in federal laws that affect Arizona, though, Arizonans must instead submit to federal laws decided by 500 or so people from other states. Of course, Arizonans could always appeal these laws in federal court, where decisions would ultimately be made by 9 federal judges, none of whom are from Arizona.
Moreover, there is the nationalist claim that relies on emotions and maudlin appeals to national unity and feelings of solidarity. These are the people who insist "we are all Americans" and for that reason, no portion of "free" America is ever allowed to leave. These people also tell us—less convincingly every year—that Californians have fundamentally the same values as people in Texas or Idaho or Kansas. And, for that reason, there is a "natural bond" among Americans. If this alleged bond was as strong or as natural as advocates claim, though, we wouldn't find that more than one-third of Americans polled support secession. Notably, it's not up to regular people to decide for themselves if they "feel" American or feel a bond with other "Americans" two thousand miles away. Elites in Washington will let you know with whom you share a special spiritual and national bond within the warm embrace of the "homeland."
Another claim used to deny self-determination is the idea of the "social contract." By this way of thinking, all residents of US member states have voluntarily agreed to submit to all US laws in some fashion. How exactly this voluntary consent to US law comes about is never quite clear. Obviously, no living American was involved in the creation or signing of the US constitution. Some advocates of social contract theory claim that residents somehow grant "tacit consent" to US law simply by not emigrating to another country. This absurd claim was already dealt with long ago by both Adam Smith and David Hume who mocked John Locke for suggesting the idea. The idea nonetheless persists.
Moreover, many parts of what we now call "the United States" were not even annexed to the United States through any consensual process. No vote was taken of the residents of the Louisiana purchase before it was added to the United States. In fact, the French-speaking Louisianans complained bitterly of the mistreatment they received at the hands of their new Anglo overlords. The Floridas and the Pacific northwest were added as a result of great-power negotiations, not by local consent. Virtually all of the American southwest (plus California) were added to the US through a war of conquest, after which the Mexicans were forced into signing the Treaty of Guadalupe Hidalgo. As a result of these wars, diplomatic machinations, and accidents of history, we're now told that being part of the United States is all a matter of amicable consensual agreements. Therefore, any part of the United States now seeking to break off will be forever prevented from exercising any self-determination.
Ultimately, however, most opponents of secession end up being crude consequentialists. They're afraid that if US member states or local governments were given self-determination these people would make laws the elites don't like. Thus, whatever reasons serve that end will be deemed acceptable.
For nearly two decades, business, academic, and political elites have spread the fiction that central banks can engineer prosperity by printing more money. Markets now are discrediting that fairy tale.
Original Article: "The Corporate Fairy Tale Is Dying as Economic Reality Sets In"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It’s the ambition of every entrepreneurial business to advance from a standing start to customer—recognized leadership in its chosen field. It’s achievable, even without breakthrough technology and venture capital financing. Trini Amador’s Gracianna Winery is one of our Economics For Business entrepreneurial businesses of the year for 2022 for precisely such a journey story. Trini joins us to review the principles, processes and programs that are driving success.
Knowledge CapsuleGracianna is the most awarded winery.Metrics of success can vary across categories and industries. In the wine industry, awards presented in tastings conducted by prestigious panels and arbiters are important signals to customers. In a recent period, Gracianna winery, a small craft producer in the highly competitive Russian River wine area of Sonoma County, California, has become the most awarded in its class. And since that class is, by the owner’s choice, world-class — the best-of-the-best — the achievement is elevated to the highest possible level. Examples of the awards won include gold medals at the Sommeliers Choice Awards and the Sunset International Wine Competition, and double gold at the Los Angeles International Wine Competition. More awards are listed at Gracianna.com/Awards
Gracianna winery has also won hospitality awards for its tours and wine tastings, including a #1 position on TripAdvisor for Things To Do In Healdsburg, CA (out of 117 competing alternatives).
Everything begins with a commitment to understanding customer needs.Trini and his family set themselves a goal of making a mark as a world class winery. They’ve certainly done that. How? Trini Amador is an entrepreneur in the Austrian tradition: the entire journey starts with deep understanding of customers and their needs. Who are the people who enjoy world class wines and associated experiences, and why do they choose to participate in this industry as consumers? What kind of experiences do they seek? How do they want to feel about those experiences?
Why do they undertake travel to visit different wineries? Why do they choose California, and Sonoma County and the Westside Highway in the Russian River Valley? How do they like to buy online? Why do they join wine clubs? All of these choices are emotionally driven — the answers lie in the heart and not the data.
Becoming a world class winery is a direction of travel, and the destination becomes clear with more and more learning about customers and their needs, wants and preferences. Brand vision is integrated with customer understanding and empathy.
Focus and feedback can take a brand to the top.Trini describes his company and his team as obsessively focused on customers. As they collect more and more customer knowledge via more and more interactions, the better they get at serving customer needs.
There are really only two I techniques: listen and observe. Since the Gracianna experience includes onsite tastings and tours, the Gracianna team can meet customers face to face and listen for their responses, preferences and hopes. And since all Gracianna wine is sold direct via the internet, butting activity can be observed directly. The requisite business skill is always to pay attention for signals, and always attend to the feedback that results from interaction. All guests are self—selecting themselves to be part of the Gracianna story. They’ve chosen the relationship. Gleaning the motivation behind their doing so is the goal of the marketing team.
Consistent, precise execution is more important than strategy.Once the brand’s direction is set, and an initial understand of customers is established, then execution takes over. Execution is a daily discipline, and the power tool is consistency: establishing a high standard and maintaining it in every action.
It’s perfectly possible to build a brand this way. Trini likened his approach to building a bird’s next — one twig at a time. Every act of execution, every customer service interaction, every e—mail and every tasting service is another twig added to a perfectly shaped, ultra—strong construction. Small brands can claim ownership of an equity this way (such as “best tasting room experience” on TripAdvisor) without expensive investment in communications; just execute, execute, execute. Let employees on the team exercise both their responsibility and their creativity in precision execution. Always aim for effectiveness (the best possible execution) rather than efficiency (the lowest cost or least—resource execution).
The best kind of planning is contingency planning to establish a prepared adaptiveness.Wine is, at its fundamental level, an agricultural business. Trini calls it rhythmic — grow, harvest, make wine, store wine, release a vintage. No two growing seasons are ever alike. In addition, there can be crises — excess rain, floods, unusual growing temperatures, fires, pests. The best way to deal with these variations is contingency planning, i.e., imagining all the things that could go wrong and having a set of actions in mind if they do.
Adaptiveness is a core attribute for all entrepreneurs, and is especially applicable in wine. Explore and expand is an orientation that fully applies — once the curves that nature throws have been negotiated.
The greatest entrepreneurial attribute is courage.In face of all the challenges and amidst all the uncertainty of an entrepreneurial business, Trini maintains that the key to a successful outcome is not so much strategy as courage. Make the best decisions you possibly can based on understanding customer needs, and then have the courage to act on the decision. The action generates interaction, which results in feedback, which provides the knowledge and energy for the next decision and next action.
Courage is the entrepreneur’s best business tool.
Additional Resources"Gracianna: Award Winning Winemaking and Entrepreneurship" (video): Mises.org/E4B_201_Video
Gracianna.com
Lisa Amador’s Cookbook, Comfort! A Gracianna Member-Inspired Cookbook: Mises.org/E4B_201_Cookbook
Trini Amador’s "Brand Uniqueness Blueprint" (PDF): Mises.org/E4B_201_PDF
[T]he confidence in the unlimited power of science is only too often based on a false belief that the scientific method consists of a ready-made technique, or in imitating the form rather than the substance of scientific procedure, as if one needed only to follow some cooking recipes to solve all social problems.
— Hayek, F. A., The Pretence of Knowledge, Lecture to the memory of Alfred Nobel, December 11, 1974.
It is a common practice among scientists who win the Nobel prize for some intellectual achievement to deliver their Nobel Prize lectures on another intellectual achievement that is in more need of attention. Such was the case with Albert Einstein, who won the Nobel prize in physics in 1921 “for his services to Theoretical Physics and especially for his discovery of the law of the photoelectric effect,” which celebrated his achievements in statistical and quantum mechanics, but who delivered a speech on the special theory of relativity, a controversial idea to many scientists at the time. Likewise, Friedrich August von Hayek has won the prize “for [his] pioneering work in the theory of money and economic fluctuations and for [his] penetrating analysis of the interdependence of economic, social, and institutional phenomena,” and has delivered his Nobel lecture on the abuse of reason in the social sciences.
Hayek is one of the last century’s great polymaths, with major contributions to economics, political philosophy, ethics, legal studies, and epistemology. His intellectual heritage survives in the Austrian school of economics and is alive and well today with journals and schools producing current research and training younger researchers in economics and the social sciences. His work on macroeconomics and monetary theory with Ludwig von Mises in their newly founded (1927) Austrian Institute of Economic Research has resulted in Hayek’s Monetary Theory and the Trade Cycle (1929), and Prices and Production (1931).
These two volumes, along with Mises’ Theory of Money and Credit (1912), form the basis of the modern Austrian Business Cycle Theory. The theory cemented Hayek as a major economist of the twentieth century. However, he gained international fame from his eerie volume, Road to Serfdom (1944), which warned of the totalitarian regimes that would come after the wake of the second world war. His analysis of the nature of social knowledge and its limit is perhaps what we most remember him for.
What is Knowledge?In 1945, Hayek published one of the most cited papers in the field of economics on the nature of knowledge that may be used by individuals in making their decisions. His article, The Use of Knowledge in Society, has stressed that our actions as agents choosing between alternatives are not informed by facts and beliefs that can be produced when prompted, but by imitating behavior that successfully produces the desired results and by interacting with a world that is constantly changing.
A machine can hardly manage in dealing with a world in flux, but it comes perfectly naturally to us humans. As Descartes reminds us, “we can certainly conceive of a machine so constructed that it utters words corresponding to a change in its organs. But it is not conceivable that such a machine should produce arrangements of words so as to give an appropriately meaningful answer to whatever is said in its presence, as even the dullest of men can do.” (Cottingham, John, In Search of a Soul, Princeton University Press, 2020, p. 55.) And even with the advent of machine learning, artificial intelligence, and modern computers, human oversight is always needed since, ultimately, we generally do not accept that anyone (or anything) be held accountable for the risks and choices we relegate to others.
Hayek observes that humans do not become proper citizens by being taught how to act, but by carefully following practiced traditions and responding to external stimuli. (Hayek, F.A., The Fatal Conceit, University of Chicago Press, 1988, pp. 19 – 28.) Thomas Sowell’s Knowledge and Decisions (1980), chiefly inspired by Hayek’s article, has incorporated this idea into the realms of sociology, psychology, and public policy, showing the idea’s breadth of scope and the extent of its function and utility.
We may abstractly discuss the nature of knowledge, but our practices reflect another type of knowledge that can hardly be articulated. Prices function as facilitators of our limited knowledge regarding the skills and resources needed for any end we seek. And so, by responding to price signals as a mediator of our dispersed knowledge, we are able to navigate the choices we have and discriminate between them.
The Limitations of ScienceIn his article, The Pretence of Knowledge (1974), the author carefully stresses how misguided it was of economists to mindlessly emulate the methods of the physical sciences. This approach wherein researchers in the social sciences use forecasting and attempt to explain prices has been dubbed scientistic (a pejorative term), due to its use of sophisticated schemes that produce errors caused by the misuse of data and accepting the results of mathematical analyses at face value regardless of their assumptions. Hayek’s explanation of this error, which is reminiscent of the Streetlight Effect (often called the McNamara Effect), cast doubt on the increasingly theoretical direction modern economics has taken to its detriment. This clarification of the abuse of statistics and mathematics has notified many social researchers of the limitations and failures of pseudoscientific practices when the methods adopted from the physical sciences are twisted and stretched beyond their area of applicability.
But Hayek had another, important reason, for exploring these issues. Science has often been used to implement government interventions that diminish people’s freedoms and imposes arbitrary control over their decisions. Ludwig von Mises, Hayek’s postdoctoral mentor, has discussed in previous articles (1. Mises, L. H. E., Profit and Loss, lecture presented to the Mont Pèlerin Society held in Beauvallon, France, September 9 to 16, 1951. || 2. Mises, L. H. E., Economic Calculation in the Socialist Commonwealth, Archiv für Sozialwissenschaften 47, 1920.) the operating mechanisms of the market and the impossibility of the central management of society into prosperity.
The torch of liberty has been carried by Mises’ students afterward; the three most notable students were Israel Kirzner, Murray Rothbard, and the object of this article, Friedrich von Hayek. Unless this issue has been addressed, science will always be abused by positions of authority. Hayek ends his Pretence of Knowledge with a warning:
The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society—a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.
Wisdom and prudence may well advise us to pay attention to these cautionary words.
Energy production in the USA and elsewhere is in trouble because of government control. We need more energy and less regulation.
Original Article: "The World Needs More Energy and Less Energy Regulation"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Investors are on the edge of their seats for any sign that Fed central planners will someday “pivot” to cutting interest rates, instead of raising them. They forget that recessions and major stock bear markets have occurred after the Fed started cutting rates and the yield curve spread shifted from negative to positive.
The Fed has been very clear that they now have “that old-time religion” of former Fed chairman Paul Volker to fight the inflation they created when they increased the money supply by 40 percent after the covid panic in 2020. They now say they need to see inflation clearly slowing to their arbitrary 2 percent target (which cuts the value of the dollar in half every thirty-four years) before they will even consider cutting interest rates. They claim they learned the mistake of the 1970s that cutting rates too soon before the inflation battle is won likely prolongs the misery of high inflation.
The Trillion-Dollar QuestionThe trillion-dollar question is: when will inflation clearly slow toward 2 percent?
No one can say for sure, particularly Fed bureaucrats who have proven their inability to predict anything. But a recently published paper by investment research firm Research Affiliates attempts to answer this question by looking at prior historical periods of high inflation. This paper, titled “History Lessons: How ‘Transitory’ Is Inflation?” Analyzed all cases where inflation rose above 4 percent in fourteen developed countries from January 1970 through September 2022.
History Lessons for the Fed and InvestorsDuring this period, inflation rose above 4 percent in these fourteen countries. In six of those instances, inflation proceeded to rise over 20 percent fifty-two times. More than 60 percent of the time, inflation did not exceed 6 percent. But if inflation rose over 8 percent, as happened in the US and most of Europe this year, inflation rose to 10 percent or more over 70 percent of the time.
The following graph shows the number of times inflation exceeded a given level, with the green shading showing the number of times inflation peaked at that level and the red shading showing the number of times inflation accelerated to the next level. wolfbarger_graph1.jpg ###### Source: Rob Arnott and Omid Shakernia, “History Lessons: How “Transitory” Is Inflation?,” Research Affiliates, November 2022.
The graph below shows the median number of years it took for inflation to fall in half after it reached a given level. The shaded area shows the range for 60 percent of the outcomes, excluding the top 20 percent and bottom 20 percent.
wolfenbarger_graph2.jpg ###### Source: Rob Arnott and Omid Shakernia, “History Lessons: How “Transitory” Is Inflation?,” Research Affiliates, November 2022.
This graph shows that after inflation rises above 4 percent, 20 percent of the time it falls to 2 percent within a year, but 20 percent of the time it takes 10 years to fall back to 2 percent. The median time is 2.5 years. As the authors of the study wisely ask:
When inflation was already crossing 4 percent in April 2021 (2 percent of which was in the prior three months, which was an 8 percent annualized rate!), what were Powell and Yellen thinking in declaring the inflation transitory? Should we consider a median expectation of 2½ years to revert to a 2 percent inflation rate as transitory?
If inflation rises above 6 percent, it takes a median of ten years to fall back to 2 percent. As shown in the chart below, with inflation of 8 percent to 20 percent, it takes a median of nine to twelve years for inflation to fall below 3 percent. But, as the authors caution: “This lengthy period may actually be understated because of the handful of cases missing from our dataset in which inflation has failed to return to 3 percent, to this day.”
wolfenbarger_graph3.jpg ###### Source: Rob Arnott and Omid Shakernia, “History Lessons: How “Transitory” Is Inflation?,” Research Affiliates, November 2022.
Since US inflation rose above 6 percent a year ago and above 8 percent eight months ago, history says the median number of years for inflation to fall below 3 percent is ten years, with a 60 percent percentile range of six to nineteen years! Clearly, the Fed and investors are not prepared for such a possibility.
As shown in the chart below of the Fed’s projections of the federal funds rate, after inflation was already near 7 percent a year ago, the Fed still expected the federal funds rate at the end of 2022 to only be 0.88 percent! The federal funds rate is now 3.75 percent to 4.00 percent and the two-year Treasury rate they follow is at 4.36 percent. Why does anyone listen to these failed central planners about anything?
wolfenbarger_graph4.jpg ###### Source: Rob Arnott and Omid Shakernia, “History Lessons: How “Transitory” Is Inflation?,” Research Affiliates, November 2022.
US Inflation History Supports This ConclusionThe chart below shows US inflation since the Fed was created in 1913. The US dollar has lost 97 percent of its value since then, as cumulative inflation has been over 2900 percent. The horizontal red line shows five periods prior to now when inflation rose well over 7 percent. The first instance was caused by money printing for World War I, which resulted in the highest inflation rates in modern US history at over 20 percent. It took about four years for inflation to return to 2 percent after that. Then there were three instances during the 1940s and 1950s when it took two to three years each time for inflation to return to 2 percent.
wolfenbarger_graph5.jpg ###### Source: Bureau of Labor Statistics, FRED.
The longest-lasting bout of inflation occurred during the 1970s and early 1980s, when it took thirteen long years for inflation to return to 2 percent. And to do that, Fed chair Paul Volker had to raise the federal funds rate over 15 percent for two years to break inflationary psychology and it still took six years for inflation to fall to 2 percent after he started.
Does the current Fed chair, Jay “Wrong-Way” Powell, have the fortitude to do that in the face of a recession?
Federal Bureaucrats Are to Blame for Our Falling Living StandardsThe authors of this study concluded by blaming Federal monetary and fiscal bureaucrats for this colossal mistake that is lowering our living standards:
It was a mistake for the Fed to declare inflation transitory when it was rising rapidly and when history tells us that, even at a relatively modest 4 percent rate, it often is not transitory. The Fed inflicted serious damage, both to the macroeconomy and to its own credibility, by following a too-easy policy for a dozen years and then continuing its transitory messaging as inflation lofted past 6 percent, then 8 percent. The same messaging continues today, albeit in different words. . . . Is it possible that inflation will recede to 4 percent and then to 2 percent in the coming year or two? Of course it’s possible! History says it is unlikely. . . . Our fiscal and monetary policies have done far more harm than good in recent years. . . . We perceive a resistance to alternative views, in both fiscal and monetary circles, a desire to create an echo-chamber of similar views, and a reluctance to learn from past mistakes. We are fools if we allow our hopes for a rapid dissipation of inflation to become our central expectation.
ConclusionPrice inflation is caused by two factors: 1) money supply and 2) money demand, which is driven by inflationary psychology. Money supply growth has already slowed from 40 percent in 2021 to under 3 percent now. But money demand will depend on how confident the public is that Powell and his fellow government central planners will be aggressive in their fight against inflation, even with a recession likely having already started.
Based on history and Powell’s constant flip-flopping, it will likely be at least a year and could be a decade or more before inflation falls back to the Fed’s 2 percent target. People need to protect themselves from the lower living standards caused by high inflation rather than hoping government bureaucrats will rescue them.
"The object aimed at in the punishment of vices is to deprive every man of his natural right and liberty to pursue his own happiness under the guidance of his own judgment and by the use of his own property."
Narrated by Michael Stack.
Both the title and the substance of "Vices are not Crimes" highlight the unique role that morality and moral principle had for Spooner among the anarchists and libertarians of his day. For Spooner was the last of the great natural-rights theorists among anarchists, classical liberals, or moral theorists generally; the doughty old heir of the natural law-natural rights tradition of the 17th and 18th centuries was fighting a rearguard battle against the collapse of the idea of a scientific or rational morality, or of the science of justice or of individual right.
Narrated by Michael Stack.
The more we understand critical race theory, the more we understand that it is not compatible with a free society.
Original Article: "Teaching Critical Race Theory Isn't Education; It's Indoctrination"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Supreme Court of the United States will hear plaintiff and defendant oral arguments for Biden v. Nebraska in February 2023. That case will determine whether the Biden administration has the constitutional authority to forgive student loan debt and thereby make taxpayers responsible for the debts that students have incurred.
This past year President Biden announced that his administration would forgive federal student loans. According to the Congressional Budget Office student debt forgiveness would cost taxpayers $400 billion. Taxpayers are already taxed for public schools and for the public universities within their states and, in some instances, within their cities. Therefore, there is no reason that they should assume the loan debt that students chose to amass by attending colleges that have tuitions that they cannot afford.
Each of the fifty states has public universities. The tuitions for in-state residents at the public institutions of higher education are lower than the tuitions at private institutions. In all states, out-of-state residents pay higher tuitions than in-state residents. For instance, in New York State there are forty-five public universities (SUNY), and there are twenty-five public colleges in New York City (CUNY). The undergraduate tuition at CUNY is $305 per credit. The average SUNY undergraduate tuition per credit is $295 for in-state residents.
However, in some instances based on residency, grades, family income, and other criteria, tuitions are free at CUNY and SUNY. If some New York State or New York City high school students choose to attend public colleges out-of-state or to enroll in private universities in New York where the average private college tuition is $929.75 per credit, they will pay tuition rates that are higher than if they were to enroll in CUNY or SUNY, even if they did not meet the standards for free tuition
Tuitions at private institutions are generally higher than out-of-state or in-state public college tuitions. During the first two years, all colleges, whether public or private institutions, have the same core liberal arts, mathematics, and science classes; for the next two years, students take electives and requisite courses for their majors. Courses, taken during the freshman and sophomore years can be transferred from public to private colleges and conversely within the same state. Interstate course transfer acceptance is discretionary. A three-credit English composition class carries a higher cost at a private college than the same course at a public college. A student chooses to pay more tuition for the same course at one college than at another college.
In order not to incur debt, students should attend colleges based on their economic comfort level; however, some do not. Many students choose to attend colleges that neither they nor their parents can afford. Both they and their parents accrue loans that will take years to pay off. Loan repayment, depending on the amount borrowed, can take anywhere from ten to thirty years to repay.
Students’ lives are curtailed by those loans. Where and in what types of residences they will live, when and if they will marry, and when and if they will have children are instances in which student loan debt is the prevailing predicate. Choice then is the underlying economic catalyst for students’ debts,
To curtail or to eliminate debt, students have the option to attend in-state public universities or private universities that do not charge tuition. In all cases students should be very cautious when considering any tuition-charging private institution.
Some television pundits proffer the opinion that tuitions increase because the federal government continues to hold student debt and that while students accumulate large debt balances colleges will increase tuitions. However, those pundits forget that debt is the choice of students, and, as with any purchase, economic prudence in college choice is essential. Students wrap themselves in debt because they choose not to wait for their self-sufficiency; their debt is a choice and should not be the burden of taxpayers. Caveat emptor.
Should there be vaccine mandates to deal with covid? Progressive authorities say one thing, but the data say another.
Original Article: "United Kingdom Mortality Data by Age Group and Vaccination Status: Looking at Vaccine Effectiveness"
This Audio Mises Wire is generously sponsored by Christopher Condon.
First, they came for the oil, now they're coming for the cows. Environmentalists have no shame or sense and farmers around the world are, forget the pitchforks, “setting hay bales ablaze and dumping manure on motorways,” report April Roach, Tracy Withers, Jen Skerritt, and Agnieszka de Sousa for Bloomberg.
Never mind that food prices have spiked around the world. For instance, grocery prices are up 13 percent in the US this year. The Dutch government said it would buy out as many as three thousand of the biggest emitters (farmers) in a voluntary one-time offer. While the weather turns cold and gas supplies become scarce the green gang in Holland is setting aside €24.3 billion ($25.6 billion) to fund the transition. “Those who refuse will be forced out of business,” reports Bloomberg.
Bloomberg’s quartet of reporters doesn’t say what the government will do with the land once they seize it, but you can detect their point of view with this, “Intensive farming—and decades of official inaction—have devastated biodiversity in the Netherlands, forcing the government to impose drastic measures.”
“Devastated biodiversity?” This is food we’re talking about. Something humans require. Mother nature deals farmers enough bad hands, what with droughts, floods, fires, and pests. Now, the heavy hand of government believes it must get rid of cows because, well, they fart and urinate.
“From farm to fork, the food system generates about 31 percent of global greenhouse gas emissions,” the Bloomberg quartet explains. “Cows and sheep emit planet-warming methane simply by digesting food; their manure and urine are a source of nitrogen oxide which, in large volumes, throws ecosystems off kilter.”
Having millions of people go hungry sounds more “off kilter” to me. “If action isn’t taken fast, researchers estimate that food-related emissions alone would push the Earth past 1.5C of warming that world leaders set as a target in the 2015 Paris Agreement.” Oh no.
In heavily farmed New Zealand, where agricultural exports account for half the country’s exports, the government passed a law in hopes that net agricultural emissions will be reduced 24 per cent by 2050, with farmers being forced to cut emissions 10 percent in just three years, when the emissions levy comes into force.
“The so-called ‘fart tax’ will be reinvested in the industry through incentives, research and technology so New Zealand can reposition itself as a leader in ethically produced, higher-value food, a market that’s growing as consumers become more climate and health conscious,” Bloomberg reports.
Bryce McKenzie has reduced his herd by 50, but that’s not enough. “We don't want a country planted in pine trees and then not be able to grow food,” says McKenzie. “We want food security for the future.”
Farms produce about a third of greenhouse gasses in Ireland and farmers are expected to cut emissions by a quarter, compared with three-quarters percent targets for electricity and by half for transport. In Canada, farmers expect to lose $8 billion in foregone output this decade to comply with government mandates. “We’re being asked to do something to benefit all of society yet we're the ones left with the bill,” says Chuck Fossay, who farms with his brothers on 3,600 acres outside of Winnipeg that’ve been in the family since the early 1900s. “We have to do what we can, but it has to be achievable, and it has to be fair.”
Back in the Netherlands, that government’s issue with cow urine has politicians requiring farmers to slash emissions by as much as 70 percent. And the closer a farm is to one of the country’s 160 protected natural areas, the tighter the limits.
To meet government mandates, “livestock numbers must shrink by a third overall. If the government gets its way, the biggest polluters will be closed by this time next year.”
Dutch ecologists claim cow urine will kill all the trees, while farmers claim it's an unwarranted government land grab. Caroline van der Plas, leader of the populist Farmer-Citizen Movement says farmers are “ordinary people but they feel treated like criminals. Everything farmers do is bad; poison sprayers, environmental polluters, mistreatment of animals.”
Sadly, ordinary grocery shoppers will blame the grocery store as food prices continue upward and environmentalists pat themselves on the back and are feted as heroes in the mainstream media.
One hardly can imagine a better tool of social control than a digital currency. Not surprisingly, U.S. monetary authorities are moving in that direction.
Original Article: "Digital Currency: The Fed Moves toward Monetary Totalitarianism"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It has been a hundred years since Mises published Socialism. It is more relevant than ever.
Original Article: "Reflections upon the Centennial of Mises's Socialism"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Like the police in similar communities, the Moscow, Idaho Police have long focused on petty drug offenses while more serious violent crime and property crime receives far less attention.
Original Article: "The Student Murders in Idaho Highlight the Unimpressive Police Record on Violent Crime"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While many market participants are concerned about rate increases, they appear to be ignoring the largest risk: the potential for a massive liquidity drain in 2023.
Even though December is here, central banks’ balance sheets have hardly, if at all, decreased. Rather than real sales, a weaker currency and the price of the accumulated bonds account for the majority of the fall in the balance sheets of the major central banks.
In the context of governments deficits that are hardly declining and, in some cases, increasing, investors must take into account the danger of a significant reduction in the balance sheets of central banks. Both the quantitative tightening of central banks and the refinancing of government deficits, albeit at higher costs, will drain liquidity from the markets. This inevitably causes the global liquidity spectrum to contract far more than the headline amount.
Liquidity drains have a dividing effect in the same way that liquidity injections have an obvious multiplier effect in the transmission mechanism of monetary policy. A central bank’s balance sheet increased by one unit of currency in assets multiplies at least five times in the transmission mechanism. Do the calculations now on the way out, but keep in mind that government expenditure will be financed.
Our tendency is to take liquidity for granted. Due to the FOMO (fear of missing out) mentality, investors have increased their risk and added illiquid assets over the years of monetary expansion. In periods of monetary excess, multiple expansion and rising valuations are the norm.
Since we could always count on rising liquidity, when asset prices corrected over the past two decades, the best course of action was to “buy the dip” and double down. This was because central banks would keep growing their balance sheets and adding liquidity, saving us from almost any bad investment decision, and inflation would stay low.
Twenty years of a dangerous bet: monetary expansion without inflation. How do we handle a situation where central banks must cut at least $5 trillion off their balance sheets? Do not believe I am exaggerating; the $20 trillion bubble generated since 2008 cannot be solved with $5 trillion. A tightening of $5 trillion in US dollars is mild, even dovish. To return to pre-2020 levels, the Fed would need to decrease its balance sheet by that much on its own.
Keep in mind that the central banks of developed economies need to tighten monetary policy by $5 trillion, which is added to over $2.50 trillion in public deficit financing in the same countries.
The effects of contraction are difficult to forecast because traders for at least two generations have only experienced expansionary policies, but they are undoubtedly unpleasant. Liquidity is dwindling already in the riskiest sectors of the economy, from high yield to crypto assets. By 2023, when the tightening truly begins, it will probably have reached the supposedly safer assets.
In a recent interview, Bundesbank President Joachim Nagel said that the ECB will begin to reduce its balance sheet in 2023 and added that “a recession may be insufficient to get inflation back on target.” This suggests that the “anti-fragmentation tool” currently in use to mask risk in periphery bonds may begin to lose its placebo impact on sovereign assets. Additionally, the cost of equity and weighted average cost of capital increases as soon as sovereign bond spreads begin to rise.
Capital can only be made or destroyed; it never remains constant. And if central banks are to effectively fight inflation, capital destruction is unavoidable.
The prevalent bullish claim is that because central banks have learned from 2008, they will not dare to allow the market to crash. Although a correct analysis, it is not enough to justify market multiples. The fact that governments continue to finance themselves, which they will, is ultimately what counts to central banks. The crowding out effect of government spending over private sector credit access has never been a major concern for a central bank. Keep in mind that I am only estimating a $5 trillion unwind, which is quite generous given the excess produced between 2008 and 2021 and the magnitude of the balance sheet increase in 2020–21.
Central banks are also aware of the worst-case scenario, which is elevated inflation and a recession that could have a prolonged impact on citizens, with rising discontent and generalized impoverishment. They know they cannot keep inflation high just to satisfy market expectations of rising valuations. The same central banks that assert that the wealth effect multiplies positively are aware of the disastrous consequences of ignoring inflation. Back to the 1970s.
The “energy excuse” in inflation estimates will likely evaporate, and that will be the key test for central banks. The “supply chain excuse” has disappeared, the “temporary excuse” has gotten stale, and the “energy excuse” has lost some of its credibility since June. The unattractive reality of rising core and super-core inflation has been exposed by the recent commodity slump.
Central banks cannot accept sustained inflation because it means they would have failed in their mandate. Few can accurately foresee how quantitative tightening will affect asset prices and credit availability, even though it is necessary. What we know is that quantitative tightening, with a minimal decrease in central bank balance sheets, is expected to compress multiples and valuations of risky assets more than it has thus far. Given that capital destruction appears to be only getting started, the dividing effect is probably more than anticipated. And the real economy is always impacted by capital destruction
It’s been said there’s no such thing as a controlled experiment in the social sciences, including economics. But we had something close to a laboratory experiment back in 1920-1921 and 1930-1931.
In each of these periods there was a depression. Unemployment was high - for a while — it briefly was higher in the 1920s than in the 1930s. Prices fell in both periods.
In the 1920-21 depression, the Federal Reserve Bank of New York crashed the monetary base, thereby reducing the money stock, and jacked interest rates to record highs. In the 1930-1931 depression, however, the federal reserve gradually increased the monetary base and lowered the interest rate.
In the 1920-21 period the government slashed spending and allowed nominal wages to fall. In the 1930-31 depression the government increased spending and deficits while pressuring industrial leaders to maintain wage rates.
Tax PoliciesComing out of World War I the highest marginal income tax rate was 77 percent. First President Warren G. Harding, then President Calvin Coolidge (following Treasury secretary Andrew Mellon’s advice) lowered tax rates steadily in the early 1920s. By 1925 the highest tax rate was around 25 percent. Tax receipts began to climb, as people stopped playing defense and looked for ways to grow their income. As incomes increased, so did tax revenue despite the lower rates.
In 1932, President Herbert Hoover pushed through one of the highest peacetime tax increases in U.S. history. A person making above a million dollars in 1931 could keep 75 cents on the dollar; a year later the amount plunged to 37 cents. In the lowest bracket, rates more than doubled. Along with this were countless taxes on items that had never been taxed. From 1931 - 1933, revenue from the individual income tax dropped by more than half. By 1933, the economy was at the depth of the Depression.
President Franklin D. Roosevelt went further. The top income tax rate had spiked from 24 to 63 percent under Hoover, and then to 78 percent in 1935 under FDR. Capital gains taxes more than doubled, going from 12.5 percent during the 1920s and early 1930s to 32 percent by 1934-1935.
In 1936, the New Dealers decided to tax corporate savings, imposing a severe penalty on businesses that depended on profits to expand operations. Called the Undistributed Profits Tax, it entrenched the bigger firms by keeping their smaller competitors from expanding. It also pressured firms to use debt instead of equity to finance expansion.
Throughout the 1920s, the Coolidge administration ran a budget surplus every year. Throughout the 1930s, first Hoover, then Roosevelt ran budget deficits every year.
Keynesians such as Christina Romer tell us that the deficits were not big enough. It took the huge deficits of World War II to break the back of the Depression, they claim. Whether fighting the war overseas or on the home front, however, Americans were anything but prosperous during this period.
Monetarists such as Milton Friedman tell us the Fed didn’t inflate enough after the Crash to offset the fall in the money supply. People were pulling their money out of the banks, and the Fed failed to offset the deflationary effect this was creating.
As Robert Murphy writes:
If Friedman is right that the Federal Reserve’s inaction caused the Great Depression, then why didn’t the U.S. experience even worse catastrophes before 1913, when the Fed didn’t even exist?
Gold takes the blameBoth Keynesians and Monetarists blame the gold standard for restricting policy options. When FDR confiscated the people’s gold in 1933 and outlawed contracts denominated in gold, the Fed went on a printing spree and the government stepped up its spending. From 1933-1936, unemployment declined steadily while GDP increased.
But the gold standard in some form had existed for centuries prior to the 1930s. Why did it suddenly cause a massive depression? It existed during the depression of 1920-21, yet that crisis was over in two years and was followed by one of the most prosperous periods in U.S. history.
And if the gold standard of 1929 did cause the depression, why didn’t going off gold end it? Fed monetary inflation and government spending improved the statistics somewhat, but the economy remained in a depressed state throughout the 1930s and beyond.
Critics of gold rarely mention that the gold standard that failed was not the classical gold standard of the 19th century. European governments ordered their banks to stop redeeming gold in 1914 so they could use the printing press to pay for the carnage of the Great War. The “gold standard” abandoned in the 1930s had been erected in 1922 at a conference attended by 34 countries in Genoa, Italy. Called the gold exchange standard, its purpose was to keep gold “in the vaults” by redeeming currencies not in coins but in large bars.
Most European citizens were thereby disarmed of their means for keeping government spending under control. U.S. citizens could still legally redeem bank notes for gold coins, but in practice it was rare. The gold exchange standard collapsed in 1931 when England went off gold completely because it couldn’t redeem France’s sterling holdings.
The Monetarists’ slam-dunk: The double-dip of 1937-1938According to monetarists, the Fed interrupted the New Deal’s recovery in 1936-1937 when it doubled the reserve requirements of its member banks, thus contracting the money stock and producing a double-dip or a “depression within a depression” in 1937-1938. Unemployment spiked and GDP fell off.
Let’s take a closer look at this period and the years preceding it. Following passage of the Gold Reserve Act of 1934, the U.S. Treasury was under a legal mandate to purchase all the gold offered to it at the rate of $35 an ounce, a 69 percent increase over the classical rate of $20.67. The Treasury was in effect mimicking the Fed’s inflationary open market operations by freely purchasing demonetized gold instead of government securities. Gold flowed into the U.S. from abroad, increasing bank reserves and inflating the money supply by over 10 percent annually from 1934-1936.
When in 1937 the Treasury began sterilizing their purchases (i.e., selling securities to pay for the gold instead of printing money) it slowed the growth of the money supply. Doubling the reserve requirements brought interest rates up a notch but they were still very low. Cheap loans were still available for businesses that wanted them.
So, what caused the plunging economic indicators? As Joseph Salerno points out, money wages shot up 13.7 percent in the first three quarters of 1937. The Supreme Court had recently upheld the National Labor Relations Act of 1935, and unions were cashing in. With labor productivity remaining constant, unemployment began to rise.
As business profits were squeezed by the run-up of labor costs and the economy slipped into recession, banks prudently began to contract their loans and pile up liquid reserves to protect themselves against prospective loan defaults and bank runs. To offset this uncontrolled decline of the money supply, beginning in mid-1938 the Fed (and the Treasury) once again resorted to an inflationary policy, reversing the reserve requirement increase and allowing gold inflows, once again pumping up bank reserves.
Between June 30, 1937, and June 30, 1938, the money supply did in fact decrease, but this was a result, rather than a cause, of the recession, Salerno concludes.
And the winners? Experts from the leading schools of economics today - the Keynesian and monetarist - tell us the Great Depression could’ve been avoided. They know the depression of 1920-21 was followed by the Roaring Twenties. They know the depression of 1930-31 turned into the Great Depression and is one of the reasons the world went to war in the 1940s. So, do these experts take the government/Fed response to the 1920-21 depression as their model?
Perhaps because it would put them out of work, their answer is a resounding No. That these same experts never see a crisis on the horizon should not dissuade us from ever trusting them.
Sources:The Politically Incorrect Guide to the Great Depression and the New Deal, Robert M. Murphy
America’s Great Depression, Murray N. Rothbard
The Forgotten Depression: 1921, The Crash That Cured Itself, James Grant
Money and Gold in the 1920s and 1930s: An Austrian View, Joesph Salerno
There appears to be a six-million-man gap between the number of men in the prime age group—age 25–54—and the number of those men actually in the workforce.
Original Article: "The Jobs "Boom" Isn't So Hot When We Remember Nearly Six Million Men Are Missing from the Workforce"
This Audio Mises Wire is generously sponsored by Christopher Condon.
December 16, 2022, is the fifteenth anniversary of the modern Tea Party. That fact will come as a surprise to many readers who take the mainstream narrative about the Tea Party at face value. The mainstream account begins on February 19, 2009, when Rick Santelli, live on CNBC from the trading floor of the Chicago Mercantile Exchange (CME), declared a rebellion against "socialism" one month into the Obama administration.
If you’re already sensing something amiss, that’s understandable. An editor at establishment NBC lighting the fire of an anti-establishment rebellion? An uprising over mere proposed Obama bailouts of mortgage holders coming four months after silence over (if not a defense of) George W. Bush's $700 billion TARP bailout of Wall Street? If this mainstream narrative seems fishy the more you delve into it, that is because it is.
What really happened 15 years ago and how was the Tea Party transformed from a libertarian grass-roots movement to today's almost completely dead establishment version? What are some of the lessons that can be learned?
The Ron Paul Revolution (October 2007) The ground-zero event that founded the Tea Party was the registration of the domain TeaParty07.com on October 24, 2007, by supporters of Ron Paul's first presidential campaign. Here is archive.org’s snapshot of the site on November 13, 2007 displaying the famous original curled flyer:
steinreich_1.jpg Twelve days after the site registration came Guy Fawkes Night on November 5, 2007, when Paul supporters set off the first "money bomb," a campaign fundraiser which (for Internet fundraising) raked in a record $4.3 million. Then on December 16, 2007, came the 234th anniversary of the Boston Tea Party. Paul supporters in Boston re-enacted the dumping of tea into Boston Harbor and a newcomer to politics, ophthalmologist Rand Paul, spoke at Faneuil Hall. A second money bomb set off on this commemoration of the Tea Party raised over $6 million, shattering the previous record set 41 days earlier.
What was this schism on the American Right about? It was a rebellion against the Republican Party's wars (in particular, the twin disasters of Afghanistan and Iraq), its drunken-sailor federal spending (e.g., a $500 billion unfunded expansion of Medicare for a new prescription drug program), and its burgeoning post-9/11 federal spy and police state (for example, the Patriot Act signed into law on October 26, 2001).
From Grass-Roots Activism to Big-Money Corporatism (February 2009)By February 2009, the GOP lay in complete tatters. In addition to its endless wars and domestic spending spree, it had added a $700 billion bailout of Wall Street after the financial crisis of 2008. This in addition to a series of earlier post-9/11 outrages including a new Transportation Security Administration (TSA) in November of 2001 (by all common sense, a massive encroachment on a function each airline should have been responsible for to begin with), the so-called No Child Left Behind Act in January of 2002, and a Frankenstein consolidation of 22 executive-branch agencies into a new, gigantic Department of Homeland Security (DHS) in November of 2002.
As if all that weren’t bad enough, instead of nominating Ron Paul in 2008, the GOP had nominated conservative "war hero" John McCain and Alaska governor Sarah Palin. A war-weary public completely rejected the ticket in favor of a younger, articulate Barack Obama who promised peace and a revived economy.
The Santelli rant sprang the conservative and GOP establishments into action to transform a marketing vehicle that would serve to not only distract the public from their recent colossal policy failures, but also serve as a gold mine of self-enrichment: t-shirts, coffee mugs, bumper stickers, Taxed Enough Already (TEA) yard signs, fluff books from the conservative pundit class, Glenn Beck rallies promoted by the Fox News Channel, and Rush-Limbaugh brand iced tea and children's books.
As Sarah Palin replaced Ron Paul as the face of the movement, a surreal change in advocacy followed. The anti-interventionist Tea Party, once outraged about the endless occupations of Afghanistan and Iraq, was now wanting the U.S. to bomb and invade Iran just as it had Iraq. Rally chants of "End the Fed" were replaced with “USA! USA! USA!” a paean to the U.S. military-industrial empire.
A Tea Party in February?By 2014, the faux Tea Party's fifth anniversary, it was clear that the mainstream media were firmly on board advancing the new, ersatz establishment narrative, as 2014 headlines such as "Tea Party Marks Fifth Anniversary" made clear.
Still, glaring inconsistencies remained. The grass-roots Paulist Tea Party began on December 16, 2007, the 234th anniversary of the original Sons of Liberty protest of 1773. The conservative and GOP forgery of February 19, 2009, was not connected to anything but the advancement of the self-serving and corporatist interests of Big Conservatism and the GOP. Even the latter’s supposed founder, Rick Santelli, was quickly pushed offstage while the Fox News Channel, Glenn Beck, Sean Hannity, Rush Limbaugh, and others took center stage.
Epilogue: Decentralization vs. Fighting to Gain Control of LeviathanWhile the Ron Paul Revolution, from the spread of homeschooling to Austrian economics, continues on fifteen years later educating people around the world, conservatives and the GOP in late 2022 find themselves in circumstances much like those of early 2009. Unfortunately, they have no quick scam to hoodwink the public with this time around.
The Trump presidency, bereft of any consistent underlying philosophy seen so clearly in both Ron Paul presidential campaigns, promised to drain the D.C. swamp but then, in complete contradiction, worked to maintain the empire by hiring a series of crazed war hawks (including Bush-era fossil John Bolton), bombing Syria, assassinating Iranian military officer Qasem Soleimani, and creating a new wing (Space Force) of the military-industrial complex that did little more over four years of Trump’s presidency than try its best to undermine Trump at every turn. Going along with the oppressive Fauci-Birx economy-killing COVID lockdowns and other measures sealed Trump’s fate in terms of destroying his chances of re-election.
While the conservative pundit class now focuses obsessively on the recent Twitter files documenting how social media actively worked against Trump’s 2020 re-election campaign, they are already quickly forgetting the 2022 midterm Big Red Wave that quickly vanished on election day, never mind their promised 2012 Mitt Romney landslide against Obama that never materialized.
While Twitter’s spiking of the October 14, 2020, New York Post story about Hunter Biden’s laptop undoubtedly had an impact on the 2020 election, in effect it was nowhere near the daily impact of the most successful progressive and Democratic Party super PAC that ever was: the government “schools.” The conservative pundit class has zero solutions to it other than vouchers and charter schools that only serve to shift and repackage Marxist indoctrination. They cannot comprehend the idea that once government has its hands on tax revenue, it has all the leverage and spends it in a manner that best advances its interests, which is always progressive causes.
Now pundits such as Laura Ingraham are seriously proposing that the GOP’s only way to counter the Democrats is to outdo the Democrats at their ballot-and-vote-manipulation schemes. (This from the woman who championed Mitt Romney over Ron Paul in 2012, then after Romney’s defeat, proposed reviving Richard Nixon’s Southern Strategy as the new ticket to endless future GOP victories.)
A national breakup is the only way to truly save Red states from the growing pathologies in the Blue ones (high crime, taxes, onerous business-smothering red tape), but the conservative pundit class won’t go for it in a million years. As part of his legacy, Ron Paul may have persuaded them to no longer want any part of new wars such as those in Syria and Ukraine that they would have loved under George W. Bush. However, they have no intention of truly dismantling the U.S. military-industrial empire. Leave Puerto Rico and Guam? Are you kidding?! USA! USA! USA!
Does 2022 America still have legitimate intellectuals? Professor Paul Gottfried joins Jeff and Bob to consider the state of real and pseudo-intellectualism.
Sometimes you encounter a proposal that is so daft that you think to yourself, “The author can’t be serious!” In today’s column, I’d like to discuss an example of this sort that comes from one of the world’s most eminent moral philosophers, Martha C. Nussbaum. In her article, “A Peopled Wilderness,” appearing in the New York Review of Books, December 8, 2022,
Nussbaum suggests that we need to think seriously about curbing predation in nature. It disturbs her that animals eat other animals: this is not how things ought to be. We must be careful in what we try to do to correct this morally bad state of affairs, since through lack of knowledge, we may worsen things; but this is no excuse to let matters slide.
To be clear, she is not just proposing that we should make sure that lions can’t get into the deer cage at the zoo; she is talking about the possibility of getting animals in the wild to cease to kill and eat each other. Her idea illustrates and extends a besetting sin of contemporary moral and political philosophy, its idle utopianism. The ordinary circumstances of the human condition are rejected, and philosophers devise fantastic schemes to remake the social and political world to their own liking. As Thomas Sowell says:
What they are seeking to correct are not merely the deficiencies of society, but of the cosmos. What they call social justice encompasses far more than any given society is causally responsible for. Crusaders for social justice seek to correct not merely the sins of man but the oversights of God or the accidents of history. What they are really seeking is a universe tailor-made to their vision of equality. They are seeking cosmic justice.
Nussbaum illustrates Sowell’s insight in a ludicrously extreme fashion. Here is what she says:
We are very ignorant, and if we tried to interfere with predation on a large scale, we would very likely cause disaster on a large scale. We basically have no idea of how species’ numbers would change, what shortages would be created, and we are totally unprepared for dealing with the likely consequences of such interventions. The only way we could protect weaker creatures from predation is by turning larger animal reservations into zoos of the bad old sort, with each creature or group in its own enclosure. . . On the other hand, the suffering of vulnerable creatures and their premature deaths matter greatly and seem to demand some type of intelligent action. It simply is not among the goals that make up the form of life of these creatures to be eaten by predators. Their form of life is their own, and they seek to live it undisturbed, just as we do, even though at times we too are also prey for aggressors. These species would not have survived if they were not pretty good at escape. To say that it is the destiny of antelopes to be torn apart by predators is like saying that it is the destiny of women to be raped. Both are terribly wrong, and demean the suffering of victims.
Nussbaum maintains that people have failed to recognize the need for reform of the natural world because of a false idealization of nature in the wild, and she has insightful comments on the prevalence of this idealization in the Romantic Movement. But her picture of the Romantics is one-sided: Tennyson famously wrote in In Memoriam of “Nature, red in tooth and claw/ With ravine” which “shrieked” against the creed that God is love.
I would say, rather, the reason that people have not in general attended to what Nussbaum deems a grave moral issue is that predation is part of the way the natural world exists, and it is not the business of ethics to endeavor to reconstruct nature.
Nussbaum has two arguments against this response, neither of which is adequate. First, she says “nature” can’t be considered apart from human beings: we now dominate the world and are thus responsible for what takes place within it:
All land in our world is thoroughly under human control. Thus ‘wild animals’ in Africa live on animal refuges maintained by the governments of various nations, which control admission to them, defend them from poachers (only sometimes successfully), and support the lives of animals in them through a range of strategies (including spraying for tsetse flies and many other matters). There would be no rhinos or elephants left in the world if humans did not intervene.
This passage makes an illicit jump. Nussbaum is right that in government-maintained animal refuges in Africa, measures have been taken to help animals in various ways. But it does not follow from this that most animals in the world lead lives supervised by governments. Most of the world’s land is under the control of some government or other, as she says, but the conclusion Nussbaum insinuates that most animals are under human control simply is not entailed by her premise. More fundamentally, predation was a natural fact long before humans arrived on the scene. We didn’t create it, and it is foolish to think we ought to alter it.
Nussbaum would counter my assertion with her second argument:
Used as a source of normative thinking in itself, the idea of Nature does not offer useful guidance. As John Stuart Mill correctly says, Nature is cruel and thoughtless.
This misses the point. The principal argument against her isn’t that nature in the wild is a normative ideal but rather that it isn’t a human responsibility to reform it. Ethics, at least if we confine ourselves to the secular realm, is about how human beings can best lead their lives, and to demand that we alter the way animals lead their lives is a foolish and presumptuous error.
Two caveats need to be added. I am not assuming that the secular world is “all there is,” but instead attempting to address Nussbaum on her own ground. Further, I am leaving aside altogether issues of how we should treat animals that come within our purview: I am not claiming it’s all right to set cats on fire for fun. I am, though, not much troubled by the fact that pet cats eat mice, as I gather that Nussbaum is.
Progressives seem to believe that we improve healthcare outcomes by spending more. This is a recipe for failure.
Original Article: "Spending More Government Money on Healthcare Does Not Improve Health Outcomes"
This Audio Mises Wire is generously sponsored by Christopher Condon.
More than ninety central banks worldwide are increasing interest rates. Bloomberg predicts that by mid-2023, the global policy rate, calculated as the average of major central banks’ reference rates weighted by GDP, will reach 5.5%. Next year, the federal funds rate is projected to reach 5.15 percent.
Raising interest rates is a necessary but insufficient measure to combat inflation. To reduce inflation to 2%, central banks must significantly reduce their balance sheets, which has not yet occurred in local currency, and governments must reduce spending, which is highly unlikely.
The most challenging obstacle is also the accumulation of debt.
The so-called “expansionary policies” have not been an instrument for reducing debt, but rather for increasing it. In the second quarter of 2022, according to the Institute of International Finance (IIF), the global debt-to-GDP ratio will approach 350% of GDP. IIF anticipates that the global debt-to-GDP ratio will reach 352% by the end of 2022.
Global issuances of high-yield debt have slowed but remain elevated. According to the IMF, the total issuance of European and American high-yield bonds reached a record high of $1.6 trillion in 2021, as businesses and investors capitalized on still-low interest rates and high liquidity. According to the IMF, high-yield bond issuances in the United States and Europe will reach $700 billion in 2022, similar to 2008 levels. All of the risky debt accumulated over the past few years will need to be refinanced between 2023 and 2025, requiring the refinancing of over $10 trillion of the riskiest debt at much higher interest rates and with less liquidity.
Moody’s estimates that United States corporate debt maturities will total $785 billion in 2023 and $800 billion in 2024. This increases the maturities of the Federal government. The United States has $31 trillion in outstanding debt with a five-year average maturity, resulting in $5 trillion in refinancing needs during fiscal 2023 and a $2 trillion budget deficit. Knowing that the federal debt of the United States will be refinanced increases the risk of crowding out and liquidity stress on the debt market.
According to The Economist, the cumulative interest bill for the United States between 2023 and 2027 should be less than 3% of GDP, which appears manageable. However, as a result of the current path of rate hikes, this number has increased, which exacerbates an already unsustainable fiscal problem.
If you think the problem in the United States is significant, the situation in the eurozone is even worse. Governments in the euro area are accustomed to negative nominal and real interest rates. The majority of the major European economies have issued negative-yielding debt over the past three years and must now refinance at significantly higher rates. France and Italy have longer average debt maturities than the United States, but their debt and growing structural deficits are also greater. Morgan Stanley estimates that, over the next two years, the major economies of the eurozone will require a total of $3 trillion in refinancing.
Although at higher rates, governments will refinance their debt. What will become of businesses and families? If quantitative tightening is added to the liquidity gap, a credit crunch is likely to ensue. However, the issue is not rate hikes but excessive debt accumulation complacency.
Explaining to citizens that negative real interest rates are an anomaly that should never have been implemented is challenging. Families may be concerned about the possibility of a higher mortgage payment, but they are oblivious to the fact that house prices have skyrocketed due to risk accumulation caused by excessively low interest rates.
The magnitude of the monetary insanity since 2008 is enormous, but the glut of 2020 was unprecedented. Between 2009 and 2018, we were repeatedly informed that there was no inflation, despite the massive asset inflation and the unjustified rise in financial sector valuations. This is inflation, massive inflation. It was not only an overvaluation of financial assets, but also a price increase for irreplaceable goods and services. The FAO food index reached record highs in 2018, as did the housing, health, education, and insurance indices. Those who argued that printing money without control did not cause inflation, however, continued to believe that nothing was wrong until 2020, when they broke every rule.
In 2020-21, the annual increase in the US money supply (M2) was 27%, more than 2.5 times higher than the quantitative easing peak of 2009 and the highest level since 1960. Negative yielding bonds, an economic anomaly that should have set off alarm bells as an example of a bubble worse than the “subprime” bubble, amounted to over $12 trillion. But statism was pleased because government bonds experienced a bubble. Statism always warns of bubbles in everything except that which causes the government’s size to expand.
In the eurozone, the increase in the money supply was the greatest in its history, nearly three times the Draghi-era peak. Today, the annualized rate is greater than 6%, remaining above Draghi’s “bazooka.” All of this unprecedented monetary excess during an economic shutdown was used to stimulate public spending, which continued after the economy reopened… And inflation skyrocketed. However, according to Lagarde, inflation appeared “out of nowhere.”
No, inflation is not caused by commodities, war, or “disruptions in the supply chain.” Wars are deflationary if the money supply remains constant. Several times between 2008 and 2018, the value of commodities rose sharply, but they do not cause all prices to rise simultaneously. If the amount of currency issued remains unchanged, supply chain issues do not affect all prices. If the money supply remains the same, core inflation does not rise to levels not seen in thirty years.
All of the excess of unproductive debt issued during a period of complacency will exacerbate the problem in 2023 and 2024. Even if refinancing occurs smoothly but at higher costs, the impact on new credit and innovation will be enormous, and the crowding out effect of government debt absorbing the majority of liquidity and the zombification of the already indebted will result in weaker growth and decreased productivity in the future.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop are joined by Derek Dobalian, a California-based attorney, LewRockwell.com contributor, and a friend of the Mises Institute. This week's episode looks at the role Christianity has historically played in creating a bulwark against totalitarian regimes, and how cultural secularization has coincided with the rise of the total state.
Looking for Christmas gifts? Use promo code ROTHPOD for a 20% discount on select books featured on Radio Rothbard. Or, use code MURRAYCHRISTMAS for a special 10% discount on select new Mises apparel: Mises.org/RR_112_Store
Recommended Reading"Why the State Exists" by Derek Dobalian: Mises.org/RR_112_A
"The Left's Conquest of the Church" by Derek Dobalian: Mises.org/RR_112_B
"The Unholy Trinity and the Total State" by Derek Dobalian: Mises.org/RR_112_C
"Antonio Gramsci: The Greatest Political Strategist in History" by Daniel Ajamian: Mises.org/RR_112_D
"Caesar Is Not God. God Is Not Caesar." by Ryan McMaken: Mises.org/RR_112_E
"Vulnerable Before the Jealous State" by Gary North: Mises.org/RR_112_F
"The Cost of the Enlightenment" by Daniel Ajamian: Mises.org/RR_112_G
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Thomas Paine, whose fiery essay "Common Sense" made a case for the American Revolution, is a much-neglected American founder.
Original Article: "Born on the Tenth of January"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Federal Reserve's Federal Open Market Committee (FOMC) on Wednesday announced it will raise the target federal funds rate by 50 basis points, bringing the target rate to 4.5 percent. Wednesday's rate hike followed four hikes in a row of 75 basis points, and is the smallest rate hike since March.
According to the FOMC's press release, the committee voted unanimously for the half point hike, pointing out that "[price] inflation remains elevated" while also dogmatically (and wrongly) placing the blame for a year of 7-point-plus price inflation on "supply and demand imbalances related to the pandemic" and "Russia's war against Ukraine."
The 50 basis-point increase had been predicted by many finance pundits following Tuesday's print of a 7.1 percent CPI inflation rate. The reasoning is that since price inflation eased somewhat in November from June's high of 9.1 percent, this would mean the Fed would be less aggressive with rate hikes.
This proved to be true, although it was clear from Powell's press conference that the Fed is still at least attempting to put on a hawkish face and send the message that it plans to keep hiking rates and otherwise embracing "restrictive" monetary policy.
For example, Powell insisted that “we continue to anticipate that ongoing increases will be appropriate” so that they are “sufficiently restrictive.” and he reiterated the committee is "strongly committed" to bringing down inflation and that "we still have a long way to go."
Good Reasons to Think the Fed Will Cave to Pressure in 2023A "long way to go" is a rather subjective measure, however. The FOMC's Summary of Economic Projections (SEP) showed that most members of the committee believe the target policy rate will peak at 5.5 percent or less in 2023 and then fall back below 5 percent by 2024. In other words, most on the FOMC believe only two more hikes of 50 basis points are going to be "needed"—at most—and the FOMC would then get back to cutting the target rate yet again by mid 2023.
So, while Powell's tone was undoubtedly hawkish, the Committee gave many reasons to look for a return to Fed easing just a few months away.
Indeed, market indicators suggested that markets are skeptical of the Fed's hawkish bluff. Bond prices headed up—i.e., yields went down—in the wake of Powell's press conference. Or, as Bloomberg noted Wednesday:
After buckling on what was initially seen as tough-love message from the Fed, bond prices reversed course as investors bet that the central bank would execute a U-turn next year and eventually end up cutting interest rates as the economy falters.
“The market is not buying the Fed’s increasingly hawkish position that they are going to raise rates to a higher-than-expected level and keep them there,” said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. “The market clearly thinks inflation is going to be on a much more desirable path than the Fed is anticipating.”
Of course, "a more desirable path" for price inflation is exactly what we should expect when economic indicators point to recession as they do now. With savings rates plummeting, disposable income disappearing, credit card debt soaring, real wages falling, and an inverted yield curve, there's every reason to expect falling economic activity, and with it, slowing price growth. After all, even the Fed's SEP prediction for economic growth in both 2022 and 2023 is a paltry 0.5 percent. Given that the Fed virtually always takes a rosy view of the economy, this might as well be an admission of an ongoing de facto recession.
Unemployment Lags the Interest RateMoreover, we have yet to see the effects of the end of the ultra-easy-money boom playing out in real time. We live in an economy that's increasingly dependent on constant new infusions of fiat money. Once that even slows, we should expect rising unemployment. But, there's no reason to expect to see rising unemployment in the early phase of a Fed tightening cycle. History shows that rising unemployment tends to come months after the Fed ends its tightening and reverts to a loosening cycle. We can see this in the delays between peaking fed fund rates and peaking unemployment rates. For example, in the leadup to the recession in the early 1990s, the federal funds rate started going down again in June 1989. But unemployment did not peak until the summer of 1992. Similarly, the federal funds rate began to fall in late 2000, but unemployment in the dot-com bust did not peak until the summer of 2003:
So, a return to the Fed lowering rates hardly means the economy is out of the woods, and this uncertainty reminds us that the Fed is winging it when it comes to what it will do next. In recent months, the FOMC has eliminated forward guidance as it has been forced to face the reality it was very wrong about "transitory" inflation and the Fed's ability to stop inflation before it started. The Fed had promised for months that it had a secret plan that would make everything turn out well. But nowadays, the Fed no longer even attempts to keep up the pretense that it has the situation well in hand. Thus, Wednesday's press conference lacked all the cocksure pronouncements of there being no recession on the horizon, and how the Fed would guide everything to a favorable end. Powell instead was saying things like "I don't know what we'll do [at the next meeting]" and "I don't think anyone knows if we're going to have a recession or not." He even said at one point "this is the best we can do."
Wall Street Is Still Planning on a Soft LandingMarkets, however, continue to cling to the idea that a soft landing is coming, and this is why there is relatively little alarm over the Fed's predictions of weak economic fundamentals next year and continued inflation. Markets continue to indulge in quite a bit of wishful thinking in the narrative that mere moderation in the economy—with a mild recession at worst—will bring inflation down, and then that the Fed can return to pumping out a wave of easy money. In other words, the hope—and hope is all it is—is that there will be a few weak months in early 2023, but then easy money will bring all the usual asset price inflation roaring back. This is what the banker and investor classes—not to mention Biden and Congress—so desperately want and need.
What about the Fed's Portfolio?That said, the Fed continues to provide Wall Street with a good reason to believe that there will be no sustained monetary tightening. For this, we need only look to the lack of action on the Fed's portfolio. For months, the FOMC has repeatedly stated that it is "significantly reducing its balance sheet," yet in the six months since the balance sheet peaked, it has been reduced by only 3.4 percent of $8.9 trillion. One might claim that is indeed "significant" in that it is not zero, but it hardly points to aggressive tightening on the part of the Fed.
Rather, the Fed know that any sizable reduction in the balance sheet would cause government bond yields to soar upward and this would be disastrous for federal debt obligations. Washington won't let the Fed do that.
Austerity works. We know what it is and don’t like it, but it works. It usually means cutting your consumption and spending, paying down your debts, pawning assets, and working more hours to restore your economic situation.
You might invoke “austerity” because you lost your job, your house burned down, or you have an unexpected child on the way. You might take similar actions if the economy was in crisis. It’s essentially the same thing as cutting expenses to save for a down payment on a house, paying for a child’s education, or accumulating a fund for retirement.
Companies do likewise; delaying expansions, laying off workers, cutting expenditures, working longer hours, and selling off assets. The accounting aspect of the problem is straightforward: cut expenses, increase revenues, pay off debt, and balance your budget.
In recent decades, the term has been increasingly applied to governments reacting to revenue shortfalls, burgeoning debts, credit downgrades, and creditor mandates. Although painful, austerity works fine and dandy for individuals and companies, but there can be a big problem when it is applied to government. This article explains how austerity works to solve economic and government problems and how politicians and bureaucrats undermine the process and the economy, for their personal enrichment. This will codify the proper meaning of the policy and undermine the opponents of austerity who directly benefit from government largesse. Austerity is the muscle behind the economic recovery process.
Austerian EconomicsRob Parenteau, of The Richebacher Letter, coined the phrase “Austerian” economics to describe the penchant for austerity policies, like budget cutting and deflation, that are often advocated by Austrian School economists. Paul Krugman, the uber driver of modern Keynesianism, uses the phrase regularly, considers it a dangerous delusion, a collapsed ideology, and its intellectual case bankrupt. Hyperbole aside, the phrase is an attempt to chide advocates with a play on words that combines the policy recommendations for austerity with the Austrian school of economists who support such remedial policies.
Most bureaucrats, economists, and politicians abhor the idea of cutting government budgets for any reason and prefer generous and rigorously funded budget increases all the time. Here, the normal reluctance and even embarrassment of individual austerity morphs into a calamity against humanity when applied to governments. What the individual realizes as a path to self-improvement, is taken as intolerable by politicians and bureaucrats. It is only a last resort.
The opposition view of austerity beams directly from self-interest, not science. More importantly, the policy’s effectiveness depends on the type of austerity invoked. The interests of politicians and bureaucrats bias the measures used to balance the budget and this negatively impacts the effectiveness of austerity in restoring the economy to prosperity. In the name of “austerity,” politicians will promote policies that are ineffective and destructive, undermining the perceived effectiveness of the policy.
For example, “Austerity” policies can involve tax cuts and tax increases. Tax cuts lead to an increase in the production of economic goods, like food. In contrast, tax hikes can lead to an increase in revenues in the short run and might be able to increase the production of non-economic goods, such as space shuttles, but they undermine economic recovery and the standard of living. Hikes can even increase GDP in the short run, such as during wars, but tax cuts will increase the production of goods, prosperity, and the standard of living, which will be reflected in GDP, over the long run.
A proper austerity policy package contains tax cuts, but not tax increases, or new types of taxes. If left to politicians and bureaucrats, an austerity package tends to be big on tax increases and small on tax cuts, with no taxes permanently eliminated.
All austerity policies involve spending cuts, but what type of spending is cut and by how much? For example, permanent cuts that eliminate certain functions of government will have a salutary economic effect of freeing up resources, intensifying competition, increasing productive jobs, and reducing risks to entrepreneurs. This is particularly true for younger people, who should rightly worry that their effort and capital will be destroyed in the future by higher taxes and inflation. Small, temporary spending cuts don’t fix the underlying problem and don’t address these critical longer-term issues.
On the spending side, politicians and bureaucrats will focus on temporary cuts and cuts targeted at government (monopoly) services. The usual suspects here would include, the government’s garbage collection service, license and passport application services, and access to national parks. Unchecked governments will maximize the pain on citizens to increase support for more revenues to save bureaucratic jobs and interest group spending. It’s more like a hostage situation than a rational budgetary debate.
One of my own experiences that illustrates this point occurred when I was a graduate student instructor of economics. The university budget had to be cut during the fiscal year because the state was experiencing less than projected revenues flows to meet budgeted expenditures. We were in “proration.” This meant a freeze on new hirings, but current employees, their pay, and benefits received could not be touched. It turned out that virtually the only item not exempted by the spending freeze was photocopy paper. This paper was integral to the one tangible thing the economics department did for their money--our only “deliverable” to the taxpayers—to test and grade the students!
If the hostage taking tactic fails, opponents of austerity policies will resort to the notion that cutting government spending is self-defeating. They argue that it will reduce aggregate demand, GDP, and tax revenues—compounding the existing problem. They portray government spending as necessary to keep the “animal spirits” at bay in our investment markets. Deficits are “investments” that grow the economy. Government investment has a multiplier effect, that is a goose that laid the golden egg. This is all Keynesian hucksterism at its finest, as Professor Salerno has explained.
Work Makes Austerity WorkEffective austerity policies start with large permanent budget cuts that result in the elimination of jobs, activities, programs, policies, and asset holdings by the government. Imagine government employees running out of the office building, desks and computers flying out the windows, and whole buildings emptied, even clearing the scene down to bare land, as a cradle of opportunity and productivity.
This scorched-earth mindset to austerity is what makes it work. It makes large amounts of labor available, reduces government expenditures on goods and services, and increases the amount of available land and real estate that was formerly controlled by the government. Programmatic spending cuts can even necessitate additional tax reductions that increase production even further.1
Resources are freed up and reallocated to the productive sector and people are transformed from “tax eaters” to “taxpayers.” The former government-controlled resources will be more efficient under for-profit management and more productive with the introduction of incentives and the elimination of guarantees. The power of consumer sovereignty leads to increased production of goods and services, improvements in service and availability, and greater levels of consumer satisfaction while at the same time expanding the potential tax base.
Reallocating government employees back to the market increases the supply of labor,2 increases its availability, and reduces its price, i.e., wage. Cuts to government spending on office furnishings, electricity, computers, parking, paper, etc. also increase the availability of such resources and reduce the price of those items, which companies also use. Finally, the government is the biggest owner of land, real estate, and facilities most of which have productive uses in the private sector.3 Even the smallest level of experience with how government and the market works will make you realize that this is not a simple transfer with zero-sum benefits, but a boon to society.
Lowering the price of resources is a big help to the private sector. It uses resources efficiently and increases productivity and always provides products of more value than price; something the government can’t. Companies will experience an initial increase in profits, but the long run results include increased competition and lower prices, increased efficiency, and productivity, and, of course, increased production, output, sales, and consumption. The economic pie gets larger. Shares of the pie are rewarded to contributors (labor, capitalists, resource owners, and entrepreneurs) while less is redistributed by decree (bureaucrats, politicians, government contractors, and welfare recipients). That obviously spurs production and is fairer.
EvidenceThe validity of austerity to fix economic problems seems superabundant to me given that virtually everyone I know has had to resort to tightening their belts on several occasions and has succeeded. Companies also do this on a regular basis; adjusting their workforce, selling assets, discontinuing lines of production, cutting dividends, etc. to meet company goals and to survive.
It also can work in the case of governments. There are many different reasons why governments fail and become economic problems for citizens to fix. It may take a long time in free societies, but government is a failure waiting to happen. You know the story. Government grows relative to its host economy, it becomes increasingly entrenched and dysfunctional, it favors failure and ne’er-do-wells, attacks success, and harbors slackers. It resorts to borrowing and inflation for debt financing to reduce the perceived cost of government—taxation. All those tendencies eventually result in the economic crisis created by runaway government spending.4
What type of austerity works with government? The book by Harvard economist Alberto Alesina, and Carlo Favero and Francesco Giavazzi, Austerity: When It Works and When It Doesn’t, examines thousands of fiscal measures implemented by 16 advanced economies since 1970. They divide these various austerity plans into those that rely mainly on tax increases and those that rely mostly on spending cuts. They find that tax increase plans are deeply recessionary in the short and medium terms and are ineffective at addressing the problems of debt. They also found that expenditure reduction plans, are not deeply recessionary in the short and medium terms (in terms of GDP statistics) and are effective at addressing the problems of debt, while promoting economic growth.5
The evidence supports the case for austerity for individuals, companies, organizations, and governments. Don’t be fooled by gimmicks, austerity involves significant spending cuts and the difficult decision making over priorities to either fund or eliminate. In the case of a government in economic crisis, there will be plenty of pain in the short run distributed to those with connections to government, but also capitalists, entrepreneurs, resource owners, and labor.
In the longer term there will be great benefits for all. The guidelines to success are a reduction in the scope of government and greater economic opportunities to work in the marketplace for all.
Cite my austerity articles:Real Austerity https://mises.org/library/real-austerity 2/25/13
An End to Austerity: https://mises.org/library/end-austerity 2/27/14
Interview on the Tom Woods Show on “austerity”: https://tomwoods.com/ep-113-has-austerity-failed/
Review: Austerity: When It Works and When It Doesn’t: https://mises.org/library/review-austerity-when-it-works-and-when-it-doesnt QJAE Spring 2019.
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- This needs to be discussed in the context of privatization in a separate article.
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- Government controlled resources are sometimes poorly suited to production in the private sector. One particular concern is government employees because they have limited experience with real world work conditions and they have also been “conditioned” by their environment of rule-guided behavior and a limited experience with carrying out company directives and goals, which are necessarily subject to change. Lage-scale abandoned buildings tend to have been built for government and the military, although some are the result of economic policies, such as protectionism.
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- I will address the topic of government asset sales in a subsequent article.
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- The active ingredient in an economic crisis is government spending. It is increased and facilitated by government deficit spending and borrowing that allows the spending problem to accumulate over time in the form of debt. Central bank inflation disguises the problem further and creates problems of its own. The pinnacle of the problem occurs because of the increased public and private spending during an inflation boom and is finally exposed during the ensuing bust when spending would otherwise explode due to “safety net policies” and the sharp contraction in tax revenue.
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- Mark Thornton, Review of Austerity: When It Works and When It Doesn’t, by Alberto Alesina, Carlo Favero, and Francesco Giavazzi, Princeton: Princeton University Press, 2019, xvi + 245 pp.
[This article is the foreword to Breaking Away: The Case of Secession, Decentralization, and Smaller Polities, by Ryan McMaken, available in PDF, at the Mises store, and on Amazon.]
Classical liberal tradition defends the right of secession on many grounds. One of the main reasons is that the territorial dispersion of power limits political domination much more than formal constitutions do. Small states cannot easily adopt protectionist policies and their political classes are closely controlled by the citizens; in addition, redistribution is more difficult and rulers have more direct information about their own reality. Besides that, nationalism is a nonsense in a tiny jurisdiction of only 30,000 people (as in the case of Liechtenstein). Therefore, if we want to protect our fundamental rights, we need competing small states and the best way to enlarge the market is to multiply the jurisdictions.
In Breaking Away, Ryan McMaken takes up and elaborates on a number of libertarian arguments supporting self-government and he draws attention to an issue that is not always examined: that of defense and peace.
In the most glorious times of Dutch history, at the entrance to the port of Amsterdam there was this motto: Commercium et pax (trade and peace). Free market, social cooperation, and cultural dialogue always go hand in hand. That is why it is not surprising that in so many protagonists of classical liberal thought—from Montesquieu to Constant, from Cobden to Bastiat—free trade is associated with peace. By consequence, a libertarian defense of local self-government can be supported by a strong emphasis on the idea that processes of political disintegration would make a less conflictual world possible.
Yet for five centuries, the state has derived its legitimacy from the claim to guarantee order and avoid chaos. This thesis, in particular, is central to the philosophy of Thomas Hobbes. Similarly, any process of unification always implies that the territorial dispersion of power would be accompanied by tensions, whereas unifications would guarantee harmony between peoples. For many people, talk of political division would already imply some disharmony and enmity.
On the contrary, against this Kantian idea of a global federation leading to the disappearance of borders, McMaken repeatedly focuses on the link between a peaceful international order and the diffusion of local self-government.
The analysis of sovereignty, territoriality or any other aspect of the modern state could take a lifetime, without achieving an understanding of which of these elements most characterizes this institution. However, it is clear that one must look at the state as a machine aimed at centralizing all decision-making power.
As McMaken points out, the state tends to enlarge: “mega-states are the ideal state.” After all, in the early modern age the model of statehood (France) emerged at the end of a process of enlargement that wiped out autonomy and diversity, laying the foundations for a growing homogenization of what had previously been a very linguistically, historically, and culturally articulated and inhomogeneous area.
Today one of the most used arguments in support of unification processes (against any hypothesis of secession of individual American states, against any skepticism toward European unification, and so on) is that only by building very large political entities is it possible to ensure effective defense: against China, Russia or any other state power.
The first objection is that if wars are waged by states, then it is necessary to overcome state logic in order to arrive at a more peaceful world. The more the number of states increases, the less they can really be ascribed to the state model. As Hegel pointed out, in some situations quantity can become quality.
However, the question remains as to how a collection of small entities that are much more respectful of individual rights can counteract large imperialist powers.
Basically many people think that large states are more militarily powerful. Obviously, this is not totally false, but we should compare a large armed state and an alliance of small jurisdictions emerging from the dissolution of big institutions. McMaken’s thesis is that the freedom provided by local self-government confers more economic dynamism, better technology, and greater attachment to one’s local reality. Moreover, it is not altogether surprising that during the last century great military powers have been in trouble when they have tried to occupy small localities where citizens were prepared to become soldiers to defend their families and homes.
After all, even if historians are still very uncertain about various aspects of those events, the Greek-Persian wars cannot be remembered as an undisputed triumph on the part of the most compact and unitary conglomerate.
In the end, in this contrast between those who believe that one must accept (even reluctantly) to be part of a large state in order to avoid a conquest and those, instead, who believe that even in such a case it is important to understand the advantages of the dispersion of power, we find ourselves faced with that misunderstood trade-off between freedom and security. And so it is always worth remembering the lesson of Benjamin Franklin, who was convinced that “those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”
The problem is that, as the history of large states shows very well, choosing security without freedom leads to losing both rights and peace.
America's military technocrats (a.k.a. "generals") specialize in losing wars and also losing your money. Naturally, Congress wants to give them even more taxpayer cash.
Original Article: "As the Pentagon Fails Another Audit, Congress Wants to Spend Even More on "Defense""
This Audio Mises Wire is generously sponsored by Christopher Condon.
The evidence from the last thirty years is clear. Keynesian policies leave a massive trail of debt, weaker growth and falling real wages. Furthermore, once we look at each so-called stimulus plan, reality shows that the so-called multiplier effect of government spending is virtually nonexistent and has long-term negative implications for the health of the economy. Stimulus plans have bloated government size, which in turn requires more dollars from the real economy to finance its activity.
As Daniel J. Mitchell points out, there is evidence of a displacement cost, as rising government spending displaces private-sector activity and means higher taxes or rising inflation in the future, or both. Higher government spending simply cannot be financed with much larger economic growth because the nature of current spending is precisely to deliver no real economic return. Government is not investing; it is financing mandatory spending with resources of the productive sector. Every dollar that the government spends means one less dollar in the productive sector of the economy and creates a negative multiplier cost.
When society decides to use a certain part of the resources generated by the productive sector for non-economic return activities, be it social spending or mitigation of threats, it can only do it by understanding how much of the productive capacity of the economy is able to sustain a larger cost. When costs are not considered as a burden, but considered as entitlements that can only grow, the productive capacity is not strengthened, but weakened.
The main problem of the past decades, but particularly since 2008, is that government spending and monetary policy have become solutions of first resort to any slump in economic activity, even if that decline was created by government decisions, such as shutting down the economy due to a health crisis. Furthermore, government spending increases, and loose monetary policy continued even in growth periods. This, in turn, creates an unsustainable public deficit that needs to be monetized or refinanced. Both mean a larger harm for the productive sector as the debt increase leads to higher taxes for everyone but also a soaring cost of living coming from the destruction of purchasing power of the currency.
Government spending does not boost private sector activity, even less so when the entire budget is spent on non-investment outlays. It is even worse when citizens believe that infrastructure or real economic return investments should be conducted with taxpayers’ money. If an investment is productive and economically viable there is no need to involve the government. At best, the government should only participate as a co-investor, as the example of technology and defense shows, but never as a resource allocator for a simple reason. Public intervention is always aimed at perpetuating the existing inefficiencies and maximizing the budget. Efficient resource allocation cannot come from entities that have a core interest in expanding the budget and always perceive any inefficiency or poor result as the consequence of not having spent enough.
The past three decades have shown us that each recovery from a crisis is slower, with less productivity growth, weaker real wage growth and employment. This has coincided with the arrival of trillion-dollar spending and “stimulus” plans that balloon each time but never deliver a sustainable and productive improvement. That is why debt continues to rise and deficit spending is never truly eliminated.
The answer from Keynesians is that government spending is the driver of economic growth and helps the private sector recover, while deficits and debt are just creating “reserves” for the private sector, because one unit of debt is one unit of saving. Is it not great? Even if you believed this nonsense, what they are saying is that your savings are at the disposal of government and that all private activity is at the service of the public sector, not the opposite.
Government spending consumes capital. It does not create it. As such, government spending must be seen as the last resort option, not the first one. When it becomes larger and too big to curb, it simply consumes more capital through taxation and inflation. Government spending needs to be seen as a service provider, which needs to limit its activity precisely to avoid the destruction of its own clients. Like a business that provides a service, it may go bankrupt if the service cost is unaffordable for its customers. The intrinsic negative aspect of government is that when the service cost exceeds the affordability of the private sector, the ones that go bankrupt are the agents of the productive sector.
Higher government spending financed with rising taxes and weakening of the purchasing power of the currency is just a form of nationalization of the private sector.
The reason it is an unwise decision to increase government size in a crisis and perpetuate it in growth times is because it does not suffer the result of the weakening of the economy. Some services may need to rise in a crisis, unemployment benefits or healthcare, but prioritizing is what an administration should do. There is no such thing as an administration if the members perceive that everything must be solved by spending and taxing more.
The global economy is now on the verge of another recession after trillions of dollars of public stimulus plans and monetary injections. The narrative is that it is all due to a war in Ukraine and a few rate hikes, but that is simply laughable. The global economy is entering a productive sector recession because the unprecedented spending plans of the past years have delivered no benefit to the economy, have zombified hugely indebted economies and have crowded out the ability of the private sector to invest more in times of opportunity.
Some will say it was because the government did not spend enough. Sigh.
The economy’s capital is being swallowed by a rising government that always blames the most productive for not contributing enough.
Every single unit of government spending is paid by you, with more taxes, more inflation or both. All government excess makes you poorer. The government does not give you free money, it gives you expensive destruction of your options for a better future.
Constantly rising government spending is not increasing choice, freedom, and economic prosperity, it is a slow nationalization of the economy. When inflation and stagnation set in, your dependence on government will be such that you will not be able to complain and will only hope that government will absorb more external resources to compensate you. It does not happen.
We all understand how bad a monopoly is. Now think of what a government monopoly is because it has the power of repression and coercion.
Following the attack on Paul Pelosi, the Capitol Police office has demanded a big budget increase. This is not to increase safety but rather to increase the agency's bureaucratic reach.
Original Article: "Paul Pelosi Is Attacked, So Naturally the Capitol Police Want More Money"
This Audio Mises Wire is generously sponsored by Christopher Condon.
An excellent new book from Edward Chancellor, The Price of Time, sets out to explain both the theory and history of interest rates across five millennia and countless cultures. The theory is frequently bungled by economists; the history is frequently glossed over by historians. But thankfully Mr. Chancellor is up to the task. He is an excellent and engaging writer, owing presumably to his long career as a financial journalist.
We need more books like this. Economists tend not to ask basic questions like, "What are interest rates, where do they come from, and what purpose do they serve?" But they should. No less than Richard Cantillon and Eugen von Böhm-Bawerk, both quoted in the opening notes, viewed the phenomenon of interest on capital as the murkiest and most neglected area of economics. As it turns out, Smith, Marx, and Keynes got these questions wrong; Turgot, Böhm-Bawerk, and Mises got them right.
The author is not an Austrian per se. But he demonstrates sympathy to the proto- Austrian concept of time preference, and the book's title centers time as his central theme. His treatment is not ideological so much as cautionary and generally "free market", as much of the book documents the folly of government officials and bankers mucking around with the market function interest rates ought to serve.
Time, not "policy," is key to understanding interest rates. As the author states in his introduction, "Time is scarce, time has value, interest is the time value of money." And interest resides at the intersection of price and value: Chancellor tells us the time value of money is the "lies at the heart of valuation."
Chancellor also channels Irving Fisher and Mises early in the book, two men who agreed on little beyond Fisher's insight that man's "impatience" (positive time preference) is a fundamental attribute of human nature." And he mentions Rothbard, who expands time preference into an axiom whereby all men prefer current consumption to future consumption and thus discount future satisfactions. After all, life is uncertain and we might die-- or merely change our preferences for future goods. A brand new car today, purchased on credit, might bring "want satisfaction" greater than the pain of making interest payments. And in fact very few Americans appear willing to drive an old car for years to save money for a cash purchase.
Once we accept the axiom that humans prefer present consumption (all things equal), it follows that any "natural" rate of interest must be at least nominally positive. Nobody will forego consumption and lend money—with the attendant risks—to be paid back less.
Thus in the Austrian framework, interest is a ratio representing the discount (which arises in the market economy) for future goods against present goods. Like all goods and services, interest is about want satisfaction. Interest is rooted in time, in the intertemporal preferences of saver and borrowers. And these preferences, left unmolested by fiscal or central bank policy, manifest as natural or "originary" interest rates. Interest operates as a category of human action, under the axiom (again, all things equal) that humans prefer present to future goods.
And yet this time-preference theory of interest still fights for its just recognition. Classical economists expended barrels of ink on the idea of interest as a reward, a return on the use of capital, with the rate set by supply and demand. But Mises demurred; interest is not the equilibrium price determined on the market by supply and demand for capital goods, but rather a reflection of the time preferences operating among individuals in society. Marxists took their conception of interest even further afield, predictably viewing it as another undeserved exploitation of value created solely by labor. Marxist economists thought it bad enough to have so much capital amassed in the hands of so few, but the bastards even charge rent for using what they stole! Yet rather than connect the rate of interest to the rate of profit, Marxists argued that capitalist innovation in money leads to an even greater concentration of (monetary) capital in the hands of the ownership class. This produces downward pressure on rates in the long run and leads to a circulation of monetary interest purely among the unproductive, skimming rich.
Finally Keynes came along and repositioned interest as the reward for giving up cash liquidity, for putting one's saved wealth at play rather than spending it or stuffing it into a mattress. But then Keynesians—often worse than Keynes himself—turned this into demand-side mania. They ended up ignoring Say's Law and adopting consumption as their north star, which requires constant stimulus of either the fiscal or monetary variety. And so along the way they turned interest rates into policy tools to be set and tinkered with by bankers, rather than market mechanisms to direct capital to its best and highest uses. This paved the way in the 20th century for widespread and degraded macroeconomic intervention in the guise of "monetary policy."
Economist Roger Garrison nicely summarized the difference between interest theory before and after Keynes:
As theory and policy have developed, the terms "natural rate" and "neutral rate," though seeming synonyms, provide a contrast between pre-Keynesian and post-Keynesian thinking. Although "natural" and "neutral" are sometimes used almost interchangeably, there is an important conceptual distinction in play: the natural rate of interest is a rate that emerges in the market as a result of borrowing and lending activity and governs the allocation of the economy's resources over time. The neutral rate of interest is a rate that is imposed on the market by wisely chosen monetary policy and is intended to govern the overall level of economic activity at each point in time. Exploring this distinction and its implications can go a long way toward understanding the current state of Federal Reserve policymaking and the difficulties that a central bank creates for the market economy.
Today's central bankers may scoff at the idea of a "natural" interest rate. But only Father Time helps us cut through the policy nonsense and understand interest rates conceptually—as a noble and necessary market phenomenon. Time ravages all of us, and thus we must consider the heavy price of waiting until tomorrow for what we desire today. Self-styled macroeconomists would do well to read Mr. Chancellor's excellent book and gain a better understanding of this inescapable human reality.
“It is not Wisdom but authority that makes a law.”
-- Thomas Hobbes
That meal, guest or package that came to your front door this month is part of a massive delivery industry. Free Range Entrepreneurs (FREs), drivers whose transportation work is varied, temporary, and frequently changing, are critical to our economy and all consumers. It is a national market with State rules. A self-regulating, wage clearing market, with high turnover.
The Administrative STATE is threatened. It has unleashed Leviathan. It is from the Government, and it is here to help.
Deft management of multiple delivery applications and independence allows these entrepreneurs to move to areas of highest need. It may be food delivery or transit needs after a Concert, or medical support.
The US online food delivery market, combining platform and restaurant to customer, is a 23.4-billion-dollar market in 2021. Two thirds are digital platform-to-customer. The market grew so fast during Covid restaurants had trouble keeping up, needing to limit online orders.
Door Dash has twenty-five million users and controls 45 percent - 50 percent of the platform food delivery market. Uber Eats claims control of 24 percent of this market, and recently bought Postmates 3 percent share. Grub Hub (purchased by Dutch Based Just Eat Takeaway) accounts for 13 percent of the market. Instacart, a shopping and delivery service, boasts 9.6 million active users.
Futurists assert future employment will be comprised of different jobs with multiple employers. Not all employment will be full time.
The existing market is enormous, and free to adjust to new challenges. It is likely your university class has FRE students. Let it be.
The term “Gig” worker is used casually and implies a uniformity of all employment types that do not register a W-2 or are on call. The bureau of Labor standards estimates sixteen million have earned money from an online gig platform. Many claim to be independent contractors. In a Pew research survey Twenty three percent said their “gig” work was essential, thirty five percent said it was important. However, there are significant differences among services in this grouping.
FREs are part time Platform workers, a subset of the GIG economy. Platforms are managed by Transportation Network Companies (TNC). Drivers subscribe to TNCs and frequently overlap platforms. Eight percent spend more than thirty hours a week driving. Thirty-one percent claim it is their main job. Forty one percent spend less than ten hours on call.
There is no “model” or average FRE. The employee base is diverse, 15 percent or less are white. Over half the workers are 19-49 years old. A significant percentage are female. There is a growing category of 65+ drivers offsetting inflation’s impact on fixed incomes.
Leviathans attack against Free Range Entrepreneurial Drivers began in California with a legislative bill aimed at the Uber/Lyft tribe. California Assembly Bill AB 5 passed with an 85 to 26 majority of the combined Assembly and Senate. Independent delivery and ride hailing drivers would now be classified as employees. Concomitant taxes, regulation, wages, sick days, retirement costs, insurance and fees are levied on the employer. For the workers there were State and Federal income assessments and taxes. Licensing, seen and unseen regulation costs would follow.
Assembly Bill B 25 was repealed by Proposition 22. The proposition campaign spent two hundred ten million dollars to win in November of 2020. Chief contributors were Uber, Door Dash, and Lyft, accounting for 75 percent of the campaign funds. Opponents to Prop 22, supporting AB5 marshalled fourteen million dollars, headed up by SEIU to include other unions, and Senator Liz Warren and former VP Joe Biden. The slogan was:
Prop 22 will protect drivers’ preference to be independent contractors with
the flexibility to work, when where and how long they want. Yes on 22.
Citizens voted 56 percent in the affirmative for Prop 22. The measure defanged the Assembly Bill, creating a new business class of TNCs. Drivers receiving listings of potential clients were called APP workers, since they had proprietary use of the TNC application. App drivers could accept or refuse to respond to the listing. The proposition included TNC companies’ ability to offer voluntary benefits and insurance to improve worker protection.
The wisdom and practicality were evident to other Companies and States. Forty-eight states have enacted or considered TNC regulation and Laws.
Having Lost in California by letting the people vote, worker independence was threatening. Leviathan initiated a Federal attack on the UBER/Lyft tribe and their accomplices. Federal forces are lining up to hobble independence for millions of FREs. These changes will increase costs 30 percent.
Labor Secretary Marty Walsh will use administrative power to achieve what the voters blocked in California. Bring all drivers and independent workers under the control of one sovereign. This apparatus will control wages, benefits, hiring, tax, and regulation. As a state law, Prop 22 set up the conflict between State’s (voter’s) rights and Federal Preemption. That gauntlet was thrown on October 21st, 2022.
“Misclassifying workers as independent contractors denies those workers protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over businesses, and hurts the economy.” Adding during Q&A Walsh said, “it has to be consistent across the board.”
The US Labor Department wants the scalps of Uber and Lyft. Their effort is national and all encompassing. There are one million Uber drivers in the US. In 2019 36 percent of US adults used a service like Uber or Lyft. Lyft’s rides totalled twenty million in 2019.
TNC drivers are not taxis. They have less visible signage and use cars they own. Operating costs such as fuel and insurance are driver expenses. Their fare is point to point, whatever route they may take. FREs have the freedom to work at will, set their own schedules, and perform other tasks during down time.
In September 2021 United Parcel Service purchased Roadie.com, a crowd sourced small package delivery service. In 2018 Roadie claimed 90,000 drivers on their platform. The packages do not cross delivery vectors.
That gray Amazon van that delivered your Christmas present may be driven by an independent driver. Driving an Amazon branded van, working independently there are over two million US drivers.
Hospitals use independent couriers for delivery of medications and transfers of biological samples. Approximately 30 percent of Lyft’s current rides are transportation for medical services. There are eight transport services offered the elderly.
There are Federal Claims on Income. The Supreme court has a list of conditions that when met, confirm a worker is an employee. The tests center around the “IRS Twenty” principles of Employment. Direction and Control such as when, where, and how, and the equipment or environment provided to perform the work are primary.
There is no longer easy tax avoidance. The American Rescue Plan Act of 2021 requires TNC reporting for gig workers and free-range drivers. Drivers receive Forms 1099-K for reporting their extra income if it exceeds $600.
Leviathan enters a functioning market to protect the workers who have voluntarily stepped forward and signed an acknowledgement of what the work entails. The Administration will press forward with their 19th century view of piece-work-labor, and worker-management conflict into the 21st century service economy. The Biden Walsh duo will drive the capture attempt using a “continuity of employment” and “business integration” argument from the IRS twenty rules.
It is a weak hand. Leviathan will have tried administrative power, like the student loan and use of OSHA as vaccine enforcement and failed. The animus is persistent. SCOTUS may see it in 2024.
High time preferences also mean high times in a party atmosphere. When Jamaica embraced socialism many decades ago, it wasn't supposed to come to this.
Original Article: "In Jamaica, the Tourists Party On behind High Walls and Locked Gates"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Quite often, the hot-button issue of income inequality is caricatured as an outcome of capitalism rather than as a characteristic of all societies across time. Critics of capitalism have a rather romantic version of precapitalist societies. This error stems from a misunderstanding of human societies in general.
Inequality is a permanent fixture in society due to disparities in the distribution of talent. Usually, talent catapults organized groups into leadership positions, and then such groups reinforce their privileges by instituting hierarchies. The entrenchment of hierarchical relationships often results in commoners’ serving elites by providing labor and tribute. From these arrangements emerged rigid caste and class-based systems, where one’s life chances were fixed at birth.
In precapitalist societies, one’s status was woven into a complex web of social obligations. Under capitalism, ambitious people can expect to advance, courtesy of their talents and smart work, but in the typical precapitalist environment, status was linked to elite connections and honoring higher classes. Unlike the romantic visions of precapitalist societies conjured by intellectuals, such societies were likely to be closed societies that limited the mobility of nonelites. Among the Asante of West Africa, royalty and people from chiefly families were given privileged positions. Social divisions were so ingrained in this society that even slave communities had hierarchies.
In a classic article on social distinctions among the Yoruba, anthropologist William Bascom argued that rank is salient in shaping social intercourse. According to Bascom, Yoruba norms permitted an upper-class boy of fifteen to flog a lower-class man of forty at the market if the latter obstructed the former. Bascom claimed that because they feared that elites might use their power to enact punishment, lower-class people rarely retaliated.
In Yoruba, as in many precapitalist societies, kings could expropriate the wealth of their subjects with ease. Kings were not required to solicit permission or to compensate their subjects for the expropriation of property. At the communal level, however, older men exercised tremendous authority over young men, women, and children. Not only were the young required to consult elders in village matters, but elders were entitled to more food and gifts than youngsters at significant events.
Although there were some opportunities for social mobility in Yoruba and Asante, as some highly intelligent slaves and commoners did attain important positions. Such appointments invariably led to new dynasties. When commoners or slaves rose to become warriors or senior political officials, they were rewarded with titles and wealth.
Historian Akosua Perbi in her discussion on mobility in precolonial Asante shares the story of the slave Opoku Frere, who became gyasewahene (head of exchequer). As a result of his diligence and loyalty, Opoku Frere ensured the success of his descendants, who became the beneficiaries of a stool. But, as Perbi explains, such mobility was contingent on loyalty to the crown: “The creation of stools in pre-colonial Asante for people of low status was therefore no casual gesture. It was a mark of great honour and achievement of the highest mobility. . . . In their new political office, these elevated servants continued to serve the king and state faithfully.”
Outside of Africa, precapitalist societies had equally rigid class distinctions and inequality. For example, members of the Aztec nobility were granted the right to wear cotton, construct homes on elevated platforms, and own special types of jewelry. Vast differences in wealth also existed between commoners, with merchants (the pochteca) and artisans being richer than farmers. Commoners were deprived of the right to own land, but many still acquired property via relationships with royals and nobles.
Likewise, tax collectors and other bureaucrats occupied positions of wealth and authority and resided in palatial homes. Inequality in noncapitalist societies is more likely than we assume and more persistent, because individuals are bestowed with privileges that perpetuate the status quo.
The upshot of capitalism is that it undercuts traditional authority, thereby making it easier for market forces to reward talented individuals. Hence, capitalist societies are more mobile and less likely to create special privileges for elites. Research shows that economic freedom promotes less inequality by availing more opportunities to ordinary people.
Economist Niclas Berggren demonstrated in an influential study that policies that aid economic freedom, like trade liberalization and financial deregulation, are correlated with a reduction in inequality. Our paradox is that while markets lead to inequality by driving innovations, market societies also eliminate special privileges that previously resulted in unjust inequality. Therefore, since inequality is a feature of all societies and since market societies engender less inequality and more fairness, then critics ought to advocate for more rather than fewer markets to achieve the goal of fairness.
The federal government’s Bureau of Labor Statistics released new price inflation data today, and according to the report, price inflation during the month decelerated slightly, coming in at the lowest year-over-year increase in 12 months. According to the BLS, Consumer Price Index (CPI) inflation rose 7.1 percent year over year during November, before seasonal adjustment. That’s the twenty-first month in a row of inflation above the Fed’s arbitrary 2 percent inflation target, and it’s twelve months in a row of price inflation above 7 percent.
Month-over-month inflation rose as well, with the CPI rising 0.1 percent from October to November. Month-over-month growth in price inflation has been positive in 29 of the last 30 months.
November’s growth rate is down from June's high of 9.1 percent, which was the highest price inflation rate since 1981. But November’s growth rate still keeps price inflation well above growth rates seen in any month during the 1990s, 2000s, or 2010s. November’s increase was the eleventh-largest increase in forty years.
The ongoing price increases largely reflect price growth in food, energy, transportation, and especially shelter. In other words, the prices of essentials all saw big increases in November over the previous year.
For example, “food at home”—i.e., grocery bills—was up 12.0 percent in November over the previous year. Gasoline continued to be up, rising 10.1 percent year over year, while new vehicles were up 7.2 percent. The only category that showed a year-over year decrease was used cars, which declined by 3.3 percent. This hardly puts used car prices on a path to 2019 prices, however. Used car growth reached 70-year highs throughout much of 2021 increasing year-over-year by over 20 percent or more in every month from April 2021 to April 2022.
As of November, there is no sign of price growth in shelter slowing down. Last month, shelter prices increased by 7 percent, year over year, which was the highest growth rate since July of 1982. Month-over-month growth in shelter costs also remains among the largest we've seen since 1983:
Meanwhile, so-called "core inflation"—CPI growth minus food and energy—has barely fallen from the 40-year high reached in September. In November, year-over-year growth in core inflation was 6.0 percent. That's down slightly from October's growth rate of 6.3 percent. September's year-over-year increase of 6.7 percent was the largest recorded since August 1982. Month-over-month growth in this measure was positive from October to November as well, with prices minus food and energy growing 0.2 percent. Month-to-month growth has been positive in every month since May 2020.
Meanwhile, November was yet another month of declining real wages, and was the twentieth month in a row during which growth in average hourly earnings failed to keep up with CPI inflation. According to new employment data released last week by the BLS, hourly earnings had increased 5.09 percent in November year, over year, meaning wage growth fell behind inflation:
Celebrate a 7% Inflation Rate? The Biden Administration today—which has long been rather free-and-easy with how it slices and dices inflation numbers to make itself look better—said inflation is "coming down." Biden framed it like this:
We learned last month that the inflation rate came down, down more than experts expected...In a world where inflation is rising in double digits in many major economies around the world, inflation is coming down in America.
This is a rather tortured description of the situation. With the CPI rising both month-over-month and year-over-year, it's a bit of a stretch to say price inflation "came down" in November. It would be more accurate to say the rate of increase "slowed." Moreover, it's especially odd to "celebrate"—as CNBC put it—an inflation report that still has price inflation growth over 7%—especially when real wages are falling.
Nonetheless, both the S&P 500 and the Dow Jones ended the day (slightly) up. Given that so much of the market is now heavily dependent on easy money from the Fed, it's likely that many investors interpreted the slowing inflation growth as a welcome sign that the Federal Reserve might soon bring to an end interest-rate hikes and quantitative tightening. If price inflation is seen to be slowing, this could be interpreted as an excuse for the Fed to force interest rates back down and resume asset purchases.
It's unclear if Fed chairman Fed Powell shares many investors' rosy outlook however. Powell has repeatedly stated that he fears reversing course on rate hikes lest a return to monetary easing simply set off a new inflationary cycle. In other words, Powell apparently fears becoming another Arthur Burns. The effects of Burns's failed attempts at reining in price inflation in the 1970s can be seen in the fact price inflation repeatedly ratcheted up during the 1970s in spite of repeated episodes of tightening. BAt that time, price inflation first peaked at 6.4 percent in 1970, then at 12.1 percent in 1974, and then finally at 14.4 percent in 1980 before finally falling in the face of a target policy interest rate at 20 percent. With a current policy rate today at a mere 4 percent, and with no sustained slowing in price inflation growth yet evident, Powell may still fear doing too little.
Powell's actual intentions are unknown—and it's abundantly clear that Fed economists have no more insight into the future of the economy than any other informed observer. Yet many investors are predicting that the FOMC will slow its hikes to the key policy interest rate this month. Instead of the Fed raising the rate by 75 basis points, as it has repeatedly done since June, many investors are now banking on a 50-basis-point increase followed by a pause to rate hikes altogether next month.
As I noted yesterday, Wall Street would love a return to "normal" in which easy money helps fuel relentless increases in real estate and stock prices. At the same time, as interest payments on the national debt continue to mount, Washington policymakers would also love to see a sizable decline in interest rates. In other words, both groups want to declare the "war against inflation" won and over. This has been the hope for months.
Yet, if price growth is slowing, its not be any special virtue on the part of the Fed. We already know that monetary tightening leads to recession which usually leads to slowing inflation. Recent rate hikes and QT appear to be having the expected effect. With home price growth slowing, total employed workers falling, an inverted yield curve, and credit card debt soaring, there's good reason to guess that recessionary forces are intensifying. That in itself will bring inflation rates down considerably. Wall Street wants to flatten inflation without a recession, however. That's the so-called "soft landing." The odds of that happening are getting smaller every day.
The narrative to attack any tax cut and defend any increase in government size is reaching feverish levels. However, we must continue to remind citizens that constantly bloating government spending and increasing the size of monetary interventions are some of the causes of the widespread impoverishment of the middle class. Constantly increasing taxes and diminishing the purchasing power of the currency is wiping out the middle class in most developed nations.
Currency printing is not neutral, and it never is. It disproportionately benefits government and massively hurts real salaries and deposit savings. It is a massive transfer of wealth from savers to the indebted.
Readers may say that what needs to happen is to tax the rich and corporations and all will be solved. Why do you think that many of the ultra-wealthy are extremely happy with financial repression, issuing more currency, cutting rates and higher taxes? Because the net effect is positive for them and negative for you. Financial repression is a tool that makes it more difficult for the middle class to be richer and therefore wipes out private savings and any possible competition at the top.
The latest dogma is that tax cuts are negative because they boost inflation. However, it is yet another fallacy predicated on the idea that money is better off in the pocket of government.
Inflation is the destruction of the purchasing power of a currency, not “rising prices.” Prices do not rise in unison due to an exogenous factor like a war unless the quantity of currency issued is higher than the growth in the productive sector.
Government spending weighs close to 50% of GDP in most developed economies. One unit of currency in the pocket of government is certainly spent and even multiplied, as most of the public sector will spend that unit of currency and more via deficit.
Cutting taxes does not add units of currency to the economy. It is the same quantity of currency, only with a bit more in the pocket of those who earned it.
When governments reduce taxes, the citizens and businesses that have earned money have more in their pockets. Some might spend it, others might save it, which means investment, and others might take more credit. Tax cuts are only inflationary if they boost an extraordinary and unjustified credit impulse. This is rarely, if ever, the case.
A unit of currency in the hands of government is certainly going to be spent, adding even more money into the system via debt and deficits. A unit of currency in the hands of those who earned it is not just likely to lead to a better capital allocation but also it is fair.
Tax cuts in an inflationary environment are not just logical and just, but necessary because most governments do not deflate their tax receipts and, by keeping monetary tax rates untouched, receipts rise, and the amount of taxes paid by citizens increases.
Inflation is a tax and a policy. Governments benefit from inflation collecting higher receipts due to the inflation impact on tax revenues, while citizens suffer elevated prices, higher direct and indirect taxation, and lower real wages.
If increasing the size of government is always dangerous it is even more perilous in times of high inflation because the risk of malinvestment becomes a certainty.
There has been a massive campaign against any tax cuts all over the world that adds to a view that all government spending is justified. The concepts of efficiency, saving and prioritization have been abandoned and the administration is perceived as an entity that cannot perform any of those measures and needs constantly rising revenues to undertake its duties, yet all is false.
Governments use any excuse to increase their size in the economy and using constant emergencies or alleged crises is the easiest way to advance a confiscatory and extractive view of the economy where citizens and businesses are viewed as cash machines of the political sector, where the private sector is at the service of the government and not the other way around.
Tax cuts do not increase inflation, it is giving a bit more of the existing money to the ones who earned it. What increases inflation, always, is bloating government spending, perpetuating deficits, and monetizing it by printing constantly depreciated currencies.
Government spending is not the engine of the economy. Tax hikes are not the only solution to bad administrations. Printing money is not a tool for growth, but one for cronyism. Upside down economics does not work. We need to return to monetary and fiscal sanity. A tax wedge of almost 40% of income is not normal. It is confiscatory.
If we want to reduce inflation, we need to limit the uncontrolled policies those that create it: central banks and governments.
The US monetary system is out of sorts and out of control. The authors show a path back from the inflation brink to monetary soundness.
Original Article: "Fiat and Gold: Two Fixes for a Broken US Monetary Base"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In mid-November, while the whole world was focused on the Ukraine crisis, the US midterms or whatever other “big story” the media decided was more important, a truly momentous shift took place in the global financial system. It might seem like a small step on the surface, but it has the potential to bring about a real and possibly irreversible sea change in the way we use money; or better said, the way it uses us.
As Reuters reported on the 15th of November, “Global banking giants are starting a 12-week digital dollar pilot with the Federal Reserve Bank of New York. Citigroup Inc , HSBC Holdings Pl, Mastercard Inc and Wells Fargo & Co are among the financial companies participating in the experiment alongside the New York Fed's innovation center, they said in a statement. The project, which is called the regulated liability network, will be conducted in a test environment and use simulated data, the New York Fed said. The pilot will test how banks using digital dollar tokens in a common database can help speed up payments.”
Shockingly enough, essentially zero attention was paid to the story. Most media outlets mentioned it in passing and offered little to no context that would make the unsuspecting reader aware of the implications of this development. There was no mainstream discussion or debate about what this means or about how it can affect the average citizen, and no politicians, Fed officials or other institutional figures called any attention to it and argued either for or against it. There was one notable exception, though, one high-profile individual that noticed what could mark the start of a tectonic shift and thought the rest of the world should notice too: Edward Snowden.
picture1.png The aforementioned context that should have been provided to the average news reader that is not necessarily familiar with the concept of CBDCs (Central Bank Digital Currencies) would include at least a brief explanation what they are, what purposes they serve and how they compare to existing fiat paper money. As I outlined in previous articles, the stakes are too high for people to ignore this development. Whoever controls the money, controls everything and the rise of CBDCs threatens to make that control absolute, closing whatever little “loopholes” of freedom may still exist today.
To most citizens, savers and taxpayers, the transition to a digital dollar might seem harmless, or even beneficial, given that most of the population today associates digitalization with convenience and speed. Indeed, if one doesn’t understand the ins and outs of monetary history, of fiat money and of digital currencies, this concept appears totally innocuous. But even for many who do understand these things, it might seem like such a step would really make no difference. Junk money is junk money after all, be it physical or digital, it’s still backed by nothing, right?
Well, that is right indeed, but there’s a lot more to it. While the currency itself will continue to be worthless, its digital form will come with a bunch of perks and advantages for central planners. As Eswar Prasad, professor of trade policy and economics at Cornell University, puts it:
One should recognize that the CBDC creates new opportunity for monetary policy. If we all had CBDC accounts instead of cash, in principle it might be possible to implement negative interest rates simply by shrinking balances in CBDC accounts. It will become a lot easier to undertake helicopter drops of money. If everybody had a CBDC account, one could easily increase the balance in those accounts.
What this essentially means is that any choice that remains and any degree of financial sovereignty that is left in the present system could be easily wiped out by CBDCs. And its not only financial freedom that’s at stake: these centralized digital currencies can be used by governments to monitor, to control and even to directly punish dissenters, by blocking transactions, freezing their accounts or seizing they assets. Some might find that farfetched, but those are probably the same people who thought that China’s “Social Credit System” was implausible too, right up to the moment it was actually implemented.
During the worst days of the covid lockdowns and mandates, Americans were told that wearing masks was a matter of life and death. However, those giving the orders didn't believe what they were saying.
Original Article: "The Ongoing Covid Deceptions: How Ruling Elites Lied about Masks and Mask Mandates"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The U.S. personal savings rate eased in September to 3.1 percent from 3.4 percent in August. In September 2021 the savings rate stood at 7.9 percent. By popular thinking, a decline in the savings rate during an economic slowdown is regarded as supporting economic activity.
In the National Income and Product Accounts (NIPA), savings are established as the difference between disposable money income and monetary outlays. Disposable income is defined as all personal income minus taxes. Personal income includes wages and salaries, transfer payments, income from interest and dividends, and rental income.
The NIPA framework is based on the Keynesian view that spending by one individual becomes part of the income of another individual, so the spending of the purchaser is the income of the seller. From this, it follows that spending equals income, so maintaining spending maintains income.
Increases in the supply of money affect the total amount of money spent. Consequently, the greater the expansion in the money supply, all other things being equal, the more will be spent, increasing national income, resulting in an increase in savings as well.
Note again that in the NIPA’s framework, increases in the money supply is an important factor for the increases in savings. Does it however make sense that increases in the money supply are associated with increases in savings? If this is so, then the central bank can be seen as instrumental to the process of savings formation and economic growth.
How savings support goods production
Savings, however, are not about money but about consumer goods produced in excess of the consumption of these goods. For instance, if a baker produces ten loaves of bread and consumes two loaves his savings are eight loaves of bread.
Now, in order to enhance his oven the baker hires the services of a technician. The baker pays the technician with the saved bread. The saved bread enables the technician to maintain his life and wellbeing while he is busy improving the oven. With an improved oven, the baker can increase the production of bread.
We can derive from this that the producers of consumer goods by exchanging these goods for the goods of other producers can supply them with the means of support. The saved consumer goods support individuals in all the stages of production. From the producers of consumer goods to the producers of raw materials, the producers of tools and machinery, and all the other intermediate stages of production.
If the production of consumer goods were to increase, all other things being equal, the pool of savings also increases. This permits a further enhancement and the expansion of the infrastructure.
An expanded pool of savings allows individuals to introduce new stages of production, which prior to the expansion in the pool of savings could not be undertaken. This in turn permits the production of a larger quantity and a greater variety of consumer goods.
In addition, once there has been an adequate increase in the pool of consumer goods, individuals would then be in a position to aim at further enhancing their wellbeing by seeking things such as entertainment and service-related products - such as medical treatment etc.
Introducing money
The introduction of money does not alter what we have said so far. A producer of consumer goods exchanges his saved goods for money. He can in turn exchange the received money for other goods and services. By exchanging his savings for money, he has supplied the other producer with consumer goods.
Whenever individuals acquire capital goods such as machinery, they transfer money to the individuals who are employed in the making of the machinery. With the received money, the machinery maker can choose to exchange it not only for consumer goods but also for various non-consumer goods and services.
Money in this situation is not the means of payment but the means of exchange. People pay with what they produce – not with money.
Mises wrote:
Commodities, says Say, are ultimately paid for not by money, but by other commodities. Money is merely the commonly used medium of exchange; it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities. (p. 65-66)
Moreover, according to Rothbard:
Money, per se, cannot be consumed and cannot be used directly as a producers' good in the productive process. Money per se is therefore unproductive; it is dead stock and produces nothing. (p. 670)
Via money, an individual can channel savings i.e., unconsumed goods to other individuals, which, in turn, permits the widening of the process of wealth generation. Whenever someone deems it necessary, he can always exchange his money for goods.
This, however, requires that the flow of consumer goods stays unabated. Therefore, whenever the holder of money decides to exchange some of it for goods, these goods are there for him.
What matters for economic growth is real savings, not monetary savings. The total real savings, however, cannot be determined since a meaningful average of the prices of goods cannot be established (p. 734).
Do people save money?
People do not save money but, instead, exchange it for goods and services. Once savings (saved consumer goods) are exchanged for money, the holder of the money can employ it immediately to exchange for other goods or hold it temporarily. How someone decides to employ his money will affect his demand for money.
Whether he uses money immediately in an exchange for other goods or puts it under the mattress, or if he keeps it in his pocket, this does not alter the given pool of savings. For example, by lending money, an individual lowers his demand for money, so the act of lending does not change the savings pool.
Likewise, if the owner of money decides to acquire a financial asset such as a bond or a stock, he transfers his money to the seller of financial assets – no present savings are affected because of these transactions.
Problems emerge, however, whenever the central bank embarks on monetary pumping. When the pumped money is exchanged for consumer goods, it amounts to consumption that is not supported by production, resulting in more money chasing an unchanged quantity of goods.
Consequently, someone holding honest money, i.e., an individual who has produced wealth discovers that he cannot get back the equivalent value of all the goods he previously produced in an exchange for money, all other things being equal. His purchasing power of money has fallen.
Any so-called economic growth occuring in the framework of loose monetary policy can take place only if the private sector manages to grow the pool of savings despite the loose monetary policies undermining this process.
Loose monetary policies give rise to non-wealth generating activities. Once the pace of non-wealth generating activities exceeds the pace of wealth generating activities, the pool of savings comes under pressure, resulting in economic decline.
Conclusions
We conclude that savings involves consumer goods production in excess of consumption of these goods. It is not about money but about final consumer goods that support the life and wellbeing of people engaged in production.
It is not money that funds economic activity but the saved pool of consumer goods. The existence of money only facilitates the flow of savings. Any attempt to replace savings with money ends in economic disaster.
Price inflation in the United States remains stubbornly high, with October's print at 7.7 percent. The Fed's preferred measure, so-called core inflation is only two-tenths of a percent below 40-year highs, at 6.3 percent. Yet, it was just last year that the Federal reserve and other "experts" were concerned that inflation wasn't high enough. In January 2021, for example, Jerome Powell stated that the Fed wanted price inflation to run above the "2-percent goal" because it had run below 2 percent for too long. The 2-percent inflation target, of course, is the arbitrary target picked by the Federal Reserve (and many other central banks) as the "correct" inflation rate.
Now with inflation running near 40-year highs, many are wondering what will be necessary to bring price inflation back down to the target level. More specifically, how many hikes in the target interest rate will be necessary, and how severe of a recession will be required? Wall Street is especially interested in the answer to this question because Wall Street is no longer about fundamentals. Rather, the "market" depends overwhelmingly on how much easy money the central bank pumps out. Naturally, the banker class wants a return to "normal"—i.e., quantitative easing and ultralow interest rates—as soon as possible. Moreover, Washington wants the same thing since the political class wants low interest rates to help ease the path to ever more government debt and higher deficits.
It's not the least bit surprising that we're already hearing calls for the Federal Reserve to abandon the 2-percent inflation target and instead embrace even higher perpetual inflation rates. For example, last week Bank of America economist Ethan Harris suggested that the 2-percent target CPI inflation rate be raised. We've seen similar urgings from both the Wall Street Journal and from think tank economists in recent months.
The push for higher inflation rates is just the latest reminder that wealthy bankers and other members of the ruling class aren't harmed by price inflation the way that ordinary people are. Billionaires and technocrats often benefit—either financially or politically—from high price inflation. We should expect to see growing pressure from Wall Street and Washington insiders if the Fed actually attempts to keep any modicum of monetary tightening going into next year.
Wall Street Wants More "Flexibility" for the Central Bank Harris's comments for Bank of America help reveal how comfortable Wall Street is with high price inflation. Harris began by stating that "there is nothing special about 2% other than the fact that it is the official target in many countries." Harris is right, but his intentions in doing so are unfortunate. Harris merely points to the arbitrary nature of the 2-percent standard in order to call for a more activist Federal Reserve. Harris claims "The evidence is that steady 4% inflation imposes very small additional costs compared to steady 2% inflation. Either way the economy adapts. ...Perhaps the inflation target should be 3 or 4%?"
The part about the market adapting is especially capricious. It seems that for banker economists detached from real people and the real economy, the "economy" is an abstract thing that "adapts" and there's really no need to worry about it.
The "economy" however is not some mere idea, but is composed of actual people. For ordinary people, it's a little more difficult to "adapt" when one's wages are negative in real terms—as has now been the case for months—or when the boom-bust cycle brought on by inflationary monetary policy leads to unemployment. Middle-class pensioners whose fixed incomes don't keep up also don't find it so easy to "adapt."
Investment bankers and billionaires with hedge funds, on the other hand, can indeed "adapt" because they can simply take on higher and higher levels of risk in the process of searching for yield above the inflation rate. Sure, if things go badly, they may have to sell a vacation home or take a hit on their stock options, but they'll hardly have to switch to the generic mac and cheese to feed their children.
Harris isn't alone in pleading for more price inflation. Earlier this month, Wall Street Journal writer Jon Sindreu was already on the same bandwagon when he asked “Why must inflation be around 2%?” He went on to claim that what really matters is not low inflation but stable inflation. Thus, the real problems with inflation "stem from inflation accelerating, not its being high." Thus, he asks
what if inflation stabilizes at a higher rate—say between 4% and 6%? In this plausible case, central banks may be compelled to start needlessly raising rates again. ... Inflation of 4% is perfectly compatible with a healthy economy that isn’t overheating.
This came only a few weeks after the Roosevelt Institute—where New Keynesian economist Joseph Stiglitz is head economist—called for a higher inflation target. Specifically, the Institute wants an inflation "range" from 2 to 3.5 percent using the PCE deflator. This would lead in practical terms to real shift upward in target inflation. After all, according to the PCE measure, price inflation barely exceeded the 3.5 target even at the height of the housing bubble in 2008. In other words, even in a red-hot bubble economy, price inflation could still come in within the preferred range, meaning monetary tightening would almost never be seen as necessary or urgent.
Clearly, the trial balloons for higher target inflation are already being floated, and once CPI inflation returns to anywhere near 4 percent, we should expect to hear howls from Wall Street and Washington about the "need" for the Fed to once again drive down interest rates while propping up asset prices.
How Target Inflation Keeps Moving Up We've been down this road before. 26 years ago, the debate was over whether or not the target inflation rate should be raised to 2 percent. Before that, Congress had put into legislation a target of zero percent.
In the "Full Employment and Balanced Growth Act of 1978" Congress explicitly added a "stable prices" mandate to the Federal Reserve Act, and stated that CPI inflation should be reduced to 3 percent or less. Moreover, by 1988, the Act imagined that the official inflation rate should be reduced to zero:
Upon achievement of the 3 per centum goal ... each succeeding Economic Report shall have the goal of achieving by 1988 a rate of inflation of zero per centum."
The drive for zero-percent inflation had advocates among some monetarists and other "hard money"—"hard" in the relative sense—advocates who opposed the Keynesian consensus that had produced the runaway inflation of the 1970s. The triumph of these hawks was short lived, however, and by the end of the 1980s, the more dovish forces had come to the fore in the form of Alan Greenspan and up-and-coming economists like Janet Yellen. Even Volcker had again moved back toward easy money as can be seen in his support for the Plaza Accord.
In his book The Case Against 2 Per Cent Inflation, economist Brendan Brown writes:
The Volcker Fed's abandonment of "hard money" policies and the monetarist experiment led directly to the global monetary inflation of the late 1980s featuring virulent asset inflation, most spectacularly the bubble and bust in Japan. Germany was the last to abandon monetarism formally with the launch of the euro.
Within a few years there was the start of anew stabilization experiment-the targeting of perpetual inflation at 2% p.a. A key milestone was the FOMC meeting of July 1996 which considered the issue of whether with inflation now down to below 3% the Fed should go easy on its drive to ever-lower inflation and accept a continuing stable low inflation around 2%. Janet Yellen presented the paper in favour. There followed no firm resolution. Nevertheless then Chief Greenspan agreed to a pause. A stronger commitment to a target of perpetual "low inflation" emerged in subsequent years, both under the late Greenspan years and more especially under Chief Bernanke.
The European Central Bank's formal embrace of a 2-percent standard was followed informally by the Fed at first, and then formally adopted in 2012. Even that was short lived. In August 2020, the Fed announced a switch to "average" inflation targeting of 2 percent, which meant the Fed would sometimes target inflation above 2 percent with the goal of 2 percent over time. Now in 2022, we're talking about hiking the target inflation rate yet again, perhaps to "between 4% and 6%" as The Wall Street Journal suggests. Not mentioned is the fact that the upward creep in inflation targets enabled the Fed to ignore inflation as it relentlessly rose throughout 2021. The Fed at that point wanted inflation well above 2-percent in order to achieve that new "average" of 2 percent. The result was a complacent Fed that let inflation rise to a 40-year high.
The allure of easy money never fades, especially for those who benefit from easy money most. This latter group includes a growing army of zombie corporations, governments mired in debt, and a financialized Wall Street where valuations disregard fundamentals but are based on the ability to borrow at cheap rates and capitalize on rising stock prices. The easy-money chorus couldn't care less about small entrepreneurs squeezed by high prices, or by old ladies on fixed incomes. All that matters is a return to easy money, and if that means ever higher inflation targets, so be it.
This article was originally published by Law&Liberty.
The Swiss National Bank’s (SNB) financial statements for the nine months ending September 30, 2022, show a bottom-line loss of US$150 billion.1 A number to get your attention!
Under the strong financial discipline of its charter act, the SNB must mark its investments to market, and reflect any market value loss or profit in its income statement and capital account. From having capital of $221 billion at the end of 2021, the SNB’s capital has been reduced by 73% to $59 billion on September 30 due to falling market prices. Still, the SNB has a capital ratio—a bank’s equity to its total assets—over 6%.
In contrast, the Federal Reserve’s reported capital ratio, which does not reflect the Fed’s massive mark-to-market losses, is 0.5%. The Federal Reserve Bank of New York, by far the largest of the Federal Reserve Banks, has a reported capital ratio of 0.3%—again not counting its market value losses. “It helps the credibility of the central bank to be well capitalized,” said the Vice Chairman of the SNB in October 2022. Presumably, the Fed does not agree.
With Swiss candor, the Chairman of the SNB observed, also in October 2022, that many central banks “brought down longer-term interest rates by buying government and corporate bonds. This increased central banks’ balance sheets and the risks they bear.” (italics added) They certainly did run up their risk, all together, and now the big risks they assumed are turning into losses all around the central bank club.
The Reserve Bank of Australia announced in September that losses on its investments caused its capital to drop to a negative $8 billion on June 30. Its Deputy Governor admitted that “If any commercial entity had negative equity… [it] would not be a going concern,” but maintained, “there are no going concern issues with a central bank in a country like Australia.” Nonetheless, it’s pretty embarrassing to have lost more than all of your capital.
The Bank of England joined “the club of major central banks showing negative net worth” if its investments are marked-to-market, Grant’s Interest Rate Observer reported. Thus far, the Bank has lost $230 billion on its bond investments, 33 times the Bank’s capital of $7 billion as of February 2022, its fiscal year-end. Fortunately for the Bank, it has an indemnity from His Majesty’s Treasury—that is, the taxpayers—to cover the losses. “I am happy to reaffirm…that any future losses incurred by the Asset Purchase Fund will be met in full by the Government,” wrote a Chancellor of the Exchequer. In July 2022 the Financial Times summed it up: “With an indemnity provided by HM Treasury the Bank of England need not fret.” But should the taxpayers who bear the loss fret?
The Bank of Canada carries most of its investments at market value, and its financial statements reflect market value losses of $26 billion as of November 2022. These mark-to-market losses would render the bank’s capital negative were it not for a formal indemnity agreement it has with the Government of Canada. The Canadian government has contractually agreed to make up any realized losses on the Bank’s bond purchase programs. That’s a good thing for the Canadian central bank, since its capital ratio is only 0.1%.
While the Bank of Canada’s financial statements do show that its investment losses put the taxpayers at risk, you have to read the financial statement footnotes carefully to understand what the accounting means. The Bank carries an asset called “Derivatives: Indemnity agreements with the Government of Canada.” This asset is the amount that the government is on the hook for—in other words, it equals $26 billion in mark-to-market losses. Since the Bank’s total reported capital is only about $0.5 billion, the real capital of the Bank is its claim on Canadian taxpayers to reimburse its losses.
Now having created the same risks together, the world’s central banks are suffering big losses together.
The European Central Bank (ECB) has assets of over $9 trillion and a capital ratio of 1.3%. How do its mark-to-market losses compare to its $119 billion in capital? It’s hard to tell, but a German banking colleague wrote us, “ECB is not really transparent, [but] you can guess… Expect price losses in its portfolio of about $800 billion.” If his informed guess is accurate, the ECB has negative capital of about $680 billion on a mark-to-market basis. As our colleague also pointed out, many of the ECB’s investments are low-quality sovereign bonds. It will be interesting indeed to see how these ECB problems play out.
In September, the Governor of the Dutch central bank, De Nederlandsche Bank (DNB), formally wrote to the Ministry of Finance to discuss the Bank’s looming losses, and how “a situation may arise in which the DNB is faced with negative capital.” This is without considering the mark-to-market of its bond portfolio, because the DNB uses accounting conventions, like the Federal Reserve, that do not recognize mark-to-market losses on its QE investments.
“In an extreme case,” the letter continued, “a capital contribution from the shareholder may be necessary.” The sole shareholder is the Dutch government, so once again the cost would be transferred to the taxpayers.
In this unattractive situation the DNB has plenty of company: “All central banks implementing purchase programs, both in the euro area and beyond, are facing these negative consequences,” the Governor observed, adding that these included the Federal Reserve, the Swedish Riksbank, and the Bank of England.
Then, in an October television interview, the Governor brought up the old-fashioned idea of gold. The DNB’s negative capital problem could be ameliorated or avoided he said, by counting as capital the large unrealized profit on its gold. The Bank does mark its 19.7 million ounces of gold to market but keeps the appreciation in a separate $33 billion accounting “reserve,” which is not included in its capital account.
Although it is against the current rules of the Euro system, it would make perfect sense to include the market value of the gold when calculating the DNB’s capital, as the Swiss National Bank does. (This idea would not help the Federal Reserve, because it owns no gold.) It is no small irony that, to bolster their capital, modern fiat currency central banks would consider turning to the value of the “barbarous relic” of gold, against which their own currencies have over time so greatly depreciated.
Coming to the world’s leading central bank, the mark-to-market loss on the Federal Reserve’s investments, as we have previously written, is huge—estimated at a remarkable $1.3 trillion loss as of October 2022. This is 30 times the Fed’s total capital of $42 billion. More immediately pressing, the Fed is now running operating losses that it does recognize in its profit and loss statement of $1 billion or more a week, or annualized losses of $50 to $60 billion. Not counting the mark-to-market losses on its investments, the Fed’s operating losses at this rate will exceed its capital in less than a year.
Complicating the problem, the shares of the Federal Reserve Banks are owned not by the government, but by Fed member commercial banks. Under the Federal Reserve Act, the Fed’s shareholders are required to be assessed for a portion of any losses, but the Fed has thus far seemed to ignore the law and is sharing its operating losses with the taxpayers instead.
“Major central banks tend to move together,” as economist Gary Shilling pointed out recently. We believe this is because the major central banks are a coordinating elite club. They do not and cannot know the financial and economic future, and they must act based on highly unreliable forecasts. They face, and know they face, deep and fundamental uncertainty. Under these circumstances, intellectual and behavioral herding is natural and to be expected. Now having created the same risks together, they are suffering big losses together. In many cases, the accumulating losses will exceed central bank capital and be borne by the taxpayers.
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- All currencies have been translated to US dollars at mid-November exchange rates.
State regulation of marriage—and the ensuing secularization of marriage that followed—is a historical development that was part of the larger trend toward the expansion of state power.
Original Article: "How the State Seized Control of Marriage"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In his 1922 book, Gemeinwirtschaft, Ludwig von Mises unmasks the intellectual distortion that is social Darwinism. Based on determining the dynamics of socialization through the principle of the division of labor, Mises shows that society is cooperative; that peace, not war, is the father of human progress.
SocializationMises believes socialization proceeds through expansion and deepening. Through societal expansion, people are increasingly drawn into the system of labor division. Social deepening means that over time individuals can accomplish more personalized goals. During the socialization process, individual self-sufficiency decreases and the realms of self-sufficiency narrow. Markets are expanding and deepening. In the market economy, cooperation takes the place of struggle. Mises argues that “socialization is always joining forces to work together; Society is always peace, never war. Battles of annihilation and war are dissociation.”
When Charles Darwin developed his theory of evolution, he was under the influence of Thomas Robert Malthus. In An Essay on the Principle of Population, Malthus claims there is a permanent conflict between population growth and the food supply. According to Malthus, population increases in a geometric series, whereas food production only increases through arithmetic progression. According to this model, hunger crises and temporary population declines should occur endlessly.
Darwin adopted Malthus's idea of the “struggle for existence” and used it to develop his theory of evolution. The idea returned to the social sciences in the form of social Darwinism. However, as social Darwinism captured minds, the true meaning of the Malthusian thesis was lost, and it was falsely reinterpreted as a “struggle for survival” between peoples and classes. From the misinterpretation of Malthus
arose that monster of sociological Darwinism which, culminating in the romantic glorification of war and human murder, contributed in a very special way to supplanting liberal ideas in the minds of contemporaries and thus creating the intellectual atmosphere from which the world war and the social struggles of the present could arise.
Malthus’s central idea is only distantly related to the principle of social development through struggle. And Darwin's “struggle for life” in no way describes a fight toward annihilation. The misunderstanding becomes even more absurd when one transfers Darwin’s concepts from the biological to the social sphere.
Social Competition and CooperationSocial Darwinism gave birth to theories that considered the struggles of individuals, races, peoples, and classes to be the foundational social element. The struggle for survival was taken up by social Darwinism and served as the basis for aberrations such as imperialism, nationalism, Marxism, and racism.
Mises disagrees with social Darwinism. He argues that if war is the father of all things, and if struggle encourages historical progress, then peace and cooperation between social groups and nations cannot be explained. Just as social Darwinism cannot explain peace within specific societies, it cannot hypothesize human life as a struggle for survival between nations or races. Mises does not consider social Darwinism to be a theory of society, but “a theory of unsociability.”
Critics of liberalism's principle of peace attempt to blur the distinction between struggle and competition. Struggle focuses on destroying the opponent. Competition in commercial transactions, on the other hand, ensures that production is carried out in a rational way. Competition is a selection mechanism and functions as a fundamental principle of social interactions. Mises writes:
Struggle in the true and original sense of the word is antisocial; it makes it impossible for the combatants to work together, the basic element of social union; it destroys the working community where it already exists. Competition is an element of social interaction. It is the ordering principle of social association. From a sociological point of view, struggle and competition are the sharpest opposites.
As opposed to the division of labor, class struggles, racial conflicts, and international wars are poor fodder for a societal theory. The cooperation of division of labor is found both nationally and internationally and extends to all races and language groups.
The theory of class struggle states that there are irreconcilable antagonisms within society. The citizenry is roughly divided into proletariats and capitalists. Marxism postulates that different classes have respective interests; however, class interests disappear immediately if one abandons the false presumption of group homogeneity. Competition exists not only between classes but among workers and among company owners. Brought to its logical conclusion, the class struggle implies a war of all against all. Applying the conclusion of social Darwinism to the class struggle shows that Marxism leads to the same dissociation it believes it has cured. Mises reminds us,
There is no such thing as a class unified by a community of special interests. The conflict between individual interests is getting resolved not by the class, but in society itself. It is not different from class ideology and from aggressive nationalism. There are also no conflicts between the interests of the individual peoples and tribes. Only nationalistic ideology generates belief in them and divides people into special groups that fight each other. Nationalist ideology cuts society vertically, the socialists do it in a horizontal direction. The two are mutually exclusive. Sometimes one, sometimes the other, has the upper hand.
Marxism has exerted its influence far beyond socialist circles. It has pushed the liberal doctrine of universal social solidarity into the background. Liberalism’s repression was intensified by the reawakening of imperialism and protectionism. Nationalists, protectionists, and racialists (among others) believe that conflicts between peoples cannot be diplomatically resolved. They go so far as to deny the very possibility of peaceful social coexistence.
Neither social Darwinism nor Marxism are suitable social theories. Their approaches are critically flawed because they fail to recognize the real meaning of socialization. Society is not struggle but cooperation. This is also true of the relationship between nations. Liberalism, guided by the principle of the division of labor, opposes the imperial concept of international warfare.
The democratic socialists have turned away from class struggle and now demand the equalization of wealth. But those pushing for the equalization of outcomes forget that prosperity depends on maintaining private ownership of the means of production:
Whoever prefers life to death, happiness to sorrow, prosperity to want, will have to accept society. And anyone who wants society, and its further development, must also want private ownership of the means of production without restrictions or reservations.
Under capitalism, owners of the means of production and provident individuals renounce current consumption to achieve a higher level of wealth in the future. The maintenance and accumulation of capital is therefore based on income inequality. Those who advocate income equalization must be aware that their aim can only be achieved by sacrificing other goals. If private ownership of the means of production is abolished, a consequent decline in national income will occur. When the fact is forgotten that forced equality lowers overall wealth and prosperity, political romanticism triumphs over rationality.
While high-quality automobiles and other manufactured goods are being produced in the Southeast, northeastern states like New York are falling behind, thanks to progressive governance.
Original Article: "Economic Progress and Economic Decay: North versus South"
This Audio Mises Wire is generously sponsored by Christopher Condon.
One of history’s greatest ironies is that gold detractors refer to the metal as the barbarous relic. In fact, the abandonment of gold has put civilization as we know it at risk of extinction.
The gold coin standard that had served Western economies so brilliantly throughout most of the nineteenth century hit a brick wall in 1914 and was never able to recover, or so the story goes. As the Great War began, Europe turned from prosperity to destruction, or more precisely, toward prosperity for some and destruction for the rest. The gold coin standard had to be ditched for such a prodigious undertaking.
If gold was money, and wars cost money, how was this even possible?
First, people were already in the habit of using money substitutes instead of money itself—banknotes instead of the gold coins they represented. People found it more convenient to carry paper around in their pockets than gold coins. Over time the paper itself came to be regarded as money, while gold became a clunky inconvenience from the old days.
Second, banks had been in the habit of issuing more bank-notes and deposits than the value of the gold in their vaults. On occasion, this practice would arouse public suspicion that the notes were promises the banks could not keep. The courts sided with the banks and allowed them to suspend note redemption while staying in business, thus strengthening the government-bank alliance. Since the courts ruled that deposits belonged to the banks, bankers could not be accused of embezzlement. The occasional bank runs that erupted were interpreted as a self-fulfilling prophecy. If people lined up to withdraw their money because they believed their bank was insolvent, the bank soon would be. People had no idea their banks were loaning out most of their deposits. They did not know fractional reserve banking, a form of counterfeiting, was the norm.
Gold coin redemption requirements put limits on fractional reserve banking. Such limits were not welcomed by banks. Since banks could loan to the government, limitations also capped government spending, so the government did not like the limitations of gold coin redemption either.
Which brings us to the wall gold allegedly hit.
Preparing for War Means Preparing for InflationIn his 1949 book, Economics and the Public Welfare, economist Benjamin Anderson tells us, “the war [in 1914] came as a great shock, not only to the masses of the American people, but also to most well-informed Americans—and, for that matter, to most Europeans.” And yet, Germany, Russia, and France began accumulating gold prior to the war (with Germany starting first in 1912). Gold was taken “out of the hands of the people” and carried to the reserves of the Reichsbank, the German central bank. People were given paper notes “to take the place of gold in circulation.”
When war broke out in August 1914, Gary North explains that the pre–World War I policy of gold coin redemption was
independently but almost simultaneously revoked by European governments. . . . They all then resorted to monetary inflation. This was a way to conceal from the public the true costs of the war. They imposed an inflation tax, and could then blame any price hikes on unpatriotic price gouging. This rested on widespread ignorance regarding economic cause and effects regarding monetary inflation and price inflation. They could not have done this if citizens had possessed the pre-war right to demand payment in gold coins at a fixed rate. They would have made a run on the banks. Governments could not have inflated without reneging on their promises to redeem their currencies for gold coins. So, they reneged while they still had the gold. Better early contract-breaking than late, they concluded.
If governments had not broken their promise to redeem paper notes for gold coins, they would have had to negotiate their differences rather than engage in one of the deadliest wars in history. Abandoning the gold coin standard, which had always been under government control, was the deciding factor in going to war.
Though the US did not formally abandon gold during its late participation in the war, it discouraged redemption while roughly doubling the money supply. Blanchard Economic Research discusses the situation in “War and Inflation”:
War also causes the type of inflation that results from a rapid expansion of money and credit. “In World War I, the American people were characteristically unwilling to finance the total war effort out of increased taxes. This had been true in the Civil War and would also be so in World War II and the Vietnam War. Much of the expenditures in World War I, were financed out of the inflationary increases in the money supply.”
Governments had a choice to make: fight a long, bloody war for specious reasons, or retain the gold coin standard. They chose war. US leaders found their decision irresistible. It was not J.P. Morgan, Woodrow Wilson, Edward Mandell House, or Benjamin Strong who would be fighting in the trenches.
When we hear that “going off gold” was the prerequisite for global peace and harmony, we should remember places such as the Meuse-Argonne American Cemetery in France, where grave markers seemingly extend to infinity. These are mostly the graves of young men who died for nothing but the lies of politicians and the profits of the politically connected. Gold wanted no part in the slaughter. But politicians and bankers knew a paper fiat standard was the monetary prerequisite to achieving their goals.
ConclusionJohn Maynard Keynes, who coined the term “barbarous relic” in reference to the gold standard, wrote about the world that was lost when gold was abandoned:
What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! . . . The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep. . . . He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable.
If Keynes had read what he wrote, he might have been a better economist. And we might be living in a better world today.
The January 6 trials remind us violence against a person or property should be prosecuted as exactly that, and not as a special category of crime against the regime.
Original Article: "January 6 Trials Remind Us Why We Must Abolish Seditious Conspiracy Laws"
This Audio Mises Wire is generously sponsored by Christopher Condon.
From March 2022 to November, the number of total employed persons has only increased by 12,000 people meaning there are fewer employed people now than before the covid panic.
Original Article: "Total Employed Workers Fell Again in November as Savings and Incomes Fall"
This Audio Mises Wire is generously sponsored by Christopher Condon.
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Economist Christopher Coyne of George Mason University uses economic logic to expose the follies of militaristic US policies overseas.
Original Article: "An Economist Examines US Foreign Policy and Finds It Wanting"
This Audio Mises Wire is generously sponsored by Christopher Condon.
There are many mistakes in the G7 agreement to put a cap on Russian oil. The first one is that it does not hurt Russia at all. The agreed cap, at $60 a barrel, is higher than the current Urals price, above the five-year average of the quoted price and higher than Rosneft’s average netback price.
According to Reuters, “the G7 price cap will allow non-EU countries to continue importing seaborne Russian crude oil, but it will prohibit shipping, insurance, and re-insurance companies from handling cargoes of Russian crude around the globe, unless it is sold for less than the price cap”. This means that China will be able to purchase more Russian oil at a large discount while the Russian state-owned oil giant will continue to make a very healthy 16% return on average capital employed (ROACE) and more than 8.8 billion roubles in revenues, which means an EBITDA (earnings before interest, taxes, depreciation and amortization) that more than doubles its capex requirements.
This misguided cap is not only a subsidy to China and a price that still makes Rosneft enormously profitable and able to pay billions to the Russian state in taxes. It is a big mistake if we want to see lower oil prices.
With this cap the G7 have created an unnecessary and artificial bottom to old prices. The G7 did not want to understand why oil prices have roundtripped in 2022: Competition and demand reaction. By putting a $60 a barrel cap, which is a bottom price, the G7 have almost made it impossible for prices to reach a true bottom if a demand crisis arrives. On the one hand, the G7 has taken 4.5 million barrels a day, the estimated Russian oil exports for 2023, out of the supply picture with a minimum -and maximum- price, but additionally has made OPEC keener on cutting supply and raising their exports’ average realized oil price higher.
China must be exceedingly happy. The Asian giant will secure a long-term supply at al attractive price from Russia and sell refined products globally at higher margins. Sinopec and Petrochina will find enough opportunities in the global market to secure better margins for their refined products while guaranteeing affordable supply in a challenging economic situation.
When I read this news about “price caps” I wonder if bureaucrats have ever worked in a global competitive industry. They may have not, but they certainly employ thousands of “experts” that may have told them that this is a clever idea. It is rubbish.
If the G7 really wanted to hurt Russia’s finances and exports the way to do it is to encourage higher investment in alternative and more competitive sources. However, what is happening is the opposite. G7 governments continue to impose barriers to investment in energy as well as place regulatory and wrongly called environmental burdens that make it even more difficult to guarantee diversification and security of supply.
What killed the oil crisis of the seventies was the phenomenal rise of investment in other productive areas. What has allowed oil prices to do an almost 180-degree year-to-date move is higher supply, non-OPEC competition and demand response.
The energy sector already suffers from concerning levels of underinvestment. According to Morgan Stanley, oil and gas underinvestment has reached $600 billion per annum. With this so-called price cap, the incentive for producers to sell what they can and invest as little as possible is even higher, and this may imply much higher oil prices in the future. China and Russia also know that renewables and other alternatives are nowhere close to being a widely available alternative and that, anyhow, this would require trillions of dollars of investment in mining of coper, cobalt, and rare earths.
By adding a so-called cap on Russian oil prices to the increasing barriers to develop domestic resources the G7 may be planting the seeds of a commodity super-cycle where dependence on OPEC and Russia increases, instead of decreasing.
I repeat what I have been saying for months. The developed economies’ governments are taking their countries from a modest dependence on Russia to a massive dependence on China and Russia.
There are many mistakes in the G7 agreement to put a cap on Russian oil. The first one is that it does not hurt Russia at all. The agreed cap, at $60 a barrel, is higher than the current Urals price, above the five-year average of the quoted price and higher than Rosneft’s average netback price.
According to Reuters, “the G7 price cap will allow non-EU countries to continue importing seaborne Russian crude oil, but it will prohibit shipping, insurance, and re-insurance companies from handling cargoes of Russian crude around the globe, unless it is sold for less than the price cap”. This means that China will be able to purchase more Russian oil at a large discount while the Russian state-owned oil giant will continue to make a very healthy 16% return on average capital employed (ROACE) and more than 8.8 billion roubles in revenues, which means an EBITDA (earnings before interest, taxes, depreciation and amortization) that more than doubles its capex requirements.
This misguided cap is not only a subsidy to China and a price that still makes Rosneft enormously profitable and able to pay billions to the Russian state in taxes. It is a big mistake if we want to see lower oil prices.
With this cap the G7 have created an unnecessary and artificial bottom to old prices. The G7 did not want to understand why oil prices have roundtripped in 2022: Competition and demand reaction. By putting a $60 a barrel cap, which is a bottom price, the G7 have almost made it impossible for prices to reach a true bottom if a demand crisis arrives. On the one hand, the G7 has taken 4.5 million barrels a day, the estimated Russian oil exports for 2023, out of the supply picture with a minimum -and maximum- price, but additionally has made OPEC keener on cutting supply and raising their exports’ average realized oil price higher.
China must be exceedingly happy. The Asian giant will secure a long-term supply at al attractive price from Russia and sell refined products globally at higher margins. Sinopec and Petrochina will find enough opportunities in the global market to secure better margins for their refined products while guaranteeing affordable supply in a challenging economic situation.
When I read this news about “price caps” I wonder if bureaucrats have ever worked in a global competitive industry. They may have not, but they certainly employ thousands of “experts” that may have told them that this is a clever idea. It is rubbish.
If the G7 really wanted to hurt Russia’s finances and exports the way to do it is to encourage higher investment in alternative and more competitive sources. However, what is happening is the opposite. G7 governments continue to impose barriers to investment in energy as well as place regulatory and wrongly called environmental burdens that make it even more difficult to guarantee diversification and security of supply.
What killed the oil crisis of the seventies was the phenomenal rise of investment in other productive areas. What has allowed oil prices to do an almost 180-degree year-to-date move is higher supply, non-OPEC competition and demand response.
The energy sector already suffers from concerning levels of underinvestment. According to Morgan Stanley, oil and gas underinvestment has reached $600 billion per annum. With this so-called price cap, the incentive for producers to sell what they can and invest as little as possible is even higher, and this may imply much higher oil prices in the future. China and Russia also know that renewables and other alternatives are nowhere close to being a widely available alternative and that, anyhow, this would require trillions of dollars of investment in mining of coper, cobalt, and rare earths.
By adding a so-called cap on Russian oil prices to the increasing barriers to develop domestic resources the G7 may be planting the seeds of a commodity super-cycle where dependence on OPEC and Russia increases, instead of decreasing.
I repeat what I have been saying for months. The developed economies’ governments are taking their countries from a modest dependence on Russia to a massive dependence on China and Russia.
Energy is a highly regulated industry across the world. There is less debate about the need for government control when it comes to the oil and gas sector. The arguments that most people accept for government intervention in energy, whether in the name of energy access, national security, or climate change mitigation, all share the same general premise: that energy is too important to be left to the whims of the free market.
But this year, the world has been thrust into an energy crisis, not by the free market or any natural disaster, but by politics. What 2022 has demonstrated is that the conventional wisdom is backward. In reality, energy is far too important to be left in the hands of government.
There is no free market in energy. That’s something even many critics of the free market will admit. For as long as the energy sector has existed, the government has regulated it. In the early days, the reasons presented for intervention usually revolved around how vital energy is for the nation’s economy. Then, in 1917, President Woodrow Wilson created the US Fuel Administration, which seized control of the energy supply to bolster the government’s war effort. After the war, intervention in the name of geopolitical strategy continued. More recently, there’s been a push for a state-enforced transition away from fossil fuels to attempt to reverse climate change.
Today the US government subjects energy companies to strict regulations, grants billions in subsidies to energy producers, controls the rights to drill oil-rich federal land, and even hoards hundreds of millions of barrels of oil for strategic purposes. Many foreign countries, such as Russia, Norway, Saudi Arabia, Venezuela, the Netherlands, and China, either have totally state-controlled energy or energy industries dominated by state-owned corporations. In the US and globally, energy is controlled by government, and the results have proven disastrous.
This year, the West has been gripped by an energy crisis set only to worsen. Available fuel supplies collapsed after Western governments attempted to sanction the Russian regime for invading territory claimed by the Ukrainian regime. The US and many of its European allies cut their citizens’ access to Russian oil and gas. Americans were met with high prices at the pump, but Europeans have fared much worse.
For decades, the people of Europe have enjoyed access to affordable energy from the gas fields of West Siberia, the Gulf of Ob, and the eastern Arctic Circle. But because these gas deposits are controlled by the Russian government, that access has been cut off. Now there is not enough energy for Europeans to meet their needs.
During a cold snap in early October, Europeans fought over a dwindling supply of firewood as they struggled to heat their homes. People in Poland even burned trash to stay warm. In Switzerland, heating your house above sixty-six degrees Fahrenheit may even land you in prison for up to three years. Many European countries have some natural gas stored, but at current consumption levels, it will barely be enough to last through a typical winter.
The proper supply of oil and gas exists, as do the means to deliver it. And the market incentives are present to get Europeans the energy they need. But politicians are too busy playing their global power games, and everyday Europeans will bear the costs.
Thanks to fracking, Americans aren’t as hurt by the cuts to Russian energy imports. But the effects are still being felt. Washington has also grown reluctant to grant new drilling permits and allow the construction of interstate energy infrastructure like pipelines. Combine that with the volume of oil set aside for the Strategic Petroleum Reserve, and it’s clear that the government is constraining the domestic energy supply to the detriment of the American people.
That only promises to get worse as politicians attempt to force an energy transition to more expensive and less reliable sources like solar and wind. Unfortunately, thanks to the legacy of heavy intervention, the US government has the means to enact these destructive changes without acquiring vast new regulatory authority. And the ardent promises to block future fossil fuel use have likely dissuaded investment in the infrastructure necessary to meet our needs in the future. Europe’s next few winters will preview what’s in store under tomorrow’s “green” policies.
This is what government control of energy looks like. It doesn’t benefit the common good. It allows narcissistic politicians to weaponize the lifeblood of a modern economy for their global power games. It grants control to a destructive group of maniacs willing to subject the public to tremendous pain to make themselves feel like good people. Energy is too important to be run by people so removed from the pain they are causing. What the world needs is energy liberated from the whims of politics.
At least since 2008, the financial world has been in a financial spiral caused by central banks’ growing monetary impression. As a consequence, key economic concepts (e.g., that business cycles are caused by credit expansion, and higher prices by monetary expansion) started to be considered just “old ideas” and their defenders prophets of the apocalypse. Some economists, especially the modern monetary theory (MMT) defenders, attempted to substitute these ideas with new ones. Their new analytic framework resulted in a countless number of enterprises claiming to be part of a new economic era.
Even though the MMT narratives are beautiful and can thrill the most unsuspecting, reality always buries impossible dreams in the end. In the market process that deals with scarce resources and inexhaustible ends, there is a filter which over time selects the practices that generate the greatest returns.
And how did we get here? Men answer to incentives, and the incentives of the last decade have distorted the economic and social processes. The Austrian school has long pointed out the importance of time preferences in market processes and how the manipulation of currency affects individuals. People become more present oriented and immediatist.
Not just that: the massive monetary impression distorts the comprehension of means and ends. If the financial resources are easily available, the need for efficient generation of value for shareholders disappears, as risk perception and opportunity costs are distorted.
Start-ups promising to change the economy in a new technological revolution that would improve coordination and generate gains for all of society, for example, have received huge capital investment. Some of them went further: they even promised to bury “old management” practices and to implement employee satisfaction policies. With negative or artificially low interest rates and lower opportunity costs for shareholders, these companies had the opportunity to spend shareholders’ capital investment with less oversight.
Most of the time, these companies tried to increase their market share. They conquered new customers with capital burn, using the excuse of “expected future returns.” But this future generally never became reality.
How can a company that started by burning capital eventually raise its prices to become profitable? Is it as easy as a snap of the fingers? Couldn’t their customers seek out new businesses, new products or services?
The financial world, believing in the fairy tale, was anesthetized by the monetary impression. Its risk parameters were distorted. It was as if the Fed had superpowers and could easily solve any financial disturbance in the world. The 2000 and 2008 crises appeared to have been forgotten and were treated as a part of a distant past; however, finance is still subject to the same moral hazard that led to these crises.
Economic analysis was distrusted. Even price increases were treated as part of the past. The old maxim of “more money, higher prices,” was regarded as the foolishness of outdated economists. Nevertheless, reality always annihilates fantasy. It is no surprise that a bubble one day would generate all the inflationary conditions we are living through today.
In the end, this dream of a new financial world—where entrepreneurs would think more about global problems and society as a whole than about their own businesses—has been broken by the present inflation and the higher interest rates, which will bring the economy back to a more “normal” place. Higher rates will decrease time preferences, investors will look more toward the future, opportunity costs will be higher, and the sandcastle will crumble with another financial burst.
There is no surprise in the recent firing of thousands of start-up employees. These companies’ financial sources will dry up, and a majority of them will go bankrupt. But nothing is chance: instead of focusing on generating profits for investors, these companies just burned investors’ money and treated competitive capitalism as a bad joke that could be surpassed by a teenager’s dream about concern with the environment and society over profits.
These companies didn’t perceive (or ignored) that all the financial expansion was artificial, and that one day the bust would bring the least competitive companies to their knees. They didn’t prepare themselves for the competitive market process in which only the profitable companies would survive. They forgot that profit is not simply an ugly, “cringe” word.
Fortunately, the market eventually selects the corporations best at sustaining themselves, while the noncompetitive ones go bankrupt. The economy will increase its productivity and stimulate a better use of resources, generating profit and value, while the distorted scenario in which we have been living, where every beautiful story attracted millions of dollars from avid investors in fear of missing out on an opportunity, will be just part of the past.
Hunter Hastings of Economics for Business joins Jeff for a thoroughgoing discussion of how monetary and fiscal policy distort capital markets and create perverse incentives for financialization rather than real production.
Jeff Deist, "Does M&A benefit the economy?": Mises.org/HAP373-ARothbard's America's Great Depression: Mises.org/AGDThe Economics for Business Podcast: Mises.org/E4Bpod
The Federal Reserve is sowing the seeds for its central bank digital currency (CBDC). It may seem that the purpose of a CBDC is to facilitate transactions and enhance economic activity, but CBDCs are mainly about more government control over individuals. If a CBDC were implemented, the central bank would have access to all transactions in addition to being capable of freezing accounts.
It may seem dystopian—something that only totalitarian governments would do—but there have been recent cases of asset freezing in Canada and Brazil. Moreover, a CBDC would give the government the power to determine how much a person can spend, establish expiration dates for deposits, and even penalize people who saved money.
The war on cash is also a reason why governments want to implement CBDCs. The end of cash would mean less privacy for individuals and would allow central banks to maintain a monetary policy of negative interest rates with greater ease (since individuals would be unable to withdraw money commercial banks to avoid losses).
Once the CBDC arrives, instead of a deposit being a commercial bank’s liability, a deposit would be the central bank’s liability.
In 2020, China launched a digital yuan pilot program. As mentioned by Seeking Alpha, China wants to implement a CBDC because “this would give [the government] a remarkable amount of information about what consumers are spending their money on.”
The government could easily track digital payments with a CBDC. Bloomberg noted in an article published when the digital yuan pilot program was launched that the digital currency “offers China’s authorities a degree of control never possible with cash.” A CBDC could allow the Chinese government to monitor mobile app purchases (which accounted for about 16 percent of the country’s gross domestic product in 2020) more closely. Bloomberg describes how much control a CBDC could give Chinese authorities:
The PBOC [People’s Bank of China] has also indicated that it could put limits on the sizes of some transactions, or even require an appointment to make large ones. Some observers wonder whether payments could be linked to the emerging social-credit system, wherein citizens with exemplary behavior are “whitelisted” for privileges, while those with criminal and other infractions find themselves left out.
(Details on China’s social credit system can be found here.)
The Chinese government is waging war on cash. And they are not alone. In 2017, the International Monetary Fund (IMF) published a document offering suggestions to governments—even in the face of strong public opposition—on how to move toward a cashless society. Governments and central bankers claim that the shift to a cashless society will help prevent crime and increase convenience for ordinary people. But the real motivation behind the war on cash is more government control over the individual.
And the US is getting ready to establish its own CBDC (or something similar). The first step was taken in August, when the Fed announced FedNow. FedNow will be an instant payment system and is scheduled to be launched between May and July 2023.
FedNow is practically identical to Brazil’s PIX. PIX was implemented by the Central Bank of Brazil (BCB) in November 2020. It is a convenient instant payment system (using mobile devices) without user fees, and a reputation as being safe to use.
A year after its launch, PIX already had 112 million people registered, or just over half of the Brazilian population. Of course, frauds and scams do occur over PIX, but most are social engineering scams (see here, here, and here) and are not system flaws; that is, they are scams that exploit the public’s lack of knowledge of PIX technology.
Bear in mind that PIX is not the Brazilian CBDC. It is just a payment system. However, the BCB has access to transactions made through PIX; therefore, PIX can be considered the seed of the Brazilian CBDC. It is already an invasion of the privacy of Brazilians. And FedNow is set to follow suit.
Additionally, the New York Fed has recently launched a twelve-week pilot program with several commercial banks to test the feasibility of a CBDC in the US. The program will use digital tokens to represent bank deposits. Institutions involved in the program will make simulated transactions to test the system. According to Reuters, “the pilot [program] will test how banks using digital dollar tokens in a common database can help speed up payments.”
Banks involved in the pilot program include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, US Bank, and Wells Fargo. The global financial messaging service provider SWIFT is also participating to “support interoperability across the international financial ecosystem.” (This video details the pilot program and how the US CBDC would work.)
The IMF is also thinking of a way to connect different CBDCs under a single system. In other words, the IMF plans to create a PIX/FedNow for CBDCs around the globe:
Things could change as money becomes tokenized; that is, accessible to anyone with the right private key and transferable to anyone with access to the same network. Examples of tokenized money include so-called stablecoins, such as USD Coin, and central bank digital currency.
The reception of Brazil’s PIX shows that FedNow will likely be widely adopted due to its convenience; however, this positive economic and technological element should not overshadow the increased control instant payment systems will give to central banks. The BCB has access to all transactions made by Brazilians through PIX, and this would only get worse should a CBDC be implemented. With a CBDC, it would be easier for the government to carry out expansionary monetary policies (which cause misallocations of resources and business cycles) and exert greater control over citizens’ finances.
The so-called green energy strategy is no strategy at all. Instead, it is an attempt to cripple the energy industries in vain hopes that renewables will magically cover the energy shortfall.
Original Article: "Renewables and EVs in the Grip of Lesseps Syndrome"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In last week’s column, I discussed Christophers Coyne’s excellent book In Search of Monsters to Destroy, a cogent account of America’s endeavor to build a “liberal” informal empire. Coyne shows the inherent contradiction of using brutal means to achieve humane values. This week, I’d like to discuss an even more deplorable part of American foreign policy, one which threatens the world with destruction. During the Cold War, the United States risked nuclear war with the Soviet Union; and though the Cold War ended long ago, American support for Ukraine in its war with Russia again risks atomic war. The dangers inherent in American policy have been discussed by Michael Anton, whom readers will recall from previous columns, in his thoughtful article “Nuclear Autumn,” which appeared in the fall 2022 Claremont Review of Books, and I’m going to focus my comments on his remarks.
Anton’s argument is in essence this: The United States came close several times during the Cold War to nuclear war with the Soviet Union, and this would have had appalling consequences. Nevertheless, the danger of losing the world struggle to communism made this risky policy at least arguably rational, at least until 1983, after which the Cold War lessened in intensity. In present circumstances, though, matters are entirely different. Russia, unlike Soviet communism, poses no threat to the United States, yet America’s nuclear policy is more reckless than ever before. Given the consequences of nuclear war, we ought to adopt a less interventionist Ukrainian policy.
As you would anticipate, I agree with the latter part of Anton’s analysis, but the former seems questionable. Anton says,
Conservative conventional wisdom soon hardened around this interpretation, where it has remained ever since: Reagan’s initial toughness was a necessary corrective to Carter’s fecklessness and Nixon’s détente, put the Soviets on their back foot, and forced them back to the table, resetting the stage for a Western victory. Nineteen eighty-three came to be seen as a kind of mirror-image of 1938, teaching the same lesson: appeasement begets war, toughness brings peace—or better yet, victory.
There is no doubt something to this, but even on its own terms, this rendering skips over important elements. The first is that the stakes matter. And the stakes in the Cold War were the very highest: the survival of the free world and maybe even the existence of the whole world. By 1980, it was plausible to fear that freedom and even humanity were losing. It was therefore not unreasonable to believe that calculated risks were warranted.
But you never know where toughness might lead, what it might provoke. When the consequences of toughness could be total destruction, it is rational—moral, even—to be tough only when the stakes are equally enormous. Toughness not in the service of a core interest—or the core of all core interests—is not merely foolish but reckless.
The apostles of nuclear brinkmanship said that the survival of the free world was at stake during the Cold War, but though they were no doubt right that the horrors of living under the gulag were worth fighting to prevent, it is not evident that the nations of the “West,” to use the Cold War argot, faced this threat. The Soviet Union had a relatively poor economy and had enough trouble keeping the Warsaw Pact nations in line without pursuing Western expansion in serious fashion. The Cold Warriors would have done better to heed the lessons of Ludwig von Mises’s calculation argument: so long as the Soviets continued their efforts at central planning, their economy was bound to collapse.
If Anton can be faulted for undue credence to the case for the Cold War, his treatment of the Ukraine war is exemplary. He notes that although the threat to America is far less than was true during the Cold War, US policy is more reckless than in those perilous times, hardly a recipe for rational policy. He says:
The ways in which the stakes are lower are obvious. There is no Cold War—or shouldn’t be, however much Western Russophobes would like one. Russia today, whatever you think of it, is not Communist, is not dominating half of Europe, has no prospect of doing so, and is not exporting revolution around the world. Russians may see themselves as locked in mortal ideological combat with the West, but then we’ve given them ample reason to think so, haven’t we? . . .
The way in which the stakes are higher should be equally obvious. Unlike 1983, 2022 is defined by a hot war, in which Russia is a belligerent. This time the Kremlin isn’t watching a bunch of troop movements wondering whether they’re an exercise or the prelude to war. They know we’re arming Ukraine, providing targeting information that’s killing Russian generals, and using our power over the global financial system to try to strangle their economy—a far cry from merely banning Aeroflot for a few years. Moscow held back in 1983 in part because, at the decisive moment, we held back. That’s not what we’re doing now . . .
The worst element of the present crisis, at least from our side, . . . [is] the casual insouciance with which elites now speak of nuclear exchanges as an acceptable price to pay for stopping Russia and, really, not all that bad. Exhibit A is Anne Applebaum’s recent Atlantic column entitled “Fear of Nuclear War Has Warped the West’s Ukraine Strategy.” The West is not doing enough to escalate the conflict, she argues, because “[w]e feel relieved, somehow, that people will die because they have frozen in unheated apartments or drowned in an artificial flood, and not from nuclear fallout.” And, hey, what’s the difference? . . . When MSNBC and CNN talking heads start making Curtis LeMay sound circumspect, the world has turned upside down.
(For younger readers, I should note that Curtis LeMay was the air force general in charge of the Strategic Air Command during the Cold War, and notorious for proposing to bomb all and sundry back to the Stone Age.)
By no means should Anton be taken as a supporter of the policies of Vladimir Putin, and those who in response urge the defects of the Russian dictator have not grasped the key point of Anton’s argument. We no longer face the bleak prospect of being “Red or Dead,” if indeed we ever did, and nothing less than this could justify pushing Russia to the nuclear brink.
In a recent Bloomberg article, a group of economists voiced their fears that the Federal Reserve’s inflation fight may create an unnecessarily deep downturn. However, the Federal Reserve does not create a downturn due to rate hikes; it creates the foundations of a crisis by unnecessarily lowering rates to negative territory and aggressively increasing its balance sheet. It is the malinvestment and excessive risk-taking fuelled by cheap money that lead to a recession.
Those same economists probably saw no risk in negative rates and massive money printing. It is profoundly concerning to see that experts who remained quiet as the world accumulated $17 trillion in negative yielding bonds and central banks’ balance sheets soared to more than $20 trillion now complain that rate hikes may create a debt crisis. The debt crisis, like all market imbalances, was created when central banks led investors to believe that a negative yielding bond was a worthwhile investment because the price would rise and compensate for the loss of yield. A good old bubble.
Multiple expansion has been an easy investment thesis. Earnings downgrades? No problem. Macro weakness? Who cares. Valuations soared simply because the quantity of money was rising faster than nominal GDP (gross domestic product). Printing money made investing in the most aggressive stocks and the riskiest bonds the most lucrative alternative. And that, my friends, is massive asset inflation. The Keynesian crowd repeated that this time would be different and consistently larger quantitative easing programs would not create inflation because it did not happen in the past. And it happened.
Inflation was already evident in assets all over the investment spectrum, but no one seemed to care. It was also evident in non-replicable goods and services. The FAO food price index already reached all-time highs in 2019 without any “supply chain disruption” excuse or blaming it on the Ukraine war. House prices, insurance, healthcare, education… The bubble of cheap money was clear everywhere.
Now many market participants want the Fed to pivot and stop hiking rates. Why? Because many want the easy multiple expansion carry trade back. The fact that investors see a Fed pivot as the main reason to buy tells you what an immensely perverse incentive monetary policy is and how poor the macro and earnings’ outlook are.
Earnings estimates have been falling for 2022 and 2023 all year. The latest S&P 500 earnings’ growth estimates published by Morgan Stanley show a modest 8 and 7 percent rise for this and next year respectively. Not bad? The pace of downgrades has not stopped, and the market is not even adjusting earnings to the downgrade in macroeconomic estimates. When I look at the details of these expectations, I am amazed to see widespread margin growth in 2023 and a backdrop of rising sales and low inflation. Excessively optimistic? I think so.
Few of us seem to realize a Fed pivot is a bad idea, and, in any case, it will not be enough to drive markets to a bull run again because inflationary pressures are stickier than what consensus would want. I find it an exercise in wishful thinking to read so many predictions of a rapid return to 2% inflation, even less, when history shows that once inflation rises above 5% in developed economies, it takes at least a decade to bring it down to 2%, according to Deutsche Bank. Even the OECD expects persistent inflation in 2023 against a backdrop of weakening growth.
Stagflation. That is the risk ahead, and a Fed pivot would do nothing to bring markets higher in that scenario. Stagflation periods have proven to be extremely poor for stocks and bonds, even worse when governments are unwilling to cut deficit spending, because the crowding out of the private sector works against a rapid recovery.
Current inflation expectations suggest the Fed will pivot in the first quarter of 2023. That is an awfully long time in the investment world if you want to bet on a V-shaped market recovery. Even worse, that pivot expectation is based on a surprisingly accelerated reduction in inflation. How can it happen when central banks’ balance sheets have barely moved in local currency, reverse repo liquidity injections reach trillion-dollar levels every month and money supply has barely corrected from the all-time highs of 2022? Many are betting on statistical bodies tweaking the calculation of CPI (consumer price index), and believe me, it will happen, but it will not disguise earnings and margin erosion.
To cut inflation drastically three things need to happen, and only one is not enough. 1) Hike rates. 2) Reduce the balance sheet of central banks meaningfully. 3) Stop deficit spending. This is unlikely to happen anytime soon.
Investors that see the Fed as too hawkish look at money supply growth and how it is falling, but they do not look at broad money accumulation and the insanity of the size of central banks’ balance sheets that have barely moved in local currency. By looking at money supply growth as a variable of tightness in monetary policy they may make the mistake of believing that the tightening cycle is over too soon.
Investors should not care whether the Fed pivots or not if they analyze investment opportunities based on fundamentals and not on monetary laughing gas. Betting on a Fed pivot by adding risk to cyclical and extremely risky assets may be an extremely dangerous position even if the Fed does revert its pace, because it would be ignoring the economic cycle and the earnings reality.
Central banks do not print growth. Governments do not boost productivity. However, both perpetuate inflation and have an incentive to increase debt. Adding these facts to our investment analysis may not guarantee high returns, but it will prevent enormous losses.
A recent report by the Manhattan Institute (a conservative think tank) showed that critical race theory (CRT) concepts are being taught in many high schools across America. The report was based on a survey of 1,505 nationally representative Americans aged 18–20 and lends new weight to the idea that CRT is about training students to be social activists rather than teaching them how to think.
The survey asked students who were taught CRT (for example, that the US is a systemically racist country) how their teachers handled counter-arguments. The survey asked, “When you were taught these concepts, what were you taught about arguments against these concepts?” In total, 68 percent of respondents said that they either were not taught about arguments against CRT or that they were taught there were no respectable arguments against it. In other words, a majority of students across the country are being told that this far-left ideology is the only accurate way to see the world.
Many parents might be surprised by this focus on indoctrinating students, but the truth is that critical race theorists are open about their intentions when they are talking to each other. Robin DiAngelo—perhaps the best-known critical race theorist owing to the blockbuster success of her CRT manifesto, White Fragility—is notorious for this. In Is Everyone Really Equal? An Introduction to Key Concepts in Social Justice Education, DiAngelo and coauthor Ozlem Sensoy state that “education is a political prospect.” Is Everyone Really Equal? is a widely used textbook for graduate students training to be teachers. A generation of aspiring teachers are being told that their job is to turn students into political activists for the causes that DiAngelo and Sensoy care about.
It is not just DiAngelo and Sensoy. Across the board, critical race theorists see education as a training ground for future activists. In the prestigious UCLA Law Review, two critical race theorists said that CRT “engages students in social activism to defy majoritarian supremacy.” A workshop by the National Association of Independent Schools’ People of Color Conference taught educators that “kindergartners are natural social justice warriors.” Dr. Alison Bailey, the director of the Women's and Gender Studies Program at Illinois State University, explicitly rejects the idea of critical thinking:
The tools of the critical-thinking tradition (for example, validity, soundness, conceptual clarity) cannot dismantle the master’s house: they can temporarily beat the master at his own game, but they can never bring about any enduring structural change (Lorde 1984, 112). They fail because the critical thinker’s toolkit is commonly invoked in particular settings, at particular times to reassert power: those adept with the tools often use them to restore an order that assures their comfort.
Bailey essentially says that critical thinking might be used by those in power to maintain control, so we need to jettison the concept completely. It is tough to imagine a more openly indoctrinating worldview.
Another reason that we should not be surprised when students say they are not taught counterarguments to CRT is that CRT activists frame their hypotheses as axiomatic and therefore beyond question. At the National Race and Pedagogy Conference at Puget Sound University, scholar-activists Heather Bruce, Robin DiAngelo, Gyda Swaney (Salish), and Amie Thurber presented several core tenets of antiracism. Developed by leading CRT practitioners, these foundational tenets represent how CRT is actually applied. One tenet is particularly revealing: “The question is not: ‘Did racism take place?’ but rather ‘How did racism manifest in that situation?’” The underlying hypothesis (that racism takes place in every single situation) is framed as something beyond doubt to preemptively undercut any disagreement.
When folks do have the temerity to question CRT, the reaction of prominent critical race theorists is dismissal. In White Fragility, DiAngelo says that every single white person is fragile. How does she know we are fragile? Because when she calls us fragile, we respond with a variety of behaviors including “argumentation,” “anger,” “guilt,” “tears,” “silence,” and “leaving the stress-inducing situation” (that is, the room where the person is being lectured about their fragility).
According to DiAngelo, if you are white, you are fragile. If you disagree, you have proved your fragility. If you remain silent, you have proved your fragility as well. And, of course, agreement is also proof of your fragility. This style of argumentation is known as a Kafka trap. You are accused of something. And if you defend yourself, your defense is considered proof of your guilt. As far DiAngelo and her fellow theorists are concerned, disagreeing with CRT is just further validation. No wonder students are being told there are no respectable counterarguments to CRT.
Why do CRT advocates openly endorse indoctrination rather than traditional education? They do this because they see social institutions (including schools) as so corrupt that they only produce fixed, preplanned outcomes. In Is Everyone Really Equal?, DiAngelo and Sensoy posit a zero-sum, bare-knuckle battle between different identity groups in which a dominant group seizes power and uses that power to maintain itself above oppressed groups. Schools play a critical role here. DiAngelo and Sensoy compare schools to the panopticon, a hypothetical prison in which inmates are always watched so that they only do what the prison guard wants them to do.
In the same way, DiAngelo and Sensoy believe schools (and other institutions) create a harsh atmosphere of self-policing in which white students are conditioned to do what the dominant group wants them to do; that is, continue to keep their boots on the faces of oppressed groups. If social institutions are so corrupt, seizing these institutions and using them to indoctrinate a new generation of student activists motivated to tear down the structures of the dominant group is a moral imperative.
When they are talking to the public rather than to each other, critical race theorists sing a different tune. They insist that CRT is only about teaching an accurate version of US racial history. It is time to call their bluff. There are plenty of gifted scholars, like John McWhorter and Glenn Loury, whose work can be used to teach the checkered history of US race relations without resorting to the indoctrinating nonsense promoted by DiAngelo and many other CRT practitioners.
Last week, the employment news was all about how payrolls increased by 269,000 jobs and blew past expectation. Yet, if when looked at the actual number of employed persons, it turned out that the number of employed people has actually gone down in recent months. At 158.4 million, total employment is still nearly 400,000 workers below where it was before the Covid Panic of 2020.
Those who support the everything-is-great narrative have responded to the unimpressive employed-workers numbers by dismissing them as a result of workers retiring and other demographic changes. These explanations, however, require that we ignore the fact that millions of men age 25-54—that is, men of working age—have removed themselves from the workforce. When so many men—men who would have been looking for work in much larger numbers 20 or 30 years ago—don't show up in the work force, this lowers the unemployment rate and makes total jobs numbers look more impressive.
In fact, as of September of this year, there appears to be nearly a six-million-man gap between the number of men in the prime-age group—age 25-54—and the number of prime-age men actually in the workforce. Depending on why they're out of the work force, that is potentially some very bad news for both the economy and for society overall.
How Many Men Are Out of the Work Force?Prime-age male workforce participation rose year-over-year in November, rising to 88.4 percent above last November's estimate of 88.2 percent. Workforce participation has been climbing out of a hole since the rate hit an all-time low of 86.4 percent during April 2020.
Source: Bureau of Labor Statistics (Current Population Survey).
The larger trend in workforce participation for prime-age men, however, has been one of decline for decades. During the 1950s and into the early 60s, prime-age workforce participation for men was nearly 98 percent. That began to fall throughout the 60s, and by 1980, it was around 94 percent. The trend didn't end there, however, and even during the construction boom of the housing-bubble years, participation only stabilized and peaked in 2007 at 91.4 percent. The participation rate has never risen above 90 percent since 2009.
What does this mean in total numbers of prime-age males? If we look at the difference between total prime-age men, and the total number of them in the work force, we find that the gap as of November was about 7,040,000 men.
Source: OECD: "Working Age Population, Age 25-54"; Bureau of Labor Statistics (Current Population Survey).
The workforce measure is of civilian workers, however, so if we account for approximately one million active-duty males, that leaves us with about 6 million men. But what about stay-at-home dads? Many of these dads have at least part-time jobs, and are thus still in the work force. We all know that people who provide care to children are "working" in the colloquial sense, of course, but as far as Census data is concerned, the number of stay-at-home dads who are also "out of the workforce" numbers approximately 200,000.
So, we are still left with about 5.8 million men who are spending their days doing something other than working for (legal) wages.
So, how are these men surviving without income? According to research by Ariel Binder and John Bound, most of these men are low-income, but receive income from parents, spouses, and girlfriends. Among men not in the work force, this cohabitants' income "accounts for the largest share of income" in the households where these men reside. Many of these men elect not to work because the opportunity cost of not working is relatively low. As Alan Kreuger has noted, the decline in workforce participation has been especially steep among those with lower earning potential such as those with a high school degree or less. Many men in this category also report poor health and that they take pain medication daily. This also suggests high incidence of opioid addiction among men not in the work force. Few younger men who have left the workforce are eligible for government disability benefits. Among older men, however, disability benefits supplement income from other household members.
What If These Men Rejoined the Work Force? As we've seen, having a few million men leave the workforce drives down the unemployment rate. What would the employment picture look like if all these men were to suddenly join the workforce by looking for work?
According to the Bureau of Labor Statistics, the gap between job openings—10 million—and total unemployed workers—6 million—is 4 million. In other words, if all the current job openings were magically filled by current unemployed workers, that would still leave 2 million unemployed workers. Now, let's add back into the work force those 5.8 million males who are aren't even looking for work. We'd then have a situation in which all job openings were filled and we still would have 7.8 million unemployed workers. The unemployment rate would increase to 4.7 percent, or the highest rate since September 2021.
But that's not a very probable scenario. While many of the six million unemployed workers are only in transition, many others are unemployed because their industries are cutting jobs, or because the workers generally lack the proper skills or education. When it comes to the men who have left the work force entirely, the picture is more bleak. As we've seen, a sizable portion of men who have left the work force have likely done so for reasons that make them something other than ideal job candidates. If they were to begin looking for work, the more likely scenario is one in which the currently unemployed 6 million workers would balloon up to over 10 million. This would drive the unemployment rate up over 6 percent while also softening upward pressure on wages.
Source: Bureau of Labor Statistics, Household Employment Survey; JOLTS Survey; US Census; Bureau of Labor Statistics (Current Population Survey).
Once layoffs start to accelerate—as many indicators suggest will happen in 2023—the situation will only become worse with the unemployment rate heading up even higher.
If one were to go only on the headlines we get from the mainstream business press, though, it does seem like there's nary a potential worker to be found out there anywhere. The truth is less pleasant as millions of prime-age men aren't working, looking for work, or caring for children. That phenomenon is very good for making the official unemployment rate seem low, but it also lowers the economy's overall productivity while reducing savings. Even worse are the sociological effects of millions of men sitting at home living off of government disability checks or the toil of relatives, girlfriends and spouses.
On this episode of Radio Rothbard, Tho Bishop and Ryan McMaken discuss the recent report that the Pentagon has failed its fifth straight audit and why no one seems to care. Why has the public lost interest in basic fiscal sanity? How recent is this problem? What might force Americans to care?
Looking for Christmas gifts? Use promo code ROTHPOD for a 20% discount on select books featured on Radio Rothbard. Or, use code MURRAYCHRISTMAS for a special 10% discount on select new Mises apparel: Mises.org/RR_111_Store
Recommended Reading"As the Pentagon Fails Another Audit, Congress Wants to Spend Even More on 'Defense'" by Ryan McMaken: Mises.org/RR_111_A
"Can a Deeply Unserious America Fix Its Economy?" by Jeff Deist: Mises.org/RR_111_B
"Biden's Defense Plan: Limitless Global Meddling" (War, Economy, and State podcast): Mises.org/RR_111_C
America: From Republic to Empire (video series): Mises.org/RR_111_D
The Betrayal of the American Right by Murray N. Rothbard: Mises.org/RR_111_E
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
In 2008, the State of Oregon inadvertently ran a randomized health insurance experiment. They decided they had just enough money in their annual budget to give Medicaid coverage to an additional ten thousand citizens randomly chosen via a lottery. While there was no improvement in health outcomes, hospital admissions increased by 30 percent, outpatient visits by 35 percent, and ER visits by 40 percent. The experiment cost a lot of money—36 percent more—with no tangible benefit.
Amazingly, there is not a strong relationship between healthcare spending and health outcomes. America spends almost $4 trillion a year on healthcare, around twice what most other developed nations spend per head, and approximately half of it is taxpayer funded. With only 4 percent of the world’s population, the US accounts for half of the pharmaceuticals consumed worldwide. If more healthcare were the answer, the US would be the healthiest country on the planet. Yet while Japan’s and Singapore’s healthcare expenditures per head are only a fraction of those of the US, Japanese and Singaporeans live over five years longer than Americans.
The US’s excess spending on healthcare mostly goes to overpriced, ineffective, and unnecessary treatments. It is generally assumed that more care is caring more, but the reality echoes the eerily astute insight that Ivan Illich put forth in the initial pages of his 1970 book Deschooling Society, in which he deconstructed the bureaucratic ethos. He noted that bureaucrats
confuse process and substance. Once these become blurred, a new logic is assumed: the more treatment there is, the better are the results; or escalation leads to success. The pupil is thereby “schooled” to confuse teaching with learning, grade advancement with education, a diploma with competence, and fluency with the ability to say something new. . . . Medical treatment is mistaken for health care, social work for the improvement of community life, police protection for safety, military poise for national security, the rat race for productive work.
Actually, clean drinking water, nutritious food, workplace safety, sanitary living conditions, employment, and a supportive social network have a bigger effect on health outcomes than access to healthcare does. The Centers for Disease Control and Prevention told us in 1999 that while “the average lifespan of persons in the United States has lengthened by >30 years” since 1900, “25 years of this gain are attributable to advances in public health” rather than to medicine. In 2000, the prestigious journal Pediatrics released a comprehensive study that attributed the 90 percent decline in infectious disease mortality to improvements in sanitary conditions and nutrition rather than medical treatments. Cleaner drinking water was responsible for nearly half of the reduction in total mortality and nearly two-thirds of the reduction in child mortality in the twentieth century.
Longer lifespans and better health, wherever they are still enjoyed—as life expectancy has been falling since 2014, and chronic disease is more prevalent than ever—are largely due to better nutrition and hygiene, ventilated housing, indoor heating, garbage collection, sanitary sewage systems, and cleaner water and food. In the nineteenth century, people’s housing and working conditions improved dramatically. Most of the basic conveniences we take for granted today, like indoor flushing toilets and clean running water, were not widely available in the first half of the twentieth century. Before the internal combustion engine, city streets were lined with horse dung. People lived several to a room, sharing disease. The average living space per person in America doubled between 1973 and 2014, a very recent change.
Poor people typically have worse health outcomes than affluent people do, and the healthcare that poor people consume largely comes at the taxpayer’s expense. So, even from the statist “welfarist” perspective, if someone getting into government really wanted to do something to improve health and longevity, he could redirect a percentage of the huge sums squandered on Medicaid toward improving housing quality in the areas where living conditions are worst and health outcomes poorest.
Go after low-hanging fruit, like eliminating mold in apartments. The program would more than pay for itself with the drop-off in health visits. Go to the places with the worst water quality and improve it. Go where the air is dirty and clean it up, or litigate against the polluters. Publicize the effects of poisonous herbicides like Roundup on the microbiome. Improve the quality of the soil so that people can have access to more nutritious produce. Every dollar spent would likely result in several dollars saved from not having to treat preventable illnesses.
The fact that this is never proposed either indicates that I am uniquely original in my genius (plausible) and should give up economics to run for office or that our so-called public servants are less interested in improving people’s health than they are in shovelling public money into the hands of their cronies in the medical industry.
Massachusetts voters approved yet another tax hike for high-income residents, while California voters rejected a similar proposition. The current tax fever does not bode well for economic growth.
Original Article: "Taxing the Wealthy: A Tale of Two State Propositions"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Never let a good crisis go to waste. This has been the organizing principle of the political elite during the turmoil, both real and manufactured, of the past couple of years. The federal government, using pandemic-induced fear, expanded tremendously during this time frame (read more on that here and here).
This is indicative of a wider problem with bureaucracy called budget maximization. Bureaucrats act to maximize their respective budgets to obtain more power. This is more than likely a main driver of the massive budget deficits the federal government has been running over the past three fiscal years. Bureaucracies use excuses such as rising crime and increased deaths. To justify their requests for more funding to the public and their representatives. This idea was pioneered by William Niskanen in his 1968 paper “The Peculiar Economics of Bureaucracy,” which cited bureaucracies as a major driver of government growth.
With this in mind, it should come as no surprise that the Capitol Police is requesting more money after the attack on Paul Pelosi, the distinguished husband of the speaker of the House. “Friday’s attack against Paul Pelosi is an alarming reminder of the dangerous threats elected officials and public figures face during today’s contentious political climate,” stated Capitol Police chief Tom Manger in a recent press release. Citing recent political violence, the Capitol Police is requesting more money to help protect our dutiful elected officials, never mind the fact that they got a hefty raise of over $400 million in light of the “insurrection” of January 6. This apparently was not enough.
How are we to know if they legitimately “need” more funding? We should expect political violence to occur regardless of how much money we spend to prevent it, right? Steve Scalise and Rand Paul have both been subject to political violence over the past five years. Rep. Gabby Giffords was also subject to violence in 2011. These things happen every once in a while, and one particular instance should not be taken as indicative of a wider trend.
However, the high-profile nature of the event gives the Capitol Police the press and visibility necessary to make such a plea for more funding; the fact that the attack was directed at a well-respected member of the political elite also helps muster popular support for unwarranted funding.
Of course, we have no way of knowing how much funding the Capitol Police actually “needs.” Its service is funded completely through forceful expropriation and is consumed almost exclusively by net tax consumers (politicians and other bureaucrats). It does not help that the Capitol Police measures its own performance either. The organization is completely removed from the checks and balances of profit and loss.
It is important to note that the Capitol Police would not exist in a free market. There would be no government and thus no Capitol. But is there an arrangement preferable to the current system? As a matter of fact, yes, there is. Congressmen should be responsible for their own security details. The Capitol Police has a stark history of ineptitude, yet it continues to request more funding after every failure.
If private citizens are concerned for their safety, they purchase goods and services that make them more secure or they decide that the extra security is not worth it and just settle for calling the police. Jeff Bezos and Mark Zuckerberg, despite being more productive than the Nancy Pelosis and Chuck Schumers of the world, are responsible for providing their own security. And for good reason; they can afford it.
The same should apply to the political elite, and they already do this to some extent. Alexandria Ocasio-Cortez has spent over $100,000 on private security. If AOC, a congresswoman who isn’t exactly rich, can provide her own security, Nancy Pelosi, with a net worth of over $100 million, can definitely handle her own.
The taxpayer should not have to subsidize the security of their expropriators. Those who want to obtain political office should be expected to make arrangements for their own security. When they use taxpayer money for their protection, their abuses toward the taxpayer are multiplied.
Unfortunately, politicians will not be quick to eliminate their protections, and the bureaucracy will be more than happy to take more money from the public purse. As long as the public is convinced that our esteemed congressmen are in imminent danger, the Capitol Police can get away with maximizing its budget despite a history of failure.
Regardless, the Pelosis should be in the market for a new security detail.
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Politicians calling for student loan forgiveness or free college tuition have failed to understand the larger consequences of unlimited student lending. Henry Hazlitt would have understood.
Original Article: "College Loans and Hazlitt's Lesson: Ignoring the Larger Picture"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On this episode of War, Economy, and State, Ryan McMaken and Zachary Yost take a look at the Biden Administration's new National Security Strategy. The Biden plan is to intervene everywhere and always across the entire globe. In fact, the plan absurdly says "nothing is beyond" the US's capacity to remake the global order.
Additional Resources"National Security Strategy, October 2022" (PDF): Mises.org/WES_05_A
Be sure to follow War, Economy, and State at Mises.org/WES.
An exuberant gate agent adorned in blue Southwest Airlines attire hollered, “Are you ready to go to Montego Bay?”
The waiting, weary passengers responded with a half-hearted collective “yeah.” The agent was not satisfied. He had sought a more enthusiastic response.
He assumed the other travelers and I were heading to Jamaica to party for Thanksgiving week. What he did not tell us was that Jamaican prime minister Andrew Holness had declared a state of emergency. The New York Post reported that Holness declared the state of emergency “to control rising crime linked to gang violence.” And unfortunately for travelers such as myself, this included “the popular tourist destination of Montego Bay.”
In fact, not a word was said about the emergency during our week’s stay. “In explaining the rationale behind the measure, Holness cited an increase in the murder rate, suggesting that criminal activities are contributing to public disorder,” Global Voices reported.
The impact of rising crime, as Hans-Hermann Hoppe wrote in his magisterial book Democracy: The God That Failed, “reduces the supply of the goods of the victimized appropriator-producer-exchanger, thereby raising his effective time-preference rate.” Potential victims incur a “setback in the process toward a fall in the rate of time preference.” There is a reason for the high walls and guarded gates at Montego Bay resorts, and it is a cost that tourists pay whether they realize it or not.
Low time preference leads to civilization, while high time preference leads to civilizational regression. Children have very high time preferences, living “day to day and from one immediate gratification to the next,” Hoppe explains. As we become adults, our time preferences fall as we save for future obligations. Old folks have higher time preferences because they have little time left.
Even without a rising crime rate, there is likely not a more high-time-preference activity than vacationing in Jamaica. Hoppe describes individuals with high time preference as drifters, drunkards, junkies, vagabonds, daydreamers, or simply just happy-go-lucky sorts who work as little as possible. As Hoppe describes, “formerly provident providers will be turned into drunks or daydreamers, adults into children, civilized men into barbarians, and producers into criminals.” Is he describing high time preference or the typical Jamaican vacation?
Jamaica sells itself as a continuous party fueled by hotel staff plying guests with fruity rum drinks the minute they hit the front door of the resort. A container of rum punch beckons tourists as they wait to check in. And business is good. The president of the Jamaica Hotel and Tourist Association (JHTA) Robin Russell predicts a “very good winter tourist season, beginning December 15. . . . [and] Jamaica is close to repeating its 2019 tourism season when 4.3 million visitors spent $3.64 billion.”
While discussing the upcoming tourist season, Holness told the Gleaner that “right now we are experiencing in some sectors a labour shortage. The only reason why we have that labour shortage is that some people are in the business of making the country insecure and unsafe, and our job is to get them out of that business and get them into the business of making the country safe, secure and growing.” Clearly, the escape business in Jamaica is flourishing.
Some say support for democracy in Jamaica is falling. Regardless, as Hoppe explains, “under democracy everyone becomes a threat.” Therefore, “under democratic conditions the popular, if immoral and anti-social, desire for other men’s property is systematically strengthened.” A fifth of Jamaica's population lives below the poverty line and one can see evidence of it just outside the tourist areas. The large number of aged, storm-damaged buildings is evidence of a lack of capital.
While a group of us rode along Jamaica’s northern coast to Dunn’s River Falls, our guide, Stephanie, dramatically told us why she and the van driver deserved a generous tip. She told us of Jamaica’s $81 per week minimum wage (as well as a lower number) and claimed gas prices of $9 per gallon (which seem to be closer to $5.40 per gallon). Climbing the falls is a tricky trek, which most of our group braved. This writer and his cane waited safely on the beach.
Our group had encountered a checkpoint with armed soldiers on the road to Dunn’s Falls. Stephanie had made a joke about it but had not mentioned that it was part of Holness’s emergency measures. Emma Lewis writes, “It appears that there is still a long way to go as Jamaica grapples with its murder rate — to date, the second highest in the world.”
In response Holness may declare a second state of emergency. Tourist ignorance is bliss. No doubt the party will go on.
It's been three weeks since four students at the University of Idaho were stabbed to death at a home in Moscow, Idaho, and law enforcement officers say they have no suspect. In the early hours of November 13, three woman and one man were murdered in an off-campus home where two other roommates were also sleeping. Yet, somehow the killer or killers managed to escape the premises without being seen or even waking the other roommates.
The small local police department in the city of approximately 25,000 people now reports it is being assisted by 48 FBI investigators plus 13 investigators from the state police. Yet, in spite of all this extra spending and staffing, the police department has reported no breakthroughs in the investigation.
The investigation has also been marred by alarmingly incoherent attempts to address public safety in the community following the homicides. Immediately after the homicide took place, for instance, police spokesmen confidently claimed the public was not at risk, even though the killer or killers were at large. Perhaps in an effort to make themselves seem competent, police claimed they were sure the victims were specifically "targeted" and the murderer was—for some reason—absolutely no threat to others. Only a day later, however, the police admitted they don't know if the victims were specifically targeted or if the crime was somehow a random act. Weeks later, the police still don't know, and more skeptical students have been taking steps to arm themselves and secure their homes from intruders. Fear runs so high that the University of Idaho campus is reportedly "half empty."
The parent of one victim has noted "we're angry" about law enforcement's lack of progress. The parent of another victim has turned to a private investigator.
Unsolved Crimes Are Very CommonEven of these homicides remain unsolved for decades, however, that would not make the case especially notable. In the United States, fewer than half of violent crimes in the US are "cleared," and this doesn't mean a perpetrator is necessarily convicted in a court of law. It just means the police have concluded the investigation and consider it to be closed. In 2017, for example, only 45 percent of violent crime led to arrest. Property crime clearances are much worse. In recent years, only around 17 percent of burglaries, arsons, and car thefts are "cleared."
Unfortunately, law enforcement's rather unimpressive record for addressing violent crime nationwide may prove to be especially hard to digest in Moscow, Idaho where, prior to 2022, there had not been a murder since 2015. (With four homicides in this small community, Moscow's homicide rate in 2022 is now 15 per 100,000 and similar to that of Tulsa, Oklahoma and Denver, Colorado.)
Small Town Policing: Serious Crime Is Often Not a Priority Like the police in so many similar communities, the Moscow Police have long focused on petty drug offenses and non-criminal offenses while more serious violent crime and property crime receives far less attention. If this investigation does not lead to any arrests, that would not exactly be shocking given what we know about arrests for other violent crimes in the city. Not that Moscow is especially notable for crime. Moscow is a town of approximately 25,400 people. and has few homicides or rapes. Like many towns of its type, however, there are fair number of thefts, burglaries, stolen cars, and assaults.
In most cases, these offenses are cleared at rates well below 50%. Indeed, over the five year period from 2017 to 2021, only the clearance rate for simple assault topped fifty percent at 56%. The clearance rate for aggravated assault on the other hand, was 38%, while the clearance rates for larceny, car theft, and burglary were 13%, 3%, and 10%, respectively. For example, out of 62 reports of stolen cars in Moscow over this period, only 2 were cleared. Among 1,823 larceny offenses reported during this period, only 235 were cleared.
Apparently, recovering stolen property and prosecuting thugs are not exactly the specialty of police in Moscow. But what is their specialty?
A Nationwide ProblemWe have known for years that most police work centers on lesser crimes. According to the Vera Institute of Justice, "fewer than five percent" of arrests
are for serious violent crimes. Instead, the bulk of police work is in response to incidents that are not criminal in nature and the majority of arrests involve non-serious offenses like “drug abuse violations”—arrests for which increased more than 170 percent between 1980 and 2016—disorderly conduct, and a nondescript low-level offense category known as “all other non-traffic offenses.”
These offenses are behind 80 percent of all arrests.
We see a similar breakdown in Moscow. In contrast to the very low clearance rates for thefts and assaults, clearance rates for drug offenses are remarkably high. From 2017 through 2021, the clearance rate for drug violations was a lofty 73 percent, while the clearance rate for "drug equipment violations" was even higher at 77 percent.
To fight its war on drugs—while putting theft and assaults on the back burner—the police department is well funded. In 2020, the police department's budget in Moscow was $8.5 million out of a total city budget of $101 million. Of that $8.5 million, the city spends about $4.5 million on personnel. With a police staff of 45 employees, that's about $100,900 per employee. This doesn't all go into salaries and benefits, of course, but it should be noted that $100,000 is well in excess of the local median household income of $42,262.
The Moscow police department's lack of emphasis on non-drug crime has its parallels in the national data as well. For example, criminologist Victor Kappeler concludes that per capita, police make 14 arrests per year. But, "less than one of these arrests would have been for a violent crime and fewer than two arrests would have been for property crimes. In fact, 12 of the arrests made by our 'average' police officer would have been for petty crimes like minor drug or alcohol possession, disorderly conduct, and vandalism."
Even in communities with numerous homicides, few resources are devoted to solving the most serious crimes. In Baltimore, for example, the police department devotes less than three percent of its police officers to homicide investigations. This leaves most personnel to focus on small-time violations that are low-risk for officers and relatively easy to investigate.
One side effect of all this is that most police personnel simply aren't very skilled at investigating serious crime. This raises the question of whether the taxpayers who pay the bills would endorse this lack of attention toward more serious crimes were police departments actually answerable to market forces and fee-paying consumers. After all, to criticize police performance is not to assume that there is no need at all for night watchmen and security personnel. This is an important job. The question remains, however, whether it is prudent to keep giving police departments the benefit of the doubt when so many devote so few resources to solving the most serious crimes.
Governments are demanding there be "proportional" representation of women in professions that women historically have avoided. Those efforts will be unsuccessful.
Original Article: "It's Not Discrimination, Even When the Government Claims Otherwise"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In November, the Pentagon announced it had failed yet another audit. In spite of the fact the Department of Defense has had years to get its act together, the Pentagon still doesn't know how it spends or maintains its trillions of dollars worth of taxpayer-funded assets and income. As Breaking Defense noted last month:
The Pentagon has failed its annual audit for the fifth year in a row, an expected result that nonetheless represents something of a disappointment for an effort that officials hoped would continue steady, if incremental, year over year progress. ... The Pentagon has failed every audit since 2018, the first audit of the department ever performed in its history.
Accounting like this, of course, would land most private-sector C-suite executives in prison for various financial crimes. Moreover, this is the same government that insists it has the prerogative to spy on most of our banking transactions, and has even recently started demanding that we report every Venmo and Paypal transaction over $600 dollars. But, that's not how things work in the government sector. The Pentagon can fail an audit on literally trillions of dollars, and all that means is "there's room for improvement."
Indeed, rather than tie funding to accurate information about how taxpayer money is spent, Congress this month has mostly been debating how much to increase defense spending.
Last week, Congress began hammering out a compromise on increasing the defense budget yet again. Although there continues to be wrangling over the Pentagon's covid vaccine mandate, and just how many more weapons to send to Ukraine, the proposed budget would be an 8% increase over the 2022 budget. Some republican leaders had sought a slightly smaller increase of 3 to 5%, but as is so often the case, the GOP is more than happy to sign off on ever larger budgets so long as they benefit certain interest groups. The White House had sought $802 billion in its budget, but the final tally is likely to come in over $840 billion.
Trillions Spent on FailureHistorically, a budget of this magnitude would be at an all-time high in current dollars. Looking at all defense functions, including spending on nuclear arms through the Department of Energy, the OMB's estimate for 2023 is now $827 billion (see Table 5.1). That's an increase of 7.8 percent over 2022, and an increase of 14 percent over 2009 when the United States government was busy with the "surge" in Afghanistan and various occupation and counter-insurgency efforts in Iraq. The US would eventually lose both wars after spending more than 2 trillion dollars. Moreover, those wars were heavily financed by borrowed money, and American taxpayers may now be on the hook for more than $6 trillion in interest payments.
Today, the Afghanistan regime is in the hands of the Taliban, just as was before the US invasion in 2001. Meanwhile, in Iraq, the US invasion, by destroying the Iraqi state, created a power vacuum that was filled by the Islamic State (ISIS). Today Saddam's secular state has been replaced by a pro-Iran Shia regime. Given that the US regime treats Iran as its implacable enemy, it's hard to imagine how the US regime and its generals could have been less competent in these wars.
Another side effect of the wars has been to multiply costs for the Veterans Administration. Veterans services, of course, are essential in recruitment and retainment of troops. These costs ought not be considered separate from defense costs. Rather, they are simply deferred compensation that is promised to soldiers at the time of service. Thus, if we include veterans costs as we should, we find that defense costs have ballooned even more. In the 2023 fiscal year, total defense costs, including veterans costs, are estimated to soar over $1.2 trillion. That's up 10 percent from the 2022 fiscal year, and up a whopping 42 percent since 2009.
Source: Table 5.1, Office of Management and Budget, Historical Tables.
But What about Inflation?Supporters of more military spending are likely to complain, however, that inflation has taken a bite out of defense spending, and therefore we ought to measure spending only in inflation-adjusted dollars. The fact that the regime itself has been responsible for this inflation, of course, is supposedly of no moral relevance.
Although private sector real wages have now declined for nineteen months in a row, it is now argued that the taxpayers ought to be taxed even more to finance military spending. The idea here is that government agencies supposedly have a "right" to not be deprived of spending power thanks to the very inflation that the regime created.
But, for the sake of argument, we'll look at inflation-adjusted military spending, and not surprisingly, we do find that by this measure, spending has not increased nearly as much as unadjusted dollars. However, when we include veterans spending, defense spending in 2023 will be at an all-time high even by this measure.
In 2020 dollars, 2023 spending, according to the OMB, is estimated to reach $1.03 trillion. That's up 8 percent over 2022, but is "only" slightly up from previous peaks in 2010 and 2020 when spending also hovered around $1 trillion.
Source: Table 5.1, Office of Management and Budget, Historical Tables, Bureau of Labor Statistics.
What will all this taxpayers money be used for? The Pentagon doesn't know, given its haphazard accounting, but we can be sure at least several dozen billions will go to supplement the already spent 65 billion on aid to the Ukraine regime, plus hundreds of billions more spent to keep up with ongoing "assurances" to the freeloader European member states of NATO. After all, Berlin recently announced that it won't make good on recent promises to raise its own military spending to the agreed-upon 2-percent-of-GDP standard. We can expect to hear plenty of bromides from European politicians about NATO solidarity and the defense of Europe. But it's clear the Europeans are happy having American taxpayers pay for nearly all of it. On this, the US regime—which enjoys being the big fish in NATO—will do nothing. In other words, the US regime has no problems fleecing the taxpayers for trillions of dollars that the Pentagon can't even keep track of. But, the regime is also happy to be complicit in Europe's insistence that Americans pay for Europe's bills as well.
If Tom Cruise was Born on the Fourth of July, then he can thank Thomas Paine, who can be said to have been born on January 10, 1776, with the publication of his incendiary essay Common Sense. In this pamphlet, which he priced cheaply (at two shillings), Paine argued passionately for independence from England, and he wrote in a direct style that readers could understand.
Common Sense relieved the political constipation of the Second Continental Congress, which was stalled between reconciliation and independence. The seventy-seven-page pamphlet blasphemed the English king as a royal brute and obliterated the arguments opposing independence. Furthermore, it presented the issues in terms of utmost gravity: “The cause of America is, in a great measure, the cause of all mankind. Many circumstances have, and will arise, which are not local, but universal, and through which the principles of all lovers of mankind are affected.”
The stakes were high. Paine was calling on Americans to save the world, not only through arms but by repudiating their saintly icon, George III, who in truth was nothing but a “crowned ruffian,” as all monarchs were. John Locke had argued that states exist to protect man’s natural rights; Paine argued instead that they were born in “naked conquest and plunder.” Independence would also free America from Europe’s wars and quarrels, whereas the current colonial alliance would “set us at variance with nations . . . against whom we have neither anger nor complaint.”
Common Sense swept through all thirteen colonies and established strong support for secession—enough, at least, to kick Congress into action. John Adams, who hated Paine, later conceded that “without the pen of the author of Common Sense, the sword of Washington would have been raised in vain.” Murray Rothbard concluded that “Paine had, at a single blow, become the voice of the American Revolution and the greatest single force in propelling it to completion and independence.”
“So gripping was Paine’s prose,” writes Jill Lepore in the New Yorker, “and so vast was its reach, that Adams once complained to Jefferson, ‘History is to ascribe the American Revolution to Thomas Paine.’” But of course, almost no one does. Paine is listed as one of the less significant founders, when he’s listed at all. When Benjamin Franklin died in 1790, some twenty thousand people attended his funeral. When Paine died in 1809, six people paid their respects, none of whom were dignitaries.
A mostly self-educated man, Paine went on to be the eighteenth century’s bestselling author, but also one of the most reviled. He mercilessly pummeled the government elites for their hypocrisy and abuses, as well as their disdain for commoners. As he wrote in a footnote to part one of Rights of Man (1791): “It is scarcely possible to touch on any subject, that will not suggest an allusion to some corruption in governments.”
In part two of Rights of Man (1792), Paine condemned English law and politics, for which he was tried in absentia for seditious libel while, ironically, arguing for sparing the life of Louis XVI in the French Assembly. During Paine’s trial, the crown’s prosecutor accused Paine of being a traitor and a drunken roisterer who had vilified Parliament and king. Among the evidence he cited was a letter Paine had written to the attorney general in which he stated that “the Government of England is [the greatest] perfection of fraud and corruption that ever took place since governments began.”
For four hours, Paine’s defense argued that he was innocent by virtue of freedom of the press. It carried no weight with the Crown’s handpicked jury—all wealthy, plump, and respectable men filled with icy hostility toward the defendant.
Paine’s IntegrityThere are elements in Paine’s political writings that appeal to statists of varying degrees. Was he merely a pen for hire? For the most part, at least, I would say no. Yet even though Paine bashed government throughout his writings, he was one of the first to call for a stronger central government in 1783.
As I wrote in 2010, Paine’s “idea of strengthening the Articles of Confederation was to ‘add a Continental legislature to Congress, to be elected by the several States.’ When he was asked to propose his suggestion in a newspaper article, he declined, saying he ‘did not think the country was quite wrong enough to be put right.’”
His solidarity with liberty came in 1786 with his essay on paper money:
When an assembly undertakes to issue paper as money, the whole system of safety and certainty is overturned, and property set afloat. Paper notes given and taken between individuals as a promise of payment is one thing, but paper issued by an assembly as money is another thing. It is like putting an apparition in the place of a man; it vanishes with looking at it, and nothing remains but the air.
He went on to enumerate many more evils of paper money.
Paine has been dealt a cruel injustice. A case could be made that he is the country’s greatest founder by far: no Common Sense, no Declaration of Independence. Yet I’ve discovered that many Americans only vaguely recall mention of his name somewhere.
Value for customers is the purpose of all entrepreneurial business. Firms big and small must know, follow, and adhere to the principles of value creation. This is pragmatic not theoretical — the consequence of a failure to do so is that the firm cannot survive.
Bartley J. Madden studied value creating firms as a co-founder of a successful investment research firm and then managing director of Credit Suisse HOLT. He is now an independent researcher and founder of the Madden Center For Value Creation in the College of Business at Florida Atlantic University.
He joins the Economics For Business podcast and shared a summary of a lifetime of research.
Knowledge CapsuleA systems thinking approach provides the best route to understanding value creation.The business firm is a sub-system within a bigger system, that of society. The effectiveness of the firm is tied to organizational learning and the evolution of dynamic capabilities. Bart Madden’s pragmatic theory of the firm treats it as a holistic system with a well-defined purpose. If it is successful in achieving its purpose, it will benefit the larger societal system.
The purpose of the firm is a four-fold composition of mutually reinforcing goals.Sometimes, the business literature is guilty of treating purpose as a PR statement, a catchphrase that can be communicated without it necessarily governing the firm’s behavior. Bart Madden’s view of purpose demonstrates much greater depth, appropriate for complex systems management. Purpose is 4-fold:
- A vision of the value that can be realized by customers, and that can inspire and motivate employees to work for a firm committed to ethical behavior and making the world a better place through customer value. Customers consume value by experiencing it in their interactions and relationships with the firm. The customer’s experience is dynamic within their own system of competitive offerings and alternative choices.
- Survive and prosper through continual gains in efficiency and sustained innovation. These are long term performance variables that depend directly on a firm’s knowledge-building proficiency. A firm must generate a return that is greater than the cost of capital, and as it matures, this return can be eroded away by competitors who offer lower prices or different features to customers. Building knowledge and translating it into new business capabilities is critical for long-term survival.
- Work continuously to sustain win-win relationships in every direction. Relationships with customers are primary for value creation, and relationships with employees and managers must generate the understanding, motivation and commitment to delivering customer value, while relationships with suppliers, collaborating firms and other partners must result in their best support for value creation. It’s a way of living and doing business that engenders trust all around. Shareholders are also rewarded as a consequence of these relationships.
- Take care of future generations. The long-term view of the pragmatic theory of the firm as a system within the bigger system of society emphasizes thoughtful concern for the future, so that return on capital can be sustained. Paying attention to minimizing waste in the earliest product and service design stages can serve the future, and this includes minimizing pollution (a form of waste) and reducing harm to the environment.
A firm that is successful in achieving its four-part purpose benefits customers, employees, partners, suppliers and shareholders, as well as society at large.
Nurturing and sustaining a knowledge-building culture is the most critical driver of long-term performance.Knowledge-building is a continuous loop:
Knowledge base, purposes and worldview: Every firm has a knowledge base that determines current perceptions or current worldview, which includes ideas and beliefs and assumptions about interacting with the world.
Perceptions: We see the world through our perceptions and construct our reality that way. We may be self-assured about some favorite ideas about the obvious way to proceed, but we may be proven wrong via future learning.
Purposeful actions and consequences: With its purpose in mind, the firm takes actions, and each action has consequences, which may or may not have been anticipated.
Feedback: Learning from actions and their consequences is consumed as feedback, a critical component of the knowledge-building loop. The knowledge base changes as a result of this learning. An existing assumption may be replaced. Humility is important when traversing the knowledge-building loop.
New understanding and new perceptions: As a result of feedback and learning we may be able to evaluate our assumptions differently and perceive the world in a new and more accurate way.
It’s hard to be skeptical about our own strongly held beliefs, and therefore a cultural commitment to experimentation — the kind that’s capable of revealing obsolete assumptions — is necessary.
Knowledge-building stems from firm culture.Knowledge-building proficiency is a culture which views everyone in the firm as a value creator and a knowledge worker who can continuously improve their own problem-solving skills. This, in turn, motivates all employees since they can take great satisfaction from their jobs.
One of the errors of the traditional command-and-control management structure is that it assumes the smartest people are “higher up”, and it takes decision-making away from those closest to the customer and to the most relevant knowledge. The higher-ups set short-term targets for the employees, which is inconsistent with treating individuals as learners and value creators.
Knowledge-building occurs, and must be nurtured, at every layer of the firm.
The correct view — and the correct measurement — of firm performance is the life cycle.All firms traverse an inevitable life cycle. Bartley J. Madden’s books and research picture it this way.
During a period of high innovation, economic returns are high, and firms can reinvest at a high rate. This inevitably fades as competitors erode the advantage. In maturity the returns approach the cost of capital, and the business model may fade to the point where it fails to make the long-term cost of capital. That’s why firms must always be investing in long term new innovation projects for continuous refreshment and to repeat the high return stage. They must demonstrate to investors a skill in making these high return long term investments. The stock price is an appraisal of this skill.
The life cycle components are the long-term cost of capital, the return on capital that results from knowledge-building proficiency, the fade rate and the reinvestment rate. The metrics of firm performance are those related to the life cycle.
Additional ResourcesThe Pragmatic Theory of The Firm and The Knowledge-Building Loop (PDF): Mises.org/E4B_199_PDF
Books by Bartley J. Madden:
- Value Creation Principles: The Pragmatic Theory of the Firm Begins with Purpose and Ends with Sustainable Capitalism: Mises.org/E4B_199_Book1
- Value Creation Thinking: Mises.org/E4B_199_Book2
- CFROI Valuation: Mises.org/E4B_199_Book3
- Reconstructing Your Worldview: The Four Core Beliefs You Need to Solve Complex Business Problems: Mises.org/E4B_199_Book4
Paper: "Bet on innovation, not Environmental, Social and Governance metrics, to lead the Net Zero transition" by Bartley J. Madden (PDF): Mises.org/E4B_199_Paper
Good Strategy Bad Strategy: The Difference and Why It Matters by Richard Rumelt: Mises.org/E4B_199_Book5
Plain Talk: Lessons From A Business Maverick by Ken Iverson: Mises.org/E4B_199_Book6
For families and friends gathering for Thanksgiving this year, many will assemble in a room called the "dining room." This is a modern luxury made possible by the bourgeois merchants of old.
Original Article: "How the Middle-Class Dining Room Revolutionized Domestic Life"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The mishandling of the covid-19 pandemic by global elites has severely eroded confidence in expert opinion. New information is emerging that senior officials doubted policies that were foisted upon the American public. By sharing the results of his deposition with Dr. Anthony Fauci, Missouri attorney general Eric Schmitt exposed Fauci’s advocacy of face masks as insincere:
Another tidbit from the Fauci depo: In Feb 20 he emailed a friend advising her that masks were ineffective. Confirmed again on Mar 31. On April 3 he’s adamant masks should be worn even though he couldn’t cite a single study to prove it. Mandates followed—Lives ruined.
Numerous studies disputed the efficacy of face masks, yet mask mandates rose to national prominence. During the apex of pandemic hysteria, the American Institute for Economic Research ran a series of scathing articles debunking the usefulness of face masks. In fact, one prominent 2020 study boldly admitted that mask use is primarily symbolic:
We know that wearing a mask outside health care facilities offers little, if any, protection from infection. Public health authorities define a significant exposure to Covid-19 as face-to-face contact within 6 feet with a patient with symptomatic Covid-19 that is sustained for at least a few minutes. . . . The chance of catching Covid-19 from a passing interaction in a public space is therefore minimal. In many cases, the desire for widespread masking is a reflective reaction to anxiety over the pandemic.
Not even children were spared from the covid-19 hysteria. Masks became commonplace in schools across America and the wider world, despite the large volume of research arguing that they could harm minors. One study from Germany noted that parents raised concerns about mask use having adverse effects on children. Moreover, evidence suggests that mask use limits the expressive capacity of children. Reading the facial expressions of teachers and peers aids a child’s language development, but unfortunately, masks were even required during intergroup conversations.
A recent paper published in the journal Cognitive Research: Principles and Implications argues that mask use has hindered face recognition abilities in children. The researchers posited that impaired face recognition abilities have negative consequences for the emotional development of children, saying that “changes in face recognition performance and alteration in the processing of partially occluded faces could have significant effects on children’s social interactions with their peers and their ability to form relationships with educators.”
Widespread mask mandates failed to benefit children, and instead of averting covid-related deaths, they led to people dying. According to Dr. Zacharias Fogen of Germany, “Mask mandates actually caused about 1.5 times the number of deaths or [approximately 50 percent] more deaths compared to no mask mandates.” Dr. Fogen theorized that the re-inhalation of hyperconcentrated droplets caught by masks led to worse ailments and fueled fatality rates.
The scandal of covid-19 has demonstrated that elites deliberately misinformed the public at every corner. Citizens were scolded for ignoring mask mandates, even though the evidence was clear that they don’t work. The vilification of those who refused to endorse covid-19 vaccines was even more egregious.
Vaccines are usually successful, but covid-19 vaccines were imposed on the public without proper research. Contrary to the claims of politically motivated actors, the latest research on covid-19 vaccines is astoundingly negative. Scientific research shows that rates of myocarditis are higher among the vaccinated and that natural immunity offers great protection against the virus. Moreover, there is overwhelming evidence that the highly touted lockdowns were a disaster. After the ruling elite’s orchestrated deception of the public, we would be foolish to trust their proposals.
The pandemic has rightly taught us that governing elites will fabricate evidence and misuse data to promote their agenda at our expense, and it is unlikely that they will ever be able to regain our trust.
“Today the tenets of this nineteenth-century philosophy of liberalism are almost forgotten. In the United States “liberal” means today a set of ideas and political postulates that in every regard are the opposite of all that liberalism meant to the preceding generations.”
—Ludwig von Mises, 1962 (emphasis added)
F.A. Hayek is back in the public eye, thanks to a promising and weighty new biography from Professors Bruce Caldwell and Hansjörg Klausinger. Predictably, the book has brought Hayek’s critics out of the woodwork. Consider the recent backhand in The Spectator by Lord Robert Skidelsky, titled “Friedrich Hayek: A Great Political Thinker Rather than a Great Economist.” Readers quickly understand the author actually thinks Hayek was neither. This is perhaps not a surprise coming from Skidelsky, the fulsome biographer of John Maynard Keynes who clearly imagines that his subject “won” the debate against Hayek over planning versus markets (“He more or less gave up technical economics after his battles with Keynes and the Keynesians”).
But the ongoing criticisms of Hayek’s “neoliberalism”—i.e., his supposed political program1—ring very hollow even in hopeless outlets like Jacobin. Hayek and his mentor Ludwig von Mises were old liberals of the nineteenth-century variety. Neoliberalism, by contrast, is a derogatory catchall term used by the Left today to police what it sees as undue respect for markets and private capital among the Clintonite and Blairite factions pushing global social democracy.
But fundamentally there is only liberalism and illiberalism. Hayek and Mises steadfastly called themselves “classical liberals” out of necessity—to distinguish themselves from the modern liberal program.
Twentieth-century liberalism, the bad kind, had its roots in the Progressive Era. It manifested in Wilsonian expansionism and Franklin Roosevelt’s criminal New Deal, both deeply illiberal developments opposed by the two Austrians-cum-Americans. “Liberal” had morphed into a proxy term for individuals advocating left-wing economic and social programs rather than markets and laissez-faire. So regardless of the earlier strands of classical liberalism flowing from Adam Smith, John Locke, David Hume, or even Jean-Jacques Rousseau, Mises and Hayek used the term expressly in the context of midcentury Western politics.
After the Great Depression and two world wars, the old nineteenth-century liberalism was under open attack. But Mises and Hayek still advanced a liberalism of economic freedom and peace, in stark contrast to the central planning, interventionism, and positive rights (entitlements) promoted as scientific by Marxists and Keynesians. The quote at the top of this article, from the 1962 preface to the English translation of Mises’s foundational 1927 book, Liberalismus, demonstrates the critical distinction. The shift in the meaning of “liberal” over the thirty-five years between editions was clear and convincing. And it compelled the great economist to retitle the book The Free and Prosperous Commonwealth: An Exposition of the Ideas of Classical Liberalism to make sure Anglo-American audiences knew exactly which version of liberalism the book explained.
Fast-forward to 2022, and the distinctions between classical liberalism and the liberalism of Ted Kennedy or Jimmy Carter seem almost quaint, swamped by the equally hostile strands of woke progressivism and national conservatism. But to be clear, progressives rather than conservatives run the meaningful and powerful institutions of America—including language. So when libertarians and conservatives today describe themselves as classical liberals, to whom do they appeal? Does the term still hold purchase? Does it clarify or obscure Mises’s understanding of liberalism? And does it curry favor or even grudging respect from those aforementioned progressives, beyond occasional faint praise from the likes of Baron Skidelsky?
The short answer is no, it doesn’t. “Classical liberal” is outdated and meaningless today in the same way and for the same reasons “liberal” is a meaningless term today. Mises and Hayek could still see the old liberalism of prewar Europe in the rearview mirror, but that context is lost today. Again, there is liberalism and illiberalism, and whatever remains of the former in today’s political landscape resides on the right, however faintly. Progressives simply reject liberalism altogether, so why attempt some kind of linguistic sugarcoating for their benefit?
We might remember there was a concerted effort among burgeoning DC libertarian organizations in the late 1970s to promote Hayek as the face of “good” liberalism. At the same time, Mises was to be downplayed, in part for his intransigence and in part due to his unvarnished 1978 memoirs. Hayek was more affable, more politically palatable, and more willing to entertain a regulatory and welfare state than his elder Mises. And yet the Left’s view of Hayek today is nothing short of caricature—he is simply a “right-wing libertarian philosopher” and market fundamentalist who counseled the hated Margaret Thatcher. This is instructive, and cautionary.
Mises and Hayek used “classical liberal” to distinguish themselves from the Left. Today the term is used primarily to appease the Left. Self-proclaimed classical liberals today mostly seek to distance themselves from MAGA Trumpism and the hated Deplorables, to convince progressives they are not like those awful right-wingers! It is a virtue signal to power rather than a proud and marked distinction. The Hayekian strain is evident; It’s hard to imagine anyone from the Cato Institute or National Review arguing for Mises’s framework of “liberal nationalism” or echoing his claim that “men are altogether unequal.” But “socially liberal, fiscally conservative” is not winning over progressives, who view markets and private capital with intense hatred.
Classical liberalism will never satisfy or curry favor with the Left. Progressives have a full-fledged political program, rooted in (supposed) egalitarianism, and they believe in its ascendancy. They sincerely believe the rout is on, so why yield an inch? Progressivism is not a buffet. One does not get to pick and choose—and Hayekian market “neoliberalism” is not on the menu. That’s for old liberals like Hillary Clinton. In identity-obsessed and zero-sum 2022 politics, progressives view markets and property as reactionary tools of oppression. Merely adding “classical” to Mises’s old liberalism—property rights, laissez-faire, free trade, and nonintervention in foreign affairs—won’t spare anyone from the progressive juggernaut.
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- Today's left rejects Hayek's knowledge problem, the idea that only market prices can provide the information needed to coordinate economic activity-- arguing instead that large corporations like Walmart demonstrate the possibility of centralized state planning.
Spain's government is attempting to levy a wealth tax ostensibly to be "in solidarity with the poor." Because wealth taxes ultimately help lower real wages, there will be more poor people to share in the "solidarity."
Original Article: "Who Pays Wealth Tax: The Rich or the Poor?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In the midst of excessive US economic and geopolitical uncertainties due to rampant inflation and the continuing Russian invasion of Ukraine, the 7.7 percent October inflation report comes as a small relief. The unemployment rate touched 3.7 percent in October, remaining near the 3.5 percent prepandemic level and slightly above the 3.4 percent natural rate of unemployment of the fourth quarter of 2021.
The Covid InflationThe general increase in price levels, most monetary economists believe, comes directly from an increase in money supply through a rise in the rate of nominal spending (nominal gross domestic product [NGDP]) above the nominal trend required for full employment or potential GDP. Above that nominal trend, the economy becomes “overheated,” and prices in general are inflated. While this understanding of the effects of nominal spending above its trend level is indeed correct, neglecting how such increases arise and continue tends to miss significant effects arising from the real, productive side of the economy that have facilitated US inflation since early 2021.
Any increase in nominal GDP growth above the trend rate of growth is inflationary in the sense that productive agents in the economy are competing for relatively scarce resources. But this growth in nominal spending, which leads to higher prices, also inflates the profit margins of firms, thereby creating profitable opportunities.
Higher profit margins prompt firms to expand their output by increasing their capacity utilization. At the same time, rising profits lead to a reallocation of capital from lower-profit industries to those that have experienced this profit-margin growth. When discovered by entrepreneurs, these profit opportunities result in the expansion of the economy’s output capacity through capital investments.
These supply increases give rise to counterbalancing downward price pressure. Firms competing for the same customer offer lower prices, and this fall in scarcity relative to demand stops the rise in prices and may even cause falling prices.
A onetime increased nominal growth in spending can initiate the equilibration process by increasing the supply of goods. But such a reallocation process requires a period of high prices in which the same resources that were being used in the production of final consumer goods can be freed up and allocated toward the production of capital and investment goods. This would increase the economy’s production capacity and mitigate the rise in demand.
The increase in productivity developed to handle high demand increases the potential GDP (or the total means demanded by individuals) and subsequently the trend rate of nominal spending required to achieve a stable price level.
This price equilibration process is an interactive process where manufacturers’ higher prices are accepted and paid by consumers. However, if the rise in prices is not a onetime phenomenon but persists, it is because the growth of supply is lower than the growth of demand for goods in real time, which does not allow the market to rebalance. If demand doesn’t fall in response to high prices, typically consumers pay for goods using accumulated savings or by borrowing. This does seem to have occurred in the US economy, where both the absolute amount saved and the savings rate have been falling since the start of 2021.
But the fall in savings (or lack of them) soon leads people to reduce spending on nonessential goods as real incomes continue to fall and high prices persist. This subsequently causes a drop in demand for nonessential consumer goods, causing a reduction in the output of those goods. Businesses then demand less inputs, allowing for the correction period to begin.
However, we see that consumer debt (per the Federal Reserve) increased from 3.63 percent in December 2020 to a peak of 12.12 percent in March 2022 and declined to 7.8 percent in August 2022. The credit spending was in large part due to interest rates, which the Fed did not increase until March 2022. This credit spending ensured that prices did not fall (i.e., there were no deflationary price adjustments) due to decreased demand, whereas the generation and use of money to finance consumption (by encouraging consumers to draw down savings and increase credit spending) delayed the adjustment period actually required for supply to catch up with demand.
The Structure of Production and Scarcity-Induced InflationIf consumption doesn’t fall and goods are purchased at higher prices, then a scarcity of specific inputs can occur. Since inputs are used in increasing output, scarcity prevents adequate investments toward handling excess demand.
Some of these specific goods are raw materials produced in the primary stage of production. Raw material produced through agriculture, forestry, fishing, mining, oil extraction, and other industries are created by processes that take more time and generate cyclical output flows. As these inputs form the base of almost every other product or service provided to consumers, fluctuations in their prices are a significant inflationary component in consumer goods prices.
When higher costs are financed by both an increase in credit and a drawing down of savings, inflation continues until there is a sufficient fall in spending to allow the market to reallocate resources. This adjustment can come in the form of a recession, in which a rise in unemployment leads to a fall in spending. A reduction in spending causes the drop in demand necessary to initiate the reallocation process.
Recession as a Necessary Adjustment PeriodA recession with falling output and rising unemployment serves as the adjustment period during which businesses are separated into two categories: profitable investments in areas that can support higher prices based on consumer demand and unprofitable investments that previously seemed profitable solely due to unnaturally low interest rates and aggressive fiscal spending. The unprofitable enterprises either shut down or reduce operations during the adjustment period. Their workers are reallocated to businesses where they can be profitably employed based on consumer income and natural spending capacity.
Nominal gross domestic product (NGDP) targeting seeks to stabilize economic output, equated with nominal GDP, by pursuing a rate of growth consistent with the economy’s potential output. With today’s rising inflation, this means either raising interest rates or decreasing the money supply until spending is consistent with the Fed’s target. NGDP targeting would also subsequently lower interest rates during the coming recession to try to ensure that spending doesn’t collapse.
Pursuing such policies inevitably blinds one to the natural course of the real economy. The real economy relies on a heterogeneous capital structure, generates a steady output determined by genuine consumer choice, and leads to natural employment levels and prices. NGDP targeting shrinks the reallocation window and thus keeps the market unbalanced longer.
Keeping interest rates lower than the interbank market rates and increasing the money supply inevitably lead to a false expansion in certain sectors, which, in turn, raises their employment and output. But such an expansion, not sustained by consumer choice and income, will need repeated monetary injections during a recession. This would mirror the way the economy was manipulated after the covid-19 recession, which has led to today’s high inflation and stagnating output.
It is easy to think of the Fed as a good institution that simply lost its way. In truth, it was a bad idea and a bad institution from its beginning.
Original Article: "The Fed Is Not "a Good Idea that Became Corrupt": It Always Was Corrupt"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In the laboratory of history, great inflation followed by great disinflation opens the road to monetary regime change. Sometimes the road leads to a better place. Think of the US return to gold in 1879 following the inflationary issue of greenbacks during the Civil War; or the era of the hard deutsche mark when the German Bundesbank responded to the great inflation and bust of the late 1960s and early 1970s by insulating its money from continuing US inflationary storms. At other times the journey to regime change has taken a wrong turn or headed into a cul-de-sac—witness the “2 percent inflation standard” adopted in the wake of the inflationary boom and bust following the Plaza Accord of 1985.
The history lab has yet to reveal what path the road will take following the pandemic inflation of 2020–22. If the road is to lead to a good money regime, the reform process must include the installation of a solid monetary anchor. This is a device which prevents “the machinery of money from getting out of control and becoming the monkey-wrench in all the other machinery in the economy,” in the words of John Stuart Mill.
The device achieves its purpose by constraining the supply of a key group of monetary assets so as not to veer far ahead of (or fall far below) underlying demand. The components of this group of assets have special features that lend them “extreme moneyness” such that they enjoy strong and stable demand even though non–interest bearing. In our just published book A Guide to Good Money (Palgrave, 2022) we argue that these assets—together forming the monetary base—should possess “super-money” qualities, fulfilling the traditional functions of money to a high degree.
In a fiat money regime, where the monetary base consists of currency in circulation and reserve deposits of the banks, the central bank can in principle determine on a day-by-day basis the supply of monetary base. In a gold system, natural constraints stemming from geological rarity of the yellow metal and the technology of mining mean that above ground gold supplies (of which bullion and coin is a big share alongside jewelry) change very slowly.
The present monetary base, however, is not suited to the installation of a solid anchor. The assets which form its constituent parts are not scarce and have lost much of their former special “moneyness.” The practice of the central bank paying interest on reserve deposits has accompanied a process of degradation where their once super-money qualities have become diluted and dulled.
“Too big to fail” assistance for banks together with abundant retail deposit insurance mean that reserve deposit buffers are no longer central to their liquidity management. Instead, banks hold these reserve deposits mainly or totally to earn interest income, which they assess relative to the yield on somewhat similar assets, for example T-bills, rather than in absolute terms. Equally, the war on cash and privileges of credit card oligopolists have curtailed the flourishing of its special qualities as means of payment.
The Fed created a deluge of reserve deposits as part of its quantitative easing (QE) operations, coincident with a bulge in their popularity since late 2008, when it started to pay interest on them (at the policy rate). Banks are keen to hold these now income-earning assets far in excess of that point where there is any additional service from extreme moneyness (such as in instantly settling interbank balances or converting into cash). Thus, demand for reserves at an aggregate level does not have the broad stable properties which stemmed from extreme moneyness.
In this context of interest-paying reserves, monetary policy proceeds by fixing the path of policy rates as guided by econometric modelling and, of course, politics. The Powell Fed now tells us that it will continue raising policy rates until inflation is on a sure downtrend to its 2 percent target. But experience shows no basis for confidence in the Fed’s (or anyone else’s) judgement about the appropriate rate path to this objective.
To see this, ask yourself which dollar is more trustworthy—one where the Fed chief allows inflation to rip and then brandishes promises to do whatever it takes in terms of interest rate rises and largely meaningless quantitative tightening (QT) to control it? Or one where the monetary base has been reformed in a way that allows a solid anchor to be fitted and interest rates to be freely determined?
Alongside the Fed reverting to the pre-2008 regime of no interest on reserve deposits, the present swollen monetary base must be cut down to size. The mechanics of shrinking are easy. The Fed would sell large amounts of its long-dated securities to the Treasury getting T-bills in exchange; then the Fed would conduct massive open market operations—selling bills for reserve deposits. This operation should have no direct impact on long-term interest rates.
The challenge for the Fed in shrinking the monetary base would be to estimate the starting demand for reserves in a reformed system. It could be substantially higher than estimates based on pre-2008 behavior if simultaneously steps are taken to boost the super money qualities of reserves. If the new demand for reserves is underestimated, money would be tight and exert a deflationary impulse on prices and the economy—and conversely if demand is overestimated.
To contain the size of any initial price falls or gains on the change in regime the authorities might need to adjust the path for the monetary base in response to the average level of money market rates in the overnight interbank market reaching extremes. If rates were to be persistently very high, that would suggest that the monetary base should be boosted, and conversely. However, after a period of learning, such interventions should cease and the supply of monetary base left to be wholly determined by the anchor.
But would this reform, according to which the central bank follows strict rules governing the supply of monetary base of fiat money, ever win enough popular support to be politically acceptable? And could we (the citizens) trust the government of the day to allow its central bank to pilot monetary base continually in accordance with the requirements of a solid anchoring system?
This is the point at which the journey of monetary reform might arrive at a gold junction. After yet another high inflation episode it is not unthinkable that the public would turn in anger and hope to an anchoring system again founded on precious metals, as in the now distant past.
Gold anchoring would require defining the gold content of, say, $1,000—and then honoring pledges of convertibility and of free coinage (minting gold into gold dollar coins). Banknotes and safe deposits such as are acceptable for interbank clearing would be backed by gold to a considerable degree (how much ideally would be set by competition where possible). Potentially this monetary base would have super-money qualities superior to those under fiat money regimes due to gold’s unique characteristics and universal appeal.
There is no way of estimating the demand for a gold monetary base after a move to gold convertibility for the dollar. The transition to a new monetary regime would doubtless be jumpy. It would involve costs. The choice of par weight could be accompanied by a rise or fall in goods and services prices in general. A higher par weight means a greater likelihood of prices falling in the first phase of the new gold standard.
A big unknown factor here is the amount of dishoarding (sales of physical gold for dollar paper) there might be from present holders of the yellow metal around the world, boosting thereby US gold reserves. Many holders of gold could opt to convert some or all their gold holdings into especially interest-bearing dollars once these become “as good as gold.” Some dishoarding would, however, be welcome in the context of a move to gold where the starting level of gold in the monetary system is low by historical measures.
A unilateral return of the US to gold would mean that demand for monetary base (gold bullion and gold coin) would include a large non-US element. This could be subject to sudden jolts including political or geopolitical shock and speculation on whether other countries would eventually decide also to opt for a gold money.
The journey to good money, including an essential reconstruction of the monetary base, would have costs, and may involve an initial considerable rise or fall in prices. Society, through the interplay of forces in the political arena, will ultimately choose whether these potential costs are worth the prize of greater freedom and prosperity.
As inflation ravages the economy, easy money is disappearing, with political and legal consequences to follow.
Original Article: "As Easy Money Crashes, the Political and Legal Effects Appear"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Liz Truss sought to be another Margaret Thatcher, but her ballyhooed budget numbers did not add up.
Original Article: "Why Did Trussonomics Fail So Quickly?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
For all the positive talk, Americans are piling on more debt just as real wages are falling, job losses are mounting, and debt costs are rising. Thanks, Fed!
Original Article: "After Years of "Stimulus" Come Surging Debt and Falling Wages"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Ludwig von Mises published Die Gemeinwirtschaft: Untersuchungen über den Sozialismus in 1922 (translated into English as Socialism: An Economic and Sociological Analysis, 1951). In more than five hundred pages, the most prominent representative of the Austrian school offers a comprehensive and deep analysis of the “socialist phenomenon.”
Despite the catastrophes associated with the attempt to install a socialist system, this ideology has lost little of its appeal. Modern civilization is still threatened by socialist thinking and the resulting policies. As Mises thoughtfully explains, Marxism first poisons the mind of the people, then seizes politics, and finally appears as a destructive power of domination. It is important to understand the spiritual foundations of socialism, and there is no better basis for doing so than “The Socialist Commonwealth,” by Ludwig von Mises.
Why Socialism TriumphsIn the foreword of Die Gemeinwirtschaft (I refer to the second revised edition of 1932; all translations are my own), the socialist ideal seemed to be dismissed by the mid-nineteenth century. Socialist reasoning was exposed, and all practical attempts to realize it had failed. But then Karl Marx (1818–83) created Marxism as an edifice of “anti-logic, anti-science and anti-thought.”
The theories of Karl Marx (1818–83) have been destructive. First, he contradicted the universality of logic, it now being “class-dependent.” Secondly, he turned the dialectical methodology from his philosophical master thinker G.W.F. Hegel (1770–1831) “upside down.” The Hegelian “world spirit” no longer determines the dynamics of history. The “substructure,” which Marx conceived as economic-technical development, now does.
Thirdly, Marx’s pretentious claim that his teachings were “scientific” allowed him to state that he detected valid “historical laws” and that these said that social development would inevitably lead to socialism. Karl Marx reinterpreted Hegel’s concept of “the end of history” as the perfection of the earthly world under socialism by means of a socialization of the means of production.
To portray the historical inescapability of socialism as “scientifically proven” fit very well with the zeitgeist of the mid-nineteenth century. “Historical materialism” claimed to be placed on the same level as knowledge in physics and equal to the Darwinian theory of evolution. In the eulogy at the funeral of Karl Marx, his friend and sponsor, Friedrich Engels (1820–95), praised the achievement of the communist ideologue in front of the few other comrades that were present:
Like Darwin discovered the law of the development of organic nature, so Marx discovered the law of development of human history: the simple fact, hitherto hidden under ideological overgrowth, that before all things human beings must eat, drink, dwell and dress before they are able to practice science, art, religion, etc.; that is to say, the production of the immediate material means of subsistence and thus the current level of economic development of a people in a period of time forms the basis from which the state institutions, the legal views, art and even the religious ideas of the people have developed, and from which they also have to be explained—not the other way around, as has been the case up to now.
According to Friedrich Engels, Marx discovered “the special law of motion of today’s capitalist mode of production and the bourgeois society it produces.” The key to this insight, Engels explains, was the “discovery” of the “surplus value,” as it provided the tool for the “scientific penetration” of the capitalist “laws of motion.”
It is important to understand that Friedrich Engels states that Marx was first and foremost a revolutionary and that science served him as a tool to pursue his revolutionary goals. Engels himself provides the confirmation that Marx’s economic writings can only be properly understood if they are seen as aids to the communist revolution.
According to Engels, Marx was a communist revolutionary who was primarily concerned with “participating in the overthrow of capitalist society and the state institutions it created.” That Marx was indeed not a scientist or scholar in the first place, but above all else, a communist, and that his work must be interpreted from this point of view, was expressed succinctly by Murray Rothbard:
The key to the complicated and massive system of thought created by Karl Marx . . . is basically a simple one: Karl Marx was a communist.
Beyond that, Ludwig von Mises determines that the “unparalleled success of Marxism”
is because it promises the fulfillment of deeply rooted age-old dreams and resentments of mankind. With the claim to scientific validity, Marx promises a paradise on earth, a land of milk and honey full of happiness and enjoyment and, what sounds even sweeter to the badly off, the humiliation of all who are stronger and better than the crowd.
Why Socialism PervadesA dedicated socialist is foremost a revolutionary politician and is different from other people. Normal persons put their personal relationships above politics and understand themselves mainly as a member of a specific family, profession, or of their religion, region, and nation.
The hard-core socialist, in contrast, is a leftist politician in the first place. He puts politics above anything else. Politics is his abstract god and if he himself cannot become one, powerful other politicians serve as his god. This makes the Left successful in politics and it also makes the leftists dangerous when they come to power—and power is what they are looking for anytime and anywhere, not only in politics but in all areas of society.
The attractiveness of socialism comes from the creed that those who advocate socialist measures consider themselves the friend “of the good, the noble and the moral,” as unselfish champions of necessary change. The Socialist typically identifies himself as a person “who selflessly serves his people and all humanity, but above all as a true and intrepid researcher.” In contrast to this self-view of the socialist, anyone who criticizes socialism with the standards of science is depicted as
an advocate of the evil principle, as a rogue, as a filthy mercenary of the selfish special interests of a class damaging the common good, and as an ignoramus.
To this day, this tenor has changed little.
After the end of the Soviet Union, in 1991, it looked for a while as if the communist ideology had had its days for good. But it did not take long for a new wave of sympathy for socialism to emerge, and it is getting stronger. Nowadays, the enthusiasm for the socialist planned economy does not come with red flags on the streets but is being celebrated in academic seminars and by the social justice movement and comes in all colors, including green.
One must agree with Mises when he states, a hundred years ago, that it has become customary “to talk and write about economic policy matters without having thoroughly thought through the problems that lie in them to the end.” The public discussions of the questions of human society are “mindless” and steer politics along paths “that lead directly to the destruction of all culture.”
Not different from the epoch when Mises was writing his treatise, today as well, so it seems, it is a “hopeless endeavor to convince the passionate supporters of the socialist idea by logical evidence of the perversity and absurdity of their views.” Then as now, the supporters of socialism are not open to any argument “that they do not want to hear and see and, above all, do not want to think about.”
Instead of refuting the adversaries of their ideas with rational argumentation, the Socialists turn to personal attack. In Marx’s tradition, his followers have their opponents
insulted, mocked, ridiculed, suspected, slandered. . . . Their polemics are never directed against the explanations, always against the person of the opponent. Few critics can withstand such assaults and gain the courage to disparage socialism pitilessly the way it would be the duty of a true scientific thinker.
Mises cherishes the hope that new generations will grow up “with an open eye and open mind,” who will “approach things impartially and without prejudice” and who will “dare and test” the socialist claim. Mises hopes for a generation that will begin to think again and who will act with precaution. Mises dedicates his book to these new generations. Through his book, Ludwig von Mises wants to speak to future students, to a generation that is yet to come.
These challenges arise in our time. Socialism still is a mental misconception. Marxist thinking, often unconsciously, pushes the masses toward socialism. As in the days of the publication of Mises’s Socialism, we, too, must admit that we live in the “age of socialism.”
Likewise, today, one asks with Mises:
Where is an influential political party “which may dare to stand frankly and freely for the special ownership of the means of production”? Then, as now, the word “capitalism” is ostracized and used as the “sum of evil.” Socialism is the dominant idea of the time: “Even the opponents of socialism are completely under the spell of its ideas.”
Socialism’s Destructive PowerEven though communism failed to bring prosperity and freedom, socialist thinking continues flourishing as an ideology in academia, education, and the media. Disguised as champions of social justice and equality, the modern socialists demand a planned economy to counter injustice and fight against climate change. Again and again, these movements are gaining enough votes to become part of the government and pursue their destructive plans.
Like the older versions, modern socialism, too, is not what it claims to be. It is not pioneering a better and more beautiful future. On the contrary, it “shatters of what millennia of culture have painstakingly created.” Socialism “does not build, it tears down.”
The destructive policy of socialism consists of the depletion of capital. This process may be hidden for quite some time because
as long as the walls of the factory buildings are still standing, the machines are still running, the trains are still rolling over the rails, it is believed that everything is fine. The growing difficulties in maintaining the high standard of living are attributed to other causes, except for the fact that a policy of capital depletion is pursued.
Most people do not recognize that the capital of the economy must be continuously maintained and restructured. Ongoing capital formation is the path to prosperity and as such, the ownership of the means of production is indispensable for economic and social progress. Socialism, on the other hand, takes the path of destruction because it undercuts the maintenance and the incessant improvement of a nation’s capital structure.
Total employed workers fell for the second month in a row in November, dropping nearly 400,000 workers below the pre-pandemic peak in February 2020. According to new employment data released by the Bureau of Labor Statistics on Friday, the current population survey shows employed workers fell to 158,470,000 in November, down 138,000 from October's total of 158,608,000. This continues a nine-month trend in which the total number of employed persons has moved sideways.
From March 2022 to November, the number of total employed persons has only increased by 12,000 people, rising from about 158.45 million to 158.47 million. With November’s drop, this also puts total employment in November below the peak of 158.8 million in February 2020. In other words, the household survey shows there are fewer employed people now than before the covid panic.
Yet, the headlines in the business press today told us that the “U.S. gained 263,000 jobs” in November and that “total employment” is now a million jobs above the February 2020 peak.
Those "total jobs" numbers come from the “establishment survey” which differs from the household survey in that the establishment survey measures jobs instead of workers. The household survey measures workers. Historically, the two numbers often track together, but there is a sizable gap between the two numbers in recent months. That is, since January, total jobs have grown considerably—showing an increase of 3.8 million jobs. Yet over that same time, the household survey has shown an increase of only 1.3 million employed persons. In other words, the two surveys together suggest much more growth in jobs than actual workers with jobs. Total jobs in the establishment survey has grown month-to-month in every month since late 2020. Yet, total employed workers has fallen (month over month) for four of the last eight months.
One conclusion we can draw here is that fewer people are working more jobs to cover costs, and this would make sense given that disposable income, saving rates, and real wages are all falling.
For example, according to the Bureau of Economic Analysis, disposable income is lower now than it was before the covid panic, coming in at $15.1 trillion. That sum was $15.2 trillion during February of 2020. This is a sizable departure from the trend in disposable income since 2014, and November's disposable income level is now $1 trillion below the trend line.
Meanwhile, the personal savings rate in October fell to 2.3 percent. That’s the second-lowest level recorded going back to 1959. The only month with a lower saving rate was July 2005. Credit card debt, in contrast, reached new highs in November and is now well above its previous 2020 peak.
Workers and consumers are likely spending down whatever savings they have because wages, in spite of what the allegedly "hot" establishment-survey jobs numbers say, are not keeping up with price inflation. Since April 2021, Consumer Price Index (CPI) inflation has repeatedly outpaced year-over-year growth in average hourly earnings. In November, wages grew by 5.09 percent, but the CPI grew by 7.7 percent (year over year) in October. Price inflation will have to be considerably lower in November than it was in October if there is going to be real wage growth for the month. If there does prove to be real wage growth in November—which is unlikely—it will be the first time in 20 months.
With fewer employed workers, though, why aren't we seeing the unemployment rate rise? After all, the unemployment rate in November remained at 3.7 percent, unchanged from October.
This can be partly explained by the fact that the workforce is shrinking. It is well known by now, for example, that Baby Boomers are ageing and many are retiring and leaving the workforce. Overall labor force participation is well down from its peak in the late 1990s. Yet retirement doesn't explain all of it. Even among workers age 25-54, labor force participation is down from the late 1990s, and is also down from late 2020 when prime-age participation peaked during the last boom in worker demand. At the same time, the total number of workers "not in the labor force" reached a 13-month high in November. This includes retirees, but also includes discouraged workers. In fact, the number of workers who report having left the work force but also "want a job now" totals more than 5.5 million. Altogether, it appears that declining workforce participation is indeed keeping the unemployment rate from rising, even as the total number of employed workers is falling.
Nor does other economic data point to enough strength in the economy to keep job demand going. With home sales plummeting, savings falling, income dropping, and gross fixed capital turning negative, most signs point to an economic slowdown.
The other big factor pointing toward recession is the yield curve, which has now inverted, pointing to a coming recession. In fact, inversions in the yield curve have a perfect record of predicting recessions in recent decades. As of late October, the spread between the ten-year and the three-month Treasurys is now negative, and it is now in deeper negative territory than at any other time since 2001, just prior to the start of the 2001 recession.
In spite of these indicators pointing toward recession, the Biden administration and the leadership at the Federal Reserve continue to point toward the job growth data as evidence of a strong economy. The good news here is that this could provide sufficient justification for the Federal Reserve to keep allowing interest rates to rise while allowing more assets to roll off the balance sheet. The Fed should be selling off far more than it is from its balance sheet, of course, but even the small reduction in Fed assets at least allows for some slight normalization in markets. That's all to the good.
After all, once the jobs data does start to look undeniably bad, we can expect the Fed to immediately start looking for ways to once again return to quantitative easing and more easy money overall. More easy money is what Wall Street is praying for, but that would only bring a new wave of price inflation—whether in assets or consumer goods—in the manner of Arthur Burns's failed fight against inflation in the 1970s. What really needs to happen is for the Fed to lay off the easy money long enough for countless bubbles in stocks, real estate, tech, and countless so-far-unknown other sectors to deflate. We're not even close to that point in the current boom-bust cycle.
They read like Civil War battlefields: Chattanooga, Tennessee; Tuscaloosa, Alabama; Greer, South Carolina; West Point, Georgia; Montgomery, Alabama; Tupelo, Mississippi; Smyrna, Tennessee. They are the towns and small cities in the Deep South where America now builds its cars and trucks.
Take Greer, for example (population of thirty-five thousand as of 2020). Located in the foothills of the bucolic Blue Ridge Mountains in the northwest corner of South Carolina, it is home to the BMW US manufacturing plant.
According to BMW, the Greer facility employs over twenty-three thousand people to produce the models X3–X7 as well as the XM crossover SUVs and has invested nearly $5 billion in the 1,150-acre, four-million-square-foot campus.
What about New York?
There was a GM plant in Sleepy Hollow, New York, where the Buick Century and Pontiac Bonneville were once made, but that shut down in 1996. Ford made radiators and springs in Green Island, New York, but that closed in 1989, and the building was demolished in 2004. I am told there are still a few small, outdated parts facilities in Buffalo just hanging on like the rest of the city.
According to the Buffalo City Journal,
at the onset of the Great Depression, Buffalo had 573,000 inhabitants, making it the 13th-largest city in America. In the 75 years that followed, this once-mighty metropolis lost 55% of its population, a decline most dramatic in its blighted inner city but also apparent in its broader metropolitan area, one of the 20 most quickly deteriorating such regions in the nation.
New York recently tried to lure industry back to Buffalo and the rest of Upstate New York, but to date, its ham-fisted and misguided efforts have had only mixed results. Take, for example, the Buffalo Billion project. The project has been caught up in a corruption and bid-rigging scandal that led to the conviction of former SUNY Polytechnic Institute president Alain Kaloyeros, who oversaw all upstate economic development projects. The developer and others connected to the project were also fined and jailed.
New York spent almost $1 billion on a factory and equipment to build a solar plant for a Tesla-Panasonic joint venture. Panasonic pulled out in 2020, leaving Tesla holding the bag. Tesla, for its part, has switched production from solar roof panels to components for its electric vehicles. Tesla’s agreement with the state inexplicably only requires the company to have a certain number of jobs in Buffalo. It does not include any provisions regarding the types of jobs or how much the jobs pay. Because of Tesla’s switch in production, the state has been forced to sell or scrap expensive taxpayer-funded solar manufacturing equipment costing more than $200 million. Yet another socialist experiment gone awry!
Of course, this invites a serious question. Why not create an environment that companies will be attracted to instead of bribing them to relocate with taxpayers’ money? It should not be overlooked that BMW received hundreds of millions of dollars in public subsidies and tax breaks to settle in Greer, but it still doesn’t compare to the subsidy dollars thrown about in New York.
Many wonder, “What has happened to the once great Empire State?” The sad truth is that we hardly make anything here anymore. Take General Electric, for example. In the 1950s they employed over forty thousand people in Schenectady. Now fewer than four thousand people work in the upstate facility. No one would be surprised if GE closed the facility entirely. You can still drive by the sprawling complex—a city within a city of mostly empty and shuttered brick buildings.
The story is similar for Grumman Aircraft, the maker of the World War II Wildcat and Hellcat fighter planes, as well as the Apollo Lunar Module. At its peak in 1986, it employed twenty-three thousand people on Long Island and occupied six million square feet of office and factory space. The company eventually closed almost all its facilities on Long Island and converted its Bethpage plant into a residential and office complex.
I know there are many New Yorkers who are happy about the exodus of jobs: No smells, no drilling, no smoke, no noise, no traffic, no lights, no parking lots, no nothing. These modern-day Luddites have a natural antipathy to everything that smacks of business and industry. It seems they want the eggs, but not the chickens that lay them.
To be fair, Micron Technology plans to spend up to $100 billion on a massive complex of computer chip plants in Syracuse’s northern suburbs, in what would be the largest single private investment in New York history. The move to New York, however, comes with a steep price tag for taxpayers because Micron will receive billions in federal, state, and local tax incentives. The state incentives alone are expected to reach almost $6 billion over twenty years. The federal subsidy comes as a result of the recently signed CHIPS and Science Act, which aims to provide $52 billion in direct subsidies and more than $24 billion in investment tax credits to promote the manufacture of semiconductors in the United States.
Critics of the act argue that “it perpetuates more deficit spending to support profitable industries that already plan to expand without taxpayer subsidies.” (Then there’s always the shadow of Solyndra, which hangs over all government attempts to meddle in the free market. Will this be a reprise?)
In the ’50s, when I was just a kid living on Long Island, I would often hear grown-ups say, “If you can’t make it in New York, you can’t make it anywhere!” Back then, people didn’t move to places like Greer, South Carolina, or Tuscaloosa, Alabama, to find work. People from there came to New York.
A few years ago, I spoke to my neighbor Bob, who is retired and lives with his wife in Pawling (a small community in Dutchess County, about sixty miles north of New York City). He mentioned that he was thinking of moving to Georgia. “How come?” I asked. “Well, my son got a good job down there, and at our age, we thought we should live near our children. And besides, we want to see our grandchildren grow up.”
So that’s what it has come to. When we send our children off to college, we should not expect them to come home—not to New York, anyway. There are few good jobs here: not in Pawling; not in Buffalo; not in Schenectady. If we want to be near our children and see our grandchildren grow up, then we will have to go to them—to places like Smyrna and Greer.
According to the New York Post, an analysis of new federal labor statistics reveals that
New York still has 454,000 fewer private-sector jobs than it had two years ago before the coronavirus pandemic hammered the city and state—a 4.1 percent employment deficit that is the worst in the mainland U.S. . . .
“. . . only Hawaii and Alaska were worse off,” . . . .
Meanwhile, Florida and Texas have added jobs during the pandemic—3.4 percent and 2.9 percent respectively.
The exodus of jobs is mirrored by an exodus of people. Between April 1, 2020, when the last census estimates were released, and July 1, 2021, New York state lost more than 365,000 people, or 1.8 percent of its population.
This is what the deadweight of government has wrought. I hope the last one to leave New York remembers to turn off the lights!
On Tuesday, a District of Columbia jury convicted Stewart Rhodes and Kelly Meggs of seditious conspiracy in relation to the January 6, 2021 riot at the US Capitol building. Three other defendants were acquitted of seditious conspiracy but convicted of other felonies. Convictions of seditious conspiracy represent a political victory—not just a legal one—for those who have long insisted that the January 6 riot was no mere riot, but an organized armed rebellion of some sort. This claim has been key in the administration's ongoing vague claim that "democracy"—however defined—is somehow "at risk."
Yet, few of the legal proceedings arising out of the Justice Department's prosecutions of rioters have done much to forward this narrative. Out of the approximately 850 people charged with crimes of various sorts, only a small number have been charged with anything close to treason or violent insurrection. Specifically, the closest the Justice Department has come is the charge of "seditious conspiracy" applied to 11 defendants total. So far, only 2 have been convicted of the charge.
Seditious conspiracy must not be confused with the act of treason legally defined in the US Constitution, however. Generally speaking, while treason requires an overt act of some kind, seditious conspiracy is a charge that a person has said things designed to undermine government authority. In other words, it is a "crime" of intent as interpreted by state authorities. This is fundamentally different from picking up a weapon and using it against agents of a government.
Of course, as we've noted here at mises.org before, the very idea of treason is itself problematic since it assumes that violence against a government agent is somehow worse than a crime against a private citizen. Governments love this double standard because it reinforces the idea that the regime is more important than the voluntary private sector. Ultimately, however, violence against a person or property should be prosecuted as exactly that, and not as some separate category of crime against the "special" human beings who work for a regime.
Seditious conspiracy suffers from this same problem but is even more problematic because it relies primarily on circumstantial evidence to "prove" that a person was saying things in favor of obstructing or overthrowing a government. Indeed, the supposed necessity of such a "crime" is belied by the fact that so such crime even existed in federal law between the repeal of the hated Alien and Sedition Acts, and the advent of the Civil War. Nor did seditious conspiracy laws play an important role in the US regime's military success against the secessionists in the Southern Confederacy.
Instead, what we find is that seditious conspiracy is a crime that is bothprone to abuse by state authorities and is unnecessary in terms of preventing violence to life and property. In cases such as the January 6 riot, crimes against persons and property ought to simply be considered violent crimes and property crimes of the usual sort. Contrary to absurd romantic notions that the January 6 rioters struck some sort of blow against "democracy" the fact is that any disruptions against Congressional proceedings can be addressed as assault, trespassing, and other related crimes. Seditious conspiracy, in contrast is merely a type of "thoughtcrime."
The Origins of Seditious Conspiracy When the framers of the United States constitution wrote the document's text, they defined treason in very specific and limiting terms:
Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort. No Person shall be convicted of Treason unless on the testimony of two Witnesses to the same overt Act, or on Confession in open Court.
Note the use of the word "only" to specify that the definition of treason shall not be construed as something more broad than what is in the text. As with much of what we now find in the Bill of Rights, this text stems from fears that the US federal government would indulge in some of the same abuses that had occurred under the English crown, especially in the days of the Stuart monarchs. Kings had often construed "treason" to mean acts, thoughts, and "conspiracies" far beyond the act of actually taking up arms against the state. Instead, in the US constitution, the only flexibility given to congress is in determining the punishment for treason.
Naturally, those who favored greater federal power chafed at these limitations and sought more federal laws that would punish alleged crimes against the state. It only took the Federalists ten years to come up with the Alien and Sedition Acts which stated:
That if any persons shall unlawfully combine or conspire together, with intent to oppose any measure or measures of the government of the United States, which are or shall be directed by proper authority, or to impede the operation of any law of the United States, or to intimidate or prevent any person holding a place or office in or under the government of the United States, from undertaking, performing or executing his trust or duty, and if any person or persons, with intent as aforesaid, shall counsel, advise or attempt to procure any insurrection, riot, unlawful assembly, or combination, whether such conspiracy, threatening, counsel, advice, or attempt shall have the proposed effect or not, he or they shall be deemed guilty of a high misdemeanor
Note the references to "intent," "counsel," and "advise" as criminal acts so long as these types of speech are employed in a presumed effort to obstruct government officials. This part of the Act however, was never used by the regime. Those prosecuted under the Alien and Sedition Acts were charged under the section on seditious libel which were heartily opposed for being obviously and blatantly against basic rights of free expression. Nonetheless, the Sedition Act was allowed to expire thanks to the election of Thomas Jefferson and the Republicans (later known as Democrats).
For sixty years, the United States government had no laws addressing sedition on the books. But the heart of the 1798 Sedition Act would be revived. As passed on July 1861, the new Seditious Conspiracy statute stated
That if two or more persons within any State or Territory of the United States shall conspire together to overthrow, or to put down, or to destroy by force, the Government of the United States, or to oppose by force the authority of the Government of the United States; or by force to prevent, hinder, or delay the execution of any law of the United States; or by force to seize, take, or possess any property of the United States against the will or contrary to the authority of the United States; or by force, or intimidation, or threat to prevent any person from accepting or holding any office, or trust, or place of confidence, under the United States . . . shall be guilty of a high crime
Given the timing of the legislation—i.e., in 1861 following the secession of several southern states—it is assumed the origins of the legislation at the time was in addressing alleged Confederate treason. This is not quite the case. Indeed, the legislation enjoyed considerable support from those who were especially militant in their opposition to the confederacy. For example, Rep. Clement Vallandigham of Ohio—who would later be exiled to the Confederacy for opposing the war—supported the bill precisely because he thought it would help in punishing those engaged in "conspiracies to resist the fugitive slave law." Indeed, the Congress had initially become serious about punishing "conspiracies" not in response to southern secession, but in response to John Brown's 1859 raid in Harper's Ferry.1
Southern secession and fears of rebellion helped enlarge the coalition in favor of a new sedition law. The new sedition law represented a significant expansion of the idea of "crimes against the state" in that the sedition law did not require overt acts against the government, but merely "conspiring" vaguely defined. Douglas understood this perfectly well, explaining the benefits of his bill as such:
You must punish the conspiracy, the combination with intent to do the act, and then you will suppress it in advance. There is no principle more familiar to the legal profession than that whenever it is proper to declare an act to be a crime, it is proper to punish a conspiracy or combination with intent to perpetrate the act. . . . If it be unlawful and illegal to invade a State, and run off fugitive slaves [for example] why not make it unlawful to form conspiracies and combinations several States with intent to do the act?
Others were more suspicious of expanding federal power in this way, however. Sen. Lazarus Powell and eight other Democrats presented a statement opposing the passage of the bill.2 Specifically, Powell and his allies believed the new seditious conspiracy law would be a de facto move in the direction of allowing the federal government to effectively expand the definition of treason offered by the federal constitution. The statement read:
the creation of an offense, resting in intention alone, without overt act, would render nugatory the provision last quoted, [i.e. the treason definition in the Constitution] and the door would be opened for those similar oppressions and cruelties which, under the excitement of political struggles, have so often disgraced the past history of the world.
Even worse, the new legislation would provide to the federal government "the utmost latitude to prosecutions founded on personal enmity and political animosity and the suspicions as to intention which they inevitably engender."
Seditious conspiracy legislation gives the federal government far greater leeway to punish political opponents. Certainly, such legislation could have indeed been used against opponents of the fugitive slave acts, as well as against opponents of federal conscription. After all, opponents of both the Civil War draft and the Vietnam War draft—as with the heroic draft-card burnings of the Catonsville Nine, for example—"conspired" to destroy government property. It would be far harder to prove in court that such acts constituted treason. Unfortunately, the new legislation was ultimately approved in 1861, and the United States government had its first permanent laws against seditious conspiracy.
We now have the same reasons to fear seditious conspiracy laws as Powell did in 1861. Such measures allow the federal government to construct laws addressing intent, thoughts, and words, rather than overt acts. This greatly expands federal power and allows for prosecution of mere inflammatory rhetoric against the federal government. Indeed, prior to his conviction this week, Rhodes's attorneys reminded jurors that Rhodes never even entered the capital on January 6. They also noted that Rhodes had expressed verbal opposition to entering the capital. Yet, he was apparently convicted because "conspiracy" can encompass so many acts, especially in the minds of jurors.
A common-sense foundation for addressing violence in the Capitol building, however, would be to simply prosecute those who engage in actual violence and trespass. It is clear, however, that gaining convictions for seditious conspiracy has been an important goal for the administration because it assists in the narrative that Donald Trump's supporters attempted some sort of coup. Unfortunately, These sorts of political prosecutions are just the sort of thing we've come to expect from the Justice Deptrtment. While the FBI can't be bothered with investigating sex criminals such as Larry Nassar, they'll pull out all the stops to prosecute hundreds of those who entered the Capitol on January 6, many of whom simply stood around gawking at the scenery. But when Congress gives the FBI a near carte blanche as it has done with seditious conspiracy laws, we should expect as much.
-
- Catherine M. Tarrant, "To 'Insure Domestic Tranquility': Congress and the Law of Seditious Conspiracy, 1859-1861," The American Journal of Legal History 15, no. 2 (April 1971): 112, 119.
-
- Ibid., p. 119.
Most people are familiar with the Panama Canal, but they probably don’t know the first effort to build the Panama Canal, spanning almost a decade, was by France. Facing considerable initial naysaying and ridicule, Ferdinand de Lesseps had the acumen and drive to construct the Suez Canal. Success was realized after overcoming many obstacles and difficulties. Naturally enough, France turned to him to build a sea-level canal in Panama.
Minority technical reports evaluating the feasibility of a canal through the Panamanian isthmus concluded either artificial lakes, emulating what was already present in Nicaragua, or else a series of locks, were needed. A sea-level canal without locks was considered unrealistic due to the terrain of mostly rock, and massive mud avalanches at the Culebra excavation were common, as soil on sloping hard rock lost its grip when saturated with rains.
However, the winding Chagres River was the insurmountable challenge for a sea-level canal. It could not be diverted. Flooding that would impress Noah was not uncommon in the rainy season. Without even considering flood release, creating a dam was daunting because no rock foundation was found.
However, these minority reports were ignored or disparaged because Lesseps was entranced by the simplicity and speed of transport enabled by a sea-level canal. His vision, taken as a fait accompli, was endorsed almost unanimously.
He knew there would be problems in Panama, but problems also had been encountered at Suez. “Men of genius” had stepped up with timely solutions. Lesseps was convinced that work should proceed at once in Panama and when problems arose, then “men of genius” would figure out how to proceed. Success was thought inevitable.
In the end, France suffered the single largest peacetime project failure ever attempted by mankind. The poor and middle class were devastated when life savings were lost investing in the Compagnie Universelle du Canal Interoceanique de Panama. Liquidators finally shut down operations shortly after France suffered the Sedan military fiasco.
The French failure invokes similar questions about renewable energy sources like solar and wind. The financial attractiveness of solar and wind electrical generation is extremely low operational costs. The Achilles heel of renewables is the fully loaded cost required to deal with renewables’ intermittency.
In a first scenario, if no renewables were used for electrical generation, then the cost borne by customers would include the capital and operating costs for baseload (e.g., coal, nuclear), intermediate (e.g., combined-cycle gas turbines), and peaking (e.g., combustion turbines) generation.
A second scenario provides solar and wind generation into the grid. Because there is no storage solution available today for solar and wind for any significant length of time, at full base load, the true fully loaded cost to customers includes costs of the first scenario replacing renewables’ actual capacity plus costs of installed renewables. This summation is required because, without proper storage, capable backup is needed when solar and wind fail. Of course, solar output diminishes down to nothing depending upon cloudiness and is off approximately half the day (at night), and wind generation fails when the winds are either too high or too low, or there is winter icing.
Renewable energy shouldn’t be considered viable without storage (see here, here, here, here, here) capable of satisfying long term, full base load demand. “Energy storage would have to cost $10 to $20/kWh for a wind-solar mix with storage to be competitive with a nuclear power plant providing baseload electricity. And competing with a natural gas peaker plant would require energy storage costs to fall to $5/kWh … That’s an intimidating stretch for lithium-ion batteries, which dipped to $175/kWh in 2018.”
Renewable energy costs should include solar or wind farm capital, storage costs, grid distribution creation or enhancements, and fully loaded costs of the capital plant for grid balancing and firming (including frequency and voltage regulation maintaining grid stability) necessary to address intermittency problems should storage fall short or fail. “Large amounts of intermittent electricity create huge swings in supply which the grid has to be able to cope with” Fossil fuel and nuclear plants don’t have the same intrinsic problem with grid frequency. “Spinning turbines of thermal plants connected to the grid create kinetic energy called inertia which helps keep the network at the right frequency. This spinning can’t be created by wind turbines or solar panels and policy makers need to find ways to incentivize other forms of energy storage or flexible output.”
Renewables at fully loaded cost should have to compete economically against coal, gas turbines, nuclear, hydropower, and geothermal electrical generation without subsidies or grid penetration preferences. Consumers should know actual renewables production is significantly below nameplate capacity and they will pay for that.
The title of Rick Page’s book instructs, “Hope is not a strategy.” Heeding this, we shouldn’t be making any further significant expenditures on solar or wind generation until a multiday storage solution is proven and commercially available. Today, we are still looking for that “man of genius” providing such a technical and manufacturing solution. The experience of Lesseps being our guide, it is possible you can’t get to there from here.
It is possible there is no affordable technical solution. That being the case, our country needs real, not imaginary, solutions providing the massive amounts of energy our country requires for liberty and prosperity. Faith in renewables for reliable and economical energy generation is a symptom of Lesseps syndrome.
Likewise, there is a fantasy of converting all automobiles to electric vehicles (see here, here). Led by California, many states have mandated the demise of internal combustion engines. The attraction of EV’s is these are considered (erroneously) zero emission sources. EV’s are a strange beast having multiple Achilles heels including cold weather performance (see here, here), towing range and payload capacities, vehicle expense, vehicle reliability, resources limitations (see here, here, here, here), recharging (see here, here), and lithium ion battery fires (see here, here, here).
Conventional cars use 18–49 pounds of copper, while EV’s use 3–4 times more. Depending on vehicle size, total lifetime costs of an EV are thought to be at least 44–60 percent higher. Demand for copper for renewables and EV’s that must be produced by 2030 could be up many times requiring multitudes of new mines. Overcoming shortfalls (see here, here) will be difficult. Commodity prices could climb sharply with shortages.
Faith in electric vehicles as a reliable and economical means of transportation is a symptom of Lesseps syndrome, optimistic that “men of genius” will show up to solve intractable problems. Fully loaded costs of renewables and electric vehicles make ownership uneconomical with poor prospects of a turnaround. Going further down this path will adversely impact the poor and middle class disproportionately severely threatening manufacturing and national security.
Writer and philosopher George Santayana is attributed to write, “Those who cannot remember the past are condemned to repeat it.” This time, we should not commit to unreliability and financial disaster thinking “men of genius” will eventually show up to solve insurmountable problems. This time, solutions should precede execution. Let us hope we awaken from our hypnotic stupor over renewable energy and electric vehicles to understand how they suffer from Lesseps syndrome.
A serious political discussion at the federal level would center on structural problems of war and peace, debt and the dollar, and entitlements. But America in 2022 is a deeply unserious country.
Original Article: "Can a Deeply Unserious America Fix Its Economy?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop look at the topic of nationalism and the role it can play in political decentralization. In his recent book, Breaking Away: The Case for Secession, Radical Decentralization, and Small Polities, Ryan notes how nationalist sentiments have helped ethnic, religious, and linguistic groups resist centralizing political states, such as the Soviet Union. This contrasts the ways nationalism served as a centralizing force in 19th-century Europe. Ryan and Tho look at how recent nationalist sentiments are challenging authoritarian globalist pressures, as well as how strengthening regional and state cultural identities may offer the best chance to roll back the Washington regime in America.
Looking for Christmas gifts? Use promo code ROTHPOD for a 20% discount on select books featured on Radio Rothbard. Or, use code MURRAYCHRISTMAS for a special 10% discount on select new Mises apparel: Mises.org/RR_110_Store
Recommended ReadingBreaking Away: The Case for Secession, Radical Decentralization, and Small Polities by Ryan McMaken: Mises.org/RR_110_A
"Is Nationalism a Good Thing? It Depends." by Ryan McMaken: Mises.org/RR_110_B
"Mises on Nationalism, the Right of Self-Determination, and the Problem of Immigration" by Joe Salerno: Mises.org/RR_110_C
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
In Search of Monsters to Destroy: The Folly of American Empire and the Paths to Peace
by Christopher J. Coyne
Independent Institute, 2022; xxii + 217 pp.
Christopher Coyne, an economics professor at GMU, forcefully attacks America’s foreign policy, claimed by its defenders to aim at a peaceful international order under benevolent American hegemony. Coyne finds a fatal contradiction at the heart of this program: it advocates pursuing “liberal” goals, but the means chosen to attain these goals are distinctly illiberal and often downright brutal. (By “liberal,” it’s important to note, Coyne does not mean “left wing,” but rather favorable to civil liberties and opposed to dictatorship.) In his account of this contradiction, Coyne ably applies the tools of economic theory.
According to the theory of “liberal hegemony,” nations exist in a Hobbesian state of nature and in extricating themselves as best as possible from the perils of that condition are greatly aided by a dominant power that defends international order while promoting liberal and humanistic values. “The argument for an imperial, interventionist America is usually grounded in a Hobbesian view of the natural aggression between nations . . . an aggression which needs restraining. The underlying assumption is that a liberal international order cannot emerge spontaneously but requires imperial design and, where necessary, the use of force” (p. 13).
The theory stresses the need for the hegemon to respond to so-called failed states unable to provide
collective public goods. Such “failed states” are a problem not only for those forced to live under them, but also for the world, because they undermine a stable international order. . . . Proponents of liberal empire thus argue that failed states necessitate intervention by outside powers in order to bolster global and local stability and provide a value added service by supplying liberal public goods. (pp. 13–14)
A very large number of states qualify as “failed,” so the hegemon always has an excuse to intervene forcibly to bring about a return to international order. In doing this, following the policy that Charles Beard called “perpetual war for perpetual peace,” the hegemon is itself promoting the disorder it claims to alleviate. At times, the hypocrisy that allows this anomaly to be ignored is stunning:
However, this same reasoning is not extended to non-ally governments who engage in similar foreign interventions. In stark contrast, foreign interventions by other, non-ally governments are met with swift condemnation. This was evident, for example, in the US government’s response to the 2014 Russian invasion of Ukrainian territory. Then US Secretary of State John Kerry publicly condemned the invasion, calling it an “incredible act of aggression” while ignoring the extensive list of US government military interventions since the founding. (p. 152n13)
How did America come to abandon its traditional policy of nonintervention in European power politics for the dubious pursuit of empire? The standard account sees the Spanish-American War as a turning point—one thinks, in this connection, of William Graham Sumner’s great essay “The Conquest of the United States by Spain”—and Coyne does not demur, but rather he adds to this an illuminating codicil. He emphasizes the importance of Theodore Roosevelt’s corollary to the Monroe Doctrine in 1904, permitting the United States to act to restore “order” throughout the Western Hemisphere:
Roosevelt’s “big stick” approach to foreign policy resulted in a tectonic shift—not only in the political and economic relations between the United States and Latin America, but also in the relationships between the United States and Europe. The United States government would no longer focus simply on defending its national borders, but also the broader Western Hemisphere. (p. 15)
The great increase in American power after World War II allowed the supporters of empire to extend the Roosevelt Corollary to the entire world.
Supporters of hegemony might reply to Coyne that whatever its severe drawbacks, the gains to world peace from empire make the imperial project worthwhile, at least in certain instances. Coyne does not deem this impossible, but he has a strong response to the advocates of empire: structural reasons, derived principally from the work of F.A. Hayek, strongly suggest that “peace through empire” is futile.
The reconstruction of a “failed state” by a faraway power requires central planning; but this, as Hayek famously argued, raises knowledge problems.
When intervening in other countries, policymakers may know what outcomes they want to bring about, but that does not mean they know how to achieve them, despite powerful military weapons and lavish resources. Knowledge of observable barriers is distinct from the dispersed, local, and tacit knowledge that is not observable, and which is not subject to quantification or aggregation. F.A. Hayek described this local knowledge as “the knowledge of the particular circumstances of time and place” that cannot be fully articulated by the human mind. Foreign interventions encounter many types of these peculiar knowledge problems. (p. 70)
The dim prospects for empire are enhanced by the likelihood that the imperial proconsuls will be ruthless, avid for “power and pelf,” as Murray Rothbard liked to say. Those who rise to the top in bureaucracies do not do so through an excess of humanitarian sentiment. Here Coyne appeals to Hayek once more: “Planning grants significant discretionary power to those tasked with making decisions about the allocation of resources. Who, Hayek asked, is most likely to flourish in a system characterized by wielding such power over others? Like [Frank H.] Knight, his answer was that ‘the unscrupulous and uninhibited are likely to be more successful’ in such a system” (p. 34).
Defenders of empire might, in the face of these difficulties, insist that imperial projects be judged separately in each case, but to this Coyne has an excellent response. He takes what defenders of hegemony often take to be their prime example of success, the relatively “clean” method of drone warfare, which, it is alleged, minimizes civilian casualties. Coyne has done extensive research on killing by drone in Afghanistan, and he challenges as unreliable the statistics that are claimed to show “success.” There is good reason to think that the loss of civilian life has been underestimated, and the constant presence of drones in the sky terrorizes the local population. Even if, however, the statistics used by supporters to show that a drone strike minimizes civilian casualties were, contrary to fact, reliable, the conclusion that the program results in fewer deaths than competing violent measures such as aerial bombing cannot be sustained, as Coyne shows with an ingenious argument that applies a basic principle of economics.
In economic terms, drones may reduce the “price” of offensive attacks (deaths), which allows the military to move down the demand curve, increasing the quantity of drone strikes demanded. While the use of drones might reduce deaths in a single strike by providing a substitution for other, more deadly alternatives (e.g., conventional bombing), this very well might be offset by an increase in total innocents’ deaths due to “cheaper,” more frequent drone attacks. (p. 108)
Coyne does not confine himself to criticism of empire but also suggests an alternative policy. Perhaps the “Hobbesian” world of competing nation-states is not inferior to American hegemony; and, beyond that, why confine our thought about defense to governments? Coyne urges us to consider “polycentric defense” at the local and individual level, deeming of exceptional value the books by Gene Sharp on nonviolent action.
Coyne deserves our gratitude for his carefully argued case against American empire. He aptly concludes, “We must resist the siren song of empire” (p. 141).
Jeff and Bob break down the good, bad, and ugly behind Elon Musk's purchase of Twitter.
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Federal Reserve officials, for all of their alleged wisdom and education, have a knowledge problem. Hayek and other Austrians could have told them their grandiose plans will fail.
Original Article: "The Federal Reserve's (Permanent) Knowledge Problem"
This Audio Mises Wire is generously sponsored by Christopher Condon.
According to Wikipedia, Bernie Madoff ran the world’s largest Ponzi scheme. The losses were estimated to be as high as $65 billion. Madoff had promised to invest his customers’ money in productive enterprises and pay them generous returns, when in fact he spent the money and manufactured fake statements. His returns to his customers were funded with money from new customers. The scheme collapsed when money from new entrants slowed down. There were no productive investments to use to pay off his customers.
Like Madoff’s scam, Social Security is a vast Ponzi scheme. Although the program claims to have assets of close to $3 trillion, these “assets” are not productive assets, such as factories, farms, or valuable commodities. They are only book entries and differ little from what Bernie Madoff was reporting to his customers. The government has spent the accumulated taxes of eighty years and now pays out what it receives in monthly taxes to retirees. According to some fiduciaries, soon monthly taxes will not cover retiree benefits. This could spell big trouble for Social Security.
Is Social Security Any More Ethical than Madoff’s Scheme?The main difference between Bernie Madoff’s scam and Social Security is that all of Madoff’s victims gave him their money voluntarily. They were victims, of course, but no one forced them to give Madoff their money. Many may have been gullible, avaricious, or both. But they participated in Madoff’s plan with their eyes wide open and were not coerced into doing so. They now receive nothing, and their initial investments are gone, probably never to be recovered or only partially, after many years of legal machinations.
Compare Madoff’s scam with Social Security. All who earn incomes, whether wages or personal profits, are required by law to pay into the Social Security system. Failure to do so will result in fines and possibly imprisonment. Like in Madoff’s plan, all participants in Social Security receive periodic statements showing how much they and their employers have contributed, as well as participants’ anticipated monthly payout upon retirement.
The main difference between the Madoff scam and Social Security is not that Social Security has accumulated real, productive assets while Madoff’s scam did not. Social Security does not own productive assets. The main difference is that Madoff did not force his customers to join his scam under the threat of violence—whereas that is exactly what the Social Security system does.
Therefore, if any system can be considered more ethical—or perhaps less unethical—it is the Madoff scam. Madoff was a confidence man, but he did not force anyone to join his scam. Targeted investors could join or not join. But that definitely is not the case with Social Security. Yet Madoff is a modern pariah, and Social Security is lauded by many as the savior of the impoverished elderly.
Current Victims Demand that Others Continue to Be VictimizedIf both systems are Ponzi schemes, why was Madoff jailed and not the lawmakers and administrators of Social Security? If the Madoff plan can be shut down unceremoniously, why can’t Social Security be shut down just as unceremoniously? The answer most people give is that they were forced into paying for someone else’s benefits, so someone else should do the same for them.
In other words, since they were victims, they have a right to victimize others. I consider this very common response to be highly unethical. At some point, the Social Security Ponzi scheme must end. And when that happens, some will lose. Would a victim of the Madoff scam feel justified in allowing the scam to continue just because he was a victim himself? I think not.
Likewise, Social Security recipients have no ethical leg to stand on; neither do those who have been forced to pay into the Ponzi scheme for many years and have yet to receive any payouts. Being a victim certainly does not make it ethical to victimize someone else. Therefore, the only ethical thing to do is end Social Security right now. No more checks. No more taxes. Fire all the employees, destroy all the records, and sell all the buildings and office equipment. Cut out this unethical financial cancer that will destroy the body politic.
The international system we live in today is a system composed of numerous states. There are, in fact, about two hundred of them, most of which exercise a substantial amount of autonomy and sovereignty. They are functionally independent states. Moreover, the number of sovereign states in the world has nearly tripled since 1945. Because of this, the international order has become much more decentralized over the past eighty years, and this is largely due to the success of many secession movements.
The new states are smaller than the ones that came before them, however, and this all reminds us that there is a basic arithmetic to secession and decentralization in the world. Since the entire surface of the world—outside of Antarctica, of course—is already claimed by states, that means that when we split one political jurisdiction up into pieces, those new pieces will necessarily be smaller than the old state from which they came.
During the decolonization period following the Second World War, dozens of new states were formed out of the territories of the old empires they left. This meant the new status quo had a larger number of smaller states. The same thing occurred after the end of the Cold War. As the Soviet Union collapsed, it left fifteen new smaller states in its wake.
So, in the current world, secession—when successful—is an event that reduces the size and scope of states. It reduces the territory and the populations over which a single central institution exercises monopoly power.
Secession and State Size as Two Sides of One CoinSo, if we’re going to talk about secession, then, it’s also important to explicitly address the issue of what is the correct size of states. Is smaller better?
Now before we go further, I know my audience here, so there’s no need to come up to me afterward and say, “Well, states are bad, so the correct size of states is that they don’t exist at all.” I get it. I agree that’s the end goal. Moreover, political communities don’t have to be states at all. They could be other types of nonstate polities. But that’s all for another speech.
For now, we’ll stick to talking about states, as we are already saddled with living in a world composed of states right now. Until the day comes that a majority of the population wants to abolish all states, it makes sense to look to ways that will reduce the power of states, localize that power, and take at least some of it out of the hands of some of the most powerful ruling state elites.
And the reason we have to address the issue of the size of states is because many people do believe that bigger is better. They believe that larger states are essential for economic success, for peace, and for trade. Also, many people think that state size doesn’t matter at all. They think every problem of conflict within a political jurisdiction can be solved with democracy. Just let people vote, and there is no need for people to have political independence or a separate polity of their own. People who believe that are going to heartily oppose secession.
And, of course, states’ agents themselves will oppose it because states want to be big. Being big and getting bigger is an important goal of every state. It’s a major part of what we call state building. States want to consolidate power, annex territories, and increase their taxable population. What we want is the opposite of that. We want state unbuilding. State demolition.
For many in the public, however, the idea that bigger is good, or at least that size doesn’t matter, has its limits. For example, most people already have in their minds some upper limit as to the “correct” size of states. To see this, simply ask a person if he or she wants to live under a single global state.
Most people—not all, but I would suggest a sizable majority of people worldwide—would be opposed to this. Most people, just from casually observing the world, suspect that placing global governing power in the hands of some distant elite from another culture, from a different continent, and who uses a different language might not actually produce a desirable result.
On an instinctive level, then, many people recognize that something more local is necessary. Partly because of this instinct, radical decentralization in the form of many diverse polities has been the norm throughout human history. Even in the days of the Roman Empire, which viewed itself as having universal jurisdiction, the Romans never subjugated the Persians, the tribes of northern Europe, the Chinese, or the kingdoms of sub-Saharan Africa. The Romans didn’t even know about the Americas. The world has always been politically decentralized.
Yet, ignoring this, many people continue to insist that adding a new country to the large group of already existing countries would somehow bring on anarchy. Here’s the thing, though: the world is already in a state of anarchy. Everyone who’s read a serious book on international relations already knows this. It’s already accepted fact that the international system is anarchic. There is no final arbiter of law or policy internationally. There is no global monopolist.
So creating anarchy is hardly a danger. It’s already there.
How many independent polities should there be? How big should they be? That’s probably the harder question we must overcome with many people.
After all, thanks to status quo bias, many people seem to credulously believe that we’ve somehow magically arrived at exactly the correct number of states and they’re all of the “right size.” The UN has explicitly said as much. Among the international elites, it’s basically been dogma, since 1945, that the world’s existing borders as currently drawn shall never be moved or changed. There are exceptions, but “approved” secession—as in the case of Kosovo’s de facto secession—is only encouraged by the establishment when that secession serves the interests of certain great powers and their allies.
So just to get started when we’re going to engage in the thankless job of pushing secession, we have to make the case that smaller and more numerous states are better for the world. From the perspective of enhancing freedom and free markets, we can see three key ways that smaller and more numerous states are better. But let’s also look at the empirical evidence while we’re at it.
- Smaller States Allow for More Choice and More Opportunities for ExitThe first reason that smaller states are beneficial is that they offer more opportunities for exit. This, in turn, makes states more inclined to respect property rights.
Lew Rockwell summed this principle up in 2005 in a great article called “What We Mean by Decentralization.” Rockwell writes:
Under decentralization, jurisdictions must compete for residents and capital, which provides some incentive for greater degrees of freedom, if only because local despotism is neither popular nor productive. If despots insist on ruling anyway, people and capital will find a way to leave.
This is most fully realized, of course, by the type of decentralization that results from secession. As Murray Rothbard put it in 1977: “Secession … means greater competition between governments of different geographical areas, enabling people of one State to zip across the border to relatively greater freedom more easily.”
Now, of course, ideally you wouldn’t have to physically relocate to escape despotism. But we don’t live in an ideal world. We have to work with what we have, and the fact is governments like to abuse rights. So the question is, Do we want governments that are huge and control vast swathes of land and that require us to move thousands of miles to escape them? Or do we want something smaller where exit is easier, albeit still not without cost? And, of course, keep in mind that in a world with only one state and no secession, there is no escape at all.
We’ve seen this issue of “exit” in the modern world, of course. It’s true in countless refugee situations, where the most oppressed people are only able to save their own lives by fleeing across an international border. We saw it in Venezuela over the past decade, when Venezuelans, desperate for food, had to escape across an international border just to get basic necessities. Thank goodness that border was there and limited the reach of the Venezuelan regime. Exit was possible. If only the Venezuelan state were even smaller and the people of that region had even more options for bordering states into which to exit and escape.
Historically, as well, we know this concept of exit has been an absolutely key factor in how the West rose to achieve the highest standards of living the world has ever known. As the historian Ralph Raico has noted in his essay “The European Miracle,” the fact that Europe has been so decentralized throughout its post-Roman history—in contrast to the huge empires of the East—meant that entrepreneurs and capital could indeed escape across Western Europe’s countless borders in a highly decentralized world. This was especially the case in Europe’s Middle Ages, and as historians Nathan Rosenberg and L.E. Birdzell Jr. note in their book How the West Grew Rich, it was in these highly decentralized Middle Ages that the institutional groundwork was laid for Europe’s economic miracle.
Similarly, historian Jean Baechler showed this in his research, and he concluded, “The first condition for the maximization of economic efficiency is the liberation of civil society with respect to the state.”
So how did this liberation occur which led to the success of markets in Europe? Baechler tells us: “The expansion of capitalism [in Europe] owes its origins … to political anarchy.” That is, to the existence of a large number of small states, without any overriding imperial state power. Not since Rome has Europe been unified under a single government, and that has meant more freedom and more economic growth.
One reason this works is that in a region or world of small states, it is more difficult to even attempt autarky, so for a private entrepreneur, moving one’s capital from one place to another does not cut off one’s access to markets outside the borders of a small jurisdiction. Small states and principalities have always experienced big incentives toward doing business with surrounding areas. It means more trade. It means more efficient markets.
Opponents of secession and breaking up states are often opposed, however, on the grounds that smaller states will throw up trade barriers and be more inclined to violate rights. The reasons for this assumption are unclear, but this is a common objection.
On the contrary, small states want to attract capital, and it shows. This is why efforts to impose a single global minimum tax tend to meet the most resistance from smaller countries, like Ireland and Hungary, as they do today. Having lower taxes is a major way that small states attract wealth.
Moreover, in modern times, the empirical evidence supports the idea that small states tend to be more open to free trade, more open to a free flow of labor, more open to lower taxes.
For example, Sergio Castello and Terutomo Ozawa conclude in their study on small states that in a world of specialized and growing trade
small economies naturally grow more trade-oriented in both exports and imports…. Ceteris paribus, small nations thus become more trade-focused than large ones.
Economist Gary Becker in 1998 noted, “Since 1950 real per capita GDP [gross domestic product] has risen somewhat faster in smaller nations than it has in bigger ones.” Becker concluded that
the statistics on actual performance show that dire warnings about the economic price suffered by small nations are not all warranted…. Smallness can be an asset in the division of labor in the modern world, where economies are linked through international transactions. Of the fourteen countries with populations over 100 million, only the US and Japan are wealthy.
William Easterly and Aart Kraay conclude from their own study on small states: “Controlling for location, smaller states are actually richer than other states in per capita GDP…. Microstates have on average higher income and productivity levels than small states, and grow no more slowly than large states.”
So it turns out Rothbard was right when he suggested that small states are more likely to embrace free trade. As he wrote in the 1990s, this was also due to sociological reasons:
common response to a world of proliferating nations is to worry about the multitude of trade barriers that might be erected. But, other things being equal, the greater the number of new nations, and the smaller the size of each, the better. For it would be far more difficult to sow the illusion of self-sufficiency if the slogan were “Buy North Dakotan” or even “Buy 56th Street” than it now is to convince the public to “Buy American.” Similarly, “Down with South Dakota,” or “Down with 55th Street,” would be a more difficult sell than spreading fear or hatred of the Japanese.
In other words, bigness brings delusions of self-sufficiency, and it is actually large states that more often turn to protectionism and economic nationalism and control. Small states know that exit is easier for their residents, and thus these small states must be more responsible to capital to attract wealth.
- Reducing the Size of States Offers a Solution When Democracy and Constitutionalism FailA second benefit of small states is that they offer a solution when constitutions and democracy often fail to protect minority rights.
We often encounter the argument that the size and scope of states don’t matter so long as there are elections and there are words written on parchment somewhere saying that the government—cross my heart and hope to die—will not violate our rights.
It’s great if that works for a time, but it quite often fails.
In reality, neither constitutions nor elections protect minority rights when minority groups are a permanent minority or minority interests diverge sufficiently from the interests of the ruling majority. We see this frequently with ethnic and linguistic minorities. Ludwig von Mises himself understood this when he wrote that
the situation of having to belong to a state to which one does not wish to belong is no less onerous if it is the result of an election than if one must endure it as the consequence of a military conquest.… At every turn the member of a national minority is made to feel that he lives among strangers and that he is, even if the letter of the law denies it, a second-class citizen.
Similarly, problems exist for ideological minorities, especially on issues where there is little room for compromise. For example, consider a state where about half the population thinks abortion is a basic human right and the other half thinks abortion is a grave violation of human rights. We can see a problem here, even in an allegedly decentralized political system like the United States. The Supreme Court has told the states to set their own policies, yet both sides continue to call for nationwide laws forcing their own preferred policies on the entire nation. Confederations only work when people in one region are willing to tolerate the “deviations” of the people in other regions. But much of the time, the impulse to impose uniform national policy on everyone within a state’s borders is inexorable, and without breaking states up to match regional preferences, the only choice losing minorities have is to turn to violence or simply accept their status of powerlessness.
In cases like this, democracy and constitutionalism offer no answer. Parchment guarantees of rights can be ignored by judges. We see it all the time. Elections are won by majorities. Constitutions may work for a time, but what happens when the majority gets large enough to amend the constitution and abolish the protections for the increasingly beleaguered minority? The losers become permanent losers.
In other words, over the long term, the ruling majority coalitions tend to win. And if you’re not a part of that coalition and it doesn’t serve your interests? You’re out of luck. Because Mises understood this, he supported the idea of local self-determination via secession and other types of decentralization. In Nation, State, and Economy he wrote: “No people and no part of a people shall be held against its will in a political association that it does not want.”
And in Liberalism he writes:
Whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with.
This is significant because Mises was a democrat. He thought democracy often worked. But he also recognized that without the safety valve of secession and a process to dismantle states and change their borders, it can lead to a loss of self-determination and basic human rights. Moreover, Mises specifically acknowledged that breaking states up into smaller pieces is a means of avoiding civil wars and revolutions.
We can see this issue illustrated with a thought experiment.
Suppose that in twenty years, some groups of elites in eastern Asia suggest it would be a great idea to form a confederation of states from the region: the United States of East Asia (USEA). It would include China, South Korea, Japan, Vietnam, and Indonesia. This new union could be put together to facilitate free trade, free migration, and to generally increase economic prosperity and peaceful multilateralism. How should the governance of this organization be organized? Systems of democratic representation present an obvious problem: the Chinese themselves would easily outvote all the other countries on a regular basis. Even if South Korea, Indonesia, Vietnam, and Japan all voted together as a block, their relatively small population sizes could not possibly allow them to veto pro-China measures pushed by a majority of Chinese voters. Because of China’s size, any other members of the confederation would quickly realize that the USEA is really just a union dominated by China most of the time.
Sure, we could attempt a bill of rights or a senate with equal representation to temper these effects, but over the long term, state institutions have a way of favoring the largest groups and most numerous groups. Eventually the Japanese and the Koreans would want to leave this union. But if secession is not allowed? Then what? Endless civil wars are a likely outcome. It’s a prescription for disaster.
Along these lines, Rothbard often supported secession as a matter of national liberation. He considered the American Revolution—a secessionist cause, of course—to be among the world’s first wars for national liberation. He said the same about the secession of the new republics from the Soviet Union and the breakup of Czechoslovakia. And he supported all this in contradiction of the dominant elite narrative. At the time, the US foreign policy establishment and its friends in the national media actually opposed the breakup of the Soviet Union. Why? Because New York Times writers and Bush administration hacks were devoted to mass democracy rather than local self-determination. Although the Latvians would continue to be horribly outnumbered by ethnic Russians in the imagined new democratic USSR, we were told the USSR’s new democratic constitution would somehow allow a million Latvians to make their voice heard in the midst of one hundred million Russians. The real threat, the official narrative went, was that Europe was being “convulsed by nationalism” and that national minorities required large, powerful states to keep them in line. Taking a page from Mises, Rothbard instead insisted:
In short, every group, every nationality, should be allowed to secede from any nation-state and to join any other nation-state that agrees to have it.
- Limiting the Power of Aggressive StatesFinally, a third reason for opposing large states is that large states tend to be the most dangerous ones. On this, Rockwell writes: “Tyranny on the local level minimizes damage to the same extent that macro-tyranny maximizes it.… If Hitler had ruled only Berlin, [and] Stalin only Moscow,” the history of the world may have been considerably less bloody. Large states are playgrounds for despots and dictators, while small states provide far fewer opportunities for ambitious politicians to spread their mayhem beyond their local communities.
But we don’t have to take Lew’s word for it. The highly influential political scientist Hannah Arendt has discussed how only larger states can hope to be truly totalitarian. She notes that a number of states in Europe at the time had pushed totalitarian ideas but, outside the Soviet Union, none managed to actually achieve the goal. She writes:
Although [totalitarian ideology] had served well enough to organize the masses until the movement seized power, the absolute size of the country then forced the would-be totalitarian ruler of masses into the more familiar patterns of class or party dictatorship. The truth is that these countries simply did not control enough human material to allow for total domination and its inherent great losses in population. Without much hope for the conquest of more heavily populated territories, the tyrants in these small countries were forced into a certain old-fashioned moderation lest they lose whatever people they had to rule. This is also why Nazism, up to the outbreak of the war and its expansion over Europe, lagged so far behind its Russian counterpart in consistency and ruthlessness; even the German people were not numerous enough to allow for the full development of this newest form of government. Only if Germany had won the war would she have known a fully developed totalitarian rulership.
But even if we’re not talking about something as terrible as totalitarianism, the fact remains that larger states are more able to monopolize more people, more wealth, and more resources with minimal transactions costs. This makes larger states more able to carry out truly abhorrent crimes.
The Problem of International WarSo we’ve seen three advantages of using secession to reduce the size and power of states. But we’re still likely to hear one big objection to breaking up today’s states into smaller states. That is the possibility of any remaining large states subjugating small states. It’s a frequent refrain: “Sure, secession sounds nice in theory, but if we reduce the power of the US government, or any other Western states, then China will step in and conquer the world.”
To this objection there are several answers. One is that small states are always free to enter into voluntary defense pacts, just as they always have been. States with similar interests, cultures, and languages can do this with relative ease, and have done so.
Moreover, assumptions that large states will always dominate in international relations are based on the mistaken notion that larger states (in terms of GDP and current access to military resources) are necessarily the more powerful ones. More accurately, however, it is wealthier states and blocs of states—not necessarily the larger states—that tend to be at an advantage in terms of military deterrence. In his innovative research, China expert Michael Beckley, for example, notes that the biggest variable here is actually GDP per capita, not overall GDP. And this helps explain why we can find many cases of smaller states successfully deterring and defeating larger states. During the nineteenth and early twentieth centuries, for example, both Japan and the United Kingdom repeatedly defeated and humiliated the much larger China. GDP and military manufacturing statistics alone would also suggest that the Soviet Union—three times the geographic size of the US and with an immense weapons industry—should have outlasted the United States.
The GDP measure also suggests that Israel is the weakest military power in the Middle East. Clearly, that is not the case. The Israeli case is instructive because it shows us that small states, rather than having to become big themselves, can simply free ride on larger states—as the State of Israel has managed to long exploit American wealth and taxpayer revenues without giving up its own independence.
Moreover, the possibility of nuclear deterrence diminishes the need for immense and expensive conventional forces, as—again—demonstrated by the State of Israel. Deterrent defense capability can thus be obtained even by Switzerland-sized states.
I go into some detail on this in my new book, Breaking Away. So, for example, were the United States to break up into smaller pieces, there is no reason to assume the new, smaller successor states would be at the mercy of larger states. There is every reason to assume that the new American states would be just as unified on foreign policy as they are now—which is to say almost totally in lockstep.
Unfortunately, no matter what might be said about small states and international relations, many will cling to the idea that—because of alleged foreign threats—virtually nothing could justify secession.
There is, of course, nothing new about this attitude. For centuries, states have justified their growth, strength, and taxation on the grounds that all that is necessary to protect against foreigners. It is a common habit to downplay concerns about the preservation of rights against abuses by one’s own state in order to focus on a perceived threat— however unlikely—from foreign states.
This was, after all, the dominant posture during the Cold War. Concerns about American freedoms were put on hold in the name of fighting the Communists. Conservatism’s standard bearer, William F. Buckley, said as much when he declared,
We have got to accept Big Government for the duration— for neither an offensive nor a defensive war can be waged, given our present government skills, except through the instrument of a totalitarian bureaucracy within our shores.… [We must endure] large armies and air forces, atomic energy, central intelligence, war production boards and the attendant centralization of power in Washington.
In other words, accept everything the central government wants to do to you. To do anything else is to invite conquest from the Commies. Or else the Commies win.
Yet, real-world experience suggests that fortune favors the decentralized in terms of wealth, freedom, and economic development. And on a moral level, decentralizing is always the right thing to do.
It is for these reasons that Rothbard supported what he called “universal rights, locally enforced.” As an adherent of natural rights, Rothbard believed rights are certainly universal. Yet he also understood that their enforcement must be local. As Rockwell explains, these two concepts— universalism and localism—are frequently in tension. But, Rockwell concludes,
if you give up one of the two principles [i.e., universal rights and local control] you risk giving up liberty. Both are important. Neither should prevail over the other. A local government that violates rights is intolerable. A central government that rules in the name of universal rights is similarly intolerable.
Experience has already shown—since at least as early as the Middle Ages—that the Western world has always embraced and benefited from some degree of radical political decentralization. We would benefit from much more of it today.
Is there a case to be made for universal basic income? David Gordon examines the pro-UBI arguments by philosopher Matt Zwolinski.
Original Article: "To UBI or Not to UBI, That Is the Question"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Conservative Affirmation
By Willmoore Kendall
Regnery, 2022 (Originally published in 1963)
lxix + 362 pp.
Willmoore Kendall was the most important political theorist of the brand of conservatism associated with William F. Buckley Jr.’s National Review during the 1950s and 1960s. To some of us, this will be not altogether a positive recommendation, but as Daniel McCarthy suggests in his excellent foreword to this reissue of Kendall’s book, Kendall had a powerful intellect, and the “populism” that he championed makes it likely that he will become an intellectual voice for the revolt against elite dominance which has characterized the American right wing in recent years. In his criticism of the elites and emphasis on the political wisdom of the American people, Kendall shows interesting parallels and differences with the thought of Murray Rothbard, and that is what I shall concentrate on in this review.
According to Kendall, the elitist intellectuals of the Left favor a revolution in support of a principle that “looks to the overthrow of an established social order. The principle in question is the egalitarian principle—not the equality principle of the Declaration of Independence which ‘holds’ merely that all men are created equal…. The egalitarian principle says that men are not merely created equal, are indeed not created equal at all, but rather ought, that is have a right, to be made equal. That is to say equalized, and equalized precisely by governmental action, so that if they end up other than actually equal—in political power, in wealth, in income, in education, in living conditions—no one shall ever be able to say that government has spared any effort that might conceivably have made them equal” (emphasis in original).
Kendall sees Abraham Lincoln as a source of this destructive egalitarianism. In a review of Harry Jaffa’s Crisis of the House Divided, Kendall says, “As for the status of Abraham Lincoln vis-à-vis the Signers [of the Declaration] and Framers, Jaffa’s Lincoln sees the great task of the nineteenth century as that of affirming the cherished accomplishment of the Fathers by transcending it. Concretely, this means to construe the equality clause as having an allegedly unavoidable meaning with which it was always pregnant but which the Fathers apprehended only dimly” (emphasis in original). Kendall fears that Jaffa’s reading of the equality clause might lead to “a political future the very thought of which is hair-raising: a future made up of an endless series of Abraham Lincolns, each persuaded that he is superior in wisdom and virtue to the Fathers.” Perhaps in reaction to Kendall’s review, Jaffa in his later work changed his interpretation of the equality clause so that Lincoln became the faithful expositor of the Fathers.
It is at this point in Kendall’s argument that populism enters the scene. The American people do not want the radical egalitarianism of the elites, and, Kendall argues, this is shown particularly in congressional resistance to the egalitarian proposals of the executive branch, which is often dominated by leftist elites entrenched in bureaucratic agencies. The conflicts between the branches “all involve matters of policy which … bear very nearly indeed upon the central destiny of the United States—on the kind of society it is going to become (‘open’ or relatively ‘closed,’ egalitarian and redistributive or shot through and through with great differences in reward and privilege, a ‘welfare state’ society or a ‘capitalist’ society); on the form of government the United States is to have (much the same as that intended by the Framers or one tailored to the specifications of egalitarian ideology).”
This is a decisive point of contact with Rothbard, who also takes the side of “populism” against the leftist elites. In an article published in the Rothbard-Rockwell Report in January 1992, he says, “The reality of the current system is that it constitutes an unholy alliance of ‘corporate liberal’ Big Business and media elites, who, through big government, have privileged and caused to rise up a parasitic underclass, who, among them all, are looting and oppressing the bulk of the middle and working classes in America. Therefore, the proper strategy of libertarians and paleos is a strategy of ‘right-wing populism,’ that is: to expose and denounce this unholy alliance, and to call for getting this preppie-underclass- liberal media alliance off the backs of the rest of us: the middle and working classes.”
There is an objection that supporters of populism need to confront, and Rothbard has a better answer to it than Kendall. The objection is that the fact the majority of the population supports a political position does not by itself show that the position is morally justifiable, and this remains so even if the majority reflects what Kendall calls “the deliberate sense of the community.” Kendall’s response would be to deny that he equates political morality with majority support. He supports natural law and regards the American people, historically shaped by the traditions of the Christian West, as in their wisdom the best judges of how to apply the precepts of natural law, which are, after all, not self-executing, to the concrete circumstances of the day.
Unfortunately, Kendall has what from a Rothbardian perspective is a defective understanding of natural law. Following Leo Strauss, whom he calls his greatest teacher, Kendall understands ancient natural right, with its stress on the city-state, as a principal instrument in promoting virtue among citizens, and contrasts it with individualism, conventionalism, and relativism, which deny natural law. He locates John Locke firmly in the latter camp, thus failing to consider the position that Lockean self-ownership and property rights provide an objective basis for natural law as applied to politics. Locke’s individualism, far from being a corruption of classic natural law, is an improvement on it, so far as politics is concerned.
Had Kendall accepted this, he could have avoided what seems to me a serious mistake in his thought. He rightly says that a society need not, and ought not to, regard all questions as unsettled. If, for example, radicals today propose to abolish what they call the “hierarchical” family and to bring into question the distinction between men and women, we are not required to respond to them on their own terms but can ignore them. As Kendall finely says, criticizing the view he opposes, “Whatever the private convictions of the society’s individual members concerning what Plato teaches us to call the important things—that is, the things with which truth is primarily concerned—the society itself is now by definition educated to a national religion of skepticism, to the idea that all questions are open questions, to the suspension of judgment as the exercise of judgment par excellence.… It can, to be sure, tolerate all expression of opinion that is predicated upon its own view of truth; but what is it to do with the man who steps forward to urge an opinion, to conduct an inquiry, not predicated on that view? What is it to do with a man who with every syllable he utters challenges the very foundations of society? What can it say to him except, ‘Sir, you cannot enter into our discussion, because you and we have no common premises from which discussion between us can be initiated’?” Kendall is here describing how the Left viewed Joseph McCarthy, but though Kendall of course rejects their position, he accepts their view of how people should respond to a challenge to society’s public orthodoxy.
Unfortunately, reflecting what I take to be his statist view of natural law, Kendall argues that dissenters may not just be ignored but may be forcibly suppressed. Rothbard’s resolution of free speech issues into questions of property rights avoids the extreme to which Kendall is driven: you are free to say what you want on your own property but not, lacking the permission of the owners, on that of others.
In his relentless campaign against the “open society,” Kendall misunderstands John Stuart Mill, whom he takes to be the foremost proponent of the position he wishes to combat in what I can only call a fantastic way. He says that “Mill’s freedom of speech doctrine has its very roots in dogmatic skepticism—in, that is to say, denial of the existence, at any particular place and at any moment in time, not only of a public truth but of any truth whatever unless it be the truth of denial itself.” If I may be “dogmatic,” Mill definitely did not deny the existence of objective truth, and I suspect that Kendall’s failure to understand this is an example of a besetting sin among political theorists. Kendall was a pupil of the great philosopher R.G. Collingwood at Oxford, and Kendall’s references to F.H. Bradley and José Ortega y Gasset suggest that he was widely read in philosophy, but like many of his fellow political theorists, he appears unaware of most work by analytic philosophers. Had he studied Mill in the context of analytic philosophy, he would have quickly discovered that the position he foists on Mill is a travesty.
It is also necessary to say that as with a number of his colleagues at National Review, Kendall’s apocalyptic calls for a global crusade—involving the use of nuclear weapons if needed—against world communism have not aged well. Though he was right in his uncompromising condemnation of the evils of communist totalitarianism, it does not follow from this condemnation, as Kendall wrongly thought it did, that a noninterventionist foreign policy needed to be abandoned. And though he is again right that there are situations in which one ought to risk death to avert conquest by a tyrannical regime, one gets the impression that this CIA operative relished the prospect of ending his life in such sacrifice a little too much.
Despite his mistakes, Kendall is usually insightful and provocative.
There’s an idea rooted among some libertarians that the Federal Reserve was originally a sound institution but has grown corrupt. As a bankers’ bank, it was fine, they believe, but not as the monster it has grown to be. If we could only go back to the Fed’s founding charter, all would be well.
I’m thinking of two well-known financial analysts who are unsurpassed in their analytical brilliance and knowledge of markets and who rightly regard the bureaucratic Federal Open Market Committee (FOMC) as the father of bubbles, busts, stagnation, and market privilege. In their articles, Peter Schiff and David Stockman hammer the Fed relentlessly and rightfully for its cluelessness, corruption, and threat to our material and spiritual well-being. They have authored engaging bestsellers on the state of the economy and place blame where it belongs, on the monetary policies of the Federal Reserve.
Yet, strangely, their recommendations stop short of eradicating the cancer altogether. They want the Fed reformed, not abolished. In each case they believe the Fed in its infancy was an institution compatible with free markets. Peter Schiff writes:
The role of a central bank is limited: to control the currency so as to keep prices and interest rates fairly stable. . . . This sort of central bank is one I could have supported. But the Federal Reserve Bank of the United States never functioned this way, and it probably was never meant to. . . . We never should have trusted the Fed to respect its boundaries.
He adds,
The ultimate destroyer of the U.S. dollar was the Federal Reserve System, which was supposed to be the guardian of the currency. As I discussed in chapter 2, the original idea of the Fed was a good one: providing a uniform currency backed by gold.
In The Great Deformation, David Stockman tells us that “the Federal Reserve System, therefore, was intended to be a ‘banker’s bank,’ not an agent of national economic management. This founding charter has been literally blotted out of modern day discussions.”
In his closing chapter, Stockman lists various steps he believes will avoid the worst possible catastrophes. He begins with the restoration of the Fed as a banker’s bank and the adoption of sound money, by which he means a gold-backed dollar.
Why Was the Fed Created?Before the Fed, the number of nonnational banks was growing steadily, as was their percentage of total bank deposits. By 1896 the number of nonnational banks had grown to 61 percent and their share of deposits to 54 percent; by 1913 those numbers had increased to 71 percent and 57 percent, respectively. Thus, Wall Street power was waning. It was also being diminished by a new trend in which businesses financed growth from profits rather than borrowed funds. Bank interest rates were too high for many ventures.
Then there was the long-standing problem with depositors. They would leave their money with a bank, believing it was available on demand, and the banks would turn around and loan it out. If enough customers lined up to withdraw their money, the bank could only close its doors (or get an exemption from government).
So, from Wall Street’s perspective, there were the problems of competition from nonnational banks, industry’s preference for thrift over debt, and the public’s irritating tendency to panic and run on banks.
To address this situation, four representatives of J.P. Morgan, John D. Rockefeller, and Kuhn, Loeb, along with Senator Nelson Aldrich and assistant secretary of the Treasury A. Piatt Andrew, met secretly at Morgan’s retreat on Jekyll Island, Georgia, in November 1910. The bankers accounted for an estimated one-fourth of the world’s wealth.
Led by Paul Warburg of Kuhn, Loeb, they devised a banking cartel that was written into law in late 1913. The money powers—Wall Street—sold the plan to the public as a means of controlling the vast power of Wall Street.
How was Wall Street shackled? It wasn’t. By appointing Wall Street bankers to the Federal Reserve Board and to the most important post in the new system, governor of the New York Fed, they increased Wall Street’s influence.
The original manifestation of the Fed included these developments:
- The Fed monopolized the issue of all banknotes; national and state banks could only issue deposits, and the deposits had to be redeemable in Fed notes and gold.
- All national banks were drafted into the Fed, and their reserves had to be kept as demand deposits at the Fed.
- As banks around the country sent their depositors’ gold to the Fed, they received Fed notes in return. Thereafter, when the public made withdrawals, they were handed Fed notes instead of gold coins. The disuse of gold coins not only encouraged inflation, but it also made confiscation easier later on.
- With the centralizing of gold and bank reserves, the Fed doubled the inflationary power of the banks by reducing the reserve requirement from 5:1 to 10:1. With more credit available, the banks could lower their interest rates.
Banks Violate Their Depositors’ Property RightsAs I note in chapter 5 of The Jolly Roger Dollar, the key to the success of free markets is the establishment and defense of property rights. Government law has never recognized the right of depositors to their property, meaning their deposits. Alan Greenspan in his famous 1966 essay writes:
Since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits.
Observe the language: “the banker need keep only a fraction of his total deposits.” How different the impact of that sentence would be if Greenspan had said: “The banker need keep only a portion of his customers’ property, which they entrusted to him for safekeeping”:
As Rothbard observed, a bank that fails to meet its deposit obligations is just another insolvent, not an embezzler. Following the British ruling in Foley v. Hill . . . in 1848, U.S. courts consider that money left with a banker is, "to all intents and purposes, the money of the banker, to do with as he pleases.” This holds even if the banker engages in "hazardous speculation." Thus, according to the state there can be no embezzlement because the money belongs to the bank, not the depositor. (The Jolly Roger Dollar, chap. 4)
A “Banker’s Bank” without GovernmentThe desire for a banker’s bank is not misguided as long as it’s disconnected from the government:
In the interval between the War of 1812 and the Civil War, banking was de-centralized into state-chartered banks issuing banknotes redeemable in gold or silver coins. One of the highlights of this period was the development of a clearinghouse in Boston called the Suffolk Bank.
Formed by prominent merchants, the Suffolk System allowed New England banks to accept the notes of other banks, including country banks, at par with specie. Members of the system had to keep a sufficient reserve of specie at Suffolk to redeem all the notes it received. Suffolk could not keep banks from inflating but it could remove them from the list of approved banks and cause their notes to trade at discount.
ConclusionThe Federal Reserve was not a sound institution that became corrupt. It was always a corrupt institution and has only grown more corrupt.
Ron Paul has the right approach—End the Fed. Get it out of our lives and restore monetary freedom—the right to choose a medium of exchange.
Supporters of US microchip policy against China claim the policy is "strategic," but in reality, it is old-fashioned protectionism with all the usual economic damage.
Original Article: "The US Chip Blockade against China Is Creating Unplanned Consequences"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Both the US Senate and the House of Representatives are expected to pass new same-sex marriage legislation in coming days. The legislation is expected to codify what is already de facto law in the US under the US Supreme Court's ruling in Obgerfell v. Hodges. The legislation further solidities federal law stating that states are required to recognize same-sex marriages that are legal in other U.S. member states. The legislation also ensures that same-sex spouses will continue to be eligible for federal benefits through programs like Medicare and Social Security. The legislation does not mandate that each state government establish its own provisions for same-sex unions, however.
In the year 2021, there's not really anything remarkable about this in the minds of most people. To most modern thinking, marriage is just yet another thing that is to be regulated and modified according to the whims of a civil government's lawmakers and judges. Even among those who think there ought not be any federal role in marriage legislation, very few dispute that the governments of the member states themselves—or foreign national governments, for that matter—can rightfully exercise immense legislative authority over the regulation of marriage. The only disagreement is often over how government officials ought to regulate marriage, and to what ends.
"Historically, the Government Was Very Uninvolved in Marriage."The only dissenters to this consensus appear to be some libertarians like Ron Paul. For example, in 2012, Paul told a rally audience "I’d like to see all governments out of the marriage question. I don’t think it’s a state decision. I think it’s a religious function." These comments followed earlier comments from Paul contending that "Biblically and historically, the government was very uninvolved in marriage."
Paul is right in saying that marriage historically had (often) been a matter for religious authorities instead of agents of the civil governments. Yet, given the rise of the modern sovereign state, which is currently the ultimate legal authority on virtually all matters, it has become difficult to even imagine the particulars of the historical reality to which Paul refers.
Nonetheless, state regulation of marriage—and the ensuing secularization of marriage that followed—is a historical development that was part of the larger trend toward the expansion and consolidation of state power that began in the late Middle Ages. It was during this period that states gradually came to exercise monopolistic authority over all of society's institutions including the towns, the nobility, and even the monarchies themselves. Also brought under the state's power were the churches and state control of marriage was an important component of this. State control of marriage, that we now consider to be so normal, was simply one aspect of the state building that set the stage for our modern era of nearly untrammeled state power.
Privatized Marriage in the Middle AgesBecause marriages can have such far-reaching effects even for those not directly involved, government officials as well as family members of the betrothed have long sought ways to exercise power over who gets married to whom. The desire to exercise this sort of control can be seen in the negative reaction to changes in the Catholic Church confirmed by Pope Alexander III. In the late twelfth century, Pope Alexander clarified that marriages did not require the approval of government officials—or even church officials—to be valid and legally binding. Rather, a valid marriage required only the consent of both the husband and wife. No other parties possessed a veto.
This necessarily reduced the power of both parents and local government officials in regulating marriage. For example, even in a case in which certain parents were insisting that their son marry a pre-selected woman of the parents' liking, the son could do an end run around the parents by simply marrying someone else without their permission. For those who felt outside pressure to be especially overwhelming, a couple seeking marriage could pursue a "clandestine marriage" potentially conducted entirely without the parents' knowledge and without outside sanctioning or church solemnization at all. These secret unions might incur a temporary ecclesiastical sanction, but this did not invalidate the marriage, and there was nothing the parents or government officials could do to invalidate the union. (Notably, the consent model also limited the church's ability to veto proposed unions or otherwise directly control the formation of marriages.)
This "consent model" of marriage was not exactly acclaimed by Christendom's parents and government officials. After all, Alexander's efforts to make marriage requirements more uniform and accessible interfered with officials and family organizations that had long exercised considerable control over marriage at the local level. Customs varied considerably from place to place, but now the Pope was telling everyone that couples could marry without the consent of others so long as they conformed to a short list of prohibitions designed to avoid incest, polygamy, and other conditions believed to be prohibited by divine law. According to Andrew Finch, in Pope Alexander's view:
Marriages of love were to be promoted at the expense of those of economic convenience or feudal necessity and the church was made to stand as guardian for individual freedom in this area. This was, however, a vision very much at odds with existing notions of parental and feudal authority.1
What resulted was an essentially private system in which marriages could be contracted among individuals with a presumption of validity. Outside adjudication only became necessary when there were disputes over whether or not a marriage was valid or if one of the parties was accused of somehow violating the agreement. This arbitration was done through private, international ecclesiastical courts staffed by church personnel and through which a plaintiff or defendant could appeal to a transnational Pope. This system of law was outside the control of the civil governments courts which were staffed by a temporal king's appointees and allies.
This private adjudication of privately contracted marriages became common as access to ecclesiastical courts became more widespread in the thirteenth century. By the end of the century, they were present in nearly every diocese. Records of lawsuits over the validity and exercise of marriage contracts piled up in many church courts over the following centuries. Finch concludes these records "reveal an institution that was much more a center for dispute resolution than family-inspired repression," and the effect was to further diminish interference from the civil law courts in matters of marriage formation.2
Of course, the king's law courts were still very much involved in what Saskia Lettmaier calls the "mundane legal consequences of marriage, in particular the property and inheritance rights arising from it."3 Such matters, after all were essentially about property and contractual agreements determining ownership. However, "all matters that essentially concerned the existence of the marriage bond, such as formation, impediments, and dissolution were, legislatively and jurisdictionally, within the exclusive competence of the Catholic Church." [emphasis added]4
A Separation of Church Law and State LawThis placed oversight of marriage formation and dissolution within the purview of a rival institution separate from temporal princes and officials, and as such provided an additional check on burgeoning state power as the Middle Ages came to a close. This began to change again during the early modern period, however, as monarchs increasingly asserted their own power over the Church. Moreover, this process was accelerated by the Protestant Reformation.
As early as the fifteenth century, western Europe's monarchs had fought hard to increase taxation on the church and these regimes found they could further limit church influence in their kingdom by prohibiting the appointment of foreigners to ecclesiastical positions. The result was that such offices ended up being filled by personnel with greater personal affinity for local princes instead of to an independent church. During this period, the making and execution of wills was handed over from church officials to civil governments. Moreover, penalties handed down by ecclesiastical courts increasingly required the cooperation of civil officials to be carried out. Some institutions that were ostensibly thought to be church operations became wholly controlled by the monarch, and as Ven Creveld notes, "indeed it has been said that no institution was so completely under royal control as the Spanish Inquisition."5
With the Protestant Reformation in the sixteenth century came rapid moves toward state control of marriage. While much of the fight over church prerogatives had been mere matters of power politics, the Protestant reformers provided supercharged ideological and theological fuel to claims that marriage must be removed from the control of the Pope.
Replacing the Church with the StateIn contrast to the Alexander's individualist notions behind the consent doctrine, "Luther called for [marriage] formation to be a public act, requiring the consent of father, mother, or those standing in loco parentis."6 This was met with approval in Germany where "the requirement of parental consent was almost uniformly accepted in [the] sixteenth century."7 But of course, the Reformers' more philosophical objections against the Catholic hierarchy met with success in other areas as well, and ultimately "the Reformation unequivocally made the temporal ruler, rather than the pope, the ultimate locus of jurisdictional and legislative authority over marriage."8
This, however, created a need for state-controlled legal institutions to replace the now-abandoned church courts under regimes that embraced the Reformation. Lettmaier continues: "Luther's ... wholesale rejection of the canon law ... led to a legal vacuum, which made the creation of a new court system and a new law of marriage a matter of urgency."9 Eventually, state rulers settled on "the establishment of consistories; that is, special courts for matrimonial and other ecclesiastical causes that were part of the state judicial system."10
A similar move toward replacing church courts with state courts occurred in England, but without the radical changes in theology. The English reformation, of course, was marked less by doctrinal change than by political efforts to simply replace the Pope with the English king as the head of the Church. Thus, the ideology of marriage changed little, except to ensure that the monarch retained freedom to act as he wished. The end result was akin to the German situation in that formerly ecclesiastical institutions were now fundamentally under the control of state institutions.
The Secularization of MarriageIn the twenty-first century, marriage is now firmly under the control of state institutions in nearly all jurisdictions. This in itself, however, is insufficient to secularize marriage in the sense that it becomes defined and modified according to secular concerns rather than religious ones. It is theoretically possible, of course, to have state control of marriage while also regulating marriage in line with the sensibilities of a specific religion.
This appears to have been the case in the sixteenth and seventeenth centuries. In neither England nor the German Protestant states did the assertion of state control over marriage immediately lead to the secularization of marriage in which marriage ceased to be seen as a religious institution. Both Protestants and Catholics viewed themselves as the protectors of marriage as a religious and spiritual institutions. In both cases, ideals of marriage remained closely tied to what both sides viewed as holy scripture—albeit with widely differing interpretations. This remained the case even in absolutist and regalist Catholic countries which by the seventeenth century had begun to insist the monarch must have the final say even over religious matters. Thus, the changes that did occur to church law were primarily institutional in nature, changing the nature of authority without changing the religious foundations of marriage.
Secularization did finally occur in the seventeenth and eighteenth centuries with the advent of the so-called Enlightenment. Government elites—especially on the German-speaking Continent—began to abandon Christian ideals altogether and insisted that law be based only on "reason." Lettmaier concludes "[t]his basically eliminated all supra-positive guidelines for (and binding limits on) human marriage legislation."11 This gave state rulers even more freedom to fashion marriage in a way most convenient to them. Secularization of marriage laws finally became widespread in the nineteenth century and marriage policy from then on became whatever policy was viewed as politically prudent, utilitarian, or expedient.
Today, the nature of marriage has been so divorced from its private religious aspects as to be thoroughly malleable in accordance with purely secular legal, political, and legislative considerations. The catalyst for all of this, however, remains with the revolutionary institutional changes that changed marriage from a matter of private agreements within a religious institution into a "public" matter defined and regulated by an increasingly powerful state.
-
- Andrew J. Finch, "Parental Authority and the Problem of Clandestine Marriage in the Later middle Ages," Law and History Review 8, No. 2 (Autumn 1990): 190.
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- Ibid., p. 199.
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- Saskia Lettmaier, "Marriage Law and the Reformation," Law and History Review 35, No. 2 (May 2017): 463.
-
- Ibid.
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- Martin Van Creveld, The Rise and Decline of the State, (Cambridge, UK: Cambridge University Press, 1999) p. 67.
-
- Lettmaier, "Law and the Reformation," p. 484.
-
- Ibid.
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- Ibid., p. 501.
-
- Ibid., p. 477.
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- Ibid., p. 478.
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- Ibid., p. 509.
The yearly growth rate of the Consumer Price Index (CPI) fell to 7.7 percent in October from 8.2 percent in September. Note that in October 2021 the yearly growth rate stood at 6.2 percent. Some experts are of the view that it is quite likely that the momentum of the CPI might have peaked.
picture1.png We suggest that the decline in the yearly growth rate of the CPI is from the sharp decline in the momentum of money supply. The yearly growth rate of our monetary measure for the US stood at almost 80 percent in February last year against 13.5 percent in February this year (see chart).
picture2.png Because of the time lag between changes in money supply and changes in the CPI, it is quite possible that the yearly growth rate of the CPI is poised for a visible decline ahead (see chart). picture3.png If this were to eventuate, then the decline in the yearly growth rate in the CPI raises the likelihood that many commentators will start warning about deflation—i.e., a general decline in the prices and the threat that it is going to pose to the economy.
A general decline in the prices of goods and services is regarded as bad news, since it is associated with major economic slumps such as the Great Depression. In July 1932, during the Great Depression, the yearly growth rate of industrial production stood at –31 percent while by September 1932 the yearly growth rate of the CPI closed at –10.7 percent (see chart).
picture4.png picture5.png Deflation is a major concern to many commentators. When prices fall, it is harder for borrowers to pay down existing debts, leading to growing defaults, while banks become reluctant to extend credit.
Most economists and financial experts regard a general fall in prices as always bad news for it slows down spending, which in turn undermines investment in plant and machinery. These factors, experts claim, lead to an economic slump. Moreover, as the slump further depresses the prices of goods, this intensifies the pace of economic decline.
This is why most economists believe the central bank should prevent deflation. In his November 21, 2002, speech before the National Economists Club entitled “Deflation—Making Sure ‘It’ Doesn’t Happen Here,” Ben Bernanke, then a Fed governor, laid out how the central bank could combat deflation, such as buying longer-maturity Treasury debt.
In a free market, the rising purchasing power of money through declining real prices is the way a great variety of goods become accessible to many people. On this Murray Rothbard wrote:
Improved standards of living come to the public from the fruits of capital investment. Increased productivity tends to lower prices (and costs) and thereby distribute the fruits of free enterprise to all the public, raising the standard of living of all consumers. Forcible propping up of the price level prevents this spread of higher living standards.
Even accepting that declines in prices in response to an increase in the production of goods promote the well-being of individuals, why are declining prices associated with a decline in economic activity? Experts claim this type of deflation is bad and must be opposed.
Why Central Bank Monetary Pumping Makes Things Much WorseThrough loose monetary policy, the central bank creates a class of people who unwittingly become consumers without contributing to the pool of wealth. The consumption by those receiving newly created money comes through the diversion of wealth from wealth producers.
Not only does the easy monetary policy push the prices of existing goods higher but the monetary pumping also gives rise to the production of goods or assets demanded by non–wealth producers. While the pool of wealth grows, goods and services that are patronized by non–wealth producers appear to be profitable. Once the central bank reverses its loose monetary stance, the diversion of wealth from wealth producers to non–wealth producers is arrested.
This, in turn, undermines the demand of non–wealth producers for goods and services, exerting downward pressure on their prices. A tighter monetary stance that undermines activities that sprung from previous loose monetary policy halts the bleeding of wealth generators.
The reduction in prices comes in response to slowing impoverishment of wealth producers, beginning the economic healing. As a rule, however, the central bank tries to stabilize the so-called price index. The “success” of this policy, however, hinges on the state of the pool of wealth. As long as the pool of wealth is expanding, reversing the tighter stance creates the illusion that the loose monetary policy is the right remedy because the loose monetary stance renews the flow of wealth to non–wealth producers, props up their demand for goods and services, halting or even reversing the decline in prices.
Furthermore, since the pool of wealth is still growing the pace of economic growth remains positive. Hence the mistaken belief that a loose monetary stance that reverses a decrease in prices is the key in reviving economic activity. The illusion that monetary pumping keeps the economy going is shattered once the pool of wealth declines. Once this happens, the economy begins its downward plunge. The most aggressive loosening of monetary policy will not reverse this plunge. Even if loose monetary policies were to succeed in lifting prices and inflationary expectations, this could not revive the economy while the pool of wealth is declining.
What Is the Present State of the Pool of Wealth?It is possible to establish qualitatively whether the pool of wealth is still expanding or declining. Now, the Fed for many decades pursued aggressive monetary pumping. This coupled with the reckless fiscal policies of the government has likely inflicted severe damage to the process of wealth generation (see charts).
picture6.png picture7.png In addition, one should consider the impact of the lockdowns due to covid, which resulted in consumption without any support from production. We suggest that all this raises the likelihood that the pool of wealth is declining.
If this is the case, then a weakening in the wealth generation process implies a severe economic slump ahead. This also raises the likelihood that the uptrend in the ten-year Treasury bond’s yield since July 2020 will continue (see chart).
picture8.png Any reduction in the momentum of the CPI is expected to work toward a temporary lowering in the yields. However, the increase in individuals’ time preferences is likely to counter this decline.
A countereffect to the rising time preference may be the upcoming response by Fed officials who embraced former Fed’s chairman Ben Bernanke theory of the financial accelerator—which suggests that various causes such as a sudden decline in economic activity could trigger a widely spread reaction that could lead to a large economic slump. If this were to occur, then it is likely that the Fed will step in with aggressive monetary pumping and lowering of interest rates. Based on our monetary analysis we expect a visible decline in the momentum of economic activity ahead (see chart).
picture9.png Furthermore, a continued deterioration in economic conditions is likely to undermine commercial banks’ inflationary lending. This in turn is going to weaken the yearly growth rate in money supply. A likely decline in the momentum of money supply is going to severely undermine various nonproductive activities. Needless to say that a decline in the pool of wealth accompanied by a sharp decline in money supply is also going to severely undermine equity markets. picture10.png ConclusionContrary to the popular view, deflation is always good news for the economy. When prices decline in response to the expansion of wealth, this means that people’s living standards are rising. Even when prices decline because of the bursting of a financial bubble, which is a product of prior money creation, this also is good economic news, for it indicates that the impoverishment of wealth producers is being stopped.
We suggest there is a growing likelihood that the pool of wealth is declining. This raises the likelihood that the uptrend in the long-term interest rates may stay intact. This also raises the likelihood that the stock markets will remain under pressure.
Language is the perfect instrument of empire.
—Antonio de Nebrija, Bishop of Ávila, 1492
Language is an institution in society. In both its oral and written forms, language functions as a mechanism for communication and as a cognitive tool. But language serves much broader societal and even civilizational functions. Like any institution, it changes and evolves naturally, without design or centralized control. We might analogize this natural linguistic evolution to a “marketplace,” operating like a liberal or laissez-faire economic system. But language is also subject to corruption, to impositions from actors seeking to control or shape speech for their benefit—e.g., kings, clerics, government officials, politicians, journalists, or professors. We might analogize this type of “unnatural,” or imposed, evolution in language to a hampered economy, marked by state intervention in the linguistic “marketplace.” But either way, linguistic evolution is relentless and inescapable.
Examples are manifest. Latin once was spoken across the sweep of the Roman Empire, beginning seven centuries before Christ—imposed (or at least introduced by soldiers) over hundreds of local vernaculars as a by-product of conquest. Today, at least in the view of Pope Francis, Latin is a “dead language.” Germanic tribes spoke Old English in the fifth to twelfth centuries, only to be replaced by Middle English across most of today’s United Kingdom beginning in the thirteenth century. The modern English of Shakespeare and the King James Bible then became the language of the Anglosphere. And the process continues, as late modern usages like “betwixt” or “wherefore” would sound odd in conversations today.
Again, language evolves through both natural and “unnatural” (corrupted or imposed) processes. How and why both happen is exceedingly complex and multifaceted, and beyond the scope of this essay. Changes in language over time and across geography reflect phenomena as diverse as oral traditions, family and tribal life, in-group and peer conformity, war, conquest and colonialism, migration, trade and travel, education, religious and clerical practices, the development and spread of printing presses, and more recently, modern telecommunications and digital technology. In today’s internet age, the speed of changes and new usages across geography is evident. Along the way, changes reflect both natural evolution and interventions by authorities in the form of royalty, government officials, clergy, clerisy, media, academia, tech overlords, and elites of all stripes.
The question of evolution versus corruption, of natural versus unnatural changes in language, has important insights for modern society far beyond linguistics. Politics, for example, is where linguistic corruption operates most openly and visibly. Political language is used to persuade and inspire—or to a political cynic, to inflame outrage, demonize opponents, and solicit votes or donations. Words and phrases are overused or misused to the point they become meaningless, or even radically redefined (in practice) to mean their opposite. Speech is weaponized, while “linguistic kill shots” are employed to shut down debate and shift focus to a politician’s personal identity rather than issues.
Economics is not immune from corruption in language. In economic science, speech serves as a variety of action. Thus we can study language in the context of praxeology, with attendant characteristics like scarcity, economizing, and trade. We would like to perceive language as an expression of spontaneous order, “the result of human action, but not the execution of any human design.” But economists too, especially those writing for lay audiences or social media, like to use language designed to obscure or persuade rather than inform. Among central bankers, for example, we see “word inflation” happening alongside monetary inflation. Thus we endured the legendary wordiness and opacity of the Maestro Alan Greenspan: “I’m trying to think of a way to answer that question by putting more words into fewer ideas than I usually do.”
Furthermore, public choice theory suggests our understanding of “consent” (in the linguistic, conceptual sense) is badly served through expressions of democratic majorities, even by large supermajorities. The perceived public interest, an important but often unstated goal underlying much of our political rhetoric, is simply an unknowable aggregate of voters’ multitudinous self-interests. As such, “public interest” becomes jargon to be abused by politicians, economists, or bankers to further a goal other than truth.
This essay briefly considers the modern corruption of language in the sphere of political economy and media. Even five years ago, the top-down or centralized force operating to corrupt the language of politics and economics could have been broadly termed “political correctness” (PC). Today the term is obsolete, another example of the rapid (unnatural) evolution of usage in Western society. PC referred more narrowly to acceptable speech, whereas today’s linguistic enforcers seek to impose a whole new mindset, attitude, and way of thinking. Thus, PC has been replaced by an even broader and more amorphous term, “woke.” Woke, whether a slur or not, may be used very broadly to represent strident left progressive beliefs regarding race, sex, sexuality, equality, climate change, and the like. Woke demands ever-changing language, and constantly creates new words while eliminating old ones. As a result, “cancellation,” deplatforming, and loss of employment or standing all loom large, giving pause to speakers and writers, who must consider a new woke orthodoxy.
Orwell's Meaningless WordsGeorge Orwell’s famous 1946 essay “Politics and the English Language” is perhaps the single best modern summary of the corruption of language for political ends (although primarily a style and usage guide for writers). Ironically, Orwell himself sought to turn “political writing” into an art, evincing his own desire to shape language for ideological purposes. Note too that the Englishman Orwell wrote this essay not long after the end of World War II, during which time he had worked as a broadcaster for BBC’s Eastern Service creating British propaganda for India to counter Nazi propaganda. So even before his famous political novels Animal Farm and Nineteen Eighty-Four, Orwell was quite familiar with the politicization of language. Politically corrupted language frequently veers into outright propaganda.
Orwell attacks “meaningless words” as a form of corrupted language which is not only intended to obscure the accepted meanings of words, but to actively pervert them in “consciously dishonest ways.” As such, meaningless words become weapons in political combat:
Many political words are similarly abused. The word Fascism has now no meaning except in so far as it signifies “something not desirable.” The words democracy, socialism, freedom, patriotic, realistic, justice, have each of them several different meanings which cannot be reconciled with one another. In the case of a word like democracy, not only is there no agreed definition, but the attempt to make one is resisted from all sides. It is almost universally felt that when we call a country democratic we are praising it: consequently the defenders of every kind of régime claim that it is a democracy, and fear that they might have to stop using that word if it were tied down to any one meaning. Words of this kind are often used in a consciously dishonest way. That is, the person who uses them has his own private definition, but allows his hearer to think he means something quite different. Statements like Marshal Pétain was a true patriot, The Soviet press is the freest in the world, The Catholic Church is opposed to persecution, are almost always made with intent to deceive. Other words used in variable meanings, in most cases more or less dishonestly, are: class, totalitarian, science, progressive, reactionary, bourgeois, equality.
Surely Orwell was particularly prescient with respect to “fascism” and “democracy,” both of which are wildly overused particularly in Western political discourse today. Former US president Donald Trump regularly was termed a fascist (i.e., something not desirable) by the American commentariat, perhaps more than any modern president. And what made him so undesirable? He was a threat to democracy, of course. And by democracy, the commentariat meant “voters approving the kind of government and the kind of president we advocate.”
“Fascism,” despite its different manifestations in the twentieth century, is not simply an amorphous word for bad or oppressive government. Its fundamental elements include an authoritarian or unchecked individual ruler, suppressions of political and press freedoms, and a melding of corporate and state power in service of that ruler’s ambitions. All of these elements could be ascribed to any modern US president without too much hyperbole, or to none at all. But the relentless campaign to label Trump as uniquely fascist or even a “Nazi” was unprecedented and based almost entirely on his abrasive personal style rather than his action. Because political and media elites held such deep contempt for Trump as a populist outsider—the wrong kind of person—they did not hesitate to corrupt and wildly abuse a term normally associated with Hitler’s atrocities. “Fascism” has become one of Orwell’s meaningless words.
Similarly, a very peculiar “democracy” has become a weaponized shibboleth for political progressives. On the heels of Trump’s 2016 electoral victory, the Washington Post breathlessly and ominously added a new slogan to its masthead, “Democracy Dies in Darkness.” The implication was not subtle: democracy exists when the right candidate wins, in this case Hillary Clinton. She was destined to win, destined to become the first female US president, and destined to lead the inexorably progressive American future—a future unburdened by the Deplorables who supported Trump. And yet something went terribly, terribly wrong on that election night in 2016. The wrong candidate won, and so democracy … dies? Suddenly the Electoral College, a mechanism purposely built into the US Constitution as a compromise between election of a president by Congress and by popular vote, was an unconscionable evil. Trump’s victory was due solely to this antiquated and antidemocratic system, not to mention election interference by the Russians! The endless references to democracy as a sacred part of American politics, a holy rite defiled by Trump’s victory, were a remarkable example of the naked corruption of political language in service of a narrative.
The UK press and political classes reacted much the same with respect to the Brexit vote, bemoaning the “threat to democracy” posed by those who even dared hold such a referendum. When “Leave” carried the day, to the shock of pollsters and pundits, they declared something surely must be wrong with British democracy! Never mind the very high turnout (more than 72 percent of registered voters) and comfortable 3 percent margin of victory—over one million votes. British journalists (not to mention the absolutely bewildered European media) simply could not believe the result. Concentrated in London, which voted heavily against Brexit, many scribes knew almost nobody who voted to leave—just as millions of US progressives in blue cities seemingly did not know even one of the sixty-two million Trump voters in 2016.
Because Little Englanders were an afterthought for Remainers, and because the deep divide between young, urban voters and old, rural voters was so stark, the psychological shock of the result demanded an explanation. And this shock required a coping mechanism, since democracy per se can never be blamed (or blameworthy). Thus, there was a rush to label Brexit “antidemocratic” and blame shadowy tech influences for the outcome. It simply was not possible that a clear majority of Britons wanted out of the EU and voted fair and square to leave; something more sinister must be afoot. So rather than scapegoat democracy itself, and despite plainly losing a legitimate popular referendum to the Leave forces, politicians and media chose to double down and use language in consciously dishonest ways.
Orwell’s reference to “equality” as a meaningless word is another example of his canny foreshadowing of a future trend. Orwell lists it among words “used in variable meanings, in most cases more or less dishonestly.” It is precisely this corrupting dishonesty that weaponizes a word like “equality” away from its plain or widely accepted meaning. In the West, at least, the term means “the status of being equal” with respect to status, rights, and opportunities. This implies fair and equal treatment under law, and the right to pursue opportunities regardless of personal characteristics or the circumstances of one’s birth. But equality does not imply any guarantee of happiness or outcomes or a certain level of material wealth. It also does not imply a political solution to life’s unfairness, with respect to intelligence, looks, talent, or simple good fortune.
This is precisely why politicians have seized upon the word “equity” as a pivot to reanimate what they see as a stalled strategy for their redistributionist goals. An old, tired word is tossed out for a fresh new variant, with the meaning twisted to serve a new political shibboleth.
Both “equality” and “equity” share the Latin root “aequus,” meaning fair, even, or equal. Merriam-Webster’s dictionary still defines equity the old-fashioned way, as “fairness or justice in the way people are treated.” But in today’s politics “equity” is a loaded word, so full of ideological connotations as to render its common definition obsolete. Consider its generous use by US vice president Kamala Harris, who made equity a cornerstone of her 2020 campaign. “There is a big difference,” she informs us, “between equality and equity.” In Harris’s telling, equity gives people from different backgrounds the “resources and support they need” to “compete on equal footing.” As a result, “equitable treatment means we all end up at the same place” (italics added).
Equity, then, is reimagined and redefined as a euphemism for equal outcomes—a significant shift from the suddenly outdated concepts of opportunity and fairness. Again, in the political reformulation of words one meaning is lost and a new one is imposed. Therefore, we are subjected to press releases from the Biden/Harris administration with grand pronunciations:
Today, President Biden signed an Executive Order on the White House Initiative on Advancing Educational Equity, Excellence, and Economic Opportunity for Black Americans. This is just the latest action taken by President Biden and Vice President Harris to tackle systemic racism and make investments to rebuild our economy and our social safety net so all people, including Black Americans, can thrive. Already, the Administration has delivered generation-defining outcomes for Black Americans (italics added). The Heritage Foundation explains this subtle but profound shift in usage from equality to equity in the Biden administration order:
“Equity,” by the way, appears 21 times, while that old American mainstay of “equality” doesn’t even make a cameo. And there lies an important rub.
Equity has now come to mean the functional opposite of equality. The latter means equal treatment to all citizens, such as the Constitution calls for in the clause of the 14th Amendment that deals with equal protection of laws. Equity means treating Americans unequally to ensure that outcomes are equalized—the old tried (and failed) Marxian standard.
The order defines the term equity, but it isn’t forthright about whether it’s equality of opportunity or outcomes. It says “ ‘equity’ means the consistent and systematic fair, just and impartial treatment of all individuals.” Thus, everything turns on how administrators interpret the meaning of “fair” and “just.”
It will likely be a “woke” interpretation, considering the definition’s exhaustive inclusion of every victim category under the sun (“underserved communities that have been denied such treatment, such as black, Latino and Indigenous and Native American persons, Asian-Americans and Pacific Islanders and other persons of color”). This usual list even includes “persons who live in rural areas”—a nod, one supposes, to the left’s new awareness of its vulnerability there. Vice President Kamala Harris was much more forthcoming and honest when she tweeted this on November 1: “Equality suggests, ‘Everyone should get the same amount.’ The problem with that, not everybody’s starting out from the same place. So, if we’re all getting the same amount, but you started out back there and I started out over here, we could get the same amount, but you’re still going to be that far back behind me.”
To understand the shift from equality to equity as an operative political phrase, we need look no further than the agenda being advanced. Kamala Harris seeks to redefine and amplify equity conceptually as part of a concerted effort to effect change in society through diction. Speech becomes political action. Equity is simply a recent and poignant example of how a plain, ordinary word becomes corrupted into one of Orwell’s meaningless words and then repurposed. It is now laden with the weight of a distinctly political agenda. As with Orwell’s barnyard animals, we are all equitable now—but some among us are more equitable than others.
Hayek's MirageWhile Orwell so thoroughly explained how words are stripped of meaning and implicitly redefined, economist and political theorist Friedrich Hayek’s understanding of language helped explain the more explicit and outright commandeering of language we face today. Like Orwell, Hayek was prescient about the corruption of language to serve political ends— and in fact foretold what would become the modern political orthodoxy termed “social justice.”
In the second installment of Hayek’s three-volume book Law, Legislation, and Liberty, he presents social justice as a concept so amorphous, and so fraught with peril for any legal system (i.e., a system at least ostensibly charged with producing civil and criminal justice), that its adoption as a goal for society necessarily misdirects even the most well-meaning goals. Social justice perverts an individualized legal concept into a politicized, amorphous, and wholly collective social concept. As such, it necessarily threatens freedom for individuals and perverts the law:
The classical demand is that the state ought to treat all people equally in spite of the fact that they are very unequal. You can’t deduce from this that because people are unequal you ought to treat them unequally in order to make them equal. And that’s what social justice amounts to. It’s a demand that the state should treat people differently in order to place them in the same position…. To make people equal a goal of governmental policy would force government to treat people very unequally indeed.
Hayek’s conception of social justice centers primarily around the material or economic distribution of wealth, termed “distributive justice.” In his critique, any notion of distributive justice makes sense only within a context of centrally planned distribution of economic goods. In a market economy, by contrast, there is no process of distribution separate from production. But even the most well-meaning central planners, Hayek contends, cannot produce a socially “just” distribution of material goods.
Today’s social justice movement, by contrast, (perhaps) focuses less on wealth and more on identity (race, sex, sexuality, gender, disability) and perceived ill treatment of marginalized groups. But in both cases the undefinable and unattainable goal of achieving social justice relies on state action. The term is used expressly to promote political measures, or as Hayek puts it, for the “conquest of public imagination”:
The appeal to “social justice” has nevertheless by now become the most widely used and most effective argument in political discussion. Almost every claim for government action on behalf of particular groups is advanced in its name, and if it can be made to appear that a certain measure is demanded by “social justice,” opposition to it will rapidly weaken. People may dispute whether or not the particular measure is required by “social justice.” But that this is the standard which ought to guide political action, and that the expression has a definite meaning, is hardly ever questioned. In consequence, there are today probably no political movements or politicians who do not readily appeal to “social justice” in support of the particular measures which they advocate.
It also can scarcely be denied that the demand for “social justice” has already in a great measure transformed the social order and is continuing to transform it in a direction which those who called for it never foresaw. Though the phrase has undoubtedly helped occasionally to make the law more equal for all, whether the demand for justice in distribution has in any sense made society juster or reduced discontent must remain doubtful.
The expression of course described from the beginning is the aspirations which were at the heart of socialism.
Social justice, an all-encompassing concept which is both undefinable and unattainable, nevertheless is the animating feature of political rhetoric in 2022. Its ever-changing lexicon presents words as empty vessels to be filled with the latest political meaning, moving from jargon into outright propaganda. Words are stripped of meaning and redefined, but subtly and using subterfuge. By contrast, today’s social justice movement encourages the overt, active redefinition of words.
Consider the simple but loaded term “racism,” which in common parlance meant hatred for a particular race or an irrational belief in the inherent superiority or inferiority of a particular race. Just two years ago, Merriam-Webster’s dictionary reflected this widely held view:
a belief that race is the primary determinant of human traits and capacities and that racial differences produce an inherent superiority of a particular race.
a: doctrine or political program based on the assumption of racism and designed to execute its principles
b: a political or social system founded on racism, racial prejudice or discrimination.
But in the wake of Black Lives Matter protests across America following the killing of George Floyd by police in Minneapolis, Minnesota, Merriam-Webster’s editors bowed to pressure from activists to change the entry to insert an overtly political additional definition:
the systemic oppression of a racial group to the social, economic, and political advantage of another.
Not content to stop there, the US Anti-Defamation League goes a step further in its new definition of racism and gets to the heart of things by naming the oppressors:
the marginalization and/or oppression of people of color based on a socially constructed racial hierarchy that privileges White people.
Thus, with a few short words an entirely new edifice is constructed: racism is “systemic” and inescapable. One group executes and perpetuates racial oppression; its members cannot be above it or immune to it. All are guilty and in need of corrective action. Racism no longer is manifest as harmful actions or even harmful thoughts, but, instead, represents a wholesale social, economic, and political reality. Our entire society is rooted in racial hierarchy, a construct which benefits whites only and must be rooted out through an active political program. This starts with an outright redefinition of racism, down to the dictionary level as taught to schoolchildren. There is no pretense of natural evolution of language, but rather an insistence that words and definitions must change to satisfy our new enlightened understanding. Anyone who objects, or notices how the new definition tends to benefit one political party or movement, clearly stands in the way of racial progress through their unwillingness to accede to the new linguistic tools of antioppression; never mind if only a small minority demanded or agreed to the change.
This is Hayek’s unattainable mirage in action: social justice is achieved through antiracism, which requires new thinking and new words. Racism, once a sin of the individual heart, is repositioned as inherent and omnipresent in our society—addressable only by political programs. Corruption of language is part of the agenda.
Even beyond radical redefinitions, social justice requires brand-new words to express brand-new concepts—and to break with the “old,” oppressive language of two years ago. The transgender movement stands out for its rapid success in creating entirely new words which are quickly added to our vocabulary. Among the most widely used is “cisgender,” an amalgamation of the Latin prefix “cis-”— derived as “on this side of”—and “gender,” a term which until the last few decades was used mostly in the context of grammar. Merriam-Webster’s dictionary added this brand-new word only in 2017. But even “transgender” is a fairly new term, replacing the older “transsexual” in the 1970s. Transgender people, in keeping with their prefix, cross over and go beyond their assigned birth sex in a variety of ways. Cisgender people, by contrast, stay on their side of the sexual aisle, so to speak—remaining identified with their assigned genitalia and chromosomes. Embedded in cisgender is the implication that those who do not consider changing genders are making a conscious choice to remain as they are, which in turn implies one’s sex is chosen rather than biologically determined. Thus cisgender represents an important conceptual shift: those identifying with their birth sex, an overwhelming statistical majority, now have a specific label for their identification to match the older trans identification. “Cis” is no longer an assumed default status with no need of explanation or nomenclature. And while trans activists surely cheer this, theirs has been a concerted effort to change language for political ends rather than any natural evolution.
This phenomenon is even more pronounced with trans pronouns and acronyms, where terminology changes are imposed so quickly that they almost seem to be aimed at demoralization of the benighted older generations. “LGBT,” for example, is now “LGBTQQIP2SAA”: lesbian, gay, bisexual, transgender, questioning, queer, intersex, pansexual, twospirit (2S), androgynous, and asexual. With new letters, new genders, and new sexualities added to the trans vocabulary frequently, the effect is disorienting even as presented by proponents of simple equality and fairness in language:
Some languages, such as English, do not have a gender neutral or third gender pronoun available, and this has been criticized, since in many instances, writers, speakers, etc. use “he/his” when referring to a generic individual in the third person. Also, the dichotomy of “he and she” in English does not leave room for other gender identities, which is a source of frustration to the transgender and gender queer communities.
This push to remake English grammar in service of the trans movement produces a dizzying array of new pronouns:
list.png Along with pronouns, a host of new and quite precise nouns is required to distinguish the flowering of newly recognized sexualities:
aromantic, alloromantic, agender, asexual, sex-repulsed, cupiosexual, greysexual, greyromantic, omnisexual, demiboy, demigirl, transfeminine, transmasculine, bigender, allosexual, heteronormative, amatonormative, polysexual, pangender, compulsory heterosexuality, abrosexual, gender nonconforming, ceterosexual, demiromantic, biromantic, autosexual, heterosexual, gay, lesbian, queer, LGBTQ+, bisexual, and pansexual.The point here is not to mock or shake our heads at these unfamiliar words, but rather to understand the new trans lexicon as an overtly political imposition of language. Even the most ardent trans advocate does not really expect average people to adopt and keep up with all the new terms; they are weapons wielded to demand respect for and acquiescence to the new sexual landscape. Writers and speakers, especially older people, who fumble with the bewildering new rules can be attacked as misgendering or disrespecting trans people. The goal of the new language is not better communication or greater understanding, but to impose a new way of thinking about our most basic human biology and identity. On the linguistic end of this campaign, at least, English speakers were never asked if they agreed to this.
If Hayek was correct about the mirage of social justice, a top-down imposed attempt at linguistic justice is equally fraught with peril. Hayek imagined economics, like language, as a cosmos—ordering itself and changing over time but not deliberately designed by humans. It is a self-ordering system. The drive toward taxis, or organized arrangement, comes from agencies or people outside the linguistic order— exogenous and imposed. Social justice language is a clear example of the latter. By corrupting language, it attempts to create a mirage of justice which is undefinable, unattainable, and ultimately cynical in its (real) goal of political control.
Woke CEOs and Central BankersThe imposition or corruption of language for political gain certainly is not limited to the traditionally left-wing arenas of academia or think tanks or social justice organizations, however. In 2022 the use of woke language, in service of unquestioned progressive goals (diversity, inclusion, equity, social justice, fighting climate change, etc.), is fully embraced even by the historically conservative worlds of big corporations and banking. And this embrace goes beyond lip service to causes or platitudes in press releases by expressly reshaping the policies pursued by those companies and banks.
Many of the largest tech and retail companies in the world, for example, publicly supported the Black Lives Matter movement and pledged billions in funding to its cause. With this support comes vague and open-ended language, as with this missive from the Walmart CEO to employees concerning a new center for racial equity being created by the retail giant:
We will seek to advance economic opportunity and healthier living, including issues surrounding the social determinants of health, strengthening workforce development and related educational systems, and support criminal justice reform with an emphasis on examining barriers to opportunity faced by those exiting the system.
Two questions arise: First, is the job of Walmart to sell retail goods for a profit or to cure racial injustice in the world? Second, why has the company departed from any time-honored definition of racism? Why create a “center” with goals unrelated to its core business? Surely the best way for Walmart to combat racism in society is to hire and promote blacks or enrich black owners of its stock through higher profits. Why does Walmart, one of the biggest and most politically powerful corporations on the planet, rush to embrace the wildly overbroad language of systemic racism and sinister “barriers to opportunity”? The true barrier for most is poverty, which is far better addressed by economic opportunity—like a job at Walmart—than kowtowing to the linguistic demands of social justice.
One woman’s clothing company called “Spanx,” whose decidedly unwoke business model (like the girdle manufacturers of yesteryear) centers around making its wearers appear slimmer, trots out several buzzwords in this social media post:
Today, we’re using our social platforms to reiterate that we are committed to being a better ally to fight systemic racism. We will actively practice anti-racism through awareness and education, self-introspection and action.
This use of “systemic” effectively eliminates any possibility that a member of an oppressor group might not be racist as an individual, because racism is all around us as a system— like the proverbial goldfish, we are swimming in it yet not even aware of the water. This implies or even demands an obligation for everyone, regardless of one’s own personal lack of racist prejudice, to combat the problem. “Ally” is code for a progressive in good standing, a member of the oppressor identity class who at least holds the correct left-wing views and conforms to the current linguistic vogue. “Anti-racism” likewise requires the active participation of all, at the very least to become educated and aware (unlearn and recognize our problematic views) and then act. Merely not being racist, or not acting racist, is not enough under the new language surrounding race. The imposed words contain their own admonitions and exhortations.
Of course, big corporations have an economic interest in being seen as socially conscious from a publicity perspective, as it presumably helps their bottom-line profitability in the long run. The old adage “do well by doing good” certainly is at work here. But something profound has shifted, especially among the younger corporate workforce that tends to dominate marketing departments and run social media accounts. Younger workers are so steeped in the progressive worldview they no longer see blatantly political corruptions of language as political at all—caring about climate change, for example, is simply what a good person does. Those who don’t care, or worse yet challenge the orthodoxy of climate change politics, are simply retrograde and beyond redemption. Likewise, anyone who might deny the loaded and quite political assertion that America is a deeply racist country, uniquely born out of subjugation, is utterly incomprehensible, and clearly a bad person. Climate “deniers” (likening them to Holocaust deniers) and racists are not wanted as customers. They can buy their groceries and shapewear bodysuits somewhere else.
Central bankers too, like their corporate counterparts, have immersed themselves in the new top-down language of the progressive imposers. This may seem unlikely. Monetary policy for decades was that most staid and inscrutable corner of economics, a boring specialty even among the most wonkish professional economists. Former Federal Reserve chairman Alan Greenspan, nicknamed “the Undertaker” for his reserved demeanor by novelist Ayn Rand during his time in her social circles, was the old archetype of a central banker. He was infamous for his opaque “Fedspeak” at public hearings, uttering lots of dense words but essentially saying nothing (market players hung on his every pronouncement and he wanted to avoid misinterpretation). His boring appearances and testimony during the 1990s, always technical and dry, suggested anything but progressive or politicized ambitions for monetary policy.
The Fed, after all, has a purely economic function: to promote a strong US economy through its control over the dollar and domestic monetary policy. Its dual mandate from Congress is to foster economic conditions that achieve both stable prices and maximum sustainable employment. We are reminded constantly about its vaunted nonpolitical and nonpartisan independence, which requires its governors to act without regard to politics or outside influence.
Yet today’s central bankers, including and especially those at the US Fed, cannot escape the demands of progressive language czars. The Fed may be independent of presidents and Congress, but it is not at all immune from the broader political, social, and cultural pressure to advance an allegedly egalitarian agenda. That environment has a new vocabulary, one that central bankers are readily adopting.
Consider this recent announcement from the US central bank:
tweet.png Here we see a host of undefined and undefinable buzzwords relating to the (assumed, undefined) problem of economic inequality between the sexes in the US economy. “Gender” substitutes for the more definable “sex,” even though the real thrust of the conference is to address issues relating to women. And the laughably vague “evidence-based strategies” implies alternatives like “wishful strategies” or “unproven strategies.” “Inclusive,” an overused shibboleth word among woke cognoscenti, is here used to mean “more inclusive for women,” which excludes half of the population. This is an overtly political conference, held to further feminist concerns rather than monetary policy concerns.
One panel of American academics at the 2019 European Central Bank (ECB) conference for central bankers considered the question of gender (sex) in economics seminars—again applying a feminist lens to their role in banking:
Gender and the Dynamics of Economics Seminars
A distinctively aggressive culture pervades the seminars at which economists present their work. This study codes the interactions between speakers and their audiences at several hundred seminars and shows that women speakers have a greater share of their seminar time taken up by audience members and are more likely to be asked questions that are considered hostile.
Another highly politicized issue, namely climate change, is also now part and parcel of central bank messaging campaigns. The supposed risks of unchecked carbon emissions and rising temperatures—two areas where Wharton and Harvard finance PhDs might not be expected to possess expertise—are now part of the “nonmonetary policy steps” central banks around the world must consider:
While governments are in the driving seat when it comes to climate policies, within our mandates we as central bankers and supervisors have a key role to play. Let me be clear: we are acting in the pursuit of, not in spite of, our mandates. This is our duty, not an option.
And this new role comes with new pious language:
The growth of sustainable finance (the integration of environmental, social, and governance criteria into investment decisions) across all asset classes shows the increasing importance that investors attribute to climate change, among other nonfinancial considerations…. Sustainable finance can contribute to climate change mitigation by providing incentives for firms to adopt less carbon-intensive technologies and specifically financing the development of new technologies. Channels through which investors can achieve this goal include engaging with company management, advocating for low-carbon strategies as investor activists, and lending to firms that are leading in regard to sustainability. All these actions send price signals, directly and indirectly, in the allocation of capital.
What, exactly, is “sustainable” finance in this context? Does it mean business practices and corporate governance that will allow the planet to remain habitable another one hundred, one thousand, ten thousand years? And what does “less carbon-intensive” mean for billions of shivering or sweltering or starving or simply fossil fuel reliant denizens of the planet right now? More importantly, how did environmentalism become part of a central bank’s mandate? These departures from traditional monetary concerns at the expense of the economy have not gone unnoticed, even by former US Treasury secretary and onetime Harvard University president Lawrence Summers:
“We have a generation of central bankers who are defining themselves by their wokeness,” Summers, who is now a professor at Harvard University, said on Wednesday. “They’re defining themselves by how socially concerned they are.… We’re in more danger than we’ve been during my career of losing control of inflation in the U.S.”
The shift in language among central bankers mirrors their shift in focus, from purely economic and monetary matters into openly political movements. Central bankers, in keeping with the movements they embrace, have adopted the nomenclature (and agenda) of the woke.
Why Corrupted Language MattersAcross the West we are bombarded by what author Ken Smith called “junk English”:
Junk English is much more than sloppy grammar. It is a hash of human frailties and cultural license: spurning the language of the educated yet spawning its own pretentious words and phrases, favoring appearance over substance, broadness over precision, and loudness above all. It is sometimes innocent, sometimes lazy, sometimes well intended.
Corrupted language, in fact, is rarely innocent or well intended. It is frequently pretentious and takes unearned license. It feigns academic pretense, even when at its most base level of jingoism. It is loud, demanding, and has a very simple and obvious purpose: to achieve ideological or political ends. Corrupted language often veers into propaganda.
How and why language changes over time is enormously complex and obviously well beyond the scope of any essay. But when change is imposed by design, in furtherance of an agenda, we should strive to recognize it—regardless of whether we agree with that agenda. We should study and understand the distinction between the natural evolution of language over time and the imposition of politicized diction or usage through coordinated and intentional efforts.
Social scientists of all disciplines, not just linguists, should care about the corruption of language since it shapes our understanding of all human interactions. It is an important subject for interdisciplinary study, and could yield new knowledge in economics, political science, sociology, law, and philosophy. Laypeople similarly should care about the corruption of language to better understand its role in political manipulation.
In economics, particularly the Austrian school, language is an important subfield of praxeology and “not simply a collection of phonetic signs.” Thus it represents “an instrument of thinking and acting,” as Ludwig von Mises termed it. Language is an important component of an individual’s means-ends reasoning, important in Austrian methodology. Economic axioms and logical deductions made from them require precision and agreement in language. And we can see a parallel between imposed language and economic interventionism, versus evolved language and laissez-faire policies. Hayek posits that markets are spontaneous and evolve, requiring no bureaucracy or elite central planners. Economists would benefit from considering a similar conception of planned versus spontaneous language.
Philosophy surely ought to demand precise language, particularly in epistemology. Justifications for knowledge claims rely on truth, evidence, and belief. These concepts in turn require common language to express and define them. We might think of words and phrases in philosophy like units of measurement or force in the physical sciences. An inch is an inch, a gallon is a gallon, gravity is gravity—but as we have seen, “democracy,” “justice,” and “equity” are far less precise. Relatively static definitions and meanings, which evolve only slowly over time, give coherence to philosophy.
In law, the question of evolution versus corruption is akin to the differences between common law and positive (statutory, legislative) law. Law, like language, has a process. Common law develops from a natural evolutionary process—rooted in custom, tradition, and notions of fairness, while bound up with local and temporal attributes. Historically, legal justice is specific and individualized, not general and societal. Positive law, by contrast, is designed by a central authority. It can change radically and dramatically overnight; a new law can be imposed immediately and result in very different forms of justice than previously obtained. For lawmakers, judges, and lawyers, words are the brick and mortar of their profession. And just as “justice” itself has become one of Orwell’s meaningless words, our entire legal system and legal doctrines rely on potentially corrupted language.
Even mathematics, that most objective science with its own numerical and symbolic language, cannot be explained conceptually without using words. And we should not imagine that imposed language is only a phenomenon in more left-leaning social sciences and academic departments as opposed to physical sciences and math.
Ultimately, imposed language attempts to control our actions. When we broadly consider politically correct or woke worldviews—i.e., an activist mindset concerned with promoting amorphous social justice—the linguistic element is straightforward:
Political correctness is the conscious, designed manipulation of language intended to change the way people speak, write, think, feel, and act, in furtherance of an agenda.
Words are just a means to an end, the end being actual changes in how we live our lives. Those changes flow first from our thoughts (and even how we formulate our thoughts), then to our issued words (spoken or written), and ultimately to our actions. The examples provided in this essay make this clear; there is no clear dividing line between language and action, between our thoughts, words, and acts. All are interrelated, and those seeking to impose language understand this.
Who owns and controls language? Ideally, governments, politicians, academics, think tanks, journalists, religious leaders, or elite institutions should not possess this tremendous power. Like market processes, language should evolve without centralized design or control. Only this natural evolution, across time and geography, can reveal the preferences of actual language speakers in any society. Evolution is just; evolution is efficient. But language is an institution, and like any institution, it is subject to corruption and even capture by those with political agendas. This essay urges greater awareness and understanding of the distinction between evolution and corruption, between spontaneous linguistic changes and the imposition of language to serve an agenda.
Originally published as “Evolution or Corruption? The Imposition of Political Language in the West Today,” in “Political Correctness,” ed. Roberta Adelaide Modugno, special issue, Etica e politica / Ethics and Politics 24, no. 2 (2022): 57–74.
Biden wants to roll out yet another "assault" weapons ban. Supporters claim it will reduce crime, but it will do no such thing.
Original Article: "Bans on "Assault" Weapons Do Not Reduce Crime"
This Audio Mises Wire is generously sponsored by Christopher Condon.
By now it should be perfectly clear that the most prominent Big Digital companies are not strictly private, for-profit companies. As I argued in Google Archipelago, they are also state apparatuses, or governmentalities, undertaking state functions, including censorship, propaganda, and surveillance.
Katherine Boyle, “a general partner at Andreessen Horowitz where she invests in companies that promote American dynamism, including national security, aerospace and defense, public safety, housing, education, and industrials,” has suggested that tech “startups have begun usurping the responsibilities of governments at breathtaking pace.” If this wasn’t already obvious, The Intercept’s recent revelations that US government officials have access to a special portal through which they can directly flag Facebook and Instagram posts and request that the posts be “throttled or suppressed” should put the question to rest.
More revelations about Big Tech–government collusion, specifically on Twitter, were promised by Elon Musk. Until Musk’s takeover, and perhaps even since, Twitter has operated as an instrument of the uniparty-run state, squelching whatever the regime deems “misinformation” and “disinformation” about any number of issues—international policy and warfare, economics and recession, pandemics and vaccines, politics and elections, the goals of the global elites, climate change catastrophism, and the Great Reset that is being ushered in as we speak.
The State’s Birthing of Big Tech According to a recent article in the American Conservative by Wells King, the research director at the conservative economics think tank American Compass, none of this should come as a surprise. Silicon Valley, the author maintains, was from the start the spawn of big government funding. As the author sees it, only those who adhere to “market fundamentalism” can maintain that such “innovation, progress, and growth are the product of government’s absence.” In particular, King asserts:
Silicon Valley was the product of aggressive public policy. The key technologies of our digital age were not the happy accidents of “permissionless innovation” in the “self-regulating” market, but of deliberate and prolonged government action.
King argues that the Advanced Research Projects Agency (ARPA), which in 1972 became the Defense Advanced Research Projects Agency (DARPA), funded and directed the development of everything from integrated circuits to silicon transistors to the protocols for networked computing. The primary customer was the Pentagon.
More recently, as I have argued, both Google and Facebook received start-up capital—directly or indirectly—from US intelligence agencies. In the case of Facebook, the startup capital came through Palantir, Accel Partners, and Greylock Partners. These funding sources either received their funding from or were heavily involved in In-Q-Tel, the CIA’s own private sector venture capital investment firm.
In 1999, the CIA created In-Q-Tel to fund promising start-ups that might create technologies useful for intelligence agencies. As St. Paul Research analyst Jody Chudley notes, In-Q-Tel funded Palantir, Peter Thiel’s startup firm, around 2004. Planitir subsequently funded Facebook. As independent journalist and former VICE reporter Nafeez Ahmed has detailed at great length, Google’s connections with the intelligence community and military run deep. Ahmed shows that relationships with DARPA officials yielded start-up funding and that direct funding from the intelligence community (IC) followed. The IC saw the internet’s unprecedented potential for data collection, and the upstart search engine venture represented a key to gathering it.
Did the Government Create the Internet? Writing for the Foundation for Economic Education, Andrew P. Morriss tells a different story about the internet. As Morriss sees it, the internet bears little resemblance to the ARPA-funded ARPANET. The internet, he suggests, is the result of spontaneous order, not top-down bureaucratic administration. Although time-sharing and private packet switching were indeed developed through Department of Defense funding and supervision, Morriss argues that the government impeded research and development by crowding out private activity. “Regulatory barriers to entry, not a lack of entrepreneurial activity, slowed the efforts to build private networks.” The private network, USENET, he argues, is the real progenitor of the internet.
But Morriss gives too much ground to the state, thus weakening his argument:
The availability of no-strings-attached federal defense dollars undoubtedly made it easier for the early networking pioneers to concentrate on the technical details of their work.
Given the evidence of government start-up funding, we may have to concede the argument that the internet might have developed differently, more slowly, or not at all, if the Defense Department had not been involved at the outset. Likely, what we know as the internet would have become a system of private networks, a more or less connected series of private information enclaves granting access only to select users. Had that been the case, Big Digital firms would not serve the state as they do now but rather their private users. Censorship would be a matter of private owners deciding who could speak and where. (Of course, this is very much the case today, except that the state also takes an interest and can determine what is allowed and what is not.) Big Digital Tech would not be beholden to the state, and speech would not be regulated by the Department of Homeland Security.
As it stands, Big Digital is neither all private nor all public. As the recent CHIPS and Science Act shows, it represents both state and private interests. This leaves most users trapped between the profit motive, on the one hand, and the surveillance, censorship, and propaganda desiderata of the state, on the other. It could have been otherwise.
American political, educational, and economic life is increasingly dominated by "experts." We should not be surprised that they fail most of the time.
Original Article: "Relying on Experts: A Proven Path to Failure"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Spanish government’s announcement that it plans to introduce a new “solidarity tax” on the wealth of those who possess over €3 million has again brought to the fore the debate about taxes levied on wealth and capital. The issue is not merely that the announcement is highly politicized in what is already, de facto, a preelection period, nor that it could disrupt the fiscal autonomy of Madrid, Andalusia, and Galicia. (Let us recall that these regions comprise eighteen million Spanish people; that is, almost 38 percent of Spain’s total population.)
Neither must we focus on the possible illegality or even unconstitutionality of the tax due to its potentially confiscatory nature. Nor is the main question the fact that people have already paid taxes (for instance, personal income tax) on their accumulated wealth during the process of its formation, and, at the time, in many cases, these taxes absorbed practically half the income of the current owners—the vast majority of whom are today older people and widows who, after a lifetime of effort, saving, and sacrifice, are now “rich” because they have over €3 million.
Nor, in short, is the issue that our politicians have employed a certain demagogy rooted in the moral disease of envy and in antisocial and divisive class warfare and have then attempted to sweeten and legitimize this demagogy semantically with the term “solidarity tax.” (Who could dare to not promote solidarity?)
No. The main argument against any tax on the stock of accumulated wealth or capital is none of those mentioned above, but the harm such a tax does to workers and, especially, the poorest, most vulnerable, and most disadvantaged among them. Employment, job quality, and wage levels depend directly on the volume of wealth and of capital wisely invested by its owners and provided to workers in the form of ever more sophisticated machinery, manufacturing plants, natural resources, computer equipment, etc.
In a market economy, wages tend to be determined by the productivity of each worker, and a continuous, sustainable rise in productivity can take place only if there is an increasingly large and sophisticated set of capital goods available to each worker.
If an Indian farmer earns only three euros a day, and an American farmer earns a hundred times that amount, the cause is not that the American worker is smarter or works more hours. It is simply that, on average, he or she enjoys the use of one hundred times as much capital equipment (for instance, a powerful, state-of-the-art tractor with the most modern accessories) as the Indian counterpart (who lacks this sophisticated equipment and is often obliged to go on plowing with animals and harvesting virtually by hand). And the huge difference in their wages derives from the fact that, with a cutting-edge tractor, the American farmer can plow an area one hundred times larger than the one the Indian farmer can plow with his or her rudimentary tools. But the cutting-edge tractor has been made possible only because several capitalists have accumulated wealth and capital and made them available to the American farmer in the form of tractors, which are simply sophisticated capital goods that dramatically increase productivity and, thus, the wages of the fortunate worker.
This reasoning sums up one of the most important teachings of economic science and illustrates the perennial piece of great popular wisdom that poor people do not so much need to be given a fish, which would satisfy their immediate hunger, but a fishing rod (that is, a capital good), which would solve their hunger problem once and for all. Here, again, science proves the best antidote to partisan demagogy.
If, for example, the owner of Zara, Amancio Ortega has a fortune of €60 billion, it would do no good to expropriate the entire amount and distribute it, say, among the two billion people who are, relatively speaking, the poorest in the world. Each person would receive a mere thirty euros, but the cost of this poverty-generating act would be heavy, since it would require the disappearance, liquidation, and closing of this distinguished capitalist’s countless factories, facilities, and buildings, which, quite fortunately for his tens of thousands of employees and millions of customers, continue daily to generate wealth and well-being far and wide, and thus to boost the productivity and wages of many.
Therefore, if we wish to fight poverty and promote prosperity—particularly the prosperity of those with lower wages—we must treat all taxpayers with great care, especially the “rich” ones, by supporting them in their accumulation of wealth and avoiding any persecution or social condemnation.
In short, any tax levied on the accumulation of wealth or capital, such as the existing wealth tax or the announced “solidarity” tax, always ends up exerting a harmful impact on workers, particularly the most vulnerable in relative terms, who would benefit the most from an increase in their productivity if they had more and better capital equipment.
Moreover, it makes no difference whether capital or wealth is comprised, as is most common, of securities, investment funds, bank deposits, or real estate, since all of these represent an entire constellation of specific capital equipment that invariably requires the collaboration of labor, increases employment and the quality of labor, and, above all, makes possible rises in workers’ productivity and, as a result, in their wages.
And in contrast, a tax like the one announced—a 3.5 percent tax on “large fortunes”—would, in under ten years, and by simple arithmetic, result in a reduction of more than one-third of the capital that could have been accumulated in the absence of such a wealth tax. And in turn, this reduction would generate the accompanying decrease in productivity and in real wages with respect to their potential level. Hence, we must conclude that wealth taxes are always ultimately paid—and handsomely—by workers, and therefore are harmful and, above all, they are the antithesis of solidarity toward the poorest and most vulnerable.
Earlier this year, Anna Hershberger had the cops called on her because she let two of her kids—ages five and almost seven—walk outside with a trash bag and pick up litter unsupervised. The cop who showed up didn’t arrest Hershberger but did warn her that something terrible could have happened to her children.
Hershberger’s police visit was one of thousands of examples of safetyism in America. Safetyism is the idea, pervasive among schools, police stations, and well-meaning parents, that children can’t so much as walk down the street or play a game without constant adult supervision. If you leave your kids alone for a minute, who knows what might happen?
Many psychologists and parenting experts argue that our cultural obsession with safetyism is depriving kids of the experiences they need to develop a sense of individual identity. Dr. Peter Gray, a research professor at Boston University who specializes in studying how children learn, argues that when kids are free to pursue their own interests free of adult intervention, they acquire “skills, values, ideas, and information that will stay with [them] for life.” In the absence of that freedom, kids don’t acquire the skills, values, and ideas necessary to become their own persons.
Lenore Skenazy (founder of Free Range Kids and president of Let Grow, a nonprofit promoting childhood independence) told me in an interview that constant adult supervision is killing kids’ ability to cultivate real hobbies and passions. Children aren’t allowed to just write a story anymore, Skenazy explains. Instead, as soon as parents see them put pen to paper, they’re plonked down in a creative writing class, where they’ll be under the well-meaning but stultifying eye of a writing teacher drilling them on form and technique. “Write something just for you” becomes “I want to see you practice that use of imagery I showed you yesterday.”
It’s tough to overstate how easily adults can kill a kid’s enthusiasm by trying to instruct them. As Skenazy notes, this approach takes an internal drive (I want to write just for me!) and turns it into an external drive (I need to write five hundred words today to get a gold star from my new writing teacher). Holly Lisle, a professional writing teacher who’s published over thirty novels of her own, says that tons of writers lose their passion precisely when drills and techniques replace self-directed exploration. What’s true of writing is equally true of every interest, from playing jazz to shooting hoops in the backyard.
When we think about what makes us unique individuals, most of us think of interests we’ve cultivated since we were kids. What’s going to happen to a generation whose passion has been trained out of them by well-meaning authority figures? There’s a good chance that all this adult supervision is depriving us of musicians, artists, and entrepreneurs–of the next Lady Gaga or Ralph Waldo Emerson.
It’s not just hobbies, either. Skenazy says that constant adult supervision can “cauterize curiosity.” She warns that, “we’re not teaching [kids] to think. We’re teaching them to await instructions.” Unfortunately, there’s substantial evidence to support her views. One study compared how children from different cultures responded when an adult gave them an opportunity to learn but, crucially, no assignment. The researchers studied forty white, middle-class kids from California and another forty Maya children from Guatemala. Each child was told to sit at a table while a research assistant taught another kid in the room how to assemble a toy. The question was: Would the first kid watch and learn how to assemble the toy too, just out of natural curiosity, or do something else?
The results were stark. The Maya kids watched the interaction and quickly learned to assemble the toy. The California kids were more likely to goof off or just stare at the floor. An NPR story on the study reports, “The Maya kids showed sustained attention [to the toy-assembly] about two-thirds of the time…. The middle-class, American kids did so exactly half as often.”
Why the discrepancy? One big reason is that the Maya kids were raised with a lot of autonomy. They could go to the store to shop, slip out of the backyard to hang with friends, and set their own goals. That kind of autonomy naturally engenders curiosity. When the world is yours to explore, you want to explore all of it. Psychologist Edward Deci, who’s been studying child motivation for half a century at the University of Rochester, says that autonomy stimulates kids’ motivation to learn.
By contrast, American kids have lost much of their autonomy–and, as such, their natural curiosity. When there’s always an adult around to tell you what to do next, your brain adapts to that. Instead of building the muscle of your curiosity, you learn to sit and wait patiently for instructions. As Skenazy puts it, in the United States kids are trained to think, “Is this going to be on the test? If not, I won’t learn it.”
The problems caused by safetyism go deeper than just cauterizing curiosity and killing passion: safetyism strikes at the very heart of our attempts to build a free society. A healthy sense of individualism is essential to creating a libertarian society. A generation raised to never explore or color outside the lines is unlikely to see the appeal of freedom.
Students raised under safetyism are more likely to clamor for big government, because they have no idea how liberating life can be without the stultifying influence of an ever-present nanny (or nanny state). If we want to get back to our freedom-loving roots, we need to turn down our collective hovering and give our kids the space to figure out who they really are.
[This article was written from London and published in Newsweek, June 2, 1947.]
England's major economic troubles today seem not so much the result of its war losses, appalling as these were, as of its postwar policies. Temporary impoverishment was inevitable, but the postwar series of special crises in coal, food, and dollars was not.
The underlying assumption beneath the present strangling network of economic controls is that a free market and price system is at best a fair-weather system, a luxury a country can afford only when it is already well off. It is the precise function of free prices, however, to allocate production among thousands of different commodities and services and to relieve the most serious shortages most quickly by providing the greatest profit and wage incentives precisely where those shortages exist.
A free price system last fall would certainly have signaled the impending shortage of coal long before the Labour government was awake to its existence. It would have encouraged imports of coal from America then, instead of waiting until now. It would have enabled higher wages or bonuses to be paid for increased production. It would have attracted more men to mining. If the miners had been free to spend their money for things they really wanted, higher money wages would have meant higher real production incentives.
On May 7, Emanuel Shinwell, the minister of fuel and power, indiscreetly declared before a meeting of union delegates that "the organized workers of the country are our friends; as for the rest they don't matter a tinker's cuss."
This statement, which has since become a source of great embarrassment to the Labour Party, does supply a key to the real nature and animus of recent British planning. The essentially collectivist and egalitarian philosophy behind it begins to emerge more clearly. A ceiling has been put on imports and particularly on the purchase of so-called luxuries because "dollars are short" and "we cannot afford it." But who are "we"? Certainly not the individual who wishes to buy.
The real principle applied here is "If I can't afford to buy it, you shan't be allowed to buy it. If organized labor cannot have it nobody shall have it." This is most clearly illustrated in food. The overall food supply is not nearly as bad as is commonly supposed. Though it lacks interest and variety, the minister of food estimates in terms of calories it is only 6 percent below the prewar level. But analysis of its distribution is instructive. In April, wage rates in Britain were 68 percent above their 1939 level. Weekly wages were about 80 percent higher. The cost of living index, however, has gone up only 31 percent. Food considered separately had risen only 22 percent. This means that the average British worker is considerably better off in terms of goods than he was before the war.
One can say that this is a very good thing, but one cannot argue at the same time that production is low because nutrition is low (the coal miner in particular gets a much higher than average allotment) and one cannot call it austerity. Austerity is not being imposed on the British nation as a whole; it is being imposed through heavy taxes on the British middle and upper classes to subsidize the British working class.
Food prices are being subsidized to the extent of $1,572,000,000 a year in spite of the fact that the British worker is spending a much smaller percentage of his income for the same amount of food than he did before the war. It is the middle and upper classes who have now been reduced to something approaching the workingman's diet.
Insofar as austerity has been imposed on the whole British people, it consists in refusing to permit either consumers or producers freedom of choice. The consumer is not free to spend his money on things he himself wants but only on things government officials think are good for him. The producer is not free to make what he wishes but only what government officials think is good for the country.
The whole system of priorities, allocations, quotas, and licenses causes endless delays, keeps efficient concerns from expanding, and keeps inefficient concerns in business. Production is lost all around not merely because an army of men is created to issue orders rather than produce, but because producers themselves must spend so much of their time trying to get licenses and allocations instead of finding out how to reduce costs and prices and make the goods consumers really want.
The woes of Britain's financial sector have been exacerbated by UK financial regulators' failures.
Original Article: "The Near Collapse of the UK Pension Sector Exposes Failures by Financial Regulators"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Money supply growth fell again in October, dropping to a 39-month low. October's drop continues a steep downward trend from the unprecedented highs experienced during the thirteen months between April 2020 and April 2021. During that period, money supply growth in the United States often climbed above 35 percent year over year, well above even the "high" levels experienced from 2009 to 2013.
During October 2022, year-over-year (YOY) growth in the money supply was at 2.59 percent. That's down from September's rate of 3.91 percent, and down from October 2021's rate of 5.94 percent.
The growth rates during most of 2020, and through April 2021, were much higher than anything we'd seen during previous cycles, with the 1970s being the only period that came close. Since then, however, we have seen a fast fall from previous highs and such rapid declines generally point to economic contraction in following months. October's money-supply growth rate is now similar to what was experienced during late 2019 and early 2007.
The money supply metric used here—the "true" or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates, but has slowed even more than the TMS measure. In October 2022, the M2 growth rate was 1.25 percent. That's down from September's growth rate of 2.52 percent. October's rate was also well down from October 2021's rate of 12.88 percent.
Money supply growth can often be a helpful measure of economic activity, and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession.
Another indicator of recession appears in the form of the gap between M2 and TMS. The TMS growth rate typically climbs and becomes larger than the M2 growth rate in the early months of a recession. This occurred in the early months of the 2001 and the 2007–09 recession. A similar pattern appeared before the 2020 recession.
Notably, this has happened again beginning in May this year as the M2 growth rate in fell below the TMS growth rate for the first time since 2020. Put another way, when the difference between M2 and TMS moves from a positive number to a negative number, that's a fairly reliable indicator the economy has entered into recession. We can see this in this graph:
In the two "false alarms" over the past 30 years, the M2-TMS gap reverted to positive territory fairly quickly. However, when this gap firmly enters negative territory, that is an indicator that the economy is already in recession. The gap has now been negative for 6 months in a row. Moreover, the gap in October was -1.34, and has been below -1 for two months in a row. There is only one case—1998—in more than 30 years during which the gap was greater than -1 and the US not in recession.
Signs of recession continue to mount. Official GDP numbers show the economy contracted during the first half of 2022. Further signs of a slowing economy can be seen in the employment and home sales data. New housing construction has already turned downward after a boom in early 2022. Meanwhile, the total number of employed workers fell in October, and real wages fell, as well.
The M2-TMS gap also appears to follow the pattern of yield curve inversion which itself is a strong sign of impending recession. For example, the 2s/10s yield inversion went negative in all the same periods where the M2-TMS gap pointed to a recession. Moreover, the 2s/10s inversion was very briefly negative in 1998, and then almost went negative in 2018. This is not surprising because trends in money supply growth have long appeared to be connected to the shape of the yield curve. As Bob Murphy notes in his book Understanding Money Mechanics, a sustained decline in TMS growth often reflects spikes in short-term yields, which can fuel a flattening or inverting yield curve.
It's not especially a mystery as to why short-term interest rates are headed up fast, and why the money supply is decelerating. Since January of this year, the Fed has raised the target federal funds rate from .25 percent up to 4.0 percent.
This means fewer injections of Fed money into the market through open market operations. Moreover, although it has done very little to actually reduce the size of its portfolio, the Fed has nonetheless stopped adding to its portfolio through Quantitative Easing, and allowed a small amount ($344 billion out of $8.9 trillion) to roll off. Consequently, market interest rates have headed upward and money-supply growth has decelerated. Economic pain is likely to follow.
Money laundering is the process of concealing the source of funds derived from illicit activities to present a veneer of legitimacy. According to the United Nations Department of Economic and Social Affairs, yearly money laundering flows account for 2.7 percent of global gross domestic product (GDP). Therefore, countries are investing in anti–money laundering regulations to strip criminals of opportunities to profit from illegal activities. Some respond that anti–money laundering regulations make it easier for officials to trail the spoils of crime and prosecute offenders.
But are such regulations effective at curbing the flow of illicit transactions? Governments might think so, but research says otherwise. As pointed out by economist Aaron Klein, American financial institutions incur $50 billion annually in anti–money laundering compliance costs, even though they nab less than 1 percent of the reported $2 trillion that financial crimes generate. Financial corporations are also saddled with requirements that mandate close monitoring of clients’ accounts and reporting of mundane activities that suggest illegality like wire transfers.
Anti-money laundering regulations have diverted banks from their core activities to policing their clients to uncover criminal activities. For instance, in 2014 HSBC informed the financial world that it spends $750 million to $800 million annually to combat money laundering. Banks are forking out hefty sums to prevent money laundering, and yet they are barely able to clamp down on unscrupulous actors.
A review by Reuters shows that despite billions in industry investment, more than 95 percent of system-generated alerts are written off as “false positives” in the first phase of review, whereas 98 percent of alerts never result in a suspicious activity report. As such, anti–money laundering controls are failing to deter terrorists, cartels, and rogue states from exploiting the benefits of criminal enterprises. Proponents of anti–money laundering laws contend that banks require sophisticated technology to identify criminal activity; however, they are missing the point.
Upgrading technology to track criminal activity is not only costly, but it should not be the duty of banks. Evidence compiled by Lanier Saperstein and colleagues argues that anti–money laundering laws are defective at curtailing money laundering and impose a cost on consumers in poor countries. Due to political pressure, major banks in America and the United Kingdom abandoned wire transfers to Somalia to prevent the financing of terrorist groups.
But, as Saperstein and coauthors show, such policies led to a humanitarian tragedy:
Many families in Somalia depend upon relatives working abroad to send money home in order to pay for food and medicine. Somalis living in the United States now hire third-party agents to physically carry the money on suitcases on flights to Somalia. The money still flowing to Somalia has thus become unregulated, untraceable, and more expensive for Somalians living hand to mouth … it is also riskier for money laundering than if banks had continued to provide wire transfer services.
Fears stemming from managing money linked to drug trafficking have even led American banks to close branches along the Mexican border. The obsession with money laundering is making banks more responsive to enforcing regulations and less receptive to catering to customers. One survey indicates that high compliance costs have forced banks to limit services and raise fees, thereby reducing consumer welfare.
Besides limiting services available to consumers, anti–money laundering regulations make it difficult for consumers to do business. Research gathered by the World Bank posits that anti–money laundering regulations require poor customers to present documentation that they often lack. For example, self-employed people could be required to provide proof of income, and this is burdensome for those whose services are not formalized.
Even more alarming is that customers are burdened with the task of explaining the source of funds when the origin is stated on customers’ accounts. Bank officials will observe that a customer was paid $2,000 by an organization and still ask him to identify the source of funding, and in a worst-case scenario, he could be barred from accessing the funds. This writer has had such experiences. Lawyers and accountants also lose valuable time because anti–money laundering regulations compel them to attend costly training seminars to be in compliance with regulations.
Few people engage in illicit activities like terrorism and fraud, yet the costs of anti–money laundering rules are diffused throughout the economy. In America alone, complying with anti–money laundering rules is costing the economy $8 billion a year.
A better alternative to combat fraud and other illicit activities would be for companies to innovate in technology at their expense, whereas the state should focus on prosecution. The truth is that people will always partake in unscrupulous activities and although such activities can be minimized, they cannot be completely eradicated. In short, aiming to do so by viciously pursuing intrusive anti–money laundering regulations will only make businesses and consumers worse off.
Brands are prized by corporations as significant value-driving economic assets. Brands help customers enjoy more valuable experiences, raising willingness-to-pay levels and thus improving cash flows — higher cash flows as a result of higher prices, faster cash flows because branded products tend to turn faster than their non-branded counterparts, longer lasting cash flows because brands have longevity in customers’ perceptions, and less volatile cash flows because brand loyalty can smooth out the effects of economic booms and busts.
For these reasons, corporations invest in brands and brand building. Catherine Kaputa makes the case that individuals should invest in themselves as brands, and makes the tools of brand-building available to individuals for personal brand-building: the brand of you.
Knowledge Capsule You are a brand, assessed subjectively by your customers. Think of yourself as a brand. Think of your customers - your boss, other leaders and decision-makers in your firm, your colleagues, your clients, your suppliers. They all have a subjective perception of you and the value to which you can contribute in any business situation. Is it the perception you want? Do people see you as the problem solver and solution designer for their problems? Like any brand owner, you can work to actively shape that perception. As Catherine Kaputa puts it: If you don’t brand yourself, others will, and they may not brand you the way you want to be branded.
The first tool in the branding toolbox is positioning. The branding community has developed the idea of brand positioning. In the perception space in which your brand operates, you seek to identify a unique, highly differentiated position. You want to be perceived as different and better. Positioning is the identification and selection of that unique space in the minds of customers and the basis of the of credibility, reputation and trust to be able to make the claim.
Importantly, positioning requires outside-in thinking. Think of your customers first, their needs, their mindset, and their perception of the other brands in the space. Your positioning must be in their minds, not yours.
Differentiation is a most important element of positioning. Typically, perception spaces are competitive. Customers looking for solutions to problems and better experiences scan the space for alternatives and make comparisons between them. Know your competitors, assess them through the eyes of your customers, and find a positioning that is both different from and better than alternatives for your customer, using their mental model and assessment criteria. Aim to “own” that unique space - meaning that the customer identifies you as the only one or the best one of their alternatives to meet a particular need.
Attach an idea to yourself. A way to pin down a perception in a customer’s mind is to attach an idea to a brand, in this case yourself as a brand, in a way that the connection is immediate and becomes automatic. The idea should be singular and highly focused. Catherine Kaputa recommends a process of subtraction to reach a singular idea — you’ll start with a multi-layered and possibly complicated idea, but if you keep subtracting the least relevant, least important and least differentiated elements, you’ll arrive at the pared-down singularity. You should be able to express it in a phrase or a sentence, one that you can keep repeating to embed it.
Her own example in her marketing career was to brand herself as “good with difficult clients”. Every marketing services company has clients or accounts or marketing challenges that are deemed to be difficult and not everyone wants to be exposed to that risk. Someone who steps up and enjoys performing well on such a stage is both differentiated and highly sought after.
Personal brand positioning strategy templates provide another tool for self-branding.
In her book The New Brand You, Catherine Kaputa provides 10 brand positioning templates as examples of how an individual might approach the process of self-branding and build their own brand.
Download "Ten Personal Brand Positioning Strategies" in PDF: Mises.org/E4B_198_PDF
These are complete templates for rigorous use and application, appropriate for individual interpretation, embellishment and nuance.
One example is the Innovator strategy. Let’s use this template as an example of the self-brand positioning process.
1. What’s the customer need that the Innovator addresses? Identify your target audience and the problem they want solved. Innovators are needed to create something new, when existing strategies are failing or sales are declining or new market entrants are redefining the terms of competition. New solutions are sought, and Innovators are the ones people turn to. Innovators are recognized as the creative resource that’s required.
2. What are the attributes to point to in order to claim the Innovator positioning? Catherine Kaputa lists 5:
Visionary with clear objectives: not just creative, but capable of identifying business objectives for creativity and of seizing opportunities.
Brilliant at problem-solving: full of ideas, but always directed towards solving important problems.
Bold risk-taking: when others hold back, Innovators are eager to design and run experiments from which to learn, knowing there’s no such thing as failure, just new knowledge.
Fresh thinking: not following the crowd but diverging from the norm.
Inventive: Innovators demonstrate the capacity to be first in new designs, new thinking and new ideas.
The point is to evaluate yourself against the attributes of the positioning type: is this you?
3. The next step is a positioning statement. Catherine provides examples:
Sample Positioning Statement: An innovative professional in an industry beset by mergers and dynamic change positioned herself in the following way.
Draft Sentence: For senior managers, boss, clients, industry who need new products and services I stand for innovative problem solver in industries undergoing massive change.
The format to use is: For (target audience) who needs (problem you solve) I stand for (value proposition).
4. Add reasons to believe. Pick three reasons and 3 keywords or phrases as to why customers should invest in your positioning statement by hiring you or giving you the project.
Innovator is just one of multiple possible strategies. Yours may be one of these or a combination of several. There’s a personal test you can take at Mises.org/E4B_198_Test for initial input to start your positioning process.
Positioning is a means not an end: there is more work to do. Catherine Kaputa follows the logic of brand positioning all the way to implementation. It’s not a theory, it’s a practice. There are actions that brand marketers take to communicate and embed their positioning. She cites three major ones: visual identity, verbal identity and brand marketing.
Commercial brands spend a lot of time, effort and resources on a brand’s look: logo design, package design, website colors and typefaces, video style, and so on. The goal is to communicate a style and an engaging and brand-appropriate visual personality. The same principles apply to personal branding - choose your look, your dress-style and fashion carefully and thoughtfully.
Verbal identity comes from the words you use, the story you tell, and how you communicate in presentations, e-mails, tweets, speeches and conversations, whether in the conference room, the auditorium or on zoom. Work on it.
Marketing your brand should be guided by your goals for your personal brand. Once you have them defined, choose your media, your message, your content, your campaign tactics and your metrics.
Additional Resources The New Brand You: How to Wow in the New World of Work by Catherine Kaputa: Mises.org/E4B_198_Book
Find your own brand positioning (Mises.org/E4B_198_Test) on SelfBrand.com
"Ten Personal Brand Positioning Strategies" (PDF): Mises.org/E4B_198_PDF
Ending the string of economic crises that have occurred the past two decades will happen only when economies can depend upon sound money.
Original Article: "Eliminating Economic Crises"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In his recent article targeting the collapse of the FTX exchange, Ryan McMaken noted that the easy money regime we have lived under for more than two decades has led to yet another bubble with a spectacular crash. Enron and WorldCom blew up in the wake of the first bubble; Lehman Brothers and other investment banks and Wall Street firms went down in the 2008 collapse of the infamous housing bubble. The third iteration of the great bubble economy not only gives us a housing crash, but throws in Silicon Valley and the troubles of the social media giants to boot.
Elon Musk’s $44 billion purchase of Twitter, the company already adept at losing money, is turning out to be a financial loss. Meanwhile, back at the ranch, Tesla, the company that made Musk famous, is also in a financial tailspin. Amazon already is laying off employees and Silicon Valley’s hiring boom has turned into a firing boom as firms seek to pare down staffs to people who actually contribute something to operations.
Equities, which not long ago were the only game in town, given interest rate suppression, now are officially in bear market territory, and many of us who had at least some money in equities are looking at losses, some substantial. Moreover, because securities that pay interest still have not caught up with inflation, no matter where we put our money, losses in real terms are almost a guarantee. White House claims of a great economy notwithstanding, the near future, if not grim, certainly is uncertain.
The reverberations will not just be felt by businesses, but also by the politicians that received vast amounts of campaign cash from Silicon Valley companies and employees, with Democrats being the big winners, raking in 98 percent of political tech money and personal contributions from billionaire CEOs. In this year’s Georgia US Senate race, Democrat incumbent Raphael Warnock received substantially more money from California donors (including Silicon Valley and Hollywood) than he received from contributors in his own state.
Indeed, the easy money regime has been quite good not only for the tech and social media firms, but also for the Democratic Party. Before the FTX exchange blew up, Sam Bankman-Fried, the supposed genius that created it, gave Democrats nearly $40 million for the 2022 elections, putting him second only to George Soros in money sent to Democrats. Because financially the next two years (at least) do not look good for the tech-internet-crypto sector, one doubts that the Democratic Party is going to experience the financial windfall it received not only from California-based firms but from many other US corporations and Wall Street companies again any time soon.
These developments might have a significant effect on the 2024 elections, as Democratic candidates will not be as able to outspend and overwhelm their Republican opponents as has been the case ever since the Barack Obama years. But there is another factor that will be significant, and that is the possibility of criminal charges being brought against people—like Bankman-Fried—whose firms have collapsed spectacularly, evaporating billions of dollars in the process.
The George W. Bush Department of Justice (DOJ) won convictions against WorldCom CEO Bernard Ebbers in 2005 and Enron leaders Ken Lay and Jeffrey Skilling the next year. Like in so many other federal cases, the actual charges fell into the murky categories of “fraud” and “conspiracy,” which jurors tend to convict under because they believe that “something happened,” as opposed to there being clear, direct violations of federal criminal law.
For example, both Lay and Skilling sold some of their Enron stock before the price collapsed, but they also purchased Enron stock later. Prosecutors (and journalists) claimed that the two were “dumping” their stock in advance of a meltdown they knew was coming, but the facts were much more complicated and didn’t follow the narrative. However, since the trial was held in Houston, where most people who lost money in the Enron collapse lived, it was inevitable that the two would be convicted no matter what the evidence. It turned out that prosecutors were hiding evidence and suborning perjury with some of their “star” witnesses, but no matter. Enron lost a lot of money, and someone had to pay.
Skilling and Lay had given money to Republican candidates, but that didn’t buy any legal protection from the Bush administration. It will be interesting to see if Merrick Garland and his boss, Joe Biden, go after Bankman-Fried with the same vigor that the Bush DOJ pursued people whose companies blew up.
If Garland looks to prosecute, he certainly has a case, based on fuzzy accounting that borders on outright fraud. Writes McMaken:
The “genius” in this case is Sam Bankman-Fried (SBF), a thirty-year-old MIT grad who ran FTX into the ground and had placed control of his clients’ money in the hands of a small number of friends with virtually no real experience, knowledge, or scruples about how to responsibly manage funds. Financial record keeping and reporting at the company were haphazard at best.
The calculations will be murky for a while, but it now looks like FTX has “lost” at least $1 billion to $2 billion of client funds, not to mention billions of dollars in investments in the company that evaporated. Much of it was probably just stolen. But it’s difficult to guess at this point because FTX didn’t bother to put together an accounting department.
Robby Soave writes in Reason:
John Ray III, who was brought in to manage Enron following that company’s self-destruction in 2001, is now the CEO of FTX. In a court filing last week, he said he has never seen such “a complete failure of corporate control,” including at Enron.
“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,” he said in a court filing.
However, Soave also points out that mainstream media coverage of the FTX collapse has been scant at best. This is not due to a lack of interest in a major financial scandal per se, but rather reflects the reluctance of the media to criticize someone who gave millions of dollars to mainstream and progressive news outlets like Vox and ProPublica. Soave writes:
SBF is still benefitting from some kinder-than-expected coverage from the mainstream media, even in the wake of the revelations about his fraudulent activities—and even from outlets that did not receive his largesse. The New York Times’ report on this disaster uses soft, passive language to disguise blame at every turn. This is the outlet that treats nearly every development in the tech sector as an existential threat to democracy, yet its summation lets SBF write his own verdict. Expanded too fast? Failed to see warning signs? He defrauded people out of millions of dollars! The empire didn’t collapse of its own accord; it collapsed because its foundations were fraudulent.
Meanwhile, The Washington Post’s reporting on this subject has centered on SBF’s “pandemic prevention” spending. “Before FTX collapse, founder poured millions into pandemic prevention,” writes the paper. “Most of those initiatives have come to a sudden halt.”
But will the Biden DOJ investigate, or will it look the other way? For that matter, while the FTX collapse is the most spectacular collapse of our present age, the end of easy money is going to produce a number of other bankruptcies. The difference is that many of the firms that go under will do so because they became highly leveraged and were on a branch being sawed off behind them when interest rates rose.
For now, Merrick Garland and his underlings are directing most of their energy at finding ways to prosecute Donald Trump and his supporters. But the financial fallout from the third major financial crisis of the twenty-first century may become so widespread that even Garland, Biden, the Washington Post, and the New York Times may have to notice.
[This article is excerpted from chapter 7 of What Has Government Done to Our Money? ]
The idea of private coinage seems so strange today that it is worth examining carefully. We are used to thinking of coinage as a "necessity of sovereignty." Yet, after all, we are not wedded to a "royal prerogative," and it is the American concept that sovereignty rests, not in government, but in the people.
How would private coinage work? In the same way, we have said, as any other business. Each minter would produce whatever size or shape of coin is most pleasing to his customers. The price would be set by the free competition of the market.
The standard objection is that it would be too much trouble to weigh or assay bits of gold at every transaction. But what is there to prevent private minters from stamping the coin and guaranteeing its weight and fineness? Private minters can guarantee a coin at least as well as a government mint. Abraded bits of metal would not be accepted as coin. People would use the coins of those minters with the best reputation for good quality of product. We have seen that this is precisely how the "dollar" became prominent—as a competitive silver coin.
Opponents of private coinage charge that fraud would run rampant. Yet, these same opponents would trust government to provide the coinage. But if government is to be trusted at all, then surely, with private coinage, government could at least be trusted to prevent or punish fraud. It is usually assumed that the prevention or punishment of fraud, theft, or other crimes is the real justification for government. But if government cannot apprehend the criminal when private coinage is relied upon, what hope is there for a reliable coinage when the integrity of the private marketplace operators is discarded in favor of a government monopoly of coinage? If government cannot be trusted to ferret out the occasional villain in the free market in coin, why can government be trusted when it finds itself in a position of total control over money and may debase coin, counterfeit coin, or otherwise with full legal sanction perform as the sole villain in the marketplace? It is surely folly to say that government must socialize all property in order to prevent anyone from stealing property. Yet the reasoning behind abolition of private coinage is the same.
Moreover, all modern business is built on guarantees of standards. The drug store sells an eight-ounce bottle of medicine; the meat packer sells a pound of beef. The buyer expects these guarantees to be accurate, and they are. And think of the thousands upon thousands of specialized, vital industrial products that must meet very narrow standards and specifications. The buyer of a 1/2 inch bolt must get a 1/2 inch bolt and not a mere 3/8 inch.
Yet, business has not broken down. Few people suggest that the government must nationalize the machine-tool industry as part of its job of defending standards against fraud. The modern market economy contains an infinite number of intricate exchanges, most depending on definite standards of quantity and quality. But fraud is at a minimum, and that minimum, at least in theory, may be prosecuted. So it would be if there were private coinage. We can be sure that a minter's customers, and his competitors, would be keenly alert to any possible fraud in the weight or fineness of his coins.1
Champions of the government's coinage monopoly have claimed that money is different from all other commodities, because "Gresham's Law" proves that "bad money drives out good" from circulation. Hence, the free market cannot be trusted to serve the public in supplying good money.
But this formulation rests on a misinterpretation of Gresham's famous law. The law really says that
money overvalued artificially by government will drive out of circulation artificially undervalued money.
Suppose, for example, there are one-ounce gold coins in circulation. After a few years of wear and tear, let us say that some coins weigh only .9 ounces. Obviously, on the free market, the worn coins would circulate at only 90 percent of the value of the full-bodied coins, and the nominal face value of the former would have to be repudiated.2 If anything, it will be the "bad" coins that will be driven from the market.
But suppose the government decrees that everyone must treat the worn coins as equal to new, fresh coins, and must accept them equally in payment of debts. What has the government really done? It has imposed price control by coercion on the "exchange rate" between the two types of coin. By insisting on the par ratio when the worn coins should exchange at 10 percent discount, it artificially overvalues the worn coins and undervalues new coins. Consequently, everyone will circulate the worn coins, and hoard or export the new. "Bad money drives out good money," then, not on the free market, but as the direct result of governmental intervention in the market.
Despite never-ending harassment by governments, making conditions highly precarious, private coins have flourished many times in history. True to the virtual law that all innovations come from free individuals and not the state, the first coins were minted by private individuals and goldsmiths. In fact, when the government first began to monopolize the coinage, the royal coins bore the guarantees of private bankers, whom the public trusted far more, apparently, than they did the government. Privately minted gold coins circulated in California as late as 1848.3
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- See Herbert Spencer, Social Statics (New York: D. Appleton 1890), p. 438.
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- To meet the problem of wear-and-tear, private coiners might either set a time limit on their stamped guarantees of weight, or agree to recoin anew, either at the original or at the lower weight. We may note that in the free economy there will not be the compulsory standardization of coins that prevails when government monopolies direct the coinage.
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- For historical examples of private coinage, see B.W. Barnard, "The use of Private Tokens for Money in the United States," Quarterly Journal of Economics (1916–17): 617–26; Charles A. Conant, The Principles of Money and Banking (New York: Harper Bros., 1905), vol. I, 127–32; Lysander Spooner, A Letter to Grover Cleveland (Boston: B.R. Tucker, 1886), p. 79; and J. Laurence Laughlin, A New Exposition of Money, Credit and Prices (Chicago: University of Chicago Press, 1931), vol. I, pp. 47–51.
On coinage, also see Mises, Theory of Money and Credit, pp. 65–67; and Edwin Cannan, Money, 8th ed. (London: Staples Press, 1935), pp. 33ff.
- For historical examples of private coinage, see B.W. Barnard, "The use of Private Tokens for Money in the United States," Quarterly Journal of Economics (1916–17): 617–26; Charles A. Conant, The Principles of Money and Banking (New York: Harper Bros., 1905), vol. I, 127–32; Lysander Spooner, A Letter to Grover Cleveland (Boston: B.R. Tucker, 1886), p. 79; and J. Laurence Laughlin, A New Exposition of Money, Credit and Prices (Chicago: University of Chicago Press, 1931), vol. I, pp. 47–51.
All of the excess of unproductive debt issued during the period of complacency will exacerbate the problem in 2023 and 2024.
Original Article: "Will Global Rate Hikes Set Off a Global Debt Bomb?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On January 18, 1871, the German Empire was established after a seven-year conflict to unite the German confederacies. Prussia, a northern German state on the Baltic Sea would be the nation to unite Germany under a central ruler, Kaiser Wilhelm I. The central bank of Prussia, the “Reichsbank,” would assume control on January 1, 1876. While the gold standard was adopted after the reunification wars in 1871, the Reichsbank would adopt a “gold” mark as the universal German currency.
One kilogram (2.2 pounds) of gold would equal 2,790 marks, with one mark exchanging for 358 milligrams. Every nation, however, had different exchange rates for their “gold” money. The pound sterling, for instance, had an exchange rate of 7.32 grams. The “gold” dollar had an exchange rate of 1.50 grams, meaning four gold marks exchanged for one US dollar.
However, like every central bank, they would not stay honest and would destroy the nation’s economy. Gold confiscation, inflation, and interest rate manipulation would all be introduced in pre—and post–World War I Germany.
Gold Confiscation While governments permitted a “gold standard” and personal use of gold, when the state needed to inflate to finance either its war or welfare policies, they would not hesitate to confiscate gold. Executive Order 6102, signed on May 1, 1933, ordered all US citizens to hand in their gold, whether it be coins, bullion, or certificates. Gold would be stored in vaults and America would go half off the gold standard; foreigners would not yet be prevented from exchanging the dollar into gold.
Because of this, President Roosevelt would have no problem inflating the currency as the citizens no longer had control on monetary policy. The Reichsbank of pre–World War I Germany also had the same benefits of confiscation, with tension brewing between the European powers, the state would need more money to fight the war. Gerald Feldman in his book The Great Disorder states:
The Reichsbank viewed the dependency of coinage with increasing disapproval. As international tensions mounted in the prewar years, the Reichsbank also considered the excessive circulation of coinage dangerous, because it could act as an extreme brake on the Reichsbank ability to satisfy government liquidity requirements in the event of war.
The Reichsbankers knew a war was coming, so they took action in decreasing the amount of gold coins in circulation, and to print more fiat paper notes in order to finance the upcoming war. President Rudolf Havenstein of the Reichsbank demanded on June 18, 1914, that all banks hand over all gold to the Reichsbank vaults, this was ten days before Archduke Franz Ferdinand would be assassinated in Sarajevo.
As always, the central bank printed more paper fiat notes then there was actual redeemable gold in the banking system. So, on July 31, 1914, the Reichsbank closed its doors to prevent bank runs until finally August 4, 1914, when the convertibility of the mark to gold was banned. Ludwig von Mises in his book Human Action (p. 472) states:
The inflationists are fighting the gold standard precisely because they consider these limits (bank runs, and no easy money) a serious obstacle to their plans. The governments were eager to destroy it, because they were committed to the fallacies that credit expansion is an appropriate means of lowering interest rates.
With gold no longer a problem, as gold premiums, deals, and exports of gold were made illegal, the Reichsbank was now free to expand money to finance the war.
Expansion of Easy Money in Germany As mentioned before, the central banks were notorious for printing more paper notes than there was gold. The number of high-denomination bills (fifty, hundred, thousand) increased from 1,951,000 in 1908 to 2,574,000 in 1913. Low-denomination bills (fives and tens) saw increased from 62 million to 148 million.
By 1914, there were 2.1 billion marks in circulation, and by the end of the war in 1918, there were 22.2 billion marks in circulation. Inflation will always lead to higher prices; printing paper notes will devalue the currency and businesses will need to keep up with such changes. However, governments can initiate price controls on certain goods that will keep the price artificially low, the German government did this during World War One.
Prices of food were kept extremely low but there were also massive shortages in all types of goods, in 1918 the German Board of Public Health stated that: “763,00 German had died of disease and starvation from a blockade.”
Was it a blockade? Or was it bad economic policy that occurred before and during the war? Not only did price controls keep the price of produce low, but the German stock market was also closed until December 1917 which severely hindered the price system. Conscription from rural Germany and the movement of farm hands to armament factories were also a reason for shortages, either way the farmers were cutting their production due to lack of price incentives. Frederick Taylor’s The Downfall of Money speaks on this:
It was clear that Germany was turning into two countries: an urban Germany, dependent on food imported from abroad or the countryside; and a rural Germany, which was self-sufficient and reluctant to release what it grew or reared unless the price was right. This division will continue well into the unhappy peace.
Not only did the central bankers and politicians ruin the economy of Germany, but they also successfully divided the people against each other.
Conclusion The mistakes of both the central bankers and commissars of the German government would follow the German people into the uneasy peace during the Weimar Republic, and as we know now it was only going to get worse. The idea of easy money, price controls, and the glorification of war would persist in both the newly formed Weimar Republic and Nazi Germany. The decades of government intervention have led the German people at that point to be as Thomas Mann put it: “Cold hearted and reliant on politics and destiny and forgetting on how to rely on themselves as individuals.”
But many people in Europe and abroad have not learned the lessons of government control. The bankers and politicians, however, have learned. But they did not learn basic economics. They learned how much they can get away with.
Many investors forget that when the easy money is flowing, financial mediocrities and even outright frauds can be made to look like legitimate geniuses.
Original Article: "How Easy Money Fueled the FTX Crypto Collapse"
This Audio Mises Wire is generously sponsored by Christopher Condon.
As Democrats and Republicans across the country fought over control of Congress in this past midterm election, progressives in Massachusetts and California continued with one of their favorite pastimes: trying to raise taxes on the rich. In Massachusetts, voters were presented with a proposal to add a 4.00 percent tax on annual incomes above $1 million in addition to the state’s current flat tax of 5.00 percent. In California, Proposition 30 aimed to establish a 1.75 percent tax on annual incomes over $2 million.
The Massachusetts proposal passed while Californian voters rejected Prop. 30. Taxes are harmful, especially when they penalize those producing the most value in society. But some progressives are even starting to drop the pretense that taxing the rich is meant to help anybody. So, what can be done to effectively oppose tax increases? The answer may lie in the differences between California and Massachusetts and in how the respective tax hikes were presented to voters.
Taxation is, by its very nature, the violent seizure of wealth. That alone is enough to invalidate any proposition to tax a group or activity. But economic theory also teaches us about the consequences of taxation. And those consequences are bad enough to further disparage the argument for higher taxes. On a society-wide scale, taxing high incomes is particularly destructive. In many ways, the call to raise taxes on high incomes could be better understood as a call to raise taxes on the most productive.
The fact is that businesses and people acting on the free market do not possess the legal ability to acquire wealth by force—that is, to tax. The only way to make money on the market is to offer a good or service that people will freely choose to pay for. Just as losses and pay cuts signify a business or individual’s failure to provide sufficient value to their buyers, profits and high incomes are a consequence of providing real, tangible value to consumers. And just as a tax on cigarettes penalizes smokers, a tax on high incomes penalizes those producing the most value for the most people.
Poverty is the default human condition. And the productive engine of a free market grounded in private property rights is the only means for a society to move beyond poverty. Using the coercive means of government to redistribute existing wealth cannot make a society better off. In fact, it is a destructive force that leaves society poorer. Future production is discouraged, and resources are siphoned out of the private sector. Even on an individual basis, any benefits the poor come by through government subsidies are dwarfed by the benefits that have resulted and will result from the production of goods and services carried out in the search for profit.
One place where many free marketers go wrong is in simply advocating against so-called progressive taxes—higher tax rates for the rich and lower tax rates for the poor. But as Murray Rothbard points out in chapter 4 of Power and Market, it’s the level of taxation that matters, not the shape of the distribution. In other words, if Massachusetts had still chosen to transition from a flat to a progressive tax, but their method for doing so was to cut taxes on lower-income earners, that would be an improvement. It’s raising taxes that’s the problem. The fact that it’s on higher earners will just compound the problem.
Interestingly, some progressives and social democrats have dropped the argument that taxing the rich will yield any tangible benefits for society. Instead, they argue that billionaires shouldn’t exist. Although they attempt to frame their arguments as appeals to fairness, they often come off more as expressions of envy. Distinct from jealousy, envy is the desire to make everyone worse off to address some perceived unfairness. If you see your neighbor’s expensive car and want one for yourself, you’re experiencing jealousy. If you want to destroy your neighbor’s car to make yourself feel better, that’s envy. It’s a nasty emotion, but it’s part of the human condition all the same.
Throughout history, the free market has been one of the few spheres where success could be measured directly. As such, merchants and businesspeople have frequently been the subjects of envy despite producing all the wealth society now relies on. Few classes are more envious than intellectuals. They perceive themselves as smarter than merchants, and yet they struggle in comparison to find patronage for their scholarly services.
The political realm has allowed intellectuals to expropriate the compensation they think they deserve while granting them the means to act on their envy of the business classes. The fervor seen among college professors, public intellectuals, and ideological politicians for taxing the rich and abolishing billionaires is the modern rendition of this historical cliché.
So, if agreement on the destructive nature of taxation is not enough to stop the push for higher taxes, what would work? Perhaps an answer can be found in the recent ballot initiatives in California and Massachusetts. Both propositions were similar, with slightly higher tax rates for annual incomes in the millions of dollars. Back in July, nearly two-thirds of Californians supported the tax hike. But on election day, that reversed, with nearly two-thirds voting against it. What can explain that shift?
Well over those few months, a coalition of businesses, interest groups, and even Democratic governor Gavin Newsom campaigned aggressively against Prop. 30. Their method was to highlight the cronyism behind the initiative. The tax hikes were being sold as a way to help the state fund its attempt to transition away from fossil fuels. Notably, the California Air Resources Board recently passed a proposal to ban the sale of gasoline cars by 2035.
In response, the ride-sharing company Lyft spent $45 million lobbying for the Prop. 30 tax hikes as it would help subsidize the higher costs their drivers faced when transitioning to electric cars. Newsom and the opposition successfully characterized the proposition as an attempt by Lyft to use the tax dollars for their own benefit, as can be seen in this ad.
Conversely, Massachusetts voters were only told the money raised from the new taxes would fund education and transportation. All the same cronyism was at play as the unions who stood to benefit lobbied in favor. But that was hidden behind vague language about services most people agree are good in the abstract. While the intellectuals of the laptop class may be driven by envy, most voters and taxpayers are more interested in not being ripped off. And when effectively presented with the reality that the tax dollars would be used to benefit a politically connected company, taxing the rich fell out of favor.
At the same time, there appears to have been some apprehension in California about inflicting more taxes on a wealthy class who is already fleeing the state in response to its high income taxes. It’s much harder for governments to trample on someone’s rights if they can get their rights back by just moving a hundred miles east. A Harvard Kennedy School professor told Vox Prop. 30 would have to happen at the Federal level. Discourse like this lends credence to the argument that radical decentralization and smaller government territories put a cap on government infringements such as taxes. Imagine if one only had to move five miles.
We know from economic theory that taxes have a destructive effect on the economy and, therefore, on the well-being of everyone in society. The fact that proponents of higher taxes are starting to accept this and still push for higher taxes signals the need for a change in argument. The rejection of a tax increase on the wealthiest Californians in this election supports the case that a focus on cronyism and a push for radical decentralization is the most effective way to limit and even cut the taxes imposed upon the rich and on everyone else.
[This article is excerpted from chapter 15 of Human Action. This article follows "The Market, Part 1."]
- Entrepreneurial Profit and Loss Profit, in a broader sense, is the gain derived from action; it is the increase in satisfaction (decrease in uneasiness) brought about; it is the difference between the higher value attached to the result attained and the lower value attached to the sacrifices made for its attainment; it is, in other words, yield minus costs. To make profit is invariably the aim sought by any action. If an action fails to attain the ends sought, yield either does not exceed costs or lags behind costs. In the latter case the outcome means a loss, a decrease in satisfaction.
Profit and loss in this original sense are psychic phenomena and as such not open to measurement and a mode of expression which could convey to other people precise information concerning their intensity. A man can tell a fellow man that a suits him better than b; but he cannot communicate to another man, except in vague and indistinct terms, how much the satisfaction derived from a exceeds that derived from b.
In the market economy all those things that are bought and sold against money are marked with money prices. In the monetary calculus, profit appears as a surplus of money received over money expended, and loss as a surplus of money expended over money received. Profit and loss can be expressed in definite amounts of money. It is possible to ascertain in terms of money how much an individual has profited or lost. However, this is not a statement about this individual's psychic profit or loss. It is a statement about a social phenomenon, about the individual's contribution to the societal effort as it is appraised by the other members of society. It does not tell us anything about the individual's increase or decrease in satisfaction or happiness. It merely reflects his fellow men's evaluation of his contribution to social cooperation. This evaluation is ultimately determined by the efforts of every member of society to attain the highest possible psychic profit. It is the resultant of the composite effect of all these people's subjective and personal value judgments as manifested in their conduct on the market. But it must not be confused with these value judgments as such.
We cannot even think of a state of affairs in which people act without the intention of attaining psychic profit and in which their actions result neither in psychic profit nor in psychic loss.16 In the imaginary construction of an evenly rotating economy, there are neither money profits nor money losses. But every individual derives a psychic profit from his actions, or else he would not act at all. The farmer feeds and milks his cows and sells the milk because he values the things he can buy against the money thus earned more highly than the costs expended. The absence of money profits or losses in such an evenly rotating system is due to the fact that, if we disregard the differences brought about by the higher valuation of present goods as compared with future goods, the sum of the prices of all complementary factors needed for production precisely equals the price of the product.
In the changing world of reality, differences between the sum of the prices of the complementary factors of production and the prices of the products emerge again and again. It is these differences that bring about money profits and money losses. As far as such changes affect the sellers of labor and those of the original nature-given factors of production and of the capitalists as moneylenders, we will deal with them later. At this point we are dealing with entrepreneurial profit and loss. It is this problem that people have in mind when employing the terms profit and loss in mundane speech.
Like every acting man, the entrepreneur is always a speculator. He deals with the uncertain conditions of the future. His success or failure depends on the correctness of his anticipation of uncertain events. If he fails in his understanding of things to come, he is doomed. The only source from which an entrepreneur's profits stem is his ability to anticipate better than other people the future demand of the consumers. If everybody is correct in anticipating the future state of the market of a certain commodity, its price and the prices of the complementary factors of production concerned would already today be adjusted to this future state. Neither profit nor loss can emerge for those embarking upon this line of business.
The specific entrepreneurial function consists in determining the employment of the factors of production. The entrepreneur is the man who dedicates them to special purposes. In doing so he is driven solely by the selfish interest in making profits and in acquiring wealth. But he cannot evade the law of the market. He can succeed only by hest serving the consumers. His profit depends on the approval of his conduct by the consumers.
One must not confuse entrepreneurial profit and loss with other factors affecting the entrepreneur's proceeds.
The entrepreneur's technological ability does not affect the specific entrepreneurial profit or loss. As far as his own technological activities contribute to the returns earned and increase his net income, we are confronted with a compensation for work rendered. It is wages paid to the entrepreneur for his labor. Neither does the fact that not every process of production succeeds technologically in bringing about the product expected, influence the specific entrepreneurial profit or loss. Such failures are either avoidable or unavoidable. In the first case they are due to the technologically inefficient conduct of affairs. Then the losses resulting are to be debited to the entrepreneur's personal insufficiency, i.e., either to his lack of technological ability or to his lack of the ability to hire adequate helpers. In the second case the failures are due to the fact that the present state of technological knowledge prevents us from fully controlling the condition on which success depends. This deficiency may be caused either by incomplete knowledge concerning the conditions of success or by ignorance of methods for controlling fully some of the known conditions. The price of the factors of production takes into account this unsatisfactory state of our knowledge and technological power. The price of arable land, for instance, takes into full account the fact that there are bad harvests, as it is determined by the anticipated average yield. The fact that the bursting of bottles reduces the output of champagne docs not affect entrepreneurial profit and loss. It is merely one of the factors determining the cost of production and the price of champagne.17
Accidents affecting the process of production, the means of production, or the products while they are still in the hands of the entrepreneur are an item in the bill of production costs. Experience, which conveys to the businessman all other technological knowledge, provides him also with information about the average reduction in the quantity of physical output which such accidents are likely to bring about. By opening contingent reserves, he converts their effects into regular costs of production. With regard to contingencies the expected incidence of which is too rare and too irregular to be dealt with in this u ay by individual firms of normal size, concerted action on the part of sufficiently large groups of firms takes care of the matter. The individual &ms cooperate under the principle of insurance against damage caused by fire, flood, or other similar contingencies. Then an insurance premium is substituted for an appropriation to a contingency reserve. At any rate, the risks incurred by accidents do not introduce uncertainty into the conduct of the technological processes.18 If an entrepreneur neglects to deal with them duly, he gives proof of his technical insufficiency. The losses thus incurred are to be debited to bad techniques applied, not to his entrepreneurial function.
The elimination of those entrepreneurs who fail to give to their enterprises the adequate degree of technological efficiency or whose technological ignorance vitiates their cost calculation is effected on the market in the same way in which those deficient in the performance of the specific entrepreneurial functions are eliminated. It may happen that an entrepreneur is so successful in his specific entrepreneurial function that he can compensate losses caused by his technological failure. It may also happen that an entrepreneur can counterbalance losses due to failure in his entrepreneurial function by the advantages derived from his technological superiority or from the differential rent yielded by the higher productivity of the factors of production he employs. But one must not confuse the various functions which are combined in the conduct of a business unit. The technologically more efficient entrepreneur earns higher wage rates or quasi-wage rates than the less efficient in the same way in which the more efficient worker earns more than the less efficient. The more efficient machine and the more fertile soil produce higher physical returns per unit of costs expended; they yield a differential rent when compared with the less efficient machine and the less fertile soil. The higher wage rates and the higher rent are, ceteris paribus, the corollary of higher physical output. But the specific entrepreneurial profits and losses are not produced by the quantity of physical output. They depend on the adjustment of output to the most urgent wants of the consumers. What produces them is the extent to which the entrepreneur has succeeded or failed in anticipating the future — necessarily uncertain — state of the market.
The entrepreneur is also jeopardized by political dangers. Government policies, revolutions, and wars can damage or annihilate his enterprise. Such events do not affect him alone; they affect the market economy as such and all individuals, although not all of them to the same extent. For the individual entrepreneur they are data which he cannot alter. If he is efficient, he will anticipate them in time. But it is not always possible for him to adjust his operations in such a way as to avoid damage. If the dangers expected concern only a part of the territory which is accessible to his entrepreneurial activities, he can avoid operating in the menaced areas and can prefer countries in which the danger is less imminent. But if he cannot emigrate, he must stay where he is. If all entrepreneurs were fully convinced that the total victory of Bolshevism was impending, they would nevertheless not abandon their entrepreneurial activities. The expectation of imminent expropriation will impel the capitalists to consume their funds. The entrepreneurs will be forced to adjust their plans to the market situation created by such capital consumption and the threatened nationalization of their shops and plants. But they will not stop operating. If some entrepreneurs go out of business, others will take their place — newcomers or old entrepreneurs expanding the size of their enterprises. In the market economy there will always be entrepreneurs. Policies hostile to capitalism may deprive the consumers of the greater part of the benefits they would have reaped from unhampered entrepreneurial activities. But they cannot eliminate the entrepreneurs as such if they do not entirely destroy the market economy.
The ultimate source from which entrepreneurial profit and loss are derived is the uncertainty of the future constellation of demand and supply.
If all entrepreneurs were to anticipate correctly the future state of the market, there would be neither profits nor losses. The prices of all the factors of production would already today be fully adjusted to tomorrow's prices of the products. In buying the factors of production the entrepreneur would have to expend (with due allowance for the difference between the prices of present goods and future goods) no less an amount than the buyers will pap him later for the product. An entrepreneur can make a profit only if he anticipates future conditions more correctly than other entrepreneurs. Then he buys the complementary factors of production at prices the sum of which is smaller than the price at which he sells the product.
If we want to construct the image of changing economic conditions in which there are neither profits nor losses, we must resort to an unrealizable assumption: perfect foresight of all future events on the part of all individuals. If those primitive hunters and fishermen to whom it is customary to ascribe the first accumulation of produced factors of production had known in advance all the future vicissitudes of human affairs, and if they and all their descendants until the last day of judgment, equipped with the same omniscience, had appraised all factors of production accordingly, entrepreneurial profits and losses would never have emerged. Entrepreneurial profits and losses are created through the discrepancy between the expected prices and the prices later really fixed on the markets. It is possible to confiscate profits and to transfer them from the individuals to whom they have accrued to other people. But neither profits nor losses can ever disappear from a changing world not populated solely with omniscient people.
- Entrepreneurial Profits and Losses in a Progressing Economy In the imaginary construction of a stationary economy the total sum of all entrepreneurs' profits equals the total sum of all entrepreneurs' losses. What one entrepreneur profits is in the total economic system counterbalanced by another entrepreneur's loss. The surplus which all the consumers together expend for the acquisition of a certain commodity is counterbalanced by the reduction in their expenditure for the acquisition of other commodities.19
It is different in a progressing economy.
We call a progressing economy an economy in which the per capita quota of capital invested is increasing. In using this term we do not imply value judgments. We adopt neither the "materialistic" view that such a progression is good nor the "idealistic" view that it is bad or at least irrelevant from a "higher point of view." Of course, it is a well-known fact that the immense majority of people consider the consequences of progress in this sense as the most desirable state of affairs and yearn for conditions which can be realized only in a progressing economy.
In the stationary economy the entrepreneurs, in the pursuit of their specific functions, cannot achieve anything other than to withdraw factors of production, provided that they are still convertible,20 from one line of business in order to employ them in another line, or to direct the restoration of the equivalent of capital goods used up in the course of production processes toward the expansion of certain branches of industry at the expense of other branches. In the progressing economy the range of entrepreneurial activities includes, moreover, the determination of the employment of the additional capital goods accumulated by new savings. The injection of these additional capital goods is bound to increase the total sum of the income produced, i.e., of that supply of consumers' goods which can be consumed without diminishing the capital equipment used in its production and thereby without impairing the output of future production. The increase of income is effected either by an expansion of production without altering the technological methods of production or by an improvement in technoIogical methods which would not have been feasible under the previous conditions of a less ample supply of capital goods.
It is out of this additional wealth that the surplus of the total sum of entrepreneurial profits over the total sum of entrepreneurial losses flows. But it can be easily demonstrated that this surplus can never exhaust the total increase in wealth brought about by economic progress. The laws of the market divide this additional wealth between the entrepreneurs and the suppliers of labor and those of certain material factors of production in such a way that the lion's share goes to the nonentrepreneurial groups.
First of all we must realize that entrepreneurial profits are not a lasting phenomenon but only temporary. There prevails an inherent tendency for profits and losses to disappear. The market is always moving toward the emergence of the final prices and the final state of rest. If new changes in the data were not to interrupt this movement and not to create the need for a new adjustment of production to the altered conditions, the prices of all complementary factors of production would — due allowance being made for time preference — finally equal the price of the product, and nothing would be left for profits or losses. In the long run every increase in productivity benefits exclusively the workers and some groups of the owners of land and of capital goods.
In the groups of the owners of capital goods there are benefited:
- Those whose saving has increased the quantity of capital goods available. They own this additional wealth, the outcome of their restraint in consuming.
- The owners of those capital goods already previously existing which, thanks to the improvement in technological methods of production, are now better utilized than before. Such gains are, of course, temporary only. They are bound to disappear as they cause a tendency toward an intensified production of the capital goods concerned.
On the other hand, the increase in the quantity of capital goods available lowers the marginal productivity of capital; it thus brings about a fall in the prices of the capital goods and thereby hurts the interests of all those capitalists who did not share at all or not sufficiently in the process of saving and the accumulation of the additional supply of capital goods.
In the group of the landowners all those are benefited for whom the new state of affairs results in a higher productivity of their farms, forests, fisheries, mines, and so on. On the other hand, all those are hurt whose property may become submarginal on account of the higher return yielded by the land owned by those benefited.
In the group of labor all derive a lasting gain from the increase in the marginal productivity of labor. But, on the other hand, in the short run some may suffer disadvantages. These are people who were specialized in the performance of work which becomes obsolete as a result of technological improvement and are fitted only for jobs in which — in spite of the general rise in wage rates — they earn less than before.
All these changes in the prices of the factors of production begin immediately with the initiation of the entrepreneurial actions designed to adjust the processes of production to the new state of affairs. In dealing with this problem as with the other problems of changes in the market data, we must guard ourselves against the popular fallacy of drawing a sharp line between short-run and long-run effects. What happens in the short run is precisely the first stages of the chain of successive transformations which tend to bring about the long-run effects. The long-run effect is in our case the disappearance of entrepreneurial profits and losses. The short-run effects are the preliminary stages of this process of elimination which finally, if not interrupted by a further change in the data, would result in the emergence of the evenly rotating economy.
It is necessary to comprehend that the very appearance of an excess in the total amount of entrepreneurial profits over the total amount of entrepreneurial losses depends upon the fact that this process of the elimination of entrepreneurial profit and loss begins at the same time as the entrepreneurs begin to adjust the complex of production activities to the changed data. There is never in the whole sequence of events an instant in which the advantages derived from the increase in the amount of capital available and from technical improvements benefit the entrepreneurs only. If the wealth and the income of the other strata were to remain unaffected, these people could buy the additional products only by restricting their purchases of other products accordingly. Then the profits of one group of entrepreneurs would exactly equal the losses incurred by other groups.
What happens is this: The entrepreneurs embarking upon the utilization of the newly accumulated capital goods and the improved technological methods of production are in need of complementary factors of production. Their demand for these factors is a new additional demand which must raise their prices. Only as far as this rise in prices and wage rates occurs are the consumers in a position to buy the new products without curtailing the purchase of other goods.
Only so far can a surplus of the total sum of all entrepreneurial profits over all entrepreneurial losses come into existence.
The vehicle of economic progress is the accumulation of additional capital goods by means of saving and improvement in technological methods of production the execution of which is almost always conditioned by the availability of such new capital. The agents of progress are the promoting entrepreneurs intent upon profiting by means of adjusting the conduct of affairs to the best possible satisfaction of the consumers. In the performance of their projects for the realization of progress they are bound to share the benefits derived from progress with the workers and also with a part of the capitalists and landowners and to increase the portion allotted to these people step by step until their own share melts away entirely.
From this it becomes evident that it is absurd to speak of a "rate of profit" or a "normal rate of profit" or an "average rate of profit." Profit is not related to or dependent on the amount of capital employed by the entrepreneur. Capital does not "beget" profit. Profit and loss are entirely determined by the success or failure of the entrepreneur to adjust production to the demand of the consumers. There is nothing "normal" in profits and there can never be an "equilibrium" with regard to them. Profit and loss are, on the contrary, always a phenomenon of a deviation from "normalcy," of changes unforeseen by the majority, and of a "disequilibrium." They have no place in an imaginary world of normalcy and equilibrium. In a changing economy there prevails always an inherent tendency for profits and losses to disappear. It is only the emergence of new changes which revives them again. Under stationary conditions the "average rate" of profits and losses is zero. An excess of the total amount of profits over that of losses is a proof of the fact that there is economic progress and an improvement in the standard of living of all strata of the population. The greater this excess is, the greater is the increment in general prosperity.
Many people are utterly unfit to deal with the phenomenon of entrepreneurial profit without indulging in envious resentment. In their eyes the source of profit is exploitation of the wage earners and the consumers, i.e., an unfair reduction in wage rates and a no-less-unfair increase in the prices of the products. By rights there should not be any profits at all.
Economics is indifferent with regard to such arbitrary value judgments. It is not interested in the problem of whether profits are to be approved or condemned from the point of view of an alleged natural law and of an alleged eternal and immutable code of morality about which personal intuition or divine revelation are supposed to convey precise information. Economics merely establishes the fact that entrepreneurial profits and losses are essential phenomena of the market economy. There cannot be a market economy without them. It is certainly possible for the police to confiscate all profits. But such a policy would by necessity convert the market economy into a senseless chaos. Man has, there is no doubt, the power to destroy many things, and he has made in the course of history ample use of this faculty. He could destroy the market economy too.
If those self-styled moralists were not blinded by their envy, they would not deal with profit without dealing simultaneously with its corollary, loss. They would not pass over in silence the fact that the preliminary conditions of economic improvement are an achievement of those whose saving accumulates the additional capital goods and of the inventors, and that the utilization of these conditions for the realization of economic improvement is effected by the entrepreneurs. The rest of the people do not contribute to progress, but they are benefited by the horn of plenty which other people's activities pour upon them.
What has been said about the progressing economy is mutatis mutandis to be applied to the conditions of a retrogressing economy, i.e., an economy in which the per capita quota of capital invested is decreasing. In such an economy there is an excess in the total sum of entrepreneurial losses over that of profits. People who cannot free themselves from the fallacy of thinking in concepts of collectives and whole groups might raise the question of how in such a retrogressing economy there could be any entrepreneurial activity at all. Why should anybody embark upon an enterprise if he knows in advance that mathematically his chance of earning profits are smaller than those of suffering losses? However, this mode of posing the problem is fallacious.
Like other people, entrepreneurs do not act as members of a class, but as individuals.
No entrepreneur bothers a whit about the fate of the totality of the entrepreneurs. It is irrelevant to the individual entrepreneur what happens to other people whom theories, according to a certain characteristic, assign to the same class they assign him. In the living, perpetually changing market society there are always profits to be earned by efficient entrepreneurs. The fact that in a retrogressing economy the total amount of losses exceeds the total amount of profits does not deter a man who has confidence in his own superior efficiency. A prospective entrepreneur does not consult the calculus of probability which is of no avail in the field of understanding. He trusts his own ability to understand future market conditions better than his less gifted fellow men.
The entrepreneurial function, the striving of entrepreneurs after profits, is the driving power in the market economy. Profit and loss are the devices by means of which the consumers exercise their supremacy on the market. The behavior of the consumers makes profits and losses appear and thereby shifts ownership of the means of production from the hands of the less efficient into those of the more efficient. It makes a man the more influential in the direction of business activities the better he succeeds in serving the consumers. In the absence of profit and loss the entrepreneurs would not know what the most urgent needs of the consumers are. If some entrepreneurs were to guess it, they would lack the means to adjust production accordingly.
Profit-seeking business is subject to the sovereignty of the consumers, while nonprofit institutions are sovereign unto themselves and not responsible to the public. Production for profit is necessarily production for use, as profits can only be earned by providing the consumers with those things they most urgently want to use.
The moralists' and sermonizers' critique of profits misses the point. It is not the fault of the entrepreneurs that the consumers — the people, the common man — prefer liquor to Bibles and detective stories to serious books, and that governments prefer guns to butter. The entrepreneur does not make greater profits in selling "bad" things than in selling "good" things. His profits are the greater the better he succeeds in providing the consumers with those things they ask for most intensely. People do not drink intoxicating beverages in order to make the "alcohol capital" happy, and they do not go to war in order to increase the profits of the "merchants of death." The existence of the armaments industries is a consequence of the warlike spirit, not its cause.
It is not the business of the entrepreneurs to make people substitute sound ideologies for unsound. It rests with the philosophers to change people's ideas and ideals. The entrepreneur serves the consumers as they are today, however wicked and ignorant.
We may admire those who abstain from making gains they could reap in producing deadly weapons or hard liquor. However, their laudable conduct is a mere gesture without any practical effects. Even if all entrepreneurs and capitalists were to follow their example, wars and dipsomania would not disappear. As was the case in the precapitalistic ages, governments would produce the weapons in their own arsenals and drinkers would distill their own liquor.
Some Observations on the Underconsumption Bogey and on the Purchasing-Power Argument In speaking of underconsumption, people mean to describe a state of affairs in which a part of the goods produced cannot be consumed because the people who could consume them are by their poverty prevented from buying them. These goods remain unsold or can be swapped only at prices not covering the cost of production. Hence various disarrangements and disturbances arise, the total complex of which is called economic depression.
Now it happens again and again that entrepreneurs err in anticipating the future state of the market. Instead of producing those goods for which the demand of the consumers is most intense, they produce less-urgently-needed goods or things which cannot be sold at all. These inefficient entrepreneurs suffer losses while their more efficient competitors who anticipated the wishes of the consumers earn profits. The losses of the former group of entrepreneurs are not caused by a general abstention from buying in the part of the public; they are due to the fact that the public prefers to buy other goods.
If it were true, as the underconsumption myth implies, that the workers are too poor to buy the products because the entrepreneurs and the capitalists unfairly appropriate to themselves what by rights should go to the wage earners, the state of affairs would not be altered. The "exploiters" are not supposed to exploit from sheer wantonness. They want, it is insinuated, to increase at the expense of the "exploited" either their own consumption or their own investments. They do not withdraw their booty from the universe. They spend it either in buying luxuries for their own household or in buying producers' goods for the expansion of their enterprises. Of course, their demand is directed toward goods other than those the wage earners would have bought if the profits had been confiscated and distributed among them. Entrepreneurial errors with regard to the state of the market of various classes of commodities as created by such "exploitation" are in no way different from any other entrepreneurial shortcomings. Entrepreneurial errors result in losses for the inefficient entrepreneurs which are counterbalanced by the profits of the efficient entrepreneurs. They make business bad for some groups of industries and good for other groups. They do not bring about a general depression of trade.
The underconsumption myth is baseless self-contradictory balderdash. Its reasoning crumbles away as soon as one begins to examine it. It is untenable even if one, for the sake of argument, accepts the "exploitation" doctrine as correct.
The purchasing-power argument runs in a slightly different manner. It contends that a rise in wage rates is a prerequisite of the expansion of production. If wage rates do not rise, there is no use for business to increase the quantity and to improve the quality of the goods produced. For the additional products would find no buyers or only such buyers as restrict their purchases of other goods. What is needed first for the realization of economic progress is to make wage rates rise continually. Government or labor-union pressure and compulsion aiming at the enforcement of higher wage rates are the main vehicles of progress.
As has been demonstrated above the emergence of an excess in the total sum of entrepreneurial profits over the total sum of entrepreneurial losses is inseparably bound up with the fact that a portion of the benefits derived from the increase in the quantity of capital goods available and from the improvement of technological procedures goes to the nonentrepreneurial groups. The rise in the prices of complementary factors of production, first among them wage rates, is neither a concession which the entrepreneurs willy-nilly must make to the rest of the people nor a clever device of the entrepreneurs in order to make profits. It is an unavoidable and necessary phenomenon in the chain of successive events which the endeavors of the entrepreneurs to make profits by adjusting the supply of the consumers' goods to the new state of affairs are bound to bring about.
The same process which results in an excess of entrepreneurial profits over losses causes first — i.e., before such an excess appears — the emergence of a tendency toward a rise in wage rates and in the prices of many material factors of production. And it is again the same process that would in the further course of events make this excess of profits over losses disappear, provided that no further changes, increasing the amount of capital goods available, were to occur. The excess of profits over losses is not a consequence of the rise in the prices of the factors of production. The two phenomena — the rise in the prices of the factors of production and the excess of profits over losses — are both steps in the process of adjustment of production to the increase in the quantity of capital goods and to the technological changes which the entrepreneurial actions actuate. Only to the extent that the other strata of the population are enriched by this adjustment can an excess of profits over losses temporarily come into being.
The basic error of the purchasing-power argument consists in misconstruing this causal relation. It turns things upside down when considering the rise in wage rates as the force bringing about economic improvement.
We will discuss at a later stage of this book the consequences of the attempts of the governments and of organized-labor violence to enforce wage rates higher than those determined by a nonhampered market.21 Here we must only add one more explanatory remark.
When speaking of profits and losses, prices and wage rates, what we have in mind is always real profits and losses, real prices and real wage rates. It is the arbitrary interchange of money terms and real terms that has led many people astray. This problem too will be dealt with exhaustively in later chapters. Let us incidentally only mention the fact that a rise in real wage rates is compatible with a drop in nominal wage rates.
- Promoters, Managers, Technicians, and Bureaucrats The entrepreneur hires the technicians, i.e., people who have the ability and the skill to perform definite kinds and quantities of work. The class of technicians includes the great inventors, the champions in the field of applied science, the constructors and designers as well as the performers of the most simple tasks. The entrepreneur joins their ranks as far as he himself takes part in the technical execution of his entrepreneurial plans. The technician contributes his own toil and trouble; but it is the entrepreneur qua entrepreneur who directs his labor toward definite goals. And the entrepreneur himself acts as a mandatary, as it were, of the consumers.
The entrepreneurs are not omnipresent. They cannot themselves attend to the manifold tasks which are incumbent upon them. Adjustment of production to the best possible supplying of the consumers with the goods they are asking for most urgently does not merely consist in determining the general plan for the utilization of resources. There is, of course, no doubt that this is the main function of the promoter and speculator. But besides the great adjustments, many small adjustments are necessary too. Each of them may seem trifling and of little bearing upon the total result. But the cumulative effect of shortcomings in many of these minor matters can be such as to frustrate entirely the success of a correct solution of the great problems. At any rate, it is certain that every failure to handle the smaller problems results in a squandering of scarce factors of production and consequently in impairing the best possible satisfaction of the consumers.
It is important to conceive in what respects the problem we have in mind differs from the technological tasks of the technicians. The execution of every project upon which the entrepreneur has embarked in making his decision with regard to the general plan of action requires a multiplicity of minute decisions. Each of these decisions must be effected in such a way as to prefer that solution of the problem which — without interfering with the designs of the general plan for the whole project — is the most economical one. It must avoid superfluous costs in the same way as does the general plan. The technician from his purely technological point of view either may not see any difference in the alternatives offered by various methods for the solution of such a detail or may give preference to one of these methods on account of its greater output in physical quantities. But the entrepreneur is actuated by the profit motive: this enjoins upon him the urge to prefer the most economical solution, i.e., that solution which avoids employing factors of production whose employment would impair the satisfaction of the more intensely felt wants of the consumers.
He will prefer among the various methods with regard to which the technicians are neutral, the one the application of which requires the smallest cost. He may reject the technicians' suggestion to choose a more costly method securing a greater physical output if his calculation shows that the increase in output would not outweigh the increase in cost required. Not only in the great decisions and plans but no less in the daily decisions of small problems as they turn up in the current conduct of affairs, the entrepreneur must perform his task of adjusting production to the demand of the consumers as reflected in the prices of the market.
Economic calculation as practiced in the market economy, and especially the system of double-entry bookkeeping, make it possible to relieve the entrepreneur of involvement in too much detail. He can devote himself to his great tasks without being entangled in a multitude of trifles beyond any mortal man's range of sight. He can appoint assistants to whose solicitude he entrusts the care of subordinate entrepreneurial duties. And these assistants in their turn can be aided according to the same principle by assistants appointed for a smaller sphere of duties. In this way a whole managerial hierarchy can be built up.
A manager is a junior partner of the entrepreneur, as it were, no matter what the contractual and financial terms of his employment are. The only relevant thing is that his own financial interests force him to attend to the best of his abilities to the entrepreneurial functions which are assigned to him within a limited and precisely determined sphere of action.
It is the system of double-entry bookkeeping that makes the functioning of the managerial system possible. Thanks to it the entrepreneur is in a position to separate the calculation of each part of his total enterprise in such a way that he can determine the role it plays within his whole enterprise. Thus he can look at each section as if it were a separate entity and can appraise it according to the share it contributes to the success of the total enterprise.
Within this system of business calculation each section of a firm represents an integral entity, a hypothetical independent business, as it were. It is assumed that this section "owns" a definite part of the whole capital employed in the enterprise, that it buys from other sections and sells to them, that it has its own expenses and its own revenues, that its dealings result either in a profit or in a loss which is imputed to its own conduct of affairs as distinguished from the result of the other sections. Thus the entrepreneur can assign to each section's management a great deal of independence. The only directive he gives to a man whom he entrusts with the management of a circumscribed job is to make as much profit as possible.
An examination of the accounts shows how successful or unsuccessful the managers were in executing this directive. Every manager and submanager is responsible for the working of his section or subsection. It is to his credit if the accounts show a profit, and it is to his disadvantage if they show a loss. His own interests impel him toward the utmost care and exertion in the conduct of his section's affairs. If he incurs losses, he will be replaced by a man whom the entrepreneur expects to be more successful, or the whole section will be discontinued. At any rate, the manager will lose his job. If he succeeds in making profits, his income will be increased, or at least he will not be in danger of losing it. Whether or not a manager is entitled to a share in the profit imputed to his section is not important with regard to the personal interest he takes in the results of his section's dealings. His welfare is at any rate closely connected with that of his section. His task is not like that of the technician, to perform a definite piece of work according to a definite precept. It is to adjust — within the limited scope left to his discretion — the operation of his section to the state of the market.
Of course, just as an entrepreneur may combine in his person entrepreneurial functions and those of a technician, such a union of various functions can also occur with a manager. The managerial function is always subservient to the entrepreneurial function. It can relieve the entrepreneur of a part of his minor duties; it can never evolve into a substitute for entrepreneurship. The fallacy to the contrary is due to the error confusing the category of entrepreneurship as it is defined in the imaginary construction of functional distribution with conditions in a living and operating market economy. The function of the entrepreneur cannot be separated from the direction of the employment of factors of production for the accomplishment of definite tasks. The entrepreneur controls the factors of production; it is this control that brings him either entrepreneurial profit or loss. It is possible to reward the manager by paying for his services in proportion to the contribution of his section to the profit earned by the entrepreneur. But this is of no avail. As has been pointed out, the manager is under any circumstances interested in the success of that part of the business which is entrusted to his care. But the manager cannot be made answerable for the losses incurred. These losses are suffered by the owners of the capital employed. They cannot be shifted to the manager.
Society can freely leave the care for the best possible employment of capital goods to their owners. In embarking upon definite projects these owners expose their own property, wealth, and social position. They are even more interested in the success of their entrepreneurial activities than is society as a whole. For society as a whole the squandering of capital invested in a definite project means only the loss of a small part of its total funds; for the owner it means much more, for the most part the loss of his total fortune. But if a manager is given a completely free hand, things are different. He speculates in risking other people's money. He sees the prospects of an uncertain enterprise from another angle than that of the man who is answerable for the losses. It is precisely when he is rewarded by a share of the profits that he becomes foolhardy because he does not share in the losses too.
The illusion that management is the totality of entrepreneurial activities and that management is a perfect substitute for entrepreneurship is the outgrowth of a misinterpretation of the conditions of the corporations, the typical form of present-day business. It is asserted that the corporation is operated by the salaried managers, while the shareholders are merely passive spectators. All the powers are concentrated in the hands of hired employees. The shareholders are idle and useless; they harvest what the managers have sown.
This doctrine disregards entirely the role that the capital and money market, the stock and bond exchange, which a pertinent idiom simply calls the "market," plays in the direction of corporate business. The dealings of this market are branded by popular anticapitalistic bias as a hazardous game, as mere gambling. In fact, the changes in the prices of common and preferred stock and of corporate bonds are the means applied by the capitalists for the supreme control of the flow of capital. The price structure as determined by the speculations on the capital and money markets and on the big commodity exchanges not only decides how much capital is available for the conduct of each corporation's business; it creates a state of affairs to which the managers must adjust their operations in detail.
The general direction of a corporation's conduct of business is exercised by the stockholders and their elected mandataries, the directors. The directors appoint and discharge the managers. In smaller companies and sometimes even in bigger ones the offices of the directors and the managers are often combined in the same persons. A successful corporation is ultimately never controlled by hired managers. The emergence of an omnipotent managerial class is not a phenomenon of the unhampered market economy. It was, on the contrary, an outgrowth of the interventionist policies consciously aiming at an elimination of the influence of the shareholders and at their virtual expropriation.
In Germany, Italy, and Austria it was a preliminary step on the way toward the substitution of government control of business for free enterprise, as has been the case in Great Britain with regard to the Bank of England and the railroads. Similar tendencies are prevalent in the American public utilities. The marvelous achievements of corporate business were not a result of the activities of a salaried managerial oligarchy; they were accomplished by people who were connected with the corporation by means of the ownership of a considerable part or of the greater part of its stock and whom part of the public scorned as promoters and profiteers.
The entrepreneur determines alone, without any managerial interference, in what lines of business to employ capital and how much capital to employ. He determines the expansion and contraction of the size of the total business and its main sections. He determines the enterprise's financial structure. These are the essential decisions which are instrumental in the conduct of business. They always fall upon the entrepreneur, in corporations as well as in other types of a firm's legal structure. Any assistance given to the entrepreneur in this regard is of ancillary character only; he takes information about the past state of affairs from experts in the fields of law, statistics, and technology; but the final decision implying a judgment about the future state of the market rests with him alone. The execution of the details of his projects may then be entrusted to managers.
The social functions of the managerial elite are no less indispensable for the operation of the market economy than are the functions of the elite of inventors, technologists, engineers, designers, scientists, and experimenters. In the ranks of the managers many of the most eminent men serve the cause of economic progress. Successful managers are remunerated by high salaries and often by a share in the enterprise's gross profits. Many of them in the course of their careers become themselves capitalists and entrepreneurs. Nonetheless, the managerial function is different from the entrepreneurial function.
It is a serious mistake to identify entrepreneurship with management as in the popular antithesis of "management" and "labor." This confusion is, of course, intentional. It is designed to obscure the fact that the functions of entrepreneurship are entirely different from those of the managers attending to the minor details of the conduct of business. The structure of business, the allocation of capital to the various branches of production and firms, the size and the line of operation of each plant and shop are considered as given facts and it is implied that no further changes will be effected with regard to them. The only task is to go on in the old routine. In such a stationary world, of course, there is no need for innovators and promoters; the total amount of profits is counterbalanced by the total amount of losses. To explode the fallacies of this doctrine it is enough to compare the structure of American business in 1945 with that of 1915.
But even in a stationary world it would be nonsensical to give "labor," as a popular slogan demands, a share in management. The realization of such a postulate would result in syndicalism.22
There is furthermore a readiness to confuse the manager with a bureaucrat.
Bureaucratic management, as distinguished from profit management, is the method applied in the conduct of administrative affairs, the result of which has no cash value on the market. The successful performance of the duties entrusted to the care of a police department is of the greatest importance for the preservation of social cooperation and benefits each member of society. But it has no price on the market, it cannot be bought or sold; it can therefore not be confronted with the expenses incurred in the endeavors to secure it. It results in gains, but these gains are not reflected in profits liable to expression in terms of money. The methods of economic calculation, and especially those of double-entry bookkeeping, are not applicable to them. Success or failure of a police department's activities cannot be ascertained according to the arithmetical procedures of profit-seeking business. No accountant can establish whether or not a police department or one of its subdivisions has succeeded.
It is precisely when a manager is rewarded by a share of the profits that he becomes foolhardy because he does not share in the losses too. The amount of money to be expended in every branch of profit-seeking business is determined by the behavior of the consumers. If the automobile industry were to treble the capital employed, it would certainly improve the services it renders to the public. There would be more cars available. But this expansion of the industry would withhold capital from other branches of production in which it could fill more urgent wants of the consumers. This fact would render the expansion of the automobile industry unprofitable and increase profits in other branches of business. In their endeavors to strive after the highest profit obtainable, entrepreneurs are forced to allocate to each branch of business only as much capital as can be employed in it without impairing the satisfaction of more urgent wants of the consumers. Thus the entrepreneurial activities are automatically, as it were, directed by the consumers' wishes as they are reflected in the price structure of consumers' goods.
No such limitation is enjoined upon the allocation of funds for the performance of the tasks incumbent upon government activities. There is no doubt that the services rendered by the police department of the City of New York could be considerably improved by trebling the budgetary allocation. But the question is whether or not this improvement would be considerable enough to justify either the restriction of the services rendered by other departments — e.g., those of the department of sanitation — or the restriction of the private consumption of the taxpayers. This question cannot be answered by the accounts of the police department. These accounts provide information only about the expenses incurred. They cannot provide any information about the results obtained, as these results cannot be expressed in money equivalents. The citizens must directly determine the amount of services they want to get and are ready to pay for. They discharge this task by electing councilmen and officeholders who are prepared to comply with their intentions.
Thus the mayor and the chiefs of the city's various departments are restricted by the budget. They are not free to act upon what they themselves consider the most beneficial solution of the various problems the citizenry has to face. They are bound to spend the funds allocated for the purposes the budget has assigned them. They must not use them for other tasks. Auditing in the field of public administration is entirely different from that in the field of profit-seeking business. Its goal is to establish whether or not the funds allocated have been expended in strict compliance with the provisions of the budget.
In profit-seeking business the discretion of the managers and submanagers is restricted by considerations of profit and loss. The profit motive is the only directive needed to make them subservient to the wishes of the consumers. There is no need to restrict their discretion by minute instructions and rules. If they are efficient, such meddling with details would at best be superfluous, if not pernicious in tying their hands. If they are inefficient, it would not render their activities more successful. It would only provide them with a lame excuse that the failure was caused by inappropriate rules. The only instruction required is self-understood and does not need to be especially mentioned: seek profit.
Things are different in public administration, in the conduct of government affairs. In this field the discretion of the officeholders and their subaltern aids is not restricted by considerations of profit and loss. If their supreme boss — no matter whether he is the sovereign people or a sovereign despot — were to leave them a free hand, he would renounce his own supremacy in their favor. These officers would become irresponsible agents, and their power would supersede that of the people or the despot. They would do what pleased them, not what their bosses wanted them to do. To prevent this outcome and to make them subservient to the will of their bosses it is necessary to give them detailed instructions regulating their conduct of affairs in every respect. Then it becomes their duty to handle all affairs in strict compliance with these rules and regulations. Their freedom to adjust their acts to what seems to them the most appropriate solution of a concrete problem is limited by these norms. They are bureaucrats, i.e., men who in every instance must observe a set of inflexible regulations.
Bureaucratic conduct of affairs is conduct bound to comply with detailed rules and regulations fixed by the authority of a superior body. It is the only alternative to profit management. Profit management is inapplicable in the pursuit of affairs which have no cash value on the market and in the nonprofit conduct of affairs which could also be operated on a profit basis. The former is the case of the administration of the social apparatus of coercion and compulsion; the latter is the case in the conduct of an institution on a nonprofit basis, e.g., a school, a hospital, or a postal system. Whenever the operation of a system is not directed by the profit motive, it must be directed by bureaucratic rules.
Bureaucratic conduct of affairs is, as such, not an evil. It is the only appropriate method of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is — in this field — no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable. A socialist government must apply them to all affairs.
No business, whatever its size or specific task, can ever become bureaucratic so long as it is entirely and solely operated on a profit basis. But as soon as it abandons profit — seeking and substitutes for it what is called the service principle — i.e., the rendering of services without regard as to whether or not the prices to be obtained for them cover the expenses — it must adopt bureaucratic methods for those of entrepreneurial management.23
- The Selective Process The selective process of the market is actuated by the composite effort of all members of the market economy. Driven by the urge to remove his own uneasiness as much as possible, each individual is intent, on the one hand, upon attaining that position in which he can contribute most to the best satisfaction of everyone else and, on the other hand, upon taking best advantage of the services offered by everyone else. This means that he tries to sell on the dearest market and to buy on the cheapest market. The resultant of these endeavors is not only the price structure but no less the social structure, the assignment of definite tasks to the various individuals.
The market makes people rich or poor, determines who shall run the big plants and who shall scrub the floors, fixes how many people shall work in the copper mines and how many in the symphony orchestras. None of these decisions is made once and for all; they are revocable every day. The selective process never stops. It goes on adjusting the social apparatus of production to the changes in demand and supply. It reviews again and again its previous decisions and forces everybody to submit to a new examination of his case. There is no security and no such thing as a right to preserve any position acquired in the past. Nobody is exempt from the law of the market, the consumers' sovereignty.
Ownership of the means of production is not a privilege, but a social liability. Capitalists and landowners are compelled to employ their property for the best possible satisfaction of the consumers. If they are slow and inept in the performance of their duties, they are penalized by losses. If they do not learn the lesson and do not reform their conduct of affairs, they lose their wealth. No investment is safe forever. He who does not use his property in serving the consumers in the most efficient way is doomed to failure. There is no room left for people who would like to enjoy their fortunes in idleness and thoughtlessness. The proprietor must aim to invest his funds in such a way that principal and yield are at least not impaired.
In the ages of caste privileges and trade barriers there were revenues not dependent on the market. Princes and lords lived at the expense of the humble slaves and serfs who owed them tithes, statute labor, and tributes. Ownership of land could only be acquired either by conquest or by largesse on the part of a conqueror. It could be forfeited only by recantation on the part of the donor or by conquest on the part of another conqueror.
Even later, when the lords and their liegemen began to sell their surpluses on the market, they could not be ousted by the competition of more efficient people. Competition was free only within very narrow limits. The acquisition of manorial estates was reserved to the nobility, that of urban real property to the citizens of the township, that of farm land to the peasants. Competition in the arts and crafts was restricted by the guilds. The consumers were not in a position to satisfy their wants in the cheapest way, as price control made underbidding impossible to the sellers. The buyers were at the mercy of their purveyors. If the privileged producers refused to resort to the employment of the most adequate raw materials and of the most efficient methods of processing, the consumers were forced to endure the consequences of such stubbornness and conservatism.
The landowner who lives in perfect self-sufficiency from the fruits of his own farming is independent of the market. But the modern farmer who buys equipment, fertilizers, seed, labor, and other factors of production and sells agricultural products is subject to the law of the market. His income depends on the consumers and he must adjust his operations to their wishes.
The selective function of the market works also with regard to labor. The worker is attracted by that kind of work in which he can expect to earn most. As is the case with material factors of production, the factor labor too is allocated to those employments in which it best serves the consumers. There prevails the tendency not to waste any quantity of labor for the satisfaction of less urgent demand if more urgent demand is still unsatisfied. Like all other strata of society, the worker is subject to the supremacy of the consumers. If he disobeys, he is penalized by a cut in income.
The selection of the market does not establish social orders, castes, or classes in the Marxian sense. Nor do the entrepreneurs and promoters form an integrated social class. Each individual is free to become a promoter if he relies upon his own ability to anticipate future market conditions better than his fellow citizens, and if his attempts to act at his own peril and on his own responsibility are approved by the consumers. One enters the ranks of the promoters by aggressively pushing forward and thus submitting to the trial to which the market subjects, without respect for persons, everybody who wants to become a promoter or to remain in this eminent position. Everybody has the opportunity to take his chance. A newcomer does not need to wait for an invitation or encouragement from anyone. He must leap forward on his own account and must himself know how to provide the means needed.
It has been contended again and again that under the conditions of "late" or "mature" capitalism it is no longer possible for penniless people to climb the ladder to wealth and entrepreneurial position. No attempt has ever been made to prove this thesis. Since it was first advanced, the composition of the entrepreneurial and capitalist groups has changed considerably. A great part of the former entrepreneurs and their heirs have been eliminated and other people, newcomers, have taken their places.
It is, of course, true that in the last years institutions have been purposely developed which, if not abolished very soon, will make the functioning of the market in every regard impossible. The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers. They do not bother about other features and merits. They want a shoe manufacturer to fabricate good and cheap shoes. They are not intent upon entrusting the conduct of the shoe trade to handsome amiable boys, to people of good drawing-room manners, of artistic gifts, of scholarly habits, or of any other virtues or talents. A proficient businessman may often be deficient in many accomplishments which contribute to the success of a man in other spheres of life.
It is quite common nowadays to deprecate the capitalists and entrepreneurs. A man is prone to sneer at those who are more prosperous than himself. These people, he contends, are richer only because they are less scrupulous than he. If he were not restrained by due consideration for the laws of morality and decency, he would be no less successful than they are. Thus men glory in the aureole of self-complacency and Pharisaic self-righteousness.
Now it is true that, under the conditions brought about by interventionism, many people can acquire wealth by graft and bribery. In many countries interventionism has so undermined the supremacy of the market that it is more advantageous for a businessman to rely upon the aid of those in political office than upon the best satisfaction of the needs of the consumers. But it is not this that the popular critics of other people's wealth have in mind. They contend that the methods by which wealth is acquired in a pure market society are objectionable from the ethical point of view. Against such statements it is necessary to emphasize that, so far as the operation of the market is not sabotaged by the interference of governments and other factors of coercion, success in business is the proof of services rendered to the consumers.
The poor man need not be inferior to the prosperous businessman in other regards; he may sometimes be outstanding in scientific, literary, and artistic achievements or in civic leadership. But in the social system of production, he is inferior. The creative genius may be right in his disdain for commercial success; it may be true that he would have been prosperous in business if he had not preferred other things. But the clerks and workers who boast of their moral superiority deceive themselves and find consolation in this self-deception. They do not admit that they have been tried and found wanting by their fellow citizens, the consumers.
It is often asserted that the poor man's failure in the competition of the market is caused by his lack of education. Equality of opportunity, it is said, could be provided only by making education at every level accessible to all. There prevails today the tendency to reduce all differences among various peoples to their education and to deny the existence of inborn inequalities in intellect, will power, and character. It is not generally realized that education can never be more than indoctrination with theories and ideas already developed. Education, whatever benefits it may confer, is transmission of traditional doctrines and valuations; it is by necessity conservative. It produces imitation and routine, not improvement and progress. Innovators and creative geniuses cannot be reared in schools. They are precisely the men who defy what the school has taught them.
In order to succeed in business, a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy. The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal to their social function of adjusting production to the most urgent demand. Because of these merits, the consumers chose them for business leadership.
- The Individual and the Market It is customary to speak metaphorically of the automatic and anonymous forces actuating the "mechanism" of the market. In employing such metaphors people are ready to disregard the fact that the only factors directing the market and the determination of prices are purposive acts of men. There is no automatism; there are only men consciously and deliberately aiming at ends chosen. There are no mysterious mechanical forces; there is only the human will to remove uneasiness. There is no anonymity; there is I and you and Bill and Joe and all the rest. And each of us is both a producer and a consumer.
The market is a social body; it is the foremost social body. The market phenomena are social phenomena. They are the resultant of each individual's active contribution. But they are different from each such contribution. They appear to the individual as something given which he himself cannot alter. He does not always see that he himself is a part, although a small part, of the complex of elements determining each momentary state of the market. Because he fails to realize this fact, he feels himself free, in criticizing the market phenomena, to condemn with regard to his fellow men a mode of conduct which he considers as quite right with regard to himself. He blames the market for its callousness and disregard of persons and asks for social control of the market in order to "humanize" it. He asks on the one hand for measures to protect the consumer against the producers. But on the other hand he insists even more passionately upon the necessity of protecting himself as a producer against the consumers. The outcome of these contradictory demands is the modern methods of government interference whose most outstanding examples were the Sozialpolitik of imperial Germany and the American New Deal.
It is an old fallacy that it is a legitimate task of civil government to protect the less efficient producer against the competition of the more efficient. One asks for a "producers' policy" as distinct from a "consumers' policy." While flamboyantly repeating the truism that the only aim of production is to provide ample supplies for consumption, people emphasize with no less eloquence that the "industrious" producer should be protected against the "idle" consumer.
However, producers and consumers are identical. Production and consumption are different stages in acting. Catallactics embodies these differences in speaking of producers and consumers. But in reality they are the same people. It is, of course, possible to protect a less efficient producer against the competition of more efficient fellows. Such a privilege conveys to the privileged the benefits which the unhampered market provides only to those who succeed in best filling the wants of the consumers. But it necessarily impairs the satisfaction of the consumers. If only one producer or a small group is privileged, the beneficiaries enjoy an advantage at the expense of the rest of the people. But if all producers are privileged to the same extent, everybody loses in his capacity as consumer as much as he gains in his capacity as a producer. Moreover, all are injured because the supply of products drops if the most efficient men are prevented from employing their skill in that field in which they could render the best services to the consumers.
If a consumer believes that it is expedient or right to pay a higher price for domestic cereals than for cereals imported from abroad, or for manufactures processed in plants operated by small business or employing unionized workers than for those of another provenance, he is free to do so. He would only have to satisfy himself that the commodity offered for sale meets the conditions upon which he makes the allowance of a higher price depend. Laws which forbid counterfeiting of labels of origin and trademarks would succeed in attaining the ends aimed at by tariffs, labor legislation, and privileges granted to small business, But it is beyond doubt that the consumers are not prepared to act in this way. The fact that a commodity is marked as imported does not impair its salability if it is better or cheaper, or both. As a rule the buyers want to buy as cheaply as possible without regard for the origin of the article or some particular characteristics of the producers.
The psychological root of the producers' policy as practiced today in all parts of the world is to be seen in spurious economic doctrines. These doctrines flatly deny that the privileges granted to less efficient producers burden the consumer. Their advocates contend that such measures are prejudicial only to those against whom they discriminate. When, pressed further, they are forced to admit that the consumers are damaged too, they maintain that the losses of the consumers are more than compensated by an increase in their money income which the measures in question are bound to bring about.
Thus in the predominantly industrial countries of Europe the protectionists were first eager to declare that the tariff on agricultural products hurts exclusively the interests of the farmers of the predominantly agricultural countries and of the grain dealers. It is certain that these exporting interests are damaged too. But it is no less certain that the consumers of the country that adopts the tariff policy are losing with them. They must pay higher prices for their food. Of course, the protectionist retorts, that this is not a burden. For, he argues, the additional amount that the domestic consumer pays increases the farmers' income and their purchasing power; they will spend the whole surplus in buying more of the products manufactured by the nonagricultural strata of the population. This paralogism can easily be exploded by referring to the well-known anecdote of the man who asks an innkeeper for a gift of ten dollars; it will not cost him anything because the beggar promises to spend the whole amount in his inn. But for all that, the protectionist fallacy got hold of public opinion, and this alone explains the popularity of the measures inspired by it. Many people simply do not realize that the only effect of protection is to divert production from those places in which it could produce more per unit of capital and labor expended to places in which it produces less. It makes people poorer, not more prosperous.
The ultimate foundation of modern protectionism and of the striving for economic autarky of each country is to be found in this mistaken belief that they are the best means to make every citizen, or at least the immense majority of them, richer. The term "riches" means in this connection an increase in the individual's real income and an improvement in his standard of living. It is true that the policy of national economic insulation is a necessary corollary of the endeavors to interfere with domestic business, and that it is an outcome of warlike tendencies as well as one of the factors producing these tendencies. But the fact remains that it would never have been possible to sell the idea of protection to the voters if one had not been able to convince them that protection not only does not impair their standard of living but raises it considerably.
It is important to emphasize this fact because it utterly explodes a myth propagated by many popular books. According to these myths, contemporary man is no longer motivated by the desire to improve his material well-being and to raise his standard of living. The assertions of the economists to the contrary are mistaken. Modern man gives priority to "noneconomic" or "irrational" things and is ready to forego material betterment whenever its attainment stands in the way of those "ideal" concerns. It is a serious blunder, common mostly with economists and businessmen, to interpret the events of our time from an "economic" point of view and to criticize current ideologies with regard to the alleged economic fallacies implied. People long for other things more than for a good life.
It is hardly possible to misconstrue the history of our age more crassly. Our contemporaries are driven by a fanatical zeal to get more amenities and by an unrestrained appetite to enjoy life. A characteristic social phenomenon of our day is the pressure group, an alliance of people eager to promote their own material well-being by the employment of all means, legal or illegal, peaceful or violent. For the pressure group nothing matters but the increase of its members' real income. It is not concerned with any other aspects of life. It does not bother whether or not the realization of its program hurts the vital interests of other men, of their own nation or country, and of the whole of mankind. But, of course, every pressure group is anxious to justify its demands as beneficial to the general public welfare and to stigmatize its critics as abject scoundrels, idiots, and traitors. In the pursuit of its plans it displays a quasi-religious ardor.
Without exception, all political parties promise their supporters a higher real income. There is no difference in this respect between nationalists and internationalists and between the supporters of a market economy and the advocates of either socialism or interventionism. If a party asks its supporters to make sacrifices for its cause, it always explains these sacrifices as the necessary temporary means for the attainment of the ultimate goal, the improvement of the material well-being of its members. Each party considers it as an insidious plot against its prestige and its survival if somebody ventures to question the capacity of its projects to make the group members more prosperous. Each party regards with a deadly hatred the economists embarking upon such a critique.
All varieties of the producers' policy are advocated on the ground of their alleged ability to raise the party members' standard of living. Protectionism and economic self-sufficiency, labor-union pressure and compulsion, labor legislation, minimum wage rates, public spending, credit expansion, subsidies, and other makeshifts are always recommended by their advocates as the most suitable or the only means to increase the real income of the people for whose votes they canvass. Every contemporary statesman or politician invariably tells his voters: My program will make you as affluent as conditions may permit, while my adversaries' program will bring you want and misery.
It is true that some secluded intellectuals in their esoteric circles talk differently. They proclaim the priority of what they call eternal absolute values and feign in their declamations — not in their personal conduct — a disdain of things secular and transitory. But the public ignores such utterances. The main goal of present-day political action is to secure for the respective pressure group memberships the highest material well-being. The only way for a leader to succeed is to instill in people the conviction that his program best serves the attainment of this goal.
What is wrong with the producers' policies is their faulty economics.
If one is prepared to indulge in the fashionable tendency to explain human things by resorting to the terminology of psychopathology, one might be tempted to say that modern man in contrasting a producers' policy with a consumers' policy has fallen victim to a kind of schizophrenia. He fails to realize that he is an undivided and indivisible person, i.e., an individual, and as such no less a consumer than a producer. The unity of his consciousness is split into two parts; his mind is inwardly divided against himself. But it matters little whether or not we adopt this mode of describing the fact that the economic doctrine resulting in these policies is faulty. We are not concerned with the pathological source from which an error may stem, but with the error as such and with its logical roots. The unmasking of the error by means of ratiocination is the primary fact. If a statement were not exposed as logically erroneous, psychopathology would not be in a position to qualify the state of mind from which it stems as pathological. If a man imagines himself to be the king of Siam, the first thing which the psychiatrist has to establish is whether or not he really is what he believes himself to be. Only if this question is answered in the negative can the man be considered insane.
It is true that most of our contemporaries are committed to a fallacious interpretation of the producer-consumer nexus. In buying they behave as if they were connected with the market only as buyers, and vice versa in selling. As buyers they advocate stern measures to protect them against the sellers, and as sellers they advocate no less harsh measures against the buyers. But this antisocial conduct which shakes the very foundations of social cooperation is not an outgrowth of a pathological state of mind. It is the outcome of a narrow-mindedness which fails to conceive the operation of the market economy and to anticipate the ultimate effects of one's own actions.
It is permissible to contend that the immense majority of our contemporaries are mentally and intellectually not adjusted to life in the market society although they themselves and their fathers have unwittingly created this society by their actions. But this maladjustment consists in nothing else than in the failure to recognize erroneous doctrines as such.
- Business Propaganda The consumer is not omniscient. He does not know where he can obtain at the cheapest price what he is looking for. Very often he does not even know what kind of commodity or service is suitable to remove most efficaciously the particular uneasiness he wants to remove. At best he is familiar with the market conditions of the immediate past and arranges his plans on the basis of this information. To convey to him information about the actual state of the marker is the task of business propaganda.
Business propaganda must be obtrusive and blatant. It is its aim to attract the attention of slow people, to rouse latent wishes, to entice men to substitute innovation for inert clinging to traditional routine. In order to succeed, advertising must be adjusted to the mentality of the people courted. It must suit their tastes and speak their idiom. Advertising is shrill, noisy, coarse, puffing, because the public does not react to dignified allusions. It is the bad taste of the public that forces the advertisers to display bad taste in their publicity campaigns. The art of advertising has evolved into a branch of applied psychology, a sister discipline of pedagogy.
Like all things designed to suit the taste of the masses, advertising is repellent to people of delicate feeling. This abhorrence influences the appraisal of business propaganda. Advertising and all other methods of business propaganda are condemned as one of the most outrageous outgrowths of unlimited competition. It should be forbidden. The consumers should be instructed by impartial experts; the public schools, the "nonpartisan" press, and cooperatives should perform this task.
The restriction of the right of businessmen to advertise their products would restrict the freedom of the consumers to spend their income according to their own wants and desires. It would make it impossible for them to learn as much as they can and want about the state of the market and the conditions which they may consider as relevant in choosing what to buy and what not to buy. They would no longer be in a position to decide on the basis of the opinion which they themselves have formed about the seller's appraisal of his products; they would be forced to act on the recommendation of other people. It is not unlikely that these mentors would save them some mistakes. But the individual consumers would be under the tutelage of guardians. If advertising is not restricted, the consumers are by and large in the position of a jury which learns about the case by hearing the witnesses and examining directly all other means of evidence. If advertising is restricted, they are in the position of a jury to whom an officer reports about the result of his own examination of evidence.
It is a widespread fallacy that skillful advertising can talk the consumers into buying everything that the advertiser wants them to buy. The consumer is, according to this legend, simply defenseless against "high-pressure" advertising. If this were true, success or failure in business would depend on the mode of advertising only. However, nobody believes that any kind of advertising would have succeeded in making the candle makers hold the field against the electric bulb, the horse drivers against the motorcars, the goose quill against the steel pen and later against the fountain pen. But whoever admits this implies that the quality of the commodity advertised is instrumental in bringing about the success of an advertising campaign. Then there is no reason to maintain that advertising is a method of cheating the gullible public.
It is certainly possible for an advertiser to induce a man to try an article which he would not have bought if he had known its qualities beforehand. But as long as advertising is free to all competing firms, the article which is better from the point of view of the consumers' appetites will finally outstrip the less appropriate article, whatever methods of advertising may be applied. The tricks and artifices of advertising are available to the seller of the better product no less than to the seller of the poorer product. But only the former enjoys the advantage derived from the better quality of his product. The effects of advertising of commodities are determined by the fact that as a rule the buyer is in a position to form a correct opinion about the usefulness of an article bought.
The housewife who has tried a particular brand of soap or canned food learns from experience whether it is good for her to buy and consume that product in the future too. Therefore advertising pays the advertiser only if the examination of the first sample bought does not result in the consumer's refusal to buy more of it. It is agreed among businessmen that it does not pay to advertise products other than good ones. Entirely different are conditions in those fields in which experience cannot teach us anything. The statements of religious, metaphysical, and political propaganda can be neither verified nor falsified by experience. With regard to the life beyond and the absolute, any experience is denied to men living in this world.
In political matters, experience is always the experience of complex phenomena which is open to different interpretations; the only yardstick which can be applied to political doctrines is aprioristic reasoning. Thus political propaganda and business propaganda are essentially different things, although they often resort to the same technical methods.
There are many evils for which contemporary technology and therapeutics have no remedy. There are incurable diseases and there are irreparable personal defects. It is a sad fact that some people try to exploit their fellow men's plight by offering them patent medicines. Such quackeries do not make old people young and ugly girls pretty. They only raise hopes. It would not impair the operation of the market if the authorities were to prevent such advertising, the truth of which cannot be evidenced by the methods of the experimental natural sciences. But whoever is ready to grant to the government this power would be inconsistent if he objected to the demand to submit the statements of churches and sects to the same examination. Freedom is indivisible. As soon as one starts to restrict it, one enters upon a decline on which it is difficult to stop. If one assigns to the government the task of making truth prevail in the advertising of perfumes and toothpaste, one cannot contest it the right to look after truth in the more important matters of religion, philosophy, and social ideology.
The idea that business propaganda can force the consumers to submit to the will of the advertisers is spurious. Advertising can never succeed in supplanting better or cheaper goods available and offered for sale.
The costs incurred by advertising are, from the point of view of the advertiser, a part of the total bill of production costs. A businessman expends money for advertising if and as far as he expects that the increase in sales resulting will increase the total net proceeds. In this regard there is no difference between the costs of advertising and all other costs of production. An attempt has been made to distinguish between production costs and sales costs. An increase in production costs, it has been said, increases supply, while an increase in sales costs (advertising costs included) increases demand.24 This is a mistake. All costs of production are expended with the intention of increasing demand. If the manufacturer of candy employs a better raw material, he aims at an increase in demand in the same way as he does in making the wrappings more attractive and his stores more inviting and in spending more for advertisements. In increasing production costs per unit of the product the idea is always to increase demand. If a businessman wants to increase supply, he must increase the total cost of production, which often results in lowering production costs per unit.
- The "Volkswirtschaft" The market economy as such does not respect political frontiers. Its field is the world.
The term Volkswirtschaft was long applied by the German champions of government omnipotence. Only much later did the British and the French begin to speak of the "British economy" and "l'économie française" as distinct from the economies of other nations. But neither the English nor the French language produced an equivalent of the term Volkswirtschaft. With the modern trend toward national planning and national autarky, the doctrine involved in this German word became popular everywhere. Nonetheless, only the German language is able to express in one word all the ideas implied. The Volkswirtschaft is a sovereign nation's total complex of economic activities directed and controlled by the government. It is socialism realized within the political frontiers of each nation.
In employing this term people are fully aware of the fact that real conditions differ from the state of affairs which they deem the only adequate and desirable state. But they judge everything that happens in the market economy from the point of view of their ideal. They assume that there is an irreconcilable conflict between the interests of the Volkswirtschaft and those of the selfish individuals eager to seek profit. They do not hesitate to assign priority to the interests of the Volkswirtschaft over those of the individuals. The righteous citizen should always place the volkswirtschaftliche interests above his own selfish interests. He should act of his own accord as if he were an officer of the government executing its orders.
Gemeinnutz geht vor Eigennutz (the welfare of the nation takes precedence over the selfishness of the individuals) was the fundamental principle of Nazi economic management. But as people are too dull and too vicious to comply with this rule, it is the task of government to enforce it. The German princes of the 17th and 18th century, foremost among them the Hohenzollern electors of Brandenburg and kings of Prussia, were fully equal to this task. In the 19th century, even in Germany the liberal ideologies imported from the West superseded the well-tried and natural policies of nationalism and socialism. However, Bismarck's and his successors' Sozialpolitik and finally Nazism restored them. The interests of a Volkswirtschaft are seen as implacably opposed not only to those of the individuals, but no less to those of the Volkswirtschaft of any foreign nation. The most desirable state of a Volkswirtschaft is complete economic self-sufficiency. A nation which depends on any imports from abroad lacks economic independence; its sovereignty is only a sham. Therefore a nation which cannot produce at home all that it needs is bound to conquer all the territories required. To be really sovereign and independent a nation must have Lebensraum, i.e., a territory so large and rich in natural resources that it can live in autarky at a standard no lower than that of any other nation. Thus the idea of the Volkswirtschaft is the most radical denial of all the principles of the market economy. It was this idea that guided, more or less, the economic policies of all nations in the last decades.
It was the pursuit of this idea that brought about the terrific wars of our century and will probably kindle still more pernicious wars in the future.
From the early beginnings of human history the two opposite principles of the market economy and of the Volkswirtschaft fought each other. Government, i.e., a social apparatus of coercion and compulsion, is a necessary requisite of peaceful cooperation. The market economy cannot do without a police power safeguarding its smooth functioning by the threat or the application of violence against peace breakers. But the indispensable administrators and their armed satellites are always tempted to use their arms for the establishment of their own totalitarian rule. For ambitious kings and generalissimos the very existence of a sphere of individuals' lives not subject to regimentation is a challenge. Princes, governors, and generals are never spontaneously liberal. They become liberal only when forced to by the citizens.
The problems raised by the plans of the socialists and the interventionists will be dealt with in later parts of this book. Here we have only to answer the question of whether or not any of the essential features of the Volkswirtschaft are compatible with the market economy. For the champions of the idea of the Volkswirtschaft do not consider their scheme merely as a pattern for the establishment of a future social order. They declare emphatically that even under the system of the market economy, which, or course, in their eyes is a debased and vicious product of policies contrary to human nature, the Volkswirtschaft of the various nations are integrated units whose interests are irreconcilably opposed to those of all other nations' Volkswirtschaft. What separates one Volkswirtschaft from all the others is not, as the economists would have us believe, merely political institutions. It is not the trade and migration barriers established by government interference with business and the differences in legislation and in the protection granted to the individuals by the courts and tribunals that bring about the distinction between domestic trade and foreign trade. This diversity is, on the contrary, the necessary outcome of the very nature of things, of an inextricable factor; it cannot be removed by any ideology and produces its effects whether the laws and the administrators and judges are prepared to take notice of it or not. The Volkswirtschaft is a nature-given reality, while the world-embracing ecumenic society of men, the world economy (Weltwirtschaft), is only an imaginary phantom of a spurious doctrine, a plan devised for the destruction of civilization.
The truth is that individuals in their acting, in their capacity as producers and consumers, as sellers and buyers, do not make any distinction as between the domestic market and the foreign market. They make a distinction as between local trade and trading with more distant places as far as the costs of transportation play a role. If government interference, such as tariffs, render international transactions more expensive, they take this fact into account in the same way in which they pay regard to shipping costs. A tariff on caviar has no effect other than would a rise in the cost of transportation. A rigid prohibition of the importation of caviar produces a state of affairs no different from that which would prevail if caviar could not stand shipping without an essential deterioration in its quality.
There has never been in the history of the West such a thing as regional or national autarky. There was, as we may admit, a period in which the division of labor did not go beyond the members of a family household. There was autarky of families and tribes which did not practice interpersonal exchange. But as soon as interpersonal exchange emerged, it crossed the boundaries of the political communities. Barter between the inhabitants of regions more remote from one another, between the members of various tribes, villages, and political communities preceded the practice of barter between neighbors. What people wanted first to acquire by barter and trade were things they could not produce themselves out of their own resources. Salt, other minerals and metals the deposits of which are unequally distributed over the earth's surface, cereals which one could not grow on the domestic soil, and artifacts which only the inhabitants of some regions were able to manufacture, were the first objects of trade. Trade started as foreign trade. Only later did domestic exchange develop between neighbors. The first holes that opened the closed household economy to interpersonal exchange were made by the products of distant regions. No consumer cared on his own account whether the salt and the metals he bought were of "domestic" or of "foreign" provenance. If it had been otherwise, the governments would not have had any reason to interfere by means of tariffs and other barriers to foreign trade.
But even if a government succeeds in making the barriers separating its domestic market from foreign markets insurmountable and thus establishes perfect national autarky, it does not create a Volkswirtschaft. A market economy which is perfectly autarkic remains for all that a market economy; it forms a closed and isolated catallactic system. The fact that its citizens miss the advantages which they could derive from the international division of labor is simply a datum of their economic conditions. Only if such an isolated country goes outright socialist does it convert its market economy into a Volkswirtschaft.
Fascinated by the propaganda of neomercantilism, people apply idioms which are in contrast to the principles they take as guides in their acting and to all the characteristics of the social order in which they are living. Long ago the British began to call plants and farms located in Great Britain, and even those located in the dominions, in the East Indies, and in the colonies, "ours." But if a man did not just want to make a show of his patriotic zeal and to impress other people, he was not prepared to pay a higher price for the products of his "own" plants than for those of the "foreign" plants. Even if he had behaved in this way, the designation of the plants located within the political boundaries of his nation as "ours" would not be adequate. In what sense could a Londoner, before the nationalization, call coalmines located in England which he did not own "our" mines and those of the Ruhr "foreign" mines? Whether he bought "British" coal or "German" coal, he always had to pay the full market price. It is not "America" that buys champagne from "France." It is always an individual American who buys it from an individual Frenchman.
As far as there is still some room left for the actions of individuals, as far as there is private ownership and exchange of goods and services between individuals, there is no Volkswirtschaft. Only if full government control is substituted for the choices of individuals does the Volkswirtschaft emerge as a real entity.
-
- If an action neither improves nor impairs the state of satisfaction, it still involves a psychic loss because of the uselessness of the expended psychic effort. The individual concerned would have been better off if he had inertly enjoyed life.
-
- Cf. Mangoldt, Die Lehre vom Unternehmergewinn (Leipzig, 1855), p. 82. The fact that out of 100 liters of plain wine one cannot produce 100 liters of champagne, but a smaller quantity, has the same significance as the fact that 100 kilograms of sugar beet do not yield 100 kilograms of sugar but a smaller quantity.
-
- Cf. Knight, Risk, Uncertainty and Profit (Boston, 1921), pp. 211–213.
-
- If we were to apply the faulty concept of a "national income" as used in popular speech, we would have to say that no part of national income goes into profits.
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- The problem of the convertibility of capital goods is dealt with below, pp. 499–505.
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- Cf. below, pp. 763–773.
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- Cf. below, pp. 808–816.
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- For a detailed treatment of the problems involved, cf. Mises, Bureaucracy (New Haven, 1944).
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- Cf. Chamberlin, The Theory of Monopolistic Competition (Cambridge, Mass., r935), pp. 123 ff.
Cheap money in the last decade has meant good times for companies that barely make money and hire employees who barely work. But those times are now ending.
Original Article: "Without Easy Money, the Tech Sector Faces Layoffs and Losses"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Ours is an age of the progressive expert who nearly always is wrong but still is embraced by progressive politicians, the media, and academe.
Original Article: "Are Progressive "Experts" Fallible? Yes, But Don't Tell Them That"
This Audio Mises Wire is generously sponsored by Christopher Condon.
One might assume that new rounds of monetary stimulus will bring new peaks in housing construction, reversing the ongoing housing shortage. That hasn't happened.
Original Article: "The Housing Boom Is Already Over. The Housing Shortage Will Continue."
This Audio Mises Wire is generously sponsored by Christopher Condon.
As of 2022 the national student debt reached $1.6 trillion with the average student loan debt at about $28,000. Many former college students are discovering it is difficult to pay back such a large amount of debt. This is especially true of students that graduate with fruitless degrees like sociology, for example. These majors are only good as prerequisites to a master’s degree. Most graduates find themselves working jobs that are completely unrelated to their studies.
For the graduates with useful degrees such as engineering or nursing, large amounts of student loan debt will still be a burden. For some universities the student loan default rates are as a high as 30–40 percent. The debate about whether the government should intervene in the student debt crisis is a hot debate, but few ask why the price of tuition is so expensive in the first place.
The Correlation of Tuition with Government Subsidies In 1965 the Higher Education Act (HEA) was created. It mandated federal funding directed toward higher education. This was the beginning of the Federal Pell Grant Program and the William D. Ford Federal Direct Loan Program. These government programs provide subsidized loans to be used by students to pay for tuition. The result has been a tremendous increase of the money supply into higher education.
Government-subsidized student loans in 1960 were $11 billion and spiked to $48 billion by 1975. Between 1960 and 1980 public funding for higher education increased 390 percent, but the cost of tuition did not remain unchanged. In 1964 the average cost of tuition adjusted for inflation at a public university was only $248 and by 2007 increased to $8,055.
The Racket How are colleges spending all the revenue they receive from tuition? Some of this money funds lavish, multimillion-dollar athletic facilities and sports arenas. Some is spent on recreational centers, statues, or art projects that have nothing to do with improving education. The expansion of liberal arts degree programs such as gender studies or African American studies contribute little to a graduate’s value in the workforce. Carnegie Mellon University and the University of Connecticut offer degrees in bag pipping and puppetry, respectively. The University of Texas offers an English class that aims to analyze Taylor Swift songs in the context of traditional literature. It’s doubtful that anyone will agree the thousands of dollars spent on this class reflects the benefit of enrolling in such a class.
The College-Industrial Complex Colleges are willing to raise the price of tuition so long as student loans are guaranteed. In a free market private loans are funded by a bank, credit union, or the school itself. These lenders must weigh the risk of a loan being paid back. Graduates may or may not be able to pay back their loan. This varies for each student based on the amount of money lent and the type of job they work after college.
Private lenders will not lend an excessively risky amount of money if the chance of the loan being paid back is unlikely. If students were limited to the market value of loans and were not able to pay for their tuition, then attendance would drop until an equilibrium is reached between demand for college degrees is balanced with the price and utility of obtaining one. These were the circumstances before the government got involved, and in most cases, students could work all summer and make enough money to pay for a year of tuition and never have to take out a loan.
Currently under the government-subsidized industry, loans are funded by politically connected financial institutions via the Federal Reserve, which have no risk of bankruptcy when too many people default on their student loans. Schools gladly raise the price of tuition so long as the amount of lending also increases. The result is skyrocketing student debt and the creation of an inflationary bubble.
Capitalism Gets Blamed Capitalism is an economic system based on the recognition of free markets or the separation of economy and state. Under these circumstances no relationship exists between colleges and government. However, capitalism is often the scapegoat for unaffordable tuition created by the Federal Reserve’s meddling in higher education. It’s argued that capitalism is predicated on selfish greed and responsible for exploiting students, but what’s more exploitative than unmitigated lending to young, vulnerable adults?
Still, socialist ideas of free (costless) education as a solution to student debt has gained popularity. Barack Obama mentioned in his last State of the Union address that he wanted free community college and to reduce student loan borrowers’ payment obligations. Joe Biden’s student loan forgiveness program does just that. Never mind that this does nothing to solve the underlying problem of overpriced tuition and will only create more inflation.
Hazlitt’s Lesson This may be a benefit to former students and administrators, but only at the expense of the rest of society. Libertarian philosopher and economist Henry Hazlitt correctly identifies this problem in his book Economics in One Lesson. His lesson is based on two main economic fallacies: one, to only observe the immediate consequences of a government policy while neglecting the lasting consequences and two, to only observe the benefactors while neglecting the others.
If the $1.6 trillion of total student debt were completely subsidized through the Federal Reserve’s money creation, the immediate effect is that graduates would have more money to spend on other things, like clothes, food, vacations, cars, and houses for example. More money would circulate to other industries and cause an artificial boom in the economy.
This is the immediate consequence and focuses only on the benefit of college graduates and administrators. However, it ignores all the working class or anyone who did not attend college and are now on the hook for indirectly paying for college graduates’ tuition. The lasting consequences would result in the inevitable economic bust due to the mismatch between supply and demand. Wealth that was produced in other industries would be squandered on rising prices only to benefit the educational industrial complex.
If college tuition were priced according to market forces in a free economy, then the graduates would be largely debt free while still having the opportunity to accumulate wealth. All the cronies in the college system would have to find more valuable work in other areas of the economy. The net result would be a more productive, wealthier, less inflationary society.
Prominent Democrats, including President Joe Biden, have repeatedly expressed interest in reinstating a federal assault weapons ban. Biden himself included an assault weapon ban in his 1994 crime bill, which lasted ten years until its expiration in 2004. Biden has claimed that the ban did its job and reduced mass shootings: “When we passed the assault weapons ban, mass shootings went down. When the law expired, mass shootings tripled.”
But a detailed review of the data demonstrates that the ban had no real benefits whatsoever, and neither did it lessen the frequency of major shootings.
What Is an Assault Weapon? Contrary to popular belief, an assault weapons ban does not ban AR- or AK-style rifles. Assault weapons bans focus primarily on the specific functions of these rifles. The 1994 ban described assault weapons as semiautomatic rifles that
had the ability to accept a detachable magazine and possessed two of the following five features: (1) a folding or telescopic stock; (2) a pistol grip that protrudes conspicuously beneath the action of the weapon; (3) a bayonet mount; (4) a flash suppressor or threaded barrel designed to accommodate a flash suppressor; or (5) a grenade launcher.
This definition permits some adjustments to be made to rifles, such as an AR-15, that would make them completely legal (or “compliant”). Rifles that comply must have a fixed stock. Stocks cannot be telescopic or folding. A pistol grip is incompatible with a compliant rifle. Compliant rifles typically have a stock that has additional material added to it, so the pistol grip is attached to the stock or is extended far enough to prevent the shooter from wrapping around it with their thumb. The maximum number of rounds the rifle’s magazine can hold is 10. Any more than that is regarded as a high-capacity magazine. The rifle may not have a flash suppressor.
Many creative minds have discovered countless ways to transform basic AR-style rifles into completely compliant weapons. Today, several states have their own assault weapons bans with similar or identical provisions as the 1994 federal ban. In these states, the ownership of AR-15s and such is not at all uncommon. The same went for gun owners during the federal ban from 1994–2004.
assault_weapons_photo.gif
The reality of compliant assault weapons is a strong indicator that the assault weapons ban did not work, outside of some inconveniences for gun owners. Any owner could easily convert a compliant rifle into a fully functional (and illegal) one using minimal tools and labor. And many, including mass shooters, take advantage of this. The 1994 ban led to a sharp increase in the demand for assault weapons, which initially increased prices. But after an increase in production, prices began to fall to their previous state. A 2002 study showed:
In the short-term, the federal AW ban reduced the availability of AWs to criminal users by increasing the cost of these weapons in primary and, presumably, secondary markets. However, the ban also stimulated production increases for AWs and legal substitute models, resulting in a post-ban decline in prices.
Proponents of a renewed ban completely overlook the rise in the ownership of assault weapons both before and after the 1994 ban. Any positive benefits cited by Biden and other politicians and talking heads are seriously called into question in light of this fact.
Did the Ban Decrease Mass Shootings? When we closely examine the facts, Biden’s assertion that the ban will reduce the number of mass shootings is shown to be, to put it mildly, an excessive exaggeration. It is safe to assume that Biden derived this claim from a 2019 study that references the Mother Jones mass shootings database, or possibly he obtained it directly from Mother Jones. Either way, there are numerous flaws in citing this data as evidence. The methodology Mother Jones utilized to create their dataset on mass shootings and the conclusions that were made using this data have garnered criticism from criminologists such as Grant Duwe, who points to underreporting problems and says that “the Mother Jones list relied exclusively on news reports as a source of data, and news coverage tends to be less accessible for the older cases.”
He anchored the hunt for more in-depth news reporting on mass homicides in his own study of homicide using the FBI’s Supplementary Homicide Reports (SHR) data. The SHR data has several shortcomings, but it is the most complete homicide dataset currently accessible that sheds light on, among other things, when and where the majority of mass shootings have occurred in the United States. Duwe’s research revealed that mass shootings are “roughly as common now as they were in the 1980s and ’90s.”
assault_2.gif
But what about the frequency of assault weapons used in mass shootings? Did that change? Economist John R. Lott says: “There was no drop in the number of attacks with assault weapons during the 1994 to 2004 ban. There was an increase after the ban sunset, but the change is not statistically significant.”
Did the Ban Decrease Gun Homicides? Assault rifles (and rifles in general) are very rarely used in gun crimes, so we would not expect to see any significant decrease in gun homicides or gun crimes due to the 1994 ban. Multiple studies have been done examining the effects of the ban on gun homicides and the results are generally inconclusive. A 2016 review published in JAMA found that four different studies, “do not provide evidence that the ban was associated with a significant decrease in firearm homicides.”
Between 1991, when violent crime reached an all-time high, and 2017, the country’s overall violent crime rate decreased by 47 percent, with a murder rate decline of 34 percent. Meanwhile, it appears foolish to attempt to count the almost two hundred million new firearms purchased by Americans, including the more than twenty million AR-15s and the hundreds of millions of “large” pistol and rifle magazines.
Conclusion The assumption that the 1994 assault weapons prohibition was successful in lowering gun homicides, mass shootings, or even the possession of assault weapons is not backed by strong evidence. Most likely, those who advocate for the ban’s reintroduction are unaware of the compelling evidence against the prohibition, whether on purpose or accidentally. When the police and ATF start enforcing a new ban, there may even be an uptick in violence.
[Editor's Note: In this very important chapter 15 of Human Action (the first half of which is presented here), Mises explains what the market really is - a process where millions of individuals interact through voluntary exchanges - and how it gives rise to the quantitative prices that undergird the mental concept of capital and hence economic calculation. In laying out his analysis of the market itself, Mises has produced a chapter which could, according to Robert Murphy, "almost serve as a stand-alone introduction to free market economics."]
- The Characteristics of the Market Economy The market economy is the social system of the division of labor under private ownership of the means of production. Everybody acts on his own behalf; but everybody's actions aim at the satisfaction of other people's needs as well as at the satisfaction of his own. Everybody in acting serves his fellow citizens. Everybody, on the other hand, is served by his fellow citizens. Everybody is both a means and an end in himself; an ultimate end for himself and a means to other people in their endeavors to attain their own ends. This system is steered by the market. The market directs the individual's activities into those channels in which he best serves the wants of his fellow men.
There is in the operation of the market no compulsion and coercion. The state, the social apparatus of coercion and compulsion, does not interfere with the market and with the citizens' activities directed by the market. It employs its power to beat people into submission solely for the prevention of actions destructive to the preservation and the smooth operation of the market economy. It protects the individual's life, health, and property against violent or fraudulent aggression on the part of domestic gangsters and external foes. Thus the state creates and preserves the environment in which the market economy can safely operate.
The Marxian slogan "anarchic production" pertinently characterizes this social structure as an economic system which is not directed by a dictator, a production tsar who assigns to each a task and compels him to obey this command. Each man is free; nobody is subject to a despot. Of his own accord the individual integrates himself into the cooperative system. The market directs him and reveals to him in what way he can best promote his own welfare as well as that of other people. The market is supreme. The market alone puts the whole social system in order and provides it with sense and meaning.
The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor. The forces determining the — continually changing — state of the market are the value judgments of these individuals and their actions as directed by these value judgments. The state of the market at any instant is the price structure, i.e., the totality of the exchange ratios as established by the interaction of those eager to buy and those eager to sell. There is nothing inhuman or mystical with regard to the market. The market process is entirely a resultant of human actions. Every market phenomenon can be traced back to definite choices of the members of the market society.
The market process is the adjustment of the individual actions of the various members of the market society to the requirements of mutual cooperation. The market prices tell the producers what to produce, how to produce, and in what quantity. The market is the focal point to which the activities of the individuals converge. It is the center from which the activities of the individuals radiate.
The market economy must be strictly differentiated from the second thinkable — although not realizable — system of social cooperation under the division of labor: the system of social or governmental ownership of the means of production. This second system is commonly called socialism, communism, planned economy, or state capitalism. The market economy — or capitalism, as it is usually called — and the socialist economy preclude one another. There is no mixture of the two systems possible or thinkable; there is no such thing as a mixed economy, a system that would be in part capitalistic and in part socialist. Production is directed either by the market or by the decrees of a production tsar or a committee of production tsars.
If within a society based on private ownership of the means of production some of these means are publicly owned and operated — that is, owned and operated by the government or one of its agencies — this does not make for a mixed system which would combine socialism and capitalism. The fact that the state or municipalities own and operate some plants does not alter the characteristic features of the market economy. These publicly owned and operated enterprises are subject to the sovereignty of the market. They must fit themselves, as buyers of raw materials, equipment, and labor, and as sellers of goods and services, into the scheme of the market economy. They are subject to the laws of the market and thereby depend on the consumers who may or may not patronize them. They must strive for profits or, at least, to avoid losses. The government may cover losses of its plants or shops by drawing on public funds. But this neither eliminates nor mitigates the supremacy of the market; it merely shifts it to another sector. For the means for covering the losses must be raised by the imposition of taxes. But this taxation has its effects on the market and influences the economic structure according to the laws of the market. It is the operation of the market, and not the government collecting the taxes, that decides upon whom the incidence of the taxes falls and how they affect production and consumption. Thus the market, not a government bureau, determines the working of these publicly operated enterprises.
Nothing that is in any way connected with the operation of a market is in the praxeological or economic sense to be called socialism. The notion of socialism as conceived and defined by all socialists implies the absence of a market for factors of production and of prices of such factors. The "socialization" of individual plants, shops, and farms — that is, their transfer from private into public ownership — is a method of bringing about socialism by successive measures. It is a step on the way toward socialism, but not in itself socialism. (Marx and the orthodox Marxians flatly deny the possibility of such a gradual approach to socialism. According to their doctrine the evolution of capitalism will one day reach a point in which at one stroke capitalism is transformed into socialism.)
Government-operated enterprises and the Russian Soviet economy are, by the mere fact that they buy and sell on markets, connected with the capitalist system. They themselves bear witness to this connection by calculating in terms of money. They thus utilize the intellectual methods of the capitalist system that they fanatically condemn.
For monetary economic calculation is the intellectual basis of the market economy. The tasks set to acting within any system of the division of labor cannot be achieved without economic calculation. The market economy calculates in terms of money prices. That it is capable of such calculation w-as instrumental in its evolution and conditions its present-day operation. The market economy is real because it can calculate.
- Capital The mental tool of the market economy is economic calculation. The fundamental notion of economic calculation is the notion of capital and its correlative income.
The notions of capital and income as applied in accountancy and in the mundane reflections of which accountancy is merely a refinement, contrast the means and the ends. The calculating mind of the actor draws a boundary line between the consumers' goods which he plans to employ for the immediate satisfaction of his wants and the goods of all orders — including those of the first order1 — which he plans to employ for providing, by further acting, for the satisfaction of future wants. The differentiation of means and ends thus becomes a differentiation of acquisition and consumption, of business and household, of trading funds and of household goods. The whole complex of goods destined for acquisition is evaluated in money terms, and this sum — the capital — is the starting point of economic calculation. The immediate end of acquisitive action is to increase or, at least, to preserve the capital. That amount which can be consumed within a definite period without lowering the capital is called income. If consumption exceeds the income available, the difference is called capital consumption. If the income available is greater than the amount consumed, the difference is called saving. Among the main tasks of economic calculation are those of establishing the magnitudes of income, saving, and capital consumption.
The reflections which led acting man to the notions implied in the concepts of capital and income are latent in every premeditation and planning of action. Even the most primitive husbandmen are dimly aware of the consequences of acts which to a modern accountant would appear as capital consumption. The hunter's reluctance to kill a pregnant hind and the uneasiness felt even by the most ruthless warriors in cutting fruit trees were manifestations of a mentality which was influenced by such considerations. These considerations were present in the age-old legal institution of usufruct and in analogous customs and practices. But only people who are in a position to resort to monetary calculation can evolve to full clarity the distinction between an economic substance and the advantages derived from it, and can apply it neatly to all classes, kinds, and orders of goods and services. They alone can establish such distinctions with regard to the perpetually changing conditions of highly developed processing industries and the complicated structure of the social cooperation of hundreds of thousands of specialized jobs and performances.
Looking backward from the cognition provided by modern accountancy to the conditions of the savage ancestors of the human race, we may say metaphorically that they too used "capital." A contemporary accountant could apply all the methods of his profession to their primitive tools of hunting and fishing, to their cattle breeding and their tilling of the soil, if he knew what prices to assign to the various items concerned. Some economists concluded there from that "capital" is a category of all human production, that it is present in every thinkable system of the conduct of production processes — i.e., no less in Robinson Crusoe's involuntary hermitage than in a socialist society — and that it does not depend upon the practice of monetary calculation.2 This is, however, a confusion. The concept of capital cannot be separated from the context of monetary calculation and from the social structure of a market economy in which alone monetary calculation is possible. It is a concept which makes no sense outside the conditions of a market economy. It plays a role exclusively in the plans and records of individuals acting on their own account in such a system of private ownership of the means of production, and it developed with the spread of economic calculation in monetary terms.3
Modern accountancy is the fruit of a long historical evolution. Today there is, among businessmen and accountants, unanimity with regard to the meaning of capital. Capital is the sum of the money equivalent of all assets minus the sum of the money equivalent of all liabilities as dedicated at a definite date to the conduct of the operations of a definite business unit. It does not matter in what these assets may consist, whether they are pieces of land, buildings, equipment, tools, goods of any kind and order, claims, receivables, cash, or whatever.
It is a historical fact that in the early days of accountancy the tradesmen, the pacemakers on the way toward monetary calculation, did not for the most part include the money equivalent of their buildings and land in the notion of capital. It is another historical fact that agriculturists were slow in applying the capital concept to their land. Even today in the most advanced countries only a part of the farmers are familiar with the practice of sound accountancy. Many farmers acquiesce in a system of bookkeeping that neglects to pay heed to the land and its contribution to production. Their book entries do not include the money equivalent of the land and are consequently indifferent to changes in this equivalent. Such accounts are defective because they fail to convey that information which is the sole aim sought by capital accounting. They do not indicate whether or not the operation of the farm has brought about a deterioration in the land's capacity to contribute to production, that is, in its objective use value. If an erosion of the soil has taken place, their books ignore it, and thus the calculated income (net yield) is greater than a more complete method of bookkeeping would have shown.
It is necessary to mention these historical facts because they influenced the endeavors of the economists to construct the notion of real capital.
The economists were and are still today confronted with the superstitious belief that the scarcity of factors of production could be brushed away, either entirely or at least to some extent, by increasing the amount of money in circulation and by credit expansion. In order to deal adequately with this fundamental problem of economic policy they considered it necessary to construct a notion of real capital and to oppose it to the notion of capital as applied by the businessman whose calculation refers to the whole complex of his acquisitive activities. At the time the economists embarked upon these endeavors the place of the money equivalent of land in the concept of capital was still questioned. Thus the economists thought it reasonable to disregard land in constructing their notion of real capital. They defined real capital as the totality of the produced factors of production available. Hairsplitting discussions were started as to whether inventories of consumers' goods held by business units are or are not real capital. But there was almost unanimity that cash is not real capital.
Now this concept of a totality of the produced factors of production is an empty concept. The money equivalent of the various factors of production owned by a business unit can be determined and summed up. But if we abstract from such an evaluation in money terms, the totality of the produced factors of production is merely an enumeration of physical quantities of thousands and thousands of various goods. Such an inventory is of no use to acting. It is a description of a part of the universe in terms of technology and topography and has no reference whatever to the problems raised by the endeavors to improve human well-being. We may acquiesce in the terminological usage of calling the produced factors of production capital goods. But this does not render the concept of real capital any more meaningful.
The worst outgrowth of the use of the mythical notion of real capital was that economists began to speculate about a spurious problem called the productivity of (real) capital. A factor of production is by definition a thing that is able to contribute to the success of a process of production. Its market price reflects entirely the value that people attach to this contribution. The services expected from the employment of a factor of production (i.e., its contribution to productivity) are in market transactions paid according to the full value people attach to them. These factors are considered valuable only on account of these services. These services are the only reason why prices are paid for them. Once these prices are paid, nothing remains that can bring about further payments on the part of anybody as a compensation for additional productive services of these factors of production. It was a blunder to explain interest as an income derived from the productivity of capital.4
No less detrimental was a second confusion derived from the real capital concept. People began to meditate upon a concept of social capital as different from private capital. Starting from the imaginary construction of a socialist economy, they were intent upon defining a capital concept suitable to the economic activities of the general manager of such a system. They were right in assuming that this manager would be eager to know whether his conduct of affairs was successful (viz., from the point of view of his own valuations and the ends aimed at in accordance with these valuations) and how much he could expend for his wards' consumption without diminishing the available stock of factors of production and thus impairing the yield of further production. A socialist government would badly need the concepts of capital and income as a guide for its operations. However, in an economic system in which there is no private ownership of the means of production, no market, and no prices for such goods, the concepts of capital and income are mere academic postulates devoid of any practical application. In a socialist economy there are capital goods, but no capital.
The notion of capital makes sense only in the market economy. It serves the deliberations and calculations of individuals or groups of individuals operating on their own account in such an economy. It is a device of capitalists, entrepreneurs, and farmers eager to make profits and to avoid losses. It is not a category of all acting. It is a category of acting within a market economy.
- Capitalism All civilizations have up to now been based on private ownership of the means of production. In the past, civilization and private property have been linked together. Those who maintain that economics is an experimental science and nevertheless recommend public control of the means of production, lamentably contradict themselves. If historical experience could teach us anything, it would be that private property is inextricably linked with civilization. There is no experience to the effect that socialism could provide a standard of living as high as that provided by capitalism.5
The system of market economy has never been fully and purely tried. But there prevailed in the orbit of Western civilization since the Middle Ages by and large a general tendency toward the abolition of institutions hindering the operation of the market economy. With the successive progress of this tendency, population figures multiplied and the masses' standard of living was raised to an unprecedented and hitherto undreamed-of level. The average American worker enjoys amenities for which Croesus, Crams, the Medici, and Louis XIV would have envied him.
The problems raised by the socialist and interventionist critique of the market economy are purely economic and can be dealt with only in the way in which this book tries to deal with them: by a thorough analysis of human action and all thinkable systems of social cooperation. The psychological problem of why people scorn and disparage capitalism and call everything they dislike "capitalistic" and everything they praise "socialistic" concerns history and must be left to the historians. But there are several other issues which we must stress at this point.
The advocates of totalitarianism consider "capitalism" a ghastly evil, an awful illness that came upon mankind. In the eyes of Marx, it was an inevitable stage of mankind's evolution, but for all that the worst of evils; fortunately salvation is imminent and will free man forever from this disaster. In the opinion of other people it would have been possible to avoid capitalism if only men had been more moral or more skillful in the choice of economic policies. All such lucubrations have one feature in common. They look upon capitalism as if it were an accidental phenomenon which could be eliminated without altering conditions that are essential in civilized man's acting and thinking. As they neglect to bother about the problem of economic calculation, they are not aware of the consequences which the abolition of the monetary calculus is bound to bring about. They do not realize that socialist men for whom arithmetic will be of no use in planning action, will differ entirely in their mentality and in their mode of thinking from our contemporaries. In dealing with socialism, we must not overlook this mental transformation, even if we were ready to pass over in silence the disastrous consequences which would result for man's material well-being.
The market economy is a man-made mode of acting under the division of labor. But this does not imply that it is something accidental or artificial and could be replaced by another mode. The market economy is the product of a long evolutionary process. It is the outcome of man's endeavors to adjust his action in the best possible way to the given conditions of his environment that he cannot alter. It is the strategy, as it were, by the application of which man has triumphantly progressed from savagery to civilization.
This mode of argumentation is very popular among present-day authors: capitalism was the economic system which brought about the marvelous achievements of the last two hundred years; therefore it is done for because what was beneficial in the past cannot be so for our time and for the future. Such reasoning is in open contradiction to the principles of experimental cognition. There is no need at this point to raise again the question of whether or not the science of human action can adopt the methods of the experimental natural sciences. Even if it were permissible to answer this question in the affirmative, it would be absurd to argue as these à rebours experimentalists do. Experimental science argues that because a was valid in the past, it will be valid in the future too. It must never argue the other way round and assert that because a was valid in the past, it is not valid in the future.
It is customary to blame the economists for an alleged disregard of history. The economists, it is contended, consider the market economy as the ideal and eternal pattern of social cooperation. They concentrate their studies upon investigating the conditions of the market economy and neglect everything else. They do not bother about the fact that capitalism emerged only in the last two hundred years and that even today it is restricted to a comparatively small area of the earth's surface and to a minority of peoples. There were and are other civilizations with a different mentality and different modes of conducting economic affairs. Capitalism is, when seen sub specie aeternitatis, a passing phenomenon, an ephemeral stage of historical evolution, just the transition from precapitalistic ages to a postcapitalistic future.
All these criticisms are spurious. Economics is, of course, not a branch of history or of any other historical science. It is the theory of all human action, the general science of the immutable categories of action and of their operation under all thinkable special conditions under which man acts. It provides as such the indispensable mental tool for dealing with historical and ethnographic problems. A historian or an ethnographer who neglects in his work to take full advantage of the results of economics is doing a poor job. In fact he does not approach the subject matter of his research unaffected by what he disregards as theory. He is at every step of his gathering of allegedly unadulterated facts, in arranging these facts, and in his conclusions derived from them, guided by confused and garbled remnants of perfunctory economic doctrines constructed by botchers in the centuries preceding the elaboration of an economic science and long since entirely exploded.
The analysis of the problems of the market society, the only pattern of human action in which calculation can be applied in planning action, opens access to the analysis of all thinkable modes of action and of all economic problems with which historians and ethnographers are confronted. All noncapitalistic methods of economic management can be studied only under the hypothetical assumption that in them too cardinal numbers can be used in recording past action and planning future action. This is why economists place the study of the pure market economy in the center of their investigations.
It is not the economists who lack the "historical sense" and ignore the factor of evolution, but their critics. The economists have always been fully aware of the fact that the market economy is the product of a long historical process which began when the human race emerged from the ranks of the other primates. The champions of what is mistakenly called "historicism" are intent upon undoing the effects of evolutionary changes. In their eyes everything the existence of which they cannot trace back to a remote past or cannot discover in the customs of some primitive Polynesian tribes is artificial, even decadent. They consider the fact that an institution was unknown to savages as a proof of its uselessness and rottenness. Marx and Engels and the Prussian professors of the Historical School exulted when they learned that private property is "only" a historical phenomenon. For them this was the proof that their socialist plans were realizable.6
The creative genius is at variance with his fellow citizens. As the pioneer of things new and unheard of he is in conflict with their uncritical acceptance of traditional standards and values. In his eyes the routine of the regular citizen, the average or common man, is simply stupidity. For him "bourgeois" is a synonym of imbecility.7 The frustrated artists who take delight in aping the genius's mannerism in order to forget and to conceal their own impotence adopt this terminology. These bohemians call everything they dislike "bourgeois." Since Marx has made the term "capitalist" equivalent to "bourgeois," they use both words synonymously. In the vocabularies of all languages the words "capitalistic" and "bourgeois" signify today all that is shameful, degrading, and infamous.8 Contrariwise, people call all that they deem good and praiseworthy "socialist." The regular scheme of arguing is this: A man arbitrarily calls anything he dislikes "capitalistic," and then deduces from this appellation that the thing is bad.
This semantic confusion goes still further. Sismondi, the romantic eulogists of the Middle Ages, all socialist authors, the Prussian Historical School, and the American Institutionalists taught that capitalism is an unfair system of exploitation sacrificing the vital interests of the majority of people for the sole benefit of a small group of profiteers. No decent man can advocate this "mad" system. The economists who contend that capitalism is beneficial not only to a small group but to everyone are "sycophants of the bourgeoisie." They are either too dull to recognize the truth or bribed apologists of the selfish class interests of the exploiters.
Capitalism, in the terminology of these foes of liberty, democracy, and the market economy, means the economic policy advocated by big business and millionaires. Confronted with the fact that some — but certainly not all — wealthy entrepreneurs and capitalists nowadays favor measures restricting free trade and competition and resulting in monopoly, they say: Contemporary capitalism stands for protectionism, cartels, and the abolition of competition. It is true, they add, that at a definite period of the past British capitalism favored free trade both on the domestic market and in international relations. This was because at that time the class interests of the British bourgeoisie were best served by such a policy. Conditions, however, changed and today capitalism, i.e., the policy advocated by the exploiters, aims at another policy.
It has already been pointed out that this doctrine badly distorts both economic theory and historical facts.9 There were and there will always be people whose selfish ambitions demand protection for vested interests and who hope to derive advantage from measures restricting competition. Entrepreneurs grown old and tired and the decadent heirs of people who succeeded in the past dislike the agile parvenus who challenge their wealth and their eminent social position. Whether or not their desire to make economic conditions rigid and to hinder improvements can be realized, depends on the climate of public opinion. The ideological structure of the nineteenth century as fashioned by the prestige of the teachings of the liberal economists rendered such wishes vain. When the technological improvements of the age of liberalism revolutionized the traditional methods of production, transportation, and marketing, those whose vested interests were hurt did not ask for protection because it would have been a hopeless venture. But today it is deemed a legitimate task of government to prevent an efficient man from competing with the less efficient. Public opinion sympathizes with the demands of powerful pressure groups to stop progress. The butter producers are with considerable success fighting against margarine and the musicians against recorded music. The labor unions are deadly foes of every new machine. It is not amazing that in such an environment less efficient businessmen aim at protection against more efficient competitors.
It would be correct to describe this state of affairs in this way: Today many or some groups of business are no longer liberal; they do not advocate a pure market economy and free enterprise, but, on the contrary, are asking for various measures of government interference with business. But it is entirely misleading to say that the meaning of the concept of capitalism has changed and that "mature capitalism" — as the Americans call it — or "late capitalism" — as the Marxians call it — is characterized by restrictive policies to protect the vested interests of wage earners, farmers, shopkeepers, artisans, and sometimes also of capitalists and entrepreneurs. The concept of capitalism is as an economic concept immutable, if it means anything, it means market economy. One deprives oneself of the semantic tools to deal adequately with the problems of contemporary history and economic policies if one acquiesces in a different terminology. This faulty nomenclature becomes understandable only if we realize that the pseudo-economists and the politicians who apply it want to prevent people from knowing what the market economy really is. They want to make people believe that all the repulsive manifestations of restrictive government policies are produced by "capitalism."
- The Sovereignty of the Consumers The direction of all economic affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain's orders. The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.
The consumers patronize those shops in which they can buy what they want at the cheapest price. Their buying and their abstention from buying decides who should own and run the plants and the land. They make poor people rich and rich people poor. They determine precisely what should be produced, in what quality, and in what quantities. They are merciless egoistic bosses, full of whims and fancies, changeable and unpredictable. For them nothing counts other than their own satisfaction. They do not care a whit for past merit and vested interests. If something is offered to them that they like better or that is cheaper, they desert their old purveyors. In their capacity as buyers and consumers they are hard hearted and callous, without consideration for other people.
Only the sellers of goods and services of the first order are in direct contact with the consumers and directly depend on their orders. But they transmit the orders received from the public to all those producing goods and services of the higher orders. For the manufacturers of consumers' goods, the retailers, the service trades, and the professions are forced to acquire what they need for the conduct of their own business from those purveyors who offer them at the cheapest price. If they were not intent upon buying in the cheapest market and arranging their processing of the factors of production so as to fill the demands of the consumers in the best and cheapest way, they would be forced to go out of business. More efficient men who succeeded better in buying and processing the factors of production would supplant them. The consumer is in a position to give free rein to his caprices and fancies. The entrepreneurs, capitalists, and farmers have their hands tied; they are bound to comply in their operations with the orders of the buying public. Even deviation from the lines prescribed by the demand of the consumers debits their account. The slightest deviation, whether willfully brought about or caused by error, bad judgment, or inefficiency, restricts their profits or makes them disappear. A more serious deviation results in losses and thus impairs or entirely absorbs their wealth. Capitalists, entrepreneurs, and landowners can only preserve and increase their wealth by filling best the orders of the consumers. They are not free to spend money which the consumers are not prepared to refund to them in paying more for the products. In the conduct of their business affairs they must be unfeeling and stonyhearted because the consumers, their losses, are themselves unfeeling and stonyhearted.
The consumers determine ultimately not only the prices of the consumers' goods, but no less the prices of all factors of production. They determine the income of every member of the market economy. The consumers, not the entrepreneurs, pay ultimately the wages earned by every worker, the glamorous movie star as well as the charwoman. With every penny spent the consumers determine the direction of all production processes and the minutest details of the organization of all business activities. This state of affairs has been described by calling the market a democracy in which every penny gives a right to cast a ballot.10 It would be more correct to say that a democratic constitution is a scheme to assign to the citizens in the conduct of government the same supremacy the market economy gives them in their capacity as consumers. However, the comparison is imperfect. In the political democracy only the votes cast for the majority candidate or the majority plan are effective in shaping the course of affairs. The votes polled by the minority do not directly influence policies. But on the market no vote is cast in vain. Every penny spent has the power to work upon the production processes. The publishers cater not only to the majority by publishing detective stories, but also to the minority reading lyrical poetry and philosophical tracts. The bakeries bake bread not only for healthy people, but also for the sick on special diets. The decision of a consumer is carried into effect with the full momentum he gives it through his readiness to spend a definite amount of money.
It is true, in the market the various consumers have not the same voting right. The rich cast more votes than the poorer citizens. But this inequality is itself the outcome of a previous voting process. To be rich, in a pure market economy, is the outcome of success in filling best the demands of the consumers. A wealthy man can preserve his wealth only by continuing to serve the consumers in the most efficient way.
Thus the owners of the material factors of production and the entrepreneurs are virtually mandataries or trustees of the consumers, revocably appointed by an election daily repeated.
There is in the operation of a market economy only one instance in which the proprietary class is not completely subject to the supremacy of the consumers. Monopoly prices are an infringement of the sway of the consumers.
The Metaphorical Employment of the Terminology of Political Rule The orders given by businessmen in the conduct of their affairs can be heard and seen. Nobody can fail to become aware of them. Even messenger boys know that the boss runs things around the shop. But it requires a little more brains to notice the entrepreneur's dependence on the market. The orders given by the consumers are not tangible; they cannot be perceived by the senses. Many people lack the discernment to take cognizance of them. They fall victim to the delusion that entrepreneurs and capitalists are irresponsible autocrats whom nobody calls to account for their actions.11
The outgrowth of this mentality is the practice of applying to business the terminology of political rule and military action. Successful businessmen are called kings or dukes, their enterprises an empire, a kingdom, or a dukedom. If this idiom were only a harmless metaphor, there would be no need to criticize it. But it is the source of serious errors which play a sinister role in contemporary doctrines.
Government is an apparatus of compulsion and coercion. It has the power to obtain obedience by force. The political sovereign, be it an autocrat or the people as represented by its mandataries, has power to crush rebellions as long as his ideological might subsists.
The position which entrepreneurs and capitalists occupy in the market economy is of a different character. A "chocolate king" has no power over the consumers, his patrons. He provides them with chocolate of the best possible quality and at the cheapest price. He does not rule the consumers, he serves them. The consumers are not tied to him. They are free to stop patronizing his shops. He loses his "kingdom" if the consumers prefer to spend their pennies elsewhere. Nor does he "rule" his workers. He hires their services by paying them precisely that amount which the consumers are ready to restore to him in buying the product. Still less do the capitalists and entrepreneurs exercise political control. The civilized nations of Europe and America were long controlled by governments which did not considerably hinder the operation of the market economy. Today many of these countries too are dominated by parties which are hostile to capitalism and believe that every harm inflicted upon capitalists and entrepreneurs is extremely beneficial to the people.
In an unhampered market economy the capitalists and entrepreneurs cannot expect an advantage from bribing officeholders and politicians. On the other hand, the officeholders and politicians are not in a position to blackmail businessmen and to extort graft from them. In an interventionist country, powerful pressure groups are intent upon securing for their members privileges at the expense of weaker groups and individuals. Then the businessmen may deem it expedient to protect themselves against discriminatory acts on the part of the executive officers and the legislature by bribery; once used to such methods, they may even try to employ them in order to secure privileges for themselves. At any rate the fact that businessmen corrupt politicians and officeholders and are blackmailed by such people does not indicate that they are supreme and rule the countries. It is those ruled — and not the rulers — who bribe and are paying tribute.
The majority of businessmen are prevented from resorting to bribery either by their moral convictions or by fear. They venture to preserve the free enterprise system and to defend themselves against discrimination by legitimate democratic methods. They form trade associations and try to influence public opinion. The results of these endeavors have been rather poor, as is evidenced by the triumphant advance of anticapitalist policies. The best that they have been able to achieve is to delay for a while some especially obnoxious measures.
Demagogues misrepresent this state of affairs in the crassest way. They tell us that these associations of bankers and manufacturers are the true rulers of their countries and that the whole apparatus of what they call "plutodemocratic" government is dominated by them. A simple enumeration of the laws passed in the last decades by any country's legislature is enough to explode such legends.
- Competition In nature there prevail irreconcilable conflicts of interests. The means of subsistence are scarce. Proliferation tends to outrun subsistence. Only the fittest plants and animals survive. The antagonism between an animal starving to death and another that snatches the food away from it is implacable.
Social cooperation under the division of labor removes such antagonisms. It substitutes partnership and mutuality for hostility. The members of society are united in a common venture.
The term competition as applied to the conditions of animal life signifies the rivalry between animals which manifests itself in their search for food. We may call this phenomenon biological competition. Biological competition must not be confused with social competition, i.e., the striving of individuals to attain the most favorable position in the system of social cooperation. As there will always be positions which men value more highly than others, people will strive for them and try to outdo rivals. Social competition is consequently present in every conceivable mode of social organization. If we want to think of a state of affairs in which there is no social competition, we must construct the image of a socialist system in which the chief in his endeavors to assign to everybody his place and task in society is not aided by any ambition on the part of his subjects. The individuals are entirely indifferent and do not apply for special appointments. They behave like the stud horses which do not try to put themselves in a favorable light when the owner picks out the stallion to impregnate his best brood mare. But such people would no longer be acting men.
In a totalitarian system social competition manifests itself in the endeavors of people to court the favor of those in power. In the market economy competition manifests itself in the facts that the sellers must outdo one another by offering better or cheaper goods and services and that the buyers must outdo one another by offering higher prices. In dealing with this variety of social competition which may be called catallactic competition, we must guard ourselves against various popular fallacies.
The classical economists favored the abolition of all trade barriers preventing people from competing on the market. Such restrictive laws, they explained, result in shifting production from those places in which natural conditions of production are more favorable to places in which they are less favorable. They protect the less efficient man against his more efficient rival. They tend to perpetuate backward technological methods of production. In short they curtail production and thus lower the standard of living. In order to make all people more prosperous, the economists argued, competition should be free to everybody. In this sense they used the term free competition. There was nothing metaphysical in their employment of the term free. They advocated the nullification of privileges barring people from access to certain trades and markets. All the sophisticated lucubrations caviling at the metaphysical connotations of the adjective free as applied to competition are spurious; they have no reference whatever to the catallactic problem of competition.
As far as natural conditions come into play, competition can only be "free" with regard to those factors of production which are not scarce and therefore not objects of human action. In the catallactic field competition is always restricted by the inexorable scarcity of the economic goods and services. Even in the absence of institutional barriers erected to restrict the number of those competing, the state of affairs is never such as to enable everyone to compete in all sectors of the market. In each sector only comparatively small groups can engage in competition.
Catallactic competition, one of the characteristic features of the market economy, is a social phenomenon. It is not a right, guaranteed by the state and the laws, that would make it possible for every individual to choose ad libitum the place in the structure of the division of labor he likes best. To assign to everybody his proper place in society is the task of the consumers. Their buying and abstention from buying is instrumental in determining each individual's social position. Their supremacy is not impaired by any privileges granted to the individuals qua producers. Entrance into a definite branch of industry is virtually free to newcomers only as far as the consumers approve of this branch's expansion or as far as the newcomers succeed in supplanting those already occupied in it by filling better or more cheaply the demands of the consumers. Additional investment is reasonable only to the extent that it fills the most urgent among the not-yet-satisfied needs of the consumers. If the existing plants are sufficient, it would be wasteful to invest more capital in the same industry. The structure of market prices pushes the new investors into other branches.
It is necessary to emphasize this point because the failure to grasp it is at the root of many popular complaints about the impossibility of competition. Some fifty years ago people used to declare: You cannot compete with the railroad companies; it is impossible to challenge their position by starting competing lines; in the field of land transportation there is no longer competition. The truth was that at that time the already-operating lines were by and large sufficient. For additional capital investment the prospects were more favorable in improving the serviceableness of the already operating lines and in other branches of business than in the construction of new railroads. However, this did not interfere with further technological progress in transportation technique. The bigness and the economic "power" of the railroad companies did not impede the emergence of the motorcar and the airplane.
Today people assert the same with regard to various branches of big business: You cannot challenge their position; they are too big and too powerful. But competition does not mean that anybody can prosper by simply imitating what other people do. It means the opportunity to serve the consumers in a better or cheaper way without being restrained by privileges granted to those whose vested interests the innovation hurts. What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much-tallied-of bigness and power of the old firms.
Catallactic competition must not be confused with prizefights and beauty contests. The purpose of such fights and contests is to discover who is the best boxer or the prettiest girl. The social function of catallactic competition is, to be sure, not to establish who is the smartest boy and to reward the winner by a title and medals. Its function is to safeguard the best satisfaction of the consumers which they can attain under the given state of the economic data.
Equality of opportunity is a factor neither in prizefights and beauty contests nor in any other field of competition, whether biological or social. The immense majority of people are by the physiological structure of their bodies deprived of a chance to attain the honors of a boxing champion or a beauty queen. Only very few people can compete on the labor market as opera singers and movie stars. The most favorable opportunity to compete in the field of scientific achievement is provided to the university professors. Yet, thousands and thousands of professors pass away without leaving any trace in the history of ideas and scientific progress, while many of the handicapped outsiders win glory through marvelous contributions.
It is usual to find fault with the fact that catallactic competition is not open to everybody in the same way. The start is much more difficult for a poor boy than for the son of a wealthy man. But the consumers are not concerned about the problem of whether or not the men who shall serve them start their careers under equal conditions. Their only interest is to secure the best possible satisfaction of their needs. If the system of hereditary property is more efficient in this regard, they prefer it to other less-efficient systems. They look at the matter from the point of view of social expediency and social welfare, not from the point of view of an alleged, imaginary, and unrealizable "natural" right of every individual to compete with equal opportunity. The realization of such a right would require placing at a disadvantage those born with better intelligence and greater will power than the average man. It is obvious that this would be absurd.
The term competition is mainly employed as the antithesis of monopoly. In this mode of speech the term monopoly is applied in different meanings which must be clearly separated.
The first connotation of monopoly, very frequently implied in the popular use of the term, signifies a state of affairs in which the monopolist, whether an individual or a group of individuals, exclusively controls one of the vital conditions of human survival. Such a monopolist has the power to starve to death all those who do not obey his orders. He dictates and the others have no alternative but either to surrender or to die. With regard to such a monopoly there is no market or any other kind of catallactic competition. The monopolist is the master and the rest are slaves entirely dependent on his good graces. There is no need to dwell upon this kind of monopoly. It has no reference whatever to a market economy. It is enough to cite one instance. A world-embracing socialist state would exercise such an absolute and total monopoly; it would have the power to crush its opponents by starving them to death.12
The second connotation of monopoly differs from the first in that it describes a state of affairs compatible with the conditions of a market economy. A monopolist in this sense is an individual or a group of individuals, fully combining for joint action, who has the exclusive control of the supply of a definite commodity. If we define the term monopoly in this way, the domain of monopoly appears very vast. The products of the processing industries are more or less different from one another. Each factory turns out products different from those of the other plants. Each hotel has a monopoly on the sale of its services on the site of its premises. The professional services rendered by a physician or a lawyer are never perfectly equal to those rendered by any other physician or lawyer. Except for certain raw materials, foodstuffs, and other staple goods, monopoly is everywhere on the market.
However, the mere phenomenon of monopoly is without any significance and relevance for the operation of the market and the determination of prices. It does not give the monopolist any advantage in selling his products. Under copyright law every rhymester enjoys a monopoly in the sale of his poetry. But this does not influence the market. It may happen that no price whatever can be realized for his stuff and that his books can only be sold at their waste-paper value.
Monopoly in this second connotation of the term becomes a factor in the determination of prices only if the demand curve for the monopoly good concerned is shaped in a particular way. If conditions are such that the monopolist can secure higher net proceeds by selling a smaller quantity of his product at a higher price than by selling a greater quantity of his supply at a lower price, there emerges a monopoly price higher than the potential market price would have been in the absence of monopoly. Monopoly prices are an important market phenomenon, while monopoly as such is only important if it can result in the formation of monopoly prices.
It is customary to call prices which are not monopoly prices competitive prices. While it is questionable whether or not this terminology is expedient, it is generally accepted and it would he difficult to change it. But one must guard oneself against its misinterpretation. It would be a serious blunder to deduce from the antithesis between monopoly price and competitive price that the monopoly price is the outgrowth of the absence of competition. There is always catallactic competition on the market. Catallactic competition is no less a factor in the determination of monopoly prices than it is in the determination of competitive prices. The shape of the demand curve that makes the appearance of monopoly prices possible and directs the monopolists' conduct is determined by the competition of all other commodities competing for the buyers' dollars. The higher the monopolist fixes the price at which he is ready to sell, the more potential buyers turn their dollars toward other vendible goods. On the market every commodity competes with all other commodities.
There are people who maintain that the catallactic theory of prices is of no use for the study of reality because there has never been "free" competition or because, at least today, there is no longer any such thing. All these doctrines are wrong.13 They misconstrue the phenomena and simply do not know what competition really is. It is a fact that the history of the last decades is a record of policies aiming at the restriction of competition. It is the manifest intention of these schemes to grant privileges to certain groups of producers by protecting them against the competition of more efficient competitors. In many instances these policies have brought about the conditions required for the emergence of monopoly prices. In many other instances this was not the case and the result was only a state of affairs preventing many capitalists, entrepreneurs, farmers, and workers from entering those branches of industry in which they would have rendered the most valuable services to their fellow citizens. Catallactic competition has been seriously restricted, but the market economy is still in operation although sabotaged by government and labor-union interference. The system of catallactic competition is still functioning although the productivity of labor has been seriously reduced.
It is the ultimate end of these anticompetition policies to substitute for capitalism a socialist system of planning in which there is no catallactic competition at all. While shedding crocodile tears about the decline of competition, the planners want to abolish this "mad" competitive system. They have attained their goal in some countries. But in the rest of the world they have only restricted competition in some branches of business by increasing the number of people competing in other branches.
The forces aiming at a restriction of competition play a great role in our day. It is an important task of the history of our age to deal with them. Economic theory has no need to refer to them in particular. The fact that there are trade barriers, privileges, cartels, government monopolies and labor unions is merely a datum of economic history. It does not require special theorems for its interpretation.
- Freedom The words freedom and liberty signified for the most eminent representatives of mankind one of the most precious and desirable goods. Today it is fashionable to sneer at them. They are, trumpets the modern sage, "slippery" notions and "bourgeois" prejudices.
Freedom and liberty are not to be found in nature. In nature there is no phenomenon to which these terms could be meaningfully applied. Whatever man does, he can never free himself from the restraints which nature imposes upon him. If he wants to succeed in acting, he must submit unconditionally to the laws of nature.
Freedom and liberty always refer to interhuman relations. A man is free as far as he can live and get on without being at the mercy of arbitrary decisions on the part of other people. In the frame of society everybody depends upon his fellow citizens. Social man cannot become independent without forsaking all the advantages of social cooperation. The self-sufficient individual is independent, but he is not free. He is at the mercy of everybody who is stronger than himself. The stronger fellow has the power to kill him with impunity. It is therefore nonsense to rant about an alleged "natural" and "inborn" freedom which people are supposed to have enjoyed in the ages preceding the emergence of social bonds. Man was not created free; what freedom he may possess has been given to him by society. Only societal conditions can present a man with an orbit within the limits of which he can attain liberty.
Liberty and freedom are the conditions of man within a contractual society. Social cooperation under a system of private ownership of the means of production means that within the range of the market the individual is not bound to obey and to serve an overlord. As far as he gives and serves other people, he does so of his own accord in order to be rewarded and served by the receivers. He exchanges goods and services; he does not do compulsory labor and does not pay tribute. He is certainly not independent. He depends on the other members of society. But this dependence is mutual. The buyer depends on the seller and the seller on the buyer.
The main concern of many writers of the nineteenth and twentieth centuries was to misrepresent and to distort this obvious state of affairs. The workers, they said, are at the mercy of their employers. Now, it is true that the employer has the right to fire the employee. But if he makes use of this right in order to indulge in his whims, he hurts his own interests. It is to his own disadvantage if he discharges a better man in order to hire a less efficient one. The market does not directly prevent anybody from arbitrarily inflicting harm on his fellow citizens; it only puts a penalty upon such conduct. The shopkeeper is free to be rude to his customers provided he is ready to bear the consequences. The consumers are free to boycott a purveyor provided they are ready to pay the costs. What impels every man to the utmost exertion in the service of his fellow men and curbs innate tendencies toward arbitrariness and malice is, in the market, not compulsion and coercion on the part of gendarmes, hangmen, and, penal courts; it is self-interest. The member of a contractual society is free because he serves others only in serving himself. What restrains him is only the inevitable natural phenomenon of scarcity. For the rest he is free in the range of the market. There is no kind of freedom and liberty other than the kind which the market economy brings about. In a totalitarian hegemonic society the only freedom that is left to the individual, because it cannot be denied to him, is the freedom to commit suicide.
The state, the social apparatus of coercion and compulsion, is by necessity a hegemonic bond. If government were in a position to expand its power ad libitum, it could abolish the market economy and substitute for it all-around totalitarian socialism. In order to prevent this, it is necessary to curb the power of government. This is the task of all constitutions, bills of rights, and laws. This is the meaning of all the struggles which men have fought for liberty.
The detractors of liberty are in this sense right in calling it a "bourgeois" issue and in blaming the rights guaranteeing liberty for being negative. In the realm of state and government, liberty means restraint imposed upon the exercise of the police power.
Liberty and freedom are terms employed for the description of the social conditions of the individual members of a market society in which the power of the indispensable hegemonic bond, the state, is curbed lest the operation of the market be endangered. In a totalitarian system there is nothing to which the attribute "free" could be attached but the unlimited arbitrariness of the dictator.
There would be no need to dwell upon this obvious fact if the champions of the abolition of liberty had not purposely brought about a semantic confusion. They realized that it was hopeless for them to fight openly and sincerely for restraint and servitude. The notions liberty and freedom had such prestige that no propaganda could shake their popularity. Since time immemorial in the realm of Western civilization liberty has been considered as the most precious good. What gave to the West its eminence was precisely its concern about liberty, a social ideal foreign to the oriental peoples. The social philosophy of the Occident is essentially a philosophy of freedom. The main content of the history of Europe and the communities founded by European emigrants and their descendants in other parts of the world was the struggle for liberty. "Rugged" individualism is the signature of our civilization. No open attack upon the freedom of the individual had any prospect of success.
Thus the advocates of totalitarianism chose other tactics. They reversed the meaning of words. They call true or genuine liberty the condition of the individuals under a system in which they have no right other than to obey orders. They call themselves true liberals because they strive after such a social order. They call democracy the Russian methods of dictatorial government. They call the labor union methods of violence and coercion "industrial democracy."
They call freedom of the press a state of affairs in which only the government is free to publish books and newspapers. They define liberty as the opportunity to do the "right" things, and, of course, they arrogate to themselves the determination of what is right and what is not. In their eyes government omnipotence means full liberty. To free the police power from all restraints is the true meaning of their struggle for freedom.
The market economy, say these self-styled liberals, grants liberty only to a parasitic class of exploiters, the bourgeoisie. These scoundrels enjoy the freedom to enslave the masses. The wage earner is not free; he must toil for the sole benefit of his masters, the employers. The capitalists appropriate to themselves what according to the inalienable rights of man should belong to the worker. Under socialism the worker will enjoy freedom and human dignity because he will no longer have to slave for a capitalist. Socialism means the emancipation of the common man, means freedom for all. It means, moreover, riches for all.
These doctrines have been able to triumph because they did not encounter effective rational criticism. Some economists did a brilliant job in unmasking their crass fallacies and contradictions. But the public ignores the teachings of economics. They are too heavy for the readers of tabloids and pulp magazines. The arguments advanced by average politicians and writers against socialism are either silly or irrelevant. It is useless to stand upon an alleged "natural" right of individuals to own property if other people assert that the foremost "natural" right is that of income equality. Such disputes can never be settled. It is beside the point to criticize nonessential, attendant features of the socialist program. One does not refute socialism by attacking the socialists' stand on religion, marriage, birth control, and art. Moreover, in dealing with such matters the critics of socialism were often in the wrong. Thus, for instance, they were so inept as to turn the disapproval of the Bolshevist persecution of the Russian Church into an approbation of this debased, adamantly intolerant church and its superstitious practices.
In spite of these serious shortcomings of the defenders of economic freedom it was impossible to fool all the people all the time about the essential features of socialism. The most fanatical planners were forced to admit that their projects involve the abolition of many freedoms people enjoy under capitalism and "plutodemocracy." Pressed hard, they resorted to a new subterfuge. The freedom to be abolished, they emphasize, is merely the spurious "economic" freedom of the capitalists that harms the common man. Outside the "economic sphere" freedom will not only be fully preserved, but considerably expanded. "Planning for Freedom" has lately become the most popular slogan of the champions of totalitarian government and the Russification of all nations.
The fallacy of this argument stems from the spurious distinction between two realms of human life and action, entirely separated from one another, viz., the "economic" sphere and the "noneconomic" sphere. With regard to this issue there is no need to add anything to what has been said in the preceding parts of this book. However, there is another point to be stressed.
Freedom, as people enjoyed it in the democratic countries of Western civilization in the years of the old liberalism's triumph, was not a product of constitutions, bills of rights, laws, and statutes. Those documents aimed only at safeguarding liberty and freedom, firmly established by the operation of the market economy, against encroachments on the part of officeholders. No and no civil law can guarantee and bring about freedom otherwise than by supporting and defending the fundamental institutions of the market economy. Government means always coercion and compulsion and is by necessity the opposite of liberty. Government is a guarantor of liberty and is compatible with liberty only if its range is adequately restricted to the preservation of economic freedom. Where there is no market economy, the best-intentioned provisions of constitutions and laws remain a dead letter.
The freedom of man under capitalism is an effect of competition. The worker does not depend on the good graces of an employer. If his employer discharges him, he finds another employer.14 The consumer is not at the mercy of the shopkeeper. He is free to patronize another shop if he likes. Nobody must kiss other people's hands or fear their disfavor. Interpersonal relations are businesslike. The exchange of goods and services is mutual; it is not a favor to sell or to buy, it is a transaction dictated by selfishness on either side.
It is true that in his capacity as a producer every man depends either directly — e.g., the entrepreneur — or indirectly — e.g., the hired worker — on the demands of the consumers. However, this dependence upon the supremacy of the consumers is not unlimited. If a man has a weighty reason for defying the sovereignty of the consumers, he can try it. There is in the range of the market a very substantial and effective right to resist oppression. Nobody is forced to go into the liquor industry or into a gun factory if his conscience objects. He may have to pay a price for his conviction; there are in this world no ends the attainment of which is gratuitous. But it is left to a man's own decision to choose between a material advantage and the call of what he believes to be his duty. In the market economy the individual alone is the supreme arbiter in matters of his satisfaction.15
Capitalist society has no means of compelling a man to change his occupation or his place or work other than to reward those complying with the wants of the consumers by higher pay. It is precisely this kind of pressure which many people consider as unbearable and hope to see abolished under socialism. They are too dull to realize that the only alternative is to convey to the authorities full power to determine in what branch and at what place a man should work.
In his capacity as a consumer man is no less free. He alone decides what is more and what is less important for him. He chooses how to spend his money according to his own will.
The substitution of economic planning for the market economy removes all freedom and leaves to the individual merely the right to obey. The authority directing all economic matters controls all aspects of a man's life and activities. It is the only employer. All labor becomes compulsory labor because the employee must accept what the chief deigns to offer him. The economic tsar determines what and how much of each the consumer may consume. There is no sector of human life in which a decision is left to the individual's value judgments. The authority assigns a definite task to him, trains him for this job, and employs him at the place and in the manner it deems expedient.
As soon as the economic freedom which the market economy grants to its members is removed, all political liberties and bills of rights become humbug. Habeas corpus and trial by jury are a sham if, under the pretext of economic expediency, the authority has full power to relegate every citizen it dislikes to the arctic or to a desert and to assign him "hard labor" for life. Freedom of the press is a mere blind if the authority controls all printing offices and paper plants. And so are all the other rights of men.
A man has freedom as far as he shapes his life according to his own plans. A man whose fate is determined by the plans of a superior authority, in which the exclusive power to plan is vested, is not free in the sense in which this term "free" was used and understood by all people until the semantic revolution of our day brought about a confusion of tongues.
- Inequality of Wealth and Income The inequality of individuals with regard to wealth and income is an essential feature of the market economy.
The fact that freedom is incompatible with equality of wealth and income has been stressed by many authors. There is no need to enter into an examination of the emotional arguments advanced in these writings. Neither is it necessary to raise the question of whether the renunciation of liberty could in itself guarantee the establishment of equality of wealth and income and whether or not a society could subsist on the basis of such an equality. Our task is merely to describe the role inequality lays in the framework of the market society.
In the market society, direct compulsion and coercion are practiced only for the sake of preventing acts detrimental to social cooperation. For the rest, individuals are not molested by the police power. The law-abiding citizen is free from the interference of jailers and hangmen. What pressure is needed to impel an individual to contribute his share to the cooperative effort of production is exercised by the price structure of the market. This pressure is indirect. It puts on each individual's contribution a premium graduated according to the value which the consumers attach to this contribution. In rewarding the individual's effort according to its value, it leaves to everybody the choice between a more or less complete utilization of his own faculties and abilities. This method can, of course, not eliminate the disadvantages of inherent personal inferiority. But it provides an incentive to everybody to exert his faculties and abilities to the utmost.
The only alternative to this financial pressure as exercised by the market is direct pressure and compulsion as exercised by the police power. The authorities must be entrusted with the task of determining the quantity and quality of work that each individual is bound to perform. As individuals are unequal with regard to their abilities, this requires an examination of their personalities on the part of the authorities. The individual becomes an inmate of a penitentiary, as it were, to whom a definite task is assigned. If he fails to achieve what the authorities have ordered him to do, he is liable to punishment.
It is important to realize in what the difference consists between direct pressure exercised for the prevention of crime and that exercised for the extortion of a definite performance. In the former case all that is required from the individual is to avoid a certain mode of conduct, precisely determined by law. As a rule it is easy to establish whether or not this interdiction has been observed. In the second case the individual is liable to accomplish a definite task; the law forces him toward an indefinite action, the determination of which is left to the decision of the executive power. The individual is bound to obey whatever the administration orders him to do. Whether or not the command issued by the executive power was adequate to his forces and faculties and whether or not he has complied with it to the best of his abilities is extremely difficult to establish. Every citizen is with regard to all aspects of his personality and with regard to all manifestations of his conduct subject to the decisions of the authorities. In the market economy in a trial before a penal court the prosecutor is obliged to produce sufficient evidence that the defendant is guilty. But in matters of the performance of compulsory work it devolves upon the defendant to prove that the task assigned to him was beyond his abilities or that he has done all that can be expected of him. The administrators combine in their persons the offices of the legislator, the executor of the law, the public prosecutor, and the judge. The defendants are entirely at their mercy. This is what people have in mind when speaking of lack of freedom.
No system of the social division of labor can do without a method that makes individuals responsible for their contributions to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police.
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- For this man these goods are not goods of the first order, but goods of a higher order, factors of further production.
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- Cf., e.g., R. v. Strigl, Kapital und Produktion (Vienna, 1934), p. 3.
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- Cf. Frank A. Fetter in Encyclopaedia of the Social Sciences. III, 190.
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- Cf. below, pp. 522–531.
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- For an examination of the Russian "experiment" see Mises, Planned Chaos (Irvington-on-Hudson, 1947), pp. 80–87.
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- The most amazing product of this widespread method of thought is the book of a Prussian professor, Bernhard Laum (Die geschlossene Wirtschaft [Tübingen, 19331). Laum assembles a vast collection of quotations from ethnographical writings showing that many primitive tribes considered economic autarky as natural, necessary, and morally good. He concludes from this that autarky is the natural and most expedient state of economic management and that the return to autarky which he advocates is "a biologically necessary process" (p. 491).
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- Guy de Maupassant analyzed Flaubert's alleged hatred of the bourgeois in Etude sur Gustave Flaubert (reprinted in Oeuvres complètes de Gustave Flaubert [Paris, 1885], Vol. VII). Flaubert, says Maupassant, "aimait le monde" (p. 67); that is, he liked to move in the circle of Paris society composed of aristocrats, wealthy bourgeois, and the élite of artists, writers, philosophers, scientists, statesmen, and entrepreneurs (promoters). He used the term bourgeois as synonymous with imbecility and defined it this way: "I call a bourgeois whoever has mean thoughts (pense bassement)." Hence it is obvious that in employing the term bourgeois Flaubert did not have in mind the bourgeoisie as a social class, but a kind of imbecility he most frequently found in this class. He was full of contempt for the common man ("le bon peuple") as well. However, as he had more frequent contacts with the "gens du monde" than with workers, the stupidity of the former annoyed him more than that of the latter (p. 59). These observations of Maupassant held good not only for Flaubert, but for the "antibourgeois" sentiments of all artists. Incidentally, it must be emphasized that from a Marxian point of view Flaubert is a "bourgeois" writer and his novels arc an "ideological superstructure" of the "capitalist or bourgeois mode of production."
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- The Nazis used "Jewish" as a synonym of both "capitalist" and "bourgeois."
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- Cf. above, pp. 81–84.
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- Cf. Frank A. Fetter, The Principles of Economics (3d ed. New York, 1913), pp. 394, 410.
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- Beatrice Webb, Lady Passfield, herself the daughter of a wealthy businessman, may be quoted as an outstanding example of this mentality. Cf. My Apprenticeship (New York, 1926), p. 42.
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- Cf. Trotsky (1937) as quoted by Hayek, The Road to Serfdom (London, 1944) p. 89.
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- For a refutation of the fashionable doctrines of imperfect and of monopolistic competition, cf. F.A. Hayek, Individualism and Economic Order (Chicago, 1948), pp. 92–118.
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- See below, pp. 595–596.
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- In the political sphere resistance to oppression practiced by the established government is the ultima ratio of those oppressed. However illegal and unbearable the oppression, however lofty and noble the motives of the rebels, and however beneficial the consequences of their violent resistance, a revolution is always an illegal act, disintegrating the established order of state and government. It is an essential mark of civil government that it is in its territory the only agency which is in a position to resort to measures of violence or to declare legitimate whatever violence is practiced by other agencies. A revolution is an act of warfare between the citizens, it abolishes the very foundations of legality and is at best restrained by the questionable international customs concerning belligerency. If victorious, it can afterwards establish a new legal order and a new government. But it can never enact a legal "right to resist oppression." Such an impunity granted to people venturing armed resistance to the armed forces of the government is tantamount to anarchy and incompatible with any mode of government. The Constituent Assembly of the first French Revolution was foolish enough to decree such a right; but it was not so foolish as to take its own decree seriously.
The US trade and tech wars against China continued under President Joe Biden, who escalated export controls related to technology. The US wants to cut China’s access to advanced semiconductors and the equipment used to manufacture them in order to prevent their use for military purposes. The restrictions follow the CHIPS and Science Act, passed in August 2022 which showers $52 billion in subsidies on the US chip industry and grants over $200 billion in additional research and development (R&D) and science funding.
The alleged purpose of the US protectionist moves is to strengthen “national security” as revealed by the recent strategy, which singles out China as the main challenger to the world order upheld by the US. President Biden warned that the US faces a “decisive decade” in its rivalry with China in order to preserve a long-term competitive edge. Yet, a deeper analysis shows that the US policy is rather meant to contain China’s overall technological and economic progress. It also reveals the US government intentions to depart further from free-market solutions to bolster its economy, which reduces economic welfare and stokes the risk of military confrontation down the road.
US Dominates the Global Semiconductor Value Chains Alarmist views that the US semiconductor industry is in need of subsidies and trade protection are not supported by facts. The US has remained the global semiconductor market leader, with almost 50 percent of annual sales since the late 1990s, despite a gradual decline in its share of chips manufacturing (graph 1). Most important, manufacturing represents less than one fifth of the semiconductor production chain and the US dominates the top end of the overall supply chain.
Graph 1: Semiconductor global market share, 2020
macovei_1.png
Source: Semiconductor Industry Association.
The US managed to control the overall market for semiconductors because it specialized in activities that are both R&D intensive and most profitable, such as the design of chips and production of manufacturing equipment. By contrast, the US’s Asian competitors focus mostly on capital- and labor-intensive stages of the value chain, such as supplying raw materials and manufacturing, assembling, testing, and packaging chips (graph 2).
Graph 2: Semiconductor value added by activity and region in 2019 (%)
macovei_2.png
Source: Semiconductor Industry Association.
About 75 percent of the world’s total semiconductor manufacturing capacity is located in Asia now, primarily in US allies like Taiwan, Korea, and Japan. But, more than 40 percent of the US semiconductor manufacturers’ capacity, which represents a nonnegligible 12 percent of the global output, is still located at home. Moreover, by controlling the top end of the value supply chain, the US could easily build up additional manufacturing capacity if needed. As the global chips market surged almost five times during the last two decades to an estimated $630 billion this year, US companies moved up the value chain by massively investing in R&D. American firms spent about $44 billion on R&D in 2020, more as a percent of sales than any other country’s semiconductor industry (graph 3). By these metrics, the US chips sector is definitely not an “infant industry” that could arguably need protection from foreign competition.
Graph 3: Semiconductor R&D expenditures, 2019 (% sales by country)
macovei_3.png
Source: Semiconductor Industry Association.
Industrial Policy Does Not Bolster Competitiveness Industrial policy is traditionally justified by the “infant industry” argument that newly established “strategic” domestic industries or companies may need protection until they are able to catch up with more efficient foreign rivals. Critics of industrial policy emphasize that one cannot know in advance whether a particular industry will be profitable or not. If banks, capital markets, and domestic and foreign entrepreneurs cannot select the most promising investments, why should government officials and politicians do better? The latter are not omniscient either and take similar entrepreneurial risks, but with other people’s money. This invites less accountability, pork-barrel politics and rent seeking.
The historic experience with industrial policy is largely underwhelming in the United States, and has been riddled with “performance underruns and cost overruns.” Countless failures of industrial policy can be found also in Latin America, the UK, Europe, and India, whereas the “successes” of countries like Japan, Taiwan, Singapore, and South Korea appear to be exaggerated. Several studies show that Asian nations’ impressive economic growth was not driven by industrial policy and, may have been actually slowed by it. For example, more than 80 percent of budget subsidies in Japan went into agriculture, forestry, and fisheries and very little went into R&D at the peak of Japan’s industrial policy efforts during 1955–80. Moreover, import protection seems to have decreased sectoral total factor productivity growth both in Japan and Korea because it made intermediate inputs more expensive and reduced domestic competition.
The industrial policy conundrum ultimately boils down to whether the government can successfully engage in economic central planning. The proven failure of large-scale socialist economic planning suggests that also partial planning of a few sectors or companies is not likely to fare much better. What is certain is that industrial policy redistributes benefits from productive companies to less efficient ones which is not Pareto optimal.
In the case of semiconductors, the US government is coercing the rest of the US economy to subsidize an already highly profitable sector to undertake lower-value-added activities. This nonmarket transfer of resources was obviously well received by the semiconductor industry, which nevertheless had a defensive reaction to the later announcement of export controls to China. US companies understood very well that it would most likely harm their profits and their capacity to innovate and maintain long-term global leadership.
China’s Technological Progress Accelerated The US does not need protectionist measures to improve its national security because it already controls the most advanced semiconductor technologies in the world. But the US government hopes to benefit indirectly by curtailing China military’s access to high-end chips and contain China’s technological progress in general.
Experience shows that both China and other emerging countries are capable to go to great lengths to supply their military with advanced technologies. China managed to build advanced fighter jets while it still struggles to develop a domestic civil plane. Despite being under heavy international sanctions for many years, Iran produced performant combat drones using Western dual technology, while North Korea continued its nuclear and intercontinental ballistic missile tests. International restrictions can also be circumvented, as illustrated by Iran’s dodging of oil sanctions or Chinese companies’ working around the US tech sanctions.
Most important, China can invent technical solutions to overcome the chips blockade, even if commercial production processes may be less efficient and more expensive. For example, China’s top logic chips foundry, SMIC can only produce fourteen-nanometer chips on a large scale, trailing the industry leaders by about five years. Although subject to US sanctions and blocked from acquiring advanced EUV chip producing machines since 2020, SMIC has reportedly innovated its way into producing advanced seven-nanometer chips by using older technology. Huawei, the blacklisted Chinese telecoms giant, struggled to salvage its mobile and 5G equipment business by innovating in the “advanced packaging” of chips to increase their performance.
US export restrictions are unlikely to prevent China from building up its military and their real purpose remains a general economic containment of China. Top US officials have not been shy about their efforts to maintain “as large a lead as possible” in technology, because China’s advance in production and innovation capabilities has accelerated recently. Chinese companies have become very competitive in consumer electronics and market leaders in renewable energy equipment like solar photovoltaics, wind turbines, and high-capacity batteries, used also to produce electric vehicles (EVs). China is now both the world’s leading market for EVs and the largest EV producer with increasingly homegrown technological progress. At present, China remains highly dependent on the West in only two major sectors—i.e., semiconductors and civil aviation.
It is understandable that China’s rapid catch-up has unsettled the US political establishment, but believing that industrial protection and trade restrictions are the solution represents a serious intellectual error. China’s economic and technological advance took place concomitantly in so many different domains, that it could not have been the result of forced redistribution of resources from productive to less productive sectors on such a large scale. It is rather the outcome of domestic and foreign companies taking advantage of a more friendly business environment and dynamic markets. There is no coincidence that a multitude of Western companies continue to rely heavily on China despite its harmful zero-covid policy and Western governments’ decoupling efforts.
Conclusion The US government interventions in the semiconductors market are not only detrimental to the industry itself and consumer welfare, but also show that American leaders have lost confidence in the power of markets to drive economic success. This can be very dangerous because, as explained by George Reisman, only free-market competition increases labor productivity and the benefits of the international division of labor, whereas restriction of international exchanges very often contributes to future wars.
If wrong economic policies undermine the US competitive position and global hegemonic ambitions, US leaders may be increasingly tempted to escalate the commercial and technological confrontation with China into a political and military one. And if China sees its economic opportunities and strategic interests severely harmed may get more belligerent too. Such a major risk to global peace, prosperity, and individual freedom should not be taken lightly.
The Federal Reserve has not only mismanaged the US economy; even its own "portfolio" is underwater.
Original Article: "In the Red: The Federal Reserve’s Portfolio Joins the Rest of the Market"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In recent decades, proposals for a universal basic income (UBI) have aroused a good deal of attention, but supporters of the free market have for the most part been averse to the idea. In his article “A Hayekian Case for Free Markets and a Universal Basic Income” (in Michael Cholbi and Michael Weber, eds., The Future of Work, Technology, and Basic Income [Routledge, 2020], pp. 7–26), the philosopher Matt Zwolinski has made a good case that free-market supporters should endorse a UBI, but I’m not convinced.
As Zwolinski rightly says, Murray N. Rothbard, Robert Nozick, and other libertarians oppose coercion, defined as the use or threat of force against those who haven’t violated rights. Friedrich Hayek thinks that what is wrong with coercion is that it makes a person subject to the arbitrary will of another: if you coerce me, I can’t live my life by trying to achieve my own goals but must do what you tell me to do. To prevent such domination, Hayek says, society should be governed by general rules that apply to everybody. In that case, people are free to lead their own lives, in most cases doing so by peacefully supplying others with goods or services.
A problem yet remains, according to Hayek. Some people in a free-market society can’t provide for themselves. Even if they are paid a competitive wage, the value of what they produce may not be enough to enable them to meet their minimum needs; and even worse is the situation of the old, infirm, and disabled, who cannot work at all. In this unhappy circumstance, they depend on others who may coerce them into performing degrading tasks. Those in this class should be given a minimum basic income to remedy their plight.
Zwolinski agrees but thinks Hayek doesn’t go far enough, and he contends that there are Hayekian grounds in favor of the extension he suggests. Hayek wants to limit the minimum basic income to those unable to work; if you can work but don’t want to, you don’t get the minimum basic income. Zwolinski points out that implementing Hayek’s proposal would require “means testing” recipients, a consequence Hayek not only accepts but embraces. But administering such tests requires bureaucracies, and this leads to arbitrary control over people lives, just what Hayek wants to avoid, and to the growth of government power of whose dangers he has continually warned us. A universal basic income eliminates this danger, since it is no longer up to government officials to decide who gets the money.
Zwolinski also endeavors to deflect an objection to a UBI, one which I’m sure has occurred to many readers. Even if a UBI has points in its favor, it has to be financed through taxation, which violates people’s property rights. Just as supporters of the free market would shun proposals to conscript people to care for the disabled and infirm, shouldn’t they also reject a UBI? Zwolinski ingeniously replies that nonanarchists, who accept taxation for some government functions, aren’t in a good position to cry “taxation is theft!”
Zwolinski is right that there are people who can’t “make it” on their own in a free market, but he hasn’t gotten to the heart of what is bad about their situation. As he sees it, the problem is that because they cannot generate enough income to survive, they may be subject to the arbitrary will of another, a state of affairs he deems “coercive.” That is indeed bad, but isn’t the essence of the problem that these people can’t survive without resources from others rather than the bad consequences that may ensue if these unfortunates do succeed in getting resources from people? Why extend coercion to include cases in which someone faces undesirable options but isn’t threatened with force? As Zwolinski himself points out, someone who refuses aid to another is just declining to engage in an exchange; why is this coercive?
Zwolinski’s reply is obvious. He would say (and does say) that there are cases where, because all your options are bad, you “don’t really have a choice” and you are in that sense coerced. If, for example, the owner of the only oasis in a desert refuses people access to water unless they enslave themselves to him, isn’t it reasonable to view these people as coerced? But this reply ignores the point of the objection, which is that it is not the lack of resources that is coercive but, arguably, the consequence of this lack—i.e., that someone can pressure people into doing what they strongly desire not to do. Zwolinski’s argument seems to rest on the dubious premise “If a state of affairs leads to a situation in which people can coerce others, the state of affairs is itself coercive.” I hasten to add that I don’t accept the contention that the situation where someone faces pressure to do what he abhors is coercive, but am just assuming it for the purpose of the present argument. There is a difference between circumstances that give you “no good options” and situations where others either physically compel you to do something or threaten you with such compulsion.
To this it may be answered, “What difference does it make whether you call the plight of those who cannot ‘make it’ on the market ‘coercive’ or not? They still lack the resources they need to survive.” But this ignores the dialectical situation. Zwolinski wants to say to libertarians, “You favor the use of coercion only in response to coercion, but this counts as coercion too; therefore, you should support taxation to aid these people (and, for further reasons, a UBI).” Given this thesis, the key to Zwolinski’s argument is what I have called the “dubious premise,” and if you don’t accept it, the argument fails. He is in effect saying that the state’s giving people money in order to reduce the chance that they will be subject to his extended sense of coercion should itself be taken as a response to coercion rather than as a violation of libertarian rights.
Although this doesn’t affect the substance of the argument for a UBI, a passage in Zwolinski’s article sheds light on an important controversy and in my view requires modification. He says,
For libertarians, freedom is understood in terms of abstract rights, which are themselves understood in a historical sense. And thus, for the libertarian, we can never tell simply by looking at the character of a social relationship whether it is a state of freedom or unfreedom. A man is being dragged, fighting, into a car by stronger men armed with guns. Is his freedom being infringed? That depends. Is he a criminal who is being justly arrested by the police (or, if you prefer, by the Dominant Protection Agency)? Then, despite all appearances to the contrary, the answer is no—his freedom, that is, his rights, are not being infringed. A soldier is told when to eat, when to sleep, what to wear, and who to kill by his superiors, on threat of severe punishment for disobedience. Is he free? The libertarian’s answer is, not if he signed up for it. For the libertarian, it seems that there is no set of social arrangements so oppressive, no amount of being bossed around by others that is incompatible with freedom, so long as that situation arose in the right way. Whatever arises from a just situation by just steps, is itself just. And whatever arises from a free situation by freedom-respecting steps, is itself free. (p. 10)
The controversy I have in mind involved Robert Nozick (at one point in his career) and Walter Block, on one side, and Murray Rothbard, on the other, and was about whether you can voluntarily sell yourself into slavery. It would be absurd to say that the voluntary slave remains free after the sale; the point of the sale, after all, was to enslave himself. The absurdity would be analogous to arguing that a king who voluntarily abdicates remains a king. Thus, the principle that “whatever arises from a free situation by freedom-respecting steps is itself free” is acceptable only if people have inalienable rights they can’t freely give up.
But what have Rothbardians to say about the aged and infirm? Of course these people merit help, but why bring in the state and coercion? What is the matter with voluntary assistance? If it is claimed that this would be insufficient, on what grounds?
As the economy moves into recession, we should understand how we got there and what is needed to bring about a quick and lasting recovery.
Original Article: "The REAL Solution to the Coming Economic Crisis"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Unjust discrimination can be costly for businesses and the broader economy. Businesses that refuse to hire applicants based on traits like sex and race limit society’s ability to harness human capital to produce innovations. Economies perform best when labor and capital are efficiently allocated to the right sectors.
Hence, societies that penalize people for innate characteristics will see less-than-ideal economic results. But as we will observe later, programs to increase the involvement of women in science and entrepreneurship are disappointing due to sex differences in personality.
Governments are promoting female inclusion in the labor force as an economic strategy. Across the globe, laws that restrict female employment are being rescinded. Recently, Benin lifted restrictions on female employment in construction to allow women to perform a wider variety of tasks. Removing obstacles to female employment enables society to benefit from the productivity of women.
Employing women introduces an opportunity for corporations to unleash untapped creative potential and enrich society with women’s ingenuity. Increasing the participation of women in the labor force is likely to deliver greater gains for developing countries with lower levels of female employment. Economists estimate that expanding female employment in India could spur economic growth by 2.4 percent.
This might seem like a small figure, but this growth could result in considerable gains for some constituents. Apart from economic growth, female empowerment is linked to positive social outcomes. Research shows that in Africa, agricultural output would increase by 20 percent if women had equal access to agricultural inputs. Moreover, observing that women invest a higher proportion of their earnings in family and community matters, including them in the labor force would put a dent in poverty rates.
Furthermore, because women are primarily responsible for domestic affairs, female employment has a direct impact on child welfare. One landmark study from Brazil revealed that children’s chances surviving increased by 20 percent when mothers controlled household income. Conversely, employing females also equips them with the knowledge to become innovators and solve understudied problems affecting women. In a recent study, Rem Koning found that patents filed by all-female teams were over 35 percent more likely to pursue inventions that focus on women’s health.
Liberated women make an immense contribution to society. Yet policies to intensify their participation in science and entrepreneurship could be unfruitful due to personality differences. The American government and corporations like Google and Microsoft sponsor programs to increase the involvement of women in science and technology. Nevertheless, women are still underrepresented in these fields. Google grudgingly admits in a recent report that there has been little progress for women in its workforce.
However, based on the findings of studies exploring the underrepresentation of women in science and technology, Google’s conclusion is unsurprising. Several studies argue that gender disparities in science are a consequence of personality differences. In contrast to women, men prefer to work with things rather than people and enjoy abstract thinking. Studies even posit that there are more men than women working in computer science because men are more interested in the field.
Further, although some think that institutions discriminate against women, the evidence argues that hiring favors them. It is obvious that the paucity of women in some professions stems from personality differences and cannot be ameliorated by social engineering. Even rates of scientific invention are influenced by personality differences. The confidence of a man is less likely to be shattered due to rejection, so as a result, they are less willing to quit after failure. A 2021 study published by the Academy of Management Proceedings informs readers that disparities in patenting are attributable to the resilience of men, who eschew quitting.
Similarly, the gender gap in entrepreneurship is a function of personality differences. The success of women like Estée Lauder and Melanie Perkins demonstrates that women can be as exceptional as men or even better, but the profile of the average woman is more relevant than the accomplishments of outliers. On average, men have higher entrepreneurial intentions than women, are more entrepreneurial, and start larger and more durable businesses.
Now, if women have a comparative advantage in the beauty sector, and Google decides to sponsor a project for female manufacturers, this could be a positive step. However, tech companies’ initiatives to increase female entrepreneurship broadly could be fruitless due to personality differences. Companies are free to advocate female entrepreneurship; however, because men possess personality traits that endear them to entrepreneurship and women exhibit such traits on a lower scale, the gender gap in entrepreneurship will likely be persistent.
Research often finds that women are not as overconfident and risk tolerant as men; therefore, women are less entrepreneurial on average, considering that entrepreneurship correlates with these traits. It should concern policy makers that despite billions spent on female entrepreneurship projects, women are yet to create companies like Amazon, Google, and Netflix.
A possible explanation could be that because men are more likely to disrupt dominant cultural values to become entrepreneurs, they are likelier to launch more revolutionary companies. Additionally, women tend to be more motivated by social goals than economic value creation, so they might be less inclined to establish financial behemoths than men, since that is not their goal.
Policy makers and entrepreneurs are armed with studies that refute the argument that the underrepresentation of women in some professions is an outcome of discrimination, so financing programs to increase the representation of women is useless. Empowering women is a laudable goal, but initiatives to boost women’s participation in science and entrepreneurship are wasting resources, since it’s evident that women are less represented in some sectors because their goals and interests differ from men’s.
In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen. The others unfold in succession — they are not seen: it is well for us if they are foreseen. Between a good and a bad economist this constitutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favorable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a small present evil.
In fact, it is the same in the science of health, arts, and in that of morals. If often happens, that the sweeter the first fruit of a habit is, the more bitter are the consequences. Take, for example, debauchery, idleness, prodigality. When, therefore, a man, absorbed in the effect which is seen, has not yet learned to discern those which are not seen, he gives way to fatal habits, not only by inclination, but by calculation.
This explains the fatally grievous condition of mankind. Ignorance surrounds its cradle: then its actions are determined by their first consequences, the only ones which, in its first stage, it can see. It is only in the long run that it learns to take account of the others. It has to learn this lesson from two very different masters — experience and foresight. Experience teaches effectually, but brutally. It makes us acquainted with all the effects of an action, by causing us to feel them; and we cannot fail to finish by knowing that fire burns, if we have burned ourselves. For this rough teacher, I should like, if possible, to substitute a more gentle one. I mean Foresight. For this purpose I shall examine the consequences of certain economical phenomena, by placing in opposition to each other those which are seen, and those which are not seen.
I. The Broken Window Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation: "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions. Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade — that it encourages that trade to the amount of six francs — I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen."
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.
Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier's trade is encouraged to the amount of six francs: this is that which is seen.
If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.
And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labor, is affected, whether windows are broken or not.
Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window. In the second, where we suppose the window not to have been broken, he would have spent six francs in shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window. Now, as James B. forms a part of society, must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labors, it has lost the value of the broken window.
Whence we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end — to break, to spoil, to waste, is not to encourage national labor; or, more briefly, "destruction is not profit."
What will you say, Moniteur Industriel? what will you say, disciples of good M. F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?
I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen.
The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another, under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), whose labor suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favor, all you will find will be the paraphrase of this vulgar saying — What would become of the glaziers, if nobody ever broke windows?
II. The Disbanding of Troops It is the same with a people as it is with a man. If it wishes to give itself some gratification, it naturally considers whether it is worth what it costs. To a nation, security is the greatest of advantages. If, in order to obtain it, it is necessary to have an army of a hundred thousand men, I have nothing to say against it. It is an enjoyment bought by a sacrifice. Let me not be misunderstood upon the extent of my position. A member of the assembly proposes to disband a hundred thousand men, for the sake of relieving the tax-payers of a hundred millions.
If we confine ourselves to this answer — "The hundred millions of men, and these hundred millions of money, are indispensable to the national security: it is a sacrifice; but without this sacrifice, France would be torn by factions or invaded by some foreign power" — I have nothing to object to this argument, which may be true or false in fact, but which theoretically contains nothing which militates against economy. The error begins when the sacrifice itself is said to be an advantage because it profits somebody.
Now I am very much mistaken if, the moment the author of the proposal has taken his seat, some orator will not rise and say — "Disband a hundred thousand men! Do you know what you are saying? What will become of them? Where will they get a living? Don't you know that work is scarce everywhere? That every field is over-stocked? Would you turn them out of doors to increase competition and to weigh upon the rate of wages? Just now, when it is a hard matter to live at all, it would be a pretty thing if the State must find bread for a hundred thousand individuals? Consider, besides, that the army consumes wine, arms, clothing — that it promotes the activity of manufactures in garrison towns — that it is, in short, the godsend of innumerable purveyors. Why, any one must tremble at the bare idea of doing away with this immense industrial movement."
This discourse, it is evident, concludes by voting the maintenance of a hundred thousand soldiers, for reasons drawn from the necessity of the service, and from economical considerations. It is these considerations only that I have to refute.
A hundred thousand men, costing the tax-payers a hundred millions of money, live and bring to the purveyors as much as a hundred millions can supply. This is that which is seen.
But, a hundred millions taken from the pockets of the tax-payers, cease to maintain these tax-payers and the purveyors, as far as a hundred millions reach. This is that which is not seen. Now make your calculations. Cast up, and tell me what profit there is for the masses?
I will tell you where the loss lies; and to simplify it, instead of speaking of a hundred thousand men and a million of money, it shall be of one man and a thousand francs.
We will suppose that we are in the village of A. The recruiting sergeants go their round, and take off a man. The tax-gatherers go their round, and take off a thousand francs. The man and the sum of money are taken to Metz, and the latter is destined to support the former for a year without doing anything. If you consider Metz only, you are quite right; the measure is a very advantageous one: but if you look towards the village of A., you will judge very differently; for, unless you are very blind indeed, you will see that that village has lost a worker, and the thousand francs which would remunerate his labor, as well as the activity which, by the expenditure of those thousand francs, it would spread around it.
At first sight, there would seem to be some compensation. What took place at the village, now takes place at Metz, that is all. But the loss is to be estimated in this way: At the village, a man dug and worked; he was a worker. At Metz, he turns to the right about and to the left about; he is a soldier. The money and the circulation are the same in both cases; but in the one there were three hundred days of productive labor, in the other there are three hundred days of unproductive labor, supposing, of course, that a part of the army is not indispensable to the public safety.
Now, suppose the disbanding to take place. You tell me there will be a surplus of a hundred thousand workers, that competition will be stimulated, and it will reduce the rate of wages. This is what you see.
But what you do not see is this. You do not see that to dismiss a hundred thousand soldiers is not to do away with a million of money, but to return it to the tax-payers. You do not see that to throw a hundred thousand workers on the market, is to throw into it, at the same moment, the hundred millions of money needed to pay for their labor: that, consequently, the same act which increases the supply of hands, increases also the demand; from which it follows, that your fear of a reduction of wages is unfounded. You do not see that, before the disbanding as well as after it, there are in the country a hundred millions of money corresponding with the hundred thousand men. That the whole difference consists in this: before the disbanding, the country gave the hundred millions to the hundred thousand men for doing nothing; and that after it, it pays them the same sum for working. You do not see, in short, that when a tax-payer gives his money either to a soldier in exchange for nothing, or to a worker in exchange for something, all the ultimate consequences of the circulation of this money are the same in the two cases; only, in the second case the tax-payer receives something, in the former he receives nothing. The result is — a dead loss to the nation.
The sophism which I am here combating will not stand the test of progression, which is the touchstone of principles. If, when every compensation is made, and all interests satisfied, there is a national profit in increasing the army, why not enroll under its banners the entire male population of the country?
III. Taxes Have you never chanced to hear it said: "There is no better investment than taxes. Only see what a number of families it maintains, and consider how it reacts upon industry: it is an inexhaustible stream, it is life itself."
In order to combat this doctrine, I must refer to my preceding refutation. Political economy knew well enough that its arguments were not so amusing that it could be said of them, repetitions please.
It has, therefore, turned the proverb to its own use, well convinced that, in its mouth, repetitions teach.
The advantages which officials advocate are those which are seen. The benefit which accrues to the providers is still that which is seen. This blinds all eyes.
But the disadvantages which the tax-payers have to get rid of are those which are not seen. And the injury which results from it to the providers is still that which is not seen, although this ought to be self-evident.
When an official spends for his own profit an extra hundred sous, it implies that a tax-payer spends for his profit a hundred sous less. But the expense of the official is seen, because the act is performed, while that of the tax-payer is not seen, because, alas! he is prevented from performing it.
You compare the nation, perhaps to a parched tract of land, and the tax to a fertilizing rain. Be it so. But you ought also to ask yourself where are the sources of this rain, and whether it is not the tax itself which draws away the moisture from the ground and dries it up?
Again, you ought to ask yourself whether it is possible that the soil can receive as much of this precious water by rain as it loses by evaporation?
There is one thing very certain, that when James B. counts out a hundred sous for the tax-gatherer, he receives nothing in return. Afterwards, when an official spends these hundred sous, and returns them to James B., it is for an equal value in corn or labor. The final result is a loss to James B. of five francs.
It is very true that often, perhaps very often, the official performs for James B. an equivalent service. In this case there is no loss on either side; there is merely an exchange. Therefore, my arguments do not at all apply to useful functionaries. All I say is — if you wish to create an office, prove its utility. Show that its value to James B., by the services which it performs for him, is equal to what it costs him. But, apart from this intrinsic utility, do not bring forward as an argument the benefit which it confers upon the official, his family, and his providers; do not assert that it encourages labor.
When James B. gives a hundred sous to a Government officer for a really useful service, it is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes.
But when James B. gives a hundred sous to a Government officer, and receives nothing for them unless it be annoyances, he might as well give them to a thief. It is nonsense to say that the Government officer will spend these hundred sons to the great profit of national labor; the thief would do the same; and so would James B., if he had not been stopped on the road by the extra-legal parasite, nor by the lawful sponger.
Let us accustom ourselves, then, to avoid judging of things by what is seen only, but to judge of them by that which is not seen. Last year I was on the Committee of Finance, for under the constituency the members of the Opposition were not systematically excluded from all the Commissions: in that the constituency acted wisely. We have heard M. Thiers say — "I have passed my life in opposing the legitimist party and the priest party. Since the common danger has brought us together, now that I associate with them and know them, and now that we speak face to face, I have found out that they are not the monsters I used to imagine them."
Yes, distrust is exaggerated, hatred is fostered among parties who never mix; and if the majority would allow the minority to be present at the Commissions, it would perhaps be discovered that the ideas of the different sides are not so far removed from each other; and, above all, that their intentions are not so perverse as is supposed. However, last year I was on the Committee of Finance. Every time that one of our colleagues spoke of fixing at a moderate figure the maintenance of the President of the Republic, that of the ministers, and of the ambassadors, it was answered:
"For the good of the service, it is necessary to surround certain offices with splendor and dignity, as a means of attracting men of merit to them. A vast number of unfortunate persons apply to the President of the Republic, and it would be placing him in a very painful position to oblige him to be constantly refusing them. A certain style in the ministerial saloons is a part of the machinery of constitutional Governments."
Although such arguments may be controverted, they certainly deserve a serious examination. They are based upon the public interest, whether rightly estimated or not; and as far as I am concerned, I have much more respect for them than many of our Catos have, who are actuated by a narrow spirit of parsimony or of jealousy. But what revolts the economical part of my conscience, and makes me blush for the intellectual resources of my country, is when this absurd relic of feudalism is brought forward, which it constantly is, and it is favorably received too:
"Besides, the luxury of great Government officers encourages the arts, industry, and labor. The head of the State and his ministers cannot give banquets and soirées without causing life to circulate through all the veins of the social body. To reduce their means, would starve Parisian industry, and consequently that of the whole nation."
I must beg you, gentlemen, to pay some little regard to arithmetic, at least; and not to say before the National Assembly in France, lest to its shame it should agree with you, that an addition gives a different sum, according to whether it is added up from the bottom to the top, or from the top to the bottom of the column.
For instance, I want to agree with a drainer to make a trench in my field for a hundred sous. Just as we have concluded our arrangement the tax-gatherer comes, takes my hundred sous, and sends them to the Minister of the Interior; my bargain is at end, but the minister will have another dish added to his table. Upon what ground will you dare to affirm that this official expense helps the national industry? Do you not see, that in this there is only a reversing of satisfaction and labor? A minister has his table better covered, it is true; but it is just as true that an agriculturist has his field worse drained. A Parisian tavern-keeper has gained a hundred sous, I grant you; but then you must grant me that a drainer has been prevented from gaining five francs. It all comes to this — that the official and the tavern-keeper being satisfied, is that which is seen; the field undrained, and the drainer deprived of his job, is that which is not seen. Dear me! how much trouble there is in proving that two and two make four; and if you succeed in proving it, it is said "the thing is so plain it is quite tiresome," and they vote as if you had proved nothing at all.
IV. Theatres, Fine Arts Ought the State to support the arts?
There is certainly much to be said on both sides of this question. It may be said, in favor of the system of voting supplies for this purpose, that the arts enlarge, elevate, and harmonize the soul of a nation; that they divert it from too great an absorption in material occupations; encourage in it a love for the beautiful; and thus act favorably on its manners, customs, morals, and even on its industry. It may be asked, what would become of music in France without her Italian theater and her Conservatoire; of the dramatic art, without her Théâtre-Français; of painting and sculpture, without our collections, galleries, and museums? It might even be asked, whether, without centralization, and consequently the support of the fine arts, that exquisite taste would be developed which is the noble appendage of French labor, and which introduces its productions to the whole world? In the face of such results, would it not be the height of imprudence to renounce this moderate contribution from all her citizens, which, in fact, in the eyes of Europe, realizes their superiority and their glory?
To these and many other reasons, whose force I do not dispute, arguments no less forcible may be opposed. It might first of all be said, that there is a question of distributive justice in it. Does the right of the legislator extend to abridging the wages of the artisan, for the sake of. adding to the profits of the artist? M. Lamartine said, "If you cease to support the theater, where will you stop? Will you not necessarily be led to withdraw your support from your colleges, your museums, your institutes, and your libraries? It might be answered, if you desire to support everything which is good and useful, where will you stop? Will you not necessarily be led to form a civil list for agriculture, industry, commerce, benevolence, education? Then, is it certain that Government aid favors the progress of art? This question is far from being settled, and we see very well that the theatres which prosper are those which depend upon their own resources. Moreover, if we come to higher considerations, we may observe that wants and desires arise the one from the other, and originate in regions which are more and more refined in proportion as the public wealth allows of their being satisfied; that Government ought not to take part in this correspondence, because in a certain condition of present fortune it could not by taxation stimulate the arts of necessity without checking those of luxury, and thus interrupting the natural course of civilization. I may observe, that these artificial transpositions of wants, tastes, labor, and population, place the people in a precarious and dangerous position, without any solid basis.
These are some of the reasons alleged by the adversaries of State intervention in what concerns the order in which citizens think their wants and desires should be satisfied, and to which, consequently, their activity should be directed. I am, I confess, one of those who think that choice and impulse ought to come from below and not from above, from the citizen and not from the legislator; and the opposite doctrine appears to me to tend to the destruction of liberty and of human dignity.
But, by a deduction as false as it is unjust, do you know what economists are accused of? It is, that when we disapprove of government support, we are supposed to disapprove of the thing itself whose support is discussed; and to be the enemies of every kind of activity, because we desire to see those activities, on the one hand free, and on the other seeking their own reward in themselves. Thus, if we think that the State should not interfere by taxation in religious affairs, we are atheists. If we think the State ought not to interfere by taxation in education, we are hostile to knowledge. If we say that the State ought not by taxation to give a fictitious value to land, or to any particular branch of industry, we are enemies to property and labor. If we think that the State ought not to support artists, we are barbarians, who look upon the arts as useless.
Against such conclusions as these I protest with all my strength. Far from entertaining the absurd idea of doing away with religion, education, property, labor, and the arts, when we say that the State ought to protect the free development of all these kinds of human activity, without helping some of them at the expense of others — we think, on the contrary, that all these living powers of society would develop themselves more harmoniously under the influence of liberty; and that, under such an influence no one of them would, as is now the case, be a source of trouble, of abuses, of tyranny, and: disorder.
Our adversaries consider that an activity which is neither aided by supplies, nor regulated by government, is an activity destroyed. We think just the contrary. Their faith is in the legislator, not in mankind; ours is in mankind, not in the legislator.
Thus M. Lamartine said, "Upon this principle we must abolish the public exhibitions, which are the honor and the wealth of this country." But I would say to M. Lamartine — According to your way of thinking, not to support is to abolish; because, setting out upon the maxim that nothing exists independently of the will of the State, you conclude that nothing lives but what the State causes to live. But I oppose to this assertion the very example which you have chosen, and beg you to remark, that the grandest and noblest of exhibitions, one which has been conceived in the most liberal and universal spirit — and I might even make use of the term humanitary, for it is no exaggeration — is the exhibition now preparing in London; the only one in which no government is taking any part, and which is being paid for by no tax.
To return to the fine arts. There are, I repeat, many strong reasons to be brought, both for and against the system of government assistance: The reader must see that the especial, object of this work leads me neither to explain these reasons, nor to decide in their favor, nor against them.
But M. Lamartine has advanced one argument which I cannot pass by in silence, for it is closely connected with this economic study. "The economical question, as regards theatres, is comprised in one word — labor. It matters little what is the nature of this labor; it is as fertile, as productive a labor as any other kind of labor in the nation. The theatres in France, you know, feed and salary no less than 80,000 workmen of different kinds; painters, masons, decorators, costumers, architects, & c., which constitute the very life and movement of several parts of this capital, and on this account they ought to have your sympathies." Your sympathies! say rather your money.
And further on he says: "The pleasures of Paris are the labor and the consumption of the provinces, and the luxuries of the rich are the wages and bread of 200,000 workmen of every description, who live by the manifold industry of the theatres on the surface of the republic, and who receive from these noble pleasures, which render France illustrious, the sustenance of their lives and the necessaries of their families and children. It is to them that you will give 60,000 francs." (Very well; very well. Great applause.) For my part I am constrained to say, "Very bad! very bad!" confining this opinion, of course, within the bounds of the economical question which we are discussing.
Yes, it is to the workmen of the theatres that a part, at least, of these 60,000 francs will go; a few bribes, perhaps, may be abstracted on the way. Perhaps, if we were to look a little more closely into the matter, we might find that the cake had gone another way, and that those workmen were fortunate who had come in for a few crumbs. But I will allow, for the sake of argument, that the entire sum does go to the painters, decorators, & c.
This is that which is seen. But whence does it come? This is the other side of the question, and quite as important as the former. Where do these 60,000 francs spring from? and where would they go, if a vote of the legislature did not direct them first towards the Rue Rivoli and thence towards the Rue Grenelle? This is what is not seen. Certainly, nobody will think of maintaining that the legislative vote has caused this sum to be hatched in a ballot urn; that it is a pure addition made to the national wealth; that but for this miraculous vote these 60,000 francs would have been for ever invisible and impalpable. It must be admitted that all that the majority can do is to decide that they shall be taken from one place to be sent to another; and if they take one direction, it is only because they have been diverted from another.
This being the case, it is clear that the tax-payer, who has contributed one franc, will no longer have this franc at his own disposal. It is clear that he will be deprived of some gratification to the amount of one franc; and that the workman, whoever he may be, who would have received it from him, will be deprived of a benefit to that amount. Let us not, therefore, be led by a childish illusion into believing that the vote of the 60,000 francs may add anything whatever to the well-being of the country, and to national labor. It displaces enjoyments, it transposes wages — that is all.
Will it be said that for one kind of gratification, and one kind of labor, it substitutes more urgent, more moral, more reasonable gratifications and labor? I might dispute this; I might say, by taking 60,000 francs from the tax-payers, you diminish the wages of laborers, drainers, carpenters, blacksmiths, and increase in proportion those of the singers.
There is nothing to prove that this latter class calls for more sympathy than the former. M. Lamartine does not say that it is so. He himself says that the labor of the theatres is as fertile, as productive as any other (not more so); and this may be doubted; for the best proof that the latter is not so fertile as the former lies in this, that the other is to be called upon to assist it.
But this comparison between the value and the intrinsic merit of different kinds of labor forms no part of my present subject. All I have to do here is to show, that if M. Lamartine and those persons who commend his line of argument have seen on one side the salaries gained by the providers of the comedians, they ought on the other to have seen the salaries lost by the providers of the taxpayers: for want of this, they have exposed themselves to ridicule by mistaking a displacement for a gain. If they were true to their doctrine, there would be no limits to their demands for government aid; for that which is true of one franc and of 60,000 is true, under parallel circumstances, of a hundred millions of francs.
When taxes are the subject of discussion, you ought to prove their utility by reasons from the root of the matter, but not by this unlucky assertion — "The public expenses support the working classes." This assertion disguises the important fact, that public expenses always supersede private expenses, and that therefore we bring a livelihood to one workman instead of another, but add nothing to the share of the working class as a whole. Your arguments are fashionable enough, but they are too absurd to be justified by anything like reason.
V. Public Works Nothing is more natural than that a nation, after having assured itself that an enterprise will benefit the community, should have it executed by means of a general assessment. But I lose patience, I confess, when I hear this economic blunder advanced in support of such a project — " Besides, it will be a means of creating labor for the workmen."
The State opens a road, builds a palace, straightens a street, cuts a canal, and so gives work to certain workmen — this is what is seen: but it deprives certain other workmen of work — and this is what is not seen.
The road is begun. A thousand workmen come every morning, leave every evening, and take their wages-this is certain. If the road had not been decreed, if the supplies had not been voted, these good people would have had neither work nor salary there; this also is certain.
But is this all? Does not the operation, as a whole, contain something else? At the moment when M. Dupin pronounces the emphatic words, "The Assembly has adopted," do the millions descend miraculously on a moonbeam into the coffers of MM. Fould and Bineau? In order that the evolution may be complete, as it is said, must not the State organize the receipts as well as the expenditure? must it not set its tax-gatherers and tax-payers to work, the former to gather and the latter to pay?
Study the question, now, in both its elements. While you state the destination given by the State to the millions voted, do not neglect to state also the destination which the tax-payer would have given, but cannot now give, to the same. Then you will understand that a public enterprise is a coin with two sides. Upon one is engraved a laborer at work, with this device, that which is seen; on the other is a laborer out of work, with the device, that which is not seen.
The sophism which this work is intended to refute is the more dangerous when applied to public works, inasmuch as it serves to justify the most wanton enterprises and extravagance. When a railroad or a bridge are of real utility, it is sufficient to mention this utility. But if it does not exist, what do they do? Recourse is had to this mystification: "We must find work for the workmen."
Accordingly, orders are given that the drains in the Champ-de-Mars be made and unmade. The great Napoleon, it is said, thought he was doing a very philanthropic work by causing ditches to be made and then filled up. He said, therefore, " What signifies the result? All we want is to see wealth spread among the laboring classes."
But let us go to the root of the matter. We are deceived by money. To demand the cooperation of all the citizens in a common work, in the form of money, is in reality to demand a concurrence in kind; for every one procures, by his own labor, the sum to which he is taxed. Now, if all the citizens were to be called together, and made to execute, in conjunction, a work useful to all, this would be easily understood; their reward would be found in the results of the work itself.
But after having called them together, if you force them to make roads which no one will pass through, palaces which no one will inhabit, and this under the pretext of finding them work, it would be absurd, and they would have a right to argue, "With this labor we have nothing to do; we prefer working on our own account."
A proceeding which consists in making the citizens cooperate in giving money but not labor, does not, in any way, alter the general results. The only thing is, that the loss would react upon all parties. By the former, those whom the State employs, escape their part of the loss, by adding it to that which their fellow-citizens have already suffered.
There is an article in our constitution which says: "Society favors and encourages the development of labor — by the establishment of public works, by the State, the departments, and the parishes, as a means of employing persons who are in want of work."
As a temporary measure, on any emergency, during a hard winter, this interference with the tax-payers may have its use. It acts in the same way as securities. It adds nothing either to labor or to wages, but it takes labor and wages from ordinary times to give them, at a loss it is true, to times of difficulty.
As a permanent, general, systematic measure, it is nothing else than a ruinous mystification, an impossibility, which shows a little excited labor which is seen, and hides a great deal of prevented labor which is not seen.
VI. The Intermediates Society is the total of the forced or voluntary services which men perform for each other; that is to say, of public services and private services.
The former, imposed and regulated by the law, which it is not always easy to change, even when it is desirable, may survive with it their own usefulness, and still preserve the name of public services, even when they are no longer services at all, but rather public annoyances. The latter belong to the sphere of the will, of individual responsibility. Every one gives and receives what he wishes, and what he can, after a debate. They have always the presumption of real utility, in exact proportion to their comparative value.
This is the reason why the former description of services so often become stationary, while the latter obey the law of progress.
While the exaggerated development of public services, by the waste of strength which it involves, fastens upon society a fatal sycophancy, it is a singular thing that several modern sects, attributing this character to free and private services, are endeavoring to transform professions into functions.
These sects violently oppose what they call intermediates. They would gladly suppress the capitalist, the banker, the speculator, the projector, the merchant, and the trader, accusing them of interposing between production and consumption, to extort from both, without giving either anything in return. Or rather, they would transfer to the State the work which they accomplish, for this work cannot be suppressed.
The sophism of the Socialists on this point is, showing to the public what it pays to the intermediates in exchange for their services, and concealing from it what is necessary to be paid to the State. Here is the usual conflict between what is before our eyes and what is perceptible to the mind only; between what is seen and what is not seen.
It was at the time of the scarcity, in 1847, that the Socialist schools attempted and succeeded in popularizing their fatal theory. They knew very well that the most absurd notions have always a chance with people who are suffering; malisundafames.
Therefore, by the help of the fine words, " trafficking in men by men, speculation on hunger, monopoly," they began to blacken commerce, and to cast a veil over its benefits.
"What can be the use," they say, "of leaving to the merchants the care of importing food from the United States and the Crimea? Why do not the State, the departments, and the towns, organize a service for provisions and a magazine for stores? They would sell, at a return price, and the people, poor things, would be exempted from the tribute which they pay to free, that is, to egotistical, individual, and anarchical commerce."
The tribute paid by the people to commerce is that which is seen. The tribute which the people would pay to the State, or to its agents, in the Socialist system, is what is not seen.
In what does this pretended tribute, which the people pay to commerce, consist? In this: that two men render each other a mutual service, in all freedom, and under the pressure of competition and reduced prices.
When the hungry stomach is at Paris, and corn which can satisfy it is at Odessa, the suffering cannot cease till the corn is brought into contact with the stomach. There are three means by which this contact may be effected. 1st. The famished men may go themselves and fetch the corn. 2nd. They may leave this task to those to whose trade it belongs. 3rd. They may club together, and give the office in charge to public functionaries. Which of these three methods possesses the greatest advantages? In every time, in all countries, and the more free, enlightened, and experienced they are, men have voluntarily chosen the second. I confess that this is sufficient, in my opinion, to justify this choice. I cannot believe that mankind, as a whole, is deceiving itself upon a point which touches it so nearly. But let us now consider the subject.
For thirty-six millions of citizens to go and fetch the corn they want from Odessa, is a manifest impossibility. The first means, then, goes for nothing. The consumers cannot act for themselves. They must, of necessity, have recourse to intermediates, officials or agents.
But observe, that the first of these three means would be the most natural. In reality, the hungry man has to fetch his corn. It is a task which concerns himself, a service due to himself. If another person, on whatever ground, performs this service for him, takes the task upon himself, this latter has a claim upon him for a compensation. I mean by this to say that intermediates contain in themselves the principle of remuneration.
However that may be, since we must refer to what the Socialists call a parasite, I would ask, which of the two is the most exacting parasite, the merchant or the official?
Commerce (free, of course, otherwise I could not reason upon it), commerce, I say, is led by its own interests to study the seasons, to give daily statements of the state of the crops, to receive information from every part of the globe, to foresee wants, to take precautions beforehand. It has vessels always ready, correspondents everywhere; and it is its immediate interest to buy at the lowest possible price, to economize in all the details of its operations, and to attain the greatest results by the smallest efforts. It is not the French merchants only who are occupied in procuring provisions for France in time of need, and if their interest leads them irresistibly to accomplish their task at the smallest possible cost, the competition which they create amongst each other leads them no less irresistibly to cause the consumers to partake of the profits of those realized savings. The corn arrives: it is to the interest of commerce to sell it as soon as possible, so as to avoid risks, to realize its funds, and begin again the first opportunity.
Directed by the comparison of prices, it distributes food over the whole surface of the country, beginning always at the highest. price, that is, where the demand is the greatest. It is impossible to imagine an organization more completely calculated to meet the interest of those who are in want; and the beauty of this organization, unperceived as it is by the Socialists, results from the very fact that it is free. It is true, the consumer is obliged to reimburse commerce for the expenses of conveyance, freight, store-room, commission, & c.; but can any system be devised in which he who eats corn is not obliged to defray the expenses, whatever they may be, of bringing it within his reach? The remuneration for the service performed has to be paid also; but as regards its amount, this is reduced to the smallest possible sum by competition; and as regards its justice, it would be very strange if the artisans of Paris would not work for the artisans of Marseilles, when the merchants of Marseilles work for the artisans of Paris.
If, according to the Socialist invention, the State were to stand in the stead of commerce, what would happen? I should like to be informed where the saving would be to the public? Would it be in the price of purchase? Imagine the delegates of 40,000 parishes arriving at Odessa on a given day, and on the day of need: imagine the effect upon prices. Would the saving be in the expenses? Would fewer vessels be required; fewer sailors, fewer transports, fewer sloops? or would you be exempt from the payment of all these things? Would it be in the profits of the merchants? Would your officials go to Odessa for nothing? Would they travel and work on the principle of fraternity? Must they not live? Must not they be paid for their time? And do you believe that these expenses would not exceed a thousand times the two or three per cent. which the merchant gains, at the rate at which he is ready to treat?
And then consider the difficulty of levying so many taxes, and of dividing so much food. Think of the injustice, of the abuses inseparable from such an enterprise. Think of the responsibility which would weigh upon the Government.
The Socialists who have invented these follies, and who, in the days of distress, have introduced them into the minds of the masses, take to themselves literally the title of advanced men; and it is not without some danger that custom, that tyrant of tongues, authorizes the term, and the sentiment which it involves. Advanced! This supposes that these gentlemen can see further than the common people; that their only fault is that they are too much in advance of their age; and if the time is not yet come for suppressing certain free services, pretended parasites, the fault is to be attributed to the public which is in the rear of Socialism. I say, from my soul and my conscience, the reverse is the truth; and I know not to what barbarous age we should have to go back, if we would find the level of Socialist knowledge on this subject. These modern sectarians incessantly oppose association to actual society. They overlook the fact that society, under a free regulation, is a true association, far superior to any of those which proceed from their fertile imaginations.
Let me illustrate this by an example. Before a man, when he gets up in the morning, can put on a coat, ground must have been enclosed, broken up, drained, tilled, and sown with a particular kind of plant; flocks must have been fed, and have given their wool; this wool must have been spun, woven, dyed, and converted into cloth; this cloth must have been cut, sewed, and made into a garment. And this series of operations implies a number of others; it supposes the employment of instruments for plowing, & c., sheepfolds, sheds, coal, machines, carriages, & c.
If society were not a perfectly real association, a person who wanted a coat would be reduced to the necessity of working in solitude; that is, of performing for himself the innumerable parts of this series, from the first stroke of the pickaxe to the last stitch which concludes the work. But, thanks to the sociability which is the distinguishing character of our race, these operations are distributed amongst a multitude of workers; and they are further subdivided, for the common good, to an extent that, as the consumption becomes more active, one single operation is able to support a new trade.
Then comes the division of the profits, which operates according to the contingent value which each has brought to the entire work. If this is not association, I should like to know what is.
Observe, that as no one of these workers has obtained the smallest particle of matter from nothingness, they are confined to performing for each other mutual services, and to helping each other in a common object, and that all may be considered, with respect to others, intermediates. If, for instance, in the course of the operation, the conveyance becomes important enough to occupy one person, the spinning another, the weaving another, why should the first be considered a parasite more than the other two? The conveyance must be made, must it not? Does not he who performs it devote to it his time and trouble? and by so doing does he not spare that of his colleagues? Do these do more or other than this for him? Are they not equally dependent for remuneration, that is, for the division of the produce, upon the law of reduced price? Is it not in all liberty, for the common good, that this separation of work takes place, and that these arrangements are entered into? What do we want with a Socialist then, who, under pretence of organizing for us, comes despotically to break up our voluntary arrangements, to check the division of labor, to substitute isolated efforts for combined ones, and to send civilization back? Is association, as I describe it here, in itself less association, because every one enters and leaves it freely, chooses his place in it, judges and bargains for himself on his own responsibility, and brings with him the spring and warrant of personal interest? That it may deserve this name, is it necessary that a pretended reformer should come and impose upon us his plan and his will, and, as it were, to concentrate mankind in himself?
The more we examine these advanced schools, the more do we become convinced that there is but one thing at the root of them: ignorance proclaiming itself infallible, and claiming despotism in the name of this infallibility.
I hope the reader will excuse this digression. It may not be altogether useless, at a time when declamations, springing from St. Simonian, Phalansterian, and Icarian books, are invoking the press and the tribune, and which seriously threaten the liberty of labor and commercial transactions.
VII. Restrictions M. Prohibant (it was not I who gave him this name, but M. Charles Dupin) devoted his time and capital to converting the ore found on his land into iron. As nature had been more lavish towards the Belgians, they furnished the French with iron cheaper than M. Prohibant; which means, that all the French, or France, could obtain a given quantity of iron with less labor by buying it of the honest Flemings. Therefore, guided by their own interest, they did not fail to do so; and every day there might be seen a multitude of nail-smiths, blacksmiths, cartwrights, machinists, farriers, and laborers, going themselves, or sending intermediates, to supply themselves in Belgium. This displeased M. Prohibant exceedingly.
At first, it occurred to him to put an end to this abuse by his own efforts: it was the least he could do, for he was the only sufferer. "I will take my carbine," said he; " I will put four pistols into my belt; I will fill my cartridge box; I will gird on my sword, and go thus equipped to the frontier. There, the first blacksmith, nail-smith, farrier, machinist, or locksmith, who presents himself to do his own business and not mine, I will kill, to teach him how to live." At the moment of starting, M. Prohibant made a few reflections which calmed down his warlike ardor a little. He said to himself, "In the first place, it is not absolutely impossible that the purchasers of iron, my countrymen and enemies, should take the thing ill, and, instead of letting me kill them, should kill me instead; and then, even were I to call out all my servants, we should not be able to defend the passages. In short, this proceeding would cost me very dear, much more so than the result would be worth."
M. Prohibant was on the point of resigning himself to his sad fate, that of being only as free as the rest of the world, when a ray of light darted across his brain. He recollected that at Paris there is a great manufactory of laws." What is a law?" said he to himself. "It is a measure to which, when once it is decreed, be it good or bad, everybody is bound to conform. For the execution of the same a public force is organized, and to constitute the said public force, men and money are drawn from the whole nation. If, then, I could only get the great Parisian manufactory to pass a little law, 'Belgian iron is prohibited,' I should obtain the following results: The Government would replace the few valets that I was going to send to the frontier by 20,000 of the sons of those refractory blacksmiths, farriers, artisans, machinists, locksmiths, nail-smiths, and laborers. Then to keep these 20,000 custom-house officers in health and good humor, it would distribute among them 25,000,000 of francs taken from these blacksmiths, nail-smiths, artisans, and laborers. They would guard the frontier much better; would cost me nothing; I should not be exposed to the brutality of the brokers; should sell the iron at my own price, and have the sweet satisfaction of seeing our great people shamefully mystified. That would teach them to proclaim themselves perpetually the harbingers and promoters of progress in Europe. Oh! it would be a capital joke, and deserves to be tried."
So M. Prohibant went to the law manufactory. Another time, perhaps, I shall relate the story of his underhand dealings, but now I shall merely mention his visible proceedings. He brought the following consideration before the view of the legislating gentlemen.
"Belgian iron is sold in France at ten francs, which obliges me to sell mine at the same price. I should like to sell at fifteen, but cannot do so on account of this Belgian iron, which I wish was at the bottom of the Red Sea. I beg you will make a law that no more Belgian iron shall enter France. Immediately I raise my price five francs, and these are the consequences:
"For every hundred-weight of iron that I shall deliver to the public, I shall receive fifteen francs instead of ten; I shall grow rich more rapidly, extend my traffic, and employ more workmen. My workmen and I shall spend much more freely, to the great advantage of our tradesmen for miles around. These latter, having more custom, will furnish more employment to trade, and activity on both sides will increase in the country. This fortunate piece of money, which you will drop into my strong-box, will, like a stone thrown into a lake, give birth to an infinite number of concentric circles."
Charmed with his discourse, delighted to learn that it is so easy to promote, by legislating, the prosperity of a people, the law-makers voted the restriction. "Talk of labor and economy," they said, "what is the use of these painful means of increasing the national wealth, when all that is wanted for this object is a decree?"
And, in fact, the law produced all the consequences announced by M. Prohibant: the only thing was, it produced others which he had not foreseen. To do him justice, his reasoning was not false, but only incomplete. In endeavoring to obtain a privilege, he had taken cognizance of the effects which are seen, leaving in the background those which are not seen. He had pointed out two personages, whereas there are three concerned in the affair. It is for us to supply this involuntary or premeditated omission.
It is true, the crown-piece, thus directed by law into M. Prohibant's strong-box, is advantageous to him and to those whose labor it would encourage; and if the Act had caused the crown-piece to descend from the moon, these good effects would not have been counterbalanced by any corresponding evils. Unfortunately, the mysterious piece of money does not come from the moon, but from the pocket of a blacksmith, or a nail-smith, or a cartwright, or a farrier, or a laborer, or a shipwright; in a word, from James B., who gives it now without receiving a grain more of iron than when he was paying ten francs. Thus, we can see at a glance that this very much alters the state of the case; for it is very evident that M. Prohibant's profit is compensated by James B.'s loss, and all that M. Prohibant can do with the crown-piece, for the encouragement of national labor, James B. might have done himself. The stone has only been thrown upon one part of the lake, because the law has prevented it from being thrown upon another.
Therefore, that which is not seen supersedes that which is seen, and at this point there remains, as the residue of the operation, a piece of injustice, and, sad to say, a piece of injustice perpetrated by the law!
This is not all. I have said that there is always a third person left in the background. I must now bring him forward, that he may reveal to us a second loss of five francs. Then we shall have the entire results of the transaction.
James B. is the possessor of fifteen francs, the fruit of his labor. He is now free. What does he do with his fifteen francs? He purchases some article of fashion for ten francs, and with it he pays (or the intermediate pay for him) for the hundredweight of Belgian iron. After this he has five francs left. He does not throw them into the river, but (and this is what is not seen) he gives them to some tradesman in exchange for some enjoyment; to a bookseller, for instance, for Bossuet's "Discourse on Universal History."
Thus, as far as national labor is concerned, it is encouraged to the amount of fifteen francs, viz.: ten francs for the Paris article, five francs to the bookselling trade.
As to James B., he obtains for his fifteen francs two gratifications, viz.:
1st. A hundred-weight of iron.
2nd. A book.
The decree is put in force. How does it affect the condition of James B.? How does it affect the national labor?
James B. pays every centime of his five francs to M. Prohibant, and therefore is deprived of the pleasure of a book, or of some other thing of equal value. He loses five francs. This must be admitted; it cannot fail to be admitted, that when restriction raises the price of things, the consumer loses the difference.
But, then, it is said, national labor is the gainer.
No, it is not the gainer; for since the Act, it is no more encouraged than it was before, to the amount of fifteen francs.
The only thing is that, since the Act, the fifteen francs of James B. go to the metal trade, while before it was put in force, they were divided between the milliner and the bookseller.
The violence used by M. Prohibant on the frontier, or that which he causes to be used by the law, may be judged very differently in a moral point of view. Some persons consider that plunder is perfectly justifiable, if only sanctioned by law. But, for myself, I cannot imagine anything more aggravating. However it may be, the economical results are the same in both cases.
Look at the thing as you will; but if you are impartial, you will see that no good can come of legal or illegal plunder. We do not deny that it affords M. Prohibant, or his trade, or, if you will, national industry, a profit of five francs. But we affirm that it causes two losses, one to James B., who pays fifteen francs where he otherwise would have paid ten; the other to national industry, which does not receive the difference. Take your choice of these two losses, and compensate with it the profit which we allow. The other will prove not the less a dead loss. Here is the moral: To take by violence is not to produce, but to destroy. Truly, if taking by violence was producing, this country of ours would be a little richer than she is.
VIII. Machinery "A curse on machines! Every year, their increasing power devotes millions of workmen to pauperism, by depriving them of work, and therefore of wages and bread. A curse on machines!"
This is the cry which is raised by vulgar prejudice, and echoed in the journals.
But to curse machines is to curse the spirit of humanity!
It puzzles me to conceive how any man can feel any satisfaction in such a doctrine.
For, if true, what is its inevitable consequence? That there is no activity, prosperity, wealth, or happiness possible for any people, except for those who are stupid and inert, and to whom God has not granted the fatal gift of knowing how to think, to observe, to combine, to invent, and to obtain the greatest results with the smallest means. On the contrary, rags, mean huts, poverty, and inanition, are the inevitable lot of every nation which seeks and finds in iron, fire, wind, electricity, magnetism, the laws of chemistry and mechanics, in a word, in the powers of nature, an assistance to its natural powers. We might as well say with Rousseau — "Every man that thinks is a depraved animal."
This is not all. If this doctrine is true, all men think and invent, since all, from first to last, and at every moment of their existence, seek the cooperation of the powers of nature, and try to make the most of a little, by reducing either the work of their hands or their expenses, so as to obtain the greatest possible amount of gratification with the smallest possible amount of labor, it must follow, as a matter of course, that the whole of mankind is rushing towards its decline, by the same mental aspiration towards progress, which torments each of its members.
Hence, it ought to be made known, by statistics, that the inhabitants of Lancashire, abandoning that land of machines, seek for work in Ireland, where they are unknown; and, by history, that barbarism darkens the epochs of civilization, and that civilization shines in times of ignorance and barbarism.
There is evidently in this mass of contradictions something which revolts us, and which leads us to suspect that the problem contains within it an element of solution which has not been sufficiently disengaged.
Here is the whole mystery: behind that which is seen lies something which is not seen. I will endeavor to bring it to light. The demonstration I shall give will only be a repetition of the preceding one, for the problems are one and the same.
Men have a natural propensity to make the best bargain they can, when not prevented by an opposing force; that is, they like to obtain as much as they possibly can for their labor, whether advantage is obtained from a foreign producer or a skillful mechanical producer.
The theoretical objection which is made to this propensity is the same in both cases. In each case it is reproached with the apparent inactivity which it causes to labor. Now, labor rendered available, not inactive, is the very thing which determines it. And, therefore, in both cases, the same practical obstacle — force, is opposed to it also.
The legislator prohibits foreign competition, and forbids mechanical competition. For what other means can exist for arresting a propensity which is natural to all men, but that of depriving them of their liberty?
In many countries, it is true, the legislator strikes at only one of these competitions, and confines himself to grumbling at the other. This only proves one thing, that is, that the legislator is inconsistent.
We need not be surprised at this. On a wrong road, inconsistency is inevitable; if it were not so, mankind would be sacrificed. A false principle never has been, and never will be, carried out to the end.
Now for our demonstration, which shall not be a long one.
James B. had two francs which he had gained by two workmen; but it occurs to him that an arrangement of ropes and weights might be made which would diminish the labor by half. Therefore he obtains the same advantage, saves a franc, and discharges a workman.
He discharges a workman: this is that which is seen.
And seeing this only, it is said, "See how misery attends civilization; this is the way that liberty is fatal to equality. The human mind has made a conquest, and immediately a workman is cast into the gulf of pauperism. James B. may possibly employ the two workmen, but then he will give them only half their wages, for they will compete with each other, and offer themselves at the lowest price. Thus the rich are always growing richer, and the poor, poorer. Society wants remodeling." A very fine conclusion, and worthy of the preamble.
Happily, preamble and conclusion are both false, because, behind the half of the phenomenon which is seen, lies the other half which is not seen.
The franc saved by James B. is not seen, no more are the necessary effects of this saving.
Since, in consequence of his invention, James B. spends only one franc on hand labor in the pursuit, of a determined advantage, another franc remains to him.
If, then, there is in the world a workman with unemployed arms, there is also in the world a capitalist with an unemployed franc. These two elements meet and combine, and it is as clear as daylight, that between the supply and demand of labor, and between the supply and demand of wages, the relation is in no way changed.
The invention and the workman paid with the first franc, now perform the work which was formerly accomplished by two workmen. The second workman, paid with the second franc, realizes a new kind of work.
What is the change, then, which has taken place? An additional national advantage has been gained; in other words, the invention is a gratuitous triumph — a gratuitous profit for mankind.
From the form which I have given to my demonstration, the following inference might be drawn: "It is the capitalist who reaps all the advantage from machinery. The working class, if it suffers only temporarily, never profits by it, since, by your own showing, they displace a portion of the national labor, without diminishing it, it is true, but also without increasing it."
I do not pretend, in this slight treatise, to answer every objection; the only end I have in view, is to combat a vulgar, widely spread, and dangerous prejudice. I want to prove that a new machine only causes the discharge of a certain number of hands, when the remuneration which pays them is abstracted by force. These hands and this remuneration would combine to produce what it was impossible to produce before the invention; whence it follows, that the final result is an increase of advantages for equal labor.
Who is the gainer by these additional advantages?
First, it is true, the capitalist, the inventor; the first who succeeds in using the machine; and this is the reward of his genius and courage. In this case, as we have just seen, he effects a saving upon the expense of production, which, in whatever way it may be spent (and it always is spent), employs exactly as many hands as the machine caused to be dismissed.
But soon competition obliges him to lower his prices in proportion to the saving itself; and then it is no longer the inventor who reaps the benefit of the invention-it is the purchaser of what is produced, the consumer, the public, including the workman; in a word, mankind.
And that which is not seen is, that the saving thus procured for all consumers creates a fund whence wages may be supplied, and which replaces that which the machine has exhausted.
Thus, to recur, to the forementioned example, James B. obtains a profit by spending two francs in wages. Thanks to his invention, the hand labor costs him only one franc. So long as he sells the thing produced at the same price, he employs one workman less in producing this particular thing, and that is what is seen; but there is an additional workman employed by the franc which James B. has saved. This is that which is not seen.
When, by the natural progress of things, James B. is obliged to lower the price of the thing produced by one franc, then he no longer realizes a saving; then he has no longer a franc to dispose of to, procure for the national labor a new production. But then another gainer takes his place, and this gainer is mankind. Whoever buys the thing he has produced, pays a franc less, and necessarily adds this saving to the fund of wages; and this, again, is what is not seen.
Another solution, founded upon facts, has been given of this problem of machinery.
It was said, machinery reduces the expense of production, and lowers the price of the thing produced. The reduction of the profit causes an increase of consumption, which necessitates an increase of production; and, finally, the introduction of as many workmen, or more, after the invention as were necessary before it. As a proof of this, printing, weaving, & c., are instanced.
This demonstration is not a scientific one. It would lead us to conclude, that if the consumption of the particular production of which we are speaking remains stationary, or nearly so, machinery must injure labor. This is not the case.
Suppose that in a certain country all the people wore hats. If, by machinery, the price could be reduced half, it would not necessarily follow that the consumption would be doubled.
Would you say that in this case a portion of the national labor had been paralyzed? Yes, according to the vulgar demonstration; but, according to mine, No; for even if not a single hat more should be bought in the country, the entire fund of wages would not be the less secure. That which failed to go to the hat-making trade would be found to gone to the economy realized by all the consumers, and would thence serve to pay for all the labor which the machine had rendered useless, and to excite a new development of all the trades. And thus it is that things go on. I have known newspapers to cost eighty francs, now we pay forty-eight: here is a saving of thirty-two francs to the subscribers. It is not certain, or at least necessary, that the thirty-two francs should take the direction of the journalist trade; but it is certain, and necessary too, that if they do not take this direction they will take another. One makes use of them for taking in more newspapers; another, to get better' living; another, better clothes; another, better furniture. It is thus that the trades are bound together. They form a vast whole, whose different parts communicate by secret canals: what is saved by one, profits all. It is very important for us to understand that savings never take place at the expense of labor and wages.
IX. Credit In all times, but more especially of late years, attempts have been made to extend wealth by the extension of credit.
I believe it is no exaggeration to say, that since the revolution of February, the Parisian presses have issued more than 10,000 pamphlets, crying up this solution of the social problem.
The only basis, alas! of this solution, is an optical delusion — if, indeed, an optical delusion can be called a basis at all.
The first thing done is to confuse cash with produce, then paper money with cash; and from these two confusions it is pretended that a reality can be drawn.
It is absolutely necessary in this question to forget money, coin, bills, and the other instruments by means of which productions pass from hand to hand. Our business is with the productions themselves, which are the real objects of the loan; for when a farmer borrows fifty francs to buy a plow, it is not, in reality, the fifty francs which are lent to him, but the plow; and when a merchant borrows 20,000 francs to purchase a house, it is not the 20,000 francs which he owes, but the house. Money only appears for the sake of facilitating the arrangements between the parties.
Peter may not be disposed to lend his plow, but James may be willing to lend his money. What does William do in this case? He borrows money of James, and with this money he buys the plow of Peter.
But, in point of fact, no one borrows money for the sake of the money itself; money is only the medium by which to obtain possession of productions. Now, it is impossible in any country to transmit from one person to another more productions than that country contains.
Whatever may be the amount of cash and of paper which is in circulation, the whole of the borrowers cannot receive more plows, houses, tools, and supplies of raw material, than the lenders altogether can furnish; for we must take care not to forget that every borrower supposes a lender, and that what is once borrowed implies a loan.
This granted, what advantage is there in institutions of credit? It is, that they facilitate, between borrowers and lenders, the means of finding and treating with each other; but it is not in their power to cause an instantaneous increase of the things to be borrowed and lent. And yet they ought to be able to do so, if the aim of the reformers is to be attained, since they aspire to nothing less than to place plows, houses, tools, and provisions in the hands of all those who desire them.
And how do they intend to effect this?
By making the State security for the loan.
Let us try and fathom the subject, for it contains something which is seen, and also something which is not seen. We must endeavor to look at both.
We will suppose that there is but one plow in the world, and that two farmers apply for it.
Peter is the possessor of the only plow which is to be had in France; John and James wish to borrow it. John, by his honesty, his property, and good reputation, offers security. He inspires confidence; he has credit. James inspires little or no confidence. It naturally happens that Peter lends his plow to John.
But now, according to the Socialist plan, the State interferes, and says to Peter, "Lend your plow to James, I will be security for its return, and this security will be better than that of John, for he has no one to be responsible for him but himself; and I, although it is true that I have nothing, dispose of the fortune of the tax-payers, and it is with their money that, in case of need, I shall pay you the principal and interest." Consequently, Peter lends his plow to James: this is what is seen.
And the Socialists rub their hands, and say, "See how well our plan has answered. Thanks to the intervention of the State, poor James has a plow. He will no longer be obliged to dig the ground; he is on the road to make a fortune. It is a good thing for him, and an advantage to the nation as a whole."
Indeed, it is no such thing; it is no advantage to the nation, for there is something behind which is not seen.
It is not seen, that the plow is in the hands of James, only because it is not in those of John.
It is not seen, that if James farms instead of digging, John will be reduced to the necessity of digging instead of farming.
That, consequently, what was considered an increase of loan, is nothing but a displacement of loan. Besides, it is not seen that this displacement implies two acts of deep injustice.
It is an injustice to John, who, after having deserved and obtained credit by his honesty and activity, sees himself robbed of it.
It is an injustice to the tax-payers, who are made to pay a debt which is no concern of theirs.
Will any one say, that Government offers the same facilities to John as it does to James? But as there is only one plow to be had, two cannot be lent. The argument always maintains that, thanks to the intervention of the State, more will be borrowed than there are things to be lent; for the plow represents here the bulk of available capitals.
It is true, I have reduced the operation to the most simple expression of it, but if you submit the most complicated Government institutions of credit to the same test, you will be convinced that they can have but one result; viz., to displace credit, not to augment it. In one country, and in a given time, there is only a certain amount of capital available, and all are employed. In guaranteeing the non-payers, the State may, indeed, increase the number of borrowers, and thus raise the rate of interest (always to the prejudice of the tax-payer), but it has no power to increase the number of lenders, and the importance of the total of the loans.
There is one conclusion, however, which I would not for the world be suspected of drawing. I say, that the law ought not to favor, artificially, the power of borrowing, but I do not say that it ought not to restrain them artificially. If, in our system of mortgage, or in any other, there be obstacles to the diffusion of the application of credit, let them be got rid of; nothing can be better or more just than this. But this is all which is consistent with liberty, and it is all that any who are worthy of the name of reformers will ask.
X. Algeria Here are four orators disputing for the platform. First, all the four speak at once; then they speak one after the other. What have they said? Some very fine things, certainly, about the power and the grandeur of France; about the necessity of sowing, if we would reap; about the brilliant future of our gigantic colony; about the advantage of diverting to a distance the surplus of our population, & c. & c. Magnificent pieces of eloquence, and always adorned with this conclusion: "Vote fifty millions, more or less, for making ports and roads in Algeria; for sending emigrants thither; for building houses and breaking up land. By so doing, you will relieve the French workman, encourage African labor, and give a stimulus to the commerce of Marseilles. It would be profitable every way."
Yes, it is all very true, if you take no account of the fifty millions until the moment when the State begins to spend them; if you only see where they go, and not whence they come; if you look only at the good they are to do when they come out of the tax-gatherer's bag, and not at the harm which has been done, and the good which has been prevented, by putting them into it. Yes, at this limited point of view, all is profit. The house which is built in Barbary is that which is seen; the harbor made in Barbary is that which is seen; the work caused in Barbary is what is seen; a few less hands in France is what is seen; a great stir with goods at Marseilles is still that which is seen.
But, besides all this, there is something which is not seen. The fifty millions expended by the State cannot be spent, as they otherwise would have been, by the tax-payers. It is necessary to deduct, from all the good attributed to the public expenditure which has been effected, all the harm caused by the prevention of private expense, unless we say that James B. would have done nothing with the crown that he had gained, and of which the tax had deprived him; an absurd assertion, for if he took the trouble to earn it, it was because he expected the satisfaction of using it. He would have repaired the palings in his garden, which he cannot now do, and this is that which is not seen. He would have manured his field, which now he cannot do, and this is what is not seen. He would have added another story to his cottage, which he cannot do now, and this is what is not seen. He might have increased the number of his tools, which he cannot do now, and this is what is not seen. He would have been better fed, better clothed, have given a better education to his children, and increased his daughter's marriage portion; this is what is not seen. He would have become a member of the Mutual Assistance Society, but now he cannot; this is what is not seen. On one hand, are the enjoyments of which he has been deprived, and the means of action which have been destroyed in his hands; on the other, are the labor of the drainer, the carpenter, the smith, the tailor, the village schoolmaster, which he would have encouraged, and which are now prevented — all this is what is not seen.
Much is hoped from the future prosperity of Algeria; be it so. But the drain to which France is being subjected ought not to be kept entirely out of sight. The commerce of Marseilles is pointed out to me; but if this is to be brought about by means of taxation, I shall always show that an equal commerce is destroyed thereby in other parts of the country. It is said, "There is an emigrant transported into Barbary; this is a relief to the population which remains in the country," I answer, "How can that be, if, in transporting this emigrant to Algiers, you also transport two or three times the capital which would have served to maintain him in France?"1 The only object I have in view is to make it evident to the reader, that in every public expense, behind the apparent benefit, there is an evil which it is not so easy to discern. As far as in me lies, I would make him form a habit of seeing both, and taking account of both.
When a public expense is proposed, it ought to be examined in itself, separately from the pretended encouragement of labor which results from it, for this encouragement is a delusion. Whatever is done in this way at the public expense, private expense would have done all the same; therefore, the interest of labor is always out of the question.
It is not the object of this treatise to criticize the intrinsic merit of the public expenditure as applied to Algeria, but I cannot withhold a general observation. It is, that the presumption is always unfavorable to collective expenses by way of tax. Why? For this reason: First, justice always suffers from it in some degree. Since James B. had labored to gain his crown, in the hope of receiving a gratification from it, it is to be regretted that the exchequer should interpose, and take from James B. this gratification, to bestow it upon another. Certainly, it behooves the exchequer, or those who regulate it, to give good reasons for this. It has been shown that the State gives a very provoking one, when it says, "With this crown I shall employ workmen;" for James B. (as soon as he sees it) will be sure to answer, "It is all very fine, but with this crown I might employ them myself."
Apart from this reason, others present themselves without disguise, by which the debate between the exchequer and poor James becomes much simplified. If the State says to him, "I take your crown to pay the gendarme, who saves you the trouble of providing for your own personal safety; for paving the street which you are passing through every day; for paying the magistrate who causes your property and your liberty to be respected; to maintain the soldier who maintains our frontiers" — James B., unless I am much mistaken, will pay for all this without hesitation. But if the State were to say to him, "I take this crown that I may give you a little prize in case you cultivate your field well; or that I may teach your son something that you have no wish that he should learn; or that the Minister may add another to his score of dishes at dinner; I take it to build a cottage in Algeria, in which case I must take another crown every year to keep an emigrant in it, and another hundred to maintain a soldier to guard this emigrant, and another crown to maintain a general to guard this soldier," & c., & c. — I think I hear poor James exclaim, "This system of law is very much like a system of cheat!" The State foresees the objection, and what does it do? It jumbles all things together, and brings forward just that provoking reason which ought to have nothing whatever to do with the question. It talks of the effect of this crown upon labor; it points to the cook and purveyor of the Minister; it shows an emigrant, a soldier, and a general, living upon the crown; it shows, in fact, what is seen, and if James B. has not learned to take into the account what is not seen, James B. will be duped. And this is why I want to do all I can to impress it upon his mind, by repeating it over and over again.
As the public expenses displace labor without increasing it, a second serious presumption presents itself against them. To displace labor is to displace laborers, and to disturb the natural laws which regulate the distribution of the population over the country. If 50,000,000 francs are allowed to remain in the possession of the tax-payers since the tax-payers are everywhere, they encourage labor in the 40,000 parishes in France. They act like a natural tie, which keeps every one upon his native soil; they distribute themselves amongst all imaginable laborers and trades. If the State, by drawing off these 50,000,000 francs from the citizens, accumulates them, and expends them on some given point, it attracts to this point a proportional quantity of displaced labor, a corresponding number of laborers, belonging to other parts; a fluctuating population, which is out of its place, and I venture to say dangerous when the fund is exhausted. Now here is the consequence (and this confirms all I have said): this feverish activity is, as it were, forced into a narrow space; it attracts the attention of all; it is what is seen. The people applaud; they are astonished at the beauty and facility of the plan, and expect to have it continued and extended. That which they do not see is, that an equal quantity of labor, which would probably be more valuable, has been paralyzed over the rest of France.
XI. Frugality and Luxury It is not only in the public expenditure that what is seen eclipses what is not seen. Setting aside what relates to political economy, this phenomenon leads to false reasoning. It causes nations to consider their moral and their material interests as contradictory to each other. What can be more discouraging or more dismal?
For instance, there is not a father of a family who does not think it his duty to teach his children order, system, the habits of carefulness, of economy, and of moderation in spending money.
There is no religion which does not thunder against pomp and luxury. This is as it should be; but, on the other hand, how frequently do we hear the following remarks:
"To hoard, is to drain the veins of the people."
"The luxury of the great is the comfort of the little."
"Prodigals ruin themselves, but they enrich the State."
"It is the superfluity of the rich which makes bread for the poor."
Here, certainly, is a striking contradiction between the moral and the social idea. How many eminent spirits, after having made the assertion, repose in peace. It is a thing I never could understand, for it seems to me that nothing can be more distressing than to discover two opposite tendencies in mankind. Why, it comes to degradation at each of the extremes: economy brings it to misery; prodigality plunges it into moral degradation. Happily, these vulgar maxims exhibit economy and luxury in a false light, taking account, as they do, of those immediate consequences which are seen, and not of the remote ones, which are not seen. Let us see if we can rectify this incomplete view of the case.
Mondor and his brother Aristus, after dividing the parental inheritance, have each an income of 50,000 francs. Mondor practices the fashionable philanthropy. He is what is called a squanderer of money. He renews his furniture several times a year; changes his equipages every month. People talk of his ingenious contrivances to bring them sooner to an end: in short, he surpasses the fast livers of Balzac and Alexander Dumas.
Thus everybody is singing his praises. It is, "Tell us about Mondor! Mondor for ever! He is the benefactor of the workman; a blessing to the people. It is true, he revels in dissipation; he splashes the passers-by; his own dignity and that of human nature are lowered a little; but what of that? He does good with his fortune, if not with himself. He causes money to circulate; he always sends the trades-people away satisfied. Is not money made round that it may roll?"
Aristus has adopted a very different plan of life. If he is not an egotist, he is, at any rate, an individualist, for he considers expense, seeks only moderate and reasonable enjoyments, thinks of his children's prospects, and, in fact, he economizes.
And what do people say of him? "What is the good of a rich fellow like him? He is a skinflint. There is something imposing, perhaps, in the simplicity of his life; and he is humane, too, and benevolent, and generous, but he calculates. He does not spend his income; his house is neither brilliant nor bustling. What good does he do to the paperhangers, the carriage makers, the horse dealers, and the confectioners?"
These opinions, which are fatal to morality, are founded upon what strikes the eye: the expenditure of the prodigal; and another, which is out of sight, the equal and even superior expenditure of the economist.
But things have been so admirably arranged by the Divine inventor of social order, that in this, as in everything else, political economy and morality, far from clashing, agree; and the wisdom of Aristus is not only more dignified, but still more profitable, than the folly of Mondor. And when I say profitable, I do not mean only profitable to Aristus, or even to society in general, but more profitable to the workmen themselves-to the trade of the time.
To prove it, it is only necessary to turn the mind's eye to those hidden consequences of human actions, which the bodily eye does not see.
Yes, the prodigality of Mondor has visible effects in every point of view. Everybody can see his landaus, his phaetons, his berlins, the delicate paintings on his ceilings, his rich carpets, the brilliant effects of his house. Every one knows that his horses run upon the turf. The dinners which he gives at the Hotel de Paris attract the attention of the crowds on the Boulevards; and it is said, "That is a generous man; far from saving his income, he is very likely breaking into his capital." That is what is seen.
It is not so easy to see, with regard to the interest of workers, what becomes of the income of Aristus. If we were to trace it carefully, however, we should see that the whole of it, down to the last farthing, affords work to the laborers, as certainly as the fortune of Mondor. Only there is this difference: the wanton extravagance of Mondor is doomed to be constantly decreasing, and to come to an end without fail; whilst the wise expenditure of Aristus will go on increasing from year to year. And if this is the case, then, most assuredly, the public interest will be in unison with morality.
Aristus spends upon himself and his household 20,000 francs a year. If that is not sufficient to content him, he does not deserve to be called a wise man. He is touched by the miseries which oppress the poorer classes; he thinks he is bound in conscience to afford them some relief, and therefore he devotes 10,000 francs to acts of benevolence. Amongst the merchants, the manufacturers, and the agriculturists, he has friends who are suffering under temporary difficulties; he makes himself acquainted with their situation, that he may assist them with prudence and efficiency, and to this work he devotes 10,000 francs more. Then he does not forget that he has daughters to portion, and sons for whose prospects it is his duty to provide, and therefore he considers it a duty to lay by and put out to interest 10,000 francs every year.
The following is a list of his expenses:
1st, Personal expenses............ 20,000 fr.
2nd, Benevolent objects......... 10,000
3rd, Offices of friendship......... 10,000
4th, Saving........................ 10,000
Let us examine each of these items, and we shall see that not a single farthing escapes the national labor.
1st. Personal expenses — These, as far as workpeople and tradesmen are concerned, have precisely the same effect as an equal sum spent by Mondor. This is self-evident, therefore we shall say no more about it.
2nd. Benevolent objects — The 10,000 francs devoted to this purpose benefit trade in an equal degree; they reach the butcher, the baker, the tailor, and the carpenter. The only thing is, that the bread, the meat, and the clothing are not used by Aristus, but by those whom he has made his substitutes. Now, this simple substitution of one consumer for another in no way affects trade in general. It is all one, whether Aristus spends a crown or desires some unfortunate person to spend it instead.
3rd. Offices of friendship — The friend to whom Aristus lends or gives 10,000 francs does not receive them to bury them; that would be against the hypothesis. He uses them to pay for goods, or to discharge debts. In the first case, trade is encouraged. Will any one pretend to say that it gains more by Mondor's purchase of a thoroughbred horse for 10,000 francs than by the purchase of 10,000 francs' worth of stuffs by Aristus or his friend? For if this sum serves to pay a debt, a third person appears, viz., the creditor, who will certainly employ them upon something in his trade, his household, or his farm. He forms another medium between Aristus and the workmen. The names only are changed, the expense remains, and also the encouragement to trade.
4th. Saving — There remains now the 10,000 francs saved; and it is here, as regards the encouragement to the arts, to trade, labor, and the workmen, that Mondor appears far superior to Aristus, although, in a moral point of view, Aristus shows himself, in some degree, superior to Mondor.
I can never look at these apparent contradictions between the great laws of nature without a feeling of physical uneasiness which amounts to suffering. Were mankind reduced to the necessity of choosing between two parties, one of whom injures his interest, and the other his conscience, we should have nothing to hope from the future. Happily, this is not the case; and to see Aristus regain his economical superiority, as well as his moral superiority, it is sufficient to understand this consoling maxim, which is no less true from having a paradoxical appearance, "To save is to spend."
What is Aristus's object in saving 10,000 francs? Is it to bury them in his garden? No, certainly; he intends to increase his capital and his income; consequently, this money, instead of being employed upon his own personal gratification, is used for buying land, a house, & c., or it is placed in the hands of a merchant or a banker. Follow the progress of this money in any one of these cases, and you will be convinced, that through the medium of vendors or lenders, it is encouraging labor quite as certainly as if Aristus, following the example of his brother, had exchanged it for furniture, jewels, and horses.
For when Aristus buys lands or rents for 10,000 francs, he is determined by the consideration that he does not want to spend this money. This is why you complain of him.
But, at the same time, the man who sells the land or the rent, is determined by the consideration that he does want to spend the 10,000 francs in some way; so that the money is spent in any case, either by Aristus or by others in his stead.
With respect to the working class, to the encouragement of labor, there is only one difference between the conduct of Aristus and that of Mondor. Mondor spends the money himself, and around him, and therefore the effect is seen. Aristus, spending it partly through intermediate parties, and at a distance, the effect is not seen. But, in fact, those who know how to attribute effects to their proper causes, will perceive, that what is not seen is as certain as what is seen. This is proved by the fact, that in both cases the money circulates, and does not lie in the iron chest of the wise man, any more than it does in that of the spendthrift. It is, therefore, false to say that economy does actual harm to trade; as described above, it is equally beneficial with luxury.
But how far superior is it, if, instead of confining our thoughts to the present moment, we let them embrace a longer period!
Ten years pass away. What is become of Mondor and his fortune and his great popularity? Mondor is ruined. Instead of spending 60,000 francs every year in the social body, he is, perhaps, a burden to it. In any case, he is no longer the delight of shopkeepers; he is no longer the patron of the arts and of trade; he is no longer of any use to the workmen, nor are his successors, whom he has brought to want.
At the end of the same ten years Aristus not only continues to throw his income into circulation, but he adds an increasing sum from year to year to his expenses. He enlarges the national capital, that is, the fund which supplies wages, and as it is upon the extent of this fund that the demand for hands depends, he assists in progressively increasing the remuneration of the working class; and if he dies, he leaves children whom he has taught to succeed him in this work of progress and civilization. In a moral point of view, the superiority of frugality over luxury is indisputable. It is consoling to think that it is so in political economy, to every one who, not confining his views to the immediate effects of phenomena, knows how to extend his investigations to their final effects.
XII. He Who Has a Right to Work Has a Right to Profit. "Brethren, you must club together to find me work at your own price." This is the right to work; i.e., elementary socialism of the first degree.
"Brethren, you must club together to find me work at my own price." This is the right to profit; i.e., refined socialism, or socialism of the second degree.
Both of these live upon such of their effects as are seen. They will die by means of those effects which are not seen.
That which is seen is the labor and the profit excited by social combination. That which is not seen is the labor and the profit to which this same combination would give rise, if it were left to the tax-payers.
In 1848, the right to labor for a moment showed two faces. This was sufficient to ruin it in public opinion.
One of these faces was called national workshops. The other, forty-five centimes. Millions of francs went daily from the Rue Rivoli to the national workshops. This was the fair side of the medal.
And this is the reverse. If millions are taken out of a cash-box, they must first have been put into it. This is why the organizers of the right to public labor apply to the tax-payers.
Now, the peasants said, "I must pay forty-five centimes; then I must deprive myself of clothing. I cannot manure my field; I cannot repair my house."
And the country workmen said, "As our townsman deprives himself of some clothing, there will be less work for the tailor; as he does not improve his field, there will be less work for the drainer; as he does not repair his house, there will be less work for the carpenter and mason."
It was then proved that two kinds of meal cannot come out of one sack, and that the work furnished by the Government was done at the expense of labor, paid for by the tax-payer. This was the death of the right to labor, which showed itself as much a chimera as an injustice. And yet, the right to profit, which is only an exaggeration of the right to labor, is still alive and flourishing.
Ought not the protectionist to blush at the part he would make society play?
He says to it, "You must give me work, and, more than that, lucrative work. I have foolishly fixed upon a trade by which I lose ten per cent. If you impose a tax of twenty francs upon my countrymen, and give it to me, I shall be a gainer instead of a loser. Now, profit is my right; you owe it me." Now, any society which would listen to this sophist, burden itself with taxes to satisfy him, and not perceive that the loss to which any trade is exposed is no less a loss when others are forced to make up for it — such a society, I say, would deserve the burden inflicted upon it.
Thus we learn by the numerous subjects which I have treated, that, to be ignorant of political economy is to allow ourselves to be dazzled by the immediate effect of a phenomenon; to be acquainted with it is to embrace in thought and in forethought the whole compass of effects.
I might subject a host of other questions to the same test; but I shrink from the monotony of a constantly uniform demonstration, and I conclude by applying to political economy what Chateaubriand says of history:
"There are," he says, "two consequences in history; an immediate one, which is instantly recognized, and one in the distance, which is not at first perceived. These consequences often contradict each other; the former are the results of our own limited wisdom, the latter, those of that wisdom which endures. The providential event appears after the human event. God rises up behind men. Deny, if you will, the supreme counsel; disown its action; dispute about words; designate, by the term, force of circumstances, or reason, what the vulgar call Providence; but look to the end of an accomplished fact, and you will see that it has always produced the contrary of what was expected from it, if it was not established at first upon morality and justice." — Chateaubriand's Posthumous Memoirs.
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- The Minister of War has lately asserted that every individual transported to Algeria has cost the State 8,000 francs. Now it is certain that these poor creatures could have lived very well in France on a capital of 4,000 francs. I ask, how the French population is relieved, when it is deprived of a man, and of the means of subsistence of two men?
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Jeff and Bob record a special Thanksgiving episode for Money Talk 1010 AM on what it really takes to fix the US economy.
Mark Thornton on the coming economic crisis: Mises.org/HAP371A
Listen to Jeff on Money Talk 1010 every Thursday at 9:00am ET: Mises.org/MoneyTalk
The standard line from progressives is that free markets usually fail in developing countries. The economic numbers tell a much different story.
Original Article: "Free Markets DO Work in Developing Countries"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In an earlier article, I explained that the collapse in the long-dated UK government bond (or gilts) market on September 28 that followed the ill-fated Kwarteng “mini budget” of a few days earlier had exposed a hitherto underappreciated problem: UK pension schemes were massively exposed to changes in long-dated gilts rates.
The week after the mini budget, the gilts market became very unsettled. To quote the Financial Times:
Huge shifts in bond prices were leaving analysts and investors bewildered. “The moves in long-end yields were nothing short of incredible; the gilt market was in freefall,” said Daniela Russell, head of UK rates strategy at HSBC.
The market then collapsed on the morning of Wednesday 28, when it became clear that if the Bank of England did not intervene, most UK pension plans would default on their liability-driven investment (LDI) strategies swap positions by the end of the day. The bank responded by temporarily suspending quantitative tightening and announced a £65 billion quantitative easing package to buy long dated gilts and bring their rates down. The gilts markets recovered sharply after the announcement and by the end of the day, gilt yields fell back to under 4 percent.
“If there was no intervention today, gilt yields could have gone up to 7–8 per cent from 4.5 percent this morning and in that situation around 90 per cent of UK pension funds would have run out of collateral [and become insolvent],” said Kerrin Rosenberg, Cardano Investment chief executive. “They would have been wiped out.”
Liability-Driven Investments So, what are LDIs and why are they significant here? A standard explanation goes as follows. A pension scheme’s main liability is an illiquid annuity book that falls in value if interest rates rise and rises in value if interest rates fall. The scheme then hedges its liability interest rate risk exposure with a liquid interest rate swap (IRS).
When there is a move upward in long-term rates, the scheme will lose on the swap side, but gain an equal amount on the liability side. In theory, these should offset to produce a net zero change in the scheme’s present value. However, the scheme is hedging an illiquid exposure with a liquid one, with the latter marked to market, and with a margin requirement to cover mark-to-market losses.
When interest rates rise, the losses on the swap trigger margin calls, which the scheme must meet by posting additional collateral (e.g., cash) on pain of default. If a lot of firms are affected, there can then be a scramble for cash that creates a death spiral in which interest rates are pushed to higher and higher levels. This is what happened on September 28.
This explanation does not quite get to the bottom of the issue, however—my Eumaeus Project colleague Dean Buckner and I (and others) have been working on it over the last month and will report preliminary findings later this week (sneak preview: the LDI problem is bigger than it looks)—but suffices for our purposes here. The key is the way in which a rise in interest rates triggers margin calls, which a scheme must meet by posting additional collateral on pain of default.
The potential dangers of hedging an illiquid position with a liquid one are well known. What few had appreciated was the scale of the issue as it applied to UK pension funds.
To add to which, there are at least three further concerns:
The first is that regulators don’t have much data on how large the pension funds’ LDI positions or how large the funds at risk might be. Press reports suggested figures for the latter ranging from £1 trillion to £1.7 trillion but all we really know is that the number is a big one.
The second issue is leverage. Helen Thomas explains:
To take a simplified example, a pension fund buys £100 of gilts and then sells to a bank with an agreement to buy them back in a year at a specified price. (Collateral is due on the trade depending on whether gilts rise or fall.) The fund takes the £100 it got for its gilts and does it again: another £100 of gilts, another repo transaction. And again. And again.
The third issue is that regulators have little data on the extent of any leverage and no controls over it.
Curiously, Prudential Regulation Authority (PRA, a part of the Bank of England) regulators had spotted the pension fund vulnerability years before. As one insider recently wrote me:
The big question is why neither the TPR [The Pensions Regulator] or the PRA spotted the risk of hedging an illiquid liability with a liquid asset. I remember some sort of row about this in 2015, where the working level supervisors got blamed for raising this as a problem. “We mustn’t impose more regulation [burdens] on the firms than they can withstand,” was the [management’s revealing] response.
Even so, the issue managed to make its way onto the bank’s November 2018 Financial Stability Report:
Fund managers running pension funds’ liability driven investment (LDI) programmes report daily monitoring of the level of liquid assets held by these pension funds against the potential calls on collateral that could arise in a stress…. However, it is not clear whether pension funds and insurers pay sufficient attention themselves to liquidity risks. For example, initial work by Bank staff has found that some insurers may not be recognising fully all the relevant liquidity risks. (my emphasis)
The same Financial Stability Report also reported the results of a stress test and concluded that there appeared to be “no major systemic vulnerability.” They certainly got that wrong! I can’t say that I am surprised, however. I have always maintained that regulatory stress tests were worse than useless because they offer false risk confidence—the analogy is of a ship relying on a radar system to detect icebergs that cannot detect big lumps of ice in the sea.
Also having a stress test that a firm fails causes unnecessary hassles for the regulators themselves: the firm would complain to their senior management who would then come down on the stress testers to make the problem go away. Hence the golden rule of stress testing for regulatory stress testers, which is an open secret of good practice in the regulatory community, but almost unknown outside it: don’t ever do a stress test that a firm will fail. I have yet to see a single case where such a test correctly identified a key vulnerability in advance, but I have seen many instances in which they missed vulnerabilities that led to spectacular disasters that could have been avoided.
To give just one example, American readers might recall the stress tests that Joseph Stiglitz and his colleagues carried out for Fannie Mae in 2002. These modelled a highly adverse decade long “nuclear winter” scenario for the US housing market and predicted that the probability of Fannie failing under this adverse scenario was essentially zero. Fannie and Freddie were then taken into government ownership to avert their failure only six years later, at a cost to US taxpayers of hundreds of billions of dollars.
Returning to the UK, the bank realized there was a problem, wrongly concluded that it did not pose a major systemic risk because it did not want it to be, and never followed up. That systemic risk then came back to bite them at the worst possible time, as these things often do.
These sorts of things happen, but they happen a lot to UK financial regulators, and Governor Andrew Bailey himself has presided over a good number of regulatory fiascos (see also here and here). To be fair, the bank is not responsible for the prudential regulation of pension funds. The regulator with designated responsibility for pension funds is “the” TPR, but it is well known among those in the know that TPR is even more clueless than the other two main regulators, the PRA and the Financial Conduct Authority (FCA) and the incompetence of the FCA (whose previous CEO is one Andrew Bailey) is legendary.
And how did “the” TPR mess up, you might ask? Well, it pushed pensions to load up on LDIs, incorrectly thinking that LDIs offered a virtually zero risk investment strategy that would help solve their deficit problems. Then TPR failed to collect much data about LDI positions, as a result of which UK regulators had woefully inadequate data about them at the very time when they needed that data most.
So, we have three regulators who may as well be Curly, Larry, and Mo, and the intractable jurisdictional and coordination challenges they pose, even if any of those regulators were any good, all of which confirms, again, that UK financial regulation is not fit for purpose.
The United States and Israel have each had (and are having) their experiences with socialism. One country learned its lesson (at least once upon a time), while the other did not.
The experiences these two countries have had with socialism are practically mirror opposites. The US was officially founded almost 250 years ago, with the signing of the Declaration of Independence. However, in the year 1620, more than four hundred years ago, the Pilgrims, predecessors of the signers of the Declaration of Independence, arrived in, and began settling portions of, what is now the United States of America.
The Pilgrims were a very religious group of Christians who analogized their voyage across the Atlantic Ocean to the Jews’ trek through the wilderness while en route from Mount Sinai to the Land of Israel. The Pilgrims also analogized their conquest of the “New World”; that is, to what would become the United States, to the Jews’ conquest of the Land of Israel. When the Pilgrims first sighted land from their ship, the Mayflower, they joined together in a communal recitation of Psalms 100.
As an indication of how important Tanakh (the Jewish Bible) was to the founding generations of Americans, some early courses at Harvard University were taught in Hebrew, and as late as 1817, an annual speech was given in Hebrew at Harvard.
Tanakh also had an influence at Yale University. Some early courses at Yale were taught in Hebrew, and Yale’s coat of arms contains the Hebrew phrase Urim v'Thummim (אורים ותומים), which the university translated as Lux et veritas, or “Light and truth.”
Being Christian students of Tanakh, the Pilgrims modeled the constitutions and laws of their “promised land” of the original thirteen colonies on biblical principles. Interestingly, although Tanakh clearly lists twelve tribes, confusion sometimes exists, for reasons not germane to the matter at hand, as to whether there were twelve or thirteen tribes.
Unfortunately, the Pilgrims’ limited understanding of Tanakh was not confined to comparatively simple matters such as whether there were twelve or thirteen tribes. On July 1, 1620, the Pilgrims, prior to departing Plymouth, England, signed a seven-year contract in which they agreed to pool “all profits and benefits that are got by trade, traffic, trucking, working, fishing, or any other means of any person or persons” The contract further provided “that at the end of the seven years, the capital and profits, viz. The houses, lands, goods and chattels, be equally divided” In other words, the Pilgrims brought socialism to America.
However, instead of lasting seven years, the Pilgrims’ experiment with socialism failed after a mere two years. Shortages and starvation abounded; about 50 percent of the colonists died of starvation and related illnesses.
Under the leadership of their governor, William Bradford, the Pilgrims scuttled their socialist experiment and adopted a free-market economy. The effects of a free-market economy were both immediate and dramatic. When the Pilgrims were allowed to retain the fruits of their labor, their productivity—and prosperity—increased almost overnight.
Since abandoning its extremely short, but disastrous, experiment with socialism in favor of the free market, America—and its economy—has grown from a handful of fledgling colonies to become the greatest economy the world has ever known. The only thing that is now harming America, the only thing which has ever harmed America, is its rejection and distancing of itself from biblical principles, including but not limited to free-market principles.
The State of Israel, on the other hand, is not four hundred years old; rather, it is a mere seventy-four years old. Israel, unlike the United States, was founded by socialists, mostly Jews from Eastern Europe and Russia, who implemented socialist policies.
A “guiding principle” of socialism is that nothing—including the Almighty—can be more authoritative or powerful than the state. One very important method that socialism employs to ensure that its monopoly on power is not threatened is the collective ownership of property; that is, the abrogation of the free market and private property rights.
Tanakh, however, rejects socialism. This rejection can be seen as early as parashat Noah, with the story of the Tower of Babel, which is in Sefer Bereshit, right after the flood. One need not look too far from the Tower of Babel to see other divine endorsements of the free market and the private ownership of property.
The Ten Statements (often mistranslated as “commandments”) explicitly proscribe theft. Additionally, a very large percentage of the other Statements deal, in one way or another, with free-market commercial transactions and property rights. There are also entire tractates of the Gemara which likewise focus on the private ownership of property and voluntary commerce.
Israel, like the United States, also suffered through a failure of socialism.
During the years 1978–79, inflation in Israel, caused by government manipulation of the money supply, averaged 77 percent. By 1984–85, the annual rate of inflation peaked at a staggering 450 percent! US president Ronald Reagan offered Israel a $1.5 billion grant if Israel would abandon socialism and adopt free-market economic principles. The Histadrut, Israel’s labor union, objected.
US secretary of state George Schultz responded with the threat that if Israel did not start implementing free-market economic policies, the United States would freeze all monetary transfers to Israel. The threat worked and Israel, although being “dragged kicking and screaming,” started to implement the free market “recommendations” that were made by the Reagan administration. As a part of its economic restructuring, Israel, on January 1, 1986, introduced the new Israeli shekel, which replaced the hyperinflated shekel at a 1,000:1 ratio.
Like the impact of free-market principles on the Pilgrims’ colony under William Bradford, the impact on the Israeli economy which resulted from the implementation of free-market principles was both immediate and dramatic. Within one year, Israeli’s annual rate of inflation fell from an astounding 450 percent to 20 percent.
Unfortunately, Israel’s mid-1980s forced move away from some socialist policies is not the end of its story of economic failure. Unlike America’s Pilgrims, Israel did not fully repudiate socialism. Rather, many of Israel’s socialist policies persist to this day, causing an unnecessary and significant burden on Israel’s economy and, by extension, on its people. As the Pilgrims learned under the leadership of William Bradford, and as Israelis should have learned from Israel’s 1980s economic reforms, socialism destroys an economy, while free markets allow an economy to grow and flourish.
[Originally published August 13, 2008]
It's been 75 years since the federal government, on the spurious grounds of fighting the Great Depression, ordered the confiscation of all monetary gold from Americans, permitting trivial amounts for ornamental or industrial use. This happens to be one of the episodes Kevin Gutzman and I describe in detail in our new book, Who Killed the Constitution? The Fate of American Liberty from World War I to George W. Bush. From the point of view of the typical American classroom, on the other hand, the incident may as well not have occurred.
A key piece of legislation in this story is the Emergency Banking Act of 1933, which Congress passed on March 9 without having read it and after only the most trivial debate. House Minority Leader Bertrand H. Snell (R-NY) generously conceded that it was "entirely out of the ordinary" to pass legislation that "is not even in print at the time it is offered." He urged his colleagues to pass it all the same: "The house is burning down, and the President of the United States says this is the way to put out the fire. [Applause.] And to me at this time there is only one answer to this question, and that is to give the President what he demands and says is necessary to meet the situation."
Among other things, the act retroactively approved the president's closing of private banks throughout the country for several days the previous week, an act for which he had not bothered to provide a legal justification. It gave the secretary of the Treasury the power to require all individuals and corporations to hand over all their gold coin, gold bullion, or gold certificates if in his judgment "such action is necessary to protect the currency system of the United States."
The Emergency Banking Act reached back in time to amend the Trading with the Enemy Act of 1917, which had originally been intended to criminalize economic intercourse between American citizens and declared enemies of the United States. One provision of the act granted the president the power to regulate and even prohibit "under such rules and regulations as he may prescribe … any transactions in foreign exchange, export or earmarkings of gold or silver coin or bullion or currency … by any person within the United States." In 1918, the act was amended to extend its provisions two years beyond the conclusion of hostilities, and to allow the president to "investigate, regulate, or prohibit" even the "hoarding" of gold by an American.
After those two years elapsed, people generally assumed that the Trading with the Enemy Act had passed into desuetude. But the Supreme Court later explained that the act's provisions were not limited merely to World War I and the two years that followed — it "stood ready to meet additional wars and additional enemies" and could be called into service once again under those circumstances. (Little did anyone suspect in 1917 that these "additional enemies" would turn out to be the American people themselves.) As amended by the Emergency Banking Act of 1933, the Trading with the Enemy Act no longer said that simply "during time of war" could the president prohibit the export of gold or take action against "hoarding" (i.e., holding on to one's money). Now these actions could be taken during time of war or "during any other period of national emergency declared by the President."
A month later, claiming authority from the Emergency Banking Act and its amendment to the Trading with the Enemy Act, the president ordered all individuals and corporations in America to hand over their gold holdings to the federal government in exchange for an equivalent amount of paper currency. The paper currency they were receiving in exchange for the gold had always been redeemable in gold in the past, so few saw anything amiss in this coerced transaction, and most trusted the government's assurances that this was somehow necessary in order to combat the Depression. Only later would they discover that they weren't getting that gold back, and that the paper dollars they were being given in exchange would be devalued. Soon only foreign governments and central banks would be able to convert dollars into gold — and even that link to gold would be severed in 1971.
On June 5, 1933, at the behest of the president, Congress took the next step, passing a joint resolution making it illegal to "require payment in gold or a particular kind of coin or currency, or in an amount in money of the United States measured thereby." Any provision in a private or public contract promising payment in gold was thereby nullified. Payment could be made in whatever the government declared to be legal tender, and gold could not be used even as a yardstick for determining how much paper money would be owed.
For the next six months President Roosevelt pursued an erratic monetary course. Every day a new gold price was declared, on a basis no one could figure out. Private lending in effect came to a halt, with the value of the dollar in constant flux amid the prospect of ongoing devaluation. As Senator Carter Glass (D-VA) put it, "No man outside of a lunatic asylum will loan his money today on a farm mortgage." And thus the government could triumphantly announce that since the private sector was cruelly depriving Americans of credit, it would have to step in and provide relief.
Meanwhile, Senator William Borah was assuring his countrymen that when it came to the nation's monetary system, "there is no limitation upon the power of Congress. It is not circumscribed in any respect whatever. It is given full and plenary power to deal with that subject; and therefore it is the same as if there were no Constitution whatever." Borah also tried to argue that "when an individual takes an obligation payable in gold" he does so "with the full understanding that the Government may change its monetary policy at any time and that he must accept whatever the Congress says at a particular time shall constitute money."
The general rule (to which there are occasional exceptions) that no senator should ever be listened to on anything holds here: the power of Congress over money is in fact very limited. It has the power to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures."
Coining money simply refers to the process of taking a precious metal, converting it into coins, and stamping those coins with an indication of their metal content. The power to regulate the value of money does not involve a power to dilute the value of money by inflation, an absurd and self-serving rendering. Regulation of the value of money is a power of declaration and comparison, whereby some monetary standard is compared to other coins in circulation and an exchange rate for these various kinds of currency established according to the amounts of precious metals (with due allowance for the distinct values of different precious metals) in each. In other words, if Congress were to declare by statute what the prevailing market exchange rate between gold and silver was, and thus to "regulate" gold and silver coins vis-à-vis one another — or, more precisely, vis-à-vis the Spanish silver dollar that constituted the American monetary standard — then it would be properly exercising its constitutional power, which consists of nothing more than this.
That is why this power appears in the same clause with the power to "fix the Standard of Weights and Measures," which involves the measurement of fixed standards in order to assure uniformity throughout the nation. That power does not give Congress the power to declare that one-tenth of a pound shall now be declared a pound, but to take an already-existing standard and codify it. Every single monetary statute enacted from the ratification of the Constitution until the 1930s understood the congressional power to regulate the "value" of money not in the sense of declaring money to possess some arbitrary value that suits the whims of politicians or central bankers, but in the sense of establishing the relative values of gold and silver coins in terms of the ever-shifting relative values of those metals on the free market. (Needless to say, the market is perfectly capable of doing this on its own.)
Moreover, the "dollar" was not an arbitrary term at the time the Constitution was drafted. In the late 18th century, everyone knew what the "dollar" referred to: the silver Spanish milled dollar, which was in widespread use in the United States. The Constitution twice refers to the dollar — in Article I, Section 9, Clause 1 (a clause that everyone understood to involve a tax on the import of slaves), and in the Seventh Amendment (which protected the right to a jury trial in civil cases involving at least twenty dollars). If the dollar had been something that Congress could manipulate at will, or if "dollar" had been merely a generic term to refer to whatever Congress should arbitrarily choose to recognize as currency, the South would never have accepted that clause — or the Constitution itself. Congress might have manipulated the dollar so as to make the tax on slave imports prohibitively expensive. It could also have effectively abolished trial by jury in civil cases by making twenty "dollars" an astronomically high amount of money.
The Court never pronounced upon the constitutionality of the gold seizure (for reasons we speculate on in our book), the legality of which it simply took for granted. The cases it chose to hear involved the cancellation of gold clauses in public and private contracts. Known as the Gold Clause Cases, Norman v. Baltimore & Ohio Railroad Co., Nortz v. United States, and Perry v. United States were argued in January 1935 and decided the following month. In each case Chief Justice Charles Evans Hughes wrote the opinion for the Court; Justice McReynolds composed a single dissent that he applied to all three.
The Court declared in the first two cases that the federal government had been entitled to cancel all private contracts in gold. The perpetuation of gold clauses would have amounted to the "attempted frustration" of "the constitutional power of the Congress over the monetary system of the country…. [T]hese clauses interfere with the exertion of the power granted to the Congress." Not a stitch of evidence existed for any aspect of this argument.
Perry, the third case, involved a man who had purchased in gold a US bond that was payable in gold, and was seeking payment either in gold or in the equivalent in paper currency. Since the government intended to pay in depreciated dollars, he believed he was receiving far less than he was entitled to under the terms of the bond. The bond's face value was $10,000 in gold. In the inflated dollars of post-gold-standard America, it would have taken nearly $17,000 in paper currency in order to satisfy what the government had contracted to pay him.
The Court declared that the plaintiff was indeed entitled to his gold, since the government had an obligation to live up to its promises. But in not paying him his gold, the government wasn't really wronging him, since gold was now illegal to hold. In other words, if the government paid him in gold, it would then have to confiscate that gold from him anyway since holding gold was against the law.
Speaking for the minority, Justice McReynolds declared:
Just men regard repudiation and spoliation of citizens by their sovereign with abhorrence; but we are asked to affirm that the Constitution has granted power to accomplish both. No definite delegation of such a power exists; and we cannot believe that the farseeing framers, who labored with hope of establishing justice and securing the blessings of liberty, intended that the expected government should have authority to annihilate its own obligations and destroy the very rights which they were endeavoring to protect. Not only is there no permission for such actions; they are inhibited. And no plenitude of words can conform them to our charter.
To the argument that the bondholder had suffered no damage in being denied payment in gold since it was now illegal for people to own gold, the dissent replied: "Obligations cannot be legally avoided by prohibiting the creditor from receiving the thing promised…. There would be no serious difficulty in estimating the value of 25.8 grains of gold in the currency now in circulation." The contract to pay in gold having been broken, the holder was at least morally entitled to receive in currency not just the nominal amount of the bond but an amount in paper dollars equivalent to what he would have earned if the payment could have been made in gold. "For the government to say, we have violated our contract but have escaped the consequences through our own statute, would be monstrous. In matters of contractual obligation the government cannot legislate so as to excuse itself." Suppose a private individual tried to do the same thing, "secreting or manipulating his assets with the intent to place them beyond the reach of creditors." Any such attempt "would be denounced as fraudulent, wholly ineffective."
"Loss of reputation for honorable dealing," the dissent concluded, "will bring us unending humiliation; the impending legal and moral chaos is appalling."
By the 1970s the federal government had once again permitted Americans to hold gold coins. But when it came time to actually mint them again, it made sure that gold coins could never circulate and displace the constantly depreciating paper currency printed by the US government: the law required that such coins could circulate with a face value only a tiny fraction of their market value.
The full story of the gold confiscation is actually much worse than this, and we tell it in Who Killed the Constitution? What this episode teaches us is not so much that we need to "return to the Constitution," though that would be an improvement over what we have now, but rather that pieces of paper that governments themselves interpret cannot be expected to prevent governments from doing what they think they can get away with.
Lysander Spooner once said that he believed "that by false interpretations, and naked usurpations, the government has been made in practice a very widely, and almost wholly, different thing from what the Constitution itself purports to authorize." At the same time, he could not exonerate the Constitution, for it "has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist." It is hard to argue with that.
For families and friends gathering for Thanksgiving dinner this year, chances are that many of them will gather at some point in rooms called the "dining room." For most middle-class Americans, maintaining a formal dining room for ritualized forms of entertainment popular decades ago is no longer especially popular. Yet, most homes still have a room separate from the kitchen for meals with larger gatherings or when the entire immediate family assembles. A 2016 survey, for example, suggested that 78 percent of American homes have a dining room. Unlike with bedrooms and kitchens, however, interior designers and builders have debated for thirty years whether or not dining rooms are really necessary. Some contend they are "wasted" space. Others say that the dining room is "making a comeback" as people stubbornly continue to embrace the importance of family and friends sharing meals together in a setting slightly more structured than the act of grabbing toast and coffee in the kitchen before work.
Perhaps more so than any other day of the year, Thanksgiving day is the day when the dining room is least "wasted" and most useful. It does indeed provide that extra space in which a larger number of guests can be comfortably accommodated for what historians call "domestic sociability." That is, since the rituals of Thanksgiving day are generally performed within a domestic setting, a dining room can prove to be very useful indeed.
The Dining Room Is a Recent Addition In our modern age in which many families eat out at restaurants several nights per week, and public activities at entertainment venues are extremely common, the importance of domestic sociability is often overlooked. Yet, as Thanksgiving demonstrates, the act of gathering and socializing in a private home remains important for many families. Moreover, in times of economic downturns, domestic entertainment and social gathering becomes more important because it is relatively more affordable.
In a certain sense, those who think of the dining room as unnecessary are right. The dining room is a very late addition to homes. Even among the wealthy, dining rooms were rare until the seventeenth century, and even then, the room was not often seen outside of northwestern Europe. The wealthy certainly had large rooms for feasting, but these were often used for a wide variety of gatherings, and the public nature of the space makes them unlike private dining rooms. By the late Middle Ages, many meals were eaten in taverns and inns, but these areas, of course, were not private dining rooms either. It is only after 1700 that we begin to read of ordinary people finding ways to entertain friends and neighbors within their homes in these new spaces that would come to be known as dining rooms.
The Economics of Dining Rooms To abolish the dining room would thus be a return to the "tradition" or a pre-industrial age when homes were smaller and living spaces tended to consist of one or two large multipurpose rooms devoted to everything from sleeping to food preparation to cottage industries. That is, like so many "luxuries," the dining room appears as a result of the rising standards of living in Western Europe that resulted from centuries of capital accumulation in the Middle Ages and early movements toward industrialization in Britain, France, northern Italy, and the Low Countries. Even before the industrial revolution that began in the late eighteenth century, European wealth had been building as a result of the growth of manufacturing that spread as part of the "putting-out" system. That is, even before the advent of large factories, many households produced manufactured goods from raw materials within their homes. This raised the standard of living of both urban merchants and the rural peasants who participated in the system.
As a result, living space gradually grew larger for ordinary people. While the trend did not extend to the lower levels of the economic ladder until the eighteenth century, the new prosperity was nonetheless moving outward from the elites to the middle classes by the mid seventeenth century. As Jan de Vries notes in The Industrious Revolution:
In a broad middle range, the reorganization of space within homes unfolded in the century after 1650. The new forms of domestic comfort, which may first have been assembled in mid-seventeenth-century Dutch urban homes, was quickly introduced in England and France. ...functional spaces became better defined, as drawing rooms and dining rooms appeared in middle-class homes and distinct bed chambers came to be identified.1
Also important from the perspective of dining areas was how these new spaces "came to be filled with more, and more specialized, furniture."2 Increasingly, the long plank tables and benches more common in larger more public spaces were replaced by furniture considered to be more fitting for smaller private spaces. These tables were more ornate, comfortable, and generally what we could consider to be more bourgeois.
By the eighteenth century, the trend toward dining rooms had spread even to what were then the more rural and austere British colonies of North America. Two or three decades earlier, however,
Lying at the core of virtually any house in seventeenth-century Virginia was a room known as the hall—a multipurpose living space in which the planter and his household worked, slept, socialized, cooked, and dined. This hall was the only domestic space many Virginians knew. ... At mealtime, members of the well-to-do household sat together on backless bench or form, drinking from a shared vessel. ... In many respects, his house was indistinguishable from a tavern or even a courthouse. The dining room, in the sense of a space set apart specifically for meals, did not exist.3
By the 1750s, the meal was no longer thrown into a single pot, and the family did not share a small handful of common vessels. Rather, thanks to rising productivity throughout both the colonies and western Europe, plates for eating and cups for drinking proliferated. Even wine glasses and punch bowls began to appear. The quality of these vessels and the level of specialization, of course, depended on the level of wealth enjoyed by individual families.
Nor surprisingly, then—in both America and Europe—dining rooms also became places for ceremonial displays of one's wealth and comfort in ways that had been unheard of a century earlier. The mere presence of a dining room was becoming less and less rare. As historian John Fanning Watson described things looking back from the year 1820, even the middling classes were dining in specialized rooms:
The scale was much reduced, the splendor diminished, the lines simplified, the materials cheapened. Yet one idea endured. That was the notion that virtually anyone could hold court in their own house by carefully observing prescribed conventions and correctly using a few pieces of standardized equipment. The goods could be purchased at popular prices and the manners learned from play, print, and publications.4
How Dining Rooms Provided a Larger Social World for Women The social importance of dining rooms should be apparent. Even from the early days of the bourgeois, middle class household, the ability to entertain at home meant a greater ability for women to socialize.
This is not to say that it was unheard of for women to socialize outside the home. As Katherine French shows in her research on late medieval bourgeois households, rising incomes and worker productivity provided more options to women in terms of consumption. This indeed meant more opportunities to socialize with friends in public, including in taverns. This form of socializing among women was regarded with suspicion, however, and respectable women were often hesitant to be found spending much time in inns and taverns, as even the "better" ones were sometimes associated with gambling, prostitution, and disorder. Moreover, as is so often the case with the spread and democratization of goods and services in the marketplace, public drinking houses were associated with "overturned hierarchies" and social flexibility in general.5 These were places where married women—lacking spaces of their own in the cramped quarters of their houses—could gather on their own terms.
[Read More: "How Wage Work Liberated Women (and Men)" by Ryan McMaken]
While rising incomes did provide greater access to women—and men, too, of course—to social venues outside the home, the new concept of the private dining room provided additional outlets, and ones that were unlikely to bring any threat to one's respectability. After all, the domestic space had long been associated more closely with women than men, as men could more freely move within commercial and public spheres outside the domestic one.
As homes become more spacious, and "social spaces" like dining rooms became more common, women were more able to bring the outside world to themselves, and avoid the socially taxing challenges associated with dining outside the home.
These new social spaces made it possible for women to visit each other in their homes, reducing the relative social isolation endured by many women who lacked the economic means or chutzpah needed to drink with friends in taverns. As an alternative, Barbara Caddick notes:
Contemporaries used domestic space in socially meaningful ways and during the eighteenth century the domestic interior became an arena for the distillation of ‘polite’ social entertainment. ... Home became a focal point of polite culture and simultaneously it became a pleasant place to spend time. ... The development of a feminine culture of house visiting, which started in the late seventeenth century, led to the advent of domestic sociability.
Community social events were no longer simply carried on either in public drinking spaces or in parish meeting areas. Social events now took place in private homes which by the eighteenth century had finally become spacious and well-furnished enough to support such activities. As custodians of the domestic sphere, it was mostly women who managed these private social events. Caddick continues:
Women were responsible for mediating domestic sociability for the family; they had the knowledge and the power to create an environment within which that was possible. For example, when John Marsh, a gentleman musician and lawyer relocated his family to Chichester in 1787, his wife immediately set about ordering suitable furnishings for their drawing room so that they could announce the family’s arrival into local society by ‘seeing company’. It was essential for them successfully to announce their arrival by partaking in the polite culture of domestic sociability.
While other rooms of the house had their social roles, such as the parlor and the drawing room —rooms since replaced by the modern "living room"—the dining room has been at the core of domestic sociability and the ability of families to comfortably entertain both guests and each other. Today, many of the status-related aspects of dining rooms might strike many readers as tiresome. Selecting the "right" candlesticks and dinnerware for entertaining in 1750, however, is not fundamentally different from socializing with friends at the "right" vegan restaurants or at fashionable musical venues in the year 2022. What is different is that so much focus was put on visiting friends and entertaining them in in a domestic setting providing privacy from the larger world.
The fact that dining rooms and their furnishings are no longer essential tools for maintaining social status for women—and a lack of male enthusiasm over dining rooms—has perhaps caused the perceived usefulness of the room to go into steep decline. For at least three centuries, however, a well-used dining room was aspirational for countless households throughout the Western world. Using the room to strengthen social bonds was seen as relatively economical and as reinforcing western ideals of family domesticity and bourgeois polite society.
These traditions have not been altogether lost, of course, and their value is still often recognized in the more popular domestic rituals surrounding various holidays—especially Thanksgiving. The means of celebrating this domestic abundance is a legacy made possible by the expansion of markets, merchants, and the manufacturing economy that spread in the late Middle Ages and early modern period. Thanks to this, the West was able to break free of the one- and two-room huts of the agrarian past and bring comforts to all social classes—comforts that were once unheard of for even the wealthiest nobles centuries ago.
-
- Jan de Vries, The Industrious Revolution: Consumer Behavior and the Household Economy, 1650 to Present (Cambridge: Cambridge University Press, 2008), p. 127.
-
- Ibid.
-
- Mark R. Wenger, "The Dining Room in Early Virginia," Perspectives in Vernacular Architecture 3 (1989): 149.
-
- de Vries, Industrious Revolution, p. 150.
-
- Katherine L. French, "Gender and changing foodways in England's late-medieval bourgeois households," Clio. Women, Gender, History 40 (2014): 55.
On this episode of War, Economy, and State, Ryan McMaken and Zachary Yost check in on the Russo-Ukrainian war to examine Russia's strength, the US's blank check, and the prospects of World War III.
Additional Resources "NATO: Our International Welfare Queens" by Ryan McMaken: Mises.org/WES_04_A
"A Brief History of Pundits Encouraging Nuclear War" by Ryan McMaken: Mises.org/WES_04_B
"The NATO Treaty Does Not Give Congress a Bye on World War III" by Michael J. Glennon: Mises.org/WES_04_C
"U.S. Mutual Security Treaties: The Commitment Myth" by Michael J. Glennon: Mises.org/WES_04_D
Be sure to follow War, Economy, and State at Mises.org/WES.
The Fed's predictable response to inflation is based on erroneous economic thinking common with Keynesians. Only a free-market approach can reduce inflation and restore true market interest rates.
Original Article: "Individual Time Preferences, Not the Central Bank, Determine Real Interest Rates"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Almost eighty years ago, economist and philosopher Friedrich Hayek published what is now considered to be one of the most important essays in all of economics, “The Use of Knowledge in Society.” In it, he detailed what is known as “the knowledge problem,” which he describes as, “a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only those individuals know.”
In other words, the knowledge problem is the problem of how to ensure the most productive and efficient use of society’s resources, when the sum total of knowledge of what the most efficient and cost-effective resources, methods, and products to use and create is fragmented among an entire population with highly specialized and localized knowledge, instead of being possessed by a single mind or group.
What’s important to know about the knowledge problem is that it shows why central planning is a poor alternative to the free market. That’s because in a market, changes in the efficiency of different resources, methods, and processes as well as changes in the demand for different products are all reflected through changes in prices. In turn, because individuals want to maximize profits and minimize costs, changes in prices will guide individuals toward choosing efficient alternatives and producing more valued products, an optimal use of resources.
Contrast this with a centrally planned economy, where the state replaces prices and property to determine economic outcomes. Yet without private property, there are no prices to convey changes in the efficiency and scarcity of resources and methods or their demand. Instead, central planners must blindly choose between a limitless number of options with no way of determining the most efficient inputs and outputs. Whereas the market draws on the dispersed nature of knowledge through prices, central planning simply ignores this and thus finds its task impossible.
With this in mind, fast-forward to the present day, a moment of unprecedented inflation, broken supply chains, and the looming prospect of a recession. Preceding this crisis, however, was an equally unprecedented expansion of the money supply by the US’s central bank, the Fed. Yet while the Fed’s role in current inflation is steadily becoming more recognized, the world nonetheless remains faithful that Fed chair Jerome Powell can, through monetary policy, rescue the world from a crisis it sizably caused.
The fact of the matter is, however, that the Fed cannot rescue the global economy from the embroiling crisis for much the same reason why it helped to cause this crisis in the first place; that is, as the governmental monopoly over the supply of money, the Fed also suffers from the knowledge problem that Hayek described. Just as central planners are unable to compute the efficiency of competing resources because of the abolition of property and thus prices, we’ll see that the central bank is just as incompetent in computing the ideal money supply because of the dispersed knowledge it does not possess.
This is because central banks like the Fed are actually an example of central planning, as they’re the state monopoly over the production and supply of a certain good, in this case money. While the central planner is tasked with finding the demand for different products and adjusting their supply accordingly, it’s the role of the central bank to match the supply of money with the demand for money, which in turn allows inflation to be minimal and for prices to coordinate the economy into full capacity.
The problem is, however, that the Fed or any central bank is unable to rationally calculate the demand for money, as it’s, in the words of economist Alexander William Salter, “the kind of information that cannot be harnessed in top-down fashion” but rather “can only be generated bottom-up.” Money is one half of all economic exchanges, so finding its demand would require impossibly detailed insight into a limitless number of factors, including changes in specific incomes, inequalities, prices of different goods, different interest rates, market expectations, and fluctuations in a boundless number of markets.
Often behind changes in money demand are supply shocks and demand shocks. While inflation in the short run can be caused by a decrease in aggregate supply or an increase in aggregate demand, deflation can be caused by an increase in aggregate supply or a decrease in aggregate demand. In order to effectively counteract inflation or deflation, the Fed has to know whether it’s being caused by a supply shock or a demand shock, but from its position as a central bank it’s unable to do so in real time.
Behind changes in “aggregate demand” and “aggregate supply” are the combined changes of a multitude of different markets, prices, and expectations. While monetary systems devoid of central planning such as free banking or a full-reserve system may allow these factors to naturally determine interest rates and the value of money, a central bank must sort through this seemingly endless list of factors and guess their impact on inflation or deflation.
For example, the years following the early 2000s recession saw the United States experience both sluggish economic growth, a sign of a decrease in aggregate demand, and a productivity boom, an increase in aggregate supply. The Fed understood the risk of deflation during this time, but while a demand decrease would prescribe loosening monetary policy, a supply increase usually doesn’t change the central bank’s course of action.
Unable to distinguish between catalysts, the Fed opted to address the former and slash interest rates to unprecedentedly low levels. This proved to be the wrong decision, however, as such unnaturally low rates began to fuel a massive housing bubble whose subsequent burst helped to trigger the Great Recession.
In the end, while it may seem like a relic from foreign times and countries, the centrally planned economy and its fatal shortcomings live on in the institution of the central bank. As the Fed continues in its struggle to reign in high inflation alongside a faltering economy, another idea of Friedrich Hayek’s remains prescient as ever, that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
Historians praise the US entry into World War I because it enabled an Allied victory. But it also led to the economic disasters of the 1920s and ’30s.
Original Article: "World War I: The Great War Was also the Great Enabler of Progressive Governance"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Wouldn’t it be nice to permanently rid ourselves of economic crises? In a previous article, I showed that the waste of the boom and the cost of the bust are brutal even using the best recovery policies available. Here I unveil the reason for the ongoing boom-bust cycle and how to eliminate the cycle crisis permanently.
Most people think that the business cycle, which necessarily ends in crisis, is inherent to capitalism. Karl Marx thought we would have ever-increasing crises that would help bring about his imagined communism. John Maynard Keynes believed the business cycle was a psychological problem involving animal spirits!
True “economic crises” have only occurred over the last four centuries. Most crises in the previous four thousand years were caused by things such as wars, invasions, bondage, disease, and climate change. These crises had significant economic consequences but did not come from within the economy and were not cyclical. They were singular events or long-term structural conditions.
For an economic crisis to occur, there must already be trade, money, and economic integration for a viral trigger’s effects to permeate. So, Marx was half correct because there must be an interaction of many individuals to even think in macroeconomic terms, let alone to experience and record economic crises.
Marx was wrong in thinking that the problem was intrinsic to capitalism. What he missed was the key circulating ingredient of capitalism, money. Money, and even coins, has been around for at least a few thousand years. However, the Spanish theft of gold and silver in the New World quickly monetized the European economies during a period of emerging freedom.
Despite increasing freedoms and recognition of property rights in some places, during this period, Europe was also experiencing the rise of the state, colonialism, continent-wide wars, and huge government debts and state-level taxes. This spawned government manipulations of money to pay for these invasions. The resulting inflations and currency debasements were the beginning of the boom-bust-cycle problem, including tulipomania in Holland and the first economic bubbles.
It’s Money That Matters The obvious key to the cycle crisis is money, our otherwise precious and life-giving medium of exchange. Money manipulation is the salient fact of every business cycle. Historians may ruminate about speculation, animal spirits, manias, and depressions, but behind it all is the manipulation of money for political purposes. State manipulation of money and credit has now existed for so long that unbacked currency, unbacked demand deposits, and government micromanagement of money and interest rates now appear normal rather than artificial and political.
In its natural state, money is a highly marketable commodity that arose and greatly aided the development of human society. There was no inventor of money, although the view that some king or a state first created money and coinage persists to this day, despite a lack of clear logic or convincing evidence.
In monetary society, things like numbers, writing, language, coinage, and accounting all came to be or were greatly expanded. Money got better with trade; monies went from grains, animals, and salt to precious metals, such as bronze, copper, silver, and gold. Coinage greatly facilitated the use of money.
Money’s defining role as a medium of exchange circumvented the problems of barter and facilitated new functions such as providing a unit of account, a store of value, and a basis for longer-term payments, such as contracts, rents, and taxes. The emergence of money is probably the single most important development in human progress and one of the least appreciated.
Most people, even many professional economists and historians, have never even had a solid thought along these lines. In contrast, governments, counterfeiters, and eventually alchemists realized that their own position and power could be greatly enhanced if they could seize control over money. The historical record is uniformly clear that the more control states have over money, the more destructive they are and the worse off society is.
End the Fed Ludwig von Mises provided the first theoretical integration of money in the market, a complete analysis of money and inflation, and the first economic theory of the business cycle. He viewed the removal of money, credit, and banking from the clutches of government as the most important reform of the economy. This would eliminate straightforward inflation of the money supply by government and prevent banks from surreptitiously issuing unbacked fiduciary media (money substitutes that are not fully backed by the base money held by the issuer) such as unbacked currency.
Mises showed that truly competitive free banking would prevent banks from issuing nontrivial amounts of fiduciary media. His student, Murray Rothbard agreed and offered the legalistic solution of altogether prohibiting fractional reserve banking as fraud.
To understand the problem of government inflation and fractional reserve banking, you can look at history or look at the present. The government now tightly controls and regiments the system to ensure they get the biggest haul they can from our money and banking system.
The system provides the state with resources and power; helps pay off the national debt (previous and ongoing expenditures); and provides unearned profits for bankers, government contractors, and others who personally benefit from and therefore support the state.
You are told that the enormous apparatus the state has concocted to control money and banking, such as the Fed, is for your safety and economic stability. The truth is that the state grooms the entire system to provide government with economic resources and political support. This is the source of the “perpetual reoccurrence” of the cycle crisis and is why the cycle crisis is “self-generating.” New regulations designed to prevent the next crisis, such as Glass-Stegall and Dodd-Frank, are just a political sideshow.
The solution, then, is to end the Federal Reserve, restore the gold standard (precious-metal coinage); eliminate all regulations, subsidies, and bailouts for banks and depositors; and allow competition—laissez-faire. But that solution requires the population to understand the problem and to be united by an antistate ideology.
No barriers should be placed on new monies and banks, including cryptocurrencies, new transaction techniques, and new funding sources for loans. Money and banking can be like any other market, such as coal, warehousing, dental exams, shoes, and popcorn.
Such reforms can be made. In addition to ending inflation and the cycle crisis, eliminating state control of money and banking would also restrict the resources flowing to the state, stop the unnatural distribution of wealth, and prevent the most government destructive activities, including war and colonialism. To recycle a phrase, these reforms would usher in a new era of human flourishing.
State warfare and natural disasters could still cause crises of a different sort, but governments deprived of monetary power are far less likely to commit themselves, for example, to wars with other states. Likewise, a more stable and vibrant capitalism will provide the resources and infrastructure, particularly in terms of science and technology, to fend off nature’s occasional wraths, a fact that even climate change Chicken Littles admit.1
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- Climate change alarmists realize that many if their worst tangible fears, such as rising ocean levels and severe weather patterns, come to pass, they will be mitigated in advanced capitalist countries but not in primitive and undeveloped nations.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop look at conman Sam Bankman-Fried, the scam of FTX, and how regime legitimacy has fueled several fraudulent companies with unprofitable business practices.
Did post-2008 monetary policy fuel a bubble in "effective altruism?" Do examples like Elon Musk's restructuring of Twitter offer an illustration of what Big Tech firms will have to do to survive in a time of less-than-easy money, or will the regime bailout out the corporate extensions of techno-managerialism? What killed Silicon Valley's once-promising techno-libertarian style? Ryan and Tho look at this and more on this episode of Radio Rothbard.
Looking for Christmas gifts? Use promo code ROTHPOD for a 20% discount on select books featured on Radio Rothbard. Or, use code MURRAYCHRISTMAS for a special 10% discount on select new Mises apparel: Mises.org/RR_109_Store
Recommended Reading "How Easy Money Fueled the FTX Crypto Collapse" by Ryan McMaken: Mises.org/RR_109_A
"Sound Money Is Our Best Hope Against the Monopolists' Threat" by Brendan Brown: Mises.org/RR_109_B
"How Fiat Money Enriches the Unproductive" by George Ford Smith: Mises.org/RR_109_C
"Without Easy Money, the Tech Sector Faces Layoffs and Losses" by Ryan McMaken: Mises.org/RR_109_D
"The Housing Boom Is Already Over. The Housing Shortage Will Continue." by Ryan McMaken: Mises.org/RR_109_E
"Will the FTX Scandal Bring Down 'Crypto'?" by Jeff Deist and Bob Murphy (video): Mises.org/RR_109_F
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
As interest rates rise on everything from mortgages to car loans to Treasurys, that also means interest is rising on credit card debt. That's not exactly great news as so many indicators point to a recession—and the worsening job situation that comes with it—on the horizon. Many Americans may soon find themselves in a situation with more debt at higher interest rates, all while real wages are falling.
Earlier this month, Bankrate.com reported that the average credit card interest rate has climbed to 19.04%. That's a 30-year high and the highest rate since 1991, when the rate hit 19%. That can mean real financial trouble for ordinary households, but it's what we should expect in the wake of this year's policy shift at the Federal Reserve to finally allow interest rates to drift upward after more than a decade of quantitative easing and ultralow-interest-rate policy. Over the past year, the Fed has increased the target federal funds rate from 0.25% from 4.0%. NBC reports on how this affects credit card debt:
Increasing the federal funds rate cranks up what's known as the prime rate. That's the interest rate banks charge their most creditworthy customers. Currently, it is 7%. The final annual percentage rate for a credit card is determined by the prime rate plus a bank's margin for lending to a given customer.
The new average is a substantial increase from the 16.3% average rate for credit cards at the beginning of the year. According to Bankrate, if you carry a $5,000 balance on a credit card — which is the current national average — making just the minimum payment each month at that rate would cost $5,517 in interest over 185 months, or about 15 years. At today's 19.04% rate, you would pay $6,546.
The Fed report also reported "The strength in credit card demand and access coincided with the record growth in credit card balances over the past year." In its third-quarter report on household debt, the Fed further noted "Credit card balances saw a $38 billion increase since the second quarter, a 15% year-over-year increase marked the largest in more than 20 years."
Consumers apparently also expect to be spending more with credit cards in the near future, as well, as many are applying for even more consumer credit. According to a new report released Monday from the New York Federal Reserve, Americans are pursuing less new mortgage and auto debt, but continue to turn to credit cards:
The application rate for credit cards remained robust during 2022, reaching 27.1% in October 2022, above its October 2021 level of 26.5% and its pre-pandemic reading of 26.3% in February 2020. The average application rate for credit cards for 2022 overall was 26.7%, 3.6 percentage points higher than the average rate for 2021.
Should we be worried about this? Fed economists would tell you no because it is assumed that Americans allegedly have a huge savings stockpile that they can use to avoid defaults or pay down debt. Yet, this casual attitude toward mounting debt appears less and less warranted every day. With the job market softening, real wages falling, and interest rates rising, rising debt levels can't so easily be waved off.
A Free Money Surge Followed by Plummeting Saving Rates After all, back in 2021, consumers were indeed using their stimulus checks to pay off credit card debt. They were saving more than they have in decades. Plus, as the Fed further pushed down interest rates, consumers were refinancing home loans into even cheaper loans. Yet, as the new spike in credit card debt shows, those days are over. Moreover, now that the stimulus checks have dried up, the savings rate has plummeted to the lowest level we've seen since 2008.
It appears that savings stockpile has not yet been totally depleted, but we're already well on the way there. Some analysts estimate this means consumers have about nine to twelve months left in that savings cushion.
But this may prove to be optimistic depending on at least three factors: if real wages continue to fall, if job losses mount quickly, and if interest rates continue to rise.
Falling Wages, Job Losses, and Rising Interest Rates First, there's the problem of real wages. As we've seen, price inflation has been exceeding wage growth, and this has meant ordinary Americans (on average) have seen their real wages fall for nineteen months in a row. That won't exactly help expand workers' savings.
Second, it can no longer be said there is an economy-wide worker shortage. Certainly, there do appear to still be worker shortages in retail services and food services, but real estate and tech don't appear to be faring as well. Rather, every week now brings multiple announcements of new layoffs from tech firms and from real estate/construction firms. After tens of thousands of layoffs announced in recent weeks from Facebook, Amazon, and Twitter, Google announced 10,000 layoffs today, and Fidelity National Information Services announced thousands more. Real estate sales platform Redfin, has recently closed it home-flipping business and cut more than 800 employees.
From real estate to tech to the crypto economy, we can expect more layoffs and losses as easy money tightens up.
And finally, the issue of rising interest rates which, in addition to bringing job losses in the larger economy, will accelerate the burden that new credit card debt places on consumers. This will lead to rising delinquencies and tightening budgets overall. Some observers have suggested that credit card debt is no big deal right now because total credit card debt—even with the current surge over last year's totals—is not significantly above the longer-term trend. That would be fairly compelling were it not for the fact that these mounting debts are also happening alongside one of the fastest increases in interest rates we've seen in decades. Thanks to the Fed getting so behind the curve on price inflation, we're in the midst of the fastest cycle in rising interest rates since at least the 1980s. Yet, over the past 40 years, rising debt levels have occurred alongside ongoing declines in interest costs. Now that process is going in reverse, and interest rates have rapidly returned to 2007 levels. If the current upward trend in interest rates continue, this could mean a sizable increase in the burden that consumer debt places on ordinary households.
All of this would be made worse, of course, by further slide into recessionary territory. Up until this month's election, both the Fed and the Administration repeatedly denied that a recession is coming or is already here. This was in spite of two quarters of row of declining economic growth which has generally been labeled a recession by economists. But even if the first half of 2022 ends up not being labeled a recession, the data now strongly points toward one in 2023. The yield curve has inverted, global trade is softening, advertisers are pulling back, and real estate prices are sliding toward declines.
Recession Almost Guaranteed Indeed, now with the election safely over, even some Fed economists are starting to admit a recession is in the works. Eric Rosengren earlier this month admitted that a recession is likely, although he was careful to call it a "mild" recession. This is highly significant because the role of Fed economists is to generally be cheerleaders and to never speak of recessions until they are undeniable. After all, then-Fed Chair Ben Bernanke denied a recession was in the works as late as the first quarter of 2008. That was months after the recession had already started. The Fed always underplays secession risk, so it is remarkable if Rosengren is admitting any sort of recession is likely. Meanwhile, the administration now admits the boom days are over, but is now insisting that a soft landing is possible, and there will merely be a slowing of economic growth.
Yet, for all the positive talk, Americans are piling on more debt just as real wages are falling, job losses are mounting, and debt costs are rising. In all this, we can thank the economists and technocrats at the Federal Reserve for years of malinvestments and an economy of zombie companies and fragile household budgets built on a shaky foundation of easy money and mounting debt. It didn't have to be this way, but the regime is addicted to easy money and the Fed is more than happy to oblige. Now we have to deal with the inevitable bust that comes after the artificial and unnecessary inflationary boom.
The author recalls the 1922 peace dollar his grandfather gave him sixty years ago. Real money.
Original Article: "What I Learned from my Grandfather about Money"
This Audio Mises Wire is generously sponsored by Christopher Condon.
To many of us, no matter how well versed in history, in political affairs, or in socioeconomic issues, the present conditions in the West, and especially in Europe, can sometimes seem like the plot of a bad movie. It is often said that history doesn’t repeat itself, but it does rhyme, and what we’re seeing today is a great example of that. Nevertheless, one would have expected that at least some of those in charge of the “big decisions” would have learned something from the mistakes of the past—if not the mistakes of their predecessors, at least their own.
The current political trajectory, which is a mere acceleration of the trend of the past decades toward further centralization and concentration of power in the hands of the “anointed” few, has now clearly entered an especially dangerous phase. The purposeful disempowerment of the individual, the infantilization of the body politic, the suppression of free debate and the demonization of dissent, have brought our societies and our economies to their breaking point.
An actual war is raging in Ukraine, with countless direct and indirect victims, an economic crisis like no other in recent memory is ravaging working households and that “invisible thief”; namely, inflation, is wiping out whatever was left of the middle class, forcing once benefactors of food banks to become their beneficiaries. All the while, it seems that nobody is placing the blame where it belongs.
It is musings and questions like these that we recently discussed with former president of the Czech Republic, Prof. Ing. Václav Klaus. In the interview that follows, he offers a lot of food of thought, drawing from his own extensive experience in politics during the most challenging times in modern memory and his deep understanding of geopolitics, economics and human nature itself.
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Claudio Grass (CG): Although one can argue that Europe has been in a state of crisis for at least a decade, it can be argued that this time it’s different. There’s an actual war on its doorstep and everyone is paying the price, in one form or another, not just the direct adversaries. Russia’s advances have essentially come to a standstill, while cracks in the European economy and tears in the social fabric are getting worse by the day. How long do you think this can go on and what are your biggest concerns about the continuation of this conflict?
Václav Klaus (VK): I agree that it is different now. The current crisis, which is much deeper than the situations that we (or the politicians) irresponsibly labelled as “crises” in the past. This is the outcome of a unique combination of factors and causes. Some of them are directly visible and make headlines, others are invisible and therefore not sufficiently exposed or discussed.
The first group of factors consists of individual events, whereas the second one consists of slow, incremental changes of the political, social, and economic system. They are not statistically measurable. No one can see them, because they happen in small steps. Nevertheless, it is this second set of developments that is more worrying.
War, the energy crisis, and mass migration make headlines, but systemic changes don’t. I am afraid that we are not paying attention to how far we have already moved away from free markets and political democracy.
CG: As we habitually see during every conflict, propaganda machines go on overdrive and fear-mongering campaigns spread panic and division among the population. A few weeks into this war and increasingly ever since, blanket hate for “all of the West” or “all Russians” is being propagated. How do you assess collectivist viewpoints like these?
VK: I sometimes erroneously underestimate the role of propaganda, because I believe that by not watching TV or by being insulated from social networks, I am immune to it. I admit that it is a wrong perspective.
Direct propaganda is one thing, but the general one-sidedness and bias of the media is much worse. What we are experiencing now is similar to what we went through last time in the 1950s and 1960s. I admire George Orwell, I consider him a genius and his book “1984” a historic achievement. But I was always opposed to the hyperbolic and overdramatic use of Orwellian aphorisms to describe real-world affairs. I was afraid to trivialize the situation or my enemies and opponents. It is different now. Orwell has become directly applicable.
CG: There are growing calls in Europe for a “Marshall Plan” for Ukraine, the loudest among those coming from the likes of German Chancellor Olaf Scholz and European Commission president Ursula von der Leyen. Rebuilding Ukraine is estimated to cost around $350 billion, according to the World Bank. Given the results of the original Marshall Plan, do you think repeating it now would be a good idea?
VK: As an economist, I do not believe in Marshall Plans in general and in the post–Second World War Marshall Plan in particular. The importance of the original one was propagandistically overplayed.
I know of studies that demonstrate its marginal role. Postwar European reconstruction was the work of Ludwig Erhard, not George Marshall. The role of foreign aid has been canonically exposed by Peter Bauer, Deepak Lal, and others. Foreign aid pleases the donors more than the recipients. I see it now in the eyes of Czech politicians. It is not their own money they’re giving away.
CG: While the war has monopolized media attention and political speeches, there are a lot more problems and threats that Europeans are facing and most of them preceded it, but no one really paid attention. Inflation is the most severe of those and it’s forcing countless households to make impossible choices. Western politicians are blaming it all on “Putin’s war,” but do you think that monetary and fiscal policy makers in the eurozone in particular have to assume any responsibility themselves?
VK: I consider inflation to be the most important problem these days. It’s not only about Putin. It’s about the Green Deal and especially about the inflationary monetary and fiscal policies, which became “normal” after the 2008–09 recession.
Quantitative easing and zero (or negative) interest rates in central bank monetary policy and deficit financing in government fiscal policies created macroeconomic disequilibrium. We are living in an inflationary atmosphere and can’t get rid of it without fundamental breaks in monetary and fiscal policies.
To my great regret, Keynes is the winner of the day, not Milton Friedman. This is something I did not expect, but that is the new reality. Friedman, not Keynes, was my hero in the dark days of communism and it is frustrating that in the bright days of “the brave new world” of the EU and of “liberal democracies,” Keynes is back on the pedestal.
CG: We’ve seen a lot of misguided policies adopted in the EU that divided the public and eventually inflicted a lot of damage on the economy and on society at large, from immigration to the “green agenda.” There have been widespread protests over the years, but little changed, if anything at all. However, do you expect the public anger to be more fiery and more effective this time, as more and more people struggle to put food on the table?
VK: The EU policies are absolutely wrong and therefore damaging. You mention potential protests—I don’t see any. Europe and the whole of the West is marching to the left, toward collectivism, toward state interventionism. If there are any protests, they are against the market.
There are practically no meaningful protests against the European system of massive state interventionism and the existing ones cannot change anything. There is dissatisfaction but no real protests. People still believe in the possibility of improving the functioning of the existing system. They still call it a market economy and a parliamentary democracy. This is, however, not a correct interpretation of the current state of affairs.
CG: Having lived under communism and having experienced directly the way the state uses fear to manipulate and control the populace; to muzzle dissent and open debate; and to enforce policies that no free-thinking, rational individual would otherwise accept. Even though our politicians today insist that our Western democracies are all about liberty, core values like freedom of speech or individual financial sovereignty have been increasingly curbed over the years. Do you think any of this is reversible or are we destined to repeat the mistakes of the past that you had to live through?
VK: It is undoubtedly reversible, but I don’t see anyone ready and able to do it. What is necessary is not just marginal reforms. There needs to be a fundamental transformation of the system and I am not sure the voters are interested in that.
Changes may come, but not in the foreseeable future. I know it sounds pessimistic, but I think that making a change is not a task for me or for my children, but for my grandchildren.
Business success goes beyond numbers and planning and finance acumen. There’s an emotional component to it, ranging from the courage to make decisions without knowing the outcomes in an uncertain future, to the resilience of weathering storms and coping with unanticipated crises. There is also, of course, the joy of achievement and goal-attainment. There’s a concept identified as emotional intelligence that individuals and teams can cultivate as an element of a mental model that’s well-aligned with business performance and positive business outcomes.
Knowledge Capsule The entrepreneurial method is to pursue change, but people’s natural attitude is to resist change. We have an inbuilt, biological resistance to change. It triggers fear and anxiety that get in the way of moving towards the change that we seek. In addition to this emotional resistance, we develop habits that keep us in the status quo, and present another barrier to behavioral change. We all must fight an internal battle between our old habits and desired new habits.
Entrepreneurs develop a special emotional intelligence that motivates action. Entrepreneurs are in the business of making change. They can overcome the natural emotional and behavioral barriers because they have a highly developed emotional intelligence. They have such an emotional relationship with their vision of a successful outcome for their efforts that they can overcome fearful restraints and resistance to change. They are especially highly motivated to take action. It’s their emotion that drives action, not intellect.
Emotional intelligence is much more influential in business success than IQ. A 40-year study at UC Berkeley found that EQ (emotional intelligence) is 400% more powerful than IQ in predicting which individuals would have success in their field. Private companies like PepsiCo and Apple have uncovered similar findings in their internal studies.
High emotional intelligence not only releases personal energy and creativity, but it also results in higher levels of interpersonal trust and shared engagement with others. With high emotional intelligence, we are driven to help others to enjoy better experiences as well as to advance out of our own comfort zones to access new areas of achievement.
The consequence of achieving high levels of emotional intelligence is higher levels of trust and engagement in business, and, thereby, better business results.
Everyone can improve their emotional intelligence and benefit from its compounding effect. We are pretty much born with our IQ — we can’t increase it. But everyone can raise their level of emotional intelligence. Not only that, but emotional intelligence is a compounding asset — we can raise it and raise it again and keep on raising, so long as we work at it.
Part of the equation is personal energy management. Phil Johnson identifies personal energy as the core element at the heart of the power of emotional intelligence. We “give our energy away” when we permit others to disrupt our emotional flow — make us annoyed or angry or resentful or frustrated. As a consequence, we feel the need to “steal energy from others” by getting the better of them or by exercising a command-and-control management style. The net result is strife, dissension, and misalignment — where team or corporate energy is wasted. We can avoid this waste by cultivating emotional intelligence.
There are high-ROI habits, practices and skills that help to build emotional intelligence. Happily, we can practice some of the habits and skills that develop and demonstrate emotional intelligence.
One such habit is authentic listening: when we take criticism personally, we give away energy. So, if we eliminate all personal inner-directed emotion from our reception of comments and suggestions from others, we can utilize all the experience and knowledge that’s shared with us for betterment and improvement. Don’t resist, don’t judge. Don’t let attachment to our own preferences get in the way of receiving input. Don’t raise walls. We have no personal interest in what others think of us, only in the information they can impart, which might be useful
The other side of the coin is authentic communication: be sure that all the content of our communication is factual and positively motivating and designed to be helpful to others, strengthening trust and engagement. If we develop a consistent reputation for authentic communication, we’ll raise engagement (and Gallup reports that employee engagement is at a very low level today, which is a great cost to economic productivity).
In addition to habits and practices, Phil Johnson urges us to commit to the emotional labor of recognizing our own fears, biases, and status quo preferences, and to establish an emotional distance between our motivations to action and our ego-based fear. It’s emotional labor that pays interest — it has a high ROI.
Emotional intelligence releases the power of intuition, and creates a state of flow. When we fear making decisions, we try to rationalize those decisions, to seek objectivity and lower uncertainty. When we distance ourselves from fear, we can unleash intuition — that decision-making capability that is beyond our understanding and comes from our unconscious brain. Intuition takes over more and more as we master emotional intelligence. We make choices that are not intellectual — we go beyond our intellectual ability.
Emotional intelligence takes us to a flow state. We get away from thinking and move towards intuitive doing, beyond our comfort zone beyond our fear and anxiety.
Additional Resources Phil Johnson on LinkedIn: Mises.org/E4B_197_LinkedIn
Phil Johnson’s Zoom Calendar: Mises.org/E4B_197_Zoom
Videos from alumni of Phil Johnson’s MBL (Master Of Business Leadership) Program: Mises.org/E4B_197_MBL
UC Berkeley Study, EQ>IQ: Mises.org/E4B_197_Paper
One place a price system manifests itself is the sports betting markets. The results are surprisingly accurate.
Original Article: "Sports Betting and Spontaneous Order"
This Audio Mises Wire is generously sponsored by Christopher Condon.
A fallacy is defined as a mistaken belief or a failure in reasoning. Though most people try to avoid mistakes, no one is infallible, not even those who act like they are.
You can download a chart of common fallacies here. The online chart is hyperlinked to each of the fallacies.
I break fallacies into two major groups:
First, we have traditional fallacies you might remember from philosophy 101. In these, the reasoning is obviously absurd, though we might be at a loss to explain the specific violation involved:
Your dog has puppies. Your dog is a mother. It is your dog; therefore, it is your mother.
Every distance, no matter how short, consists of an infinite number of points. For a body to move any distance, it must cover an infinite number of points. Nothing can move an infinite distance. Therefore, all movement is deceptive.
More frequently we find these, where the fallacies are more subtle:
The country’s top economists are in agreement that the Federal Reserve is necessary for economic prosperity.
The country’s leading experts agree that X is harming the environment. Therefore, the government should regulate or ban X.
Let’s address the first statement.
Is it true? In a literal sense, yes—the top economists wouldn’t dream of doing without a central bank. Or if they did it would be considered a nightmare.
So, is our work finished? Do we affirm it as true and move on?
No, because the statement suggests that unless you’re a top economist, you have no grounds for disagreeing. I call it the “Who are you?” (Quis es?) fallacy. History tells us experts can be dead wrong, so let’s at least mount a challenge, shall we?
The country’s elite economists hold advanced degrees from universities that support central banking. The universities, in turn, receive funding from the federal government, which created the Federal Reserve System and relies on it heavily for monetary support. Is it odd the universities would promote the Fed as an essential economic institution?
With regard to funding, many of the top economists themselves are deriving at least a portion of their income from the Fed. Is it possible their bank accounts play a role in their refusal to cast a critical eye? Is it a stretch to imagine these economists are reluctant to turn against an institution they have been trained to salute?
And do the ones on top belong there? If they’re the best and brightest, how did the bust of 2007–08 explode in their faces? Almost none of the “top” economists saw it coming, including the leaders on the Board of Governors. As Ira Katz notes, the same blindness prevailed before the collapse of the Soviet Union. He quotes from Paul Samuelson’s bestselling textbook of 1989 to make his point:
“Contrary to what many skeptics had earlier believed, the Soviet economy is proof that … a socialist command economy can function and even thrive.” The Collapse of Communism happened during the same year and the Soviet Union broke up two years later.
In economics as in other crony (government-connected) professions there is a pay-to-play aspect, where the payment is an unstated agreement never to question certain assumptions publicly.
Perhaps the economics the top economists learn is flawed. In school they are taught that low interest rates are necessary for economic growth. Since the central bank has the exclusive power to increase the money supply and thereby (indirectly) lower the rate of interest, it is therefore regarded as a pillar of prosperity.
The idea that the economy is harmed by changes in the money supply, that any increase in money available for lending should come from real savings, is given little or no hearing in classrooms or policy discussions. Not coincidentally, the few economists who adhere to these views, who for this very reason are not considered “top,” had claimed a crisis was “baked in the cake,” as some put it.
I should also mention that if the Fed is necessary for prosperity, how did we ever prosper before November 16, 1914, when the Federal Reserve Bank of New York opened for business? The period immediately before the creation of the Fed—late nineteenth century—is, according to the data, one of the most prosperous periods in American history.
And the reduction of the purchasing power of the dollar to near zero is scarcely a point in the Fed’s favor. And if the Fed is needed to control the business cycle—the booms and busts—how is it we’ve had some of the biggest economic crises since the federal government imposed it on us?
So, returning to the original statement, we find the country’s “top economists” to be incompetent in monetary matters, grossly so, while the Federal Reserve has been anything but a facilitator of general prosperity.
I leave the second example for you to dissect as an exercise.
[Chapter 9 of Per Bylund's new book How to Think about the Economy: A Primer.]
By regulations, we mean restrictions imposed on the economy by government: prohibitions, license requirements, quality or safety standards, price controls, quotas, and subsidies, etc. Although they differ in their specifics and in their stated purposes, they are all implemented to induce a change in the economy.
If regulations do not change anything, they are ineffective. This is because the specific restrictions are inapplicable or they are not enforced in practice. The point, however, is that all regulations are intended to impose some change and that they matter only if and to the extent that they do. Effective regulations, successful in producing the intended outcome or not, change behaviors and therefore the structure of the economy.
Some regulations are imposed on producers, whereas others target consumer behavior. The former may impose additional costs or prohibitions on some producers or artificially lower the costs of others. The purpose is to change the types of production projects undertaken and therefore the goods made available to consumers. The latter seek to change consumers’ behavior, which in turn affects producers because they must respond to the changed nature and structure of demand. In both cases, therefore, the outcome is a change in the economy’s production structure.
We know that the production structure is determined by entrepreneurs seeking to profit from satisfying consumer wants (chapter 5). Thus, for regulations to be effective, they must affect entrepreneurs’ behavior and change which production projects they choose to undertake. The observable outcome (what is seen), what did not occur as a result (the counterfactual or unseen), and the longer-term effects (the unrealized) are key to understanding the impact of regulations.
The Seen The observable world is the obvious starting point to analyze a regulation’s effects but it can also be misleading. It is obvious because it is what we can see and measure. But studying it also leads to errors and premature conclusions because although the actual economy—its data—appears to provide straightforward facts about a regulation’s effects, it actually does not.
In a world in which a newly imposed regulation is the only change that takes place, we could easily compare the state of the economy before and after and thereby assess its effect. However, as the market is a process that is in constant flux, the regulation is decidedly not the only change—it is an imposition on the market’s ongoing unfolding and evolution.
Consider the case of imposing a minimum wage, which stipulates a price floor in the market. For such a regulation to be effective, its stipulated wage must be higher than what employers already pay. If the market wage is $10 per hour, the minimum wage must require that employers pay some higher amount—it must impose a penalty on or prohibit employers from paying a wage lower than the wage stipulated.
If the imposed minimum wage requires that employers pay $14 per hour, then that is the wage in the open market. Anything else would be illegal. Thus before and after comparisons would make it seem like people make more money after the imposition of the minimum wage. But do they? To figure this out, we must also consider what would have been the situation had a minimum wage requirement not been imposed—the counterfactual, or the unseen.
The Unseen The “unseen” refers to the “other side” of the story—what otherwise would have happened. Since it does not happen, we cannot measure it. Yet it is the cost of any action or choice. If I choose steak for dinner, I forego all other possibilities I could have had instead. The highest value of those possibilities is the economic cost of the choice—the tradeoff is the value foregone.
Without a counterfactual, we look only at the presumed benefit but do not consider the cost. Thus, the analysis becomes one-sided, and we risk missing something important. We also cannot determine if it was a good or bad choice. Was it worth it? We need to know the cost to answer this question.
This applies also to regulations like the minimum wage in the example above. The typical purpose for a minimum wage is to raise workers’ wages. Considering only the seen would make the regulation seem successful, because after the minimum wage has been imposed there would be no one who makes less than $14 per hour. This would be a premature conclusion because we have not yet looked at the unseen.
We must thus ask what would have happened had that minimum wage not been imposed. It is important to recognize that the minimum wage does not magically raise wages but compels employers to not employ anyone for less than the stipulated wage. This is not the same thing as raising workers’ wages.
Let us consider an example of an employer who before the minimum wage is imposed has three employees. They are paid $7, $10, and $16 per hour respectively. The reason for their different wages is that their value contributions to the employer are not the same. The worker being paid $7 per hour is in job training, learning the trade, which explains the low wage. Once trained, and more valuable to the employer, the employee would expect to earn a higher wage in the future. The worker being paid $16 has a unique skillset that is particularly important to the employer’s line of production, making their contribution greater. This worker could easily get a job elsewhere if he was paid less. The worker earning $10 has no special expertise beyond job experience and therefore makes the market wage for regular workers, commensurate with his value contribution in the production process.
The employer would be unwilling to pay any of these workers more than their value contribution. They are employed for contributing to the value created, not subtracting from it. Paying them anything else would be charity—consumption, not production. The workers do not make less than their value contribution, either, because if they did, other employers could profitably hire them at a higher wage.
Now suppose a $14 per hour minimum wage is imposed. This means the employer is no longer allowed to pay anyone less than $14 per hour. The employer must decide whether to double the wage of the worker in training and raise the $10 per hour worker’s wage by almost half. The third worker, who already makes $16 per hour, is not directly affected. The employer is likely to let the worker in training go, because his productivity is lower than a regular worker’s—but his price is now the same.
The employer cannot afford to simply raise the $10 worker’s wage because his value contribution is more than $10 but less than $14. But by tweaking the production process, cutting benefits, and abolishing other perks, such as afternoon coffee breaks, this worker can be kept at the higher rate of $14. At least for now.
The seen, therefore, is that this employer paid an average wage of $11 per hour before the regulation was put in place and $15 per hour after. An obvious gain! The regulation worked. It magically raised workers’ wages.
The unseen, however, paints a different picture. If nothing had happened in the economy to change worker productivity or the profitability of the business, there would be three workers employed at a total of $33 per hour. Now there are two workers at a total of $30 per hour instead. Also, the lower-paid employee is now working harder to justify his higher wage.
Was the imposed regulation worth it? Economics cannot answer this question because it is a value judgment. But it can identify the regulation’s result and, therefore, show whether the regulation fulfilled its promise of raising workers’ wages (it did, for one worker; but it also resulted in another worker being laid off).
There is more to the story, because the seen and the unseen only consider effects in the present. However, as we now know, the economy is a process—the world we live in today has implications for the future too.
The Unrealized Understanding that the market is a process provides further insight into the real effect of regulations on the economy beyond the seen and the unseen. To see how, we will continue the minimum wage example and work through the logic step by step with and without the regulation.
After the minimum wage has been imposed, the worker in training is laid off. Rather than making some money and gaining the experience necessary to propel his career, he is now looking for a job. However, as all employers are compelled to pay $14 per hour, the threshold to get a job is much steeper than before. Without training the worker just starting out cannot find a job where he would contribute at least that much to the bottom line, and since he also cannot get the experience that would increase his productivity, he remains unemployed.
Meanwhile the workers who retained their jobs are increasingly frustrated. The highest-paid workers feel unfairly treated because they did not receive a raise while the less productive colleagues received a 40 percent increase for no obvious reason. And now pressure to perform is higher too, and the more skilled worker is expected to assist the less skilled worker to make production run smoothly. It was better when there were three workers even though the third worker was still learning the trade. Now the two of them are struggling to produce what the three of them produced easily before.
The skilled worker, in turn, believes he earned a raise and is bitter about losing some benefits he used to enjoy. He remembers when he could take a coffee break, talk to colleagues, relax, and de-stress. It is more difficult to keep up now and he feels worn out as the weekend nears. Not to mention that the worker has been told not to expect a raise for the foreseeable future because his productivity does not warrant a higher pay.
This is the seen with an imposed minimum wage of $14 per hour.
In the counterfactual world, where there is no minimum wage, all three workers remain employed. Initially they are paid the same as before: $7, $10, and $16 per hour, respectively. But as the worker in training gains experience, his productivity increases, and the employer raises his wage, first to $8 and then to $10 when he’s as productive as other workers on the job market. Why would the employer raise the wage? Stepped raises may have been contracted earlier. Or maybe the employer wants to pay the worker a fair wage because otherwise he would look for and get gainful employment elsewhere.
The other two workers also increase their productivity and get raises. The employer can afford this because he did not have to increase one person’s wage by 40 percent but also because the workers produce greater value. The workers are paid higher wages because they contribute greater value and therefore contribute to the combined wealth and well-being of company, and society in general. So soon, they are paid $10, $12, and $17 per hour, respectively—a total of $39 per hour, an 18 percent increase paid for by increased production.
But this is still not the whole story. The wages earned by the three workers are their purchasing power, which they use to buy goods others produce. The workers’ demand, a result of their contribution to supply, makes revenue in other businesses possible.
We can now see that the difference between the seen and the unseen—the regulation’s cost—is not merely the unemployed worker. This is the immediate effect, which reduces total output but increases the marginal wage and output (by excluding the worker with the lowest productivity). However, what is also lost is the experience that this worker would have gained, and therefore his increased productivity over time. His future jobs and perhaps his career are lost. His increased production is also lost, and therefore the value he would have created for consumers, who will not be able to purchase those goods.
The unrealized are all those valuable opportunities that never come to be because of the regulation: the value of the goods that would have been produced, the trainee’s career, the workers’ demand for goods. The economy is on an overall lower-value trajectory, which means the loss is all the value that would have otherwise been attained.
This shouldn’t be surprising, because free-market production, albeit imperfect, is driven by entrepreneurs seeking to profit from serving consumers. When this order is upset, entrepreneurs cannot pursue what they expect will be the highest-value uses of scarce resources. This means that the most productive projects—including the job opportunities they create, at wages based on the expected value contribution, and the highest-value goods for consumers—will be lost. The unrealized is the true cost of regulations, and it far exceeds the unseen.
Historian Jon Meacham urges Joe Biden to be a "transformational" president in the way of FDR, but he forgets that Roosevelt put the "Great" in "Great Depression."
Original Article: "Joe Biden and the "Transformational" Presidency"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Raising interest rates is a necessary but insufficient measure to combat inflation. To reduce inflation to 2 percent, central banks must significantly reduce their balance sheets, which has not yet occurred in local currency, and governments must reduce spending, which is highly unlikely.
The most challenging obstacle is also the accumulation of debt.
The so-called expansionary policies have not been an instrument for reducing debt, but rather for increasing it. In the second quarter of 2022, according to the Institute of International Finance (IIF), the global debt-to-GDP ratio will approach 350 percent of GDP. IIF anticipates that the global debt-to-GDP ratio will reach 352 percent by the end of 2022.
Global issuances of high-yield debt have slowed but remain elevated. According to the IMF, the total issuance of European and American high-yield bonds reached a record high of $1,6 trillion in 2021, as businesses and investors capitalized on still low interest rates and high liquidity. According to the IMF, high-yield bond issuances in the United States and Europe will reach $700 billion in 2022, similar to 2008 levels. All of the risky debt accumulated over the past few years will need to be refinanced between 2023 and 2025, requiring the refinancing of over $10 trillion of the riskiest debt at much higher interest rates and with less liquidity.
Moody’s estimates that United States corporate debt maturities will total $785 billion in 2023 and $800 billion in 2024. This increases the maturities of the Federal government. The United States has $31 trillion in outstanding debt with a five-year average maturity, resulting in $5 trillion in refinancing needs during fiscal 2023 and a $2 trillion budget deficit. Knowing that the federal debt of the United States will be refinanced increases the risk of crowding out and liquidity stress on the debt market.
According to The Economist, the cumulative interest bill for the United States between 2023 and 2027 should be less than 3 percent of GDP, which appears manageable. However, as a result of the current path of rate hikes, this number has increased, which exacerbates an already unsustainable fiscal problem.
If you think the problem in the United States is significant, the situation in the eurozone is even worse. Governments in the euro area are accustomed to negative nominal and real interest rates. The majority of the major European economies have issued negative-yielding debt over the past three years and must now refinance at significantly higher rates. France and Italy have longer average debt maturities than the United States, but their debt and growing structural deficits are also greater. Morgan Stanley estimates that, over the next two years, the major economies of the eurozone will require a total of $3 trillion in refinancing.
Although at higher rates, governments will refinance their debt. What will become of businesses and families? If quantitative tightening is added to the liquidity gap, a credit crunch is likely to ensue. However, the issue is not rate hikes but excessive debt accumulation complacency.
Explaining to citizens that negative real interest rates are an anomaly that should never have been implemented is challenging. Families may be concerned about the possibility of a higher mortgage payment, but they are oblivious to the fact that house prices have skyrocketed due to risk accumulation caused by excessively low interest rates.
The magnitude of the monetary insanity since 2008 is enormous, but the glut of 2020 was unprecedented. Between 2009 and 2018, we were repeatedly informed that there was no inflation, despite the massive asset inflation and the unjustified rise in financial sector valuations. This is inflation, massive inflation. It was not only an overvaluation of financial assets, but also a price increase for irreplaceable goods and services. The FAO food index reached record highs in 2018, as did the housing, health, education, and insurance indices. Those who argued that printing money without control did not cause inflation, however, continued to believe that nothing was wrong until 2020, when they broke every rule.
In 2020–21, the annual increase in the US money supply (M2) was 27 percent, more than 2.5 times higher than the quantitative easing peak of 2009 and the highest level since 1960. Negative yielding bonds, an economic anomaly that should have set off alarm bells as an example of a bubble worse than the “subprime” bubble, amounted to over $12 trillion. But statism was pleased because government bonds experienced a bubble. Statism always warns of bubbles in everything except that which causes the government’s size to expand.
In the eurozone, the increase in the money supply was the greatest in its history, nearly three times the Draghi-era peak. Today, the annualized rate is greater than 6 percent, remaining above Draghi’s “bazooka.” All of this unprecedented monetary excess during an economic shutdown was used to stimulate public spending, which continued after the economy reopened … And inflation skyrocketed. However, according to Lagarde, inflation appeared “out of nowhere.”
No, inflation is not caused by commodities, war, or “disruptions in the supply chain.” Wars are deflationary if the money supply remains constant. Several times between 2008 and 2018, the value of commodities rose sharply, but they do not cause all prices to rise simultaneously. If the amount of currency issued remains unchanged, supply chain issues do not affect all prices. If the money supply remains the same, core inflation does not rise to levels not seen in thirty years.
All of the excess of unproductive debt issued during a period of complacency will exacerbate the problem in 2023 and 2024. Even if refinancing occurs smoothly but at higher costs, the impact on new credit and innovation will be enormous, and the crowding out effect of government debt absorbing the majority of liquidity and the zombification of the already indebted will result in weaker growth and decreased productivity in the future.
Originally published at DLacalle.com.
Lutheran theologian Reinhold Niebuhr attracted numerous followers in postwar America in part because of his attacks on the free market. Perhaps he should have read Mises.
Original Article: "Niebuhr, My God, to Thee"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Whatever you make of it, Trussonomics didn’t detain us long. Liz Truss was appointed prime minister of the United Kingdom on September 6. A would-be Margaret Thatcher, Truss appointed as her chancellor of the exchequer fellow free marketeer Kwasi Kwarteng, who gave his emergency “mini budget” to Parliament on September 23. The mini budget was a free market–themed, tax cut–led “dash for growth” that aimed to put the UK economy on a path to prosperity.
However, it was badly received by the markets. The pound promptly fell sharply and the long-dated gilt (or UK government bond) market collapsed the following week. The week after that, a revolt began among Conservative MPs that led to the mini budget being scrapped, Kwarteng getting fired, and Truss resigning on October 25. She had only been in office for fifty days, the shortest ever term of office for a UK PM. Truss was more Lady Jane Grey than Lady Thatcher.
In this posting, I take a closer look at the Trussonomics experiment. My take is that it was fiscally reckless. Truss and Kwarteng ignored clear warnings that the government had a fiscal credibility problem. Instead, they should have put fiscal prudence at the center of their program and accompanied their tax cuts with even larger cuts in government spending to reassure the markets.
Let’s begin with the economic thinking and the people behind it. Kate Andrews provides some light on these issues in her September 3 Spectator article, “Trussonomics: a beginner’s guide.” When polls started to show Truss well ahead in the Conservative leadership campaign, she was challenged in an interview to name a single economist who supported her tax-cutting agenda. She named Patrick Minford, who had been an economic advisor to Margaret Thatcher. Soon afterward, other economists began to support her, and the term “Trussonomics” began to gain currency. These economists included Julian Jessop, a former city economist with links to the Institute of Economic Affairs (IEA), and Gerard Lyons, another former city economist who had advised Boris Johnson.
All three were tax-cutting supply siders who believed that it is the long-term trajectory of government debt that matters, not short-term spikes in borrowing. When asked about the possibility of a negative market response, Jessop responded, “If tax cuts do mean more borrowing in the short term, I’m completely relaxed about that. I suspect the markets will be as well.”
What strikes me about these comments is their casualness about what, even then, was the elephant in the room, the fiscal credibility of the measures they were proposing and in particular how they would be received in the markets. Jessop and his colleagues seemed to presume that the markets would share their optimism. I am reminded of a joke about an economist and a can opener.
There is a further problem. As Andrews explained:
One thought I can’t escape when speaking to Truss’s economic gurus is that … to get debt down in the long term, surely public spending cuts are necessary. Yet Truss is pledging tens in billions of pounds of extra spending … [and] all this will come on top of her £50 billion tax cut pledges.
The failure to address this issue would be another reason for markets’ doubts about the Trussonomics program.
The main features of the mini budget were a series of tax cuts and cancellations of previously planned tax increases, an expensive (£60 billion a year) and not especially free market spending measure to cap households’ energy costs, a 2.5 percent annual gross domestic product growth rate target, a fiscal deficit set to double to almost 10.0 percent of GDP, and plenty of free market and supply-side rhetoric. There were no explicit spending measures, but increases in government spending could reasonably be read into Kwarteng’s mini-budget statement.
Truss’s supporters were ecstatic. The Daily Telegraph’s Allister Heath wrote:
Kwasi Kwarteng’s Budget is a moment in history that will radically transform Britain. This was the best budget I have ever heard a British chancellor deliver, by a massive margin. The tax cuts were so huge and bold, the language so extraordinary, that at times … I had to pinch myself to make sure … that I hadn’t been transported to a distant land that actually believed in the economics of Milton Friedman and FA Hayek.
The IEA director general Mark Littlewood said, “This isn’t a trickle-down budget, it’s a boost-up budget. The government has announced a radical set of policies to increase Britain’s prosperity…. This is a very encouraging start, but the government must not take its foot off the pedal.” Later that day, he added that “the success or otherwise of the government’s policies would be a real test for the IEA view of the world.” These comments staked the IEA’s credibility on the success of the mini budget and are now coming back to vex it.
Minford wrote that “Trussonomics is already slaying the demons of stagflation. We need more of it.” In my opinion, however, these and similar reactions focused too much on Kwarteng’s rhetoric and not enough on the substance of his package and were themselves weak on substance.
The reaction of the rest of the commentariat was overwhelmingly negative. The reactions from the Left were predictable—a “trickle down” budget, “Robin Hood in reverse,” and antagonism almost on principle to tax cuts, especially “for the rich.” There was also the oft-repeated criticism that the tax cuts were “unfunded,” based on the nonsensical premise that a tax cut could only be justified if it were “funded.”
But as Matthew Lynn observed, “There’s no such thing as unfunded tax cuts.” You see, the government never funds a tax cut, because it is our money in the first place. When the government cuts taxes, it does not take out money from some fund it has previously accumulated and hand that money to us. Instead, it merely takes less of our own money away from us in taxes.
Among the more informed criticisms was one by Larry Summers, who wryly observed, “I think the UK is behaving a bit like an emerging market turning itself into a submerging market.” And a damning indictment from the Institute of Fiscal Studies:
Today, the Chancellor announced the biggest package of tax cuts in 50 years without even a semblance of an effort to make the public finance numbers add up. Instead, the plan seems to be to borrow large sums at increasingly expensive rates, … and hope that we get better growth…. Mr Kwarteng has shown himself willing to gamble with fiscal sustainability in order to push through these huge tax cuts…. Mr Kwarteng is not just gambling on a new strategy, he is betting the house. (my emphasis)
The mini budget was also compared to an earlier Conservative “dash for growth.” In 1972, Anthony Barber, then chancellor, announced a package of big tax cuts and higher government borrowing that initially boosted the economy but then led to high inflation and economic chaos that culminated in a hard-left government in 1974 and an International Monetary Fund bailout in 1976. The Barber boom is a textbook case of the dangers of fiscal largesse.
In my opinion, these are reasonable concerns. Some free market economists also voiced reasonable concerns. In his September newsletter, Tim Congdon announced that he was “horrified by Trussonomics” because “tax cuts today mean more public expenditure in the future” to service a larger government debt. He then criticized Minford for telling the Daily Telegraph’s Simon Heffer that
Mrs. Thatcher would approve of “what Truss promises to do”. Minford even referred … to the [successful but controversial] 1981 Budget, when taxes were increased by 2 percent of GDP in order to bring the budget deficit under control…. But the 2022 Kwarteng [mini budget] … was the exact opposite … Trussonomics is a wild and reckless adventure.
Nor should we forget that Thatcher was fiscally cautious, and it was not until the 1988 budget that big reductions in personal tax rates were made.
Another critic is the IEA’s Christopher Snowdon:
Previous governments had at least paid lip service to balancing the books. The Truss administration didn’t even bother pretending…. [Trussonomics was] a kind of right-wing Keynesianism, seeking to stimulate spending by borrowing money to cut taxes…. [As a result] everyone is now a fiscal conservative. This is Liz Truss’s accidental gift to the nation…. She has shown that … the era of big borrowing has come to an end.
A third is Snowdon’s IEA colleague Kristian Niemietz:
In a nutshell, the problem with the mini-budget was that it entailed huge and permanent increases in government borrowing at a time when markets were hyper-nervous…. Where the government got the inspiration for those plans from, I don’t know, but they certainly did not get it from us.
And what is my opinion? I think that Truss and Kwarteng made two major mistakes. The first was that they ignored clear warnings that the government had a fiscal credibility problem. To ignore such warnings when they could have put forward a fiscally prudent budget was reckless and undermined all they were trying to do. The second mistake was their failure to accompany their tax cuts with even larger cuts in government spending to demonstrate that their mini budget was fiscally responsible. Such cuts are necessary not only for fiscal prudence reasons, but also because the UK government sector is way too large already. The UK needs both tax cuts and government spending cuts to get back to the low-tax, small government model that is the key to its future prosperity.
The Trussonomics fiasco provides an ideal case study of the pitfalls of naïve Lafferism, but it is to be regretted that this instructive experiment has set back the free market cause in the UK for a long time to come.
Trussonomics, RIP.
The common view of inflation is that it is defined as a general increase in prices. Actually, inflation is expansion of the money supply that results in price increases.
Original Article: "Inflation Is Not Price Increases. Inflation Causes Price Increases."
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Governments, billionaire elites, and NGOs have a "wonderful" plan for the rest of us called the Great Reset. They need to read Mises to know their plans are madness.
Original Article: "Economic Calculation and the Great Reset"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
This year’s midterm disappointment for Americans hoping the lunacy of the left would undermine the Democrat Party highlights that the very real problems we face will not fall under their own weight. Anti-human progressivism continues to rise, no matter how visually absurd it manifests itself.
Original Article: "The Midterm Lesson: Unserious People Can't Stop the Left"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
My previous article demonstrated how the free market solves a boom-bust crisis and is the only solution, its effectiveness depending upon the magnitude of the crisis and, more importantly, how much the government intervenes in response. The bigger the problem created by the Fed, the greater the crisis and the more government intervenes, and the slower the economy recovers.
Here we consider how the market works most effectively, with the efficiency of the process maximized by policy restraint. Like most illnesses, recessions can be “cured” with rest, hydration, nutrition, and fresh air, rather than major surgeries and dangerous medications.
The solution begins with getting rid of the initial monetary causes and allowing market participants, especially entrepreneurs, to adjust to the new conditions. Entrepreneurs will reallocate resources according to current consumer preferences and away from the previous policy allocations. There is no easy, straightforward market playbook for an individual entrepreneur to consult. Should a pizza restaurant stay open one hour later or use in-house delivery drivers? The owner could figure it out, but policy makers would have no idea of where to even begin to answer such questions.
Consequently, policy makers approach the problem with a high level of ignorance. Their policy “tools” are simplistic, nonspecific, and almost uniformly counterproductive. Therefore, any attempt at policy mitigation will only worsen and lengthen the negative impacts of the crisis. As Murray N. Rothbard concluded, “Government hampering aggravates and perpetuates the depression.”
However, the bureaucratic mind of public officials goes “warbling back to the fire” of more government intervention, and this is the big danger. They have no ideas or policy tools that work. The costs they impose and the agony they create are pain they do not endure themselves, creating huge burdens and destroying resources in the process.
Public officials might be lauded for their efforts to “do something” to address the crisis, but their efforts only undermine corrective and recovery efforts. FDR’s manic “New Deal” of government intervention in the Great Depression actually was a decade of dismal failure leading to catastrophe. Hence, we need to understand the crisis and the correct solution in order to avoid economic disaster.
Laissez-Faire The correct policy to address the economic crisis is referred to as laissez-faire. The marquis d’Argenson used this phrase for the first time in print in 1751. It was first uttered years earlier by a French entrepreneur to the famous French finance minister and mercantilist the “Great Colbert” in response to a question of what the state can do to help the economy. (France ignored the advice, and a century later, French society was torn asunder by government intervention and hyperinflation.)
The phrase means “leave it to us” or more bluntly, “leave us alone.” There are many policies that enhance economic recovery and growth, but this standalone cure for the cycle crisis simply requires a noninterventionist government stance. This policy regime allows the curative process of the market to work as quickly, effectively, efficiently, and humanely as possible to resolve the crisis.
This solution is so unsatisfying to the bureaucratic mind that some specifics are in order. Here we borrow from Rothbard’s depression policy recommendations.
First, stop inflating the money supply and refrain from intervening in the credit markets. Ideally, markets should be alerted that this neutral stance is just the initial phase of a longer-term policy of monetary reform that involves the closing of the Fed itself and doing away with all the props to monetary policy, such as fiat money, fractional reserve banking, and the Federal Deposit Insurance Corporation.
Early social man viewed money suspiciously and latched on to the notion that money was the key to wealth disparities. It is true that during the transition from barter to money, fully monetized economies performed much better than barter and primitive economies. It was not until Richard Cantillon and David Hume wrote about it that money was recognized as a medium of exchange. Wealth and increasing wages could now be seen as the result of capital formation, production, and, of course, entrepreneurship, not more money per se. The mercantilist fallacy that money equals wealth became the basis of fiat money and central banking.
Second, provide no subsidies or bailouts to firms in financial trouble and let them fail of their own accord. As cruel as this may sound, the “cluster of entrepreneurial errors” and its resolution must proceed in its own course. Instead of a fixation on bailouts, firms should be focused on restructuring their operations toward profitability or proceeding into bankruptcy. Realigning ownership and resources toward profitability is the most salutary route for capital, labor, and consumers.
Providing “no barriers to exit,” such as subsidies and bailouts, is a primary requirement for “competition,” which is seen by most economists as an engine of progress. This is certainly true for Austrian economists, who only require that markets have no government barriers to entry or exit. Mainstream economists who recognize the importance of competition include many additional assumptions in their definition of “perfect competition.” Their assumptions make math-based economics generate their preferred policy outcomes but are unnecessary and unwise in the real world. Consequently, all monopoly policies should be stopped.
Third, saving should be encouraged because it provides the raw material for individual and market adjustment, protection, and progress. Individuals and companies with savings can sustain themselves and make the necessary market adjustments. Most importantly, savings mitigate the problems of drops in demand for products, unemployment, and job searching. Savings are also the raw material of entrepreneurship, whether that is starting a hot dog stand or a large factory.
In contrast, mainstream economists see consumption as the driver of economic activity, believing that increased consumption now will show up in future gross domestic product (GDP) reports. Hence, they view savings as “leakage” that prevents or stalls economic recovery. This mistaken belief fails to recognize the process of economic growth (savings => investment => capital formation => increased wage rates => increased consumption = higher GDP). There must be savings and capital, as well as labor and production, before consumption can begin. People don’t just decide to consume more!
Fourth, prices, wages, rents, interest rates, and profits must all be allowed to adjust for changing market conditions. Some mainstream economists grasp the wisdom of the free market but lose their grip on that wisdom when it comes to economic crises. The fact that prices, wages, rents, and profits fall precipitously in a crisis unnerves them and adds to the pressure on the political process to prevent prices from falling—and invokes the dreaded scourge of deflation.
Imbedded in this phobic reaction to falling prices are numerous fallacies and contradictions. Why keep prices high (which discourages consumption and wastes surpluses) while at the same time trying to encourage consumption? Why keep wages high while at the same time trying to reestablish full employment? Why keep a factory going when consumers don’t want its products or are unwilling to pay the going price for them? Such resources could be better used elsewhere.
Falling prices are the main feature of market corrections. Some people simply don’t believe in Say‘s law of markets because they can’t believe (re: understand) the ameliorating effects of cutting prices and wages that is deflation.
It should be clear that the wealthy have more to lose in an economic crisis and will have to make the greatest number of painful adjustments, at least in a market economy free of government intervention. However, the costs of an economic crisis are shared by capitalists, laborers, resource owners, entrepreneurs, and even those innocent bystanders not directly involved in the economy, such as children and the elderly. Those who acquired and saved the fewest resources during the boom may face hardships such as hunger and homelessness in the bust.
In my view, none of these groups are to be blamed. The free market did not cause the crisis. But for people working in the free market, adapting to the crisis is the solution. The interventionist approach to economic crises does little to relieve all this suffering and much to worsen and lengthen it. The best way to mitigate the costs of an economic crisis is this market-based approach. The interventionist approach fails and compounds the cost over time.
Concrete Solutions The free market solution to crises brings forth a quick resolution to the problems in the economy. This is particularly true of the highly complex problems associated with the business cycle. Here, disturbances in money are filtered through the loanable funds market, consumer goods markets, and the production, investment, and technology decisions of entrepreneurs attempting to meet the expectations of consumers in an environment of multiple false signals. If a superhuman central planner could not rationally direct a static-stationary economy, then it is little wonder that politicians pushing a few policy buttons in the capital city could ever rationally reconstruct an economy fit for the current new conditions.
To highlight forcefully and objectively the four policy guidelines of a laissez-faire solution for economic crises, I will provide a couple of examples of what should be done in concrete terms.
First, no government bailouts. Companies, industries, nonprofits, and nongovernmental governmental organizations are constantly pleading for government handouts, indirect subsidies, and protectionism. The latest is college students and their enablers bellyaching for a bailout for students. Crises encourage all of them to seek ever larger and more permanent sources of funding from government. They should be told immediately, and in no uncertain terms, that no bailouts, cash or otherwise, are forthcoming. It is particularly important that lower levels of government be told there will be no bailouts from higher levels of government. This is necessary to prevent local governments from extending their financial responsibilities beyond their highest priorities. Individuals, companies, organizations, and governments must not be shielded from the possibility of bankruptcy.
Japan is the largest and most glaring example of the problems with bailouts. For more than a decade following their stock market bubble of the 1980s, the government and the Bank of Japan purposively kept a multitude of zombie corporations afloat with various subsidies and easy credit policies. Zombies induce a host of inefficiencies related to capital, labor, and technology and reduce economic and wage growth.
Second, do not subsidize unemployment. Eliminating unemployment insurance should be a priority. Workers should have every natural incentive to get employment and wages. Unemployment insurance is well known for causing harmful delays in getting and maintaining employment. In contrast, jobs in the market create income and production and are a vital component of economic recovery. One silver lining of the covid government lockdowns is the memory of the lingering high social costs of bailing out labor.
In this regard, repealing the minimum wage law would reinforce the laissez-faire policy message that labor and production are the way out of the crisis. You might ask, “If the minimum wage is now set below market-clearing levels and the resulting unemployment is nil, then what sort of statement would this send?” It would be a recognition of the futility of the minimum wage law to “help” labor, a recognition that the law hurts the most “at-risk” labor, that wages could fall steeply in a crisis, and that people might need and want a paying job despite a lack of job experience, skills, training, or even bodily strength.
Conclusions Economic crises, such as those made inevitable by the Fed’s boom-bust cycle, are unfortunate events for most people. The policy of laissez-faire is the only way to rationally cure such a crisis. Interventionist measures only delay and worsen the crisis and its negative impact on people. History provides plenty of evidence regarding the widely divergent outcomes of these two policy regimes.
The speed of recovery is an important consideration. Laissez-faire gives quick results, while intervention delays recovery for much longer, accumulating foregone opportunities over the years, sometimes stunting the development of whole generations of people, and making many people incapable of achievement. In contrast, laissez-faire recoveries make people more independent, more resilient, and more likely to achieve.
Of course, even the smartest, most steadfast, and most rigorous laissez-faire regime will have political and emotional difficulties remaining steadfast in the face of hunger, homelessness, bankruptcies, foreclosures, and mass unemployment. Calls for public relief are already loud in modern America today. When the unemployment rate rises, the call will be further amplified by what once passed for journalism. It is important to frame these demands in terms that recognize that any such public relief for companies or individuals will harm and delay the long-term interests of society, including those targeted for relief. Relief is best provided by private charity.
If you are not a socialist or a progressive and you think this remedy is insufficient or unacceptable, I will end on an optimistic note. The free market is the only solution to the economic crisis and a relatively quick one at that, but it is also important to recognize that economic crises related to the business cycle are a problem that can be solved permanently. This is a topic I will address in a future article. Indeed, a successful laissez-faire recovery to today’s crisis could propel reformers to solve these longer-term institutional problems of monetary policy and public finance.
The warning lights on the dashboard of your car suddenly light up. You naturally take it to a mechanic to diagnose and repair. Cars are complex. You don’t have the time or accumulated expertise to figure out what is happening or to fix it.
We rely on experts daily. In a complex world filled with busy people, it is impossible for any one person to know and do everything. So, we outsource. By doing so, we of course rely on others’ expertise, but we also subject ourselves to their biases or simple mistakes. We are in the dark. They are in the know. When the stakes are limited to your car’s functioning, you are probably inclined to accept that occasionally you’ll get overcharged or have some unnecessary work done. That cost is small compared to the effort that would be required to become an automotive repair expert. So, you accept the cost.
Expertise is now everywhere. As complexity has risen, there are experts on virtually everything. Gone are the days when Newton could be relied upon by the masses to know philosophy, math, and physics. Today, one does not have expertise in philosophy. One has expertise in feminist social epistemology or racial ontology. School administrators considering whether to implement a new acronym in our schools seem to have no choice but to rely on the experts.
In evaluating the costs and benefits of relying on an expert to help with a decision, not all decisions are created equal. If an artist needs to build a bridge, he is probably wise to hire a trained engineer. If an engineer wants to pick a painting for his wall, he may not get the same benefit by hiring a trained artist.
At the center of the debate about expertise is the nature of knowledge itself. Understanding the differences between knowledge, preference, and opinion is critical when assessing the usefulness of expert advice. An expert’s client is subject to far more risk when seeking advice in an area subject to opinion or preference. The situation is compounded when the client is not able to evaluate whether the claimed expertise is knowledge or opinion.
Plumbers and Diversity Experts Plumbers have an easy time making the case that they have the ability to make decisions that benefit their customers. If your pipes are leaking and the plumber comes and fixes the problem, you feel confident that he actually did something you didn’t know how to do. Self-proclaimed experts in fields such as culture, education, philosophy, or history (“theorists”) have a more difficult case to make. In fact, very rarely does a plumber proclaim that he is an “expert.” His observable work speaks for him. Theorists, on the other hand, are almost universally referred to as experts.
The work of the theorist is obscure to the client who relies on him as an expert. The client is not able to disentangle the knowledge of the theorist from his opinions. The situation is made worse when the theorist shrouds his work with jargon or hints of science. His results are “evidence based.” The field of experts has reached a “consensus.” In the face of complexity and obfuscation, the client seems to have little choice but to accept the expert’s recommendation.
The Stone Mason Is Not Interested in the Theory of Pronouns The average person who decides to pursue a career in gender studies or even education is not representative of the average person. There is an obvious selection bias in how people choose their careers. Only a person who is interested in gender studies will pursue its expertise. Furthermore, the process of acquiring expertise further enhances the initial selection bias.
A person who thought that gender studies was a fraud would be unlikely to devote his career to its study. A school debating whether to introduce gender studies into its curriculum, when seeking the advice of a gender studies expert, should not expect unbiased advice. It should expect to hear that, of course, gender studies should be added to the curriculum. The expert will cite numerous studies by other gender experts, scientific evidence, that outcomes will be improved if his advice is followed. The school will have no choice, having decided to defer to an expert, to introduce gender studies.
The General of the Army Thinks We Should Go to War Why should a school or even an individual ask for an expert’s advice in areas dominated by opinion? One possibility is that the client of the expert believes that there is objective knowledge that is needed to make an informed decision. The client may lack the knowledge or confidence to assert that the decision can be made independent of domain expertise. A school administrator may have failed to consider that the decision in question is largely a subjective one.
There is no correct answer. People of different ideologies or belief systems may have different opinions based on their objectives. Experts may claim that there is analysis that can inform the decision, but the truth may be that there are fundamental differences in opinion that cannot be resolved by analysis.
A second reason that a client may rely on an expert in ideas is more nefarious. When a school, for example, hires an expert in some special type of “ideas,” they accomplish two things that cannot be accomplished without the expert. They appeal to the authority of the expert to legitimize the decision, and they reduce their culpability for the decision. A school administrator who has an agenda can hire an expert that is aligned with their agenda and make their constituency more willing to accept the decision and protect themselves should anything go wrong.
Does the School Know Best? When faced with an administrator or teacher with domain expertise, parents may be reluctant to claim that the school’s approach is wrong. After all, the school is populated with experts. What can a parent be expected to know about the latest pedagogical trends? Most parents don’t even know what the acronyms mean. How can they argue against them?
The answer is simple. The school cannot and does not know your preferences and opinions unless you tell them. Decisions about the implementation of new programs in the schools are not scientific. They are deeply colored by ideological biases. Experts will claim “basis in data” or “proven approaches,” but in the realm of ideas, there is no disproof of a preference.
Parents who want their teachers and schools to take a different path should not expect experts in the field to fight their battle. Only the family can represent the family’s preferences, and when it comes to ideological disagreements, no level of expertise can resolve an underlying fundamental disagreement about values. The family is the only expert on its own values.
Jeff and Bob discuss whether the FTX scandal will be used to justify new "crypto" regulations or even the creation of a central bank digital currency.
Caitlin Long and Sam Bankman-Fried debating leveraging Bitcoin: Mises.org/HAP370A
Mises on circulation credit vs. commodity credit: Mises.org/HAP370B
President of the Minneapolis Fed Neel Kashkari on CBDCs: Mises.org/HAP370C
The collapse of the crypto exchange FTX may prove to be a canary in the coal mine of the easy-money fueled crypto bubbles. FTX's collapse has exposed just how little due diligence is actually taking place among investors who are apparently willing to put large amounts of cash in whatever place looks like the hottest new thing and promises—without convincing evidence—big-time returns.
Indeed, FTX seems to be a textbook example of how many investors are easily hoodwinked by media narratives about the latest investment genius who has magically discovered some new way of delivering unprecedented returns.
The "genius" in this case is Sam Bankman-Fried, a 30-year old MIT grad who ran FTX into the ground and had placed control of his clients' money in the hands in the small number of friends with virtually no real experience, knowledge, or scruples about how to responsibly manage funds. Financial record-keeping and reporting at the company was haphazard at best.
The calculations will be murky for a while, but it now, it looks like FTX has "lost" at least one to two billion dollars of client funds, not to mention billions of dollars in investments in the company that evaporated. Much of it was probably just stolen. But it's difficult to guess at this point because FTX didn't bother to put together an accounting department. FTX new CEO reports the state of the company's financial management is worse than Enron.
Yet, hundreds of thousands—possibly more than a million—clients were willing to pour money into the exchange. Some put most of their entire net worth. Institutional investors put in much more. Sequoia Capital, for example, famously put $210 million into FTX. "Due diligence" involved a "last-minute Zoom call" with Bankman-Fried during which he played video games. That money is now all "missing."
Why were so many willing to so carelessly hand over much of their life savings to an operation run by a man-child in short pants who was essentially accountable to no one? The answer lies in the fact that when we mix speculative manias with decades of central-bank-fueled easy money, we end up with a world in which FOMO and a desperate search for yield leads to disaster. The FTX implosion is exactly what we should expect to see as our decade-old bubble economy comes to grips with rising interest rates, a slow-down in easy money, and a looming recession.
Slowing Monetary Inflation Creates a Problem for Leveraged Crypto As I showed earlier this week, the tech sector overall is facing losses and a need for cost-cutting as the price of borrowing—i.e., interest rates—goes up.
Up until this year, this inevitable economic decline was repeatedly delayed because many problems and inefficiencies in a business can be papered over when it's always possible to just borrow more and pay off old debts with new cheaper debt. The gambit works when interest rates are continually falling, as has been the case over the past 40 years. That is, it was easy to do so until recently. Now that firms can no longer always count on more cheap money coming down the road, losses and out-of-control expenses become a problem.
When borrowing costs go up, inefficient and fraudulent companies have a harder time covering up losses and a lack of revenue. This becomes especially problematic for highly leveraged companies that have enormous debt-service costs, engage in financial shenanigans, and take on high risk investments like derivatives.
In recent months, we've begun to see crypto exchanges get into trouble for similar reasons. FTX is just the most spectacular recent example, but FTX could have kept its problems hidden for longer had the easy money kept flowing as usual.
Here's what happened: As a crypto exchange, FTX functioned in some ways like a quasi-bank. Clients put money into the exchange as a way to facilitate client investments and use of their crypto to both invest and consume. Much of this also revolved around FTX's crypto token known as FTT. Clients were "depositors" of a sort. Like a bank, however, FTX also tried to make money by making investments of its own through a sister company, a crypto-trading firm called Alameda Research. FTX was effectively acting as a fractional-reserve bank, using client "deposits" to make speculative investments through Alameda.
But then the easy-money economy this year tightened up slightly as the Federal Reserve raised rates and backed off Quantitative Easing. One effect of this was falling prices for a variety of crypto currencies, FTT among them. Investors—both small-time crypto buyers and large institutional investors—began to sell their crypto or forego new purchases in order to get liquidity for use elsewhere. As a result, ordinary clients at FTX began to withdraw their holdings. Meanwhile, large crypto exchange Binance began to sell its own considerable holdings of FTT. Suddenly, FTX had to give large numbers of departing clients their money back. But FTX had already committed much of its money elsewhere: like many investors, Alameda and FTX were making riskier bets in an effort to stay ahead of inflation in a Fed-created world of ultra-low yields.
FTX then found that it didn't have enough liquidity to meet its obligations to clients. Moreover, as the Fed scaled back on QE and the economy slowed, asset prices began to stagnate. This meant FTX's collateral was losing value and it could not be easily sold to cover client withdrawals. On November 11, it all collapsed.
This wouldn't have happened—at least not right now—had the easy money still been flowing. Clients would not have lost interest in FTT tokens to the same extent, and FTX could likely have taken out some new loans to cover whatever rising costs it was facing. The can would have been kicked down the road yet again.
But as it was, there simply wasn't enough liquidity anymore for the scam to continue.
Thus, we find that leveraged crypto faces many of the same problems that other highly leveraged high-risk ventures face. Once the easy money dries up, financial obligations remain, but new loans to pave over the problems are difficult to come by. This problem was noted months ago by Bitcoin consultant Caitlin Long of Custodia Bank who opposed leveraged crypto as a form of circulation credit—i.e., unbacked "savings."
From Yield Famine to Collapse Bankman-Fried was able to keep up the ruse for years in spite of manifestly dishonest business practices, absurd accounting, and good old-fashioned grifting.
But the fact is that countless investors are so susceptible to cons like those promoted by SBF because investors want to believe them. Thanks to "yield starvation" brought on by years of financial repression, investors are desperate to find a hero who can promise big returns, even if the risks appear to be high. As economist Brendan Brown has noted, there will always be speculative narratives and manias. But when a search for yield becomes especially acute, things are made far worse.
The financial sector then becomes enamored of financial celebrities like SBF. Fortune magazine then features SBF on its cover. Countless news programs featured SBF as a wunderkind expert on the new economy. This was further enhanced by the fact that much of the client money SBF mismanaged—i.e., stole—was used for enormous public relations campaigns designed to burnish SBF's image and clout. He gave immense amounts of money to the Democratic party and used funds to win over countless elites in the media. Even as SBF's fraud was exposed, The New York Times and The Washington Post were still running articles about how SBF and his associates are merely misunderstood do-gooders. SBF himself admitted his image was all part of a con.
The PR worked, and speculators hopped up on easy money continued to put money into FTX with little to no true due diligence. Many investors forget that when the easy money is flowing, financial mediocrities, and even outright frauds, can be made to look like legitimate geniuses. Unfortunately, it often requires only the smallest amount of monetary tightening to expose the grift, and then the party is over.
The assumption that free market reforms have failed to resurrect the economies of developing countries has become orthodoxy in some circles. Critics contend that market approaches are incompatible with the realities in developing countries. Yet despite the assault on market reforms in developing regions, there is insufficient evidence to justify the discontent of critics.
Successful markets are not contingent on geography and race, but culture can determine the effectiveness of economic reforms. In an analysis of economic freedom reforms, researchers from Winthrop University aver that individualism bolstered the efficacy of democracy in cultivating economic freedom in eighty countries between 1950 and 2015. Correspondingly, similar research shows that there is a link between support for markets and a country’s economic freedom.
Economic reforms are often imposed on developing countries by Western agencies and are perceived as illegitimate by citizens and politicians. Usually, countries invest in reform programs because they were coerced to do so rather than because they believe in the efficacy of markets. Economic reforms compete with long-held cultural beliefs, elite privileges, and the short-termism of politics.
The failure of market-reform programs to scale in the developing world results from institutional and political deficits rather than an innate defect in markets. Improved institutions, especially in economics, promote long-term growth. Policy makers ought to focus on assisting developing countries in designing the right institutional conditions for markets to thrive instead of downplaying their significance in stimulating economic growth.
Notwithstanding critiques, economic studies assert that free markets are the best option for boosting growth in developing countries. Axel Kaiser in an article critiquing Chile’s leftward lurch presents an impressive array of data attributing Chile’s development to right-leaning economic policies:
Chronic inflation, which had peaked at over 500 percent in 1973, fell below 10 percent by the 1990s and under 5 percent by the 2000s. Between 1975 and 2015 per capita income in Chile quadrupled to $23,000, the highest rate in Latin America…. This is consistent with the growth of income in the different socioeconomic groups. While between 1990 and 2015 the income of the richest 10 percent grew a total of 30 percent, the income of the poorest 10 percent saw an increase of 145 percent.
For Africa, economic freedom likewise has a positive impact on the quality of life and responsiveness to foreign direct investment. Moreover, Rwanda is quickly becoming the poster child for economic growth in the developing world, and it has taken aggressive steps to enable a freer economy. Agreeing with the literature on the benefits of economic reforms, A recent paper concluded that free market reforms led to a stronger macroeconomic environment, lower inflation, debt reduction, and higher levels of private investment in telecommunications and retail.
In fact, Kevin Grier and Robin Grier in defending the Washington Consensus observe a positive link between economic freedom and growth between 1970 and 2015. They explain:
The Washington Consensus has fallen out of favor in the last few decades, but we believe that the ideas behind it have been prematurely discarded…. We identify 49 cases of generalized reform in a sample of 141 countries from 1970 to 2015. The average treatment effect associated with these reforms is positive, sizeable, and significant over 5- and 10- year windows.
Intriguingly, a study by Kerianne N. Lawson and Robert A. Lawson shatters the myth that implementing reforms at an accelerated pace is detrimental for countries by showing that the nations “reformed more quickly grew more rapidly relative to slower reforming nations during and just after the period of their reform.”
Based on the literature surveyed, it is evident that developing countries need more rather than less economic reforms. However, reforms must be buttressed by institutions that allow markets to thrive. In contrast to orthodox thinking, the success of economic reforms is inhibited by institutional deficits. Markets are clearly not the problem.
All too often, people equate their nationality with a particular state. Yet, as Mises noted, nationality does not depend at all upon a formal entity tied to a government.
Original Article: "Nationality and Statelessness: The Kuwaiti Bidoon"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
In our time, political speech and writing are largely the defence of the indefensible.
—George Orwell, “Politics and the English Language,” 1946
Language is at the core of everything we perceive, know, think, and express. We use words as a tool, to communicate and navigate life in a social context. We use them at every stage of cognition, from our earliest babbling at infancy to our most abstract or demanding intellectual pursuit as adults. But words also shape our worldview in ways we may not fully appreciate. As the great Spanish economist Jesús Huerta de Soto explains, language is an institution in society.
So it should not surprise us to see language attacked and corrupted, as so many of our institutions have been. This is the topic of my new essay in the Italian journal Etica & politica, reprinted here with permission. I examine the idea of linguistic corruption—i.e., consciously imposed changes in language engineered by elites for political reasons—and contrast this with natural and organic evolution of language.
The conclusions are not pretty: self-appointed cultural czars, from academics to woke CEOs and central bankers to the Associated Press and Merriam-Webster, have positioned themselves to control language from the top down. The goal, of course, is not merely to control our words but our actions as well. Thus, equal treatment under the law yields to “equity” and equal outcomes; transgenderism starts with pronouns but proceeds to create an ever-evolving lexicon; and corporations stray from serving shareholders to satisfying ESG buzzwords.
None of this is new. Kings, clergy, and intellectual elites have always sought to control speech among common people, just as common people have always changed their various vernaculars from the bottom up. But in a digital age of instant communication, with English as the dominant language of business around the globe, linguistic changes happen much faster. A tiny group of ideologues can dream up “Latinx” and see it almost immediately adopted by credulous journalists, professors, and politicians across multiple countries. This is linguistic vandalism.
All of us have an obligation to resist the new political language. What Ken Smith termed “junk English” in his 2001 book of that name seems quaint now. Political correctness has been replaced by far more grim and unyielding demands of a new orthodoxy, broadly termed “woke.” Woke is nothing less than a totalizing worldview which applies critical theory (a broad social critique of history, society, and culture) to every facet of human life. It demands rigid adherence to a growing list of left-wing cultural, social, political, and economic precepts regarding inequality, race, sex, sexuality, and climate. Language is at the fore of this adherence, and the new coded words contain their own admonitions and exhortations. “Systemic” comes to mean irrefutable and inescapable, “inclusive” connotes the exclusion of certain undesirable viewpoints, and “democracy” becomes a euphemism for “when our politics prevail.”
Like it or not, language is now another battleground in the culture wars.
This issue also features David Gordon’s review of Willmoore Kendall’s The Conservative Affirmation, first published in 1963 and recently reissued by Regnery with an introduction by our friend Daniel McCarthy. Kendall never attained the fame or influence of William F. Buckley or certain other of his National Review colleagues, but his midcentury writings on populism have new life in the Trumpian, “postliberal” Right.
These times call for strange bedfellows, and as progressives veer further toward the abyss, our time for potential alliances grows short. Kendall, antiegalitarian and clear eyed, should inform any such alliance. He is not overly intellectual or ideological, and refreshingly never fell for the Lincoln myth. He shares Murray Rothbard’s antipathy for elite dominance, and sees the Left’s phony push for equality as nothing more than an attempt to install themselves as leaders of a revolutionary social order. He questions the “open society” for the same reason, as a euphemism for corporate, media, and state collusion toward (supposedly) egalitarian goals. Kendall also recognized the rising “deep state” and the growing power of the elitist bureaucratic stronghold in Washington even in the 1960s.
While the book looks promising, at his core Kendall is not for “liberty” as a political abstraction or for natural law as the basis for rights. He is, like most conservatives of his age, far too comfortable with military empire (and all its associated domestic costs) if required to defeat the Soviets. He is willing to use nuclear weapons and intervene anywhere to support American interests. But unlike the tired conservatism of Buckley and his few remaining acolytes, Kendall is interesting and vital.
As always, we appreciate everything you do for the Mises Institute and our mission.
Not Thinking like a Liberal
by Raymond Geuss, Harvard, 2022
xiv + 197 pp.
Raymond Geuss, an American philosopher now retired from Cambridge, has in his many books emphasized narrative and the genealogy of concepts, and Not Thinking like a Liberal is, fittingly, an account of how various events in his life have shaped his conceptual framework. The dominant theme of the book is his opposition to “liberalism,” which in his eyes is an expansive notion indeed. In this week’s column, I’d like to concentrate on his opposition to capitalism, which he sees as an exploitative economic system defended on specious grounds by some varieties of liberalism.
Geuss opposes especially a position I suspect many of my readers will find congenial; namely, that people have rights, including property rights, and these rights are not just the time-bound customs of particular societies, but hold universally. He says,
At the very center of all this [liberalism] is the notion of the sovereign individual, as envisaged respectively by John Locke, Adam Smith, and J.S. Mill…. A sovereign individual is a person who has free will and is capable of free consent, … whose assertions about what are in his own best interests are always to be respected, because he is the best final judge of what exactly they are. Provided his action does not directly harm another individual in one of a very small number of legally specified ways, he is to be left alone…. Such a sovereign individual is imagined as surrounded by a sphere of intimacy, his “private domain” to which access is by his invitation only. (pp. 23–24; page references are to the Amazon Kindle edition)
You might expect that Geuss would next proceed to argue against the concept of the sovereign individual, to give reasons, for example, why people do not have free will and aren’t the best judges of their own interests. But he doesn’t do this, preferring instead to “place” liberalism within the historical context in which it arose. His procedure brings to mind George Santayana’s remark “We do not nowadays refute our predecessors, we pleasantly bid them good-bye,” though for Geuss the farewell is not pleasant but hostile and condescending.
Thus, Geuss argues that if a cogent argument shows that the state has no moral authority over us, we should reject the premise on which it rests, the sovereign or autonomous individual.
[Robert Paul] Wolff’s conclusion in the book [In Defense of Anarchism] is that there is no moral ought involved in our relation to the state, hence that no state is legitimate. While not inclined to deny the conclusion, I suggest that the problems he diagnoses might lie as much in his narrow Kantian ideas about the moral ought per se as in his account of the legitimatory self-presentation of the state. If the moral ought in anything like the form in which Kant envisaged it … does not at all exist, then it is not surprising we have no moral obligations (in the requisite sense) to the state and its laws. (p. 109)
If you were to object to Geuss, “Even if you are correct in your account of the historical context in which liberalism arose, you haven’t responded to the arguments in favor of the rights of the sovereign individual,” he would stand his ground unabashed, and by this time his “reason” for doing so should not surprise you. It transpires that he is skeptical about philosophical arguments altogether. He says that one feature he dislikes of the way philosophy has come to be done
is the one which Robert Nozick described in the preface to one of his books. He says he wanted to give an argument so powerful that it would fuse the brain of those who heard and understood it and force them to accept it. Even apart from the visibly sadomasochistic element in this, it does not seem to me that an approach that conceptualizes discussion in this way, as the search for this kind of argument or refutation, is the most likely way to attain any kind of understanding of the world. (p. 9)
Geuss hasn’t noticed that the point of Nozick’s discussion is to oppose this way of doing philosophy, but never mind that.
Not only must rigorous argument be cast aside; clarity in writing isn’t a virtue either.
The second impressive thing about [Theodor] Adorno was his general agreement with [Paul] Celan on the issue of clarity; easy comprehensibility was not an invariably positive feature of discourse. Adorno, however, gave a less existential and more sociologically and politically nuanced account of the reasons for being suspicious of clarity. Everyday language is corrupt because of its integration into the existing political and economic system and, as such, is itself part of the apparatus of repression. (p. 153)
Here we at last reach the heart of Geuss’s vision and the ultimate reason for the obfuscatory rhetoric that pervades the book. Capitalism is on Marxist grounds to be condemned, and if reasoning and clarity of thought gainsay that, so much the worse.
It does seem to be the case that liberalism flourishes in the neighborhood of economic arrangements of a certain kind (“free” markets) though there is some disagreement about its real relation to such institutions. People like me believe that the connection is not fortuitous and that liberalism in general does its best to justify such institutions ideologically. (p. 24)
So vehement is Geuss’s opposition to capitalism that the egalitarian philosopher John Rawls is dismissed as an apologist for social and political inequality.
Rawls had filled a major gap that existed in American ideology … by providing a theory which permitted a population deeply committed to massive real inequality to feel good about themselves, because the obscene differences in wealth, power, and life-chances in their society were mere surface phenomena, which anyone with a deep understanding would see were just expressions of profound human equality. (p. 118, emphasis in original)
This of course rests on a gross misreading of Rawls’s difference principle.
Geuss tells us that “not all opinions should be tolerated. This is one of those things which is so obvious it ought not to require mention, and the fact that it would even seem to be worth stating is a sign of how an exaggerated and distorted version of liberalism has come to inform our unreflective thought” (p. 41). When you recollect that Geuss has elsewhere praised the political wisdom of Vladimir Lenin and the ethical insight of the French Maoist philosopher Alain Badiou, I do not think you will find it difficult to guess which opinions Geuss wants to suppress.
In presenting her economic plan, Liz Truss failed spectacularly on one thing: cutting spending. Otherwise, a "tax cut" is not a tax cut at all.
Original Article: "The Rise and Fall of Trussonomics"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
It can be argued that the world has reached the sorry state it’s in today largely because academics, politicians, “distinguished experts,” and “recognized authorities” did not have the humility to admit their own mistakes or to at least recognize the limits of their knowledge. Of course, this is far from a new affliction in societies and political systems. Hubris was among the most terrible sins that the ancient Greeks warned against, and there have been too many narcissists in positions of power to count since the emergence of the first organized societies. People who believe they know best, not just for themselves, but everyone else too, are naturally attracted to roles that would allow them to impose their will, their morality, and their values on their neighbors.
However, one also can argue that the problem is much more prevalent today than at any other time in our history. The modern news landscape, both mainstream and social media, the supercharged propaganda machines of all developed nations, and our public education system, ensure that dangerous figures will hardly be challenged by anyone once presented to the public as de facto, “recognized,” and “widely accepted” authorities. This is also true of politicians, but things are infinitely more perilous when it comes to science. The average citizen can more easily question a political stance directly, whereas it can be impossible to judge the merits of a scientific one without detailed and specific knowledge.
Therefore, it is much easier to “sell” any academic, from professors to junior researchers, as an “authority,” one that must be obeyed and never questioned. They can freely give us all advice on how to live our lives, and they can even dictate policy, despite the fact that usually that kind of thing tends to have side effects in areas they have absolutely no clue about. Once placed on their pedestals, they become “anointed.” They don’t even have to share their qualifications, their accomplishments, or any testimonies from their peers.
Their professional records are irrelevant; well, their failures, at any rate. After all, how could you, average Joe, even begin to use your untrained, unspecialized brain to judge the particulars of their CVs or their research? After all, what do you know about climatology, about infectious diseases, or about macroeconomics? Isn’t it hubris on your part to dismiss the decades of dedication and work that someone else invested in a single subject and to believe that you know better?
These would be fair arguments if we lived in an unbiased world where open debate and independent thinking were actually encouraged. In that world, multiple experts would engage in public exchanges and challenge each other by presenting relevant, contradictory findings and evidence for different theories. And every viewpoint would be explored and scrutinized, in a grand competition of ideas. Those hypotheses and models that matched real-life observations and had more accurate predictive value would be promoted to theories, and only then could we base our policy making upon them. But just as easily, old ideas would be consigned to the ash heap of history once better ideas came along. This is the scientific method, the product of reason; everything else we see today is the product of a cult mentality.
And it yields the results one would expect: catastrophically wrong “theories” with devastating consequences for entire nations, even the entire world. We’re seeing much of this play out in real time today. The demented fanaticism of the West and its leaders’ monomaniacal obsession with the “green” agenda have led to an energy crisis like no other. In Europe, guided by “expert advice,” the policies of the last decade and the premature transition away from fossil fuels have left most countries almost entirely dependent on imports. Skyrocketing electricity bills have already crippled countless households and this self-inflicted crisis even has the potential to cost actual lives this winter.
Another area where this phenomenon is painfully obvious is the “dismal science.” The field of economics has arguably produced some of the most dangerous “authorities” the world has ever seen. Once placed in a position of power, in a central bank or in a finance ministry, for instance, the chaos they can wreak is frightening and truly lasting. This is because the general public really has no understanding of even the most basic economic principles and no grasp of monetary history, and it is justifiably intimidated by the jargon used. This is why central bankers can deflect the blame so easily each time their policies go awry and why “respected economists” can sell nonsensical but popular ideas as “fact,” just as we saw with “modern monetary theory.”
A rare exception can be found in Austrian economics. Economists of this school understand very well that the economy is an extremely complex, living organism and that there is no such thing as a homo economicus or a perfectly rational actor that behaves exactly as a model predicts. No, there are no such creatures, we only have humans to work with, for better or for worse. As Walter E. Block put it in a recent article:
I think the steadfast refusal of Austrians to engage in economic predictions is consonant with our limited powers. We can explain economic reality and understand quite a bit of it, but unless “all else is constant” which it never is, we cannot predict, at least not qua economists. Intellectual modesty is of great value. Do I predict that one day mainstream economists will come to see the error of their ways in this regard? I hope so, but, as an Austrian economist, I make no predictions either way.
The tech sector in the US has benefitted from more than a decade of ultralow interest rates and easy money. But now it looks like the easy-money era may be ending—at least for now—and that means problems for the sector so long wedded to cheap loans.
Just a year ago, the ten-year Treasury’s yield was 1.4 percent. This month, however, the ten-year’s yield is up to over 3.6 percent, and throughout the economy, debtors are finding that debt service isn’t nearly as cheap as it used to be. Employers in the tech sector are responding as one might expect. Meta/Facebook has announced eleven thousand layoffs. Amazon will soon lay off ten thousand employees. Twitter has laid off at least thirty-seven hundred employees. Stripe, Microsoft, and Snap have each laid off about a thousand workers. Salesforce and Zillow have laid off hundreds. Dozens of other firms have slowed or frozen hiring.
Thanks to rising debt costs, employers need to cut costs, but many employers will soon be facing declining revenues as well. Given that a multitude of indicators point toward an approaching recession—the yield curve is now the most inverted it’s been since 1982—this is likely just the beginning.
What we’re witnessing is the end of the latest tech bubble, and what seemed like rock-solid companies set to expand effortlessly forever will suddenly be characterized more by cost cutting, falling revenues, and a hard slog in search of more capital.
The end of easy money will also separate the real innovators and entrepreneurs—people who build real value—from the big-talking frauds who only look smart or productive when they can just borrow more cheap money to kick the can of their failing and stagnating ventures down the road.
Unless the central bank and governments intervene to provide bailouts and backstops, the industry will face a much-needed reckoning. This will help clear out more than a decade of malinvestments and bubbles propping up top heavy and inefficient companies that could never survive without the artificially cheap credit provided by asset purchases and ultralow–interest rate policy at the central bank.
Rising Interest Rates, Falling Valuations Until very recently, interest rates had been declining for decades in the United States, and that has meant companies, at any given time, have generally been able to bank on cheaper debt not too far down the road. This has increased companies’ valuations and has made it easier for companies to find investors.
Even for companies that never—or almost never—turn a profit, cheap money has meant that the day of reckoning can simply be pushed further into the future. In many cases, we call these zombie companies: they don’t have real value, but they can stay “alive” by paying off older, more expensive debt with new cheaper debt.
But things are very different when easy money starts to get scarce. As Ryan Browne at CNBC recently noted:
Higher rates spell challenges for much of the market, but they represent a notable setback for tech firms that are losing money. Investors value companies based on the present value of future cash flow, and higher rates reduce the amount of that expected cash flow.
As a result,
Venture deal activity has been declining…. Not all companies will make it through the looming economic crisis—some will fail, according to Par-Jorgen Parson, partner at VC firm Northzone. “We will see spectacular failures” of some highly valued unicorn companies in the months ahead, he told CNBC.
The years 2020 and 2021 saw eye-watering sums slosh around equities as investors took advantage of ample liquidity in the market. Tech was a key beneficiary thanks to societal shifts brought about by Covid-19, like working from home and increased digital adoption…. In a time when monetary stimulus is unwinding, those business models have been tested.
Part of the reason investors are now less interested in “unicorns” is that as interest rates rise, investors are less desperate to search out yield even in the most unproven and risky corners of the economy. For example, when government debt and other low-risk investments are paying next-to-zero yields, investors will be much more aggressive about finding riskier investments that pay at least something above zero. That includes high-risk trendy unicorn companies that promise big returns. But, as Treasurys and similar investments begin to promise higher yields—as they are doing now—there’s less pressure to dump money in whatever flavor of the month is being put forward as the next big thing for investors. Moreover, in times of easy money, investors have more cash to throw around.
Once the cheap money regime ends, however, newly reticent investors become more interested in actually analyzing the fundamentals of firms seeking investors. That means firms will have to actually show they’re efficient and only hiring employees who actually create value.
Easy Money Enables More Waste For many top-heavy companies, that means layoffs. It’s why Meta’s Mark Zuckerberg recently complained that “realistically, there are probably a bunch of people at the company who shouldn’t be here.” Zuckerberg went on to say he would deliberately be “turning up the heat” for employees in the hopes that the less committed would simply quit. (Meta shares are down more than 50 percent this year, and Meta has lost revenues as Zuckerberg’s obsession with the metaverse has not been especially popular with consumers.)
Elon Musk has been in the midst of something similar at Twitter, firing thousands of employees, and demanding that those who remain be prepared to work long hours. While Twitter employees and ex-Twitter employees have been whining continually online about how everything was wonderful at Twitter until Musk showed up, the reality is that Twitter has only ever had two profitable years (2018 and 2019) and is neither efficient nor innovative.
Moreover, it’s certainly not difficult to see why Zuckerberg and Musk would want to trim the fat if recent videos about “a day in the life” at Meta and Twitter are true. The two now notorious videos show young female employees walking around Meta and Twitter offices showcasing how little work they do and how opulent the office perks are. Perks apparently include complementary gourmet food, red wine on tap, and free cappuccinos. Last May, Project Veritas reporters captured a Twitter senior engineer bragging about how little he works:
Basically went to work, like, four hours a week last quarter. And that’s just how it works in our company…. [E]ssentially, like, everyone gets to do whatever they want, no one really cares about, like, [operating expenses].
The engineer contrasts this approach at Twitter with “capitalists” who “care about numbers or care about how to make the business more efficient.”
If true, it’s all a perfect illustration of how the age of cheap credit has made it possible for companies to be highly valued even in the midst of senior employees who are essentially dead weight. As debt costs rise, labor costs must fall in many cases. That makes employees who work a few hours a day ripe for trimming.
These companies are probably looking at more hits from the revenue side as well. David Zaslav, CEO of Warner Bros. Discovery this week warned that the advertising market is worse now than at any time during the pandemic slowdown of 2020.
Yet again, we find that as borrowing costs rise, companies have less money to spend elsewhere. Advertisers have reduced spending, and this has meant hits to the valuation of media companies like Warner Bros. Discovery. This extends to social media companies as well.
Years of Malinvestment The story of the last decade has in many cases been rising valuations for companies that often lose money, hire employees who barely work, and simply rake in the cash that yield-starved investors throw at them.
In other words, much of the tech sector has all the markings of a classic bubble and the effects of years of malinvestment. The lucky business owners and employees on the receiving end of malinvestment get to live high on the hog of cheap money with rising wages, luxurious offices, and never ending “growth.” Workers and owners alike can then pat themselves on the back about how brilliant they all are. But much of it is an illusion and its existence depends largely on many years of central bank interventions designed to force down interest rates, prop up asset prices, and essentially print money to keep liquidity flowing unceasingly to firms via investors. Yet, when price inflation finally forces the central bank to allow interest rates to rise again—as is now happening—the music stops, and it seems all the brilliant geniuses running tech companies weren’t quite so efficient, profitable, or clever after all.
Firebrands like Marjorie Taylor Greene and Matt Gaetz demand a GOP-controlled Congress hold DC villains accountable. If the GOP refuses to treat Anthony Fauci like the Democrats have treated Steve Bannon, the party remains controlled opposition.
Original Article: "For the Midterms to Matter, the GOP Needs More MTG, Less McConnell"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
The Federal Reserve is on pace to lose somewhere in the neighborhood of $100 billion over the next year to eighteen months, as the yield on its portfolio of Treasurys and mortgage-backed securities is now being surpassed by the interest it pays banks to hold reserves in their accounts at the Federal Reserve (this practice began in response to the 2007–08 financial crisis as an enhanced means of controlling liquidity). For the past decade, the Federal Reserve’s ultralow interest rate policies meant it could hoover up plenty of debt, to the tune of $8 trillion, and still send a reasonable return to the Treasury at the end of each fiscal year.
Hey, this may be crazy, but at least it’s paying for itself, right?
No more.
With the federal funds rate now rising at an historically unprecedented clip, the Federal Reserve’s portfolio will be in the red for the foreseeable future. And depending on whether the Federal Reserve is able to keep to its projected peak federal funds rate over the coming year, a questionable proposition by Jerome Powell’s own admission on Wednesday, that current projected loss could grow significantly, creating an unknown liability on the Fed’s balance sheet in coming years. While the Fed will simply recategorize the now negative cash flow as a “deferred asset,” the fact that its portfolio is no longer producing a return has multiple consequences.
First, it will raise borrowing costs for the federal government. Albeit a marginal contribution to the public debt crisis, all things considered, the Fed has sent almost a trillion dollars to the Treasury over the past decade and a half through the net income generated by its portfolio, according to the Wall Street Journal.
Second, the abovementioned deferred assets would have priority over any Treasury claims to the revenue generated by the portfolio in the future and would need to be paid out before any funds could be dropped in the government’s coffers.
Lastly, it puts pressure on the Fed to keep soldiering on with quantitative tightening. Though the Fed’s emergency credit facilities have little impact on reducing inflation, they have forestalled multiple liquidity crises since they were first introduced. So reliant has the market become upon them that it is difficult to say what would happen to market confidence were it recognized that their usage in a higher interest rate environment will necessarily be more constrained or perhaps not even possible.
As an example of how the interest on a large pile of debt stacks up quickly, look no further than the increasing interest being paid on the public debt, which is exploding in relative terms.
In fact, quantitative tightening, the shrinking of the Fed’s existing portfolio, has continued in lockstep with the Fed’s series of rapid rate increases since the beginning of the year. And unlike the European Central Bank, which has already cried “uncle!” Powell has signaled his foot is still firmly on the gas.
Where we’re going is difficult to say.
Rumor has it doves like Lael Brainard are agitating for a pivot, but having led the campaign for keeping rates too low for too long, their credibility on the all-important Federal Open Market Committee, which is responsible for setting the interest rate, is in understandably short supply.
For his part, Powell’s message on Wednesday was a doubling down on his comments at Jackson Hole two months ago. Repeating the now familiar lines about the need to prevent fear of future inflation becoming a self-fulfilling prophecy, he refused to give credence to the wishful thinkers still hoping for, if not an end-of-year pivot, at least clear guidance on whether a pivot is in sight.
The fight against inflation will carry on, he said. With the labor market still historically tight, gross domestic product not negative, and earnings coming in largely above revised estimates, Powell has the green light.
For the technicians out there, don’t bet on a Santa Claus rally in markets this year.
Marxist regimes used to slap the word "anti-revolutionary" on everything the regimes disliked. Today's regimes use the words "undemocratic" and "anti-democratic" in the same way.
Original Article: ""Antidemocratic" Just Means "Something the Regime Doesn't Like.""
This Audio Mises Wire is generously sponsored by Christopher Condon. '
[Chapter 8 of Per Bylund's new book How to Think about the Economy: A Primer.] The Boom-Bust Cycle The economy’s constant flux is not random change but adjustments to the production apparatus in the pursuit of creating value. Value is a moving target because consumers want change over time and innovations and new opportunities. The constant adjustments mean the market is best understood as a process.
There are two fundamental tendencies in this. First, there are the adjustments made to existing production intended to keep efforts aligned with expected consumer value. Without these, production would become ever more misaligned with what consumers want. We would see falling living standards as a result.
Second, entrepreneurs try innovations that they imagine will create new value for consumers. When these are successful, they disrupt and replace already existing production. When production is revolutionized in this way, the economy grows and our standards of living rise.
The overall process is dependent on a functioning price system, which provides economic actors with the information they need to respond rationally to changes (we saw how this works in chapter 7). However, if prices are manipulated and give false information, entrepreneurs will make decisions on that faulty information. This means entrepreneurs are more likely to fail in their undertakings, but it also means entrepreneurs’ actions introduce errors into the production apparatus. The economy, as a result, becomes distorted.
The boom-bust cycle is a particular type of distortion in which manipulated price signals bring about malinvestments that produce an artificial, unsustainable boom followed by a bust as the errors in production become apparent.
The Rate of Return and Capital Investments For any investment, it is important to think of the expected return as a rate rather than an amount. Why? Because it is the relative outcome that determines how good the investment is. A $1 million profit is not much if it comes from a billion-dollar investment. But $1 million is an enormous return if the original investment was $100,000. The profit in dollars is the same, but the latter is ten thousand times as much as the former.1
Thinking of profit in terms of rates of return makes it easier to compare different projects. It means an entrepreneur—and investors in the entrepreneur’s business—can compare alternatives that are different in every way. For example, a new airline would require a massive capital investment to acquire the planes, hire crews, and get access to airports, whereas a new lawn service requires a much smaller initial investment. But it could be that the larger investment is still expected to provide a much higher rate of return, which means that it makes more economic sense—even though it requires much more capital.
As we’ve discussed, market profits correlate with consumer value. An investment earns a higher return because of its greater value to consumers. This means we are all better off if the investments made get as high returns as possible.
A higher rate of return also means an entrepreneur can more easily borrow investment capital. Consequently, very capital-intensive projects (such as an airline) can still get the needed financing even though they are very expensive up front. And the entrepreneur can easily calculate whether the cost of capital is worth it. For example, if a project’s return will be 7 percent and a loan from the bank can be had at 5 percent interest, then the expected net gain is 2 percent. It means the entrepreneur can also compare this net 2 percent with, for example, what a much less capital-intensive investment (such as a lawn service) would earn—even if he would then not need external financing. If the lawn service is expected to provide a net return of 4 percent, the entrepreneur would not choose to start an airline. Its rate of return is only half of what he can make from his lawn service (2 instead of 4 percent).
But imagine if the interest rate were only 1 percent. Now the airline’s return is 50 percent higher2 than the lawn service’s, even though nothing else has changed. In this situation, we would expect entrepreneurs to start airlines rather than lawn services because that is where they will make more money—despite taking out loans for the investment. It takes more productive capital to start an airline, but this is not an issue at the lower interest rate.
If the difference between the rates of return is high enough, we might also see entrepreneurs sell or discontinue their lawn services to instead run airlines and other more capital-intensive businesses. This would be an appropriate economizing shift in investment because the airline industry provides more expected value to consumers (reflected in its higher rate of return). The existing capital would be invested where it can be used most productively in the service of consumers.
A higher rate of return is not only due to lower costs. It can also be the result of higher value creation. Lower costs and higher value creation can both increase the rate and vice versa. It is the expected bottom line relative to the investment needed that counts when making investment decisions.
However, even if the projects’ expected net rates of return are the same, their economic situations may not be. This is another example of how the market empowers actors by lowering the bar: an entrepreneur does not need to know why the rate of return is high to make an investment. But it makes a difference when we try to understand the economy. For example, when the interest rate is 5 percent, an 11 percent expected return on highly capital-intensive investments in air travel makes their net return 50 percent higher than the 4 percent return on lawn services.
But the economy is different. In the case of an 11 percent return and a 5 percent interest rate, the high rate of return is due to high expected value creation. The high interest rate suggests capital is scarce, which is why banks can charge a high interest rate. To attract investments—and therefore capital—airlines are expected to create more value. We saw this above: when airlines’ rate of return was only 7 percent, lawn services earned a higher net rate of return. When airlines’ rate of return rose to 11 percent, lawn services earned a lower net rate of return than airlines. Investors were then incentivized to pull their money from lawn services and other investments and put it in airlines to earn higher profits. This activity shifts capital that is already in use toward better (more value-creative) uses: consumers gain as more value is produced using the same resources.
In the case of a 7 percent return and a 1 percent interest rate, the interest rate is lower because there is more capital available for investments. There is more capital available because people have chosen to consume less and instead save more for the future. So production of consumption goods also falls. The economy therefore can support more investments in addition to those that are already underway. Consumers gain as more capital is invested toward producing goods (which will be available in the future). The lower interest rate allows unused capital to be put to use, although this does not preclude shifts from other lines of production. The added investments increase the overall output of the economy.
The rate of return is simply an indication of an investment’s added value. It does not matter whether this rate changes due to fluctuations in cost (lower interest rates) or in value (higher expected ticket sales). What matters to the entrepreneur is the expected rate of return, which approximates the relative value added to the economy. Higher value production and lower production costs both benefit consumers.
The Cause and Nature of the Artificial Boom Imagine that the interest rate falls, as above, from 5 to 1 percent but there is not more capital available to invest. How could that happen? If banks create new currency and offer it as loans, then the interest rates they charge will be competitively bid down, pushing the market interest rate below where it otherwise would be (for example, 1 percent instead of 5 percent). But this is not a matter of different economic conditions—there is not more capital available, only more money in the form of loans, to buy the resources that entrepreneurs need to start and finish their production projects. So, the interest rate signal that entrepreneurs rely on for economic calculation is artificially low. Therefore their decisions and actions will be based on this faulty signal.
As above, the lower interest rate means more investments. In our example, entrepreneurs will create new airlines (and expand existing airlines’ operations), as this industry appears more profitable, relatively speaking. As entrepreneurs with borrowed purchasing power (the new money) flow into the market and attempt to establish new production, they increase demand for capital and bid up prices. As these investments happen primarily in the capital-intensive airline industry, demand increases specifically for planes, crews, and other resources used in this industry. Thus, airplanes’ price tags are higher and airline employees, pilots, and flight crews will earn higher salaries.
Their customers’ increasing willingness to pay signals airplane manufacturers to ramp up their production. As the manufacturers place orders for aluminum and other materials, and start hiring more engineers, their bids for those resources increase their respective prices as well. This causes a boom in investments, and prices go up across the stages of production: airlines, then plane manufacturers, then aluminum producers, then miners. Each stage sees increased demand, which means producers can charge higher prices and earn higher profits, which motivates them to further expand their operations. These conditions also motivate other entrepreneurs to invest in these industries to capture part of the profits. These increased investments are all appropriate, given the signals: the prices go up, suggesting the supply was inadequate; producers underestimated the demand.
The new and expanding airlines, which are more willing and able to pay, outcompete other users of those resources. Other commercial aluminum users, such as soft drink producers, face higher prices and lower availability, which affects their profit margins. In response to the higher prices, these producers re-evaluate their plans to economize on their aluminum use and consider alternatives. As a result, soft drink prices could go up or soft drinks might start to appear in glass or plastic containers instead of aluminum cans.
That the aluminum that would have been available to soft drink producers is being redirected toward airplane manufacturing is not as crazy as it might seem. This is where the aluminum, according to the market’s price signals, should create most value for consumers.3 We would expect proper market prices to shift production toward where it does most good as entrepreneurs compete to satisfy consumers (as we saw in chapter 7).
But there is a problem: the higher prices in airplane production result from the artificially low interest rate brought about by banks’ creating new money and expanding credit—not greater availability of capital. Therefore, the whole shift in the economy toward airplane production, including all investments made to support this production, and therefore away from other lines of production that appear relatively less profitable, constitutes malinvestment.
Malinvestment means that investments are structurally distorted: some areas of the economy see over-investment whereas others see underinvestment. The overinvestment in airlines also means overinvestment in airplane manufacturing, aluminum production, and mining, intended to meet expectations of higher demand. These investments are made to increase production capacity to meet the expected greater demand for air travel (due to its greater anticipated value). As investments soar and prices go up in anticipation of the higher demand, these industries experience a boom.
These same industries, at least in our example, also expanded in the same manner when the interest fell due to greater availability of productive capital. The difference is that this new expansion is using resources that are not readily available but rather are being shifted away from other industries where consumer demand remains largely unchanged. The change is therefore not a matter of the economy shifting from one line of production to another in response to expected changes in what consumers value. Instead, there is a greater demand for productive capital and labor overall as entrepreneurs establish new lines of production, motivated by the artificially lower interest rate.
From the perspective of consumer value, this boom is caused by overinvestment, in response to the faulty signal, in airlines and those higher-stage production processes that support expanding air travel, and, therefore, relative underinvestment in other lines of production. Artificial booms like this, caused by the expansion of credit, can occur in longer production projects in general. Such overall malinvestments distort the economy’s production apparatus: the outputs are no longer aligned with what consumers want most (as imagined by entrepreneurs).
The Turning Point The boom is unsustainable because it largely consists of malinvestments, not because the economy grows rapidly. What we call the business cycle is the sequence of an unsustainable boom followed by the inevitable bust—a bubble that then bursts. This is different from the sound progression of an economy. It helps to contrast the two.
First, let us look at sustainable growth. We saw above that the interest rate reflects the availability of capital for productive investment. When more capital is made available, the interest rate falls, and vice versa. Specifically, this happens when consumers are less eager to buy and consume goods in the present and prefer to save a greater portion of their wealth for the future. Their time preference is lower, meaning they have longer time horizons in their valuations—they look more to the future than before. As a result, entrepreneurs that produce consumer goods face falling demand and lower profitability, and therefore have an incentive to scale down their operations and look for other opportunities. Some of them may go out of business. As a result, entrepreneurs overall reduce the production and sale of consumption goods.
This frees up productive capital for new investments, which are now feasible and increasingly profitable, as the increased savings force the interest rate down. So entrepreneurs invest more in production processes that produce goods that will be available for sale in the future. Overall, this shifts productive capacity away from production for present consumption to production for future consumption. Entrepreneurs are responding to price signals and abandoning production with low profitability to seek the higher expected rates of return in production for the future. This is quite in line with consumers consuming less and saving more (they are postponing consumption). In fact, the shift in production is a matter of adjusting production to where it is expected to produce greater benefit for consumers.
The unsustainable boom is different. Here, entrepreneurs increase investments in production for future consumption based on the artificially lowered interest rate. In other words, there has been no corresponding shift in consumer behavior—instead, the lower interest rate makes consumers less eager to save (they earn lower interest on their postponed consumption) and thus encourages consumption in the present. This causes tension in the production structure, between production that serves present consumption (which is going up) and investments that serve future consumption (which is expected to go up).
On the one hand, entrepreneurs producing for present consumption see no falling demand because consumers have not shifted away from consuming. Their products’ profitability is not falling so why would they cut back their activities? Thus, these entrepreneurs continue to compete for inputs and keep placing orders for them.
At the same time, the lower interest rate causes an increase in investments for future production. The higher stages of production experience greatly increased demand as they receive orders from both the production processes serving consumers in the present and those undertaken to serve them in the future. Remember, all of this is based on the faulty signal. As there is not more capital available but there are many more buyers, the prices are bid up to very high levels. This is sometimes called an asset price bubble.
Although competition between the new future-oriented and the old present-oriented may seem like a good thing, the faulty signal pulls the economy in different directions. The prices of production factors are bid up as a result of the overinvestment in the higher stages of production (in our example, airplanes, aluminum, mining). These price increases are based on the faulty signal and therefore detached from genuine expected future demand for air travel. These price increases include wages for workers in these stages, who then have more money to spend on present consumption. With an artificially lowered interest rate, there is less incentive to postpone consumption. Therefore, a greater fraction of earned wages, which are now also higher because of the boom, is spent on consumption goods—increasing demand for goods in the present too.
In sum, sustainable growth is caused and supported by a shift in consumer behavior: decreased demand for consumption in the present that makes capital available for investment in the higher stages of production. In the unsustainable boom, in contrast, there is no shift but rather added investments without additional productive capital. Thus, the production structure reflects higher demand for consumer goods both in the present and the future, based on the assumption that there are sufficient capital goods available to complete all these new production projects. Another way of putting this is that the economy, through the actions of entrepreneurs who were deceived and misled by the artificially low interest rate, both consumes and invests the capital that is available. It should be obvious that this is not possible. There is not enough productive capital to support both.
The unsustainable boom is thus based on production that requires resources that do not exist. Many of those production processes, especially in the higher orders (far from consumers), cannot be completed because the capital necessary is too scarce. This does not mean that factories suddenly find themselves without resources, although shortages may occur. More likely, asset prices are bid to such high levels that many investments no longer appear profitable. Entrepreneurs then discover that they have made significant errors in their calculations and are forced to abandon their investments.
Entrepreneurial error is commonplace in the market, but the errors do not usually cause boom-bust cycles. What is unique to the business cycle is that there is a massive cluster of simultaneous entrepreneurial errors. The reason, as we saw above, is that entrepreneurs have been misled into acting as though there were capital available for their production projects. But there is not. The expansion of credit, not availability of capital, lowered the interest rate to a level that does not reflect the real availability of capital for investment.
This raises the question of why entrepreneurs allow themselves to be fooled. Do they not realize that the interest rate is artificially low? Maybe they do. But this does not matter because they still expect to benefit from the lower cost of borrowing. Why would they not pursue projects that they expect to be profitable? Even if they were familiar with business cycle theory and knew that the economy is in a bubble, the bubble is in fact highly profitable. To not expand one’s business as the bubble inflates is akin to turning down profits. This may not sound like a huge problem, but a business’s investors will likely feel differently. Also, competitors cannot be expected to turn down profits, so inaction could allow them to expand their market share. As a result, not expanding during the bubble is to risk one’s business.
There is also the issue of the inflow of entrepreneurs during a bubble. As prices rise, more people see an opportunity to earn profits—and a reason to leave their current employment. Thus, the boom lures those who would otherwise not enter the market as investors. Their lack of experience suggests they are more prone to make errors and thereby contribute to overall malinvestments.
The Corrective Bust The bust comes quickly. Even though the bubble itself might be easy to spot, it is difficult to predict exactly when it will burst. The actual turning point can be triggered by seemingly unrelated events that put additional strain on specific malinvestments and cause them to fail. As the production apparatus is already strained by high demand yet firmly high prices, one failing business can easily drag down its customers and suppliers, who can no longer expect to be paid for services rendered. This causes a cascade of failures that reveals the extent of the malinvestments in the economy.
The mass of failing investments, and therefore failing businesses and jobs lost, is the bust. But note that the bust is not a separate phenomenon: it is already embedded in the boom, whose investments are unsustainable. This is why we refer to the boom-bust sequence as a cycle: the malinvestments that cause the boom must be undone for the economy to get back on track. It is not the case that the boom is a sound development and that the bust is avoidable; the boom is not real economic growth but an illusion. Consumers expected something else. Entrepreneurs made investments that were not motivated by genuine value expectations but facilitated by a corrupted signal of capital availability: the artificially low interest rate.
The bust releases the capital goods malinvested in processes that do not serve consumers so that they can be invested where they can do more good. In other words, other entrepreneurs get a chance to acquire the capital to pursue consumer value—the failures are necessary for the malinvestments to be revealed and then replaced by sound productive investments.
For the bust to restore sound production, however, the interest rate must be allowed to increase. If it is kept artificially low, this will only prolong the corrective process, as the new entrepreneurs will also be misled and structural errors therefore persist.
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- A profit of $1 million from an investment of $1 billion is a 0.1 percent return, but on a $100,000 investment, it is a 1,000 percent return. Thus, if the $1 billion were instead invested in smaller projects at a 1,000 percent return, it would generate $10 billion in total profits. That’s ten thousand times the profit of the large investment.
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- The return on the lawn service remains 4 percent, whereas the airline’s expected rate of return is now 7 percent less the cost of the capital at 1 percent. That’s 50 percent more than the lawn service (6%/4%=150%).
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- Our example assumes soft drink producers do not expect sufficient (higher) demand to expand production, but if they did, they too might exploit the lower interest rate to invest in expanding output through, for example, automation. This would further increase demand in the higher stages of production, as both airplane manufacturers and soft drink producers bid to acquire more aluminum.
Ryan McMaken and Tho Bishop talk with economic anthropologist Jovana Diković about how a focus on "solving" global warming endangers the food supply for much of the globe, especially in the developing world. Even rich nations face a world of less food at higher prices.
Use promo code ROTHPOD for a 20% discount on Ryan McMaken's new book Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities: Mises.org/RR_108_Book
Recommended Reading "Environmental and Political Elites Are Destroying Food Production for Climate Goals" by Diković: Mises.org/RR_108_A
"Eat or Heat: Europeans Already Are Facing Previously Unthinkable Dilemmas" by Claudio Grass: Mises.org/RR_108_B
"Regime Pseudoscientists Enforce Climate Change Narrative" by Michael Rectenwald: Mises.org/RR_108_C
"Germany's (and Europe's) Self-Inflicted Upcoming Energy Crunch" by Weimin Chen: Mises.org/RR_108_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
As mortgage rates have risen this year, the demand for home purchases has fallen. That has spelled trouble for the home construction business. Homebuilder confidence dropped for the 10th straight month in October. The decline in builder sentiment reflects what economist Ian Shepherdson describes as "housing ... in free fall. So far, most of the hit is in sales volumes, but prices are now falling too, and they have a long way to go.” The University of Michigan's index of buying conditions for homes has fallen to the lowest level since 1982.
Meanwhile, as of this week, mortgage demand for home purchases is "down 41% from a year ago and close to a seven-year low."
Naturally, this has been a sizable drag on the sale of newly constructed homes. According to the Census Bureau, new single-family houses sold in the US in September were down by 17 percent, year over year. They were also down by 10.9 percent from the previous month. Overall, sales of new homes are down 42 percent from the peak in August of 2020.
Nor does it look like construction of multifamily housing is likely to make up for the decline in single-family. Although it might stand to reason that a decline in demand for purchase housing could lead to more building of rental housing, that doesn't appear to be the case. According to Housing Wire, the "historic multifamily housing construction boom is already fading." This is partly due to the fact that rising interest rates are not limited to mortgages for home buyers, and "those same interest rates pushing would-be homebuyers to the sidelines are also hurting [muiltifamily] developers."
It's getting more expensive to borrow money up and down the food chain in housing, and that's slowing down new construction of both for-purchase and for-purchase housing.
For anyone concerned about the availability and affordability of housing, this is bad news. The US is currently in the midst of a housing shortage in the sense that builders aren't building enough to keep up with population growth. And now, it appears that the short-lived boom in construction that launched in recent years will soon be over.
The combination of the boom-bust cycle, coupled with mounting government regulations driving up the cost of construction will further drive up the cost of living for ordinary Americans.
A Tale of Bust and Boom New housing construction has always been sensitive to business cycles. Over the past 60 years, it's not hard to find annual swings in construction growth ranging from negative twenty percent to positive twenty percent.
Source: US Census Bureau.
Moreover, the negative swing on housing construction in the years surrounding the 2008 financial crises were especially severe. Construction began to head downward in 2006, with a drop of 12 percent. This was followed by three years of even bigger declines, culminating in a 38-percent drop in 2009.
New housing construction did not return to the post-1990 average again until 2020.
In other words, the end of the housing bubble in 2009 had an enormous impact on the industry and led to more than a decade of below-average home production. In spite of enormous amounts of new money creation, stimulus, and ultra-low interest rates, the home construction industry did not bounce back. As noted in National Public Radio earlier this year, the slow pace of new housing construction did not start with the current economic cycle but dates to an earlier easy-money-induced bubble:
[T]he roots of the problem go back much further — to the housing bubble collapse in 2008.
"What I call a bloodbath happened," says [builder Emerson] Claus. It was the worst housing market crash since the Great Depression. Many homebuilders went out of business. Claus was building houses in Florida when the bottom fell out.
"A lot of my tradespeople found other work, went and got retrained for new jobs in law enforcement, all sorts of jobs," says Claus. "So the workforce was somewhat decimated."
A few years later, as Americans started buying more homes again, building stayed below normal. And that slump in building continued for more than a decade. Meanwhile, the largest generation, the millennials, started to settle down and buy houses.
This trend was then only made worse by the shipping and logistical bottlenecks brought on by the government-imposed covid lockdowns. These have meant a shortage of lumber, appliances, electrical equipment, and cabinetry. The National Association of Home Builders concluded in June "shortages of materials are now more widespread than at any time since NAHB began tracking the issue in the 1990s."
The Role of Monetary "Stimulus" Monetary inflation has fueled shortages in both labor and supplies as stimulus programs have driven demand by both businesses and consumers to new heights. Yet, since this demand is based on the appearance of newly printed money, and not on rising real wealth or productivity, we're seeing more demand for a stagnating supply of goods and services.
The result has been less building even as population has continued to grow. The result, of course, has been a higher cost of living—just as we would expect from an inflationary boom.
The data on home starts and population backs up the anecdotal evidence. For example, if we look at annual housing starts totals the trend has been downward since 1960. Beginning in 1983, every new trough in the housing construction downcycle has been lower than the one before it.
Source: US Census Bureau.
This has only been slightly mitigated by slowing population growth, and we have seen an upward trend in the number of new US residents per new housing start, even as the size of the US household has fallen. In other words, the number of new residents per new housing start has grown over time. From the 1960s through the 1980s, the average number of new Americans per new housing start was approximately 1.6. Since 1990, on the other hand, the average has been 2.2. Since 2008, the average has been 2.5. So, there are progressively fewer and fewer new housing starts per person.
Source: US Census Bureau.
After new housing construction began to collapse in 2006, the number of new residents per new housing unit surged to nearly 5, a new high.
On the other hand, it is true that in 2020 and 2021, new housing construction reached the highest levels seen since 2007. Moreover, the gap between new residents and new housing was eliminated. This was thanks to a sizable decline in new population growth created by covid-era border closures and a fall in fertility rates. Thus, the number of new residents per housing unit then collapsed below 1 for the first time in decades.
But, this trend is unlikely to continue since "after a construction boom in the second half of 2020 and 2021, the home building sector is contracting." Population growth is also returning to more normal rates. It does not look like boom of the last 18 months will be enough to reverse the worsening situation in housing production.
What can be done to reverse the trend? Last month, we explored some ways that state and local regulation has driven up the cost of construction, thus limiting the total number of units produced. Many of these regulations will only continue to push up prices while reducing affordability for first-time buyers.
It's also important to note the effects of repeated boom-bust cycles on total housing production. One might be tempted to assume that new rounds of monetary stimulus—say, the quantitative easing of the past decade—would easily reverse a collapse in housing construction and will bring new highs in housing production. That is not what has happened, however. Rather, relentless monetary stimulus since 2008 has not been sufficient to address the effects of malinvestment and regulatory costs over the past 20 years. Over the past six months, new housing starts have flatlined compared to 2021, and we may even see housing starts end the year down in 2022. The result is a continuation of an ongoing decline in housing production. Not even the runaway money printing of the past two years has been enough to bring home construction back to what was more normal before the housing bubble and resulting financial crisis.
Roman keynesianism that ruined the empire and destroyed the Roman economy.
Original Article: "It Didn't Begin with FDR: Currency Devaluation in the Third Century Roman Empire"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Commentaries about World War I frequently discuss causes and consequences but almost never mention the enablers. At best, they might mention them approvingly, as if we were fortunate to have had the Fed and the income tax, along with the ingenuity of the liberty bond programs, to finance our glorious role in that bloodbath.
Economist Benjamin Anderson, whose Economics and the Public Welfare has contributed greatly to our understanding of the period 1914–46 and is a book I highly recommend, nevertheless takes as a given that the Fed and the income tax had a job to do, and that job was supporting US entry into World War I. After citing figures purporting to show how relatively restrained bank credit expansion was during the war, Anderson writes:
We had to finance the Government with its four great Liberty Loans and its short-term borrowing as well. We had to transform our industries from a peace basis to a war basis. We had to raise an army of four million men and send half of them to France. We had to help finance our allies in the war, and above all, to finance the shipment of goods to them from the United States and from a good many neutral countries.
We had to do none of these things. Only the government made them necessary, and the government was not acting on behalf of its constituents when it formally entered the war in April 1917. The US was not under serious threat of attack. The population at large, Ralph Raico tells us, “acquiesced, as one historian has remarked, out of general boredom with peace, the habit of obedience to its rulers, and a highly unrealistic notion of the consequences of America’s taking up arms.” He reports:
In the first ten days after the war declaration, only 4,355 men enlisted; in the next weeks, the War Department procured only one-sixth of the men required.
Bored with peace they may have been, but it was hardly reflected in the number of volunteers.
Winners and Losers While the war industries were poised to rake in record profits, Marine major general Smedley Butler, who was awarded his second Congressional Medal of Honor in 1917, provides details on the fighting men’s share in this bonanza:
It was decided to make [the soldiers] help pay for the war, too. So, we gave them the large salary of $30 a month.
All they had to do for this munificent sum was to leave their dear ones behind, give up their jobs, lie in swampy trenches, eat canned willy (when they could get it) and kill and kill and kill … and be killed.
But wait!
Half of that wage (just a little more than a riveter in a shipyard or a laborer in a munitions factory safe at home made in a day) was promptly taken from him to support his dependents, so that they would not become a charge upon his community. Then we made him pay what amounted to accident insurance—something the employer pays for in an enlightened state—and that cost him $6 a month. He had less than $9 a month left.
Then, the most crowning insolence of all—he was virtually blackjacked into paying for his own ammunition, clothing, and food by being made to buy Liberty Bonds. Most soldiers got no money at all on pay days.
We made them buy Liberty Bonds at $100 and then we bought them back—when they came back from the war and couldn’t find work—at $84 and $86. And the soldiers bought about $2,000,000,000 worth of these bonds!
The “bonuses” awarded the veterans were silver certificates that came with a catch—although the men could borrow against them, they couldn’t redeem them until 1945(!). The Depression deepened in 1932; the so-called Bonus Army of veterans, family members, and friends marched on Washington to demand immediate payment of their promised compensation. After a clash with police that left two protestors dead, General Douglas MacArthur led a tank assault that drove the Bonus Army out of Washington.
In 1936, the government decided to replace the silver certificates with Treasury bonds that could be redeemed immediately.
The Cunning Enabler One could argue that states are the true enablers of hell on earth, since only states have entrenched systems of wealth predation and can employ kidnapping (conscription), propaganda, and other means to create a world war.
But is working toward a stateless world a worthwhile use of one’s time? If 2.5 million veterans of the war to end all wars couldn’t get the government to pony up a bonus until nineteen years after they paid stay-at-home bureaucrats, how can we possibly get rid of government itself?
Given that states have the power to wipe out all life on the planet, we should at least consider them an alien presence. That they haven’t reduced the world to ashes already is not a sign of caring and careful leadership. Combine their monopoly on legal force, nuclear arsenals, a rabid foreign policy, monumental bureaucratic bungling, and the steady hum of printing presses and withholding taxes, and you have a formula for turning the earth into a moonscape.
If we can’t rid the earth of states, we can at least try to disempower them. Whatever belligerent aspirations US and other world leaders may have, these would be mere pipe dreams without the wealth-sucking arms of the state. States that can’t get money for war can’t go to war, or as Pat Buchanan might put it: no money, no war.
And if we had avoided World War I, what might the world look like today?
Conclusion In a footnote to Rights of Man, Thomas Paine wrote: “It is scarcely possible to touch on any subject, that will not suggest an allusion to some corruption in governments.”
Given his proposals for government involvement in our lives, modest though they were, Paine seems to have forgotten his own profound observation.
We would do well never to forget it.
The dollar's petrodollar status has led the Federal Reserve to irresponsibly inflate the currency. The rest of the world has noticed and is looking for alternatives.
Original Article: "World Dollar Hegemony Is Ending (and That May Be a Good Thing)"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
When I was a child, my mother and I would take the Long Island Railroad to Brooklyn to see relatives a few times a year. My grandfather was always outside in front of the apartment house in Park Slope, where he and my aunts and uncles lived. Upon seeing him, I would run down the sidewalk to greet him, but before I could say “Hi, Grandpa!,” he would without fail press a shiny silver dollar into my hand.
He was a quiet, dignified man with a big white mustache. Since he spoke hardly any English, and I spoke hardly any Italian, we had to make do with silent monetary exchanges like these: he gave me shiny, silver dollars, and I took and spent them. Since this was back in the ’50s, a dollar (silver or otherwise) would buy a whole afternoon of fun. I could take in a double feature at the movies, buy a bag of popcorn and a Baby Ruth, and still have change. The silver dollars I got from my grandfather looked like the one above. I learned later that the peace dollar, as it was called, was designed by the Italian immigrant and sculptor Antonio de Francisci to commemorate the end of World War I. The model for the image of Lady Liberty that adorns the face, or obverse, of the coin was his wife, Teresa. On the coin’s reverse appears a perched bald eagle above the word peace. After my grandfather died, I often wondered if he had known the history of that coin.
The peace dollar was minted for circulation from 1921 to 1928 and again from 1934 to 1935. It was the last silver dollar minted for circulation. In its final year, 3,540,000 peace dollars were minted. Each coin weighed 26.73 grams and contained 0.77344 troy ounces of silver. With silver trading at almost $20 an ounce as of November 2, 2022, the melt value of each peace dollar is more than fifteen times its face value.
The peace dollar, like the Morgan dollar that preceded it, was not a popular coin (except perhaps with my grandfather and me), and millions of such coins sat in bank vaults across the country. Its size and weight made it inconvenient for use as a general medium of exchange. Most people preferred, instead, to carry paper money, which they could fold and slip inside their wallets. I didn’t have a wallet back then, and I Iiked the sound and feel of a silver dollar jingling in my pocket.
But despite their unpopularity, silver (and gold) coins played an important role in our nation’s monetary history until America finally abandoned both, first gold for domestic transactions in 1933, then silver in 1962, and finally gold for international transactions in 1971. America, like the rest of the world, had abandoned both the gold and silver monetary standards and resorted to the printing of fiat currency—money by government edict, having no intrinsic value.
To understand the significance of this change, look at a 1928 US paper dollar and compare it with today’s paper money. You will notice that this dollar is called a silver certificate—not a Federal Reserve note. The difference in wording is not mere semantics. For beneath the title on the dollar bill we are informed:
This certifies that there has been deposited in the Treasury of the United States of America one silver dollar payable to the bearer on demand.
So, the silver dollars like the ones my grandfather gave me were not just sitting idle in dark bank vaults taking up space. Quite the contrary, these silver dollars gave validity to our paper money and served as sentinels lest government officials took it into their heads to print more money than could be redeemed in silver coins, for when the public became suspicious that the government is counterfeiting money, they could simply show up at their local banks early one Monday morning and demand silver dollars in exchange for their silver certificates. Such a run on banks could lead to a financial “panic,” forcing many banks to close their doors—an event nobody wanted.
For centuries, silver and gold thus served to limit the excesses of government borrowing and spending. As a result, both metals are the natural enemies of expansive governments, whose appetite for money can never be sated. And governments almost everywhere despise gold and silver for that very reason, often referring to them as “barbaric relics of the past.” But make no mistake, these two “relics of the past,” while no friends of tyranny, are precious in the eyes of all those who, like my grandfather, loved freedom.
In the last days of the Roman Empire, a Roman citizen fleeing the capital city before its fall in AD 410, which plunged Western civilization into an economic abyss lasting for centuries, may well have remarked: “Primo deformaverunt monetam nostram; tunc vitam nostram duxerunt” (First, they debased our currency; then they debased our lives). That the two are so intimately connected is an economic truth that even today is not widely understood.
[Chapter 7 of Per Bylund's new book How to Think about the Economy: A Primer.]
Money, as we discussed in the previous chapter, makes lots of exchanges possible that are impractical or impossible under barter trade. We are better off as a result. But money has greater implications that are often overlooked or misunderstood. Chief among these is economic calculation, which is the process of determining how scarce resources should be used to produce the most valuable outcomes possible. Economic calculation is a core of any economy.
We can use technological knowledge to maximize a production process’ outcomes, given the inputs and outputs, and to reject inputs that are unsuitable for that type of production. But which input to use, which production process to undertake, which production technologies produce the better (higher-value) outcome, and which outcomes to strive for are fundamentally economic decisions.
For example, technological knowledge can tell us that gold is too soft to use for railroad tracks. But it cannot tell us which harder metal is best—most valuable—to use: iron, steel, or platinum? The answer requires knowing what else those metals can be used for, how valuable those uses are, and how much of each metal is available. Technological knowledge also cannot tell us when, how, or whether to build the railroad. Where should the railroad be built? Should it be built at all or should the resources go to building some other type of infrastructure—or something else altogether? Those are all economic questions—they are based on our calculation of the relative value outcome.
A metal that is far from technologically perfect may actually be the best choice, even if it means laying new rails from time to time. The best solution in terms of technology gives us little to no information on the value outcome of the cost of production. Without economic calculation, an economy is unable to economize on scarce resources.
Money facilitates economic calculation, an essential mechanism in a market economy, by serving as a common unit. In other words, it allows for monetary calculation.
The Nature of a Productive Economy Economists have long known that productivity is closely related to specialization. We saw in chapter 5 that capital increases productivity and it does so by making labor more productive. We get more out of our labor efforts if we use appropriate tools and machines. Market exchange also makes labor more productive because people can focus on producing the things that create most value regardless of whether they personally value or use them. Instead of people being self-sufficient and producing everything they need for their everyday lives, markets allow them to develop their unique abilities and take advantage of economies of scale—of how average cost falls with higher production volumes—to increase their overall value output.
Specialization, or focusing our time and effort on a narrower set of productive activities, has two main effects.
First, when we specialize, we become better at carrying out specific productive activities. Adam Smith noted that specializing makes us many times more effective and productive because we (1) do not lose time shifting from one task to another, (2) develop and increase dexterity and workmanship, and (3) can more easily identify how to use simple machines or develop new tools to become even more effective.
Smith exemplified this “division of labor” with a pin factory in which the production of a pin takes eighteen distinct operations. In Smith’s example, “a workman … could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty.” But if ten workmen instead specialize in carrying out certain operations, they “could make among them upwards of forty-eight thousand pins in a day.” That’s an enormous difference—specializing increases the output of labor at least twenty-four hundred times.
The difference is not in the tools or operations, which are the same in both cases but in better organization of the production process. Or, specialization allows workers to be much more productive.
Second, when we specialize—and because we specialize—we become dependent on others doing their part of the production process—and they on us. The serial division of labor in a production process creates interdependence: the ten workmen in Smith’s example can produce an enormous number of pins together, but only as long as all of them carry out their tasks. If one worker, who is in the middle of the production process, does not show up for work, this creates a gap in the process. The workers in the earlier operations up to the point where the missing worker’s task begins will be able to do their part, but the workers requiring the input from the missing worker cannot carry out their operations, and so no pins will be produced. For the process to generate any pins at all, all tasks must be carried out. Simply put, the ten specialized workers stand and fall together. If the chain is broken, for whatever reason, they will revert from producing forty-eight thousand pins to a measly two hundred (the max for ten unspecialized workers in Smith’s example).
Such interdependence is risky and might sound like a bad idea, but it is not. Each of these workers has an interest in completing the process; otherwise there would be no pins to sell and no job. (As an unspecialized worker they could make no more than twenty pins each and have a lower standard of living.) So because their specialized productive efforts are interdependent, the workers share an interest in completing the production process.
Smith’s argument is more general and not just limited to factory production. The capital structure itself is the outcome of specialization: a division of resources that facilitates, strengthens, and enhances the division of labor.
When the flatbread baker builds an oven (see chapter 5), he not only increases his productivity as a baker but also develops the knowledge and skill to produce ovens. If there are other bakers interested in using his innovation, our baker could specialize in oven making instead of baking. He could supply other bakers, who can then specialize in producing oven-baked bread. The baker’s role has changed from baking bread to supplying ovens and his livelihood now depends on the availability of the resources needed to produce ovens and then sell them. It is an opportunity to create more value and increase his—and everybody else’s—living standards.
This simple example of the baker shows how a longer production process, through innovations and the resultant intensive division of labor and capital, is adopted because it produces more value. It is more productive than using scarce resources, especially labor, more effectively. The modern economy has extremely long production processes with such narrow specializations that most of us would not be able to survive without the rest of the economy. Think about everything you rely on and use in your daily life but that you did not produce yourself—and probably cannot produce. We depend on a lot of strangers doing their part in production.
On the flip side, an economy could never sustain the many people that live in the world today without specialization. And the smaller population it could support would not have the conveniences and number of goods available to us. Our modern prosperity is the result of the division of labor and capital, which is constantly enhanced and improved through innovation and competition in the market.
The market reduces the risks and potential downsides of interdependence in production and supply chains by influencing parallel production processes—redundancy. When a new and specialized production process earns profits, it will quickly be copied by entrepreneurs eager to share that profit. In other words, if the oven-maker earns high profits from his ovens, others will attempt to do the same. They will develop parallel production structures to capture a share of the market.
With this type of imitative competition, the risk that production will not be completed is greatly diminished. Imagine if the oven-maker had employed several workers to build the ovens through a specialized production process. The success of the whole undertaking depends on all of the workers doing their part. But when others imitate this process to capture some of the profits in the oven industry, they can use and complete a half-finished oven that another entrepreneur could not complete. Thus, failure due to interdependence is of little concern in markets, in contrast to centralized processes.
Is redundancy inefficient? Why have many producers offering the same goods instead of one factory producing on a larger scale? This overlooks the fact that the market is a process (more on this below)—that one firm is not enough to establish all the highly specialized processes. There are two main reasons for this. First, incompleteness: those highly specialized and unique processes would be high-risk because every specialized task would make or break them. It is not obvious that using economies of scale provides more benefits than lacking redundancy which also risks the whole process failing. Second, refinement: innovations in production are never perfect from the beginning but become better through competition, as new entrepreneurs figure out how to improve function. Without the market’s redundancy, we would never get production processes good enough to build economies of scale.
The second point requires some elaboration. Much refinement and progress happen as market competition divides production processes into ever smaller, more specialized tasks and processes. Entrepreneurs constantly try to outdo existing production by innovating and finding better ways of production. They replace parts of the existing processes with more highly specialized subprocesses that are expected to be more productive and could provide a competitive advantage. Entrepreneurs’ profit-driven innovation increasingly subdivides and decentralizes production processes. What used to be specialized parts of a novel production process become standardized capital goods and services traded in the market.
Consider this example. Early on, entrepreneurs implemented new ideas to keep track of and manage production, as well as to increase sales. These ideas expanded into accounting and marketing departments, whose specializations made these tasks more productive. Today accounting and marketing are separate businesses because entrepreneurs discovered that it was more productive to specialize in one or the other and sell these services to businesses as separate entities. This lets producers focus on production, accountants on accounting, and marketers on marketing. They can each specialize in their trade, improve their respective processes, and increase their overall output. It is the same reason that farmers do not build their own tractors, do not develop their own seeds, nor make their own fertilizers and pesticides.
Productive interdependence also comes with a positive social outcome. We noted in the previous discussion that our ability to demand—our purchasing power—comes from producing value for others. As the economy becomes ever more specialized, our personal contribution increasingly depends on the productive contributions of others. And vice versa. This also means that I, in this market setting, must serve others to serve myself, because my ability to demand is based on the value of my supply. Consequently, the more I interact with, learn about, and understand others, the better I can produce what they value most. This applies both to self-employed entrepreneurs, who seek to serve their customers and to employees in large corporations, who are paid wages for how well they serve their employers. Thus, market production is empathic—your ability to provide value for others ultimately determines the value you get in return for your efforts.
This means the market process is not only about production but is a civilizing process: it requires and augments social cooperation for our mutual and common benefit. There are no contradictions in open market production—there is only value and the pursuit of it through empathic production. Competition is in fact cooperation: it is not directed or designed but acted out through the price mechanism. And with it comes a better understanding and respect for other people’s points of view—because this makes us better. Ludwig von Mises was very clear:
Society is the outcome of conscious and purposeful behavior. This does not mean that individuals have concluded contracts by virtue of which they have founded human society. The actions which have brought about social cooperation and daily bring it about anew do not aim at anything else than cooperation and coadjuvancy with others for the attainment of definite singular ends. The total complex of the mutual relations created by such concerted actions is called society. It substitutes collaboration for the—at least conceivable—isolated life of individuals. Society is division of labor and combination of labor. In his capacity as an acting animal man becomes a social animal.1
The economy and society are two sides of the same coin. It is not possible to separate the market process from society and civilization.
The Driving Force We have referred to the market economy as a process but have not yet discussed what makes it a process.
The market that we interact with and can observe is actually a number of production processes that generate the goods and services we can buy. These processes generate jobs that allow us to earn an income and with that income we can choose to buy goods.
But the market process is not merely the production of goods that is currently underway. Who decides what new goods should be produced? The simple answer is entrepreneurs. They think of new goods and new production processes that they think will benefit consumers and therefore earn them a profit. But entrepreneurs cannot know that what they produce and offer for sale will be fancied—or at what prices consumers are willing to spend. So entrepreneurs speculate—they bet that what they imagine is valuable will be valued by consumers. By doing this, entrepreneurs drive the market process forward. They constantly challenge the status quo in their quest for creating more value.
Entrepreneurs attempt to create new value and drive the evolution of production in the long term. For example, in the year 1900, the production of personal transportation centered around making horses and buggies available. But in the year 2000, it was about manufacturing automobiles. This change is what the market process is: constant change and refinement of what and how it is produced.
Entrepreneurship is the driving force of the market process. The great shift from horse and buggy to automobiles was a matter of entrepreneurial innovation, part of what economist Joseph A. Schumpeter famously called “creative destruction.” The creative aspect of the shift was the appearance of the automobile—a new type of personal transportation offered to consumers. Specifically, it was the introduction of Henry Ford’s Model T—an affordable, mass-produced automobile—that made the new automobiles accessible to so many consumers. People didn’t choose to do away with horses and buggies but rather chose automobiles because they provided more value. Therein lies the “destruction”—the market for horse-and-buggy transportation collapsed because consumers received greater value elsewhere.
To put this in different terms, automobiles provided greater value to consumers than their previously preferred means of transportation. Consequently, the people who had bred and trained horses and built buggies were no longer contributing sufficient value. Their businesses and professions were therefore soon replaced by ones that consumers valued more.
Businesses and professions that had emerged in support of horse-and-buggy transportation either disappeared or had to evolve into the production of other goods. So, today we have only a few stables but there are many iron mines, steel plants, and gas stations to support the automobile.
These shifts toward new value constantly occur in the market. Sometimes we are aware of them because they are swift and affect us personally. But often we are unaware of the changes. The latter is typically the case when major changes occur within production processes but do not affect consumers’ goods. The computer, for example, revolutionized both production processes and how firms operated. Although computers can make a production process more efficient—or completely restructure it—consumers often do not notice the difference in the goods offered in stores. But producers see it as new professions and specializations begin to appear. These new value-creating jobs offer higher wages and new types of careers. There were no computer professionals in 1900, but it was a common and respected career in 2000—and they earned a much higher standard of living than the most skilled carpenters producing top-of-the-line buggies in 1900.
The Production of Value Entrepreneurs compete with both existing businesses and other entrepreneurs to produce new value for consumers. Entrepreneurs have a more important role. In speculating and betting on new value creation, entrepreneurs provide the means for economic calculation—they determine the money prices of the means of production. This is fundamentally important—it is what makes the economy possible. Without entrepreneurs providing this function, it would be impossible to economize resources and discover new innovative production processes.
To understand this we need to consider what entrepreneurs do. Specifically, we must consider what their actions as a whole mean. As with so many things in the economy, observable phenomena emerge from people’s actions but are not created by any one person. Instead, they are patterns (order) that emerge from people’s actions. To put this differently, if I drive on one side of the road but not on the other, that is no big issue. The same for other drivers. But if all drivers drive on the right-hand side of the road, then this creates an order to traffic (in the aggregate) that is beneficial to all: fewer accidents and faster travel. This order also affects individual drivers’ decisions—it makes more sense to drive on the same side as everybody else, because doing otherwise would be unsafe and highly inefficient.
Similarly, what one entrepreneur does is important and might even be disruptive, as we saw with Henry Ford’s Model T. But disruptive of what? Of the previously existing market order, which is the aggregate of producers’ and consumers actions. Thus, entrepreneurs can individually act in certain ways (the corollary of individually driving on one side of the road) and in the aggregate create an order (right-lane driving) that benefits us all.
Let’s elaborate for clarity. The entrepreneur imagines a new good or process that has not yet been tried. Henry Ford imagined an automobile using assembly line production, Johannes Gutenberg a printing press, and Thomas Edison a light bulb. The entrepreneur is convinced that the new good will bring more value to consumers than existing goods do. He believes that the potential value is so high that consumers will be willing to pay for his new good. In other words, he expects to make a profit.
The entrepreneur’s profit calculation is based on the costs of available resources: salaries for workers, a production facility, materials and machines, electricity, etc. These costs are easy to estimate because the resources are available on the market—their prices have already been determined (this is important, and we’ll come back to it). For resources that are hard to come by, an entrepreneur can estimate how much it will take to outbid other producers. The cost of building a new type of machine can also be estimated because everything that is needed is already available for purchase. Practically all the costs can be estimated in money prices, so an entrepreneur can easily estimate the cost of producing this new good.
Will it be worth it? Will the undertaking generate sufficient profit? To figure this out, the entrepreneur must estimate the new good’s value to consumers. That value gives a rough idea of what prices consumers will be willing to pay and quantity sold at those prices. This price—derived from value—is the basis for an entrepreneur’s decisions for how, when, and where to produce. Expected revenue in money prices constitutes the maximum an entrepreneur would be willing to pay workers, sellers of capital, etc. Subtracting the costs from the expected revenue gives the entrepreneur an idea of a product’s profitability and its expected rate of return. This monetary calculation is possible because both cost and benefit are expressed in money—they can be compared and an outcome, even though it is in part based on guesses and estimates, albeit a predicted one, can be calculated. Based on the expected profit, the entrepreneur can then decide whether the investment is worthwhile. Monetary calculation allows for economizing on the market level!
This may sound obvious, but it is not. Many overlook the fact that it is the value outcome that guides entrepreneurs and informs their choices of how to run the business. Entrepreneurs are motivated by profits, which can be made when consumers value the good. Value is out of the entrepreneur’s hands, in other words, but cost is a choice.
Consider the combined effect of all entrepreneurs making choices about costs based on their best guesses of the value they will provide consumers. They constantly bid for resources and reconsider their costs—in competition with each other. Just like the entrepreneur above, they might have to motivate workers or entice sellers of materials or services by offering a higher price. Even if they already have a business, they still need to choose whether to renew previous contracts, renegotiate them, revise production, etc. These choices and decisions are based on the expected value outcome: for entrepreneurs trying something new, this is their best guess of how much value consumers might see in their goods; for entrepreneurs continuing to produce an existing good, it might be their assumption that things will continue as before (or not!).
Those entrepreneurs who expect to produce more value can bid higher prices for inputs—and will find it easier to get the inputs they want. Those who expect to produce less value cannot afford to buy the most expensive inputs and will need to consider other, likely inferior, ones. This means the most useful and value-contributing resources will be sold at the highest prices and, therefore, be used where they are expected to create most value for consumers. Entrepreneurs thereby indirectly direct resources toward their “best” uses.
The bidding process is not only a way to direct resources to where they are expected to be most valuable, although this is very important. It also determines the market prices of those resources. There are already determined prices that entrepreneurs can use in their profitability calculations. To avoid losses, entrepreneurs will stay away from resources that are too expensive (which is a sign that the market expects someone else to create more value from them) and instead choose more affordable resources that can generate profit.
Thus, entrepreneurs’ competitive bidding directs resources and determines their prices—and by extension which projects should be pursued. Only the projects with the highest expected value can be expected to earn a profit (and will therefore be pursued). An entrepreneur who anticipates creating new value can afford to outbid existing production.2 This is why large corporations have little sway over entrepreneurs. What matters is the expected value contribution, not organizational size.
This curious process of market pricing of the means of production, in which entrepreneurs make decisions based on prices that they are also involved in determining, is what allows a market to use scarce resources rationally—that is economically from the perspective of future value outcome. This process does not create a perfect outcome, which is impossible because production decisions, including what costs to assume, always precede consumers’ valuations. The outcome of any production is uncertain and ultimately depends on what consumers choose to buy. Remember, it is a process—it cannot be maximizing because the outcome is not and cannot be known, but it can be improved.
The uncertainty of the future explains why so many entrepreneurs fail. Without knowing the future, many of them will miscalculate, perhaps overestimate the consumer value of what they set out to produce. Nevertheless failed entrepreneurs make an important contribution because their failure both makes clear to other entrepreneurs what does not work and makes their resources available to other entrepreneurs.
This system works because it is based on private property: entrepreneurs personally gain or lose. If they did not risk losing their own money and property, many of them would be less careful in choosing which costs to bear, and prices would as a result not be rational value estimations. If entrepreneurs did not stand to gain from their uncertain undertakings, they would have little reason to try them—and even less reason to choose their costs wisely.
In sum, the market process rationally distributes scarce resources because entrepreneurs risk their own personal property and therefore do their best to make the right choices. If they fail, they are mercilessly weeded out and have less capital to try again. Those entrepreneurs who are successful, who chose their costs wisely and produced goods that consumers valued highly, are rewarded with profits. This entrepreneurial dynamic creates a “division of intellectual labor” where the best and brightest can try their ideas—and benefit consumers.
Entrepreneurship and Management The market process, as outlined here, is so much more than what we can observe at any moment. Because it is a process, everything that exists at any given time is the result of what came before—and will be challenged by what will come after. In other words, the firms that exist today are the outcome of the market’s weeding-out process—they “won” the entrepreneurial bidding for resources. Had consumers chosen differently or entrepreneurs had other ideas, there would be other businesses producing other goods.
Similarly, some of the entrepreneurs that are currently in the process of securing funding, starting up their businesses, or experimenting with production processes are creating tomorrow’s businesses. Existing producers will only stay in business if they continue to create value—and create more value than tomorrow’s businesses. This is why existing businesses, even the very big ones, cannot sit back and relax but must innovate. They have a place in the market process only as long as no one else offers consumers more value.
In other words, if we were to analyze the economy and focus only on the businesses that exist, we would miss most of the process! We would not be able to understand why these businesses (and the goods they produce) exist, and we would not understand how or why entrepreneurs with better ideas might soon replace them. Looking only at the status quo—the economy that we can observe in the present—or the changes that have happened in the recent past, we could easily conclude that the economy is a fairly static system that is far from maximizing the use of resources. It would be easy to find inefficiencies and come up with other potential solutions. But this would be an enormous mistake. The market process is primarily about figuring out how to create new value for consumers—it is not about maximizing output in current production.
It is an entrepreneurial process. The status quo is merely the most recent expression of the process—it’s yesterday’s winners before they are replaced by tomorrow’s. The market process is in constant flux and is characterized by renewal and progress.
The market process goes well beyond simple production management. We should want businesses to have good management that streamline production, cut costs, and tweak and improve the goods they produce. But management is what takes place in production after the entrepreneur has been proven right. As Mises put it, the manager is the “junior partner” of the entrepreneur.
Simply put, management solves an entirely different problem than entrepreneurship. It is about maximizing the outcome of a production process (typically in terms of profit). It is a fundamental error to misconstrue the market process as mere production management.
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- See Ludwig von Mises, Human Action: A Treatise on Economics, scholar’s ed. (Auburn, AL: Ludwig von Mises Institute, 1998), p. 143.
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- Entrepreneurs who do not have their own capital should be able to secure external funding if the expected value is high enough.
Success in business — serving customers well, and achieving growth in revenues and assets with a return on capital greater than its cost over the long term — is tied to knowledge-building, whereby everyone in the company learns more and more about specialized and advantaged methods of generating value for customers. Customer value fueled by knowledge-building flows back to the company as cash flow as a result of customers’ willingness to pay (which, itself, is a piece of knowledge to be discovered through testing and experimentation).
The uncertainty of the future means that a lot of knowledge-building must be achieved through experimentation — testing ideas to find out if they work or not. The earliest stage of this testing is bound up in the concept of criticism. Bart Vanderhaegen, a philosopher, epistemologist, and business consultant, explains the role of criticism to Economics For Business.
Knowledge Capsule There is broad agreement on the need for adaptiveness in business. It is becoming more and more accepted to view firms as operating within a complex adaptive system in which the interactions of millions of agents, and the resultant emergence of new outcomes and new system properties, require an acute sensibility regarding change — and speed of change — in the business environment and an ability to make adjustments in response or, if possible, in anticipation.
This adjustment process often goes by the name of adaptiveness.
What, exactly, is being adapted? Bart Vanderhaegen’s analysis is that it is ideas that are being adapted and adjusted. He defines idea in this business context as a goal and a plan to achieve that goal — a desired end and the associated means. It is ideas that ultimately result in changing people’s behavior, changing product and service offerings, and changing markets.
If the idea is wrong, it will fail in achieving any desired change. To establish why or how an idea is wrong requires criticism.
Criticism is an artifact of the science of knowledge. Critical rationalism views knowledge as useful information we use to solve problems we face. It can never be viewed as final — it’s conjecture about possible solutions that we are continuously challenging and criticizing to expose any error that we can subsequently correct to improve upon the solution, and to get closer to economic reality. That’s adaptation.
Firms actively seek the criticism of the market. Once ideas have been activated as products and services, firms are comfortable with the criticism of the market. As Mises observed, the customer, by buying or not buying, returns a verdict on every business’s offering. And business welcomes the criticism, in the form of sales report, or market share analysis, or market research. The market is full of feedback, and in the case of non-buying, the feedback is criticism and triggers improvements or an adaptation of the plan.
In business, there tends to be less comfort with criticism in the pre-market stage, but it’s a necessary tool for refining options and making decisions. In Bart’s way of saying it, the word criticism, when used in business, has “kind of a weird smell around it”. There’s a culture of what he calls justificationism. We are taught to project confidence bout business plans. Executives claim expertise in the domains for which they were hired. The boss is correct.
This is all misplaced. What we should be confident about is capacity to solve problems, and not be scared of making mistakes, but rather to be eager to adapt our knowledge to observed reality when it changes.
By utilizing criticism methodically, businesses can unleash its power. The proper use of criticism is to criticize ideas and not persons. We always want to celebrate the owner of an idea, and grant them autonomy to accept or reject criticism. Bart’s three step method for business criticism is:
- Start with the presentation of the idea by the idea owner. There should be the opportunity for a full and reasoned presentation. Questions of clarification can be asked, but no criticism at this step.
- Then follows the offering of criticism. It should be high quality, constructive and specific as to what elements are in doubt and why, and what can be improved. General opposition such as “That will never be accepted here” (which could be said of any idea) is not acceptable.
- The criticism session is completed with a consent stage, in which the idea owner indicates which criticisms he or she finds relevant and will act on to improve the idea, whether in ends or means or both. Consent is in the discretion of the idea owner and should not be the result of any pressure by critics, whatever their rank or status. There is no “softness” in this: there is a shared and passionate commitment to improve.
Successful adaptive businesses develop a positive culture of criticism. It’s important to analyze and classify the prevailing firm culture. Some cultures will discourage or reject criticism as a method for improvement, especially those that are hierarchically organized and have a tradition of authoritarianism.
The appropriate culture values truth and values adaptiveness, and celebrates the identification of error as a successful step towards improvement. Bart called this culture a “tradition of criticism”, which sounds contradictory since the word tradition is usually associated with preserving the status quo; but a tradition of criticism implies a kind of stability around the practice of criticizing. People become comfortable with it, and try to become better at it, and are proud to be part of the path to betterment through criticism.
The Amazon 6-page memo system is a good example of the tradition of criticism. Idea owners are required to prepare a detailed memo describing the idea and the business case and this is submitted to a committee of reviewers in a dedicated meeting, escalating in rank towards the most senior management as the idea is vetted, improved, and increasingly strengthened. It’s a tradition and a part of the Amazon culture.
Such a culture is not initiated with an announcement or a campaign, but emerges organically as a universal tool for everyone in the firm to utilize.
Additional Resources Pactify Management: PactifyManagement.com
Bart on Twitter: @B_Vanderhaegen
Bart’s podcast: Fallible Management (Anchor.fm/FallibleManagement)
Bart’s email: bart.vanderhaegen@pactifysoftware.com
While both the Left and Right celebrate the government's new drive to subsidize American microchip manufacturing, we should remember that political "investments" always result in crony capitalist disasters.
Original Article: "American Chip "Independence": Protectionism by Another Name"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
A grand plan is advanced by the World Economic Forum (WEF). Its name, “The Great Reset,” conveys the scope of this undertaking. Among its many audacious goals, it will “offer insights to help inform all those determining the future state of global relations, the direction of national economies, the priorities of societies, the nature of business models and the management of a global commons.”
That is clearly all for the good. But what are the particulars? A number of strikingly different researchers (James Corbett, Catherine Austin Fitts, Patrick Wood, Whitney Webb 2, Tessa Lena 2, and Jay Dyer) have articulated a remarkably consistent picture at a detailed level. The plan has three tentpoles: technocratic socialism run by a small circle of elites, a Malthusian view of population, and transhumanism.
The socialist program starts with the ownership of all private property by the WEF itself or its proxy corporations. Ordinary people will lease goods from the WEF on a short-term basis as needed. That would include common-use items such as your living room, transportation, and meeting spaces. Wage labor will not be needed because skilled humans will be replaced with even more skilled robots and AI.
One of the oddest things about the plan is that elites expect to have continued access, much like today, to ordinary goods such as electric power from a wall plug and large living spaces but also to luxuries such as hotels, air travel, smartphones, and what we now call consumer electronics. (These goods will no longer be called “consumer” products because only elites will have them.)
The gaping hole in this technocratic rewrite of all society is economic calculation. This has been a problem for all prior versions of communism. The replacement of the central planning board by technocracy does not solve it. Without prices set by competition, there would be no way to allocate resources to the production of different things. This is equally true for mass production and for elite goods. There is no world in which luxury goods could be produced in small quantities without a mass consumer base.
This is not a problem only for the goods consumed directly by the elites for personal use. The advanced technologies needed to run the control grid require an advanced market economy. The technocratic control grid depends heavily on high-tech infrastructure. Without private property and a competitive price system, we would have no 6G networks, data centers, power grid, cell phones, implantable chips, mind-brain interfaces, or any of the other technocratic gadgets in the Great Reset picture frame.
These technologies are the product of an entrepreneurial competitive marketplace with free bidding and price discovery, both on both the funding side and on the entrepreneurial side through start-ups and established companies. The people who make the goods could not have do so without free labor markets. And finally, there must be a competitive consumer goods market for the final products.
The Great Reset could not foster the development of labor skill. People who produce complex technologies acquire skills through participating in the labor market over a period of decades. No one enters the workforce with the skills to run a company like that makes chips or mobile phones (Intel or Apple). People acquire skills by moving in and out of a series of jobs. This process takes decades and may require travel, relocation, and, at times, taking a step back to move forward by changing industries or roles. Executives at these companies developed management skills over a period of years by advancing slowly through the management hierarchy in competition with other managers.
The networks of people and institutions that transfer skills in complex fields like mine engineering and semiconductor design requires openness for people to meet, interact, and learn from each other. The covid shutdown of travel and impairment of socialization slowed skill development across the entire labor market.
Older versions of communism posited a central planning board or committee. In the technocratic Great Reset, the central planner is artificial intelligence. The WEF posted a video (with creepy background music) about the “postgrowth economy” (05:00). When there are no longer enough resources to produce all the things that we do currently, economic systems will have to “scale down production of things deemed less necessary. But this raises other questions. Who will decide what is less necessary? How will we resolve the inevitable disagreements? Could we really do away with entire industries?” The animation ends with a callout to AI systems. It is implied that AI can make these decisions.
In his critique of central planning, Ludwig von Mises emphasized the need for competition among different entrepreneurs, who value each productive resource differently, according to their own best ideas about how that resource could be used. There must be many minds, because people see things differently. The problem with central planning is that it attempts to replace the competition among many with a single plan. The evaluation of alternative uses through competing monetary bids and offers is removed from the picture, because a central plan cannot compete against itself. Mises argued a single mind cannot formulate a central plan for production:
Moreover, the mind of one man alone—be it ever so cunning, is too weak to grasp the importance of any single one among the countlessly many goods of a higher order. No single man can ever master all the possibilities of production, innumerable as they are, as to be in a position to make straightway evident judgments of value without the aid of some system of computation. The distribution among a number of individuals of administrative control over economic goods in a community of men who take part in the labor of producing them, and who are economically interested in them, entails a kind of intellectual division of labor, which would not be possible without some system of calculating production and without economy.
The Great Reset’s vision of transhumanism sees the replacement of humans by a man-machine hybrid. This will be achieved through the injection into the body of implantable wireless computing endpoints. The implants will connect the carriers’ brains directly to an internet of people; they will be like nodes in ubiquitous wireless networks. The purpose of the implants will be both to monitor and control the mind.
Thoughts that will improve the person’s social credit score will be suggested, something like the way that auto-complete prompts during a web search. If the implants work as expected, controlling the thoughts and beliefs of the recipients, then the humans will have become robots. Robots do not have a will of their own; they are extensions of the single mind of the AI central planner.
Yes, people can be replaced by software in some tasks. But how are resources allocated among a range of possible choices? How are production methods chosen in order to use scarce resources efficiently? Who decides what goods are worth producing and which ones are not? The mind-controlled serfs guided by brain implants become another version of the single mind of the central planner.
The abovementioned investigators have shown that a small group of psychotic but economically illiterate billionaires have drawn up a plan for a comprehensive replacement of humanity by machines. What would happen if they tried to put their plan into effect? On that day private property and the market economy, all production of useful things, would cease. Where would this leave us? Yet we know that their alternate world is impossible. A thing that is impossible cannot happen, but immense destruction will be caused in the trying.
Why is inflation regarded as bad news? What kind of damage does it do? Popular commentators maintain that inflation causes speculative buying, which generates waste. Inflation, it is maintained, also erodes the real incomes of pensioners and low-income earners and causes a misallocation of resources.
Despite all these assertions regarding the side effects of inflation, the popular way of thinking cannot tell us what causes all these bad effects. Why should a general rise in prices hurt some groups of people and not others? Why should a general rise in prices weaken real economic growth? Or how does inflation lead to the misallocation of resources? Moreover, if inflation is just a rise in prices, surely it is possible to offset its effects by adjusting everybody’s incomes in the economy in accordance with this general price increase.
Why Price Indices Cannot Establish the Status of Inflation Despite its popularity, the idea of a consumer price index (CPI) is flawed. It is based on the view that it is possible to establish an average of prices of goods and services, which is not possible.
Suppose two transactions were conducted. In the first transaction, one loaf of bread is exchanged for $2. In the second transaction, one liter of milk is exchanged for $1. The price, or the rate of exchange, in the first transaction is $2/one loaf of bread. The price in the second transaction is $1/one liter of milk. In order to calculate the average price, we must add these two ratios and divide them by two; however, it is conceptually meaningless to add $2/one loaf of bread to $1/one liter of milk.
On this Murray N. Rothbard wrote:
Thus, any concept of average price level involves adding or multiplying quantities of completely different units of goods, such as butter, hats, sugar, etc., and is therefore meaningless and illegitimate. Even pounds of sugar and pounds of butter cannot be added together, because they are two different goods and their valuation is completely different.
Defining Inflation Historically, inflation occurred when a country’s ruler such as the king would force his citizens to give him all their gold coins under the pretext that a new gold coin was going to replace the old one. In the process, the king would falsify the content of the gold coins by mixing it with another metal and return diluted gold coins to the citizens.
Because of the dilution of the gold coins, the ruler could now mint more coins and pocket for his own use the extra coins minted. What was now passing as a pure gold coin was in fact a gold alloy coin. The increase in the number of coins brought about by this debasement of gold coins is what inflation is all about.
It follows then that the subject matter of inflation is embezzlement. On this Ludwig von Mises wrote:
To avoid being blamed for the nefarious consequences of inflation, the government and its henchmen resort to a semantic trick. They try to change the meaning of the terms. They call “inflation” the inevitable consequence of inflation, namely, the rise in prices. They are anxious to relegate into oblivion the fact that this rise is produced by an increase in the amount of money and money substitutes. They never mention this increase. They put the responsibility for the rising cost of living on business.
According to Ayn Rand:
Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist government.
When inflation is seen as a general rise in prices, then anything that contributes to price increases is called inflationary. It is no longer the central bank and fractional-reserve banking that are the sources of inflation, but rather various other causes. In this framework, not only does the central bank have nothing to do with inflation, but on the contrary, the bank is regarded as an inflation fighter.
Thus, a fall in unemployment or a rise in economic activity is seen as a potential inflationary trigger, which therefore must be restrained by central bank policies. Some other triggers, such as rises in commodity prices or workers’ wages, are also regarded as potential threats and therefore must always be under the watchful eye of the central bank.
The popular definition cannot explain why inflation is bad news
Again, despite all the assertions regarding the side effects of inflation, mainstream economics doesn’t tell us how all these bad side effects are caused. Again, why should a general rise in prices hurt some groups of people and not others? Why should a general rise in prices weaken real economic growth? Alternatively, how does inflation lead to the misallocation of resources?
It is not the symptoms of a disease, but rather the disease itself that causes the physical damage. It is not a general rise in prices but an increase in the money supply that inflicts the physical damage on wealth generators.
Increases in the money supply set in motion an exchange of nothing for something. They divert real savings away from wealth generators toward the holders of the newly created money. This is what sets in motion the misallocation of resources, not price rises as such. Moreover, the beneficiaries of the newly created money—i.e., money “out of thin air”—are always the first recipients of money, for they can divert a greater portion of wealth to themselves.
Obviously, those who either do not receive any of the newly created money or get it last will find that what is left for them is a diminished portion of the real pool of savings. Furthermore, real incomes fall, not because of general rises in prices, but because of increases in money supply; inflation depletes the pool of real savings, thereby undermining the production of real wealth—i.e., lowering real incomes.
General increases in prices, which follow increases in money supply, only point to the erosion of money’s purchasing power—although general rises in prices by themselves do not undermine the formation of real wealth as such.
Milton Friedman and Expected Inflation Some economists, such as the late Milton Friedman, have maintained that if inflation is “expected,” then it produces very little damage. The problem, according to Friedman, is with “unexpected” inflation, which causes a misallocation of resources and weakens the economy. According to Friedman, if a general rise in prices can be stabilized by means of a fixed rate of monetary injections, individuals will then adjust their conduct accordingly. Consequently, Friedman says, expected general price increases, which he calls expected inflation, will be harmless, with no real effect.
Observe that, for Friedman, bad side effects are not caused by increases in the money supply but rather by increases in prices. Friedman regards money supply as a tool that can stabilize general rises in prices and thereby promote real economic growth. According to this way of thinking, all that is required is to fix the growth rate of money supply, and the rest will follow suit.
It is overlooked here that “fixing the money supply’s growth rate” does not alter the fact that money supply continues to expand. This, in turn, means that it will continue the diversion of resources from wealth producers to non–wealth producers even if prices of goods remain stable. This policy of attempting to stabilize prices is, instead, likely to generate more instability.
Note that we do not say, as the monetarists argue, that the increase in the money supply causes inflation. What we are saying is that inflation is the increase in the money supply.
Conclusion Inflation is not about a general increase in prices; it is about increases in the money supply. Consequently, to find out the status of inflation, there is no need for various price indices; all that required is to pay attention to the money supply’s growth rate.
The 2004 Nobel Prize in economics was awarded to two economists for their claim that "technology shocks" cause boom-bust cycles. They have it wrong.
Original Article: "Do "Technology Shocks" Create the Boom-Bust Cycles?"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Even as price inflation slows and we move past June’s peak, progressives continue to push the concept of “greedflation”—that this year’s price inflation is caused by corporate greed and price gouging. This is inaccurate, based on bad economics, and it blames a consequence of the problem rather than the problem itself. If we want to address the real issues in the economy and avoid similar pain in the future, we need to get serious and drop “greedflation” from the discussion.
The standard response to the assertion that this episode of price inflation has been caused by greed is to point out that there is no reason to think the level of “greed” in the economy has suddenly increased. That is true, but it doesn’t address the core of the “greedflation” argument. Most proponents will admit that the price inflation was kicked off by supply shortages resulting from the lockdowns. But they will argue that in an environment where everyone is talking about and expecting inflation, companies can raise prices even higher than rising costs would have compelled them. Companies can then enjoy larger profits, the story goes, at the expense of already struggling consumers.
So what’s the problem with this? Well, it rests on a common but flawed understanding of prices. People often talk about prices in two contradictory ways. Either they frame them as objective measurements of value or as arbitrary numbers made up by businesses. Neither of these characterizations is correct. Prices are not an indication of objective value. In fact, they come about through exchanges between people with expressly different valuations of the goods and services being traded.
If you try to sell me a cup of coffee for $4, you demonstrate that you value the $4 more than the cup of coffee. Notably, the exchange will only occur if I value the cup of coffee more than the $4 I’d be giving up. So prices are records of exchange ratios brought about by differing subjective valuations. Whenever you choose not to buy something you can technically afford, you reveal the subjective nature of prices.
In that same way, prices are not arbitrary. As Thomas Sowell writes in the opening pages of his book Basic Economics, “While you may put whatever price you wish on the goods or services you provide, those prices will become economic realities only if others are willing to pay them.” Going back to the above example, you are free to jack up the price of your cup of coffee as high as you please, but you will not sell it until you charge a price someone is willing to pay. That’s why the very concept of price gouging is flawed. You may not personally like how high the price is, but others still consider it a worthwhile deal.
The fact that companies are charging higher prices these days does not mean those prices are somehow wrong. In fact, we know they are not wrong because people have demonstrated a willingness to pay them. In other words, this year’s higher prices are not the problem—they merely reflect the problem. Instead, the real issue is that State governments locked down businesses in 2020 while the Federal government created trillions of new dollars and injected them directly into the economy in 2020 and 2021.
The lockdowns slowed and, in many cases, halted production. That results in supply shortages which lead to higher prices for the goods and services people are still willing to pay for. Under a sound money regime, the higher prices for some goods would have signaled people to economize on their consumption, while less critical goods and services would have experienced price decreases as consumers reallocated their money to meet higher expenses.
But we do not live under a sound money regime. Instead, the government created tons of new dollars and injected them directly into the US economy. Economic theory teaches us that as those new dollars move through the economy, they enrich those who get the money early at the expense of those who get it late because it takes time for prices to adjust to the new money supply. And the stimulus artificially signaled people to consume when they should have been economizing and saving. So not only does money printing devalue the currency and drive prices higher, it subsidizes the politically connected at the expense of the destitute while worsening shortages.
Those are two massive problems that have severely harmed the economy and unfairly hurt the worst off. And the parties responsible are easily identifiable. If progressives were serious about working for the benefit of the disadvantaged, they would, at the very least, make sure these policies were never implemented again. But instead, they blame business owners for attempting to adapt to the devastation.
The problem isn’t greed, and it isn’t price gouging. It isn’t even the prices themselves. They are only indicators of a deeper problem caused by unprecedented government intervention in the economy. If we want to fix the damage and avoid similar pain in the future, we need to be serious about it. And the progressives have proved themselves to be deeply unserious.
It will be nearly impossible to make any real changes in Washington for the next two years. The real battles are now in the states.
Original Article: "The Election Won't Change Much in DC. The Real Battle Is Now in the States."
This Audio Mises Wire is generously sponsored by Christopher Condon. '
The jobs data is worse than the latest headlines suggest, and workers are staring at falling real wages, declining savings, and mounting debt. We can thank the Fed.
Original Article: "The Number of Employed Workers Fell in October and Price Inflation Continues to Outpace Wages"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan.
—F.A. Hayek
F.A. Hayek explained how tacit knowledge of every single subjective valuation exists in the minds of the whole populace-- and through a price system people express this knowledge. This creates what he called spontaneous order to plan society, superior to any central planning.
Individuals like Jimmy Wales—cofounder of Wikipedia—have tapped into this fact of life and used it to try to provide that tacit knowledge in more explicit ways. In fact, Wales actually did so after taking a class taught by Mises Institute Peterson-Luddy Chair in Austrian economics Mark Thornton, at Auburn University, where he was introduced to the concept Hayek presented in “The Use of Knowledge in Society.” But for all the great examples of prices coordinating tacit knowledge into spontaneous order, there is none better than the beautiful world of sports betting.
Any given football game has what betting enthusiasts refer to as a ~~“spread”~~ or ~~“line.”~~ The spread predicts not just which team will win, but by how much that team will win—“spread” thus referring to the point difference between the teams’ scores. However, these are not arbitrarily determined by some group of so-called experts on a committee, but rather by individuals demonstrating their preferences by putting their own resources at risk. Each time an individual places a bet for or against a team, the spread shifts to reflect that. Thus, by game day, individuals from all over the country have bought and sold until they have bid the expected differential as close as it can be to a state of rest.
As of this writing, we have completed nine weeks of the college football season and just shy of 170 college football games involving a team ranked in the top twenty-five. Every week Americans flock to their favorite sites to bet on the outcome of these games, and all that human action leads to one final expected spread (point difference) for each game. Having looked at the expected spreads compared to the actual outcomes, it is incredible to see that the sports bettors have been off by an average of only 0.04 points when looking at all these top twenty-five games this year.
Beyond that, more than half of the games have had a spread within one possession (of the ball) of the actual outcome. The standard deviation when looking at all the differences between the spread and the actual outcome is less than fourteen points, meaning that the standard deviation was less than two full possessions in any given game. But tacit knowledge’s incredible predictive power goes even further. Only in twenty-four out of almost 170 games has the team that the odds picked to win been upset. This means that in over 85 percent of games, the sports bettors of the world have correctly picked the winner.
Meanwhile, only on six different occasions has the spread been so incorrect that it found itself more than two standard deviations from the mean of only 0.04 points. On the flip side of extremes, seven different times, the spread has predicted the outcome exactly, without being a single point off.
From this, we not only learn that the human action of millions of people simultaneously expressing their valuations has incredible predictive power, but we also see that no individual central planner could ever be as efficient as the combination of unfettered people acting with all their knowledge. We can look at the spreads of all these games and know with a great degree of confidence that they will be largely right.
Yet even with the odds telling us exactly what they think will happen, the sports books keep making more and more money. This is because each individual bettor goes out and still loses money. A TCU Horned Frog fan may have expert knowledge of his team and his contribution to the market moves that closer, but he cannot outperform the market betting on the Georgia Bulldogs because he does not have any special knowledge.
The market benefits from the unique insights of every single person, whereas no single person has the knowledge to outperform all that combined knowledge. Through this wild predictive power, we can witness the beauty of the market every single Saturday in the fall.
Have you ever lusted for a Lamborghini? I have. Specifically, the Lamborghini Aventador LP 7~00-4 Roadster convertible. There’s only one thing stopping me from getting one.
With options, it sells for just under half a million dollars. That’s for a car, a special car, but by no means the most expensive. If I wanted to, I could try talking the company into producing another Lamborghini Veneno, which sold for $4.5 million when it was introduced in 2013. Zero to one hundred kilometers (zero to sixty-two miles) per hour in 2.8 seconds. Of course, one buys a Veneno for more reasons than that.
Yet I wonder how the owner of one would feel if he or she came up against, say, a Suzuki Hayabusa or a Kawasaki Ninja ZX-14R, both street-legal production motorcycles that could hold their own against a Veneno. If you sink $4.5 million into your wheels and come up short against a machine costing one-three hundredth that but which still draws attention to its sound and looks, that’s not good.
Lamborghini only made three Venenos, one in each color of the Italian flag. They sold all three sight unseen. You billionaires will shrug at that, but I don’t.
No money, no Veneno. But wait—I don’t actually need to own $4.5 million, do I? I could always try borrowing it.
I could talk to a bank loan officer, just to see the look on her face. I bet at least one of us would laugh. And, of course, even if she went insane and loaned me the money, I still couldn’t convince Lamborghini to sell me a car.
So, no money, no loan, no Lamborghini. End of story. I stick with my paid-for truck or some other bourgeois four-wheeler.
Never Say Never But I can’t quite give up. I could sublimate the craving for automotive power into some other realm. I decide to run for political office.
I run on the slogan “No Money, No Problem.” In debates with my opponents, I point out that John Maynard Keynes is the most influential economist in the world and Keynes said money ideally should be interest-free to stimulate investment. There were those who were upset with this simplistic interpretation, but since no one knows what Keynes meant, the interpretation is up for grabs.
Assuming the economy is at less than full employment—and when is it not?—money should be available interest-free. Interest meant capital was scarce, but how preposterous is that when government is part of the picture? “Let each become all he is capable of being,” I add, recalling a slogan from my state college days.
This sounds good to most ears. My strongest supporters, most of whom are college educated, consider this an enlightened position. So do most trained economists, some of whom endorse me. On election day, I win by a landslide.
Years pass. I write a book. I go on TV talk shows every chance I get. I don’t talk about Lamborghinis. I talk about the economy and how accommodation is the key to making things better. I make a name for myself. My political party likes my prospects for the presidency. So do other people not directly associated with politics, people with a large stake in the status quo. People who could buy a Veneno tomorrow.
My enemies charge me with favoring unlimited government debt. I reply with a crisp “So what?” Aside from President Andrew Jackson’s driving the debt to zero in 1835, we’ve always had an astronomical debt, and it hasn’t hurt us. What hurts us is thinking it will hurt us. We keep our creditors happy, so why worry about debt? We can’t be the country we’re capable of being if we shun debt.
Commoners feel a little uneasy about embracing inconceivable levels of debt, but they’re in debt themselves and haven’t fallen off the planet, so they’re okay with it, sort of. Any fears they have about the arrival of a reckoning day are soothed by government economists who tell them “we owe it to ourselves.”
I run for the presidency. It’s a tough campaign, full of the usual dirt, but I win.
I’ve become president of the United States and commander-in-chief of the armed forces. Let me assure you—I have power, real power. Keep your zero-to-sixty times. When I go places, I travel on Air Force One. Air Force One! You don’t think about Lamborghinis or Kawasakis when you have a plush monster jet at your disposal. Besides, I have other interests.
I want to leave a legacy. I want to be remembered as a great president.
I’m comforted by the thought that the greatest presidents in US history have been war presidents—Abraham Lincoln, Woodrow Wilson, Franklin Roosevelt. I’m also comforted by the knowledge that they were complicit in getting the enemy to fire the first shot. They knew war was good for the country even if the countrymen they represented strongly disagreed. And there was one other advantage they had most people don’t acknowledge.
One day, trouble erupts in some Asian backwater. Few Americans have even heard of it, but CIA agents stationed there tell me it’s a threat to national security. I do the right thing and intervene—no boots on the ground, though. Everything is done with drones.
Our rival Russia gets upset. President Buturovich issues ultimatums. Who is he kidding? The rest of the world, that’s who. I give him a call. We agree to have a limited war in a neutral theater. Military people talk about theaters all the time.
As soon as I hang up, China gives me a call. Those ingrates! Those snoops! They won’t let us have our war. They’re threatening to stop loaning us our dollars if we pursue a military option, as they put it. Something about disrupting their markets.
I tell them they can continue making iPhones. Americans will buy them, even if a few Asians will be too busy dodging drones to stay in the market. They grudgingly accept it. I’ve got a legacy to pursue. They understand.
I meet with my Treasury secretary. I appointed him. We’re old pals. I ask him what he thinks war with Russia will cost. He wonders why I ask. I tell him. He resigns. He doesn’t want that legacy.
I go to another friend and ask him if war without a tax increase is feasible. He laughs. He used to head the Federal Reserve Bank of New York. He’s an expert at arranging deals of any size. He’s good friends with the chairman of the Fed. So, I appoint him Treasury secretary. The two of them assure me there will be no monetary impediments to my plans.
How could there be? It takes money to fight a war, and the Fed controls the money supply. And I appoint the guy who runs the Fed. Neat.
Then I think: I had monetary impediments when I dreamed of buying a Lamborghini. Insurmountable impediments. No money, no Lamborghini.
How different life is at the top. I’ve got the Fed at my side. I can join the other war presidents. No money? No problem.
Government programs like Medicare are called insurance, yet they are anything but. There is a difference between public and private plans.
Original Article: "Private versus Government Health Insurance: They Are Not the Same"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Modern warfare is a product of the state, which engages in violence at home and abroad. Peace is possible, but only when the state loses power.
Original Article: "Clausewitz, the UN Charter, and a Libertarian View on War"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Much is made of the failure of Republicans to make predicted gains in the recent midterm elections, but, as Ryan McMaken has pointed out, Congress plays a much-diminished role in national governance to the point that even had the so-called red wave actually occurred, it is doubtful that much would have changed regarding Joe Biden’s presidency. In fact, most of what Biden has done in his two years in office has been outside of congressional legislative matters.
McMaken points out:
This all combines to mean we should expect very little change on policies at the federal level. For example, we can expect to keep hearing plenty about the evil of fossil fuels. The administration will continue to press for less drilling for oil and gas, and the war on coal will continue. The administration will continue to issue new edicts for “fighting global warming.”
As McMaken notes, Biden has used executive orders liberally, sometimes using a twisted interpretation of federal law, and then unleashing his regulatory and law enforcement agencies to get his desired results. For example, federal banking regulators and the Securities and Exchange Commission have pressured banks and other lenders not to led to the oil and gas industry, citing the fealty to fighting climate change as the reason.
Note that the administration is doing this not via congressional authorization, but rather through its own self-serving “interpretation” of existing federal law. Likewise, Biden’s infamous student loan forgiveness order was not through such relief passed by Congress, but rather using a 2003 federal law that permits the US secretary of education to employ “expansive authority to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies.” What constitutes a “national emergency” must be in the eyes of the beholder, as any reason will do—and, so far, the courts have signed off on this vast expansion of executive power. This is reminiscent of Franklin Roosevelt’s perverse interpretation of the 1917 Trading with the Enemy Act to undergird his gold seizure from Americans and devaluate the dollar.
(Biden has not been the only recent president to liberally employ executive orders for questionable reasons. Donald Trump used existing law to raise tariffs against Chinese products, claiming that his actions meant that the Chinese were now helping to pay for their exports to the USA. Once upon a time—before turning over some of its authority to the executive branch—Congress had sole authority to set tax rates.)
Biden’s reckless actions have come in part because progressives in the 1930s convinced Congress to give away much of its authority to the executive branch, the action well described by Paul Craig Roberts and Lawrence Stratton in their book, The Tyranny of Good Intentions. The authors described a scene in which Congress was passing bills not even yet written and acceding their authority to the president as a response to the economic calamity of the early 1930s.
The New Deal, which was Franklin Roosevelt’s set of policies ostensibly to combat the Great Depression (although one easily can argue that the New Deal was the main reason the depression lasted for a decade), made FDR a “transformational” president, a title that Biden actively is seeking for himself. Encouraged by historical writers such as Jon Meacham and Doris Kearns Goodwin, Biden wants to become an icon like Roosevelt, although the “hook” today is not economic depression (yet) but rather the so-called climate emergency.
Unfortunately, becoming a presidential icon requires that the executive branch impose severe economic damage to the country. Roosevelt’s New Deal, far from pulling the USA out of the Great Depression, left it mired it in what economist Robert Higgs called “regime uncertainty,” which resulted in high unemployment and a dearth of capital investment. Biden’s version of the so-called Green New Deal points the economy in the same direction. Writes Thomas Woods:
In the old days, progressives claimed to be trying to improve the standard of living of the ordinary person. Everything they advocated would have had the opposite effect, but at least they claimed to be making his life better.
Now they’re not even claiming that.
You will be poorer, they’re telling you. Your electricity bills will be higher. The price of your car will be higher. And according to them, higher prices are in fact a good thing, because they’re supposedly a sign of a strong economy.
His claims notwithstanding, Biden’s objective to have a “transformational” presidency is to make Americans worse off now in exchange for the remote possibility that the Green New Deal will allow for future generations to have better weather. Biden’s grandiose view of himself and his policies are egged on in part by Meacham’s flattery:
He has been described as Joe Biden’s “historical muse”, an occasional informal adviser to the US president and contributor to some of his major speeches including the inaugural address.
In March, Jon Meacham put together a meeting between Biden and a group of fellow historians at the White House that lasted more than two hours. What did he learn about the 46th president?
“He’s like an upside down iceberg,” the Pulitzer prize-winning historian says by phone. “You see most of it and that’s not spin: there’s just not a lot of mystery to Joe Biden. The last four or five minutes of his press conference in the East Room [on 25 March] when he talked about democracy and autocracy, that was pretty much it.”
As the average American family struggles to keep up with inflation and the Biden administration deliberately makes it more difficult for them to live a semblance of normal lives, historians such as Meacham are telling Biden to expand his reach and his authority in fundamentally changing how Americans live. Indeed, in Biden’s first two years, he has brought about fundamental change to American life, but that change has been harmful.
Robert Higgs in his article “No More Great Presidents” lays out the modern historians’ standard for “greatness”:
The lesson seems obvious. Any president who craves a high place in the annals of history should hasten to thrust the American people into an orgy of death and destruction. It does not matter how ill-conceived the war may be.
So far, Biden has not launched the USA into a foreign war, although he has almost single-handedly financed (with US tax dollars, of course) the proxy war between Ukraine and Russia, using the Russian invasion as his justification for doing everything he can to prolong the fighting. However, by shackling the energy industries, blaming businesses for the inflation his government created, and doing whatever he can to make daily life difficult for ordinary people, one can say that Biden is at war with people who have no means by which to fight back.
Even had the red wave passed over the electorate this past week, it would have changed the Biden presidency very little, if at all. That is how powerful the executive branch under Biden has become. And Biden will continue to listen to the “historians” who fawn over his every word and tell him that he, too, can be a “great” president.
After praising Mises for his work on socialism, Tyler Cowen goes on to claim Human Action is "cranky and dogmatic." "Brilliant and insightful" would have been more truthful.
Original Article: "Misunderstanding Mises, Again"
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According to the Austrian business cycle theory, the boom-bust cycle emerges in response to a deviation in the market interest rate from the natural interest rate, or the equilibrium interest rate. As a rule, it is held, the tampering with market interest rates by the central bank sets the boom-bust cycle in motion.
Given this viewpoint, one might suggest that even with a gold standard without a central bank, an increase in the supply of gold money will lead to the lowering of market interest rates. This in turn is likely to cause the deviation of the market interest rates from the natural or the equilibrium interest rate. Consequently, this could set in motion the boom-bust cycle.
Murray Rothbard, however, believed that increases in the supply of gold could not set in motion boom-bust cycle. For him, the key reason behind boom-bust cycles is loose monetary policy of the central bank, which expands the money supply out of “thin air.”
Rothbard writes:
Inflation, in this work, is explicitly defined to exclude increases in the stock of specie. While these increases have such similar effects as raising the prices of goods, they also differ sharply in other effects: (a) simple increases in specie do not constitute an intervention in the free market, penalizing one group and subsidizing another; and (b) they do not lead to the processes of the business cycle.1
Following this reasoning, the boom-bust cycle is the increase is caused by expanding the money supply out of “thin air.” The increase in the money supply sets an exchange of nothing for something, diverting resources from wealth generators to non-wealth-generating activities. For Rothbard then, business cycles occur because of the inflationary policies of the central bank, which set an act of embezzlement into motion.
Why Don’t Gold Supply Increase Generate Boom-Bust Cycles? Consider the case of John the miner producing ten ounces of gold. He mines gold because he believes that there is a market for it. Gold contributes to the well-being of individuals, making it part of the pool of wealth.
Over time, individuals have discovered that gold—being originally useful in making jewelry—is also useful for other applications. They assign a much greater exchange value to gold than before while discovering that gold is also useful for another as a medium of the exchange.
Gold supplies an additional benefit by serving as a medium of exchange. Gold contributes to the well-being of individuals and in this sense, it adds to people’s wealth. Hence, when a producer of gold exchanges it for goods, he is engaging in an exchange of wealth for wealth. Contrast this with the money out of “thin air” which was generated by a counterfeiter, creating an exchange of nothing for something, with the counterfeiter engaging in embezzlement.
An increase in the supply of gold, however, increases wealth and is not an act of embezzlement.
Unbacked Receipts Create Boom-Bust Cycles Contrast all this with the unbacked receipts that are used as the medium of the exchange. These receipts generate the same outcome as the counterfeit money, as these receipts are issued without gold backing. This allows for consumption without contributions to the pool of wealth.
Following Rothbard, we note that the issuing of unbacked receipts sets the platform for embezzlement once these certificates are employed in an exchange for goods and services. This activity leads to an economic boom.
Once the printing of unbacked receipts slows down or stops all together, the diversion of resources to various activities that emerged because of the unbacked receipts slows down. As a result, these activities come under pressure—an economic bust emerges. (Note that these activities do not produce wealth, they only consume wealth. Obviously then without the unbacked money—i.e., the unbacked certificates—are in trouble. These activities do not produce any wealth, hence without money given to them they cannot secure the goods they require).
In the case of the increase in the supply of gold, no fraud is committed here. The supplier of gold—the gold mine has increased the production of a useful commodity. Therefore, there is not an exchange of nothing for something.
Consequently, the wealth producer can exchange it for other goods because he has produced something useful. He does not require empty money to divert wealth to himself. In the framework of a fractional reserve banking, whenever a borrower repays the money to the bank and the bank does not renew these loans, the money stock will decline, disappearing from the system.
This is contrasted with non–fractional reserve bank lending, where a borrower repays his loaned money to the bank and the bank returns the money to the lender. In this case, money goes from the borrower to the lender—the money does not disappear.
On the gold standard, the fully backed money by gold is returned to the original lender once it is repaid to the bank. We can thus conclude that the gold standard, if not abused, is not conducive to creating boom-bust cycles.
In both cases the increase in the supply of money out of “thin air” and the increase in the supply of gold will generate a gap between the market interest rates and the natural interest rate. This gap, however, is just a symptom—it does not set boom bust cycles by itself. The primary cause is always the source of the interest rate gap.
If the source is the expansion of money out of “thin air” then this is going to culminate in the boom-bust cycle. However, if the interest rate gap is because of an increase in the supply of gold, which is an increase in real wealth, no boom-bust cycle is going to emerge. (We suggest that an increase in wealth that promotes individuals’ well-being cannot at the same time cause them harm).
An increase in the supply of gold will cause market interest rates to deviate from the natural rate and this is likely to cause fluctuations in economic activity. However, boom-bust cycles are not about free market fluctuations. (Note that in a free market economy, there are changes all the time and there is no stability as such).
Again, boom-bust cycles are about the act of embezzlement. They are about the diversion of wealth from wealth generators to the holders of money out of “thin air” brought about by the exchange of nothing for something because of the central bank easy monetary policies.
Conclusion Boom-bust cycles emerge from increases in the money supply out of “thin air.” These increases set in motion an exchange of nothing for something—i.e., the diversion of real wealth from wealth generators to non-wealth-generating activities.
The increase in the supply of gold has nothing to do with business cycles, as an increase in the supply of gold is an increase of wealth. This wealth increase does not result in an exchange of nothing for something.
-
- I would like to thank Dr. David Gordon for finding this quote.
On July 8 this year, UK prime minister Boris Johnson resigned as Conservative Party leader after a Cabinet revolt over a series of ethics scandals had made his position untenable. A leadership election was then set in motion to allow party members to elect the next party leader who would succeed Johnson as PM. The result was announced on September 5: the winner was would-be Margaret Thatcher, Liz Truss.
The queen invited Truss to become PM on September 6. Truss immediately announced a “bold plan to grow the economy through tax cuts and reform” and “action [i.e., a price cap] this week to deal with energy bills.” The same day, she appointed Kwasi Kwarteng, a free marketeer with a Cambridge PhD on the Great Recoinage of 1696, as her new chancellor of the exchequer.
Government business then came to a stop after Queen Elizabeth suddenly died two days later. The country went into a period of national mourning that ended on September 20. It was then announced that there would be an emergency “mini budget” to set out the new government’s economic program.
What followed can best be described as a case study in how not to promote a free-market agenda, and it deserves close study lest policy makers elsewhere repeat the mistakes that Truss and Kwarteng made, which ultimately brought them both down. Their fundamental failure was a simple one. Yes, tax cuts were reasonable, but those needed to be more than matched by large cuts in government spending to reduce the fiscal deficit and establish that the new government would be fiscally responsible.
Granted, the notion of fiscal responsibility had long been honored in the breach by successive UK governments, but even so, it was reckless to ignore the issue—especially for a government that promoted free markets. And so the gods of the copybook headings had their revenge on a government that ran off a fiscal cliff that it should have but didn’t realize was right in front of them.
In this posting, I shall give an overview and timeline of events leading up to the reversal of the mini budget and Truss’s fall from office, and I shall follow up on what should have been done in a later posting.
The Mini Budget and the Market Response Kwarteng gave his mini budget statement to Parliament on Friday, September 23. It consisted mainly of an expensive energy price cap and a package of tax cuts designed to promote a dash for economic growth.
The financial markets hated it. To quote Bloomberg commentator Simon White:
Today’s UK “mini budget” has triggered a rout in sterling and gilts [UK government bonds]…. A combination of huge government-spending pledges and tax cuts will require a significant increase in UK borrowing.
The BoE is now in an EM-like dilemma….
The twin deficit (budget + current) currently sits at over £250 billion—a huge amount of capital…. Fine in normal times, but when growth is weak and macro-economic volatility is elevated, it is deeply problematic….
…. The UK government and Bank of England need to think fast so that it does not lead to yet another sterling crisis.
They didn’t and on the following Monday the pound crashed to a record low against the dollar, just over three cents above parity.
The reaction to the mini budget from the commentariat and many politicians was, with exceptions, hostile and so ill informed that I wonder whether the UK has become an idiocracy. There were the predictable leftist howls that the tax cuts only benefitted the rich, but the most bizarre criticism came from former Goldman Sachs investment banker and Davos acolyte Rishi Sunak, a former Conservative chancellor and the runner-up to Truss in the leadership race. He maintained throughout his leadership campaign that the tax cuts Truss was proposing were bad because they were “not funded.”
Think that through for a moment: the government should only cut taxes if it has previously accumulated a fund with which to finance those tax cuts! And since Sunak hadn’t built up such a fund, the implication was Kwarteng shouldn’t cut any taxes at all. This pearl of brain-hurting fiscal wisdom came from the same former chancellor who had spent like a drunken sailor on his covid watch and left the public finances in the ruinous state that Truss and Kwarteng inherited, as if his own profligacy had not left the UK economy primed for a fiscal confidence crisis. Pot, meet kettle.
“The media’s Overton window is [now] so narrow that tax-cutting Conservatives are considered deranged,” observed Tim Stanley in the October 3 Daily Telegraph. He continued:
The biggest price tag was the energy price cap (£60 billion), while National Insurance and Corporation Tax were not cuts but reversals. The shock was abolishing the highest rate [the 45 percent maximum income tax band, was] a drop in the ocean at just £2 billion. That’s about two Gary Linekers and a royal yacht.
He went on to criticize “political compasses [that] exist not to show where politicians stand but to mark out a zone of acceptability in our discourse…. Step an inch away … and you are labelled a lunatic.”
The gilts market then became increasingly unsettled over the first half of the next week. Matters came to a head on the morning of Wednesday, September 28 when the long-term gilts market collapsed. To quote the Financial Times:
“At some point this morning I was worried this was the beginning of the end,” said a senior London-based banker, adding that at one point on Wednesday morning there were no buyers of long-dated UK gilts. “It was not quite a Lehman moment. But it got close.”
The most directly affected groups were final-salary pension schemes that have hedged to ensure their ability to make future payments—so-called liability-driven investment (LDI) strategies that are very sensitive to fast-moving gilt yields.
It also became clear that if nothing was done, most UK pension plans would default on their LDI swap positions by the end of the day, the consequences of which would be catastrophic. The bank responded by temporarily suspending quantitative tightening and announced a £65 billion quantitative easing package to buy long dated gilts and bring their rates down.
The gilts markets recovered sharply after the announcement and by the end of the day the pound had risen to $1.088 against the dollar. The events of September 28 had exposed a hitherto unappreciated risk exposure in the UK pension system, itself the result of a string of earlier regulatory failures.
The Political Crisis Spirals Out of Control The financial crisis had stabilized, but the political crisis was only getting started. Sunak and his supporters then boycotted the Conservative Party annual conference that started on October 2 so that “Liz could own the moment.” Amongst those who did attend there was an open revolt by disaffected Conservative MPs, the opposition were clamoring for Truss and Kwarteng to resign, and the polls showed Labour way ahead of the Conservatives (LAB 54 percent versus CON 21 percent), suggesting that if a general election were held the next day, then Labour would win by a landslide.
At this point, a strong PM would have told her rebels that if the mini budget was rejected by Parliament, then she would call a general election and they could all take their chances with the electorate. But Truss didn’t.
In an interview on Sunday morning, October 2, Truss was still insisting that the tax cuts were essential to get the economy growing again. She was “committed” to scrapping the 45 percent maximum tax rate, she reassured her audience. There would be no U-turn. The allusion was to Margaret Thatcher’s famous “the lady’s not for turning” speech in 1980, when Thatcher stood firm against those then calling for her to make a U-turn on her controversial economic policies.
But by the end of the next day, the plan to scrap the 45 percent rate had been scrapped. “The lady is for turning,” gleefully wrote Sean O’Grady in The Independent. “Whatever reputation she had for being a potentially strong Thatcheresque leader has been destroyed.” “It’s a very painful decision but we had no choice,” said a cabinet minister. “There was no way we were going to get the budget through.”
In that same interview she also made it clear that scrapping the 45 percent tax rate was Kwarteng’s decision, not hers, and hadn’t been discussed with Cabinet. Ouch! The next day, Truss repeatedly refused to confirm that she had confidence in him and it was obvious to all that Kwarteng was now a dead man walking, politically speaking.
In the meantime, the pressure on Truss and Kwarteng continued to intensify and came to a head in mid-October. “On October 13 and 14 we were being briefed that the UK was about to become a Third World country by the Treasury,” a Downing Street source was reported to have said. Senior Treasury and Cabinet Office officials
all sat around the Cabinet table and said to the PM, “Unless you junk [your plans for] corporation tax, we are going to have the most catastrophic meltdown; it will take 20 years to recover.” They scared the s**t out of her basically…. They said the Pound was basically going to crash to such a level that we would struggle to sell our debt, in the way a Third World country does. Basically, Britain was going to become like rubble.
It was apocalyptic nonsense—the Treasury has a track record for risibly poor modelling of this nature—but it had the desired effect.
It was also made clear to her that if she was to any chance of remaining as PM, then Kwarteng would have to go, and she reluctantly fired him on October 14. By this point, she had the support of just 9 percent of the electorate, essentially Prince Andrew territory.
Kwarteng’s replacement was Jeremy Hunt, a “safe pair of hands” establishment type who had supported China’s “zero Covid” quarantine policies and called for similar policies in the UK. Hunt then proceeded to roll back almost all the remaining tax cuts in the Kwarteng mini budget and in the process destroyed whatever was left of her authority.
On October 20, Truss received the presumably dreaded visit from Sir Graham Brady, the chair of the 1922 Committee of backbench (i.e., nonministerial) Tory MPs, who is responsible for leadership elections. He is believed to have told her that he had enough letters from MPs to warrant a new leadership contest: the jig was up. An hour later, Truss announced that she would resign as party leader as soon as a successor had been found. She had been in office for only forty-five days, the shortest ever for a UK PM.
Under new leadership selection rules, Sunak rapidly emerged as the MPs’ favorite—with Boris Johnson (of all people!) In second place, Tory MPs being a fickle lot—and party members were not consulted. Sunak became party leader on October 24 and was appointed PM by the king the next day.
The defenestration of Truss and installation of Sunak as the new PM amount to nothing less than a “Remainer coup [that] has taken control of UK economic policy,” observed my friend and coauthor David Blake and I agree. “The real risks to the economy now come from the Remainer elite both at home and abroad.” The radicals had been beaten by the elite, and yet it is radical reform that the UK economy desperately needs now more than ever. Instead, Sunak supporters are now calling for “right wingers” to be purged—i.e., advocates of low taxes and small government are no longer welcome in the Conservative Party.
Daniel McCarthy joins Jeff and Bob to consider the deep unseriousness of American politics and electorate.
Willmoore Kendall's The Conservative Affirmation: Mises.org/Kendall
In his Nations by Consent, Murray Rothbard reminds us that the concept of a nation “cannot be precisely defined; it is a complex and varying constellation of different forms of communities, languages, ethnic groups, or religions.”
And yet, in most states of the world, this concept of nationality has been transformed from a group with a shared heritage, language, and history into a set of documents that needs to be processed in central facilities. Gone are the days of dynamic, instinctual social belonging; to belong to a nation now requires a documentation process put in place by bureaucrats and politicians.
To belong to the nation of Kuwait (now understood as the state of Kuwait), for example, means that you have the right to employment, government-mandated social security, medical care, and education if you successfully go through the process of obtaining a national ID. And though these “free” privileges may seem to be a social good—even in the decrepit state by which the government offers them—they come with huge social costs. Ignoring for the moment that they hinder competition, and naturally bring with them a bureaucratic structure that slows (and almost always combats) social and cultural evolution which Mises painstakingly explains in his short work, Bureaucracy, there is one social ill that they tend to create. And that is the problem of statelessness: People who would naturally be assimilated into the community, who would also be integrated into the labor, consumer, producer, and infrastructure economies are denied access because of a failure to successfully go through the bureaucratic process. A process that was initially skewed and hostile toward any newcomer. And the process may be offered due to some justifications, such as the difficulty of assimilating new citizens, most of these justifications are invalid. Some justifications, ad hoc as they are, only feign concern for costs and assimilation, but were consciously designed so that the processing bureaus retain their powers.
Statelessness Many Kuwaitis are not able to own the land they homestead nor get any job they want—even if employer and employee are more than eager to work together—because they are not able to obtain a national identity. A national identity that often requires stateless individuals to associate with other states and live here as immigrants. They’re colloquially called the Bidoon (the withouts), for they are without nationalities, or more precisely, national identification.
Here, dignity comes from having such identifications, and not from their own hard work and achievements. No matter how much some of them prove themselves, their work will be less considered. Their lives remain hard and they remain poor in a nation of abundant wealth. A professor of mine who has chosen to stay in Kuwait decided to obtain the American nationality to get some of the freedoms he is denied here (his children are American and Canadian citizens). Those God-given freedoms which Bastiat details in The Law exist in a tattered form for Kuwaitis and for those Bidoon who have successfully acquired citizenship, but not for many of those who were denied citizenship for having an Iraqi, Iranian, or Syrian uncle, or whose great-grandparents served in the Kuwaiti army before Kuwait’s independence and statehood but did not register for an ID. The reasons are often arbitrary, and it is natural for those excluded to start harboring extreme resentment toward others and themselves. (And really, who wouldn’t be angry if the least of his freedoms were denied?)
Nationality And yet, the problem must be stated very clearly: Why would anyone want to have an official national identity instead of belonging to the traditional group they consider to be their national identity? The reasons seem to me to be threefold. One, many freedoms are only granted to those who have official identities. Two, those with the identity are given privileges and rights beyond what they would get if they had to work for them (i.e., in a free market). And three, only the (exclusionary) state is allowed to offer (to officially registered citizens) many of the public utilities needed for modern life in such a harsh climate as that of Kuwait.
All humans have individual desires which can only be granted in a state of liberty, so the first point need not be expanded on. But the second point is very important: the state, in its inefficiency, cannot produce enough to harbor a growing populace. And once the capital structure is dissipated by the state, these privileges and free goods will no longer be available to Kuwaitis in abundance. That may explain why many Kuwaitis adopt the false cultural-preservation narrative in excluding others—no culture can be preserved indefinitely without people voluntarily taking on the roles dictated by it, anyway. The third point, which is really the crux of the matter, is often a question of inception and survival for the family. Families, in their healthy states, rely on an infrastructure that provides running water, electricity, shelter, and a constant influx of nutrition—which are becoming progressively harder for many of those stateless families to access, since it is virtually impossible for any service provider to supply them to these people due to Kuwait’s regulatory and self-preserving political structure.
The libertarian solution, as I see it, is to render this official national identification meaningless and to let the traditional structure of social bonds take its place, resuming its course. Many social woes can be solved by a free-exchange economy, without any central authority dictating which parties are allowed to be involved in satisfying the community’s needs. People can accommodate others, even in poverty, if the chances permit, if the rules are consistent and stable over time—and many will rise to the occasion in these circumstances, if only they are allowed to.
The US Supreme Court has heard arguments for and against affirmative action in higher education admissions. Government needs to get out of the racial discrimination business altogether.
Original Article: "The Government, Race, and an Upcoming SCOTUS Decision"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
In the early decades of the Cold War, the Lutheran theologian Reinhold Niebuhr attracted a considerable following among American intellectuals who influenced foreign policy. People such as the historian Arthur M. Schlesinger Jr., who wanted to found a group called Atheists for Niebuhr, maintained that Niebuhr provided a new, realistic basis for America’s battle against Soviet communism that avoided the discredited idealistic moralism of Woodrow Wilson. In this week’s column, I’d like to look at Niebuhr’s book The Children of Light and the Children of Darkness, based on a series of lectures that Niebuhr gave at Stanford University in 1944. In particular, I’d like to examine Niebuhr’s charge that supporters of the free market are guilty of naïve optimism about how capitalism works. I’ll try to show not only that the charge is false but also that Niebuhr’s own economic views are based on a naïve and discredited Marxism.
To understand Niebuhr’s argument, we first need to grasp his distinction between the “children of light” and the “children of darkness,” as he uses these biblical expressions. The “children of light” believe the world can be brought under natural law but are naïve, underestimating the power of self-love to cause people to deviate from the proper path. The “children of darkness,” by contrast, understand the power of self-love but are cynical about it. They reject natural law as an ideal, speaking only of power. Niebuhr says,
Those who believe that self-interest should be brought under the discipline of a higher law could then be termed “the children of light.” This is no mere arbitrary device; for evil is always the assertion of some self-interest without regard to the whole, whether the whole be conceived as the immediate community, or the total community of mankind, or the total order of the world…. Our democratic civilization has been built, not by children of darkness but by foolish children of light…. The children of darkness are evil because they know no law beyond the self. (pp. 9–10)
Though this doesn’t directly affect the main point I’m trying to make about Niebuhr’s view of the free market, the passage just quoted has a disturbing implication, though it can be interpreted to avoid this. Niebuhr seems to be equating “evil” with “self-interest.” An evil person is one who pursues his own interest, without taking into account the good of the whole. You need not be a follower of Ayn Rand to be startled by this interpretation. Does Niebuhr believe in an ethics of absolute self-sacrifice? The passage admits of another interpretation, in which all that is being condemned is the pursuit of self-interest in a way that violates the rights of others, rather than achieving your self-interested goals in cooperation with others. I doubt that Niebuhr intends what he says in this anodyne way. The Bible commands, “Thou shalt love thy neighbor as thyself,” but some twentieth-century theologians, Karl Barth being the most notable, reject self-love altogether, and I suspect Niebuhr is among these.
To turn from this speculation to Niebuhr’s criticism of the free market, he makes two main complaints. His first is that a
conflict between monopolistic and smaller units of economic power … is not a “natural” contest. The unequal power of one contestant is the product of the tendency toward centralization of power in the processes of a technical civilization. The power is a social and historical accretion; and the community must decide whether it is in the interest of justice to reduce monopolistic control artificially for the sake of re-establishing the old pattern of “fair competition,” or whether it is wiser to allow the process of centralization of economic power to continue until the monopolistic centers have destroyed all competition. (p. 65)
As Ludwig von Mises has noted, there is no such tendency toward concentration on the free market: the claim to the contrary is a Marxist myth.
The Law of the Optimal Combination of the factors of production indicates the most profitable size of the establishment. Net profit is greater according to the degree to which its size permits all factors of production to be employed without residue. In this way alone is to be estimated the superiority which the size of one particular establishment gives it over another establishment—at the given level of productive technique. It was a mistake to think that enlargement of the industrial establishment must always lead to an economy of costs, a mistake of which Marx and his school have been guilty, although occasional remarks betray the fact that he recognized the true state of affairs. For here, too, there is a limit beyond which enlargement of the establishment does not result in a more economical application of the factors of production. (Socialism, p. 368)
Niebuhr’s point about concentration is wrong, but what is even worse is the way he arrives at it. He offers no evidence in support of what he says but repeats an outworn Marxist bromide. This is the thinker viewed as an oracle by the foreign policy establishment?
Niebuhr fares no better with his second assault on the free market.
The most glaring contradiction between bourgeois individualism and the social function of property became apparent as commercial civilization was gradually transmuted into an industrial society in which collective production became the primary source of wealth. The modern factory is a great collective process…. The “private” ownership of such a process is anachronistic and incongruous; and the individual control of such centralized power is an invitation to injustice. (p. 103)
Once more we have an old Marxist dogma resurrected. According to Marx, as the forces of production develop under capitalism, production increasingly becomes collective and the legal forms of individual ownership of the means of production come into conflict with the actuality of the economic situation. The “anarchy of production” needs to be replaced by socialist planning. Niebuhr shows no acquaintance with Mises’s calculation argument against socialist planning. For him, it is enough to repeat what he professed in his days as a self-avowed Marxist, though, in fairness to him—and here he has progressed—he recognizes that central planning poses dangers by giving the planners too much power and thus calls for caution in putting socialism into practice.
Niebuhr is far more in the grip of illusion than those he criticizes for this failing, a circumstance of truly Niebuhrian irony.
While personal autonomy is a major topic of conversation, for Rothbard the most important thing is liberty, and liberty and automony are not always the same.
Original Article: "You Don’t Know What’s Good for You"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Despite much anticipation, the economic recovery plan proposed by Britain’s Tory Party after the departure of former prime minister, Boris Johnson, is missing one key ingredient—spending cuts. The new “temporary budget” presented by short-term chancellor of the exchequer Kwasi Kwarteng proposed tax cuts and regulatory reform but not spending cuts. According to The Spectator (London) on October 12, 2022: “Liz Truss told PMQs [Prime Minister’s Questions] there would ‘absolutely’ not be any cuts to public spending. Downing Street clarified that ‘government spending will continue to rise.’”
Ms. Truss’s tenure as prime minister lasted all of seven weeks. New prime minister Rishi Sunak and his new chancellor of the exchequer, Jeremy Hunt, have canceled the small tax cuts but have said nothing so far about spending cuts. Ms. Truss’s promise to compensate the entire population with government handouts in order to mitigate higher energy bills apparently goes ahead. In fact, once a political party dangles a new spending program in front of the electorate, it is seldom rescinded. The “triple lock” on pensions is another example of a spending tsunami that has now become sacrosanct. This exposes a serious misconception of the real impact of government spending on the economy. Of course, Keynesians see nothing wrong and lots that is right about increasing government spending, especially if the goal is to spur the economy to create more “aggregate demand.”
The problem is a complete misunderstanding of the nature of government spending. Here’s the key takeaway: government spending consumes societal resources rather than increasing them.
Any supposed increase in economic performance is nothing more than an increase in monetary inflation. Resources that had been directed to satisfying private demand now are satisfying government demand. If these were one and the same—i.e., that government spending was just as effective in meeting private needs as private spending—then logic tells us that there would be no reason for government to increase spending at all. Therefore, government spending pulls resources out of the economy and wastes them to some unknown extent. Overall, the economy retreats in its ability to satisfy real needs.
Nobel laureate Milton Friedman had a wonderful explanation about the difference between government spending your money and you spending your own money. If you spend your own money on yourself, you will spend it wisely. If you spend your own money on someone else, a Christmas present perhaps, you will spend it somewhat less wisely. If you spend someone else’s money on yourself, you will spend it even less wisely. If you spend someone else’s money on someone else, you really cannot know what other people want and you really don’t care how the money is spent. The last is what government does.
In his magnum opus Man, Economy, and State, with Power and Market, Murray N. Rothbard discredits the whole idea that government spending contributes something to satisfying consumer needs. Where does government get this money that it uses to satisfy the needs of “fill in the blank” (the military, welfare recipients, corporate handouts, etc.) If not from the productive economy? Rothbard says that “we must conclude that the government’s productive contribution to the economy is precisely zero.” Further down the page he elaborates on this theme by pointing out that “private consumers would have done something … more productive” Therefore, “the government’s spending is not simply zero, but negative for it has imposed a loss in productivity upon society.”
Perhaps using an individual actor’s dilemma would be more helpful to understand Rothbard’s very important point. Private homes deteriorate over time. They require constant upkeep just to keep them in the same functional condition. Private homes need new roofs every few decades, repainting, restuccoing, repairs to the driveway, plumbing, etc. If government raises taxes for any reason the homeowner has fewer resources with which to maintain his property in good condition. If the government prints money instead of raising taxes, the result is approximately the same, because maintenance costs will increase in dollar terms. Economists refer to this phenomenon as “the inflation tax.”
Conclusion Government spending destroys economies, whether taxes increase or not. It is the spending itself that sucks real, productive resources from the economy. Britons will be bitterly disappointed that the economy does not recover and may actually regress due to their politicians’ unwillingness not only to cut spending but their willingness to increase it.
The federal government’s Bureau of Labor Statistics released new price inflation data today, and according to the report, price inflation during the month decelerated slightly, but remained near 40-year highs. According to the BLS, Consumer Price Index (CPI) inflation rose 7.7 percent year over year during October, before seasonal adjustment. That’s the twentieth month in a row of inflation above the Fed’s arbitrary 2 percent inflation target, and it’s eleven months in a row of price inflation above 7 percent.
Month-over-month inflation rose as well, with the CPI rising 0.4 percent from September to October. October’s month-over-month growth also shows some acceleration in monthly price inflation growth. Month-to-month growth had been approximately zero in July and August.
October’s growth rate is down from June's high of 9.1 percent, which was the highest price inflation rate since 1981. But October’s growth rate still keeps price inflation well above growth rates seen in any month during the 1990s, 2000s, or 2010s. October’s increase was the eighth-largest increase in forty years.
The ongoing price increases largely reflect price growth in food, energy, transportation, and especially shelter. In other words, the prices of essentials all saw big increases in October over the previous year.
For example, “food at home”—i.e., grocery bills—was up 12.4 percent in October over the previous year. Gasoline continued to be up, rising 17.5 percent year over year, while new vehicles were up 8.4 percent. Shelter registered one of the more mild increases, with a rise of 6.9 percent, according to the BLS.
The rise in shelter, however, was an increase in October over September when shelter prices rose "only" 6.6 percent, year over year. In October this year, shelter prices were up 6.9 percent year over year, and 0.7 percent, month over month. This was the largest month-over-month increase since March of 2006 and was the largest year-over-year increase since July of 1982. The CPI is finally starting to reflect the enormous surges in costs that many renters have been experiencing in recent years.
Meanwhile, so-called "core inflation"—CPI growth minus food and energy—has hardly shown any moderation at all. In October, year-over-year growth in core inflation was 6.2 percent. That's down slightly from September's growth rate of 6.6 percent, which was the highest growth rate recorded since August 1982. October's year-over-year increase was the fifth largest recorded in 40 years.
The White House used this slight moderation in price inflation growth to crow about how the administration has somehow reduced inflation. According to the White House press release: “Today’s report shows that we are making progress on bringing inflation down, without giving up all of the progress we have made on economic growth and job creation,” he said. “My economic plan is showing results, and the American people can see that we are facing global economic challenges from a position of strength.”
In spite of the fact that month-over-month inflation actually increased, the administration once again selectively annualized the monthly inflation numbers in order to claim that the inflation rate is "2 percent" in spite of year-over-year growth that surpasses the Federal Reserve's target rate by more than 5 percentage points.
Rather, it is a bit early, to say the least, to announce a victory over CPI inflation. Throughout 1975 and 1976, CPI growth decelerated rapidly, falling from 12 percent in December 1974 to 4 percent in December 1976. Yet, by early 1980, CPI inflation had risen to over 14 percent. At the time, Federal Reserve (Fed) chairman Arthur Burns had used the mid-decade decline in price inflation as an excuse to embrace more easy money. The Fed pushed down the target policy interest rate, and within 5 years, inflation had surged even higher.
Unfortunately, both the White House and Wall Street are both hoping for a replay of the Arthur Burns protocol of the mid-70s. Any small reprieve in inflation rates will be put forward as an excuse to once again have the Fed push down interest rates, and perhaps even ramp up quantitative easing. This will be pushed with the argument that the US is headed toward recession, and the country needs low interest rates and east money to ensure a "soft landing." If inflation continues to ease even slightly, we can even expect mounting international pressure against the "strong dollar" which has been surging ahead of other currencies thanks to the unwillingness among other central banks to abandon their own easy-money policies.
In other words, now is a time of mounting danger that the central bank will return to the same failed policies of the last 25 years in which it turns to ever larger monetary stimulus in order to prevent recession-fueled deflation. The markets are even now banking that the Fed will take a more dovish turn now that CPI inflation has slightly fallen. For example, mortgage rates fell sharply on Thursday in the wake of the new inflation numbers' release.
Yet, Americans continue to get poorer as price inflation continues to outpace growth in wages. In October, average hourly earnings grew by 4.86 percent. Given that price inflation surged by 7.7 percent, that real wage growth of about -2.9 percent. That's the nineteenth month in a row during which real wages fell.
Meanwhile, the jobs data shows few signs of improving. In October, the number of employed persons in the US fell by 328,000, and remains below the February 2020 peak. Moreover, according to the Bureau of Economic Analysis, disposable income is lower now than it was before the covid panic, coming in at $15,130. That sum was $15,232 during February of 2020. Meanwhile, the personal savings rate in September fell to 3.1 percent. That’s the second-lowest level since 2007. Credit card debt, in contrast, reached new highs in September and is now well above its previous 2020 peak. More recent news is hardly better. Meta (Facebook) announced it is laying off 11,000 workers this week, adding to continuing job woes for the tech sector. Home construction and home sales activity is set to show big declines, which will lead to layoffs in real-estate related industries.
Price inflation is indeed likely slowing, but it is slowing as a result of a struggling economy. The White House may soon find it is celebrating much too soon.
The Soviet regime relentlessly expanded the money supply. To prevent inflation, the regime then created shortages through price controls and economic stagnation.
Original Article: "How the Soviets "Fixed" Inflation, but Ruined the Economy"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
As fear that robots and artificial intelligence will take over whole lines of work, it is time to examine the real relationship between capital and the rest of us.
Original Article: "Are Robots and AI Really Going to Displace All Workers? Probably Not"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Virtually all aspects of modern, interconnected, and digitized life rely on the processing and memory capabilities of advanced semiconductor computer chips. Electronic devices including smartphones, game consoles, cars, televisions, household appliances, military hardware, and medical equipment rely on these minute, flat wafers of silicon made, astoundingly, from melted sand. The United States has focused its efforts upon this essential good to put pressure on China as tensions precipitate between the rival superpowers. Yet from the start, the US measures will harm American consumers and businesses.
A Pyrrhic Victory? Over the years, both countries have layered policies on these advanced semiconductors as part of their larger economic competition. Although US measures target China, American and Western-aligned companies have ironically been feeling the pressure mount, as China makes up a major part of their market and manufacturing.
The share prices of American companies Intel, Micron, Nvidia, AMD, Applied Materials, and Lam Research all have fallen between 50 and 70 percent from their fifty-two-week highs. ASML of the Netherlands and Tokyo Electron of Japan have also experienced such drops in share prices. It may not yet be the bottom yet with the emergence of further trade restrictions from Washington as the chip war heats up.
On October 7, the US Department of Commerce expanded licensing requirements for exports of advanced semiconductors and the equipment used to make them. Unlike the previous ban on shipments to particular companies in China, the new policy covers all shipments related to the chip industry to China. It is estimated that cutting off China’s access to foreign chip related imports would set back the Chinese chip industry by years. Especially in the area of the most advanced chips, China has lagged behind US aligned countries as the highly technical methods remain out of reach without imports.
However, some have quickly noted the broader unintended consequences for the US due to the new regulations against China. Willy Shih, a professor at the Harvard Business School who specializes in technology and manufacturing, describes this kind of export control as “a bit of a blunt instrument,” noting that cutting off China from the capability to make the highest-end chips could push companies there to resort to producing more low-end chips which would in turn drive down prices for that segment of the market and make it harder for US and Western factories to compete. It would then come back to make Western buyers of those chips dependent upon Chinese suppliers. These less advanced chips are commonly used in simpler devices, but also as part of automobiles and even some military hardware.
This escalation of US restrictions in the chip market, while destabilizing in the short term for their rival, may act as fuel to accelerate China’s drive to achieve self-sufficiency in chip manufacturing in the long run. This has been the case with many technologies such as with the development of high-speed rail in China after Japan’s initial edge. Only a couple of months prior to the latest US measures, it was reported that China’s top chipmaker Semiconductor Manufacturing International Corp (SMIC) had reached a key technological breakthrough that made it possible to produce seven-nanometer chips on par with the best manufacturers in the world. Can the US actually win a chip war with this kind of restrictive policy or will it end up backfiring?
Responses Abroad In response to the blanket ban by the US government against trade and cooperation with China, Chinese chipmaker Yangtze Memory Technologies Corp ousted American employees in core tech positions in a broader effort by Chinese semiconductor companies to run “US-free” manufacturing lines and to “de-Americanize” the teams. Many foreign employees from the US or American-aligned countries working in the chipmaking industry have left or plan to leave China as the companies scramble to assess their future plans.
The new trade restrictions grant non-US companies with Chinese operating locations a one-year grace period in which material can still be sent into China. This plunges these companies into a gray zone in which they must guess the prospects of their ties with the Chinese market. South Korea’s SK Hynix, one of the world’s top memory chipmakers, reportedly said that the firm may sell its massive plant in Wuxi, China in the extreme scenario that it cannot sustainably maintain the facility. Here, the latest US measures put a great burden on a friendly country’s economy, one that they never asked to bear.
The geopolitical focus on Taiwan this year has in large part also been fueled by this very issue. Taiwan currently accounts for about 20 percent of global semiconductor capacity and produces a whopping 92 percent of the most advanced chips, most significantly by the Taiwan Semiconductor Manufacturing Company (TSMC). The reliance on foreign production for these important components has pushed the U.S to boost efforts to build up domestic chip manufacturing. However, the outlook is not broadly optimistic. A recent report mentions that TSMC founder Morris Chang has said “that U.S. efforts to reconstitute its domestic semiconductor production are doomed to fail.”
Friendly Fire The latest restrictions seem to point not only to a larger decoupling of the US and China, but it could also create rifts in the US relationship with aligned countries with significant chipmaking industries. The new US restrictions are set to create scarcity, not abundance. As is the case with so many restrictive trade policies, consumers and firms alike will see fewer choices among products that use silicon chips and businesses will experience a fall in the production of those products that have so elevated the overall standard of living in modernity. The effect may begin slowly with the increase of the prices of electronic goods, there may be shortages or long delays in supply, and it may end with the complete breakdown of availability for many of the products that bring efficiency and convenience to modern life.
Most economists hypothesize that in the real world there are relationships between various economic variables. For instance, the relation between personal consumption expenditure and income after tax can be hypothesized as:
Personal consumption = a* Income after tax,
With a being a parameter. Thus, if a is 0.8 then for income after tax of $100 this would imply that personal consumption is $80.
The parameter a is determined with the help of a statistical method. The statistical method also verifies whether the number obtained is a valid estimate of the true parameter in the real world. (Again, in this way of thinking there are parameters in the real world, which by means of statistical methods can be ascertained.)
Using quantitative methods, economists believe that causes behind economic fluctuations, known as business cycles, can also be established. Finn Kydland and Edward C. Prescott (KP), the 2004 Nobel laureates in economics, hypothesized that an important factor behind economic fluctuations is technology shocks.
To verify this theory, KP employed the Solow growth model (Robert Solow, the 1987 Nobel laureate) which in turn is based on the Cobb-Douglas production function:
Y = A K (1-a)Na,
Where Y is real output, A is a technology factor, K is the capital stock, and N is the number of workers employed. The parameter is a.
Instead of employing conventional statistical methods for the estimation of the parameter alpha, KP introduced a method, which they labeled calibration. What is this all about?
The KP framework utilizes various studies, expert opinion, and data analysis to form a view on the numerical magnitude of a parameter. For instance, using the historical data of wages and income KP have concluded that the parameter a in the Cobb-Douglas production function is around 0.64.
By incorporating the information on a with the information on real GDP, the stock of capital and the number of workers employed, KP were able to extract the numerical values for the technology factor A. Once the technology factor A was obtained, it was employed to assess the effect it has on the fluctuations of various key economic data.
In their research KP have concluded that a technology-induced shock can explain 70 percent of fluctuations in the postwar US data. The introduction of calibration supposedly provides an answer to the Robert Lucas (1995 Nobel laureate) critique that questioned the reliance in economic analyses on the fixed parameters models to assess the implications of government policies on the economy.
According to Lucas, a change in government policy is going to alter the parameters in the real world. Hence, a model with fixed parameters is going to produce misleading results. On this, Lucas agrees with Ludwig von Mises, who wrote, “There are, in the field of economics, no constant relations.” The calibration method, however, still assumes that there are parameters, which can be ascertained by means of historical data and expert opinions.
KP Models Ignore that Technological Shocks Can Alter Human Conduct What is the mechanism in the KP framework that transforms the technology shocks into boom-bust cycles? A positive technology shock according to KP means that with a given supply of capital and labor, the economy can now generate more output.
Higher productivity leads to higher wages. This, in turn, raises workers’ willingness to work more and reduce their leisure. The higher return on capital gives rise to more capital investment, leading to economic boom and prosperity.
A recession is caused by a negative technology shock, which lowers the return on labor and capital. This, in turn, causes workers to work fewer hours and a decline in capital investment. Consequently, this results in the fall in real output—i.e., to an economic bust.
We believe that suggesting a technological shock does not alter the parameter a suggests that we are dealing with machines, not human beings. This makes one question the KP conclusion that a technology-induced shock can explain 70 percent of fluctuations in the postwar US data.
Economic Booms Are Not about Economic Prosperity We believe that an economic boom is not about economic prosperity and wealth generation, but rather is the mechanism that leads to consumption unbacked by the production of real wealth, or unproductive consumption. These activities emerge because of the diversion of real resources from wealth generating activities, thereby weakening the process of wealth generation.
If the diversion of resources comes because of this diversion, an economic bust emerges. According to Mises:
The boom squanders through malinvestment scarce factors of production…. Its alleged blessings are paid for by impoverishment. The depression, on the other hand, is the way back to a state of affairs in which all factors of production are employed for the best possible satisfaction of the most urgent needs of the consumers.
Therefore, the key then is to identify the mechanism that gives rise to the diversion of real resources from wealth generators to non–wealth generators.
Central Bank Policies Are the Key Factor behind Boom-Bust Cycles A persistent diversion of real resources from productive to unproductive activities is triggered by loose central bank monetary policies. (The increase in money supply on account of loose policy brings about the exchange of nothing for something).
Whenever the central bank loosens its stance, it does not generate economic prosperity but economic impoverishment of wealth producers, and whenever the central bank tightens its stance, the diversion of real resources toward various unproductive activities is curtailed. This then leads to their demise, or what is called to an economic bust.
Since most economic data is measured in monetary terms, a loose monetary stance obviously manifests itself through the increase in the yearly growth rate of economic data. The reversal of the monetary stance results in the decline in the data growth rate. Hence, the increase in the growth rate of money, which leads to a diversion of real resources, also shows itself through the data increases. A decline in the money growth rate, which slows down or arrests the diversion of real resources, manifests through the decline in economic growth numbers.
Business cycles are about the diversion of real resources from productive to unproductive activities, set in motion by loose monetary policies of the central bank. Furthermore, it is the ongoing central bank monetary policies that make boom-bust cycles repetitive.
Changes in Technology Have Nothing to Do with Boom-Bust Cycles Changes in technology can lead to real wealth generation. A better technology generates creation of new wealth and, conversely, a negative technology shock will undermine the process of wealth generation. This has nothing to do, however, with the boom-bust cycles, which are about the diversion of real resources from productive to unproductive activities, set in motion by the loose monetary policies of the central bank.
KP have not introduced a novel way of understanding the phenomenon of the business cycle, but rather a method of curve fitting. By means of calibration, various imaginary models can now be introduced, and if a particular functional form does not fit the data close enough, then the function can be modified. This is an exercise in statistical manipulation rather than identifying the essence of what gives rise to boom-bust cycles.
Conclusion Changes in technology are important for real wealth generation but have nothing to do with the phenomenon of boom-bust cycles. Mathematical models that supposedly established that technology is the key driving cause of boom-bust cycles do not address the causes as such but rather describe the fluctuations of the data.
There is nothing wrong with data fluctuations, which reflect human conduct, but the source of fluctuations is the result of the persistent tampering by the central bank policies with the economy. This sets in motion recurrent boom-bust cycles and economic impoverishment.
The votes are still being counted, but one thing is already clear: very little will change in Washington after this election.
The House of Representatives will likely be controlled by Republicans, but the majority enjoyed by the GOP in the House will be small. This will provide a veto over some of the worst legislation being pushed by the Biden administration, but history has made it abundantly clear that the GOP is more than willing to compromise and "work with" Democrat administrations rather than simply kill bills.
As for the US Senate, we're still waiting on the results in Nevada and Arizona. Georgia is headed to a runoff election. But it's clear that the Senate will again be close to a 50-50 split. If the GOP manages to eke out a majority, that will help sink some of the worst legislation and some of the worst presidential appointees. But the direction of policy will not fundamentally change.
After all, so much of federal policy is now determined by the executive branch that moderate changes in party leadership in Congress will do very little to change the course of the nation's administrative agencies such as the EPA, the IRS, and the FBI. These agencies have immense power over the daily lives of countless Americans, yet even sizable majorities of so-called conservatives have shown little stomach for doing much to rein in this power. Certainly, the small GOP majority now headed for the House will do little.
From Global Warming to Money Printing to Foreign Policy, Expect Little Change This all combines to mean we should expect very little change on policies at the federal level. For example, we can expect to keep hearing plenty about the evil of fossil fuels. The administration will continue to press for less drilling for oil and gas, and the war on coal will continue. The administration will continue to issue new edicts for "fighting global warming." This, of course, will continue to drive up the cost of living.
On foreign policy, it was clear nothing much would change short of an overwhelming victory by "America First" types in Congress. That hasn't happened, so we can expect more of the same foreign interventionism we're seeing now. The US regime will add to the $65 billion it has already sent to Ukraine, and will continually ratchet up its involvement in the region as with a recent deployment of US troops near the Ukraine border. Even worse, the US will likely continue to flirt with nuclear war, as the Pentagon now has more leeway in using nuclear arms in the regime's new National Defense Strategy document. The US will not, any time soon, remove the approximately 900 American troops that are currently conducting a regional occupation in Syria.
Naturally, as far as social spending goes, we can expect zero change. Under Donald Trump, Republicans signed off on massive new spending increases, and were headed towards approving trillion-dollar deficits even before 2020. With covid, of course, spending exploded even more, and only a small handful of Republicans expressed doubts. (Trump naturally threw a tantrum about even this small bit of opposition.) The only disagreements we'll see in Washington in the next two years will be over how exactly to run up the next massive annual deficit.
Indeed, if the economy continues to slide as we're now seeing it do—with thousands of new layoffs coming from the tech sector just this week, and with real estate falling—we can expect a new bipartisan consensus in Washington calling for a wide variety of new "stimulus" programs. Neither party will want to be seen as the party of austerity.
The Biggest Changes Wil Be at the State Level While Washington will keep up with the same disastrous policies, the real change we'll see will be at the state level. The GOP did not do especially well in this election with state level offices, and the Republicans lost control of legislative chambers in at least Michigan, New Hampshire, and Pennsylvania. On the other hand, the GOP gained supermajorities in both the house and senate in Florida, plus supermajorities in the state senates of North Carolina, Wisconsin, and Iowa. Moreover, Nevada's state house is trending toward the GOP. Republicans still control a majority of statehouses and have even added to the tally of state GOP control in recent cycles prior to 2022.
What all this likely means is a continued divergence between places like Washington State, New York State, and California on the one hand, and Florida, Texas, and Ohio on the other. On matters like abortion, schools, immigration, guns, and energy policy, the differences between the two blocks will only continue to grow. Covid helped illustrate the importance of state-level policy and the very different legal environments that actually exist between so-called red states and blue states. This has not been forgotten, and many state policymakers will likely increasingly see themselves as the last defense against federal power. As one GOP operative put it in Politico: “With minimal gains at the federal level, the Republican power we held and gained last night in the states will be all the more important for stopping Joe Biden’s disastrous agenda.”
In a column titled "Red states are building a nation within a nation" this was noted by Ronald Brownstein at CNN who clearly disapproves of efforts within red states to separate themselves from federal political trends. He writes:
[R]ed states, supported by Republican-appointed judges, are engaging in a multi-front offensive to seize control of national policy even while Democrats hold the White House and nominally control both the House and Senate. The red states are moving social policy sharply to the right within their borders on issues from abortion to LGBTQ rights and classroom censorship, while simultaneously working to hobble the ability of either the federal government or their own largest metro areas to set a different course.
To a degree unimaginable even a decade ago, this broad offensive increasingly looks like an effort to define a nation within a nation – one operating with a set of rules and policies that diverge from the rest of America more than in almost any previous era.
Brownstein frames it all as a sinister plot against the Left's favorite interest groups, and he no doubt exaggerates the magnitude of it all. But he is right that red states' governments do have the ability to set up obstacles to federal policy. Gone are the days when state governments simply fell into line every time the federal government demanded some new capitulation. One example of this is the recent conflict between the Biden Administration and the Arizona government on the matter of border security. The state government had places shipping containers along the border to form a makeshift wall. The administration demanded their removal. The state refused to move them.
National Divorce Is Inevitable We should expect more of this type of thing in which state governments simply refuse to play along with federal policy. Democrat-controlled state governments have done this for years, of course, with policies like creating "sanctuary cities" for immigrants or legalizing recreational marijuana. (The latter has not become virtually mainstream thanks to state level resistance.)
But the fact is that state governments do have the ability to push back against federal policy makers. States can interfere with federal education policy. States can refuse to enforce federal gun laws. States can make their own abortion policy. States can refuse to do what they're told.
Over time, this will serve to further build cultural and legal differences between different states, just as the covid lockdowns and mask mandates made it clear that there were real differences between states. As the differences become more evident, this will even encourage residents to relocate to places that better suit their political preferences. For example, we're even now hearing that American leftists are leaving the lefty enclave of Austin, Texas. It turns out Austin is in the middle of Texas, and Texas has become too "red" for some people. It's hard to guess how numerous these cases really are, of course, but relocating for political reasons does appear to be far more meaningful than it used to be.
Over time, this will continue to build a real cultural divide that will inevitably lead to de facto political division between these blocs of states. "E pluribus unum" was never more than a political slogan. It's becoming less convincing every day. "National divorce" will increasingly be evident on the horizon.
In the short term, with Washington, DC poised to change so little, policy changes will increasingly come within the context of state governments defining themselves as being either against national elites (as in Florida), or for them (as in California.) This is where the real political action will be.
On this episode of Radio Rothbard, Tho Bishop and Ryan McMaken break down the results of this year's midterms. American anxiety over inflation and crime failed to create the red wave many expected. While Republicans took back the House, and maybe the Senate, this year's midterms underperformed traditional midterm elections. Tho and Ryan discuss why this is, as well as what a DeSantis victory might mean for a potential civil war with Trump.
Use promo code ROTHPOD for a 20% discount on Ryan McMaken's new book Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities: Mises.org/RR_107_Book
Recommended Reading "Antidemocratic Just Means Something the Regime Doesn't Like" by Ryan McMaken: Mises.org/RR_107_A
"The Realistic Market for Private Governance" by Jeff Deist: Mises.org/RR_107_B
"Murray Rothbard versus the Progressives" by Joseph T. Salerno: Mises.org/RR_107_C
"Breaking Away: The Case for Smaller Polities" by Ryan McMaken (video): Mises.org/RR_107_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
As "decarbonize agriculture" becomes the watchword, powerful multinational agriculture firms have embraced the 2030 UN agenda. Their actions will result in widespread hunger.
Original Article: "Multinational Agrichemical Corporations and the Great Food Transformation"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
The decision seemed natural at the time. An economic storm was looming once again. This one looked really bad. The time was now or never, I figured. The financial rat race was sterile. So was the associated environmental destruction. I had long wanted to work on environmental issues. I set out to grow food in harmony with nature.
The honeymoon period with the environmental activist groups I latched onto was short. Meetings seldom seemed to get anywhere. Neither did petitions or protests. You’d be hard pressed to find anything less effective than this if you were a propagandist tasked with setting up a controlled opposition psyop. It’s basically all shout and no do.
The rage against fossil fuels quickly felt nonsensical. An effective way to reduce their use would be to simply promote ways to do so. The elephant in the room is food. Take the supply chains, the warmongering to secure them, and the jobs needed to buy the stuff. Concerned activists ought to be promoting gardening. (Some do.)
The anger about species extinction was just as misguided. An effective way to avoid it is to simply promote ways to get yields without habitat loss. Alley cropping is one such way. The hedgerows offer countless benefits. They are profitable and allow to harvest water as a bonus when done right. That helps alleviate erosion, droughts, and floods.
More generally, the solutions that are being touted to us are appalling. Carbon capture will soon let fossil fuel giants rebrand themselves as climate saviors. Carbon offsets are all too often funding neocolonial land theft and commercial tree plantations. Green tech is nothing but a Rube Goldberg’s machine with an egregious environmental footprint.
The most misguided environmental concept is that of ecological limits. Scarcity is not a fatality. It arises only when control freaks get to split the pie. These people simply don’t understand fertility. They lock up nature to keep her safe and then get yield by beating erect weeds into submission. We can nurture abundant ecosystems instead.
Over time, the Science began to look like nothing of the sort. The 2020 lockdowns, for instance, made clear that the carbon hockey stick was not about fossil fuels. That did not stop leading environmental voices from celebrating the drop in fossil fuel use that year. Atmospheric CO2, meanwhile, increased like clockwork.
The fossil fuel narrative, it occurred to me as I wondered why that was, actually hinges on an accounting chicanery. International carbon accounting rules treat industrial and natural emissions differently. Give or take exceptions like cow burps, natural emissions get stashed inside a carbon stock black box that keeps them out of sight.
Forestry research on soil emissions shows how little sense this makes. A cleared forest generates several kilograms of CO2 per square meter over the next few years. These emissions go away as the canopy recovers. Leaving one behind by thinning the forest instead produces no such emissions. That’s a lot of emissions that go unaccounted for.
Farm fields also produce soil emissions. In the past, hedgerows would keep fungi alive, prevent erosion, and help soak up soil emissions tied to tilling and harvesting. Modern farm fields, by contrast, are wide open spaces with no canopy. The soil emissions are so huge that you can tell when farmers are tilling or harvesting in NASA visualizations.
In other words, the carbon hockey stick is a hedgerow and canopy loss problem, not an energy problem. Farmers and loggers could turn it around with simple adjustments to their operations. Alley cropping would put the hedgerows back in without getting in the way of machinery. Soil cover would help reduce water evaporation as a bonus.
Water, in passing, is the actual link between human activities, carbon, and climate. Soil with less carbon content and less cover retains less water. That leads to desertification: water evaporation, wildfires, droughts, and floods. We can rehydrate our landscapes to avert these effects. With bulldozers and seed pellets, we can even do so at scale.
Environmental concerns, in the end, are overstated. Farmers and loggers got misled by control freaks decades ago. They are now discovering that working with nature creates far more abundance than working against it. Doing so reverses the poor decisions of the past. There is as such no urgency, let alone a crisis.
A lingering question to my mind is what we can do to end this clown show. Seeing how terminally corrupt our institutions are, we might need to defeat the Science one person at a time. Fossil fuel, indigenous, or other interests might be able to defeat it in court. (Happy to help.) My sense is that land stewards will need to defeat it on their fields.
The latter carries the risk that, against a backdrop of fallow land tied to fertilizer and diesel shortages, these regenerative efforts get repackaged as proof that the fossil fuel narrative is correct. You can do your bit to stop that from happening by helping get this message out. Feel free to share, republish, and translate this content.
Mainstream economists claim that data alone can explain economic actions. Austrians know that without theory, data explains nothing.
Original Article: "Facts and Data Have No Meaning without a Theory to Explain Them"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
In a recent essay, I explained how over time the US abused its responsibility to control the supply of dollars, the world’s premier reserve currency for settling international trade accounts among nations. This abrogation of its duties is leading to the likely adoption of a new reserve currency, commodity based and controlled not by one nation but by members, all watchful that the currency is not inflated.
Let us continue the analogy of an individual receiving a “magic checkbook” which allows him to write as many checks for as much money as he desires. Receivers of these checks could only pass them along to others through the normal course of trade. Over time the owner of the magic checkbook becomes increasingly irresponsible. He funds all kinds of welfare and warfare initiatives.
Naturally dollar reserves build to levels completely unnecessary for peaceful exchange. Prices start to rise at a faster and faster rate. Then a reform consortium assembles a team to offer an alternative currency. Why, one may ask, is that such a problem for the dollar and dollar users?
The Weimar Republic: A Lesson in Supply and Demand A successful alternative reserve currency would dilute demand to hold dollars. When demand for dollars drops, its price must drop unless and until its supply drops. (A drop in the dollar’s “price” is just another way of stating that its purchasing power falls—i.e., more dollars are required to buy the same goods and services.) Through irresponsible use of the magic checkbook, you have obligated yourself to funding a free-for-all of entitlements such as Social Security, Medicare, and the military-industrial complex being the largest by far. Politically, it may be almost impossible to cut any of these three categories of spending to the extent necessary to arrest the dollar’s drop in purchasing power.
The world has seen all this before, and not just in less developed nations like Zimbabwe. The US will find itself in the same trap as experienced by Germany’s Weimar Republic following World War I. The Reichsbank, Germany’s central bank, printed papiermarks to placate powerful constituencies within Germany. As the Reichsbank printed more money, the purchasing power of papiermarks dropped. And herein lay the trap. Rising prices led powerful constituencies to demand increases in pay and benefits. Industrial labor unions, government civil servants, welfare recipients, old age pensioners whose life savings were being decimated—all demanded more money. Strikes and violence became endemic. So, the Reichsbank printed more money … which, of course, simply led to higher prices and another round of payment increases … which led to even higher prices until the papiermark became worth more as wallpaper than money.
Why did the Weimar Republic government continue to increase payments, and why did the Reichsbank continue to print papiermarks? Many sophisticated answers have been advanced, such as that the government and the Reichsbank deliberately destroyed the papiermark in a roundabout plot to thwart the financial terms of the Versailles Treaty in which a defeated Germany was ordered to pay reparations to the Allied powers. But the simplest answer is that both believed that there was no other choice than to increase payments and print money in a crisis. It was felt that powerful constituencies must be placated in the short run.
But short run tactics just made things worse. There was neither the political will nor the economic understanding of the need to end excessive spending and currency debasement and endure the pain thereby induced.
The US and the UK: A Lack of Political Will and Economic Understanding I fear that the same is true today. In fact, the seeming lack of adverse consequences (all in the long term) and advantages of money printing in the short term have led to a knee-jerk response by the US Treasury and the Federal Reserve Bank to increase the money supply and lower interest rates in the face of any economic problem, even higher prices themselves. For example, just look to Britain. Its energy shortages have caused prices to rise. The government’s response has been to pledge payouts to households! That’s right. No pledge to dismantle barriers to increased energy production … just a pledge to increase the government’s deficit, which requires more money printing! As the saying goes, you can’t make this stuff up.
One thing is certain, however. What Britain can do, the US can and will do in spades. Hyperinflation is a real possibility. Remember, the Reichsbank in Weimar Republic Germany actually had to print physical money. The US Federal Reserve Bank need only click a few buttons on a computer. As prices rise, powerful groups demand more money. Police, firemen, road workers, etc. Demand that they not suffer a lowering of their lifestyle. Since government is spending someone else’s money, it accedes to these demands.
Back to our British example. The exchange value of the pound has been plummeting in currency markets, leading to serious consequences. The Bank of England was forced to raise interest rates and now government debt has become unaffordable. So, the Bank, as handmaiden to the government, has applied the only politically permissible remedy that it knows: its computers’ money printer is forced into overdrive, just to keep up.
What Happens on the Ground Where does government get its money? State and local governments get money from state and local taxes. So captive property owners get increased tax bills to pay for maintaining public school teachers, police, etc. Social Security recipients must be compensated, of course, so payroll taxes are increased, which depresses business. American products become less competitive on the national and world market.
The price spirals continue to destroy all in their path until the dollar loses all purchasing power and society descends into chaos. And not one politician in a thousand understands what happened, or if he does understand, does not have the political will to do anything about it—i.e., reduce public spending, liquidate the Fed, and tie the dollar to our still significant gold reserves. It can be done.
Progressives are quick to blame escalating healthcare costs on free markets, yet it's government rules and policies that are responsible.
Original Article: "In Government-Regulated Healthcare, There Is No Competition Like No Competition"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
“Democracy” is the new “revolutionary.”
In the old Marxist regimes, anything that displeased the regime was said to be contrary to “the revolution.” For example, in the Soviet Union, national leaders spoke regularly of how the nation was in the process of “a revolutionary transformation” toward a future idealized communist society. Many years after the actual revolution and coup d’état in Russia following the collapse of tsarist rule, the word “revolution” had “positive connotations and was considered a source of legitimacy in official ideology.”
“Revolutionary” became a synonym for “a thing we like,” and it’s no surprise that a 1952 Soviet legal manual lists “counterrevolutionary” activities as among the “political crimes … deemed generally dangerous crimes against the order of the state.” Moreover, in the early 1950s, when Mao Zedong launched new efforts to consolidate Communist power, he called the effort a “campaign to suppress counterrevolutionaries.” Other regimes adopted similar practices as well. Fidel Castro’s regime frequently launched investigations and campaigns against “antirevolutionary” dissidents and Ethiopia’s Marxist governments in the 1970s described domestic opponents as guilty of “anti-revolutionary crimes.”
Anything that was deemed “counterrevolutionary” or “antirevolutionary” was assumed to be an awful thing that was a threat to the reliably vague notion of progress toward the fulfillment of the alleged revolution. The vagueness of the term was, of course, an advantage from the point of view of the regime. Consequently, to be a counterrevolutionary required nothing more than to be guilty of thought crime by subscribing to heterodox views on the current ruling party.
Thus, to be a counterrevolutionary was simply to be opposed to the regime, regardless of one’s actual ideological views. This is why communist Emma Goldman (a bona fide revolutionary) could be denounced as “antirevolutionary” for expressing doubts about the virtues of the Soviet regime. One’s support for actual revolution was irrelevant, and “antirevolutionary” could simply be defined or redefined as whatever the regime found objectionable at any given time.
In the year 2022, we find the word “democracy” serving a similar role in political discourse. President Joe Biden has delivered two major speeches this year on how “democracy” will supposedly be abolished if his opponents win. Last week, former president Barack Obama solemnly intoned that if Republicans win in Arizona, “democracy as we know it may not survive.” Indeed, this has become something of a mantra among left-wing politicians and their media allies. One writer at Salon chastised voters for daring to let their votes be influenced by economic concerns when “democracy is under threat.” One New York Times headline bemoaned the apparent reality that voters don’t seem interested in “saving democracy” when it’s supposedly all so clear that “democracy is in peril.”
So why are so many voters allegedly ready to “trade democracy for cheap gas”? The answer probably lies in the fact that most voters can see what is obvious: the only thing actually in peril is the Left’s version of democracy, which is an anything-goes-including-rampant-voter-fraud model for US elections. Moreover, the Left wants a federal takeover of elections, which in the United States have always been at least moderately decentralized. Instead, the “prodemocracy” camp wants federally enforced election regulations prohibiting limitations on voting for aliens, dead people, and frauds. If the Left does poorly in this election, that’s a lot less likely to happen.
Any attempt to limit fraud—such as requiring identification for voters is denounced as “antidemocratic.” Indeed, nothing better shows this than the Left’s complaints about the fact that some law enforcement officers have monitored polling places. As one Georgetown University bureaucrat put it, allowing law enforcement personnel to guard ballot boxes might “intimidate” some people, and sends the message that voter fraud actually occurs. This, she tells us, is “abhorrent.” But at the core of this complaint is simply an aversion to the idea that the presence of police might scare some people away from ballot stuffing and other forms of fraud.
Ironically, by this way of thinking, to be “prodemocracy” is to not care whether the voting process is fraudulent. Thus, just like the term “revolutionary” under the old Communist regimes, the terms “democratic” and “democracy” in the US today cease to have any meaning and really just mean “what our side likes.”
After all, most reasonable people would conclude that democratic institutions exist whenever there are regular elections and generally universal suffrage for citizens. This is clearly the case in every state of the union. Moreover, the overwhelming majority of countries that the Left calls “democracies”—France, Germany, Iceland, etc.—have voter identification requirements, checks against double voting, and similar means of preventing fraud. In the United States, the Left calls all this “antidemocratic.”
The actual details of what it means to be prodemocratic or antidemocratic don’t actually matter when it comes to political discourse. The word “democratic” is an emotionally loaded term, and essentially code for “politically legitimate.” All that really matters is to call one’s allies “democratic” and to denounce the other side as “undemocratic.” In America today, to be labeled “democratic” means one has the approval of the ruling regime. Those who are labeled “undemocratic” are those who, like the “counterrevolutionaries” of old, have been deemed—rightly or wrongly—threats to the status quo.
Most economists believe that a general decline in the prices of goods and services is bad news because it is associated with major economic slumps such as the Great Depression. In July 1932, the yearly growth rate of US industrial production stood at –31 percent whilst in September 1932 the yearly growth rate of the US Consumer Price Index (CPI) stood at –10.7 percent.
Many economic commentators claim that a general fall in prices is always harmful, since it postpones people’s buying of goods and services, which in turn, they believe, undermines investment in plant and machinery, setting an economic slump into motion. Moreover, as the slump further depresses the prices of goods, the pace of economic decline intensifies.
In contrast, Austrian economists such as Murray Rothbard have believed that in a free market the rising purchasing power of money—i.e., declining prices—is the mechanism that makes the great variety of goods produced accessible to many people. Rothbard wrote:
Improved standards of living come to the public from the fruits of capital investment. Increased productivity tends to lower prices (and costs) and thereby distribute the fruits of free enterprise to all the public, raising the standard of living of all consumers. Forcible propping up of the price level prevents this spread of higher living standards.
Also, according to Joseph Salerno:
Historically, the natural tendency in the industrial market economy under a commodity money such as gold has been for general prices to persistently decline as ongoing capital accumulation and advances in industrial techniques led to a continual expansion in the supplies of goods. Thus, throughout the nineteenth century and up until the First World War, a mild deflationary trend prevailed in the industrialized nations as rapid growth in the supplies of goods outpaced the gradual growth in the money supply that occurred under the classical gold standard. For example, in the US from 1880 to 1896, the wholesale price level fell by about 30 percent, or by 1.75 percent per year, while real income rose by about 85 percent, or around 5 percent per year.
Countering Falling Prices with Money Pumping Weakens the Economy Whenever a central bank pumps money into the economy to counter a general decline in the prices, this policy benefits those engaged in activities tied to loose monetary policy, but at the expense of wealth generators. Through loose monetary policy, some individuals become consumers without the prerequisite of contributing to the pool of real saving. Their consumption is made possible by diverting real savings from wealth producers.
If the pool of real savings still is growing, goods and services patronized by non–wealth producers appear to be profitable. However, once the central bank reverses its loose monetary stance, diversion of real savings from wealth producers to non–wealth producers is arrested, undermining the demand of non–wealth producers for goods, and exerting downward pressure on their prices.
While the pool of real savings expands, monetary pumping generates the illusion that loose monetary policy is the right remedy to counter a general decline in consumer prices. This is because the loose monetary stance, which renews the flow of real savings to non–wealth producers, props up their demand, arresting or even reversing general decline in prices.
Because the pool of real savings is still growing, the pace of economic growth stays positive. Hence the mistaken belief that a loose monetary stance that reverses a fall in prices is the key to reviving economic activity. The illusion that through monetary pumping it is possible to keep the economy going is shattered once the pool of real savings begins to decline.
Lending Out of “Thin Air” Encourages Unproductive Activities When loaned money is fully backed by savings on the day of the loan’s maturity, it is returned to the original lender. For instance, Bob—the borrower of $5—will pay back on the maturity date the borrowed sum and interest to the bank. The bank in turn will pass to Joe the lender his $5 plus interest adjusted for bank fees. The money makes a full circle and goes back to the original lender. In contrast, when the lending originates out of “thin air” and the borrowed money is returned on the maturity date to the bank, this leads to a withdrawal of money from the economy, decreasing the money supply.
Because there was no saver/lender, this lending emerged out of “thin air.” When Bob repays the $5, the money leaves the economy, since there is no original lender to whom the loaned money should be returned. Observe that the $5 loan involves an exchange of nothing for something, providing a platform for unproductive activities that prior to the loan would not have emerged.
While banks continue to expand credit, various unproductive activities will prosper. At some point, however, a structure of production emerges that ties up more consumer goods than are released. (The consumption of final goods exceeds the production of these goods.) The positive flow of savings is arrested and a decline in the pool of real savings is set into motion.
Consequently, productive activities deteriorate, and bad loans accumulate. In response, banks curtail their lending out of “thin air,” triggering a decline in the money supply.
A decline in the money supply undermines unproductive activities, leading to a recession. The economic slump is not caused by the decline in the money supply as such but comes in response to the shrinking pool of real savings related to previous easy monetary policies. This decline in real savings leads to the decrease in economic activity and, in turn, to the decline in the lending out of “thin air,” resulting in the decline in money supply.
Consequently, even if the central bank were to be successful in preventing the decline in the money supply (dropping money from a helicopter), this cannot prevent an economic slump while the pool of real savings is declining. Hence, the more the central bank attempts to lift the economy by attempting to counter the fall in prices and rising unemployment, the worse things become. Once various unproductive activities are allowed to go bankrupt, and the sources of money supply out of “thin air” are sealed off, one can expect wealth expansion to emerge.
A decrease in the money supply preceding price deflation and an economic slump is triggered by the previous loose monetary policies of the central bank. These policies are tied to previous credit expansion. Without this support, banks would have difficulty offering credit, since some of them would not be able to clear their checks due to lack of cash. The central bank, via open market operations, ensures that there is enough cash to prevent insolvency in the banking system.
Summary and Conclusion An economic slump is not caused by the decline in the money supply but rather is a response to the shrinking pool of real savings caused by previous easy monetary policies. The shrinking pool of real savings leads to the decline in economic activity and then to the decline in the lending out of “thin air,” causing a decline in the money supply.
A great benefit of the internet age is the capacity to accumulate, accelerate, and intensify connections between entrepreneurs, knowledge sources, investors, mentors, collaborators, and service providers. Businesses with a valid value proposition who are in the launch and early expansion phases can interconnect a network of powerful and qualified resources to support their growth. A good way to do so is to utilize a platform (another product of the internet age) designed for the purpose. Tom Malengo established a platform called Brandjectory to serve just this purpose for consumer packaged goods (CPG) startups.
Key Takeaways and Actionable Insights. Brandjectory’s value proposition is to solve the problem of how to build an investor-ready business. The purpose of a B2B business is to help customers achieve their own purpose. Brandjectory helps with the purpose of becoming investor-ready, the condition of qualifying for funding in the eyes of investors. The problem is multi-faceted, from having an investable value proposition, to having the systems and structure in place to qualify for investment, to overcoming the functional obstacles of expansion, to having access to investors, to having the capability to pitch effectively and persuasively. Brandjectory helps with all phases, for all stages of investable business from pre-market seed stage to post-market Series A where a proven business model and revenue stream represents the bar.
All knowledge is specialized: select and know your sector. Brandjectory focuses on consumer packaged goods businesses, often identified by the acronym CPG. It’s a sector with open-ended innovation opportunities — e.g., how to make foods and beverages and cleaning products and pet products healthier — along with an identifiable set of obstacles to overcome, such as the cost and difficulty of securing and maintaining distribution in supermarkets and other retail channels. An investable business knows the available innovation gaps and has a practical knowledge of barriers and how to overcome them.
Define value in your sector with reachable target customers. The Brandjectory system stresses the understanding of subjective value — that it’s an experience of the customer, and is defined by what they feel is important to them and how they feel a new brand will satisfy their need in that area of their life. Value demands an emotional connection, sustained over time. Too many founders, says Tom Malengo, CEO of Brandjectory, do not exhibit a full understanding of value. They are more focused on what’s new or different about their product, or on their recipe or ingredients. This is a functional perspective, and misses the emotional component. Tom’s technique in assessing a founder’s understanding of subjective value is a careful but intense questioning, driving towards a true focus on what’s important to consumers.
Value understanding must be translated into a value proposition. A value proposition is a structured template for the communication of proposed value to the consumer, enabling them to recognize it. The value proposition must capture the emotional element of value — how consumers will feel better. It’s not just about good taste, for example, but the joy of consumption, the family sharing, the feeling of contributing to health rather than undermining health.
On econ4business.com, you can read about value propositions (Mises.org/E4B_195_Value), and watch the E4B value proposition design video (Mises.org/E4B_195_Video).
Potential investors will probe for the founder’s true understanding of value propositions — it’s a qualitative rather than quantitative assessment. A founder must be skilled and effective at communicating this understanding.
Investor-readiness also implies an identification of all the challenges to growth and how to overcome them. Investor-readiness will vary by business stage. The state of readiness might encompass the capacity of the sales network, or of production processes, or the scalability, sustainability and security of the supply chain, or the strength of processes and systems, or the innovation pipeline, or the quality of the advisor group. Tom’s guidance to founders ensure that they know all the questions investors will ask, and leave nothing to chance in framing their answers.
The required knowledge-building is achieved through networking and connecting. A major benefit of the Brandjectory platform is its network of advisors, industry experts, mentors, and investors. Founders can connect to them and meet them, and not just listen but also gather knowledge through questioning and discussion. Plugging in to a powerful knowledge network is less stressful than pitching and more conducive to learning.
The members of the network have a wide range of incentives. Investors can pick up information about trends and new ideas even if they don’t invest directly. Industry experts can sense the response to their information and knowledge sharing and get market feedback. Many mentors enjoy the sense of giving back to their industry and community after years of working. All entrepreneurs can, and should, assemble a network like this. Brandjectory is a convenient way to do it for CPG entrepreneurs.
It's important to understand the role of knowledge in firm performance.
Tom Malengo says knowledge is power for entrepreneurs — the power to solve problems, address challenges and overcome obstacles. It can be a competitive advantage to gather more specialized knowledge than competitors and incumbents.
Professor Per Bylund sees specialized knowledge as solving the production problem (see Mises.org/E4B_195_Book) — the difficulty of initiating new economic production that no-one else has ever attempted, i.e., innovation.
Brandjectory takes the problem-solution approach to knowledge building. Entrepreneurs who confront a problem or issue or knowledge gap can ask the appropriate question of the appropriate expert or tap the experience of a more seasoned businessperson and benefit from the exchange, a kind of accelerated learning.
Brandjectory is a celebration of the all-American practice of entrepreneurship. Tom Malengo views entrepreneurship as the fabric of civilized society, a tradition that is especially strong in America. Our first settlers and many of our founders were entrepreneurs, and the encouragement of new ideas from any and all sources, giving everyone the chance to pursue their commercial development and experience economic success is woven into our way of life.
An entrepreneur, as Tom sees it, is someone who refuse to tolerate the existing status quo and demands better and is willing to exert their own effort and expend their own resources to bring it about — a very Misesian view. Through Brandjectory, he intends to help and support all those in pursuit of betterment in CPG. His platform concept — where the business model is to invite entrepreneurs to join for a fee, with unlimited free access to the knowledge platform and expert network, no commissions, middleman dealmaker cuts, brokerage charges, retail markups, affiliate costs or any other “bite” — is pure support for aspirational growth companies.
Additional Resources Brandjectory website: brandjectorynow.com
Tom Malengo on LinkedIn: Mises.org/E4B_195_LinkedIn
Pakistan, like so many other countries, is seeing inflation close to spiraling out of control. As for finding causes, monetary authorities should look in the mirror.
Original Article: "Inflation in Pakistan: Follow the Money"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Billionaire Jeff Bezos has become a target of ridicule because his ex-wife MacKenzie Scott has been doling out colossal sums to charity. Compared to Scott, Bezos’s donations are quite slim and many are painting him as stingy. But are critics misguided in how they perceive the utility of philanthropy? Numerous lives have been transformed due to the exploits of charitable people, so Scott cannot be faulted for her philanthropy.
However, philanthropy is no substitute for market-based innovations that increase incomes, improve living standards, and promote prosperity. Wealth creation is the engine that sustains philanthropy, so it’s unsurprising that America is the richest and most philanthropic nation on earth. If Jeff Bezos did not launch a gamechanger like Amazon, MacKenzie Scott would not have billions to lavish on charity.
Without savings and investments in breakthrough innovations, it’s impossible for philanthropy to scale. The attacks heaped on Bezos indicate that pundits have a gross misunderstanding of the tools to eradicate poverty. Charities ease rather than cure the pains of poverty. Giving billions to charity is emotionally gratifying, but it’s better for entrepreneurs to focus on delivering value through capital formation and technological upgrades in the long term
Instead of judging people like Jeff Bezos for failing to be more extravagant in their charitable donations, onlookers must think about the long-term impact of commercial investments. Philanthropy serves a purpose; however, entrepreneurship provides high-quality jobs to reduce poverty and makes people less reliant on philanthropy. Despite its virtues, philanthropy is not a long-term poverty eradication strategy.
If people appreciated the short-termism of philanthropy, they would not be mocking Jeff Bezos for pursuing space exploration at the expense of donating to charity. Space exploration is a new terrain with unlimited opportunities for innovation, entrepreneurship, and job creation. To some, it seems silly, but such is the story of most new industries until people start to reap the benefits.
Today, journalists are jeering Bezos for what they deem to be childish antics, but in the future, they will be fighting to report on his exploits and calling themselves pioneers in space journalism. Meanwhile, on the other hand, thought leaders laud MacKenzie Scott for her philanthropy, yet few are talking about accountability. There is no guarantee that her resources will be used efficiently, and to complicate matters, more studies are suggesting that charities are plagued by corruption.
Research pinpoints that in some cases less than 5 percent of donated funds are used to support the goals of nonprofits. In the worst-case scenarios, officials actually pocket or misuse funds that were allocated for social causes. Moreover, because some charities attract significant overhead expenses, funds can be deployed to solve administrative challenges.
Furthermore, onlookers don’t know enough about Scott’s mechanisms to monitor the effectiveness of her donations, so we can’t comment on the usefulness of her project. Nevertheless, readers are reminded that in 2010 Mark Zuckerberg donated $100 million to an education foundation in New Jersey, however it was later revealed by Mayor Ras Baraka “that the foundation did not use the money wisely.” According to Baraka at a Wall Street Journal conference the money “didn’t go to the city and it didn’t go to the school system either. It went to a foundation that made decisions about what the money should be spent on.”
Philanthropy can become wasteful if not properly monitored. Also, criticizing Bezos and other entrepreneurs for not being philanthropic seems rather odd, since this fails to recognize that entrepreneurs are the best givers. In Bezonomics, Brian Dumaine explains that Bezos has already given back to society through Amazon’s success in pleasing consumers: “Since, its inception, Amazon has been all about making life better for consumers. It uses its AI flywheel to constantly drive down prices and speed up deliveries of products…. Consumers trust Amazon more than any other U.S. brand…. Punishing the company for being more efficient than its competitors doesn’t make sense, especially when it passes its savings along to consumers as lower prices.”
Entrepreneurs are maligned for accumulating immense wealth; however, without their foresight, our society would be considerably poorer. One frequently vilified success story of American entrepreneurship is Walmart. Nonetheless, economic research argues that proximity to Walmart supercenters bolsters the food security of households and the effects are largest for low-income households and children.
In the tech sector, David Byrne and Carol Corrado in a 2019 paper submit that innovations in consumer digital services boosted consumer surplus by nearly $2,000 during 1987–2007 and contributed 0.6 percentage point to US gross domestic product per year between 2007–17. None of this would be possible without entrepreneurial activities.
The philanthropy of MacKenzie Scott is a noble act, but greater value is created from the exploits of entrepreneurs like her ex-husband and his peers. MacKenzie Scott could give her entire fortune to charity; however, the best way to enrich society is to invest in entrepreneurship and innovation.
It’s been a rough year for advocates of Modern Monetary Theory (MMT). After nearly two years with all the budget deficits and money printing MMTers could have wanted, the doctrine’s popularity seems to have faded now that we’re well passed the honeymoon phase. 2022 has clearly demonstrated that creating a lot of new money and running massive government deficits does, in fact, come at a cost. We should let this theory die before it causes any more destruction.
MMT is a school of thought born and raised on the internet during a thirty-year period of low price inflation with constant debate over government budgets. Advocates argue that because the U.S. government is a currency issuer, we can drop all the talk about finding money for government programs. All that is needed is the political will to fund things with newly printed money. Suddenly in early 2020, that political will appeared overnight at a scale no one could have imagined even weeks before.
The Federal Government embraced deficit spending to prop up the economy amidst imposed lockdowns and trade restrictions. Now, 31 months later, the National Debt has increased by almost $8 trillion. At the same time, the money supply, as measured by M2, grew by $6 trillion, an increase of nearly 40%. Most critics of the free market would probably classify this historic level of money printing and debt as an unfortunate but necessary response to unprecedented circumstances. But not advocates of MMT. This is what they’ve been wanting all along.
According to MMT, having concerns about the national debt is antiquated and childish. In fact, they argue that the total national debt is nothing more than a record of how many dollars there are in the pockets of private citizens. A higher national debt is not a consequence of MMT; it’s the entire point. The pandemic was, in many ways, MMT’s moment.
Predictably, the historic level of monetary inflation paired with the government-imposed production slowdown has resulted in levels of consumer price inflation not seen in 40 years. The rate appears to have peaked in June 2022, with prices on average 9.1% higher than the year prior. Producer price inflation also peaked in June at 11.3%. Although most MMT advocates had been dismissive of inflation, that’s not something they would have said was impossible. The problem for them is what they think needs to be done about it.
Just as MMT sees the national debt as a measurement of all the dollars the government created and put into people’s pockets, taxes are the tools for the government to take money back out of the economy if inflation gets too high. Setting aside how economically flawed this characterization is, a government following the MMT playbook will run into a political problem at this point in the cycle.
It is relatively easy to convince politicians and everyday people that the government programs they dream about can be funded by creating new money. And the true cost of this method—currency devaluation—is not felt or seen immediately. That adds to the illusion that something can be had for nothing. But taxes are the opposite. Everyone can see the line on their receipt, the amount withheld on payday, and the check they have to send to the IRS each April. The economic pain is felt without any clear, immediate benefit.
During periods of high inflation, there is a general sense amongst everyday people that the same amount of money isn’t cutting it. Sure, the initial cause may be a higher money supply, but any given person will feel like possessing more money is the key to getting by. After all, prices keep going up. They’re not going to react as well to the argument that Uncle Sam should confiscate even more of their dollars. If MMTers thought it was difficult to cultivate the political will to inflate, they clearly haven’t been thinking further down the road.
Interestingly, we’re not hearing much about raising taxes from MMT advocates these days. Or at least, their claims haven’t been amplified by Democrats and progressives as much as earlier arguments to print more money were. Just as they have done with Keynesianism for decades, politicians will grab any economic theory that justifies what they want and drop it when it prescribes something they don’t. And thank goodness for that. The last thing we need is more taxes.
This year has demonstrated that printing vast quantities of money is costly. And that the political will to even stick with MMT breaks down when the going gets tough. That should be enough to completely discredit this ridiculous theory.
Among Mises's contributions was his doctrine of consumer sovereignty in a free market.
Original Article: "Consumers, Workers, and Monopolies: Free Markets Serve All"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Since the reordering of Augustus, during the first two centuries of the empire, the Roman state manipulated the intrinsic value of the denarius argenteus, the main axis of the imperial monetary system, from the theoretical 3.892 grams and between 97.0 and 98.0 percent silver to 3.22 grams and 56.5 percent silver at the end of the second century AD.
The increase in military expenditure, social aid, payments to specific pressure groups, new public works, and various types of excesses greatly strained the indebtedness of the Roman state. Inflation was moderate in these first two centuries, averaging 0.7 percent per year, but excessive public spending seriously threatened to push overall prices and the stability of the imperial economic system out of control.
Caracalla, the “new Alexander,” continued and expanded the war policy of his father, Septimius Severus: he increased military pay to twenty-four hundred sesterces a year to undertake new campaigns against the Alamanni and Parthians, whom he bribed for peace, and to pay for everything, he again increased taxes and pursued a new expansive monetary policy. He devalued the three main coins: the aureus to 6.6 grams of gold, the denarius to 51.5 percent silver, and the sestertius to 24.8 grams of brass.
But his main invention was the creation of the argenteus antoninianus, weighing 1.5 denarii, or 5.11 grams, containing between 46 and 51 percent silver, but with the face value of two denarii, which became the standard coinage during the third century. At that time, inflation was still below 1 percent per annum and general prices were 2.67 times those of the Augustan period.
His successor, the prefect of the praetorium Opilius Macrinus, tried again to raise the official content of the denarius to 58.0 percent silver and to abandon the antoninianus project, but after his short-lived reign, Heliogabalus again returned to excessive public spending. The eccentric emperor-priest lowered the weight of the aureus to 6.35 grams of gold, the content of the denarius to 46.5 percent silver, and the weight of the sestertius to 22.5 grams of brass, as well as resuming the minting of the antoninianus with a content of 43.0 percent silver. The copper ace of Augustus began to disappear.
The fall from grace of the Severan dynasty marked the beginning of a period of profound political instability and economic crisis throughout the Roman Empire: up to twenty-six emperors reigned over the next fifty years, one emperor every two years on average. Gordian III, supported by the Praetorians, further reduced the weight of the golden coin to 4.85 grams, the antoninianus to 4.35 grams, and the sestertius to 20.5 grams to pay for his disastrous campaign against Sapor I of Persia.
But the empire would hit rock bottom in the middle of the century under Gallienus, who, in his fifteen-year reign, had to deal with more than ten different barbarian invasions and fifteen other usurpers of the imperial throne throughout the world. The devaluation of the coinage skyrocketed to levels never seen before, bringing the weight of the aureus down to 3.4 grams and the sestertius to 16.9 grams. However, the bulk of the devaluation went to the silver denominations: the antoninianus went from 3.5 grams and 36.0 percent silver in 253 to 2.4 grams and 2.4 percent silver in 268, while the denarius went from 41.0 percent silver to 6.0 percent silver. Denarii, sestertii, and dupondii virtually disappeared from circulation; as a result, the Roman population returned to barter and subsistence economy. Although general prices were only three times those of the Augustan period; this changed drastically shortly after.
Aurelian, the representative of the Unconquered Sun on earth, defeated the empires of Gaul and Palmyra and was thus named Restitutor Orbis. However, Aurelian intervened at the Moneta Caesaris, the headquarters of the Roman mint in the Imperial era, to stop a mass revolt of its workers, who demanded the restoration of confidence in the coins issued by the Roman state. Soon after, he launched his particular monetary reform: the aureus recovered the 6.6 grams of Caracalla’s time, and the argenteus aurelianianus, or large radiate, weighing 3.89 grams and containing 4–5 percent silver, was created to replace the depreciated antoninianus.
However, the Roman state requisitioned many goods needed to feed and clothe the troops, such as wheat, meat, wine, oil, textiles, and leather, while industry and commerce continued to deteriorate. These phenomena further aggravated the growing inflation: fewer and fewer goods were available on the market, and the mass of depreciated currency became larger and larger and circulated more and more.
At the end of the century, Diocletian tried to halt the disintegration of the Roman economy with “Keynesian” public policies that did not solve anything. Thus, the army was greatly expanded, adding thirty-five new legions to the forty-odd that existed before; a multitude of public works was carried out, including factories, mints, fortresses, roads, and bridges, as well as luxurious baths in Rome and his palace in Split; and, finally, a major program of expansion of the provincial bureaucracy was undertaken, so excessive that even Lactantius recognized that the number of public workers had begun to outnumber private taxpayers.
At the same time, he put in place a renewed monetary system more complex and articulated than that of his predecessors: the aureus, transformed into solidus, rose to 5.45 grams, with a renewed content of 99.26 percent gold; and the argenteus, with a weight of 3.38–3.40 grams and a surprisingly high silver content of between 92.00 and 98.00 percent, was created to replace the aurelianianus. Finally, three new copper and bronze coins were created: the 10.52-gram follis, laureatus maior, or nummus, composed of copper, lead, tin, and between 3.00 and 4.00 percent silver; the three-gram radiatus, with a composition of bronze and 0.10 percent silver; and the 1.27-gram bronze laureatus minor.
Diocletian carried out systematic confiscations of silver, war levies, new taxes, expropriations of metal at assessed prices and surcharges on land and property to ensure the practical application of this new monetary system application of censuses and annual budgets. As a result, the Roman economy became irreparably unbalanced: by Gresham‘s law, the argenteus was quickly thesaurised and disappeared from circulation. Inflation also turned into hyperinflation: if in 284, general annual inflation was 5 percent, by 294, general prices were fourteen times those of the Augustan era and inflation had risen to 10 percent; by 301, on the other hand, general prices were seventy times those of the Augustan era and inflation had soared to 35 percent.
By the end of the third century, the expansive monetary policies that Roman emperors had been continuously using to maintain their hold on power, to acquire political, military, and social support, had exhausted the Roman economic system throughout the empire.
To the Cantillon effect, which favored friends and colleagues of the emperor, generals, and allied senators, was now added Gresham’s law, which chronified the presence of coins of little intrinsic value on the market. The increasingly frequent confiscations, taxes, duties, and expropriations of gold and silver diminished the confidence of the Romans, who began to hide their property underground: we have 1724 and 1985 hoards from the 1st and 2nd centuries, respectively, a figure that doubled in the third century, with 3937 hoards. The rampant increase in the total money supply, together with the general decline in population and labor due to wars, pestilence, and other phenomena, generated annual hyperinflation of 35 percent at the end of the third and beginning of the fourth century: the Roman economy was no longer able to absorb all the newly created money and the prices of all goods were profoundly altered.
The rejection of low-quality currency led to the rise of barter, which reduced the possibilities of long-distance trade and economies of scale, condemning the various inhabitants of the empire to local and subsistence production. The large specialized industrial and agricultural producers dwindled, as did the various guilds of craftsmen and merchants in the different cities of the Mediterranean, forcing the emperors to create public companies to supply their armies, making the system more inefficient and costly.
The resulting economic crisis exacerbated state tax collection: the emperors were increasingly forced to pay the army and to collect tribute largely in kind, through indictiones extraordinariae, which became the most important form of revenue during the second half of the third century. The result was widespread poverty and the destruction of much of the Roman economic fabric.
As inflation advances and the economy slowly implodes, we also learn valuable lessons.
Original Article: "The Economy Is a Mess: What Lessons Will We Learn?"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
The end of world dollar hegemony is coming and hardly anyone in government is taking notice or even understands what this means. Since the Bretton Woods Conference in 1944, the dollar has been the only currency accepted throughout the world for settlement of international trade accounts among nations.
Prior to 1944, physical gold was used for international settlement. When an exporter in country A sold goods to an importer in country B, country B would pay with its own currency. But country A would have no interest in allowing country B’s currency to build up in its vaults beyond an amount required to settle its own importers’ needs. Thus, country A would demand that country B redeem its own currency in gold. Sometimes country B would ship physical gold to country A. Or perhaps gold held in safekeeping in a third country would be designated as now belonging to country A, a book entry transaction that is more convenient than physical movement.
The Bretton Woods Agreement and Its Demise The Bretton Woods Agreement added the dollar as tantamount to physical gold at $35 per ounce. The reason was simple: at the end of World War II the United States had accumulated a preponderance of gold, due primarily to its role as the “arsenal of democracy.” Thus, central banks could exchange dollars for settlement rather than moving or redesignating the ownership of physical gold. The weakness of this system was that the world had to trust the USA not to create more dollars than it could redeem for gold at $35 per ounce. But central banks always had the option to demand physical gold from the USA and hence ensure that their trust in the measure of $35 per ounce was fully supported.
After approximately twenty years of this arrangement the market became concerned that the USA was not living up to its obligations. The origin of this concern was centered in France. President Charles de Gaulle himself was a firm proponent of the classical gold standard as was his financial advisor Jacques Rueff. Starting in the late 1960s de Gaulle ordered the Bank of France to redeem 80 percent of its vast dollar reserves for gold. Other central banks followed suit, and a typical bank run developed.
As USA gold reserves reached critically low levels, President Richard Nixon took the USA off the gold exchange standard, as the system of central bank redemption was called, in the summer of 1971. It did NOT devalue the dollar to gold, which it could have done, and promise to stop dollar expansion. Instead, the USA simply ended dollar redemption for gold, allowing the USA to create as many fiat dollars as the world market would accept.
It turned out that the world market would accept a lot of fiat dollars. A major reason was that Saudi Arabia, the world’s largest oil producer, agreed to demand payment in dollars for its oil, thus creating worldwide demand for dollars.
The Petrodollar Era Supplants Bretton Woods, but Its End Is Nigh This “petrodollar” arrangement is now breaking down, due to the ever-accelerating debasement of the dollar. The cause of the debasement is the unholy alliance of the Federal Reserve, the US central bank, and the US government. The Federal Reserve creates, out of thin air, all the dollars that the government needs to maintain its massive and ever-increasing spending deficit. The monetization of these deficits has led to a loss of dollar purchasing power at an accelerating rate.
The purpose of explaining all this is to give background to the currently developing situation. For almost eighty years the federal government has been able to spend as much as it desired, knowing that the world either would hold its dollars or that the Fed would monetize whatever the market would not accept—i.e., the Fed would buy the government’s debt itself and (figuratively) print the money it would give to the Treasury. The Fed would then hold the debt on its own balance sheet. The sheer scale of its intervention is shocking. In 2008 the Fed’s balance sheet what slightly under $0.880 trillion. Today it is $8.816 trillion. (See this graph from the Fed’s own website.)
So, what did the federal government do with all that newly printed money? It spent it on war and welfare, of course. Lyndon Johnson’s Great Society welfare state is now firmly entrenched and constantly expanding. The American military has intervened in every corner of the world. It seems that all that is necessary for the USA to intervene militarily is for some local disputant on the other side of the world, with its own incomprehensible historical animosities, to claim that its neighbor is invading its sovereign territory and/or committing atrocities. The American people are whipped into a frenzy of righteousness and off we go to Timbuktu. The result is thousands of dead, billions squandered, and the local situation even worse than before.
All this mayhem could only be funded by worldwide acceptance of the fiat dollar. But much of the world has had enough. There are several organizations that are cooperating to develop an alternative to the dollar for the settlement of international trade. The BRICS (Brazil, Russia, India, China and South Africa), the Shanghai Cooperation Organisation (SCO), and the Eurasian Economic Union have formed a working group to develop a commodity based medium of exchange to replace the dollar as the premier means for the settlement of international trade. Goldmoney’s Alasdair Macleod has written extensively about this project. More countries—especially countries currently using the dollar, such as Saudi Arabia—have announced their intensions to join the project. More, many more, will follow Saudi Arabia.
How to convey the importance of this development to the general public? It all seems complicated and probably years away. Plus, it may not work. That is the purpose of the next part of my article.
The Magic Checkbook Let’s break this down to the individual level, so that everyone can grasp its full meaning. Let us assume that you were handed a checkbook and told that you could write as many checks as you wished in any amount you desired and, most importantly, no one would refuse to take your check, and no one would cash it because the checking account has no money anyway. Whoever receives the check can only pass it along, via ordinary trade, to someone else.
First, you can see that once this money is created by you, it will never be destroyed. It will continue to grow every time you write a new check. In other words, the money supply will grow according to your propensity to spend. Now let’s assume that when given this magic checkbook, you had been a frugal and responsible person. That’s one of the reasons that you were given it in the first place. For some time, you continued to live frugally, but over the years your self-control breaks down and you start to spend.
To placate your conscience, you spend some of the money on others—i.e., the poor, the elderly, the disabled, etc. But eventually you succumb to ever increasing DEMANDS for money to compensate the victims of all kinds of disasters. If you don’t send money to the suffering masses, you are condemned by all.
So, you spend. Then you decide that you should spend money on rehabilitating humanity, exploring the solar system, funding higher education. The DEMANDS for money from your magic checkbook grow and grow. If you try to moderate your spending, you threaten to damage your reputation internationally.
Things get out of hand. But this isn’t the end of the story. The spending from the magic checkbook has created massive price increases and has funded a class of sycophants, deadbeats, and megalomaniacs. A splinter group decides to spurn accepting checks from the magic checkbook and develop a new medium of exchange. It isn’t easy, and it takes quite a while. There are advances and retrenchments, but eventually honest money reemerges. Now more and more people refuse to accept your checks from the magic checkbook.
Rise of a Competing Reserve Currency This is where the world is headed, because the USA cannot force sovereign nations to accept the dollar, especially if there is another and better choice. The USA has not lived up to its responsibility to protect the purchasing power of the dollar via controlling its supply. Lord Acton’s warning is as important today as ever—i.e., “Power tends to corrupt, and absolute power corrupts absolutely.”
The new SCO currency will supplant the dollar as the world’s premier reserve currency primarily because it will be backed to a large extent by commodities and it will not be under the control of one sovereign country but a number of sovereign countries, all dedicated to its monetary health in ensuring the free flow of international trade and payments. It will be a loss for the dollar, of course, and for the USA, but frankly, the world will benefit overall.
The Ponzi game known as selling US government debt is nearing its end. The seller is running out of suckers.
Original Article: "The Petrodollar-Saudi Axis Is Why Washington Hates Iran"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
At a time when inflation once again ravages the dollar, we recall Murray Rothbard's wisdom in his article "The Case for a Genuine Gold Dollar."
Original Article: "Rothbard on Gold"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
While Elon Musk says he will bring free speech back to Twitter, the forces of statism will not be still. The jury is out on how successful Musk's experiment will be.
Original Article: "Changing of the Guard: Can Musk Deliver on His Promises for Free Speech and Information?"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
In July 2022, the Canadian government announced its intention to reduce “emissions from the application of fertilizers by 30 percent from 2020 levels by 2030.” In the previous month, the government of the Netherlands publicly stated that it would implement measures designed to lower “nitrogen pollution some areas by up to 70 percent by 2030,” in order to meet the stipulations of the European “Green Deal,” which aims to “make the EU’s climate, energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55 percent by 2030, compared to 1990 levels.”
In response, Dutch “farm and agriculture organizations said the targets were not realistic and called for a protest,” which led farmers and their supporters to rise up across the country. The artificially designed Green Deal is one of the goals of Agenda 2030, which was adopted by 193 member states of the United Nations (UN) in 2015.
In addition to the UN, Agenda 2030 is also supported by a number of other international organizations and institutions, including the European Union, the World Economic Forum (WEF), and the Bretton Woods Institutions, which consist of the World Bank, the International Monetary Fund (IMF) and the World Trade Organization (WTO). It is also endorsed by some of the most powerful agrichemical multinational corporations in the world, such as BASF, Bayer, Dow Chemical, DuPont, and Syngenta, which, together, control more than 75 percent of the global market for farm inputs. In recent years, “the acquisition of Syngenta by ChemChina, and the merger of Bayer and Monsanto” have “reshaped the global seed industry.” Additionally, “DuPont de Nemours was formed by the merger of Dow Chemical and DuPont in 2017.” However, “within 18 months of the merger the company was split into three publicly traded companies with focuses on the following: agriculture with Corteva, materials science with Dow and specialty products with DuPont.”
In recent years, all of these corporations have issued statements suggesting that the agriculture sector will undergo major changes over the upcoming three decades, and that they are committed to doing their parts to accelerate the transition to so called green policies. Accordingly, they advocate for governments to redirect public finance away from conventional farming and toward regenerative agriculture and alternative protein sources, including insect farming and lab-grown meats.
Moreover, BASF, Syngenta and Bayer are members of “the European Carbon+ Farming Coalition,” which includes a number of “organizations and stakeholders along the food value chain,” such as “COPA-COGECA, Crop In, European Conservation Agriculture Federation (ECAF), European Institute of Innovation & Technology (EIT) Food, HERO, Planet Labs,” “Swiss Re, University of Glasgow, Yara, Zurich and the World Economic Forum.” Originally, this “coalition emerged as a partnership between the World Economic Forum’s 100 Million Farmers platform and its CEO Action Group for the European Green Deal.”
Its objective is to “decarbonise the European food system” by accelerating the transformation of farming and agricultural practices. More specifically, the European Carbon+ Farming Coalition seeks to attain “zero gross expansion in the area of land under cultivation for food production by 2025, reduction in total territories used for livestock of about one-third by 2030, and a consequent freeing up of nearly 500 million hectares of land for natural ecosystem restoration by the same date.” According to the WEF, in addition to benefitting the environment, such changes will also be economically advantageous, as “changing the way we produce and consume food could create USD 4.5 trillion a year in new business opportunities.”
In order to accelerate the transformation of farming over the coming decades, BASF calls for requiring “farmers to decrease their environmental impact” by reducing “CO2 emissions per ton of crop by 30 percent,” and applying “digital technologies to more than 400 million hectares of farmland.” BASF also supports the wide use of a number of new products, including “nitrogen management products,” herbicides, “new crop varieties,” “biological inoculants and innovative digital solutions,” so as to make farmers “more carbon efficient and resilient to volatile weather conditions.” It is estimated that such changes would “contribute significantly to the BASF Group target of €22 billion in sales by 2025.”
Meanwhile, Syngenta, the world’s second-largest agrochemical enterprise (after Bayer), which is owned by a Chinese state-owned company called ChemChina, focuses on “carbon neutral agriculture” under the pretense of “combatting climate change.” More precisely, it supports “providing technologies, services, and training to farmers,” as well as the further development of new gene-edited seeds that would lower the emission of CO2. According to Syngenta, “gene-edited crops” will be widely used and cultivated across the globe “by 2050.”
This company also promotes “a transformation toward regenerative agriculture,” which is claimed to “lead to more food grown on less land; reduced agricultural greenhouse gas emissions; increased biodiversity; and enhanced soil health,” though there is scant scientific evidence or long-term data to back up these assertions. Nonetheless, Syngenta argues that the world needs “governments and media … to encourage widespread adoption” of regenerative practices by as many farmers as possible.
Bayer also advocates for regenerative agriculture to help “farmers significantly reduce the amount of greenhouse gas their operations emit, while also removing carbon from the atmosphere.” It further claims that it is necessary “to shift to a regenerative approach and make crops more resilient to climate impacts.” Additionally, much like Syngenta, Bayer supports the development of “new gene editing technologies” in order to reduce “the environmental footprint of global agriculture.” Looking ahead, Bayer foresees that, “in agriculture, biotechnology will be a critical enabler” that will be used to “feed the 10 billion people that will be on the planet by 2050 while at the same time fighting the impact of climate change.”
Similar to Bayer, BASF, and Syngenta, DuPont also seeks to contribute to decreasing “dependence on fossil fuels, and protecting life and the environment.” Its response primarily focuses on facilitating the production and consumption of alternative protein sources that can reproduce “the texture and appearance of meat fibers, and can be used to extend or replace meat or fish.” DuPont pointed out that “in 2016, Americans consumed about 26 kg of beef per capita, at least half of which was eaten in the form of a hamburger. Replacing just half of America’s burger meat with SUPRO® MAX protein,” which has a carbon footprint that is up to eighty times lower than dairy and meat proteins, is equivalent removing “more than 15 million mid-sized cars from the road.”
Some of the world’s most powerful multinational agrichemical corporations have benefitted immensely from international trade agreements that put their interests ahead of those of small- and medium-size farms, as well as the masses, when it comes to transforming the food and agriculture sectors. In particular, the World Trade Organization’s agreement on trade-related aspects of intellectual property rights (TRIPS), which was adopted in 1994, played a major role in destroying the livelihoods of many farmers, while proving lucrative to agrichemical giants like BASF, Bayer, Dow Chemical, DuPont, and Syngenta. This is mainly because TRIPS has allowed for the patenting of seeds and plants.
As a result, native herbs and plants in a number of different countries, many of which had previously been farmed for generations, became the sole properties of powerful agrichemical multinational corporations. After plants and herbs have been patented, local farmers are forbidden from engaging in the traditional and longstanding practices of saving and replanting their own seeds. Instead, they are required to pay the patent holding corporations for the same seeds that they had previously produced, saved, replanted, and exchanged at no cost.
Powerful agrichemical multinational corporations have also furthered their own interests and agendas by exerting unprecedented influence over research and development in the food industry, while ignoring any findings demonstrating that their business practices were harmful to the natural environment. In particular, some of these major agrichemical corporations have focused their efforts and resources on studying “genetically modified organisms (GMOs), the creation of stronger pesticides and synthetic fertilizers, and defending the performance of these products.”
They have also supported the expansion of GMO crops with the knowledge that their cultivation involves “the application of larger quantities” of “synthetic fertilizers and pesticides,” which has led to large amounts of toxic chemicals contaminating soil and water sources. Basically, these agrichemical corporations have been largely responsible for creating many of same environmental problems that they now claim need to be urgently solved through Agenda 2030.
There is a real possibility that the radical and large-scale transformations of the entire food industry and human eating habits being pushed by the social engineers of Agenda 2030 are leading the masses toward a dramatic decrease in living standards. Lessons from the totalitarian regimes of the twentieth century revealed that it is very difficult to fix big mistakes attributed to the large-scale central planning of social engineers, because doing so often requires “major social transformation” or the “remodelling the whole of society,” which can result in widespread unforeseen consequences or events, major destructive outcomes, and “inconvenience to many people,” in the words of Karl R. Popper.
The intense and coordinated international effort to facilitate an artificially designed transformation of the global food industry, based on Agenda 2030, is a testimony to the fact that we are witnessing the pendulum of civilization swinging back in many advanced societies, where striving to achieve a comfortable life could rapidly be replaced by a struggle for bare necessities in a lower level of existence, which is not supposed to occur in advanced societies.
The masses need to be made to realize that the social engineers of Agenda 2030 are “false prophets,” who are misguiding them to the point where they will be “haunted by the specter of death from starvation.” This may well lead to the emergence of “irreconcilable dissensions within society,” whereby food riots, conflicts, and violence could inevitably “result in a complete disintegration of all societal bonds,” as Ludwig von Mises put it.
Among the components of the World Economic Forum’s Great Reset are a drastically reduced population and the replacement of human labor with robots and artificial intelligence (AI). The question immediately comes to mind: can robots and AI really make all the stuff for the elites after they have gotten rid of the people?
Because a plan has been formulated and described does not mean that it is possible to realize. The plan may contradict laws of logic or reality, or assume the existence of resources that do not exist.
Podcaster and journalist James Delingpole, speaking to investigative journalist Whitney Webb on October 23, 2021, discussed this topic with his guest. I have transcribed several minutes from their conversation, edited for concision:
Webb: The fourth industrial revolution. One of the main pillars of that is automation and artificial intelligence. We’ve already seen that with corporate behemoths, like Amazon’s efforts to replace human workers with robots. Starbucks is piloting their AI barista with plans to have at least one in most if not all locations…. How long until humans are gone entirely? That’s in a retail setting.
In the UK Tesco recently joined the cashier less checkout. It’s all done on your phone. You scan when you enter the store. Everything is tied to you, your unique digital identifier with the corporation. You can just walk out of the store. How convenient that you didn’t have to walk by a cashier at all.
We’re going to see this happen in big ways in manufacturing. Chile is one of the biggest producers of copper in the world. In the northern part of Chile, the economy is driven by mining…. They are automating the mining here [in Chile]. Most of Chile’s middle class in the north work in the mining industry. They are about to all be cut out….
It’s infinitely more profitable for a corporation to make an initial investment in a robot or an AI algorithm than to continuously pay a worker. Not have to deal with sick pay. There are efforts all over the world to demand better worker benefits. Better hours. Robots are the ultimate worker for a lot of these people because they are not interested in the human equation of things. There is a move to a human-free future coupled with anti-human rhetoric.
The substitution of machines for human labor is a process that has been going on since the first industrial revolution. A considerable amount of manufacturing is already done by robots. But does it matter if a machine is a robot or not? Telecommunications switches connect calls that used to be done by telephone operators. We do not identify these machines as robots (perhaps because they do not have a recognizable torso and limbs or perhaps because they perform their work on data rather than physical objects) but the impact on the demand for labor to perform those tasks is the same.
Contrary to Webb, it is not “infinitely more profitable” for a corporation to use an AI-powered robot in place of a person. Profitability is a calculation that depends on the price of the robot, the productivity of the robot, the wages of the person and the productivity of the human worker.
The substitution of capital for labor makes economic sense when the cost of the capital goods per unit value of output—including paying for the entire supply chain—is less than the wages of the person that is replaced.
Yes, workers are paid wages. However, robots and other machines are themselves not free goods. They must be designed, tested, and maintained. They are made of many parts which must be manufactured and transported. The manufacturing process is performed by some combination of people and other machines. The parts are ultimately made from materials that are mostly mined or extracted from the earth, also by men and machines.
Workers prefer better working conditions over worse. And for machines as well there are optimal working conditions. A truck that is driven on poor roads in bad weather will wear out or break down more quickly. Computers need a carefully tuned environment that is temperature and humidity controlled. Computer servers are housed in a complex capital good known as a “data center.”
The wages that are required to hire the workers are determined on the labor market, by the various competing uses for each person’s skills. If the cost of the robot is less than the worker, that is only because their labor is more urgently demanded doing something else. There is a greater need for human labor somewhere else in the world.
AI itself is not inexpensive. Building and running AI requires engineering effort and computing resources such as networks, servers, and storage. AI models are trained by data that must originate with the same human intelligence that the AI is trying to reproduce. If you want to train AI to recognize photographs of cats, someone must have taken the photographs and classified them as cats or “not cats” so that the AI can be validated. If the photos come from security cameras, someone must have installed the cameras.
After the model is built it must be maintained. AI models do not run perfectly forever. They must be monitored for drift, and it requires a human to determine if the drift is due to an error in the ingestion of data, such as a change in units, or a true change in the customer preferences that the model is trying to extract. In the latter case, the model must be retrained on a new data set.
Modern computer systems are built with some degree of self-diagnosing and self-repairing abilities. But the automation must punt all but the most straightforward cases into a call for help that brings a human into the process. Humans are necessary to diagnose problems and restore service when something has gone wrong.
The manufacture of machines such as robots requires a complex structure of production with perhaps tens of thousands of individual parts. Each part must be designed—by a person—manufactured and integrated with the other parts. The integrations, including isolating manufacturing defects, must be tested, and debugged.
Parts are transported by industries such as shipping and trucking. All of these steps involve combinations of labor and capital goods. It is true that people take sick days, however, machines break, wear out, and, and require repairs. The humans who repair the machines also have kids and take sick days. If you need to send the robot out for service, a mover will pack it up and load it on a truck. Self-driving cars? Maybe someday, but not any day soon.
Robots and made out of metals, which are mined out of the ground. Mineral deposits are not straightforward to find, to delineate and to mine. The discovery and extraction of mineral resources is a tremendously high-intellect activity. A small number of exploration geologists—many with doctoral degrees in fields such as geology and geophysics—have discovered a disproportionate fraction of mineable mineral deposits. Without labor, where would the metals come from to build the robots?
Someone like Webb might respond that robots will replace all of these functions as well. And some day, they might. However, the replacement of humans by machines for one task creates a need for labor—with different skills—to operate the machines. That is why we now have jobs for truckers, power plant operators, and machinists instead of wood cutters.
If miners were replaced with robots—how much labor would be required to build the robots including the entire supply chain, transportation, and the energy used to run them? It’s hard to say but a fraction of the impact would be shifts in the type of employment.
Has the substitution of capital for human labor over the centuries since the industrial revolution has reduced overall employment? Not so much. We have far more need for labor now because we have accumulated so much capital and require more labor to operate it. The human population has increased—in lockstep with the demand for human labor—because we are so much more productive with our enormous legacy of capital goods that we can support much more population.
Replacing the most routine and repeatable human labor with machines creates demand for the currently irreplaceable types of labor: creativity and problem-solving skills. It is true that boundaries of what machines can do expands over time. For example, voice recognition, which used to be quite poor, now handles a range of accents much better. However, AI is still at a point where it can at best replicate human learning by observing many samples created by humans. But for anyone who has tried to change their airline ticket by talking to a chat bot, it is clear that AI is at present limited to a standardized set of tasks.
As we can afford it, out of our accumulated savings, capitalists will continue to invest in robots and other forms of automation to replace workers. When this results in cost savings, that means more output at a lower cost, and a rising standard of living. As certain goods become cheaper to manufacture, workers can demand other, new and different goods and services, which feeds the indirect demand for labor in those industries.
In another sign of weakness for the job market, the total number of employed persons in the United States fell, month over month, in October. That's the third time in the last seven months this total has fallen, dropping to approximately 158 million.
According to new employment data released by the Bureau of Labor Statistics on Friday, the current population survey shows 328,000 fewer people were employed in October than in September, seasonally adjusted.
This continues a seven-month trend in which the total number of employed persons has moved sideways. From March 2022 to October, total employed persons has only increased by 150,000 people, rising from about 158.45 million to 158.6 million. With October's drop, this also puts total employment in October below the peak of 158.8 million in February 2020. In other words, the household survey shows there are fewer employed people now than before the Covid Panic.
Moreover, the household survey also showed that the total number of unemployed workers increased by approximately 250,000 people from September to October. That's an 8-month high.
The decline in total employed was driven by a fall in full-time workers. The survey shows that in October full-time workers dropped by 433,000 while part-time workers increased by 164,000.
Yet, the headlines in the business press today told us that "U.S. payrolls grew by 261,000 October" and that "total employment" is now 800,000 jobs above the February 2020 peak.
Those numbers come from the "establishment survey" which differs from the household survey in that the establishment survey measures jobs. The household survey measures workers. Historically, the two numbers often track together, but there is a sizable gap between the two numbers in recent months. That is, since January, total jobs has grown considerably—showing an increase of 3.5 million jobs. Yet over that same time, the household survey has shown an increase of only 1.4 million employed persons. In other words, the two surveys together suggest much more growth in jobs than actual workers with jobs.
One conclusion we can draw here is that more people are working second jobs to make ends meet. This would make sense given what other information we have about the state of household finances at the moment.
For example, according to the bureau of economic analysis, disposable income is lower now than it was before the Covid Panic, coming in at $15,130. That sum was $15,232 during February of 2020. Meanwhile, the personal savings rate in September fell to 3.1 percent. That's the second-lowest level since 2007. Credit card debt, in contrast, reached new highs in September, and is now well above its previous 2020 peak.
Workers and consumers are likely spending down whatever savings they have because wages, in spite of what the allegedly "robust" establishment-survey jobs numbers say, are not keeping up with price inflation. Since April 2021, CPI inflation has repeatedly outpaced growth in average hourly earnings, year-over-year. In September, wages grew by 5.12 percent, but the CPI grew by 8.2 percent (year over year). The latest jobs numbers show these hourly earnings are up by 4.86, but price inflation is going to have to come down a very long way for real wage growth to materialize again.
All of this combines to suggest that households are facing some real struggles in terms of dealing with rising expenses, and the need for more income. For example, CNBC reported last month that more Americans are living paycheck to paycheck:
As rising prices continue to outpace wage gains, families are finding less cushion in their monthly budget.
As of September, 63% of Americans were living paycheck to paycheck, according to a recent LendingClub report — near the 64% historic high hit in March. A year ago, the number of adults who felt strained was closer to 57%. ...
“Being employed is no longer enough for the everyday American,” [Anuj] Nayar said. “Wage growth has been inadequate, leaving more consumers than ever with little to nothing left over after managing monthly expenses.
A recent study from Moody's analytics also concludes that the average American household paid $445 more for basic goods and services in September, compared to September of last year.
Nor is the news likely to get much better. There is growing evidence that the United States—if not already in recession—is headed toward one. For one, the first two quarters of 2022 showed negative growth. The third quarter showed some growth, but that was largely driven by a one-time narrowing in the trade deficit and by government spending. Even with reports of third-quarter growth, CNBC admits that a recession is coming with economist Paul Ashworth concluding “Exports will soon fade and domestic demand is getting crushed under the weight of higher interest rates."
The other big factor pointing toward recession is the yield curve, which has now inverted, pointing to a coming recession. In fact, inversions in the yield curve have a perfect record of predicting recessions in recent decades. As of last week, the spread between the 10-year and the 3-month Treasurys is now negative. The same thing happened in May of 2019, July of 2006, and July of 2000. There can be a lag of six months or more in these cases, but the result has been the same: recession.
The Biden Administration and the Federal Reserve both continue to cling to jobs data as evidence that the economy is "strong." As we've seen, though, most of the employment data actually points to stagnation or even losses in terms of employed persons. So, the the-economy-is-great crowd clings to the small slice of the employment data that is the establishment survey suggesting that all is well. If there is an upside to this, it's that the job-growth-is-strong narrative has provided some cover to the Federal Reserve which is far, far behind the curve on ending its inflationary easy-money policies. Thanks to the Fed's refusal to reverse course on its ultra-low interest rate policy until the economy was already clearly headed toward 40-year highs in price inflation, the Fed now faces a stagflationary crisis if it cannot get price inflation down before a recession becomes obvious. After all, as the jobs data becomes worse, this will increasingly trigger an avalanche of political pressure to "pivot" and start "stimulating" the economy once again.
There's no telling at this point if the Fed has the stomach for actually bringing price inflation down and truly abandoning its 13-year long era of ultra-easy money and so-called unconventional monetary policy. It's far more likely that the Fed will return to suppressing interest rates just as soon as it can claim any sort of "victory" over price inflation, no matter how minor. This aborted retreat from the Fed's ongoing inflationary experiments would likely send the US toward something at least as bad as 1970's-style stagflation.
Many economists, including Milton Friedman, have believed that since it is impossible to establish “how things really work,” the underlying assumptions of a model are unimportant. Anything goes provided the model can yield good predictions. Friedman wrote:
The ultimate goal of a positive science is the development of a theory or hypothesis that yields valid and meaningful (i.e., not truistic) predictions about phenomena not yet observed.
Furthermore, according to Friedman:
The relevant question to ask about the assumptions of a theory is not whether they are descriptively realistic, for they never are, but whether they are sufficiently good approximation for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions.
For Friedman, since reality is likely to be elusive our knowledge of it is tentative—one cannot know true nature. Also, Friedman and most mainstream economists believe the state of the economy is derived from the data. By inspecting the data, such as the gross domestic product or the consumer price index, the analyst forms a view regarding the likely state of economic conditions.
Ludwig von Mises held a different view, writing:
The arrangement of various price data in groups and the computation of averages are guided by theoretical deliberations, which are logically and temporally antecedent.
Moreover:
It is vain to search for coefficients of correlation if one does not start from a theoretical insight acquired beforehand.
Mises believed that data is a historical display and by itself cannot provide the analyst with an explanation of the real world. He wrote:
Experience of economic history is always the experience of complex phenomena. It can never convey knowledge of the kind the experimenter abstracts from a laboratory experiment.
To make sense of the data an economist must have a theory which stands on its own feet and does not originate from the data itself. The key point is that it must originate from something real that cannot be refuted. A theory that rests on the foundation that human beings act consciously and purposefully fulfils this, since human beings act consciously and purposefully (anyone that tries to refute this point consciously and purposefully contradicts himself).
Ludwig von Mises labelled this framework as praxeology. By means of praxeology, Mises was able to derive the entire body of economics. The knowledge that human actions are conscious and purposeful allows an analyst to make sense of historical data.
The Importance of Defining the Subject of Investigation The key to understanding data is to establish the subject of analysis. Once the subject is established, the next step is to define the subject. The purpose of the definition is to determine the key factors determining the subject of the investigation.
To establish a definition, one should go back to the point of time when a particular thing has emerged. For example, when analyzing money supply, we would go back to when a particular commodity began to assume the role of money. In this case, one would ascertain that individuals originally used money to promote the trade of goods for goods.
A commodity that was selected as money enabled the most efficient exchange. By ascertaining the medium of the exchange, we establish that individuals are paying for one good with another good, aided by money.
We can also establish that increases in the quantity of money—i.e., inflation of money generates a decrease in the purchasing power of money, all other things being equal. This is because increases in the money supply result in a greater amount of money per unit of a good than in the previous situation, all other things being equal, since the price of a good is the amount of money per unit of a good. Hence, from an increase in the money supply, one can infer that, all other things being equal, more money will be spent per good—i.e., prices of goods are going to increase—and a decline in the money’s purchasing power will emerge.
Without defining what price is, it will not be possible to say anything meaningful about the key cause of the increase in the prices of goods, which is the increase in money supply. The definition that money is the medium of exchange enables us to establish that once money is injected there are always early and late recipients of money. This. In turn, enables us to infer that a change in the money supply is likely to have a lagged effect on the prices of goods in various markets.
Now, without a theoretical framework the data by itself cannot tell us the conditions of the economy so to speak. It cannot tell us whether the strong GDP data is because of wealth expansion or because of the erosion of the wealth generation process.
Once it is established that loose monetary policies of the central bank are behind the so-called strong economic conditions, then by means of a theory, we can establish that this is going to weaken the wealth generation process. In the modern world of the paper money standard, we can ascertain that an increase in money supply results in an exchange of nothing for something. It leads to a diversion of wealth from wealth generators to non-wealth-generating activities.
According to the founder of the Austrian school of economics, Carl Menger, to maintain their lives and well-being, individuals will prefer present consumption to future consumption. We suggest that as individual’s wealth expands, the premium assigned to present consumption over future consumption is likely to decline. The premium of present consumption over future consumption is what interest is all about.
A higher time preference—i.e., preferring present consumption to future consumption, implies that to stay alive individuals have to assign a higher premium to present consumer goods versus the future consumer goods. From this, we can also establish that only individuals’ time preferences determine interest rates, as opposed to central bank policies. Central bank policies can only distort interest rates thus setting in motion boom-bust cycles and economic impoverishment. Also, note that the positive time preference implies that interest rates must be positive.
The fact that an individual pursues purposeful actions implies that causes in the world of economics emanate from human beings and not from outside factors. This means that mathematical methods will not be helpful.
For instance, contrary to popular thinking, individual outlays on goods are not caused by real income as such. In his own unique context, every individual decides how much of a given income will be used for consumption and how much for investments.
While it is true that individuals will respond to changes in their incomes, the response is not automatic. Every individual assesses the increase in income against the particular set of goals he wants to achieve. He might decide that it is more beneficial to him to raise his investment in financial assets rather than to raise consumption.
Conclusion Reliance on statistical data as a foundation for evaluating the economy is questionable. Statistical data cannot produce much information about the facts of reality without a theory that “stands on its own feet” and is not derived from the data. Once the theory passed the logical test it becomes the tool for the establishing the facts of reality through the assessment of the data.
Theory also permits us to ascertain the reasons for discrepancies between the data and what the theory supposes. For instance, according to the economic theory, individuals assign a greater importance to consumption at present versus consumption in the future, something we established earlier.
According to theory, interest rates cannot be negative. If, however, we do observe negative rates, this does not contradict the theory but rather forces the analyst to ponder how this could have happened. Most likely, he will discover that central bank monetary policies have forced this on the economy.
Various mathematical and statistical methods cannot assist an analyst in establishing causes in the world of economics. All that these methods can do is to describe things. To ascertain the underlying causes, one requires a logically worked out theory.
Jeff joins Chris Casey of WindRock Wealth Management for a deep analysis of next week's punishing midterm elections.
In last week’s column, I mentioned that regulation of drugs was among the important subjects Andrew Koppelman discusses in his thoughtful book Burning Down the House, and this week I’d like to look at what he has to say on this topic.
To understand his arguments, though, what he says needs to be put in a wider philosophical framework. As he sees it, both libertarians and nonlibertarians like him share a goal. Both have as an ideal the notion of human autonomy. As he puts it,
People need all-purpose means to pursue their own aspirations. If they have those means, then they don’t need to justify themselves to anyone else. They are free to develop what they regard as best in themselves. This ideal of authenticity is common ground between large parts of both the political left and right. Our disagreements turn on how to realize it. That insistence on personal autonomy translates easily into rights talk. (pp. 108–09; Koppelman takes “authenticity” and “autonomy” to be in this context synonymous)
Koppelman is right that many people wish to promote autonomy in this sense, but Rothbard and his followers are not among them. It is not that they deem autonomy a bad idea, but rather one that stands apart from political philosophy. The aim of politics is, in the Rothbardian view, to promote liberty, meaning securing the lives and property of people against force and the threat of force, rather than enabling people to live a certain kind of life. Thus, if you are content to live your life in lassitude, drifting from one thing to another, or if you live unreflectively following customs that Koppelman and his colleagues deem narrow and bigoted, Rothbardian political philosophy has nothing to say against you.
Before proceeding to show how this difference between Koppelman and Rothbard leads to divergent views on drug regulation, I will digress to note a poor argument having to do with autonomy that Koppelman advances. He says,
Moreover, if the value of property is that it gives individuals independence and autonomy, then this function is nicely performed by streams of government-generated income, such as Social Security and Medicare. Abolishing those, as many libertarians propose, would be a disaster not only for liberty but for property as well, depriving millions of what they had worked for. Libertarian philosophy perversely threatens to destroy what it most cares about. (p. 18)
But it does not follow that if Social Security has the same value, or the same function, as property, then it is property. My security blanket may, like my service dog, relieve my anxiety, but it would be rash to conclude that my blanket is a dog.
Once you understand what Koppelman means by autonomy, his position on drug regulation is easy to understand. He remarks,
Libertarianism aims for a society of rational, self-governing agents. But we know that, a lot of the time, people do not and cannot measure up to this ideal. People are imperfectly rational. They are subject to systemic emotional and cognitive biases: overconfidence, poor risk assessment, inertia. A lot of decisions are the product not of rational deliberation but of default rules, framing effects, and other ways in which the human mind arrives at decisions unconsciously. (p. 160)
This may well be true, but Rothbardians think that the individual ought to be free to make his own decisions on taking drugs, so long as he violates no one’s rights. Koppelman acknowledges that the libertarian view has some weight, but in doing so, he shows that he hasn’t fully grasped what is at stake. He says,
All liberals, libertarians and Rawlsians alike, think that we each have the right to direct our own lives, and that we have a duty to respect one another by not interfering in others’ choices about what ends to pursue. The ideal is powerful and attractive. Its possibility depends, however, on the existence of selves of the right kind: self-governing agents who really do make choices about what ends to pursue. When a person is incapable of making such choices, such non-manipulative relations are impossible. That is why it is appropriate to paternalize children. Since the purpose of liberal rights is to allow persons to exercise their moral and rational powers, liberalism requires that persons develop those powers to some minimum degree. (pp. 158–59)
It’s understandable that Koppelman is attached to his conception of autonomous choice, but one would hope him capable of realizing that some people do not accept it.
Given his emphasis on autonomy, Koppelman responds to a proposal about drug regulation by the legal academic Gregory Mitchell in a strange way. Mitchell suggests that people should be encouraged to engage in greater self-reflection about their choices. Koppelman objects:
With respect to a great many decisions that affect our lives, we do not want to engage in greater reflection. That demands time that we can’t spare. We want to pursue the projects that matter most to us, and delegate other decisions to someone else. Forcing us to deliberate about everything (or more precisely, attempting to force the impossible) is its own form of officious paternalism. It is in fact totalitarian: rather than block a single option, which would be bad enough, it dictates how we are to spend our time and direct our attention. (p. 161, emphasis in original)
Koppelman is correct that people shouldn’t be forced to engage in deliberation, but it’s odd for someone who says, “You shouldn’t be free to take dangerous drugs whenever you choose, because you’re not an autonomous chooser” to say also, “You should be free to let the state make choices for you about which drugs to take, because thinking about this is too much trouble for you.”
As Koppelman notes, one argument against drug restriction is that this leads to other measures that restrict liberty. Koppelman answers that this need not happen. “It is possible to restrict substances without today’s orgy of mass incarceration. If the aim is reducing consumption, diminishing returns set in very quickly. During Prohibition, alcohol consumption dropped by between 33 and 50 percent, even though nearly nothing was spent on enforcement” (p. 158). Koppelman appears unaware that Prohibition led to grave violations of civil liberties, such as the use of wiretapping and the destruction of property, ably analyzed by the historian and sociologist Harry Elmer Barnes in Prohibition versus Civilization (1932) and in the contemporary classic by Mark Thornton, The Economics of Prohibition (1991).
Patrick Henry said, “Give me liberty or give me death,” not “Give me autonomy or give me death,” and he was wise in his choice of words.
Imagine you are a young, idealistic doctor. After some years in clinical practice at a private hospital you tire of the fact that more of your time is spent filling out forms and attending staff meeting than with your patients. You went to medical school all bright eyed with the dream of making a good living making a difference. You ran the gauntlet during your residency, sometimes working ninety-hour weeks, skipping meals and even showers so you would have more free time to study, because you believed in the end it would all be worth it.
In some ways it is, there are times you love your job—but you are also disillusioned by the fact that you barely get time to really know your patients and give them the quality of care you think could really help them thrive. Speaking to some of your former classmates you notice you’re not the only one feeling the way. You meet a few other idealists at continuing medical education conferences and together, you decide you want to branch out together and create your own little hospital, employing staff that agree with your ethos and want to offer the quality of care that patients deserve. You dream that perhaps your little project with serve as a model to the world of how healthcare can be done, and people will start copying it.
After taking some months off work to plan your little benevolent social enterprise, you and your cofounders discover that opening a new hospital is harder than you thought it would be. For one thing, you find out that in your state (as in most states) if you want to open a hospital you are obligated to obtain a “certificate of need” from the government to open a hospital. You have to present yourself before an official board and prove that your community “needs” another hospital, and that you are willing and able to fund it all by yourself.
As if that wasn’t bad enough—the people on the board include senior administrators from already existing hospitals in the area, and they want the competition from you about as much as a gunshot to the head! You think to yourself: “Imagine I wanted to open up a café, but I needed permission from the local Starbucks and Tim Horton’s!”
In addition to that, Obamacare, passed in 2010, prevents government payments to any hospitals owned by doctors! This puts you at another unfair advantage compared to the existing commercial hospitals in your area who are taking Medicare and Medicaid patients. You are willing to persist though, because you’re an idealist, and you’re starting to think it might not be too great taking government money anyway as this often leads to overtreatment, corruption, and strings attached.
You had the great idea of training your own assistant-technicians on the site to take runaway tasks off the hands of your physicians and save patients money. You soon discovered that you weren’t allowed to train anyone to do anything unless they were fully licensed and qualified to do it at college already—even if these little tasks would only really take a few weeks or months of training.
So there goes your idea of avoiding excessive staff meetings and form filling. You and your specialized colleagues (who also must run the damn hospital) want to tend to severe cases that you were highly trained for. But you are forced to spend lots of time attending to patients with relatively trivial complaints, because no one else is allowed to do it. (See the chapter Getting Schooled for full details.)
You dreamed of offering mentorship programs to college graduates, thinking employing young doctors would keep staff costs down for patients and help graduates get a good start, but because there are so few medical schools due to government restrictions on building them, you found it extremely hard to compete with more commercial hospitals when it came to recruiting new talent. And because medical education is so expensive, and all these graduates were six figures in debt, they expected to be paid handsomely from the off so they could get their finances back in the black as quickly as possible.
You thought you could attract custom by charging patients and private insurance companies more fairly, but you just never counted on how much money would have to go to administrators, lawyers, actuaries, and other bureaucrats just to make sure that you were fully in compliance with all the reams and reams of government regulations your hospital had to conform to. From what you could tell, the vast majority of these did less than nothing to protect patients or improve the quality of care they received.
But they did mean you had to charge their insurance companies more to cover the cost of extra cost of staff, plus you had to dictate endless numbers of letters and reports to stenographers to keep records so you couldn’t be sued for anything. On that point, you were paying out huge sums of money to insuring yourself, your practice, your hospital, and all your colleagues against malpractice suits. The cost of all that also had to be passed on to patients. All this was clearly pushing the price of provision through the roof.
Sometimes patients without insurance simply did not pay, and you had to absorb the cost of uncompensated care. There was nothing the state could (or were willing) to do about it—you just had to suck it up and charge other patients more to recoup the costs.
The government forced you to keep open arms of the hospital that were unprofitable, and you ended up having to compensate for the losses by overcharging in other areas. You ended up investing in unnecessary imaging equipment because running patients through tests always prove to be very profitable. You sometimes suspected that patients were being ran through some of these tests because your colleagues just liked your fancy new gadgets, but the insurance was happy to pay, so you never bothered to ask about it or set a policy to prevent these tests being used unnecessarily.
You also found yourself forced to open a cancer care department, orthopedic surgery center, and neurosurgery center because those always made a profit, but in order to staff them you had to find specialists that didn’t fully understand the ethos of your original project, and—frankly—by this point, it was pretty hard impressing that ethos upon anyone, because your hospital was starting to look rather like all the other commercial hospital did.
These are only some of the ways that the government limits competition in the medical sphere, driving the price of healthcare through the roof in the United States.
They could be remedied with some embarrassingly simple policy changes:
1) Abolish certificate of need restrictions on the building of private hospitals.
2) Abolish restrictions on the opening of new medical schools including removing laws which limit some states to only having one.
3) Allow doctors, clinics, and hospitals to train and certify their own assistants to allow lower-wage trainees to take responsibilities off the hands of highly specialized staff.
4) Relax liability standards on professionals particularly when they are acting in a voluntary capacity.
5) Reduce red tape so fewer resources have to be spent on administrators and bureaucrats rather than medical staff, and so that physicians need to spend less time on paperwork, electronic record keeping, and desk work.
6) Tackle the five major causes of waste in American medical expenditure, as identified by former Administrator for the Centers for Medicare and Medicaid Services Dr. Donald Berwick: overtreatment, failure to coordinate care, the administrative complexity of the system, burdensome rules, and fraud.
7) Tackle the problem of governments and insurance companies paying for unnecessary and wasteful tests, treatments, and procedures.
8) Remove the legal requirement for hospitals to keep unprofitable departments open.
Please download my e-book: 7 Big Pharma Myths Debunked.
Price inflation and the resulting business cycles are monetary phenomena, and without increases in the money supply—i.e., monetary inflation—there is no price inflation. If the world were a very simple place, we would see this relationship clearly displayed: when the money supply increased, we would also see a general increase in prices soon thereafter. The world, however, is not a very simple place and an economy can include countless factors that can mask, delay, and otherwise obscure the connection between monetary inflation and price inflation.
For example, monetary policymakers in the US have long benefited from the disinflationary effects of global trade and increasing worker productivity. This means that, for decades, consumers should have seen prices of most goods and services falling. Instead, relentless monetary inflation over the past three decades has resulted in positive price growth that is seemingly mild, and policymakers can claim victory over inflation. Moreover, new money can enter the economy in a variety of ways, often manifesting as asset-price inflation rather than as noticeably high price increases in food or household goods.
Governments also have many tools at their disposal to delay or hide the effects of monetary inflation, sometimes for many years. Price controls and subsidies, for example, can obscure the true costs of goods and services for the end consumer. These tactics cause shortages, bubbles, and other problems, but these can often be blamed on "greed" or "capitalism."
One particularly interesting case of how governments can hide price inflation for decades is the Soviet Union. Under the Soviet regime, the money supply—denominated in unbacked fiat money, of course—was continually expanded to increase wages and create the impression of prosperity. This would have led to price inflation quickly, but for the shortage economy and demand-killing government policies endured by the average Soviet citizen. As is so often the case, the regime was able to cover up the effects of inflation for a time, but the policies ultimately proved to be disastrous.
Preventing Inflation through State Control of the Economy As a regime increases the money supply, demand will generally rise. But rising prices will become acute only if there are actually products and services on which consumers and enterprises can spend their new money. Thus, a regime wishing to avoid price inflation can keep increasing the money supply so long as it also reduces demand by limiting the availability of goods. This prevents improvements in the standard of living, but it can indeed keep down price inflation.
This cannot be easily done in a country where the population expects to live under a relatively free economy. In an unhampered or partially interventionist economy, a lack of widespread price controls often means a large number of goods and services will continue to be supplied, albeit at higher prices, in an inflationary environment. But, because the USSR oversees a heavily controlled, command economy, the regime could more easily dictate prices, limit imports, and force consumers to save rather than spend.
Ultimately, though, by the late 1980s, the regime was forced to "open up" its economy to market forces as a restive population increasingly demanded a standard of living more in line with what existed in the West. However, once the regime ceased controlling prices and savings, prices exploded, government revenues cratered, and the Soviet regime ended its days in an orgy of money printing and hyperinflation.
How the Soviet Regime Manipulated Price Inflation The fact that the Soviet regime preferred shortages to inflation has its roots in the hyperinflationary history of the Soviet economy. By the middle of the twentieth century, Soviet planners were already well aware of the dangers of hyperinflation. With the end of the czarist regime, and the cessation of the First World War, the new socialist regime took over a country that was already broke and highly dysfunctional. Hyperinflation soon followed. The Bolsheviks attempted to do away with money altogether, but this naturally failed, and a number of monetary reforms followed. By the late 1920s, however, the regime was engaging in widespread price control efforts, including the highly unusual tactic of peacetime rationing. This limited price inflation for many goods and set the stage for the "repressed inflation" that would become a mainstay of the Soviet system for decades. Prices nevertheless began to rise rapidly in many areas, and the Second World War brought on a new wave of price inflation and prices spiraled upward. This was followed by another currency reform—i.e., devaluation—of the Soviet ruble in 1947. Efforts at price controls were redoubled and overall prices actually declined during the 1950s.
Throughout much of the 1950s and early sixties, the regime was perennially concerned about price inflation. In fact, Soviet ideology stipulated that inflation did not actually exist in the USSR. As claimed by Vasily Garbuzov, the Soviet Minister of Finance in 1960:
In the Soviet Union there is not and cannot be any inflation; the possibility of inflation is fully precluded by the very system of planned socialist economy. In our country both wholesale and retail prices are established by the government and, therefore, the purchasing power of the ruble is controlled on a planned basis. ...The stability of Soviet currency is guaranteed by the monopoly of currency and the monopoly of foreign trade which is one of the most important advantages of the socialist economic system.
This is propaganda, of course, but in a sense, Garbuzov was right. A socialist state really could moderate the price effects of monetary inflation by throttling back the standard of living and consumption options whenever it seemed prices were rising.
This was necessary because the money supply continually expanded as wages rose. In their 1985 study on the Soviet economy, Igor Birman and Roger Clarke wrote:
The reason for the excess supply of money is that the state has consistently 'over-paid' the population in the form of wages, pensions, stipends etc., which exceed production (plus net imports and minus net exports) of consumer goods at the currently ruling retail prices (fixed by the state). While there has indeed been a steady rise in retail prices (despite the stability of the official index) this has been very far from sufficient to equalise the real effective demand of the population with the available supply of goods. In other words, the state generates excessive purchasing power in the hands of the population.
In an unhampered economy wages are closely tied to the productivity of workers, so wages would not grow out of proportion to the amount of goods and services available in the economy. In a socialist, economy, however, the price of labor—i.e., wages—were arbitrarily set like all other prices. Wages under socialism are also paid out of the public treasury and can be increased to the liking of the regime itself. This often meant rising wages because higher wages were politically popular. Rising wages potentially created the impression of prosperity, even when the economy wasn't actually more productive. Also, as Birman and Clarke note
During the last two decades [i.e., 1965 to 1985] it has pursued the 'confidence trick' policy of trying to stimulate productivity by higher money wages without raising the supply of consumer goods by nearly sufficient to translate the increase in money wages into increased real incomes.
Increasingly, after 1965, the Soviet money supply was out of proportion to the productive capability of the economy. In a relatively free economy, this would quickly lead to price inflation, but the Soviet regime had ways of shifting the economic burden elsewhere.
Thus, prices were kept under control not through fiscal disciple, but through price controls. This led to shortages because, if wages were rising while goods prices could not, demand quickly exceeded supply. Soviet citizens often found they had very little to spend their money on, with the result being the long queues and empty store shelves we now associate with the Soviet economy.
By this mechanism, the regime can continue to inject new money into the economy but also prevent ordinary people from spending "too much" money and thus ratcheting up consumer prices. The downside, of course, is that the standard of living goes down considerably, as historian Steven Efremov notes:
The system of price controls had deleterious effects both for Soviet consumers and for the economy as a whole. ... Shortages of most foods led to lower quality diets, and many consumer products that were routinely available in the West, such as telephones, cars, and modern washing machines were amazingly rare in the Soviet Union. Living conditions were less comfortable in many ways, with less housing space per person, no central heating, no air conditioning, and often no sewer connections or hot water.
The result was essentially forced savings. Efremov continues:
When consumers could not find anything they wanted to buy, many chose to save a portion of their income every year. This effect was cumulative over the years, as unsatisfied demand from each year was carried over to the next and the population's savings continued to grow.
In some respects, this was good for the regime because this unspendable savings could also be tapped for buying the government's debt. But this stored up money—known as the "monetary overhang" increased much more rapidly than did the production of goods and services, and Efremov concludes "the money supply had grown to become many times larger than what was needed for regular circulation." This would come back to haunt the regime when the economy began to open up and consumers could finally spend the money, causing prices to soar.
An additional method of pushing down official inflation numbers was to subsidize consumer goods. Retail price subsidies were introduced in in the Soviet Union in 1965 as part of a major economic reform package. Soviet authorities then began to implement price subsidies of "basic foods such as meat, milk, bread, sausages, sugar, and butter."1 The purpose was to keep prices stable. These subsidies survived subsequent economic reform efforts and became a larger and larger part of the economy heading into the 1980s, with government spending rapidly increasing to push down prices through subsidies.
Spending Rises and the Economy Stagnates None of this worked to actually help the Soviet standard of living.
To combat the effects of monetary expansion and falling standards of living, the Soviet regime perennially attempted to increase production to narrow the gap between money growth and productivity growth. Due to the impossibility of economic calculation under socialism, however, Soviet central planning could not coordinate goods and capital efficiently, and the productivity of workers stagnated.
Another result was further declines in government revenue. Although taxes were levied and some revenue could be collected on imports, government monopolies—i.e., government-owned enterprises—controlling a variety of goods and services produced much of the income the regime relied on. These enterprises could theoretically increase revenues with increased output, but output often stagnated as wages—i.e., production costs—rose.
Government budgets thus increased alongside falling revenue. Byung-Yeon Kim notes, for example, that "retail price subsidies ... rose from 4 per cent of state budget expenditure in 1965 to 20 per cent in the late 1980s."2
Yet, the availability of consumer goods certainly did not keep up. Rather, consumer had few places to spend their money and "the share of forced savings in total monetary savings increased from 9 per cent in 1965 to 42 per cent in 1989."3
Measured by the prevalence of shortages, it is clear the Soviet economy was in a state of stagnation by the late 70s. Shortages became even worse. Kim concludes:
Consumer market conditions in the official retail network deteriorated rapidly in the years 1965-78. This is most likely to have been caused by stable consumer prices faced with rising consumer purchasing power. Even though the rapid deterioration halted during the period 1979-83, this was not sufficient to restore equilibrium. Further worsening of consumer market conditions occurred after 1984. In particular, shortages in the consumer market intensified significantly in 1989 because household money income increased much faster than the availability of consumer goods.4
The wage increases continued with little positive effect. Throughout the 1980s, Soviet state-owned enterprises raised wages in an attempt to create a "wealth effect" and to placate dissatisfied workers. Yet, with few goods available to buy, rising wages ceased to be much of an inducement to harder work. Birman and Clarke note that after a time, rising wages "become ineffective—additional unspendable money is no longer an incentive to work harder or more productively." Worker productivity suffered. This problem only accelerated as the decade wore on and, as Igor Filatochev and Roy Bradshaw note, "wages increas[ed] four times faster than labour productivity throughout 1989 and 1990."
The 1980s: A Time of Growing Deficits and Money Printing All of this spending on wages and subsidies combined to create conditions under which government deficits rose, leading for even greater monetary expansion. Kim concludes:
Although the budget deficit was officially recorded only from 1985 onwards, many reliable Soviet and western sources have maintained that a sizable deficit already existed well before the 1980s.5
Up until the 1970s, there had been a connection between revenues and spending to the point that deficits were manageable. As time went on, borrowing to address deficits became increasingly expensive for the regime, and printing money—above and beyond the need for wages—was increasingly viewed as a way out:
[P]rinting of money began well before the late 1980s, that is, from 1977 onwards, and tended to increase during the late 1970s and early 1980s. Overall, the Soviet budget tended to destabilize the consumer market, at least after 1977, by putting money into circulation. In particular, a sharp increase in printing money in the late 1980s suggests that the Soviet economy was then on the verge of collapse.6
Amount of Deficit Financed by Printing Money
Source: Byung-Yeon Kim, "Causes of Repressed Inflation in the Soviet Consumer Market, 1965-1989: Retail Price Subsidies, the Siphoning Effect, and the Budget Deficit," The Economic History Review 55, no. 1 (Feb. 2002): 121
Hyperinflation Sets In By the late 1980s, the Soviet economy was already primed for price inflation, yet so-called repressed inflation continued to be a sizable factor pushing down official inflation rates until the mid 1980s. With the advent of perestroika and some limited promarket reforms, Soviet citizens were increasingly able to purchase more goods and import more goods. Decades of forced saving led to runaway inflation as shortages became less acute in many cases. That "monetary overhang" came out of savings accounts and drove price inflation to disastrous heights.
It took some time for the official numbers to catch up with reality. The regime's official numbers had long understated even the moderate levels of price inflation in earlier periods, but after the mid-80s, the gap between official inflation and estimated real inflation grew considerably. Efremov summarizes the divergence, noting that in 1988 official inflation was 0.6 percent but 6 percent in the real marketplace. By 1989, official inflation was 2 percent, but it was really 8 percent. In 1990, it was 5.3 percent, but really 20 percent. And then the wheels started to really come off in 1991, with 96.3 "official" inflation that was really 200 percent.
The Soviet Union collapsed shortly thereafter, and the new regime did not issue falsified inflation numbers anymore. Instead, the real inflation rate in 1992 was estimated to be more than 2,300 percent. Hyperinflation continued for three more years until the old Soviet ruble finally ceased to exist.
A Socialist Guide to Lowering Price Inflation The Soviet experience provides an example of how expanding the money supply forces a choice. In response, an inflationist regime can commit to reining in monetary inflation to tackle rising prices. Or, a regime can "solve" an inflation problem by destroying demand via price controls and shortages. The latter choice requires lowering the standard of living and gradually reducing consumer choices again and again. Yet, even this draconian option fails to prevent hyperinflation in the end.
-
- Byung-Yeon Kim, "Causes of Repressed Inflation in the Soviet Consumer Market, 1965-1989: Retail Price Subsidies, the Siphoning Effect, and the Budget Deficit," The Economic History Review 55, no. 1 (Feb. 2002):108
-
- Ibid., p. 106
-
- Ibid.
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- Ibid., p. 115.
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- Ibid., p. 115.
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- Ibid., p. 122.
Before beginning, I am highly grateful and impressed by the success and spread of my previous work “Consumers, Workers, and Monopolies: Free Markets Serves All.” The article aimed to give a brief explanation of the importance of consumers in Markets and it will be continued further.
The market can be controlled either by consumers or the government. Any one of them getting greater power will reduce the power and freedom of others. The reason behind government getting more support and consumers being completely neglected is due to a fantasy called “equality.” In economics, understanding the market is very important that brings great significance to the role of consumers.
No mathematics or statistics can tell about consumers’ change in preferences and their source of satisfaction. The consumer himself can deal with his/her choices and hence manage their budget constraint accordingly. Mises was a critique of socialism and he disliked the fact that the consumers who pay their hard-earned money for scarce resources are completely ignored. According to Mises, no entrepreneurs, no farmers, and not even the capitalist decides what has to be produced, it is the consumers who do that.
Consumers and Workers There’s a wide belief of some certain ideologists to consider themselves to be “moral” when their system failed to work in history. But how is it fair that the one spending money has to sacrifice their goods and services for someone who is charging for their work? Not giving freedom and choices to consumers in the market takes away their sovereignty and gives it to people at the top with power.
Without the profit motive, consumer sovereignty isn’t possible, that’s the complexity of markets which many don’t seem to understand. The entrepreneurs or businesses are going to produce as per consumers’ preference which they got to know through signals and without profit motive the consumer isn’t a priority but is replaced by workers. Workers might enjoy their good wages initially, but people forget that the same population of the working class is consuming too and hence it will eventually harm them. It is nowhere fair that consumers are not considered important for the sake of workers because consumers constitute the entire population unlike the latter.
Monopolies Mises noted that even though the real boss is the consumers in the market, this case doesn’t apply in the case of monopolies. Public Monopolies that are very well supported for workers’ rights are the most dangerous to consumers. The control of the market shifts from all (consumers) to some (in power). Cronies might fall in this category too but are better as there isn’t generally one firm involved. The reason behind the failure of socialism/market socialism is that the monopoly cannot do better than consumers. Consumers decide for themselves rather than a few sets of planners doing it and this is what they missed, in their obsession with workers they forgot the role and importance of consumers.
The same can’t be applied to Private Monopolies in the free market, their existence as a monopoly in long run is difficult but even if they do, they still have to keep competition out by satisfying the consumers like no other new player could do and in this the consumers still benefits and the market in long run is in control of them. Google which isn’t purely a monopoly but considered one is succeeding because of its best service which is probably something nobody can deny and the reason why Microsoft dominated for very long was for their consumer-friendly services.
There is a knowledge problem as it is quite impossible to understand what the preferences of consumers will be in the future, what will be climatic situations, and others. Recently there is a widespread belief that AI and computers can do the job and in simple words control humans well. Mises’s Calculation problem is a work of such genius that people aren’t still able to grasp it well even after almost one hundred years. But, there will also remain a knowledge problem because Hayek clearly explained this “tacit” knowledge cannot to recorded in statistical form, so how much AI is possible without Statistics or Data?
Price Signals In the debate of supply versus demand in economics, F.A. Hayek showed the importance of prices in a very different way and explained that prices transfer knowledge according to which the market players take decisions. Neither Demand nor to an extent supply can be controlled because of the limitation of resources but the prices are something that one can change and hence adjust themselves to the market conditions. Entrepreneurs with help of price signals can understand the preference of consumers and also the scope of entry and exit in the market field. Prices give signals to consumers too, as said by Hayek people don’t need to know the reason behind the price changes but just need signals to make decisions in their purchases.
Prices play an important role in Consumer Sovereignty just like Private Property as explained by Mises. Consumers don’t go to sellers telling them about their preferences, but the prices can do this work efficiently and also bring entrepreneurial development in the economy which is very important to the prosperity of any society. Prices are something in the control of humans, though the prices are changed by the seller the control of it is in hands of consumers. Inflation is a barrier to the price system as it leads to the spread of wrong signals to market players. Hence, they tend to make wrong decisions. Another problem is when the money supply is in the control of central authority, the prices are too and therefore the control gets shifted from consumers’ hands to the central bank.
Education It seems that the role of education is more important to workers and consumers than entrepreneurs as it can motivate one to become an entrepreneur but can’t give them new ideas. Entrepreneurs require real-world experience and an understanding of the market. Good quality education can enhance one’s skills and general knowledge which can help them get a better job. But, most importantly education is what is required at the top-notch quality for consumers to make good choices as the market is dependent on that. If the Bollywood industry of India is not able to provide quality films, then the blame should primarily go to the viewers who are still ready to buy tickets. If fast foods are more in demand, then the education system that doesn’t properly teach the students to follow a healthy diet should be questioned. Not checking the bill, expiry date, instructions, and other information and lacking understanding of consumers’ rights are possible with low-quality education.
Hence, it is important to take the power of education from government. The control of education by the government will eventually give them control of consumers and hence the market! A free market gives liberty to consumers but as responsibility is always attached to Liberty, the responsibilities are learned through the medium of education.
It’s time to embrace the importance of consumers in society and not let their hard-earned money be taken for granted and exploited in the form of taxes, startup barriers, and regulations.
Every theory must ultimately meet two tests: one, that of internal consistency, the other that of consistency with reality.—Frank A. Fetter
The great economist Ludwig von Mises played a seminal role in bringing about a paradigm shift in monetary economics resulting in a revolutionary change in our understanding of what causes inflation over the long run. In his book The Theory of Money and Credit published in 1912, he wrote:
For hundreds, even thousands, of years, people completely failed to see that variations in the objective exchange-value of money could be induced by monetary factors. They tried to explain all variations of prices exclusively from the commodity side.
Today, once again, the specter of high inflation is haunting the world. Yet, despite its prevalence, most ordinary people, and even central bankers and economists are utterly confused about its underlying cause.
Among central bankers and financial institutions this was seen when inflation first became visible in 2021 when the Federal Reserve, the European Central Bank, and the International Monetary Fund (IMF) declared inflation to be transitory. Even the world’s leading economists misjudged inflation as Nobel Prize Economist Paul Krugman wrote in a recent article:
Just about all the prominent players, from Larry Summers to Dean Baker, were Keynesian economists, with more or less center-left political leanings. And we all had similar views, at least in a qualitative sense, about how economic policy works.
Trying to understand major economic events by looking only at data on changes in economic aggregates, such as gross domestic product, wage rates, interest rates, and tax rates, runs the risk of missing the underlying motivations for change. Doing so is like trying to understand a religious awakening by looking at the cost of printing religious tracts.
In Pakistan, it may indeed have been the cost of printing new money and increasing credit growth which have possibly contributed to a rise in monetary induced inflation today. Firstly, it is important to clarify what exactly is meant by the term inflation.
Originally, inflation referred to an increase in the amount of money and credit in the economy. In other words, inflation meant that the money stock had been inflated by the government or central bank through a policy of credit expansion, viz. Money printing. Moreover, rising prices were understood as a potential symptom of inflation, but not as inflation itself.
However, this traditional conceptualization of inflation fell out of fashion during the twentieth century and economists began to talk about inflation in terms of rising prices, not money creation. Thus, to avoid confusion and to be as precise as possible, I shall refer to inflation proper as monetary inflation and a general rise in prices as price inflation.
It is important to understand that this distinction is not mere semantics, it is vital to bear this distinction in mind if the true causes of generally rising prices are to be fully understood. Understanding the factors that drive inflation is fundamental to designing monetary policy.
For instance, in their review February 2022 for Pakistan, the IMF ignored the potential impact of monetary inflation despite acknowledging in the report broad money supply and increase to private sector credit had risen by 16.2 percent and 11.5 percent respectively over during the last financial year 2020–21 as well as a further 15.8 percent increase in broad money supply and 16 percent private sector credit during the currency financial year 2021–22.
Opting for the definition of inflation as merely price inflation, the IMF predicted the economy of Pakistan to witness a
temporar[y] increase in the coming months and average 9.4 percent in FY 2022 due to the recent terms of trade shock, continued energy price adjustments, and GST reforms. It is expected to be within the SBP’s 9–11 percent inflation range forecast in the next 12 months, before slowing to 6.5 percent over the medium term.
Yet today inflation in Pakistan was recorded at 25 percent in July 2022, which was the highest level since the Great Financial Crisis of 2008 almost 14 years ago (see below).
Figure 1: Consumer Price Index Inflation in Pakistan
picture1.png
Source: Pakistan Bureau of Statistics.
What can explain this divergence? Certainly in the long run, inflation is considered to be—as Milton Friedman (1963) stated—always and everywhere a monetary phenomenon (monetary inflation). However, the State Bank of Pakistan has pointed to supply-side developments in explaining inflation. This structuralist school of thought holds that supply constraints that drive up prices of specific goods can have wider repercussions on the overall price level.
In Pakistan, former State Bank of Pakistan governor Reza Baqir stated that the “driver of inflation is a surge in domestic and international commodity prices such as food and oil and monetary policy does not have control to bring international commodity prices down..”
As such, the question of whether money or commodity prices drives inflation is not merely academic but has profound implications for economic policy. If inflation is a monetary phenomenon, it is the responsibility of the central bank and the fiscal authorities to achieve price stability.
What Drives Inflation in Pakistan: Money or Commodity Prices? The argument I present is that the high rate of inflation Pakistan currently faces is as much a result of an increase in commodity prices as monetary policies followed by the State Bank of Pakistan since 2020. To show how this higher-than-expected rate of inflation that the Pakistan experiences today was indeed the result of monetary inflation—i.e., an increase in the broad money supply and increase in the supply of private sector credit, we turn to a paper authored by IMF economist Axel Schimmelpfennig and Mohsin Khan in 2006 titled “Inflation in Pakistan.”
This paper examined the relative importance of monetary factors and structuralist supply-side factors for inflation in Pakistan. A stylized inflation model was specified that includes standard monetary variables (money supply, credit to the private sector), exchange rate, as well as wheat support price as a supply-side factor. The model is estimated for the period January 1998 to June 2005 monthly.
The results indicated that monetary factors played a dominant role in inflation, affecting inflation with a lag of about one year. Changes in the wheat support price influence inflation in the short run, but not in the long run. The results of the analysis are visible in the diagram below.
Figure 2: Average Annual Inflation and Monetary Growth, January 1999–January 2005 (as a percent)
picture2.png
Source: Mohsin S. Khan, and Axel Schimmelpfennig. “Inflation in Pakistan,” Pakistan Development Review 45, no. 2 (Summer 2006): 185–202.
Looking at inflation in Pakistan today we see a similar trend today. First, there is a rapid increase in the broad money supply of the country visible in the diagram below. We note that the total money supply in the country printed since January 2020 increased 44 percent, the largest such increase in history.
Figure 3: Pakistan Broad Money Supply (M2)
picture3.png
Source: State Bank of Pakistan.
It must be noted that printing new money is not inflationary by itself. However, as I wrote in a previous article, when governments run massive fiscal deficits, policies of quantitative easing when combined with printing money can be highly inflationary if the funds go out into the broad money supply and further out into commercial bank deposits from the public—i.e., growth in private sector credit. We see this trend in Pakistan in the diagram below.
Figure 4: Inflation and Monetary Growth, Fiscal Year 2019-2022
picture4.png
Source: Author's calculations based on IMF, Pakistan Bureau of Statistics, and State Bank of Pakistan data.
The empirical results presented in this blog show that monetary factors determine inflation in Pakistan. Broad money growth and private sector credit growth are the key variables that explain inflation developments with a lag of around twelve months. A long-run relationship exists between the Consumer Price Index and private sector credit. Commodity prices of oil and food prices affect inflation in the short run, but not in the long run. The answer to the question “money or commodity prices?” Is “money!”
Summary and Conclusions Pakistan’s growth record since the 1970s underscores that high and persistent inflation is harmful to growth (see figure below). Periods of high inflation have coincided with low growth spells, while high growth episodes tend to be associated with a low inflation environment. Considering the empirical thresholds beyond which inflation harms growth and financial development, the State Bank of Pakistan’s overarching objective should first and foremost focus its attention on price stability.
Figure 5: Pakistan Real per Capita Growth and CPI Inflation since 1975
picture5.png
Source: Author's calculations based on IMF, Pakistan Bureau of Statistics and State Bank of Pakistan data.
Insurance is a market institution—i.e., it emerged through voluntary exchange aiming at satisfying the needs of the parties involved. Private health insurance should not be mistaken for public health insurance, which constitutes an element of a state’s social policy. They differ to such a great extent that one can even claim that the latter is a contradiction of the former. This essay will show the most notable differences between them.
The Main Differences Firstly, insurance companies make use of advanced economic calculation which uses the calculus of probability to estimate the risk and establish appropriate premiums for particular at-risk groups. People of a lower health risk will pay lower premiums as opposed to the ones of a higher health risk. Moreover, not everybody can be insured. Differentiation of contributions and insurance coverage, as well as exclusions and limitations are to ensure that the costs incurred by the insurance companies are in an adequate relation to the premiums gained and invested. The cooperation between the actuarial1 and underwriting2 departments enables such risk management, which in turn enables obtaining profits.
Meanwhile, in the case of the so-called public insurance there is no risk calculation, selection, or classification. All the insured pay an obligatory contribution which is not related to a real insurance risk. It can be uniform or dependent on one’s income. Public institutions responsible for financing access to the health system do not have to fear that the insured party might leave the company. As a result, the problem of moral hazard is much more visible in public health programs, especially if the authorities plead the so-called citizen’s right to healthcare.
Moral hazard is a situation in which an entity does not incur the costs of their activities despite obtaining additional benefits. In the case of public health insurance, it is a charging of a relatively lower contribution or the nonexistence of the possibility of refusal. Thus, the entity can get preferential conditions, and the additional costs are incurred by all the other people insured, which sooner or later leads to problems with medical services accessibility.
Secondly, in the case of private health insurance it is usually not known who is going to need medical services. The insurance company can establish that, e.g., out of one million people, 0.5 percent will contract a particular disease, but not who it will be. In turn, in the case of public insurance next to such cases there is also a known number of people who are already ill. Therefore, there is no risk but certainty.
Some believe that private insurance is only good for the young and the healthy. However, insurance companies are about adequate risk assessment for particular groups (classes). Thus, it is possible to calculate premiums corresponding to lower and higher health risk. It does not mean, though, that insurance companies will automatically accept everybody’s applications, but it should not be assumed that a person with health issues will not be insured at all. Accepting all applications might destabilize a given insurance program and lead to problems with financing access to medical services for other customers. Hence the importance of risk assessment for insurance companies.
Thirdly, apart from financing access to a range of medical services, insurance companies invest a part of the contributions. Thus, the supply of savings available in the market increases, making it easier for entrepreneurs to obtain capital indispensable for creating more effective production. Meanwhile, the contributions to public insurance are consumed by the insured immediately. Thus, the insurance market contributes to the increase of savings supply and their adequate allocation in the economy, while public insurance constitutes income redistribution. Mandatory transfer of funds between particular groups of the insured is not a source of investment and does not lead to the increase of the production efficiency.
Fourthly, the limitations imposed in the agreement enable a more rational consumption of medical services. They concern, among others, the time span or range of such insurance. Also, the insurance does not cover all possible occurrences due to lack of a possibility to assess the risk. It can result from a lack of sufficient data or medical knowledge. For instance, lack of sufficient information and knowledge on the development of a given illness makes it impossible to assess the costs of treatment, which translates into significant difficulties in assessing the contribution because it is now known whether it is adequate to the given risk.
It is also worth mentioning that a rational consumption of such services should not be associated with their rationing, which is characteristic of public programs. Rationality of consumption means that before deciding to buy insurance a customer analyses its limitations, price, etc. They also compare it with competitive offers of other insurance companies or alternative solutions such as, e.g., medical subscription prices or the cost of direct medical services. Insurance companies also care about having conscious customers who do understand both the advantages and limitations of their products. It contributes to the development of appropriate customer attitudes. Lack of such limitations would quickly result in an increased demand for medical services available thanks to private insurance, which would result in different forms of their rationing by insurance companies wanting to avoid, e.g., an increase of contributions (prices).
Additionally, apart from the insurance, if the market is not subject to any strong regulations, there are many other alternative forms of financing access to medical services and the institutions which offer them (e.g., medical chains, charities, or direct payments). Therefore, lack of insurance does not mean a complete lack of possibilities to use medical services. Public insurance or state (nonmarket) solutions do not grant a person who needs medical services any choice between competing public providers. The person’s situation worsens significantly when they cannot use those services within public insurance. For such people, private insurance or other private financial institutions offering medical services are the only option.
Fifthly, private risk assessment in market insurance translates into a higher motivation to take care of one’s health. A potential insured party may be encouraged to lose weight or quit smoking by the prospect of paying lower contributions. People leading a healthy lifestyle may, in turn, be offered more favorable conditions, which can encourage others to change their diets as well. The insurance companies may also employ a range of incentives aimed at their customers, offering, e.g., a premium decrease if they score a sufficient number of points in a medical survey.
Meanwhile, the motivation to take care of one’s health is lowered when it comes to public health insurance due to the lack of risk assessment. The assumption is that everybody should have equal access to the health system and that failure to lead a healthy lifestyle should not exclude or limit anybody.
Sixthly, in the market conditions there are mechanisms which contribute to cost reduction and increasing the quality of medical services, which in the case of public insurance does not have to be certain and often leads to the cost/expenditure increase and a decrease in the quality of service.
Insurance companies are interested in the best risk assessment possible, thanks to which they can offer premiums which would best correspond to the risk posed by a potential insured party. What is also significant is the quality of the services, which prompts insurance companies to search for appropriate providers of such services or create their own chains. Competitive processes effectively maintain costs on a low level, ensuring the profits assumed. In turn, in the case of public insurance the competitive processes are replaced with mandatory contributions and a range of regulations conditioning the operating rules of the public health system.
Conclusion The differences described above show that the so-called public (state) insurance functions are based on extremely different assumptions than private insurances and besides the name they have no common characteristics. The former is inherently related to interventionism. The latter results from the bottom-up market processes. Because of those differences, it is not possible to connect those two types of insurance. Any additional interference in the health insurance market brings insurance firms closer and closer to fulfilling the redistributive function regarding financing the access to medical services. The so-called public (state) health insurances, being an element of the state’s policy, are not insurances in the word’s real meaning. They have never been and never will be. Insurance, just like money, is a market institution and only in market conditions may duly fulfil its function.
Translated by Agnieszka Jarosz.
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- Dealing with calculating the insured party’s health risk.
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- Responsible for assessing the insured party’s risk—e.g., based on an analysis of the applications for insurance filed by potential customers.
The Gold Standard Restoration Act seeks to once again tie the US dollar to gold.
Original Article: "Can the Dollar Once Again Be Anchored by Gold? One Congressman Believes It Can"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
There has been a radical change in the social and political landscape in this country, and any person who desires the victory of liberty and the defeat of Leviathan must adjust his strategy accordingly. New times require a rethinking of old and possibly obsolete strategies. —Murray N. Rothbard1
Murray Rothbard wrote the above words in 1994, shortly before his untimely passing. They sum up the main theme of a series of brilliant articles that he published in the 1990s calling for a radical readjustment of libertarian strategy to the new political and social realities that had emerged in the aftermath of the collapse of communism in Eastern Europe and the Soviet Union. In these articles, Rothbard identified both the abstract social philosophy and the concrete political movement that then had emerged as the greatest menace to liberty and society. He also proposed a radical reformulation of the political spectrum and a revised political vocabulary to express the new strategy called for in the altered ideological and political context.
Before proceeding further, I want to point out that Rothbard’s articles, despite their deep insight and radical implications for libertarian strategy, have been largely overlooked by friend and foe alike for a couple of reasons. First, when he wrote the articles, Rothbard was hard at work on his monumental two-volume treatise on economic thought. Understandably, he wrote the articles quickly as one-off responses to particular events, ideas, and political developments during a period of rapid change, from 1991 to 1994. Rothbard’s new views on strategy were therefore presented as fragments in different articles containing inevitable repetition and overlapping. This obscured the fact that taken together these articles presented a systematic and comprehensive strategy for radical social and political change. Second, the articles appeared in the Rothbard-Rockwell Report a journal of social, political, and cultural commentary. Unfortunately, Triple R’s scintillating polemics and its coverage of an incredibly broad range of topics sometimes diverted the reader from the deep theorizing that informed many of its articles. I confess that I did not appreciate the significance of Rothbard’s articles, and their unity and breadth of vision, until very recently.
Social Democracy: Identifying the Enemy After the collapse of communism, and with Nazism and fascism “long dead and buried,”2 Rothbard argued that social democracy was the only remaining statist program, and its advocates were hell bent on making the most of their ideological monopoly. In the “new post-communist world,” Rothbard wrote:
The Enemy of liberty and tradition is now revealed full-blown: social democracy. For social democracy in all of its guises is not only still with us ... but now that Stalin and his heirs are out of the way, social democrats are trying to reach for total power.3
Not only is social democracy still with us in its many variations, but it has managed to define “our entire respectable political spectrum, from advanced victimology and feminism on the left over to neoconservatism on the right.”4 Make no mistake about it, Rothbard warned, “on all crucial issues, social democrats however they label themselves, stand against liberty and tradition and in favor of statism and Big Government.” Furthermore, social democracy is far more insidious than other forms of statism because it claims “to combine socialism with the appealing virtues of ‘democracy’ and freedom of inquiry.”5 As shrewd observers of the political scene for a century and a half, social democrats—or left liberals in the American political lexicon—are indeed seriously committed to democracy. As Rothbard explained:
The maintenance of some democratic choice, however illusory, is vital for all varieties of social democrats. They have long realized that a one-party dictatorship can and probably will become cordially hated … and will eventually be overthrown, possibly along with its entire power structure.6
Picking up on the insight of the contemporary political theorist Paul Gottfried, Rothbard noted that the social democrats’ devotion to democracy also serves as a pretext for an attack on those who assert the “absolute” inviolability of the right to free speech and a free press. This assault on free speech, Rothbard presciently pointed out in 1991,
constitutes an agenda for eventually using the power of the State to restrict or prohibit speech or expression that [neocons and social democrats] hold to be “undemocratic.” This category could and would be indefinitely expanded to include: real or alleged communists, leftists, fascists, neo-Nazis, secessionists, “hate thought” criminals, and eventually … paleo-conservatives and paleo and left-libertarians.7
Progressivism: The Social Philosophy of Social Democracy Rothbard probed deeper to expose the peculiar social philosophy that is at the root of all strains and variants of social democracy as well as communism. He identified this philosophy as progressivism, which is far more than a social and economic program for the here and now. It is a Utopian social philosophy that looks toward the establishment of a future heaven on earth. The core belief of progressives is based on the Enlightenment myth that history is an inexorable and ever upward march toward the perfection of mankind. In the case of social democrats, perfection is defined as a society ruled and engineered by a righteous, efficient, and egalitarian socialist state. Moreover, unlike traditional Marxists, social democratic progressives believe that history unfolds not through class struggle and bloody revolution but through the relentless forward march of democracy. In Rothbard’s words:
The left are in their bones, “progressives,” that is, they believe in Whig or Marxoid fashion, that history consists of an inevitable March Upward into the light, toward and into the Socialist Utopia. They believe in the myth of inevitable progress: that History is on their side.8
The ultimate goal of this progressive and inevitable transformation of society is not, as it is with traditional Marxists, the eradication of all class distinctions and the collective ownership of the means of production under the dictatorship of the proletariat. Rather it is, in Rothbard’s words, “a socialist, egalitarian State run by bureaucrats, intellectuals, technocrats, ‘therapists,’ and the New Class in general in collaboration with accredited victim pressure groups striving for equality.” The capitalist and entrepreneur class will not be liquidated, nor will their means of production be expropriated. Instead, the market economy will be kept but heavily taxed, regulated, and restricted. According to Rothbard:
The Social Democrats realize that it is far better for the socialist State to retain the capitalists and a truncated market economy to be regulated, confined, controlled, and subject to the commands of the State. The Social Democrat goal is not “class war,” but a kind of “class harmony,” in which capitalists and the market work for the good of society and of the parasitic State apparatus.9
Revising the Political Spectrum With “neoconservative” progressives having hijacked the conservative movement and the so-called New Democrat Bill Clinton revealing his hard-left progressive inclinations, Rothbard realized that the urgent first step in combating progressivism was to completely revamp the prevailing conception of the US political spectrum and its vocabulary. On the left of his reconstructed spectrum, Rothbard arrayed all political factions inspired by the progressive-Marxist vision of social change. These groups were also fanatically devoted to democracy not merely as the surest means for instituting the progressive political and economic agenda but, in Rothbard’s words, “as a shibboleth, as an ultimate moral absolute, virtually replacing all other moral principles including the Ten Commandments and the Sermon on the Mount.”10 In Rothbard’s view the Left ranged from official conservatives and neoconservatives to left liberals and included their allied intellectual and media elites and official victim groups.
On the right, Rothbard grouped all those who cherished traditional American liberties and social institutions and who aimed to stop, rollback, and undo progressive encroachments on them. Rothbard initially puzzled over the label that best suited his proposed grand coalition or “fusion” of right-wing opposition groups, which included many (but not all) libertarians, and various paleo- and traditional conservative groups. He summarily rejected the name “conservative,” tentatively proposing the terms “radical reactionaries,” “radical rightists,” or “the Hard Right.”11 He finally settled on the name “politico-economic reactionaries,” or simply “reactionaries.”12
The term “reactionary” is particularly fitting for opponents of the progressive agenda. It is true that the word was coined during the French Revolution to designate those who sought a restoration of the ancien régime. But its modern usage can be traced to Marx, who used the term as a pejorative to describe many of his predecessors and opponents in the nineteenth-century socialist movement whose Utopian economic schemes involved “turning back the clock” to the precapitalist and preindustrial era of feudalism and medieval guilds. Taking a cue from their master, later communists and social democrats used “reactionary” as a smear word against the defenders of capitalism for opposing the allegedly inevitable march of history towards socialism. As Rothbard pointed out:
They become hysterical at setbacks, at regressions in that march, regressions which have, of course, been dubbed “reactions.” In both the Communist and the Social Democratic worldview, the highest, if not the only morality, is to be “progressive,” to be ... on the side of the inevitable next phase of history. In the same way, the deepest, if not the only, immorality, is to be “reactionary,” to be devoted to opposing inevitable progress, or even and at its worst, working to roll back the tide, and restore the past, “to turn back the clock.”13
The odium that attaches to the term “reaction” or “reactionary” today is, therefore, strictly due to its polemical use by Marxist ideologues. Outside of politics, the term has a positive connotation in many uses. In particular, the antigen-antibody reaction “is the fundamental reaction in the body by which the body is protected from complex foreign molecules, such as pathogens and their chemical toxins.”14 In other words, the human immune system is reactionary. It reacts against and annihilates invaders and restores the human body to it healthy status quo ante. To be a politico-economic reactionary, then, is to seek to undo the ravages of our economic, social, and cultural institutions perpetrated by progressive policies; to turn back the clock by ousting the invaders from their positions of power and restoring the social body back to health.
Rothbard perceptively applied his analysis of progressivism to explain the mystery of the bitter and hysterical leftist hatred of Francisco Franco and Augusto Pinochet, of Spain and Chile, respectively. The loathing of left liberals for these men was even greater than it was for Hitler. For Franco and Pinochet had thwarted the march of history, had actually turned back the clock by leading successful counterrevolutions against democratically elected leftist governments. Today we witness the same frenzied and unhinged vituperation by progressives heaped upon Donald Trump, Viktor Orban of Hungary, Jair Bolsonaro of Brazil, and Giorgia Meloni of Italy because these men and this woman have committed an even graver sin against the progressive creed than Franco and Pinochet did. They have actually taken power in democratic elections while using explicitly antiprogressive, reactionary rhetoric. thereby exposing the myth that democracy is the guarantor of inevitable social progress toward an egalitarian socialist state. How deeply these elections shook up and disoriented progressives is demonstrated in the crazed tweet by Swedish economist Anders Åslund well in advance of the Hungarian election: “If Hungary really votes overwhelmingly against democracy and for corruption I cannot see why it should be accepted in the EU”15 (emphasis added). Slightly less idiotic but more revealing is the resolution passed recently by the august European Parliament asserting that Hungary is no longer a full democracy but “a hybrid regime of electoral autocracy.”16 Rothbard was thus right on the money in his evaluation of the progressives response to the successful political reactions led by Franco and Pinochet: “Let reaction occur, let the phases be rolled back, and these people flip out, go into orbit, for then maybe their religion is a false one after all.”17
Whether or not the current populist politicians in the US and Europe believe their own rhetoric and are genuine reactionaries is beside the point. Their ascension to power in democratic elections despite the endless stream of ridicule, hatred, and contempt spewed at them by the Western political, media, and academic elites demonstrates that a genuine reaction would be possible with the right leader. As Rothbard recognized, a reactionary movement requires “a charismatic leader who has the ability to short-circuit the media elites, and to reach and rouse the masses directly.”18
In a piece written in 1954 but published posthumously in 2002, Rothbard explained that to be effective., the leader of a dissident political movement must be a “demagogue.” He or she must
appeal to the masses over the heads of the State and its intellectual bodyguard. And this appeal can be made most effectively by the demagogue—the rough, unpolished man of the people, who can present the truth in simple, effective, yet emotional, language. The intellectuals see this clearly, and this is why they constantly attack every indication of libertarian demagoguery as part of a “rising tide of anti-intellectualism.”19
In defending demagogy as a political method, Rothbard, of course, understood that it could be used by the Left or the Right. Nevertheless, as he foretold in 1954, since socialism has become the “fashionable and respectable ideology … [any] demagogy, any disruption of the apple cart, would almost certainly come from the individualist opposition.” The Left instinctively know this, which is why “The respectable statist Left … fears and hates the demagogue, and more than ever before, he is the object of attack.”20
Redefining Politics as Warfare After reconstructing the political spectrum to reflect the realities of the post-Communist world, Rothbard laid out the political strategy that reactionaries need to employ to roll back progressivism. He pointed out that reactionaries and progressives are both minorities and in polar opposition to one another. Between them are the majority of Americans who are confused and “torn between conflicting worldviews.” They constitute what Rothbard, following Vladimir Lenin, called “the Swamp,” the terrain over which ideological battles are fought.
Rothbard pithily sums up the problem facing the rightist opposition to the progressive power grab:
The problem is that the bad guys, the ruling classes, have gathered unto themselves the intellectual and media elites, who are able to bamboozle the masses into consenting to their rule, to indoctrinate them, as the Marxists would say, with “false consciousness.”21
This state of affairs exists because, since the beginning of the twentieth century progressive and corporate liberal politicians and their business and financial cronies have induced increasing numbers of intellectuals to apologize for and legitimize their rule in exchange for subsidies from the Federal government or lucrative positions in its ever expanding regulatory, welfare, and warfare agencies and bureaus. What Rothbard calls a “monopoly of the opinion molding function” in society has thus been granted to a privileged and coddled class that today consists of “a swarm of intellectuals, academics, social scientists, technocrats, policy scientists, social workers, journalists and the media generally.”22
So, what is to be done to break this formidable monopoly and destroy the “unholy alliance” of the political establishment and its privileged intellectual apologists? Rothbard recommended “a strategy of boldness and confrontation, of dynamism and excitement, a strategy, in short, of rousing the masses from their slumber, and exposing the arrogant elites that are ruling them, controlling them, taxing them and ripping them off.”23 For a rousing right-wing populism of this sort is precisely what the ruling elites fear. They prefer a judicious, bipartisan discussion of the “issues,” in measured and solemn tones and without acrimony. Progressive politicians especially fear and warn against the so-called politics of resentment—precisely because the resentment would be aimed at them by those whom they exploit. In contrast, Rothbard counsels rightists to return to the fiercely ideological, and highly partisan politics of nineteenth-century America which was marked by bitter and personal resentment of the opposition party and its members.
Not only must the strategy of the right be confrontational according to Rothbard, it also “must fuse the abstract and the concrete: must not only attack the elites in the abstract, but must focus on the existing statist system, on those who right now constitute the ruling classes.” This means, above all, that the rightist strategy must be personal, must aim at exposing the lies, corruption and scandals of specific members of the ruling coalition. Thus, Rothbard wrote of the anti-Clinton movement that rapidly coalesced during Clinton’s first term as president:
The movement erupted in reaction to all the objectively loathsome attributes of the Clintons and their associates—the stream of lies, evasions, crookery, sex scandals, and frantic attempts to run all of our lives. But quickly the hatred of the personal attributes of Clinton spilled over to his program, to his ideology. Thus we had the most powerful “nuclear fusion” in all of politics: the intense blending of the personal and ideological. The growing realization of the socialist tyranny involved in all of Clinton’s programs … joined with and greatly multiplied by the loathing for Clinton the man.24
The final part of the Rothbardian strategy is, thus, to get those on the right to grasp a simple insight—long ago assimilated by the left—that politics is war. That is, in domestic politics no less than in interstate military conflict, in the words of the great German political theorist Carl Schmitt, “the adversary intends to negate his opponent’s way of life and therefore must be repulsed or fought in order to preserve one’s own form of existence.”25 Furthermore, politics inherently involves what Schmitt calls “enmity” or the distinction between “friend and enemy,” concepts “to be understood in their concrete and existential sense, not as metaphors or symbols.”26 For, to quote Schmitt again: “War follows from enmity. War is the existential negation of the enemy.”27 Although Schmitt focuses almost exclusively on interstate conflict, he emphasizes the “ever present possibility of conflict … of combat … the real possibility of physical killing” as an essential attribute of the political, whether in the context of “domestic [or] foreign friend-and-enemy groupings.”28 From the Rothbardian perspective, the conflict in domestic politics is certainly war in the existential sense. The ruling elites by virtue of their control of the State apparatus not only threaten physical violence and even death against the ruled for failure to submit to their taxes and edicts, they also actually practice violence and killing against dissenters or “insurrectionists” among the ruled.
Conclusion Rothbard recognized that any serious political challenge to progressives by a united and self-conscious fusionist-rightist movement would be a war—and a religious war at that. I will conclude by quoting at some length a rousing clarion call to arms to the Right by Rothbard:
We are engaged, in the deepest sense … in a “religious war” and not just a cultural one, religious because left-liberalism/social democracy is a passionately held worldview, religion in the deepest sense, held on faith: the view that the inevitable goal of history is a perfect world, an egalitarian socialist world, a Kingdom of God on Earth…. It is a religious worldview toward which there must be no quarter; it must be opposed and combated with every fiber of our being…. And the metaphor is properly military. The looming struggle is far wider and deeper than over indexing capital gains. It is a life-and-death struggle for our very souls, and for the future of America…. The war for reaction will require above all courage, the guts not to buckle at the all-to-predictable smear response of the media, the pollsters, and all the rest…. And above all we need what the left fears above all: An adherence to the military metaphor, to the concept of us vs. them, good guys vs. bad guys, to Taking America Back. We must aim, not only for rolling it all back, not only for saving us from the Leviathan State and nihilist culture, and not only for restoring the Old Republic. For eventually we must drive the wooden stake through the heart of the Enemy, to kill once and for all the monstrous dream of the Perfect Socialized World.29
The lesson for libertarians is that there are only two sides in the current political struggle. There is no middle ground. You are either a progressive or a reactionary. You either join, or acquiesce in, the forced march into socialism or you join the reaction—the fight to turn back the progressive clock or, better yet, to smash it to smithereens.
-
- Murray N. Rothbard, “A New Strategy for Liberty,” October 1994, in The Irrepressible Rothbard: The Rothbard-Rockwell Report Essays of Murray N Rothbard, ed. Llewellyn H. Rockwell, Jr. (Burlingame, CA: Center for Libertarian Studies, 2000), p. 35.
-
- Murray N. Rothbard, “Frank Meyer and Sidney Hook,” January 1991, in The Irrepressible Rothbard, p. 23.
-
- Ibid., p. 23.
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- Murray N. Rothbard, “A Strategy for the Right,” January 1992, in The Irrepressible Rothbard, p. 19.
-
- Rothbard, “Frank Meyer and Sidney Hook,” p. 23.
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- Murray N. Rothbard, “The November Revolution … and What to Do about It,” November 1994, in Murray N. Rothbard, Making Economic Sense (Auburn AL: Ludwig von Mises Institute, 1995), p. 398.
-
- Rothbard, “Frank Meyer and Sidney Hook,” p. 25.
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- Murray N. Rothbard, “Liberal Hysteria: The Mystery Explained,” October 1992, in The Irrepressible Rothbard, p. 338.
-
- Ibid.
-
- Rothbard, “The November Revolution,” p. 411.
-
- Rothbard, “A Strategy for the Right,” 12.
-
- Rothbard, “A New Strategy for Liberty,” p. 32; Rothbard, Rothbard, “Liberal Hysteria,” pp. 339–40.
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- Rothbard, “Liberal Hysteria,” p. 339.
-
- Wikipedia, s.v. “Antigen-Antibody Interaction," last mdified March 14, 2022, 15:33, https://en.wikipedia.org/wiki/Antigen-antibody_interaction#:~:text=Antigen%2Dantibody%20interaction%2C%20or%20antigen,by%20a%20process%20called%20agglutination. Also see J.A. Spiers, “"Goldberg's Theory of Antigen-Antibody Reactions in Vitro,” Immunology 1, no. 2 (April 1958): 89–102.
-
- Anders Åslund (@anders_aslund), “If Hungary really votes overwhelmingly against democracy and for corruption I cannot see why it should be accepted in the EU. Kick it out!,” Twitter, April 3, 2022, 4:25 p.m. https://twitter.com/anders_aslund/status/1510730232273195009.
-
- Jorge Liboreiro and Sandor Zsiros, “Hungary Is No Longer A Full Democracy but an ‘Electoral Autocracy,’ MEPs Declare In New Report,” euronews, September 16, 2022, https://www.euronews.com/my-europe/2022/09/15/hungary-is-no-longer-a-full-democracy-but-an-electoral-autocracy-meps-declare-in-new-repor.
-
- Rothbard, “Liberal Hysteria,” p. 339.
-
- Rothbard, “A Strategy for the Right,” p. 11.
-
- Murray N. Rothbard, “In Defense of Demagogues,” Mises Daily, April 23, 2002, https://mises.org/library/defense-demagogues.
-
- Ibid.
-
- Rothbard, “A Strategy for the Right,” p. 9
-
- Ibid.
-
- Ibid., p. 10.
-
- Rothbard, “A New Strategy for Liberty,” p. 36.
-
- Carl Schmitt, The Concept of the Political, trans. George Schwab (Chicago: University of Chicago Press, 2007), p. 27.
-
- Ibid., pp. 27, 33.
-
- Ibid., p. 33.
-
- Ibid., pp. 32–33.
-
- Rothbard, “Liberal Hysteria,” pp. 340–41.
Progressives like Robert Reich now claim that there is no inflation, just businesses arbitrarily raising prices so they can increase profits. Such claims do not pass the test of economic logic.
Original Article: "Profits Do Not Cause Inflation (No Matter What Progressives Claim)"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
The ongoing war in Ukraine has forced many Westerners to consider the realism of Carl von Clausewitz’s classic On War. The Prussian military theorist famously wrote that: “War is nothing but a continuation of politics with the admixture of other means.” Though this observation may seem strange or even shocking to modern Western ears, it is the role war has mostly had throughout history.
Clausewitz served in the Russian army in 1812 and his influence in Russia is felt to this day. Indeed, Russia’s approach to the war in Ukraine has the imprint of Clausewitz in the sense that it sees military action as a political instrument, along with other such instruments, such as diplomatic and economic ones.
This helps to explain why Russia has been somewhat misunderstood in Western political and intellectual circles as the current crisis has escalated. Since the end of the Cold War, Western elites have come to equate war with the particular military doctrine of the United States, for which war only starts where politics ends, or even worse: when war of aggression is the preferred means to reach political and commercial ends, often at the exclusion of any good faith diplomacy.
Washington’s wars in the Middle East are typical examples of this. The official objectives of these wars, such as “spreading democracy,” have never really been achieved. Instead, the Military-industrial complex has profited massively from these wars, which strongly suggests that the real military goals of the US government are not the official ones.
For Clausewitz, writing in a time when crony capitalism hardly existed, there is a fundamental interest in avoiding war, because war harms all parties directly involved. Thus, in this light, war should always be the last resort employed by states when trying to reach political goals, not only because of the loss of life and the destruction of property that war entails, but also because of the uncertainty of war for all involved. As the old saying goes, it is easy to start a war, but difficult to end it.
When war does erupt, it is thus often the result of one side’s error of judgment with regard to its own and its opponent’s capabilities and intentions. As the historian Carroll Quigley wrote in his magnum opus, Tragedy and Hope: “This is the chief function of war: to demonstrate as conclusively as possible to mistaken minds that they are mistaken in regard to power relationships.”
The Lack of Relevance of the UN
Typically for a nineteenth-century thinker, Clausewitz accepted the possibility for war to solve political problems, in a way modern international law does not. However, his view of war seems more respectful of the United Nations Charter than the aggressive military doctrine practiced by some of its Western signatories. Indeed, the United Nation’s Security Council’s past decisions to allow military intervention have often not met even the Clausewitz rationale for war; namely, the exhaustion of all other means of issue resolution.
UN Security Council (UNSC) authorizations that since 1945 have allowed some member States to use force against other members often have had underlying interests other than the stated one of “restoring international peace.” Predictably, the results of many of these UN sanctioned military interventions have generally been disastrous; often exacerbating conflicts and leading to the dramatic suffering of the civilian populations. In North Korea 1950, in South Vietnam in 1966, in Kuwait in 1990, and in Libya in 2011, the US interventions made a mockery of the UN’s ideal of peace.
Even worse, the UN Charter and the legal legitimacy of the UNSC have simply been disregarded by the US government in Serbia in 1999 and Iraq in 2003, setting a dangerous precedent. Today, of the permanent five veto-wielding members of the UNSC, three of them are now adversaries of the other two, and this is preventing the UNSC from making any significant contribution toward restoring peace.
What kept the peace, at least in Europe, between the two geostrategic and ideological Cold War rivals was arguably more the nuclear deterrence than the existence of the UN Charter, even though the USA and the USSR did several times come close to using nuclear weapons.
The UN’s role in enforcing international law is therefore today almost nonexistent. The absence of the UN in helping solve the current conflict between Russia and NATO is glaring. The UN Charter is thus simply a legal framework that works—de facto, not de jure—only as long as all of its most powerful members adhere to it in both spirit and letter. In reality, international relations between nation-states are still to a large extent power relationship, as in the days of Clausewitz.
Realism in War Complemented by Libertarianism
The view of modern war presented above, however realist in its outlook, does not consider the cause of war in the first place. It seems inevitable that this requires a focus on the role of the modern state as the instigator of all wars. Therefore, however insightful Clausewitz’s commentary on war, it should be complemented by a theory of the modern state.
Libertarianism is perfectly placed for this task, since it identifies the state as the cause of most of society’s artificially created ills. As a political philosophy based on natural right, libertarianism cannot morally accept a war waged by the state, even if an entirely defensive one (if there is such a thing). The state, by its very definition, violates the nonaggression principle by its monopoly of violence on a given territory.
In practice, however, even a libertarian would have to prefer the case of a state’s noninterested protection of private property in a defensive war against an external enemy, to the alternative of an externally imposed tyranny. Yet, the real world rarely reoffers such clear choices.
Free trade, i.e., is trade completely unobstructed by national or supranational states, is the main driver for peace between nations. Open, trading nations have an interest in peaceful relations with other each other and are therefore naturally averse to war. Protectionism and the tendency toward autarky are both causes and consequences of fraught relations between states that can lead to military conflict. This is not surprising, since the stakes of the state in society, through its intervention in the economy, introduces a logic of competition against other nation-states.
Indeed, peace and prosperity in any society is inversely correlated to the size and strength of the state. In a world composed of nation-states, this leads to the conclusion that is in complete opposition to political globalism; namely, that there should be as many of states as possible—why not down to the municipal level—so as to render each one as weak and limited as possible.
The concepts of secession and self-determination is therefore key for libertarians in order for the number of states to multiply. War becomes less likely the smaller and the less powerful states are, and the more similar to each other they are in size. The current times have shown the danger of states becoming so large as to have geopolitical interests; in the case of the USA, spanning the entire world.
In conclusion, it should be clear that is no contradiction between having a realist view of the world and at the same time one based on political principles. Having a realist view of international relations, as those presented here, does not preclude also recognizing the importance of the libertarian principles regarding war and the state. Indeed, only when the people start massively rejecting the interventions of their state abroad as well as domestically will the possibility for peace between states appear.
Breakthrough theory becomes effective practice when it is successful applied by real-life entrepreneurs. The E4B entrepreneurial method is actualized by Hermann and Elizabeth Morris in the very distinctive business model for their brand, The Nail Hub.
Knowledge Capsule The true purpose of a B2B business is to help your customers succeed. While outside observers focus on transactions — how much does this business sell, what are its revenues? — entrepreneurial business owners and operators focus on customers and customer relationships. Revenues follow from relationships. This insight is critical, since it guides business model development.
Business-to-business models are especially responsive to relationship strategies. When a customer feels that the relationship with a supplier makes their business performance better, they can become a customer for life. That’s a recipe for strong and sustainable growth.
First, observe the ecosystem in which you operate, and identify gap opportunities. Systems thinking is an important component of the entrepreneurial method. A firm is a component or a node in a network of interconnected services we can call an ecosystem. Hermann’s and Elizabeth’s ecosystem is the Nail Fashion industry. Nodes include salons and salon owners, the nail technicians (sometimes employees, sometimes independent contractors) who provide service to consumers in the salons, equipment manufacturers and suppliers, product manufacturers and suppliers (for nail gel, etc.), and product distributors.
Hermann and Elizabeth were able to identify a number of gaps in the ecosystem. Many salon owners were enthusiastic about their industry but not well-trained or experienced in the basic economics of business. Many of the technicians were passionate about their trade, but not highly trained in the latest techniques and technologies and in product selection. There were aspects of marketing that were underdeveloped, such as audience segmentation. And there were inconsistencies between products in both quality and safety.
In the mind of the entrepreneur, these gaps are opportunities. The entrepreneurial question is: how best to fit in and contribute to the ecosystem. The business model response is determined by individual entrepreneurial orientation.
The beginning orientation was that of an operator. Given their knowledge of both the high potential of the industry and the gaps to be addressed / problems to solve, the Morrises’ entry point was as an operator. They embarked upon the journey to design a differentiated salon experience with superior nail technique, better products, better trained technicians. They ran the salon with better business acumen (they both came from high-level corporate positions and were able to bring sophisticated operating and financial experience). They segmented with an unusual and especially comfortable in-salon appeal, and via location.
They were successful. There was a lot of learning, which Hermann identifies as overcoming pain points.
The next growth step comes from re-orientation to larger scale. How could the Morrises scale their salon business? They thought through multiple openings (e.g., open and operate 20 salons), acquisition (acquire 20 salons), and franchising (sell franchises to multiple independent owners).
All of these alternatives would require new capability development: establishing standards and a repeatable business model, including a reliable financial model, designing a multi-unit system of supply chains, capital deployment, décor, training and location scouting, and a new kind of marketing to salon managers or franchisees.
The Morrises were reorienting to thinking as proprietors of a new kind of multi-division business. It’s a different orientation, seeing the same ecosystem from a different perspective.
Meanwhile, Elizabeth had the idea for a podcast to share her expertise and knowledge and passion for the industry. It was free business advice, free guidance, free technical training, teaching different aspects of running a salon and technical aspects for nail technicians. Its purpose was a service to consumers (better salon experiences), to technicians (better craftsmanship) and owners (better business operations). The podcast was called The Nail Hub. It generated a great positive reputation in the ecosystem and a lot of positive feedback. The knowledge that The Nail Hub podcast shared was enthusiastically welcomed.
The Nail Hub podcast feedback resulted in a further re-orientation. The Nail Hub podcast was helping salon owners and those technicians who were independent contractors renting positions in salons to improve the way they ran their businesses: better management, better understanding of customer needs and segmentation, better approaches to pricing, revenue and profits, better techniques, and better products.
What if a podcast can become a business model? Hermann and Elizabeth developed an entirely new B2B services business model which could be summarized as “educate the industry on how to operate a business, and supply them with the highest quality products to fit their business”.
Importantly, the education is free to consume. The Nail Hub YouTube channel is free to access, and offers over 140 videos on every aspect of business operations, finances, equipment, products, and techniques. The videos are expensive to produce. The model is that the investment in education will be repaid through loyal customers buying the products that The Nail Hub offers for purchase.
The curation of products itself is a service. The Nail Hub has identified a distinctive set of criteria for product selection (health, safety, non-toxic ingredients, cruelty-free) and does the research and validation so that purchasers can be confident in their choices and tin he integrity of their promises to the end-consumer.
The products are not the lowest price, they are the highest quality. Salon owners who have not fully absorbed The Nail Hub’s education on consumer segmentation, pricing, and customer experience will not be a good fit within The Nail Hub’s customer set. The Nail Hub business model has a high internal consistency and integrity.
The Nail Hub has re-oriented to B2B service provider educating an entire industry to provide superior consumer experiences, better product quality and profitable operations — i.e., re-orienting from facing those challenges to helping others to face and overcome them.
One of the cornerstones of the B2B services model is authentic subject matter expertise. The Nail Hub can help salon owners and nail technicians thrive through their independent action because Hermann and Elizabeth developed a deep subject matter expertise. They’ve been salon owners and faced all the developmental issues that owners face. They’ve trained nail technicians. They’ve evaluated salon equipment and they’ve committed their resources and time to researching high quality, innovative products that meet their highest standards. Hermann stresses that the arduous development of subject matter expertise is the necessary foundation for a trusted service business.
Another is to choose customers carefully. The Nail Hub is making a substantial investment in their customers via their free training and education. The business model that they enable is specific: the highest standards, with the best trained operators, providing a reliably superior consumer experience. The pricing model is premium, which supports the use of the highest quality products and the provision of the highest quality salon environment. Race-to-the-bottom operators who pursue the lowest prices as a competitive edge are not a good fit in The Nail Hub ecosystem, and Hermann makes this a clear element of The Nail Hub’s B2B communications. Choose your customers to match your positioning.
The evaluation of the business model does not lie in conventional metrics. When the business model is to invest in the success of customers, the conventional metrics of revenue, margins and annual profits are not the primary measures of success (although, of course, they must be acknowledged). The evaluation of the model comes via the feedback loops. Is the educational service welcomed? Does it result in better operations on the part of salon owners? Do salon owners and independent technicians become customers for life? Do product manufacturers clamor for entry into The Nail Hub’s curated product set? Are product trends — safe, non-toxic, healthy, etc. — moving in the desired direction?
This is the entrepreneurial ethic: make customers more successful, make the world a better place.
Additional Resources "Evolving The Nail Hub Business Model" E4B Graphic (PDF): Mises.org/E4B_194_PDF
The Nail Hub YouTube Channel: YouTube.com/TheNailHub
The Nail Hub Website: TheNailHub.com
Kish, since you are wondering, is an Iranian island in the Persian Gulf famed for its tourist and shopping attractions. It is becoming a serious rival to other nearby vacation hubs in Doha and Dubai.
Along with pristine beaches and extensive malls, Kish is—or rather ought to be—known more widely for another feature and institution which the Iranian mullahs established there way back in 2003; namely, the Kish Bourse (i.e., Kish Stock Exchange). بورس کیش if you prefer the Farsi.
Think of it as the Chicago Mercantile Exchange of Iran, a country stacked with natural resources, a relatively well-educated and sophisticated population (the literacy rate is 97 percent among young adults, which, if you consider the deplorable state of secondary education in the United States, means that Iranian youth are most assuredly smarter than your average young American adult), and an economy burdened by mismanagement of their own Islamic theocracy and crippling, long-duration sanctions from the American secular theocracy.
That American secular theocracy has considered it a dogmatic rite of passage into the state and corporate media (their temples) that one must, at the very least, excuse the economic, cultural, and political warfare against Iran as necessary for a variety of spurious reasons. Who really has enough free time to investigate and then suggest otherwise? After all, Iran is plagued by terroristic Islamic fundamentalists who have pledged—like their former president, Mahmoud Ahmadinejad—“to wipe Israel off the face of the earth.”
That hero of American warfare and empire and regime change and nation building, George W. Bush, declared Iran to be one of the hinges of the “axis of evil”; so, since George W. Bush is so much better than Donald J. Trump, well, all Iranians must be malevolent thugs. Iran deserved to have the United States aid Saddam Hussein in the 1980s, to have the United States provide Hussein chemical weapons (mostly made in Germany and the United Kingdom), and then have those chemical weapons unleashed on them.
Never mind that Ahmadinejad never said that. Look away from the facts that one of the rare times in which Trump garnered any support from the deep state cathedral and corporate media cabal was when he tore up the Iran nuclear deal and when he assassinated Iranian general Qasem Soleimani. Orange man good when he’s killing brown peoples in distant lands—so conclude the powers that have been for way too long.
Why has Iran, then, incurred such wrath from the American military-industrial complex establishment? The regime’s Sturm und Drang regarding Iran—and, for that matter, any state that even intimates that it will conduct trade in oil without the dollar, cf. Russia—is all about the petrodollar system.
Let’s define it with some historical context: When Richard Nixon removed the dollar from its peg to gold in 1971, chaos followed. It was not just the Yom Kippur War (1973) and resultant OPEC embargo that led oil prices to skyrocket in the United States. The dollar, as the new, floating, purely fiat global reserve currency had lost its allure when compared to other sovereign currencies and precious metals.
In order to stave off runaway, hyperinflation, Nixon empowered then secretary of the Treasury, William Simon, to go hat in hand to the Saudi monarchy, with a proposal. According to Andrea Wong in a Bloomberg article from 2016(!), Simon landed in Jeddah, Saudi Arabia to get King Faisal to agree “to finance America’s widening deficit with it’s newfound [oil] wealth.”
Said another way, the Americans promised to buy oil from Saudi Arabia, and in return, the Saudis would promise to denominate global purchases only in dollars. Washington would also go so far as to provide military aid and materiel to the Kingdom, which made Raytheon, McDonnell Douglas, and Rand Corporation types happy. The tit for that tat came in the form of guarantees that the Saudis would “plow billions of their petrodollar revenue back into Treasuries and finance [the inordinate, warfare-welfare] spending” of every US regime since.
It—incredibly—gets worse. King Faisal accepted the arrangement (one that was sure to make his desert-oil kleptocracy a major regional power and global player) on one condition: The rest of the world could not know the extent of the agreement. That is to say that Faisal knew that in the rest of the Islamic world, underwriting America’s drunken-sailor imperial spending, well, that would not play in Cairo, Damascus, and Kuala Lumpur.
Therefore, Simon allowed for the Saudis to “bypass the normal competitive bidding process for buying Treasuries by creating ‘add-ons.’ Those sales, which were excluded from the official auction totals, hid all traces of Saudi Arabia’s presence in the U.S. government debt market.”
Within just four years of the agreement, Saudi Arabia held about one-fifth of all Treasuries held abroad. It is further asserted that that number represents the bare minimum of the Saudi share of US debt. The Saudi regime launders and recycles its petrodollars though hedge funds and secretive arrangements with perhaps hundreds of quasi-private institutions, all done with the approval and oversight of the US regime.
Different parties. Different men. Different pronouncements. Different promises. But, the one thing they all have in common: They all bow low before the Saudis—one of them, literally!
The truth is that both American foreign policy and to a very large extent, American domestic policy, are both wrapped up in the petrodollar arrangement. For the past fifty years, the national government has attempted to do what a president not pictured above—Lyndon Baines Johnson—wanted to do in Vietnam; namely, apply the New Deal to Southeast Asia.
The subsequent regimes have doubled down on the insanity—they aspire to maintain American economic, imperial hegemony over the rest of the world while simultaneously engaging in domestic spending to infinity and beyond. Thus, the petrodollar system is the most grandiose of all monetary and money laundering schemes. The Fed and US Treasury create fiat out of thin air, the Saudis provide a semblance of supportive valuation for it, and then the Saudis conceal their ill-begotten gains by buying Treasuries and cleaning their dollars through ostensibly legitimate concerns.
As economist William Clark pointed out in 2005, nations that even appear to not be on board with this sinister arrangement are the ones that incur the most wrath from the State Department, Pentagon, NATO, presidential administrations, and all of the other aligned interests. In September 2000, Saddam Hussein announced that his Baathist government would no longer participate in the “Oil-for-Food” Program, and that, furthermore, oil deals would be denominated in euros.
From that point on, the writing (about Babylon this time) was on the walls of the state in DC Just months after US forces invaded Iraq, in June 2003, Iraqi oil sales were converted back to petrodollars, which, owing to the euro’s strength against the dollar at the time, cost Iraqis a net 13 percent on their oil revenues and invalidated previously approved contracts with other nations.
Kish is a much greater offense to Washington than anything Saddam Hussein was able to accomplish. There, Iranian oil is bought and sold using euros, yuan, and (get ready for it) rubles. The Iranians have their own oil “marker” or means of certifying the purity and quality of the oil. Turns out, while the Biden administration and greater “liberal” Europe have expressed their collective outrage by spending other citizens’ money to support an oligarchy in Ukraine and have concurrently cut off those evil, boorish Russians with sanctions; business is brisk in Kish and Tehran. Volumes have increased on the export and import side.
Over just a four-month period, they went up 4 percent and a whopping 32 percent respectively. The Iranian consumer is holding up in spite of those onerous sanctions. Meanwhile, China has increased its purchase of Iranian oil. At present, 13 percent of China’s oil originates in Iran.
All of this is to say that, just like the Federal Reserve system, the petrodollar cabal has to reign at or near the top of operative institutions that the vast majority of Americans have “kinda, sorta heard about” and yet possess no idea of the extent to which said things suppress American prosperity and prospects for the future. Most have no idea why or how the Saudis can fund everything from genocidal proxy wars against Iran to upstart professional golf tours.
Must be all of that oil money. Factual, but not exactly true.
End the petrodollar.
What would people use for money in a genuine free market? A lot of people answer the question in this way. We really don’t know the answer for sure. It would be up to the people who live in that society. Because in a genuine free market, there would be no state at all, there would be no money mandated by the state. People would compete to establish the money they liked best. Maybe people would settle on a gold or silver standard, as they had done in the past. But maybe they wouldn’t. They might prefer electronic currency like bitcoin. Or maybe there would be all sorts of different monies, with no clear winner.
Murray Rothbard doesn’t agree with this. He was aware of competitive money, because F.A. Hayek had suggested it. People have the right to offer competing monies, as Hayek advocated. But Murray thought they would be unlikely to do this. The competition had already taken place, and precious metals were the winner. Why go through the same process again? As Murray explains in his great article, “The Case for a Genuine Gold Dollar”:
“In recent years an increasing number of economists have understandably become disillusioned by the inflationary record of fiat currencies. They have therefore concluded that leaving the government and its central bank power to fine tune the money supply, but abjuring them to use that power wisely in accordance with various rules, is simply leaving the fox in charge of the proverbial henhouse. They have come to the conclusion that only radical measures can remedy the problem, in essence the problem of the inherent tendency of government to inflate a money supply that it monopolizes and creates. That remedy is no less than the strict separation of money and its supply from the state.
The best known proposal to separate money from the state is that of F.A. Hayek and his followers. Hayek’s ‘denationalization of money’ would eliminate legal tender laws, and allow every individual and organization to issue its own currency, as paper tickets with its own names and marks attached. The central government would retain its monopoly over the dollar, or franc, but other institutions would be allowed to compete in the money creation business by offering their own brand name currencies. Thus, Hayek would be able to print Hayeks, the present author to issue Rothbards, and so on. Mixed in with Hayek’s suggested legal change is an entrepreneurial scheme by which a Hayek-inspired bank would issue ‘ducats,’ which would be issued in such a way as to keep prices in terms’ of ducats constant. Hayek is confident that his ducat would easily out-compete the inflated dollar, pound, mark, or whatever.
Hayek’s plan would have merit if the thing—the commodity—we call ‘money’ were similar to all other goods and services. One way, for example, to get rid of the inefficient, backward, and sometimes despotic U.S. Postal Service is simply to abolish it; but other free market advocates propose the less radical plan of keeping the post office intact but allowing any and all organizations to compete with it. These economists are confident that private firms would soon be able to outcompete the post office. In the past decade, economists have become more sympathetic to deregulation and free competition, so that superficially denationalizing or allowing free competition in currencies would seem viable in analogy with postal services or fire-fighting or private schools.
There is a crucial difference, however, between money and all other goods and services. All other goods, whether they be postal service or candy bars or personal computers, are desired for their own sake, for the utility and value that they yield to consumers. Consumers are therefore able to weigh these utilities against one another on their own personal scales of value. Money, however, is desired not for its own sake, but precisely because it already functions as money, so that everyone is confident that the money commodity will be readily accepted by any and all in exchange. People eagerly accept paper tickets marked ‘dollars’ not for their aesthetic value, but because they are sure that they will be able to sell those tickets for the goods and services they desire. They can only be sure in that way when the particular name, ‘dollar,’ is already in use as money.
Hayek is surely correct that a free market economy and a devotion to the right of private property requires that everyone be permitted to issue whatever proposed currency names and tickets they wish. Hayek should be free to issue Hayeks or ducats, and I to issue Rothbards or whatever. But issuance and acceptance are two very different matters. No one will accept new currency tickets, as they well might new postal organizations or new computers. These names will not be chosen as currencies precisely because they have not been used as money, or for any other purpose, before.
Hayek and his followers have failed completely to absorb the lesson of Ludwig von Mises’ ‘regression theorem,’ one of the most important theorems in monetary economics. Mises showed, as far back as 1912, that since no one will accept any entity as money unless it had been demanded and exchanged earlier, we must therefore logically go back (regress) to the first day when a commodity became used as money, a medium of exchange. Since by definition the commodity could not have been used as money before that first day, it could only be demanded because it had been used as a nonmonetary commodity, and therefore had a preexisting price, even in the era before it began to be used as a medium. In other words, for any commodity to become used as money, it must have originated as a commodity valued for some nonmonetary purpose, so that it had a stable demand and price before it began to be used as a medium of exchange. In short, money cannot be created out of thin air, by social contract, or by issuing paper tickets with new names on them. Money has to originate as a valuable nonmonetary commodity. In practice, precious metals such as gold or silver, metals in stable and high demand per unit weight, have won out over all other commodities as moneys. Hence, Mises’ regression theorem demonstrates that money must originate as a useful nonmonetary commodity on the free market.
But one crucial problem with the Hayekian ducat is that no one will take it. New names on tickets cannot hope to compete with dollars or pounds which originated as units of weight of gold or silver and have now been used for centuries on the market as the currency unit, the medium of exchange, and the instrument of monetary calculation and reckoning.
Hayek’s plan for the denationalization of money is Utopian in the worst sense: not because it is radical, but because it would not and could not work. Print different names on paper all one wishes, and these new tickets still would not be accepted or function as money; the dollar (or pound or mark) would still reign unchecked. Even the removal of the legal tender privilege would not work, for the new names would not have emerged out of useful commodities on the free market, as the regression theorem demonstrates they must. And since the government’s own currency, the dollar and the like, would continue to reign unchallenged as money, money would not have been denationalized at all. Money would still be nationalized and a creature of the state; there would still be no separation of money and the state. In short, even though hopelessly Utopian, the Hayek plan would scarcely be radical enough, since the current inflationary and state-run system would be left intact.
Even the variant on Hayek whereby private citizens or firms issue gold coins denominated in grams or ounces would not work, and this is true even though the dollar and other fiat currencies originated centuries ago as names of units of weight of gold or silver. Americans have been used to using and reckoning in dollars for two centuries, and they will cling to the dollar for the foreseeable future. They will simply not shift away from the dollar to the gold ounce or gram as a currency unit. People will cling doggedly to their customary names for currency; even during runaway inflation and virtual destruction of the currency, the German people clung to the mark in 1923 and the Chinese to the ‘yen’ in the 1940s. Even drastic revaluations of the runaway currencies which helped end the inflation kept the original ‘mark’ or other currency name.
Hayek brings up historical examples where more than one currency circulated in the same geographic area at the same time, but none of the examples is relevant to his ‘ducat’ plan. Border regions may accept two governmental currencies. But each has legal tender power, and each had been in lengthy use within its own nation. Multicurrency circulation, then, is not relevant to the idea of one or more new private paper currencies. In addition, Hayek might have mentioned the fact that in the United States, until the practice was outlawed in 1857, foreign gold and silver coins as well as private gold coins, circulated as money side by side with official coins. The fact that the Spanish silver dollar had long circulated in America along with Austrian and English specie coins, permitted the new United States to change over easily from pound to dollar reckoning. But again, this situation is not relevant, because all these coins were different weights of gold and silver, and none was fiat government money. It was easy, then, for people to refer the various values of the coins back to their gold or silver weights. Gold and silver had of course long circulated as money, and the pound sterling or dollar were simply different weights of one or the other metals. Hayek’s plan is a very different one: the issue of private paper tickets marked by new names and in the hope that they are accepted as money.
If people love and will cling to their dollars or francs, then there is only one way to separate money from the state, to truly denationalize a nation’s money. And that is to denationalize the dollar (or the mark or franc) itself. Only privatization of the dollar can end the government’s inflationary dominance of the nation’s money supply.”
If competition in money isn’t the way to go, how do we get to free market money? As usual Murray has the answer:
“We conclude, then, that the dollar must be redefined in terms of a single commodity, rather than in terms of an artificial market basket of two or more commodities. Which commodity, then, should be chosen? In the first place, precious metals, gold and silver, have always been preferred to all other commodities as mediums of exchange where they have been available. It is no accident that this has been the invariable success story of precious metals, which can be partly explained by their superior stable nonmonetary demand, their high value per unit weight, durability, divisibility cognizability, and the other virtues described at length in the first chapter of all money and banking textbooks published before the U.S. government abandoned the gold standard in 1933. Which metal should be the standard, then, silver or gold? There is, indeed, a case for silver, but the weight of argument holds with a return to gold. Silver’s increasing relative abundance of supply has depreciated its value badly in terms of gold, and it has not been used as a general monetary metal since the nineteenth century. Gold was the monetary standard in most countries until 1914, or even until the 1930s. Furthermore, gold was the standard when the U.S. government in 1933 confiscated the gold of all American citizens and abandoned gold redeemability of the dollar, supposedly only for the duration of the depression emergency. Still further, gold and not silver is still considered a monetary metal everywhere, and governments and their central banks have managed to amass an enormous amount of gold not now in use, but which again could be used as a standard for the dollar, pound, or mark.
This brings up an important corollary. The United States, and other governments, have in effect nationalized gold. Even now, when private citizens are allowed to own gold, the great bulk of that metal continues to be sequestered in the vaults of the central banks. If the dollar is redefined in terms of gold, gold as well as the dollar can be jointly denationalized. But if the dollar is not defined as a weight of gold, then how can a denationalization of gold ever take place? Selling the gold stock would be unsatisfactory, since this (1) would imply that the government is entitled to the receipts from the sale and (2) would leave the dollar under the absolute fiat control of the government.
It is important to realize what a definition of the dollar in terms of gold would entail. The definition must be real and effective rather than nominal. Thus, the U.S. statutes define the dollar as 1/42.22 gold ounce, but this definition is a mere formalistic accounting device. To be real, the definition of the dollar as a unit of weight of gold must imply that the dollar is interchangeable and therefore redeemable by its issuer in that weight, that the dollar is a demand claim for that weight in gold.
Furthermore, once selected, the definition, whatever it is, must be fixed permanently. Once chosen, there is no more excuse for changing definitions than there is for altering the length of a standard yard or the weight of a standard pound.
Before proceeding to investigate what the new definition or weight of the dollar should be, let us consider some objections to the very idea of the government setting a new definition. One criticism holds it to be fundamentally statist and a violation of the free market for the government, rather than the market, to be responsible for fixing a new definition of the dollar in terms of gold. The problem, however, is that we are now tackling the problem in midstream, after the government has taken the dollar off gold, virtually nationalized the stock of gold, and issued dollars for decades as arbitrary and fiat money. Since government has monopolized issue of the dollar, and confiscated the public’s gold, only government can solve the problem by jointly denationalizing gold and the dollar. Objection to government’s redefining and privatizing gold is equivalent to complaining about the government’s repealing its own price controls because repeal would constitute a governmental rather than private action. A similar charge could be leveled at government’s denationalizing any product or operation. It is not advocating statism to call for the government’s repeal of its own interventions.
A corollary criticism, and a favorite of monetarists, asks why gold standard advocates would have the government ‘fix the (dollar) price of gold’ when they are generally opposed to fixing any other prices. Why leave the market free to determine all prices except the price of gold?
But this criticism totally misconceives the meaning of the concept of price. A ‘price’ is the quantity exchanged of one commodity on the market in terms of another. Thus, in barter, if a package of six light bulbs is exchanged on the market for one pound of butter, then the price per light bulb is one-sixth of a pound of butter. Or, if there is monetary exchange, the price of each light bulb will be a certain weight of gold, or, these days, numbers of cents or dollars. The important point is that price is the ratio of quantities of two commodities being exchanged. But if money is on a gold standard, the dollar and gold will no longer be two independent commodities, whose price should be free to fluctuate on the market. They will be one commodity, one a unit of weight of the other. To call for a ‘free market’ in the ‘price of gold’ is as ludicrous as calling for a free market of ounces in terms of pounds, or inches in terms of yards. How many inches equal a yard is not something subject to daily fluctuations on the free or any other market. The answer is fixed eternally by definition, and what a gold standard entails is a fixed, absolute, unchanging definition as in the case of any other measure or unit of weight. The market necessarily exchanges two different commodities rather than one commodity for itself. To call for a free market in the price of gold would, in short, be as absurd as calling for a fluctuating market price for dollars in terms of cents. How many cents constitute a dollar is no more subject to daily fluctuation and uncertainty than inches in terms of yards. On the contrary, a truly free market in money will exist only when the dollar is once again strictly defined and therefore redeemable in terms of weights of gold. After that, gold will be exchangeable, at freely fluctuating prices, for the weights of all other goods and services on the market.
In short, the very description of a gold standard as ‘fixing the price of gold’ is a grave misinterpretation. In a gold standard, the ‘price of gold’ is not unaccountably fixed by government intervention. Rather, the ‘dollar,’ for the past half-century a mere paper ticket issued by the government, will become defined once again as a unit of weight of gold.”
As usual, Murray is right. We should for a return to the gold standard, not waste time with space cadet fantasies about new kinds of money.
It is relatively common that what should be recognized as a warning flag of major trouble is often ignored until things get so bad that it is almost impossible not to notice (unless one is mightily determined not to see them). Leonard Read channeled such thoughts about the damage public policy has caused Americans. He even went so far as to say “Thank God for the Mess We’re In,” (The Freeman, March 1975), because our mess is so great we might finally start thinking about how to undo the causes:
There is a reason for our mess. We are now reaping the bitter harvest of the poisonous seed sowed intermittently during the past … bad effects whose causation can be traced to the employment of wrong means. We suffer the natural consequences of our folly.
As it is, we need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something for nothing but has led to all sorts of undesirable consequences.
[Many] fail to get the message the mess is meant to convey. Indeed, many are just beginning to realize that we are moving toward disaster, even though we have been on a wrong heading for decades.
Why then do I thank God for the mess we’re in? Simply because the mess is sending up signals—messages loud and clear—that our past is filled with errors which inexorably produced their evil results. The consequences we suffer now were caused by past mistakes, and we need to know what wrong actions are responsible for these bad effects. The fact is, we are being graced with warnings which, when and if read aright, can lead to our salvation.
Read then turns to the issue of how to “see” both the blessings of liberty and how government violations of liberty have gotten us into the mess we’re in:
Our past is filled not only with moral but politico-economic errors, and our present likewise. How are we to identify these wrong actions and find the right ones, that is, how expose the fallacies of state interventionism and reveal the merits of human liberty as related to the interest and benefit of every one of us?
When liberty prevails, every individual … is free to bring persons and other scarce resources into complementary and workable combinations … millions who can and do bring individuals and other resources into association that render a fantastic service of all sorts to King Consumer. And, when liberty prevails so does competition, a constructive force that assures that the efficient servants rise to serve all of us better.
The aggregate of these energies—the bringing into combination of things and persons—is beyond the power of anyone to even imagine.
The problem: government interventions supposedly to advance the general welfare commonly do the opposite, by undermining the liberty that is truly essential to our well-being:
Let us now observe what happens to these sources of creative energy when the state regulates and controls them. What are the consequences when organized physical force—government—controls our creativity, our varied and unique potentialities? To accurately observe and appraise these consequences is to discover the errors—moral and economic—which account for the mess we are in. And the task is to free ourselves from these malpractices.
We have [many] governments—federal, state, and local … commanding millions of us as to what to produce, what and with whom to exchange, what our money is worth; they dictate hours of labor, wages, what our children must study; on and on and on … they have frustrated, to a marked extent, the morals and the creativity of the citizenry.
As a result of this governmental intervention, the varied talents and the uniqueness of each citizen are more or less imprisoned.
To repeat, when liberty prevails, all are free to bring things and people into workable combinations to the betterment of all … But when the police and their subsidized minions regulate and control, a do-as-I-say-or-else action replaces, to a great extent, the bringing together actions of free and creative people, and to the detriment of all.
Read concludes with a call to finally heed the red flags that have been flying for so long, along with a reference to inflation that seems quite prescient for our situation today:
The signals are loud and clear—far too numerous to recount. The messages are that every one of these evils we now experience are but consequences of past and present errors … we must work on the causes … if we would repair our ways!
Let me conclude by calling attention to but one signal, a warning that is fretting millions … the rapid decline in the purchasing power of the dollar. The cause? Inflation! Its causes? Excessive governmental expenditures which in turn are caused by people from all walks of life running to government for every conceivable kind of succor—people feathering their own nests at the expense of others. The remedy? Remove the causes.
In any event, I thank God for the mess we’re in and its timely warning that we must change our course to avert disaster.
I have heard many people in recent years echo Leonard Read’s recognition that we are in a real mess. Such recognition is an important and necessary first step. But it is far from sufficient to undo the mess. What Read was thankful for was the heightened potential it offered for careful thinking, to be followed by action to undo the causes. It is that last step that offers a payoff for society. But our near-at-hand midterm election campaigns don’t seem to deliver on Read’s hope, but instead promise a doubling down on every policy ever conceived to violate citizens’ persons and property to give power to government and favors to those whose votes are thought to be most effectively buyable.
And it is profoundly depressing to see us creating still bigger red flags, while continuing to avert our eyes from virtually anything they have to teach us. It seems that rather than having a problem with a boy who cried wolf, we have a problem of many crying that there is no wolf, even when we see him at the door.
Elon Musk’s takeover of Twitter and his immediate firing of top brass represents a potential weakening of the Big Digital woke cartel that controls information, censors content, censures and bans users, and serves as a propaganda arm of leftist totalitarian statists. Given their cooperation with and promotion of leftist statism, it is more than evident that Twitter, Facebook, Google, and others have served as state apparatuses, as what I have called “governmentalities.” Musk’s takeover not only represents a potential blow to the woke cartel but also to the globalist statists whom it so assiduously serves.
I have argued that Musk’s Twitter gambit represents an important test case for the woke cartel because it pits “the world’s richest man” against these agents of the state. Musk’s takeover will now demonstrate just how much this cartel and the statists they support can manage to infringe property rights by controlling what Musk can do with his own property.
Already the European Union [EU] is threatening Musk with control of Twitter’s content. After Musk tweeted “the bird is freed,” EU industry chief Thierry Breton tweeted “[i]n Europe, the bird will fly by our EU rules." Breton was indirectly referring to the EU’s Digital Services Act, which aims to ban “illegal and harmful content” across Europe.
But the Digital Services Act threatens to universalize content moderation by social media and search engines, subjecting them to the EU’s stringent and anti-free-speech laws against “disinformation” and “hate speech,” which are not (yet) recognized legal categories in the United States. Given that Twitter will be forced to abide by EU-enforced content moderation for its EU users, it is possible that it will simply apply the Digital Services Act’s rules to all content—unless Twitter builds algorithms that allow it to distinguish between EU-originated posts and those deriving from elsewhere.
Shortly after Musk moved to buy Twitter, several dozen countries and international governance bodies—including the U.S. and EU—announced the ratification of the “Declaration for the Future of the Internet,” which, among other things, aims to “bolster resilience to disinformation and misinformation, and increase participation in democratic processes [sic].” Two days after Musk announced that he was buying Twitter, the Biden administration announced the formation of a “Disinformation Governance Board,” which has since been scrapped, at least for now.
It’s not as if the woke cartel and the leftist totalitarian statism that it supports are going to simply take Musk’s incursion into major social media ownership laying down. This fight will show how important information control is to “the clique in power.”
Musk is by no means a model for free market libertarians, but his takeover and remodeling of Twitter is no less a significant eventuality in the struggle for liberty against the woke cartel and the state that it supports. What happens on Twitter will not only be a test of Musk’s sincerity and resolve but also of the power of the woke cartel’s regime for enforcing state dictates and narratives.
I am one of the recent victims of Twitter’s cancellation of dissident voices. I believe I was cancelled because I argued that the transgender movement is part of a neo-Malthusian depopulation regime (while also a means for dismantling the family). Now that Musk is at the helm, I am hoping for reinstatement (and verification). But I’m not holding my breath.
Following in the footsteps of John Maynard Keynes, most economists hold that one cannot have complete trust in a market economy, which is seen as inherently unstable. If left free, the market economy could lead to self-destruction, hence the need for the government and the central bank to manage the economy. Successful management in the Keynesian framework is done by influencing overall spending.
According to this framework, spending generates income, with spending by one individual becoming income of another. The more that is spent, the greater the income will be. Spending drives the economy, and if consumers fail to spend during a recession, it is the role of the government to step in and boost overall spending.
Funding and Economic Growth What is missing in the Keynesian story is the matter of funding. For instance, a baker produces ten loaves of bread out of which he consumes two loaves. The saved eight loaves of bread he exchanges for a pair of shoes with a shoemaker. Note the baker funds the purchase of shoes by means of the saved eight loaves of bread.
The bread maintains the shoemakers’ life and well-being. Likewise, the shoemaker has funded the purchase of bread by means of the saved shoes.
Assume the baker decides to build another oven to increase production of bread. To implement his plan, the baker hires the services of the oven maker, paying the oven maker with some of the bread he has produced. The building of the oven is supported by the production of bread. If for whatever reasons the flow of the bread production is disrupted the baker would not be able to pay the oven maker. As a result, the making of the oven would have to be abandoned.
We can infer that what matters for economic growth is not just tools, machinery, and the pool of labor, but an adequate flow of consumer goods that maintains individuals’ life and well-being. By means of a saved consumer good—the bread—the baker can fund the expansion of his production structure. Similarly, other producers must have saved consumer goods—real savings—to fund the purchase of the goods and services they require.
The introduction of money does not alter the essence of funding. The baker exchanges the saved bread for money and then exchange the money for the shoes. (Money is just the medium of exchange. It is only employed to facilitate the flow of goods; money cannot replace consumer goods.)
According to popular thinking, the demand for goods grows when the money supply increases. We believe that the demand for goods is constrained by the production of goods. The greater the production of goods, the more goods can one demand, with money simply facilitating the exchange of goods.
Government Is Not a Wealth Generator The government as such does not produce real wealth. How, then, can an increase in government outlays grow an economy? People employed by the government expect compensation for their work, but the only way government can pay these workers is by taxing others who generate real wealth. By doing this, the government weakens the wealth-generating process and undermines real economic growth. (We ignore here borrowings from overseas).
According to Ludwig von Mises:
There is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.
The fiscal and monetary stimulus appears to “work” if the flow of real savings is large enough to support—i.e., fund—government sponsored activities while still permitting an increase in the activities of real wealth generators. However, if the flow of real savings is decreasing, then overall real economic activity will follow suit. The more government spends and the more the central bank pumps new money into the economy, the more will be taken from wealth generators, thereby undermining prospects for real economic growth.
When loose monetary and fiscal policies divert bread from the baker, he will have less bread at his disposal, all other things being equal. Consequently, the baker will not be able to secure the services of the oven maker. As a result, it will not be possible to boost the production of bread.
As the pace of loose monetary policies intensifies, the baker will not have enough bread left to even sustain the workability of the existing oven. (The baker will not have enough bread to pay for the services of a technician to maintain the existing oven in a good shape). Consequently, the production of bread will actually decline.
Similarly, other wealth generators, because of the increase in government outlays and monetary pumping, will have less real savings at their disposal. This, in turn, hampers the production of their goods and services and slows overall real economic growth.
Why Economic Cleansing Promotes Economic Growth The conventional thinking presents economic adjustment—also labeled as “economic recession”—as something that must be avoided. In fact, economic adjustment is nothing more than the reallocation of scarce resources in accordance with consumers’ priorities. Allowing the market to do the allocation always leads to better results. Even the founder of the Soviet Union, Vladimir Lenin, understood this when he introduced the market mechanism for a brief period in March 1921 to restore the supply of goods and prevent economic catastrophe. Yet most experts these days cling to the view that the market cannot be trusted in difficult times.
Economic problems are better fixed by allowing entrepreneurs the freedom to allocate resources in accordance with individuals’ priorities. Thus, the best stimulus plan is to allow the market mechanism to operate freely, as permitting the market to operate freely results in some economic activities disappearing while some other activities will be expanded.
Loose fiscal and monetary policies do not rescue the economy, but, instead, rescue activities that are generating products that are on the low priority list of consumers. Policies based on loose money creation and spending sustain waste and promote inefficiency, draining resources from activities that generate wealth.
Why Doing Nothing Is the Best Policy to Revive the Economy Decades of reckless monetary and fiscal policies have severely damaged the process of real wealth generation. More loose policies cannot make the current situation better. On the contrary, such policies only further delay the economic recovery.
The best economic policy is for the Fed and the government to immediately stop their economic interventions. By doing nothing the Fed and the government will enable wealth generators to accumulate real savings. (The policy of doing nothing will force various activities that add nothing to the pool of real savings disappear. This will make the life of wealth generators much easier).
Over time, the expanding pool of real savings will set a platform for the further expansion of various wealth generating activities. So the sooner the Fed and the government remove themselves from the economy, the sooner a genuine economic recovery is going to emerge.
Conclusion Contrary to pundits, neither the Fed nor the government’s loose monetary and fiscal policies can cause an expansion in the pool of real savings. On the contrary, loose policies only weaken the process of real savings formation thereby weakening prospects for a sustained economic expansion.
If loose monetary and fiscal policies could set in motion economic growth, then by now all the poverty in the world would have been eradicated. The only reason why in the past loose monetary and fiscal policies appeared to have been effective is because the pool of real savings was expanding.
Once this pool becomes stagnant, declining the illusion of the effectiveness of these policies is shattered. The more aggressive the fiscal and monetary policies stance is the worse the economic conditions become. If the pool of real savings is still intact, then there is no need for the Keynesian policies to revive the economy—the pool will do it. If the pool is in trouble, the Keynesian policies will only make things much worse could cause a prolonged economic depression. Hence the best policy is to do nothing.
(Barthelemy) Charles (Pierre Joseph) Dunoyer (1786–1862) was born on May 20, 1786 at Carennac in ancient Turenne (Quercy, Cahorsin), the present-day Lot. His father, Jean-Jacques- Philippe Dunoyer, was seigneur de Segonzac. Destined at an early age for the order of St. Jean de Malte, he began his education in the order's near-by house at Martel. With the confiscation of the order's houses in 1792, his aunt, formerly of the Visitation order, and, then, the former Benedictine prior of Carennac, continued his education at home. His secondary education was completed at Cahors in the école centrale, one of the newly established schools under the Directory in which the ideas of the 18th century philosophes, and especially, the Ideologues, predominated. In 1803, Dunoyer went to Paris to study law at the newly founded Université de Jurisprudence.
Dunoyer arrived in Paris as a major intellectual and political era was ending and a new one—the Empire—was beginning. Dunoyer's education at the école centrale had introduced him to the major thinkers of the Enlightenment and their followers during the Revolution and Directory. Beginning in 1800 a strong campaign against the Enlightenment was initiated in Paris, but was countered with lessening impact by the major organ of the philosophe tradition, La Décade Philosophique, of which the principal editor had been Jean-Baptiste Say (1767–1832). Say was general editor of the Décade from its founding (An II, April 29, 1794) until his entry into the Tribunat in 1800.1 The education with which Dunoyer came to Paris was the product of the work of a number of men who contributed to the Décade.
Pierre Claude Franpis Daunou (1761–1840). who was to be closely associated with Charles Dunoyer during the Restoration, was the major force in the development of the écoles centrales as he had been for the creation of the Institut de France. During 1791–1792 Talleyrand had proposed a secondary education based on languages, literature, history and ethics; and Condorcet had countered with an emphasis on mathematics, sciences, and the political and moral sciences. In 1795, after a proposal by Lakanal for a more scientific program, a less scientific one of Daunou was adopted. Earlier, Daunou, along with Lakanal and Sieyès, desired that education be freed to be supplied by private initiative. Daunou emphasized that liberty was a necessary condition for scientific progress. This concept formed an important part of the educational and economic thought of Destutt de Tracy, who was active in educational policy under the Directory as well as a leading Ideologue. François Guillaume Andrieux, president of the Tribunat and contributor to the Décade Traité d'économie politique (1803), for which he was not renewed in the Tribunat.2
The Décade was particularly significant in the history of economic thought. It contributed strongly to the development of Say's thinking, and Say was the most important economist in France during the Restoration. What would become even more accentuated in Say's Traité, the Décade was a major means of introducing the economic ideas of Adam Smith in a France where the concepts of the Physiocrats had been dominant. While Condorcet represented the beginning of a transition from the exclusive agrarianism of the Physiocrats, his initiatives toward industrialism remained limited. But, the impact of the industrial revolution in France (it had reached the point of inaugurating the standardization of manufactured elements by 1785) upon Condorcet, had more far-reaching repercussions on the thinking of Say and Destutt de Tracy. However, the frame of reference of the Physiocrats remained significant. For them, natural society existed before the state. Natural society was absolute, necessary and permanent; the state was relative, accidental and provisional. The Physiocrats' anarchism looked forward to the disappearance of the State. Condorcet strongly articulated this individualism, and his thought was accorded more attention than anyone else's in the Décade.3
For Say, industrialism and anarchism found their model in the United States, just as Chinese agrarian despotism was the model for most Physiocrats. The Physiocrats' preference for a "refined", communal, agricultural, old, tired, bureaucratic society had been opposed by Jean-Jacques Rousseau's "common", individualist, non-agricultural craftsman, young, fresh, non-bureaucratic society. "In passing simply from the refinement of an old society tightly formed around agriculture to the industrial activity of a new society, we again go forward from the Physiocrats to Rousseau. It is always the romanticism of the noble savage under a different form". Say held that only man in a state of advanced personal well-being could achieve the natural perfection of which Rousseau spoke. Only where the society is natural can natural and social perfection be achieved; economic society for Say is natural, but political society is not natural and thus inhibits man's perfection. "J.-B. Say is in agreement with Rousseau in proclaiming that political society is assuredly not natural".4
Dunoyer's interest in the United States in his own writings and in articles (especially about Franklin) in his periodicals, reflected a similar interest on the part of the Ideologues and especially Say in the Décade. Say was critical of the Federalists and of the speculators in government business and securities who might introduce materialism and large fortunes destructive of capitalism in America. For Say, as for many French radicals, Rousseau was associated with Franklin (and Jefferson). The second part of Franklin's Autobiography was first printed by the Décade in 1798 under Say's editorship; he also printed various letters and essays of Franklin. Robert Fulton represented an ideal American in Paris with his book on improvement of canal navigation, which Say reviewed, and his successful steamship sailing on the Seine. Say, in 1803, sent Jefferson a copy of his Traité accompanied by a letter:
It is likewise your task to demonstrate to the friends of liberty throughout Europe how great an extent of personal liberty is compatible with the maintenance of the social body. It will then no longer be possible to defile by excesses the noblest of causes; and it will perhaps finally be perceived that civil liberty is the true goal of social organization, and that we must consider political liberty only as a means of attaining this end. The United States are the children of Europe; but the children are greater than the parents. We are old parents raised in foolish prejudices, chained by a mass of ancient fetters, and bound by a quantity of puerile considerations. You will show us the true ways to free ourselves from them. For you have done more than win your liberty; you have established it.5
For Say, America was the model of the young, fresh, active, unrefined society whose industrialism and anarchism would contribute to human perfection. He said in the Traité:
Here we indicate the point of contact between political economy and pure politics. Everyone is convinced that the sacrifices that the state of society imposes on us are especially the least where the government is best . . . In which country is one best governed, that is to say least governed at the cheapest cost than in the United States?6
Say's optimism and naturalism was fundamental to the economic thought which he introduced. These premises were basic to many of the Physiocrats as well as to Rousseau. The Physiocrats placed the age of gold in the future, in contrast to Rousseau; they posited an individual naturalism a posteriori to Rousseau's individual naturalism apriori. The influence of Rousseau's individualism along with that of Adam Smith caused Say to negate the political means which many Physiocrats had favored. The individualism of Say's thought led his economic naturalism to obviate the political system. With reference to Rousseau,
The economic utilitarianism is extended to the individual. Individual naturalism is extended to the economy. It is from this conjunction that the new naturalism is born. And here is how, while for Rousseau social utilitarianism was the means of individual naturalism, Say, after having strictly separated in his heart political society and economy, posited simply that political utilitarianism is the superfluous and temporary means of a naturalism not only individual but economic, of that natural coincidence of individual utilitarianism and economic utilitarianism.
If one goes to the foundation of things one would conclude finally that Say continues Rousseau much more than he contradicts him.7
Adam Smith differed from the Physiocrats in putting aside their acceptance of a political system which they hoped to rationalize. His contribution was rooted in a utilitarian naturalism in which economic and social relations flourished in the absence of political action, however rational the intention. Say derived his basic concepts directly and indirectly from Smith. It was upon Smith's optimism and naturalism that much of the controversial literature was based among the English radicals following the French Revolution. Just as Say and the French school of economists were favorable to the French Revolution and the Industrial Revolution in line with Smith's followers, Malthus and the English school opposed them or saw them as evils however necessary.
To a major degree, the English radicals moved from the Rousseauan Declaration of Rights, which they recognized as an insufficient guarantee of natural rights, to the necessity of abolition of the political system.
Amongst these democrats, who were opposed to Burke, Mackintosh, Paine, Godwin submitted so strongly to the influence of Smith that they ended by showing themselves the insufficiency of the Declaration of Rights. Nothing catches this more than to see Mackintosh subordinate natural rights to utility, Paine simply juxtaposed the two doctrines, and Godwin, finally, sensing the necessity of choosing, perfected the ideas of Paine in disassociating government and society, in showing that, far from relaxing the social bond, the abolition of government binds it tighter. . . Godwin in accord with the tradition of utilitarian naturalism of Smith, had sacrificed politics to economics. It was economics that the artificial utilitarianism of Bentham sacrificed to politics.
Is that to say that it is Godwin who founded political economy? No! For it is perhaps more against him than against Bentham that Malthus and Ricardo established theirs . . . Godwin developed optimistic utilitarian naturalism, Malthus pessimistic utilitarian naturalism. It is in this way that one is able to say to the Essays on the Principle of Population that it is a rejoinder against the Wealth of Nations . . . According to Malthus, evil will not be able to be destroyed either by political action, contrary to what Bentham thought, nor by the abolition of government, contrary to what Godwin thought. If government can achieve nothing against economic reality, it becomes an integral part of that reality.
. . ., is it not Adam Smith's optimistic utilitarianism that J.B. Say begins anew? In such a manner that definitely will his political economy be founded actually less against Godwin than against Bentham, and less against the utilitarian rationalism of Bentham than against the pessimistic utilitarian naturalism of Malthus and Ricard?8
The pessimistic utilitarianism of Malthus and Ricardo in opposition to Godwin and his Smithian optimism was rooted in the crises of overproduction occurring during the period of the wars of the French Revolution and Napoleon. The crises of overproduction confronted economists with a profound challenge to the conception of economic science. Say demonstrated against Malthus the economic impossibility of overproduction. In his analysis of the extra-economic, the anti-economic or political, causes of overproduction, against Malthus' incorporation of government into economic reality, Say affirmed his renowned Law of Markets.
The division between optimism and pessimism had important roots in the respective attitudes toward industrialization. Just as Malthus' work was a response to Smith through Godwin. Say's industrialisme was a reaffirmation of Smith and Godwin. Smith's positive economic attitude toward industry distinguished him from the Physiocrats. "If from the Wealth of Nations, the Traité of Say derived in one part only his germs of industrialism, he derived in another part only the single optimistic branch of his utilitarian naturalism; and he made this double part coincide. If he industrialized nature, he naturalized industry".9 The application of industrialization in absolute freedom would result in general well-being. The Décade perceived an indefinitely increasing prosperity due to economic freedom or capitalism, and to the use of machinery applying new technology and scientific discoveries. For Say, the facility of amassing capital was one of the causes of indefinite human perfectibility.
For the Décade, one of the great advantages of the system of laissez-faire is that it prevents excessive enrichment due to monopolies and tariffs of a small number of privileged families, and that it diffuses very widely the profits of industry . . . But these measures of general utility (the liberalism of Smith and Say, for example) would they have a noticeable effect on the poor? The Décade believed it would, at least in what concerned economic freedom. The liberation of work by the abolition of feudal rights and of corporations seemed to it already an immense social progress. Its hopes for future progress of the people was founded on the anticipated effects of the system of laissez-faire joined to the mechanization of industry: national prosperity without precedent, work for all, lower prices due to competition, and to standardized manufacturing production. It is an industrial revolution similar to the manufacturing movement in England that Jean-Baptiste Say emphasized.10
Say credited his friend the abbe Henri Grégoire, the founder of the Conservatoire des Arts et Métiers, with recognizing the human progress which machinery was providing. The Décade called for concentration on production of articles of wide use, and "occupied itself constantly in inventions and new technology".
La Décade insisted on the importance of machinery and kept its readers current with the most recent developments in this field. It presented regular accounts of the sessions of the Lycée des Arts (the society founded in 1792 for the propagation of useful discoveries) and occupied itself with the industrial expositions which took place in Paris every year from 1797 of the Society for the Encouragement of National Industry (founded in 1801) and of the Conservatoire des Arts et Métiers (decreed in 1794).11
Industrialization had an important practical effect on capital, leading to one of Say's major contributions to economics. The revolution had reduced the importance of the privileged "capital" of the old regime, and had freed men to acquire capital outside the role of the state and thus to improve the general interest. The industrial revolution represented the great increase of this capital and the reduction of privileged "capital". Income on capital represented a reward to the capitalist for saving and for foregoing the use of savings rather than merely an insurance for risk. The rise in the price of capital in industrial society no longer reflected the scarcity of capital, but the increase in productive use of capital. This contrasts with the conception of Malthus and Ricardo and placed Say in radical opposition to the pessimistic English school.12
The development of the industrial revolution had held the attention of Say less on the already old phenomenon of the division of labor than on the entirely new phenomenon of mechanization which had caused the industrialisme of Say, passing beyond Smith, to return to naturalism."13
From its birth, this harmonious conception wits destined to be broken; and, if the progress which the economics of J.-B. Say realized was more distinct in relation to his contemporaries than in relation to his predecessors, it was perhaps still more distinct in relation to his immediate successors . . . the industrialist idea passed in turn to the Censeur and to its editors: Charles Comte, Dunoyer and Augustin Thierry, in order to reach in the end to Saint-Simon and to Karl Marx ...
"Political Economy", said the Censeur Européen at the end of a review of Say's Traité, "in making seen how peoples prosper and decline, has posed the true foundations of political thought". Even as there was no longer economic science strictly speaking, there ought no longer to be a pure political science. There is political economy.
. . . And the progressive effacement that they marked of the warrior spirit before the industrial spirit was a veritable theory of historical materialism. As remarkable as their internal political conception was their international relations. The system of European equilibrium was only "an old used machine", a perpetual menace of war. The Censeur opposed to it the theory of markets and the real international entente that it engenders. There are no more than two great nations: the European nation of the producers, the industrials; as to the other, it is the old Europe battling against the new. But, if the relationship of the economic liberalism of J.-B. Say and the political liberalism of the Censeur is tight, it does not cover one difference. The sole criticism that Dunoyer addressed to his master is of not having seen that his doctrine was in itself a system of political thought and of having reduced the system of political thought to mere constitutional forms.14
However, the flowering of Say's impact on Dunoyer was to occur only after a postponement of a dozen years. For when Dunoyer came to Paris in 1803 under the impact of the philosophical and literary views for which the Décade was the spokesman, the intellectual affinity was broken due to Say's leaving Paris in that year. The very publication of the Traité was the cause of Say's removal from Paris as a result of his elimination from the Tribunat. Refusing an offer from Napoleon of a position in the financial department, Say undertook to apply the recent developments in machinery to industrial production. He established a cotton spinnery which eventually employed almost 400 persons at Aulchy in Pas-de-Calais. When he sold his business a decade later and returned to the intellectual life of Paris as the Empire was coming to its conclusion, Say brought with him a complete knowledge of the role and the effects of industrialization on modern society.
J.-B. Say was intimately involved in the emergence of large scale industry. He was, in effect, one of the most remarkable types of these manufacturers of the Consulate and of the Empire, of these first great" entrepreneurs who sought to place in operation the new technological processes.15
Equally important, during that decade Say was able to clarify the social thought which he had expressed in the Traité and to publish in 1814 the second edition which was to have a central importance on the development of the thought of Charles Dunoyer and Charles Comte and through them on many others. When Say had launched his industrialisme in 1803, he faced the strong opposition of the writers who were tied to the economic patterns and thought of the 18th century. By 1814 the industrial revolution on the continent, alongside that of England, clearly indicated that new ways of thinking about reality were necessary. The material conditions as well as the intellectual conditions were ready for industrialisme after 1814.
But since 1789 industry had tripled the Censeur Européen and Saint-Simon triumphed. If Stendhal remained curiously hostile to industrialism, Benjamin Constant in 1818, and especially in 1829, allowed himself to approach it probably under the influence of the success of J.-B.Say.16
Dunoyer's lively interest in philosophy and literature remained guarded after his arrival in Paris in 1803, under the chilling impact of the emerging imperial regime. Dunoyer pursued his law studies and translated the Novelles of the Emperor Leo III. In 1807 he met (François) Charles (Louis) Comte (1782–1837) who came from Sainte-Enimie, Lozére. Comte had arrived in Paris alone without entrée or fortune, but with a rude aspect and energetic character. Later, he would occupy a special place among the friends of Odilon Barrot (1791–1873), who was a compatriot from Villefort, Lozére, and who said of Comte: "His conversations and his examples fortified and purified in me the sentiment of liberalism of which my education and my origins had given me the germ."17 Charles Comte was working on a study of the jurisprudence of Sirey when he and Dunoyer became friends. At his parents' insistence, the reluctant Dunoyer left his scholarly pursuits in Paris and entered government service under the Empire. He became the secretary of a family friend, Baron Bertrand Bessières (1773–1855) of Prayssac (Lot), who was sent as intendant to northern Spain (1810–1811). Bessières, who had been a Napoleonic general de cavalerie and later defended Marechal Ney, was the younger brother of Marechal Jean Baptiste Bessières, duc d'Istria, who was the commander of French armies in northern Spain. Dunoyer's experience in Spain and his respect for the Spanish Liberals opposed by the traditionalists and the Anglophile constitutionalists, was to manifest itself in his discussion of Spanish events in his articles during the Restoration. Following his service in Spain, Dunoyer acted as the secretary to another family friend who was an official in the administration of Holland. There the police methods of the imperial government caused him to become completely opposed to the Empire and to return to Paris.
Dunoyer welcomed the actions of the Senate deposing Napoleon, appointing a provisional government and preparing a constitution, especially with the leadership of such liberal senators as Garat, Grégoire, Lanjuinais, Destutt de Tracy and Lambrechts. A new constitution was issued by the Senate on April 6, 1814, and the Comte de Provence was called to the throne of a constitutional monarchy. Dunoyer was one of the gentlemen of the National Guard cavalry formed as a guard of honor for the Comte d'Artois on his entry into Paris in April. But, Dunoyer withdrew from the guard of honor when the Senate's constitution was set aside by the new king, Louis XVIII, in his declaration of Saint-Ouen on May 2–3. Dunoyer published a pamphlet regarding the constitution: Réponse à quelques pamphlets contre la constitution. Dunoyer was critical of the Charte issued by the royal government on June 4, in response to the pressure of the Coalition Allies occupying Paris, following the treaty of Paris (May 30, 1814) which ended the war.
Dunoyer was then invited by Charles Comte to join him in the publication of a weekly journal, Le Censeur. The first volume (June 12– September 30, 1814) was published as a weekly until a strong censorship law was established. The Censeur declared in an advertisement:
Strangers to all the governments which have succeeded each other in France during the mace of twenty years. We have, in writing, only the interest which ought to animate all Frenchmen, that of seeing our fellow citizens obey the law, respect public morals and resist oppression. What men of such and such a Party, or such and such a sect, should not look for, then, in this work, is what will feed their passions, for they will find here nothing which will be able to please them.18
Despite their disappointments regarding the Charte, Dunoyer and Comte believed it capable of forming the basis for increased freedom and thus ending the successive revolutions which the French had experienced, but which had not in turn increased freedom. Dunoyer and Comte hoped that the royalists would be satisfied to find the Bourbons on the throne, and accept limited monarchy and cabinet government. They believed that constitutionalists would see the Charte as a major accomplishment in which most of their principles were clearly established. While the Bonapartists, as the most recent government, were least easily reconciled, they were seekers of office and power, and could become important if the government were to fail. Republicans were advised that the forms were less important than the content and that, with the Charte, France like England was a true republic in all but name. England was a contradiction to Dunoyer and Comte. In the midst of liberal and radical French opinion for which England represented an ideal, the Censeur became increasingly skeptical and finally abandoned its mild anglophilia for anglophobia. Since this evolution accompanied their increasing discouragement with the failures of the Restoration government and its violations of the Charte, it is possible that opened eyes saw wider than France and gained a depth of insight regarding England as well. With regard to Le Mythe Anglais, "the influence of the Censeur was not negligible"; "it was the most important of the secondary reviews".19
Dunoyer felt that France had only a pale reflection of the English constitution because English society had strong foundations for liberty. Like other French radicals, he saw the defeat of Napoleon as a vindication of their ideas. The Censeur (September, 1914) wrote: "the English have presented themselves mainly as liberators". Yet, Dunoyer's memories of the role of the English and their allies in Spain, a theme of his writings over these years, as well as England's war against the United States, raised doubts as to England's disinterested diplomacy. Despite its belief that England's intention was hegemony, the Censeur could prefer an alliance with England over one with Russia. The Censeur's Anglophobia was much deeper and analytic than the conceptions of "Perfidious Albion" of an Etienne de Jouy or of the "Noble England" of a Mme. de Stael. The depth of Dunoyer's analyses of England is evidenced in the impact that the Censeur had on Benjamin Constant's thinking. In this as in other areas the Censeur was part of the dialogue of attraction and criticism which they carried on to the end of Constant's life. Constant's conception of a free England was modified increasingly to a criticism of England. "Without doubt, in his portrayal of the economic and social evolution of England, Constant was inspired by the brochures and articles of J.-B. Say as by the Censeur, taking account of the sentiments of his public and of the disquiet which had provoked the social and political troubles of Great Britain".20 This development of ideas regarding England occurred throughout the Left in France with the Censeur in the forefront.
On the Left, one discovers with a certain astonishment that the banner of liberty covers henceforth an aristocratic merchandise. They begin to envisage that England may cease being the forerunner of civilization. Have not its ministers made themselves the recognized protectors of continental reaction? Moreover, one would wish to be a patriote! Many former officers of the Grande Armée still resented the humiliation of the defeat; many former prisoners or former soldiers recalled the essential themes of revolutionary and imperial propaganda. The Left had hardly more unity than the Right: less still perhaps. Some hated, some admired, others exploited, some desired to imitate. C.A. Scheffer and, in a lesser measure, the staff of the Censeur began to critize the very idea of country.21
This development did not include all those associated with the Censeur. Henri de Saint- Simon and his secretary Augustin Thierry expressed a deep Anglophilism in the Censeur, especially on the English parliamentary system. (Saint-Simon's "De Réorganisation de la Société Européene", Le Censeur, III): "In his articles in the Censeur, he gave the same England as an example to the French: she had known how to resolve the problem of relations between the ministers and the opposition".22 Furthermore, the shift to an anti-English position resulted from the increasingly central importance for Comte and Dunoyer of economic thought. "For the readers of the Censeur . . . political economy eclipsed philosophy. In a certain measure, it replaced it."23 It was ironic that at first this economic thought was English; Charles Comte had an acquaintance with Jeremy Bentham's writings. Dunoyer and Comte were interested in the less traditional writing which was being published in England and found that writing to be congenial to the cosmopolitan attitudes they inherited from the philosophes, the Ideologues and the Décade.24
Thus, the first volume of the Censeur was launched in June, 1814 with certain significant political attitudes and concepts but with sufficient open-endedness to encourage and experience growth. This was in addition to the spirit of independence and criticism for which the Censeur was particularly famous. Eugène Hatin, in his discussion of the press under the Restoration, has noted:
The only truly independent journal of the epoch was Le Censeur. Le Censeur had been created by two of those young men for whom the imperial despotism contradicted all their ideas, revolted all their sentiments, and who despite their patriotism, had seen in the day of March 31 the signal of universal deliverance. Admitted to the intimacy of the most distinguished members of the liberal minority of the Senate and of the philosophic party, the Tracys, the Lanjuinais', the Lenoir-Laroches, the Lambrechts', the Volneys, and the Cahanis', Comte and Dunoyer had imbibed a horror of tyranny, and it was to prevent its return that they had taken their stand . . . the ideas which, in its first numbers, Le Censeur expressed and developed in a firm and grave tone, contrasted singularly with most of the writings currently published. In sum, it was a support rather than a danger to the constitutional government of June 4, if that government would march directly along its path; but it would encounter in the new paper an inflexible censor every time that it deviated.25
But, the ministry did deviate rather quickly from the principles which Dunoyer believed were consecrated in the Charte. This was especially true concerning freedom of the press, which to Comte and Dunoyer was the basis of all other freedoms. Respect for freedom of the press had been accepted in the royal declaration of Saint-Ouen on May 2, 1814. The Charte of June 4 provided in article eight: "The French have the right to publish and to print their opinions, in conformity to the laws which ought to punish abuses of this freedom". An alternative interpretation of this article was supplied by the ministry almost immediately. The concept of punishment following the commission of an act was accepted by Dunoyer all his life as the basis of law; the concept of prevention by the government was rejected by Dunoyer to the end of his career. The minister of the interior, the abbé de Montesquiou, declared that "punish" and "prevent" were synonymous, and presented to the chamber of deputies on July 5, 1814 a proposed law interpreting punish as the same as prevent. The proposed law was the work of Royer-Collard, directeur de la librairie, and Guizot, secretary general of the ministry of interior, who were the leading figures in the Restoration party known as the Doctrinaires. That law was ultimately passed by the legislature, and became effective on October 21, 1814. According to Hatin: "The press did not remain mute. A newly founded journal, which had come to enjoy a major role and to exercise a decisive influence in these years of crisis, Le Censeur, of which we will speak below, burst forth above all with a great force and great hardiness against that law, 'as despotic in its base as it was liberal in its form'. . . It was not only that unique liberal journal of the epoch which attacked the proposed law".26 Moderate royalist journals such as the Journal de Paris and Journal des Débats, attacked the law, but the brunt of the counter-attack by the ultra-royalists was aimed at the Censeur. The Quotidienne "described the liberals as Jacobins on half-pay, and compared le Censeur to Marat's paper", L'Ami du Peuple.
Politics during the succeeding months of the first Restoration did not give Dunoyer and Comte confidence in the way that the ministry would apply the new law on journalistic writings. The new censorship applied to publications of less than 320 pages; the second through the seventh volumes of the Censeur (November 10, 1814–September 6, 1815) were therefore published in the form of books. As Benjamin Constant touchingly described the situation in his De M. Dunoyer et de Quelques-uns de ses ouvrages:
. . . Nevertheless, the laws on writings, however absurd they are, have this advantage, that in order to study, one will try to elude them. The law on the press submitted to the censorship works of less than twenty printed sheets. Thus books of twenty and a half printed sheets were publishable: and writers who, having only one truth to develop, would express it in four pages, would look for others who together would form a volume.
Such was the origin of the Censeur européen, to which the authors, MM. Comte and Dunoyer, devoted themselves with good faith and with courage, to the study, which one could call experimental, of the solidity of the guarnatees which the new pact promised to the nation. The laws contrary to these guarantees having been proposed by a timid and crafty ministry, and voted by the ignorant and docile Chambers, M. Dunoyer combatted them. Having raised persecutions against himself, this audacious patriot showed himself, in his defense, more occupied with the public interest than with his own.
At his risk and peril, he seized that occasion to expose the vices of our legislation, the insufficiency of the protection that citizens may expect, and the arbitrariness of authority made possible by the administrative and judicial disposition bequested by the empire to the monarchy.
He conquered in that way, for us and our heirs, a part of our liberties. For, although he did not came to obtain for them the institutions which render them inviolable, his example and his writings had popularized the notions which, while not consecrated in theory, became victorious in practice, when the general assent encompassed them. . . . The germs deposited, in 1814, in the Censeur européen, have developed and born fruit.27
Thus, the Censeur was published as a volume of more than 320 pages without any announced date. Publication dates in the future were arbitrarily chosen once each volume was printed, in order to avoid being considered a regular periodical. Volume II was dated November 15, 1814; volume III, December 20, 1814; volume IV, March 1, 1815; volume V, April 18, 1815; volume VI, June 1, 1815; and volume VII, September 6, 1815, but most of the copies were seized by the ministry of police of the second Restoration on September 4, 1815. As a pattern, the Censeur's second volume was issued at an interval of a month and a half. The more than two months elapsing between the third volume, December 20, 1814 and the fourth volume, March 1, 1815, is explained by Charles Comte's involvement as the lawyer for General René Joseph Excelmans (1775–1852). General Excelmans took a leading role in the defense of France during the Allied invasion of 1814. He was prosecuted by the Restoration government's minister of war, Marshall Soult, in 1814. Comte prepared Excelmans' case in December, 1814, and appeared before the council of war at Lille, on January 23, 1815, where Excelmans was acquitted. The delay between the publication of volume six and volume seven 3 months later occurred during the transition from the Hundred Days to the second Restoration.
During the Hundred Days, Dunoyer and Comte had refused to leave Paris, for which they were condemned by royalists, and refused to support the new imperial regime, for which they were criticized by Bonapartists. Their strong criticisms of the Hundred Days brought a brief delay in volume five's distribution due to a temporary confiscation. Constant and Carnot intervened in the matter, and Baron Legoux, procureur général, suspended any action to prosecute the Censeur. The role of Fouché in initiating the action was suspected, as Dunoyer and Comte rejected his requests that they work with him in his interest. Hatin has commented:
Le Censeur was heard every hour to reprimand so vigorously the newspapers on their pusillanimity, and without doubt proved to them how far one was able to be bold. It is said that Fauché, wishing to attach to himself the editors of that paper, had offered to them the editorship of the Moniteur; then, on their refusal, had given them the choice of places which would be agreeable to them. But Comte and Dunoyer had rebuffed these offers, and they had remained inflexible in their opposition to the imperial government, an opposition which, it is very necessary to say, was not under the circumstances, very intelligent or very patriotic.28
Hatin, among others, has attacked the liberal opposition under the Hundred Days as non-patriots; he objected to the Censeur's criticism of the imperial regime while French troops moved to the frontier to meet the Allied armies before Waterloo. The Censeur made quips about "De l'influence de la moustache sur le raisonnement, et de la nécessiée du sabre dans I'administration". However, the Hundred Days made a deep intellectual impact upon Dunoyer and Comte. The beginning of the major philosophic change leading to the important contributions to political, economic and social thought for which they become renowned can be dated from then. That impact went far beyond the quips about military men in government or the legitimacy of the imperial regime, although Hatin notes the importance of their attitude on that question during the Hundred Days.
April 20, one month after the return from Elbe, Le Censeur said: "The government is only a provisional government. It is of little importance that Napoleon has been proclaimed emperor by the army and by the inhabitants of the country through which he passed; of little importance that the coalition powers had or had not held to the conventions that they had made with him. France does not belong to the soldiers, nor to the inhabitants found on the route from Cannes to Paris.29
In the intense atmosphere of repression at the beginning of the second Restoration, Dunoyer and Comte encountered hostility from the ultraroyalists. But the seizure of the seventh volume of the Censeur occurred while Fouché was still minister of police, and appeared to be on his instigation. Dunoyer and Comte did not continue the periodical while the seizure of the seventh volume was in the courts, and they pursued the matter through the courts for over a year. They hoped that the decision of the courts would be in their favor, and when they planned to renew publication following September 5, 1816, which they considered the beginning of a third Restoration, they wished to reissue the seventh volume of the Censeur as the first volume of the Censeur européen, their new periodical. After further delay, they recognized that their appeals would be denied, and launched the Censeur européen without the seventh volume.
Concerning the suspension of the Censeur after the seizure of the seventh volume in September, 1815, Dunoyer and Comte later declared:
The chamber of deputies of 1815 was convoked and the majority of members showed so much violence that all discussion became impossible. Not able to place itself in a party which, in its resolutions, seemed to take for its guide only furors, and not wishing to support a ministry which showed itself much too weak when it would defend justice, and much too strong when it attacked constitutional principles, men who did not hold to any faction and did not aspire to any favor could only condemn themselves to silence. This was the part which the authors of the Censeur took.30
However, Dunoyer and Comte put their enforced leisure to good advantage. It was during 1815–1816 that they thought deeply about the ideas and concepts that had been raised for them during the Hundred Days by the actual political events and debates, and by the insights that these events gave to the social and economic thought which they were reading at that time. From that reading, beginning in the spring of 1815, came the new direction of their thinking, industrialisme, which first received expression in the periodical which they launched in the autumn of 1816, the Censeur européen, and which had both an immediate and long-lasting impact on the social thought of the 19th century.
Contemporary Restoration commentators indicate the high regard in which Dunoyer's and Comte's journalism was held. Restoration writers were ranked according to conscience and talents by Lebrun-Tossa, in his Consciences littéraires d'a présent, avec un tableau de leurs valeurs comparées, indiquent de plus, les degrés de talent et d'esprit par un jury de vrais libéraux:31
dunoyer_table.jpg
The accession of the Decazes ministry had encouraged Dunoyer and Comte to launch the Censeur européen late in 1816 (it was published in twelve volumes until April 17, 1819). But, in June, 1817, the third volume was seized in a complicated case secretly pressed by important government officials and carried through under the charge against Dunoyer and Comte of Bonapartism. Comte fled arrest and went into hiding; Dunoyer was apprehended; and the editorship of the Censeur européen was placed in the hands of their principal assistant, Augustin Thierry, who took the occasion to place in the Censeur européen over 300 pages of his Vue des revolutions d'Angleterre. Dunoyer was held for a month in the Force prison, and then transferred to Rennes, where the government's case had been initiated. The liberal notables supported Dunoyer as sureties and organized a society to support the legal costs of this and other press trials. Dunoyer, defended at Rennes by Mérilhou, was convicted; but the case contributed to the development of liberal consciousness in France, and particularly in western France. The Journal général** was suspended because it described one of the serenades presented to Dunoyer in front of the prison by the youth of Rennes. Appeals reduced the severity of the sentences but not the conviction.
This process against the Censeur caused for the first time to appear major manifestos of political doctrine signed by the most considerable members of the legal profession. M. Mérilhou, defender of MM. Comte and Dunoyer, produced in support of his plea a consultation of twenty-one lawyers among which one notes MM. Dupin, Persil. Parquin, Hennequin, Mauguin, Berryer fils, and some other names which ought to find celebrity in these press battles. The consultation bore principally on principles. The publisher, M. Dupin, established the famous distinction "Between the attacks which are directed against the person or constitutional authority of the king, and the criticisms directly only against his ministers or the acts of his governments."32
With the increasingly liberal press laws, Dunoyer and Comte decided to publish the Censeur européen as a daily newspaper. It was issued in two volumes from June 15, 1819 to June 23, 1820. It was suspended as a separate publication amidst the reaction to the assassination of the duc de Berry in February, 1820; the Censeur européen was merged with the Courrier français. However, Hatin has indicated the origin of the reaction in the moves by Decages against the Socété des amis de Iiberté de la presse, which had been established by liberal notables in 1817 in defense of Dunoyer and continued to defend the Censeur européen and other periodicals in press cases. The Society was the center for radical political activity leading to the Left's electoral victories in 1817, 1818, and 1819. The Society's leaders were condemned and it was dissolved. The Society had had a comité directeur drawn from its most resolute members such as members of the Union Libérale of Paris. The Union Libérale appears to have been a vague, loose revolutionary coalition involving Paris notables, Paris youth, and provincial people, centering around Lafayette's salon in Paris and his château at Lagrange. Members were said to include legislators such as Lafayette, Voyer d'Argenson, Dupont de I'Eure, De Corcelles pere, General J.-J. Tarayre, General M.-J. Demarchy, journalists such as Dunoyer, Comte, Chatelain of the Courrier français, and Desloges of the Journal du Commerce, lawyers such as Joseph Mérilhou and Odilon Barrot, and a younger group including Paul Dubois, Theodore Jouffroy, Victor Cousin, Francois de Corcelle fils, Felix Barthe, Augustin Thierry, and the Scheffer brothers, Ary, Henri and Arnold who was Lafayette's secretary. J.-B. Say, whose daughter, Adrienne, married Charles Comte in 1818, has been mentioned as a participant.33
Say's role, like that of Dunoyer and Comte, in revolutionary political activity in 1820, while unexpected is not unnatural. Teilhac has said:
If we see then in J.-B. Say the man of the French political revolution and of the Anglo-French industrial revolution, the man of political Ideology and of economic Utilitarianism, he joined not only formal classical rationalism to a fundamental economic naturalism but to this economic naturalism a political rationalism.34
John Stuart Mill visited Say in Paris in 1820 and observed: "He belonged to the last generation of men of the French Revolution; he was the ideal type of true French republican". Similarly, Auguste Blanqui recalled: "I had had in my youth the honor of knowing the most eminent of French economists: J.-B. Say . . . J.-B. Say had very revolutionary ideas for the times. He detested at the same time the Bourbons and Bonaparte, an apparent contradiction which filled me with astonishment".35 In 1824, Frederic Jean Witt was interrogated by Bavarian police on revolutionary activities. Witt had been in Paris in 1818 and 1820, where he declared himself to have been in political contact with Lafayette, Comte and Dunoyer, and made himself their means of communication with radical elements in Germany.36
The reaction of 1820 introduced a press law of March 31 which required submission of all periodicals to censorship before publication, and granted to the government the power to suspend any publication accused of infraction of the law even before a judicial decision. Lafayette in March, 1820, said of the press law that it was a violation of the Charte: "to violate it is to annul it, to dissolve the mutual guarantees of the nation and the throne, to restore us to ourselves in all the primitive independence of our rights and our duties". General Tarayer, in June, declared to the deputies: "the Charte is violated, and there remains to France no legal and regular means of defense against an ill-intentioned government". The ministry altered the electoral system, presenting in May, 1820 a law of the double vote, weighing the electoral system in favor of wealthy landholders. Liberals withdrew from the chamber of deputies for the remainder of the session, and the Right accused the Left of preparing to turn to illegal actions. There were protests in Paris leading to a riot on June 5. It was in this atmosphere that the Censeur européen's publication was suspended on June 23, 1820. There followed an attempt at a military conspiracy in which Lafayette's circle, especially Arnold Scheffer, were implicated: the plot of August 19, 1819. Charles Comte went into exile in Switzerland; Dunoyer remained in Paris where he was involved in the government's prosecutions against the Censeur européen.37
Charles Comte settled in the Vaud which, in 1821, named him professor of natural law at the University of Lausanne. Either in Switzerland or Paris, Witt introduced him to Karl Follen, who had been a political refugee from the Prussian University of Jena, following the assassination of Kotzebue in March, 1819; Follen was forced to move from France to Switzerland in 1820. Follen became professor of law at the University of Basel. Following Witt's revelations to the Bavarian police in April, 1824, the Prussian government demanded the surrender of Follen, who was given refuge in the United States and appointed to the faculty of Harvard University (1825–1835) where he became a leading abolitionist. Comte similarly was forced to leave Switzerland on May 15, 1824 when, on the basis of Witt's statements, the French government intervened against Comte with the government of Vaud. Comte and his wife spent eighteen months in England in the company of James and John Stuart Mill and other philosophical radicals.38
Comte returned to France following his five years' exile,39 and became a contributor to the Revue Americaine, which Lafayette had founded on his return from America in October, 1825. Other editors were Voyer d'Argenson, Arnold Scheffer, and Armand Carrel, with Augustin Thierry as secretary. Comte wrote an important treatise on property, and published on similar topics. He was active in the opposition which led to the July Revolution of 1830. While Barrot became the prefect of the Seine, Comte was appointed a procureur du roi. But he resigned in 1831 and was elected a deputy by Mamers (Sarthe) and was reelected in 1834. During 1832 Comte and Barrot were active in defending newspapers against increasing prosecutions by the government. In 1832, Comte was appointed perpetual secretary of the newly reestablished Academy of Moral and Political Sciences. Charles Comte died on April 13, 1837.40
The suspension of the Censeur européen in June, 1820 found Dunoyer with the highest reputation as a political publicist, a reputation which was to be long-lasting. Hatin has said:
We have seen what reproaches had been made against the authors of Le Censeur, and which as to basics and which as to form; but they have the incontestable merit of having dared first, since the Restoration, to profess with freedom the constitutional principles in all their integrity, and of having constantly sustained them, without ever making any concession to the military spirit or to bonapartism; they have yet the rare merit of having devoted themselves to proving by experience the vices of the legislation which then regulated the press.
Among the collaborators of MM. Comte and Dunoyer, we will name Scheffer, J.-B. Say and Daunou, of which the articles sur ler garanties were very remarkable. Paul-Louis Courier published there, between April 1819 and July 1820, the letters where one finds the ideal of his politics, and where he begins to design the original form of his style . . .Le Censeur, said M. Nettement, was the banner of the stoic school, which wished the complete and immediate application of the principle of political perfectibility, of nearly absolute liberty, without taking enough account of the political difficulties that the Restoration encountered. It was, to tell the truth, a renaissance of the movement of 1789, with that theoretical optimism which took its source in the best intentions, but which did not create in the least any grave perils.41
During the remaining decade of the Restoration, Dunoyer remained active in the political opposition associated with the Lafayettes, de Broglies and de Staels. In 1822, Dunoyer wrote a pamphlet, Lettre à un électeur de departement, and another in 1824, Du droit de petition à I'occasion des élections. Dunoyer and Comte became members (February, 1826) of the forerunner of the "Adie-toi et le Ciel t'aidera" (which was instrumental in the July Revolution); this was "La Société des Sciences morales et politiques", which was under the aegis of Benjamin Constant and included Barrot, Mérilhou, Mauguin, duc de Broglie, Auguste de Stael and Guizot.42 Dunoyer's public contribution to the July Days was an open letter in Le National (July 26, 1830) declaring his refusal to pay taxes until the ordinances of Charles X were revoked.
Dunoyer's political role during the Restoration can best be described as that of ideological leadership and of strategist and adviser, rather than political leadership per se, despite the prominence he achieved from his several political trials in the courts and his well-publicized political imprisonments. Guillaume de Bertier de Sauvigny has well recognized the uniqueness of the political role occupied by Dunoyer:
Le Censeur, despite its powerful interest for the history of ideas, represented a relatively isolated voice; its editors, Comte and Dunoyer, were too concerned to raise themselves above the partisan passions of their epoch, too oriented toward the future of the nascent industrial society, to consider them representatives of a notable section of opinion.43
Dunoyer's political role of ideologist and councillor was indistinguishable from the intellectual importance which Bertier de Sauvigny justly attributed to him. This activity continued to be manifest in the periodical press of the later Restoration, in the Revue encyclopedique, in the Journal de debats, and in the Revue française. But, the center of Dunoyer's intellectual contribution was the continuity and organization of the ideas, especially industrialisme, which had been conceived and developed in the Censeur and the Censeur européen. On the suspension of the Censeur européen, Dunoyer embarked upon a course of lectures at the Athénée Saint-Germain, at which J.-B. Say had been presenting his lectures on economics for several years and Benjamin Constant had initiated his course on political thought. These lectures of Dunoyer formed the basis of his book, published in 1825, L'industrie et la morale considérées dans leur rapport aver liberté. A revised version was published in 1830, Nouveau traité d'économie sociale, ou simple exposition des causes sous l'influence des quelles les hommes parviennent à uses de leur forces avec le plus de liberté, c'est-à-dire aver le plus de facilité et de puissance (the bulk of this publication was destroyed by fire before distribution in 1830).44
Dunoyer has been viewed as part of the broad society of intellectuals considered as the later Ideologues or the disciples of the Ideologues. Dunoyer was intermediate between Ideologue economists, Destutt de Tracy and Say, historians, C.F. Volney and P.C.F. Daunou, and the Younger disciples such as Augustin Thierry and Victor Jacquemont, whose friends, in addition to Dunoyer, encompassed Fauriel, Mérimée, Monzoni and Stendhal.45 However, in contrast to the generally literary approach of the later Ideologues, Dunoyer carried the precision of the scientific attitudes of de Tracy and Say to their logical conclusions. The radical optimisim of their naturalist philosophy was such that, according to Roger Soltau, "Jean-Baptiste Say proclaims his belief in 'the natural march of things', Dunoyer 'anticipated Spencer' (according to Taine) in his championship of the absolute 'freedom of labour', Garnier even denied the right of the State to issue currency, Bastiat [Soltau quoting Guido de Ruggiero] is an echo of eighteenth-century optimism with its identification of private and public interests, and the hostility towards the State which marks the earlier Liberalism".46
Dunoyer opposed legislation as attempts to prevent voluntary relations by words or actions between individuals. If at all, there should be only the application of judicial decision when a crime is committed; for example, it should be immoral to establish any regulation of the practice of medicine. Anyone undertaking its practice would accept the risk of judicial punishment should an injury be criminal. Relations would be defined by processes of contract, sureties and insurance. The production of security and justice would be a result of market functions and transactions. As Albert Schatz notes with reference to Dunoyer's ideas:
So understood, the governmental function needs a small number of agents, the mass of workers remaining available to increase the sum of social utilities other than security. It is proper then to diminish the number of public offices and officers, and to employ to this end the single efficacious means, which is to reduce the rewards or salaries. It is of little importance, moreover, whether the signboard of the company charged with ordinary security be monarchy or republic, provided that it cost little and disturb no one at all, that it realize progressively this ideal in a society so perfectly developed that government disappears, leaving to the inhabitants the full enjoyment of their time, their wealth and their liberty.47
Dunoyer's precision of thought, following de Tracy and Say, and derived from scientific attitudes, contributed to the impact and the close relations which he had with Auguste Comte. Henri Michel has called Dunoyer the "positivist before positivism".48 Dunoyer became acquainted with Auguste Comte when he became Saint-Simon's secretary in mid-1817 following Augustin Thierry's break with Saint-Simon and his full association with Dunoyer on the Censeur européen. After Comte's resignation in a couple of years as Saint-Simon's secretary, he, too, wrote for the Censeur européen and remained in intellectual contact (even when all other contact was excluded) with Dunoyer throughout his life. (Comte died in 1857.) Henri Gouhier in La Jeunesse d'Auguste Comte et la formation dupositivisme, tome III, Auguste Comte et Saint-Simon, emphasizes the role of Dunoyer in Comte's life. In Appendice I, Le Censeur européen, Gouhier says:
The liberal and antifeudal thought expressed discreetly in the constitutional journals, the Journal de Paris and the Journal général, was expressed more freely in Le Censeur of Charles Comte and Charles Dunoyer, "of which each edition was an event" (Houssaye, 1815, La première Restauration . . . p. 67).
This publication enjoyed a certain role in the formation of positivism . . . Auguste Comte became part of the staff during 1819 . . . Finally, around this review there was an intellectual and political milieu: "l'école positive de MM. Comte et Dunoyer", wrote Saint-Beuve (Causeries du lundi, t. II, 6e edition, Garnier, M.de Broglie, p. 381). These youth had a spirit which must be acknowledged. The founder of sociology has never forgotten it; in 1857, he called Le Censeur "the only periodical publication which posterity will honor in French journalism: (System, 5. IV, Preface de l'appendice general, p. 11). Comte's personal relations with Dunoyer have always been clear; the economist sent him his works and Comte never ceased to feel for him a profound esteem; in 1845, at the time when his reading was reduced practically to a few inquiries, he permitted himself "one special exception to his severe hygène cérébrate" (A Mill 28 fevrier, 1845, p. 410) in opening La liberté du travail. "In sum", he said to John Stuart Mill, "M. Dunoyer whom I have known more than twenty-five years, has always seemed to me one of my immediate predecessors who merits the entirety of my sympathies" (A Mill, p. 409). On diverse occasions, Comte noted what he owed to his work. It is Dunoyer and not J.-B. Say who figured as the associate of Adam Smith in the positivist calendar.49
It is in the emergence of the concept of social science that Auguste Comte found common ground with Dunoyer. The Censeur européen, which spoke of a "laic breviary for liberals" in strongly recommending Daunou's Essai historique sur la puissance temporelle des papes (4th ed., 1818; 1st ed., 1810) was a far cry from Joseph de Maistre's Du Pape (1821) which Comte claimed was the source of more of his ideas than any other book. Dunoyer's anarchism, individualism and tolerance was in opposition to Comte's concern for the decay of traditional morals and hostility to intellectual divergences.50 The infallability and dominance of society posited by de Maistre was totally appealing to Comte in the early 1820s. The programs of the rulers were acceptable in contrast to the radical criticism of the opposition.
Dunoyer's criticism of the concept of indefinite perfectibility, however, while praised by Comte, would involve him in a major debate with Benjamin Constant, but the immediate consequence was a temporary break between Dunoyer and Stendhal. Fernand Rude, in "La Querelle des Industriels (1825)", Stendhal et La Pensée sociale de Son Temps, describes the circumstances, beginning with the publication of Dunoyer's book.51
In a letter to the London Magazine, dated October 11, 1825, he [Stendhal announced that Charles Barthelemy Dunoyer, who in collaboration with Charles Comte. had published Le Censeur européen and who is "one of the most powerful intellectuals of France", is on the point of publishing "a profound treatise" entitled "la morale et l'industrie considerées dans leurs rapports avec liberté". Except for the inversion of industrie and morale it is in fact the exact title. "This book of Dunoyer is too true to be sermonized . . . His work is a faithful table of the state of our society during the last thirty-five years. And in a word, his work is a very good supplement to Mignet's Histoire de la Revolution".
In another letter of November 18, 1825, the "small nephew of Grimm" characterized this work as "admirable" and felicitated him on his success which, said he, "to my great surprise . . . goes to a crescendo". All the gentlemen who wish to think read M. Dunoyer. Six years ago, no one had understood him.
Dunoyer had presented a course in the winter of 1825 at the Athénée which constituted a veritable plea for industrialisme. It was in fact the rough draft of his major book . . . The epigraph of this work gives the resume of it: "We become free only in becoming industrious and moral . . ." Here is what Dunoyer wished to demonstrate. And for this, said he, it is necessary to consider, not the governments but the masses; the state of their industry and of their morals. Throughout that book, this author never separates in effect the progress of industry from the progress of morals and of liberty . . . "Under the name of administration, I know not what monstrous, immense corpus, extending to all its innumerable hands, putting its shackles on everything, levying enormous taxes, bending by fraud, corruption, violence, all the political powers to its designs, exhaling chiefly the spirit of ambition which produced it, and the spirit of servility which conserves it". More even than of Saint-Simon, this indictment makes us think of Proudhon . . . [the industriel people are] . . . "those where it is no longer the passion for power that reigns, but the passion to work". . . . "In the beginning, the dominating classes are all, and the laboring classes nothing; in the end, the dominating classes will be nothing, at least so far as dominating, and the laboring classes will be all; society will be constituted for work".52
For Dunoyer, industrialisme was the exact opposite of theft. Any action which was not the result of a freely chosen choice was a theft. That is why he admired the American state constitutions of the Revolution, especially that of Pennsylvania; that was a model because the government appeared to have the character of an industrial enterprise in which everyone was a voluntary associate. Similarly, he admired America's decentralism which he believed was the result of America's industrialisme. Industrialisme would dissolve states as the universality of mankind was rooted in free labor.
It is the spirit of domination which has formed these monstrous aggregations or which has rendered them necessary; it is the spirit of industry which will dissolve them: one of its ends, one of its greatest and most salutary effects must be to municipalize the world. . . . The centers of action will be multiplied; and finally the vastest countries will end by presenting only a single people, composed of an infinite number of uniform aggregates, aggregates between which will be established without confusion and without violence, the most complex and at the same time the most easy, the most peaceful and the most profitable relations.53
Rude notes that in his letter of November 18, 1825, Stendhal singles out a noteworthy aspect of Dunoyer's book.
There is a passage which had particularly struck Stendhal. "M. Dunoyer, equally intrepid to blame the people of France, as to attack its tyrants, in place of flattering them basely in the fashion of the Constitutionnel, tells them courageously the truth. . . M. Dunoyer is the Sole liberal writer who does not flatter the nation and is bold to tell them: 'You make yourselves slaves, that is why you have tyrants. Each people has never more liberty than it forces its sovereign to accord to them'."54
The contacts between Dunoyer and Stendhal were based upon more than common friends, such as the young Victor Jacquemont or the elderly Destutt de Tracy. For two decades Stendhal had been a student of economics; he considered himself a disciple of Smith, Say and de Tracy.55 Since Dunoyer was the major writer and lecturer continuing Say's contributions, it was natural that Stendhal would know Dunoyer, as well as take a direct interest in the development of industrialisme. Along with Condorcet's Equisse and Volney's Ruines, the young Stendhal had been strongly influenced by the writings of William Godwin, and was praising Godwin's work in the early 1820s. Godwin's heroes, who were "at open war with their oppressors", were one of the inspirations for Stendhal's The Red and the Black (1830).56 The Red and the Black was inspired by a number of sources during the 1820s and included material which Stendhal took from the manuscripts of his late fellow citizen of Grenoble, Barnave.57 Barnave's then unpublished Introduction to the French Revolution presented one of the earliest statements of elements of the analysis characterized as industrialisme. Stendhal is a potential source for Dunoyer's being informed of Barnave's thought before the publication of Barnave's works in 1843 by Alphonse Marie Bérenger de la Drôme (1785–1855). Rude writes:
We know the veneration which from his most youthful years Stendhal had for Barnave, "that great spirit". He speaks of him repeatedly in his Mémoirs d'un touriste and he notes even: "If I had the space, I would cite a curious manuscript of his". In effect Stendhal knew the sister of Barnave, Mme. Saint Germain, as well as Bérenger de la Drôrne, who in 1843 published the Oeuvres de Barnave.58
Dunoyer's disagreement with Stendhal arose from the printing in late November 1825 of Stendhal's booklet, D'un nouveau complot contre les industriels, issued by their common publisher, Sautelet. Dunoyer was unhappy over the publication of an attack on industrialisme since his book was the principal and most widely known treatise on the subject. Stendhal had been prompted to write his pamphlet by Saint-Simon's Catéchisme des industriels (issued in four cahiers between December, 1823 and June, 1824). Rude believes that the nouveau complot was written in early 1825 but that the publication was postponed by Saint-Simon's death on May 19, 1825, and resumed by Stendhal with the launching by Saint-Simon's disciples of the magazine Le Producteur at the time of a speculative coup by Saint-Simonian bankers.59
In the Catéchisme, Saint-Simon had attacked the "bourgeois", the lawyers, military officers and government bondholders (to which group Stendhal felt an affinity) and described banking as a new, higher form of industry which would lead to the reign of the bankers. Saint-Simon called for a union of the center-left with the center-right, the industrialists and the royalist ministerials, against the liberals. Saint-Simon expressed pleasure at the liberal party's destruction at the hands of the royalist ministry and wished the industrialists to repudiate liberalism because its critical and anti-organizational attitudes were revolutionary. Stendhal saw this project for a union of the bankers with the government as the complot against the liberals and the industrialists. Stendhal declared his faith in economics and in industrialization. Industry was one of the "great strengths of civilization", and he looked forward to its progress as it would lead the French to "put into practice the Charte": As a supporter of the producing majority against the governors, Stendhal opposed the substitution of "the most important industrials" as governors in place of the existing governors. Stendhal feared that Saint-Simonianism was a diversion from the struggle for liberty, was a weapon against liberalism, and was aimed at enshrining the rule of Baron de Rothschild and the other half dozen major bankers.60
Le Producteur, which was published by Saint-Simon's disciples with the support of a number of bankers headed by Jacques Laffitte, appeared on October 1, 1825; Cerclet was editor and Enfantin and Bazard were the publishers. In the early issues was a reprint of a chapter from Dunoyer's new book, a review by Say and articles by Auguste Comte, in which he declared that out of the scientific class, the engineers were forming a separate corporate class to act as intermediaries between the industrialists and the scientists (Comte also emphasized spiritual power as the new approach which Saint-Simon was initiating before his death). Stendhal wrote an article for the London Magazine (October 11, 1825) which was mostly favorable but which for the first time publicly linked the editors of Le Producteur with Saint-Simon. For they had attempted to present the whole spectrum of industrialiste authors rather than the narrow Saint-Simonian publication it would become. Indeed, there was a clear presentation of the diversity of industrialiste analyses. Say, in a review of McCulloch's Political Economy (Le Producteur, No. 5, October 29, 1825), attacked the Ricardian theory of value based solely on the quantity of labor in the product. Prosper Enfantin (No. 6, November 5, 1825) supported Ricardo and McCulloch against Say's economic analysis. Enfantin's article carried Ricardian classical economics, long before Marx, to the logical conclusion that Marx was to reach. In addition, there were articles on positivist literature against which Stendhal rebelled.61
However, the matter which triggered Stendhal's booklet was a speculative coup which received the support of Le Producteur. Its first issue had proposed a company of the bankers of Europe with Laffitte at its head to become a Holy Alliance of the Bankers. French bankers had made loans to King Ferdinand VII at the same time as the martyrdom of the Spanish liberal Riégo; Laffitte in July 1824 had aided the Villele ministry in its financial difficulty with the government debt. Finally, the bankers associated with the Saint-Simonians had been engaged in making loans to the Pasha of Egypt to purchase ships and arms to fight against the Greek revolution. The last straw for Stendhal was a loan to Haiti to be negotiated by Ternaux which was much discussed in the early issues of Le Producteur. On November 3, 1825 two sets of equal bids were submitted by Pillet-Will, and by André Delessert and Casimir Périer. The next day the loan was granted to Laffitte and the Rothschild brothers.62
Stendhal expressed his earliest criticism of the position of Le Producteur in conjunction with his distress over the Haitian loan (November 10) and added that issue to the manuscript he had written on Saint-Simon's Catéchisme and the earlier activities of the bankers. Stendhal's D'un nouveau complot contre les industriels viewed the conspiracy of the bankers and the government against the liberals and industrialists as a major aspect of the Saint-Simonian doctrine. Instead of the Rothschilds, Laffitte et al., Stendhal proposed as disinterested heroes, Lafayette, Washington, Carnot, Dupont de l'Eure, Daunou and general Bertrand.63
Cerclet wrote a letter of criticism to Stendhal. The Journal du Commerce responded (December 3, 1825) that Stendhal examined only a narrow segment of industrialisme, and neglected the major stream of industrialisme which centered on the ending of exploitation of man by man through privileges, and on society administering itself without an external agency. "Man will then work upon nature, live from things and leave his fellow men in peace". Armand Carrel reviewed Stendhal's booklet in Le Producteur (December 3, 1825). Stendhal in Le Globe (December 6, 1925) criticized the lack of clear writing and growth of charlatanism, of which an example was "a new polish for the boots, a new system of industrialisme, of a new vegetable rouge". Le Globe (December 17) reprinted long extracts from Stendhal's booklet.64
Meanwhile, Leon Haltvy, one of the leading Saint-Simonians, had written an article in L'Opinion (December 5) on Benjamin Constant's lecture on December 3; Halevy's article "Athénée Royal de Paris, Seance d'ouverture. Discours de M. Benjamin Constant", sought to answer Constant's criticism of Saint-Simonianism and recalled the friendship between Constant and Saint-Simon. Constant responded with a letter to L'Opinion (December 6), which, was reprinted in the Journal du Commerce (December 7). He emphasized the need of constitutional guarantees against the pursuit of purely material interest. He was especially fearful of Saint-Simonian intolerance and he- supported freedom of conscience against the implicit despotism of the Saint-Simonians. Constant's interpretation regarding intolerance was confirmed in a reply to Constant's letter by Cerclet's article in Le Producteur (December 10), which followed an earlier response by Saint-Amand Bazard in the issue of December 3 but obviously published several days later.65
The Revue encyclopédique, for which Say and Dunoyer wrote, contained a review (December, 1825) of Stendhal's booklet by Comte Paul-Eugène Lanjuinais, son of the Liberal peer. He emphasized Stendhal's criticism of the Saint-Simonian banker's loans to the Turks and agreed with Constant's lecture that industry was very important but that it is necessary to develop the moral faculties as well. Victor Jacquemont, who was a friend of Dunoyer's, was favorable to industrialisme and was acquainted with the Saint-Simonians, had found Stendhal's booklet worthwhile. Jacquemont wrote Stendhal on December 22, 1825: "Barthélemy Dunoyer is furious against you. He said that you understand nothing on that question". So for Stendhal, "lourd" Dunoyer became "that most ignorant of liberal writers", because "it is too much to contemplate that they could believe that of me, who was of their party". However, Dunoyer and Say could not long maintain their fragile association with the editors of a Le Producteur which continued to espouse Ricardian economics. Against the absolute opposition of Say and Dunoyer to paper money and the system of credit based upon it, Enfantin (January 1, 1826) praised Ricardo's preference for paper money, and emphasized the role of banks in creating credit for major undertakings such as transportation development. So also the split between Dunoyer and Stendhal was not continued; Rude writes:
Stendhal acknowledges always his [Dunoyer's] science in political economy. And I believe we recognize him in the M.D. that the touriste encountered at Chalon-sur-Saône and whom he presents as "one of the leading economists of France".66
Dunoyer signaled his break with the Saint-Simonians in an article in the Revue encyclopédique (t. XXXIII, février, 1827). In this lengthy "Historical Notice on Industrialisme", Dunoyer presented an analysis and criticism of the writing of the Saint-Simonians in Le Producteur.
As disciples of M. Saint-Simon, the authors have undertaken the work with the intention of propagating his doctrines. They seem to adopt these doctrines without restriction. First, they claim for him the honor of having founded industrialisme; they attribute to him even the glory of having invented the word industriel. Hence, like him, from the fact that the theological and feudal powers are constantly declining, and that the arts, the sciences, and industry do not cease to acquire strength, they conclude that the direction of affairs must pass from the hands of eccelesiastical and lay lords into those of the savants, the artists and the industrialists. Following their master, they reproach these latter classes for only having worked to free themselves. Because they have long made war, of wishing to make war always; of rendering eternal what ought only to be transitory; of making an end of what was only a means; of wishing to replace the old system by criticism; . . . of reducing criticism to a system, of making an aim of criticism, without any other object than to criticize. They beseech those classes to abandon this critical tendency, which places, they say, very great obstacles to the progress of civilization, and to adopt the organic tendency, to proceed without loss of time to the organization of the industrial system. What they desire also, after the example of Saint-Simon, is a state composed solely of savants, artists and artisans, where the most distinguished savants and artists will form the spiritual power, and the most preponderant industrialists the temporal power of society; where the first will be charged with the formation of ideas, the second with the formation of sentiments, and the last with the administration of material interests. This system took no account of individuals; it only occupied itself with the entire human species. It assigned for the destiny of the species the more and more perfect exploitation of the globe which we inhabit. It proclaimed the organizational principle of a productive association between all peoples. The law of this association is not liberty. Laissez faire et laissez passer** is an insufficient counsel.67
Dunoyer strongly attacked the Saint-Simonian decision that human imperfection required man's social activities to be under the direction of other men. For the Saint-Simonians there is no reason for creative men to seek answers and desire to apply them, if there is no force compelling individuals who escape its direction to return to its benefits and to show "continually to workers the route that they must follow and not permit anyone to escape from it". Dunoyer was appalled by the Saint-Simonian claim that the masses required a system of general directors and a negation of competition. For the Saint-Simonians, competition was a principal enemy and "order would result only from the exceptions made to the principle of competition". For Dunoyer, only competition can yield proper value and put in their correct place the means of order such as the police. The Saint-Simonians' desire to eliminate economic competition was shown by their wish to centralize the control of credit in the hands of bankers selected for this purpose. Dunoyer described this in terms taken from Le Producteur:
We seek constantly to combat this principle [competition] . . . It is necessary that in each branch of industry there be associations of captialists who will make advances only to the entrepreneurs and to the enterprises which merit it . . . it is necessary to establish a credit center in each industrial class . . . There need to be disciplinary councils for lawyers, doctors, bakers, butchers, stockbrokers, notaries, etc. The disciplinary councils are no more an evil than particular directors in each branch of industry are an evil, than the general directors of society, than governments in general are an evil. Such councils must guide the science and the morality of all men examined by them . . . But they must be composed of evidently superior men. Such is that system. It is all directed against what the authors call the critical tendency, and towards what they call the organic tendency.68
The Saint-Simonian system of organizing, directing and ordering society through government was in direct opposition to the contributions made by Say and Dunoyer. For the Saint-Simonians, an industrial society was one in which the leading industrialists exercised governmental power, in collaboration with the scientists and artists, over the rest of society. For Dunoyer, industrialisme was the negation of government of men by men, "a manner of life" where all social relations are characterized by free, competitive activities in absolute freedom.
The industrial system, the industrial society, is truly one where all men are producers of usefulness, where the men of all classes, forced finally to renounce all violence, are only able to live from useful things that they create by peaceful work, and from what they obtain by voluntary gift or regular exchanges; but there is not much use in speaking of the social industrial state, when, by the word industriel, one only intends, as do M. Saint-Simon and the writers of his school, one of several classes of individuals or of professions . . . It is then the fault of these writers to wish to choose only from among the savants, the industrialists and the artists. But they fall into an error yet more serious, concerning the regime mast convenient to the industrial system. Their complaints against what they call the critical system, that is to say, against a general and permanent state of examination, of debate, of competition, attacks society in its most active principle of life, in its most efficacious means of development. First, these writers mistake all the facts, when they accuse a critical philosophy of tending only to destroy and of and of proposing only a negative goal. In working to remove the obstacles which oppose the free and legitimate exercise of the humane faculties, it tends, on the contrary, to a very positive goal, which is to place humanity in a situation where its faculties are able to grow easily. Hence, it demands the abolition of all privilege, of all monopoly, of all evil and violent restriction, and wishes that each be able to use his powers freely within the limits of justice and equity. . .
The disciples of the school which claims to be organic see the greatest inconveniences in leaving society to itself and in looking forward to its development by the free competition of individual efforts. This state of competition, they say, only leads to the anarchy of sentiments and ideas. However, by a singular contradiction, they admit, at the same time, that free discussion is necessary at certain epochs, when society tends to pass from one doctrine to another, from an imperfect state to a better state. But, if discussion often has the power to produce enlightenment, if it is able to really spirits to truth, if it is in the nature of things what common ideas emerge from a conflict of divergent opinions, what is the significance of the reproach made against freedom, and when does it begin to be anarchic? Is there, in the course of centuries, a single instant where society does not tend, in a multitude of ways, to modify its ideas, to change its manner of existence? To accuse liberty of what remains of confusion in moral and social doctrines, is to see evil in the remedy, and to complain precisely of what tends to make the confusion cease. The error of the organic school is the belief that liberty is only a provisional utility. A time will come, they say, where all the sciences will be positive; and we will no longer have need of liberty when all the sciences are positive: one cannot dispute demonstrated truths. One disputes no longer what is demonstrated, no doubt; but will it ever all be demonstrated? What appears to be demonstrated, will it always appear so? Will not the inductions which seem well established, in the experimental sciences, be modified some day by new experiences? In place of saying that our knowledge will become complete and certain, we are able to affirm strongly that they always will leave something to be discovered or to be rectified. It is then in the nature of things that liberty of examination will be perpetually necessary. Society which lives chiefly by action, acts, at each instant, according to the notions that it possesses, but to act better and better, it needs to work constantly to perfect its knowledge, and it only is able to succeed by means of liberty: research, inquiry, examination, discussion, controversy, such is its natural state, and such it will always be, even when its knowledge has acquired the greatest certainty and understanding.
This is not the advice of the organic school. It believes, on the contrary, that this state is only transitory, and that there will come a time when our knowledge will have attained such a degree of extension and of certitude, that there will be no matter for discussion. In consequence, and as if human knowledge had already arrived at that state of ideal perfection, it wishes to give from this moment official directors to society who will conduct its works in conformity with the infallible and complete knowledge that it is destined to acquire. It commences with a vain supposition in order to arrive at a disastrous conclusion. It is puerile to wish to decide in advance what will be in the future the progress of human knowledge; we do not have any means to know it; it will never become as perfect as one supposes; at least it is certain that it is yet far from being perfect, and it is insane to think as if it were perfect already. Finally, were it perfected, if we could know fully the aim of society and all the means we would every have to attain it, were there nothing more to discover in the sciences; it we could know the best means to follow in the arts; if we could acquire the infallible means to discern, in all cases, the good and bad undertakings, it would yet be very pernicious to give to the best instructed men in all things the right to submit others to their direction. We do not hasten the progress of truth by constraints. The best means, on the contrary, to hinder it so that it does not spread, is to give to men who know it the power to impose it on those who are ignorant. Far from increasing its influence, one destroys it. . . No one understands why he must a priori submit his reason to that of another; no one consents to receive a truth imposed by force. It is surely desirable that society be guided by the knowledge of its most enlightened members, but it is more desirable that they possess power only by their knowledge. The true savants have not need to exercise any magistracy in order to be consulted. The natural disposition of whoever has need of a service is to address himself to whomever is best able to serve him. It is only coercive directors that people refuse to fallow; and nothing will be less favorable to the progress of society, then to give to men of knowledge the power of constraint. Society wishes to be constrained only by whom it may select for the service; no more by savants than by priests; what its interest requires before anything, on the contrary, is that all unjust constraint should be repressed.69
Dunoyer's "critical" approach toward any attempt to eliminate absolute freedom of choice was the basis of his conflict with the Saint-Simonians. The introduction of any compulsion or direction by one person over another, including intellectual direction, was precisely the fundamental disagreement which Dunoyer had had with Rousseau's concepts. The possibility that legislation could have any role in the education, development or improvement of any person was contrary to Dunoyer's conception of law. All law was negative or destructive, except insofar as law expressed the exact relations which it sought to regulate, in which case it was at best superfluous. Dunoyer drew this attitude from the "very judicious reflections" of an "old, little-known work", L'Homme et la Société by J. B. Salaville, whom Rude notes had been influenced by the principles of William Godwin.70
In conflict with Dunoyer's insistence that the voluntary acceptance of truth by each person was the sole means of gaining acceptance, in which case legislation was either evil or needless, the Saint-Simonians held that on the discovery of a truth, the compulsion to observe it had to be imposed on each person. For the Saint-Simonians the position advocated by Dunoyer was anarchism. In response to the "critical" approach and its rejection of his scientism, Saint-Simon had declared: "you, gentlemen, are nothing but anarchists". Dunoyer clearly identified himself with the anarchism of "critical" philosophy as well as the anarchism in politics which Saint-Simon and his disciples had felt to be the major opposition to his scientistic despotism. As J. L. Talmon notes in his "Totalitarian Technocracy: Saint-Simon", of Saint-Simon's criticism of the radical liberalism of such contemporaries as Dunoyer:
Among themselves the" would settle matters byway of contract, warranted by their own corporations and their laws and customs. Since the feudal-military-clerical State was in no position to render real assistance, but only to do harm, or worse—to extort ransom, the industrial classes developed almost a religion of non-interference by the State. Liberty became identified with the absence of government, individual freedom with isolationism. The experience of feudal-clerical rule was universalized into a philosophy teaching that government as such is a natural enemy, and not "chef de la société, destiné à unir en faisceau et à diriger vers un but commun toutes les activités individuelles**".71
Say and Dunoyer had been major spokesmen for the analysis which defined liberty in the terms which Saint-Simon and the Saint-Simonians condemned. This is of special interest in view of the criticism which Benjamin Constant made of this article by Dunoyer.
Constant's response, De M. Dunoyer et de quelques-uns de ses ouvroges,72 was included in the collection of essays, Mélanges, which Constant had published in 1829 in preparation for his unsuccessful candidacy for the Académie. Pierre Deguise has commented on Constant's criticism of Dunoyer:73
With De M. Dunoyer et de quelques-uns de ses ouvrages, Constant undertook to defend his ideas against those of others. In truth, Charles Dunoyer was not at all an enemy. A man of the liberal Left, as was himself, he had been motivated by an order to defend the freedom of the press equal to that of Constant. . .
When he was obliged to renounce the publication of his review after the reaction which followed the assassination of the duc de Berry, he had turned more of his attention to political economy. He taught at the Athénée, where Constant had lectured on constitutional theory as well as on religion . . .
Why then this criticism? Why, despite his eulogies on detail, this hostility of Constant who recognized in Dunoyer a companion in his battles? First he had been personally caught as one side in the work and he had to respond. Dunoyer saw in the industrial society the milieu most favorable to liberty. . . He then reproached Constant, along with Rousseau, Chateaubriand and also some ultra-royalists, for their mistrust and even their contempt for the development of civilization which they accused of depraving mankind. He noted a passage of the first volume of De la Religion where Constant wrote: "Once before the human species seemed plunged into the abyss. Then also a long civilization had enervated it. Each time that mankind arrived ai an excessive civilization, it appeared degraded for several generations" (Rel. I, 236). Constant was so much the more sensitive to this accusation, as he had felt himself placed in contradiction with himself. How is it possible to think that civilization is able to corrupt, when one believes with all one's strength in perfectibility?
Adroit in defending himself, he protests that he had never believed in intellectual degradation by material progress. It would only be a temporary retreat from perfecting when an excess of civilization is able to enervate spirits and soften energies. Degradation can only be transitory.
Nevertheless, why had he placed so much effort in this refutation . . . if Dunoyer had not hit the nail on the head? . . . Is it not strange that in this eternal conflict . . . which, in the midst of the eighteenth century, came to oppose Voltaire against Rousseau, a common nostalgia for simplicity, for patriarchal morals, is found among two writers, both from the shores of Lake Léman? . . . Constant felt for people furthest from the state of industrial wealth a sympathy nearly equal to that of Tacitus in another age for the Germans. Are these peoples not those who know best how to defend their freedom? The Russians and the Spanish against Napoleon, the Greeks against the Turks? Does one not divine behind these rude peasants, inheritors of ancient virtues, who rise up in arms to defend their independence, the shadow of William Tell?
. . . Dunoyer never goes as far as Bentham, but Constant is unable to accept a theory which does not make liberty and right a first given of human nature, as he had made it likewise for religious sentiment. And then, fundamentally, the economist collides with the habits of political thought. "Politics as a science of government has been transcended", wrote Dunoyer; and he intended to substitute for it a study, according to him more scientific, which we call today "political economy". He did not seek the best form of government, but "the mode of existence most natural to our species, more favorable to its progress"; in place of presenting liberty "as a dogma", he studies it "as a result". It was insufficient to say as did the dogmatic publicists that "it is necessary that peoples should be free"; it is necessary to seek "how they will be free". In summation, from the point of view of political theorist and moralist who starts from principles, Dunoyer wished to substitute a purely experimental approach that he judged more scientific. The foundation of things appeared to him not political institutions, but the social mechanism . . . Constant is then very naturally brought to enter the campaign against the Saint-Simonians, He did it at the end of his essay in complimenting Dunoyer on distinguishing himself from a "new sea", the disciples of Saint-Simon whom he did not name. He took out with vigor against those who "preached servility to authority", wishing "to found a new industrial papism"; seeing "anarchy in all difference of opinion", and invoking a new spiritual power.74
Constant expressed the highest praise for Dunoyer's writings in the Censeur européen as well as his conflicts with the government to vindicate civil liberties: "The germs deposited, in 1814, in the Censeur européen, have developed and fructified". While displeased by Dunoyer's criticism of him in L'Industrie et la Morale, on which his essay concentrated, Constant made reference to Dunoyer's article in the Revue encyclopédique on the origins of industrialisme. Before confronting the Saint-Simonians, Constant contributed his observations briefly on the originality of Dunoyer in the development of industrialisme. Constant's failure even to mention Saint-Simon and his deprecatory references to the Saint-Simonians stemmed from Constant's not taking Saint-Simon seriously as a thinker. Dunoyer he took seriously as a fellow radical theorist and philosophical opponent. As the precursor of Dunoyer's elaboration of industrialisme, Constant sought to mute and blur the differences by making his own ideas part of the general intellectual milieu. Dunoyer had stated the differences with clarity and in detail; Constant's vague reflections and his introduction of Sismondi, whose book was published too late to be relevant, obscured the particular issues.75
Specifically, in his "Historical notice on industrialisme**", Dunoyer said of Constant:
I must say, to the glory of M. Benjamin Constant, that he is the first writer, at least to my knowledge, who had indicated the goal of the peoples of our time, and who also recognized the true object of politics. In his work on I'esprit de conquête considéré dans ses rapports avec la civilisation européenne, which had been published abroad in I813 . . . Constant wrote: "While each people formerly formed an isolated family, a born enemy of other families, a mass of peoples now exists under different names and under various kinds of social organization, but homogeneous by its nature. It is sufficiently strong to have nothing to fear from the hordes that are still barbarian: it is sufficiently civilized that war will be a burden to it. The uniform tendency is towards peace . . . We have arrived at the epoch of commerce, the epoch which ought necessarily to replace what preceded . . .War was the savage impulse; commerce is the civilized calculation. It is clear that the more the commercial tendency dominates, the more the warrior tendency becomes weak. The unique aim of modern nations is tranquility, with tranquility comfort, and as the source of comfort, INDUSTRY. War each day becomes a less efficacious means to attain this aim. It does not offer to individuals and to nations benefits which equal the results of peaceful work and regular exchange" (Chapter II). These statements are not absolutely irreproachable. M. Benjamin Constant, in saying that comfort is the unique aim of modern nations, seems to indicate that men have only physical needs to satisfy. The aim of modern nations is comfort; with comfort, dignity, consideration, glory, renown: and, as the source of all these goods, the moral and intellectual practice of all useful professions, or, as expressed by M. Benjamin Constant, industry, which embraces in effect all the useful professions of society. But, although the proposition of the able writer perhaps lacks exactitude in form, it was nonetheless very important as a foundation. It was the first time that anyone showed briefly the difference which exists between the ancients and the moderns; it was, the first time that anyone indicated to the modern peoples that they direct their activity towards industry. This observation, which now seems trivial, was than entirely novel, and I believe that I remember that people were very much struck by it.76
Dunoyer emphasized the undeveloped nature of Constant's attitudes on industry and the impact of its growth on civilization. Constant had not made any detailed analysis of the positive aspects of industrial progress, and Dunoyer had particularly noted Constant's belief that the improvement of material conditions would cause the retrogression of mankind and interfere with human perfectibility. Dunoyer discussed the failure of Constant to develop his attitudes on the role of industry into a philosophy such as industrialisme. Constant, like the two other authors whose works contributed to Dunoyer's and Comte's development of industrialisme, Montlosier, the historian, and Say, the political economist, did not see the deeper implications of their ideas. According to Dunoyer,
No writing of M. Benjamin Constant following the Esprit de conquête, has shown that he appreciated the political consequences of his observation that the peoples of our day direct their activity towards industry; he had not occupied himself with industrial society; he has not investigated how that society lives, fallowing by what laws it prospers and how it ought to be constituted in order to develop itself.77
The Esprit de conquête was drawn, even to its exact words, from the studies written during the intellectually creative end of the eighteenth and beginning of the nineteenth century period in the life of Constant, which are contained in the notebooks known as the Oeuvres Manuscrites de 1810. These unpublished manuscripts, in seven volumes of three to four hundred pages each, were a source for some of Constant's later articles as well as abbreviated and more acceptable (less radical) versions of the original essay.78
Constant's De la Perfectibilitié de l'Espèce humaine, of which the De M. Dunoyer et de quelques-urn de ses ouvrages was a continuation, besides influencing other of his writings was partially reproduced in his Mélanges. The original essay had been composed about 1803–1804 as Constant's introduction to an extract from Herder's Ideas on the Philosophy of History. Perfectability had been treated in Mme. de Stael's La Littérature considérée dans ses rapports avec les institution sociales (1800). Constant was a friend of a number of the Ideologues who were concerned with this topic. Georges Cabanis (1757–1808) had published a "lettre sur la Perfectibilite de I'esprit humain". Claude Charles Fauriel (1772–1844), who was a friend both of Constant and Dunoyer, had reviewed Mme. de Stael's book for La Décade, which led to his friendship with her and Constant. Fauriel was a close friend to Mme. de Condorcet (1764–1822), who with Cabanis, who was married to her sister, had published the complete works of Condorcet in 1801–1804. The Marquis de Condorcet (1743–1794), through his Equisse d'un tableau historique des progrés de l'esprit humain, had a major impact on the thinking of the Ideologues on this topic.79
The immediate source for Constant and through him, for Dunoyer, was William Godwin. Constant had been in close contact with intellectual developments in England from the friendships he had made during his eighteen months at the University of Edinburgh in 1783–1784. One of his continuing friendships was with James Mackintosh (1765–1832), who wrote in 1791 the Vindiciae Gallicae, in reply to Burke's Reflections on the French Revolution; Mackintosh's 1799 Lincoln's Inn lectures on the law of nature and nations, and his defense in 1803 of a French political refugee tried at Bonaparte's insistence for libel of the First Consul, increased his fame. Godwin's Inquiry concerning Political Justice, and its Influence on General Virtue and Happiness (1793) was read widely by political theorists in France. Godwin had dispatched a copy to the Convention by the hand of John Fenwick in a letter of February 15, 1793, but the outbreak of war soon afterward may have contributed to the fact that there was no French translation of the work. There did not seem to be any reviews of Political Justice in France, although the many reviews and comments in English publications were read in France. There was a detailed review of Godwin's 1794 novel, Caleb Williams (Paris, 1796) in La Décade (January 30, 1796, volume 8, pp. 413–420), which emphasized Godwin's discussion of prisons and his principles of justice. In 1795, Constant's uncle, Samuel Constant, had published a French translation of Caleb Williams in Geneva. Constant corresponded with Godwin in 1795–1796 concerning the former's desire to translate Political Justice. Constant, in 1799, announced the forthcoming publication of his translation of Godwin's Political Justice, but political events then and in the future caused the indefinite postponement of its publication. But the impact of Godwin's ideas was evident in the writings of Constant in that period and in his speeches at the Tribunate before his exclusion in 1802.80
Constant himself had taken up the challenge to Burke's attacks on the French Revolution in Des Réactions Politiques (An V). In July, 1799 Constant published Des suites de la contrerévolution de 1660 en Angleterre, at the conclusion of which he announced his translation of Political Justice, which would be accompanied by a "profound examination" of the principles "suitable to consolidate liberty". Constant wished to publish the translation of Political Justice to counter the dictatorial and arbitrary government of the post-Fructidor Directory as well as the similar measures of those looking to return to the Terror of 1793, because Godwin showed that the true liberty to which these men claim to be dedicated is based on absolute liberty—the absence of all violence. The Oeuvres Manuscrites de 1810 contains three notebooks with 576 pages of translation of Political Justice. In addition, the seventh notebook contains Constant's "De Godwin, de ses principes et de son ouvrages sur la Justice politique", which was partially published as an essay in April 1817. Godwin's absolute reliance on the voluntary element in all relations, and his basing of the absolute autonomy of the individual on intellectual independence, was much admired by Constant and was their "kernel of anarchism". Constant's individualist anarchism led him to oppose Rousseau's Social Contract as a surrender of individual rights, since it opened the way to arbitrary actions by the nation against a single individual. Constant, !ike Godwin, was influenced by Adam Smith's concept of "natural order", and he sought the replacement of public, feudal property by private, commercial and industrial property, and the destruction of public institutions which he viewed as liberation.81
Godwin avoided Turgot's concept of the "perfect man", since the idea of the ability to become perfect was in opposition to the idea of perfectibility, of continual improvement. Condorcet stressed progress based on the "improvement of instruments which increase the power and direct the exercise of these facilities". Condorcet's emphasis on the role in progress of education, invention and the applied arts and sciences, appears in his Life of Voltaire which Godwin used (Political Justice was published before the Equisse). A clear influence was the Ideologue historian, Constantin François Volney's The Ruins, or Survey of the Revolutions of Empires (1791) which was translated into English by James Marshal, Godwin's amanuensis. Volney (1757–1820) posited that public happiness could be only the sum of individual happinesses, and he viewed natural rights as basic to mankind's progress. Godwin shared Volney's utilitarianism and viewed technological progress and the rise in living standards due to increase in knowledge as the progress of civilization. Godwin's favorable view of labor-saving machinery which increases comfort and material goods paralleled the views of Dunoyer and Herbert Spencer on the essence of the progress of civilization.82
Unlike Rousseau, but like the Physiocrats earlier and Say and Dunoyer later, Godwin considered the golden age or stateless society to be in the future and not in the past of mankind. For Godwin, as man's knowledge increases and more complex relationships develop, the less need is there for the role of government, thereby requiring the "dissolution of government". Godwin advocated extreme decentralization, which like Dunoyer's, could be called Rousseauist or primitivist if they had viewed government as having any legitimate role. But, Godwin and Dunoyer saw the progress of society in inverse proportion to the powers of government. The dissolution of government is the perfection of the complex and developed society.83
Albert Schatz's L'lndividualisme, in introducing Dunoyer's definition of liberty, underlines the principle that the government and individuals in society progress in inverse proportion to each other; the dissolution of government is the necessary goal of morals and industry, of civilization.
Liberalism tends then to create between the State and the individual a radical antagonism which is not in the classical doctrine and which makes the State and the individual two forces inversely proportional to each other. In consequence, there is in liberalism a tendency rather potential than achieved, to retire the State from the totality of economic role: we will see this born in the fulfillment that Dunoyer supplied to the classical doctrine, ending finally in a form of anarchism more or less disguised.84
Schatz notes that Dunoyer's thinking influenced the development of Proudhon's social theory. Dunoyer's analyses of liberty led him to an emphasis upon the roles of competition and voluntary association in the progress of civilized society. Dunoyer completed his analysis through applying these roles to the production of security and to the development of the concept of competing voluntary associations providing for the production of security. Insurance societies and companies competing in the production of security for their members or subscribers was the culmination of this completion of the dissolution of government.85
Schatz, in his chapter "De l'individualisme anti-étatiste à l'individualisme anarchiste",86 discussed the expression by Gustav de Molinari, Dunoyer's principal disciple, of civilized society's production of security:
that limited function. M. de Molinari removed from the government. In a study De la production de la Sécurité (Journal des Économistes, 15 fevrier 1849, p. 277), he asked why this industry had made room only for a monopoly. Had one not seen in Spain the Sainte-Hermandad. In Flanders and Italy the societies of artisans or others charging for furnishing security? Do there not exist in England and America private constables and in the Far West lynchers without official mandate? Regression, one asks? Not at all. On the contrary, progress, and more in conformity to liberal orthodoxy.
. . . In the social state, the satisfaction of needs exists due to the division of labor and to exchange. The need of security, the effect of the insufficiency of justice, is one of those. From which there appear certain establishments destined to guarantee to each the peaceable possession of his person and of his goods, and that one calls "governments".
But, if all needs are satisfied better by free competition, would Dunoyer be able to set aside this need of security? A priori, such a derogation contrary to the liberal faith is to be considered evil. Also, if the industry of security has been organized as a monopoly, it is easy to discover the reason. Respondant to a need which is after that of food the most essential, it puts face to face weak consumers and strong producers, by very definition. The latter imposes the monopoly of security on the former. What are the results of that? One saw in England a governing company, a feudality having an hereditary council of administration, the House of Lords, fix as it was convenient to them, under the name of taxation, the price of security.87
But Dunoyer's concern for the analysis of the absolutely free market was interrupted by the events of the July Days of the 1830 Revolution. With the establishment of the July Monarchy (1830–1848), Dunoyer embarked on his seven year tenure as prefect, first at Allier (1830), and then at Somme (1833–1837). On his retirement, which coincided with the death of Charles Comte, he became a conseiller d'état en service ordinaire in 1838. In 1835, he had published a Mémoire à consulter sur quelques unes des principales questions que la Révolution de juillet à fait naître. In 1840 was published a study he had undertaken of the English railways with reference to railway construction in France: Esprit et méthodes comparés de I'Angleterre et de la France dans les enterprises de travaux publics et en particular de chemins de fer; conséquences practiques tirées pour notre pays de ce rapprochement.
Dunoyer was appointed administrateur général at the Bibliothèque Nationale (Bibiothèque rovale. February–June, (1839) by the minister of. . . . public instruction in the Molé cabinet, the comte de Salvandy, who had been an associate of Decazes in 1819–1820. However, this was a period of cabinet crises due to the increasing conservatism of the government, which may have contributed to Dunoyer's retirement from active administration. Dunoyer's appointment to any position of ideological importance such as the Bibliothèque Nationale occasioned strong opposition from the conservatives; the mounting protests of his conservative subordinates forced Dunoyer to resign his office of administrateur général after a few months. He did publish La bibliothèque du roi (Paris, 1839). Thereafter, he returned to his analyses of the free market, and concentrated on social and economic theory. From the reestablishment of the Academy of Moral and Political Sciences Dunoyer was an active member, and in 1842 he was instrumental in the founding of the Société d'économie politique. He contributed to its Journal des économistes, as well as to the Journal des debats. In 1845 he published a completely revised and enlarged edition of his earlier major studies under the title: De la liberté du travail, ou simple exposé des conditions dans lesquelles les forces humaines s'exercent avec le plus puissance.
The Revolution of 1848 was a grave disappointment to Dunoyer. He strongly denounced the policies of Lamartine and published La révolution du fevrier, 1848 (Paris, 1849). But, he continued to sit on the conseil d'état, and took satisfaction from the free trade campaign that Frederic Bastiat conducted from his seat on the Left of the chamber of deputies. Bastiat in 1825 had written that he had studied only four works on economics: Smith, Say, Destutt de Tracy and the Censeur. The coup d'état of December 2, 1851 caused Dunoyer to resign his position on the conseil d'état in protest. He continued to write for the Journal des économistes and to participate actively in the sessions of the Academie des sciences morales et politiques. There he engaged in debates, such as against Victor Cousin on the role of social economy and morals, in 1852.88 Finally, he wrote a two-volume work, Le second empire et une nouvelle restauration (London, 1864 and 1871) which was published posthumously by his son, Anatole, who was professor of political economy at Berne during the second empire, and who returned to France in 1873 to become a master of requests of the conseil d'état. Charles Dunoyer had died on December 4, 1862.
-
- The Décade was suspended in 1807.
-
- Joanna Kitchin, La Décade (1794–1807), Un Journal "Philosophique", (Paris: Lettres Modernes, 1965), pp. 3–10, 179–184, 200. The success of the école centrale of the departrnent of Lot, from the Ideologue point of view, was noted in an article on education in La Décade (October 22, 1801, p. 161) by one of its co-editors, Pierre-Louis Ginguené. Charles Hunter Van Duza, Contribution of the Ideologues to French Revolutionary Thought (Baltimore: The Johns Hopkins Press, 1935, ), pp. 141–142.
-
- Kitchin, La Décade, pp. 110–136, 198; Georges Gurvitch, Industrialisation et Technocratie (Paris: Librarie Armand Colin, 1949), p. 10; Gurvitch, L'Idée du Droit Social Notion et Système du Droit Social, Histoire de dectrine dupuis le XVII sieclé jusqu à la fin du XIX, sieclé. (Paris: Librairie du Recueil, Sirey, 1931), pp. 236–260, 272.
-
- Ernest Teilhac, L'Oeuvre économique de Jean Baptist Say (Paris: Librairie Felix Alcan, 1927), pp. 176, 164. Lester G. Crocker, Nature and Culture, Ethical Thought in the French Enlightenment (Baltimore: The Johns Hopkins Press, 1963), pp. 47, 444–448, 482–495, and 219–325 ("The Utilitarian Synthesis"); Crocker, Rousseau's Social Contract: An Interpretative Essay (Cleveland: Press of Case Western Reserve University, 1968), passim; Guy H. Dodge, "Introduction", Jean-Jacques Rousseau: Authoritarian or Libertarian? (Lexington, Mass.: D.C. Heath, 1971), pp. vii–xvii; Th. Ferneuil, "Socialisme et Individualism", Revue d'économie politique (1889), III, 51; R. Fargher, "The Retreat from Voltarism, 1880–1815", The French Mind, Studies in honour of Gustave Rudier (Oxford: Clarendon Press, 1952), pp. 220–237; Mario Einaudi, The Physiocratic Doctrine of Judicial Control (Cambridge: Harvard University Press, 1938), passim.
-
- Durnad Echeverria, Mirage in the West, A history of the French Image of American Society to 1815 (Princeton, New Jersey: Princeton University Press, 1957), pp. 275, 215, 222–224, 232; Kitcin, La Décade, pp. 194–195.
-
- Teilhac, Say, p. 176; Say, Traité d'economie politique (Paris, 1803), I, 393.
-
- Teilhac, Say, pp. 176–177, 193, 68, 79.
-
- Ibid., 231–233.
-
- Ibid., 228.
-
- Kitchin, La Décade, pp. 197–198, 146.
-
- Ibid., pp. 197–145–146.
-
- Teilhac, Say, pp. 112–120.
-
- Ibid., pp. 102, 137.
-
- Ibid., pp. 241, 243–244,
-
- Ibid., pp. 24–26; Charles Comte, "Notice historique sur la vie et les ouvrages de J.-B. Say", Mélanges...de J.-B. Say (Paris: Chamerot, 1833), p. xi.
-
- Teilhac, Say, p. 220.
-
- Charles Almeras, Odilon Barrot (Paris: Éditions Xavier Mappus, 1950), pp. 22–24.
-
- Le Censeur, volume I; the advertisement is bound at the beginning of the first volume.
-
- Pierre Roboul, Le Mythe Anglais dans la littérature française sous la Restauration (Lille: Bibliothèque Universitaire, 1962), p. 377.
-
- Ibid., pp. 101, 14–20, 60–65, 77–102.
-
- Ibid., p. 115.
-
- Ibid., 320–321.
-
- Ibid., p. 320.
-
- Ibid., p. 38; it is likely that Comte became acquainted with Bentham's works through the French translations by the Genevan, Pierre Etienne Dumont, who acted as Bentham's literary secretary. Dumont had made Bentham known to French-speaking readers by the translation and publication of the strictly laissez-faire Manual of Political Economy in the Bibliothèque britannique (Geneva, 1797–1798). Published in French through Dumont's editing were Bentham's Traité de législation civile et penal (1802) and Théorie des peines el des récompenses (1811), published in English only in 1825.
-
- Eugène Hatin, Histoire politique et littéraire de la presse en France. La presse moderne, 1789–1860. La presses sous la Restauration (Genèva: Slatkine Reprints, 1967, Paris, 1859–1861), VIII, 82–86.
-
- Ibid., pp. 41–46, 49–52, 71–75.
-
- Benjamin Constant, Mélanges (Paris, 1829).
-
- Hatin, La Presse, p. 127.
-
- Ibid., p. 127.
-
- Ibid., p. 281.
-
- Ephraim Harpaz, "Sur un Ecrit de Jeunesse d'Augustine Thierry", Revue d'historie littéraire de la France, LIX, No. 3, p. 344. Also see Des Journalistes et des journaux (Paris, 1817), quoted in Hatin, La Presse, pp. 211–213.
-
- Ibid., pp. 287–289. Perhaps as a result of his prosecutions, Dunoyer became increasingly active in behind-the-scenes radical political activity such as the election campaign for deputy by Lafayette in the fall of 1818: "The successful candidate arrived in Paris at the beginning of November, 1818, accompanied by his friends Dunoyer and Victor de Broglie." Maurice de la Fuye and Emile Bameau, "The Phase of Abortive Conspiracies", The Apostle of Liberty, a Life of La Fayette (London: Thames & Hudson, 1956). pp. 243-245.
-
- Hatin, La Presse, pp. 307–313; Alan B. Spitzer, Old Hatreds and Young Hopes, The French Carbonari against the Bourbon Restoration (Cambridge, Mass., Harvard University Press, 1971), pp. 33–35, 38, 212–215, 242.
-
- Teilhac, Say, p. 50.
-
- Ibid., pp. 49–50.
-
- Spitzer, Old Hatreds, pp. 203–204.
-
- Ibid., pp. 37–50; members of a committee indicted before the Cours d'Assies, on June 29, 1820, included Lafayette, Comte, and Barrot. Lafayette and others were acquitted, but Comle was judged guilty and was condemned to five years, in exile. Barrot visited Comte in exile both in Switzerland and England. Almeras. Barrot, pp. 23,38.
-
- Spitzer, Old Hatreds, p. 205.
-
- Auguste Comte commented on Charles Comte's arrival in Paris: "Comte of the Censeur has returned a little while ago to Paris, where he will establish himself permanently. He has returned from his exile more prejudiced than ever in the bastard direction of political economy. He will undertake soon a book totally of the order of the day, to prove that all the theories which are not immediately applicable to industrial practice ought to be quickly abandoned and scorned. Here is a rational man to cause fear! It Is he who had written in his time that if astronomy was truly useful, individuals would know well how to pay for it and hence that it is necessary to suppress the Observatory". This was written on November 24, 1825. Henri Gouhier, La Jeuness d'Auguste Comte et la formation du positivisme; tome III, Auguste Comle et Saint-Simon (Paris: Librairie Philosophique J. Vrin, 1941), pp. 330–331
-
- Harpaz . "Jeunesse d'Augustin Thierry", p. 349; Almeras, Barrot, p. 98. On November 6. 1830 Comte Charles de Lameth denounced abuses of freedom of the press; Comte, procureur du roi, on November 9 asked Lameth to make known such works to the courts as were open to any citizen. Lameth claimed that Comte was seeking judicial control over legislative statements. The chamber named a committee headed by Antoine Vatimesnil, who as a prosecutor during the Restoration had never supported parliamentary privileges, but had been a major force in the prosecution of Dunoyer and Comte. While declaring that Comte's action had threatened the rights of the chamber and approving Lameth's refusal to accept Comte's request, Comte was excused on the basis of the circumstances and the declarations he had made. In opposition to the committee's conclusions, Benjamin Constant made his last speech in the chamber on November 19, 1830. Constant held that Comte had the right to request Lameth to submit any fact; Lameth had the right to refuse according to his conscience; and the chamber had not any right to judge Comte because it was not a power of the legislature. Benjamin Constant, Écrits et discours politiques, commentary by O. Pozzo de Borgo (Paris: Chez Jean-Jacques Pauvert, 1964), II, 160–169.
-
- Hatin, La Presse, pp. 290–291.
-
- Almeras, Barrot, pp. 37–38.
-
- G. de Bertier de Sauvigny, "Preface", in Ephraim Harpaz, L'École Liberale sous la Restauration, Travaux à l'Ethico-Politique (Genèva: Librairie Droz, 1969), XVI, ix; M. Girard, "Les Liberaux des Gauche ou Independents de 1814 à 1824", Le Libéralisme en France de 1814 à 1848: Doctrine et mouvement (Paris: Centre de Documentation Universitaire, 1966), I, 148–168; II, 151–158.
-
- Albert Schatz, "Ch. Dunoyer et la Définition de la Liberté", L'lndividualisme économique et social (Paris: Librairie Armand Colin, 1907), pp. 196–215; Gaston Richard, "Le philosophie et L'individualisme économique: l'école positiviste. Ses Origines", La question sociale et Ie mouvemenl philosophique au XIX siècle (Paris: Librairie Armand Colin, 1914). pp. 97–119; René Gonnard, "L'lndustrialisme: J.-B. Say", and "Dunoyer", Histoire des Doctrines Économiques (Paris Nouvelle Librarie Nationale, 1922), II, 252–264, 278–283.
-
- Fr. Picavet, Les Ideologues (Paris: Felix Alcan, 1891), pp. 334–409, 419–422,479–489
-
- Roger Henry Soltau, French Political Thought in the 19th Century (New York: Russell & Russell, 1959), p. 130; Guido de Ruggiero, The History of European Liberalism (trans. R.G. Collingwood) (Boston: Beacon Press, 1959), p. 187; on Dunoyer and Censeur, ibid., pp. 172–173, 453.
-
- Schatz, L'Individualisme, pp. 210–211.
-
- Henri Michel, L'Ideé de l'État, Essai critique sur l'histoire des théories sociales et politiques dupuis la révolution (Paris: Hachette, 1895), p. 345.
-
- Gouhier, La Jeunesse, pp. 408–409.
-
- Soltau, "The Authority of Science, I. August Comte", French Political Thought, pp. 203–215.
-
- Fernand Rude, Stendhal et La Pensée sociale de Son Temps (Paris: Plon, 1967), pp. 101–180.
-
- Ibid., pp. 105–109, 113–114.
-
- Charles-Barthélemy Dunoyer, L'lndustrie el La Morale (Paris: Sautelet, 1825), pp. 336–367, Cf. Odilon Barrot, De la centralization et des ser Effets (Paris: Dumineray, 1861).
-
- Rude, Stendhal, p. 113.
-
- Rude, "Les 'Apprentissages' de Stendhal, 2, L'économie politique", ibid., pp. 57–98.
-
- Rude, "Les 'Apprentissages' de Stendhal, 1, L'Idéologue", ibid., pp. 17–56.
-
- Emanuel Chill, "Introductory Essay", Power, Property, and History, Barnave's Introduction to the French Revolution and Other Writings (New York: Harper & Row, 1971), p. 70.
-
- Rude, Stendhal, p. 235; Fernand Rude, ed., Barnave: Introduction à la Révolution Française (Paris: Librairie Arman Colin, 1960).
-
- Rude, Stendhal, p. 40.
-
- Rude, Stendhal, pp. 131–137.
-
- Ibid., pp. 115–124; Georges Weill, L'École Saint-Simonienne (Paris, 1899), pp. 9–10.
-
- Rude, Stendhal, pp. 97, 101, 124–127.
-
- Ibid., p. 133.
-
- Ibid., pp. 141–149, 153–155.
-
- Ibid., pp. 148–152, 291.
-
- Ibid., pp. 115, 155–164.
-
- Revue encyclopédique, pp. 190–191.
-
- Ibid., pp. 192.
-
- Ibid., pp. 194–198.
-
- Dunoyer, L'Industrie el la morale, pp. 430–431: J.B. Salaville, L'Homme et las Société; ou nouvelle théorie de la nature humaine et de l'état social (Paris: Carteret-Dentu, An VII, 1798), chapter XXXIV, pp. 355–372, 391–392; Rude, Stendhal, p. 114.
-
- J.L. Talmon, Political Messianism, The Romantic Phase (London: Secker & Warburg, 1960), pp. 35–124, esp., pp. 46 and 49–50; on 18th century advocates of the beneficial role of legislation, especially Rousseau, see Talmon, The Origins of Totalitarian Democracy (New York: Praeger, 1960), pp. 34–49.
-
- Benjamin Constant, "De M. Dunoyer et de quelques-uns de ses ouvrages", in De la Perfectibilité de l'Espèce humaine (Lausanne: Éditions L'Age D'Homme, 1967), pp. 66–95; Benjamin Constant, Mélanges de littérature et de politique (Paris: Pichon et Didier, 1829), pp. 128–162.
-
- Pierre Deguise, "Introduction", Benjamin Constant, De La Perfectibilité de l'Espèce humaine (Lausanne: Éditions L'Age D'Homme, 1967), pp. 9–34.
-
- Ibid., pp. 15–20.
-
- Constant, "'De M. Dunoyer": ibid., pp. 66–68, 90. Fourteen years before, Constant had published his De L'Ésprit de Conquète, in which he discussed the differences between the political freedom of the ancients and the individual freedom of the moderns. Constant repeated this in his brochure De la liberté des Anciens comparée à celle des modernes in 1819 Dunoyer's association in L'lndustrie et la morale, pp. 93–44, of Constant with Rousseau and Chateaubriand as a critic of civilization and proponent of primitive levels of civilization, is highlighted by their diverse views of the meaning of the Greek struggle for independence from the Turks. For Constant, "it was in the barbarity of the Klephtes that Greece found a safeguard against the barbarity of the Turks", "De M. Dunoyer", ibid., p. 75. The Klephtes were the Greek brigands, who from their refuge in the northern mountains, maintained the independence of Greek political movement and culture during the Turkish occupation, and who were active in the revolution. Dunoyer had been impressed that the Greeks were more industrious than the Turks, through their activity in commerce, crafts and especially seafaring, and thus, by the revolt of the Greek sailors who formed the vast majority of the Turks' navy, decisively shifted control in the Aegean to the Greek revolution. L'lndustrie et la morale, pp. 101–102. Constant was also distressed by Dunoyer's emphasis that it was the fault of the people that they suffered the government's oppression; if people had a stronger sense of morality and self-interest they would not have experienced government's oppression or would long since have overthrown it. The Revue encylopédique in January, 1825 had raised as a criticism of Dunoyer's lectures on industrialisme at the Athénée that industrial life makes ruling easier for the governors. Rude, Stendhal, p. 114. Constant disagreed with Dunoyer's view that governments were the reflection of the people's situation, and that governments will be overturned when the people achieve a sufficiently high state of development. Constant emphasized that governments were the result of conquest, of elements of the past, and of stagnation; and that the opposition between peoples and governments was the significant thing. Dunoyer's severity upon the people seemed to relieve the governments of criticism: "This new principle is necessary to examine: all which discredits peoples is avidly gathered by government, and against the intention of M. Dunoyer, the oppressive authorities will seize possession easily of that part of his system", "De M. Dunoyer", ibid., p. 68.
-
- Dunoyer, "Historical notice on industrialisme", pp. 175–176.
-
- Ibid., pp. 178–179.
-
- O. Pozzo de Borgo, in Constant, Écrits, I, 204–206. Constant's Oeuvres Manuscrites de 1810 were acquired by the Bibliothèque nationale in 1961.
-
- Constant, Mélanges, pp. 387–415; Pierre Deguise, "Introduction", in Constant De la Perfectibilité, pp. 11–14; O. Pozzo de Borgo, pp. 234–235; Picavet, Les Idéologues, passim; Kitchin, La Décade, pp. 127, 148–149. Dominique Bagge, Les Idées politiques en France sous la Restauration (Paris: Presses Universitaires de France, 1952), "Le courant de pensée Individualiste", pp. 25–92, especially p. 48.
-
- Burton R. Pollin, Godwin Criticism: A Synoptic Bibliography (Toronto: University of Toronto Press, 1967), pp. 54–55, numbers 360R–363R, including La Décade reviews of Godwin's Fleetwood and St. Leon, and p. 656, for editions of Political Justice (London, 1793, 1796, 1798; Dublin, 1793, 1796; Philadelphia, 1796; and Wurzburg, 1803); Pollin, "Godwin's 'Letters of Verax'", Journal of the History of Ideas, XXV, 1964, pp. 260–270.
-
- O. Pozzo di Borgo, I. 121–133, 234–235, 239–241; Pollin, Godwin Criticism, pp. 104-105, 199; Pollin, Education and Enlightenment in the Works of William Godwin (New York: Las Americas, 1962), pp. 1, 17–18. Harold Nicolson, Benjamin Constant (Garden City, New York: Doubleday & Co., 1949), pp. 285–289. The influence of Godwin on Constant has been noted by: Elizabeth W. Schermerhorn, Benjamin Constant (2nd printing, New York: Haskell House, 1970), pp. 179, 188; Georges de Lauris, Benjamin Constant el les idées libérales (Paris: Arthur Rousseau; 1903), p. 22. Charlotte T. Muret, French Royalist Doctrines since the Revolution (New York: Columbia University Press, 1933), p. 72, notes only the parallels between Godwin and Constant's individualist anarchism.
-
- Crocker, Nature and Culture, pp. 453; Pollin, Education and Enlightenment, pp. 4, 62–64, 95–98; C.F. Volney, The Ruins (Exeter: Joseph Mann, 1823), pp. 38–39, 93–104.
-
- Cf. above p. 5 for the Physiocrats' and Say's view of the golden age being in the future, and p. 31 for Dunoyer's extreme decentralism; Pollin, Education and Enlightenment, pp. 76–78, 83–89.
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- Schatz, L'Individualisme, p. 197.
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- Ibid., pp. 490, 500.
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- Ibid., pp. 472–576.
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- Ibid., pp. 488–489. Dunoyer through de Molinari had an influence on American industrialist anarchists; Schatz notes that Benjamin R. Tucker used some of their concepts. Ibid., p. 514.
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- Charles Turgeon, "Des prétendues richesses immatérielles", Revue d'économies politique (1889), III, pp. 230–231, and Turgeon, "La conception matérialiste de l'histoire d'aprés Marx et Engels", ibid., (1911), XXV, pp. 307–310
War dissenters are branded "Putinists" by the foreign policy elites who casually flirt with nuclear war. But preferring negotiations to World War III hardly makes one a Putin sympathizer.
Original Article: "It's Time to Abandon America's Fetish for "Unconditional Surrender""
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Since the awarding of the Nobel Prize in economics to Ben S. Bernanke, Douglas W. Diamond, and Philip H. Dybvig, most of the media interest has, understandably, concentrated on Bernanke. Mark Thornton wrote a scathing takedown of bailout Ben, while Tyler Cowen inexplicably praised him to the skies (Cowen at least provides a good overview of some of Bernanke’s contributions, such as they are).
This has allowed Diamond and Dybvig (DD) to escape much scrutiny, which is a shame, since their work is even more symptomatic of the state of modern economics and mainstream analyses of money and banking than that of bankster darling Bernanke. DD have arguably also had much more influence on how economists analyze banking. Their seminal 1983 paper in the Journal of Political Economy, “Bank Runs, Deposit Insurance, and Liquidity,” has over thirteen thousand citations on Google Scholar, a number that’s now bound to grow even higher. It has also been described as “a significant conceptual and methodological advance in studying banking arrangements.” So let’s take a critical look at the paper that has been so influential and which is now crowned with Nobel laurels.
The DD “Bank DD wanted to study banking and, in particular, to see what kinds of stable equilibria a banking system would produce and which government interventions could possibly improve the market outcome. In order to do this, they constructed a model—and a rather peculiar one at that.
In the DD model, there is only one economic good and the economy runs for three periods, T = 0, 1, 2. In period 0, each person receives a unit of the good. The good can only be consumed in periods 1 or 2: if it’s invested in production until period 2, it will yield double the good and the person can consume two units.
In period 0, everyone will invest, since the good can be withdrawn from production and consumed in period 1. In the next period, something magical happens: everyone wakes up and realizes his personality type. Type 1 persons have very high time preference and want to consume immediately, despite the high returns from investment; type 2 persons have low time preference and are willing to wait until period 2 before they consume. As a result, type 1 persons now consume their goods, while type 2 persons wait.
Before going on to discuss the DD bank, a peculiarity of the model is worth noting: there is no money here—indeed, DD explicitly state that there is no exchange at all. The problems of banking are, as Ludwig von Mises taught, a subset of monetary theory—a point that mainstream economists also accept, since they agree that banks provide liquidity. Yet the model that forms the basis for a major part of modern banking theory explicitly excludes money from consideration—most peculiar, one would think.
DD now introduces a “bank”: instead of investing, persons turn over their assets to the bank in return for a liquid claim, i.e., they can cash in at any time (meaning in period 1 or 2). Thus, the bank provides liquidity—although again, it is hard to see the point in an economy where exchange, and therefore the need for money and liquidity, has been explicitly excluded.
Having set up a bank, DD then proceed to show how multiple equilibria are possible—an equilibrium in which all claims are satisfied and a “bank run” equilibrium, where everyone withdraws his asset in period 1, leading to zero production in period 2. While banking thus provides a useful service of liquidity transformation, DD conclude that it is also inherently unstable and that outside help—government-sponsored deposit insurance or a central bank—is required to avoid bank runs.
The Key Problems of DD Banking Theory Since there is no money in the DD model, it follows that there also cannot be any banking in a conventional sense. In the classic English definition, a banker is a man who lends other people’s money: he intermediates between different people, savers and borrowers. The DD “bank” does no such thing. It is simply a production manager—it is not a financial intermediary. It takes in assets, manages the production process, and returns assets to the depositors on demand. It can only get into trouble insofar as it pays out assets before the end of production—and then only if it pays out more than the depositors could naturally claim in period 1. In short, to make any sense of the model, we have to conceive of it as a pyramid scheme of sorts.
That being said, DD are believed to model how banks engage in maturity transformation—indeed, the Nobel Committee focused on this aspect in their depiction of the DD model. Maturity transformation means that savers prefer to lend short term to reduce their risks, and borrowers prefer to borrow long term to be able to invest long term without having to pay back loans before the production processes are complete. Banks then step in as intermediaries: they borrow short term from savers and lend long term to businessmen. The short-term loans are then continuously rolled over: some savers quit and others take their place, but in aggregate the sum of savings available for investment is not volatile. DD see maturity transformation as the cause of unstable banking: to avoid or mitigate bank runs, which here means depositors withdrawing their funds at a greater rate than foreseen, government intervention is necessary.
The problem for DD and modern banking theorists is that there is nothing new in all this. The problem of maturity transformation was well known centuries ago and led to the formulation of the “golden rule of banking”: as Ludwig von Mises, quoting Karl Knies, explained: “the date on which the bank’s obligations fall due must not precede the date on which its corresponding claims can be realized.” In other words, far from what the Nobel-winning DD would lead us to believe, banking theorists considered maturity transformation long ago, and they had a clear answer to how bankers should handle it: don’t do it.
Modern economists have also engaged the question of maturity transformation in a more thoughtful way: Austrian economists Philipp Bagus and David Howden have analyzed the practice of maturity mismatching—i.e., of not obeying the golden rule of banking—and debated its legitimacy and economic consequences with Randy Barnett and Walter Block. Most importantly, these economists, unlike Diamond and Dybvig, have not confused the question of maturity transformation with the basic questions of banking theory.
The most fundamental problem with banking theory à la DD is that it ignores the basic problem of banking and the reason for its crucial importance in economic theory. This has nothing to do with maturity transformation, which is simply a question of sound banking management. Banks are important economically because they can increase the money supply by issuing unbacked money substitutes—i.e., fiduciary media. A theory of banking, if it is to address economic reality, must investigate the causes and consequences of this phenomenon. Needless to say, DD don’t do this, and theorists following their lead only do so tangentially. Whatever value DD’s models have, it is close to nil for economic theory.
Conclusion The Swedish central bank is thus celebrating not only modern central banking with the 2022 Nobel, but also essentially mistaken theories of banking. Mainstream monetary theory has become increasingly detached from reality over the years, and Diamond and Dybvig’s work is a key example of this: in the pursuit of elegant models, they close their eyes to the real problems of banking—credit expansion and money creation—and at best focus on tangential issues of banking technique.
This is symptomatic of the general trend of economics, and nowhere is the distinction and superiority of the Austrian school more evident than in the case of monetary theory. From Mises’s 1912 Theory of Money and Credit on, Austrians have emphasized that the key question of banking theory is the creation of money ex nihilo in the process of credit expansion. To paraphrase F.A. Hayek, every important advance in monetary theory during the last hundred years was a further step in the consistent application of Misesian—i.e., marginal and praxeological—principles. Unfortunately, neither the Swedes, nor Diamond and Dybvig, nor Bernanke realize this.
On October 7, 2022, US congressman Alex Mooney (a Republican from West Virginia) introduced a bill (the Gold Standard Restoration Act, H.R. 9157) that stipulates that the US dollar must be backed by physical gold owned by the US Treasury. The initiative clearly indicates that the increasingly inflationary US dollar is triggering efforts to get better money.
It should be noted that there have already been many legislative changes to make precious metals more attractive as a means of payment in recent years: in many US states, the value-added and capital gains taxes on gold and silver, but also on platinum and palladium, have been abolished. Mr. Mooney’s proposal is divided into three sections.
The first section of the bill establishes the need for a return to a gold-backed US dollar. For example, it is said that the US dollar—or more precisely, the bill refers to “Federal Reserve Notes”—that is, banknotes issued by the US Federal Reserve (Fed)—has lost its purchasing power on a massive scale in the past: Since 2000, it has dropped by 30 percent, and since 1913 by 97 percent. The bill also argues that with an inflation target of 2 percent, the Fed will not preserve the purchasing power of the US dollar but will have it halved after just thirty-five years. Moreover, the bill points out that it is in the interest of US citizens and firms to have a “stable US dollar.” The bill highlights that the inflationary US dollar has been eroding the industrial base of the US economy, enriching the owners of financial assets, while endangering workers’ jobs, wages, and savings.
The second section of the bill describes in more detail the technical process for reanchoring the US dollar to the US official gold stock. It states that (1) the US secretary of the Treasury must define the US dollar banknotes using a fixed fine gold weight thirty days after the law goes into effect, based on the closing price of the gold on that day. The Fed must (2) ensure that the US banknotes are redeemable for physical gold at the designated rate at the Fed. (3) If the banks of the Fed system fail to comply with peoples’ exchange requests, the exchange must be made by the US Treasury, and in return, the Treasury takes the Fed’s bank assets as collateral.
The third section specifies how a “fair” gold price in US dollar can develop in an orderly manner within thirty days after the bill has taken effect. To this end, (1) the US Treasury and the Fed must publish all of their gold holdings, disclosing all purchases, sales, swaps, leases, and all other gold transactions that have taken place since the “temporary” suspension of the redeemability of the US dollar into gold on August 15, 1971, under the Bretton Woods Agreement of 1944. In addition, (2) the US Treasury and the Fed must publicly disclose all gold redemptions and transfers in the 10 years preceding the “temporary” suspension of the US dollar’s gold redemption obligation on August 15, 1971.
What to Make of This? The bill’s core is the idea of reanchoring the US dollar to physical gold based on a fair gold price freely determined in the market. (By the way, this is an idea put forward by the economist Ludwig von Mises (1881–1973) in the early 1950s.) In this context, the bill refers to US banknotes. However, banknotes only comprise a (fractional) part of the total US dollar money supply. But since US bank deposits can be redeemed (at least in principle) in US banknotes, not only US dollar cash (coins and notes) could be exchanged for gold, but also the money supply M1 or M2 as fixed and savings deposits could be exchanged for sight deposits, and sight deposits, in turn, could be withdrawn in cash by customers, and the banknotes could then be exchanged for gold at the Fed.
As of August 2022, the stock of US cash (“currency in circulation”) amounted to $2,276.3 billion. Assuming that the official physical gold holdings of the US Treasury amount to 261.5 million troy ounces, and the market expected US cash to be backed by the official US gold stock, a gold price of about $8,700 per troy ounce would result. This would correspond to a 418 percent increase compared to the current gold price of $1,680. If, however, the market were to expect the entire US money supply M2 to be covered by the official US gold stock, then the price of gold would move toward $83,000 per troy ounce—an increase of 4.840 percent compared to the current gold price. Needless to say, such an appreciation of gold has far-reaching consequences.
All goods prices in US dollars can be expected to rise (perhaps to the extent that the price of gold has risen). After all, the purchasing power of the owners of gold has increased significantly. Therefore, they can be expected to use their increased purchasing power to buy other goods (such as consumer goods, but also stocks, houses, etc.). If this happens, the prices of these goods in US dollar terms will be pushed up—and thus, the initial purchasing power gain that the gold dollar holders have enjoyed by being tied to the increased gold price will melt away again. Moreover, if US banks were willing to accept additional gold from the public in exchange for issuing new US dollar, reanchoring the US dollar in gold would increase the upward price effect.
A reanchoring of the US dollar in the US official gold stock will result in a far-reaching redistribution of income and wealth. In fact, it would be fatal for the outstanding US dollar debt: US dollar goods prices would rise, caused by a rise in the US dollar gold price at which the US dollar is redeemable for physical gold, thereby eroding the US dollar’s purchasing power. In the foreign exchange markets, the US dollar would probably appreciate drastically against those currencies that are not backed by gold and against currencies which are backed by gold not as fine compared to the fineness of the gold backing of the US dollar. The purchasing power of the US dollar abroad would increase sharply, while the US export economy would suffer. US goods would become correspondingly expensive abroad, while foreign companies gain high price competitiveness in the US market.
Once the US dollar is reanchored in gold, today’s chronic inflation will end; monetary policy–induced boom-and-bust cycles will come to an end; the world will become more peaceful because financing a war in a gold-backed monetary system will be very expensive, and the general public will most likely not want to bear its costs. However, there is still room for improvement. A “Gold Standard Restoration Act” will deserve unconditional support if and when it paves the way toward a truly “free market for money.” A free market in money means that you and I have the freedom to choose the kind of money we believe serves our purposes best; and that people are free to offer their fellow human beings a good that they voluntarily choose to use as money.
In a truly free market, people will choose the good they want to use as money. Most importantly, in a truly free market in money, the state (as we know it today) loses its influence on money and money production altogether. In fact, the state (and the special interest groups that exploit the state) no longer determine which kind of gold (coins and bars, cast or minted) can be used as money; the state is no longer active in the minting business and cannot monopolize it anymore; there is no longer a state-controlled central bank to intervene in the credit and money markets and influence market interest rates. That said, let us hope that the Gold Standard Restoration Act proposed by Mr. Mooney will pave the way to reforming the US dollar currency system—and that it will eventually move us toward a truly free market in money.
Mainstream economists view the economy as fickle, unstable, and always in danger of utter collapse. They see the outlook as very bleak if not for the enormous existing superstructure of government intervention, including constant stimulus of “aggregate demand.” In their minds, this essential stabilization would also include the existing intricate arrangement of regulation and restriction, the army of technocratic bureaucrats overlording every market, and the rollout of massive interventions and macro stabilization schemes, whenever necessary.
This bureaucratic view is predicated on the assumption of the superiority of technocratic ability, “scientific” knowledge, and centralized resources. It is a view that is only plausible when combined with the supposed inability of individual actors to foresee such events or to respond to events, especially those deemed beyond their control. In addition to ignoring government intervention as the cause of crises, this top-down view is incorrect and is directly at odds with reality.1
In contrast, Austrian economists see the free market as highly stable and quick to adapt to changing circumstances, including huge macro destabilizing events such as hurricanes, wars, famines, and pandemics. Here, the crisis is the inevitable result of government intervention, although natural disasters are not ignored.
This bottom-up view is based on an understanding of the interests and ability of entrepreneurs to respond to events, minor and major, to improve their situation and indirectly to “stabilize” the economy. Individuals can respond to even dramatic changes in supply and demand conditions. They respond to crises as consumers, laborers, managers, and entrepreneurs, as well as communities, churches, civic groups, family members, friends, and neighbors, but all can be paralyzed or incapacitated by the top-down policy approach.
Without describing the process of how the free-market system works and without the benefit of any real-world experience, the decision of what approach to choose is a coin toss. In a world in which education, the media, and the government all side with the top-down government approach, it will win the public opinion coin toss by default—after all, something must be done! The purpose of this article is to explain how the anarchy of individual actions works to buffer the economy like a shock absorber.
The Black Hole of Economics It is hard to explain and understand how mainstream economists think about economic crises, because they have written so little about how the economics of the crisis works, per se. Their bogeyman is deflation. They see deflation, in the form of falling prices, to be like a black hole. If the economy gets near deflation, it will be sucked into the black hole and never be able to emerge again. I have coined the term apoplithorismosphobia to describe their psychological problem and my article on the same subject should be sufficient to describe the manifestations of the phobia and its tragic results. Ben Bernanke has deflation-phobia and so does Paul Krugman so it is safe to assume the fear is widely spread.
Their credibility is unmasked by the fact that the biggest direct losers from deflation are the wealthy political elites and crony capitalists. Everyone will get some kind of “haircut” during the process, but the big losers are mostly the same people who benefitted from the corrupt system that caused the crisis in the first place!
The enormous unmentioned benefit of this deflationary/crisis process is that we might be able to break free from paper fiat-money inflation, the “regulated” fractional reserve banking system, exploding government debt, and the Fed itself! Obviously, the rank-and-file citizen would benefit from the completion of this process.
Free-Market Shock Absorbers The traditional vehicle suspension system contains many mechanical parts with the most famous being the shock absorber. It is designed to absorb much of the energy that results from the change in the road surface. It dissipates much of the absorbed energy from bumps in the road to smooth out the ride for motorists. Indeed, much of the automobile involves absorbing shocks, from the tires to the padded seats and steering wheel, making vehicle transport more desirable than otherwise.
The economic analogy to micro and macroeconomic shocks also involves a similar set of “parts” including prices, markets, warehousing, transportation, etc. That are designed to reduce (minimization subject to cost) shocks. Most of these parts function to economize on the natural uncertainty of change for entrepreneurs that result from unexpected changes in prices, the normal imperfections of the road, so to speak. This process is governed or regulated by the natural system of profit and loss.
These same parts also function in irregular occurrences of macroeconomic shocks, as when the brakes, tires, steering, shock absorbers, etc. Are engaged prior to an accident. The market economy also has analogs to the car’s bumpers, air bags, and other emergency features. These secondary parts include untapped resources, such as savings, land, mines, unused factories, facilities, and residences, and a multitude of unemployed labor at “full employment.” In addition, there is always untapped technology, or “advanced” technology that is unprofitable prior to a shock. The tertiary level of shock absorption are global, financial, and sophisticated institutions that are capable of absorbing macroeconomic shocks, such as multinational corporations and financial institutions, hedge funds, and sovereign funds, although this is not necessarily their primary purpose.
The primary component in all these shock absorbing parts is entrepreneurship. The free market provides the widest possible latitude for individuals to seek their most rewarding course of action and to achieve their goals. This is true, not just for entrepreneur/business owners, but also for capitalists, property owners, and labor, all of whom are constrained by self-interest, if not by direct profit and loss.
We can view the free market as a shock absorber for all events large and small. The smallest purchase creates an immediate reaction regarding inventory information that moves backward through the structure of production from retail to wholesale to production facilities to input suppliers and labor markets, and all the way back to raw materials and resource extraction. This system has a built-in, profit driven, feedback mechanism of signals regarding changes in supply or demand, and thus signals to entrepreneurs to either cutback, redouble, or redirect their efforts.
The failsafe mechanism, beyond adjustments for profit and loss, is related to the legal system. Entire firms can shut down production, downsize, or go out of business. This frees up the company’s resources for alternative uses in other companies. Weak companies can combine with stronger companies through mergers and acquisitions to take advantage of cost savings and economies of scale. Adjacent to this is the process of bankruptcy for insolvent companies, where distressed companies can be reconfigured to continue operating. All these processes create efficiency and frees up resources for alternative uses. So, the basic legal and judicial systems play an important role in this economic process.
Nuts and Bolts What happens in an economic crisis is based on the knowledge of how the market works. This in turn explains how the market softens the blow from the crisis. Furthermore, the process is self-contained and self-regulated. It does not need acts of government intervention. This failure to understand the market process is why mainstream economists believe in black hole economics.
The most salient feature of a crisis is a sharp fall in the value of most capital assets. The most evident aspect of this feature is a strong decline in stock markets. In general, the value of stocks is estimated by the market with the discounted value of its estimated revenues over time and this value is “shocked” by the revelation of a crisis, whether its war, business cycle, or something else. For example, the NASDAQ Composite stock index, which is heavily weighted to technology and capital investment, fell by roughly two-thirds in the tech bust of the early 2000s, by one-half after the housing bubble, and has already fallen by about one-third its value in the current crisis.
Secondarily, the prices of raw materials also tend to collapse. For example, the price of lumber declined significantly after the Tech Bubble, the Housing Bubble, and the Lockdown Bubble. As a master ingredient in production and consumption, the price of oil ebbs and flows with the Boom Bust cycle as well. The graph below shows the price of oil since the mid-1980s with the National Bureau of Economic Research recessions shaded in gray.
fredgraph_thornton.png
A third noteworthy impact of an economic crisis is its negative impact on labor markets. Unemployment in the capital goods related industries is significant and the impact is pervasive on employment, new hirings, and wage rates. We have recently experienced a significant decline in the labor force participation rate, a record number of job openings (60 percent higher than the prelockdown records!), and a very large number of new hirings in the aftermath of government lockdowns, but average real wages have already declined by 10 percent since the recent peak.
Economic crises also negatively impact the price of consumer goods. With the capital-intensive sectors smashed and fewer job opportunities and lower real wages for workers, it is not surprising that the prices of consumer goods weaken. However, consumers adjust to crises by cutting back on investments, luxury goods, consumer durable purchases, such as homes, cars, clothes, and appliances, and focus on primary goods such as food and energy. This typically means that the prices of such goods do not decline nearly as much as capital and labor.
This all sounds bad as everything is in decline, but alert individuals realize this situation is pivotal for making profits. If capital and raw material prices have crashed and wage rates have collapsed, but consumer good prices have not, then entrepreneurs will sense and investigate profit opportunities.
These opportunities cluster around the low prices of capital goods (e.g., office space, real estate, technology, and production facilities), raw materials, and labor (skilled and technology workers and recent college graduates, especially), combined with the relatively elevated prices of final consumer goods. Entrepreneurs exploit these profit opportunities by reorganizing unemployed capital, labor, and materials to sell consumer goods as well as brand new products. This also applies to previously advanced technologies, a silver lining to the otherwise unfortunate boom-bust process.
For example, imagine a large economic crisis where major airlines go bankrupt, flights are cancelled en masse, planes, pilots, and flight attendants are unemployed, airports are nearly empty, and the price of jet fuel drops considerably. Might airline entrepreneurs not enter the market and offer cheap flights at a profit? Or might former Boeing engineers not develop and test a prototype pilotless plane in their spare time?
This deflationary process is a primary aspect of the free market’s role as an automatic shock absorber. The best discussion of this is still probably Rothbard’s (1963) America’s Great Depression chapter on the theory of the business cycle and his discussion on the “general economic ‘return to normal,’” although the last few pages of Murphy’s text is also good. This process is generally not taught in economics courses and is not depicted in textbooks, which are typically limited to the topics of the government’s “automatic stabilizers” and fiscal and monetary stabilization policies. William Anderson summarizes Rothbard’s view on deflation, as well.
Not surprisingly, the people making decisions concerning an economic crisis—politicians, bureaucrats, and Fed officials—have no skills to make the right decisions. As a result, they are likely to panic and to act in the interests of the political elites. This means the wrong solution of more monetary inflation and other interventions to protect those interests.
In contrast, the best political solutions are straightforward from a proper understanding of how markets work. I will present them in a future article but in general the idea is to maintain and expand the free-market economy and reduce and restrict government intervention from the economy.
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- A minority of economists, often associated with the Chicago school, believes in “price theory,” but feels that both the gold standard and the Fed are the source of crises that can “pluck” the economy off its long-run growth trajectory and into the economic abyss. As such, they feel that the Fed should follow some kind of nondiscretionary bureaucratic monetary rule such as a 3 percent monetary growth target, the Taylor rule, or nominal gross domestic product targeting.
[Excerpted from remarks delivered at the Free Private Cities "Liberty in our Lifetime" Conference in Prague on 22 October, 2022]
At this conference and others like it, dealing with alternative legal and monetary structures, I’ve noticed in recent years a strong bias in favor of action over argument, for building over persuading, for practice over theory. This is laudable and understandable for all of us frustrated by statism and all its terrible offspring: war, bad money, division, along with economic, social, and cultural degradation. We understandably want out, and not one hundred years from now but within our lifetimes.
I saw a response to a tweet promoting this gathering to this effect: you have some great thinkers and theorists scheduled to speak, but what you really need is urban planners! Or, we might think, architects and engineers. This is certainly a fair point! But I must confess to representing the theorists today, and Rothbardians in particular.
In my defense, the theory underpinning any new model for private governance or free cities is as important as the blueprints for a building. Carpenters have a saying, “Measure twice and cut once.” Another version of this is found in the Zen koan “Slow down to speed up.” Maybe this is a good time to rethink our approach to what private governance could mean, and how better to align this movement with current political, economic, and cultural realities. Remember, “parallel” implies peaceful coexistence with existing political structures. It is nonthreatening and voluntary.
To promote the idea of private governance, we should understand it fully ourselves. We should make sure our vision comports with human nature, which is another way of saying it aligns with the marketplace. As entrepreneurs, we should take the world as it is rather than how we wish it were. Otherwise, we risk creating a product that nobody is buying.
And as an aside, speaking of creating, let’s not forget the earliest and most enduring form of private governance is the family! Maybe the fastest way to build your own “parallel structure” is to start having kids. We heard a lot yesterday about living as a digital nomad, seeking multiple passports, and seasteading, but we should not forget that the whole point of building better governance structures is so humans can live better. This requires new humans!
I also suggest an appeal to the better angels among the many nationalist and breakaway movements happening across the world. These are real, they hunger for independence, and we should not ignore them. And of course we should sell community: clean and safe streets, nice parks, good schools, and competent local services from competent local providers. I mean the basic building blocks of a nice community. A good place to raise a family, as the saying goes. The market for start-up or private communities is not only expats or perpetual travelers or bitcoin aficionados, but also soccer moms and religious people and retirees.
We can use the term “private” in more than one sense: the first is personal, relating to private matters in our personal lives, matters which are not public. And we use it as a bright-line distinction between state and civil society, between government action and private action—though, as we’ve seen, that distinction is increasingly blurred by what Robert Higgs calls “participatory fascism.” But when discussing private cities or regions or services or governance, we use “private” as a synonym for “commercial,” like any private business. In this sense, we simply mean “not governmental.” But beyond that the possible models are wide open, so we should focus on consumer sovereignty just as the seller of any new product should.
The marketplace—capital and entrepreneurship, as opposed to politics—is the way forward.
I. The Dystopian Vision When we consider the market for new parallel private structures, we should take a moment to play devil’s advocate and consider the typical strawman arguments presented by people who reflexively abhor the notion of private government. These are the people who go on and on about our “sacred democracy” but cannot conceive of the truly democratizing elements of the marketplace, what Mises called a “daily plebiscite.” It’s uncanny: people have no objection whatsoever to private governance when it comes to vast companies like Google or the British National Trust (the biggest private landowner in the UK) or the ecclesiastical hierarchy of the Roman Catholic Church or the management of Real Madrid football club. But suggest privatizing police or trash pickup in their town of thirty thousand, and they overwhelmingly object. Why?
In large part, “privatization” has become a boogieman for progressives, who treat the concept as a sinister plot for big corporations to run our lives. This is the mentality we must overcome.
In 1992, the sci-fi writer Neal Stephenson published a really enjoyable and groundbreaking book titled Snow Crash, which essentially presents a cheeky anarcho-capitalist future—fully privatized, but very messy. The reader senses Stephenson is one of us, but also a bit of a provocateur and contrarian.
Snow Crash takes place in the old territory of California, over which both the US federal government and the state government lost control following a terrible economic crisis (so, unlike our models, the new “startup” territories were born of necessity, not choice).
Government still controls minor aspects of this new world, but authority is mostly now ceded to a complex patchwork of private sovereign agencies, franchises, and mercenaries—some of whom received their training from and work for the now privatized CIA (after a merger with the Library of Congress).
Mafia gangs have achieved the status of quasi-private governments, and rule a network of semiautonomous corporate neighborhoods (“burbclaves”). These regions are linked by privatized roads and protected by de facto mercenaries. Major intersections in Los Angeles now fall under the control of defense contractors and private security (following gunfire battles to determine who would win control of them).
So the new private territories were not born without violence, and the old “Won’t warlords take over?” critique of privatization is always lurking behind the story. The protagonist, Hiro, is a delivery driver for Cosa Nostra Pizza, a gang run by Uncle Enzo. But the warlords are at least efficient: when Hiro is late with a delivery, he gets an ominous call from Don Enzo himself implying that the next time he fails the thirty-minute guarantee will be the last time.
Only in the metaverse (a term credited to Stephenson) does Hiro have more status, as a successful denizen of the upper echelons of society unavailable to him in the meat space of his real life delivering pizzas. But even here he is no happier; in the virtual world, every last space is commercialized, monetized, and motivated only by rank status or money. It is a caricature of anarcho-capitalism which ignores the full spectrum of human experience beyond commerce. Stephenson’s metaverse is a hellscape, every human interaction is mercenary and transactional and ugly. This is clearly not the way to sell private governance!
II. Rothbard’s Vision What if the parallel communities we seek to build already exist in some form and our task is to identify and coalesce around those existing “nations within nations”? Surely this would be a leap forward.
Natural communities exist everywhere; they may not be libertarian in outlook, but neither are many private entities which don’t aggress against anyone. The idea is not only to start up such communities, but also to recognize them. Religious groups like the Amish and the Mennonites in America; ethnic, cultural, and linguistic identifications like the Catalans in Spain or the Welsh in the United Kingdom; corporations; fraternal associations—even country clubs and gated housing developments—all form natural communities which may well increasingly seek to unyoke from their centralized and failing political rulers. They may be socialist or capitalist, right wing or woke, provincial or cosmopolitan, provided they have no desire or incentive to aggress against other private communities.
To sell parallel structures, we should identify them in nascent form here and now.
Murray Rothbard’s article “Nations by Consent,” written just before he died, in 1994, is an excellent guidepost here:
The “nation,” of course, is not the same thing as the state, a difference that earlier libertarians and classical liberals such as Ludwig von Mises and Albert Jay Nock understood full well. Contemporary libertarians often assume, mistakenly, that individuals are bound to each other only by the nexus of market exchange. They forget that everyone is necessarily born into a family, a language, and a culture.
Every person is born into one or several overlapping communities, usually including an ethnic group, with specific values, cultures, religious beliefs, and traditions. He is generally born into a “country.” He is always born into a specific historical context of time and place, meaning neighborhood and land area.
Rothbard provides several key takeaways which can benefit the marketing of private governance:
- Nation is not state. Nation stands between individual and state.
- Contractual consent and the right to exit distinguish truly private “nations” from a government or state.
- A true “free private city” does not originate with conquest or decades/centuries of disputed titles, but rather with a fresh start, clear title, and a win-win market approach to services and membership (“citizenship”).
- Total privatization “solves” nationality problems, even while some land areas remain in the governmental sphere.
- Decentralization and localism “solve” problems of access for enclaves and landlocked areas.
- Voting and citizenship are inferior to consent, contract, and ownership in a true private community.
Rothbard’s conception of a nation is very different than a “state,” although we have been led to believe the two are synonymous. By identifying existing nations—organic and not contrived, like so many national borders—we dramatically increase the market opportunities for selling private governance to dissatisfied constituencies.
III. Common Law: No Vision Required! While we identify existing nations and intentional communities, we similarly can identify existing mechanisms for ordering, structuring, and enforcing contractual societies. We don’t necessarily need dramatic new constitutions or complex legal structures. Common law, evolved over centuries of hard human experience, provides a dependable model to navigate conflicts and provide governance guardrails in a private parallel structure. We don’t need a grand vision; we need the wisdom of the ages.
Moreover, I think we should be very cautious about imagining what we can design. This is not only the lesson of Hayek, but also the lesson of countless entrepreneurs finding their way in the marketplace every day.
Remember, law is about conflict. It is about resolving, hopefully minimizing, violence and property disputes in society—which is precisely why politics is self-defeating, even if you accept its premises. Private societies seek to promote human flourishing in win-win ways, versus the zero-sum political outcomes and deeply harmful state legal systems. But we should remember that a key measure of whether a society is just and flourishing is how it handles the inevitable conflicts and frictions that occur under any kind of system.
But we need the market for this! In Adam Smith’s time—despite the de jure government monopoly on courts—a Scottish or English peasant had more choice of law than we do today! Parties could use local, manorial, county, ecclesiastical, merchant, chancery (equitable relief versus money damages), and common law venues. Why do we have fewer choices of law in the West today?
In For a New Liberty, Rothbard points out how the history of a changing and evolving law can be enormously useful to find just rules: “Since we have a body of common law principles to draw on, however, the task of reason in correcting and amending the common law would be far easier than trying to construct a body of systematic legal principles de novo out of the thin air.”
Bruno Leoni, the midcentury Italian philosopher and legal theorist, makes the best case for how to have law without legislation—and without legislatures—in his 1961 classic Freedom and the Law.
In Anglo-Saxon common law, “law” did not mean what we think today: endless enactments by a legislature or executive. “Law” was not enacted but found or discovered; it was a body of customary rules that had, like languages or fashions, grown up spontaneously and purely voluntarily among the people. These spontaneous rules constituted “the law”; and it was the work of experts in the law to determine what the law was and how the law would apply to the numerous cases in dispute that perpetually arise.
A common law model of governance and dispute resolution solves so many of the thorny questions of how to order a private society:
- Five-hundred-plus years of real-world “models.”
- Principles are easier than specifics.
- Emphasis on discovery of law mirrors the entrepreneurial market process, akin to the Kirznerian entrepreneurial discovery process.
- Choice of law is provided by the market.
- Adjudication of disputes by contract, known to both parties prior, reduces those disputes.
- Judge-made law reflects the most hyperlocal culture, lifestyle, geography, and economy—and therefore fashions the most just results.
- Judge-made law is more temporal, individualized, flexible, and proportional.
In closing, let me recommend three additional texts to get us thinking in the right direction. First, Titus Gebel’s Free Private Cities is quite literally the handbook for this burgeoning movement. Edward Stringham’s Private Governance is the single best book I’ve seen on the history and technical aspects of creating economic and social order through private mechanisms. Finally, Prince Hans-Adam II of Liechtenstein’s wonderful The State in the Third Millennium provides an excellent and erudite argument for transforming states into private service providers as the next stage in human development.
A new and better world is possible through the understanding of private governance, nations within nations, and common law mechanisms for dealing with human conflict. How we market and sell this world is worth understanding, just as any entrepreneurial venture needs both a vision and the hard details.
Thank you.
Criticisms of hapless Senate candidate John Fetterman are labeled "ableist," while Elon Musk's takeover of Twitter is deemed fascist. Jeff and Bob take a hard look at the linguistic battlefield and the corruption of language as an institution.
Jeff's paper on language, "Evolution or Corruption?": Mises.org/HAP367-1 George Orwell's essay "Politics and the English Language": Mises.org/HAP367-2 Ken Smith's Junk English: Mises.org/HAP367-3 Bryan Caplan on "Privilege": Mises.org/HAP367-4
People still come to America, but it is because of the foundation created by private enterprise, not because of progressive politics.
Original Article: "To Many, America Still Is a Place of Opportunity (Unless Progressives Destroy That, Too)"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Long before Ron DeSantis was the antilockdown governor and long before he was the potential 2024 Republican presidential candidate, DeSantis was the water quality governor. He funded 100 percent of appropriations bills that came to his desk his first year and he even got President Donald Trump to pay lip service.
While getting him to offer a comment here and there does not sound like an incredible achievement, it’s worth noting that past Florida governor Jeb Bush didn’t even get the president talking about it when the president was his own brother. I say this to show that while water quality does not sound like a sexy issue, it is so important in Florida that it built the man we know today as Governor DeSantis.
One of the phrases we often hear in the world of Florida water management is “shared adversity.” In an article from 2008, current South Florida Water Management District governing board member Jacqui Thurlow-Lippisch, explained the tension in the room as the then Sanibel-Captiva Conservation Foundation director stated that “part of the Lake Okeechobee Release Schedule addresses ‘shared adversity’”: “You could hear a pin drop.”
What this word means, as it relates to water management, that we must protect the Everglades. However, in order to do so, many parts of Florida must share the adverse effects of rising water levels in Lake Okeechobee by routing the water through various estuaries. The problem is that the mix of the Okeechobee freshwater with the natural salt water in these locations sparks toxic algal blooms that are certainly dangerous to the local ecosystem, destroy the local economies as their tourism plummets, and are outright dangerous to the people in those regions. Thurlow-Lippisch showed exactly why these laws had become so problematic, declaring:
Just like other laws of our great county, some do, indeed over time, become outdated for the times. Things change. Among other issues, in 1950, when the Central and South Flood Project law was structured and voted upon to protect the crops in the EAA (Everglades Agricultural Area) as part of flood control 2.81 million people lived in Florida. Today, 20 million people reside here.
As more and more people reside where adversity is shared, it becomes more and more dangerous to thrust this water through the estuaries and into the hearts of people’s lives. This battle has waged on in Florida for far longer than I have been alive; however, almost all of the arguments are inherently consequentialist. Here, we can offer a rights-based argument that has been left far from the foreground.
Most readers of the Mises Wire are well aware of Lockean homesteading—mixing one’s self-ownership with natural resources to acquire just ownership of a good. However, some may not be as familiar with Walter Block’s negative homesteading. Block explains:
I call this the theory of negative homesteading. In ordinary homesteading, or what we must now call positive homesteading to distinguish it from this newly introduced variety, it is the first person upon the scene who mixes his labor with the land or natural resource who comes away with the property rights in question. It is the first man who farms a plot of land, who becomes the rightful owner.
A similar procedure applies to negative homesteading, only here what gets to be “owned” is a negative, not a positive. This concept refers to some form of unhappiness, not a benefit such as owning land. The ownership of misery, as it were, must stay with its first victim, according to this principle. He cannot legitimately pass it onto anyone else without the latter’s permission. (italics my own)
The application to Florida water management is clear with that last line. Shared adversity means to pass that misery on to someone else. The most convincing argument is that perhaps the cities did not vote or approve an agreement to abide by the decisions of these plans, which means they were not passing it on without permission. However, the barber that counts on tourists in season did not agree to this. The dive instructor who had to give up what could’ve been very profitable dives because of an outbreak certainly did not agree to this. The seafood restaurant that counts on local fishermen never signed anything agreeing to this.
This is not to say that any given county should simply give up on the Everglades or on other counties. It is, however, to say that from a rights-based approach, any given county has absolutely every right to stand up and say no, you cannot legitimately pass your negatively homesteaded misery on to me. Any given county can stand up and say we absolutely need a solution to this problem, but you have no right to force this solution.
Burning Down the House: How Libertarian Philosophy Was Corrupted by Delusion and Greed
by Andrew Koppelman
St. Martin’s Press, 2022, 320 pp.
Andrew Koppelman, a distinguished legal academic who teaches law and political science at Northwestern University, has a quality that few of his fellow academics possess. He is able to find merit in views he strongly opposes, and he tries as best he can to be fair to these views. This quality is much in evidence in “Corrupting the National Book Award,” his critical review of Nancy MacLean’s Democracy in Chains: though he agrees with her that libertarian policies pose a danger, he will not countenance her shoddy scholarship. He also is a skilled philosopher who advances many interesting arguments in Burning Down the House.
That said, I do not think his characterization of libertarianism is altogether accurate, and this vitiates many of the criticisms he makes of it; and others of his critical remarks rest on contestable grounds. In suggesting that he is inaccurate, though, I must guard against inaccuracy myself. Koppelman distinguishes Hayekian libertarianism, which stresses the immense capacity for economic growth that the free market makes possible and accepts the need for government welfare programs of a limited sort, from what he takes to be the more extreme sort of libertarianism, defended by Murray Rothbard, Robert Nozick, and Ayn Rand, which accords absolute, or near-absolute, primacy to rights. He rejects only the latter kind, but he is a qualified admirer of F.A. Hayek, though Koppelman allows substantially more government intervention than Hayek would approve.
He acknowledges the strength of Hayek’s case for the free market, and indeed, Hayek’s contention that the market necessarily results in inequalities in wealth and income leads Koppelman to accept more inequality than he otherwise would have:
Central planners must depend on a set of definite, specified goals. Since they cannot know all the purposes that individuals are pursuing, Hayek observed, they must impose their own. Tyrannical power is thus inherent in socialism. In short, Hayek argued that a centrally planned economy must be both wasteful and dictatorial. It would deliver neither prosperity nor freedom. In retrospect, it is remarkable how right he was. (p. 34)
For Koppelman, it is crucial that Hayek does not contend that those who come out “on top” in market competition deserve their rewards: to the contrary, success depends substantially on luck. Contrary to Koppelman, though, this is not a point that separates Hayek from the rights-based libertarians, possibly excepting Rand. Koppelman says,
Moreover, no producer creates the market value of what she produces. That value depends on the environment she happens to occupy. Your matchless ability to play professional basketball commands a high price only because you were lucky enough to be born into a world in which that skill happened to be wanted (and in which most others happened to lack your aptitude). That added value thus is not attributable to you alone. It is a social product, based on the contingent scarcity of your contribution to the division of labor. It is largely an accidental monopoly, like being the owner of the only oasis in a desert. (p. 90)
Nozick’s famous Wilt Chamberlain case does not depend on denying this. Rather, Lockean accounts of property acquisition like those of Nozick and Rothbard bypass the question of entitlement to economic value. Once physical assets are acquired in the way the theories mandate, economic value depends on the market decisions of the owners of these assets. There is no space left for further questions about how value is owned. Koppelman goes wrong, I think, because he takes the libertarian rights argument to be that if you have acquired property according to the theory, then you deserve the economic value your ownership of the property gives you, and then objects, “You don’t deserve this value if this means that the value comes to you owing to your moral merit; your economic success, whether because of property you own or ‘natural assets’ you possess, is to a great extent a matter of luck.” Koppelman’s mistake is that the argument about entitlement to economic value doesn’t go through a step about “desert,” in his sense, at all.
Koppelman is guilty of a more serious misunderstanding of Rothbard. He repeats several times that Rothbard is so strongly committed to the “absolute” character of rights that he holds you would have a duty to starve yourself to death if your survival depended on a rights violation. Koppelman says, for example, “No one could sanely agree to Rothbard’s notion of an obligation to starve if one has no money for food” (p. 115). His reference is to a passage in Ethics of Liberty in which Rothbard says the owner of water in a desert oasis is under no obligation to sell or give water to those who need it to survive; the owner does not violate their rights by refusing. But it does not follow from this that someone who needs the water is under a moral obligation to respect the owner’s rights. Koppelman hasn’t taken account of the section in Ethics of Liberty that deals with “lifeboat cases.” Rothbard says,
Many libertarians who otherwise believe in property rights gravely weaken them on behalf of the “contextualist” contention that, given a choice between his life and aggressing against someone else’s property or even life, it is moral for him to commit the aggression and that therefore in such a situation, these property rights cease to exist. The error here on the part of the “contextualist” libertarians is to confuse the question of the moral course of action for the person in such a tragic situation with the totally separate question of whether or not his seizing of lifeboat or plank space by force constitutes an invasion of someone else’s property right.
Rothbard’s position amounts to no more and no less than that there is no affirmative legal duty to aid others, a controversial view, no doubt, but one hardly unique to him or to libertarians.
The book contains an even more serious misreading of Rothbard, and I shall close with a discussion of it. This misunderstanding gives rise to the title of Koppelman’s book. He describes a case in which a county in Tennessee arranged for fire protection with a nearby city. Residents of the county had to pay an annual fee to the city fire department for the service. A man regularly paid the fee, but unfortunately for him, a fire broke out the one year he forgot to pay, and because the fire department wouldn’t come to his aid, he lost his house. Koppelman holds that Rothbard, and strict libertarians generally, would say that the fire department acted correctly. People have no right to have others protect them; they are responsible for their own mistakes and ought to suffer the consequences of them. People have no moral obligation to help others: it is “every man for himself,” unless someone freely decides to help.
Koppelman is right that Rothbard holds people do not have the right to be protected, but it does not follow from this that he would have to take the hardhearted view that the farmer deserved what he got, or, in this case, failed to get. Rothbard could perfectly well hold, as I would myself, that the fire department ought to have come to the man’s aid, charging him a fee afterward. Perhaps Koppelman’s point is that this is how private fire departments might be expected to act, but in what way the monopolistic arrangement between two government agencies is supposed to show this I am unable to fathom. If the point of the example is that in cases where, in contrast to provision of services by contract, the government provides fire protection directly, without contracting it out, people have a legal right to be protected, the answer is that this is just not so. It is legally up to a “public” fire department to decide how to respond to a request for help.
There is a great deal more in Koppelman’s stimulating book that merits discussion, such as the sections on drug legislation and antidiscrimination law, but I hope I have said enough to show that the book is worth sustained confrontation.
Money supply growth fell again in September, dropping to a 37-month low. August's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years. During the thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent year over year, well above even the "high" levels experienced from 2009 to 2013.
During September 2022, year-over-year (YOY) growth in the money supply was at 3.92 percent. That's down from August's rate of 4.54 percent, and down from September 2021's rate of 7.02 percent.
The growth rates during most of 2020, and through April 2021, were much higher than anything we'd seen during previous cycles, with the 1970s being the only period that came close. Since then, however, we have seen a fast fall from previous highs and such rapid declines generally point to economic contraction in following months.
The money supply metric used here—the "true" or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates. In September 2022, the M2 growth rate was 2.52 percent. That's down from August's growth rate of 3.78 percent. September's rate was also well down from September 2021's rate of 12.88 percent.
Money supply growth can often be a helpful measure of economic activity, and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession.
Another indicator of recession appears in the form of the gap between M2 and TMS. The TMS growth rate typically climbs and becomes larger than the M2 growth rate in the early months of a recession. This occurred in the early months of the 2001 and the 2007–09 recession. A similar pattern appeared before the 2020 recession.
Notably, this has happened again beginning in May this year as the M2 growth rate in fell below the TMS growth rate for the first time since 2020. Put another way, when the difference between M2 and TMS moves from a positive number to a negative number, that's a fairly reliable indicator the economy has entered into recession. We can see this in this graph:
In the two "false alarms" over the past 30 years, the M2-TMS gap reverted to positive territory fairly quickly. However, when this gap firmly enters negative territory, that is an indicator that the economy is already in recession. The gap has now been negative for 5 of the past 6 months. Moreover, the gap in September was -1.4, and there is only one case—1998—in more than 30 years during which the gap was greater than -1 and the US not in recession.
Interestingly, this indicator also appears to follow the pattern of yield curve inversion. For example, the 2s/10s yield inversion went negative in all the same periods where the M2-TMS gap pointed to a recession. Moreover, the 2s/10s inversion was very briefly negative in 1998, and then almost went negative in 2018. This is not surprising because trends in money supply growth have long appeared to be connected to the shape of the yield curve. As Bob Murphy notes in his book Understanding Money Mechanics, a sustained decline in TMS growth often reflects spikes in short-term yields, which can fuel a flattening or inverting yield curve.
It's not especially a mystery as to why short-term interest rates are headed up fast, and why the money supply is decelerating. Since January of this year, the Fed has raised the target federal funds rate from .25 percent up to 3.25 percent.
This means fewer injections of Fed money into the market through open market operations. Moreover, although it has done very little to actually reduce the size of its portfolio, the Fed has nonetheless stopped adding to its portfolio through Quantitative Easing, and allowed a small amount ($240 billion out of $8.9 trillion) to roll off. Consequently, market interest rates have headed upward and money-supply growth has decelerated. Economic pain is likely to follow.
Home price growth of the sort we've seen in recent years simply cannot be sustained without a continued commitment to easy money from the central bank, and it shows.
Original Article: "Without Easy Money from the Fed, Home Prices Will Keep Falling"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
The battle for political supremacy in the West has been decided. The so-called progressives have won; conservatives and libertarians have lost. The “march through the institutions,” started by the misguided 1968 generation, has been successful, and their children and grandchildren are now at the helm. Eco-socialist, cultural Marxist, in short: bolshewoke ideas prevail in politics and culture, public administration, media, schools, universities, and increasingly even in business. At accelerating speed. If you have kept the same center-left viewpoint over the remaining twenty years, you are considered far right today.
In virtually all Democratic states, there is a tendency for larger organizations to drift to the left over time. This applies equally to television stations, newspapers, political parties, state authorities, universities, and other associations.
Why is this so? The explanation is twofold:
First, if you like to create things or projects on your own, or prefer to work for making a living and then enjoying private life with your family, you are probably less inclined to join any of these institutions. On the other hand, if you like to manipulate other people and control them, you are very much inclined to join these institutions.
The first position correlates rather with conservative positions, the second rather with progressive positions. And precisely because the most fundamental characteristic of Progressive ideas is that they do not work, Progressives concentrate in institutions where ideas do not have to work in order to survive. That is why Progressives are disproportionately found in professions where economically measurable results do not have to be achieved.
Thus, Progressives are often media people, teachers, professors, politicians, or otherwise employed in government service or tax-funded nongovernmental governmental organizations. This has the additional effect that they can then use this position to agitate and discredit permanently, while their victims are busy proving themselves on the market, earning their own living and also supporting their Progressive opponents through taxes.
Second, conservatives and libertarians tend to be more tolerant toward differing political positions. If someone is known as a leftie in their organization, mostly they would allow this person to stay. Not so with the Progressives: They want to missionize and force all nonprogressive fellow citizens, whom they consider either unenlightened or bribed, to a happiness defined by them. Progressives only give a position in an organization to those who have the same world view and kick out dissenters by all means.
And this is how it has been going on for decades in newsrooms, broadcasting stations, universities, and authorities. Whoever is not of their opinion is defamed, suppressed, slandered. As a result, most of these institutions have been irreparably destroyed and can no longer be reformed with reasonable effort.
If one can mobilize $50 billion like Elon Musk, then one can take over Twitter. But it will still be difficult to turn the platform into a beacon of freedom of speech as planned. That’s because virtually the entire workforce tends politically to the left (relation of donations of Twitter employees in the Biden-Trump presidential campaign: 98:2). Since the majority of these people are convinced they are in the right and fighting for a good cause, Musk’s attempts to allow dissent will be sabotaged. Musk will have to replace large parts of the workforce to change this in the long term.
Comparable things apply to newspapers, TV stations, administrations, including the leadership of the armed forces and police, the courts, and practically all educational institutions. Reforms in the sense of a freedom-oriented policy are not impossible but extremely difficult, and they will probably be watered down, because existing sensitivities have to be taken into account.
Not Forcing People to Be Happy We have also to keep in mind that every new generation of students is released into the voting age even more tightly ideologized, thus producing more and more streamlined voters, who are no longer reachable by argumentation and who are not even willing to expose themselves to competing arguments. They learn that the state solves all their problems. Only a minority is able to break out of this framework by own efforts of thought.
Why force these people to be happy against their will? This only makes you unpopular and them angry. Rather, those who refuse for life to become adults, and thus self-responsible individuals, should bear the consequences themselves, And the consequences will be serious. One only has to reflect that almost everything that the woke mainstream claims and that is more or less absorbed by the people, is wrong and the politics based on it will therefore inevitably fail.
For example, take the idea that an industrialized country can be supplied with wind power and solar energy only, or the conviction that the world’s population can be fed with organic food without any fertilizers and pesticides, the idea that one can impose all kinds of planned economic requirements on the economy without any major loss of prosperity, or the idea that one can increase the money supply at will without triggering massive inflation sooner or later.
Or take the complete refusal to subject drastic measures to a harm-benefit analysis, for example measures against covid, against climate change, or against Russia. Take the idea that man and woman are social constructs and that there are more than two genders, or the conviction that all people are exactly the same and can perform all tasks equally well with the appropriate education, or the idea of preventing or sanctioning free speech for an alleged good cause, and so on. Errors accumulated over decades, now add up to a veritable delusion and inevitably to a downfall.
Learning through Pain The message is that the small number of advocates of freedom should not waste their energy trying to change systems from within that can no longer be repaired. The drastic cure, rather, is to allow total and irrevocable failure of these systems, learning through pain. Only this will drive the eco-socialist insanity out of people’s minds to some extent. This cup must now be finished to the end.
This is not an easy medicine, as many people will suffer as a result, including those who saw the disaster coming and warned in time. But this is the only way to achieve a sustainable change in thinking and thus a turning away from statist collectivism and toward personal responsibility, which by all means also includes caring for others. The opposite of political collectivism is not selfish individualism, it is self-determination. And this is a concept beyond left or right.
The main insight is this: there is no right to live at the expense of others. Of course, we can and should feel morally obliged to help people who cannot help themselves, especially amongst family and friends. And we can take over respective contractual obligations, like in a marriage. But there is no human right to sue unrelated others for providing you a living.
This insight is crucial for a peaceful future beyond an all-powerful state, so let us work it out a bit.
Over time, instead of limiting human rights to liberty, the well intentioned have added more and more so-called participation rights. These include rights such as the right to work, the right to free education, the right to a humane existence with housing, clothing, medical care, “satisfactory remuneration” and so on. Sounds good, but what is completely lacking is the understanding that these rights can only be asserted at the expense of third parties and only by an all-powerful state. They are in direct conflict with the human rights to liberty.
If I cannot afford a “humane” apartment, then someone else has to pay for it. Who enforces this against whom and who decides what constitutes a humane existence? As things stand, this can only be the state, which thereby intervenes in the property rights and freedom of action of its citizens.
In other words, the fundamental liberty rights originally conceived as a right of defense against the state, are transformed now into powers of intervention which the state has against its citizens and which cannot or must not defend themselves against them. It is therefore not surprising that the existence of particpation rights has become a constant cause of struggles for distribution. Endless political struggles.
The recent idea of an universal basic income is only the logical consequence of believing that you have the right to live at the expense of others without having to pay anything in return. This doesn’t add up, of course. Ultimately, it can only be at the expense of those who generate surpluses that can then be taken away from them. This discourages them. Finally, the state will have to force them to work in order to earn the basic income for the others. In another context, this configuration is called slavery.
Rights at the expense of third parties are in truth privileges. They are an aberration that causes considerable discord. Properly understood, there is only one essential human right—namely, the right to be left alone, in order to be able to lead one’s self-determined life. All other human rights are either legitimate derivatives thereof or illegitimate privileges at the expense of third parties.
Only when these insight has been internalized can a new era dawn.
Otherwise, after the downfall, there will be only a lukewarm reform by “moderate” professional politicians, which will lead to the fact that a few years later, the very forces that caused the mess will be in charge again.
Room for Maneuver for Freedom Seekers The good news is that freedom-oriented persons, be they libertarian, classical liberal, conservative, or whatever, do not have to wait idly for this collapse, which can also mean a long decline instead of a big bang. Instead, parallel structures can be set up immediately. The big advantage is that you don’t need a majority to do it and that you can make an immediate difference by yourself. After all, successful parallel structures have a role model effect that will come to full fruition when the existing systems fail more and more.
Admittedly, there is a catch. You actually have to do something about it—namely, get out of your comfort zone. It won’t be enough just to write know-it-all articles or comments in the online media or to participate in petitions and demonstrations. You have to create something new based on your own actions. That is exhausting.
But in return a meaningful existence beckons, creating the seed for a better and above all freer world. Even if it is not completely successful in our lifetime, the seed is sown for future generations. And really everyone can participate and everyone is needed.
Unlike the other side, such undertakings happen at one’s own expense and in recognition of reality, instead of delusional narratives. They are accompanied by a willingness to face the competition of ideas and systems. Only through this pressure of competition can permanently stable and antifragile structures be established.
Whoever relentlessly evaluates himself or herself and their situation, gains sovereignty over the present, which, as hard as it may be, nevertheless confronts one with selectable options for action. Conversely, those who do not want to make this cognitive effort, deserve only the status quo.
To Work The progressive regime bases its power primarily on absolute domination of the media, the cultural sector, central banks, and educational institutions. These areas in particular are therefore candidates for the creation of parallel structures, along with alternative systems of living together.
What they have in common is not to focus on reforming existing systems, but to make them obsolete through better models. What is at stake is nothing less than the creation of parallel societies and parallel elites.
Media The media domination has of course not gone unnoticed by critical minds and so, thanks to the Internet, countless new media have emerged, with widely varying quality. This includes alternatives to social media.
There are journalists who have managed to attract an audience of millions just on the strength of the quality and impartiality of their work, such as Joe Rogan in the USA or Boris Reitschuster in Germany. They are flanked by numerous bloggers who tirelessly bring new points of view and facts to light.
The former gatekeepers are now striking back with attempts of technical and legal censorship, but the genie will not go back into the bottle. That’s good.
Culture New libertarian heroic figures in books like Charles Knight or Carl Brun have what it takes to reach broad audiences. In the case of a film adaptation, you could even create new cult series. In the film and music sector, so many artists have been canceled recently that it is becoming easier by the day to find one who actively participates in the construction of an alternative counterculture instead of submissively crawling back into the woke herd.
Education In order to protect our children from brainwashing, we urgently need parallel structures in education. Keep in mind that in many countries, homeschooling is forbidden.
Luckily, home schooling always has promoted alternative offerings and numerous educational possibilities are emerging, including completely new, “nonwoke” universities like the University of Austin in Texas.
In this sector, too, many approaches are likely to fail, especially those that dispense with knowledge transfer and performance measurements. Such a selection process is something quite normal in new markets. Only through trial and error, and imitation and duplication of successful models, can a better system be created. This is how evolution works. Nothing is wrong with that.
As everywhere, competition stimulates business. Here is my proposal: For an alternative school education, historic human development should be taken as a yardstick—in addition to the classical curriculum—and children be taught not only the knowledge but also the appropriate skills, at least in the basics. Staggered according to age group, with increasing degree of difficulty, starting with making fire, building a wall, sewing clothes up to metallurgical and computer-based processes.
Young people with the appropriate education would not only be capable of survival and self-confidence on the basis of the work of their own hands, but were also able to understand from their own experience why the world is where it is today, especially in technological and economic terms.
The litmus test for true education must be: Suppose you were transported by time machine back to the Stone Age or the Middle Ages, could you teach people there anything meaningful?
Finance In finance, parallel structures are the most advanced. The monopoly of state money and central banks has already been broken by bitcoin and other cryptocurrencies. The importance of this cannot be overstated. Basically, this fulfills Hayek’s call to take the monopoly of money away from governments so that we don’t keep running into currency disasters every couple of decades.
Anyone who can pay directly from person to person without having to ask permission from intermediaries such as banks is naturally a danger to the regime. This is especially true in times when unwelcome critics regularly have their bank accounts terminated.
Therefore, we can still expect a fierce battle here, with efforts to ban bitcoin under the guise of saving energy. It is precisely the energy crisis that can be used by the very establishment responsible for it, to ban unwelcome parallel currencies like bitcoin. Sadly, probably to the applause of the masses.
But this genie is out of the bottle too and will not be pushed back completely. Even if bitcoin will be banned in many countries, it will not be banned everywhere and there are enough successors and variants, including gold-backed payment systems.
Politics and Social Systems The most difficult issue is the creation of new systems of living together—that is, new political or social orders. Current political systems are characterized by false incentives for both the rulers and the governed. The rulers are not liable and have no economic disadvantages if they make bad decisions. The governed are led to believe that they can vote “free” benefits into their pockets. This politicizes the state’s monopoly on the use of force and leads to constant changes in the “social contract.” The result is a constant struggle to influence these changes in a particular direction.
Penetration of this market is particularly difficult because it usually requires secession, revolution, or at least the winning of an absolute majority in elections. Again, however, there are parallel structures that are easier to accomplish.
Free Private Cities I have already proposed a peaceful and voluntary alternative: free private cities. A free private city is characterized by the fact that it is organized by a for-profit company, the city operator, who acts as a “government service provider.” This operator may also be partially or wholly owned by citizens.
In this capacity, the operator guarantees its citizens the protection of life, liberty, and property. The services provided by the operator include internal and external security, a predefined legal and regulatory framework, and an independent dispute resolution system. Participation is 100 percent voluntary.
Interested individuals and companies enter into a “citizen contract” with it and pay a fixed annual fee for these services in lieu of taxes. Within this framework, a “spontaneous order” can develop, resulting from the voluntary activities and decisions of citizens.
The operator cannot later unilaterally change the citizen contract without the consent of the citizen concerned. Disputes between citizens and the operator are heard by external arbitration tribunals, as is common in international commercial law. If the operator ignores the arbitration awards or abuses its power, its customers leave and it faces insolvency.
Since all land is currently controlled by governments, the establishment of a free private city requires the operator to enter into a contractual agreement with an existing state. In this agreement, the “host nation” grants the operator the right to establish the free private city on a certain territory under certain conditions, which include legal autonomy in various areas.
States may be willing to relinquish some of their power in exchange for promised benefits. These include, for example, job creation, foreign investment, and a share of the profits generated by the operator. The existence of a large number of special economic zones around the world demonstrates the basic willingness of countries to go down this path.
Free Private Cities do have a chance. That’s because people don’t want to be subjugated by rules and regulations that they have not consented to. People don’t want to pay for things they have not ordered. And reasonable people don’t need hundreds or thousands of laws to live peacefully together. People need a safe space where they can congregate and cooperate peacefully, but are otherwise left alone by coercive authorities. Free Private Cities can deliver these human desires. The existing political systems cannot. It is for this reason that Free Private Cities have a chance to succeed. Since eventually, people will go where they are treated best.
Admittedly, it is not an easy path, and even in countries open to it, it requires years of negotiations and legislative changes. Nevertheless, it must be taken; me and others are working on it or comparable models, and the first emerging economies, such as Honduras, have embarked on it. Further projects in Africa and Central America are in the pipeline. However, in Honduras, the empire is striking back already after a socialist election victory. The irony is that the very politicians who want to get rid of the most innovative forms of governance in the world, the Honduran zones for economic development and employment (ZEDEs), call themselves “Progressives.”
Be it as it is, the momentum is there, and there is now a Free City movement around the world that wants to try out alternative forms of government. Be it free private cities, prosperity zones, charter cities, bitcoin cities, and the like.
Intentional Communities However, in most places, governments are not willing to grant even a limited autonomy. What to do? In my view, the best thing is what Prussian military strategist Carl von Clausewitz advised: “First create a secure base.”
Small and smallest units by the citizens themselves can be created within the existing system, by taking advantage of the remaining niches of freedom in contract law and cooperative law. It is also easier to rally a critical mass of like-minded people than to win nationwide elections. Cooperation between many small units on a contractual basis can also be more efficient organizationally and financially, politically conflict-free, and culturally autonomous, especially in the digital age. This approach can be institutionalized—namely, by founding an intentional community, on a contractual basis or as a cooperative on a defined piece of land.
There are already purely idealistic value communities and settlements that often have collectivist and egalitarian ideals (community ownership, veganism, equal pay for all, etc.). They are usually attached to a single strong leader. Their main problem is that they usually fall apart relatively soon due to the undeniable diversity of people and their interests.
Therefore, successful intentional communities should intervene as little as possible in the way their members shape their lives, but should rather have “live and let live” as their motto. They should merely presuppose certain common values that protect voluntariness, freedom, but also cohesion in the community.
In this respect, guiding ideas of a intentional community can be: freedom of contract, private property, self-determination, and market economy, as well as willingness to help, interest in the welfare of fellow human beings, as well as in certain regions, the desire to preserve and pass on one’s own language and culture.
Of course, in such cases all state laws are still applicable; but at least in the area of security, dispute resolution, and social harmony, a more pleasant coexistence can be established through this design. Furthermore, the intentional community can try to gradually establish its own parallel systems in the areas of energy supply, education, and social security, in order to avoid the existing systems as much as possible within the limits of legal possibilities. The creation of its own (crypto)currency or the use of an existing one is also conceivable. By allowing the intentional community to reject applicants and terminate those who break the rules, positive selection is possible.
Conclusion We should try to start parallel structures immediately in order not to stand isolated in the coming turbulent times. It’s a good thing. New communities of values can be created. People get to know each other and help each other. The path along the way gives confidence, is often even fun, and by doing instead of talking, the wheat is separated from the chaff.
It always goes on somehow. It’s up to us how.
Let’s spit on our hands and get to work.
In recent decades, every instance in which the economy contracted two quarters in a row has coincided with a recession. Nonetheless, the Biden Administration and the leadership at the Federal Reserve insist there is no recession now, nor is one even in the works.
On the other hand, declining GDP growth, rising credit card debt, disappearing savings, and falling disposable income all point to recession. And now one of the most closely watched recession indicators is now flashing red: the yield curve inversion.
As The Wall Street Journal put it Wednesday:
The spread between yields on the three-month U.S. Treasury bill and the benchmark 10-year note has inverted several times since Tuesday's trading session. Inversions have preceded both the 2008 financial crisis and the Covid-19 crash, and haven't been seen since March 2020. ... "Nothing is sacrosanct, but [the inversion] does have a very strong predictive value," said Quincy Krosby, chief global strategist at LPL Financial.
The specific inversion we're talking about here is the spread between the 10-year and 3-month Treasurys. Because investors usually want higher returns on longer-term debt, 10-year yields tend to be well above 3-month yields. But when the reverse happens, 3-month yields rise above the 10-year yield and the yield curve "inverts."
This already happened with the spread between the 2-year and 10-year Treasurys. That is, the 10-year yield minus the 2-year yield has been negative since July of this year, and this also points toward recession. In fact, the 10-2 inversion has predicted every recession for more than 40 years. That includes the 2020 recession since the 10-2 inversion was already pointing to recession in 2019, meaning there almost certainly would have been a recession in 2020 or 2021 even without the Covid Panic.
But the Fed tends to keep an even closer eye on the 10-year/3-month spread, and even that is now pointing to recession as well.
So, we should probably get ready for mounting bad news over the next year.
What's Behind a Yield Curve Inversion But why is an inversion of the yield curve indicative of a recession? It stems in part from the fact that both recessions and yield curve inversion follow sizable slowing in monetary inflation. In his book Understanding Money Mechanics, Robert Murphy writes:
[C]hanging growth rates in the Austrian “true money supply” (TMS) monetary aggregate correspond quite well with the spread in the yield curve... when the banking system contracts and money supply growth decelerates, then the yield curve flattens or even inverts. It is not surprising that when the banks “slam on the brakes” with money creation, the economy soon goes into recession."
Here's why deceleration in monetary growth leads to an inversion in the yield curve: Remember that the longer-term yield is typically higher than the short-term. So, in order to get an inversion between the 10-year yield and the 3-month yield, either the longer-term yield must go down or the shorter-term yield must go up. Or both.
It turns out the inversion is usually driven mostly by rapid increases in the short-term yield, rather than declines in the longer-term yield. This is important, as Murphy explains:
In the Misesian framework, the unsustainable boom is associated with “easy money” and artificially low interest rates. When the banks (led by the central bank, in modern times) change course and tighten, interest rates rise and trigger the inevitable bust. (It is standard in macroeconomics to assume that the central bank’s actions affect short-term interest rates much more than long-term interest rates.)
So, monetary deceleration, yield curve inversion, and recession all go hand in hand, and the Austrians have the best explanation for this. Mainstream economists often try to explain the inversion-recession connection on the idea that the yield curve inverts because investors expect trouble ahead. But as Murphy notes, this explanation would "make sense if yield curve inversions typically occurred when the long bond yield collapses."
But that's not what happens.
Rather it's the Austrian theory, which notes the role of monetary growth in the boom-bust cycle and points to rising short-term yields as the real driver of the inversion.
Murphy explained all this back in 2021, well before the current recession signals were flashing.
So does Murphy's explanation hold this time around as well? It sure does.
A Look at Recent Trends For one, money supply growth has decelerated in a big way over the past 18 months. Year-over-year growth had been more than 30 percent during March of 2021. As of August 2022, that growth rate had fallen to 4.3 percent. So, naturally, we'd expect to see market interest rates increase.
Consequently, yields in Treasurys has also been driven up. While both the 10-year yield and the 3-month yield have both increased over the past six months, the 3-month yield has increased considerably more. The 10-year yield rose 180 percent from about 1.5 percent to about 4 percent since late 2021, the 3-month yield increased 4,000 percent from around 0.1 to about 4:
So, the yield curve is progressing just as we expect it should. The Fed has temporarily stepped back from Quantitative Easing and from its manipulation of market interest rates, allowing them to rise. This has led to a deceleration in money-supply growth. It has also meant rising yields in Treasurys, especially short-term ones. Consequently, the yield curve has inverted, signaling recession.
Now the question is how much longer the Fed can stomach its current tightening before it capitulates, "pivots" back to easy money, and attempts to avoid a serious downturn. In other words, we're waiting to see how long it takes the Fed to repeat all the same mistakes of Arthur Burns during the 1970s stagflation.
For those who would find relief knowing the Bible sanctions a market-derived medium of exchange, Gary North’s Honest Money will come as a godsend (no pun intended). Even for those reprobates who forswear a religious worldview, his book will provide a solid grounding in monetary theory and history.
North’s vast understanding of money and banking coupled with his lean, no-jargon writing style takes the labor out of reading. His narrative carries us on a journey from the development of money in its innocent youth, where it was used solely as a means of facilitating trade, to money in its corrupt maturity, where today it also serves to facilitate power and profit for a ruling elite.
Very importantly Honest Money also includes numerous bullet points at the end of each chapter covering the main ideas. More good news: the book can be read comfortably in one evening.
Crusoe’s Choices North begins with the familiar star of economic analysis, Robinson Crusoe. But rather than the usual pedestrian account of how Crusoe will budget his time, North dramatizes the situation somewhat, as would be appropriate for someone recently shipwrecked on an unknown island.
While on board a ship slowly sinking, Crusoe makes decisions about what goods to take to shore on his crudely assembled raft. The various goods and conditions on the island are objective, but his evaluation of the value of each good is purely subjective. Any gold on board has no value to a man marooned indefinitely on a desert island.
Gold isn’t wealth. It’s heavy. It displaces tools. It sinks rafts. It’s not only useless; it’s a liability.
This is how North introduces the reader to the distinctions between objective reality and subjective preferences, and to the fact that money arises only in a social context. With no one to trade with, poor Crusoe had no need of it.
What Is Money and Where Did It Come From? In subsequent chapters he builds on these ideas. Money is a universally accepted medium of exchange. Originally, it was not imposed from above but evolved from competition with all other goods on the market, as the good most acceptable in trade. Over the centuries, gold and silver became the most used monies.
What about the supply of money? Who determines that?
If we have honest money, the market controls its supply. In today’s world it’s a committee. Just as we wouldn’t want a committee to set prices for us, North says, “why should [a committee] be allowed to control the supply of money in which all prices are quoted?”
A Complacent Public But what about the hapless public under this monetary regime? Will they ever revolt?
Not very often. The public decides that paper money is money, not pieces of shiny metal. If paper is acceptable by the store down the street, then who cares? Who cares if prices go up, year after year? What’s “a little” price inflation? We’re all doing better, aren’t we? …
“Inflation can’t hurt anyone too badly” is a delusion of fully employed younger workers. It can hurt everyone who isn’t staying ahead of it with pay increases, and I mean after-tax pay increases.
Inflation acts as a turbocharger for the progressive income tax. The latter was passed in 1913 with rates so low and applied to incomes so high that almost no one worried, just as no one worries about a little inflation. The average family made $1,000 a year, but the tax didn’t kick in until the $20,000 level, and even there it was only 1 percent. Those few who made $500,000 or more were “soaked” at only 7 percent.
But once the law was in place the politicians changed the rules. Imagine that. In 1916, while Woodrow Wilson was bragging to voters about keeping us out of war, the top rate was bumped to 15 percent. The following year, while Wilson was shipping American men “over there,” the bottom bracket plunged from $20,000 to $2,000 while the top rate reached 67 percent, then 77 percent a year later.
Murray Rothbard has noted:
As luck would have it, the new Federal Reserve System coincided with the outbreak of World War I in Europe, and it is generally agreed that it was only the new system that permitted the U.S. to enter the war and to finance both its own war effort, and massive loans to the allies; roughly, the Fed doubled the money supply of the U.S. during the war and prices doubled in consequence.
Inflation is another name for counterfeiting. Counterfeiters create money from nothing then spend it. The private counterfeiter and the government counterfeiter have the same goal: to get something for nothing.
The public doesn’t trust private counterfeit money. The public does trust government counterfeit money, at least for a long time, until people’s trust is totally betrayed (mass inflation).
What is the difference in principle between private counterfeiting and government counterfeiting? None.
A Tale of Three Counterfeiters One of the most memorable parts of Honest Money is North’s tale of the counterfeiters. Although counterfeiting is a swindle it acquires a high moral luster if it’s practiced in plain sight by the right people.
In North’s tale three men counterfeit and are discovered.
The first one is a businessman with an offset printing press who prints five hundred twenty-dollar bills and spends them into circulation.
The second man is an employee of the Bureau of Engraving and Printing who prints a million twenty-dollar bills, and the government spends them into circulation.
The third is the chairman of a major New York bank that has loaned a billion dollars of fractional reserve money to Pemex, the oil company owned by the Mexican government. Pemex cannot meet interest payments on the loan because the price of oil has collapsed.
What happens to these three men?
The businessman is convicted of counterfeiting and sent to prison.
The government employee continues to print money until he reaches age 65, when he retires and collects a pension.
The bank chairman calls the Fed, who in turn calls the Mexican government to get them to issue a bond for $25 million. The Fed subsequently creates $25 million to buy the bond. The Mexican government sends the money to Pemex, which then sends it to the New York bank to meet its quarterly interest payment. “The chairman of the New York bank gets a round of applause from the bank’s board of directors, and perhaps even a $100,000 bonus for his brilliant delaying of the bank’s crisis for another three months.”
The $25 million then multiplies through the US fractional reserve banking system, creating millions of new commercial dollars in a mini wave of inflation.
The World’s Most Powerful Insurance Company Counterfeiters need protection if they are to succeed. The biggest counterfeiters, the major banks, sought and established the protection they wanted in 1913, with the Federal Reserve System.
The Fed’s public purpose was to prevent banking panics, as recessions were once called. It was to create an elastic currency to meet the needs of business, through dispassionate and skillful management of the money supply.
Under its watch, the economy has experienced at least eleven recessions over the last century, including the longest one on record, 1929–45.
One of the greatest services the Fed does for government is monetize its debt. When the federal government can’t raise taxes without facing a tax revolt and borrowing from private sources would entail high interest rates, it calls on the Fed to buy its debt on the cheap.
Conclusion Honest money is not necessarily a gold—silver standard, North says. “The only standard that matters is the no fractional reserves standard, coupled with the no false balances standard.”
As long as the Fed is around, we will never have honest money. The purpose of the Fed is to inflate for the benefit of its friends: the big banks and government. In light of this situation, we should never question the success of government schooling.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop look at the Alex Jones verdict and the weaponization of defamation law. Now that Twitter is under Elon Musk's control, will the regime increasingly turn to the court system to crack down on the "dangers" posed by "misinformation"?
Use promo code ROTHPOD for a 20% discount on Ryan McMaken's new book Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities: Mises.org/RR_105_Book
Recommended Reading "The Alex Jones Verdict Shows the Danger of Defamation Laws" by Ryan McMaken: Mises.org/RR_105_A
"Modern Information Control: State Intervention and Mistakes to Avoid by Kelly Offield: Mises.org/RR_105_B
"Florida's Social Media Anticensorship Law and the Court's Tortured Legal Logic" by Tate Fegley: Mises.org/RR_105_C
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
It is not possible to establish the conditions of the economy by just inspecting the data as a whole, according to many economists. What is required, instead, is to break the data into its key components, which supposedly will enable economists to identify the true state of the economy.
Components That Drive the Data According to popular thinking, data that is observed over time—labelled as time series—is driven by four components, these are:
- The trend component
- The cyclical component
- The seasonal component
- The irregular component
The accepted position is that over time the trend determines the general direction of the data. The cyclical component portrays fluctuations in the data due to the business cycle influence. The effect of seasons such as winter, spring, summer and autumn and various holidays is conveyed by the seasonal component. The irregular component shows various irregular events and that the interplay of these four components generates the overall data.
Popular thinking regards the cyclical component as the most important part of the data. It is held that the isolation of this component would enable analysts to unravel the mystery of the business cycle.
In order to preempt the negative side effects of the business cycle on individuals’ well-being, it is important to establish the magnitude of the cyclical component on as a short duration basis as possible. Thus, once the central bank has identified the magnitude of the cyclical component it could offset the cyclical influence by means of a suitable monetary policy, according to popular theory.
Various statistical studies claim that monthly fluctuations of the data are dominated by the influence of the seasonal component of the data. As the time span increases, the importance of the cyclical component increases while the influence of the seasonal component diminishes. The trend, it is assumed, exerts a strong influence on a yearly basis while having a minor effect on the monthly variations of the data.
While the irregular factor can be very “wild,” the effect it produces is of a short duration. Consequently, the effect of a positive shock is offset by a negative shock. It follows that in order to be able to observe the influence of the business cycle on a short-term basis all that is required is to remove the influence of the seasonal factor.
Removal of the Seasonal Component Most economists consider the seasonal component of the data as known in advance. For example, every year people buy warm clothes before the arrival of the winter. In addition, individuals follow similar patterns of behavior before major holidays year after year. Thus, individuals tend to spend a larger part of their incomes before Christmas.
The assumption that the seasonal component is the same year after year means that its removal will permit an accurate assessment of the magnitude of the cyclical influence on the data. By means of statistical methods, economists generate monthly estimates of the seasonal component of a data. Once this component is removed from the raw data, the data becomes seasonally adjusted.
Note that we are left with the cyclical, the irregular, and the trend components. Because it is held that the importance of the trend component is insignificant on a monthly basis, the fluctuations in the seasonally adjusted data will mirror the effect of the business cycle.
Currently most government statistical bureaus worldwide utilize the US government computer programs X-12 and X-13 to estimate the seasonal component of a data. By means of sophisticated moving averages, these programs generate estimates of the seasonal component.
The computer program then uses the obtained estimates to adjust the data for seasonality. The designers of these seasonal adjustment computer programs also attempt to address the issue of the constancy of the seasonal component by allowing this component to vary over time.
For example, the seasonal component for retail sales in December will not be of the same magnitude year after year but will rather vary. Furthermore, these programs are instructed to employ only stable seasonality in the seasonal adjustment procedure.
It appears that sophisticated statistical and mathematical methods generate realistic estimates of the seasonal influence on the data, which in turn permits the identification of the cyclical component. Note again that the strength of the cyclical component could determine the direction of the central bank policy—i.e., whether the central bank will tighten or loosen its interest rate stance.
The computer programs, however, are based on mechanical procedure, not economic theory. If the data appears to be very choppy then a high degree of a moving average is applied. Conversely, a lower moving average is employed for a lesser volatile data.
In the process of calculating the seasonal component, the computer program produces estimates for the trend and cycle component using either a weighted nine-term moving average or, a weighted thirteen-term, or a weighted twenty-three-term moving average.
The isolation of the cyclical influence on the data gives little help in understanding the phenomenon of the business cycle. Without establishing the key causes driving this phenomenon, it is impossible to establish the remedies to heal the economy.
Furthermore, if one accepts that the data is the result of interacting trend, cyclical, seasonal, and irregular components, then one can conclude that these components affect the data, irrespective of human volition.
However, human action is not robotic but rather conscious and purposeful. The data is the result of people’s assessments of reality in accordance with each individual’s particular end at a given point in time. The individual’s action is set in motion by his valuing mind and not by external factors.
The crux of the problem is that people’s responses to various seasons or holidays are never automatic but rather part of a conscious purposeful behavior. There are, however, no means and ways to quantify individual’s valuations and no constant standards for measuring the act of a mind’s valuation of reality. This, in turn, means that so-called estimates of a computer-generated seasonal component are arbitrary.
Contrary to the accepted view, the adjustment for seasonality distorts the raw data, thereby making it much harder to ascertain the state of the business cycle. These distortions have serious implications for policy makers who employ various so-called countercyclical policies in response to the seasonally adjusted data.
Assumptions by central bank policy makers that they can quantify something that cannot be quantified are major sources of economic instability. This viewpoint claims that the business cycle is inherent in the economy, a mysterious something that is the source of the sudden swings in economic activity.
Overlooked is the fact that the swings in economic activity are the result of central bank monetary policies, including creation of interest rates, setting the platform for the generation of money out of “thin air” that contributes to people’s erroneous valuations of reality.
Without a coherent theory, which is based on the facts that human actions are conscious and purposeful, it is not possible to begin to understand the causes of business cycle and no amount of data torturing via advanced mathematical methods can do the trick.
Conclusion To ascertain the state of an economy, most economists believe that information regarding the cyclical component of economic data, such as gross domestic product, is of great help. Experts have concluded that preventing an economic slump requires information about the magnitude of the cyclical component of the data on a short-term basis. The sooner the problem can be identified the easier it will be to fix it—or so it is held.
Mainstream economists believe that removing the seasonal component of the data will establish the cyclical influence. Even if that were possible, not having a coherent theory keeps them from understanding the causes of the business cycle.
Home price growth of the sort we’ve seen in recent years simply cannot be sustained without a continued commitment to easy money from the central bank, and it shows.
Home prices continued to slide in August as the economy cooled, and as the Fed hit the Pause button on quantitative easing while allowing interest rates to rise. Home prices in August were 13.0 percent higher nationally compared with August 2021, according to newly released data from the S&P CoreLogic Case-Shiller Home Price Index. That is down from a 15.6 percent annual gain in the previous month. This is a big shift downward, and as CNBC reported Tuesday, “The 2.6% difference in those monthly comparisons is the largest in the history of the index, which was launched in 1987, meaning price gains are decelerating at a record pace.” The new trend was further described by a Case-Shiller spokesman as “forceful deceleration in U.S. housing prices … [while] price gains decelerated in every one” of the twenty cities measured by the survey. Every city in the index saw a larger year-over-year decline in August than in July. (In the seasonally adjusted numbers, the month-over-month decline was the largest since 2009.)
However, even with this rapid deceleration, the year-over-year growth is still similar to what was reported in the boom period of the last housing boom, in 2005. YOY growth peaked at 14.5 percent, year over year, in September 2005, but turned negative by March of 2007. Home price growth during the current cycle appears to have peaked during April of this year at 20.8 percent, but has rapidly moved downward in the four months since.
No Easy Money, No Housing Price Boom This reflects what have been declines in home sales and this has been largely blamed on rising interest rates. For example, pending home sales fell more than 24 percent from a year earlier in August. Meanwhile, the average thirty-year fixed mortgage rate rose from 4.99 percent to 5.66 percent from August 4 to September 1. The 2021 average rate was 2.96 percent.
In other words, the average mortgage rate in August was double what it had been in 2021, and this made mortgages more expensive, with monthly payments considerably higher. On a $300,000 loan, the monthly payment at 3 percent is $1,265 per month, while at 6 percent it’s $1,799. Naturally, that’s going to put downward pressure on prices while pushing some people out of the market altogether.
So, it is certainly not wrong to note that rising interest rates have been a factor in bringing down home prices and sales totals. But there’s a bigger issue here and that’s the relationship between easy money and asset prices. As Brendan Brown has noted here at mises.org for years, asset price inflation has been the most noticeable outcome of monetary inflation (i.e., easy money policy) over the past twenty years. High levels of consumer price inflation are a far more recent phenomenon. That is, Brown has noted that price inflation has been rampant for years, it’s just been in assets instead of consumer goods.
Since at least the beginning of the Greenspan put in the late 1980s, as the money supply has inflated, so have stock prices and prices for homes and other real estate. In fact, one can see a significant correlation between money supply and growth in the Case-Shiller index. There is at least a twelve-month lag between a surge in the money supply and surge in home prices, so I have moved up the home price growth numbers by twelve months in this graph:
Using the Rothbard-Salerno measure of the money supply, we can see the two variables largely track together. As money supply growth accelerated from the late 1990s to 2004, so did home prices. As money supply growth fell nearly to zero in 2007, home prices took a downward turn. Naturally, we also find that following the historically huge increase in money supply growth in 2020 and 2021, massive amounts of home price growth soon followed. Now that money supply growth has headed downward again, we’re now seeing home prices fall considerably. Many observers of home prices have tried to pin these movements on new construction of housing, demographic changes, and people moving during the pandemic. Certainly, those factors have an effect on home prices in various places, and they can have big effects in specific local markets. But it’s also clear that home prices nationwide are also heavily affected by changes in the money supply.
After all, in times when the Federal Reserve wishes to fuel more monetary growth, it manipulates interest rates downward, thus fueling more home price growth as home buyers can afford larger loans and higher home prices. That promotes more monetary inflation (and thus more asset price inflation) via the commercial banking sector. But the Fed also directly fuels asset price inflation by directly creating new money when the Fed purchases more mortgage-backed securities (MBS). The Fed simply creates new money electronically and then buys up more housing debt to support asset prices. It has been doing this since 2009 and this greatly reduces the risk of greater investment in mortgages for the private sector. Thus, price institutional investors will also pour more money into the housing sector further increasing prices.
So, the housing sector has become heavily dependent on continual injections of new money and central bank manipulation of interest rates to keep the gravy train going. Now that the Fed has slightly backed off its purchases of MBS while allowing interest rates to increase, home prices are falling rapidly. They will likely continue to fall until the Fed ultimately loses its nerve in its fight against Consumer Price Index inflation and finally embraces easy money once again.
Felix Morley once called federalism “the distinctively American contribution to political art,” because of its potential to limit government’s ability to harm its citizens. Retaining powers not delegated to the federal government in the hands of individuals and states enabled easier escape from abusive government by “voting with their feet” for jurisdictions with less hostile governance, setting a tighter limit on government’s ability to impose burdens that outweighed benefits.
Government inefficiency and redistribution beyond what citizens support is a ubiquitous source of such burdens. But the more easily one can leave a jurisdiction, the smaller the net burden their government can impose before it drives citizens away.
It is generally less costly to leave an unattractive local government than a similarly repellant state, and less costly to leave a state than the country. Consequently, the less inefficiency and fewer unsupported policies a smaller government can finance.
To illustrate, if a local government imposed overly burdensome regulations or the state imposed overly burdensome sales and/or income taxes, relative to the goods and services they finance, you could often avoid them simply by leaving the jurisdiction.
But what if there was a type of state or local burden that citizens could not avoid by leaving? That would become the government’s go-to source for spending initiatives not actually supported by citizens, dramatically undermining voting with one’s feet power to protect them. It would also put protections against such government abuse near the top of honest reformers’ action items. Further, if their efforts paid off, the limits they put on such a source of government funds would also rise to the top of such governments’ (and those who want them to dole out more unjustified dollars in their direction) target list.
Property taxes are just such a burden. And that explains both why California’s Proposition 13 was so popular in 1978, and remains so today, as well as why it has ever since been under continual attack by governments and groups that want those governments to steer other people’s money their way.
Unlike other state and local government burdens, voting with one’s feet cannot avoid the burdens of jurisdictions imposing “abusive” property taxation. The owner of a property bears those burdens (as well as whatever benefits they finance) if they maintain ownership. If they sell the property, the present value of the difference between expected future taxes and benefits will be capitalized into their property’s sales price, and they still bear the burden, just in a different form. Even if they sell the property and move away, the same thing is true.
In the runup to Proposition 13, growing inflation was sharply raising property values in dollar terms. So, it was sharply driving up property taxes. But those extra burdens offered no guarantee the resources would be spent in a way that had greater benefits than costs in the eyes of citizens (if the likely benefits exceeded the costs, such higher taxes and the benefits they would finance would help homeowners, so they would support those initiatives). Many even worried about losing their homes as a result. The result was reform proposals to limit property taxes and government spending, with Proposition 13’s limits on property taxes and the imposition of new taxes (which passed with 64.8 percent of the vote) the most famous.
Virtually every major government “leader” and interest group already exercising power in California government opposed Proposition 13 because it limited the funding source for state and local spending citizens didn’t value enough to voluntarily pay for. And even though then governor Jerry Brown claimed to become a “born-again tax cutter” as a result, there has been an ongoing assault to erode or eliminate Proposition 13 by those in government and those who live off government.
I was remined of this by Dan Walters’s “Intellectually Dishonest Report Attacks Proposition 13 on ‘Equity’ Grounds,” in the Orange County Register. He noted a recent “study” alleging another way—supposedly racist—that “generations have been harmed by this policy.” Of course, that was on top of the unsolved kidnappings; murders and car thefts; library and education cutbacks; insufficient teacher pay; poor school performance; pothole problems; fee hikes; increased racial and demographic tensions; too much commercial development; increased road congestion and pollution; etc.; etc. That have already been blamed on Proposition 13.
That study jumped on the bandwagon of bogus reasons to oppose Proposition 13, which Walters called “guilt by chronological association,” even though it “cannot causally connect” Proposition 13 to the problems it is accused of causing. Of course, one reason is that real per capita state and local government spending—the most appropriate metric for government’s potential ability to provide a given level of services per citizen—has been higher than before Proposition 13 for roughly the past third of a century.
California’s government is far from being starved of resources, so it is hard to blame Proposition 13 for government failures to provide sufficiently valuable goods and services. Most revealing, however, is the report’s conclusion that it demonstrates the need to “overcome political and taxpayer resistance to changing Proposition 13 and other policies that constrain taxation and budgetary decision-making in California,” which translates into plainer language as “we want still more tax money to spend than California’s citizens believe is worthwhile.”
Both Proposition 13’s popularity and the long history of assaults against it derive from same fact—in the case of property taxation, voting with our feet cannot protect Californians effectively against property-tax-funded spending that provides us less in benefits than it drains from our pockets. That is why the conclusions every such attack reaches require close attention. When a host of false or misleading claims are all taken to mean citizens should be made to give government more money, they should all be suspect.
If we thought the spending was worth the money, we would already support it. We wouldn’t need to be misled. And the lies, damned lies, and statistics that have been devoted to doing that brings me back to one of my favorite Thomas Sowell sayings: “When you want to help people, you tell them the truth.” In this case, its contrapositive—we are not being told the truth, so those misleading us are not trying to help us—is particularly important.
Sponsored by James McMahon.
Recorded at the Arizona Biltmore Hotel in Phoenix, Arizona on October 7th, 2022.
Government inflation makes people’s responses much more delayed, leaving people’s value adding greatly degraded.
Original Article: "Fed Socialist Money Manipulation Cancels Individuals' Better Judgment"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Nothing illustrates the demand for America more than the wave of immigrants risking their safety to enter its shores. Readers are fed a daily diet of negative stories about America’s impending collapse; however, alarmist tendencies conceal the complexity of the American experience. America excels at attracting citizens from across the globe due to its superb ability to mobilize resources and institutions to support individual achievement.
Immigrants find America appealing because of the perception and reality that in the United States even powerful people will be prosecuted for impropriety. When citizens believe in the impartiality of institutions, they are more likely to attribute success to competence and work hard to achieve their goals. America’s civic culture is intolerant of corruption and inefficiency in the corridors of power and a robust civic culture promotes good governance.
But in many countries, corruption is a widespread social norm and recalcitrant officials are rarely punished for misconduct. A case in point is Jamaica, where allegations of corruption are likened to a “nine-day wonder,” since after ranting for a few days, people usually forget about such cases. Immigrants strongly feel that migrating to America will improve their life chances because America is a fairer society.
In some societies, the forces of nepotism and clientelism continue to block opportunities for upward social mobility by rewarding family members and friends at the expense of competent individuals. Few appreciate the toll such forces can have on society like Latin Americans. By failing to reward competence, these arrangements demotivate productive employees and increase the cost of doing business, since the most capable people are not filling sensitive roles.
Juan Felipe Riano, in a recent paper, presents Colombia as a textbook case of what he calls “Bureaucratic Nepotism.” Riano shows that 38 percent of civil servants in Colombia have a relative in public administration, 18 percent have family connections to public sector officials, and 11 percent work with a family member based in the same agency. Connected people were also likely to receive higher salaries and their qualifications were overlooked when connected to high-level officials.
Evidently, these employment tactics will spell doom for the provision of public goods. Bureaucrats are responsible for administering public resources; however, when the people selected to do so are unqualified, the delivery of public goods will be subpar. Immigrants are cognizant that unsavory policies have been institutionalized in their home countries so they are motivated to migrate to America where the standards required to maintain public office are higher.
Immigrants also know that American businesses have a penchant for performance and excellence. Corruption is usually depicted as a problem plaguing the public sector, but it equally depresses the energy of the private sector. For years, it baffled onlookers that people who refused to work in Jamaica would migrate to the United States to secure two or three jobs and perform at an exceptional level.
Kenneth Carter unpacked this mystery in his 1997 book Why Workers Won’t Work: The Worker in a Developing Economy: A Case Study of Jamaica.
By surveying Jamaican employees, Carter found that in Jamaica there was a widespread sentiment that promotion was linked to feeding the boss with gossip about colleagues or stroking his ego. According to his research managers inculcated a toxic environment that was hostile to productivity. Since reward was not correlated with productivity, it was cheaper for employees to curtail productivity than to be exceptional considering the limited opportunity for self-improvement.
People flock to America to exploit an environment where their efforts will be appreciated. Immigrants would hesitate to migrate to America if they were properly incentivized in their country. Furthermore, America ranks number one on the intelligence capital index thus making it the best place in the world to actualize talent. Most of the leading venture capitalists are located in America and it is still home to some of the most cutting edge universities.
Even more surprising is that America leads in redistribution with research asserting that the “United States stands out as the country that redistributes the greatest fraction of the national income to the bottom 50 percent.” Moreover, despite the grumbling that America is no longer the land of opportunity, economic analysis opines that “there is greater equality of opportunity today than in the past, mostly because opportunity was never that equal.”
Media outlets are replete with criticisms of America, but the truth is that America is still an admirable country on many levels. Because migrants believe in the American Dream and its endurance, they eagerly rush to its shores despite encountering danger.
On Monday, thirty members of the Congressional Progressive Caucus called on the Biden administration to pursue a negotiated peace settlement or cease-fire with Ukraine. The letter from the Progressive Caucus is careful to praise the administration for its ongoing efforts to fund Kyiv’s war effort, but also concludes that not enough is being done to encourage a negotiated settlement.
This position is heretical in Washington where the narrative is well dominated by the center-left militarist coalition that currently dominates the Democratic Party and the fading neoconservative wing of the Republican Party. In fact, so complete is the hawks’ domination of Democratic Party leadership, the Progressive Caucus was forced to withdraw its letter in less than twenty-four hours. The progressives ended up embarrassingly apologizing for suggesting diplomacy is a good thing.
Indeed, there is certainly no end in sight for US intervention in Ukraine, and little support for a negotiated end to the war among foreign policy elites. The US has sent more than sixty-five billion taxpayer dollars to Ukraine, and given Ukraine’s famously high levels of corruption, there’s no telling where that money ends up. Meanwhile, the US has now deployed the 101st Airborne Division to Europe for the first time in almost eighty years. The division is now conducting training exercises mere miles from the Ukraine border.
The administration is now being pressured by the Democratic leadership in Congress to designate Russia a state sponsor of terrorism. This would further hobble efforts to open negotiations with Moscow and would also trigger even more sanctions against the Russian people. Even worse, Washington insiders and pundits continue to push regime change in Russia. Although he later backpedaled on his comments, President Biden declared in March that “for God’s sake, [Vladimir Putin] cannot remain in power.” Earlier this month, Republican foreign policy advisory John Bolton called for regime change. Even the dismemberment of Russia has long been a stated goal of many American Russophobes.
These calls for regime change tend to steer clear of explicitly pushing military intervention, but a brief look at Iraq, Syria, and Libya makes it clear that when American and agents call for regime change, military interventions tend to follow.
Moreover, American foreign policy hawks have been remarkably casual about the prospects for an accidental escalation into war between nuclear powers. Biden himself has admitted that the risk of “Armageddon” is the highest it’s been since the Cuban Missile Crisis of 1962, but the administration has done nothing to change course. A disturbing number of pundits have declared that nuclear war is worth the risks, and a Pew poll shows a full one-third of Americans polled want US intervention in Ukraine even if it risks nuclear war. It seems we’re a far cry from the days of the height of the nuclear disarmament movement in the 1980s when marches against nuclear war could boast hundreds of thousands of people.
The Sane Position Is in Favor of Negotiation If the US regime actually cared about its alleged constituents, of course, it would withdraw from the conflict entirely. But since Washington insists on partnering with the Ukraine regime in its war, the only sane thing to do is for Washington to push hard for negotiations and to pursue a cease-fire rapidly. This position, of course, is routinely denounced by the usual hawkish suspects as being “pro-Russia.” Thus, war dissenters in Washington such as Rand Paul must state what should be obvious: that preferring negotiations to World War III hardly makes one a Putin sympathizer. Although most American foreign policy elites tend to have no problem at all with spilling copious amounts of blood and treasure in the name of Washington’s global ambitions, many Americans fortunately disagree. A recent poll shows nearly 60 percent of Americans support negotiations with Russia “as soon as possible” and want an end to the Ukraine conflict even if it means Ukraine giving up territory.
Ukraine hawks will decry such a position as a matter of Americans bargaining away Ukraine’s “sacred” territory, and thus have no “right” to do so. Yet, the Ukraine regime forfeits its right to unilaterally decide for itself what concessions must be made so long as Kyiv continues to call for American taxpayers to hand over cash. Moreover, by involving the US in the conflict as a supplier of weaponry, training, and as a potential nuclear backstop, Kyiv is also demanding that Americans be placed in the line of nuclear or conventional fire should the conflict escalate. So long as the US is viewed as a party to the conflict—which it obviously is—this puts Americans in harm’s way. So, yes, Americans have every right to demand a swift end to the conflict, and if necessary—as Henry Kissinger has suggested—that includes Ukraine giving up territory.
If Kyiv doesn’t like those terms, it can start refusing the money and weapons supplied by the American taxpayer.
It’s Time to End the American Preference for “Unconditional Surrender” The American maximalist no-peace-until-total-defeat-of-Russia has its origins in the now longstanding American obsession with “unconditional surrender.” This is the idea that a military victor is only the victor when it totally dictates terms of surrender and peace. The model for this is often assumed the Japanese surrender to the US at the end of the Second World War. The basic operating procedure in this case is simply to keep bombing the enemy country until its regime gives the victor everything it wants without any conditions. It was the stated policy of the Roosevelt administration during the War.
Of course, as international relations school Paul Poast has noted, “unconditional surrender” wasn’t even the case in the US-Japanese conflict. The Japanese refused to surrender unless the US pledged to not attempt to abolish the Japanese monarchy. Another potential “model” is the Versailles Treaty of 1919 in which the victorious Allies dictated that the defeated parties would accept “war guilt” and that Austria would be dismembered.
The fact that the terms of Versailles treaty were a leading cause of the rise of Hitler and of the Second World War should be reason enough to abandon this model.
But the Japanese surrender and the Versailles treaty are extreme cases. The fact is that very few wars are ended along the lines of anything we would call “unconditional surrender.” This has been known for a long time, and was explored in detail by Coleman Phillipson in his 1916 book Termination of War and Treaties of Peace. Phillipson notes that in cases where total “subjugation” of another state occurs, there was no reason for concluding a negotiated settlement, as the imposition of the conqueror’s will on the conquered nation involved merely a unilateral arrangement.” The normal, far more common mode of bringing about peace in international conflicts, however, is a “compromise ad hoc, involving an agreement as to demands made on both sides, and settling all the matters in dispute.”
Indeed, many military personnel in World War II were alarmed by the administration’s adoption of the new doctrine with General Dwight Eisenhower’s naval aide Captain Harry Butcher stating privately that “any military person knows that there are conditions to every surrender.”
Moreover, the maximalist hawks underestimate costs likely to be incurred by the United States / North Atlantic Treaty Organization faction. If the goal is truly to impose a unilateral peace on Moscow, this is likely to require far more bloodshed and taxpayer treasure than a negotiated settlement. This may be perfectly fine for many American elites, but for many ordinary people who are forced to fund the war and submit to various trade restrictions and shortages, the cost could be sizable.
For these reasons, among others, Berenice Carroll concludes (in “How Wars End: An Analysis of Some Current Hypotheses”) that it is not actually all that easy to determine the “victor” from the “loser” in an international conflict once all of the costs have actually been analyzed. Or, as Lewis Coser has put it, because of this, “most conflicts end in compromises in which it is often quite hard to specify which side has gained relative advantage.” For this reason, it’s important to think long and hard about doubling down on a “strategy” that’s guaranteed to prolong a conflict indefinitely. This is all the more true when nuclear powers are involved.
Yet, from the point of view of the moralizing hawks, no “sacrifice” is too great for ordinary Americans or Europeans to bear in the name of “containing” Russia and hopefully even ending the regime itself. The hawks are always dreaming of great moral victories, no matter the cost. In real life, however, the bloodshed will likely only stop when we ignore the American advocates of nuclear brinkmanship and more pragmatic heads prevail. The proper position now—especially in a nuclear environment—is not to pine for a global moral crusade but to explore ways to bring about the end of active hostilities. This is done through negotiated settlements and compromise. The hawks seeking to “shame” the advocates of peace are really just agents of more war, more bloodshed, and religious fervor in favor of “territorial integrity” and other nationalist myths.
The foreign policy elites, however, only benefit politically and financially from more war, ongoing ad nauseum. There is as of yet no downside for these elites in more war. The fact that they’ve quashed even some small-scale calls for negotiations on the part of some progressives shows that the war party is a long way from abandoning its fetish for “unconditional surrender.”
[Chapter 6 of Per Bylund's new book How to Think about the Economy: A Primer.]
So far, our discussion about the economy has been exclusively from the perspective of value. Value is the ultimate goal of our actions and what motivates our behavior. It is personal—subjective—which means it comes from satisfying a want. If we are hungry, we consume food; if we feel lonely, we might visit a friend.
Value is the removal of or fulfillment of some uneasiness (hunger or loneliness), which makes us better off. We can compare satisfactions, for example, that we like oranges more than apples and we like pears more than either. Simple value comparisons in terms of our own personal satisfactions are unproblematic. If we are both hungry and thirsty, we can quickly decide which uneasinesses to remove first by considering how urgently we feel each one. But although we can make comparisons and determine which satisfaction would be greater, there are no units of value.
The Problem of Measuring Value We cannot measure the extent to which we removed uneasiness by taking a certain action. The satisfaction this brings is a feeling we experience, which has no units or exact measures. We cannot say that we like oranges 2.5 times more than apples and pears 1.3 times more than oranges.
We cannot compare the subjective values of different people, as their experienced satisfactions are personal. It is nonsense to say that Adam likes pears 20 percent more than Beth likes pears. Perhaps Adam exclaims that he likes pears “a lot,” whereas Beth doesn’t care for them at all. If that is how they truly feel, then Beth might offer to give Adam her pear. But this is still not a measure of how much they each value pears, nor is it a comparison using some universal unit of satisfaction. Beth values giving Adam the pear, perhaps her feelings for Adam are strong and she knows he likes pears. But it doesn’t tell us anything about how much Beth—or Adam—values keeping or giving away the pear.
The lack of measure makes value problematic in a social setting—especially in advanced economies with long, specialized production processes (which we will discuss in chapter 7). How do we economize on scarce resources so that we get as much value as possible?
To illustrate, imagine a small society of 150 people where there is enough water to quench the thirst of forty-five individuals and food to satisfy thirty of them. How do you determine which forty-five are “most thirsty” and which thirty are “most hungry”?1
This society could decide to use the water and food to invest in production, which could allow them to create even more value. If ten people are provided enough water and food to last them three days, then they can go get more water and food and bring it back to the others. Should this society make this investment? Should they send one party of ten or two parties of five out in different directions to search? Whom should they choose to collect the newly obtained water and food? Who among the remaining population should get whatever water and food remains? Such comparisons require some measure of value, but because value is a personal experience, there isn’t one. There is no solution to this economization problem.
Markets solve this conundrum by using money and prices, which provide objective social relative valuations (more on this below) and therefore allow for comparisons and economizing in terms of valued goods. If pears cost us 1.3 times as much as oranges, we can easily decide how to use our purchasing power to get as much satisfaction as possible: buy pears, buy oranges, or buy some combination of both. We can make such comparisons individually as well as collaboratively. As we will see, money and prices are indispensable for an economy. We cannot function without them.
The Use of Money We tend to take both money and prices for granted. They are so universally present that most think of money as a measure of value. They even think of value itself in terms of money. This is a mistake.
Money is the commonly used medium of exchange, and it has value to us because it provides this function. We value money like other goods, because of what it can do for us. But it is not the bills and coins themselves that provide us with value, but the expectation that we can use them to buy what we want. This means money works because we recognize it as such and therefore accept it in exchange. Money has purchasing power. It is the belief that money can buy goods that makes it valuable. If we believed that we would not be able to use money to buy goods—perhaps we believe others will not accept it—then we too would not accept it.
This means money is money because people consider it to be money. In this sense, money is a largely self-reinforcing social institution. We all have experience using it and thus have some idea of what it means for something to be money. But this does not explain what money is, why it is, or how it came to be.
Consider what would make you accept something as money. Or, to get to the real issue: what would make a society that does not use money accept something as money. Because money’s value is that others will accept it in exchange, nothing that aspires to be money will have value as money to begin with. Only after a thing has been broadly adopted in exchange will something be recognized as money—but not before.
This leads many to assert that money must have been imposed from the top down by decree to use it in exchanges. The idea is that some head of state invented the concept of money and introduced it to facilitate trade (or, perhaps, payment of taxes). But this “explanation” misses the point: unless something is already a money, people will not voluntarily accept it in exchange. So it has no or little value before it is deemed money.
A decree does not create a money—it creates only an obligation, which is limited by the extent of its enforcement. However, it is fully conceivable that a government can, bit by bit, take over and monopolize an already existing money, which we have seen happen. Most currencies today are government monopoly monies, but that is not how money was invented or accepted as a medium of exchange—it is only how it ended up. The economic function of money cannot simply be created from the top down.
People choose to exchange goods for their own benefit, which means voluntary exchange must be for the parties’ mutual benefit. Both expect to become better off or they wouldn’t choose to exchange. An obligation to accept something that is not directly valuable to them—such as an imposed currency not yet accepted as money—would lessen people’s willingness to trade. After all, if you were compelled to accept rocks in “payment” for your belongings, then you probably would refrain from offering them up for sale. Even if I offered you a ton of rocks, you would not exchange them for your house or car. Why trade a valued good for something you don’t want? So even if you were required to pay your taxes using rocks, you would limit your trade for rocks to fulfill that duty—but not more. The market for exchanging goods for rocks would be very limited.
Such exchanges would happen by choice only if the payment offered were actual money. In a society where there is no money, people not only lack trust in the money’s purchasing power—they have no understanding of the concept itself. Imagine offering a stack of dollar bills or a gold coin to a person from the Stone Age in exchange for their axe or food.
The Emergence of Money Money is an economic concept. Dollar bills aren’t money in themselves, but money can exist in the form of dollar bills. However, those bills are money only because and for as long as they are accepted as such. This becomes obvious when we travel to other countries because what is money in one country may not be accepted as money in another. You cannot use Swedish kronor for payment in Austria or the United States, even though everyone in Sweden accepts them as money.
We know very little about the historical origins of money, but the concept is clear. The economist Carl Menger showed how a barter economy can transition into a money economy.2 Menger’s explanation requires no central planner or decree—money emerges. This is important because it provides insight into the meaning and role of money as an economic concept.
In a barter economy, people trade goods for goods. This economy suffers from obvious limitations, because each exchange requires that both parties get something they want in a quantity they want, without using anything we call money. In other words, someone who offers eggs for sale and wishes to buy butter needs to find someone who is selling butter and wants eggs in exchange. This greatly limits the number of potential trading partners.
Because goods differ in durability and size, barter economies could not develop into productive economies with division of labor. Consider a boat builder who wants to sell his newly designed speedboat. Even if he would want eggs, he would hardly accept thousands of eggs in exchange—they would go bad and be useless in a short period of time. So he would need to find someone offering the exact bundle of goods that he wants and is willing to sell for the boat. The parties also need to agree on the rates: How many eggs for the boat?
People exchange goods to become better off, that is they trade for value. Menger noted that people will seek any number of ways to get around the limitations of barter. If the dairy farmer is not willing to accept my eggs for butter but I know he will accept bread, then I can approach the baker to exchange eggs for bread—and if the baker agrees, I can then exchange the bread for butter. In other words, I exchange eggs for bread not because I want bread but because I want to use the bread to obtain butter. My first exchange facilitates the second, from which I benefit directly.
If I wanted berries, for example, I would have to go through the same procedure if the person offering berries does not want my eggs but would accept something else. I would sell my eggs for that something else in order to exchange it for berries. Even though the eggs work in some cases, they won’t work in all. But let’s say some of them accept the same different good in exchange for bread. Knowing this, I could exchange my eggs for bread simply because I believe the bread will be more useful when I go on my next grocery run. In Menger’s terms, I sell my eggs to acquire a more saleable good, for the sole purpose of using it in exchange; to me it serves only the indirect purpose of facilitating the actual exchanges. Thus, it makes sense for me to acquire bread even if I don’t fancy it—and even if I am allergic to it.
As people exchange their products for more saleable goods, the more saleable goods become more sought after because they can be used to buy many goods. And as more people realize how useful these goods are as facilitators of exchange, more people sell their own goods (I my eggs, the dairy farmer her butter, etc.) for those more saleable goods. Eventually, by people’s actions but not by their design, one or a few goods emerge as commonly used media of exchange—monies. They are valued primarily as media of exchange, not for being goods in themselves.
The Importance of Money In a money economy, we use money to pay for goods and can easily compare prices because they are all expressed in the same unit—a currency. But, as we’ve seen in previous chapters, prices are really exchange ratios. Money serves as an intermediary that facilitates trade that elevates us above the limitations of barter trade.
The existence of money uncouples people’s buying and selling in terms of goods. It makes universal purchasing power of the exchange value of goods. In other words, I can sell my goods or services to one person but use the purchasing power gained in return (as money) to buy goods or services from someone else. This seems obvious because we are used to it. However, the implications are enormous.
Under barter trade, employment would be possible only where an employer can offer the specific goods an employee will accept as payment. Imagine that your employers paid for labor not in money but instead in specific items: clothing, hygiene products, books, travel, furniture, etc. It is easy to see that finding an employer who offers the most desirable bundle of goods would be almost impossible. It would likely mean that you would need to accept a bundle that is far from perfect to gain employment. You could do much better if you received the exchange value of those goods instead—the purchasing power (money)—and used it to buy the goods you prefer.
Money is therefore much more than a convenience—it is necessary for exchanges to take place and for the advanced, specialized production processes we take for granted in the modern economy. Large-scale production, supply chains, and specialization are made possible because money uncouples our efforts as both buyers and sellers. Due to the uncoupling, we can also specialize in what we do well rather than produce only what we ourselves want to consume. Consequently, we can focus our production efforts on where we make the biggest difference—where we create most value for society. Without money, we would not be nearly as productive.
The uncoupling also means we can use our acquired purchasing power—what we are paid for producing—on what we find most valuable. Money makes it possible for us to pursue wants that would never be within reach with barter. The consequence of having and using money means not only greatly improved production but also that we can pursue more valuable consumption. The former facilitates and increases the opportunities for the latter. And the more value we produce, the more purchasing power we are paid in return.
Because all actors in a money economy can pursue those goods they value most—and can produce those goods that others highly value—there is more value overall. We are much better off in a money economy than in a barter economy.
Money Prices Money makes prices easy to compare. Rather than expressing prices as ratios—where each good is “priced” in terms of all other goods—they are expressed in money.
In a barter economy, my buying bread with eggs in order to buy butter requires that the three parties establish exchange ratios. I might be able to exchange a dozen eggs for three slices of bread from the baker. In this transaction, the price of one slice of bread is four eggs and the price of one egg is a quarter slice of bread. I can then use the bread to purchase a pound of butter for two slices of bread, making the bread price of butter two slices per pound and the butter price of bread half a pound per slice.
I am party to both transactions and can infer that the “price” of one pound of butter is eight eggs. That is a simplification, because the dairy farmer does not accept eggs in exchange. The problem is that the prices of all goods here are expressed as ratios of all other goods. If, for example, the dairy farmer would also accept eight cups of berries for a pound of butter, then the price of one pound of butter would be either two slices of bread or eight cups of berries. Such ratios (prices in kind) could be established for all combinations of goods in any possible exchange. But how can we compare them? Without a common denominator, these prices are all unique exchange ratios that is difficult to keep straight or make sense of.
Let us assume that bread emerges as money in the example above. This means that bread, serving as the medium of exchange, becomes one side of virtually every transaction. In other words, the prices of all goods can be expressed in terms of bread—because they are traded for bread. So, I would sell my eggs for bread and use bread to buy butter and berries. As bread is the common denominator, I can easily compare prices and buy the good that will best satisfy my wants. Now, because bread is money, all sellers of goods are likely to accept it as payment because they want the purchasing power, not the bread itself.
If a pound of butter costs two slices of bread and a slice of bread buys two cups of berries, then it is easy for me to compare prices. The three slices of bread that I was paid for my dozen eggs can buy either one-and-a-half pounds of butter, six cups of berries, or some other combination. All I need to do now is determine which option I value more highly. I can easily calculate how to get most value for each slice of bread.
In this money economy, all goods are priced in terms of bread, and bread is priced in terms of all goods. As bread is the medium of exchange, we can say that the purchasing power of (a slice of) bread is half a pound of butter, two cups of berries, four eggs, etc. Consequently, it is much easier for everyone in society to determine whether something is “worth it.”
Another way to say this is that the opportunity cost of buying two cups of berries for a slice of bread is the value of whatever else one can buy for that slice of bread: half a pound of butter, four eggs, and so on. Obviously, we would choose to buy whatever available good we expect will provide us with the greatest satisfaction. As everybody strives for value—and, thanks to money, can properly compare prices—our actions produce implicit bidding for the goods that have been produced. Our willingness and ability to buy a good at a certain price constitutes our demand.
The highest bidder for a good will receive it first and will not have to do without. Those who bid less money for the good will be served later until the sellers no longer think the bread offered is worth it. The more people value a good, the higher its market price. And the more of the good is for sale, the lower its market price.
Similarly, because our buying and selling efforts are uncoupled, we can produce what will get us the most money in return. We now can expend our labor where we have greater skill and expertise and where we can get the highest payment in money. What this means is that to benefit ourselves (higher payment), we choose to contribute to the economy in the way that consumers value most highly. In a market setting, the purchasing power that we are offered in return for our services tend to be proportionate to the value we contribute to the market in money prices.
As a result, the free market provides those who contribute most value in production with the most purchasing power, which means they in turn also have a greater ability to satisfy their own wants by buying their preferred goods and services. Purchasing power—and therefore consumption power—the extent to which people are able to satisfy their wants through goods—is consequently a reflection of one’s contribution to the economy (as a producer). Simply put, what we supply constitutes our ability to demand.
Fiat Currency and Price Inflation The discussion above explained the economic concept of money as commodity money. Historically speaking, different things were money in different societies: rocks, seashells, cattle, etc. In Europe and beyond, gold and silver emerged as universal, international money.
The paper money we use today is an evolution of precious metal coins and banking. The process is as follows. Banks sell space in their vaults for safe-keeping of people’s money. Money is fungible, meaning it does not matter if you get the same gold or silver coin back from the bank, so banks can keep all customers’ coins in the same vault and issue receipts for the number of coins each customer has on deposit. As those receipts are redeemable in coins, people can use them in exchange directly instead of having to take them to the bank first. Those who end up with a receipt can deposit it with their own bank, which in turn makes a claim on the bank that issued the receipt. At regular intervals, the banks clear all their claims by transporting the net gold and silver owed, saving everybody a lot of trouble.
This practice has a downside: it offers banks an incentive to issue more receipts than there is money in their vault. As receipts are not all redeemed at the same time and money is fungible, this practice can provide banks with unearned purchasing power.
In a free-banking system, such abuse would arguably be kept at a lower level. A bank would only be able to issue these additional “cash” receipts as long as the practice is not discovered and the bank is able to maintains its reputation. But as soon as holders of those receipts were not sure if the bank had sufficient money in its vaults—is the bank insolvent—they would act to redeem their receipts. Historically, there are many examples of banks losing their reputations and their customers flocking to withdraw their money, causing a bank run. If the bank has issued more receipts than it can redeem in money, the run bankrupts it.
A bank’s insolvency due to over issue of paper money can also be discovered in banks’ clearing of claims. A clearinghouse establishes the banks’ balances and calculates what money should be transported from one bank to another to balance the accounts. If a bank issues too much paper money, this will be discovered during the clearing of transactions because the other banks have receipts from this bank and demand that it transport real money to them—money that it may not have. So the over issue of paper receipts can be discovered both by customers and by competing banks. The risk of getting caught, which means bankruptcy, is substantial.
In modern times, most monies are national monopoly currencies issued by the government’s central bank and have no backing, as the receipts in our example did. This turn of events is explained partly as government’s attempt to solve the problem of bank runs and partly by its aim to exploit the power of issuing money. As the monopoly issuer of money, the government/central bank can provide itself with purchasing power at no apparent cost.
However, as we saw above, a money’s purchasing power is expressed in the relationship between the money and the goods available. As the new money is used to buy goods on the market, prices are bid up beyond where they otherwise would be because there is more money in circulation. When this happens we see a general, but not uniform, increase in prices when new money enters the market. This is price inflation.
Fiat currency—created by the government’s legal monopolization of money—tends to be inflationary. It is easier for the government to provide itself with purchasing power through the printing press than to tax people. However, the effect is that the purchasing power of money falls, which makes people comparatively poorer and distorts the capital structure (as we saw in chapter 3). This type of money-driven distortion wreaks havoc on the economy, as we will see in the next chapter, and ultimately causes the boom-bust cycle (discussed in chapter 8).
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- To be formally accurate, we should ask who would experience the greatest satisfaction from drinking or eating (removing the uneasiness of thirst and hunger, respectively).
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- Carl Menger, “On the Origin of Money,” trans. Caroline A. Foley, Economic Journal 2, no. 6 (June 1892): 239–55.
The economic burden of inflation continues to ravage economies around the world. From the US to the UK to the eurozone, people are finding that the money in their wallets and bank accounts buys less and less every month. As with all problems, everyone is looking for three things: strategies, solutions, and scapegoats.
One particularly popular scapegoat for the inflation monster is corporate profits. Businesses are alleged to be sneakily raising their prices across the board, which creates inflation—or at the very least contributes to inflation—and makes all of us poorer in the process. These higher prices pad their profit margins, and they laugh at us helpless plebians all the way to the bank. The solution to their reckless rapacity? Restricting either the prices businesses can charge or the profits they can reap from them.
This position isn’t just restricted to the man on the street. The Economic Policy Institute, a nonprofit economic thinktank, claims that profits have contributed “disproportionally” to inflation. Bloomberg has reported on corporate profits hitting the highest rates since the 1950s, and the New York Fed even wrote an article addressing the topic. As these and other writings show, this position is held by serious institutions, and even appears to have some empirical data supporting it.
Even so, business profits are demonstrably not the cause behind inflation. We can easily show this just by thinking clearly about what it means for a business to raise prices. A higher price means that consumers have less money left over after buying the good or service. This necessarily means that they have less money to spend on other goods or services. Under inflation, however, the prices of all goods and services increase.
If consumers have less money to spend because of increased prices, how could this be possible? The increase in one price means there is less money to go around, but higher prices everywhere would require more money to go around! Businesses raising prices can explain the increase in singular prices, but it can’t possibly explain a general rise in prices that characterizes inflation.
If greedy businessmen cannot explain inflation, then what can? The only thing that can create a general rise in prices across the economy is an increase in the supply of money. As we said above, higher prices everywhere would require more money to go around. The only way this can be possible is if there is literally more money to go around. An increase in the supply of money means that individuals have more money to spend than they used to, and they naturally wish to go out and spend that extra money. Businesses feel the increase in demand and increase their prices accordingly. As more and more businesses feel this increased demand, prices everywhere start to rise—i.e., inflation.
This absolves businesses of the blame for inflation, but how can we explain the connection between inflation and profits? After all, there seems to be at least some correlation between the two, even if it is relatively weak. Is it just a coincidence or is there some cause for the apparent positive relationship between the two?
The reason for increased profits under inflation is simple: not all prices rise at the same times in the same places. Whenever new money is printed, goes into the hands and wallets of a select few people first. Those first receivers then spend the new money, which then puts that new money in the hands of others, who turn around and spend it somewhere else, and so on and so forth. The fact that those first receivers hold that newly created money first means they have greater incomes then would otherwise have been the case and can now go out and demand more goods. Those goods they buy will have their prices raised, the goods that the second receivers of the new money buy will have raised prices as well, and on and on as the new money trickles into the rest of the economy and prices everywhere are pushed up.
If prices do not rise all at once, which prices are more likely to see increases first? Because most of the new money received will probably be spent on consumer goods and services (as opposed to businesses using them to cover their costs), the price increases will likely first be felt in consumer goods. As businesses respond to the increase in prices, there will be an increase in demand for the factors of production used to make those goods, which will cause these goods’ prices to eventually rise as well. However, businesses don’t respond instantly, so there will be a necessary lag between the rise in consumer good prices and producer good prices.
What happens whenever the prices of a businesses’ product increase, but their costs stay the same? Total profit goes up. This isn’t because the business forces consumers to pay higher prices or use inflation as an excuse to make people pay more, but because inflation pushed up the prices of some goods before others, which resulted in a temporary increase in profitability for businesses.
This short-term windfall provides obvious benefits to a business, but it can also be dangerous as well. Inflation can also falsify calculations to delude businessman into thinking that they are much richer than they really are. Ludwig von Mises wrote about this phenomenon in Human Action, saying:
It would be a serious blunder to neglect the fact that inflation also generates forces which tend toward capital consumption. One of its consequences is that it falsifies economic calculation and accounting. It produces the phenomenon of imaginary or apparent profits. If the annual depreciation quotas are determined in such a way as not to pay full regard to the fact that the replacement of worn-out equipment will require higher costs than the amount for which it was purchased in the past, they are obviously insufficient. If in selling inventories and products the whole difference between the price spent for their acquisition and the price realized in the sale is entered in the books as a surplus, the error is the same…. They feel lucky and become openhanded in spending and enjoying life. They embellish their homes, they build new mansions and patronize the entertainment business. In spending apparent gains, the fanciful result of false reckoning, they are consuming capital.
The result is that once reality sets in and the businessmen realize that those profits were illusory, it is too late. They have gone beyond a sustainable level of consumption and are consequently less wealthy than they were before. Thus, even though they might enjoy a temporary boon from inflation, it might end up hurting them far more than it ever helped in the end.
Are businesses to blame for inflation? Not at all. A business cannot manipulate prices at will but can only charge what the market will bear. Rather, the blame lies solely with those who control the money supply: the Federal Reserve. All the animus and contempt built up over the past two years because of their monetary mismanagement should be directly exclusively toward them.
To kill a weed, you pull out the roots. The roots of the monetary troubles of our time all lead back to the rotten institution of central banking. If we wish for a permanent solution to our inflation problem, it is the state control of the money supply that must be uprooted once and for all.
There is a threshold of diversity below which no organization can operate with complete effectiveness. Diversity in this sense does not only include the “Big 3” DEI elements of race gender and sexual orientation, but also education, experiential background, business partner diversity, learning capabilities — all of the organizational resources that Austrian economists refer to when they talk about the creative combination and recombination of heterogeneous assets. Dr. Ella F. Washington, author of the book The Necessary Journey, joins Economics For Business to make the business case for diversity.
Knowledge Capsule The business case for diversity is built on the sustainable competitive advantage in productivity that it can bring. Dr. Washington’s book is a global, multi-variable survey of the effect of diversity orchestration on business results. She describes a wide variety of business cases, in large, medium-sized and small firms, in businesses ranging from global hospitality services to IT to alcoholic beverages production and marketing, and many more. She looks at diversity not just through the “big 3” lenses of race, gender, and sexual orientation, but also educational achievement, cultural background, learning capability and interpersonal communications variables. In all cases, well-orchestrated diversity made a demonstrable and positive difference in business outcomes. Diversity is a tool for competitive advantage.
The business case is globally applicable. Dr. Washington has studied and provided consulting services to global firms and to local and regional firms in many countries. She sees diversity not as a provincial political issue but as a business tool for elevating human performance. There is a lot of hard work involved in identifying and understanding local differences, and some challenging decision-making and communications issues. Getting diversity right is not always comfortable, and many perspectives must be balanced. But it pays off in results.
Value and empathy are at the core of diversity management. Subjective value lies at the core of Austrian entrepreneurship. Subjective value is in the mind of the customer, it’s a feeling that’s experienced. When businesses deliver a valuable experience, customers engage enthusiastically. The same is true for a group of employees. An organization that can empathically feel the experiences of all its employees, and can orchestrate the environment and the culture that recognizes, caters to and enhances their felt experiences, can achieve the exciting collaborative energy of alignment and harmony. Austrian principles of subjectivism and empathy apply in all areas of business thinking.
People want to feel valued, and the feeling is personal and individual. No matter the size of the corporation, each individual counts in their own way.
Diversity policies always benefit from the free incorporation of multiple perspectives as compared to centralized mandates. Dr. Washington’s case studies consistently demonstrate that decentralization and localized management is a better tool for productive diversity that central mandates. One of her case studies concerns Sodexo, a French company specializing in food services and facilities management, employing over 420,000 people in 80 countries all over the globe.
Through the processes described by Dr. Washington, Sodexo came to realize that thinking and acting locally was the key to achieving the diversity target of collaborative productivity AND elevated human performance through valued experiences. Diversity solutions could not be formulated in the central HQ, or even country-level HQ’s, and even regional and local offices. It was the individual sites where people work together in small teams that should be the focus. A general goal was established — it was termed “Spirit Of Inclusion” — and then specific programs were resourced and implemented at the local level in ways that comported with local needs.
To quote from one of the Sodexo executives, “engagement across the organization very soon became an enabler of business growth and business success”.
Diversity has a future orientation — influencing future performance. In the US, diversity policies are often pitched as addressing past wrongs. In another case study, the President of Infosys, an India-based technology company, stressed his focus on building the services of the future. A diverse work force is, in his words, the most viable business model. Since the company would be engaged in building new services for a new future and a more diverse audience (i.e., in new countries, new situations, new circumstances), then it’s smart to try to imagine the needs of that future workforce, and how to maximize its capability for future success. A diverse workforce is better able to develop superior understanding of a diverse customer base.
One of Infosys’s diversity tactics was to extend hiring in the US to community colleges. Many tech firms focus on 4-year university graduates exclusively. Infosys felt that (a) they might not be competitive in hiring those candidates, and (b) such a focus excluded a lot of bright, trainable people from two-year community college programs. They also found out that the two-year students often exhibited greater “learnability” — they could be trained and coached in the Infosys way with outstanding results in achievement and productivity.
Another source of diverse talent is the individual making a mid-career switch. Infosys opened up its thinking and its recruitment to include this type of diversity too. Career-switchers tend to excel at learnability.
As is always the case in entrepreneurial economics, imagining a better future opens the pathway to better implementation. At the close of her case studies, Dr. Washington tells us her respondents’ answer to a question about the workplace utopia of the future. All the answers are different, but the principle is the same: conceptualizing the most productive workplace in terms of how employees feel and how the feeling can be translated into effective and consistent contribution, collaboration, and business results. How do firms awaken and stimulate the best capabilities of all their employees? That’s the business case for diversity.
Additional Resources The Necessary Journey: Making Real Progress on Equity and Inclusion by Ella F. Washington: Mises.org/E4B_193_Book
TheNecessaryJourney.com
Dr. Ella F. Washington on LinkedIn: Mises.org/E4B_193_LinkedIn
Sponsored by Diane Johnson and Andy Hord.
Recorded at the Arizona Biltmore Hotel in Phoenix, Arizona on October 7th, 2022.
Gold historically has not been money by government fiat. Instead, gold has been the natural choice of people for money, something governments cannot undo (despite its best efforts).
Original Article: "Gold as Natural Money"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
[Originally published by Law and Liberty.]
Those who fail to study the intellectual debates of the past are condemned to repeat them,” is a variation on Santayana’s famous dictum particularly applicable to economics and monetary theory, where ideas cycle along with events. In The Currency of Politics, Stefan Eich has written a valuable and very interesting review of specific monetary debates in their historical settings during centuries of thought about the nature of money as it is entwined with politics. The author’s own recommendations, however, are sketchy and betray a naïve faith in governments. The historical survey does inexplicably leave out the intense debate of “the money question” at the end of the 19th century in the U.S., starring William Jennings Bryan, which we will fill in at the end of this review.
The Currency of Politics was published in 2022, well timed to be greeted by the Great Inflation in this country, and runaway inflation in other countries as well, which has given rise to a new global debate about central banking, money, and inflation, with the global club of money-printing central banks on the defensive—at least for now. The current arguments and monetary stresses must become a new chapter in any future second edition.
Eich’s principal overall theme is that “money is always already political.” This does seem obviously true. I often point out that the old title, “Political Economy,” was a more accurate term than the current “Economics.” We find economics without politics only in theory, never in reality. Likewise, there is no “Finance,” only “Political Finance.”
One reason this is true is the recurring cycles of financial crises, which inevitably trigger powerful political reactions.
A second reason is that the control of money is extremely convenient to governments, especially to have their own central bank to buy their debt when they are out of money. This was the reason for creating the archetypical Bank of England in 1694. It is an arrangement so advantageous to politicians that virtually every national government has its own central bank now. This is particularly useful in times of war, but also handy in general while running budget deficits.
As George Selgin observed in his 2017 study of the nature of money:
Governments have come to supply currency, and to restrict the private supply of currency and deposits, not to remedy market failures, but to provide themselves with seigniorage and loans on favorable terms. Government currency monopolies…can thus be understood as part of the tax system [and reflect] the preference of the fiscal authorities.
This ability of the government to use its control of money for fiscal purposes is precisely what appeals to practicing politicians when they want to spend more, and to a statist academic like Eich, who wants “more precisely political control over money” and “to reconceive of money as a malleable political institution,” in order to have “more democratic visions,” although the “visions” are fuzzy.
In support of his true, but hardly surprising, theme that money is political, Eich goes back to Aristotle. He says Aristotle thought that “money could be an institution that would contribute to the cohesiveness of the polis—but one that was insufficient, imperfect and laden with potentially tragic consequences.” Indeed, such tragic consequences have been experienced by every victim of the hyperinflations that numerous governments have visited on their populations, and as are being experienced today, for example, with Argentina’s reported 71% inflation rate in July 2022.
From Aristotle, the book leaps two thousand years ahead to another great philosopher, John Locke, and in my view, becomes more interesting. The setting is the debate about the great British recoinage of 1696, two years after the founding of the Bank of England, in which Locke was an original shareholder. Famous for his influential political philosophy and theory of knowledge, Locke, as Eich recounts, was also a key monetary thinker. (That was left out of my philosophy courses, and I’ll bet is equally news to many others. As Eich comments, “today political theorists rarely engage with his monetary writings”—bravo to Eich for doing so.) At the same time, the towering scientific genius, Isaac Newton, was also involved in monetary affairs, as he became Warden of the Royal Mint in 1696. He was made Master of the Royal Mint in 1699, a post he held until his death in 1727.
Locke becomes a principal intellectual antagonist in the book for proposing “that the government call in all the circulating currency [that is to say, coinage] and recoin it to affirm its official silver content as originally set in Elizabethan times,” a century before. Eich writes, “For Locke, a pound sterling was and had to remain neither more nor less than three ounces, seventeen pennyweights, and ten grains of sterling silver.” This was in order “to restore trust in the monetary and political system.” The historical outcome was that “to the surprise of many, Locke’s novel insistence on the unalterability of the [monetary] standard carried the day… Parliament passed the act in January 1696…clipped and worn coins were removed from circulation and replaced by newly minted coins with milled edges…[accompanied by] the new emphasis on coins’ inviolable intrinsic value.”
Eich considers this an attempt to “depoliticize” money, but fairly points out that “Locke’s intervention was itself political.” Indeed, sound money, like inflationary money, is itself a position in Political Economy about what monetary system is best.
After Locke, Eich moves on to the German Idealist and nationalist philosopher, Johann Gottlieb Fichte, a theorist more to his taste. Fichte “set out the most incisive plea for…the political and philosophical implications of the new possibilities of fiat money,” which he believed would require a “closed commercial state” which cuts itself off from all foreign trade “with external commerce banned,” and “commercial autarchy.” Further, it would be “a state that enjoyed the full trust of its citizens had at its disposal the full powers of modern money,” and—an expansive claim by Fichte—“it would ensure for all time the value of the money distributed by it.” Needless to say, in a world of monetary politics, the probability of that is zero. A permanent related question is whether it is ever wise to trust the government in monetary affairs.
Eich is well aware that others doubt (as I do) that the state can or should be so trusted. But could fiat currency work anyway? That it could, at least for a while, was shown by a key historical event: the suspension of the convertibility of its notes by the Bank of England in 1797, in order to help finance England’s war against Napoleon. (A hundred years before, the Bank of England had been set up to finance England’s wars against Louis XIV, and one hundred years later, the Federal Reserve first made its mark financing American participation in the First World War.)
Eich’s discussion of this period is extremely interesting to us denizens of the current pure fiat currency world. Like President Nixon on August 15, 1971, the British government on February 26, 1797 “issued a breathtaking proclamation…The Bank of England had suspended…The pound sterling, still in name referring to the weight measure of silver, had become a piece of paper backed only by the word of the state.” This was “a dramatic opening of a now largely forgotten episode in global monetary affairs…from 1797 until 1821, Britain experimented with the most advanced monetary practice in the world—pure fiat money,” Eich says, “and with it the politics of modern central banking. [This] challenged and transformed not only reigning conceptions of money, but also the nature and role of the modern nation state.”
Like the United States in 1971, Britain in 1797 had little choice about this dramatic move—they were both running out of the gold they had promised to pay on demand to their creditors. Here was the British situation:
“The latter part of 1796 had brought a new wave of failures of mercantile and banking houses all over the country. The apprehension of a French invasion heightened the alarm, and when in February 1797 a single French frigate actually landed 1,200 men in Fishguard in Wales, a run on the Bank of England started.” Think of that. According to Hayek, “[Prime Minister] Pitt, being informed of the state of affairs by a deputation from the Bank…forbade the directors, by an Order in Council [from] issuing any cash payments.” The prohibition lasted more than two decades.
Eich emphasizes that “for the first three years prices stayed almost completely stable.” But they didn’t stay that way after that. You have to go to footnote 85 of his Chapter 3 to find that “Over the next two decades…prices rose overall by about 80%.” Eich comforts himself with the thought that this was only “an annualized rate of less than 4 %.” He apparently did not do the math of compound growth rates. At an inflation rate of 4%, prices will multiply by 16 times in a lifetime of 72 years.
Likewise, in our own fiat currency days, after a period of central bank self-congratulation for “price stability,” prices have also not stayed stable, to say the least.
In the historic British case, “a lively debate ensued,” famous to students of monetary history. If we get to footnote 86 of Chapter 3, we find that “The most important English contribution to the debate… was that of Henry Thornton’s An Enquiry into the Nature and Effects of the Paper Credit of Great Britain.” Unfortunately, Thornton does not make it into the book’s main text or appear in its index. We may remedy this lack with two of Thornton’s essential conclusions:
That the quantity of circulating paper must be limited, in order to the due maintenance of its value, is a principle on which it is of especial importance to insist.
To suffer…the wishes of the government to determine the measure of the bank issues, is unquestionably to adopt a very false principle.
At the end of the classic monetary debate in which Thornton played an important part, and with Napoleon well and truly defeated, Britain went back to gold convertibility in 1821.
As the book proceeds, Eich devotes a chapter to his real hero, John Maynard Keynes, and one to the other principal intellectual antagonist of the book, Friedrich Hayek. These chapters have much history of interest—for example, how in 1925 Keynes rightly advised Chancellor of the Exchequer Winston Churchill not to go back on gold at the old, pre-War parity, because the War had destroyed the parities of the old gold standard for good. How Keynes proposed at the Bretton Woods Conference in 1944 the impractical creation of a global central bank and an international fiat currency, “Bancor,” but was representing Britain, which was by then a broke debtor nation and a loser in the argument. The world moved on to the Bretton Woods system based on the U.S. dollar with inter-government gold convertibility, which collapsed in 1971. And on the other side, how Hayek intellectually led “the devastatingly effective politics of the 1970s, which not only paved the way to disinflationary discipline, but also effectively buried Keynes, at least until…2008,” and how Hayek suggested “depriving governments of their monopolistic control of money.” Eich views that as the renewed heresy of “depoliticization” of money.
Eich likes Keynes’ 1930s proposal for zero interest rates which would bring “the euthanasia of the rentier.” However, when in our day central banks imposed zero interest rates, they brought instead the “euthanasia of the saver” and for the rentiers created giant profits by asset price inflation in their bond and stock portfolios.
In the Epilogue to the book, Eich explains, “Following past thinkers…is not meant to produce a catalogue of answers.” Still, he mentions a few suggestions, none spelled out and none, in my view, of much interest, like bringing back postal banking or making the Federal Reserve into a government lending bank. He wants “the greater democratization of money power,” but suggests the anti-democratic need to shield monetary decisions from “the whims of public opinion.”
As a summary thought, he hopes that his history will help “by providing a better language to capture the politics of money, including its promises and limitations.”
The most surprising thing about The Currency of Politics is that the great American monetary debate in which “the money question” dominated national politics, and particularly the presidential election of 1896 with the stirring oratory of William Jennings Bryan, gets not a single mention. Yet its focus was precisely the politics of money in a clear, dramatic, and historic fashion.
Bryan—“that Heaven born Bryan, that Homer Bryan, who sang from the West,” according to the poet Vachel Lindsay—thrilled the Democratic National Convention of 1896 with his “Cross of Gold” speech, the high-flying rhetoric of which was an attack on the gold standard and the promotion of an explicitly inflationist monetary program by the free coinage of silver. One commentator, with some exaggeration, calls it “the most famous speech in American political history.” It is surely the most famous American speech on monetary policy.
Says one history, Bryan “leaped to the speaker’s stand two steps at a time,” and “appeared like a Democratic Apollo.” He proclaimed “that the issue of money is a function of the government, and that the banks should go out of the governing business”—a proposition to which Eich would subscribe. After much more, which I wish we had space to quote, Bryan reached his unforgettable conclusion:
We shall answer their demands for a gold standard by saying to them, “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold!”
Bryan got three runs for the U.S. presidency and lost three times. Whatever your views on the substance of his ideas, he certainly gave us notable rhetoric. Eich might add it to his study while he searches for “a better language to capture the politics of money.”
I was on The Tom Woods Show on Friday, and the two of us talked about secession at all levels of government, plus some details about my new book, Breaking Away.
Mainstream analysts seem convinced that global central banks are moving aggressively to tackle inflation, maybe even going too far. After having believed until recently that the spike in prices was only transitionary, central banks insist now that they will restore price stability at almost any cost. In September, the Fed raised its main interest rate to a range between 3 and 3.25 percent from close to zero at the beginning of the year.
Several Federal Open Market Committee members predict that the target policy rate will reach 4.25 percent this year and exceed 4.5 percent in 2023. The Fed chairman also admitted in a hawkish posture that overcoming inflation would not be painless. But would the Fed’s monetary stance be enough to curb the high inflation rate which stood above 8 percent for seven months? Or is the Fed more likely to blink rather than risk a severe economic recession? As stagflation has become a distinct possibility, the Fed’s disinflation scenario looks increasingly implausible.
Inflation Is Primarily a Monetary Phenomenon The Fed must reduce the growth of the money supply below the growth in output in order to curb inflation. Otherwise, too much money is chasing too few goods, driving up prices. The Fed also needs to keep inflation anticipations anchored, so that a lower demand for cash balances would not increase the speed at which money chases goods, undermining efforts to contain the growth in money aggregates. So far, the Fed has blamed the acceleration of consumer price inflation on supply-side factors: the disruptions of supply chains during the pandemic, followed by the surge in energy prices due to the war in Ukraine.
This is only part of the story because money creation was the main driver of inflation all along. The supply shocks have only exacerbated the flow of printed money into consumer prices rather than into real estate or financial asset bubbles. However, without an excess of money supply relative to output, no supply shock could have led to a general increase in the price level. Indeed, graph 1 shows that since the global financial crisis the increase in M3 broad money outpaced real gross domestic product (GDP) growth at a high rate and recorded a peak during the pandemic. This growth differential is comparable to the one in the 1960s and 1970s.
Graph 1: Broad money versus real GDP growth
picture1.png
Source: FRED.
The increase in broad money has decelerated significantly, to 4.3 percent year over year in August 2022, but it still exceeds the increase in real GDP. The latter slumped as the US entered a technical recession with negative growth in both the first and second quarter of this year. This points to a likely full-fledged recession ahead, which normally should reduce inflationary pressures. It is natural that the large expansion of fiduciary credit in recent years would be followed by a curative recession accompanied by deflation.
According to Ludwig von Mises’s monetary theory of the business cycle, a drop in prices is unavoidable when the inflow of additional fiduciary media stops. Banks are refraining from further credit expansion, either because they cautiously anticipate upcoming bankruptcies or outstanding debts are not paid back. Moreover, uncertainty makes both households and firms increase their cash holdings, while distressed companies are liquidating inventories at fire-sale prices.
In principle, a recession could facilitate the Fed’s task of taming inflation and reduce the need for further substantial interest rate hikes. But this is not consistent with the Fed’s optimistic scenario of an economic soft landing which may trigger another relaxation of monetary policy in order to jumpstart the economy. Moreover, a lasting increase in energy prices, fiscal easing, and a deanchoring of inflation expectations may turn the current recessionary environment into a prolonged stagflation period.
Stagflation Could Derail the Fed’s Benign Scenario Stagflation in the 1970s came as a surprise to most Keynesian economists because the combination of tepid growth and rapidly rising prices was at odds with previous recessions. It also contradicted the famous Philips curve claiming a stable inverse relationship between inflation and unemployment. The “popular” explanation of the high inflation in the 1970s was the tripling of oil prices following the two oil shocks in 1973 and 1979.
In reality, the surge in inflation was caused by a Keynesian-style fiscal and monetary stimulus that fueled an unsustainable economic boom in the US in the 1960s, as explained by Thornton. This also forced the US to abandon the gold standard in 1971 and led to the collapse of Bretton Woods. Like today, high inflation in the US surging to 6.4 percent in February 1970, predated the energy supply shocks, which was mainly a symptom of excessive money printing. The increase in oil prices impacted inflation differently in various countries, with prices increasing much faster in the US compared to Switzerland and Germany (graph 2), pointing to the key role played by monetary policy and inflation expectations.
Graph 2: Consumer Price Index inflation in the 1970s
picture2.png
Source: FRED.
The German and Swiss central banks understood that inflation was primarily a monetary phenomenon and tried to control the growth in monetary aggregates to restrain inflation and steer inflationary expectations. This became their monetary policy nominal anchor when the link to gold was severed. The Bundesbank hiked interest rates early and ex post real interest rates had been largely positive in Germany, whereas they had been negative in the US the entire period between August 1971 and October 1979. As a result, the growth in the US broad money not only continued at a quick pace (graph 3) but was also accompanied by a deanchoring of inflation expectations as high inflation endured. Even if the increase in the US money supply was only slightly worse than in Germany, the deanchoring of inflation expectations pushed inflation much higher in the US.
Graph 3: Broad money (M3) in the US, Germany, and Switzerland
picture3.png
Source: FRED.
Stagflation Red Flags The 1970s experience underlines the key role played by inflation expectations in driving up prices. A sustained increase in prices reduces the demand for cash holdings of a currency that is constantly losing its purchasing power, reinforcing the inflationary spiral. Today, we can already see an increase in inflation expectations of both professional forecasters (graph 4) and consumers (graph 5), which may amplify going forward.
Graph 4: Professional forecasters’ inflation projections
picture4.png
Source: Federal Reserve Bank Philadelphia.
Graph 5: Consumers’ inflation projections
picture5.png
Source: New York Fed Survey of Consumer Expectations.
According to Ludwig von Mises, the inflation caused by credit expansion differs from the one caused by direct monetization of government budget deficits. The former is usually accompanied by deflation when the issuance of fiduciary media stops, whereas the latter is not, unless the government withdraws the additional quantity of money from the market.
The current spike in inflation is a mixture of a long-lasting credit boom, supplemented by generous government budget handouts to both businesses and households during the pandemic. Fiscal profligacy has continued after the pandemic with a massive forgiveness of student loans and a “green” electoral spending package which is paradoxically meant to reduce inflation. Fiscal easing is likely to counteract deflationary pressures stemming from ending the credit expansion, as budget deficits have reached warlike levels peaking at almost 15 percent of GDP in 2020.
Energy prices will most likely remain high as the war in Ukraine and the decoupling from the Russian economy continue, reinforced by the unabated green transition. This pushes governments to accommodate the energy supply shock with further rounds of monetized deficit spending to subsidize energy prices and increase public sector wages and incomes. Growth of private wages has also accelerated in a tight labor market where anticipations of persistent inflation are taking hold (graph 6). Lately, both the ECB and the IMF expressed concerns that inflation has started to become “self-reinforcing” due to governments’ fiscal packages and an increase in inflation expectations.
Graph 6: US nominal wages
picture6.png
Source: FRED.
The Fed’s Monetary Stance Is Too Lax With prospects of stagflation materializing, the Fed’s current scenario of monetary tightening is obviously too dovish. History shows that the US Great Inflation of the 1970s could only be ended by hiking interest rates into real positive territory for several years in order to reanchor inflation expectations. Inflation had accelerated to almost 12 percent when Volcker took over as Fed chairman in November 1979.
At that time, the Fed rate was still relatively high, and the real rate was only slightly negative at –0.8 percent. Yet, with inflation accelerating above 14 percent by mid-June 1980, Volcker raised the Fed rate up to 19 percent in December 1980. While he gradually reduced the policy rate over the next five years, the real rate was always positive and exceeded 5 percent on average from 1981 to 1984, so that inflation dropped below 4 percent (graph 7).
The rate tightening also triggered a steep economic recession in 1981–82 and the wiping out of the savings and loan industry. With current negative real rate rates exceeding –5 percent and voices already calling for a softening of the Fed’s stance in the new recessionary environment, the US will most likely end up with stagflation rather than low inflation.
The financial sector could throw some sand into the printing machine by being extra cautious and tightening lending conditions more than the Fed. Indeed, the spread between the 30 Year fixed mortgage rate and the Federal funds rate increased from an average of 275 basis points in 2020 to 385 basis points in the first nine months of 2022, but the financial sector tightening made up only partly for the Fed’s too lax monetary stance.
Graph 7: Federal Funds rate and inflation
picture7.png
Source: FRED.
The only lesson for the United Kingdom is to remember that if you follow Greece’s economic policies, you get Greek debt, unemployment, and growth.
Original Article: "The Bank of England Made Liz Truss a Scapegoat"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Classified: The Untold Story of Racial Classification in America
by David E. Bernstein
186 pp.
Bombardier Books
There was a brief period when, at least from my naïve high school freshman understanding of US politics, the election of Barack Obama was supposed to herald in a new age of improved race relations in America. Obviously, that did not happen, and instead it seems that in the past decade America has become more obsessed with race and wracked with racial conflict than at any point in several decades. Interpretations of American history that argue that the US is more or less congenitally infected with racism, such as that of the 1619 Project, and critical race theory and other Far Left perspectives have exploded into the mainstream and have increased social conflict and division.
As a result, David E. Bernstein’s new book Classified: The Untold Story of Racial Classification in America is a most timely and needed addition to the complicated and convoluted state of American racial discourse. In this relatively short (about 184 pages) and easy to read, yet detailed, book, Bernstein, a law professor at George Mason University, explains the rather hard to believe and rather strange government racial classifications in American law and their negative consequences.
Today, one might be excused for thinking that the categories of black / African American, white, Latino, and Asian are divine knowledge that descended from the heavens. These classifications manifest everywhere, not only on bureaucratic forms, but also in popular culture, where people have over time begun to adopt these rather arbitrary and often illogical classifications. However, as Bernstein explains, these classifications only began to emerge in the 1960s and ’70s, through a rather hodge-podge implementation among various federal agencies, with the current categories (American Indian or Alaska Native, Asian and Pacific Islander, Black, Hispanic, and White) being established in the late ’70s.
Yet Bernstein points out how these categories (unsurprisingly) have little to no logical consistency, and often encompass peoples who share no ethnic or cultural similarities. For some reason, people turn white west of the Pakistani border, so that people in Iceland and Afghanistan are considered white (also everyone in the former Soviet Union, which extends to the Pacific Ocean, are also classified as white), whereas everyone from India all the way to Fiji are considered to be in the Asian / Pacific Islander classification. The amount of diversity and differences covered by each of these labels is dizzying in its complexity. Yet, as far as the government is concerned, they are all the same.
Bernstein also goes into detail about the category of Hispanic/Latino and its rather arbitrary character. To begin with, the label encompasses anyone of “Spanish origin or culture” but also sometimes includes those of Portuguese or Brazilian ancestry (though he notes that only 2 percent of Americans with this ancestry identify as Hispanic). But in reality, the definition is extremely broad and, to quote Michael Lind, “include[s] blond blue-eyed South Americans of German descent as well as Mexican-American mestizos and Puerto Ricans of predominantly African descent.”
Remarkably, Bernstein points out that more than half of the Americans of Spanish-speaking descent consider themselves to be white and not part of a minority group at all.
Or take African Americans, another grouping that is often considered to be monolithic. I was quite surprised to learn that a full 10 percent of people of African descent in America were born outside the country. Recall that these classifications are supposed to be used to help make up for the historical injustices of slavery and state-sanctioned discrimination, yet nearly two-thirds of black undergraduate students at Harvard are immigrants, children of immigrants, or biracial.
This has prompted outrage among some descendants of slaves, who feel that grouping recent immigrants from Africa with black Americans whose families have been in America sometimes for centuries (African descendants of slaves, or ADOS) is allowing immigrants to take advantage of affirmative action policies and crowd out the people for whom such policies were designed in the first place.
Beyond incoherence, these government racial classification systems have led to numerous negative unintended consequences for Americans.
To begin with, Bernstein notes that it has incentivized racially based rent seeking. In fact, a great deal of the book discusses various cases where courts have had to litigate someone’s race, usually in relation to the person’s eligibility for government subsidies, preferential contract bidding, or reduced standards for government jobs. Since government racial classifications are entirely arbitrary and race does not exist as an objective human biological factor, this inevitably leads to both genuine disputes and obvious attempts to game the system.
Readers are no doubt familiar with Senator Elizabeth Warren’s claim of being of American Indian descent and how she made this claim on her law school application. However, it turns out such a practice is stunningly common. Bernstein cites one study that found that ten times as many law school applicants as lawyers identify as Native American.
This is replicated all around the country at every level of government and leads to rather ugly feuding about who is what race “authentically” and who is just a money-grubbing poser.
Beyond just adding another avenue of rent seeking, which is widespread already, the government’s racial classification system encourages Americans to think of themselves in such terms and in opposition to other groups. In the author’s words “implicit in America’s racial classification scheme is the notion that society will be permanently divided into suspicious or hostile racial groups.” Rent-seeking resources are limited, so if more and more minority groups become recognized by the government, then there will be less of the pie for already established interest groups. (Bernstein’s exploration of the case of the Cherokee freedmen, with which I was entirely unfamiliar, is an especially interesting, though rather cringe-inducing case of vicious fighting of this kind.)
Bernstein is especially insightful when it comes to the negative effects of promoting a white identity, quoting Michael Lind, who calls it “a single government-created pseudo-race.” The idea that Americans with ancestors from Iceland, Tunisia, and the Kamchatka Peninsula in the Russian Far East not only all share some sort of common heritage and culture, but that they also share common interests when it comes to the domestic politics of the United States is simply absurd.
However, there is no doubt that white racial consciousness is increasing (at a time, Bernstein notes, where racial intermixing is occurring more than ever before) and that this is not a good development. It is quite ironic that it is often critical race theorists who push for people to become aware of their “whiteness” with the hope that they will repent of their “privilege,” but in reality, the data shows that once someone embraces a “white” identity, they are more likely to embrace ethno-nationalism and to support specifically white-focused collective political action.
Bernstein also has a fascinating chapter on the negative consequences of government-required racial categorization on scientific and especially medical research. He notes that there is no known case of genetic variation that is “found exclusively in any particular ‘racial’ group” and quotes an amusing editorial that claims that “pooling people in race silos is akin to zoologists grouping racoons, tigers, and okapis on the basis that they are all stripey.”
Despite the long laundry list of evils created by government racial classifications, Bernstein does not leave the reader without hope for the future. For one thing, due to the high degree of intermixing, it appears likely that within a generation or two, most Americans will technically qualify as a recognized minority and therefore be eligible for things like minority business enterprise preferences. Once everyone is a minority, no one will be, and some degree of reform will almost certainly be forced in the face of ever-mounting absurdities and inconsistencies.
Bernstein points to a French-style solution, where the government does not recognize or classify racial or ethnic differences among citizens. In other words, remove government from race altogether (though Bernstein leaves room for government policy on objectively defined groups, such as Native Americans and ADOS, if a need is felt to use policy to address historic issues and injustices).
Overall, Bernstein has written a fascinating and detailed book that is chock full of interesting information that makes us question the logic of what for many of us is just an ingrained way of looking at the world. What’s more, Bernstein does this in a very easy to understand way that ensures that both the interested layman and the more focused academic walk away with many useful insights into what has unfortunately become one of the most hot-button issues of the day.
As we watch the once proud edifice of higher education in the USA crumble, we realize that we are looking at institutional failure itself.
Original Article: "The Perils of Higher Education: Institutional Failure"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
While Bitcoin's S2F Model has come under some criticism, the best analysis of its flaws comes from perspective of Austrian Economics.
Original Article: "A Critique of the Bitcoin Stock-to-Flow Model"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Featuring David Gordon, Paul Gottfried, Peter Klein, and Joseph Salerno.
Sponsored by Happy Baily and Charlie Martin.
College faculties historically have leaned left-of-center, but today, a rigid progressive ideology is enforced not only by faculty, but also by higher education administrations.
Original Article: "Higher Education in Crisis: The Problem of Ideological Homogeneity"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
It won’t be away from anyone’s knowledge not to observe the way many active celebrities favor collectivist ideology. Most probably the answer to why intellectuals favor socialism or collectivism is answered clearly. Unlike in the twentieth century, actors and athletes are more popular than scholars. Therefore, the new concern should be why these famous personalities in the majority favor one or the other way of collectivism. It’s not that this case holds for everyone but only those who are more actively involved in these topics.
To make confusion clear, this article is not talking about someone leaning to the left or right but simply to someone supporting any form of collectivism that is on both sides of the political spectrum. Obviously, some stars don’t tend to speak on these matters and avoid them to their best, and probably many of them might be individualist because all they do is, “Mind their own business.”
The obsession with collectivism amongst these popular names can be because of the theory’s aesthetic feature, to gain followers and a marketing strategy to attract the masses. In the West, there are so called “liberals” and in India, it depends mainly on which side of political spectrum is in power. But no matter what they show to support, their main aim is to portray themselves as wise and moral in front of the public. This reminds a popular quote by Thomas Sowell: “When you want to help people, you tell them the truth. When you want to help yourself, you tell them what they want to hear.”
Celebrities are just like intellectuals. Though there are a few differences, a celebrity attracts those who are in their teenage or who have the mental capability of that level whereas Intellectuals attract people in power and students. Both are dangerous in their way as one attracts the masses while the other attracts power and in all this democracy becomes a joke.
Secondly (my friend raised this question to me that we are both trying to find the answer), it is important to understand why and how these people especially from the Left get to the conclusion that whatever they are doing or supporting is moral. In this dogmatic belief, they become intolerant. This applies to all collectivists, and they almost always present their thoughts forcefully.
This question might seem simple, but it isn’t, because even if everyone in their own belief considers themselves doing right and are not all intolerant, the individualists or the scholars advocating it aren’t like those on the other side. This seems to be the nature of the collectivists. This psychology might be of celebrities too who have self-confidence or overconfidence on their morality.
Thirdly, as mentioned how this can be a strategy to uplift the careers of people through publicity and more fan following, to add more, any form of collectivism is master of making cronies fatter. The established ones try their best to suppress the competitive environment to keep their dominance alive with a kind of monopolistic power. More government is better for them according to their benefit. It can also be a case that there is some political strategy involved in a political organization too. Anyone supporting anticapitalistic and progovernment approach with an anger and hate toward rich are actually making them more powerful and richer.
Lastly, which seems to be in most cases is the ignorance. Ignorance about the consequences of what they are supporting, about history, or about the crux of their ideology which has been judged from an overview.
Celebrities’ knowledge in these matters is just like that of every ordinary person and there is a possibility of being lesser too. It is not wrong to be involved in these matters or in their words “show concern for others” but, it is immoral when those who don’t want to be part of it are also dragged and when they refuse to be part of the campaign they are judged and falsely alleged.
Celebrities nowadays are so-called influencers who tell people to live and think like them. If someone is so capable of taking responsibility for society themselves then they can give it a try, but nobody gives them the right to take anyone for granted to believe them for no reason.
Someone can have information about happenings in his/her surroundings or country but getting involved in matters of other countries and causing a disturbance is what gets intolerable. There were popular personalities residing in the USA who not long ago supported farmers’ protest in India without knowing how much subsidies are given to those farmers who live a luxurious life off taxpayers. These people failed to even acknowledge what propaganda was involved in these protests and how many public properties were damaged.
After so long something good was going to happen in farming sector of the country but it was completely ruined as the government took back their decision seeing the elections approach. These celebrities played a major role in boosting the protests for their own benefit.
Though it is quite clear that the majority lean more toward socialism/leftism, but it doesn’t rule out the fact that their leaning toward any other ideology say, nationalism would be any better. Maybe in the West nationalism isn’t at a much higher degree due to high number of “liberals” and probably due to this they won’t understand how dangerous nationalism could also get but it is quite visible in India at present which earlier had a socialist past.
Since I am an economist and my school year is not too far along, my classroom discussion of how all of economics traces back to the fact of scarcity (the combination of limited resources, which implies a limited ability to produce, along with wants that always exceed the amount that can be produced) facing everyone was quite recent. That was why Brad Polumbo’s recent article, “What AOC and Nina Turner Get Wrong about the ‘Scarcity Mindset,’” so quickly drew my attention.
It is the fact that each of us on earth faces scarcity that drives economics as a field (and why I tell my students it will only help them on earth, and not in heaven, since we are told there will be no scarcity there). Scarcity implies that we must choose among the goods and services which we want, since we want more than we can have. Further, making choices means we must bear costs, because choosing one thing we want is also choosing not to have something else we also want (which economists are famous for calling opportunity costs, to remind ourselves that costs are always the highest valued opportunities foregone by decision-makers).
We then add the assumption of self-interest (not the same as selfishness, but simply that there are some things or purposes we would like to advance), that leads us to what I call “the rule of rational choice:” Whatever choice or action someone is being considered, individuals choose to “do it” if and only if the marginal expected benefits to the decision-maker exceeds the marginal expected costs to the decision-maker. Everything in economics connects to this rule.
So when Polumbo quoted AOC as tweeting, “We can do good things and reject the scarcity mindset that says doing something good for someone else comes at the cost of something for ourselves,” and that Nina Turner wrote, “We must reject the scarcity mindset. Our government has the ability to fund programs that will help everyone,” it piqued my curiosity.
As Polumbo explained, their use of the “scarcity mindset” traces back to Steven Covey’s book The 7 Habits of Highly Effective People, which he used to describe a win-lose paradigm, in contrast to the “abundance mindset,” which he used describe a win-win paradigm. Covey wrote, “Most people are deeply scripted in what I call the Scarcity Mentality. They see life as having only so much, as though there were only one pie out there. And if someone were to get a big piece of the pie, it would mean less for everybody else. The Scarcity Mentality is the zero-sum paradigm of life.”
However, Covey’s “scarcity mindset” is very different from the implications of scarcity that economists study. While economics can certainly be used to analyze win-lose situations, it contains no assumption or implication that voluntary arrangements are win-lose. In fact, because all parties to voluntary arrangements must agree to the terms, every participant must expect to gain from them—they are win-win. That is, scarcity—a fact for each of us—does not equate to a “scarcity mindset.”
Consequently, when progressives claim that all that prevents using government as they prescribe from benefitting all of us is the zero-sum “scarcity mindset,” which an “abundance mindset” would solve, they are really saying they could do a lot of good if we would just assume the reality of scarcity away. Unfortunately, adopting the “abundance mindset” does not actually eliminate scarcity. All of scarcity’s implications for economic analysis still hold. The “right” mindset, as progressives see it, does not create the “free lunches” they advertise.
Compounding the confusion, progressives also abuse the idea of an “abundance mindset.” They imply that if we just had the “right” mindset, that would make government interventions positive sum in nature. That is how we could all supposedly benefit from substituting government dictation for our own choices with our own resources in almost unending ways.
Unfortunately for that argument, there are many problems that hamstring the beneficial paternalism progressives advertise from making us all better off. In a nutshell, as economists emphasize, “incentives matter,” and government incentives fall far short of those facing one’s actual parents. Your parents know more about you than government. They care more for you than government (including efforts to build character and develop appropriate independent behavior, rather than expanding dependence). They can more flexibly face changing circumstances than government famous for being a slow, red tape encrusted bureaucratic beast. And they are forced to use their own resources and those voluntarily attracted from others, so they cannot harm others in the process, rather than involuntarily taking them from others, as does government.
So if we know that voluntary arrangements are expected to benefit all whose rights are concerned, because all parties must agree to them, but government arrangements can easily be win-lose (or even win-lose-lose-lose … ) because of their coercive power, how can we tell whether what is involved is win-win, as progressives claim, or win-lose?
Leonard Read, among history’s most devoted defenders of liberty, offered us a useful approach to this issue in “Saying What You Really Mean,” in his 1967 book, Deeper Than You Think:
Simply ask whether arrangements involve willing or unwilling exchange.
Shall it be willing or unwilling exchange?
Standing for willing exchange, on the one hand, or for unwilling exchange, on the other, more nearly accents our ideological differences than does the employment of the terms in common usage.
If we cut through all the verbiage used to report and analyze political and economic controversy … much of it boils down to a denial of willing and the insistence upon unwilling exchange.
The list of coercive activities that go beyond the principled scope of government runs into the thousands.
The concept of willing exchange unseats … all forms of authoritarianism—and enthrones the individual…. Individual freedom of choice rules economic affairs.
A good society … [requires] the unobstructed flow of creativities … in free and willing exchange.
No person, or any combination … has any right of control over any other person that does not exist or inhere as a moral right in each individual. The only moral right of control by one individual over another or others is a defensive right, that is, the right to fend off aggressive or destructive actions. Governments, therefore, should go no further in controlling people than the individuals who organize it have a moral right to go…. In short, limit governmental power to codifying the do-nots consonant with the defense of life and livelihood, to the protection of all citizens equally. No special privilege for anyone!
This is to say that, ideally, government should be limited to inhibiting and penalizing all violence, fraud, predation, misrepresentation—that is, to keeping the peace. Insist that it tolerate no unwilling exchange and that it never indulges in what it is organized to prohibit. Let government do only this; leave all else, including welfare and prosperity, to willing exchange.
Leonard Read’s focus on voluntary exchange backed solely by defensive force can help cut through the tangle of confusion and distortion that misleading progressive use of “scarcity mindsets” and “abundance mindsets” create. It is true, as they insist, that government could conceivably benefit all of us (as it would if it solely acted to better defend all of our rights to “life, liberty and the pursuit of happiness,” allowing more win-win voluntary arrangements). But the only time we can be sure that government does that is when all exchanges are, in fact, voluntary.
Yet if there is one thing we have all learned from relationships with government today, it is that they impose a vast array of involuntary exchanges on us. Further, every new progressive proposal would add to their extent. That is the real reason their advocates like the “scarcity mindset” misdirection—honesty and clear thinking cannot defend their positions.
Governments and central banks have become the lender of first resort instead of the last resort, and this is immensely dangerous. Global debt soars, inflation creeps in, and many of the so-called supply chain disruptions are the result of zombification after years of subsidizing low productivity and penalizing high productivity with increased taxes.
There are many reasons why nations should not “spend now and deal with the consequences later.” First, the spending is made by politicians that will not be held accountable for the malinvestment and unwise outlay decisions. Furthermore, the cost will always be paid by taxpayers and businesses.
Think about the irony of promoting an “Inflation Reduction Act” that means spending more and monetizing more debt. But it is even more ironic to launch an “inflation reduction act” after creating massive inflation with multitrillion-dollar stimulus plans and central bank balance sheet expansion. Government presents itself as the solution to the problems it creates and passes the bill twice to taxpayers.
Second, governments are extremely bad at picking winners but even worse at picking losers. Policy nudging, subsidies, and grants are often aimed at obsolete or politically favored sectors which in turn leads to the rise in zombie companies. Government spending to “save” businesses tends to support those who are already highly indebted and with relevant challenges to pay their debts. This is bad, but picking losers is even worse. The world would not have a food and energy crisis because of a disruption from countries that mean less than 10 percent of supply if regulation and laws would not have placed enormous burdens on investment in farming, energy, and trade in general.
Third, the negative impact outweighs the positive. I remember a conversation with Judy Shelton in which she mentioned in 2021 how the US economy would be stronger if the stimulus plan had not been implemented. She was right. The enormous spending plans have created an unsurmountable structural deficit, as many programs are consolidated and increased, and the negative impact on growth, inflation, and real wages only a year and a half later are undeniable.
It is undeniable that economies come out of every crisis with higher debt, lower growth, weaker real wage growth and poorer job creation. Yet, somehow, people think that the next time will be different. They said the same about 2020. And it was different. You had your cheque and paid for it multiple times over with higher inflation and more taxes.
Critics may say that this is easy to say in a recovery, but how do we explain to citizens that governments should do nothing? Herein lies another of the tricks from interventionists. We have grown accustomed to the idea that if the government does no spend massively in a crisis, then it is doing “nothing.” Enormous demand-side policies are essential even when the problem has nothing to do with demand. Even worse, a trillion-dollar plan must be followed by a two trillion one or it will seem too small, no matter what the problem of the outcome is.
Policies should not be judged by their intentions, as Milton Friedman said, but by their results. And when the results are so poor as the ones we have witnessed for almost two decades, we must warn about this constant decision to spend more.
Why is it so dangerous to use central banks and governments as the lender and solution of first resort? Because their main resource to implement those policies is you. Your wealth. Expropriation of wealth is the other side of the “social policy” coin. Taxes and inflation, or both. Some readers might think it is a clever idea to expropriate the wealth of the rich to support the economy, but by now they should know that it is a lie. When you give extraordinary powers to a government based on the idea that stealing from the rich is valid, you are giving power to politicians to steal from you as well. And they do. There is no single example of massive government spending plans financed with higher taxes on the rich that did not end meaning higher taxes for all or more inflation, the tax on the poor.
When you read “spend now, deal with the consequences later” what you are reading is give me your wallet because you will deal with the credit card balance later.
The next time you read the dreaded sentence that titles this article, remember: there is nothing that the government gives “for free” that you do not pay one way or the other.
I’ll begin with a provocative thesis: socialism is ideological and free market thinking, while involving myth, is nonideological. I will show why socialism is ideological and why free market thinking involves myth but is nonideological by defining the terms myth and ideology and distinguishing them from each other.
The term “myth” has several connotations. The most common connotation today is that myth represents false belief. Thus, we see many uses of the term myth in which some myth or other is figured as something to be debunked. We can point to hundreds of titles in which the word myth signifies a belief that is mistaken and which the article or book aims to overthrow with evidence and reasoning. When entering “the myth of” into the search field on Amazon.com, for example, titles beginning with phrase are suggested, including The Myth of Normal, by Gabor Mate; The Myth of American Inequality, by Phil Gramm, Robert Ekelund et al.; The Myth of Closure, by Pauline Boss, and so on. Running the same search in an internet search engine yields similar results but includes articles on the myth of this or that, including a recent article by American Pravda (the New York Times), entitled “They Legitimized the Myth of a Stolen Election—and Reaped the Rewards,” referring to the Congresspersons who sought to block the supposedly legitimate results of the 2020 election.
But one will also find, in both searches, titles like The Myth of Sisyphus, by Albert Camus; The Myth of Eternal Return, by Mircea Eliade; The Myth of Return in Early Greek Epic, by Douglas Frame; and others. Or in a search engine one finds discussions of various Greek myths in encyclopedias and on YouTube. Clearly, these latter uses of the term myth are different from the usage in the debunking books and articles. Myth in this other sense draws on a different meaning. The Myth of Sisyphus by Camus is not an argument against the myth itself. Rather, myth in this sense connotes a kind of tale that conveys a truth, an aspiration, or a means of making sense of experience. It is a structuring device for seeing order, patterns, possibilities, probable outcomes, and so on. Myth in this sense also includes lessons to be learned and kept in mind when crafting a life or life mission. The myth of Icarus is a tale about human hubris, for example. The story of the Garden of Eden is generally understood in such terms—as a myth about seeking to be like God. The sinking of the Titanic has been seen in terms of such Greek myths as Icarus and other tales of human hubris.
It is this latter sense of myth that I use here—of myth as a means by which we structure experience, find meaning, and craft the trajectories of our lives.
I distinguish this sense of myth from ideology. Whereas myth provides general outlines for making sense of experience and provides guides for behavior, ideology—to draw on a myth for describing it—forces the world into a procrustean bed. While all ideology is myth, not all myth is ideology. Ideology works by reducing the structure of the social and material worlds into a simplified image of reality and obscures or eliminates elements of human existence that contradict it. This is not true of all myth. Some myths are more capacious than ideologies. They allow varying interpretations and applications, and do not constrain the possibilities for action in response to them.
Thus, I am using the Marxist sense of ideology here. I refer to ideology in terms of how Marx defined it, as false consciousness. Ideology, as Marx suggested, presents an image of the world as seen through a camera obscura: upside-down and inverted.
Ironically, it is Marxism, and not free market thinking, that is ideological, in Marx’s own sense of the term. Under a Marxist state, the credulous subject lives under ideology. Told that the working class owns and controls the means of production and runs society, the fact of the matter is quite the opposite. Rather than leading to a stateless society of cooperation among free producers, each of whom, as Marx claimed, could “hunt in the morning, fish in the afternoon, rear cattle in the evening, criticize after dinner,” socialism leads inevitably to the same result every time it’s tried: cultural, economic, political, and social monopoly under a singular state system controlling all areas of life. Rather than allowing a choice of multiple employments, the socialist state becomes the sole employer and determines the worker’s exclusive sphere of activity. Rather than withering away as Marx suggested, state power is expanded to enforce cultural, economic, and social monopoly. Rather than politics disappearing as alleged, an official socialist-communist party monopolizes state power so that the system is unchallenged in other spheres. Instead of disappearing, the state remains necessary for enforcing socialist monopolies and it uses the all the means necessary to do so, including terror. Terror is not optional, but rather, as even Marx himself admitted, inevitable. And, far from being limited to Stalin’s reign, the terror began under Lenin soon after the revolution and continued with every subsequent communist leader, including Stalin, Mao, Pol Pot, and Castro. Thus, the image of the world as presented by Marxist ideology is precisely upside-down and inverted. And no one is subjected to ideology more than the subject living under socialism-communism.
In terms of its view of the capitalist order, Marxist ideology simplifies the world into two major classes, the working class and the bourgeoisie, or laborers and the owners of capital. Members of these respective groups supposedly share, or in the case of the workers, should share identical interests and ideological outlooks. This simplified worldview represents a reduction and obscuration of the multiplicities of individual circumstances, social locations, and desiderata. At the very least, we can say that Marxist ideology lacks granularity in its figuration of the social order. The social order is reduced to a cartoon version of reality, with the members of cardboard cutout classes acting in unison. This unified action is deemed to be really the case for the capitalist class and ideally the case for the working class. Thus, Marxism presents a mental image of the world that is easily grasped. This is, in part, why it is supremely ideological in character.
Free market thinking is quite otherwise. Because the free market involves individuals acting in their own interests and having multiple forms of property, including themselves as the primary property, it is impossible to reduce ideas of the free market to a simplified mental image. You can’t represent the system of capitalism as seen through the eyes of the free market thinker in terms of simplified class antagonism—unless, of course, you include the state and recognize that the state is its opponent and the primary exploiter. But as for individuals under an entirely free market system (without state opposition), the activity is impossible to figure as a singular entity. This impossibility of reducing the actions of individuals to a singular block is why free market thinking eludes ideological figuration.
On the other hand, because a truly free market is always approached asymptotically and is never reached, free market thinking always involves myth. That is, so long as the free market remains an ideal and not a reality, free market thinking remains myth.
“Myths,” as Vladimir Tismaneanu writes in Fantasies of Salvation, “propose another reality, beyond history, and their success depends on their plausibility. If they make sense for those supposed to believe in them, myths succeed in their most important task: to endow the individual with a sense of identity and an orientation in the disjointed world.” Free market thinking involves myth because the free market under the state remains aspirational. But it eludes ideology because it does not aim to introduce constraints on individuals, other than their acknowledgement of property rights.
Another point of difference distinguishes free market aspirations from ideology. The myth of the free market is not utopian. It does not suggest the possibility of a perfect world but rather acknowledges scarcity as a starting point and always existing condition. Socialism, on the other hand, imagines endless bounty and suggests that the only barrier to achieving it is the capitalist order. Marxism is likewise religious and utopian in character.
Thus, both socialism and free market thinking involve myth, but of the two, only socialism is ideological.
It is easy to think of supply and demand curves as being key to economic analysis. In reality, they can't tell us much, and emphasizing them actually stands in the way of better understanding economic processes.
Original Article: "What Do Supply and Demand Curves Really Tell Us? Not Very Much"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Ryan McMaken and Tho Bishop talk with historian Chris Calton about student loans, "the college experience," and the lack of ideological diversity on college campuses today.
Use promo code ROTHPOD for a 20% discount on Ryan McMaken's new book Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities: Mises.org/RR_104_Book
Recommended Reading "College as an Economic and Social Problem: Dealing with the Culture" by Chris Calton: Mises.org/RR_104_A
"Higher Education Woes: Student Loans Help Fuel Higher College Costs" by Chris Calton: Mises.org/RR_104_B
"Higher Education in Crisis: The Problem of Ideological Homogeneity" by Chris Calton: Mises.org/RR_104_C
"The Perils of Higher Education: Institutional Failure" by Chris Calton: Mises.org/RR_104_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Breaking Away: The Case for Secession, Radical Decentralization, and Smaller Polities
by Ryan McMaken
Mises Institute, 2022, 230 pp.
Those of us who think that there should be no state at all, or at most a very limited one, must view all existing states with dissatisfaction, though some are better than others. In assessing how good or bad a state is, does the extent of the territory it controls matter? Offhand, you might think it doesn’t. Isn’t the only relevant dimension by which to judge states the nature and degree of control they have over their people? The United States in the nineteenth century was far better than Cambodia under Pol Pot, though vastly larger. In his superb new book, the gifted historian Ryan McMaken argues that the size of a state does indeed matter, and he makes a powerful case for secession from existing states and for decentralization within them.
It’s much harder, he says, to establish totalitarian rule in a small state than in a large one, because it is easier for people to leave.
Because of their physical size, large states are able to exercise more state-like power than geographically smaller states—and thus exercise a greater deal of control over residents. This is in part because larger states benefit from higher barriers to emigration than smaller states. Large states can therefore better avoid one of the most significant barriers to expanding state power: the ability of residents to move away. (p. 27, emphasis in original)
McMaken cites the eminent political philosopher Hannah Arendt in support: “In her book The Origins of Totalitarianism, Hannah Arendt examines a number of nontotalitarian dictatorships that sprang up in Europe before the Second World War…. In many of these cases, Arendt contends the regimes attempted to turn themselves into totalitarian regimes, but failed. This was largely due to their lack of size” (p. 49, emphasis in original).
On the other side, though, don’t a large number of small states make trade barriers more likely? McMaken does not think so, and in responding to this contention he uses an argument parallel to the one about totalitarianism. Because small states have little control over the world’s economy, it is difficult for them to insulate themselves from international commerce: “After all, an autarkic small country that lacks a diverse economy or a large agricultural sector will quickly find itself running out of food, skilled labor, and raw materials. Moreover, a small country without close economic ties to other nations will also soon find itself in a very dangerous geopolitical position” (p. 91). In this connection, it’s interesting to note that the oft-repeated claim of American centralizers that a strong central government was needed to cope with trade barriers under the Articles of Confederation has no basis, as Merrill Jensen and Murray Rothbard, following him, have pointed out.
McMaken is alert to the objection that however desirable small states may be, they cannot in practice defend themselves against large states that wish to take them over. Not so, he says: small states can band together to repel invasion, and in any case, conquest of an obdurate population is no easy task, as Russia found out to its cost in Afghanistan and earlier in Finland. Further, “pundits and scholars who comment on international relations have too long relied on crude aggregate measures which suggest far higher levels of relative military power than is likely in cases like Russia or China … it is not the case that large, populous states hold all the cards. Economic development—which, we know, tends to be more developed in smaller and more decentralized states—is likely a more critical factor.”(p.122)
But wouldn’t a large number of small states make nuclear proliferation more likely? Perhaps it would, but McMaken maintains that this may make war less frequent. He cites in this regard a famous contention of the political scientist Kenneth Waltz. “The first influential theorist to express doubts about the established non-proliferation narrative was Kenneth Waltz,” who, “as George Perkovich put it … ‘has been the most illustrious proponent’ of the view that ‘The major benefit of nuclear proliferation conceivably would be to create deterrence relationships that lower or eliminate the risk of war between a certain set of adversaries’” (pp. 124–25).
The author tells us that “this book is not primarily theoretical in nature” but it does have a “philosophical component” (p. 12), and this is a strong one. Large states often contain within them disaffected minority groups, subjected to ill treatment by the dominant majority. Democratic voting offers no adequate remedy for this sad state of affairs, since minority votes will usually be swamped.
In any case, democracy offers no solution in addressing profound cultural differences among the residents of a single political jurisdiction. When populations with sharply differing world views must exist under a single regime, voting resolves nothing, and one side will ultimately impose its preferred policies on the other side. Noncompliance will bring down the full weight of the law, the police, and all the coercive institutions the state frequently employs. (p. 133)
In these circumstances, secession is clearly indicated, and this is something Ludwig von Mises and Murray Rothbard fully recognized. As McMaken points out, Mises said that “the right of self-determination … is not the right of self-determination of nations, but rather the right of self-determination of the inhabitants of every territory large enough to form an independent administrative unit. If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done” (p. 66). Rothbard “went the extra mile” and favored secession at the individual level. “Rothbard pushed secession for two main reasons. First, he regarded it as a useful tactic in moving toward his ideal of individual freedom. Second, even when this ideal is not achieved, decentralization is valuable because smaller states are less able to exercise monopoly power than large states” (p. 66, emphasis in original).
I have been able to discuss only a few of the many areas McMaken covers. Breaking Away is indispensable for understanding the political realities of the present day and a discerning guide to the past.
Free Markets are often criticized for producing ugly, dystopian, consumer-driven landscapes, but is this true? Jeff explains how we need more than intellectual appeal to advance the cause of liberty—we need an appeal to beauty.
Watch other talks from our 40th Anniversary Celebration: Mises.org/SS2022
Even while Americans deal with skyrocketing higher education costs, few would challenge the worth of college and fewer still question the campus culture. Yet, that is precisely where the problems lie, even if people don't recognize it.
Original Article: "College as an Economic and Social Problem: Dealing with the Culture"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
While whispers of the current emerging market debt crisis, the result of the rapidly strengthening dollar, could be heard throughout the summer, virtually no one predicted the blow the dollar’s rise would deal to some other developed economies. But with the dollar reaching levels not seen in a generation, a battering is precisely what several are being unexpectedly dealt.
In September, the Bank of Japan intervened to stem a persistent bleed, buying yen for the first time in twenty-five years. The yen, which had been steadily losing value since the middle of March, when the Bank of Japan announced it would not be following the Federal Reserve in a hawkish pivot to combat inflation, will likely remain under pressure given the Bank of Japan’s commitment to ultralow interest rates. However, the singular move marked a shot across the bow at the macro funds that speculate in currency markets: think twice before shorting the yen.
The following week it was the Bank of England’s turn. Bond markets, rattled by new UK prime minister Liz Truss’s unexpected announcement of yet more unfunded tax cuts and increased spending, sold off violently in the pound’s largest ever single day decline. The move sent yields spiking, bond prices moving inversely to yields. Already mired in economic crisis, with inflation still running near 10 percent and the price of heating a home five times what it was a year ago, the Bank of England has now revealed its intervention was done to save several public pension funds whose leveraged positions faced liquidation because of the sell-off.
Bond and currency markets having at least temporarily been calmed by these interventions, the examples of Japan and England illustrate the advantage a currency sovereign has over most borrowers in the emerging markets, who are forced to borrow in dollars to access international credit markets: in a crisis, the Bank of England and Bank of Japan can simply turn on the printing press to keep the lights on and people fed.
Italy, itself facing an even worse economic crisis than the UK, has no choice looking ahead to the coming winter but to go along gratefully with whatever protection Brussels and the European Central Bank (ECB) are willing to give it as the spreads on its bonds threaten to widen.
Of course, while all of the above actions can help avoid an immediate credit event, their use has become all too regular, and the now staggering debts of the rich world will increasingly take their toll in the new higher interest rate environment, with the percentage of GDP devoted to paying annual interest rising precipitously.
A problem for the long run, apparently.
While at this point minor compared to the immediate, starvation-level situation wrought by the rising dollar in places like Nigeria, Egypt, Argentina, or Kenya, the full impact of the Federal Reserve’s top to bottom bungling of inflation on its major advanced trading partners has yet to fully materialize. Changes in the real economy lag changes in interest rates, but already warnings from Seoul and Delhi suggest the reversal of capital flows resulting from capital moving into treasuries is hindering necessary investment. Though, that may pale in comparison to the damage of a global recession, which the World Bank, International Monetary Fund, and World Trade Organization all now warn is increasingly likely, and due in no small part to the precipitous pace of the Fed’s rate increases.
For their part, Jerome Powell and Co. remain unmoved by the markets’ cries of “uncle.” The US economy is sending mixed signals. In particular, citing the continuing tightness of the labor market, the result of a demographic imbalance between generational cohorts, the Fed continues to make the political space it needs to continue its inflation fight. Facing complaints from lawmakers and investors alike, high ranking Federal Reserve officials have repeatedly emphasized the need for the institution to stay its course in order to maintain its “credibility.”
Apparently, this is a feat only accomplishable by pushing the economy it overheated off a cliff.
At a moment when virtually every central banker the world over was asleep at the wheel, credit to the few central banks that got it right. In Brazil and Mexico, for example, countries with troubled histories of inflationary spikes and currency sell-offs, rate hikes were earlier and sharper; as a result, their currencies held up amidst the otherwise global rout in the emerging markets; this, in turn, helped Brazilian and Mexican businesses as the global economy soured. In both cases economic growth has been maintained despite the deteriorating macroeconomic environment.
As the old adage goes, an ounce of prevention is worth a pound of the cure.
Had the Federal Reserve been bound by some version of the Taylor rule, rates would have automatically adjusted as soon as inflation began to tick up in 2021. As it is, wishful thinking, misleading narratives, and an unaccountable few have given the global economy a series of unnecessary and deadly shocks.
[Originally published by Law and Liberty.]
The year 2022 has certainly been a tough one for the Federal Reserve. The Fed missed the emergence of the runaway inflation it helped create and continued for far too long to pump up the housing bubble and other asset price inflation. It manipulated short- and long-term interest rates, keeping them too low for too long. Now, confronted with obviously unacceptable inflation, it is belatedly correcting its mistake, a necessity that is already imposing a lot of financial pain.
Sharing the pain of millions of investors who bought assets at the bloated prices of the Everything Bubble, the Fed now has a giant mark-to-market loss on its own investments—this fair value loss is currently about $1 trillion, by my estimation. It is also facing imminent operating losses in its own profit and loss statement, as it is forced to finance fixed-rate investments with more and more expensive floating rate liabilities, just like the 1980s savings and loans of Paul Volcker’s days as Fed Chairman.
In short, the Fed, along with other members of the international central banking club, sowed the wind and is now reaping the whirlwind. Comparing the current situation with the travails of the Volcker years grows ever more essential.
Samuel Gregg, Alexander Salter, and Andrew Stuttaford have provided highly informed observations about the past and present, and offer provocative recommendations for the future of the “incredibly powerful” (as Gregg says) Federal Reserve—the purveyor of paper money not only to the United States, but also to the dollar-dominated world financial system.
Stuttaford considers the issue of “Restoring the Fed’s Credibility?” with a highly appropriate question mark included. He points out that Volcker did achieve such a restoration of credibility and ended up bestriding “the [wide] world like a colossus,” although, we must remember, not without a lot of conflict, doubt, and personal attacks on him along the way.
But is it good for the Fed to have too much credibility? Is it good for people to believe that the Fed always knows what it is doing, when in fact it doesn’t—when it manifestly does not and cannot know how to “manage the economy” or what longer-run effects its actions will have and when? Is it good for financial actors to believe in the “Greenspan Put,” having faith that the Fed will always take over the risk and bail out big financial market mistakes? It strikes me that it would be better for people not to believe such things—for the Fed not to have at least that kind of “credibility.”
Stuttaford elegantly and correctly, as it seems to me, suggests that “the price of a fiat currency is—or more accurately, ought to be—eternal vigilance against inflation.” Such eternal vigilance requires that we should never simply trust in the Fed and poses the central question of who is to exercise the eternal vigilance.
It is often argued, especially by economists and central bankers, that central banks should be “independent,” thus presumably practicing by themselves the vigilance against inflation, making them something like economic philosopher-kings. Indeed, inside most macro-economists and central bankers there is a philosopher-king trying to get out. But the theory of philosopher-kings does not fit well with the theory of the American constitutional republic.
Those who support central bank independence always argue that elected politicians are permanently eager for cheap loans and printing up money to give to their constituents, so can be depended on to induce high inflation and cannot be trusted with monetary power. But if the central bank also cannot be trusted, what then? Suppose the central bank purely on its own commits itself to perpetual inflation—as the Fed has! Should that be binding on the country? I would say No. The U.S. Constitution clearly assigns to the Congress, to the elected representatives, to the politicians, the power “to coin money [and] regulate the value thereof.”
Salter suggests we should follow this constitutional logic. “The Fed should have a single mandate,” he recommends, that of price stability, and “Congress should pick a concrete inflation target.” The Fed wouldn’t get to set its own target: “Since the Fed can’t make credible commitments with a self-adopted rule, the target’s content and enforcement must be the prerogative of the legislature, not the central bank.” In sum, “As long as we’re stuck with a central bank, we should give it an unambiguous mandate and watch it like a hawk. Monetary policymakers answer to the people’s representatives, in Congress assembled.”
Along similar lines, I have previously recommended that Congress should form a Joint Committee on the Federal Reserve to become highly knowledgeable about and to oversee the Fed in a way the present Banking committees are not and cannot. I argued:
“The money question,” as fiery historical debates called it, profoundly affects everything else and can put everything else at risk. It is far too critical to be left to a governmental fiefdom of alleged philosopher-kings. Let us hope Congress can achieve a truly accountable Fed.
This still seems right to me. As I picture it, however, neither the Federal Reserve nor the Congress by itself would set an inflation target. Rather, on the original “inflation target” model as invented in New Zealand, the target would be a formal agreement between the central bank and the elected representatives. New Zealand’s original target was a range of zero to 2% inflation—a much better target than the Fed’s 2% forever. Since an enterprising, innovative economy naturally produces falling prices through productivity, we should provide for the possibility of such “good deflation.” Hence my suggested inflation target is a range of -1% to 1%, on average about the same target Alan Greenspan suggested when he was the Fed Chairman, of “Zero, properly measured.”
In his insightful history of the Fed, Bernard Shull considered how the Fed is functionally a “fourth branch” of the U.S. government. The idea is to put this additional branch and the Congress into an effective checks-and-balances relationship.
Among other things, this might improve the admission of mistakes and failures by the Fed, and thus improve learning. As Gregg observes, “Admitting mistakes is never something that policymakers are especially interested in doing, not least because it raises questions about who should be held accountable for errors.” And “central bankers do not believe that now is the time for engaging in retrospectives about where they made errors.” Of course they don’t. But are you more or less credible if you never admit to making the mistakes you so obviously made?
Gregg is skeptical of the ability to control central banks by defined mandates, since we are always faced with “the ability of very smart people to find creative ways around the strictest laws (especially during crises).” The politicians, he points out, often want the central banks to use creative rationales for stretching and expanding their limits, and this is especially true during crises. As a striking example, “the European Central Bank has engaged in several bailouts of insolvent states and operated as a de facto transfer union.” But “governments…say as little as possible about such ECB interventions (and never question their legality),” and this “has everything to do with European governments wanting the ECB to engage in such activities.”
We are left wondering, as always, who will guard the guardians. There has been no easy answer to that question since Juvenal posed it to the ancient Romans.
Another Roman, Velleius Paterculus, expressed another fundamental central banking problem: “The most common beginning of disaster was a sense of security.” It is most dangerous when the public and the central bankers become convinced of the permanent success of the latest central banking fashion, especially, as Volcker pointed out in his autobiography, if that involves accommodating ever-increasing inflation.
We can conclude our review by stressing that the price of having fiat money is indeed eternal vigilance against inflation. But we don’t know very well how to carry out that vigilance and we can’t count on a new Volcker appearing in time to prevent the problems, or belatedly to address them, or appearing at all.
There are only painful options for bringing price inflation under control at this point, and that's all thanks to the Fed's creation of countless bubbles and malinvestments over the past decade.
Original Article: "We're Getting Poorer: Price Inflation Grew Faster than Wages Again in September"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
For many commentators, a change in the shape of the differential between the long-term interest rate and the short-term interest rate—i.e., the yield spread provides an indication of the likely direction of the economy in the months ahead. Thus, an increase in the yield spread raises the likelihood of a possible strengthening in economic activity in the months to come. Conversely, a decline in the yield spread is seen as indicative of a possible economic downturn ahead.
A popular explanation regarding the shape of the yield curve is provided by the expectations theory (ET). According to ET, expectations for an increase in the short-term interest rate sets in motion an upward sloping yield curve, while the expectation for a decline in the short-term interest rate sets the downward sloping yield curve.
In the ET framework, the average of the current and expected short-term rates determines the current long-term interest rate. Whenever investors anticipate economic expansion, they also form expectations that the central bank will raise short-term interest rates by lifting the policy interest rate.
To avoid capital losses, investors move their money from long-term to short-term securities. (A rise in interest rates will have a greater impact on the prices of long-term securities versus short-term securities). This shift will bid short-term securities prices up and lower their yields. For long-term securities, the shift of money away from them will depress their prices and raise their yields. Hence, there is a decline in short-term yields and an increase in long-term yields—so an upward sloping yield curve emerges.
Conversely, mainstream economists believe that whenever investors expect an economic slowdown or a recession, they also expect the central bank will lower short-term interest rates by lowering the policy interest rate. Consequently, investors will shift their money from short-term to long-term securities, and the sale of short-term assets results in lower securities prices and a rise in their yields. A shift of money toward long-term assets will increase their prices and lower their yields. Thus, this shift in money raises short-term yields and lowers long-term yields, so a downward-sloping yield curve tends to emerge.
In the ET framework, given that the central bank determines short-term rates via the policy rate, it also follows that in this framework both short-term and long-term interest rates are determined by the central bank.
Does the Central Bank Determine Interest Rates? Contrary to the ET framework, interest rates are not determined by the central bank’s monetary policy but by individuals’ time preferences. The phenomenon of interest is the outcome of the fact that individuals assign a greater importance to goods and services in the present versus identical goods and services in the future. The higher valuation is not the result of some capricious behavior, but because of the fact that life in the future is not possible without sustaining it first in the present.
If the means at an individual’s disposal are only sufficient to accommodate his immediate needs, he likely will assign a low importance to future goals. With the expansion of the pool of means, however, the individual can now allocate some of those means toward the accomplishments of various ends in the future. The individuals’ time preference will be lowered, resulting in the lowering of the interest rate.
Again, with the expansion in the pool of means, individuals can allocate more resources toward accomplishment of remote goals to improve their own quality of life over time. Interest rate are just indicators that reflect individuals’ decisions regarding present consumption versus future consumption. In a free, unhampered market, fluctuations in interest rates will be in line with changes in consumers’ time preferences. Thus, a decline in the interest rate is likely a, response to the lowering of individuals’ time preferences.
Consequently, when businesses observe a decline in the market interest rate they, likely respond by increasing their investments in tools and machinery in order to accommodate in the future the expected increase in consumer goods demand.
Shape of the Yield Curve in an Unhampered Market According to Ludwig von Mises, the natural tendency of the shape of the yield curve in a free market is neither toward an upward sloping nor toward a downward sloping but rather toward being horizontal. (Observe that the horizontal yield curve emerges after adjusting for risk.)
Similarly, Murray Rothbard held that in a free market economy, an upward sloping curve could not be sustained for it would set in motion an arbitrage between short and long-term securities. Funds would be shifted from short maturities to long maturities. This would lift short-term interest rates and lower long-term interest rates, resulting in the tendency toward a uniform interest rate throughout the term structure.
Arbitrage helps prevent the sustainability of a downward sloping yield curve by shifting funds from long maturities to short maturities, thereby flattening the curve. Hence, in a free-market economy a prolonged upward or downward sloping yield curve is unsustainable.
The Fed’s Tampering Alters the Shape of the Yield Curve The Fed’s monetary policies disrupt the natural tendency toward uniformity of interest rates along the term structure. This disruption leads to the deviation of market short-term rates from individuals’ time preference rates, which, in turn, leads to misallocation of resources and the boom-bust economic cycle.
As a rule, Fed policy makers decide their interest rate stance by observing the expected state of the economy and price inflation. Thus, whenever the economy shows signs of weakness and price indexes starts to ease, investors in the market form expectations that the Fed will soon lower its policy interest rate.
As a result, short-term interest rates move lower. The spread between long-term rates and short-term rates widens and the process of the development of an upward sloping yield curve is set in motion.
This process, however, cannot be maintained without the Fed actually lowering the policy rate. For the positive sloped yield curve to be sustained, the central bank must persist with its intervention. Should the central bank cease with its easy monetary policy the shape of the yield curve would tend to flatten.
Simultaneously, whenever economic activity shows signs of strengthening, coupled with an increase in price inflation, investors in the market start form expectations that in the near future the Fed will raise its policy rate. As a result, short-term interest rates move higher.
The spread between the long-term rates and the short-term rates begins to decline—the process of the development of a downward sloping yield curve is now set in motion. This process, however, cannot be maintained without the Fed actually increasing the policy rate.
We note that the Fed’s tampering with short-term interest rates distorts the natural tendency of the yield curve to gravitate toward the horizontal shape. Whenever the central bank reverses its monetary stance and alters the shape of the yield curve it sets in motion either an economic boom or an economic bust.
These booms and busts arise with lags—they are not immediate. This is because the effects of a change in monetary policy move gradually from one part of the economy to another, from one individual to another individual.
Conclusion A change in the shape of the yield curve emerges in response to Fed policy makers setting targets to the federal funds rate. Both the upward and the downward sloping yield curves are the outcome of the central bank tampering with financial markets. This tampering results in the deviation of market interest rates from the time preference interest rates. Consequently, this results in the boom-bust cycles. In a free unhampered market after adjusting for risk, the shape of the yield curve will be horizontal.
The modern progressive narratives claim that the wealth of the West and especially of the USA was built upon the backs of slaves. In fact, slavery retarded economic growth.
Original Article: "The West Didn't Become Rich Because of Slavery But in Spite of It"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Media reports claim this debt prevents economic recovery. Chuck Schumer would erase it with the flick of a pen. Elizabeth Warren would remove it to free students’ ability to buy a house and form a family. Janet Yellen opines paying off student loan debt (SLD) will free up venture capital. Alexandria Ocasio-Cortez claims the proposed Biden plan is inadequate.
The complexities of SLD are simplified for the public by moving details into an abyss of aggregates; “average student debt,” “average unemployment” and “average wages” headline without context. Political and news media calls for money drown out one simple question: Should taxpayers rescue students from their education loans?
The Department of Education (DOE) supervises student loan program revisions. The current proposal is explained on their website: “The U.S. Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non–Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for households.”
This is a rescue plan for something we do not understand and that cannot be easily and clearly explained. The student loan program is ineptly managed and widely misunderstood. Casual accounting and limited underwriting controls have created a student-as-ATM monster that feeds the universities. If this calamity were a crime scene, there would be a crowd of suspects leaving their DNA behind.
The personal impact of SLD was a topic at Occupy Wall Street in 2011. Married Ivy League graduate students with master’s degrees in fields such as sociology expressed their fears to a reporter, “Do we eat beans for the rest of our lives to pay off $100,000?” In 2022, a TikTok video showed a woman behind a sign reading “B.A. in Fine Arts, $29,000 in debt and no job.”
Federal funding for education has a noble beginning. Demobilization after the end of the Second World War created an army of workers. Large-scale federal funding for education and training began in 1944 with the successful Servicemen’s Readjustment Act, commonly called the GI Bill; it funded education in trades, high school diplomas, and college degrees for veterans.
The National Defense Education Act (NDEA) was passed in 1958 in response to Soviet acceleration of the space race. The act funded programs to “ensure trained manpower of sufficient quality and quantity to meet the national defense needs of the United States” (emphasis mine). NDEA bolstered education in science, mathematics, and modern foreign languages by offering low interest rates for student borrowing.
The intent of the originating acts was to build human and therefore national capital for solving future problems. Total SLD is now reported at $1.74 trillion on the Fed’s G.19 reports. However, the $1.74 trillion in debt is a ghost. The magnitude of student loan receivables is overstated. Keeping the debt sum large creates headlines and a sense of urgency; a figure this large demands congressional action!
Yet portions of this figure are delinquent, in default, or not yet due.
Private lenders hold 8 percent of the student debt, or $131 billion. Parent PLUS loans total $107 billion. The best estimates of graduate student debt show that around 25 percent of all graduate borrowers incur 46 percent of the total debt. Removing graduate student, Parent PLUS, and private loans leaves approximately $750–850 billion in true federal student loan undergraduate debt.
Also, the $800 billion figure is not all due now. Calculations were not adjusted for loans that are not yet in repayment, which begins six months after degree completion, a grace period that covid extended for two years. Being in graduate school part time also suspends payment on bachelor’s degree loans. Debt contracted six to eight years ago has been counted before payment is even due!
What Has Been the Return on Our Investment So Far? Nationally, only 60 percent of all students enrolled in college finish in six years. Another 11 percent remain enrolled; 28 percent leave and never return. Dropouts keep their debt. Ten percent of graduates are in default when they begin repayment.
Inside Higher Ed summarized a recent New York Federal Reserve report: “About 41 percent of recent college graduates—and 33.8 percent of all college graduates—are underemployed in that they are working in jobs that don’t require a college degree.”
The Education Data Initiative offers observations of graduates. “At a rate of 26.33 percent, Arts and Humanities majors who attended non-selective schools are the most likely to default on their student loans. Student loan borrowers with law degrees are the most likely to fall into delinquency.”
In February 2021, the New York Fed identified employment and underemployment numbers for seventy-two programs of study. Degrees in fine arts, performing arts, social sciences, and anthropology had the lowest wages and the highest unemployment and underemployment.
Included in the SLD totals are subsidized and unsubsidized Direct loans and Parent Plus loans. Undergraduate loans cost 3.73 percent, graduate loans cost 5.28 percent, and Parent PLUS loans disbursed between July 1, 202,1 and June 30, 2022, cost 6.28 percent.
Multiple programs operate under the existing plan for repayment of student debt. These repayment plans create uncertainty in projecting repayment cash flow. These are billed as forgiveness plans; they also mask uncollectable loan dollars.
The two most common plans are the Income-Driven Repayment Plan (IDR) and the Income-Based Repayment Plan (IBR). Both plans allow debtors to pay a percentage based on their discretionary income. As originally implemented, the protected income was based on a 150 multiplier over the poverty wage. Discretionary income is what remains after deducting protected income from gross income. The minimum payment would be 15 percent of this discretionary income.
Barack Obama reduced the percentage to 10 percent and alleged savings of over $60 million when he federalized the student loan program in 2011. The Biden plan further reduces this payment minimum to 5 percent and will use a higher multiplier to reduce discretionary income even further. These plans can then fold into the Public Service Loan Forgiveness (PSFL) plan, expunges the remaining debt after ten years in approved employment.
Given that these changes are being added to existing repayment schemes, they may not be open to legal challenge. Projections of the Biden plan’s costs are a blind dartboard game in a crowded bar. No estimation from the Department of Education has credibility.
These changes send a powerful signal to current and future students: “Incur debt and you may not need to pay it all back.” And if you suspected mismanagement of funds in the past, in July 2022 the Government Accountability Office confirmed a $320 million miscalculation error. Instead of $114 million in positive cash flow from payments, there is $197 million deficit.
Yes, the Student Loan Debt Issue Is an Impending Disaster The short tenure of the past three COOs responsible for administering the Student Loan Program gives desk-level insight, and perhaps hints for future solutions. In 2017 James Runcie resigned; he was appointed in 2011 to oversee the Obama-era federalization of the student loan program. Prior to the appointment, he was an investment banker. His resignation cited staff cuts and meddling by then secretary of education Betsy Voss. Chief among his complaints was that Voss entertained moving the program to the Treasury Department and her insistence that Runie testify before an oversight panel in Congress.
Appointed COO in 2017, Wayne Johnson resigned in late 2019. Prior to his federal appointment, he was an executive at Deloitte and at Visa. In a telephone call with Yahoo Finance, he described the student loan program as “an abomination in plain sight” and “rotten to the core.” Some of his suggestions simultaneously faced bipartisan support and objections.
In early 2019, Mark Brown stepped in to replace Johnson. Mr. Brown is a retired Air Force General who led the Air Force Air Education and Training Command; he was CFO of the Air Force Materiel Command. He resigned after facing sustained criticism from student debt forgiveness advocates.
In May 2021, Richard Cordray was named the new COO. He had served six years as the director of the Consumer Finance Protection Bureau; previously he was Ohio’s attorney general and the Ohio Democratic Party nominee for governor in 2018.
Examining DNA at this crime scene finds management turnover, a loan-management-as-welfare mindset, willful ignorance on bad debts, and intentional obfuscation of portfolio results.
The average square footage in new single-family houses has been declining since 2015. House sizes tend to fall just during recessionary periods. It happened from 2008 to 2009, from 2001 to 2002, and from 1990 to 1991.
But even with strong economic-growth numbers well into 2019, it looks like demand for houses of historically large size may have finally peaked even before the 2020 recession and our current economic malaise. (Square footage in new multifamily construction has also increased.)
According to Census Bureau data, the average size of new houses in 2021 was 2,480 square feet. That’s down 7 percent from the 2015 peak of 2,687.
[Read More: “Americans Have Much More Living Space than Europeans” by Ryan McMaken]
Twenty fifteen’s average, by the way, was an all-time high and represented decades of near-relentless growth in house sizes in the United States since the Second World War. Indeed, in the forty-eight years from 1973 to 2015, the average size of new houses increased by 62 percent from 1,660 to 2,687 square feet. At the same time, the quality of housing also increased substantially in everything from insulation, to roofing materials, to windows, and to the size and availability of garages.
Source: Department of Labor, US Census Bureau, HUD.1
Meanwhile, the size of American households during this period decreased 16 percent, from 3.01 to 2.51 people.
Source: US Census Bureau.
Yet even with that 7 percent decline in house size since 2015, the average new home in America as of 2021 was still well over 50 percent larger than they were in the 1960s. Home size isn’t exactly falling off a cliff. US homes, on a square-foot-per-person basis, remain quite large by historical standards. Since 1973, square footage per person in new houses has nearly doubled, rising from 503 square feet per person in 1973 to 988 square feet person in 2021. By this measure, new house size actually increased from 2020 to 2021.
Source: US Census Bureau.
This continued drive upward in new home size can be attributed in part to the persistence of easy money over the past decade. Even as homes continued to stay big—and thus stay comparatively expensive—it was not difficult to find buyers for them. Continually falling mortgage rates to historical lows below even 3 percent in many cases meant buyers could simply borrow more money to buy big houses.
But we may have finally hit the wall on home size. In recent months we’re finally starting to see evidence of falling home sales and falling home prices. It’s only now, with mortgage rates surging, inflation soaring, and real wages falling—and thus home price affordability falling—that there are now good reasons for builders to think “wow, maybe we need to build some smaller, less costly homes.” There are many reasons to think that they won’t, and that homes for sale will simply become less affordable. But it’s not the fault of the builders.
This wouldn’t be a problem in a mostly free market in which builders could easily adjust their products to meet the market where it’s at. In a flexible and generally free market, builders would flock to build homes at a price level at which a large segment of the population could afford to buy those houses. But that’s not the sort of economy we live in. Rather, real estate and housing development are highly regulated industries at both the federal level and at the local level. Thanks to this, it is becoming more and more difficult for builders to build smaller houses at a time when millions of potential first-time home buyers would gladly snatch them up.
How Government Policy Led to a Codification of Larger, More Expensive Houses In recent decades, local governments have continued to ratchet up mandates as to how many units can be built per acre, and what size those new houses can be. As the Washington Post reported in 2019, various government regulations and fees, such as “impact fees,” which are the same regardless of the size of the unit, “incentivize developers to build big.” The Post continues, “if zoning allows no more than two units per acre, the incentive will be to build the biggest, most expensive units possible.”
Moreover, community groups opposed to anything that sounds like “density” or “upzoning” will use the power of local governments to crush developer attempts to build more affordable housing. However, as the Post notes, at least one developer has found “where his firm has been able to encourage cities to allow smaller buildings the demand has been strong. For those building small, demand doesn’t seem to be an issue.”
Similarly, in an article last month at the New York Times, Emily Badger notes the central role of government regulations in keeping houses big and ultimately increasingly unaffordable. She writes how in recent decades,
Land grew more expensive. But communities didn’t respond by allowing housing on smaller pieces of it. They broadly did the opposite, ratcheting up rules that ensured builders couldn’t construct smaller, more affordable homes. They required pricier materials and minimum home sizes. They wanted architectural flourishes, not flat facades.
It is true that in many places empty land has increased in price, but in areas where the regulatory burden is relatively low—such as Houston—builders have nonetheless responded with more building of housing such as townhouses.
In many places, however, regulations continue to push up the prices of homes.
Badger notes that in Portland, Oregon, for example, “Permits add $40,000–$50,000. Removing a fir tree 36 inches in diameter costs another $16,000 in fees.” A lack of small “starter homes” is not due to an unwillingness on the part of builders. Governments have simply made smaller homes unprofitable:
“You’ve basically regulated me out of anything remotely on the affordable side,” said Justin Wood, the owner of Fish Construction NW.
In Savannah, Ga., Jerry Konter began building three-bed, two-bath, 1,350-square-foot homes in 1977 for $36,500. But he moved upmarket as costs and design mandates pushed him there.
“It’s not that I don’t want to build entry-level homes,” said Mr. Konter, the chairman of the National Association of Home Builders. “It’s that I can’t produce one that I can make a profit on and sell to that potential purchaser.”
Those familiar with how local governments zone land and set building standards will not be surprised by this. Local governments, pressured by local homeowners, will intervene to keep lot sizes large, and to pass ordinances that keep out housing that might be seen by voters as “too dense” or “too cheap looking.”
Yet, as much as existing homeowners and city planners would love to see nothing but upper middle-class housing with three-car garages along every street, the fact is that not everyone can afford this sort of housing. But that doesn’t mean people in the middle can only afford a shack in a shanty town either—so long as governments will allow more basic housing to be built.
But there are few signs of many local governments relenting on their exclusionary housing policies, and the result has been an ossified housing policy designed to reinforce existing housing, while denying new types of housing that is perhaps more suitable to smaller households and a more stagnant economic environment.
Eventually, though, something has to give. Either governments persist indefinitely with restrictions on “undesirable” housing—which means housing costs skyrocket—or local governments finally start to allow builders to build housing more appropriate to the needs of the middle class.
If current trends continue, we may finally see real pressure to get local governments to allow more building of more affordable single-family homes, or duplexes, or townhouses. If interest rates continue to march upward, this need will become only more urgent. Moreover, as homebuilding materials continue to become more expensive thanks to forty-year highs in inflation—thanks to the Federal Reserve—there will be even more need to find ways to cut regulatory costs in other areas.
For now, the results have been spotty. But where developers are allowed to actually build for a middle-class clientele, it looks like there’s plenty of demand.
-
- The historical data has been compiled from three srouces. Since 1973, see "Median and Average Square Feet of Floor Area in New Single-Family Houses Completed," from the Census Bureau. 1960s data is from "Characteristics of Single-Family Homes: 1969," a joint report of HUD and the Census Bureau. 1950s and 1940 data is from "New Housing and Its Materials, 1940–1956," from the US Dept. of Labor.
Recorded at the Arizona Biltmore Hotel in Phoenix, Arizona on October 7th, 2022.
The 1989 Rockford Institute meeting picture: Mises.org/1989-Rockford
Sponsored by Angela and Roger Box.
Hyperinflation? Yes, it can happen here, and the more officials deny hyperinflation is possible, the more they create the conditions that causes it.
Original Article: "Inflation, High Inflation, Hyperinflation"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Quantitative easing was designed as a tool to provide time for governments to implement structural reforms, boost growth, and strengthen the economy. However, it has become a tool to increase the size of government and take increasingly riskier levels of debt.
The United States economy has not strengthened in the period of enormous fiscal and monetary stimuli, as the latest data shows. It needs increasing units of debt to generate a new unit of gross domestic product (GDP), productivity is extremely poor and leading indicators are negative.
The main problem of loose monetary policy is that it massively increases the size of government on the way in, through debt and deficit spending monetization, but it also expands government on the way out as rate hikes and liquidity constraints impact households and small businesses but deficit spending and rising public debt remain. This “tightening” period is particularly negative in this crowding-out effect because the government is presenting every week new spending packages while the Fed tries to contain inflation curbing demand growth. The public sector is unaffected by the normalization of monetary policy, but the private productive sector suffers the crunch.
When the central bank tries to reduce inflation with rate hikes and monetary contraction but the government increases spending and keeps an astonishing pace of indebtedness what follows is wealth confiscation and stagnation.
The latest unemployment figures show the divergence between headline positive figures and the reality. Yes, the official unemployment rate is optically low, at 3.7 percent, but the labor participation rate remains at 62.4 percent or 1.0 percentage point below its February 2020 level. The employment to population ratio, at 60.1 percent in August, also remains 1.1 percentage points below its February 2020 value, according to the US Bureau of Labor Statistics (BLS). Real wage growth is negative and consumer confidence remains extremely low. The Ipsos-Forbes Advisor US Consumer Confidence Tracker fell back below the 50 point mark, which indicates contraction, in the first week of September. This is seven points lower than the January level. The Current and Investment subindices are both below the 40 point mark which indicates severe contraction for the sixth and fourth times this year, respectively.
The private sector is truly in a bad shape. The August S&P Global US Sector PMI shows all sectors in contraction. The report states that the Financials sector “continues to record the fastest fall in activity,” Healthcare “signals the sharpest decline in activity on record” while the Industrials and Technology output drops into contraction territory. And they say there is no recession risk?
The US economy is projected to add just 8.3 million jobs from 2021 to 2031, also according to the BLS. Total employment is projected to grow 0.5 percent annually, which is half the 1.0 percent annual growth recorded over the 2011–21 decade. This, in a period in which we estimate that public debt will increase by another $10 trillion with an average annual deficit spending of one trillion.
Think of the trend for a second. The government adds trillions of so-called stimuli to the economy, the multiplier effect is inexistent even when all conditions remain positive, then the same government increase debt and deficits again due to an exogenous factor, and the result is even more debt.
In the past three decades the result is always the same. The United States economy exits a crisis with significantly more debt, lower employment growth, weaker real wage growth and slower GDP recoveries. Why? Government spending on everything and anything for any occasion is the equivalent of an athlete eating cake to face the challenging curves and expecting to run faster afterward.
Excessive monetary and fiscal intervention have left higher inflation and a weaker economy. Rate hikes may help reduce inflation, but permanent deficit spending will continue to erode the purchasing power of wages and deposits.
The United States seems to be on its way to a private sector contraction of unprecedented levels as it may affect all relevant industries at the same time. The divergence between the ISM indicator and the S&P Global PMI indicator also shows another worrying trend: large businesses are doing fine in a high inflation-low growth economy but small and medium enterprises, which create around 65 percent of employment, are in deep contraction.
Some day we will understand that supply-side measures create less headlines but have a better impact on the economy than a constant increase in government size and spending followed by more debt, more taxes, and more inflation.
In his book The Case against the Fed, Murray Rothbard writes a section on deposit insurance, which was instituted under FDR’s New Deal in 1933 at $2,500 per account and over time raised, reaching $250,000 during the banking crisis of 2008. As Rothbard explains, the term insurance “properly applies to risks of future calamity that are not readily subject to the control of the individual beneficiary, and where the incidence can be predicted accurately in advance.”
“‘Insurable risks’ are those where we can predict an incidence of calamities in large numbers,” Rothbard explained, “but not in individual cases: that is, we know nothing of the individual case except that he or it is a member of a certain class.”
With the deposit insurance of the Federal Deposit Insurance Corporation (FDIC), all banks are equal in the depositor’s mind. As long as your deposits add up to $250,000 or less, researching a bank’s management or the quality of a bank’s loan book is a waste of time. Depositors rightly put their money in the banks that pay the highest return, as paltry as those returns have been in recent years.
It is left to regulators at the FDIC to check under a bank’s hood to make sure all is well.
A piece in Grant’s Interest Rate Observer dated September 30 and entitled “Reveille for Depositors” brought Rothbard’s analysis to mind. While rates are rising, banks are slow to respond. While their variable rate loans reprice, bankers hope to reap an outsized spread at the expense of distracted depositors.
Ben Mackovak, cofounder and managing member of Strategic Value Bank Partners, Cleveland, says, “So far, because there’s so much excess liquidity in the system and loan-to-deposit ratios have been so low, banks have been able to hold the line on deposit rates.” But times are a-changin,’ he told Grant’s.
Mackovak made a point about the small banks he invests in, bringing back memories of 2008. These banks “are mainly real estate lenders, and they run into concentration limits as they grow—the regulations allow them only so much exposure to commercial real estate, land development, and construction.”
To grow, these banks must obtain capital, and that capital is becoming more expensive, with investors dictating more stringent terms. Mackovak believes discipline has returned to underwriting.
However, in class, Murray explained often that in no other industry did the failure of one firm lead to a contagion, as is the case with the banking industry. Businesses go under every day, and no one knows the difference. A bank goes under and anyone with a deposit account at any other bank in town wonders about the safety of their funds. Thus is the nature of fractional-reserve banks—on their best day, they are bankrupt.
The idea of “insuring” their liabilities is nonsensical, or as Murray wrote, “The very concept applied to a firm is absurd and fraudulent.”
Rothbard is clear:
If no business firm can be insured, then an industry consisting of hundreds of insolvent firms is surely the last institution about which anyone can mention “insurance” with a straight face. “Deposit insurance” is simply a fraudulent racket, and a cruel one at that since it may plunder the life savings and the money stock of the entire public.
Joe Goyne, chairman and CEO of Pegasus Bank in Dallas, told Grant’s:
It’s not uncommon, at least down here in Texas, to have banks that have proven that they can’t make money, even at a high loan-to-deposit ratio, which just translates directly into illiquidity.
Goyne has pleaded with his regulators about closing these weak banks:
I worry about those banks because what happens if we get into the disintermediation problem and it affects all banks? Even the best-run banks, the most liquid banks? People will fail to discriminate between a poorly run and a well-run bank.
That’s right, Joe, deposit insurance makes you all equal(ly) dangerous.
The world seems to be on fire, and much of the trouble comes from the efforts of central banks to suppress interest rates. No one understands that problem better than British historian Edward Chancellor.
Original Article: "Edward Chancellor's Much-Needed (But Not Heeded) Wisdom on Interest Rates"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
The Nobel Prize in economics for 2022 was awarded to Ben S. Bernanke, Douglas W. Diamond and Philip H. Dybvig for their research on the role of banks in economic growth and on how banks can set in motion a severe economic crisis. In this article, we focus on the work of Ben Bernanke while making brief comments on the work of the other laureates.
Diamond and Dybvig Maturity Transformation Theory Diamond and Dybvig developed theoretical models to explore the role banks play in the economy along with the reason for bank runs. Specifically, they presented a theory of maturity transformation, showing that while using demand deposits to finance long-term projects is the most efficient arrangement for commercial banks, but leaves them at risk for bank runs.
We believe this arrangement is very beneficiary for banks, since banks can take individuals’ money placed in demand deposits and lend out that money. The Nobel laureates believe that lending money without the consent of individuals owners of demand deposits is a valid way of generating monetary liquidity.
It did not occur to them that this type of lending amounts to unbacked by savings lending—i.e., lending out of “thin air.” This in turn sets in motion an exchange of nothing for something and in turn to the menace of the boom-bust cycle.
The so-called bank runs are a result of the lending out of “thin air.” To stop the run, banks should stop their fiat lending, all of which is a casualty of fractional reserve banking.
Our Nobel laureates, however, believe that the central bank should intervene to prevent bank runs. We suggest that free market banking and ending central bank interference will have more success.
Ben Bernanke’s Financial Accelerator Model Bernanke presented the importance of the credit channel for the propagation of the depression. The former Fed chairman believes that changes in financial and credit conditions are important in the propagation of the business cycle, a mechanism that is also known as the “financial accelerator.” According to Bernanke, during a severe economic crisis which results in declining output and falling prices, the real debt burden increases, leading to widespread financial distress among borrowers and lessening their capacity to pledge collateral. The decline in the financial health of potential borrowers during a severe economic crisis impedes the efficient allocation of credit, so argues Bernanke.
A key concept in Bernanke’s model is the external premium, which activates the “financial accelerator.” The premium is defined as the difference between the cost to a borrower of borrowing money in financial markets and the opportunity cost of internal funds. On this Bernanke says:
External finance (raising funds from lenders) is virtually always more expensive than internal finance (using internally generated cash flows), because of the costs that outside lenders bear of evaluating borrowers’ prospects and monitoring their actions.
Hence, the external finance premium is generally positive. The external finance premium that a borrower must pay depends inversely upon the strength of the borrower’s financial position. According to Bernanke, a borrower with a healthier financial position (measured in terms of net worth, liquidity and current and expected cash flows) relative to other borrowers is going to pay a lower premium. The inverse relationship of the external finance premium and the financial conditions of potential borrowers generates a situation when otherwise short-lived economic shocks may have long-lasting effects.
For example, because of a sudden disruption in the supply of credit, the finance premium tends to increase, creating a disruptive amplified effect on the real economy. Because of the higher premium, borrower cash flows come under pressure and damage their financial health.
In response to this situation, banks likely will curtail lending, countering the increase in bad loans, which further increases the interest rate premium. From this, one can see that a disruption in the credit markets can set a financial accelerator in motion, amplifying the damage to the real economy. According to Bernanke, once financial disruptions occur, central bank must act swiftly by aggressively pushing money to prevent the financial accelerator from damaging the economy.
If a disruption in credit markets occurs, then credit expansion falls. This, in turn, slows the growth rate of money and consequently the pace of economic activity is likely to follow suit. On this Bernanke suggests:
A weak banking system grappling with non-performing loans and insufficient capital or firms whose creditworthiness has eroded because of high leverage or declining asset values are examples of financial conditions that could undermine growth.
Bernanke claimed that the Great Depression of the 1930s became deep and protracted in large part because bank failures destroyed valuable banking relationships, and the resulting credit supply contraction left significant scars in the real economy. Bernanke did not discuss what the key causes behind the Depression were.
The question that must be asked is what gives rise to the emergence of such conditions? Disturbances in financial markets do not emerge out of the blue. We suggest that the major cause that sets in motion these disturbances is likely to be the central bank itself.
The reckless monetary policies of the central bank weaken the process of wealth generation. As a result, individuals’ time preferences are increasing, which puts upward pressure on market interest rates, increasing the finance premium and, in turn, activates the financial accelerator.
Whenever the Fed loosens its stance, a rising growth momentum in the money supply is set into motion. Conversely, whenever the Fed tightens its stance, it sets the foundation for the declining growth momentum of money, leading to boom-bust cycles.
Contrary to Bernanke, it is not the high level of debt that leads to a crisis, but rather loose monetary policy of the central bank. As a rule, the crisis is always set in motion once the central bank reverses its loose stance—the money supply growth rate starts to decline. A tighter stance undermines various nonproductive activities and in turn weakens their ability to serve the debt they have incurred—a financial crisis emerges.
Observe that a tighter stance slows down the shift of real savings from wealth generators to nonproductive activities. This puts pressure on the nonproductive activities. Hence, monetary pumping by the central bank that aims at countering the emerging financial crisis in fact only further weakens wealth generators and thereby poses more problems to the economy.
If the pool of real savings is in bad shape, then Bernanke’s recommendation to counter the effect from the so called “financial accelerator” will, in fact, worsen general economic conditions. If the pool of real savings is still expanding, the financial accelerator is not going to be activated.
By pumping more money while the pool of real savings is declining, the wealth generation process will further weaken. This, in turn, will lift the finance premium and undermine financial and economic conditions. Hence, contrary to Bernanke, the downward spiraling effect of the financial accelerator can be restrained only by closing the major loopholes for the generation of money out of “thin air” by preventing the Fed from buying assets.
Conclusion The 2022 Nobel laureates in economics have generated plenty of description without much explanation of the key causes behind bank runs and boom bust cycles. According to the model of Nobel laureate Ben Bernanke, a sudden disruption in financial markets can seriously disrupt the real economy.
To counter this scenario, Bernanke calls for the central bank to neutralize the negative effect from various shocks by new money pumping. By countering shocks that have resulted from the Fed’s previous policies, the Fed makes economic fundamentals even worse. The work of the other Nobel laureates—Diamond and Dybvig—endorses fractional reserve bank lending, which we already know promotes economic instability and bank runs.
“The Earth speaks to us through the elements of nature. In every natural thing, we can find a hidden, powerful message.”
—Ralph Waldo Emerson
Every natural element with which the earth has been endowed has a usefulness—a purpose. If we listen to gold, its message is loud and clear—gold is money. To serve as natural money is gold’s highest purpose.
The advance of civilization demonstrates that nature throughout the ages, to our good fortune, has provided everything humanity needs to progress, including money. Few today, however, understand money as it has existed from prehistory and as it was perceived up until the dawn of the twentieth century. Since the commencement of the First World War in 1914, time-honored principles have been abandoned. Humanity has become enthralled with money substitutes like national currencies and, more recently, cryptocurrencies circulating in place of money, and people have subsequently lost sight of natural money itself.
Gold Is Natural Money Although gold these days rarely circulates as currency because of government imposed restrictions and impediments, gold still retains all the features that explain why humanity in prehistory chose it to be money. Gold is natural money, or stated another way, nature’s money is gold, which is well illustrated by the following chart that presents the price of crude oil measured in four different currencies from a base of 100.
turk_graph1.png
A gram or an ounce of gold buys essentially the same amount of crude oil today as it has at any time over the past seven decades. I have purposefully chosen oil because the energy it provides is essential to our standard of living.
Using gold to measure the price of other commodities has a similar result, but not the price of manufactured products. They tend to fall over time because advances in technology lead to increasing production efficiencies. An obvious example is computer chips, whose price has fallen dramatically in recent decades, yet which are still profitable to the companies that make and sell them.
Gold preserves purchasing power, which is one of the key requisites of money. As illustrated by the above chart, it is an outcome that no national currency can match.
Another requisite of money is the enablement of sound economic calculation, which is only possible when using a consistent, unchanging unit of account to measure prices over time. Gold serves this role perfectly because it is the only element in the known universe that is eternal and not subject to decay or degradation. A gram of gold today is identical to a gram of gold mined by the Romans.
Gold’s natural features that fulfil the two requisites of money stated above explain why gold is accumulated. Commodities are consumed and disappear, but because it is money, all the gold mined throughout history still exists in its aboveground stock, except for the inconsequential weight lost in shipwrecks and from coin abrasion.
The Gold Stock A gold stock of 297 tons is estimated to have existed in 1492, when generally reliable record keeping of production and stocks began. That weight of gold when visualized comprises a cube of 4.3 feet (131cm) per side for a total of 79.5 cubic feet, which equals the volume of space encompassed by a small kitchen table. Today’s cube would just about slide under the arches of the Eiffel Tower.
Gold is not valuable because it is rare. Plenty of gold exists that has yet to be mined on land, under the oceans, and even extracted from ocean water when the technologies become available to make that mining possible. Gold is valuable because it is useful but mined—produced—only when it is profitable to do so, which depends on how gold has been dispersed in the earth’s crust when combined with humanity’s ability, financial capacity, and available technology needed to discover, mine, and refine it.
Growth of the Gold Stock Compared to the Stock of Dollars Over the centuries gold becomes harder to find and mine, yet its aboveground stock has grown about the same annual rate. The average annual rate over the last 529 years is 1.2 percent. Since 1960 it is 1.8 percent, ranging from 1.4 percent to 2.2 percent.
The annual growth rates of the stock—the total quantity—of dollars since 1960 varies from a low of 1 percent in 1993 to a high of 19.1 percent in 2020. This inconsistency results in swings in the dollar stock that in turn causes volatility in prices expressed in dollars because there are not enough or too many dollars circulating relative to the prevailing level of economic activity.
Gold comes closer than any central bank managed currency in achieving Milton Friedman’s k-percent rule that the quantity of currency should increase by a constant percentage rate every year, irrespective of bank credit cycles. The gold stock grows at approximately the same rate as world population and new wealth creation. Consequently, the purchasing power arising from the interaction of gold’s supply—its aboveground stock—and the unfailing inelastic demand for gold that exists because it is money, make gold uniquely useful to accurately calculate the price of goods and services throughout time. It is a feature that the dollar and other national currencies fail to match because their annual growth rates are not consistent, causing fluctuations in their “aboveground” stock. Since 1950 the weight of the gold stock has grown 3.5 times, but a gram of gold still purchases the same amount of crude oil.
What is more, the growth rate of the dollar stock since 1960 has averaged 7.1 percent, which is four times greater than the average growth rate of the gold stock over this period. This more rapid increase in the dollar stock is debasing the dollar relative to gold, a reality clearly illustrated in the above chart of crude oil prices, which raises an important point.
The stock of dollars is controlled by the managers of the banking system. Recurring bank and currency crises throughout history result from human error and other human frailties that inevitably destroy fiat currency, like the unwillingness to “take away the punchbowl” after a period of prolonged credit expansion. Gold is different.
Gold does not need management by a central bank or government. Gold is money that manages itself because growth in the gold stock is controlled by two immutable forces—nature and profitable mining. Together they impose discipline on the production of gold that prevents the money punchbowl from overflowing, which is a key factor explaining why gold preserves purchasing power over time.
The Essential Nature of Honest Money The timeless reliability in the interconnection of gold’s supply and demand sets gold apart from national currencies as does its essential nature. Gold is tangible; national currencies are an intangible financial promise with counterparty risk. This risk arises because promises do get broken, as was demonstrated in the 2008 financial crisis and countless other banking and fiat currency crises.
Gold is natural money that has served humanity well throughout history by enabling people to achieve an ever-higher standard of living. We can ponder whether this outcome results from fortuitous chance or from the intelligent design of a creator endowing the earth’s resources providentially to equip humanity with natural money. Regardless of gold’s origin, which is unknowable, it cannot be denied that gold is money and is as useful today as any time in history.
[This article is adapted from the introduction to the Historical Revisionism panel at the 2022 Supporters Summit at the Arizona Biltmore.]
In his novel 1984, George Orwell noted the role of the regime in controlling information about the past. After being “re-educated” by the ruling party, the protagonist Winston Smith dutifully recited the party’s wisdom regarding the fact that “Who controls the past controls the future: who controls the present controls the past.”
In other words, the ruling party in the world of 1984 understood that controlling historical narratives is key in influencing the public’s ideological views.
This is difficult to deny.
Speaking on the Industrial Revolution, historian Ralph Raico noted the importance of history in winning ideological and political battles. According to Raico:
It’s a curious fact that of all the disciplines, it seems that history more than philosophy or economics determines people’s political views. We might consider this unfair. We might think that economics has more to say about what people should think about competition and antitrust, philosophy has more to say about what people should think about natural rights. But in fact, most often it seems that its history—or interpretations of history—that will influence the positions that people take.
Some people, of course, will insist that the most important means of convincing people to one position or another involves rigorous logical arguments. This approach no doubt is of special importance to some, and sound economic and philosophical thinking is certainly important when it comes to interpreting and explaining events.
But for most people, it seems—as Raico notes—historical narratives have had an outsized role in influencing and setting ideological views.
We can easily see this by noting several examples.
Among the most important historical narratives that affect people’s ideological views are views of the Industrial Revolution.
Myth as History The general historical narrative goes like this: once upon a time, the people of Western Europe lived simple but decent lives in agriculture. But that all ended when capitalists forced the common people into factories, or what the anticapitalists called “the satanic mills.” Thanks to the capitalists, the standard of living of ordinary people went down, and the quality of life was destroyed for generations. Only after governments intervened to regulate these factory owners did life improve for the working man.
Here’s another historical narrative we all know: in the years leading up to the Great Depression, the economies of the Western world were almost completely unregulated. Then, capitalism—somehow—brought on the Great Depression. The world was plunged into poverty, thanks to these capitalists, and it was only thanks to government intervention—yet again—that people were saved. The only reason we have not had repeated great depressions in the decades since has been thanks to governments intervening to prevent capitalists from causing another such calamity.
Ideologically motivated historians—and even fair-minded historian doing bad history—have taught the world these narratives. The world believes them, and the result is an enormous public bias against freedom and free markets. Fortunately, good historians have, in recent decades, done the hard work of economic history in showing that actually the standard of living increased during the Industrial Revolution of the nineteenth century. Good historians—such as Murray Rothbard in his book America’s Great Depression—have shown that the Great Depression was hardly caused by too much laissez-faire. They’ve also shown that it certainly wasn’t government intervention that “solved” the problem of depressions.
These are just two examples having to do with economic history, of course. Ideologically charged historical narratives go back much further than these examples, and cover even more sweeping historical topics. For example, to this day, our views of modern politics, political institutions, and religion, continue to be heavily influenced by historical narratives of the Middle Ages. These narratives are actually centuries old, and as Raico notes, the myth of the Middle Ages as the “Dark Ages” was “maybe the biggest … next to the myth of the Industrial Revolution, one of the biggest historical frauds perpetrated by Renaissance humanists and French philosophes.”
Why does this matter? Because what we think we know about the Middle Ages feeds into our ideas of the so-called enlightenment, which ushered in a new era of powerful, centralized, absolutist states build on secularism. Thanks to this narrative, we think we need governments to protect us from religious institutions, and to protect us from the localized, decentralized style of government that came before the alleged “age of reason.” This historical narrative serves as an important foundational myth for the Left.
And it’s easy. After all, how much do people actually know about the Middle Ages? What they “know” mostly comes from Monty Python.
New History Is Being Written All the Time New historical narratives are being written all the time.
For example, a popular historical narrative in the wake of the 2008 financial crisis was that the financial sector was more or less unregulated, and the financial crisis was an example of what happens when government fails to rein in capitalists.
Of key importance is the historical narrative that will be taught about covid-19. We already know the narrative that the regime wants: once upon a time the covid disease appeared—we have no idea where it came from!—and had it not been for governments, the death count would have been much worse. Thanks to lockdowns, mask mandates, business closures, border closures, and forced vaccines, total disaster was averted. It was necessary to abandon freedom to save lives. Thank goodness for Anthony Fauci and his friends!
That’s what the regime wants the history books to say.
The task at hand for us is to write correct history and spread good history, rather than the official regime-approved history. Because if bad history becomes the accepted version of history, it’s history that will convince countless millions of the idea that governments saved us from capitalists or saved us from covid.
We must do the hard work of writing good history which tells true stories about markets, the modern state, decentralization, and the tyranny of government health officials. Yes, we absolutely need good economics to understand how markets work and why, for example, government regulation impoverishes us rather than protects us. But it’s the stories of history that people so often remember.
We have to tell the right stories.
Recorded at the Arizona Biltmore Hotel in Phoenix, Arizona on October 7th, 2022.
Sponsored by Sheri and Thomas Yengst.
[Chapter 5 of Per Bylund's new book How to Think about the Economy: A Primer.]
Why do we produce? For the simple reason that nature doesn’t automatically satisfy all of our needs and wants. Wild animals, grains, and berries are not enough to sustain the world population. Computers, airplanes, and hospitals do not grow on trees.
In other words, the means available to us are scarce. When we have more uses for something than we can possibly fulfill with what we have available, we must economize. That is, we need to make choices and consider the tradeoffs. It then makes sense to be careful in how resources are used so we don’t waste them or use them for the wrong things.
There are two important strategies for dealing with scarcity. First, there is rationing, which means we limit our use of a resource so that it lasts longer. This is a common and appropriate strategy for any specific resource that is finite. For example, someone with only limited water and food—and no hope of gaining access to more—would benefit from restricting their drinking and eating to stay alive longer. However, this strategy, while intuitive, is typically inappropriate for society at large, and especially, markets.
The better strategy is production, which economizes value. Simply put, production allows us to satisfy more wants with the resources available—it creates more “bang” for the “buck” rather than only spreading out the “buck.”
Production to Overcome Scarcity Production alleviates the burden of scarcity by creating better means. It creates more value by changing, manipulating, and improving what nature provides. Because we engage in production, we can satisfy many more wants—and more highly valued wants—than would otherwise be possible.
The better we become at production, the more and better suited the means that are available to us. This is what “economic growth” means. The “larger” an economy is the more productive it is, which means it is better at satisfying consumer wants. It creates more value.1
Many consider bread to be a valued means of satisfying hunger. Whether or not we love bread, most of us find it more satisfying than munching on raw wheat and yeast and washing it down with water. Therefore we mix wheat flour and yeast together and make it into bread: the additional value of the bread justifies its production. We gain value even though it means that we use additional resources—oven, electricity, manpower—and must wait for the dough to rise and then bake.
It is easy to jump to conclusions and assume that the bread is valued more than the ingredients because additional resources were used to make it. This is false. It is the other way around: we choose to invest the resources—ingredients, manpower, time—because we expect the bread to give us greater satisfaction. By dedicating resources to making bread, including gaining the knowledge and expertise necessary to do it, the economy’s capability to produce value increases. The investment makes us better off not only because we get bread, but because we gain the ability to bake bread. For as long as bread is a valued good and the ability to bake it is retained, the investment creates more value.
It is the expected value of the bread that makes the investment worth pursuing. If it were the case that something is worth more because we use more resources to produce it, then we are not actually economizing. Why use fewer resources if using more makes the good more valuable? We would then be better off the more resources we used. This is, of course, nonsense. We economize because using more resources than necessary is wasteful. We can produce more valuable output using those inputs if we avoid wasting them.
However, resource use and value output often correlate—they seem to go hand in hand, at least after the fact. The reason is that the expected value justifies the costs. In other words, if we aim to produce something that we expect to be of great value, then we can afford to use resources to produce it. In contrast, if we aim to produce a good that will be of only limited value, then we cannot justify using nearly as many resources. The costs are chosen based on the expected value that is being produced. This means that a premium or luxury product is not more expensive to buy because it is produced using rare, expensive materials—it was produced using rare, expensive materials because the good is more expensive to buy. Value determines cost, not the other way around.
This sounds backward, so let’s illustrate by again considering making bread. Bread is a consumption good, so it is easy to understand its value: it directly satisfies a want—it makes us better off because it satisfies hunger and tastes good. People may value bread differently, but they all value it for offering them some personal satisfaction. But what about the things that were needed to make the bread? The flour, yeast, water, oven, and electricity are not directly enjoyed by consumers but are merely means used to produce the final good. They only indirectly satisfy consumers by making it possible to make bread.
These resources have value because they contribute to making bread. We can easily see this if we add resources that do not contribute to the consumer experience. Imagine if the baker buys a car engine and places it in the bakery. It’s a cost to the bakery. But does it add value to the bread? The answer is: not at all. The engine does not increase the bread’s value for consumers. Consumers do not value the bread higher and are not willing to pay a higher price for it just because the baker purchased an engine. Similarly with different types of flour or different ovens, which do contribute to the output. Consumers value the output, not the inputs. If they value wheat bread and rye bread equally, then it doesn’t matter which flour the baker uses—so the cheaper would be the more economizing choice.
We can easily see this if we consider the opposite case. Imagine there is a baker and that people enjoy the bread this baker offers. Thus, the bread has value and so do the bakery and the ingredients the baker uses to make the bread. Now imagine that everyone suddenly stops wanting bread, so the baker can no longer sell it. What is the value of his bread? Zero. What would be the value of the baker’s oven? The value of the oven falls too, perhaps to zero.
It is important to say “perhaps to zero,” because it depends on what other uses bread ovens can be used for. If its use is only for making bread, then it no longer has a valued use. Why would anyone want a bread oven when nobody wants bread any longer? They wouldn’t, so the oven is useless and has no value. But it may have scrap value if its materials (steel, glass, and so on) can be recycled and used for other purposes. The oven’s value would then fall to the scrap value because that is now its highest-valued use.
This does not only apply to the oven’s materials. If the oven can be used for something other than baking bread, then it might still have value higher than scrap. But the value would fall. Why? Because the reason it was used in baking and not something else is that baking was the higher-valued use. Indeed, the baker purchased or constructed the oven because it contributed to creating value. Economizing means we choose the higher-valued use because we get more value out of the resources. But this changes over time. If baking is no longer a valued use, the oven’s value drops. Its value cannot be higher than its new best use in producing something else which is valued. If someone thinks of a better use for ovens than baking bread, then the oven is of higher value to that person than it is to the baker. We would then expect that person to, all else equal, offer and buy the oven from the baker at a price that is higher than the baker’s valuation of it.
This simple example shows that the so-called means of production do not have value in themselves but only in terms of how they contribute to producing a valued consumer good. All productive resources have value only because they contribute to creating goods that consumers want. This is also true for something so distant from a consumer good as an oil tanker. Its value does not come from the resources used to make it but from how it is used in and contributes to valued production of consumer goods. And, of course, resources are used to make the oil tanker because it is expected to contribute to valued consumer goods. The expected value of the outcome that the oil tanker makes possible justifies the cost to produce it.
Capital and Production Production efforts are made to create goods for consumption, which directly satisfy wants, but not all production is of consumer goods. The oven used to bake bread is an example, as is the production of flour, yeast, and the bakery. The oven was constructed with the intention of supporting bread production. The oven, in other words, makes (or was at least intended to make) it easier to make bread and thus our productivity increases.
These “means of production” that only indirectly satisfy consumer wants are called capital, or capital goods. A consumer who buys bread does not care if the baker has an oven. Consumers generally care only about the consumer good and how well it satisfies their wants—not what or how much capital is used in the process of producing it.
But while his customers do not care, the baker certainly does. With the oven, more bread can be produced with less work. The effect of using capital is more output per unit of input, typically and especially labor, which means more wants can be satisfied using the same amount of resources. For the baker, this means more bread can be baked at lower cost. The purpose of capital and why it is used and created is that it increases our productivity. We get more valued output for the invested inputs.
Productivity is not only a matter of how much of something can be produced, but also what can be produced. Indeed, economic productivity is not a technological measure of units of output—it is a measure of value. Capital makes the production of certain types of goods possible, an often overlooked but very important role.
Let’s revisit the baker again. Imagine that there is no oven, but that it is possible to bake flatbreads by placing the dough on a flat rock over an open fire. This baker spends his days baking flatbread this way. It is a worthwhile undertaking because flatbreads satisfy consumer wants better than the ingredients on their own. And there are enough consumers who prefer flatbread to other types of simple bread that do not require ovens. In other words, baking flatbread is a productive use of the baker’s labor, the flour, the rock, and the fire.
But an oven would make it possible for the baker to make new types of bread, which we (and, importantly, the baker) would expect to be of even greater value to consumers. Suppose a simple oven can be made from arranging flat rocks on top of the fire. Investing in gathering the rocks and arranging them in this way increases the value of the baker’s bread-baking efforts. The rocks make an unsophisticated oven, but the baker can now produce other types of bread that consumers are expected to value more highly than flatbreads.
The rocks, arranged in this particular way, make a capital good: an oven. By spending time and effort to arrange the rocks over the fire, the baker has created new capital, that promises to increase the value for consumers. If things work out as planned, the result will be increased value output.
We often think of capital goods as durable. It is true that rocks last a long time, but this does not mean the oven will. In fact, use will eventually wear it down. For the oven to remain useful, repeated or continuous investments must be made to it, such as replacing broken rocks. If this is not done, the usefulness of this capital will fall over time and eventually lose its value as the oven becomes useless. We say that we “consume” capital by using it. This applies to all capital but at different rates: some capital lasts longer and is more durable and may require less maintenance.
In addition to maintaining the oven itself, other supportive investments—such as keeping the fire going and grinding flour—must also be made to keep the capital useful. The whole capital structure requires continued investments. In fact, the oven is not useful unless the other capital necessary to produce bread is kept functional. All capital goods deteriorate with use and time. In other words, capital is added to increase productivity but is itself used up in producing consumer goods. We need constant reinvestments to keep capital useful and of value.
The oven made of rocks is of course not nearly as effective as our modern-day ovens. But it might be the best the baker can do at the time. To produce a longerlasting and more effective oven, the baker would need access to steel and advanced tools that may not yet exist. Even if the baker figured out how such a modern oven could work, it may not be worth his time or effort to figure out how to turn rock into iron, iron into steel, and then make an oven out of it. He is a baker, after all. But someone else could do it. And someone else did, because today we do have modern, highly effective steel ovens.
Modern ovens are the result of centuries of investments in new and improved capital, refined designs, better materials, and more effective production technologies. We take this long and complex history for granted. But, this historical production cycle has led to the modern appliances that now are available in our neighborhood stores. The same is true for everything we can buy: every good is a refined piece of nature that was created for a single purpose—to provide us as consumers with want satisfaction.
All of those efforts that create materials, tools, machines, etc., are investments in capital that enhance production and allow us to satisfy more and more varied wants more effectively. Together, all this capital is arranged into a productive structure, that spans the whole economy, that allows us to effectively create a multitude of different goods that satisfy consumer wants.
We refer to the amount of capital, used in different combinations (such as the oven made from rocks and the fire) that allow society to produce distinct goods and services, as the economy’s capital structure. This structure, as well as everything it comprises, was created. The production of new capital adds to the structure by adding or improving productive capabilities; maintenance investments extend existing capital’s usefulness; and divestments and reallocations shift capital to the production of other goods, refining, adjusting, and changing the structure and thus the economy’s productive capability. These actions, which bring about continuous change to the capital structure, are carried out by entrepreneurs.
The Role of the Entrepreneur Entrepreneurs are in the business of creating our future. They do this by creating new goods or refining and improving production. In both cases, they bring about changes to the capital structure by either changing the use of existing capital or creating new capital. The aim in both is to create more value for consumers. If they are successful entrepreneurs get paid in profits. However, time and risk play an important role in this process.
Like the baker, who created a simple oven out of rocks and thereby could provide consumers with new types of bread, entrepreneurs imagine and bet that they can better satisfy consumers. This means they make investments to change things, seeking to create more value by increasing value productivity. They produce goods because they believe those goods will better serve consumers and, therefore, will be in great demand. When such an investment is successful, consumers get more value at lower cost, part of which entrepreneurs keep as profit. When it fails, which means consumers do not approve of what entrepreneurs offer, the investment loses value and may be lost completely.
The major problem entrepreneurs face is that the value of production effort is not known until it is completed. It is only when the finished good is sold that the entrepreneur learns if the investment was worthwhile—if consumers want the good. In contrast, costs are known and incurred long before the good is completed and offered for sale. Note that these costs are not merely the inputs that make the output, such as the flour, yeast, and water that are turned into bread, but also the capital needed: the oven, the bakery, etc. Even in those cases when an entrepreneur takes orders and is paid before producing the actual good, some costs are incurred as part of the not-yet-produced good. Those costs include such things as setting up the business, experimenting with capital, figuring out how to make an oven, developing a recipe or blueprint for production. Investments must be made to produce the good, which can then be sold.
This problem is often referred to as uncertainty bearing. Entrepreneurship is the economic function of bearing the uncertainty of creating future goods: production without knowledge of whether it is value creative and profitable or will it incur a loss. It is the potential for profit that justifies undertaking production and bearing the uncertainty of entrepreneurial investment. It is the possibility of suffering losses that moderates those efforts and forces entrepreneurs to be responsive to consumer wants. And entrepreneurs must be responsive, because consumers are sovereign in their choices to purchase and use goods, which means only consumers determine the value of goods.
Because the value of any good is unknown—cannot be known—before it is used, entrepreneurs invest in production based on what they imagine consumers will value. The baker created the oven because he imagined the new types of bread would serve consumers better. The higher expected value justified the cost of developing and building the oven. By undertaking this endeavor, the baker changed what is and can be produced in the economy. Indeed, the actions of entrepreneurs direct overall production by refining and adjusting the economy’s capital structure. In establishing productive capability and determining what goods can and will be produced, entrepreneurship drives the market process. All goods produced and made available to us, whether they end up successful and profitable or not, are the results of entrepreneurial undertakings—entrepreneurs’ uncertainty bearing.
However, while this is the outcome and implication of their efforts, individual entrepreneurs are not in the business of adjusting the capital structure for overall efficiency or the social good. Entrepreneurs invest in particular productive capabilities in pursuit of profits. But it is very difficult to figure out what consumers will find valuable, which means entrepreneurship is fraught with failure. The entrepreneurs’ task is in fact made even more difficult in markets where it is not enough to produce something valuable, but they must outdo each other in terms of value. Entrepreneurs compete to serve consumers in the best possible way.
Entrepreneurs Make Mistakes The future is very difficult to predict, but this is what entrepreneurs attempt to do: they invest in creating the future in hope that consumers will find it valuable. And they do so while competing with the visions of other entrepreneurs. So it should be no surprise that there is an extremely high rate of failure.
This may seem inefficient or wasteful, but it is not. It would be if what consumers value were known, because with such knowledge of the future, production can be easily streamlined for efficiency. Entrepreneurship, however, solves another problem. Value is in the minds of consumers—it is not known beforehand, but consumers experience it when they use a good to satisfy wants.
Very often, consumers do not themselves know how to best satisfy their wants. Instead, entrepreneurs imagine a good they think, based on their own ingenuity, experience, and understanding, will serve consumers. To provide greater value than the goods already offered for sale, and therefore have a chance to earn profits, entrepreneurs must step ahead of consumers and introduce to them a valuable solution that they perhaps had not considered. As Henry Ford is thought to have said: “If I had asked people what they wanted, they would have said faster horses.”2 Indeed, most people probably thought they simply wanted faster horses, but Ford imagined that horseless buggies would offer higher value to consumers—and he was able to offer automobiles at prices that consumers would buy.
The fact is that consumers, whether or not they can say what goods they want, always choose between the goods offered to them. That’s when consumers exercise their sovereignty: entrepreneurs cannot force consumers to buy anything, they can only produce goods that consumers value and therefore choose.
The calculus for a consumer is simple but difficult for entrepreneurs to foresee and meet. First, the good has to offer value by satisfying some want that the consumer has. If what the entrepreneur offers has no value to the consumer, then it is not a good.
Second, the good must offer a better, more valuable means to satisfy a want than other goods offering to satisfy that same want. If it does not, then the good is ineffective and of lesser value for satisfying that want. Consequently, the entrepreneur must offer it at a lower price to make it worthwhile to the consumer.
Third, the good must offer value that exceeds the goods that promise to satisfy other wants. Entrepreneurs compete for the consumers’ money.
Fourth, the good must offer enough value for the consumer to buy it now rather than choose to hold on to their money and buy something else in the future.
The entrepreneur must provide value in accordance with all of these layers of consumer valuation.
Needless to say, entrepreneurs attempt to do something extremely difficult. They do so because they believe they will profit in some way in the end. But whether or not they do, their attempts to create value provide a crucial service to other entrepreneurs and the economy overall (we will discuss economic calculation in chapter 7). As they compete based on their own knowledge and imaginations—how they expect to best be of service to consumers—they create knowledge for the economy overall. Entrepreneurs’ discoveries of what consumers value, identified by profits, guide new entrepreneurs in their efforts. Similarly with losses, which suggest to other entrepreneurs that they should try something different. Consequently, every attempted entrepreneurial undertaking can take advantage of the knowledge and experiences of previous entrepreneurs. This makes entrepreneurial value production cumulative: successes are augmented and become stepping stones for future production; errors are weeded out.
It would be wrong to disparage failing entrepreneurs, however. Even though they were unsuccessful and suffer losses, they provided the economy with an invaluable service by making information available on what does not work. This is valuable information for all other entrepreneurs. As entrepreneurs fail, the resources—capital—that they invested become available to other entrepreneurs, who can then increase their own production or try something new.
In sum, entrepreneurs serve consumers by creating our future. They do this by trying ideas for new, imagined goods and, based on their expected value, paying wages to workers and developing new capital. When entrepreneurs err in their choices, they personally suffer the loss of those investments. That loss is the totality of the investments they made in production: wages paid to employees and prices paid to capital suppliers.
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- Note that this is not about creating stuff but satisfying wants. An economy that produces more goods does not necessarily produce more value than an economy that produces fewer goods. It could simply be more wasteful. What matters is the value of the goods produced, not their number or size—and certainly not the quantity of resources that were used to produce them. Production is the process of creating value; productivity is the measure of value produced per unit of input.
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- This quote is oft repeated and makes a vital point about entrepreneurship and production, but it is doubtful that Ford actually said this.
This is the "American dream" the Fed has given us: work more jobs and longer hours to keep paying those bills that are now growing at 8 percent per year.
Original Article: "Thanks to the Fed, You'll Work More This Year to Keep Last Year's Standard of Living"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
I have recently written about the cultural, political, and ideological problems that contribute to the decline in higher education, but colleges also suffer from long-standing institutional shortcomings.
Simply put, the term “higher education” is, in many ways, a misnomer, as the university system is not designed to produce quality educational experiences. This is due to three major problems: extreme institutional stickiness, the lack of division of labor, and tenure.
Universities trace their origins back to the Middle Ages, when they were appendages of the church. Books were scarce in medieval Europe, and this prevented all but the wealthiest students from having their own copies of the books they were taught from. The book scarcity compelled professors to teach by reading directly from the book, adding their own commentary throughout, which became known as “glossing” the text. This is the basis for the modern lecture that remains the primary method of college instruction today.1
There is a place for the college lecture—as a history teacher, I can appreciate the difficulty of replacing them entirely—but it is widely accepted today that lectures are the least effective method of teaching. To be sure, not every professor leans on the lecture. Many courses, at least in the humanities, do incorporate discussion, often devoting one day a week to discussing short reading assignments. Yet lectures are still heavily used, not because they are the only or best means of educating students, but because they are familiar to us.
Part of this problem stems from the lack of pedagogical training that graduate students receive before becoming professors. In fact, it is common practice to assign graduate students classes to teach as a way of compelling them to learn the material, as is often the case with economics PhD students who earned their undergraduate degrees in mathematics (Peter Klein discusses this issue during his experience at Berkeley here). While lecturing may be the best method of learning for the teacher, we might question the value of an undergraduate course being taught by professors who do not themselves know the material.
The lack of pedagogical training is also related to the absence of any division of labor in the university system. Graduate students are trained to be researchers, not educators, despite the fact that the vast majority of them will land jobs at teaching universities, where they will have large course loads and little research time compared to their counterparts at prestigious research institutions. It hardly seems rational to expect good educational outcomes from people who become qualified to teach at the highest level of the educational system by completing a training program that provides virtually zero pedagogical training.
Moreover, regardless of where professors land jobs, their responsibilities are generally divided into three categories of responsibility: teaching, research, and administrative contributions to the department. Often the best educators in a department end up taking on administrative functions, in which they usually have little interest or ability, in exchange for a lighter teaching load.
This causes further problems for both undergraduate and graduate students, who are expected to seek guidance on their college trajectory from professors who are fulfilling their administrative obligations a year or two at a time, until another professor takes over, with no incentive to learn the job. The result is misguided advice and inconsistent answers to common questions from professor to professor. So egregious was this problem during my graduate experience at the University of Florida that my cohort eventually learned to take all our questions to one student whose advisor seemed to be the only faculty member capable of providing reliable information.
But if most college professors spent the majority of their time teaching and administrating, why do our graduate programs focus almost wholly on research training? Scholarly publications are the source of prestige in the university system, and published research remains the primary basis for hiring at most colleges, even those that are largely teaching universities (though this is less true for liberal arts and community colleges). University departments are happy to continue supporting even the most abysmal teachers as long as they show productive scholarly output.
The problem is that the expectation at all levels of higher education, from research universities to small teaching colleges, is for all professors to share a degree of the teaching, administrative, and research burdens, regardless of where their particular talents lie. In any other industry, we generally expect to see work divided according to ability—let the best teachers teach, the best researchers research, and the best administrators administrate, rather than dividing their energies and swapping out administrative responsibility every year or so. Education is not immune to the advantages of specialization, but the institution of higher education remains stubbornly resistant to it.
The problem is compounded by the tenure system. Tenure is the only reliable means of securing permanent employment at most colleges, so professors understandably prioritize the aspects of their jobs that are most valued in their tenure portfolios. Again, we see research as the top priority at nearly all tenure-granting institutions, but even administrative responsibility weighs more heavily than teaching contributions for tenure decisions.
The result is predictable. The tenure system, by rewarding teaching the least of all professorial duties, disincentivizes the development of good educators. Even professors who enjoy teaching and are naturally gifted pedagogues must often direct their efforts elsewhere due to career priorities. There are many wonderful instructors who are mediocre researchers at best and many quality scholars who are atrocious educators, but the tenure system is largely designed to keep the latter in the classroom, rather than the former.
Once professors achieve tenure, they are further protected in poor performance. The idea behind tenure is to protect academic freedom, but the culture wars have shown that there are plenty of ways to purge tenured professors from faculty positions when they hold “unacceptable” views, as Michael Rectenwald’s experiences illustrate.
Rather, the tenure system operates to protect ineffective educators, radical scholar activists (who adhere to the approved opinion on political issues), and disengaged faculty members who resist retirement. To the last point, I once had an elderly economics professor who refused to retire (despite the department’s wishes) open the class by instructing us on what to do if he passed out during the lecture. Just as teachers’ and police unions do more to protect the rotten apples than the good, the tenure system rewards and protects poor educators.
This is all to say that the abysmal state of college education is not merely a matter of public policy and ideological homogeneity, though these are certainly important factors. The very institution of higher education is structured to produce poor educational outcomes, and there is little incentive to improve. Fortunately, there are still many wonderful professors, who are largely driven by their personal love of teaching, but until the institutions themselves change, people who are simply searching for personal edification will likely have more success by reading books or taking noncredit online courses, which are often free and always cheaper than college classes with bloated tuition costs. But it is time to stop treating a “college degree” as a proxy for genuine education.
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- Norman F. Cantor, Civilization in the Middle Ages (New York: Harper Perennial, 1994), 439–40.
We live in strange times. The same people that vehemently defended massive deficit spending and money printing as the solution to the global economy now blame the turmoil of the UK bond and currency markets on a deficit-increasing budget.
I find it astonishing that no one of the so-called experts that have immediately placed the cause of the British market volatility on Liz Truss’s budget have said anything about the collapse of the yen and the need for Bank of Japan intervention, which has been ongoing for two weeks.
US dollar and main currencies
libra-usd-600x275.jpg
Source: Bloomberg.
Why did so many people assume the Truss minibudget was the cause of volatility when the euro, the yen, the Norwegian krone, and most emerging market currencies have suffered a similar or worse depreciation versus the US dollar this year? What about the bond market? This is the worst year since 1931 for bonds all over the world, and the collapse in prices of sovereign and private bonds in developed and emerging market economies is strikingly similar as those of the UK fixed income peers.
The same economists that say deficits do not matter and sovereign nations can spend and print currency as they please (“expansionary policies” they call them) now say that a UK Keynesian budget that increases spending, but cuts taxes, may destroy the economy. Yet they forget Japan had to massively intervene the yen as well without any tax cut and keeping its misguided fiscal policy of spending and borrowing.
British pension funds are not selling sovereign bonds because of lack of trust in this or another government’s budget. They are selling negative-yielding sovereign bonds because they jumped wholeheartedly into the debt bubble created by artificially cheap money believing that central banks would keep fixed income prices elevated with constant repurchases.
British pension funds’ unfunded liabilities are not a problem caused by the mini budget nor solely a UK problem. It was an enormous problem in 2019–20 disguised by insane currency printing. Unfunded global liabilities for state pension funds in the US were already $783 billion in 2021 and rose to $1.3 trillion in 2022 according to Reason Foundation. The funded ratio of state pensions was just 85 percent in 2021 and has fallen below 75 percent in 2022.
What happened in the years of negative rates and massive currency printing? Pension funds used liability-driven investing (LDI) strategies. Most LDI mandates used derivatives to hedge inflation and interest rate risk. And what happens when inflation kicks in and rates rise? “As interest rates have risen, the notional value of some of the derivatives held in LDI portfolios has fallen. The result: increased collateral calls. The speed at which rates have risen means some pension plans have had to liquidate portfolios to meet collateral calls” according to the Investment Association’s latest report in September and Brian Croce at Pensions and Investment.
The total assets in LDI strategies almost quadrupled to £1.6 trillion ($1.8 trillion) in the ten years through 2021. Nearly two-thirds of Britain’s defined benefit pension schemes use LDI funds, according to TPR and Reuters. Liz Truss and Kwasi Kwarteng are not to blame for this insanity. The policy of negative real rates and massive liquidity injection of the Bank of England is. Kwarteng and Truss are only to blame for believing that the party of policies of spending and printing defended by almost all mainstream Keynesian economists should work even when the music stopped.
Euro area systemic stress indicator
euro-area-systemic-bond-600x281.jpg
Source: Bloomberg.
In these past years, British and developed nations’ governments did not pay any attention to fiscal imbalances because money was cheap and abundant. Deficits soared, spending was uncontrolled, and the problem was hidden in the balance sheet of central banks that, like the Bank of England, purchased more than 100 percent of net issuances of government debt. After years of printing money and increasing debt to new all-time highs, persistent high inflation appeared, and now central banks need to hike rates and reduce money supply growth just when fixed income funds are loaded with toxic debt at negative nominal and real yields … And the rate hikes mean margin calls are more expensive and losses are unbearable.
UK pension funds need to get rid of the liquid assets they own as margin calls rise. Inflation arrived after years of massive currency printing and debt monetization and investment funds all over the world, but especially in the euro area, UK, and Japan, are seeing their portfolios melt down with massive nominal and real losses. When margin calls kick in, many need to sell their most liquid assets, Gilts in the UK, or government bonds elsewhere.
Liz Truss and Kwasi Kwarteng are not to blame for the insanity of the past years or Rishi Sunak’s ultra-Keynesian budgets. They are only to blame for believing that another dose of Keynesian deficit insanity would not harm.
Mr. Kwarteng’s demise is just a casualty delivered by the modern monetary theory crowd and the monetary laughing gas city to justify that the problem was a ludicrous tax cut not years of currency printing and deficit increases.
What has happened in the UK or Japan is likely to happen soon in the eurozone, which accumulated more than twelve billion euro of negative-yielding bonds in the years of cheap money and reckless stimulus plans.
Liz Truss is not to blame for twenty years of monetary insanity and fiscal irresponsibility. She is to blame for a budget that increases spending without cutting unnecessary expenses.
The irony of it all is that the defenders of monster deficits and borrowing if it comes from bloating the size of government feel vindicated. It was the evil tax cuts!
The political analysis of the mini budget is astonishing. No one in the UK parliament sees any need to cut spending it seems, yet those expenses are consolidated and annualized, which means that any change in the economic cycle leads to larger fiscal imbalances as receipts are cyclical and, with it, more currency printing. The assumption that raising taxes will generate perennial annual increases in receipts no matter what happens to the economic cycle can only be defended by a bureaucrat.
Originally published at DLacalle.com.
When firms apply the principles of Austrian economics to business management, we call the result the Adaptive Entrepreneurial Method. It’s adaptive in that it is a continuous learning process, and it’s entrepreneurial in elevating customer value realization as the most important business purpose.
Key Takeaways and Actionable Insights.
Businesses that follow the adaptive entrepreneurial method put customer value first. Value in Austrian economics is customer value: contributing to customers’ feelings of being better off as a result of the interaction with an entrepreneurial business or service provider. A useful way to think about value is in terms of alignment and order. A value exchange is a harmonious alignment between customer and entrepreneur, in which both parties benefit and both parties’ interests are served. Order is represented by the customer’s decision, a point of clarity in a world of multiple choices, overlapping preferences and broad-based uncertainty.
Entrepreneurial businesses make value their purpose and identify it in alignment and harmony with customers. Everything else — cash flow, profits, growth — follows.
Entrepreneurial orientation enables the right interpretation of data and information for customer value realization. Mark McGrath emphasizes the powerful role of entrepreneurial orientation in business success. Orientation is a mindset — a kind of internal operating system — that guides firms to translate information from customers, partners, competitors and the market into an effective, winning vision and mission.
The essence of orientation is learning. Uncertainty is assumed, and orientation is the unique set of filters through which entrepreneurs and management teams process the quantitative and qualitative data that customers and markets present. Mises called it economic calculation: the entrepreneurial capacity for combining a constantly changing stream of information into a business decision. The decisions are always reviewable and revisable; a learning mindset makes entrepreneurs comfortable with frequent decision changes in response to changing information and feedback. Principles — such as the primacy of customer value — remain the same; it’s actions that are adjusted.
Businesses that don’t learn can get locked into models that no longer reflect the realities of the marketplace, and lose their effectiveness.
People, ideas, and things. Learning, adapting, and changing are difficult capabilities to master. Continuous change can feel disorienting absent the right mindset. How do companies achieve this mastery? Mark McGrath quotes Joh Boyd on the eternal verity of people, ideas, and things — always in that order.
The first critical component are the people engaged in and operating the business. They must be good at change, comfortable with constant flux. They must accept VUCA — volatility, uncertainty, complexity, and ambiguity — as the normal condition. At the same time, management must be conscious of how each new change or wave of change impacts people, and anticipates the effect it will have on them.
In this change-accepting environment, unlimited new ideas can emerge via the creative process. They can be tested, and marketplace results become the yardstick. When new ideas look promising in terms of the results they potentially enable, then things can be changed: capital can be redeployed in new combinations, marketing campaigns can be revised. When people are pre-prepared, smooth transitions are achievable.
Continuous Reorientation And Entrepreneurial Intent. While entrepreneurial orientation is the firm’s operating system for processing information, it is not fixed. Adaptive firms are continuously reorienting, Active reorientation supports learning, recognizing that all perceptual models are only as good as the moment they were developed. They must be renewed to stay relevant. Challenging assumptions and reframing problems must be continuous in order for firms to thrive and use change to advantage. Effective orientation looks to the future rather than the present, emphasizing agility and avoiding clinging to outdated models.
Reorientation precedes intent and reshapes it. Entrepreneurial intent can be equated to what systems thinkers call vision. A vision is shared and provides a North Star for everyone in the firm, but that doesn’t preclude adjustment in continuous alignment with customers. The vision is to serve customers, and customers are also changing and adjusting. Thinking in terms of intent (rather than, say, implementing a rigid plan) permits greater flexibility in pursuit of the vision.
Entrepreneurial judgment is decision and action. The theory of entrepreneurship emphasizes judgment — that mysterious-sounding capability of entrepreneurs to make economic calculations from a mix of data and intuition. That can sound like a kind of mulling over of options. But it’s much more active than that. The entrepreneurial method emphasizes deciding and acting. Decisions are recognized as hypotheses; it’s impossible to know exactly what to do, so action-oriented develop hypotheses about what actions could have the effect they desire. The hypotheses are carefully aligned with their intent in order to double-check the logic as far as possible. But the purpose is not to be “right” but to generate feedback information so that alignment can be better informed by reality.
Action — the implementation of decisions — is an experiment, a test of the hypothesis. Action produces interaction (with customers, with retailers, with competitors, with the changing market environment) and thereby provides new information in the form of feedback, which might indicate the need to change actions next time.
The number of hypotheses and tests can be narrowed; what’s important is that they reflect as wide a range of perspectives as possible — from those at the front line interacting with customers, whether in person or at the call center or online, from engineers and operatives, from finance and HR, and from all relevant points of view. The more diverse the range of perspectives, the more likely it is that different angles of view will provide new insights and illuminate blind spots. Make sure that internal communications are organized so as to make it possible for all perspectives — including dissenting Cassandras - to be recognized and acknowledged.
Candid self-assessment of people in business leadership roles is a good place to start the adaptive entrepreneurial journey. Some elements of the adaptive entrepreneurial model require the discarding of standard ways of managing. For example, many businesses spend considerable time and effort developing plans that lock in budgets and resource allocations, and don’t make allowance for constant adjustment and change. It’s useful to take inventory of these practices and question whether they can be abandoned or reformed in pursuit of agility.
Additional Resources The "Adaptive Entrepreneurial Method" Graphic (PDF): Mises.org/E4B_192_PDF1
"Destruction and Creation" by John Boyd (PDF): Mises.org/E4B_192_PDF2
Mark J. McGrath on LinkedIn: Mises.org/E4B_192_LinkedIn
"Orientation: Bridging The Gap In The Austrian Theory of Entrepreneurship" (AERC 2022) by Mark J. McGrath and Hunter Hastings (PDF): Mises.org/E4B_192_PDF3
The idea of defamation as a punishable legal matter is based on the notion that people do not have free will and are not responsible for their own actions.
Original Article: "The Alex Jones Verdict Shows the Danger of Defamation Laws"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
The “new history of capitalism” (NHC) continues to receive widespread acclaim despite mounting inaccuracies. Although critical reviews have punctured adherents’ arguments many still cling to wrongheaded assumptions that exaggerate the role of slavery and cotton in powering America’s economic progress. Several industries were complicit in fueling slavery, but their success was never hinged on slave production.
In fact, slavery proved to be a hindrance to commercial progress. Dependence on slavery reduced the incentive to invest in physical infrastructure and real estate development. For instance, during the apex of the canal boom in the 1830s, five times as many miles were built in the Northern as in the Southern states. Because slaves could be levied as collateral and constituted a great source of wealth, slavery succeeded in crowding out physical capital formation.
Furthermore, economic historian Gavin Wright opines that since slaves were movable personal property, owners could borrow across long distances thereby limiting opportunities to establish local credit relationships, as was customary in free states. By inhibiting the emergence of local credit networks, slavery hampered the growth of Southern finance and entrepreneurship.
Even more crucial is that the failure of planters to recruit labor from outside the South prevented the region from absorbing new human capital that could reinvigorate the economy. Unlike Northern states that allowed labor to be allocated freely, the South discouraged immigration due to its reliance on slave labor. Moreover, considering that planters did not require a highly educated labor force, the American South underinvested in education.
Planters were not inclined to employ free whites as labor, so financing public education was never a priority. In the South, just 35 percent of the region’s school-age white population were enrolled in 1860, in stark contrast to the 72 percent elsewhere—where the duration of the academic year was 70 percent longer. Northern states cultivated a more liberal environment by fostering inclusive institutions that enabled nonelites to thrive. Due to the inequalities perpetuated by slavery, slaveholding states were behind the curve in social and technological improvements that propelled economic growth.
Contrary to the claims of the NHC, slavery is a robust predictor of economic liabilities. According to researchers from the University of Michigan, slave regions in the United States had lower land values and less intensive land use. Slavery had such a pernicious effect on development, that in the relevant areas, the reduction in land value linked to slavery was greater than the value of slave wealth itself.
Other than heralding slavery as an engine of industrial progress, another dubious tactic of the NHC is to exaggerate the role of cotton in America’s development. During the antebellum era, cotton production accounted for roughly 5 percent of GDP and although it was a major export, exports never surpassed 7 percent of GDP. America had a large internal market that could generate enough domestic demand and intraregional trade to spur development.
Also amazing is that although cotton occupies an influential status in American economic history, it was not the nation’s most important crop. America’s leading agricultural commodity was corn and the South’s leading crop measured by value in 1839 and 1849 was also corn. Indeed, slaves were instrumental in cotton production, but cotton could prosper without slavery. After abolition in the American South, working-class whites easily transitioned to cotton production by acquiring postwar cotton fields.
Neither was a cotton vital node in linking industrial centers in the United States. The NHC has resurrected Douglas North’s claim that the wealth of the cotton trade stimulated demand for western produce and northeastern manufactured goods, however, this argument has been refuted by research. The American South was self-sufficient in food production and did not constitute an important market for Northern exports.
Additionally, with equal fervor, Trevor Burnard and Giorgio Riello debunk the assertion that American cotton was the fulcrum for the British industrial revolution: For Beckert, slavery and cotton are inseparable. But American cotton was not the impetus behind British industrialism. A great deal has been made of Eli Whitney’s cotton gin, which was first introduced in Georgia in 1793, but the American South became a major cotton producer only in the 1810s and retained such a position for just over a generation.
Further, comparative studies of slavery have proven that the NHC is wrong in arguing that slavery is linked to industrialization and that cotton output increased due to the use of force. According to Nuno Palma and coauthors in a 2020 paper: “Rather than promoting economic growth and development, the evidence shows that slavery held back industrialization in Brazil. We also discuss the role of slavery in agricultural productivity and show that, as in the United States, the use of violence does not explain increases in the productivity of cotton plantation.”
Like the United States, slavery in Brazil impeded industrialization, and increases in productivity were a result of biological innovations, rather than the use of torture to deter scare slaves into working. As political activism, the NHC is quite successful, but it should never be taught as history when it’s really propaganda.
An energy policy that bans investment in some technologies based on ideological views and ignores security of supply is doomed to a strepitous failure.
The energy crisis in the European Union was not created by market failures or lack of alternatives. It was created by political nudging and imposition.
Renewable energies are a positive force within a balanced energy mix, not on their own, due to the volatile and intermittent nature of the technology. Politicians have imposed an unstable energy mix banning base technologies that work almost 100 percent of the time and this has made prices soar for consumers and threatened security of supply.
This week, Ursula von der Leyen, President of the European Commission, gave two messages that have grabbed many headlines. First, she announced a strong intervention in the electricity market, and then she stated at the Baltic Sea Energy Security Summit the proposal to increase renewables to 45 percent of the total generation mix by 2030. She considers that this is not an energy crisis but “a fossil fuel crisis.”
However, Ms. von der Leyen’s messages have two problems. Europe’s energy crisis is due to intervention at a massive scale. Furthermore, massively increasing renewables does not eliminate the risk of dependence on Russia or other commodity suppliers.
The European electricity market is probably the most intervened in the world. More intervention is not going to solve the problems created by a political design that has made most countries’ energy mix expensive, volatile, and intermittent.
Ideology is a bad partner in energy.
Between 70 and 75 percent of the electricity tariff in most European countries are regulated costs, subsidies, and taxes set by governments and, in the remaining part, the so-called liberalized generation, the cost of CO2 allowances has skyrocketed due to those same governments that limit supply of permits and the energy mix is imposed by political decisions.
In Germany, only 24 percent of all costs in a household bill are “supplier costs,” according to the BDEW 2021. The vast majority of costs are taxes and costs set by the government: grid charges (24.00 percent), renewable energy surcharge (20.00 percent), sales tax (value-added tax) (16.00 percent), electricity tax (6.00 percent), concession levy (5.00 percent), offshore liability levy (0.03 percent), surcharge for combined heat and power plants (0.08 percent), levy for industry rebate on grid fees (1.30 percent). However, the “problem,” according to the messages of the President of the European Commission, is the market. Go figure.
It is surprising to read that Europe’s power markets are “free markets,” when governments impose the technologies within the energy mix, monopolize and limit licenses, prohibit investment in some technologies or close others, as well as forcing a rising cost of CO2 permits limiting their supply.
Intervention was to shut down nuclear power and rely massively on natural gas and lignite as Germany did. Intervention was to prohibit the development of domestic unconventional natural gas in Europe. Intervention is to shut down reservoirs when hydro power is key to lower household bills. Intervention is increasing subsidies at the wrong time and then raising taxes on efficient technologies. Intervention is to stop the gas pipeline that would double interconnections with France. Intervention is to prohibit lithium mining while talking of defending renewables, which need this commodity. Intervention is to fill the consumer’s bill with taxes and regulated costs that have nothing to do with energy consumption. Intervention, in essence, is the chain of errors in energy policy that have led Europe to have electricity and natural gas more than twice as expensive as in the US, as Durão Barroso warned in 2013.
European power prices are not expensive by chance, but by design. The exponential increase in subsidies, regulated costs, and the price of CO2 emission rights are political decisions.
Eliminating baseload energies (nuclear, hydraulic) that work all the time and replacing them with renewables that need a backup of natural gas and heavy investments in infrastructure is expensive. It has been throughout Europe, and it will continue to be.
An energy transition must be competitive and guarantee security of supply, or it will not be. More intervention does not solve the problems.
European governments should worry about erasing from household bills all those items that have nothing to do with electricity consumption, including the cost of past planning errors, and lower taxes that are simply unaffordable. Those items should be in the national budget and other nonessential expenses should be cut to avoid rising deficits.
The market is not always perfect, but government intervention is always imperfect.
Governments are awfully bad at picking winners, but they are even worse at picking losers. Constant intervention leaves a trail of debt and cost overruns that all consumers pay.
What happens when the government intervenes? It closes nuclear power out of ideological obsession and then depends on 40 percent of its energy mix on coal, lignite, and gas, like Germany. Or it brings its flagship public company to the brink of bankruptcy by intervening tariffs, like France. Or, like Spain, it creates a diplomatic conflict with its largest natural gas supplier, Algeria, and, with it, doubles its gas purchases from Russia since the beginning of the war to July 2022.
Now, the European Union is rushing to install new floating regasification plants. More than thirty. The problem? That practically all the liquefied natural gas ships for this winter have already been contracted.
The same governments that refused to strengthen natural gas supply chains when it was cheap are now rushing to spend vast amounts on low-efficiency solutions.
Installing renewables does not eliminate dependence on natural gas. Renewables are, by definition, intermittent, and volatile as well as difficult to plan. Additionally, installing more renewables also requires huge spending on transmission and distribution investments, which makes the tariff more expensive.
Investing more in renewables is positive, but no politician can say that they are the only solution. The storage problem, the astronomical cost of a battery network and the necessary infrastructure, estimated at more than two trillion euros if it were feasible, are key factors. If today Europe had a 100 percent solar and wind mix, it would be excessively volatile and intermittent, and in periods of low solar and wind availability it would increase dependence on natural gas, which is necessary as backup, and the need for hydro and nuclear, baseload energies that work all the time. Additionally, renewables, which are positive in a balanced energy mix, do not reduce dependence on other countries. Countries become dependent on China and other nations for lithium, aluminum, copper, etc.
Installing 45 percent renewables in the mix does not eliminate the dependence on natural gas, it only reduces it slightly in the part of the renewable load factor that is more stable (part of wind production). In fact, dependence on periods of low wind energy and low solar yield would be extremely high and, as we have already experienced, those coincide with periods in which gas and coal are more expensive due to greater demand.
If there is one thing that this crisis shows us, it is that what Europe needs is more market and less intervention. Europe arrived at this crisis due to a combination of arrogance and ignorance on the part of the legislators who control the energy mix. The importance of a balanced mix, with nuclear, hydro, gas, and renewables is more evident every day.
Interventionist energy policy has failed miserably. More intervention is not going to solve it.
The current bout of inflation is the latest disaster in a string of disasters caused by government debasement of once sound money.
Original Article: "History Repeats Itself: Abandoning Sound Money Leads to Tyranny and Ruin"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
The Federal Reserve has a legal dual mandate to minimize unemployment and price inflation. The current “dual” between the two mandates is to reduce price inflation by increasing interest rates to increase unemployment and kill businesses to choke off aggregate demand. This has been the most important economic and investment issue this year and this dual minimization procedure has dominated Fed policy for at least three-quarters of a century.
This is odd given that the Fed is in the business of creating money, the cause of price inflation, and it is responsible for all the largest surges in unemployment since its founding in 1913. Employing an army of monetary economists, macro theorists, and statisticians, the Fed appears to be pursuing its quixotic quest of the Phillips curve sweet spot of minimizing inflation and unemployment.
The real mandate of the Fed is serving its masters, the political elites, by financing government spending and debt, bailing out cronies, and supporting the political process, including the Fed’s own interests. Everything else, including the inflation and unemployment rates are derivative of the primary mandate. The so-called dual mandate is just subterfuge to protect the Fed’s “confidence game.”
The Quest of the False Mandate In The Fed Explained: What the Central Bank Does, we learn how control of the Fed is “decentralized.” This might sound good to some supporters of the free market. However, any hint of decentralization, such as the importance of District Banks, is long gone and the remnant is merely a diversion or historical curiosity. Of the twelve votes on the Federal Open Market Committee (FOMC) there are only four of twelve rotating District Bank presidents voting, plus the President of the New York Fed. The central Board of Governors in Washington DC has seven voting members who are appointed by the President and confirmed by the Senate and has nearly twice the voting power over interest rate decisions. Plus, the Chairman (Powell) has the power of the bully pulpit and is the consensus builder on the FOMC.
We are also told of the balancing of public and private (banks’) interests controlling the Fed and some free-market supporters latch onto the influence of the private sector as an effective check on the Fed’s enormous economic power. Big banks do work directly with the Fed in “open market operations” and interact in the day-to-day business of banking regulation. Commercial banks have some voting power within the District Banks. However, this influence is contingent on political goals and even the big banks can be pawns in the Fed’s political chess game. Their shares are “nonnegotiable” and are nothing like shares in private corporations. Banking interests are clearly derivative, and the Fed has thrown such interests overboard when necessary, such as with the Savings and Loan Crisis or Lehman Bros. In any case, the union of public and private interests is the ultimate source of corruption and can be the greatest threat to human liberty. Such private interests are clearly not a bulwark of liberty.
It is true that the Federal Reserve Act of 1913 was established and intended to be a cartel device for the banks and some banks are better protected than others. Marx and Engels (1848) called for the establishment of central banks and thereafter Americans were increasingly duped by socialist ideology. This socialist influence was an important force during the so-called Progressive Era (1890–1920). History textbooks make the Federal Reserve Act appear to be the result of a coalition of popular interests. However, the big banks and their academic technocrats controlled by political elites, created and controlled the legislative campaign with their “independent” National Monetary Commission.
A final and critical canard about the Fed is its “independence.” We are told that the Fed must be independent of political power to carry out its mandates and be effective. In this vein, if the Fed were to succumb to political pressures, then it would continually increase the money supply and suppress interest rates below market determined levels, especially before elections. This they tell us would destabilize the economy and might lead to hyperinflation the way it does under dictatorships where central banks do not have independence. I’m sure the Fed would love to be independent, but they are controlled by powerful office holders who are in turn controlled by the elites. As Ryan McMaken reminds us, “Fed independence is a fairy tale academic economists like to tell their students” and they are biased toward the inflationary mandate.
The sturdiness of the False Mandate is also bolstered by the ever-expanding duties and powers of the Fed. The original mandate of the Fed spoke of macroeconomic stability and an elastic currency to promote maximum employment and low inflation. The mandate also spoke to stable prices and the purchasing power of the dollar. These roles have been updated to include such things as “moderate” long-term interest rates, but the Fed has other duties concerning the banking and financial industry, maximizing the long run productive capacity of the economy, and even growth in money supply aggregates. Some in Congress even want the Fed to act on issues such as economic inequality and global warming. Despite these added duties, it is the false dual mandate that provides cover for the Fed. In addition to covering its tracks in the short run, the Fed’s expanding power and duties also illustrates Ludwig von Mises’s theory of the mixed economy and progressive interventionism—the ever-increasing need for power to address past errors of policy.
Revealing the Real Mandate In recent years the Fed has become increasingly interventionist along with its ever-expanding mission creep and the necessity of solving problems of its own making. As a result, the Fed’s veneer of science in the service of the public good has worn thin. For example, once upon a time, the Fed dealt with only short-term government securities. These US Treasury debts were only of the shortest duration, borrowings for ninety days or less under the “bills only” doctrine. The idea was to manage short term rates so that longer term rates could be minimized.
Of course, the Fed has increased its domain to include longer term government debts of any duration, including thirty-year bonds. In recent years, it has also become the dominant holder of mortgages and other securitized instruments. Mortgages now make up a huge proportion of its balance sheet and it has become the big player on the supply side of the US mortgage market. Then there are the trillions of quantitative easing (QE). They are not even sure how QE works, but it bailed out the political elites who were able to exchange their risky assets with their friends at the Fed and earn risk free interest on their excess reserves. All of this did nothing good for the general public and set up the current collapse.
With a massive inflationary wave behind them, the Fed now speaks of reducing its balance sheet and of reversing its QE policies, selling massive amounts of government debt and mortgages back into the market. Their plan increases interest rates on government debt, mortgages, and everything else with the goal of reducing price inflation. This quantitative tightening (QT) has thus far only reduced the overall Fed balance sheet from about $9 trillion in May to about $8.85 trillion today.
With a potential powder keg of an election upon us and financial markets already in turmoil, the Fed’s timid tightening policies make sense. In addition to barely budging on QT, they have only raised the federal funds rate from 0 percent to 2.3 percent in 2022 when a “normal” federal funds rate is probably about 3 percent and an “inflation fighting” rate is much higher. They are causing real economic pain, but their greatest efforts have been in terms of “moral suasion” that is not moral or true persuasion, but simply a devious deception: disingenuous speeches and public comments threatening draconian interest rate hikes to gas light a higher dollar and help stave off ongoing price increases, at least until election day.
The real mandate of the Fed is rigging the political system in favor of the political elites. It is not a scientifically driven policy, but rather an effort to misdirect its own impact as the fault of the free market. The Fed is a political institution that is the primary cause of price inflation, cyclical unemployment, and economic crises! Over time the world has been taken off the gold standard and put on an ever more dangerous course of boom-and-bust economic cycles.
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Is praxeology inconsistent? Praxeologists criticize neoclassical economists for using false assumptions in their models. For example, neoclassicals acknowledge that the conditions for “perfect competition” are never found in the actual world. Firms selling a good such as wheat may not have much control over price, but they aren’t perfect “price takers,” as perfect competition requires. Nevertheless, the model is useful, neoclassicals aver, for generating predictions about the real-world behavior of certain firms.
Austrian praxeologists disagree. If you start out with false assumptions, what you deduce from these assumptions is not guaranteed to be true. It is wrong that what is deduced from false assumptions is always false; the conclusion might in fact be true. The problem is that the premises do not give grounds for thinking it is true. “All elephants are mortal; Socrates is an elephant; therefore, Socrates is mortal” reaches a true conclusion, but because the argument uses the false premise “Socrates is an elephant,” the argument lends the conclusion no support. Praxeologists, by contrast, start out with true premises, such as the action axiom, and endeavor to deduce true conclusions from them.
Here is where the alleged inconsistency is supposed to arise. Austrians also use “imaginary constructions,” such as the evenly rotating economy (ERE) and the final state of rest, which can never exist in the actual world. How can Austrians assail neoclassicals for their unreal assumptions while using unreal assumptions themselves?
I think this inconsistency can easily be solved through careful consideration of what Ludwig von Mises says in Human Action about imaginary constructions, and I’ll quote the relevant passage and then comment on it.
The specific method of economics is the method of imaginary constructions…. An imaginary construction is a conceptual image of a sequence of events logically evolved from the elements of action employed in its formation. It is a product of deduction, ultimately derived from the fundamental category of action, the act of preferring and setting aside. In designing such an imaginary construction the economist is not concerned with the question of whether or not it depicts the conditions of reality which he wants to analyze. Nor does he bother about the question of whether or not such a system as his imaginary construction posits could be conceived as really existent and in operation. Even imaginary constructions which are inconceivable, self-contradictory, or unrealizable can render useful, even indispensable services in the comprehension of reality, provided the economist knows how to use them properly.
The method of imaginary constructions is justified by its success. Praxeology cannot, like the natural sciences, base its teachings upon laboratory experiments and sensory perception of external objects. It had to develop methods entirely different from those of physics and biology. It would be a serious blunder to look for analogies to the imaginary constructions in the field of the natural sciences. The imaginary constructions of praxeology can never be confronted with any experience of things external and can never be appraised from the point of view of such experience. Their function is to serve man in a scrutiny which cannot rely upon his senses. In confronting the imaginary constructions with reality we cannot raise the question of whether they correspond to experience and depict adequately the empirical data. We must ask whether the assumptions of our construction are identical with the conditions of those actions which we want to conceive.
The main formula for designing of imaginary constructions is to abstract from the operation of some conditions present in actual action. Then we are in a position to grasp the hypothetical consequences of the absence of these conditions and to conceive the effects of their existence. Thus we conceive the category of action by constructing the image of a state in which there is no action, either because the individual is fully contented and does not feel any uneasiness or because he does not know any procedure from which an improvement in his well-being (state of satisfaction) could be expected. Thus we conceive the notion of originary interest from an imaginary construction in which no distinction is made between satisfactions in periods of time equal in length but unequal with regard to their distance from the instant of action.
The method of imaginary constructions is indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can prevent a man from falling headlong into these abysmal depths.
The point Mises is making here is a simple one. When praxeologists use imaginary constructions, they aren’t claiming to deduce truths about what happens in the real world. At no point is it proposed, for example, to test empirically how close the economy comes to the ERE. Finding out what necessarily happens in the real world requires starting with true premises. But the imaginary constructions enable praxeologists to understand better the action axiom and the theorems deduced from it, by allowing them to contrast these true statements with the false assumptions of the constructions.
One aspect of this procedure requires clarification. It’s only some of the assumptions of the imaginary constructions that are false. The deductive procedures used in drawing consequences from these assumptions are correct. If they weren’t, the constructions would be useless for the purpose Mises sets out for them; viz., contrasting what takes place in them with what happens in the world.
This raises a problem to which I don’t have a solution and which I’ll leave to readers. Is Mises going too far when he says that the assumptions of the imaginary constructions can be self-contradictory? There is a well-known argument in logic which shows that a self-contradiction materially implies any proposition. Unless you can “get around” this problem, the conclusions you draw from the imaginary constructions will be useless for economic analysis. I suspect that the answer lies in using a notion of “inconceivable” that isn’t equivalent to strict logical self-contradiction, but I’ll leave it to readers more adept at these matters than I to unravel this.
UK entrepreneur and founder of the Cobden Centre Toby Baxendale joins Bob to discuss meeting Hayek, the history of economists supporting 100% reserve banking, and the tools central banks and governments will use to enact "financial repression."
Standard neoclassical definitions of money call it a means of exchange and a store of value. But is this correct?
Original Article: "Cryptocurrency as Money—Store of Value or Medium of Exchange?"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
For most economists the velocity of money circulation is an important factor in determining the prices of goods and services. If, for example, the quantity of money increased by 10 percent in a given year, while the price level has remained unchanged it would mean that there must have been a decline of about 10 percent in the velocity of money circulation.
If the quantity of money remained unchanged but there has been a 10 percent increase in the price level in a given period, it would mean that there must have been an increase in the velocity of money circulation of 10 percent in that period.
The idea of the velocity of money circulation is straightforward for most economists. For example, during a given year a particular ten-dollar bill may be used as follows: baker John pays the ten dollars to tomato farmer George. The tomato farmer uses the ten-dollar bill to buy potatoes from Bob who uses the ten-dollar bill to buy sugar from Tom. The ten dollar here served in three transactions. This means that the ten-dollar bill was used three times during the year, its velocity of circulation is therefore three.
A ten-dollar bill, which is circulating with a velocity of three financed thirty-dollar worth of transactions in that year. Now, if there are three billion dollars’ worth of transactions in an economy during a particular year and the average money stock is five hundred million dollars during that year, then each dollar of money is used on average six times during the year. Five hundred million dollars in money by means of a velocity factor has effectively become three billion dollars. This implies that the velocity of money circulation can boost the means of finance.
From this it is established that:
Velocity = Value of transactions / stock of money
This expression can be also presented as,
V = P*T/M
Where V stands for velocity, P stands for the average price, T stands for the volume of transactions and M stands for the stock of money. This expression can be further rearranged by multiplying both sides of the equation by M. This in turn will give us the famous equation of exchange
MV = PT
This equation states that money multiplied by velocity equals the value of transactions. Some economists employ GDP instead of P*T thereby concluding that
MV = GDP = P(real GDP)
The equation of exchange appears to offer a wealth of information regarding the state of an economy. For instance, for a given velocity and a given stock of money one can establish the value of GDP. Note that from the equation of exchange a fall in the velocity of money (V) for a given money (M) results in a decline in economic activity as depicted by GDP. Furthermore, information regarding the average price or the price level allows economists to establish the state of the real output.
For most economists the equation of exchange is regarded as a very useful analytical tool. The debates that economists have are predominantly with respect to the stability of the velocity of money circulation. If velocity is stable, then money becomes a very powerful tool in tracking the economy.
The importance of money as an economic indicator, however, diminishes once the velocity of circulation of money becomes less stable and, hence, less predictable. An unstable velocity of the circulation of money implies an unstable demand for money, which makes it harder for the central bank to navigate the economy toward the path of economic stability.
Does the Concept of Velocity of Money Circulation Make Sense? The equation of exchange says that for a given stock of money, an increase in its velocity of circulation helps to finance more transactions than money could have done by itself. However, does it make sense?
Consider the following: a baker John sells ten loaves of bread to a tomato farmer George for ten dollars. John then exchanges that money to buy five kilograms of potatoes from Bob the potato farmer. How did John pay for potatoes? He paid with the bread he produced.
Note that John the baker had financed the purchase of potatoes not with money but with bread. He paid for potatoes with the bread that he produced using money to facilitate the exchange. Money fulfils the role of the medium of exchange, not the means of payment. Ludwig von Mises writes:
Commodities, says Say, are ultimately paid for not by money, but by other commodities. Money is merely the commonly used medium of exchange; it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities.
The number of times money changed hands has no relevance whatsoever on the bakers’ ability to fund the purchase of potatoes. What matters here is that he possesses bread that serves as the means of payment for potatoes.
Being the medium of the exchange, money does not circulate; it always belongs to somebody and is always someone’s property. According to Mises:
There is no fraction of time in between in which the money is not a part of an individual’s or a firm’s cash holding, but just in circulation. It is unsound to distinguish between circulating and idle money.
Mises also writes:
Money can be in the process of transportation, it can travel in trains, ships, or planes from one place to another. But it is in this case, too, always subject to somebody’s control, is somebody’s property.
The Velocity of Money Circulation and Goods Prices Does the velocity of money circulation have anything to do with the prices of goods? Prices are the outcome of individuals’ purposeful actions.
By entering an exchange, both John and Bob are able to realize their goals and promote their respective well-being. John concluded that it is a good deal to exchange ten loaves of bread for ten dollars for it will enable him to procure five kilograms of potatoes. Likewise, Bob had concluded that the ten dollars for his five kilograms of potatoes is a good price, for it will enable him to secure the ten kilograms of sugar.
Observe that price is the outcome of different ends, and hence the different importance that both parties to a trade assign to means. The fact that so-called velocity is three or any other number has nothing to do with goods prices and the purchasing power of money as such. Individual’s purposeful actions determine the prices of goods and not velocity.
The Velocity of Money Circulation Does Not Exist Independently Contrary to mainstream economics velocity is not an independent entity—it is always the value of transactions PT divided into money M—i.e., PT/M. According to Murray N. Rothbard:
But it is absurd to dignify any quantity with a place in an equation unless it can be defined independently of the other terms in the equation.
Given that V is PT/M, it follows that the equation of exchange becomes M(PT)/M = PT, which is reduced to PT = PT, and this is not a very interesting truism. It is like stating that $10 = $10, conveying no new knowledge of economic facts.
The average purchasing power of money cannot be even established. For example, in a transaction the price of one dollar was established as one loaf of bread. In another transaction, the price of one dollar was established as 0.5 kilograms of potatoes, while in the third transaction the price is one kilograms of sugar.
Observe that since bread, potatoes, and sugar are not commensurable no average price of money can be established. Now, if the average price of money cannot be established, it follows that the average price of goods (P) cannot be established either. Consequently, the entire equation of exchange falls apart. It is not a tenable proposition and covering it in mathematical clothing cannot make it more acceptable.
Additionally, does a so-called unstable velocity of money circulation imply an unstable demand for money? The fact that people change their demand for money does not imply instability. Because of changes in an individual’s goals, he may decide that at present it is to his benefit to hold less money. Sometime in the future, he might decide that raising his demand for money would serve better his goals. So what could possibly be wrong with this? The same thing that goes for any other goods and services—demand for them changes all the time.
Conclusion Contrary to popular thinking, money does not circulate. Instead, it always belongs to somebody.
On Saturday, protests supporting Julian Assange will occur around the world. In London, Assange supporters will link arms around the parliament building. Protests will also occur outside the Justice Department headquarters in Washington (I’ll be one of the speakers), D.C., and in San Francisco, Tulsa, Denver, and Seattle, as well as in Australia.
Four years ago, I wrote a USA Today column calling for Assange to receive a Presidential Medal of Freedom. My piece failed to sway the Trump White House and the Biden administration has taken up the prosecution of one of the most important truth tellers of this century. Assange has been locked away for years in a maximum-security prison in Britain. He is facing extradition to face 17 counts of violating the Espionage Act for disclosing classified information. If the Brits deliver Assange to the U.S. government, he has almost no chance for a fair trial because of how prosecutions are rigged in federal court.
The last four years have revealed why activists like Assange, who has been held for years in a maximum-security British prison, are vital to any hope of making rulers accountable to the citizenry. Attorney General Ramsey Clark warned in 1967, “Nothing so diminishes democracy as secrecy.” At this point, America is an Impunity Democracy in which government officials pay no price for their abuses.
Assange was targeted by the U.S. government after his organization, Wikileaks, disclosed tens of thousands of documents and some videos exposing crimes committed by the U.S. military against Afghan and Iraqi civilians. A 2010 Christian Science Monitor report on the leak noted that it was “unclear how Americans might react to revelations about apparent indiscriminate killing of Afghan civilians” by American forces. But the Monitor headline captured the verdict in Washington: “Congress's response to WikiLeaks: shoot the messenger.” Vice President Joe Biden denounced Assange as a “high-tech terrorist.”
Federal agencies could not prove that any of the information that Wikileaks released was false. At the court martial of former Army Corporal Bradley Manning, who leaked the documents, prosecutors failed to show that any information Wikileaks disclosed had led to the death of a single person in Afghanistan or Iraq. That conclusion was re-confirmed by a 2017 investigation by PolitiFact. Even Biden admitted in 2010 that “I don't think there's any substantive damage” from the Wikileaks revelations.” But Assange was guilty of violating the U.S. government’s divine right to blindfold the American people.
Washington policymakers damned Assange and expanded the role of the U.S. military in the Afghan conflict. Atrocities continued, helping turn the Afghan people against the U.S. military and a Kabul government that was seen as a Washington puppet. When the Afghan military collapsed like a house of cards in 2021, Washington policymakers were stunned at the Taliban’s lightning triumph. But they were shocked simply because they had ignored the truths that Wikileaks revealed.
When the federal indictment against Assange was announced in 2019, a New York Times editorial declared that it was “aimed straight at the heart of the First Amendment” and would have a “chilling effect on American journalism as it has been practiced for generations.” Unfortunately, Americans and foreigners continue to suffer because of the perennial cover-ups of U.S. foreign interventions.
After Britain arrested Assange on behalf of the U.S. government in 2019, Sen. Joe Manchin (D-WV) whooped that Assange "is our property and we can get the facts and the truth from him."
But Manchin had no recommendations on how Americans can “get the facts and the truth” from the federal government. Biden has ramped up U.S. bombings in Somalia: who exactly are we killing? It is a secret. Which Syrian terrorist groups are the U.S. government still bankrolling? It’s a secret. Why is the U.S. continuing to assist Saudi atrocities against Yemeni civilians? It’s a secret.
And then there’s the biggest and most dangerous secret operation on the horizon right now - the U.S. intervention in the Russia-Ukraine war. Folks can condemn Russia and support Ukraine without believing that Washington policymakers deserve a blank check to potentially drag America into a nuclear war. Are CIA analysts or Pentagon officials issuing warnings about U.S. government actions in this conflict could lead to a spiral that ends in catastrophe? Unfortunately, Americans won’t learn of any such memos until damage has been done. And if a disaster occurs, then we’ll see the same sham that occurred after the Iraq War – some Senate Committee blathering that no one is to blame because everyone in Washington was a victim of “group think.”
Federal prosecutors stress that Assange leaked “classified” information. But federal agencies are creating trillions of pages of new “classified’ secrets each year. Yet, any information which is classified is treated like a political holy relic that cannot be exposed without cursing the nation.
Pervasive secrecy helps explain the collapse of trust in Washington. Americans today are more likely to believe in witches, ghosts, and astrology than to trust the federal government. Adding Assange’s scalp to the Justice Department’s trophy wall will do nothing to end the mistrust of the political ruling class that has dragged America into so many debacles.
Assange is guilty of lese-majeste - embarrassing the government by exposing their follies, frauds, and crimes. Assange declared years ago, “If wars can be started by lies, they can be stopped by truth.” Dropping the charges against Assange is the best way for the Biden administration to prove it is serious about ending excessive secrecy.
President Biden's recent student loan forgiveness initiative only exacerbates the real problem: the cost of a college education, thanks to government intervention, is outrageously high.
Original Article: "Student Loan Forgiveness Treats the Symptom, Not the Disease"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
[This article is adapted from A Guide to Good Money: Beyond the Illusions of Asset Inflation by Brendan Brown and Robert Pringle (2022, Palgrave Macmillan).]
Bad money regimes base themselves on a dysfunctional social contract.
You, the people, agree to put up with a “moderately good” money in return for us (the regime) providing benefits in terms of employment and economic prosperity which would be unavailable if you (the people) had insisted on a high-quality money. Causality in the contract is upside down. The strong and stable demand which money of excellent quality from the viewpoint of the individual enjoys is essential to the monetary system not getting “out of control”, inflicting severe economic and social damage.
By contrast a monetary system founded on “moderately good money” exposes all the other “machinery in the economy” to considerable storm danger. (The allusion here is to the quote from J.S. Mill made famous by Milton Friedman that “when money gets out of control it becomes the monkey-wrench in all the other economic machinery.”) In practice users of this “moderately good money” under the actual monetary regime during the past quarter century have found that it is at best “moderately bad.”
They must reckon with worse than just the perpetual “small” annual loss of purchasing power as stated in the “two per cent inflation standard” prospectuses as periodically updated by the Federal Reserve and other central banks. There are long stretches of monetary repression where these institutions manipulate interest rates down to abnormally low levels. In between are high inflation shocks; the loss of money’s purchasing power which occurs during these are not reversed subsequently.
The promised advantages for society of the actual monetary regime have not materialized.
At the level of society there has been virulent monetary inflation featuring sometimes severe symptoms of asset inflation, sometimes of goods and services inflation. Monetary inflation has spawned the disease of economic sclerosis. This is recognizably by painfully slow if any gains in general economic well-being as rampant mal-investment and advancing monopoly power sap the dynamism of free market capitalism. Now the spoken or unspoken fear of many is that another global financial crisis looms with its potentially devastating economic and social consequences.
Good Money vs. Bad Money Let’s consider the counterfactual. How much better off would society have been with top-quality money from the viewpoint of the individual—most of all as a medium of exchange and as a store of value? High quality as a store of value means well-founded confidence that the money will sustain its purchasing power over the very long run. Confidence stems from the money having a solid anchoring system which prevents its supply veering persistently ahead of (or below) demand.
Holders of the good money, however, should expect periods of considerable and uneven length during which prices on average of goods and services rise or fall in accordance with a natural rhythm driven by such factors as famine or gluts, business recession and recovery, and spurts or lulls in productivity growth. Over the long-haul, these episodes of rising or falling prices would tend to even out. From the viewpoint of the individual, a money which fluctuates in purchasing power according to the natural rhythm described is better than one where the issuer is set on stabilizing its real value in defiance of that rhythm—an aim which is any case doomed.
Defiance of natural rhythm fosters asset inflation and subsequent bust. Defiance also paralyses the invisible hands of market forces guiding the distribution of spending over time.
For example, low prices in recession coupled with expectations of price recovery further ahead stimulate individuals and businesses to bring forward spending, lessening present economic weakness. High prices during a period of severe resource shortage coupled with expectations of lower prices beyond encourage individuals to defer spending, thereby relieving the present famine. The anchoring system which is essential to money delivering these high-quality services as a store of value should apply to base money.
Under fiat regimes the central bank creates base money and absolutely determines its supply. In the case of gold, monetary base for all countries on the gold standard consists of above ground stocks of gold in the form of bullion and coins. In some fiat systems historically, the central bank has followed a rule which constrains the supply of base money; for gold the constraint derives from geology and mining economics.
Success of the anchoring system in preventing monetary imbalance depends crucially on a stable demand for monetary base. Otherwise, the task of designing an anchor such as to restrain money supply so as not to veer persistently ahead of (or below) demand becomes a lot harder or impossible.
How to Design Good Money How to design a monetary system in which demand for base money is broad and stable? That is the question which the monetarist experimenters of the 1960s, 1970s, and 1980s failed to ask, let alone answer. Those monetarists cited empirical research which seemed to support the hypothesis of stable money demand. They had no interest, however, in monetary system design to foster conditions for the good money they sought. The revealed instability in the various calculated velocities of money during their spell in power, contradicting the earlier empirical work, undermined the monetarist regimes. Lesson learnt. Good money requires good monetary system design.
The assets which make up monetary base should have “super-money” qualities, otherwise described as an extreme degree of “moneyness.” An indication of this quality is the historical fact that all the components of base money paid no interest (until 2008 in the US). Their monetary services (whether as store of value or medium of exchange) were so much appreciated that even so they enjoyed strong demand. In passing we should note that a reputation of a money as a safe store of value adds to the super-money attributes of its monetary base components. We can see here the makings of a virtuous circle. Under the actual monetary regime, we witness a vicious circle. Super money qualities of the monetary base have waned or even faded away. A solid anchor could not be applied to it.
How to re-build these super-money qualities?
Crucially, too big to fail contingency funding (now implicitly available for Big Banks) and deposit insurance have to be reined back or abolished. This would mean banks in marketing “safe” deposits must demonstrate to clients that they have a high ratio of cash backing. There should be no regulatory and monopolistic disincentives to the use of banknotes whether as a medium of exchange or store of value. Banks and non-banks would be able to offer safe stable coins backed by large amounts of cash.
Interest rates must be wholly market determined—short-term money rates by conditions in the overnight market for reserves (which would pay no interest), long-term rates by a decentralized mass of individual decision-makers with access to highly specific information. This latter includes investment opportunities and the individual’s preference for present versus future consumption. Financial engineering and surmising the course of Fed policymaking would no longer be “the name of the game” for investors. The random walker down Wall Street would enjoy the sunshine of well-founded growth in prosperity rather than the stress of navigating violent monetary tides.
Foundation for Economic Education founder and cornerstone Leonard Read always had an ear out for widely accepted but misleading clichés that served to aggrandize government power and limit liberty. In his 1965 “A Cliché of Socialism: Under Public Ownership, We the People Own It!” He focused his attention on the large gap between public ownership of assets and the idea that “we the people” own them.
Read pointed out that not only is public ownership misunderstood, but that goods privately owned by another party are, in fact much more available to an individual’s control than goods supposedly owned in common by we-the-people:
Public ownership and government control are synonymous terms—two ways of expressing an identical concept.
The popular notion is that a resource or service is the possession of we, the people, when it is under government ownership and dispensation, and that we, the people, are objects of exploitation when resources are under private ownership and willing exchange. Socialism—public ownership—will continue to expand as long as this notion dominates.
Here Read highlights the fact that those who view government ownership as the solution to exploitation which supposedly characterizes private ownership have their argument backward—private ownership is what prevents irresponsible government management and exploitation of government assets’ alleged owners. Until that error is recognized, public ownership and control will expand, which means that individuals’ control of what they supposedly own will continue to shrink:
Public ownership, so-called, contrary to popular notions, is definitely not we-the-people ownership. If it were, we could exchange our share in TVA or the Post Office for dollars, just as we can exchange a share of corporation stock for dollars.
At least two conditions are necessary for ownership to exist: (1) having title, and (2) having control…. Without control, ownership is pure fiction.
While in some vague way “we, the people,” are supposed to have title to TVA, for instance, we have not even a vestige of control. “But,” some will counter, “neither do you control the corporation in which you hold stock.” True, I do not perform the managerial function, but I do control whether or not I’ll retain or sell the stock, which is to say, I control whether or not I will share in the gains or losses. Further, I am free to choose whether or not to work for the corporation or to buy or refrain from buying its products. My control in the nongovernmental corporate arrangement is very real, indeed.
So, who controls—has real authority over—what we the people supposedly own?
Who, then, does control and thus own TVA, the Post Office, and the like? At best, it is a nebulous, shifting control—often difficult to identify. Rooted in political plunder, government ownership and operation is an irresponsible control; that is, there is never a responsibility in precise alignment with authority. The mayor of a city may have complete authority over the socialized water system, but responsibility for failure is by no means commensurately assumed by him.
Most people crave authority provided responsibility doesn’t go with it. This explains, in part, why political office is so attractive and why “we, the people,” do not even remotely own what is held in the name of public ownership.
In fact, you have more potential for control over what I own privately than over what you supposedly own as part of the public. After all, you generally have no mechanism of exerting real control over a government decision about one of its assets, while all you need to exert real control over one of my privately held assets is to induce me to voluntarily sell those rights to you. At that point you can exercise all the powers of ownership, aligned with all the responsibility:
One truly owns those things to which he holds exclusive title and exclusive control, and for which he has responsibility.
The things that are privately owned by others are far more available for one’s own title and control than is the case in “public ownership.”
Public ownership often creates … attractive illusions. For instance, people served by TVA are using twice as much power and light as the national average. Why? TVA charges less than half the price. Because of lower production costs? Indeed, not! The rest of us around the nation are taxed to cover the TVA deficit. But power and light acquired in this manner can no more classify as “ours” than can any good or service forcibly extorted from true owners.
Observe that the “public” ownership of water has all but dried up the availability of water for private use. What kind of a social service is it that, by depriving individuals of title and control, finally denies them the service!
If private availability—ownership in the sense of use, title, control—is what interests us, then we will do well to preserve private ownership and an open, willing-exchange market.
Leonard Read’s understanding of the difference between private ownership and control versus we-the-people ownership and lack of control was important when he wrote. But it seems even more important now.
Just consider how popular it is now to demean opponents of leftism as fascists (or semifascists). However, fascism is just a way to maintain a gloss of private ownership (so people can falsely blame capitalism for the abuses that result) over assets the government dictates control of. But virtually every policy those ad hominem hurlers support represents just such government control without accountability.
So, their name-calling amounts to the hypocrisy of supporters of fascist policies calling their opponents fascists. And here, Read’s insight can help us sort out who is more of a fascist. All we must ask is, “Who supports policies that will reduce private owners’ control over the assets they own, and vest it in bodies over which they have no control?”
The Fed claims 2 percent inflation promotes "price stability." However, that policy also causes the boom-and-bust cycle, which is anything but stable.
Original Article: "How the Policy of Price Stability Generates Greater Economic Instability"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Imagine a hypothetical libertarian paradise (“Paradise”) that seeks only to live in peace and harmony with the rest of the world. Unfortunately, the rest of the world is not as pacifistic as Paradise; indeed, it has at least a few bad guys, countries controlled by people willing to use violence to get what they want. Worse yet, our Paradise is the only country with sufficient military might to resist the world’s bad guys effectively.
Given those assumptions, Paradise’s currency will become the world’s reserve currency no matter what, and—to the extent Paradise prospers in its struggle against the bad guys—Paradise will run larger and larger trade deficits with the rest of the world no matter what else is true about Paradise or its policies. Notice this will happen no matter what Paradise is or does; all that’s required is that Paradise is the world’s preeminent military power in a world in which war is a nontrivial risk.
Let me explain:
The most important aspect of money for our purposes is the fact that money is only valuable to living people who enjoy a modicum of freedom, which means that money only has value if its issuer has sufficient military power to ensure that its people enjoy a reasonable prospect of life and a modicum of freedom.
Ironically, the greater these benefits that the issuer’s people enjoy relative to every other issuer’s residents, the more valuable the issuer’s currency becomes, thereby exacerbating this problem. That is, an essential element of the value of money is the perception that its issuers’ residents will be alive long enough and will be free enough to spend it in enough different ways that holding such currency matters.
If people believe they’ll be too dead or too limited in their choices to spend the money, then money has no value no matter what else might be true about it. The rarer those qualities are in the world, the more valuable that “free” issuer’s currency becomes. Indeed, one should realize that there’s really one and only one currency in our hypothetical: Paradise’s. Every other issuer’s—and every other potential issuer’s—currency has value if and only if Paradise is willing to defend that other country. In other words, Paradise is, in practice, the world’s reserve currency in our hypothetical no matter what formal legal arrangements the world’s countries may make.
In our example, everybody wants Paradise’s currency (or the currency of an issuer defended by Paradise), so everybody will drop their terms of trade until such time as Paradise runs a large trade deficit. In other words, Paradise isn’t really running a trade deficit as much as it’s selling its military services, implicitly promising that its trading partners will be defended and sending its currency as proof of that promise. No matter what Paradise does, the citizens of other countries will happily trade on unfavorable terms in order to become net importers of Paradise’s currency because they want that implicit guarantee, both as countries and as individuals. Thus, Paradise runs a trade deficit no matter what, and the “better” Paradise is in military terms relative to other countries, the larger that trade deficit it will run.
Of course, this trade deficit makes Paradise rich as people literally shower Paradise with goods and services in order to get its currency, and it’s much easier and cheaper to print currency than it is to make goods and services, so the initial effect of this dynamic is that Paradise gets richer and richer while the rest of the world holds more and more of Paradise’s currency via ever-expanding trade deficits.
Significantly, the rest of the world can never call in Paradise’s debts without destroying their own monetary base and, thus, their economy (particularly with regards to their wealthiest citizens who are more likely to hold the kind of assets that would be hardest hit by a sudden deflation.)
To be precise, the rest of the world can’t call in those debts unless and until the bad guys are no longer a threat. If the bad guys no longer seem quite so bad, Paradise needs a new enemy. And if that enemy fails, Paradise needs yet another enemy—preferably an invisible enemy who cannot “fail” in any provable sense of that word. Is this starting to sound familiar?
After World War II, what nation was the only nation capable of resisting communism? And when the Communists failed, did we declare peace or did we discover a new enemy—first in Sudan and Yugoslavia, then in terrorism? And when terrorism receded, didn’t we move on to covid? How can we ever defeat death itself?
My point, of course, is not to suggest a grand conspiracy theory; rather, my point is that supply always rises to meet demand. For perfectly legitimate reasons, there was a global demand for US security in the postwar world, and the US met that demand.
Of course, the people involved were not going to kill themselves when that need vanished; rather, they were—like any good entrepreneur—going to reinvent themselves and their products to meet a new demand with old supply (themselves). No one whose business model involves fighting the bad guys will ever stop fighting bad guys; rather, they’ll always—quite sincerely and perhaps quite accurately—find new bad guys to fight.
The only alternative is to admit that we don’t need the US military guarantee, which would lead to the collapse of the dollar, which would lead to the collapse of any and all business or assets based upon dollar supremacy. If you sell stuff to Americans, you don’t want us to stop buying. If you buy stuff from Americans, you don’t want dollars to become scarce. The economy is incredibly complex; consequently, who wins and who loses is neither clear nor obvious, but this point should be: if you hold political power in the US or anywhere else, then you benefit from the US military guarantee in some way; consequently, you don’t want that guarantee to lose value. You might persuade yourself that you need to destroy your economy to combat global warming or you might persuade yourself that you need to destroy your world to combat Russia’s invasion of the Ukraine; neither the reason you offer nor the validity thereof matter because the result is always the same: you will support policies that make the rest of the world weaker so that the value of the US’s military guarantee is greater, which means the dollar is more valuable, which means the US runs a large trade deficit, which means YOU and YOURS stay in power and rich.
There’s no easy way out of this trap—you’d have to kill or otherwise incapacitate everyone who benefits from this guarantee, all of your political leaders, all of your richest people, all of their followers. Because as long as they personally benefit from this condition (the US’s military preeminence), they won’t change it or the economic system it ensures.
In other words—and this must be perfectly clear—you don’t need to speculate about a conspiracy to realize that our global elites have powerful economic incentives to wage endless “wars” against bad guys; rather, you simply need to understand that American military might necessarily makes the dollar the world’s reserve currency, which necessarily creates a global economy that depends upon the need for new bad guys that only the US can combat. Once you realize that our elites would rather rule in Hell than serve in Heaven, you’ll expect them to act in ways that appear counterproductive but are, in fact, quite productive—for them personally.
The money supply is on a long and fast downward trajectory. This points toward recession and is just one more indicator of economic weakness in addition to negative GDP and an inverted yield curve.
Original Article: "In Latest Recession Signal, Money-Supply Growth Plummeted to a Three-Year Low in August"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
[Chapter 3 of Per Bylund's new book How to Think about the Economy: A Primer.]
Economics is often faulted for being “ideological”—for promoting free markets. This is a misunderstanding.
The free market in economics is a model—an analytical tool. It excludes complicating circumstances and influences and allows us to study core economic phenomena on their own so that they are not mistaken for other effects. In economics, we are interested in understanding the nature and relationships of economic forces. In other words, we exclude things that hamper the economy, such as regulations, that impose upon people’s behavior and therefore economic outcomes. The result is an economy where only economic forces are at play—a “free market.”
The free-market model serves the same purpose as studying objects in free fall in physics. The free-fall model excludes such things as air resistance in order to study the effects of gravitational pull. It would not be possible to study gravitational pull without separating it from other forces that also have an effect on objects, and may add to or subtract from the effect of gravity. Economics uses the model of the unhampered or free market in the same way: to study economic forces without the influence of other things. We must know how the economy itself works before we can study influences on it.
Economics promotes and advocates free markets as much as physics promotes free-fall. Economic reasoning cannot do without the free-market model.
The Meaning of Exchange Economics relies on economic reasoning—the use of logic to figure out the why/why-not and when/when-not. It is how we make sense of what we see and uncover the underlying economic processes. Let’s illustrate with the example of a basic exchange transaction between two individuals, Adam and Beth.
Let’s say Adam offers Beth an apple and Beth gives Adam a quart of milk in return. There are two ways we can analyze this exchange. One is to study it empirically by observing the exchange in real life and collecting “objective,” that is, measurable data before, during, and after the exchange. Using these data, we can then describe what took place and look for an explanation.
There is no need to get into specifics to see how this method is unsuitable to understand the meaning of exchange for economic reasoning. Even studying the empirical exchange in detail, we could not uncover why the apple shifted from Adam’s into Beth’s possession, why the milk moved the other way, or even if those two transfers are related to each other. There is no meaning to the observable data; they cannot tell us anything in addition to the bare observable facts of who possesses what and when. Strictly speaking, the data cannot even tell us there was an exchange.
Economics is about more than offering descriptions such as “Adam has an apple and Beth has milk” and that a minute later “Beth has the apple and Adam has the milk.” It is about understanding that this was an exchange and what exchanging means to the participating parties. We know it must mean something because they chose to do it. The exchange was not simply the outcome of certain external stimuli. Exchange is not automatic.
But to study this, we must reason from our understanding of what Adam and Beth are doing. In other words, we recognize—using what we call a priori understanding—that both of them are in fact acting and therefore that they are trying to accomplish something. Human action, as Ludwig von Mises reminds us, is purposeful behavior.
With this understanding, we can easily see that this is in fact an exchange: Adam traded his apple for Beth’s milk. Because Adam and Beth exchanged goods, we also know that—unless one of them was coerced or defrauded—they both expected to be better off with what they received in exchange. So, they exchanged because Adam values the milk higher than the apple and Beth values the apple higher than the milk.
This conclusion might appear obvious, and it should: we all have this basic understanding of human action as a purposeful undertaking to attain some end that we expect to be of greater value. We act because we want some change and because we think that change will be better in some sense.
Based on this basic understanding, we make sense of Adam and Beth’s exchange. We might not agree with their valuations, but we do not need to. We still understand that voluntary exchange must be based on the parties’ “double coincidence of wants”—that both Adam and Beth expected to become better off from the exchange (or they would not have chosen to do it).
Price and Value In our example, Adam and Beth were unhampered in their economic exchange—a free-market transaction. It’s a highly simplified example, but simplifying is not a problem. It is an advantage because it allows us to identify the core processes and mechanisms. We would not have gained any additional understanding by complicating the exchange example with regulations, license requirements, legal definitions, health directives, taxes, etc. Including those things would in fact have made it more difficult to figure out what was actually going on. There would have been too many things involved that could have affected Adam and Beth’s decision-making.
So it makes sense to study the exchange, as just an exchange without complicating factors, so that we can learn the meaning of the exchange as such. This also means we can add more factors to see how they change the outcome and learn how those factors relate to, or impact, the exchange. We do this step by step, starting from the core and then adding additional factors. If we do not understand the exchange itself, then we cannot understand how other things affect it either.
Perhaps Beth is a dairy farmer who really likes the apples that Adam grows in his orchard and would be willing to exchange up to a whole gallon (four quarts) of milk to get a single apple. Maybe she thinks Adam’s apples are that good. “Paying” a quart is therefore a great deal for her. No wonder she is okay with the exchange!
But the same is also true the other way around. We must conclude that Adam too considers one quart a good “price” to then go through with the exchange. He values one quart of Beth’s milk higher than the one apple. If he didn’t, the exchange would not take place. So while it is true that Adam could have received more milk for the apple—four times as much—the quart he gets obviously makes the exchange worth his while. Perhaps he would have been willing to pay two apples for a quart of milk. Then paying only one apple is still a good deal from the perspective of his personal valuation.
But we do not need to know Adam and Beth’s actual valuations. In fact, they will not need to know this themselves. All that matters is that they both consider the exchange “worth it.” The “price” they pay will not be higher than their valuation of what they get in return. For instance, if Adam would not have accepted anything under five quarts of milk for an apple, then there would have been no exchange. Because that wouldn’t be worth it to Beth.
Seems obvious? Yes, but we have learned a lot by elaborating on what must be the case for an exchange to happen. We have established the necessary conditions for exchange (both parties must expect to gain from it, the “price” they each pay cannot be higher than their respective valuations of what they get in return) and distinguished between voluntary exchange, which must be for mutual gain, and involuntary transfer (such as theft). While we haven’t elaborated on the latter, it’s easy to see that neither party, or both, would go through with an exchange that is not to their benefit unless coerced. Or if they are tricked somehow or there is fraud involved.
Price Mechanism Let’s add a third person, Charlie, who grows pears. Beth fancies this delicious novelty and gladly trades all her milk for a full basket of pears. That’s three gallons (twelve quarts) for fifteen pears. Adam then comes along and tries to repeat yesterday’s exchange with Beth, but Beth is already out of milk. The following day, Adam visits Beth earlier to get a chance to “buy” milk before Charlie gets it all. Beth likes Charlie’s pears better than apples, but Adam says he’s willing to offer Beth two apples for a quart of milk. Since her milk now buys twice as many apples as before, she considers it.
This simple example is now providing insight into how the price mechanism works. Prices are exchange ratios. They are not determined at random but by people’s ranking of different goods. We can see that there are limits to where the prices might end up. Beth’s limit is a gallon of milk per apple. She doesn’t think paying more would be worth it. But with the new opportunity to exchange for pears, Beth no longer considers apples worth buying even at the price of one quart of milk. This is obvious from her buying only pears yesterday. Her valuation of an apple might not have changed, but she values the deal she can get for pears higher. Our purchasing decisions are based on such comparisons of value. They are relative: we pursue what we value most, and the prices we pay are limited by our valuation of what we get and what we offer as payment.
We can use this example to establish what the free-market exchange ratios (prices) between apples, pears, and milk would be, given Adam, Beth, and Charlie’s current valuations. To Beth, it is worth it to exchange one quart of milk for one apple. But not if she can get five pears for a gallon of milk—that is a better deal for her. Adam is now offering two apples for each quart of milk, which Beth is considering. If she takes the deal, then it would appear Beth values pears somewhere between one and two apples. We cannot be more exact than this, even if we assume that Beth’s taste for apples and pears doesn’t change. What we can do is record the exchange ratios over time. It seems an apple exchanged at one quart of milk on day one, five pears exchanged for a gallon of milk on day two, and two apples exchanged for a quart of milk on day three. But we did not observe and do not know anything about the limits of the three people’s valuations. Or how they could have changed over time.
This is the logic of prices. Add more people and more goods, and it will be more difficult to keep track of everybody and everything. But the mechanism is the same. Prices are exchange ratios. This is true even if everybody starts using one of the goods as a common medium of exchange, for example, money. If everybody starts referring to prices of goods in terms of how much milk it takes to buy them, then it will be much easier to compare prices. But prices are still exchange ratios and exchanges are still for mutual gain.
The Step-by-Step Method Practically all of the important information that we get from the example of Adam, Beth, and Charlie was based not on observation but on our prior understanding of human action. Because we understand that we act to attain something that we value and that we engage in exchange with others for mutual gain, we can uncover the meaning of Adam’s, Beth’s, and Charlie’s exchanges and the exchange ratios that they determine. Simply observing who has what when, and perhaps the “mechanics” of the exchange, is not enough to understand what is going on. Similarly, in the economy overall: we cannot make two observations and pretend to have learned the processes that caused a difference between them. We have to step through the logic of action to uncover what actually was going on.
Let’s jump ahead and consider an example of a money economy (we’ll discuss money in chapter 6). Money has a certain purchasing power: we need specific amounts to buy different types of goods. Many economists, both past and present, would correctly claim that the supply of money (how much money is available) affects the prices of goods. As new money is created there is more money to buy the same number of goods, so money prices tend to go up. If the number of goods available to buy is the same but the money supply instead falls, then money is harder to come by—so money prices tend to fall.
But this does not mean we can also conclude that there is a proportional relationship between money supply and goods prices. Doubling the supply of money will not double all prices. In fact, even if we magically doubled all money overnight so that when people wake up the next day they find the amount of money in every bank account, wallet, and mattress has doubled, we still could not say the prices of all goods would double. Why not? Because people do not react in the same way or at the same time to the doubling of their cash. The new prices, just like the old, will be determined by people’s actions.
To use proper economic reasoning we must walk through the logic step by step to fully take into account the changes that happen over time and in sequence. We know that prices are exchange ratios, determined by supply (how much is offered for sale) and demand (how much people are willing to buy). But doubling a person’s cash on hand does not mean they will double their purchases of the same goods. Instead, they will always act to purchase the goods that best satisfy their wants relative to the other goods available.
To put it differently, if people had purchased two pounds of butter before their cash doubled, there is no reason for us to expect them to purchase four pounds of butter. It is more likely that there are other goods that would satisfy their wants more than a third and a fourth pound of butter and they would then act to purchase those instead. After all, there is a reason they didn’t buy the third pound of butter before. In any situation, as we have learned, individuals will pursue whatever ends they consider of greatest value to them.
Just like Beth in the example above chose pears over apples and then apples over pears when Adam offered her a better deal. People waking up with more cash are going to pursue whatever purchases they think will make them best off. Some may choose to simply buy more of the same; others may choose to buy other things in addition to what they usually buy; yet others will buy different things entirely. This means demand for the specific goods offered for sale will change in different ways: some goods will see increased demand, some will see a decrease, and others might see no or little change. This changes their market prices. Increased demand will make the prices of some goods rise and vice versa.
Individuals do not always act at the same time: some will act sooner and before prices have adjusted, which means their purchasing power, given the prices of goods, has in fact doubled. Their actual purchases (their demand) will influence the prices of the goods they buy, which means those acting later may be faced with higher prices for those goods the earlier actors chose to buy. Prices are determined by people’s actions, not by a mathematical formula.
Imagine if the people above acted early but did not buy another two pounds of butter with their extra money. Instead, they spend it on candy. This means this candy is already sold when those acting later want to buy it. Whatever candy is left for sale is scarcer and the prudent store owner might raise the price to take advantage of this sudden increase in demand. As a result, the later actors will face different price situations than the earlier actors, with some prices being higher and other prices not—some perhaps being lower than they otherwise would have been. Their actions will depend on the specific exchanges they face, but there is no reason to assume that people’s actions overall will mysteriously balance out such that all prices end up exactly double what they were the day before. What we can conclude is that prices overall will tend to go up because there is more money but not more goods. But prices of all goods will not rise proportionally with the supply of money.
This step-by-step analysis reveals that the common conclusion that doubling the amount of money will double all prices is premature and unfounded. Prices adjust unevenly and at different times. Consequently, it would be an error to say that money is “neutral” in the economy. Even magical money is not neutral.
Economics as a Social Science The step-by-step analysis of economic reasoning highlights a major difference between social sciences like economics and the natural sciences like chemistry or geology. We simply cannot rely on observation and measurement to gain understanding of social phenomena, and we also cannot rely on static analysis or aggregates. It is necessary to view the economy as a process—an evolving complex adaptive system—and walk through the logic step by step to uncover the processes and the real effects as they play out over time.
This means theory in the social sciences has a specific role and meaning that differs from its use in the natural sciences. Theory is prior to observation and allows us to make sense of what we are seeing, not the other way around. Theory provides us with a framework to understand what we are seeing by uncovering the underlying processes, but it cannot be used to predict precise outcomes. To make predictions as in the natural sciences, we would need to know people’s actual subjective valuations, see what they see and how they understand their situation. But none of this is available to us as observers.
Consequently, social science, and therefore economics, is necessarily theoretical in a different sense than the natural sciences. Theory comprises what can be logically derived from human action—it is our explanation of all social phenomena based on our understanding of what it means to act. After all, all social phenomena have this in common: they are the result of people’s actions.
This means that theory in the social sciences is more limited in scope than theory in the natural sciences, but it also meets a much higher bar: social science theory is true, not merely hypotheses yet to be falsified.
New Jersey became one of the latest states in 2022 to ban single-use bags. In 2014, California became the first state to ban of use plastic bags. Since then, several states have followed including New York, Oregon, and Washington for a total of ten states. Advocates for the ban proclaim disposable bags to be bad for the environment and reusable bags to be good for the environment.
Many different studies have looked at the environmental impact of plastic, paper and reusable bags and have found that the environmental impact of plastic is far less damaging as being portrayed in the media. What really matters is what happens to the disposable or reusable bag after the initial purchase? As all too often, lawmakers at the state and municipal level wanting to be seen as environmentally conscientious never thought beyond the initial ban and never considered the unintended consequences. Economics in one lesson by Henry Hazlitt would be a good starting point.
New Jersey as one of the latest states to jump on the plastic ban band wagon is a great example of great intentions with bad consequences. New Jersey wanting to push the envelope even further and being more environmentally conscientious by not just banning plastic bags went even further and banned any kind of single-use bags, plastic or paper, for grocery stores over twenty-five hundred square feet. Lawmakers with a single-minded focus on eliminating single-use bags never imagined all the possible unintended consequences this law might have.
Over the past three years, the covid pandemic caused a shift in consumer behavior toward more online grocery shopping. The convenience of online grocery shopping has provided a prime example of the failure of planning, any economic planning. Online grocery orders still have to be packaged to be delivered to the customer. With a ban on any kind of single-use bag, the only solution are reusable grocery bags. The law’s unintended consequences are mountains of heavy-duty reusable shopping bags for people who rely on grocery delivery services or curbside pickup services. All these bags will probably end up in the garbage.
The embrace of reusable bags as the sole solution to the problem creates problems well beyond the imagination of short-sighted politicians. As more and more stores require reusable bags, consumers will end up being required to buy a reusable bag for the quick unplanned trip to the grocery store or the time when all the reusable grocery bags faithfully brought to the store are not enough for the unplanned sale of an item. Every product is manufactured with a consumer in mind. As Mises points out in Profit and Loss, the market will reward the product that will fulfill the consumer’s needs at the lowest price. The single use plastic bag has done a fantastic job over the years.
Study after study has shown that single-use bags are better for the environment than paper or reusable bags, they have the lowest environmental impact. Plastic bags use less fuel and water, fewer greenhouse gases, and less solid waste than the other two. In an article published by Columbia University summarizes it well:
Generally speaking, bags that are intended to last longer are made of heavier materials, so they use more resources in production and therefore have greater environmental impacts. To equal the relatively low global warming impact of plastic bags, paper and cotton bags need to be used many times; however, it’s unlikely that either could survive long enough to be reused enough times to equal the plastic bag’s lower impact.
The author of the articles concludes “the key to reducing your environmental impact is to use whatever bags you have around the house as many times and in as many ways as possible.”
New Jersey’s lawmakers in their infinite wisdom would like all people to use cotton bags or other reusable bags, ignoring the evidence to the contrary. Retailers and supermarkets in their desire to showcase their planet-friendly mindset or at least showcase to the public their environmental conscience have raced to voluntarily stop using single-use plastic bags in favor of some form of a reusable bag. However, both a Danish and a UK study conclude that cotton totes have the worst environmental impact of all bags. A cotton bag needs to be used so many times to equal the environmental impact of a plastic bag often well beyond a reasonable lifetime use. Organic cotton bags fare even worse.
As consumers accumulate more and more reusable bags far beyond their need for reusable bags, the question remains what happens to them. Most municipalities do not have a recycling program for reusable shopping bags which leaves the landfill, exactly what all these well intended laws want to avoid. Anyone who uses reusable and cotton bags knows that reusable grocery bags get dirty and nasty quite quickly. Reusable bags ideally need to get washed after each use to avoid the growth of bacteria. The problem of dirty reusable grocery bags must be widespread that grocery store chains like Wegman’s have sign at checkout allowing cashiers to refuse dirty shopping bags.
New Jersey’s lawmakers, acknowledging their catastrophic failure in foresight and the hard lesson in unintended consequences, propose to allow paper bags for online orders. Paper bags on the surface seem to be more environmentally friendly as they are produced from a renewable resource, can be recycled, and are biodegradable, but the manufacturing of paper bags uses more energy and more water. Trees have to planted and harvested plus require land. More importantly, paper bags break easily when wet and are often used just once.
Lawmakers around the country envision the perfect consumer. An article in The Atlantic describes well how politicians like the socialist planners envision a “healthy, waste-conscious and ecologically responsible, conservatively ethnically diverse, carefree but productive, connected, affluent, tolerant, adventurous, optimistic. In short, they’re virtuous.” Shoppers with a clean and ascetically pleasing reusable shopping bag carrying fresh fruits and vegetables.
Politicians are engaging in an environmental Whac-A-Mole game, trying to solve one perceived environmental problem only to create or exacerbate another problem.
Is there a case for an American empire? Professor Nigel Biggar of Oxford University believes so, but David Gordon sets him straight.
Original Article: "Biggar Thy Neighbor"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Allegedly, Republicans appeal to racism via “dog whistles” or the “Southern Strategy” and the like, but that brings up the question, “Do Republicans have an economic incentive to appeal to racists?”
If racism is a “winning” issue, why don’t Republicans win more frequently? Republicans lost in 1992, 1996, 2008, 2012, and 2012, and—as Democrats never fail to mention—they lost the popular vote in 2000 and 2016, essentially winning by flukes that no one could have planned. That’s scarcely a record that justifies the claim that racism wins, so are we accusing the Republicans of racism or stupidity?
In other words, let’s think about this problem like an economist. If you were a political entrepreneur seeking to maximize your votes, why would you appeal to racists? Obviously, the number of people alienated by such appeals exceeds the number of people attracted by such appeals (hence, the losing record detailed above), so why would you persist in following such a losing strategy?
And consider the Republicans who won. Does anybody think George W. Bush was more racist than Trump? Yet, he had the better record, no? Why would anybody respond to George W. Bush’s wins by saying “we need to go more racist”? It’s just risible.
Indeed, if Republicans—mistakenly or otherwise—believed racism works politically, then shouldn’t they be emphasizing their racism? Why would their political opponents emphasize their allegedly “winning” attribute (their racism)? If Burger King spent millions to persuade you that McDonald’s hamburgers are made from frozen patties, would you believe that McDonald’s believes consumers prefer frozen patties? If frozen patties were a plus, wouldn’t McDonald’s emphasize that their patties are frozen?
Perhaps you believe that the vote-maximizing position is to be a racist while denying it, but then wouldn’t Democrats do the same thing? Why would they loudly denounce racism while engaging in it? Don’t they like to win?
In short, the “racism” thing assumes that Republicans don’t want to win, for some reason, and that Democrats don’t either (because they too should adopt the “we’re secretly racist” strategy). If secret racism works, then there’s no reason for anyone to eschew it. BK could make burgers from frozen patties while not talking about it, if that strategy worked; yet, lots of chains emphasize that their burgers are never frozen. Why? Do they not realize that using secretly frozen patties is the profit-maximizing position? Are they too stupid to see the truth?
Here’s what really happens: Democrats accuse the Republicans of racism because it allows them to maximize their antiracist vote while pursuing policies that attract other voters who either don’t care about that issue or who prioritize something else. If, for example, you want to reward unions with policies that crush the economy, then you need to maximize your antiracist vote to offset the losses you’ll suffer as a result of your terrible economic policies. That is, the only rational explanation of the Republican Party’s “racism” problem is that Democrats know antiracism wins votes, so they want to attack the Republicans on this issue in order to maximize their antiracist vote without actually needing to do anything that might lose votes.
So, for example, Democrats could support reparations, but that’s expensive, and it might lose votes, so they accuse the Republicans of racism. That way you get all the voters who wanted reparations without suffering any of the consequences.
From the Republican perspective, you can’t do much about the accusation of secret racism precisely because the whole point of secret racism is that it’s secret. Of course, you’d deny being a secret racist, it’s what makes you a secret racist!
Democrats, naturally, have now gone to the next level: even black Republicans are secret racists! Remember the allegation is that denying you’re a racist while being a racist is “vote maximizing,” and what better way to deny that you’re a racist than to be black! You’re just a super effective secret racist.
Just as Republicans accused Democrats of being Confederates long after that claim had any basis in fact, Democrats will accuse Republicans of being racists as long as the accusation works, but economics tells us the accusation can’t possibly be true. If Trump—or anybody else—thought racism works politically, you wouldn’t learn that from their opponents; they’d tell you themselves. If anybody thought “secret racism” worked, they’d all do it.
(There’s no real market for secret racists for the same reason and in the same way there’s no market for secretly frozen burgers; either consumers don’t care about frozen burgers, or they prefer them—there’s no such thing as “features” consumers don’t want to know about.)
How long will consumers/voters prefer “antiracist” candidates? Answer that, and you’ll know the future of American politics. But let’s stop pretending racism works politically—it doesn’t. If Americans truly were racists, then allegations of racism wouldn’t be allegations: they’d be compliments or descriptions. The fact that virtually everyone considers these allegations to be allegations utterly refutes the proposition that America is a racist nation. The fact that an “antiracist” party does so well at the polls is simply the coup de grace to such nonsense.
Economics is a powerful tool for analysis, and one of its greatest attributes is its ability to cut through rhetoric; let’s use economics to rebut this highly destructive and highly divisive myth. If you prefer Democrats, then—by all means—vote Democratic, but don’t pretend it’s because the Republicans are racists. The Republicans are many things, incompetent politicians seeking the nonexistent secret racist majority isn’t one of them.
Barack Obama promised to "end child hunger" by 2015. Michelle Obama promised to end childhood obesity. Unfortunately, both increased in large part because of the Obama programs. Today, President Biden will declare war on "hunger in America." Stay tuned.
Original Article: "Obama's Forgotten Child Hunger Debacle"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Fossil Future: Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas—Not Less
By Alex Epstein
Portfolio 2022
xii + 468 pp.
In his remarkable new book, Alex Epstein has changed the terms of the debate about the danger of “global warming” and the alleged need to take drastic action in response to this. One side assures us that we must “follow the science,” which, it is claimed, has proved that the rise in global temperatures caused by fossil fuels, which emit carbon dioxide into the atmosphere, will soon result in catastrophe unless we “green” the economy. The opponents either question the evidence that disaster impends or argue that the threat can be handled without revamping the economy.
Epstein thinks that the danger from global warming has been much exaggerated, but though he presents extensive evidence in support of this, his primary contribution lies elsewhere. He argues that modern civilization depends on fossil fuels and that far from curtailing their use, we need to spread them to the impoverished parts of the world. So great are the benefits from using the fuels that only a true “end of the world” nightmare caused by CO2 emission could require that we shift to other energy sources, and despite the alarmists’ caterwauling, this nightmare is most unlikely to occur. Moreover, Epstein holds that the benefits of fossil fuels are so obvious that only a defect in thinking could have induced people to ignore them. He is a philosopher as well as an energy economist, and he expertly identifies the false thought pattern that has led to our current confusions.
Epstein says, “Whenever we hear about what the ‘experts’ think, we need to keep in mind that most of us have no direct access to what most expert researchers in the field think. We are being told what experts think through a system of institutions and people…. Understanding how this system, which I call our ‘knowledge system,’ works and how it can go wrong is the key to being able to spot when what we’re told the ‘experts’ think is very wrong—about fossil fuels or anything else.”
On the issue of energy, Epstein argues that the system has gone very wrong, indeed, owing to the fact that its leading lights are in the grip of a philosophy that views human beings as an upsetting intrusion on the earth: through their feverish pursuit of growth, people have interfered with the “delicate balance” of nature. Having done so, people must repent and “green” the economy, though some experts opine that it would be better to get rid of us altogether. Concerning this bizarre philosophy, Epstein remarks: “Why does our knowledge system always expect extreme negative impacts from cost-efficient energy’s side-effects and always expect that we will be unable to master these impacts? Because of a false assumption that leads anyone holding it to expect that all forms of significant impact on nature will inevitably be self-destructive. I call this the ‘delicate nurturer’ assumption … [which is] that Earth, absent human impact, exists in an optimal, nurturing ‘delicate balance’ that is as stable, sufficient, and safe as we can hope to expect.”
You might be inclined to object that scientific findings deal with facts, not philosophies: if “climate scientists” predict that continued global warming will have dire consequences, must we not judge their arguments strictly as they stand, without regard to their proponents’ views about the proper place of human beings, however repellent we may find these views? Epstein responds that predictions are far different from claims about what has happened in the past, which can often, though not always, be assessed objectively. Climate predictions are for the most part highly speculative, and the antihuman ideology of the “catastrophists,” as Epstein dubs the climate alarmists, should incline us to view what they say with doubt, all the more so if they have wrongly predicted catastrophes in the past. “Such predictions [about climate] necessarily rely on highly complex science and models that are difficult for non-researchers to assess … it is both far easier and highly informative to assess our knowledge system’s, including designated experts’, track record of climate prediction” (the “designated experts” are those whom the system treats as authoritative). One of these “experts,” Michael Mann, famed for his controversial “hockey stick” graph, is weighed in the balance and found wanting: “Designated expert Michael Mann has written: ‘We probably already exceed the [planet’s] carrying capacity by a factor of eight.’” It is unlikely that someone with this opinion will be eager to suggest policies that promote human welfare, and the same holds true of the notorious Paul Ehrlich, who has many times wrongly predicted disaster but whose oracular status nevertheless remains undiminished. Why listen to such as these?
Epstein must here face an objection. If, as he says, the catastrophists see the world through the distorting lens of their antihuman ideology, isn’t Epstein vulnerable to a parallel challenge? Does his own philosophy incline him unduly to discount arguments that global warming poses a real threat? He could readily reply that his prohuman ideology is correct; that since reality does not suffer from self-contradiction, it will not lead to distortion, and that in any case, he does not have a track record of bad predictions. On this issue, readers must judge for themselves, but to help them do it, Epstein has set forth his reasoning with exemplary clarity.
If the designated experts were not blinded by partisan passion, what would they see? The answer, Epstein says, is that our civilization depends on fossil fuels. Nature untouched by man is no “delicate balance” but rather an ever-dynamic, often hostile place. To survive and flourish in it, we must specialize in what we produce and use powerful machines in doing so. Such machines immensely multiply our natural energy and enable us to master the environment to our advantage. Only the fossil fuels— viz., coal, oil, and natural gas—can be used to produce these machines a cost-efficient way. Wind and solar power are paltry by comparison. Hydroelectric and nuclear power fare rather better, but even they are no match for the fossil fuels, and furthermore, fossil fuels are often required to produce and implement the other forms of energy.
Epstein says about the fossil fuels: “Contrary to our anti-impact, anti-energy knowledge system these are not trivial benefits that are already overwhelmed by fossil fuels’ negative side-effects on the livability of our world—they are fundamental to the livability of our world. The current benefit of the world’s massive use of ultra-cost-effective fossil fuel energy is a radical increase in the productive ability of billions of people—via ultra-cost-effective fossil-fueled machine labor and the enormous amount of mental labor it frees up, along with fossil fuel materials—that makes the world unnaturally livable, i.e., conducive to human flourishing.”
It is here that the primary source of the book’s originality lies, together with the author’s cogent analysis of the conflicting opinions’ philosophical underpinnings. Other critics of the global catastrophists propose palliative measures to cope with what they deem a much lesser threat than their opponents envision; they suggest, for example, a shift to nuclear power and the limitation of such pollution as remains through “cap and trade,” a carbon tax, and the like. Epstein, by contrast, is uncompromising. Not only does he want to maintain the use of fossil fuels; he relishes the prospect of the extended use of these fuels, particularly in poor areas of the world, where people without this resource languish. “Since 1980, the percentage of humanity living on less than $2 a day has gone from 42 percent to under 10 percent today. This wondrous development is the result of increasing and expanding productivity, which is driven by the increasing and expanding use of fossil-fueled machine labor and the enormous amount of mental labor it frees up. But there is still far more progress to be had…. Expanding fossil fuel use will enable everyone, especially the world’s poorest people, to become more productive and prosperous.”
But has Epstein dismissed the perils of untoward climate changes too quickly? Don’t floods that result from a rise in temperature pose real dangers, for example? Epstein responds by again appealing to the benefits of technology, made possible by fossil fuels. Technology enables us to achieve what Epstein calls “climate mastery.” He cites in this connection a telling statistic. Despite the temperature rise that occurred in the twentieth century, deaths from climate have sharply decreased. “In reality, dangerous temperatures—which overwhelmingly come from too much cold, not too much heat—are a smaller danger than ever thanks to two forces: fossil-fueled climate mastery and modestly warming temperatures…. Before human beings had fossil-fueled machines to master dangerous climates, they were overwhelmed by natural temperature dangers, both heat and (especially) cold…. Heat-related deaths are a much bigger problem in the unempowered world today, which is yet another reason why empowerment is a moral imperative.”
One other pleasing feature of the book should be noted, and it is one I confess I especially appreciated. Often books on the climate controversy are filled with technical language, difficult for the untutored reader to understand, let alone evaluate. Epstein has taken great pains to explain what he says in clear and simple terms, and for this, and much else, his readers are in his debt. Fossil Future has the potential to do great good, if its readers have the energy to put into effect the author’s cogent policy recommendations.
Language is the perfect instrument of empire.
—Antonio de Nebrija, bishop of Ávila, 1492
The bishop was correct, in his time and ours. Spain proceeded to become the most powerful empire in the world over the following century, spreading her mother tongue across the Americas—just as the Roman army had imposed Latin across its sweep and just as the British Empire would bring English to India and Africa. American dominance in the twentieth century similarly meant English became the default international language of business. English speakers today enjoy the privilege of traveling a world where airport marquees, road signs, restaurant menus, hotel staff, and shopkeepers all cater to us.
So we might think the global language wars are over, with English declared the victor and Mandarin Chinese the only future challenger. But now we have to consider whose English will prevail, because there is an ongoing battle to influence not only our words, but our very thoughts and actions.
Whose English will prevail? The top-down English of academics, politicians, and journalists, of the Associated Press, the Modern Language Association, Merriam-Webster, and the Human Rights Campaign? Or the natural, evolving English of speakers and writers operating without imposed constraints?
This is a tough question to answer, because language is more than a tool for communication and cognition. It is also an institution in society, and like all institutions is subject to corruption and capture by those with political agendas. Since language is the starting point of our entire epistemology and metaphysics—i.e., we process sensory data and thoughts using words—control over language is an obvious prize. We can analogize attempts to impose preferred language with interventionist central planning in a “marketplace,” while bottom-up evolution involves linguistic entrepreneurs acting in a laissez-faire system. Of language the analogy is imperfect; language cannot be owned, and there are no property rights issues involved. But language certainly can be controlled and steered, whether by officialdom, by politicians, by professors, by celebrities and influencers, and by cultural elites. Deplatforming, canceling, and even criminal “hate speech” laws are the enforcement tools against wrongspeak, so the language wars are not merely academic.
All of this is the subject of my recent paper, which considers the question of top-down imposition versus natural evolution in the context of recent political phenomena like Brexit, Trump, transgenderism, Black Lives Matter, “equity,” and social justice.
Here are four key concepts to help understand the front lines of the linguistic battlefields:
First, words are intentionally stripped of all meaning by overuse and abuse.
This is explained in George Orwell’s famous exposition on “meaningless words,” which he understood as plain language used in consciously dishonest ways to impose political agendas. Thus we see words like “fascism,” “racism,” “Nazi,” and “democracy,” which all once had common, reasonably understood usages, converted into mindless bludgeons wielded in political combat. Meaningless words elevate the speaker or writer as inherently good and just (us), while placing the targeted recipient into a category of Very Bad Person (them). If words are tools, meaningless words are hammers.
Second, words are coded and embedded with meaning beyond their simple agreed-upon definitions.
Sometimes this is crass and despicably obvious, as when the term “denier” is used to liken climate change skeptics to Holocaust deniers. Sometimes this is more subtle, as when Hillary Clinton mentions our “sacred” democracy without explaining how, why, or by whose authority we should hold in religious reverence a political system of mass voting. And sometimes words like “sustainable” or “inclusive” are used so amorphously as to render them a form of luxury good, like a linguistic Birkin handbag: the identity and status of the user become the meaning.
Third, the newly imposed words contain their own admonitions and exhortations.
“Social justice” perverts an individualized, temporal concept, justice, into an undefinable and unreachable broad societal goal. “Equity” distorts the ideal of equal treatment under law into an unachievable (and actually undesirable) goal of equal outcomes. “Systemic” racism erases individual moral agency, creating a form of original sin or martyrdom depending on one’s race, regardless of one’s own beliefs and actions. Only active “antiracism” can atone for this. “Cisgender” creates an entirely new category for what was considered the default status up until five minutes ago. The imposed words effectively beg the question on a meta level, pressuring all of us to reconsider reality.
Finally, the newly imposed lexicon is not intended to advance communication and understanding but rather to browbeat and demoralize.
We see this especially in the endlessly fluid world of trans language, where new acronyms and phrases issue forth almost constantly. The early adopters of the new words do not really expect average people to adopt and keep up with all the new terms; they are used to demand respect for and acquiescence to the new sexual landscape. Those who fumble with the bewildering new rules can be attacked as misgendering or disrespecting trans people. The goal is not to help ordinary people navigate the sudden rise of trans “issues” through kindness or acceptance, but rather to impose an entirely new way of thinking about our most basic human biology and identity.
Language goes to the core of how we perceive and understand the world, and it naturally changes over time, both through top-down imposition and natural evolution. But when the imposers have an agenda, we should recognize it and understand it. This African writer’s summary of British colonial influence on Kenya applies equally to today’s colonizers attempting to impose their English on all of us:
English became a key tool of control for social indoctrination within Kenya. The British government took great steps to ensure that they implanted English as the premier language of the state and to make clear, especially to the native blacks, that English was the be all and end all of society and culture. To do this, the English had to focus this effort into two main branches: education and administration…. This restriction on the widespread use of English among the black population led the use of English to be placed in very high regard. It was associated with knowledge and intelligence, allowing those who could speak it to automatically reach higher on the social ladder than those who only spoke African languages. This social reverence of the English language made it easier for the British to impose control on Africans. This reverence translated easily to complacency, because people would easily accept anything to do with English governance due to a high regard for the English language.
Today’s intellectual framework considers government spending to be the solution to any economic and social problem. Be it helicopter money to households and businesses during the pandemic, subsidies for electric cars, or debt forgiveness to students, the government generosity must be growth and welfare enhancing by definition.
Government spending is even more praised if it is labeled an “investment” in green projects, in industries making countries self-sufficient in high-tech, or in military equipment to fend off foreign autocracies. However, Austrian economists are way more skeptical about the alleged benefits of government expenditures as they do not follow the market principle of being voluntary exchanges that satisfy genuine consumer needs.
For this reason, Murray Rothbard considers that the social usefulness and productivity of government spending is actually negative because government output diverts away resources from the private production of goods and services. According to him, no government expenditure can be considered genuine “investment” that builds real “capital,” because only private capital can be used to produce goods that fulfil consumer needs. A good illustration of Rothbard’s point is the enormous volume of wasteful “investment” made during Ceaușescu’s communist rule in Romania.
Bad Investments Impoverished Socialist Romania Toward the end of World War II Romania was occupied by the Soviet Union which installed a communist government. Within a few years most of the production structure was nationalized and the government steered the economy via five-year production plans. A large investment plan was started to achieve rapid industrialization and urbanization of a mostly agrarian country.
When Nicolae Ceaușescu came to power in 1965, Romania was already distancing itself from the Soviet Union, both politically and economically. Having been a loyal ally to the USSR during the Hungarian uprising in 1956, the Romanian communists managed to convince Khrushchev to withdraw Soviet occupation troops from Romania two years later. A gradual policy of “de-Russification” and emancipation from the Soviet hegemony followed.
During the Soviet-Chinese dispute, Romania sided with China, which also advocated national self-determination. As the Soviets pressed for stricter economic coordination among the economies of the Eastern Bloc, Romania strengthened trade relations with the West, which almost matched the declining exchanges with the USSR by 1965.
Ceaușescu continued the line of national autonomy and opening toward the West. Romania was the first country in the Eastern bloc to establish diplomatic relations with West Germany. It also joined the IMF and the World Bank, and acquired preferential trading status with the European Common Market. In August 1968, Ceaușescu did not take part and condemned the Warsaw Pact intervention in Czechoslovakia, which gained him worldwide reputation and a visit by President Nixon to Bucharest in 1969. The West welcomed Ceaușescu’s dissidence within the Communist bloc and gave Romania access to foreign loans and technology.
Unfortunately, Ceaușescu missed the opportunity to turn around Romania’s socialist economy and use Western inputs efficiently. His liberal approach in foreign politics did not apply to domestic matters too. Like Stalin, Ceaușescu was obsessed with industrialization and opposition to any form of private ownership and initiative. The money that Romania borrowed massively from Western banks in 1970s was directed primarily into heavy industry, such as petrochemicals and steel. Large enterprises with more than 1000 employees accounted for 85 percent of industrial output, creating big inefficiencies and a rigid production structure. In parallel, Romania’s external debt surged from only $30 million in 1972 to a peak of $10.5 billion or 35 percent of GNI in 1981.
The poor quality of exports constrained Romania’s ability to repay its foreign loans. Moreover, the energy-intensive heavy industry became increasingly voracious due to its inefficient running and high energy prices. The 1970s energy crisis combined with the surge in interest rates on Romania’s loans, which grew about three times to almost 20 percent per year, sealed the fate of Ceaușescu’s foreign financed investment bonanza.
In 1981 Romania had to request a credit line from the IMF to continue servicing its foreign debt, at which point Ceaușescu decided to pay back the debt in full. But this required a severe restriction of domestic consumption as annual growth rates had dwindled from about 10 percent in the early 1970s to 3 percent in 1980. Moreover, a strict compression of imports to save hard currency to repay the debt eroded the production base further.
Draconian restrictions on energy and food consumption were imposed on the population. Food rationing was introduced in 1981 and electricity blackouts became commonplace as household electricity consumption dropped to 5 percent of total by 1989. The economy was in shambles with real GDP falling by 0.5 percent in 1988 and a further 5.8 percent in 1989.
Yet, Romania managed to record a string of trade surpluses in the 1980s and repaid all its external debt in full. This was a unique case among the Eastern Bloc economies which had built together a huge external debt pile estimated at $155 billion by end 1989. As many of them obtained debt reduction and rescheduling from the Western creditors in the 1990s, Romania’s heroic efforts seem largely futile in retrospect.
Ceaușescu left Romania with an underproductive industrial and agricultural base, a worn-out infrastructure and a poorly educated and unhealthy population. His economic failure is a perfect illustration of what Ludwig von Mises called the impossibility of economic calculation in a socialist economy, further exacerbated by the socialist system’s perversion of work incentives. Eventually Ceaușescu’s dictatorial leadership, which suppressed most political, civic, and economic freedoms, brought his downfall and execution. Ironically, his megalomania led him to engage two grandiose and wasteful projects at the peak of Romania’s economic hardships, which accelerated his demise.
White Elephant Projects Instead of Road Infrastructure In 1949, following Soviet advice, the new communist government started the construction of a navigable canal linking the Danube and the Black Sea, which would shorten the distance to the Black Sea by about four hundred kilometers. The canal also served the vile purpose to “reeducate” and eliminate people hostile to the new regime which were used as forced labor. The works were stopped after only four years without much progress on the ground. Ceaușescu reopened the project in 1976 and it took him about ten years and more than $2.2 billion to finalize one of the longest water canals in the world. Needless to say, the canal’s financial revenues have been below expectations ever since, and the investment is likely to be recovered in about six hundred years instead of fifty, as originally planned.
But Ceaușescu’s most wasteful project seems to be the “House of the People,” the second largest building in the world after the Pentagon. The construction took place between 1984 and 1990 but remains unfinished to this day. The palace is housing the Romanian Parliament and an art museum, which hardly justifies the huge investment estimated at an original cost of $1.75 billion. To make place for the gigantic construction, a large part of the historical center of Bucharest was demolished.
Instead of building those two extravagant projects, Ceaușescu could have usefully built more needed infrastructure, such as adequate roads. In the early 1970s, other socialist countries had already started building highway networks. They comprised about 500 kilometers in Czechoslovakia by 1985 and about 360 kilometers each in Hungary and Poland by 1990. This was a good basis on which to build decent road connections in the early 2000s, a key factor in attracting foreign direct investment in order to move up the value chain.
Yet, Ceaușescu built only about 115 kilometers of highways relative to a much bigger territory. The early post-Communist governments estimated that a network of around one thousand kilometers of highways would have satisfied the basic needs of Romania. This would have been easily built with the $4 billion that Ceaușescu directed into his two white elephant projects, according to building costs of 2010. Because of this and subsequent policy failures and corruption of post-Communist governments, Romania still has one of the lowest densities of highway networks in Europe graph 1), which represents a major bottleneck to foreign investment, growth, and well-being of people (graph 2).
Graph 1: Highway density and inward FDI stock, 2020
picture1.png
Source: Eurostat and own calculations.
Graph 2: Road traffic fatalities, 2021
picture2.png
Source: Eurostat.
Entrepreneurial businesses embrace adaptiveness and change, and continuous innovation enabled by flexible and responsive organizations, empowered at every level. That doesn’t mean there’s no role for managers. Inside the corporation, entrepreneurial management co-ordinates the business flow of responding to changing customer wants and preferences, so that resources are allocated and reallocated to the production activities that customers value the most. In fact, management is becoming more important, not less. Professors Peter Klein and Nicolai Foss explain entrepreneurial management in their latest book, Why Managers Matter: The Perils of the Bossless Company (Mises.org/E4B_190_Book), and Peter Klein visits Economics For Business to highlight the key points.
Key Takeaways and Actionable Insights Management co-ordinates the constant flux of entrepreneurial business. The essence of the adaptive entrepreneurial organization model is responsive change. Entrepreneurial businesses don’t lock themselves in to 5-year strategies and annual plans. They recognize that markets are in constant flux as a result of changing customer preferences, changing competitive activity, changing technologies, and changing conditions in business channels and in the economy. Change is the normal condition. It’s what Ludwig von Mises termed constant flux.
Management is required inside the firm to adapt and respond to change outside the firm. It’s not possible to manage the change in markets, but it is a necessity to manage resource allocation and productive activities inside the firm.
Management is co-ordination and orchestration, not authority and hierarchy. We might think of the concept of management in its industrial age guise of authority and hierarchy: some people “higher up” in the organization telling others “lower down” what to do. This kind of hierarchical authority can’t work in the digital network age; it’s too slow to process incoming data from the marketplace and too rigid to quickly or effectively implement newly imagined responses to those incoming data.
But in Professor Klein and Professor Foss’s analysis, management no longer equates to old-fashioned authority and hierarchy. Management is co-ordination: assembling the right resources — both human capital and complementary capital assets such as supportive technologies — in the right combinations (often referred to as “teams” in today’s management language) for the right shared task with the right shared goals. Professor Klein likened this to orchestration — there’s a conductor who guides the orchestra in playing the same symphony together, without telling the individual players how to play their instrument, and leaving the details of implementation to the individuals and their specialized skills.
Some orchestras may have better results than others because their teams have been well-recruited and well assembled and they respond better to management co-ordination. All firms and teams are complex adaptive systems, with emergent outcomes influenced by internal forces, one of which is management.
Management is culture more than authority. How do managers achieve a better outcome as a result of managing their teams? Professor Klein believes that they institute a successful culture, as opposed to designing an organizational structure. He defines culture in terms of norms, customs and practices — the accepted way (or simple rules) of “how we do things around here”. More specifically, in the customer-centric entrepreneurial firm, “here’s how we plan to facilitate value for our customers around here”. Skilled managers paint the pictures — the “vision”, if you will — in the minds of employees of the customer value standards the firm will achieve, and the customer experiences that the firm will facilitate.
Modern managers are comfortable with and quite expert at adaptation. The modern managerial culture is a far cry from traditional hierarchical managerial authority. It has the built-in flexibility for adaptiveness to the rapid rate of change in today’s digital business world. A well-functioning management process in a loosely structured organization can change internal production processes, teams and resource allocations in response to external changes in customer demand and marketplace conditions.
In fact, Professor Klein points out, through relevant case studies, such a management structure can be better at adaptation than, for example, a network of independent contractors and suppliers that would be challenged to orchestrate responsive changes to an external change, since each would have a different experience and process it through a different cultural orientation. They wouldn’t co-ordinate as well or as quickly as internally managed teams.
In certain cases, management authority can sometimes be a relevant organizational tool, so long as it is applied in a contingent fashion. The relevance and usefulness of authority varies by circumstance and business situations. Its usefulness is contingent, and managers must be sensitive as to when to apply authority and in what style.
Why Managers Matter identifies two distinct styles of managerial authority, Mark 1 authority and Mark 2 authority. Mark 1 authority is traditional command-and-control, exerted top down — superiors telling subordinates what to do.
Mark 2 authority is exercised through design rather than command: finding the right person for the task, combining the best-qualified people in teams, and giving them a goal with a wide latitude in their process and implementation in achieving the goal.
An important element of the contingent approach is to empathically identify the subjective preferences of employees. Some will respond well to flexible, open-ended direction that enables them to exercise their own initiative. Others might prefer the certainty of clear direction. One type of salesperson might be highly motivated by a 100% commission remuneration plan, another might feel more secure with a base salary with the potential for an achievement bonus upon exceeding quota.
Professor Klein identifies two broad sets of conditions for the exercise of Mark 1 and Mark 2 authority. When there is a high degree of interdependence between people, teams and tasks, such that it is critical that tasks are highly coordinated, completed at the same time and combined in a highly specific fashion, then management intervention is required and it will include Mark 1 elements. When production is more modular, when tasks and projects can be completed interdependently, then Mark 2 management can be exercised through a decentralized, flat and culturally aligned organization. (Professor Klein cited the example of the type of higher education institution where he works; all the professors can design and teach their classes, do their research, and publish their papers and books with a high degree of autonomy.)
Management is becoming more important, not less. In a rapidly changing world, where employee attitudes and experiences are very different than in the pre-digital world, and where global markets and their interconnected structures are more uncertain and cyclically unreliable, and where the pace of disruptive technological innovation is accelerating, good management is more important than ever for the success of our economy and our society. Smart managers are needed to find the right balance between operational excellence through established processes and adaptive change through adjustment and experimentation, a balance that business scholars call the ambidextrous organization. It can’t happen without management, and without managers.
Additional Resources Peter Klein’s book page: Mises.org/E4B_190_Klein
Why Managers Matter: The Perils of the Bossless Company by Peter Klein and Nicolai Foss: Mises.org/E4B_190_Book
Public Affairs book page: Mises.org/E4B_190_PA
Recovery is genuine only when it reaches the masses of individuals. And recovery comes only from the actions of individuals acting in a free market.
Original Article: "Genuine Recovery Is Up to Investors, Producers, and Consumer Choice"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
We must, therefore, emphasize that “we” are not the government; the government is not “us.” The government does not in any accurate sense “represent” the majority of the people.
Murray Rothbard wrote this in his popular Anatomy of the State. His point still stands to this day. The state cannot be said to represent “us” in any accurate or serious way. It may be even more true today than ever before. However, what is murkier today is who “us” even is. If “we” are not the government, then who are “we?”
“We” would logically reference what Rothbard described as separate from the state, the nation:
Everyone is necessarily born into a family, a language, and a culture. Every person into one or several overlapping communities, usually including an ethnic group, with specific values, cultures, religious beliefs, and traditions. He is generally born into a “country.”
While this would make sense as who “we” are, I struggle to believe this—in any meaningful way—describes anything that brings “us” as Americans together. Taking Rothbard’s descriptors piece by piece, almost none of them still apply. Everyone is born into a family which includes ethnic groups, but America has long been known as a melting pot with any number of ethnic heritages among its people, so it would be nonsense to say this played a role in bringing together the American nation. Generally speaking, there is a common language across America, however, it is merely the language of our former rulers—the British. If this drew us together as a nation, then we’d be equally drawn to Australia.
As for the “overlapping communities” we have almost no such communities drawing Americans together. Ethnic groups and cultures we’ve already addressed vary widely within America. Specific values have never been less cohesive than they are today. In the state of Texas, the average person likely believes that an abortion is committing murder against a child. In the state of California, the average person believes that an abortion is a sacred right for women.
In the state of New York, it was quite recently believed that going out without a mask was posing imminent harm to vulnerable people. At the same time, in the state of Florida it was almost ridiculous in many places to wear a mask. To pretend these groups have shared values is simply something of the past.
Religious beliefs do not hold as a common thread considering the country was founded in part on the freedom of religion. From that, many traditions diverge among the people. In fact, even the few traditions that are common among the residents of America are extremely varied across regions. While we are born into a specific place and are somewhat geographically together, we’ve expanded far beyond any real sense of vicinity.
Having expanded this far, in what way is a Floridian really any closer to an Oregonian than a Canadian? A New Yorker is far closer to a Canadian than a Texan. The only detail that holds true of this definition of a nation is that each person is born into a “country,” but what does that really say?
What this says is that “American” only means one thing: a citizen of the United States government. Nothing more. Sure, “we” are not our government, and our government is not “us.” But “we” really doesn’t apply to any substantial group of people anymore other than the group of people subject to this government that does not represent us. A Floridian or a Texan or a New Yorker has a very real culture that makes them a “we.”
But it’s been a long time since America meant the land of the free, the home of the brave or since political leaders have referred to the bill of rights or to the declaration of independence (unless it benefited their “cause.”). “We” as Americans are no longer a cohesive group. And that should not necessarily be looked at as a negative. Those of us that fall under the mantle of American can take this and recognize that there still exist many nations and cultures among us, we don’t need to fight to preserve one that no longer exists.
In the Carnegie Museum of Natural History in Pittsburgh, a special thematic part was dedicated to anticipating the future on earth in the winter of 2022. The visitors had the opportunity to vote for the topic they find important and want to learn more about.
The three knowledge offered choices were 1) how development of energy potential may influence climate change; 2) how improving the condition of the environment, forests, parks, and waters may reduce CO2; 3) how improving the conditions of agriculture, land, and farmers may contribute to food security and affordable food. The visitors voted by throwing a bottle cork in one of the three knowledge cylinders, and the option that won the most votes would be promoted in the museum through popular science content.
Out of eighteen visitors, only four decided to vote for the third cylinder on agriculture, and these were children and women. The rest of votes were shared almost equally between the cylinders for energy and the environment.
The ad hoc experiment I conducted revealed several important issues. How is it possible that the priority question of food security and sustainable agriculture attracted such weak attention? Developing energy and environmental potential for CO2 reduction, although of high relevance, cannot feed the world. But it attracts ecological concerns and mobilizes solidarity sentiments more than hunger in Africa, Asia, and Latin America, where a significant part of the populations has only one or half a meal per day.
Making food affordable and accessible to them and dying children in Yemen and Ethiopia (where the war has been going on since 2020) obviously does not engage sentiments as strongly as information that the Earth is 1.5 degrees Celsius warmer than one hundred years ago; that glaciers are melting in an enormous vastness of ice; or that polar bears are withdrawing toward the inner continent. Because of the polar bears and glaciers, international meetings of the highest importance regularly convene in Davos; the compulsory climate agreement in Paris was signed; and Greta Thunberg shouted at the United Nations General Assembly, urging radical changes in CO2 emissions.
Environmentalists share one chronic feature: they are preoccupied with the “imagined state of environmental purity and harmony” on a universal level. They associate resolving environmental problems with a larger transformative endeavor. The reduction of carbon emissions is inseparable from a series of seemingly unrelated political projects: ending capitalism and existing power structures, and completely restructuring transportation systems and industries.
It is thus not surprising that concrete places such as Yemen and Ethiopia and their particularistic problems of hunger inspire fewer public statements, and only sporadically evoke expression of concerns at the international conferences. Even in the Carnegie Museum, the knowledge cylinder that suggested improvement of food security attracted only a few curious minds.
In a new environmental era, a role attributed to agriculture is to mitigate environmental and pollution risks first. Dealing with food security and feeding the world population has a secondary importance. The European Green Deal indicates the trend, while its two core strategies, farm to fork (F2F) and biodiversity, practically reveal the whole environmental hypocrisy. Both strategies have been driven by the noble intention to increase sustainable food production and to restore biodiversity, but the unintended consequences of the shift are largely unknown and thus far have never been discussed in a holistic way.
What is the cost of conservation, afforestation, halving pesticide use—of regulations and the expanding bureaucracy that must supervise the path toward an environmentally sustainable future? Such questions get silenced along the way or are ignored in the public debates as if they represented blasphemous attempts to endanger common sustainability goals.
With growing environmental concerns, European Union policy has sidelined food security since the late 1980s. The EU visions of agriculture in 2030 are now more preoccupied with reducing net greenhouse gas emission to at least 55 percent; reducing chemical plant protection by 50 percent; increasing the area under organic farming to at least 25 percent; reducing the sales of antimicrobials by 50 percent; and reducing land use by at least 10 percent, to name a few objectives.
The scientific and market assessments of the European Green Deal F2F and biodiversity strategies already suggest some alarming consequences. The full implementation of the two strategies will need to face the challenges of inevitable shrinking of the domestic food supply and jeopardized local farmers, as well as how the EU and the world in general will cope with higher prices for agricultural raw materials and food.
The strategies will inevitably decrease the EU’s export of its key agricultural produce and will make it a net importer in the markets where is now an exporter. Reductions in chemical plant protection and an increasing shift to organic farming, including hobby urban farming and permaculture, will lead to reduced yields. The conservation of designated nonproductive areas will inevitably increase the price of land and will create substantial pressure on land resources outside the EU.
Two major future consequences of the EU agri-environmental strategies already are evident. Consumers all over the world will bear the costs of higher food prices, affecting the economic efficiency of the whole supply chain. New environmental norms imposed by agri-environmental policies on production and consumption, mainly practiced in the West, will prevent poor countries from participating in markets because they will be unable to meet these standards.
It is likely that the poor will continue to lag and further sink into pauperization. Likewise, environmental externalities that spring from food demand will likely be offshored to poor countries, where ordinary people chronically lack access to private land and still live on three dollars a day—which was a common condition of American citizens in the beginning of the nineteenth century. They will not only remain poor and hungry, but they will be fed by the European CO2. It is an environmental win-win.
In 1983, Mary Douglas and Aaron Wildavsky prophetically asked, “Why is social conscience concerned with environment and not with the education of the poor or relief of the indigent?” Four decades later, the patten remains the same, and clearly shows that some environmental issues have priority over others. Concerns about countries’ CO2 emissions overshadow interest in whether the countries can feed their own people. The inhumane dimension of these concerns is especially important in the context of the growing world population that will greatly increase demand for food production. And perhaps civilization will not be ready to cope with the problem, given that the top-priority questions are asked and resolved last.
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Friday–Sunday, September 30–October 2
| Mr. Lukas Abelmann,in Honor of Eugen RichterMr. and Mrs. George AdamsMr. Carlos AdaroMr. Robert AllenAngel Alarcon AlvarezMr. Raul AmaviscaMr. Paul AskinsAnonymousMr. Richard BaileyMr. Philip BakkerDr. Javier BardavíoAnonymousMr. Louie Dean BattlesAnonymous,in Memory of Boo the DogMr. Oscar BendeckDr. George Bitros, in Memory of Fritz MachlupMr. Daniel BledsoeDr. Walter E. Block,in Memory of Murray N. RothbardDr. Carla BoydMr. Paul BraccoMr. Shaun BradleyMr. Ken Brodeur,in Memory of Leon Roldolph BrodeurMr. Gary BrogochMr. Steven BuerkleMr. J. Michael BugglinMr. Scott BurkhardtMr. Michael Ray BurrisMr. Jason V. CalvasinaMr. Nathaniel CameronMr. Dennis M. CampbellMs. Carol CarnesMr. Anthony CarrionMr. Samuel Cartagena-SergenianAnonymousMr. Carl ChambersMr. Stephen ChaplinMr. John Ciccotelli,in Honor of Ludwig von MisesMr. Doug ClarksonMr. James Cleaver,in Memory of Virginia D. CleaverMr. John C. 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SmithMs. Danielle StanleyMr. Joseph StandridgeMr. Daniel Stenabaugh,in Memory of Ludwig von MisesMs. Mary Beth StockAnonymousMr. Craig StoughMr. Paul SummersMr. James SummersMr. Jess SuterMr. Alejandro SzitaMs. Catherine TheuerMr. and Mrs. Peter Ruffin Thomas,in Memory of my parents, Dr. and Mrs. Robert Y.H. Thomas, IIIMr. Jesse Thomas,in Memory of Iysander SpoonerMr. Matthew Thomassee,in Memory of Charles McGowenMr. Neal ThompsonMr. Charles TraugerMr. Michael P. TusayMr. and Mrs. Timothy UrlingMr. Christopher P. ValleMr. David VarianMr. Gregory VasaleMr. Steve VenderMr. Martin VennerMr. and Mrs. Chase VentersMr. Jeremias ViverosAnonymousDr. Sharon R. WaiteMr. Craig WalcottMs. Lora WalkerMr. Paul WardMr. Paul F. WeberMr. Nathan WhitsonMr. Kevin WillardsenMr. Spotswood WilliamsMr. Michael R. WilsonMr. David WinansMr. Richard WolfMr. Adam WoodMr. Michael WoodsMr. Gennadiy YablonovskiyMr. Robert YabutMr. Jim YoungYukon GroupMr. Warren Y. Zeger |
Thursday, September 29
| Mr. Zeke AbramsWeston ArgoMr. Billy ArmstrongMr. Benjamin J. AycriggDr. Biff BakerMr. Robert BarrMr. Julio BaylacMr. Ken BeersMr. Bryan BerklandTerry BirdsallMr. Simon BlöthnerMr. Travis BostMr. Shaun BradleyAnetta BuraczynskaMr. John BzoskiMr. John CarboneMr. Juan Carlos Cervellera,in Memory of Raquel and J.C. Cervellera, Sr.Mr. Thomas ColellaAnonymousDr. Pearl CompaanMr. David CruseMr. Michael CulpRobin DeaMs. Delia Patricia Del Riego de los SantosMr. Donald FannonMr. Anthony Favalessa,in Memory of Erma FavalessaMr. Wayne FordMr. Andrew GallagherMr. Matthew GannonMr. Carl GartsideDr. Theodore GebhardMr. Stephen GorinMr. and Mrs. Charles GoyetteMr. Claudio GrassMr. Allen HartungMr. Justin HawkinsMr. Paul HenningMr. Robert W. Hobert | Mr. Peter HyattMr. David HynesMr. Pavel IlcikMrs. Sara IsenhourMr. Darius JankowskiMr. Guojie JiaMs. Virginia JohnsonSchelina JuleMr. Daniel KellyMr. John KellyMr. Ryan KennedyMr. Darryl KingMr. Jack M. KingDr. Rudolph KohnMr. Greg KrabbenhoftMr. John H. LandMr. Andrew LinknerMr. Thiago LoMr. Burt LockhartMr. Matthew LorenceMr. Roger LoriaMr. Dennis Marburger,in Honor of Dr. Richard E. MarburgerMr. and Mrs. Thomas McCrary, Jr.Mr. Dean McHenryMr. J.T. McPhersonAnonymousMr. George Miller-DavisMr. David MuellerMrs. Camila Navia,in Honor of Fabricio TeránMr. Eric Nelson,in Honor of Daniel NelsonMr. Richard A. NewellMr. Justin PerryMr. Fernando Pozo MolinaMr. John PritchettMr. Carlos Puerta,in Honor of LibertyMs. Margareta RaducanMr. Michael ReddMr. Walter Rivera | Mr. Zackary RogersMr. Ezio RomanòMr. Jerry SalamoneMr. Mark SanchezMr. Charles ScarboroMr. John F. ScheererMr. Karl-Heinrich SchieleMr. Philip Schipsi,in Honor of Walter WilliamsMr. Ethan SchweitzerMrs. Bretigne A. Shaffer,in Memory of Butler ShafferAnonymousMr. George ShchudloMr. Ralph ShiveDr. Lawrence SilverMr. Tim SmithMr. Jeffrey SprolesDr. John E. Staddon,in Honor of F.A. HayekMr. Robert J. StewartMr. Jade Sullivan,in Honor of Greg SullivanMr. Michael A. ThompsonMr. Gregory ToddAnonymousMr. Larie TrippetAnonymous,in Memory of Ludwig von MisesMr. and Mrs. Scott J. UlleryRobin VazZonghui WangMs. Elizabeth WernerMr. Marcin WielochMr. Fred WitthansMrs. Donna Zedler |
Wednesday, September 28
| Happy AlexanderMr. Brian AllenMr. Jeremias Antunes,in Memory of Ludwig von MisesMr. Florin-Paul ArmeneanMr. Charles AwaltDr. Robert BatemarcoMr. H. Ronald BjorkmanMr. Eddie BlueMr. Daryl BortzMs. Molly BrannonM. BrierleyMr. Nathan BriggsMr. Keith BrilhartMr. John BubolzMr. Conor Bunn,in Memory of John BunnMr. Charles C. Burridge,in Honor of Jeff DeistMr. Bruce BurtonMr. Justin CardwellMr. Carter CobbMr. Sam CragerMr. John CrissmanMr. Alfred R. DavieMr. Dennis De FordDr. Adolfo G. de UbietaMiss Ruth DickensSwithun DobsonMr. Brent DresserMr. Mark EcklerAnonymousMr. Anthony FerrettiMr. Alan ForresterMs. Sandra FosterMr. Richard FuhrmannMr. Tony FulgenziMr. Jetlir Gashi,in Memory of all those who share knowledge and help us abolish all ignorance!Mr. Bill GoadMr. William L. GossMr. Scott GreenoughMr. Olav GreisMr. Carl Hanich,Thanks to Frank Shostak | Mr. Darren HargroveMr. Jake HemingwayMr. Marvin HillMr. Jeffrey HillMr. Len Hofferber,in Memory of Lennert and Eva HofferberMr. David HoffmannJ.R. HoyneMr. Adrian B. IbricMr. Jaime Jasso BachaMr. Kyle JorgensenMr. and Mrs. Jason C. KellyMr. David KeoghMr. Frederick KinchMr. Edward KottMr. Vincent KulinMr. Barton KunstlerMr. William LangMr. Thomas LonerganMr. Michael LucasAnonymous,in Memory of Michael C. Lukehart, Attorney at LawMr. Bill MarakMr. William McNelisAnonymousMrs. Deborah Miller,a Gift for my HusbandMr. Mack M. MullicanMr. Edward MurrayMr. Gary Nelson,in Honor of Andrew Galambos, Free Enterprise InstituteMr. Zachariah NevilleMr. Santo Laucer OrtizMr. Jeffrey ParkerMr. Gary PelledMr. John PerlMr. Steven PerlmanMr. Charles C. PickMr. Paul PinetteAnonymous | Mr. Sean PolicelliMr. Jon PoureMr. Alexander ProffittMr. Javier A. Quinones-OrtizMr. Thomas Ramsfield,in Honor of Edward SnowdonMr. Gary RichiedMr. Clark RollinsMr. Eric RowellMr. Bruce SammutMr. Josh SchwartzAnonymousMr. Jackson SepulvadoMr. Jeffrey ShawAnonymousMr. Bob SimeralMr. Stephen SkarbekAnonymousMr. Kees SpaanMr. Greg StuesselMr. Lee SutterfieldMr. Ray D. SvobodnyJordan TahiMr. Paul ThielDr. Daniel TirelliMr. Joshua Vance,in Honor of Ken VanceMr. James VeillonAnonymousMr. Michael WatsonMr. John WernerMr. Ronald L. WestMr. Chris Wilson,in Memory of Walter WilliamsMs. Janelle WolfMr. Larry N. WoodsMr. Sean YounkinMr. Henry Yuen |
Tuesday, September 27
| Mr. Abdelhamid AbdouAnonymousMr. Nick AscherMr. Harry AsmussenMr. Duane AushermanJade BarkerDr. John BartelMr. John BeanMr. David BrewerMr. Stephen A. BrownMr. Garland Anthony BulluckMr. Lance CansinoGordon P. Clark, MDMr. Eric ConnerMr. Jeffery DegnerMr. Greg DensonMr. Aaron Diaz ChavezMr. David DustinOr Ezra | Mr. Paul FarmerMr. Kyle FennerMs. Eileen FitchAnonymousMs. Lisa GanskyMr. Lawrence GreenbergMr. Nathan HarperMr. James R. HartjeMr. Christopher Holbrook,in Memory of Thomas Wayne CampbellMs. Kathleen Jagodnik,in Honor of Ron PaulPekko KovanenMr. Roger LohmannBozhidar MarinovMr. Michael McQuadeMr. Roberto Mello,in Memory of Olendina de Azevedo BarbosaMr. James Miller | Mr. Vladimir MorgensternMr. Keith NolanMr. John Allen Bennett NoveyMr. Bernhard PaierMr. David ReyesMr. Ian RossiMr. Carter RuessMr. Luigi Santos-HammarlundMr. Michael ScarbroughDr. Mark SmithMs. Louise S. ThomanJose G. Urrutia, MD,in Memory of Rollin K. and Andrew UrrutiaMr. Juan Carlos Vera,in Memory of Ludwig von Mises |
Monday, September 26
| Mr. David AmonetteAnonymousMr. James ArgiroMr. David BakerMr. Jeff BarreDr. Jeffrey BilottiMr. Alan BlairMrs. Daniela BullrichMr. Joseph CammMr. Stewart CarrollAnonymous,in Memory of Heinz BlasnikDr. Michael Castle,in Memory of Thomas JeffersonAnonymousMr. Eric CrosbyMr. Thomas CulverMr. David DouglassMr. Michael DurnwaldMr. Peter C. EarleDr. and Mrs. Sam EslerMr. Alex FábiánAnonymousMr. David FerroMr. Paul GendreauDr. David GilmartinMr. John GroshMr. Gene GryzieckiMr. Toby GuilloryMr. Douglas HaagaAnonymousMr. Dan HallettMs. Courtney HansonMr. Edward C. HarrimanMr. Daniel HerltMr. Gustavo Hincapie,in Honor of Javier MileiMr. and Mrs. Chris HindmarchMr. Michael Hogan,in Memory of Terrence T. HoganMs. Angela HooverMr. Herbert H. HooverMr. Jasson HowellMr. Hal HowertonAnonymous,in Memory of Dale Cooper | Mr. Andreas Huebner and Mrs. Maria Jose Silva Roman,in Memory of Antonio MartinoMr. William HusseyAnonymousMr. Hammad R. JaveriAnonymousMr. Michael KelleherMr. James P. KernerDr. Ricardo Kilson,in Honor of Ricardo Almeida KilsonMr. Thomas KirwanMr. and Mrs. Nathan J. KleffmanMr. Charles E. LarsonMr. Darius LeshabaMr. Joseph LombardiMr. Fernando LourençoMr. John LoyS. LutchmeenaraidooMr. Christopher J. MaloneyMr. Mark MarkicMr. Neal MarstonMr. and Mrs. Eugene V. McCaffreyMr. Ryan McHaleMr. Timothy McMullanMr. Ray McMullenMr. Samuel A. MitchellWaco MooreMr. Tyler MooreDr. Richard MorrisMr. Jack MosesMr. Daniel MuheMr. John MulheranMr. Arthur NationMr. Christopher NawrotMr. Gregg ObbinkMr. Douglas C. OrtonMr. James PeltonMr. Rodney PilbrowMr. Alvin PlummerMr. Jim RadetichMrs. Charlot RayMr. Melvyn ReznickMr. Brett Roulston | Mr. Steve RudhallMr. John E. RushingMr. Rogerio Russo,in Memory of American FreedomMr. Mark SandeAnonymousMr. Virginio Schiavetti,in Memory of Murray N. RothbardMr. Mikhail Serfontein,in Honor of Jesus ChristMr. David SherrerMr. Robert SmithMr. David SmithMr. Richard SpreadboroughMr. Henry A. Steddom IIIMr. John SteelMr. Christopher StevensMr. John StoesserMr. Peter StollmackMr. Ronald TamburroMr. Josh TaylorMr. Sean ThomasTerri TotzkeMr. Paul TrappMr. Vitalik V.Mr. Mike VandenbosMr. Tim Van HussMr. R. David Van Treuren,in Memory of Murray N. RothbardMr. Richard VincentDr. Sharon WaiteAugust WestMr. Bob WheelockRichard and Lupita WiggansMr. Adam WilliamsMr. Elmer A. WrightMr. Theodore WroblewskiMr. Katherine YoderMr. Martin YoungAnonymousMr. Alan ZibelmanMr. David ZientaraMr. Robert Zumwalt |
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The upswing in identity politics has cannibalized the media landscape in a relatively short time because it is fashionable to believe that social ties are built solely on racial and cultural solidarity. Notions of identity have become so ghettoized that non-Mexicans are upbraided for selling Mexican food. But despite the surging popularity of identity politics, history has shown that class often trumps the quest for racial and cultural solidarity.
Slave societies in the British West Indies and the US South were polarized by race; however, the urge to survive usually led blacks to collaborate with planters and poor whites. Although people are emotionally invested in race and culture, economic desires eclipse the thirst for cultural solidarity. Slave societies were excruciatingly hostile for blacks, especially when they were unfree, so many resorted to partnerships with white oppressors to evade the hostilities of slavery.
In the British West Indies, newly imported Africans were required to undergo a process of socialization known as “seasoning” to acclimatize them to the routines of plantation life. During this period, older slaves were chosen to impart relevant skills to newcomers, and to gain the respect of enslavers, these slaves would treat new slaves with contempt. Some were so domineering that estate managers feared that they would turn newcomers into their servants.
Slavery perpetuated a vicious cycle of abuse by engendering hierarchies that allowed slaves to oppress each other. Images of slaves being whipped by whites are firmly rooted in the public imagination, though many whippings were conducted by slave drivers. Slave drivers were responsible for maintaining the efficiency and discipline of slave gangs and often did so by exerting force. Consistent with his reputation, the slave driver was referred to as the “whipping man.”
Yet slaves frequently employed tactics to subvert the authority of slave drivers. Using collective power, slaves were quick to isolate slave drivers who sought to exploit the slave community. Slave drivers had an incentive to project superiority, but in many cases their success depended on cooperating with less elite slaves. It was not unusual for slaves to malign the reputation of slave drivers by spreading rumors that could cause planters to reduce their authority.
Because slave drivers were aware of the collective power of ordinary slaves, they had to temper their aggression. Others placated common slaves by offering them food and clothing, or even lobbying planters for better working conditions. The position of blacks on a plantation was insecure, so slave drivers had to tread carefully when dealing with slaves and planters.
In fact, insecurity was the primary reason why rebellious slaves collaborated with planters. The overseer Thomas Thistlewood was legendary for his barbarity, and the fear of experiencing his wrath made riotous slaves compliant servants. After the runaway Morris was whipped and coerced into wearing pothooks, he decided that cooperating with Thistlewood by tracking down runaways was a smarter option than resisting enslavement. Being an ally of Thistlewood created more opportunities to improve his level of material consumption and allowed him to avert punishment.
However, whereas some slaves cooperated with elite whites to ameliorate their circumstance, others formed partnerships with working-class whites to undermine the financial base of elite whites. Blacks and working-class whites both occupied an inferior status relative to elites. Elites viewed working-class whites as unproductive and beneath their dignity, so the class interests of blacks and working-class whites intersected.
Working together, black slaves and working-class whites frequently targeted the businesses of affluent whites. Cabinetmaker Isaac Morell was the victim of such an alliance on the night of February 5, 1838, when a white youth named Henry and a slave called George robbed his establishment. Elites were cognizant that associations between working-class whites and blacks had dire consequences, and as such they were unwilling to entertain their dalliances.
Associating with slaves proved to be financially rewarding for white shopkeepers as well. Shopkeepers could rely on slaves to provide goods that were difficult to obtain, and slaves were more than willing to engage petty traders. Shopkeepers were so devoted to trading with the enslaved that they flouted the law with impunity by opening businesses on Sundays to capitalize on the trade with slaves. Apparently, the desire to earn money can subjugate all other sentiments. These types of economic goals were pursued at the expense of racial solidarity.
Further, it’s time to dispel the sanitized narrative that slave communities were harmonious. Contrary to idealized versions of history, slave communities were marred by conflict, and violence in slave communities was frequently incited by incited by domestic disputes.
The example of Moll and Cobenna in Jamaica reveals how matters of intimacy can lead to dastardly acts. In this case, Cobenna had an affair, and Moll retaliated by beating the other woman and then committing suicide. Although, Cobenna moved on, history would repeat itself. His new mate, Rosanna, had an affair with a man named London, and Cobenna gave him “a good Thumping.”
Intermittent power struggles between young men and old men on plantations also led to conflict. Young men were unafraid to dispute the authority of slaves who were losing clout in old age. Conflict was often the result because older men were unlikely to cede authority to their younger peers. David Doddington in an essay on masculinity in the US South tells the tale of how a conflict triggered by a card game and intensified by intergenerational insults led Jim Gooch to murder his fellow slave named Sam.
Doddington describes the furor in detail:
Gooch was quarreling with another man before Sam, who was known to be “overbearing,” stepped in, telling his rival: “go sit down and behave yourself.” When Gooch retorted, Sam derisorily told him “I don’t like to see an old man like you going about and meddling with things of no account.” Gooch was unwilling to take the insult, and, tellingly, connected his actions to his manhood. According to one witness, Gooch informed his rival “he was a better man than he was” and that he was willing to use violence to prove this. Having stabbed Sam to death, Gooch was clearly a man of his word.
As these cases of cross-racial collaboration and intragroup violence document, people usually pursue their motives to the detriment of group solidarity. Identity politics might be popular in some circles, but it is becoming obvious that class interests trump the rhetoric of identity politics, and ordinary people are no longer quick to endorse ideological narratives that don’t align with their goals.
Abstract: The topic of this paper is the class theory of Jean-Baptiste Say (1767–1832). Charles Comte (1782–1838) and Charles Dunoyer (1786–1862). However, in order to be fully accurate, this title should be qualified in several respects. First, the thinking of these men cannot be examined in complete isolation, divorced from traditional liberal ideas, the works of their contemporaries and the intellectual currents of the day. Secondly, their class theories strictly speaking cannot be separated from what we might now consider the separate specializations of economics, history and political theory. This is the nature of the times as well as in the nature of the subject.
Mark Weinburg, Department of History, University of Chicago
The topic of this paper is the class theory of Jean-Baptiste Say (1767–1832). Charles Comte (1782-1838) and Charles Dunoyer (1786–1862). However, in order to be fully accurate, this title should be qualified in several respects. First, the thinking of these men cannot be examined in complete isolation, divorced from traditional liberal ideas, the works of their contemporaries and the intellectual currents of the day. Secondly, their class theories strictly speaking cannot be separated from what we might now consider the separate specializations of economics, history and political theory. This is the nature of the times as well as in the nature of the subject. In the early 19th century, the social sciences had not developed in the sense which we know them today. With the exceptions of history and political economy, real specializations had not yet become established among the "political and moral sciences", as they were then known. In this group, Say is the exception, a true specialist, perhaps the first professional economist of the 19th century. Comte is closest to Say in this regard, a professor of law and a publicist. He wished to apply in his own field the scientific methods of J.B. Say. His Traité de legislation involved a meticulous examination of the history and social organizations of the human race based upon the principles of utility and political economy. Dunoyer, who is remembered primarily as a political economist, was somewhat more ambitious in his endeavors. Trained as a lawyer, he was a publicist, a professor of political economy, and he wrote his chief work, La Liberté du travail as a history of the growth of liberty in civilization, which to Dunoyer meant the history of civilization itself. It was a vast social-historical treatise shaped and informed by the principles of political economy. It would be impossible to discuss the class theories of these men without examining their view of history, their political ideas and most importantly their economic thought. In fact, the main thesis of this paper is that a cogent, cohesive and vastly powerful social analysis was created with the fusion of liberal historical and political thought with the economic orthodoxy of Jean-Baptiste Say.
An examination of any group of critical radicals, such as the French liberals of the Restoration and July Monarchy periods, necessarily must address itself to three basic questions. First, what was the primary liberal view of the origins and history of the class structure of their society? Secondly, how did they envision the structure of a truly just society? And finally, by what means was the just society to be attained? From this derives the basic organization of the paper. In the first section, I will present a brief and by no means exhaustive examination of some aspects of the revolutionary liberal tradition in which these men shared and some of the contemporaneous intellectual climates which influenced their work. The second section will deal with the development of the doctrines of industrielisme which was the synthesis of traditional liberal views on history and politics and the new science of economics. The final section of the paper will examine the vitally important concepts of anarchy and social evolution as they were developed in the later writings of Say, Comte and Dunoyer.
I
One of the most important themes in the historical thought of the late 18th and early 19th centuries was the concept of the evolution of civilization through various stages. Perhaps the first among the French to develop this was Bossuet in his Discours sur I'histoire universelle (1681). In 1750, Turgot set out in his Plan de deux discours sur I'histoire universelle the division of civilization into the stages of hunting, pastoral and agricultural societies which was to be so influential among later liberal theorists. It was within this evolutionary framework that the liberals of the Restoration period developed their ideas concerning the structure of modern society.1
The fundamental liberal notion of the origin of the pre-revolutionary and restoration class structure of France was based upon what we might most simply call the Conquest Theory. This concept was hardly a novelty in the post-Napoleonic era. It was, rather, a common- place of 18th century liberal radicalism. Thomas Paine employed it to attack the legitimacy of the British monarch in his Common Sense of 1776. Paine's wry comments about French bastards and armed banditti may have lacked scholarly restraint, but they were an effective piece of propaganda in the American Revolutionary struggle.2
Briefly, the conquest theory traced the origin of contemporary European class structure to the barbarian invasions which swept over the Roman Empire and imposed upon the indigenous peoples of Western Europe and the Mediterranean world a barbarian military hierarchy from whence there developed the royal and noble classes of medieval and modern Europe. Coincidental with this was the rise of Christianity and the consequent elaboration of a religious hierarchy, the higher orders of which were rapidly co-opted by the secular aristocracy. For centuries, the servile masses groaned under the tyranny of the feudal system; however, the various rivalries of kings and lords and religious and secular factions allowed opportunities for the growth and reassertion of the productive classes. In France, the growing importance of these classes received legal sanction in the recognition of the Third Estate as one of the three great orders of the realm. It was in a critical examination of these origins of the structure of their society that the radicals of the 18th century found the ideological grounds for revolution.
In his revolutionary tract, Paine distinguished radically between society and government, one, always a blessing arising from our wants, the other, a necessary evil, arising from our wickedness.3 Paine realized, of course, that in a developed and civilized society brute force alone would not suffice to support a political order.4 A successful revolutionary must first break the bonds of conviction and emotion which attach men even to bad governments. This was the role of natural law and social contract theories, to sap the legalist and theological foundations of monarchical government. Thus, rather than the anointed of God, the king became merely the descendant of the "principal ruffian of some restless gang" who at one time managed to usurp the natural rights of men.
Similar notions were developed just prior to the outbreak of the French Revolution by Abbe Sieyês in his tract, What is the Third Estate? Amid the breakdown of the late medieval and absolutist order in France, Sieyês appealed to the growing sense of nationhood within French society. Sieyês defined the essence of this nationhood as the existence of a community living in a common order under a common law.5 This emphasis upon a common order and a common law was in stark contradiction to the political theory and practices of absolutism. In the theory of the absolutist state, society consisted of innumerable legally autonomous groups variously called estates, corps, orders or classes. Society was divided vertically and horizontally into these particular groups, each having its own functional monopoly, its own status, and its own privileges (privatae leges or private laws); hence the opposition between "particular orders" and "common order", "private laws" and "common law". Over all the king enjoyed absolute power, at least in theory. Each particular corps or group had the right to counsel the king in matters which were germane to its interests. In turn the king dispensed justice.6
It was the obvious breakdown of this particularist and feudal view of society towards which Sieyês aimed his arguments. He noted that it was the Third Estate which performed all the essential functions of society, meaning here production and commerce. The feudal view perhaps fit the time when the Third Estate was merely the servile horde which existed only to provide the sustenance of the warrior and clerical classes. However, with the growth of arts, of industry and of commerce, the Third Estate had grown to become the largest, the strongest, and most vital portion of society. French society was no longer the medieval commonwealth of knights and priests and serfs, but a modern nation based upon industry and commerce, and the Third Estate was that nation; nothing outside the Third Estate could share in that nationhood. "The Third Estate which had been reduced to nothing, has reacquired, through its industry, a part of what the injustice of the stronger had taken from it." The nobility was no longer the "monstrous feudal reality" of the dark ages; it was quite simply a malignancy living parasitically within the body of the nation.7
During the course of the French Revolution the concept of the progressive development of humanity and of the establishment and evolution of classes within society was given a more precise formulation by the Marquis de Condorcet in his Esquisse d'une tableau historique des progèts de l'esprit humaine. Development in Condorcet's theory meant intellectual development. It was, however, intimately tied to the material circumstances of a society. Human effort created products, property, which gave rise to exchanges, the division of labor and ultimately to the development of surplus. The accumulation of a surplus allowed time for leisure and the opportunity for observation and reflection. Observation and reflection led to discovery and intellectual improvement which, when applied to man's necessary activities, increased productivity and created further advancement.8
In the foundation of his study, Condorcet embraced completely the method of the natural sciences. Since the laws of the physical universe, whether known or unknown, were necessary and constant, he assumed that this was no less true for the laws regulating the development of man's moral faculties. An examination of the development of those faculties across the course of human history would reveal those laws and make it possible to trace the probable future course of the race.9 Both Condorcet's emphasis on the scientific method and his general scheme for the development of civilization were to have great influence among the liberals of the post-Napoleonic era.
In the period stretching from the American Revolution to the restoration of the Bourbons in France, there was general recognition, throughout the Western world, of the great progress which had been attained through the development of the physical sciences and technology. There was also, after the style of Condorcet, a growing confidence that those same methods when applied to the phenomena of society and government would bring about a great flowering of the social sciences and a consequent rationalization of society. Montesquieu, in his De I'esprit des lois (1748), proclaimed that he had drawn his principles not from opinion, but "from the nature of things", a phrase that was to recur throughout the treatises of the early 19th century.10 Say used it in describing the method of his political economy.11 Charles Comte seconded this in the opening pages of his Traité de legislation as did Dunoyer in his course at the Athenée.12
Undoubtedly, the success of Adam Smith and J.B. Say in delineating a science of political economy encouraged efforts in the other social sciences. There was the belief that history might be made scientific, an idea that the liberals of Restoration France may have drawn from Turgot.13 There was hope, further, that the confluence of these new social sciences would produce the definitive science of society. There were some such as Saint Simon who thought that they had it within their grasp.14
The situation which faced the liberals with the re-establishment of the Bourbon dynasty was comparable to the one facing their philosophe forebears in the pre-revolutionary era. Like the philosophes, they wished to expose the foibles and injustices of their society to the light of reason. Their work, however, was profoundly influenced by revolutionary and imperial experiences as well as by the newer intellectual currents of their times.
For one thing, the liberals were obviously affected by attacks upon the rationalist criticism of the 18th century. Defenders of the old orders and many newer liberals complained that the philosophes destroyed, but they could not build; and, where they attempted to replace the structure of the society they had so effectively undermined, their schemes were nothing but pure speculations, vain and artificial constructions bearing no relations to the real needs of society.15 In the elucidation of their concept of the scientific method as applied to the phenomena of society, both Say and Comte were careful to avoid the policy science pitfalls of the revolutionary theorists, a common enlightenment view that political and moral sciences were meant to translate fact into values.16 Say and Comte explicitly disavowed this purpose. Their sole task, they claimed, was to unearth facts and the chains of cause and effect which held them together. The true scientist might advise as to the consequences of a particular act, but never as to the duties of the enactor.17 Where the liberals saw the outline of a better society, they were at pains to demonstrate how it would emerge naturally through the mechanisms of society itself, rather than being forged in the political machinations of a revolutionary convention.
Another attitude which the restoration liberals picked up from the historians of the late 18th century and the writings of the dynastic apologists was a strong sense of the historical relativity of social institutions. This attitude was not necessarily foreign to the liberal tradition. Peter Gay noted that there was a strong underlying strain of historical relativism in the writings of enlightenment historians, though it was often ignored by the historians themselves.18 Even though the liberals found unconvincing the arguments of Chateaubriand and later those of de Bonald and de Maistre for the re-establishment of the medieval commonwealth, they were nevertheless impressed by the historical vision that social institutions must reflect the true nature of society.
One of the first of the restoration liberals to consciously employ this notion in an attack upon contemporary society was Benjamin Constant in his lecture, later published, De l'esprit deconquête (l813). Constant noted that the ancient world was organized upon the basis of warfare. Military virtues were necessary to the survival of the ancient state and, hence, were laudable. The modern world, however, was organized upon a different basis. "We have arrived at the epoch of commerce, the epoch which must necessarily replace that of warfare, as that of warfare must necessarily precede it."19
To attempt to impose upon a society a form that did not fit its nature would be to destroy it. In the ancient world independence and security were bought only at the price of constant warfare. Not to fight was inevitably to be conquered and enslaved. To turn a modern man into a warrior would make him ferocious, but it would not remove from him the habit of commercial calculation. Unrestrained by the public-spirited virtues of the ancient republic, he would be at once calculating and egotistical, and society would dissolve into brigandage and chaos.20 Dunoyer in particular was impressed by this argument, and he later admitted the importance of Constant's lecture in the development of his own thought.21
Although Constant certainly felt that man had some role in the shaping of his social institutions, he realized that the effect was reciprocal. " ... Man conforms to the institutions which he finds established as he conforms to the laws of the physical universe. He is influenced by even the worst aspects of these institutions in the arrangement of his interests, his speculations, the entire plan of his life." Reflecting some disillusionment with the revolutionary experience, Constant notes: "To change all this, even for the better, would do him harm."22
The sentiment that power was ultimately ineffectual in propelling rapid social change had an obviously optimistic side. Dunoyer expressed it clearly in his early work and it remained a constant liberal motif.23 The idea was simple to the point of banality: a prince or despot could not long act against the opinion of the vast majority of his subjects. To do so was to destabilize his regime and invite revolution. If nothing else this should have been the lesson that the Bourbons drew from the Great Revolution. That they, or at least their partisans, had not done so was an obvious source of irritation to the liberal faction.
This principle, however, cut two ways. On the pessimistic side, it set a limit to the possibilities of reform. The political and social amelioration of society could only move so fast, the pace being set by the degree of civilization and enlightenment which society already enjoyed.24 The influence of Condorcet's developmental theory is clear, though there was less emphasis upon progress as axiomatic in the thinking of Comte and Say. Necessity remained an important aspect of Dunoyer's developmental theory; and, interestingly, this was accompanied by a more pronounced strain of pessimism in his later writings.
There developed among the Restoration liberals a real anti-revolutionary stance. Education became for them the prime engine of reform.25 This anti-revolutionary stance became particularly forceful with the ultimate realization by the liberals that power and industry were antithetical. Comte noted in his Traité de legislation that a state which, for better or for worse, wished to create new laws which did not correspond to the wants or the needs of society must " ... apply the power which it possessed to give reality to its statutes, and reform (modifier) by violence the population which is subject to it. ... It must make itself the master of the people by conquest, enslave the generations already formed, and seize those newly born to fashion them to its will."26 The basic theme of the Traité is that such a use of force is absolutely contrary to the existence of modern society.
Thus, from various intellectual sources the liberals of the Restoration absorbed both an abiding faith in the progress of civilization and a growing consciousness of the constraints which physical and social realities impose upon human action. Though Comte and Dunoyer were essentially Restoration figures, their intimate association with men such as Say and Destutt de Tracy, intellectuals of the late revolutionary and Empire periods, places them clearly within the liberal, idéologue traditions of that era.27 The imprint of revolutionary and imperial experiences left them with a strong sense of the inefficacy of power and, in the end, inspired within them an abhorrence of power as a principle of evil.
Another intellectual current which was of paramount importance was utilitarianism. Say, Comte and Dunoyer were all familiar with the works of Bentham as well as with pre-Benthamite French utilitarians, and the principle of utility played an important part in their own thinking.
Utility was, of course, the basis of Say's political economy, the source of value. Say, unlike many utilitarians, shied away from the concept of an individually measurable utility. For him the utility of an objector service was rigorously measurable only within a social context. Say eschewed individual evaluation since it was subject to the caprices of single person, and was therefore arbitrary. The only concept of value which economics could embrace as rigorously scientific was that which was generated in the social market process of supply and demand.28
Comte applied a similar concept to his study of law. From the beginning he embraced the principal of utility as the motive for human action. Although Comte rejected the notion of innate ideas, he did believe that the basic stimuli of pleasure and pain had been placed within man by nature to propel him towards the preservation of the individual and the conservation of the species. Man's capacity to reason and learn from experience had been the source of his immense progress.29 Outside the context of subjugation through conquest, men associated to further their interests. Any such association entailed setting limits upon the actions of the individuals involved, essentially proscriptions of those actions which were judged to impede the success of the association. In an organized society, these limits emerge as laws; the will to obey them is the virtue of justice.30 Thus, utility was anterior to law and justice, which become realized through a process of social consensus, a social evaluation of certain patterns of behavior.31
Insofar as Dunoyer was an adherent of the doctrines of political economy, he treated the concept of utility in a manner identical to that of Say and Comte. However, his emphasis upon historical development tended to treat utility, like liberty, as emerging from a determined historical, rather than timeless or time-independent, social process. The actual differences here, however, were more apparent than real.
Utility theory also supplied the liberals with a position from which to attack the natural law and contract theories of society which were the basic tools of 18th century radicalism. By the early 19th century, systems of natural law had fallen into great disfavor among the liberals, who viewed them generally as embodying the worst aspects of metaphysical speculation. Comte condemned the elaborations of the natural law theorists as vague and arbitrary, new revelations inviting new theologies. Likewise, contract theories were thrown onto the same scrap heap as the natural law. They were historical roadblocks to critical inquiry and the progress of the social sciences.32
II
Having completed this all too brief discussion of some of the important intellectual notions which were influential among the liberals of early 19th century France, I will now examine how these various ideas flowed together in the development of the doctrines of industrielisme. I will discuss the industriel critique of contemporary society, its view of government and its perception of the evolution of society towards a more just future.
In the early issues of their first journal, Le Censeur (1814–1815), we see Comte and Dunoyer generally moving in the common stream of turn of the century liberalism. Their first articles expressed a frank admiration for the virtues of ancient society, especially by comparison to the vices of modern society. Dunoyer, in an argument reminiscent of Constant, contrasted the patriotism and public spirit of the ancient republics with the caste spirit and egotism of modern society. He compared the modern situation to the darkest period of medieval history, a period marked by chaotic despotism having no concept of national spirit or public good.33 Comte likewise praised the ancients; they were better policed than the citizens of modern societies, certainly better than the inhabitants of medieval society who existed in a state in many ways little better than savagery.34
Comte extolled the great legislators of the ancient world who were able to give unity and direction to the legal, moral and religious codes of their republics, harnessing them to the service of the warrior state.
Needless to say, Comte and Dunoyer were not calling for a return to the forms and spirit of the ancient republics nor appealing to the concept of organic unity for its own sake, as in the style of the later Saint Simon. Rather, what they desired was that the institutions of modern France be rebuilt in the image of society as it existed. The nature of that society was clear; it was the Third Estate of Abbé Sieyès, a society of peace and prosperity wherein the actions of production and exchange augmented enjoyments and established relationships of harmony and attachment.35
At this time, the emphasis was upon legalistic, constitutional solutions. Though Comte did not go so far in his admiration of the organic unity of the ancient world as to recommend the establishment of a state religion, he did recommend the promulgation of a code of law and morality " . . . in which would be entered all the dispositions which might have some influence upon the public and private conduct of the citizens".36 The purpose of this code would be to form the conduct of the citizen upon the basis of the common interest, " . . . to convince men that their individual interest can be found only in the general interest".37 Dunoyer echoed this sentiment in his belief " . . . that a religious observation of the law [the Charte] is the only regime which can give us a truly national character, and allow us, finally, a real and durable happiness"38 Such statements must be understood within the context of the times. Comte and Dunoyer were not calling for the subordination of the individual to the state. On the contrary, they were calling for the subordination of the predatory class interests of the newly re-established privileged orders to the general interests of a society based upon industry and commerce. Dunoyer's use of the phrase "national character" reflects the revolutionary meaning of the concept of nation as the "common order", the vital element of modern society which had developed out of the subject classes of the feudal system. This was a common element in the idéologue tradition. The old idéologue, Destutt de Tracy, in his Commentaire sur I'esprit des lois de Montesquieu, condemned Montesquieu's classification of constitutional forms and opposed to it his own division of regimes into the two categories of national- and private right.39
De Tracy's ideas on government, it should be noted, were more than just echoes of the slogans of 1789. His critique of Montesquieu's political theory evinces a deeper concern with more fundamental principles of government and a growing skepticism concerning the importance of constitutional forms. This was part of the heritage of disappointed revolutionary liberalism which the men of Say and De Tracy's generation carried with them and imparted to the young men of the Restoration period. It was more than just feigned scientific restraint that caused Say to assert that the form of a government had no effect upon the prosperity of a society, that any well administered state could prosper.40 There was, here, the desire to sweep away all pedantic arguments concerning superficial form and get right to basic fact. When Comte and Say discussed government it was to elucidate upon the consequences of given acts. Insofar as any government was assumed to be capable of any given act, the form of that government was a matter of indifference.
As the reader may rightly suspect, neither Say, Comte nor Dunoyer were as agnostic concerning constitutional forms as I have painted them here. Say admitted to a belief in the importance of the form of government on several occasions, despite repeated assertions concerning the well administered state in his treatises.41 Certainly, Comte and Dunoyer's main emphasis during the period of Le Censeur was upon reform within the legal, constitutional framework of the Charte. What I wish to emphasize is the concern for principle versus form which was a vital component of the liberal, id6ologue tradition and which achieved its greatest triumphs in the development of the doctrines of industrielisme during the period of Le Censeur européen (1816–1819). It was during this period that the political and historic visions of revolutionary liberalism were pulled together into a cohesive and forceful whole based upon the solid foundations of the political economy of Jean-Baptiste Say. Prior to this, the liberals' aloof assertions of a scientific indifference to governmental forms were contradicted by their obvious anxieties concerning political and social reform. Later, in the industrielisme of Say, Comte and Dunoyer, the concept of governmental forms was integrated into a larger vision of the evolution of society.42
The third edition of Say's Traité d'economie politique (l817) was the subject of a long review by Charles Comte in the first two volumes of Le Censeur européen.43 The sense of the review was an unqualified endorsement of the method and content of Say's thought. Indeed, Comte made Say's method the basis of his own later study of law. With Say, Comte viewed the delineation of the chains of cause and effect which link phenomena as the fundamental aspect of the modern scientific method.44 Comte, like Say and like Condorcet before him, held that the laws discovered in the observation of social phenomena were as necessary and inflexible as the laws of physics. This belief instilled in him a firm faith in the onward march of truth, since a false system would always destroy those who clung to it too persistently, " . . . because nature, acting through constant and invariable laws, ends inevitably by conquering the obstacles one opposes to it."45 Later Comte would qualify this notion of the irresistible progress of truth in one respect. He would note that ignorance must always resort to force to sustain it.46
The most important consequences resulting from the marriage of political economy and liberal social and political thought stemmed directly from J.B. Say's conception of value. Say, like most classical economists, believed that exchange resulted in the transfer of two equal quantities of value.47 As I have noted .above, this stemmed from Say's concept of value as a social phenomenon. Unlike other classical theorists who based the equivalence of exchange values upon absolutist natural justice notions such as the labor theory, Say realized that any concept of value must base itself upon the actions of individuals. He merely wished to steer clear of complexities resulting from the vagaries of human passion and caprice. Hence his emphasis on value as arising from a large-scale social process. In his desire to achieve scientific purity, what Say was interested in was the value which society set upon an objector a service. Say may be faulted here for more than bad psychology. It was this fundamentally flawed notion of value which barred him from formulation of a concept of marginal utility. However, he must be credited with a clear recognition of the fact that social processor value formation was ultimately based upon the movements of individual actors within the marketplace. Moreover, Say held that in order to reveal a scientifically meaningful social value, the movements of these individual actors had to be voluntary.
The truly revolutionary aspect of Say's thought derived from this vision of an economic system which resulted from the concurrence of voluntary actions of individuals in the market- place. In Comte's words: " . . . if each rational man were able to employ his talents and his capital in the manner which he judged to be most conducive to his own interests, at the same time respecting the rights of his fellows to do likewise, the public wealth would increase continually. . . . Each man is the best judge of his own interests." Comte emphasized Say's assertion that acting in one's own interests meant acting in the interests of society as a whole.48
From this developed a happy (but by no means unique)49 union of economic theory and a radical social-political vision. The notion of the fundamental, peaceful harmony of interests among the productive classes of society was no longer merely a polemical assertion of the liberals hurled against the power and position of the privileged classes, but a fully scientific notion of the nature of things. Added to this was the already clear notion that the position of privilege derived necessarily from the authority, that is the force, of government. If the actions of government could be subjected to the rigors of economic analysis, it could be demonstrated that government action must seek justification only by proving that the utility produced exceeded the utility taken from society.50 Hence, the continued existence of a class structure which did not correspond to the voluntarily expressed needs of a society, one which could only continue its existence through the exercise of force, must necessarily result in a net decrease in social utility and, hence, be fundamentally unjust.
Economic analysis gave a force and universality to liberal social theory which it might otherwise have lacked. This historic vision that the privileged orders were anachronistic vestiges living parasitically within the body of the emerging commercial, industrial society was, perhaps, an effective enough attack against the position enjoyed by these remnants of the great feudal orders. But, since it contained in and of itself no clear notion of the fundamental mechanism of society, it was lacking in at least two respects. First, it put forth no picture of a truly just society which was not vulnerable to the assertion that it was simply the artificial and speculative product of the would-be reformer's imagination. Second, it could not formulate any program by which the just society was to be attained which was not reminiscent of the historically suspect methods of political revolution.
Nevertheless, the basic class concept apparent in the early issues of the Censeur européen was the one which had appeared repeatedly in the liberal tradition from before the Revolution, that of the fundamental opposition of two basic groups, the warrior and the industrial classes.51 We see again a reassertion of the same revolutionary concept of nationhood52 and the proclamation that it was upon the basis of industry that the modern nations would stand.53 In one article, Augustin Thierry repeated virtually point for point the exposition of Abbé Sieyès.54 However, we see increasingly the development of an analysis directed less against the historically derived concept of a ruling warrior class and more towards the notion of a generalized governing class. This development was the result of the injection of economic analysis into the elaboration of social theory.
Since "all society rests upon industry. . . ," it followed that the conditions most favorable to the development of industry were most favorable to the development of society.55 Hence, the direct applicability of political economy to a scientific examination of society. The political economy of J.B. Say demanded that, for the maximum production of utility, market relationships must be established by the voluntary actions of individuals.56 Thus, the old dichotomy of society could be reformulated in the following manner: " . . . there are but two nations . . . [,] the men of liberty and the men of power . . .57 those who produce [must] be organized to resist those who administer."58
Ultimately, what the liberals were working towards was a radical identification of society with the market system. Society did not simply rest upon industry; industry was society itself. Destutt de Tracy developed this principle in his Commentaire sur l'esprit des lois de Montesquieu (1817):
. . . since labor is everything for us, our sole means of action, I will have deceived myself if this truth were not the basis of all social science, and if it did not decide all the questions of this nature.59
. . . since exchange is society itself, it is the unique tie between men, the source of all our moral sentiments and the first and most powerful course of the development of their mutual sensibility and reciprocal good will.60
After 1817, this idea was repeated continually in the writings of Say, Comte and Dunoyer.61
There springs from this the development of two related ideas. The first and least radical conclusion, though even some liberals balked at its full implications,62 was that the operations of government were subject to the compass of economic calculation. Thus any regime which did not provide the best product at the best price automatically opened itself to criticism for having forced a decrease in social utility and hence of having committed a fundamental injustice.63 This is the notion most commonly associated with classical 19th century laissez-faire. It was the ideological base of the night watchman state. The second, more radical conclusion stemmed from the identification of force as the antithesis of industry. Industry derived from labor and the peaceful, voluntary cooperation of individuals. Those who wished to survive without labor had to resort to force. Ideally, in the liberal tradition, good government protected persons and property against the pretensions of force; however, historically, force had been the very principle of government, and governors had been the greatest exploiters.
In the seventh and eleventh volumes of Le Censeur européen, Comte and Dunoyer produced three articles devoted to an analysis of those classes which depended upon the government for their existence. Comte began with his article, whose title sounds quaintly humorous to modern ears, "On the Multiplication of Paupers, Officeholds and Pensioners." He opened this essay with a reassertion of the basic notion of two classes of men, the producers and the privileged idle who live off them. His intention was to analyze the laws that regulated the growth of these classes. His principal tool was that common instrument of classical demographic analysis, the Malthusian Law of Population.64
Since population was regulated by the availability of the means of subsistence, it followed that, if one nation was conquered and consequently exploited by another, then the population of the conquered nation would decrease in direct proportion to the degree to which it was exploited by the conqueror.65 The same conclusion would hold if the two nations occupied the same geographic area. Therefore, extending the analogy, tribute taken to support unproductive functionaries and pensioners had to be seized from producers, thereby acting to reduce the productive segment of society and encouraging the increase of idlers.66 What had been created was an army of parasites ever willing to back up the demands of the state for more tribute. Dunoyer followed an exactly similar line of thought in his "The Influence of Public Salaries on the Functions of Government" and in his article on the public debt.67 The man favored by the largesse of the state was " . . . the natural ally of power."68 Comte went on in his analysis to note the effects of this form of exploitation upon society as a whole. As the productive classes are extinguished, the standard of living is diminished, the search for booty becomes more frantic. The favored classes are taught to look upon work with distaste, they are made " . . . to consider all the goods of society as a property to which they have an incontestable right . . ." There results " . . . a growth of this spirit of pretended equality which forms one of the most active elements of demagoguery and which ends inevitably in the birth of military despotism."69
This brings us back to the historic view developed by Constant in his De l'esprit de conquête. The thrust of Constant's argument was that military institutions were alien to the needs and mentality of the modern world. To impose such institutions upon a commercial nation would be to pervert and ultimately to disintegrate its civilization. Comte, rather, ascribed specific patterns of thought and behavior not to whole civilizations but to classes within society whose relative positions reflect the level of that society's civilization. Modern society was characterized by the dominance of the producer class, but, Comte warned, the principle of force if left unchecked would tend necessarily towards the growth of an idle exploiter class uniquely congenial to the establishment of an aggressive, military despot ism, which is to say, to the regression of society towards the barbarism and servitude of the ancient world.
This identification of force as the antithesis of industry and, what is more, as fundamentally destructive of the modern social order was the second and most radical idea to be evolved in the development of the industrielisme movement. In 1818, Augustin Thierry produced for Le Censeur européen an article which was perhaps the most concise and most radical summing up of the doctrines of the Industriels. The article was a review of Destutt de Tracy's Commentaire sur l'esprit des lois de Montesquieu. Theirry began by asserting with De Tracy the identity of society and the market system and incorporating this concept into the liberal vision of history. He noted that civilization and servitude in history were separable phenomena; they were the product of two distinct classes.70 With the development of European history, "it was in losing their powers that the actions of governments [have] ameliorate[d]."71
Unlike many liberals who were willing to concede that some government activities outside of the production of pure security (especially in the areas of education and public works) could be productive of utility and hence justifiable, Thierry felt such thoughts to be chimerical. Individual efforts " . . . would almost always achieve the same ends at less cost." Therefore, government efforts would almost always be less productive than individual enterprise; more often than not, government efforts would be entirely "sterile and unproductive." Most taxes were a pure loss to society as soon as they entered the treasury.72
On examining the production of security, Thierry was led to question the very existence of state power. He believed firmly that absolute power created ineffaceable evils inimical to the development of civilization. Since good civil order depended upon the degree of individual independence, could there be any question that an ideal civil order was one from which power had been eliminated?73 The power and potential evil of a state official was incalculably greater than that of a single individual however criminally intentioned. Thierry questioned whether such men should be allowed to exist; after all, " . . . the excesses of the police are far more fatal than the absence of the police."74
We see here in outline the basic evolutionary schema of social development of the radical liberals of Restoration France its fundamentally anarchistic implications. Civilization developed with the gradual disintegration of power and its replacement by the peaceful, voluntary relationships of the marketplace. Though some liberals put a term to this development, finding a necessity for maintaining some political relationships within society, the logical end of the notion that " . . . the more the spirit of commerce increases, the more the spirit of spoliation is diminished . . . ,"75 was a society in which everyone worked and no one governed and in which the social structure was determined by the voluntary arrangements of free individuals.
The basic question which follows from this is what did the liberals envision as the class structure of this most just of all societies? Predictably, ideas followed closely the line of their thinking on the natural evolution of society. Comte discussed this in his article, "On the Organization of Society Considered in its Relationships with the Means of Subsistence of Peoples." Comte noted that a society will always tend to put into roles of leadership those men who are perceived as having contributed most towards the general utility. As the warrior states of antiquity chose the best military types as leaders, modern industrial society should choose its leadership from among the best of its industrial classes.76
This concept was, of course, closely related to the notion of nationalism in the revolutionary and idéologue traditions. In Comte's article, it was also a limited endorsement of the restricted franchise of the monarchie censitaire, a franchise based upon the payment of taxes on property. This reflects the general liberal distaste for the results of revolutionary experiments with universal suffrage and their complete rejection of the absolute power attached to it by doctrines of popular sovereignty.77
Comte's discussion, however, went further than an examination of constitutional reform. Drawing on his original analogy with ancient societies, Comte asserted that modern society should be " . . . organized in such a manner that each has an influence and a rank in the state proportional to his utility, to his absolute value . . . "78 Knowing how closely Comte's ideas followed those of J.B. Say, we realize that this concept of "absolute value" can have but one derivation, that is from the natural, voluntary processes of the marketplace. These processes can be viewed as evolving a natural hierarchy within society, a natural aristocracy. Comte believed firmly in the necessity of such an aristocracy, if " . . . by the word aristocracy we mean merely the subordination established among men by their mutual needs; this aristocracy is natural, since it derives from the nature of men."79
The liberals felt that the hierarchy of a natural society would, among other things, reflect itself in inequalities of wealth, albeit moderate ones. Say felt that the happiest society was that which had the fewest extremes of wealth, with a large middle class and small numbers of very rich and very poor.80 Say felt that such a society would be the inevitable development of industrialism.
De Tracy and Dunoyer seemed to have been far more impressed with the dangers of inequality, due in large part to their more pessimistic views on the inevitability of poverty. With De Tracy this can be traced directly to faulty economic thinking.81 De Tracy saw, with the gradual elimination of domination, the vast expansion of industrial enterprise bringing in its wake growing inequalities of wealth. He saw these inequalities as the sovereign vice of modern civilization, since they led back directly to a growth of inequalities of power, and hence a reversal of the basis of modern society.82
Dunoyer, for his part, was ever conscious of the limitations of progress inherent within society itself. One of the most important of these limitations was the Malthusian Law of Population. In Dunoyer's thinking the major limiting factor in the development of civilization was the ignorance and vice of the masses. Political liberation alone could not create real liberty, since alone it could not free men from the bonds of poverty and passion. The "inseparable miseries" of the lower classes stemmed at least in part from their lack of restraint in marriage.83 Even given an equal division of wealth to begin with, Dunoyer felt that there would soon develop a small rich class, a larger middle class and an even larger lower class, some living in real misery.84
It must be realized, however, that Dunoyer saw these evils as arising from a given state of society rather than being the inevitable result of the market system. Some light may be shed on this by examining a dispute which broke out between Say and Dunoyer in 1827.85 Dunoyer was obviously concerned with the recurrence of industrial crises, and equally concerned with the ability of Say's economic analysis to explain them. He was impressed with certain aspects of Sismondi's work on crises. Though he rejected Sismondi's analysis and conclusions,86 he did accept Sismondi's fundamental observation, that these crises were examples of the general glut, the phenomenon of general overproduction which Say so fervently denied could exist.87 That Dunoyer could accept the existence of the general glut, all the while maintaining the truth of Say's Law of Markets, is testimony not so much to sloppy economic thinking, but to a desperate desire to come to grips with a very troublesome economic phenomenon while maintaining the framework and conclusions of orthodox economic thought.
Dunoyer saw two basic causes for the glut. One was the ignorance and improper calculations of entrepreneurs.88 The second was the unequal distribution of wealth in society.89 The first cause Dunoyer saw as the natural consequence of the novelty of industrial society. Its effects would tend to diminish naturally with the progress of the entrepreneurial art and the development of better means of communication. The second cause Dunoyer traced to the historically ordained division of wealth which the industrial era had inherited from its predecessors. This inequality derived from " . . . the primitive expropriation of the most numerous class of society, [and] from the state of servitude in which they have been held through the centuries . . . "90 Reversing Sismondi's conclusions, Dunoyer denied the government any role in meeting the problem. In fact, Dunoyer saw government, through oppressive taxation, restrictions and protectionist measures, as a continuing source of the inequities which contributed to the formation of industrial crises. Only the growth of industry could bring about a more equitable division of wealth. He warned, however, that an equitable division of wealth would be an unequal division. Each would be rewarded in proportion to his productive services; " . . .this partition is . . . in the nature of things."91
This dispute between Say and Dunoyer suggests the absolutely vital role which a clear understanding of economic phenomena plays in the elaboration of a viable social theory. This can be seen clearly in the development of various rival social theories which took place in France in the period between 1820 and 1845.
In 1817, Henri de Saint Simon, then enjoying the most liberal phase of his erratic career,92 developed in his Industrie ideas similar to those of Say, Comte and Dunoyer, concluding one article with a turn of phrase which, with the benefit of foresight, could be viewed as portentous for the development of economic thought. In Letter eight of his "Lettres à un american", Saint Simon set out on his recurrent and habitual search for a "general principle of politics". He noted: "Of all those who have tried their hand at this task, the savants who have written on political economy seem to me to have done the most useful work." He commended in particular the work of J.B. Say. One aspect of Say's writing, however, struck him as incongruous. Say specifically denied that political economy was a science of administration, arguing in fact that, from a strictly scientific point of view, the form of a particular government was a matter of little consequence.93 This struck Saint Simon as a contradiction, since " . . . political economy is the true and unique foundation of politics . . . " Indeed, " . . . each man, in his social relationships, ought to consider himself as exclusively engaged in a company of workers. . . . Politics, therefore, is . . . the science of Production."94 Not only did Saint Simon here miss Say's point entirely, but he fell back into the pattern of 18th century policy science which Say and other liberals were trying so assiduously to avoid. We should note the interesting ambiguity of the statement, "politics is the science of production". Not only does it suggest the question of which is to be subordinated to the other, but it denies the fundamental liberal notion that the actions of production would replace the activities of politics. Where liberals such as Say, Comte and Dunoyer saw the natural evolution of society bringing about the gradual replacement of political by market relationships, the later doctrines of Saint Simonian socialism discarded the market system and replaced it with the essentially political relationships of a highly articulated, hierarchical and authoritarian social system.
Social theorists who rejected the political economy of Say were forced to base their social and political visions upon rival economic systems, such as those of Sismondi or Ricardo, generally suffering thereby from the weaknesses inherent in those systems. Those who rejected economics altogether were forced to ground their systems upon the speculative doctrines of vague social-historical sciences which offered little firm support for their demands for the "organization of labor based upon the principle of association" and for the "reconstitution of property" other than in strident assertions of social and economic egalitarianism.95
III
I have emphasized the basic anarchism in the thought of Comte, Dunoyer and Say, and it cannot be stressed too much that this anarchistic vision was firmly rooted in an evolutionary concept of social development. These men were not anarchists of the smash-the-state type. Politically, they fit quite well into the liberal republican and constitutional monarchist circles of the July Monarchy. (It should be noted that both Comte and Dunoyer entered government service after 1830.) For them the abrogation of the government and the establishment of the state of pure liberty was not the single ultimate reform, but rather a result to be achieved through a series of partial reforms of the more basic conditions of human existence and a gradual uplifting of the population through education. That their ultimate vision of society was anarchistic cannot be denied. I will attempt to support this important assertion through an examination of some of their later writings.
Of the three, Say and Comte were the most explicit in their endorsement of a society without government. In his theory of law, Comte observed that, " . . . the principal elements of force in social laws existed in the very heart of society (la population); they existed in their needs, in their affections, in their judgments and in their idea."96 Civil law was merely the description of a natural order of things anterior to it. At most, an act of legislative or executive fiat could only make mandatory for all what had first been the consensus of the vast majority.97
Both Say and Comte agreed that law contrary to the social consensus could be imposed and maintained only by means of force. "An artificial order sustains itself only through compulsion and cannot ever re-establish itself without violence and injustice."98 Force, for Comte, was the principle of slavery and the antithesis of liberty. The exercise of domination necessarily would lead to the immiseration of society and its reversion into barbarism.99 Exploitation would destroy industry and create the privileged idle classes which are the support of despotism and aggression.100
Although Comte's Traité de legislation concentrated on an examination of the effects of institutions of pure chattel slavery, he hastened to point out that, " . . . there exists the greatest analogy between peoples subjected to the regime of slavery, peoples still existing in barbarism and peoples subjected to the most despotic of governments . . ."101 Moreover, since the principles of slavery and liberty were opposed antithetically, there could be no compromising one with the other; " . . . it is impossible to pass from one regime to the other if one does not abandon completely the principle of the first to adopt the principle of the second."102
Here entered the inevitable dynamic of force, which, if allowed to operate, must necessarily work towards the degradation of society. Noting this, Comte observed that " . . . the government, so feeble when it attempts to do good, often possesses an immense influence for evil. From this, we could conclude that the less it makes itself felt, the more the people prosper."103 The obvious consequence of this line of thought was " . . . that a people already civilized had no need, in order to be happy, other than not to be despoiled and to be left to itself. It would do better by the sole force of its customs and the instinct which directs it towards its conservation and prosperity than could all our clever politicians with their systems supported by their armies and their innumerable agents."104 Clearly, here the qualifying phase is a "people already civilized". This underlines the basic evolutionary notion of the interconnectedness of liberty and the level of civilization in the thinking of these men.
Comte's theories of law were accompanied by a fairly well developed historical theory based primarily upon the works of contemporaneous historians and observers of primitive societies. Dunoyer criticized what he viewed as the excessive environmental determinism of Comte's system.105 In truth, this criticism was unjust. All Comte had asserted was the purely common sense notion, dating from Condorcet at least, that civilization would develop first and fastest in those areas which were naturally most congenial to human life and productivity, a notion which Dunoyer himself developed in his Liberté du Travail."106 Comte's critique of Montesquieu should have dispelled any suspicion that he wished to fix the determinants of human progress strictly within man's physical environment.107
Oddly enough, Dunoyer's historical vision as elaborated in the various editions of his major treatise, had, at least outwardly, a much heavier flavor of economic determinism. There were, however, two threads in Dunoyer's scheme of history. One emphasized the necessary course which a progressive development of civilization must take. The other emphasized the responsibility of the individual actors within society to seek their liberation not simply in demands for political reform, but in individual efforts which would enlarge their knowledge, expand their productivity and increase their morality.
From his study of history, Dunoyer concluded: " . . . that in the course of these diverse states of civilization which I have described, and in its progressive movement towards the present, the species was little determined by ideas of reason or justice; it did nothing more than cede to necessity. . . . " Each stage of civilization created within itself the conditions which would direct men towards the next stage in a necessary and determined succession.108
This deterministic outlook derived from Dunoyer's firm belief in the doctrines of political economy and the faith that political economy elaborated a series of laws which were constant throughout time. On the gross scale, away from the random whims of individual actors, the broad sweeps of human history could be made intelligible and could be shown to follow a basic pattern explicable within the framework of economic doctrines.109
On the individual scale, Dunoyer wished to point out to each member of society his own personal responsibility for the advancement of civilization. His rigorous insistence that peoples were at bottom responsible for their own despotic governments brought down on him the attacks of Charles Comte and Benjamin Constant who felt that the oppressor must assume the greatest blame for the degradation of the people.110
Nevertheless, there was not much distance here separating the thought of Say, Comte and Dunoyer. Say was suspicious of historical theorizing; he felt that one's main concern should be with the present. He disliked the deterministic view of history developed by the Saint-Simonians, and like Dunoyer, emphasized the responsibility of the individual for progress. "Undoubtedly," he admitted, "a part of our troubles derives from our condition and from the nature of things, but most of them are of human making. On the whole, man makes his own destiny. . . " Say would at least agree that the present condition of man represented an intermediate stage lying somewhere between barbarism and true civilization.111
Say and Comte saw society as naturally progressive and wished to emphasize the autonomous effects of power which, if allowed to operate unchecked, would plunge society back into the depths of tyranny and barbarism. Dunoyer agreed in principle, but he wished to establish a more intimate causal connection between a given state of society and the amount of power which could be exercised in social relationships. Dunoyer emphasized that, with the development of liberty, which was the ability to exercise one's faculties more fully, there devolved upon the individual a greater responsibility for his own self-improvement. We can discern in Dunoyer's development of this notion a polemical purpose, one that becomes clearer when viewed against the background of the radical and revolutionary political movements which surfaced in France during the later years of the July Monarchy.
Necessarily, the primary means of reform endorsed by the liberals was education. Education was the natural complement of their evolutionary, anti-power thinking. Moreover, an examination of the thinking of Say, Comte and Dunoyer on education reveals the role which they saw government playing in the final development of modern civilization.
From Say and Destutt de Tracy, Comte and Dunoyer had inherited a deep distrust of revolution and the faith in education which was an important element in the idéologue tradition. Revolution historically had led only to the consolidation and concentration of power."112 Likewise, constitutionalism was viewed as merely another form of power brokering. " . . . To correct power the reformers seek only to act upon power; each acts in his own manner, but they all direct their action from the same point."113 The best way to put a tyrant out of office is by educating his dupes, the victims of oppression. Comte elaborated on what he saw as the major obstacles to the development of a liberal society. First were the habits bred of domination, the intellectual and psychological dependence upon authority. Secondly, there were the natural inclinations of humane motion, the passion to dominate and the craving for security. Finally, there were the purely venal calculations of the profits of power. These were the ultimate supports of power in society.114 Dunoyer held that one of the greatest errors of past reformers had been that " . . . they thought if possible to supply by organizational artifacts what the people lacked in enlightenment and experience." Liberal institutions could not create liberal habits and patterns of thought. Only a long and difficult evolution through education could succeed.115
The field of education seems to have been one area where the liberals were the weakest in their resolve to exclude the action of government. Although they unanimously attacked the government's monopoly of education, they admitted that the government should provide at least some form of basic education. This was not a matter of permanent public charity, but a temporary measure aimed at the better policing of society by defusing demagoguery and inculcating restraint in the lower classes whom ignorance might otherwise render "turbulent and ferocious."116
This conclusion is a reflection of the role which the liberals saw government playing in the development of society. Dunoyer observed that, "The essential object of government is to cooperate . . . in a development of our faculties, applying itself to check disorderly and evil tendencies."117 Say concurred in this notion of government as a necessary, but temporary, defensive measure meant to preserve the social body.118 The weakening of the power of government followed in step with the growth of the market system. Hence, the recent emergence of representative government was not an arbitrary or accidental thing, but " . . . the necessary fruit of the economic progress of modern societies."119 In Say's final analysis, the mechanisms of the market system were the vital organs of society; government was merely one of the accidental organs " . . . whose existence or non-existence does not rigorously affect the existence of the social body."120
Dunoyer's view was similar, although his constant and inflexible emphasis upon the inherent limitations of social progress lent a pervasive air of pessimism to his later writings which tended to obscure his vision of the emerging society. It must be remembered in this regard that Dunoyer lived much longer than Say or Comte. He witnessed during the 1840s the growth to strength of various egalitarian republican and socialist movements. For him, the state at least was one final bulwark against the rising tides of social insurrection.121
Nevertheless, the final goal was as clear to Dunoyer as it was to Say and Comte, though perhaps he looked to a far more distant future than they. For him, "The individual . . . is the ultimate object of society. Society's only object is the growth, the elevation and the betterment of the existence of the individual. Far from demanding the sacrifice of individuals to these great abstractions we call societies the object assigned to all collective entities is the well-being of individuals."122
Despite the minor differences which may have separated them, Charles Comte, Charles Dunoyer, and Jean-Baptiste Say all shared the same burning faith in the final triumph of progress in the emergence of a truly libertarian society. In the end, they would have all agreed with Say's conclusion: "Although the ameliorations which are possible are immense, those which do occur are slow and limited. Nevertheless, the future is ours."123
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- Alexander Goldenweiser, "Evolution, Social," Encyclopaedia of the Social Sciences (New York: Macmillan, 1937), p. 657.
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- Thomas Paine, "Common Sense," The Life and Writings of Thomas Paine (New York: Citadel Press, 1961), p. 14.
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- Paine, "Common Sense," p. 4.
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- Joseph Schumpeter, in his essay on Karl Marx, criticized what he saw as the "uncritical confidence" of some theorists "in the explanatory value of the element of force and of the control over the physical means with which to exert force." Cf. Joseph A. Schumpeter, Ten Great Economists (New York: Oxford University Press, 1951), p. 20. Say, Comte and Dunoyer had too realistic an appraisal of the elements within society which tend to support the use of force in social relationships to be vulnerable to this criticism. This is not true of other, later radical theorists who worked without benefit of economic understanding.
Cf. note 96.
- Joseph Schumpeter, in his essay on Karl Marx, criticized what he saw as the "uncritical confidence" of some theorists "in the explanatory value of the element of force and of the control over the physical means with which to exert force." Cf. Joseph A. Schumpeter, Ten Great Economists (New York: Oxford University Press, 1951), p. 20. Say, Comte and Dunoyer had too realistic an appraisal of the elements within society which tend to support the use of force in social relationships to be vulnerable to this criticism. This is not true of other, later radical theorists who worked without benefit of economic understanding.
-
- Abbé Sieyés, "What is theThird Estate?'' The History of Western Civilizarion, Selected Readings, VIIl (Chicago: University of Chicago Press, 1971), p. 127
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- This interpretation of the political theory of the absolute monarchy is a severe oversimplification of a series of lectures delivered by Keith Baker at The University of Chicago on the history and ideology of the French Revolution.
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- Abbê Sieyês, "Third Estate," pp. 127–129, 140, 154.
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- Condorcet, Esquisse d'une rableou historique des progrès de i'esprit humaine (Paris: Bovin, 1933), pp. 79–80.
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- Condorcet, Esquisse, p. 253.
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- Peter Gay, The Enlightenment, Volume II (New York: Alfred A. Knopf, 1969), pp. 323–324.
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- Jean-Baptiste Say, Traité d'economie politique, Tome I (Paris: Deterville, 1819, Fourth edition), pp. xiii–xv.
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- Charles Comte, Traité de legislalion, Tome I (Paris: A. Sautelet et Companie, 1826), pp. xii, 10–11, 101. Charles Dunoyer, "Esquisse d'un cours d'economie et morale," Revue encyclopèdique, 26 (1825), p. 24.
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- Peter Gay, Enlightenment, II, p. 378.
-
- Havek notes in his "Counter-Revolution of Science" that the French Revolution was a product of the natural law theory of the 18th century rather than a product of a Smithian understanding of the market mechanism. He further stated that the collectivist view of history began with the assertion by Condorcet that the development of the moral and intellectual faculties of men is subject to natural laws. One of his theses is that this view of the development of the race poisoned much of the early social sciences in France and led directly to the social engineering concepts of the Saint-Simonians. Cf. Hayek. "The Counter-Revolution of Science," Economica, 8 (1941), pp. 11, 13.
It seems clear, however, that all the liberals of the early 19th century were influenced by Condorcet to some degree, especially in regard to his idea that the methods of the natural sciences were applicable to the social sciences. Dunoyer's ideas on the development of the race, which paralleled Condorcet's, did not prevent him from being a staunch defender of political economic orthodoxy. The key seems to have been not so much in the scientific method as it was understood at the time (for indeed very often the liberal theorists did not entirely understand what they meant by the "scientific-method") or even in Condorcet's assertion that the development of human faculties was subject to certain laws, but in the perception of the workings of the social process which a particular theorist posessed. Say's vision was utilitarian, individualistic, and voluntaristic, and he emphasized the role of market mechanisms. The vision of the Saint-Simonians was utilitarian, authoritarian, and collectivist. It was based upon an historical vision which emphasized the ordered and necessary progression of social states through history.
- Havek notes in his "Counter-Revolution of Science" that the French Revolution was a product of the natural law theory of the 18th century rather than a product of a Smithian understanding of the market mechanism. He further stated that the collectivist view of history began with the assertion by Condorcet that the development of the moral and intellectual faculties of men is subject to natural laws. One of his theses is that this view of the development of the race poisoned much of the early social sciences in France and led directly to the social engineering concepts of the Saint-Simonians. Cf. Hayek. "The Counter-Revolution of Science," Economica, 8 (1941), pp. 11, 13.
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- G.P. Gooch, History and the Historian in the Nineteenth Century (Boston: Beacon Press, 1968), pp. 156–157. The work of Chateaubriand is generally recognized as one of the key influences in the development of historical studies in early 19th century France. He was later praised by Augustin Thierry as the source of his historical inspiration.
In a later work. Dunoyer remarked upon the influence which Montlosier's work, De la Monarchie francaise, had upon his own thinking. This Statement could be discounted somewhat in that part of Dunoyer's purpose was to discredit Saint-Simonian claims to precedence and preeminence in the industrielisme movement. Cf. Dunoyer, "Esquisse hlstorique des doctrines auxquelles on a donne le nom d'Industreelisme, . . . " Revue encyclopédique, 33, pp. 372–374.
- G.P. Gooch, History and the Historian in the Nineteenth Century (Boston: Beacon Press, 1968), pp. 156–157. The work of Chateaubriand is generally recognized as one of the key influences in the development of historical studies in early 19th century France. He was later praised by Augustin Thierry as the source of his historical inspiration.
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- Peter Gay, Enlightenment, II, p. 395.
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- Say, Traité, I, p. lxxv.
Say, Cours complete d'économie politique practique (Paris: Rapilly Librairie, 1828) Tome I, pp. 49, 51. Say, "De I'influence des futurs progres des connais sances economique sur le sort des nations," Revue encyclopédique, 37, pp. 23–25.
- Say, Traité, I, p. lxxv.
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- Peter Gay, Enlightenment, II, pp. 380–383.
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- Benjamin Constant, De l'esprit de conquête (Paris: Librairie Bernard Grosset, 1918), p. 12.
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- Constant, De l'esprit de conquête, pp. 18–19.
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- Dunoyer, "Equisse historique . . . d'lndustrielisme," Rev. enc. , pp. 370–371. Cf. Dunoyer, "Le l'esprit public en France," Le Censeur, I , no. 4, pp. 156f, and Le Censeur, I , no. 6, pp. 217f.
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- Constant, De I'esprit de conquête, p. 50.
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- Dunoyer, "De I'influence de I'opinion sur la stabilité des gouvernements," Le Censur, 6, pp. 141f.
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- Dunoyer, Oeuvres de Charles Dunoyer, Tome II (Paris: Librairie de Guillaumin et Companie, 1870), p. 254. This piece is a rewrite of an article which appeared in the Journal des débats on April 24, 1828. It is an example of the later, more developed thought of Dunoyer on social evolution.
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- It is generally recognized that the emphasis upon reform through education was an important part of the idéologue tradition. This reflects the strong influence of Condorcet's developmental theory. Cf. Destutt de Tracy, Commentaire sur l'esprit des lois de Montesquieu (Liege: J.F. Desoer, 1817), pp. 24–26.
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- Comte, Traité de legislation, I, pp. 338–339.
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- This observation is supported by Leonard Liggio in a typescript draft of his paper on Comte and Dunoyer. Liggio cited Picavet's work, Les Idéologues (Paris, 1891). Cf. Liggio, "Charles Comte and Charles Dunoyer," MS, p. 28.
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- Say, Traité, II, pp. 2–5. Say, Cours, I, p. 17.
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- Comte, "Des disputes des mots," Le Censeur, I, pp. 230–231.
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- These notions were present in Comte's earliest writings, Cf. Comte, Le Censeur, I, pp. 230–233. Also Cf. Destutt de Tracy, Commentaire, p. 4.
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- Comte, Le Censeur, I, p. 235.
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- Comte, Traité de legislation, I, pp. 120–121, 128–140. We should note here Schumpeter's view of utilitarianism as merely another stage in the development of natural law theory: "The program of deriving, by light of reason, 'laws' about man in society from a very stable and highly simplified human nature fits the utilitarians not less well than the philosophers or the scholastics; and if we look at this human nature and the way in which it was supposed to work, . . . we realized that the affinity goes much farther." Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1968), pp. 130–134. Also, Comte's formulation of utility as the basis of society does admit to a contract theory interpretation; however, he was too sensitive to historical realities to agree to the concept of a primordial social consensus in the same fashion as Rousseau or Paine.
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- Dunoyer, "De I'esprit public en France," Le Censeur, I, no. 4, pp. 156–157, 165.
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- Comte, "D'un moyen de donner de la stabilite à nos institutions . . . " Le Censeur, I, pp. 273–304.
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- Comte, "De la situation de I'Europe, de cours de ses guerres, et le moyens d'y mettre fin." Le Censeur, III, pp. 7–8.
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- Comte, Le Censeur, I, p. 300.
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- Comte, Le Censeur, I, p. 274.
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- Comte, Le Censeur, I, p. 171. Cf. Henri de Saint Simon, "Reorganisation de l'Europe . . . " Le Censeur, III, pp. 334f. Arguing from essentially the same grounds as the liberals, Saint Simon called for a program to defend the Charte.
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- Destutt de Tracy, Commentaire, p. 12.
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- Say, Traité, I, pp. ix–x. Cf. Comte, Traité de legislation, I, pp. 347–351.
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- Say, "Review of Francis Place's Illustrations and Proofs of the Principle of Population," Rev. enc., 37, p. 30.
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- This basic observation that industrielisme resulted from the synthesis of traditional streams of liberal historical and political thought and the economic analysis of J.B. Say is hardly original on my part. Élie Halévy developed it in his essay on "Saint-Simonian economic doctrine." Cf. Halévy, The Era of Tyrannies (New York: Doubleday and Company, 1965), pp. 27–34. It was noted again by Leonard Liggio in his paper on Comte and Dunoyer. Cf. Liggio, "Charles Comte and Charles Dunoyer," MS, p. 21.
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- Comte, Censeur européen, I, p. 175, II, pp. 167f.
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- Comte, Traité de legislation, I, pp. 17–18, 42–44. Say, Traité, I, pp. lxi, Ixxv, 85n. Say. Cours, I, pp. 18–19.
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- Comte, Censeur européen, I, p. 163.
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- Comte, Traité de legislation, I, pp. 14–15. This passage virtually repeats that of Censeur, I, p. 163 written years earlier. On force and ignorance, cf. Comte, Traité de legislation, I, p. 16.
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- Say, Traité, I, pp. 13–15, 336n, II, p. 3n, 4–10. Say, Cours, II, pp. 208–210.
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- Comte, Censeur européen, I, pp. 201–203.
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- The union of social, political and economic theories is not at all unique. Any number of examplea spring to mind: Aristotle's defense of the slave economy, the Physiocrats' idealization of the absolutist, agricultural state, the use of Ricardo's theory to attack the privileged position of landowners under the Corn Laws, the radical theories of the Saint-Simonians, and of course, the social and economic analysis of Karl Marx.
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- Comte, Censeur européen, I, pp. 201–203.
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- Halévy develops this notion of the opposition of warrior and industrial classes quite thoroughly in his discussionof industrielisme, cf Halévy, Era, pp. 27–34.
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- Dunoyer, "Review of Thierry's 'Les Nations et ses rapports mutuels,"' Censeur européen, II, pp. 223–224, 226.
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- Dunoyer, Censeur européen, II, pp. 231–232.
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- Thierry, "Des Factions," Censeur européen, Ill, pp. 1–8. Further analysis of the concept of the warrior class: Cf. Dunoyer, Oeuvres, II, pp. 27–28. Thierry, "Politique," Industrie, Tome I, 2e partie, Oeuvres de Saint Simon, II, pp. 17f. Say, "Review of Bentham's Principles of Legislation," Censeur européen, V, pp. 105f.
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- "Notice de I'lndustrie du Saint Simon," Censeur européen, Ill, p. 372. This notice quoted from Saint Simon's work extensively.
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- Say, Traité, I, p. 5. Say, Cours, I, p. 17. Comte, Censeur européen, I, pp. 200–202, 203n. Dunoyer, "Review of Say's Petit volume contenant quelques apercurs sur les hommes et sur la soeieté," Censeur européen, VII, p. 83.
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- Thierry, "Correspondences de B. Franklin," Censeur européen, IV, pp. 97f.
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- Thierry, "Un manuel éléctoral," Censeur européen, II, p. 111.
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- Destutt de Tracy, Commentaire, p. 245.
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- Destutt de Tracy, Commentaire, p. 392. Cf. Ch. Comte, "Cours de Say . . . "Revue encyclopédique, 38, p. 634. Say, "Cours . . . ." Revue encyclopédique, 13, p. 249.
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- Cf. Say, "Cours . . . " Revue encyclopédique,13, p. 249. Say, Cours, I, pp. 6–6, 50, 63, 111, p. 174, V, p. 27. Dunoyer, "Esquisse historique . . .d'lndustrielisme," Revue encyclopedique, 33, p. 369.
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- Dunoyer, Oeuvres, II, p. 485f. This essay was a rewrite of an article by Dunoyer which appeared in the Journal des économistes in December of 1852 and February of 1853. In it he defended the principle that economic calculation could and should be applied to all social activities. The main antagonists of the principle in the article were Victor Cousin and Michel Chevalier. Cousin felt that economic calculation should be excluded on principle from the fields of morals and politics (p. 485). Chevalier felt that in public affairs other factors had to be weighed in the balance with economic ones. Dunoyer countered that political economy was universally applicable, that it depicted " . . . the order in which all efforts (travaux) are naturally arranged in society to satisfy social needs'' (p. 493).
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- Saint Simon, "Lettre VIII," Industrie, Oeuvres de Saint Simon, II, pp. 200–201. Cf Comte, ''Review of Industrie," Censeur européen, III, pp. 200–201. Comte's grudging acknowledgement of Saint-Simon here perhaps denoted a certain amount of pique over Saint Simon's pretensions in claiming credit for himself in the elaboration of industrielisme. Cf. Dunoyer, Oeuvres, II, pp. 16, 43. Cf. Saint Simon, Oeuvres de Saint Simon, II, p. 132.
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- Comte, "Sur la multiplication . . . " Censeur européen, VII, pp. 1–6.
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- Comte, Censeur européen, VII, p. 16.
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- Comte, Censeur européen, VII, pp. 17–20.
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- Dunoyer, "Sur I'influence. . . ," Oeuvres, II, p. 105f. Dunoyer, "Debt public . . . ." Oeuvres, II, p. 160f.
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- Dunoyer, Oeuvres, II, p. 162.
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- Comte, Censeur européen, VII, p. 68. Dunoyer, Oeuvres, II, p. 108. This passage shows the obvious influence of the formulation which Comte developed. Dunoyer stated: " . . . where the government is a source of lucre, it must by the very force of things degenerate into tyranny."
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- Thierry, Censeur européen, VII, pp. 206, 223.
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- Thierry, Censeur européen, VIII, p. 230.
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- Thierry, Censeur européen, VIII, pp. 215–216.
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- Thierry, Censeur européen, VIII, pp. 232–234.
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- Thierry, Censeur européen, VIII, p. 241.
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- Destutt de Tracy, Commentaire, p. 392. Cf. Comte, Censeur européen, III, p. 195n.
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- Comte, Censeur européen, II, p. 38.
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- Dunoyer, Censeur européen, XI, pp. 134–135. J.B. Say, Censeur européen, V, p. l05f.
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- Comte, Censeur européen, II, p. 46. Comte here used the word "état;" I feel his usage of this term is synonymous with the term "society" rather than that of "government." When Comte and Dunoyer intended to refer to what we now think of as the "state apparatus" they used the terms ''gouvernement" or "administration."
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- Comte, "Review of the Letters of Junius, No. 23," Censeur européen, II, p. 64n. Cf. Comte, Traité de legislation, IV, p. 536.
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- Say, Cours, I, pp. 118–120, IV, pp. 320–327.
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- Destutt de Tracy, Éléments d'ldéologie (Paris: Mme. V. Courcier, 1817), IV, pp. 287–329
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- Destutt de Tracy, Éléments, IV. pp. 319–321, 329. Cf. Destutt de Tracy, Commentaire, p. 355.
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- Dunoyer, Liberté du travail (Paris: Guillaumin, 1845), I, p. 383.
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- Dunoyer, Liberté du travail, p. 384.
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- Cf. Dunover. "Review of Say's Traité . . . (5th ed.),". . . Revue encyclopédique, 34, pp. 63–90. Dunoyer, "Review of Sismondi's Nouveaux principes . . . (2nd ed.)," Revue encyclopédique, 34, pp. 602–622.
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- Dunoyer, Revue encyclopédique, 34, pp. 602–606, 611.
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- Dunoyer, Revue encyclopédique, 34, pp. 80, 608–609.
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- Dunoyer, Revue encyclopédique, 34, pp. 80, 612.
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- Dunoyer, Revue encyclopédique, 34, pp. 613–14.
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- Dunoyer, Revue encyclopédique, 34, p. 617.
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- Dunoyer, Liberté du travail, p. 395. Cf. pp. 374, 449.
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- Note again Halévy, Era of Tyrannies, pp. 27–34. I disagree with Halévy's point that in the earliest phases of the induslrielisme movement the attitudes of Saint Simon were identical to those of the liberals of Le Censeur européen. Not only does this discount almost all of Saint Simon's past history, but it ignores some suggestive indications in his writings of that period. Note Saint Simon's Letter VII, in Industrie (Oeuvres de Saint Simon, II. pp. 179–180). His emphasis was upon organization and establishment of the new society rather than the more evolutionary notions being developed by Comte and Dunoyer
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- Saint Simon, Industrie, Oeuvres de Saint Simon, II, pp. 182–184.
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- Saint Simon, Industrie, Oeuvres de Saint Simon, II, pp. 185, 187–189.
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- Cf. P. M. Laurent. "De la politique exterieure et interieure de la France depuis la révolution de 1830," Revue encyclopédique, 52, pp. 5–39. Laurent, "De la moderation politique," Revue encyclopédique, 52, pp. 564–592. Laurent, "Le tiers-état et les proletaires," Revue encyclopédique, 56, pp. 241–258. Cf. Reynaud, "De la société saint-simonnienne," Revue encyclopédique, 53, pp. 9–36. Reynaud, "De la necessité d'une representation speciale pour les proletaires," Revue encyclopédique, 54, pp. 1–20, Reynaud, "De I'aristocratie. Du principe de I'autorité legislative," Revue encyclopédique, 56, pp. 5–37. Cf. Pierre Leroux, "Du progres legislatif," Revue encyclopédique, 56, pp. 259–276. Leroux, "De la loi de continuité qui unit le dix-huitiéme siècle au dix-septième," Revue encyclopédique, 57, pp. 465–538. Leroux, "Cours d'économie politique fait à l'Athenee de Marsailles," Revue encyclopédique, 60, pp. 94–150. Jules Leroux, "De I'économie politique considerée comme science," Revue encyclopédique, 57, pp. 529–543; 58, pp. 30–80. If nothing else a close examination of these articles should impress the reader with how many of the concepts later incorporated into the Marxian social analysis were current among the radicals of the July Monarchy. Most of these articles are from the period 1831–1833.
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- Comte, Traité de legislation, I, p. 396. Cf. pp. 402–403.
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- Comte, Traité de legislation, I, pp. 336, 471. Comte, "On the monopoly of education," Revue encyclopédique, 44, pp. 545–574.
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- Say, Cours, I, p. 273.
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- Comte, Traité de legislation, III, pp. 99, 119n, 140–143, 44, pp. 545–547.
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- Comte meant here the noble class of slave owners and the idle urban proletariat which he saw as the necessary product of the slave economy. The proletariat consisted of the remnants of the industrious classes whlch escaped personal servitude, but whose economic independence was destroyed by the expansion of slavery and the consequent impoverishment of society. Cf. Comte, Traité de legislation, IV, pp. 73–75, 360–361.
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- Comte, Traité de legislation, IV, p. 441.
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- Comte, Traité de legislation, IV, p. 484.
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- Comte, Traité de legislation, I, p. 448, Cf. pp. 480–481.
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- Comte, Traité de legislation, I, p. 460.
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- Dunoyer, Liberté du travail, I, pp. 75–81.
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- Cf. Comte, Traité de legislation, III, pp. 246–247. Cf. Dunoyer, Liberté du travail, I, p. 106.
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- Cf. Comte, Traité de legislation, I, pp. 74–98.
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- Comte, Revue encyclopédique, 26, p. 648. Cf. Dunoyer, Liberté du travail, I, p. 320.
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- Cf. Dunoyer, Liberté du travail, I, pp. 102–280. This is Dunover's basic historical scheme.
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- Comte, Traité de legislation, I, pp. 58–59. Constant, "Charles Dunoyer . . .," Revue encyclopédique, 29, pp. 418–419.
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- Say, Cours, I, pp. 118–119, V, pp. 286–287. Say, Revue encyclopédique, 37, p. 19.
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- Dunoyer, Oeuvres, II, p. 36
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- Dunoyer, Oeuvres, II, pp. 95–97. Cf. pp. 38, 41. Dunoyer is quoting here from Say's Oeuvres divers, Collection des principaux économistes (Paris, 1848), pp. 667–716.
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- Comte, Censeur européen, Ill, pp. 203–206.
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- Dunoyer, Liberté du travail, Ill, pp. 378–380.
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- Comte, Censeur européen, II, pp. 208–216. Say, Traité, II, pp. 307–308. Say, Cours, I, pp. 45–46, III, p. 193. Dunoyer, Oeuvres, II, pp. 71–74.
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- Dunoyer, Liberté du travail, 1, p. 295.
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- Say, Cours, I, p. 188. Say, Revue encyclopédique, 37, p. 30.
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- Say, Cours, V, p. 123.
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- Say, Cours, V, pp. 331–332. Cf. pp. 343–350.
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- Dunoyer, Liberté du travail, I , p. 124n.
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- Dunoyer, Liberté du travail, I, pp. 309–310.
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- Say, Cours, IV, p. 452.
The European elites that imposed disastrous covid-19 restrictions, along with "green energy" regimes and sanctions against Russia are now seeing the results of their policies.
Original Article: "Eat or Heat: Europeans Already Are Facing Previously Unthinkable Dilemmas"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Jeff Deist: Alex Epstein is our special guest this week. He runs the Center for Industrial Progress, was formerly at the Ayn Rand Institute, and has a background in philosophy. He wrote a famous book called The Moral Case for Fossil Fuels, and followed that up with a new book called Fossil Future. Alex, let me say this book is incredible. Thank you for writing it! I know from the acknowledgements it was quite a difficult task.
Alex Epstein: I did the book on fossil fuels. That did very well, and then I decided to replace it with something I thought would be better. And it was much harder to do. The first book took me about six months. This one took over three years. Given the moment we’re in right now, there’s a real opportunity to educate people, and there’s a real threat from this anti–fossil fuel movement. What I had done in 2014 was great for then, but I thought something better was possible and was needed.
JD: This is an empirical book. It’s also a philosophical book. I know you did not intend to write an economics book, but Fossil Future involves scarcity, it involves tradeoffs and choices within the context of scarcity, and it talks a lot about externalities—including positive externalities. These are concepts from economics.
AE: Well, as you mentioned, I used to work at the Ayn Rand Institute, so I have a philosophy background and an Objectivist philosophy background. From that perspective, morality is the fundamental science of human action, and I think of economics as related closely to morality. If you have a human-life-based morality, I don’t think you can have a discussion about the morality of fossil fuels that doesn’t think about economics. You could argue that it’s mostly an economics book in the sense of what is the content, because the content focuses on what’s involved in producing and trading energy and then what are the implications for that in terms of human life. And most of those implications you can measure in money, although as you mentioned with externalities, sometimes people abuse money and measurements to ignore the benefits of fossil fuels.
JD: The book is controversial, so we should mention your publisher. Did they take a risk publishing it?
AE: My publisher is Penguin Random House, and the specific imprint is Portfolio, which is their business imprint, but the same guy who runs it also runs their conservative imprint, which is called Sentinel. They’re used to controversial books. They published, or at least they proposed, Jordan Peterson’s latest book, and you know they got some controversy in Canada around that. They’re pretty good at this kind of thing, but it’s unusual. As my first book sold a lot of copies and the publishing industry doesn’t have that many bestselling authors, they cannot afford to turn one down. Fossil Future has done even better than The Moral Case for Fossil Fuels in terms of sales and its lifespan. One byproduct of this for me and for others is that more and more publishers will be open to these kinds of ideas.
Robert Murphy: Alex, I’ve spent a bit of time in the climate change debate. The people who resist the IPCC’s (Intergovernmental Panel on Climate Change) conclusions are skeptical of government intervention. People assume that in twenty or thirty years we’ll all have electric cars and far less CO2 emissions. You argue against phasing out fossil fuels. You argue they are an important part of our future.
AE: Yes, there’s two aspects to it. The main one is that it’s proper that we have a fossil future, and that is why the subtitle to my book is “Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas— Not Less.” But a big part is the economic analysis that concludes that one way or another, fossil fuels are going to be used more in the future, even if some of the bad policies get passed. And part of what I’m arguing is that we shouldn’t pass those bad policies, because even if we are using the same amount of fossil fuel in the future, there’s an enormous opportunity cost of premature deaths and opportunity loss.
By our standards, the world is extremely poor, including energy poor, and one point I make in the book is that there are six billion people in the world who by our standards use a totally inadequate amount of energy, less electricity than one of our refrigerators uses. We live in a world that is energy deprived, and then you learn that fossil fuels provide 80 percent of that energy and their use is still growing, particularly in the parts of the world that care most about low-cost reliable energy. It is insane to talk about phasing them out rapidly. The other side has an enormous burden of proof when claiming that we should be phasing out fossil fuels when the value they provide is so needed and they’re clearly uniquely good at providing it.
JD: Alex, my favorite part of the book is part 4, when you talk about framing the debate. This could apply to so many political issues in our country. You discuss the “anti-impact framework,” which assumes the absurd goal of zero human impact on the environment. You also address “arguing to 100,” which entails not simply moving halfway toward your opponent’s goals. Talk about the importance of reframing the climate change debate in the political sense.
AE: I use a controversial example for clarity, although you’re not supposed to use controversial examples to make new points. I use the example of Trump’s election—and it’s not to endorse or condemn it. It’s just to show the dynamics. I think of every debate as involving a moral good and a moral evil. You can think of it as the good “+100” and the evil “–100.” Think of the American political discussion that occurred before Trump’s election as 100 was “more equality” and –100 was “increasing inequality.” It was all about equality, we want more equality, and it was framed that way. Now, imagine if Trump had tried to argue for his policies within that framework. He couldn’t do it effectively because the policies he wanted to enact would not increase equality and might actually increase inequality. What he did was to reject that framework instead and bring on the immortal hat. “Make America Great Again.” What that really represents is a reframing. He reframed the discussion in terms of American greatness. So, +100 was American greatness and –100 was American decline. And then what he was able to do was to argue that all his specific policies were moving us toward 100! And this is what I call arguing to 100. You set what the moral good is and then you argue that you are getting us there.
Look at the energy debate and how it has been framed. Particularly prior to my work and some others, it has been framed as eliminating fossil fuels, or at least eliminating their CO2 emissions. Look at most institutions in the world—corporations, countries, investment firms. They all have these net zero goals. That’s saying the goal is to eliminate emissions, which really means eliminating fossil fuels. Then the evil is fossil fuels.
Now what’s happened is that many defenders of fossil fuels are stuck in the status quo. Instead of challenging the framework, they accept it and do what I call arguing to 0. Somebody puts forward the Green New Deal, and the Green New Deal is an argument to 100: if we’re going to get to the elimination of CO2, we need to move in this direction quickly, so we need to switch to renewables, and we need these “investments” and taxes to do so. Then the other side says, No, that will be impractical, or it will cost too much, or they’ll make fun of it. I call this arguing to 0 because if the other side proposes positive things and you shoot them down, your best-case scenario is zero. You don’t move at all.
I reject this framing of “our goal is to eliminate CO2 emissions and fossil fuels,” and as I talk about it in the book, the deeper goal underlying that is to eliminate human impact on the earth. I frame it broadly, but our goal should be to advance human flourishing, and when we’re thinking about global issues, that should be the goal. The –100 is increasing human suffering on earth—and once you frame it that way, then people are very open to the possibility that more fossil fuels are beneficial and we need more of them.
So, because I know you’re interested in how other proliberty people can argue the case, the lesson is that you need a positive moral goal, or you can think of it as a vision, and then you need a positive policy to get there. In part 4 of the book, I talk about the policy of energy freedom. I work with elected officials, and one thing I’m constantly telling them is that you need to propose your own profreedom policies—it can’t just be reacting to the bad ones! And just to anticipate one objection, people sometimes think that if you’re proliberty, you can’t be in favor of positive policies because you’re against these things. If there’s a bad policy in place, changing it is a kind of positive policy. I can say we should pull out of the Paris Climate Accords. That is an action that you can say leads to this inspiring vision. And then I would argue—and this gets into government—that people need to think carefully about what the right profreedom policy is; it’s not the most obvious thing. Don’t just do anything. You need a positive vision and a positive policy, and that leads to a totally different level of effectiveness in persuading people.
RM: Alex, your book resonated with me where you explained how it can be that all these ostensible experts on climate change issues are wrong. I like how you framed it: it’s not so much the experts are wrong in the narrow area of their expertise, but the chain through which knowledge is communicated to the public has lots of links in it. It gets distorted. Just one example: William Nordhaus, who won the Nobel Prize for his work on the economics of climate change, is arguably the top economist in this area. His own model shows the 1.5°C cap on global warming would be so economically destructive it would be better if governments did nothing. And yet right after he won the Nobel Prize, the same weekend, the UN came out with its special report on 1.5°C of warming. A New York Times reporter asked Professor Nordhaus, “Do we still have time to halt warming at 1.5°C?” And he said, “No, I think at this point it is too late.” He didn’t add “and thank goodness, because that would be catastrophic.” He just left it at that. So, it is important to show people the dichotomy between what the actual peer-reviewed literature says and how the media communicates it to people.
AE: Interestingly, you guys have picked up on two of what I would say are innovations in the book. In clarifying the issue of fossil fuels, there is how to think about it and then how to explain it to others. There’s arguing to 100 and then the idea Bob is referring to. I use the term “knowledge system” throughout the book, and this is to capture the fact that when we are told what expert conclusions are, we need to recognize that we don’t just get those conclusions directly from the expert researchers in the field. There’s a process by which what those researchers find is synthesized, disseminated, and then evaluated in terms of what actions they might lead to, and I show that at every stage of this process, there are big distortions just in terms of evaluation.
I point out in chapter 1 that many of the expert conclusions that we’re taught, particularly the notion that we should rapidly eliminate fossil fuels, ignore the huge benefits of fossil fuels. I talk about Michael Mann, one of what I call “designated experts” on this issue, because he has a whole book about fossil fuels and talks about fossil fuels in agriculture—but he only talks about negatives or alleged negatives. He doesn’t talk about the fact that the whole world would starve without fossil fuels or their equivalent, and that there’s no reason to believe that their agricultural functions, including as a fertilizer, can be replaced in any reasonable timeframe. This kind of thinking—or nonthinking—is what leads us to an energy crisis or a fertilizer crisis, as we are experiencing today, because people like Michael Mann told us we should make decisions about this while ignoring the benefits.
The IPPC (International Plant Protection Convention) has a report called Summaries for Policymakers, and these summaries are distributed to news outlets, where they get distorted. I call this “dissemination distortion.” I think the IPCC itself is fundamentally a terrible synthesizer of knowledge, mainly because they too ignore the benefits of fossil fuels, including the fact that thanks in large part to fossil fuels, we’re safer than ever before from the climate. This is the result of what I call “climate mastery,” and you cannot talk intelligently about climate and the threat of climate change if you don’t recognize that we’re far safer from climate. There has been a 98 percent decline in climate-related disaster deaths over the last one hundred years, and the UN doesn’t mention this in any of its reports. That’s like a polio report that doesn’t mention that we have a polio vaccine, a preventative to the disease, and that we’re far better off.
I also mention that the researchers themselves face problematic incentives, including the degree to which the government funds the climate research. The government people behind the funding are very interested in catastrophe scenarios that justify increases in their power. And so, what you find is that even if all the researchers are well intentioned and doing their best, the action conclusions that we’re given can be totally wrong. I’m trying to break this common idea that if we’re told that the experts say we should do X, then that must be right. The point is it can be 180 degrees wrong, and in fact, I show the track record is often that wrong—that is, they’ve recommended policies that would have ended billions of lives prematurely.
RM: Jeff mentioned you approach these issues from philosophical background. Wasn’t it Senator Barbara Boxer who attempted to dismiss you?
AE: Yes.
RM: You write about an anecdote from a congressional hearing. It was about somebody who’s an expert on how much CO2 the atmosphere can retain and what increases in CO2 concentration will mean in terms of how much warmer the planet will be in the year 2100. That’s a very dubious thing we don’t know much about. It is a very complex process. But even if someone is an expert, it does not mean that they know, therefore, that the optimal carbon tax is $87 per ton! There is so much going into that conclusion that you can’t be an expert in one little area and then pontificate on what humanity should do, because it involves many different people’s expertise.
AE: Definitely! Part of my point in chapter 1, and this also comes up when I discuss the issue of externalities, is that there is a systemic benefit denial when it comes to fossil fuels. It’s not particularly well known that climate-related disaster deaths are way down—but if you think about it logically, would I rather be alive today, with today’s weather and our ability to deal with it, versus the weather of one hundred or two hundred years ago and our ability to deal with it back then? Of course you would choose living today! What you grasp is that our ability to deal with the climate, or what I would call our climate mastery ability, is so much more important than the exact current state of the global climate system.
What you want to look out for is are there any potential changes that are so dramatic that they are likely to overwhelm us. Whether it’s that the warming is so rapid that it leads to rapid sea level rises or that the storms become two or three times more powerful. If it’s that, yes, then you get worried. But if it’s that it’ll become two degrees warmer or three degrees warmer in a given timeframe or the storms will become 20 percent more intense or it’ll become a little drier or wetter in certain places, that’s just so inconsequential, even climate-wise, compared to your ability to master it. One point about mastery people don’t get is that they can neutralize negatives. What is negative climate-wise depends on your degree of mastery. I love snowboarding and snowmobiling, so I like to go to Snowbird, in Utah. The snow there used to be a negative. It was a threat. But thanks to mastery, the area has been transformed into a positive! You can say the same for the almost tropical conditions where I live, in Laguna Beach. It is considered a positive to live there with the heat, but with less mastery, it would not be nearly as positive, let alone to live in Florida. So many people are moving to Florida and Texas because some of the negatives there have become positives, thanks to air-conditioning that allows you to handle the worst periods indoors.
JD: Alex, your description of our faulty knowledge system is alarming to me because it would affect a lot of other political and economic issues. As you point out, we need “synthesizers” to put knowledge in context. We saw this during covid. What do epidemiologists say? What do virologists say? Well, they might have the kind of specific technical expertise Bob mentioned, but that doesn’t mean they are equipped to determine the value of tradeoffs for society at large over shutting down businesses in response to covid. I think you are very much the synthesizer here. The idea that we don’t need philosophers to make sense of the questions and answers is really dangerous.
AE: I think covid is a great example, and I bring it up in chapter 1. With covid, you have this very clear situation where the experts say we have to lock down, and if you dispute that, you’re against the experts and you’re claiming that you know better. I think one thing that happens is sometimes the profreedom people will too easily jump on a certain contrarian position in terms of the content of the issues because that seems to protect freedom. Some people would underestimate the severity of covid because they feel we can’t have freedom, whereas my view was that the government’s policy fundamentally should be “innocent until proven guilty,” which is the most underrated political principle today. But essentially, if there’s a demonstrable danger from somebody, then you can validly say “you should quarantine.” But you cannot say to everybody “you’re guilty because you could potentially infect somebody in the next two years, so you all have to stay in your homes.” Even if it is quite severe and if you’re more concerned about the severity, then get better at testing so you can validate whether somebody’s infectious.
There’s a tendency of people with status to take different kinds of threats and argue that this threat justifies a vast expansion of my power. Part of what they do is they ignore all the downsides of them getting that power. And in the case of covid, you don’t think about all the negative consequences of locking people down.
One thing that led to the lockdown frenzy also applies to fossil fuels, and that is the question of what is the goal that your policy is pursuing. Because that’s going to determine the standard by which you evaluate whether this policy’s good or this policy’s bad. And with covid, the goal that wasn’t stated explicitly but was operating nonetheless was essentially to eliminate this virus at all costs. That was really the goal of covid policy, and that is a totally unjustifiable goal! Nobody could argue that this one virus should be eliminated at all costs, but it functions that way until you identify explicitly that this is the goal we’re pursuing and it makes no sense.
And it’s a similar thing with energy, where the goal right now is to eliminate CO2 emissions at all costs. That is not a justifiable goal, and when you make it explicit, it becomes clear that doesn’t make any sense as a goal. Maybe it’s an aspect of advancing human flourishing, but it can’t be that we’re going to get rid of whatever it is at all costs. Otherwise, we would literally kill ourselves right now.
JD: In part 3 of the book you lay out the case for why CO2 emissions are not all they’re claimed to be—and might actually be beneficial in many ways.
AE: Part 3 is the most controversial. Just to give the structure of it, part 1 is called “Framework,” and it’s about how what I call our knowledge system is evaluating the issue of what to do about fossil fuels based on an ultimately antihuman framework which I call “the anti-impact framework,” which says that human impact on nature is intrinsically immoral. Our goal should be to eliminate it; it’s inevitably self-destructive. It’s based on this idea that the planet is this delicate nurturer and if we impact it, it’s going to punish us! My point is people who we’re being told are experts are evaluating fossil fuels using the totally wrong framework, and this leads them to ignore the benefits of fossil fuels to human flourishing. And it leads them to “catastrophize” the side effects, because they think every impact we have is going to lead nature to punish us like a vengeful god. That’s their perspective. OK, but then let’s look at it from within a human-flourishing framework, where our goal is to advance human flourishing on earth. Then our premise becomes the earth is not this delicate nurturer. It’s wild potential that we need to impact intelligently.
Part 2 is looking at the benefits. It argues that the benefits of cost-effective energy are incomparably greater than what we’re taught, and that fossil fuels are uniquely capable of providing energy for the billions of people who have energy and the billions of people who need energy. In essence, it’s saying that the livability of the earth depends on our use of fossil fuels. And I don’t think it’s refutable. Somebody could say they’ve discovered a new technology and it can replace fossil fuels. I don’t think it’s plausible, but interestingly, a lot of the climate catastrophists are taking that tack. They’re not actually attacking me on climate and climate mastery; they’re attacking me on how amazing renewable energies are. For an example, take Andrew Dessler who was a guest on the Joe Rogan podcast. He has now apparently become the world’s energy expert. His attack on me is almost all based on the notion that renewables are so wonderful, which is quite a thing to say, given that we’ve tried to replace fossil fuels with renewables, and even restricted fossil fuels, and now we have shortages. And Biden is not going to China for solar panels. He’s going to Saudi Arabia for oil!
Part 3 is saying that fossil fuels are not causing climate catastrophe, but they’re actually driving a climate renaissance in which we’re far safer from climate. There is nothing in the evidence about the future of climate impacts of fossil fuels that is catastrophic, let alone apocalyptic, if you factor in our mastery ability. Once you factor in the mastery ability, it’s hard to be scared about different kinds of climate impacts. My claim about the establishment is that they’re not only ignoring the broad benefits of fossil fuels. They are in particular ignoring the climate mastery benefits. Because their implicit goal is to eliminate human impact because it’s evil. They think our impact on the climate is intrinsically immoral and we shouldn’t do it, and they expect us to be punished for it. It has a religious quality to it, where the commandment is “thou shalt not impact the climate” and the climate is going to punish us vengefully if we do. So much of the climate discussion is this belief that it’s wrong for us to impact the climate and we’re sinners and we shouldn’t do it—versus let’s look clinically at what these impacts are, positive and negative and neutral, and then what are the benefits that come from it. When you do that in a clinical, prohuman, kind of nondogmatic way, you have a totally different view of the whole situation.
RM: Alex, this is a point you make in a few places in the book. You are skeptical of alarmists, whether they really are concerned about human welfare, because if we need to get CO2 emissions down to net zero by 2050, if not sooner, alarmists would be the biggest boosters of nuclear and hydro energy! I think James Hansen is possibly the only major advocate who is pronuclear at this point. It makes you wonder about the sincerity and actual motivation. Clearly, nuclear and hydro should be embraced with open arms if the goal is to dramatically reduce CO2. But there is political resistance. People don’t like expensive energy. And yet they’re against those as well.
AE: You said sincerity and motivation, and I think both of those are very much in question. And this is part of what I point out in chapter 1: part of the reason we should be very suspicious of our knowledge system is that, again, it’s hostile to fossil fuels, but it’s also hostile to nuclear, it’s hostile to hydro, and it’s hostile to all the activities involved in solar and wind power, including mining. Solar and wind involve unprecedented amounts of mining and unprecedented amounts of industrial development, and that’s part of why there is resistance to them. And so what you see is that our knowledge system and our designated experts are hostile to all forms of energy, whereas to your point, if you valued energy at all, you’d be really scared about the negative effects: you would be overwhelmingly pronuclear, prohydro, pro–anything we can do. You would be as worked up about the threat of reduced energy use as you are about climate catastrophe.
Now, in reality, you should be infinitely more worked up about the threat of less energy! But even if you take the AOC-type position that these climate impacts are going to be so terrible, you have to recognize the catastrophic impacts of using less energy. And fortunately—I mean, fortunately intellectually, not existentially—we have an energy crisis right now that’s illustrating that. I’ve been saying for years, including in that exchange where Barbara Boxer said “I don’t appreciate being lectured by a philosopher,” you need to look at the benefits of fossil fuels. I told her and the rest of that group that energy is the industry that powers every other industry. The price of energy determines the price of everything, and we’re seeing that right now, with price inflation being substantially driven by energy prices! Everything I say in Fossil Future is coming true: if you ignore the benefits of fossil fuels, and more broadly the importance of cost-effective energy, you are going to hurt so many people, including their ability to feed themselves.
JD: Alex, if we consider nuclear the cleaner alternative to coal for electricity, I worry about the political and regulatory environment after Fukushima. In the US, only one new reactor has been built, in Georgia, and it’s not online yet. Germany shut down nuclear plants. I fear the future of nuclear power may be somewhat dead in the water.
AE: It’s important to recognize that absent substantial changes in the approach to nuclear energy, it is dead in the water. I think of myself as one of the leaders of what I call the energy humanist movement, consisting of people who are looking at energy issues in humanistic terms. Looking at fossil fuels, energy humanists consider the benefits and the side effects carefully. One kind of error that some pronuclear people in this movement make is that they act like nuclear is more of a near-term replacement than it is. What you’re talking about is very important. Since the Nuclear Regulatory Commission was created in 1974, we have not had a single reactor that has gone from conception to completion under their regulatory regime. In Georgia, we have unbelievable cost overruns. Construction is becoming uneconomical. This is not something that is poised to be a rapid replacement! We need to recognize that the nuclear status quo policy is a disaster and it needs to be changed.
In my work with elected officials, I’m working on an energy freedom platform which has a good shot at having some influence, particularly if the Republicans win. And part 2 of that platform is to decriminalize nuclear energy. I have a list of eight policies that are necessary so that nuclear can compete on a free market. But we need to recognize that it is dead in the water as any kind of scalable substitute, and we need to change that. In 1970, you could build new reactors cheaply, but that political environment is gone for the moment.
RM: You warn that people often overrate the ability of nuclear to replace fossil fuels. In the book, you discuss how energy needs are broader than just electricity production. People say, “That country gets 25 percent of its energy from renewables” when they mean 25 percent of electricity. When you count industrial heating and transportation, which all require energy, the actual percentage is much lower. Would you talk about that?
AE: My favorite example is Bill McKibben, who is one of the designated experts on this issue. When his book The End of Nature was published in 1989, its marketing said that it was warning us accurately about global warming. But his claims in that book have not come true in terms of their severity. And his policies would have been horrific had they been passed! In an interview, he said Germany was getting 50 percent of their energy from solar! Now, he was talking in December and his first error was he used a daily high from June as an average high of electricity coming from solar. But that was a daily high, not the average throughout the day—it’s like a peak during the day. And then, he’s only taking electricity, not energy, even though most of our energy use is not from electricity. It’s for things like transportation, for high-heat uses, and sometimes clean residential heat via natural gas. This is part of the reason Germany is superdependent on Russia, because they use natural gas for so many things, including compensating for the unreliability of solar and wind. He was taking the statistic from June and assumed that it was still true in December. Of course, one of the problems of solar and wind is they’re seasonal: solar is not anywhere near as good in December as it is in June!
McKibben is telling us what to do about energy, but he doesn’t know the difference between electricity and energy; takes daytime highs and equates them with averages; and equates solar in December with solar in June. It’s important to be precise. The fact that so many of our leading thinkers are imprecise should solidify the idea that our whole establishment doesn’t value energy—and there’s a lot of reasons to think it’s hostile to energy.
make this connection in chapter 3, where I analyze what’s going on with experts in our knowledge system: if you think human impact on nature is a bad thing that should be eliminated, you hate the benefits of energy. It’s not just you hate there’s pollution, or there’s CO2 and you think that’s problematic. The very purpose of energy is to do work on the rest of nature. That’s what it is. It’s the capacity to do work. The more energy we use, the more we are going to transform nature to suit our purposes. And “transform” here just means “have an impact on.” So, if you’re against impact, you’re against transformation and you’re against energy, and this is what you get with the most consistent of our designated experts. They’ll say we’re using too much energy, and that is like saying we have too many people. And it’s a deep opposition to humanity.
JD: Yes, that’s a philosophical problem. An opposition to what benefits humanity.
Let’s talk briefly about the developing world, which you suggest we call the “unempowered world.” Something like three billion people on earth basically don’t consume energy. Aren’t we being neocolonialists in the West if we try to thrust our anti–fossil fuel mentality on them? People in Africa or India or China might like to have a car or a condo or air-conditioning too!
AE: Yes, it’s unjust, and this is one of the arguments that I’ve made in Moral Case for Fossil Fuels and again in Fossil Future that has resonated the most and that the other side is most terrified of because it undercuts their claimed humanitarianism. Even when they talk about climate, they’ll say, “I’m so concerned about climate because there will be worse storms in Indonesia, and I really care about those people.” If you care about people, they need energy. They need productive ability that will enable them to deal with storms and to feed themselves and protect themselves from nature and have medical care and education. You need energy for all these things. But you can see they’re making that appeal. They’re claiming to care about the welfare of poor people because that’s an issue that resonates with people. It certainly is unjust to deprive people of opportunity who are already in a low-opportunity situation.
The Washington Post, about a month before my book came out, attempted a cancel campaign on me and tried to characterize me as a racist and said, “He doesn’t care about poor people. He’s just claiming to care and so you don’t need to listen to his arguments.” This “racist” argument was insane, and I was able to preempt the story and refute it, and they watered down the article and didn’t use the word racist. But clearly, they are threatened by this argument that their policies are most harmful to the lowest-opportunity people in the world, and that’s why they want to use this ad hominem, because they have no answer to that argument.
RM: Again, it seems they’re hiding their true motive. We shouldn’t paint with overly broad strokes— sometimes the loudest activists get the microphone in the political debate, rather than the sober and serious people. But the claimed motivations don’t always match. Sometimes they simply say we’re just using too much energy altogether. The issue is they just don’t like capitalism. They think humans’ standard of living is too high, so they implicitly agree more energy use means a higher standard of living. They’re against a higher standard of living; therefore, they want to restrict energy use. They are consistent if you know their true motivations! But they realize they have to sell it to the public using a different framework.
AE: Definitely. You mention painting with a broad brush, and it’s important not to do that. I explain in chapter 3 that most of us have adopted what I call the anti-impact framework. When we’re talking about the world, we’re often doing a contradictory thing, which is optimizing for eliminating human impact and at the same time optimizing for advancing human flourishing. And one place this happens is with climate. Most people’s goal with respect to climate is how do we minimize or eliminate our impact on the climate. They’ll talk about how to stop climate change, but what does that mean? That means stop human climate impact. But from a human-flourishing perspective, that’s a crazy goal. Your goal should be to advance climate livability. As I mentioned before, priority number one should be to increase your mastery of the climate because that allows you to neutralize negatives, and in fact turn negatives into positives.
And yet, if you push them on it, most people, who are prohuman, if their values are clarified explicitly, are thinking about the climate change in an antihuman way. So, I’m challenging readers to think about what their own operating framework on climate change is and are they thinking about this issue in a consistently prohuman way. One of my discoveries in writing this book was that I wasn’t fully doing this. For example, with the climate issue, I was assuming that man-made warming was bad instead of being clinical and saying “Where is it bad for humans and where is it good for humans?” There are a number of places where it is clearly good for humans, and I realized I was thinking that if we created it, it must be bad—versus not having any bias one way or another. Is the result good for us or is it not good for us?
JD: We could discuss this book for hours! You can find it on Amazon and at FossilFuture.com. You can follow Alex Epstein on his website, AlexEpstein.com. And most importantly, you can follow him on Twitter at the same handle, @AlexEpstein, and keep up with what he’s doing. Please defend him, promote him, get this book out there. It is incredibly important. This is civilizational. A lot of people are antiprosperity and don’t understand tradeoffs. They don’t understand the world we live in, and they simply don’t share our goals of greater prosperity for people, and they’re hostile to capitalism. We have to stop these people who want to curtail our future and that of our kids and grandkids. So, Alex, I want to thank you so much for writing the book and for joining us.
AE: So much of the world is changed by influential people, which is why I wanted you and Bob to read the book before we spoke, so we could have an informed discussion. I know that some percentage of the readers will agree and spread the ideas. If you know of influential shows or influential people who would like a copy of the book, I’m very eager to send signed copies to these people. If you know of prominent hosts, prominent people who might be interested, tell them, or you can reach out to me (Alex@AlexEpstein.com). You would not believe how effective that can be, as someone reached out to you and this podcast happened. It’s a superefficient way to get the word out, and it doesn’t cost any money. You just have to introduce us.
JD: Congratulations, Alex. Thanks.
AE: Thank you.
Alex Epstein is an author and commentator who advocates for the use of fossil fuels. He is the founder and president of the Center for Industrial Progress, a think tank in San Diego, California. He holds a BA in philosophy and computer science from Duke University. He is a vocal opponent of the mainstream climate change agenda and has appeared in many forums to promote fossil fuels' continued use and expansion. He is the author of three books: Fossil Fuels Improve the Planet (2013), The Moral Case for Fossil Fuels (2014), and his latest, Fossil Future: Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas—Not Less (2022). AlexEpstein.com and Twitter @AlexEsptein
Standard economic theory states that as an economy grows, the money supply should grow with it. Appealing to the Austrian tradition, Frank Shostak shows that belief is mistaken.
Original Article: "Should the Fed Increase the Money Supply in Response to a Growing Economy?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Whether one takes the Hebrew as literal history or as archetypal fable, there’s no escaping the warnings given to those who reject the private law society. Those warnings are that there is one vile and destructive alternative to the peaceful resolution of conflict by market actors. That vile alternative is what we call the state.
In the eighth chapter of 1 Samuel, we are introduced to the scene of a nationwide rejection of private law in exchange for a form of rule that the people of Israel had observed in all the pagan nations that surrounded them. In their defense, their prophet, Samuel, had selected leading judges in a direct affront to the methods that Yahweh—Israel’s god—had clearly prescribed. The selection process had to emerge from the sphere of exchange, where honest dealers who had the competence and character to win over their fellow citizens through their personal uprightness would be exalted in unanimity. These people would then serve as arbiters in what Hans-Hermann Hoppe has described as private courts.
Instead of utilizing this market-centered selection mechanism, Samuel took the expedient path and simply lifted his own sons to the role. In doing so, they would move throughout the land of Israel from town to town, deciding difficult cases. These cases included every offense from the improper building of walls on a neighbor’s property all the way up to capital offenses. Rather than conducting themselves with impartiality, Samuel’s sons were incompetent and greedy for bribes, and they were not held in check by their fellow countrymen. Rather than demanding that the prophet denounce these crooks and replace them through the righteous process that Yahweh had prescribed, the people also erred by looking to power and not righteous actions in the market for the solution to judgment.
The rejection of this method wasn’t a rejection of Samuel or his sons. Rather, it was a personal rejection of Yahweh himself as sovereign ruler and arbiter of justice and righteousness. The people petulantly complained to the prophet and to the Lord to give them the state. And they were given it … good and hard.
Even so, they were warned about the nature of the state before it was inaugurated through the reign of the tall and handsome yet moronic and worthless donkey retriever named Saul. However, Yahweh didn’t speak of the personal flaws of the kings themselves. Rather, he warned his people that by rejecting Him and his market-generated path toward justice, they were wishing for a monstrous institution that was—and is—established in criminal trespass.
Yahweh issued the dire promise, not just to them, but to all nations, that those who prefer the state to private law will rest under his judgment and displeasure. They will get what they ask for. Under such rulers and authorities, every sphere of life would be violated, including families, farms, and fortunes.
Specifically, the state would—not might—violate their families by enlisting (kidnapping) their sons to serve as the rulers’ infantry, to be cannon fodder. The plight of daughters would be even worse. Even though they were initially warned that they would be used as “bakers and perfumers” the vile predations of kings would turn them into rulers’ own sex slaves. Furthermore, every family and tribe would become the authority’s personal slaves (1 Samuel 8:10–18).
Far from stopping at such trespasses in family life, these same rulers, regardless of their personal righteousness, would also violate the sphere of faith and worship by seizing the first tenth—or tithe—of Israel’s income to put toward maintaining the servants of the king’s house. This is an obvious affront to Yahweh, as under the private law arrangement, that tenth was to go to the servants of the Lord himself. In other words, the king would trespass on the wealth that belonged to God himself for service rendered to Him!
As if all these forms of criminal trespass weren’t enough, these rulers would seize the best of the lands, flocks, vineyards, and other choice properties. Once again, the fruits of these physical properties would be used by the arbitrary and capricious whims of the kings of Israel and Judah.
One would think that such warnings would be enough to cause the people of Israel to shudder in terror, remember the meager predations of the occasional corrupt judge, and beg for the original form of private law that Yahweh had mandated. Alas, the ancient Israeli people, much like the statists of today, chose the predations and criminal trespasses of the state. All for the false promise of security and safety and the alleged ability to limit the corruption of authorities. But instead they welcomed that institution that was—and always will be—nothing less than weaponized criminal trespass.
The FBI’s raid on President Donald J. Trump’s private Mar-a-Lago residence on August 8, 2022, was, as many FBI critics have said, “unprecedented.” Clearly the FBI is out of control (something Mises readers have known for a very long time). It never targets presidents, and the fact that it’s starting to do so is supposed to indicate that the FBI has strayed from its mandate and is now entering the realm of political gamesmanship.
The logic of this argument is untenable, however. The very fact that the FBI typically doesn’t go after commanders-in-chief, current or former, is proof that the FBI is political. It makes political choices about which crimes (or noncrimes, including the FBI’s favorite, “process crimes”) to investigate and about which criminals (or noncriminals) to harass.
It would take a very, very long time to list the gross injustices in which the political hacks at the FBI have always specialized. It would take even longer to list the things powerful people in the American government have done that have led to precisely zero FBI raids or investigations of any kind. I will spare the reader, noting only that had you or I done any of those things, we would be in prison.
To put it even more simply, the question whether the FBI is political or not can be answered in three words: Operation Crossfire Hurricane.
The debate over the FBI’s Mar-a-Lago ambush, and whether this means the FBI is becoming politicized, is a waste of time. Let us instead use this moment of heightened scrutiny of the born-unconstitutional FBI to focus on a much more central concern: FISA courts.
The Foreign Intelligence Service Act (FISA) of 1978 set up secret courts. These courts are the procedural puppets of the Department of Justice, empowered to issue warrants for the clandestine collection of “foreign intelligence” (read: everyone’s information everywhere) by unconstitutional intelligence agencies such as the CIA and federal police brigades such as the FBI. FISA courts (called Foreign Intelligence Surveillance Courts, or FISCs) are essentially star chambers, with the difference that whereas the Star Chamber often operated in defiance of other courts, FISCs, and FISA, have been held constitutional by non-FISC judicial decisions in the United States.
Not that it matters anyway: FISCs do whatever the hell they want, no matter what the Constitution or other judges say. The lawlessness of FISCs is therefore more egregious than the Star Chamber’s ever was.
There is a great irony in this, beyond the American government’s obvious use of the United States Constitution to do unconstitutional things. What is truly ironic is that FISA was passed as a response to the imperial presidency of Richard Nixon. Nixon argued that things are legal if presidents do them (something, let us remember, with which the FBI agreed until 2016). After 9/11 and the Patriot Act, and the general throttling of American freedoms in pursuit of the “war on terror,” questioning the legitimacy of the FISA court became tantamount to announcing one’s membership in al-Qaeda. Presidents, from George W. Bush onward, played up FISA courts as partners in “keeping America safe.” Even Trump threw the FISA crowd a bone.
But this does nothing to justify FISA, which remains patently unconstitutional. FISA courts are even more unconstitutional on their best day than the FBI is on its worst. Put simply the FBI needs a warrant from a court, however staged, to raid your home, read your mail, or wiretap your phone. These acts are violations of the Fourth Amendment at the very least, which is bad enough. But the fact that a judge signs off on the shredding of the Fourth Amendment under color of “law” is even more dangerous than the goons’ executing the phony warrant. The FBI is therefore, in many ways, a symptom of the unconstitutional rot in the justice system, a rot which stinks strongest whenever a FISA court is in session.
There’s a deeper concern as well. The basic structure of the American government is breaking down. The United States nominally has three branches of government, and those are supposed to share and limit power through mutual antagonism. In 1978, the legislative branch, sensing that the executive branch was becoming too strong, brought in the judicial branch to do its checks-and-balances stuff. This was like bringing in mongooses to control snakes, only to later find that the mongooses have gone feral. The judicial branch gradually grew into the tyrannical power it had been given and now lords it over both the executive and the legislative branches.
It does this by means of FISCs and the FBI, the Department of Justice’s private stasi.
There is little hope that a judicial system so mired in intellectual corruption will right itself. One wishes for a patriot in a black robe to do the right thing and throw all cases out of court that include any “evidence” obtained by means of illegal FISA warrants, but, well, dream on. There is even less hope that the Congress, which created the FISA monster in the first place and then pledged its allegiance to it after 9/11, will act for freedom. And if you’re waiting for the executive branch as an institution to help, then please let me introduce you to Messrs. Garland, Barr, Comey, Mueller, Strzok, McCabe, and Wray.
The last hope is the next president. In addition to declassifying everything (see my earlier article at Mises), he or she must pardon everyone ever convicted in any American court on grounds even indirectly related to any FISA warrant. (The list is very long.) The next president must also publish the names of everyone in the federal government who applied for, authorized, or executed any FISA warrants, so that victims can file civil motions seeking damages.
We go to the mat, in other words, or we lose the whole tournament. Either the next president declares war on the rest of the executive branch, and also on the legislative and the judicial branches, or the gestapo rules us all.
The war against liberty in America is very real, and it has been raging for a very long time. The latest FBI raid is simply that—the latest FBI raid. The real problem is systemic. If American patriots don’t get serious, now, about restoring liberty in the United States, we and our descendants will be slaves of the perfectly legal tyranny of our “constitutional” bondage—all nice and signed off on by federal judges.
Daniel McAdams of the Ron Paul Institute joins Jeff and Bob to discuss the economic and political ramifications of the Nord Stream 2 pipeline sabotage.
Read "The Economics of War" from Human Action: Mises.org/HAP363-1 Read a study Bob co-authored on Europe's energy crisis: Mises.org/HAP363-2
The surge of "progressive" prosecutors, many funded by George Soros, has been followed by increases in violent crime.
Original Article: "Are "Progressive" Prosecutors Real Reformers or Leftists Acting in Bad Faith?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Many mainstream economists believe that economic stability refers to an absence of excessive fluctuations in the overall economy. An economy with constant output growth and low and stable price inflation is likely to be regarded as stable, while an economy with frequent boom-bust cycles and variable price inflation would be seen as unstable.
According to popular thinking a stable economic environment with stable price inflation and stable output growth acts as a buffer against shocks, making it easier for businesses to plan. Thus, price level stability is the key for so-called economic stability.
Assume that people increase demand for potatoes versus tomatoes. This relative strengthening is depicted by the relative increase in the prices of potatoes. Successful businesses must pay attention to consumers’ instructions demonstrated by changes in the relative prices of goods and services, while failing to abide by consumers’ wishes will result to the wrong production mix of goods and services and will lead to losses. Hence, in our example, when businesses attention to relative changes in prices they will make correct decisions.
If the price level is not stable, then the visibility of the relative price changes becomes blurred and, consequently, businesses cannot ascertain the relative changes in the demand for goods and services and make correct production decisions, according to the economic mainstream. This supposedly leads to misallocation of resources and the weakening of economic fundamentals. Hence, unstable changes in the price level obscure changes in the relative prices of goods and services. Consequently, businesses supposedly will find it difficult to recognize changes in relative prices when the price level is unstable.
This way of thinking justifies the mandate of the central bank to pursue policies that will bring price stability—i.e., a stable price level, with price level stability measured by popular price indexes such as the Consumer Price Index (CPI). By means of various quantitative methods, the Fed’s economists have established the present policy of keeping price inflation at 2 percent. Any significant deviation from this figure constitutes deviation from the growth path of price stability.
Observe that Fed policy makers are telling us that they must stabilize the price level in order to allow the efficient functioning of the market economy. Obviously, this is a contradiction in terms, since any attempt to manipulate the so-called price level implies interference with markets and hence leads to false signals as conveyed by changes in relative prices.
Policy of Price Stability Leads to More Instability Assume the rate of the so-called price level visibly declines, so to prevent this decline the Fed aggressively pushes money into the banking system. Because of this policy the price level stabilizes over time.
Should we regard this as a successful monetary policy action? The answer is categorically no. Given that monetary pumping sets in motion the diversion of wealth from wealth generating activities to non-wealth-generating activities, this policy weakens the wealth generation process and leads to an economic impoverishment.
Note that the economic impoverishment has taken place despite price level stability. Note also that in order to achieve price stability, the Fed engineered an increase in the growth rate of money supply.
The fluctuations in the growth rate of money supply matter. This sets in motion the menace of the boom-bust cycle regardless of stability of the price level.
While increases in money supply are likely to be revealed in general price increases, this need not always be the case. Prices are determined by real and monetary factors. Consequently, if real factors are pulling things in an opposite direction to monetary factors, no visible change in prices might occur.
While money growth is buoyant, prices might display moderate increases. Clearly, if we were to pay attention to the so-called price level and disregard increases in the money supply, we would reach misleading conclusions regarding the state of the economy.
Price Level Cannot Be Ascertained Conceptually The whole idea of the general purchasing power of money and hence the price level cannot, be even established conceptually. When one dollar is exchanged for one loaf of bread, we can say that the purchasing power of one dollar is one loaf of bread. If one dollar is exchanged for two tomatoes, then this also means that the purchasing power of one dollar is two tomatoes.
The information regarding the specific purchasing power of money does not, however, permit the establishment of the total purchasing power of money. It is not possible to ascertain the total purchasing power of money because we cannot add up two tomatoes and one loaf of bread.
We can only establish the purchasing power of money with respect to a particular good in a transaction at a given point in time and at a given place. On this Murray N. Rothbard wrote:
Since the general exchange-value, or PPM (purchasing power of money), of money cannot be quantitatively defined and isolated in any historical situation, and its changes cannot be defined or measured, it is obvious that it cannot be kept stable. If we do not know what something is, we cannot very well act to keep it constant.
Now, the Fed’s monetary policy that aims at stabilizing the price level by implication affects the growth rate of money supply. Since a central bank policy amounts to the tampering with relative prices, which leads to the disruption of the efficient allocation of resources. As a result, a policy of stabilizing prices leads to overproduction of some goods and underproduction of other goods. This, however, is not what the stabilizers are telling us. Instead, they hold that the greatest merit of stabilizing changes in the price level is that it allows free and transparent fluctuations in the relative prices, which in turn leads to the efficient allocation of scarce resources.
Economic Stability Has Nothing to Do with Stabilizing the Economy We hold that economic stability is not about keeping prices stable but rather keeping price fluctuations free. Only in an environment free of government and central bank tampering with the economy free fluctuations in relative prices can take place.
This, in turn, allows businesses to abide by the instructions of consumers, which brings about an efficient allocation of scarce resources. We suggest that fluctuations in prices will mirror changes in the relative supply-demand conditions.
Summary and Conclusion Most economists believe price stability is the key to healthy economic fundamentals. A stable price level, it is held, leads to the efficient use of the economy’s scarce resources and, hence, results in better economic fundamentals. It is not surprising that the mandate of the Federal Reserve is to pursue policies that will generate price stability.
By trying to stabilize the price level, the Fed undermines economic fundamentals. An ever-growing interference of the government and the central bank with the working of markets moves the US economy toward persistent economic impoverishment resulting in lower living standards.
Nigel Biggar, a recently retired professor of theology at Oxford University, has never shunned controversy, as the title of one of his books, In Defence of War, suggests. In this week’s column, I’d like to examine an article of his, “A Christian Defense of American Empire,” that appeared in the October 2022 issue of First Things. As you might anticipate, I disagree with the article, but I’d like especially to call attention to an odd feature of it, other than the failure of its defense of the American empire. This feature will emerge in due course.
Biggar is entirely in the right that an American empire exists. He says,
Americans instinctively think of themselves as anti-imperialist…. Yet, in one of the ironies of history, America itself accumulated a considerable empire during the twentieth century, especially in its final decades. The American empire may be laundered by international institutions and slogans such as the “rules-based international order,” but it is an empire in all but name. It is not, perhaps, administered in the same direct fashion as Britain’s was, but it is certainly as vast and important, and as rigorously policed and controlled. (p. 38)
The American empire exists: Is this good or bad? Biggar thinks it is good because without it, there would be a Russian or Chinese empire dominating the world, and that would be worse. “Since the American imperial system offers a far better future for the peoples of the world than do its Russian or Chinese alternatives, Americans need to be clear-minded about its moral legitimacy and their duty to defend it” (p. 38). Biggar reiterates his argument in the article’s concluding sentences: “So now our freedom, and that of many others, depends on the will of Americans to sustain their nation’s imperial dominance. Let it not be said that Christians in the United States [who oppose empire] undermined that will and contributed to a world in which we all fall under Beijing’s yoke” (p. 42).
Biggar’s argument depends on the premise that there must be a single nation controlling the world. But why must there? Why not instead a system in which there are a number of competing nations, each eager to assert its own interests but none powerful enough to control all the others? It’s no doubt true that if a “power vacuum” exists, strong nations will rush to fill it, but it doesn’t follow from this that the end of the American empire would entail a vacuum of this sort.
Biggar might respond that his argument for American empire doesn’t entail the premise I have attributed to him, though I am confident it is one he in fact holds. He might say that whether or not there must be a single nation controlling the world, at present China and Russia aim to, so that is why America must stop them. He offers no evidence that either nation seeks world domination; although these nations seek to extend their influence, it does not follow that they aim to bring large numbers of foreign peoples under their control, and Biggar’s lament for the fate of the Uighurs is thus an ignis fatuus. Putin seeks a “Greater Russia,” but that is hardly global dominance.
Suppose, though, that I am mistaken and that these nations do seek world dominance. It would not follow that America needs to maintain an empire to stop them. If you fear that someone is going to take over your neighbor’s house, you need not take over the house to prevent this: perhaps judicious aid to the owner would suffice.
Let’s turn from the alleged need for an American empire to interdict the formation of other empires to the goodness or badness of empire in itself. Biggar acknowledges that empires sometimes do bad things but counters that they do good things as well. He offers no systematic attempt to weigh these goods and bads but rather leaves his readers with the unsupported claim that on balance the effects of empire have been good.
There is an odd feature of the way Biggar presents his case for American empire, though we haven’t yet reached the odd feature I said at the outset I would discuss. Suppose—though I certainly think this is false—that on balance the effect of American dominance over foreign countries has been positive (I suspect there are Vietnamese and Iraqis who would not think so). Why would America have the right to intervene in foreign countries to “improve” matters? If I see that you are profligate in your household expenditures and would benefit from sound financial planning, I do not thereby acquire the right to seize your bank account and impose a budget on you.
One gathers that Biggar would be averse to such talk of rights, at least where “inferior” peoples are concerned, and he has written a book, What’s Wrong with Rights?, skeptical of rights’ universal scope. He says at the start of his article, “There was a time when many people, at least in Europe, thought that empire was a good thing: It had ended inter-tribal warfare and brought humanitarian emancipation, modern science and technology, and moral and religious enlightenment to the benighted places and peoples of the earth” (p. 37), and I cannot escape the feeling that Biggar shares the sentiments of those who sought “Dominion over palm and pine”—of course in selfless service to others.
It is now time to make good on my claim that Biggar’s article has an odd feature. If you are writing in defense of the American empire, it seems obvious that most of your remarks should be directed to the good features of this empire, as it now exists. But in fact, Biggar devotes a substantial part of the article to arguing that the American revolutionaries against Britain exaggerated the evils of the British Empire. The colonists, he thinks, had some justified complaints, but the imperial authorities on the whole acted well. Even if this is right, so what? It does not at all help Biggar in making his case for American empire.
Readers of Biggar’s article old enough to recall the old Perry Mason television program may perhaps think of the oft-repeated phrase of Hamilton Burger, the district attorney, when making an objection: “Incompetent, irrelevant, and immaterial.”
The Fed's entire "strategy" can be summed up as "hike 'til it breaks, cut 'til it inflates." That's the best all those PhDs at the Fed have managed to come up with.
Original Article: "The Fed Is Finally Seeing the Magnitude of the Mess It Created"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Back in 1976, Joseph Salerno lamented that "there exists today in Anglo-American economics a veritable 'conspiracy of silence' regarding the works and achievements of the French Liberal School of Economics." Not a whole lot has changed since then, and the same can be said about the contributions of the French liberals—what are now called classical liberals—in general.
Indeed, to this day, few English translations—sometimes no English translation—exist of some key works of influential French liberals from the nineteenth century. Although the Anglophone world tends to minimize or ignore these liberals, their works were well-read not only in France, but throughout much of Western Europe as well.
Among the French classical liberals can also be found some of the most radical, as well. Specifically, Charles Comte, Charles Dunoyer, and Gustave de Molinari. Comte and Dunoyer were pioneers in developing the thought of the radical laissez-faire philosophy known as industrialism (industrialisme). As they developed their ideas in this area, they launched in 1814 the periodical known as Le Censeur Européen, which, according to Leonard Liggio, "had both an immediate and long-lasting impact on the social thought of the 19th century." Perhaps their greatest acolyte was Gustave de Molinari, who was editor of the highly-influential Journal des économistes from 1881 to 1909.
Among the French liberals of the time, it was easy to find theorists, scholars, and legislators—e.g., Frederic Bastiat—who advocated for generally free markets and for a much-reduced role for the French state in the economy. Most liberals had been influenced by Jean-Baptiste Say (whose daughter married Charles Comte in 1818), for example, and Say's work remained highly respected throughout the nineteenth century.
Comte, Dunoyer, and Molinari, however, took things much further in both their sociological and economic theories. In their consistent hostility to monopolist states, all three embraced various types of anarchism while defending secession and radical decentralization as key strategies in confronting state power.
Historian Mark Weinburg has done a thorough job in exploring what he calls "the basic anarchism in the thought of Comte [and] Dunoyer ... firmly rooted in an evolutionary concept of social development." Murray Rothbard described Molinari as essentially the founder of what came to be known as market anarchism or anarch-capitalism.
What I seek to focus on here, however, is the secessionism and radical decentralism found in the work of Dunoyer and Molinari.
Monopoly vs. Competition for States The foundations of these ideas were first laid in the earlier work of Comte and Dunoyer as they developedindustrialism which advocated for gradually replacing all political (i.e., coercive) state institutions with competitive private institutions. These private institutions would provide all the services that states claimed to provide, but at a lower price and without the exploitation present in all state relations between the ruling class and the productive class. Comte and Dunoyer developed these ideas into a complex theory of history. They added much to classical liberal exploitation theory as it developed in the nineteenth century before Marxists appropriated the idea for their own movement.
One core attribute of industrialism was the idea that states must gradually be forced to de-monopolize and be subject to competition from the private sector. This potentially included every state "service" from pensions to military defense. As Weinburg puts it, "Comte and Dunoyer saw the natural evolution of society bringing about the gradual replacement of political by market relationships."
This wasn't to say the process didn't need to be helped along through concerted activism. Comte was key in setting the stage for understanding the importance of reducing exalted state institutions to the same level of private competitors, but it was Dunoyer and Molinari who most carefully explored the ways that this might actually come about. For both men, a key strategy in this struggle was secession.
Dunoyer on Secession as a Strategy to the "Municipalisation of the World" David Hart notes that in Dunoyer's essay L'Industrie et la morale (Industry and Morality), he "provides the best summary of [his] 'industrial' political theory — a society so much under the influence of the market that there is no role for the nation state at all. All public goods would be provided by “industrial enterprises” or small-scale 'municipal' governments which would act much like their private counterparts."
This would replace the status quo system which Dunoyer saw as a system of overly large and overly diverse states. These states are deemed necessary on the grounds that they must pacify and force "unity" upon heterogeneous populations that lacked true common interests. Dunoyer contends, on the other hand, that radical decentralization of government institutions into more homogeneous municipality-sized functionally independent polities provides an alternative. He writes:
There are absolutely no forces at work in the industrial system which require such vast associations of people. There are no enterprises which require the union of ten, twenty or thirty million people. It is the spirit of domination which has created these monstrous aggregations or which has made them necessary. It is the spirit of industry which will dissolve them - one of its last, greatest and most salutary effects will be the “municipalisation of the world.” Under the influence of industry people will begin to govern themselves more naturally. One will no longer see twenty different groups, foreign to each other, sometimes scattered to the four corners of the globe, often separated more by language and customs than by distance, united under the same political domination. People will draw closer together, will form associations among themselves according to what they really have in common and according to their true interests. Thus these people, once formed out of more homogeneous elements, will be infinitely less antagonistic towards each other.
Dunoyer contends that this municipalization process will mean "[c]entres of activity will be multiplied" with more of them to compete with the old state-driven centers of power. At the root of all of this was the ultimate goal of the industrialist vision: make states so much like private competitive institution that states ceased to be very state-like at all.
Molinari on Secession As part of his drive toward imposing competition on states, Dunoyer had on several occasions suggested the idea that even the military and policing functions of the state could be taken over by competitive firms in the private sector. This was, of course, regarded as outlandish even among other radical liberals in Dunoyer's circles.
Dunoyer's disciple Molinari took the idea several steps further, and Molinari is perhaps best known today for this book De la Production de la Sécurité (The Production of Security). In this, Molinari further builds upon Dunoyer's vision of multitude of "states" that function more like business enterprises. Like Dunoyer, Molinari also understood that this necessarily implies that states will no longer be able to dominate society from large national administrative centers.
Rather, the goal for Molinari became "the diffusion of the state within society," by which states are made essentially indistinguishable from countless private competing organizations that already exist. Molinari writes in L’évolution politique et la Révolution (Political Evolution and Revolution):
Instead of absorbing the organisation of society, according to the revolutionary and communist notion, the Commune and the State will be dissolved into [society itself]. [The states'] functions will be divided up and society will be made up of a multitude of (business) enterprises, under the control/ sway of the common/shared necessities which come from their particular nature, associations or free states (des unions ou des États libres) each of which will exercise/carry out a special function. Thus the future will belong not to the absorption of society by the state, as the communists and the collectivists claim, and not to the abolition of the state as the anarchists and nihilists dream of, but to the diffusion of the state within society. This, to recall/remember the famous saying, is “l’État libre dans la Société libre” (a free state in a free society).
It is difficult to see how this would be brought about without a process of radical decentralization through secession. Molinari apparently saw this as well since at various times throughout his career he embraced secession as the natural outgrowth of his efforts to cripple states' monopoly powers. For example, early in his long career, in the 1840s, Molinari was already noting the importance of secession in subjecting states to competition. In 1854's Cours d’Economie Politique (A Course in Political Economy) Molinari wrote:
The notion of subjecting governments to the regime of competition is still generally regarded as chimerical. But the facts on the question are marching ahead of theory. The "right" of secession which is making some progress in today's world will necessarily establish "liberty of government." When this principle has been recognized and applied to its fullest natural extent, "political competition" will act as a complement to competition in agriculture, industry and commerce."
Over the next three decades Molinari developed a more detailed explanation of the necessity of secession. Hart provides perhaps the most succinct summary of Molinari's thinking here, so it is worth quoting at length:
[In his 1887 book Les Lois Naturelles de l'Économie Politique, (Natural Laws of Political Economy) Molinari] ... discuss[es] how overtaxed and under-serviced inhabitants of a commune might go about freeing themselves from their political servitude, which brings him to the question of the right to secede. He discusses the plight of a wealthier region in a commune resenting the fact that they are being overtaxed to subsidize the services provided to a poor part of the commune. If the region is relatively small, they can emigrate to another lower taxed commune (which is a right they currently have). If the region is larger he thinks they should have the right to secede and form their own independent commune or to merge with a neighboring adjacent and lower taxed commune (this is a right they do not have under the current regime). Molinari argues that they should have this right and that this right is a double edged sword, that it is “un double droit de sécession” (double right of secession) where the commune can secede from the province, and the province can secede from the central state. This double threat of secession he believes would be a powerful force to keep the costs of government down to a minimum as each level of government would be most reluctant to lose too many of its taxpayers, and it would force each one to provide better services by contracting out to private companies (as described above) to attract more people to its locality. The costs of government overall - communal, provincial, and national - would be reduced by these multiple competitive forces to a single user fee or subscription (cotisation) which would be the bare minimum necessary to proved these “naturally collective” or public goods and services. This “double right of secession” would create “a double form of competition” (cette double concurrence) which would be brought to bare on the provision of services.
Secession was also important for Molinari because he, like Dunoyer and Comte before him, understood the limitations of constitutional governments that only theoretically secured rights for their citizens. The political theorists of the French Enlightenment had promised that a properly constructed national constitution would sufficiently protect the rights of citizens while simultaneously establishing a unified nation-state. Yet, in spite of the many "checks and balances" proposed by Montesquieu, for example, these constitutional and republican guarantees had ultimately failed. Secession thus adds a much-needed additional safeguard. Molinari notes:
[U]nder the present regime, the communes have no effective means of protecting themselves against the poor quality or the excessive price of the services provided by the provinces, any more than (they have) against the unwarranted multiplication of these services, and the province is disarmed/exposed in the same way vis-à-vis the central state.
Needless to say, the central state benefits from this arrangement, and as Molinari writes in his Society of the Future (Esquisse de l'organisation politique et économique de la Société future), states naturally fight against secession on the grounds it would weaken the state. States thus have a tendency to create national mythologies around the state supposedly being "one and indivisible." States also tend to promote contradictory positions on whether or not communes (municipalities) and regional governments are ever to be respected in their efforts at self-determination. The contradiction arises from the fact that this local sovereignty is generally respected only at the phase when central states add new regions and municipalities within their borders. At this stage, agents of existing states are often willing to respect the idea that "a population which has emerged from a state of subjection, and has acquired 'ownership' of itself, cannot be separated from one nation and annexed to another without its own consent."
Yet this right to local self-determination is only tolerated up until a commune or regional makes the decision to join with another state. After that, local sovereignty is suddenly null and void. As Molinari puts it:
The second, and contradictory, deduction—issuing this time from the theory of national indivisibility—refuses any right of secession from the State, and this refusal has been sanctioned by rigorous penalties, as if the right of accession to a State did not include the liberty of a withdrawal. The United States interpreted the modern theory of sovereignty thus. The English Colonies voluntarily incorporated themselves in the Union, but when the Southern States desired to withdraw the Northern States compelled them to remain in it by force of arms. In point of fact, the liberty enjoyed by populations voluntarily annexed or united is limited to a right of changing the form of their subjection. They were subject to an oligarchy, personified in a more or less absolute king; they are now the subjects of a nation, whose mouthpiece is a constitutional or republican government
For Molinari, then, secession was important as both a backstop for a failed constitutional order, and as a strategy for reducing the overall monopoly power of states. The ultimate goal, however, was never to enhance the powers of communes or provinces or municipalities, but to provide mechanisms for decentralizing political power, weakening central states, and subjecting states to more rigorous forms of competition. As radical liberals, of course, Comte, Dunoyer, and Molinari were primarily concerned with protecting the natural rights of individual persons. To do so, however, required radical new ways of confronting allegedly "indivisible" states and monopolistic state institutions. Radical decentralization, whether through outright secession or through the "municipalization of the world" offers a way out.
The link between the transatlantic slave trade and industrial growth in Britain is a recurring theme in public discussions. There is a widespread assumption that the profitability of the slave trade requires Britain to compensate the descendants of Africans, since slavery helped to enrich some institutions. It is true that the slave trade made profits, but its contribution to the economy was marginal. Technological change rather than the slave trade was the force that propelled the Industrial Revolution.
Studies examining the profitability of the slave trade have also failed to account for the impact of British human capital and institutional innovations on the viability of the trade. Slave trades have been ubiquitous throughout history, yet we know considerably less about how non-Westerners deployed human capital to increase the viability of slave trading. If human capital and institutions had not been leveraged, the transatlantic trade would have delivered meagre returns for Britain and her peers in Europe.
Economists are wrong to assume that all regions could efficiently entertain trade on a global scale. Before the eighteenth century, shipping in Europe was already a high-tech industry employing quality labor. Maritime workers were known for having higher levels of human capital, and the English were particularly talented. Europe not only constructed sophisticated ships, but the quality of its shipboard personnel was also relatively high.
Stephen D. Behrendt opines that human capital was a seminal factor in Liverpool’s eventual dominance in the British slave trade. The availability of experienced personnel made it easier for merchants to organize ventures and expand market options in Africa. Suffering from a shortage of human capital could severely derail the productivity of the slave trade. For example, the paucity of trained personnel in London restricted the volume of trade in Africa to 15–25 voyages annually.
Success in the slave trade was inextricably linked to human capital and organization. Africans and Arabs traded slaves for centuries, but they failed to build formal structures that could increase competitiveness beyond a nontrivial level, as Europeans did. Institutions like the Dutch East India Company, the Dutch West India Company, and the Royal African Company were launched to aid the efficiency of European trades. Europeans applied an economic approach to the business of exploitation, and the British were the most successful.
Literature on the Dutch, Danish, and French slave trades suggests that merchants in these countries were less equipped to minimize problems linked to the slave trade. Unlike Britain, her closest competitor, France did not modernize its entrepreneurial and banking practices during the seventeenth and eighteenth centuries, and as a result, the lack of innovation in the financial sector impeded industrial expansion. However, Britain pursued several strategies to boost the performance of the slave trade.
Nicholas Radburn credits Britain’s success in the trade to the “bills in the bottom” credit mechanism: “First introduced by Liverpool merchants in the 1750s, merchants received bills of exchange for the proceeds of their American slave sales in the ship or ‘bottom’ that delivered the captives, in lieu of produce or the planters’ own bonds. These bills were drawn upon and guaranteed by British bankers, a departure from earlier credit arrangements, which had only been between a captain and a planter or factor.”
By deemphasizing personal networks that relied on family and kinship ties, these bills fostered broader collaborations that led to the emergence of modern financial institutions. Quoting the research of Robin Pearson and David Richardson, Radburn purports that the use of such bills explains the difference in performance between the French and the British:
“Bills in the bottom,” argue Pearson and Richardson, “promoted the unprecedented expansion of [the British slave trade] between 1750 and 1807,” and enabled British slavers to escape the pitfalls of colonial debt security, which had plagued the trade in the 1730s. French slave traders, by comparison, employed the “triangular trade” method of remittance throughout the eighteenth century, in which slaver captains brought home a portion of the sales in tropical commodities, and the balance as credit extended directly to the planters.
Insurance was another key mechanism that stimulated the British slave trade. The availability of insurance for ships and human cargoes incentivized the slave trade by mitigating risks in the event of a loss. The British slave trade gained profits due to the incorporation of mechanisms that made it feasible to trade humans. Discussing the slave trade evokes emotions, but it was also a commercial activity, and in business, better organized and smarter people will evidently outperform their rivals.
Indeed, the slave trade was horrible, but logic should temper emotions. By analyzing the issue, it becomes obvious that the slave trade yielded profits due to the human capital and institutional advantages of Britain and her European peers. The slave trade was not unique to Europeans, but theirs was relatively successful because of European human capital. Moreover, if people require apologies for past atrocities, they must also demand atonement from Africans and Arabs for their participation in slavery and the slave trade.
Some might argue that the success of Europe stems from exploitative activities like the slave trade and colonialism to comfort themselves, but the truth is that Europe’s prosperity is largely a result of human capital and European institutions.
Ryan and Tho talk with Mises.org author and German native Rosanna Weber about the energy crisis in Germany. German policymakers have greatly worsened the ongoing energy crisis in Germany by abandoning nuclear energy and taking a hard line on Russian natural gas. Now with the damage done to the Nord Stream pipeline, German consumers face even fewer options as winter approaches.
Rosanna Weber is a graduate student in Economic History at the London School of Economics and a freelance journalist.
Recommended Reading "Germany's Nuclear Choice: Russian Energy Crisis Forces a Reckoning" by Rosanna Weber: Mises.org/RR_101_A
"Eat or Heat: Europeans Already Are Facing Previously Unthinkable Dilemmas" by Claudio Grass: Mises.org/RR_101_B
"Europe Ditched Russian Energy. Now People Are Sitting in Line For Days to Buy Coal. Is Biden to Blame?" by Alice Salles: Mises.org/RR_101_C
"Germany's (and Europe's) Self-Inflicted Upcoming Energy Crunch" by Weimin Chen: Mises.org/RR_101_D
"The 'Stunning Success' of the Green Revolution Is Yet Another Progressive Myth" by Kristoffer Mousten Hansen: Mises.org/RR_101_E
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
While officials in the White House, Treasury, and the Fed give the appearance of being in control, but in truth, they cannot undo the damage they have done.
Original Article: "Despite Their Hubris, Monetary Authorities Do Not Have Total Control"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Many years ago, in his “Unscrambling Socialism” (Notes from FEE, November 1964), Leonard Read wrote:
Any adept student of human action knows that it isn’t enough merely to “drop anchor” in today’s sea of socialism, that is, to stop where we are. The U.S. is already playing host to more parasitic socialism than the economy can sustain … [and] there comes a point in time in growth when any parasite will destroy its host.
That statement seems far truer today than nearly any time in my memory, where what Albert Jay Nock once called octopean government has seemingly grown even more appendages and used them more aggressively against citizens. And calling socialism a parasite on the economy is insightful because it helps us see how socialism resists planned efforts to displace it:
Consider socialism’s double-barreled definition: the state ownership and control of the means and/or the results of production. Give it entry into any area and socialism insinuates itself into the warp and woof of the activity; it becomes embedded in the mores, the traditions, the way of life. Immediately there develops a stubborn vested interest to assure its continuance; it infects the economic, social, and political bloodstream.
Read then turned to the thorny question of how to successfully rid ourselves of this parasite, now even more important after several decades that have left us far more socialized than when he wrote:
How are we to break out of … any of the … many socializations? … thousands are asking how to engineer the dismantling of this labyrinthine growth, but not a one can blueprint the procedure; none ever will. Drafting a plan for riddance of socialism is like trying to find a formula for unscrambling an egg.
Read explained why a socialistic centralized plan will not work to defeat socialistic parasitism:
Escape is predicated on … dismiss[ing] the thought of engineering or planning socialism’s uprooting, and … an expanding appreciation of how a seeming chaos of initiatives and skills will miraculously combine, when free to do so, into ordered patterns of creative phenomena. In short, a growing comprehension of the miracle of the free market—a comprehension all too rare today.
Using the example of how someone trying to design how mail would be delivered in a free market, Read goes further:
Unable to think how he would deliver mail … unable to design or engineer the project in his own mind—that is, being unaware of how the market really works—he will likely draw the socialistic conclusion…. Mail delivery is a job for government.
[But] No one person can or ever will attain to such comprehension … free market mail delivery would be accomplished, not by any masterminding but in precisely the same manner as has voice delivery and all other creative phenomena: millions of tiny “think-of-thats,” in a chaos which defies cataloguing, ending up in … fantastic order.
It is this seemingly chaotic (in the sense of not being subject to anyone’s unilateral control) order that has advanced people’s well-being, rather than unilateral controls and those who impose them, which undermines it:
Natural and spontaneous configurations of creative ideas account for our economic and social blessings.
However, no one knows how to correct all the embedded socialist errors that have crept into almost every nook and cranny of society. In fact, it is harder than how to make a pencil, Read’s most famous illustration, because the protection of individual property rights mean that voluntary arrangements need only be worked out among those whose rights are involved in making a pencil, while every socialistic restriction hinders all efforts to instead produce nonparasitic results:
The point we must bear in mind is that socialism itself is but the political outcropping of a plurality of false ideas, notions, passions, plausibilities and emotions … all the way from doing good to feathering one’s own nest—all at the expense of others! To conclude that anyone can engineer or blueprint the eradication of these errors is no more valid than to believe that someone knows how to make a jet plane or to deliver mail. Plan an erasure of these myriad misconceptions from the minds of millions of unknown persons? … To fasten the eye on a design or an organized scheme or a blueprint to bring about socialism’s demise is to fritter away one’s time and energy.
Read suggests that rather than trying to plan the demise of socialism, we should instead focus our attention on building a good society:
A good society cannot emerge from the drafting board. Rather the good society is a dividend which automatically flows from antecedent virtues and talents…. And the shrinking or the withering away of socialism will come about, if at all, as a natural by-product of numerous antecedent actions that are meritorious in and of themselves.
Unsound ideas lead to socialism, just as sound ideas make for a good society.
Unsound ideas will produce their bad fruit until sound ideas prove acceptable. In short, its largely a matter of displacement or replacement. Any idea, right or wrong, will revert to an insignificant role if the value judgements of men do not approve it.
So how would a focus on a good society displace socialistic errors? Read continues:
Unsound ideas will lose authority whenever their intellectual source peters out, that is, whenever the intellectual source of sound ideas attains a dominant position … [so] socialism will shrink into historical oblivion whenever little or nothing is done to preserve it.
With the unsound ideas which underlie socialism: take no steps to preserve them but, instead, fasten attention on the sound ideas which give support to the free market and the good society. When we pursue high purposes, natural forces do their clean-up work for us as a dividend for having set our sights aright.
[Consequently, under this approach] We do not need to know how to mastermind or blueprint the unscrambling of socialism; we need to know little else than how to win Nature as an ally … with men of good faith, she will cooperate.
Leonard Read believed that a single plan for eliminating socialism everywhere was a pipe dream, because no one knows enough to make such a plan effective. In contrast, better ideas and better results from freely chosen, voluntary arrangements, when and where they are implemented, have the potential to unfasten parasitic government from draining our lives, liberties, and properties in those areas, and inspire other similar efforts. It is still a daunting task, but only principles of self-ownership and freedom, in the minds and hands of principled adherents, make it possible at all.
Why does money have value? Typical economists claim that money is valuable because the government declares it so. But that is impossible, given the true origins of money, which are best explained by Austrian economists.
Original Article: "Do People Accept Money Because Government Endorses It?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It may sound like a bad joke, but several central banks actually claim this. On the website of Sweden’s central bank, the Riksbank, you can read it both in English and Swedish. In English, the statement says: “The Riksbank is Sweden’s central bank. We ensure that money retains its value (over time).” The Swedish version translated to English says the same but with the words “over time” added.
England’s central bank, the Bank of England makes a similar statement on their website, saying: “We guard the value of your money by keeping prices stable.”
Then there is Bank of Canada: “We are Canada’s central bank. We work to preserve the value of money by keeping inflation low and stable.”
I sent an email to the Riksbank about this and asked them how they could possibly make such a statement, and how they define the term value. A week later I received an answer where they said that by “money retaining its value” they mean that the Consumer Price Index (CPI) should steadily increase in a “slow” pace (2 percent per year).
“Most other central banks, like the FED define price stability in this way,” they added. Sure, most central banks try to fool us into thinking that we need inflation to survive and that prices must rise to keep the economy going.
What Is Wrong with the Central Banks’ Statements As you can see, they claim that as the CPI rises due to an increased money supply, money retains its value (price). But if CPI rises, then logically the value of the marginal unit of money falls. Price stability is defined by most central banks as an increase in CPI by approximately 2 percent per year.
However, prices for various goods and services do not increase evenly when the money supply is inflated. Orange prices may rise 1 percent, while house prices may rise 15 percent. Blind to the fact that the use of any good is subjective, it should be noted that most countries do not include houses in CPI since they view them as capital goods.
The fact that money is not neutral benefits the earlier recipients of new money at the expense of the later recipients. Newly injected money into the economy, hence, create larger price increases where they are first injected, known as the Cantillon effect.
Central banks also confuse value with price and the price of money with the price of CPI. Not surprisingly, central banks are created on faulty economic theory. It is common in everyday speech to refer to price as value, but they are two different things.
Price is a current exchange ratio between goods and/or services and money being traded. Carl Menger explained the concept of value brilliantly in his book Principles of Economics: “Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.”
Conclusion Kings and governments found out early that they could expand their power and increase their wealth by monopolizing the issuing of money. Thus, by making the rulers’ money the only legal tender, even fiat money was still valued by the majority, since alternatives were illegal.
After the gold standard was suspended, the governments normally kept the gold and let the paper money circulate without being redeemable. Since the unredeemable fiat money is still the only legal tender, not too many people think twice about it.
In a way, you can say that the central banks in collusion with the governments preserve the value of money. But the only way it preserves the value is by forcing people not to use any alternatives and thereby the great majority values government money, no matter what.
If people really were to think about it, would they value money that went up in price over time or money that went down in price? Consider the (approximate) prices of these commodities during the last one hundred years:
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The price (the purchase power) of the US dollar is down 94.34 percent
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The Swedish krona is down 96.61 percent
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The Canadian dollar is down 94.05 percent
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The British pound 97.08
Meanwhile the silver spot price is up 3033 percent and the gold spot price is up 8591 percent.
It should be noted that gold and silver prices rise due to monetary inflation, as does any other commodity. However, in terms of measuring CPI, the two metals serve as a “hedge against inflation.” The precious metals have been valued for thousands of years for its monetary advantages, beauty, and industrial purposes. Fiat money, on the other hand, is valued because it is the only legal option as money and because most people do not understand basic economics.
All that being said, a more appropriate statement by all central banks should read: “We are a central bank, and we ensure money is still valued by monopolizing the issuing of money.”
But that, of course, is wishful thinking.
David French, maybe National Review’s most reliably wrong scribe, issued this gem in response to the FBI raid on Donald Trump’s residence in Florida:
french2_2.jpg
Imagine thinking federal police agents and lawyers will be “held accountable,” or that presidents are not above the law! Is this an afterschool special? “Let’s wait and see, folks, before we judge the situation. It might be perfectly on the up and up! Have faith in the rule of law and trust the process!”
French, in keeping with the listless residue of Conservative Inc., either can’t or won’t face the reality of postgoodwill America. This starts and ends with politics. If politics is war by other means, subterfuge is part and parcel of every battle and skirmish in that war. We are not required to take a combatant’s claims at face value, blundering ahead like Lucan and Cardigan at Balaclava. The contrary, in fact. Any political statement made today, by any politician or candidate or public official, can be answered thus: “We don’t believe you.” And with this comes a corollary: “We don’t trust you.”
When the Left talks about banning assault rifles, for example, we all know the true ambition of the gun controllers—many of whom are open and honest about their desire to completely eliminate private ownership of firearms in America. Progressives apply the same lens to bans on late-term abortion. But the Trump era, enhanced by the perverse dopamine incentives of social media, took this disbelief and distrust to a new rhetorical level. Witness today’s poisonous political lexicon, one that makes clear any presumption of good intentions is gone: insurrection, treason, racist, Nazi, fascist, domestic terrorist, MAGAt. These terms are not used to persuade, but to dehumanize and banish. Which of course is nothing new in politics. But it’s worth pointing out the Frenchist folly of claiming that democratic norms are poised to reassert themselves and bring us together once Orange Man is gone.
The FBI raid on Mar-a-Lago is an obvious example of America watching two politicized movies. We are not required to judge it apart from the broader political context, like children examining a single rock. The entire event is bound up with the larger war against Trump, one which began almost immediately after he was elected, with the Russiagate campaign. The goal of that ongoing war is to ruin both Trump and his family, salting the earth with their populist movement of Deplorables. Trump and his supporters must be destroyed politically (at the very least), ensuring Trump cannot run for president again but also that no candidate outside the uniparty’s acceptable parameters can ever run again. So one of the most important campaigns in America’s political war effectively seeks to criminalize a whole category of dissent—or at least place dissenters outside the bounds of acceptable society. If you doubt any or all of the 2020 presidential election results, you are an election denier. If you protested at the Capitol, you are an insurrectionist. If you question Russian collusion, you are a Putin supporter. And so forth.
We have not seen the FBI’s warrant or the supporting evidence presented to the magistrate. Was the raid an actual step toward a criminal prosecution? What were the actual crimes contemplated and the specific evidence sought? We don’t know, but at this point, it doesn’t matter. Merrick Garland surely knew Republican partisans would view the raid as pure political harassment, a warning to Trump, his family, and close associates. He also surely knew that many Democratic partisans hope to gin up legal arguments to disqualify the former president from running again (either under the Fourteenth Amendment or, more dubiously, under this federal statute). And of course he knew a media brouhaha would ensue. So there are two broad but conflicting interpretations of Garland’s actions. First, he is a brave defender of the rule of law who doggedly follows the evidence wherever it goes, with no consideration for politics, appearances, or timing whatsoever. Second, he knew exactly how ardent Trump fans would react to the warrant and seizures, and actively intended this effect. In other words, he intended to send a threatening message and quell political enthusiasm for Trump 2024.
Decent people can and should resist a world organized around politics, and deplore the politicized state of America. Ordinary Americans don’t want to live political lives and have their personal and professional relationships defined by this terrible environment. But politics is interested in us, as the saying goes. So we arm ourselves with a clear-eyed worldview, put away childish things, and never accept political pronouncements at face value. “We don’t believe you” is always the default position.
At the urging of the United States, Germany and other European governments have levied sanctions against Russia. In reality, these governments have levied sanctions against themselves and their citizens.
Original Article: "Germany's (and Europe's) Self-Inflicted Upcoming Energy Crunch"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Money supply growth fell again in August, dropping to a 36-month low. August's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years. During the thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent year over year, well above even the "high" levels experienced from 2009 to 2013.
During August 2022, year-over-year (YOY) growth in the money supply was at 4.35 percent. That's down from July's rate of 4.84 percent, and down from August 2021's rate of 8.28 percent. The growth rate peaked in February 2021 at 23.12 percent.
The growth rates during most of 2020, and through April 2021, were much higher than anything we'd seen during previous cycles, with the 1970s being the only period that came close. Since then, however, we have seen a fast fall from previous highs and such rapid declines generally point to economic contraction in following months.
The money supply metric used here—the "true" or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates. In August 2022, the M2 growth rate was 4.077 percent. That's down from July's growth rate of 5.25 percent. August's rate was also well down from August 2021's rate of 13.42 percent. M2 growth peaked at a new record of 26.91 percent during February 2021.
Money supply growth can often be a helpful measure of economic activity, and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession.
Another indicator of recession appears in the form of the gap between M2 and TMS. The TMS growth rate typically climbs and becomes larger than the M2 growth rate in the early months of a recession. This occurred in the early months of the 2001 and the 2007–09 recession. A similar pattern appeared before the 2020 recession.
Notably, this has happened again beginning in May this year as the M2 growth rate in fell below the TMS growth rate for the first time since 2020. Put another way, when the difference between M2 and TMS moves from a positive number to a negative number, that's a fairly reliable indicator the economy has entered into recession. We can see this in this graph:
In the two "false alarms" over the past 30 years, the M2-TMS gap reverted to positive territory fairly quickly. However, when this gap firmly enters negative territory, that is an indicator that the economy is already in recession. The gap has now been negative for 3 of the past 5 months. Interestingly, this indicator also appears to follow the pattern of yield curve inversion. For example, the 2s/10s yield inversion went negative in all the same periods where the M2-TMS gap pointed to a recession. Moreover, the 2s/10s inversion was very briefly negative in 1998, and then almost went negative in 2018.
This is not surprising because trends in money supply growth have long appeared to be connected to the shape of the yield curve. As Bob Murphy notes in his book Understanding Money Mechanics, a sustained decline in TMS growth often reflects spikes in short-term yields, which can fuel a flattening or inverting yield curve. Murphy writes:
When the money supply grows at a high rate, we are in a “boom” period and the yield curve is “normal,” meaning the yield on long bonds is much higher than on short bonds. But when the banking system contracts and money supply growth decelerates, then the yield curve flattens or even inverts. It is not surprising that when the banks “slam on the brakes” with money creation, the economy soon goes into recession.
In other words, a sizable drop in the TMS growth levels often precedes an inversion in the yield curve, which itself points to an impending recession. Strong recession signals can be found elsewhere, as well. GDP growth turned negative in both the first and second quarter of this year, and two consecutive quarters of negative growth virtually always indicate recession. Average national home price growth in the US has recently turned negative for the first time in a decade. Real weekly earnings have gone negative for the past 17 months in a row. Consumer debt is surging as consumers borrow more money to make ends meet in this inflationary environment.
In other words, numerous other indicators point to just what we would expect: economic weakness and recession following a drop in money supply growth.
Since at least the beginning of the Russo-Ukrainian war, we have witnessed many efforts to pin blame for the conflict not only on the Russian regime, but on virtually all of the Russian people as well. Back in June, for example, the Western media was already in the habit of publishing long, detailed articles explaining why ordinary Russians are morally culpable for the war in Ukraine.
Consider this piece in Canada’s National Post, which approvingly quotes former Russian pollster Elena Koneva, who concludes ordinary Russians are “100-per-cent responsible” for the war. On what does she base this? She bases it on polling showing that barely a majority—53 percent—of Russians back the war. The National Post article is hardly unique. A Google search of “are the Russian people responsible for the war” returns plenty of incoherent takes on how all Russians are morally at fault for what the local regime does.
The most enthusiastic backers of this blame-every-Russian philosophy can perhaps be found in Eastern Europe, where the local regimes often benefit from stoking nationalist fervor against the past crimes of Russian and Soviet regimes.
Politicians from the Baltics have used this philosophy in recent weeks to call for the European Union to close its borders to Russians. Last week, for example, Lithuanian interior minister Agnė Bilotaitė insisted that since a majority of Russians (presumably) support the war, it is “unacceptable” that these people (i.e., ordinary private citizens) can “freely travel around the world.”
In perhaps the most blatantly incoherent example of this philosophy we’ve seen, Estonia’s prime minister, Kaja Kallas, has flatly stated that “every citizen is responsible for the actions of their state, and citizens of Russia are no exception.”
Kallas’s claim, however, is frankly absurd. It is most certainly not the case that every citizen—or even most citizens are responsible for the actions of their regimes. We can easily see this if we look to a variety of other regimes. For example, if we use Kallas’s logic, we must conclude that the Estonians themselves were personally responsible for everything the Soviet state did from 1944 to the time Estonia seceded from the USSR in 1991. The Estonians were Soviet citizens during this time. Were they all guilty of the invasion of Afghanistan and every other human rights violation hatched in Moscow? Similarly, by this logic, lowly Okinawan fishermen were responsible for the Rape of Nanking. The poorest British chimney sweep was responsible for the Boer War, and Saint Paul (a Roman citizen) was responsible for the Jewish-Roman war of 66 AD. Only the most fanatical ideologue would agree these statements are true.
Of course, some might then claim that collective guilt only applies in democracies. This claim doesn’t hold up either. By this logic, all Germans were responsible for the Nazi regime’s actions during the 1930s, whether or not they voted for the National Socialists in 1933. Moreover, by this way of thinking, the poorest Appalachian coal miners were responsible for the US bombing of Cambodia, and even the most avid Thatcher hater in Britain was responsible for the United Kingdom’s operations in the Falkland War. Moreover, in many democracies, the ruling party is elected with only a bare majority of the voters—and the voters who elect the ruling party are themselves a clear minority of the overall population. In 2016, for example, only 19 percent of the US population voted for Donald Trump. How this works out to a majority of the population being “responsible” for the Trump administration’s policies is not at all clear.
Another major reason for the lack of guilt among ordinary citizens of a regime is the fact that most regimes—whether democracy or autocracy—hide immense amounts of information from their own people. This is especially the case with foreign policy; regimes routinely withhold the facts from the taxpayers under the guise of state secrecy for purposes of “national defense.” Are Americans guilty of whatever the CIA is up to this week? How are Americans to even know in real time what their regime is doing? The fact is they don’t know, and few of them even have the free time to keep track of the details. (God forbid people choose to spend their free time bonding with their children and earning a living.) But even for those who attempt to seek out such information, the state has such a firm grip on media and public education that becoming truly well informed is a daunting task indeed.
Kallas’s claims do make sense in the twisted logic of modern nationalism, however. The nationalist ideology—perhaps history’s most successful ideology—conflates the interests of the regime with the interests of ordinary people. It attempts to erase the distinction between the exploited masses—those who are taxed to support the regime—and the regime itself. Once these two groups could be merged, we were told the regime itself was simply carrying out the so-called volonté générale, or national will. This was a legacy of the rise of nationalism that came in the wake of the French Revolution and solidified our modern notions of citizenship and national guilt.
But it was not always this way. As Martin Van Creveld notes, the regime under which one lived was not always an important part of how one was viewed by other or even by himself. Eventually, though, “citizenship” became psychologically important and shaped modern views of how foreign citizens are to be viewed in times of war. Van Creveld writes:
In day-to-day life, the question of whether one was a citizen of this state or that became one of the most important aspects of any individual’s existence besides the biological facts of race, age, and sex…. As late as the end of the ancien régime, Lawrence Sterne, author of A Sentimental Journey, was able to travel from Britain to France even though they were at war with each other; and, having arrived there, to be received with every sign of honor in the social circles to which he belonged. However, the nineteenth century put an end to such civilities.
All states during wartime, and some during peacetime too, imposed restrictions on whom their citizens were and were not allowed to marry; while hostilities lasted, enemy nationals were likely to be interned and have their property confiscated.
“Citizenship,” however, is just a legal and ideological fiction and hardly makes a taxpayer an integral part of the state machine. Yet the novel nationalist ideological innovations in the nineteenth century led many to conclude that the citizens of an enemy state were also themselves the enemy.
This way of thinking was expanded in the twentieth century to the point it enabled any countless number of war crimes and actions against noncombatants. Historically, the same sort of thinking has been used to justify terror bombing (such as the firebombing of Dresden) and the starvation blockade inflicted on Germany in the First World War. The fact that such indiscriminately deadly policies can be thought morally justified at all relies on a general feeling that the common people in foreign states are somehow personally responsible for the crimes of their governments. Thus, to burn to death one hundred thousand civilians in one night—as happened with the firebombing of Tokyo—can be written off as a matter of foreigners “bringing it on themselves.”
The idea certainly continues today and lives on in the idea of “little Eichmanns” forwarded by some theorists on the left. This justifies various forms of terrorism on the notion that even seemingly harmless people are ultimately enablers of the worst crimes committed by the states under which they live. Thus, as Ward Churchill contended in his book On the Justice of Roosting Chickens, the office workers in the Twin Towers were only “civilians of a sort,” and thanks to the bombings, they suffered a “penalty befitting their participation” in the American war machine.
This position is ultimately indistinguishable from Kallas’s idea that “every citizen is responsible for the actions of their state.” It is a very dangerous idea indeed, and nothing better than a regrettable legacy of the barbaric twentieth century.
Who frames the “climate” debate in this country? Or any political debate, for that matter?
We all know the answer. Left progressives have mastered the emotive art of posing supposedly good intentions as actual arguments. They enjoy a childlike state of suspended disbelief that allows them to insist reality can be legislated. Being progressive increasingly means never accepting responsibility for the plainly foreseeable consequences of your proposed policies.
How many times have you found yourself explaining rather than asserting, arguing from your heels rather than requiring your interlocutor to make a positive case for state intervention to fix X, Y, or Z? We see this across a wide range of issues: making the case for government action satisfies the urge to do something (Save the Planet! Flatten the Curve!), while making the opposite case requires refutation and inferential thinking. Sound bites and slogans beat reasoned arguments.
Global warming, climate change, the Green New Deal, and environmentalism in general are pointed examples. The Left successfully frames these phony issues as urgent existential threats to humanity that only immediate government action can eliminate. This puts realists and market economists immediately on a defensive footing. Question begging is the order of the day, as in “Why don’t you care about the earth overheating?”
But we have good news. Our cover story features Alex Epstein, a brilliant young thinker who intends to reframe this debate entirely. Mr. Epstein is the author of Fossil Future, a remarkable new book that ranks among the most important you will ever read. Energy from fossil fuels, he explains, is part and parcel of human civilization and our entire material existence. He shows how the growing movement to restrict or even ban the use of oil, natural gas, and coal is not only delusional in terms of sustaining that existence—at least for the foreseeable future—but also profoundly antihuman.
While he provides mountains of data to advocate continued (and growing) fossil fuel use, the book’s most important contribution may be flipping the script on supposed environmentalists. Under Epstein’s rubric, the question is not “How do we achieve zero human impact on the environment?” but rather “How do we use energy to help create a world of greater human flourishing?”
The first question creates an impossibly loaded goal, literally never achievable but ideal for demonizing human industry and activity. It’s the perfect progressive framing. The second, by contrast, forces antienergy advocates to admit that the well-being of humanity is not their chief concern. It positions humans, energy, and the physical planet as cooperative parts of a whole. And it places the burden of proof squarely on the “catastrophizers” (Epstein’s great term) to justify upending our standard of living to impose their dubious green energy agenda, necessitated by a wholly unproven crisis.
Needless to say, Mr. Epstein has his critics. In a 2016 US Senate hearing, then senator Barbara Boxer from California attempted to dismiss Epstein as a philosopher with no official credentials to testify to matters of “science”—a term she cannot define and undoubtedly misinterprets to mean “the current progressive consensus on issues relating to science.” This exchange is telling:
Senator Barbara Boxer: Mr. Epstein, are you a Scientist?
Alex Epstein: No, philosopher.
Senator Barbara Boxer: You're a philosopher?
Alex Epstein: Yes.
Senator Barbara Boxer: Okay. Well, this is the Senate Environment and Public Works Committee. I think it's interesting we have a philosopher here talking about an issue...
Alex Epstein: It's to teach you to think more clearly.
Bravo! Anyone who corrects a clueless senator this effortlessly deserves our admiration.
We hope you enjoy this interview with Mr. Epstein, a heroic voice fighting the progressive narrative on climate—along with David Gordon’s full review of Fossil Future. Epstein’s rhetorical reframing of the climate debate applies equally to any number of political issues, and we should all follow his lead in our own battles against false narratives, emotional blackmail, and feel-good pandering.
As always, thank you for subscribing to The Austrian and for your support of the Mises Institute.
Introduction With my talk, I would like to accomplish three goals:
First, I want to explain some sound and time-tested basics of monetary theory.
Second, I would like to point out why it is important to have a free market in money; that the battlefront of our time is not between, say, bitcoin, stable coins, gold, and silver, but between government-monopolized fiat monies and a free market in money.
And third, I hope to strengthen your conviction that we need a free market in money! Unless we succeed in ending governments’ money monopolies, I fear we might end up in the most sinister tyranny the world has ever seen.
On the Subject of Money Let me ask you: What is money? The answer is: Money is the universally accepted means of exchange.
As such, money is a good like any other.
What makes it really special is that money is the most marketable, the most liquid of all goods in the economy.
Money is no consumer good and no producer good. It is the exchange good; it is a good sui generis.1
What functions does money have? According to most economics textbooks, the answer is that money has three functions: it is means of exchange, unit of account, and store of value.
Upon closer examination, however, we realize that money has just one function, and that is as a means of exchange.
The unit of account function and the store of value function are merely subfunctions of the means of exchange function of money.
This is easy to understand: The unit of account function expresses the exchange ratios of goods and services in money; for example, 1 apple costs 1 euro.
The store of value function (which can also be termed as the means of deferred payment function) indicates that people hold money to exchange in the future rather than today.
Money is an indispensable tool in an advanced economy characterized by the division of labor and trade.
It serves as a common denominator, a numeraire for all goods prices. It thus allows for the calculation of the returns on the various alternatives of economic activity.
In a complex economy, only monetary calculation can allocate resources to their most productive uses—that is, uses that satisfy consumer demand best.
Today’s modern, advanced economies could not exist without using money for economic calculation.
The Value of Money An economy becomes richer if more producer and consumer goods are available. However, this does not apply to money. Why?
Money, which has only use value, derived from its purchasing power, is a good, and as such, determining its value falls under the law of diminishing marginal utility.
What does this law say? It says (1) a large supply of goods is preferable to a smaller supply of goods, and (2) the marginal utility of any additional unit of a good decreases.
So an increase in the money supply in the economy reduces the marginal utility of the money unit compared to other goods. As people exchange their additional money holdings for other goods, money prices increase.
Therefore, it actually makes sense to equate inflation with an increase in the quantity of money; the increase in the quantity of money is the cause, and rising goods prices are its symptom.
The “Optimal” Money Stock If money has only one function, which is as a means of exchange, it does not matter how small or large the money supply is.
Whether the money stock is 1 million US$, 1 billion US$, or 100 billion US$ does not matter.
Regardless of the actual size of the money stock, any transaction volume in goods and services can be conducted with a given supply of money.
A large money stock of, say 10 billion US$, would lead to high goods prices, while a small money stock of, say 1 billion US$, would lead to low goods prices.
We come to the conclusion:
No increase in the money supply can improve the monetary function of money. An increase in the money supply will merely dilute the effectiveness of each unit of money as a medium of exchange.
In other words: An increase in the quantity of money brings no social benefit; any quantity of money that exists at any given time is optimal.
“Cantillon Effect” Now you may ask: Why is the (fiat) money supply increasing in today’s monetary regime (be it in the US, Europe, Asia, or Latin America)?
The answer is that an increase in the quantity of money leads to a redistribution of income and wealth among people; it makes some richer at the expense of many others. Why?
The first recipients of the new money benefit because they can purchase goods at unchanged prices with their newly received money.
As the new money makes its way through the economy, it drives up goods prices. As a result, the late recipients of the new money can only purchase at already elevated prices.
The early recipients of the new money benefit at the expense of the late recipients. This is the so-called Cantillon effect.
Origin of Money Where does money come from? There are several theories about the origin of money.
Most people today believe in the “State theory of money,” put forward by the German economist Georg Friedrich Knapp (1842–1926)—published in his book Staatliche Theorie des Geldes (The State Theory of Money, 1891).
According to Knapp, it was the state that brought money to the people; in fact, a state is required to provide people with money. This theory has many flaws, and I think it’s wrong, but I will not go into further detail here.
There is also the theory by the US anthropologist and anarchist activist David Graeber (1961–2020) on the invention of money. It says that money originated from barter-based credit transactions. I will not go into further details on this theory either.
I would like to draw your attention to the theory about the origin of money put forward by Carl Menger in 1871. Menger argues that money originated in the free market, voluntarily adopted by self-interested people, from barter and from a commodity.
Menger’s theory was later given a rigorous logical foundation by Ludwig von Mises with his so-called regression theorem.
More recently, a discussion has erupted as to whether bitcoin, cryptos or stable coins could become money from a regression theorem perspective.
As far as I know, quite a few responses have emerged. I, for my part, conclude that the regression theorem does by no means rule out that bitcoin and other cryptocurrencies could become money (I say could, for I would not want to make a prediction at this stage).
I may only add here that the regression theorem holds a priori, which means it cannot be verified or refuted by experience. If something becomes money, it means it conforms with the regression theorem.
Constant or Increasing Money Stock? May I ask you: Would you prefer to have money that loses its purchasing power over time? Or would you rather hold money that keeps, or even increases, its purchasing power over time?
I think most people (in their right mind) would opt for money with stable purchasing power or money that gains in purchasing power.
This would imply deflating goods prices over time.
But wait: What would happen if goods prices didn’t rise or even fell over time? If that were the case, wouldn’t that cause a significant problem for the economy as a whole?
Let us assume people opt for money that has a constant supply. You may think of people using bitcoin as money, and the total amount of bitcoin is a constant twenty-one million units.
An increase in the economic output would then (other things being equal) lead to deflation in goods prices.
Wouldn’t it drive the economy over the cliff? Wouldn’t it destroy firms’ profits? Wouldn’t consumers stop consuming? The answer to all of these questions is no.
A firm’s profit is simply the spread between revenue and costs.
In an economy where the prices of goods are rising (which is the case in today’s “inflation regime”), the successful entrepreneur must ensure that revenues grow faster than costs.
Likewise, in a price deflation regime the firm must ensure that its costs fall faster than its revenues.
A firm that produces goods and services per market demand can flourish in a price inflation and price deflation regime.
This also means that there is no need for a chronically rising money supply; a constant or even shrinking money supply would be just fine.
Time Preference What would price deflation do to consumer demand? Wouldn’t people refrain from buying goods today because they can expect to buy them at lower prices in the future?
The answer is no; we cannot come to such a conclusion, and with good reason.
First, there are goods and services, the consumption of which cannot be postponed. Think of food, clothes, shelter, etc. Whatever their price tomorrow, next week, or next month, we must purchase them today.
Second, there is a phenomenon in the realm of human action called time preference.
Time preference means that people value a good available today higher than the same good (under the same conditions) at a later time.
Time preference manifests as the originary interest rate: the discount the value of a future good suffers compared to the value of a present good.
Time preference and the originary interest rate are always positive and can never disappear—as they are categories of human action.
To illustrate what time preference means for people’s actions, let me give you a simple example.
Imagine a car costs $50,000 today and $25,000 in a year. Whether people will buy today or postpone their purchase depends on the concept of marginal utility.
Of course, the marginal utility of buying the car for $25,000 ranks higher on people’s value scale than paying $50,000 for the car.
However, when it comes to deciding to buy now or later, people compare the discounted marginal utility of purchasing the good for $25,000 in a year from now to the marginal utility of buying it for $50,000 today.
If the discounted marginal utility of buying the car for $25,000 in a year is lower than the marginal utility of buying it for $50,000 now, people will buy it now. If it is higher, they will postpone their purchase.
Since people’s time preference can never be zero for logical reasons, let alone be negative, we cannot conclude that people will postpone their purchases only because of lower goods prices in the future.
This little illustration tells us this: There would be nothing wrong with goods prices falling (instead of rising); the economy may very well thrive when goods prices decline.
And so again, the quantity of money in an economy doesn’t have to grow; it can also be constant or even shrink over time, and so can be goods prices.
Credit Markets But what about credit markets when goods prices decline, you might wonder?
If, for instance, prices fall by 3 percent per year, the purchasing power of money increases by 3 percent.
In that case, I wouldn’t trade my money for a T-Bill that yields only, say, 3 percent per year.
To entice me to part with my money, a borrower would have to offer a return on the investment greater than the increase in the purchasing power of money (say, 3.5 percent).
With declining goods prices over time, market lending rates would approach zero in nominal terms: the price component would become negative, corresponding (grosso modo) with the positive real interest rate component.
It may well be that under such conditions, borrowing would become more expensive than in today’s fiat money world.
Firms could fund their expenditures by retaining earnings and rights issues—rather than taking on new debt, and people would invest a higher portion of their savings in company stocks than bonds.
So in a world of goods price deflation, credit markets can be expected to function just fine.
But they certainly wouldn’t be as overblown as they have become in today’s fiat money regime.
The Issue of Price Volatility Bitcoin fans may know the following phrase all too well: The bitcoin price is too volatile, and therefore it cannot be money. This is, of course, not a convincing argument.
At the beginning of its life cycle, the demand for an innovation is typically relatively low. This applies to bitcoin as well as to crypto units and stable coins.
However, once bitcoin becomes more widely accepted, its demand will grow broader and less volatile; its market price (its exchange rate against sales items) will show fewer fluctuations.
The finding that the bitcoin price is relatively volatile right now would not rule out the possibility that bitcoin could eventually become money.
Another interesting question is: Would people like to have money that causes goods prices to fluctuate wildly, or would they prefer money that keeps goods prices a bit more stable?
Take, for instance, gold. The yellow metal has use value as money and as a nonmonetary good (resulting from, for example, industrial applications). Bitcoin, in contrast, has only one purpose: to serve as a means of exchange.
Suppose people use bitcoin as money. Then, for whatever reason, people suddenly prefer to hold less money. They exchange their bitcoins for goods, and so the prices of goods in terms of bitcoins increase. As bitcoin is solely held for monetary purposes, there are no counteracting market forces to support its value.
When gold is used as money, and people decide to reduce their gold holdings for whatever reason, this would also drive up goods prices in gold terms. At the same time, however, the demand for gold for nonmonetary purposes would increase—counteracting the rise in goods prices.
In other words: In an economy where bitcoin is used as money, goods price volatility would most likely be (much) higher than in an economy where gold is used as money.
However, I cannot say whether bitcoin (higher goods price volatility) or gold (lower goods price volatility) would be better money from people’s perspective. Only a free market in money (where the demand for and the supply of money are truly free) could give us an answer.
Intermediation When we think about money, present and future, there is an issue which we should not overlook, and that is the intermediation issue.
We have pretty good reason to believe that not all money users will want to or can rely on peer-to-peer transactions.
In a modern, highly developed economy, people demand settlement, storage, and safeguarding services for their money, provided by intermediaries, such as deposit banks or payment processors.
This also applies to the crypto space—just think of the large number of people holding their cryptos with trading platforms rather than in their personal wallets.
Developed credit markets cannot function without specialized intermediaries who channel money from savers to investors.
Borrowing and lending decisions require personal judgement—and such judgment is difficult, if not impossible, to make in an anonymous and trustless environment where automatic computer algorithms prevail. Also, the deposit business cannot function without clear designations.
Money that does not, or cannot, provide for some kind of intermediation services would severely hamper economic development and would likely be overtaken by alternative money that allows for intermediation services.
This conclusion does not speak against bitcoin. However, it does pour a bucket of iced water on the idea that anonymous and trustless money would emerge out of necessity or naturally.
Without complete anonymity, bitcoin and Co would lose an attractive competitive advantage over, for example, digital gold or silver-backed money and payment system.
Unfortunately, however, without complete anonymity, the government will be breathing down people’s necks in all money matters—be it bitcoin money, gold and silver money, or any other form of money. I will come back to this issue.
Today’s Fiat Money Regime It is now time to take a critical look at today’s worldwide paper or “fiat” money regime—as it is an economically and socially problematic system with far-reaching and seriously challenging economic and societal consequences, implications that go well beyond what most people can imagine.
Fiat money is inflationary—it loses its purchasing power over time.
Fiat money benefits a few at the expense of many others—so we can say that fiat money is socially unjust.
Fiat money causes boom-and-bust cycles—it sets in motion an artificial economic upswing followed by a crash.
Fiat money leads to overindebtedness—it is created through credit expansion, and the economies’ debt burden exceeds income growth.
Fiat money allows the state to grow ever bigger and more powerful, makes waging wars cheap—and all this at the expense of civil liberties and freedom, paving the way toward tyranny.
I should note here that we should not fall into the belief that the widespread use of fiat money indicates voluntary acceptance by money users.
In a world where governments have monopolized money production, currency competition is suppressed, and people are effectively coerced into using fiat money for two reasons.
First, governments have established “legal tender laws” that effectively privilege the use of government fiat money over alternative means of exchange.
Second, governments have levied capital gain taxes and/or sales taxes on goods that might compete with fiat money, such as gold, silver, or bitcoin, making them uncompetitive compared to fiat money.
Central Bank Digital Currency States and their central banks want to maintain their fiat money monopoly. They do not want private monies to compete with their fiat currencies.
To tighten their grip on monetary matters, central banks are even planning to issue central bank digital currencies. This is, unsurprisingly, rather problematic.
First, central bank digital currencies are not “better monies.” They represent fiat monies. As such, fiat central bank digital currencies suffer from the same economic and ethical defects as physical and electronic fiat monies.
Second, central bank digital currencies will most likely replace cash or allow governments to phase out coins and notes. People would lose an important option for making anonymous payments, and what little is left of their financial privacy will be gone.
Third, without cash, your money can no longer be withdrawn from the banking system. It can be expropriated by negative interest rates imposed by the central bank.
Fourth, as acceptance grows, central bank digital currencies can easily be instrumentalized for broader political purposes. Just think of China’s social credit system.
Imagine, if you will, only getting access to central bank digital currency if you comply with the government’s directives (or comply with the wishes of those special interest groups that determine government orders).
If you don’t obey, you suffer disadvantages: you can no longer travel, order certain newspapers and books, or buy groceries; your accounts may be frozen, and your money even confiscated if you dare dissent too much.
The list of such antifreedom atrocities made possible in a world of central bank digital currencies is endless.
The Marxist Idea of a Central Bank Perhaps this is the right moment to direct your attention to the fact that the idea of central banking—and by extension, central bank money, be it in physical or in digital form—is not a capitalist but a Marxist concept.
In his “Manifesto of the Communist Party” (1848), published together with Frederick Engels, Karl Marx calls for “measures”—by which he meant “despotic encroachments on property rights”—that would be “inevitable as means of completely revolutionising the mode of production,” that is, bringing about socialism-communism.
Marx’s fifth measure reads: “Centralisation of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.”
Undoubtedly, holding the money monopoly puts the monopolist in a rather powerful position. It determines who gets credit and money and who doesn’t; it influences the cost of credit and capital and the distribution of income and wealth.
So it is not surprising that, especially with the monopoly over fiat money, states have become bigger and more powerful—measured in terms of their spending and debt relative to gross domestic product, the number of regulations and laws, etc.
“Great Reset” You may have noticed that the system of free markets, of capitalism, is by and large in disrepute.
People blame the free market and capitalism for all sorts of evils—financial and economic crises, unemployment, income and wealth disparities, environmental pollution etc.
But let me tell you that we do not have capitalism, not in Europe, not in the US, or in China.
What we do have is interventionism: an economic and social system in which the state intervenes in the functioning of the free market—for example, through orders, laws, bans, regulations, taxes, subsidies, sanctions; by meddling with education, healthcare, transportation, pensions, the environment, and credit and money.
From sound economic theory, we know, however, that interventionism would not work, that it either does not achieve its goals—or if it does, it causes unwanted and negative side effects.
Unfortunately, the failure of interventionism emboldens its staunch supporters to take recourse to even broader, even more aggressive interventions.
As interventionism spreads, the free market system becomes increasingly undermined and dysfunctional. The economy is transformed into a control economy (or, to use a German term, Befehls- und Lenkungswirtschaft), in which the state has the final say and producers and consumers are given orders.
Against this backdrop, it is clearly concerning that the concepts of “Great Reset,” “Great Transformation,” and “Green Policy” are all expressions of the idea of interventionism.
If the theory of interventionism is correct, and I fear it is, the Western world is moving away from the free economic and social order—which is ultimately a brainchild of the European Enlightenment—and toward an unfree economic and social system.
We have to be on guard: in an interventionist regime, digitization greatly increases the chances of a power grab by governments and their bureaucracies and special interest groups, which use both for their own purposes (such as Big Business, Big Tech, Big Pharma, Big Banking).
And it is realistic to assume that all of these players want to achieve their goals by controlling money as much as possible.
For this reason, the issuance of central bank digital currencies, particularly, must raise great concerns for those who want to preserve a free, prosperous, and peaceful society.
A Free Market in Money The good news is: There are no convincing economic or ethical arguments why any government should monopolize money and replace the market’s choice with its own fiat money.
In fact, there are very good reasons to advocate for a free market in money.
In a free market in money, people would have complete freedom to choose the kind of money they want to hold, and people would also have the freedom to offer goods that others may want to demand as money.
In a free market in money, the demand for money will determine what money is. And we should have little doubt that people would most likely demand “sound money”—that is, money that is good and fair.
How would money be chosen in a free market? Mr. Miller would opt for “something” as money that his baker, for example, would accept as a means of exchange.
The baker, in turn, would willingly accept “something” that he believes his cobbler will accept as a means of exchange.
In other words, people will choose a money which will be highly preferred by his or her trading partners, that is the good with the highest marketability and liquidity of all goods.
And we tend to know which (physical) properties such a good must have: it must be, for instance, scarce, homogenous, durable, transportable, mintable, divisible, and it must represent a relatively high exchange value per unit.
This explains very well why, at least in the past, people have opted to use precious metals, especially in the form of gold and silver, as money when given a choice.
The message I want to stress (and I think most of you know very well) is that there is no reason to fear that a free market in money would not work.
In fact, it can be expected to work just fine—like any other free market, such as, say, the free market for sports shoes, books, music, cars, and mobile phones.
A free market in money would provide the best possible money at the lowest cost.
“Monetary Enlightenment” The critical question is whether new technologies alone can bring about better money.
Recent developments in the markets for bitcoin, crypto units and stable coins are certainly promising—especially as they unmistakably show that people are already looking for better money.
The many entrepreneurial attempts to digitize the world’s ultimate means of payment, namely gold, have also made exciting progress.
While technological advances offer great opportunities to improve our money, they might not be enough—as states and their central banks do whatever they can to prevent a free market in money.
What is also needed—in addition, and on top of technological advances—is Monetary Enlightenment:
Familiarizing people with the insight that a government fiat money monopoly is actually destructive and harmful to them.
Especially informing people that there is better money for them, encouraging them to demand sound money—money that serves their needs better than states’ fiat currencies.
This inevitably goes hand in hand with the eye-opening insight that states (as we know them today) stand in the way of people getting sound money.
Once people realize that they would be better off with free market money, the chances of ending state’s monopoly of money, legal tender laws, and tax burdens imposed on potential money candidates greatly increase—and it may even result in the state (as we know it today) withering away.
People must have the freedom to choose which kind of money they want to use: gold and silver, bitcoin, or whatever else.
Let me close with a quote from Ludwig von Mises, who understood very well the importance of sound money for freedom, and prosperity:
The sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.
And further:
It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of right.
A free market in money will make our world a better place.
Thank you very much for your attention!
This lecture was presented at the Electronic Cash Conference in Prague on August 27, 2022.
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- I should note that money is not an entitlement to goods, and in a free market, no one is obligated to give you anything for your money.
There are themes in the West that are difficult to question without running the risk of receiving sharp criticism. For the following themes, for example, there is a position considered “correct” by Western collective opinion: “Welfare State,” “climate policy,” “multicultural society,” or “covid-19 vaccination.” It is implied that the “acceptable” position to each one of these themes can and should be adopted without any prior critical analysis at the individual level.
The list of these themes is not static; new ones rise to prominence in society, while others become less important over time. In recent years two new themes have emerged: “authoritarian Russia” and “communist China,” which is not surprising considering that Washington, and thus, by extension. the West, has decided to treat these two nations as strategic enemies. A recent study shows, for example, that in a very short time the percentage of Americans with a negative view of China increased dramatically, from 46 percent to 67 percent. This is not a coincidence, but the result of a media communication strategy.
The Critique of the Antiwar Position As far as Russia is concerned, the “correct” attitude to have in the West, especially since the start of the Ukraine conflict on February 24, 2022, is no less than an absolute condemnation of that country. Support for Ukraine must be comprehensive and can receive social confirmation by a small blue and yellow flag on Facebook. Unconditional support for the economic war waged by Western leaders against Russia is also socially required for Europeans, even though they will be the first to suffer from it.
It is for this reason that the Amnesty International report of August 4, 2022, which confirmed that “Ukrainian forces putting civilians at risk and violating the laws of war when they operate in populated areas” became a media bomb, not only in Ukraine but also in the West. This report disturbs a lot of people because it is not in line with the black and white view of Russia as a criminal aggressor and Ukraine as an innocent victim.
The people who do not take the “correct” stance on the conflict in Ukraine are often accused of being “pro-Russian,” even when this stance simply consists in being objective; by considering the recent history and behavior of the various protagonists. They are considered “pro-Russian” because they do not express unconditional support for Ukraine, but more often, propose conditions for peace. Indeed, the position of most of these critics is not at all “pro-Russian,” but “pro-peace” by supporting active Western efforts to reach a ceasefire, thus sparing as many Ukrainian lives as possible.
Western media did not react when, on July 14, 2022, the Ukrainian government published a black list of Western politicians, academics, and activists who, according to Kiev, “promote Russian propaganda.” This list includes leading Western intellectuals and politicians, such as Republican Senator Rand Paul, former Democratic Congresswoman Tulsi Gabbard, military and geopolitical analyst Edward N. Luttwak, the political realist John Mearsheimer, and award-winning freelance journalist Glenn Greenwald.
Though this Ukrainian blacklist should obviously have been condemned in the West, it has hardly elicited any reactions at all, because the Western media already agree with its conclusion: the people on the list are already criticized in their own countries for not adopting the pro-Ukrainian position. Moreover, would the Ukrainian government have dared to publish such a list if it had not had the prior agreement of Washington?
The Formation of the Collective Opinion What is happening in the case of the attitude toward Russia, as well as in the other themes mentioned above, is not surprising or new. In his famous work, On Liberty (1859), John Stuart Mill is perhaps today best known for his prescient early warning of the dangers of the “collective opinion”; the “tyranny of the majority” in the form of “the dominant opinions and feelings that society is trying to impose” on a minority.
Society’s majority is naturally intolerant of nonconformism, because thinking like everyone else gives psychological comfort and strengthens social ties. Yet, though society depends on collective opinion for its social cohesion, paradoxically it also depends for its well-being on views that run counter to this majority opinion. Just as natural science progresses only through the sometimes tortuous but generally respectful process of peer review, society also needs minority opinions and dissident voices to curb the permanent search for consensus on the part of the majority.
But minority opinions will suffocate if there is no deeper understanding of Mill’s idea. Fortunately, this understanding exists today. To Mill’s “collective opinion” were added fundamental sociological concepts, such as “crowd psychology” (Gustave Le Bon, 1895), the “political formula” (Gaetano Mosca, 1923), “propaganda” (Edward Bernays, 1928), the “role of the intellectuals” (F.A. Hayek, 1949), the “banality of evil” (H. Arendt, 1963), the “manufacturing of consent” (Chomsky and Herman, 1988), and recently the concept of “mass formation psychosis” (Matthias Desmet).
This accumulated knowledge in the reference above leaves no doubt about the will and the ability of Western political and financial elites to form and direct collective opinion through the control that they exert explicitly and implicitly on the editorial boards of traditional media and on social media platforms. The development of the opinions of Western majorities to the themes mentioned at the beginning of this article is largely the result of these elites” influence on Western public opinion. The collective opinion with respect to climate change is probably the most glaring example of this influence today, considering the significant economic consequences that it will have for Western society.
Libertarianism Is the Only Solution Political globalization, an antiliberal process which has been underway for several decades, has the effect of aligning national political centers and thus reducing plurality. Gradually, Western political power is flowing toward supranational institutions (like the UN, the EU, the World Economic Forum). This centralization of political power, and the resulting economic concentration of business, including concentration of media groups that this has entailed enables and facilitates the formation of public opinion by the Western elites.
The political philosophy that theoretically is best placed to solve this dilemma of modern society is libertarianism, because it clearly argues for a significant and definitive reduction of political power, both nationally and internationally.
One of the strengths of libertarianism is precisely the importance it places on the cultural and intellectual plurality of a free society. This is the famous “marketplace of ideas” which, like the free market in goods and services, can only exist partially with the pervasive crony capitalism and massive State intervention that most Western societies are subject to today. In a free society, that is, a highly decentralized society with a weak State having at most a night watchman role, the formation of public opinion by political elites then becomes impossible.
The present moment in history represents a particular threat to freedom, because the ruling globalist elites now have an unprecedented opportunity to shape the attitudes and opinions of their societies, in their own, often twisted, interests. At the same time, the new and easy access by the general public to alternative analyses and independent information, can counteract this nefarious trend. In these social conditions, Western voices of freedom must continue to present libertarianism, not only for its economic benefits but also as a means of liberating Western peoples from the chains of directed collective opinion.
For all of the talk about "our democracy," there is a better way to protect the lives and property of people than just electing politicians. It is called sound money.
Original Article: "Sound Money Can Prevent What Representative Democracy Does Not"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The ongoing energy crunch has revealed the hypocritical, if not duplicitous, nature of the Western imposition of climate and energy transition goals on other nations. Of course, we care about environmental protection, but the current arrangement amounts to eco-colonialism, is wildly detached from local realities, and severely hurts African economies and lives. For these and other reasons, African leaders should assert energy policy independence if they intend to serve and protect Africa’s socioeconomic well-being.
Africa must finally and truly develop. Access to dense, dispatchable, reliable, abundant, and cheap energy goods and services is crucial. Fossil fuels, which Africa has enormous quantities of, are best positioned to meet present and future demand. Today’s energy crisis conclusively shows that solar panels and wind turbines are not economically, materially, and ecologically viable alternatives.
If California and Germany did not succeed at their solar and wind experiments, no rational person would expect underdeveloped countries to succeed at it. So, it is malicious to coerce African countries into an energy “transition” that the developed world is failing to achieve.
Severe Energy Poverty There is energy poverty everywhere, even in Western countries. But countries and regions are not equally energy poor. Africa, the least developed region, is, of course, the most energy poor. No need to turn this part of the article into a poverty porn session by presenting numerous statistics about the severity of energy poverty that plagues and cripples Africa. Still, some facts are worth pointing out.
N.J. Ayuk, chairman of the African Energy Chamber, notes that:
It is not an exaggeration to say energy poverty is one of our continent’s most pressing problems: Only 56% of Africa’s population has access to electricity today, and in many places, that power is still inadequate and unreliable at best. We address this topic in our recently released report, The State of African Energy 2022.
“Comprehensive energy access across the continent remains a central target, with some 600 million people without access to electricity today,” says the report. “Moreover, households themselves, facing low and inadequate supply of electricity, often rely on highly polluting traditional energy sources such as hard biomass, which constitutes 45% of total primary energy demand in Africa.”
Similarly, Professor James E. Hanley wrote:
Every economy needs a steady and reliable supply of energy. A lack of power, or undependable power that results in frequent blackouts, blockades the ability to develop a modern economy, whether industrial or commercial. Even more, the lack of reliable electricity leaves hundreds of millions of households dependent on highly-polluting sources such as charcoal for home cooking and heating. Millions of people die each year from indoor air pollution, mostly women, and many because of the use of home cooking fuels.
Indeed, energy poverty is severe and hurts Africa’s economic development and people in more ways than popularly understood. Yet, western governments and institutions continue to push for this agenda, which worsens Africa’s energy situation. At the same time, the West scrambles to access more of the very fuels it paternalistically tells Africa to transition away from. Energy duplicity is real.
Path to Energy Prosperity Before I was born, Angola was already mired in severe and chronic energy problems. I am almost forty, and Angola is still mired in these problems. Angola is not an isolated case. This means the state-led development approach has failed to provide Africans with reliable and cheap energy goods and services.
Today as the energy, inflation, and other crises unfold, the veneer of economic development over Africa falls off, and the lamentable economic situation in which much of the continent is still in is displayed. That being so, mainstream economics should exercise humility, throw in the towel, and recommend that African governments try a fundamentally different approach to development.
Undeniably, mainstream economic models failed to create prosperous African societies after fifty years of attempts. Thus, one can justifiably argue that mainstream economics has been a cunning, cruel, and politicized intellectual framework that traps African societies in tyranny, dependency, and underdevelopment.
To say that Africa’s heavily statist economic systems have failed to deliver energy prosperity is perhaps an understatement. For much of Africa, energy poverty has been chronic and has even worsened in most countries. Instead of going forward, the state-led development approach relapsed African societies in some essential aspects of living standards.
So, after decades of policy failures, Africa’s bureaucrats should finally step aside and let free markets and free enterprise reign in energy production and distribution. Anyone able and willing to produce, distribute, and sell energy goods and services should be free to do so. The onerous mountains of regulations and oppressive bureaucratic measures must be removed if energy prosperity (and economic development) is the goal.
The free market is the fastest and most effective approach to making African societies sustainably energy rich. And do so in a unified and organic manner under the
African Continental Free Trade Area (AfCFTA). The economic truth here is this: if the goal is to achieve energy prosperity as rapidly, as effectively, and as sustainably as possible, free markets and free enterprise are the way. Not a way, the way.
Under the prevailing state-led approach, loans and grants are a primary source of cash African governments use to “direct” economic development. This means that the dependency on loans, grants, and state-sponsored investments are the strings Western and other regimes use to capture needy governments and lock them in vassalage. Hence, loans, grants, and other “development aid” are not the path to Africa’s energy (and economic) prosperity. On the contrary, insistence on this model perpetuates tyranny, dependency, and underdevelopment.
Notice also that most of Africa’s governments are becoming dangerously indebted, fiat money printing is a destructive policy, and tax regimes are rather oppressive. In other words, Africa’s governments may be reaching a cliff regarding taxation, debt accumulation, and deficit spending. Said differently, Africa’s economies cannot afford to finance the energy “transition” being imposed. Worse still, local and global economic conditions continue to deteriorate. If the U.S central bank continues to tighten monetary policy, Africa’s economies will hurt further amid persistent inflation, increased borrowing and debt servicing costs, forex issues, and elevated default risks.
Should decision-makers insist on the existing statist model, African countries will continue to experience severe energy (and economic) problems. More tragically, African countries, and thus the continent, would remain in vassalage and dependent on Western and other regimes for loans, grants, and other forms of so-called development aid. All of which ensure that African societies remain oppressed, heavily taxed, and underdeveloped.
The need to put African societies on the path to energy prosperity is urgent. The paradox, however, is that the prevailing statist economic thinking and antagonism toward free markets, free enterprise, and free trade are the most significant roadblocks to Africa’s energy (and economic) development. Not as much Western energy duplicity and overall meddling in African affairs.
Conclusion The free market is the soundest, fastest, and most effective approach to transforming African societies from energy poor to energy rich. Moreover, free markets and free trade under the AfCFTA are the only way to make Africa as a continent energy prosperous in a unified, decentralized, and sustainable manner. In doing so, the Democratic Republic of Congo, for instance, becomes energy prosperous without disturbing its vast and precious rainforests for energy minerals exploration.
The value of the US dollar has risen during the Ukraine war. If peace breaks out, the dollar might be one of its casualties.
Original Article: "The Story of War and Peace in the Currency Markets"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The foreign policy establishments in the West, the United States in particular, have pursued an aggressive policy that has led to war. The sad result is moral theater in the West and death in Ukraine.
Original Article: "Review: How the West Brought War to Ukraine"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Before it was destroyed by British aggression in 1755, the Acadian community in Nova Scotia provided a window into an anarcho-capitalist society that was cohesive and successful.
Original Article: "The Acadian Community: An Anarcho-Capitalist Success Story"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Appreciating cultural nuances is difficult without understanding the stories that provide insight into a society’s soul. Stories reflect a nation’s values, aspirations, and ideals. Songs, poems, and literature illuminate the tastes of citizens and even political and economic preferences. Economist and polymath Deidre McCloskey in her bourgeois trilogy argues that the evolution of a promarket rhetoric was central to the wealth explosion in the West.
Indeed, economists are becoming amenable to cultural explanations for differences in development. However, few explore how engaging national tales can aid the development process by availing information that fills the gaps in official narratives. Stories help to bridge the gap between experts and locals by tackling sensitive issues.
The failure of reforms in some countries exhaust international experts, but if they read stories extolling the virtues of dishonesty and trickery, then they would appreciate why proposals to improve governance are usually futile. Tales of deception are universal, but trust is higher in countries where tricksters are punished. A story lionizing the escapades of a trickster may indicate that dishonesty is valued, and an effect of endorsing dishonesty is tolerance for corruption.
But on a deeper note, the implicit message of stories that laud trickery is that playing by the rules is punitive. Therefore, tales with tricksters as heroes are highlighting the rotten nature of institutions. So, the real problem is that people are badly incentivized in societies where trickery is embraced. When bad behavior is rewarded, decent people are discouraged from following the rules, since doing so is costly.
In America, people lament that institutions are declining. Yet they are still proud to pay their taxes and comply with the law because for the most part, America is still a country that is unafraid to penalize the powerful for misbehaving. This is in stark contrast to Jamaica, where a former politician said that “the man who plays by the rules is the man that gets shafted.”
Unlike Americans, Jamaicans are poorly incentivized. Jamaicans don’t have an innate tendency to be corrupt, but they live in a place where despite frequent allegations of corruption, officials are rarely charged. Accordingly, this dubious situation has created an environment with such sweeping tolerance for corruption that a former officer can boldly declare that 20 percent of police officers are beyond help and 60 percent will engage in corrupt practices “if the circumstances arise.”
Corruption is a major impediment to development, and international analysts would gain a better grasp of the Jamaican environment by reading the riveting tales of Anancy, in which the tricky spider is often victorious. The Bahamian counterpart to Anancy is the equally cunning B’ Rabby. B’ Rabby often employs deceit and fraud to displace competitors. The success of characters like B’ Rabby and Anancy causes people to equate commerce with rent seeking and antisocial behavior.
This observation is particularly useful considering the colonial history of the Bahamas and Jamaica. During colonialism, businesses were linked to the fortunes of the state and white planters were privileged at the expense of the black majority. So even though some stories predate colonialism, the injustice perpetuated by colonial regimes serves to reinforce the relevance of trickery for success.
According to Bahamian academic Virgil Storr, the tales of B’ Rabby describe the values celebrated by Bahamians and explain their proclivity for certain businesses:
It is perhaps not surprising then that the same communities that applaud B’ Rabby because he is a master trickster, would fail to have any moral qualms about erecting fake lighthouses and the like. Indeed, for a time, wrecking, which involved luring unsuspecting ships to their ruin on the coral reefs that surround the Bahama Islands and “salvaging” their cargo, was the dominant “industry” in the Bahamas.
In societies like Jamaica and the Bahamas, with a history of injustice, antiheroes like B’ Rabby and Anancy demonstrate how disempowered populations can use trickery to supplant the status quo and attain high status by outwitting the establishment. Because people believe that the “system” is stacked against the ordinary man, characters who become prosperous through deceptive means are celebrated for breaking the rules instituted by an unfair system.
Jamaicans even coined a term to describe the process of beating the system: “bandolooism.” The reasoning is that if the system is unjust, then a smart man should ensure that it is rigged in his favor. Due to the philosophy engendered by this culture, in some parts of Jamaica, drug warlords are respected because they managed to acquire considerable wealth by outsmarting the “system.”
Invariably, tailoring policies to improve the fortunes of struggling countries is hard. However, experts will be better equipped to offer recommendations that account for local realities by being receptive to learning from the wisdom of national tales.
On July 2, Martín Guzmán, Argentina’s Minister of Economy, finally resigned. Guzmán, who holds a PhD in economics from Brown University and studied under Joseph Stiglitz, had originally been introduced as the “rational” element of the left-wing coalition that came to office three years ago. But there is only so much time that can pass until inconsistent policies produce undesirable outcomes, something about the United States needs to learn in order to avoid Argentina’s mistakes. Indeed, it is probably a good idea to avoid 7.4 percent monthly inflation figures, like the one Argentina just released.
Argentina’s Guzmán had been appointed by President Alberto Fernández in December 2019 with the impossible task of expanding the size of government and simultaneously bringing down poverty and inflation. This recipe is the same that former presidents Néstor and Cristina Kirchner tried between 2003 and 2015, which in the end caused annual deficits of about 8 percent of the gross domestic product (GDP) and inflation to soar to 40 percent. From 2015 to 2019, former president Mauricio Macri reduced the deficit but failed to achieve a fiscal surplus. Even so, the unpopular effects of fiscal adjustment, plus a combination of clumsiness and bad timing during his entire tenure cost him reelection.
The pandemic, which caught the new government by surprise only three months after it took office, seemed like an opportunity for Kirchnerists to engage in modern monetary theory–style policies and mock those who warned about their consequences. Though Guzmán raised taxes, most government spending was financed through an increase in the money supply, the effects of which were bound to be delayed because of lockdowns.
But in 2020, economists who were close to the administration were writing op-eds in which they suggested explanations as to why increasing the monetary supply not only did not cause inflation, but actually decreased it. The country was once again running high deficits, but Guzmán did not seem to care about them and contended that these were temporary measures.
After the pandemic was over, instead of returning toward a path of fiscal balance and debt reduction, Guzmán accelerated the path toward high deficits, which can only be sustained by money printing, since markets did not trust Argentina’s government bonds. As a result, public spending currently is increasing more rapidly than revenue, and it is uncertain whether the country will meet the deficit target that was agreed with the IMF only last year in order to avoid defaulting on its debt. Meanwhile, annual inflation has risen to 70 percent and since Guzmán’s resignation, the peso fell more than 20 percent against the dollar.
In this context, it may be surprising that markets interpreted Guzmán’s exit as bad news. Yet the fall of Guzmán and the arrival of new minister Silvina Batakis, who only lasted a few weeks and has already been replaced by “superminister” Sergio Massa, symbolized the victory of the “irrational” wing of the government led by Vice President (and former president) Cristina Kirchner, who is actually the one who selected President Fernández as her running mate back in 2019. In the past, Kirchner has argued that economic theories do not work in Argentina, and she is known for advocating permanent economic stimulus even if this means excessive money printing.
If we are to believe insiders, Guzmán and Batakis both tried to correct the course of the economy and Massa will continue to pursue that goal, with the vice president as the main source of opposition. But if Massa fails and government policies on public spending stay the same, they will drive Argentina’s economy toward hyperinflation, which is the only possible outcome for a country with perpetually high deficits and no access to debt markets.
This is not the first time that Argentina’s economy has been on the verge of collapse. In the minds of the public, the hyperinflations of 1975 and 1989–90 are still remembered. But the very policies that underlie these crises, which are related to extravagant levels of public spending, high deficits, and ultimately an excessive increase in the monetary supply, are yet to be repudiated by a majority of voters, as exemplified by Fernández and Kirchner’s win in 2019. History seems to have a way of repeating itself.
Argentina’s example should serve as a warning to other countries of what can happen if the populist fantasy of creating money out of thin air clings onto the minds of key public officials and voters for too long. In the United States, for example, the Biden administration is showing signs of adhering to delusional theories about the economy that resemble those of Argentine Kirchnerism.
Indeed, President Biden believes that one of his tweets can bring down gas prices, Senator Warren keeps blaming corporate greed for inflation, Democratic legislators praise acts to reduce inflation as though if monetary policy was just wishful thinking. But ignoring the fact that excessive money printing has an effect on price levels, or arguing that companies charge more because they are evil, are excuses that we have seen in Argentina at the beginning of inflationary processes, and we know what comes next. We do not want to end in that path.
I'm sure that you have had this experience before, or something similar to it. You are sitting at lunch in a nice restaurant or perhaps a hotel. Waiters are coming and going. The food is fantastic. The conversation about all things is going well. You talk about the weather, music, movies, health, trivialities in the news, kids, and so on. But then the topic turns to economics, and things change.
You are not the aggressive type so you don't proclaim the merits of the free market immediately. You wait and let the others talk. Their biases against business appear right away in the repetition of the media's latest calumny against the market, such as that gas station owners are causing inflation by jacking up prices to pad their pockets at our expense, or that Walmart is, of course, the worst possible thing that can ever happen to a community.
You begin to offer a corrective, pointing out the other side. Then the truth emerges in the form of a naïve if definitive announcement from one person: "Well, I suppose I'm really a socialist at heart." Others nod in agreement.
On one hand there is nothing to say, really. You are surrounded by the blessings of capitalism. The buffet table, which you and your lunch partners only had to walk into a building to find, has a greater variety of food at a cheaper price than that which was available to any living person—king, lord, duke, plutocrat, or pope—in almost all of the history of the world. Not even 50 years ago would this have been imaginable.
All of history has been defined by the struggle for food. And yet that struggle has been abolished, not just for the rich but for everyone living in developed economies. The ancients, peering into this scene, might have assumed it to be Elysium. Medieval man conjured up such scenes only in visions of Utopia. Even in the late 19th century, the most gilded palace of the richest industrialist required a vast staff and immense trouble to come anywhere near approximating it.
We owe this scene to capitalism. To put it differently, we owe this scene to centuries of capital accumulation at the hands of free people who have put capital to work on behalf of economic innovations, at once competing with others for profit and cooperating with millions upon millions of people in an ever-expanding global network of the division of labor. The savings, investments, risks, and work of hundreds of years and uncountable numbers of free people have gone into making this scene possible, thanks to the ever-remarkable capacity for a society developing under conditions of liberty to achieve the highest aspirations of the society's members.
And yet, sitting on the other side of the table are well-educated people who imagine that the way to end the world's woes is through socialism. Now, people's definitions of socialism differ, and these persons would probably be quick to say that they do not mean the Soviet Union or anything like that. That was socialism in name only, I would be told. And yet, if socialism does mean anything at all today, it imagines that there can be some social improvement resulting from the political movement to take capital out of private hands and put it into the hands of the state. Other tendencies of socialism include the desire to see labor organized along class lines and given some sort of coercive power over how their employers' property is used. It might be as simple as the desire to put a cap on the salaries of CEOs, or it could be as extreme as the desire to abolish all private property, money, and even marriage.
Whatever the specifics of the case in question, socialism always means overriding the free decisions of individuals and replacing that capacity for decision making with an overarching plan by the state. Taken far enough, this mode of thought won't just spell an end to opulent lunches. It will mean the end of what we all know as civilization itself. It would plunge us back to a primitive state of existence, living off hunting and gathering in a world with little art, music, leisure, or charity. Nor is any form of socialism capable of providing for the needs of the world's 6 billion people, so the population would shrink dramatically and quickly and in a manner that would make every human horror ever known seem mild by comparison. Nor is it possible to divorce socialism from totalitarianism, because if you are serious about ending private ownership of the means of production, you have to be serious about ending freedom and creativity too. You will have to make the whole of society, or what is left of it, into a prison.
In short, the wish for socialism is a wish for unparalleled human evil. If we really understood this, no one would express casual support for it in polite company. It would be like saying, you know, there is really something to be said for malaria and typhoid and dropping atom bombs on millions of innocents.
Do the people sitting across the table really wish for this? Certainly not. So what has gone wrong here? Why can these people not see what is obvious? Why can't people sitting amidst market-created plenty, enjoying all the fruits of capitalism every minute of life, see the merit of the market but rather wish for something that is a proven disaster?
What we have here is a failure of understanding. That is to say, a failure to connect causes with effects. This is a wholly abstract idea. Knowledge of cause and effect does not come to us by merely looking around a room, living in a certain kind of society, or observing statistics. You can study roomfuls of data, read a thousand treatises on history, or plot international GDP figures on a graph for a living, and yet the truth about cause and effect can still be evasive. You still might miss the point that it is capitalism that gives rise to prosperity and freedom. You might still be tempted by the notion of socialism as savior.
Let me take you back to the years 1989 and 1990. These were the years that most of us remember as the time when socialism collapsed in Eastern Europe and Russia. Events of that time flew in the face of all predictions on the Right that these were permanent regimes that would never change unless they were bombed back to the Stone Age. On the Left, it was widely believed, even in those times, that these societies were actually doing quite well and would eventually pass the United States and Western Europe in prosperity, and, by some measures, that they were already better off than us.
And yet it collapsed. Even the Berlin Wall, that symbol of oppression and slavery, was torn down by the people themselves. It was not only glorious to see socialism collapse. It was thrilling, from a libertarian point of view, to see how states themselves can dissolve. They may have all the guns and all the power, and the people have none of those, and yet, when the people themselves decide that they will no longer be governed, the state has few options left. It eventually collapses amid a society-wide refusal to believe its lies any longer.
When these closed societies suddenly became open, what did we see? We saw lands that time forgot. The technology was backwards and broken. The food was scarce and disgusting. The medical care was abysmal. The people were unhealthy. Property was polluted.
It was also striking to see what had happened to the culture under socialism. Many generations had been raised under a system built on power and lies, and so the cultural infrastructure that we take for granted was not secure. Such notions as trust, promise, truth, honesty, and planning for the future—all pillars of commercial culture—had become distorted and confused by the ubiquity and persistence of the statist curse.
Why am I going through these details about this period, which most of you surely do remember? Simply to say this: most people did not see what you saw. You saw the failure of socialism. This is what I saw. This is what Rothbard saw. This is what anyone who had been exposed to the teachings of economics—to the elementary rules concerning cause and effect in society—saw.
But this is not what the ideological Left saw. The headlines in the socialist publications themselves proclaimed the death of undemocratic Stalinism and looked forward to the creation of a new democratic socialism in these countries.
As for regular people neither attached to the socialist idea nor educated in economics, it might have appeared as nothing more than a glorious vanquishing of America's foreign-policy enemies. We built more bombs than they did, so they finally gave in—the way a kid says "uncle" on a playground. Maybe some saw it as a victory of the US Constitution over weird and foreign systems of despotism. Or perhaps it was a victory for the cause of something like free speech over censorship, or the triumph of ballots over bullets.
Now, if the proper lessons of the collapse had been conveyed, we would have seen the error of all forms of government planning. We would have seen that a voluntary society will outperform a coerced one anytime. We might see how ultimately artificial and fragile are all systems of statism compared to the robust permanence of a society built on free exchange and capitalist ownership. And there is another point: the militarism of the Cold War had only ended up prolonging the period of socialism by providing these evil governments the chance to stimulate unfortunate nationalist impulses that distracted their domestic populations from the real problem. It was not the Cold War that killed socialism; rather, once the Cold War had exhausted itself, these governments collapsed of their own weight from internal rather than external pressure.
In short, if the world had drawn the correct lessons from these events, there would be no more need for economic education and no more need even for the bulk of what the Mises Institute does. In one great moment of history, the contest between capitalism and central planning would have been decided for all time.
I must say that it was more of a shock to my colleagues and me than it should have been, that the essential economic message was lost on most people. Indeed, it made very little difference in the political spectrum at all. The contest between capitalism and central planning continued as it always had, and even intensified here at home. The socialists among us, if they experienced any setback at all, bounded right back, strong as ever, if not more so.
If you doubt it, consider that it only took a few months for these groups to start kvetching about the horrible onslaught that was being wrought by the unleashing of capitalism in Eastern Europe, Russia, and China. We began hearing complaints about the rise of a hideous consumerism in these countries, about the exploitation of workers at the hands of capitalists, about the rise of the garish super rich. Piles and piles of news stories appeared about the sad plight of unemployed state workers, who, though loyal to the principles of socialism their entire lives, were now being turned out onto the streets to fend for themselves.
Not even an event as spectacular as the spontaneous meltdown of a superpower and all its client states was enough to impart the message of economic freedom. And the truth is that it was not necessary. The whole of our world is covered with lessons about the merit of economic liberty over central planning. Our everyday lives are dominated by the glorious products of the market, which we all gladly take for granted. We can open up our web browsers and tour an electronic civilization that the market created, and note that government never did anything useful at all by comparison.
We are also inundated daily by the failures of the state. We complain constantly that the educational system is broken, that the medical sector is oddly distorted, that the post office is unaccountable, that the police abuse their power, that the politicians have lied to us, that tax dollars are stolen, that whatever bureaucracy we have to deal with is inhumanly unresponsive. We note all this. But far fewer are somehow able to connect the dots and see the myriad ways in which daily life confirms that the market radicals like Mises, Hayek, Hazlitt, and Rothbard were correct in their judgments.
What's more, this is not a new phenomenon that we can observe in our lifetimes only. We can look at any country in any period and note that every bit of wealth ever created in the history of mankind has been generated through some kind of market activity, and never by governments. Free people create; states destroy. It was true in the ancient world. It was true in the first millennium after Christ. It was true in the Middle Ages and the Renaissance. And with the birth of complex structures of production and the increasing division of labor in those years, we see how the accumulation of capital led to what might be called a productive miracle. The world's population soared. We saw the creation of the middle class. We saw the poor improve their plight and change their own class identification.
The empirical truth has never been hard to come by. What matters are the theoretical eyes that see. This is what dictates the lesson we draw from events. Marx and Bastiat were writing at the same time. The former said capitalism was creating a calamity and that abolition of ownership was the solution. Bastiat saw that statism was creating a calamity and that the abolition of state plunder was the solution. What was the difference between them? They saw the same facts, but they saw them in very different ways. They had a different perception of cause and effect.
I suggest to you that there is an important lesson here as regards the methodology of the social sciences, as well as an agenda and strategy for the future. Concerning method, we need to recognize that Mises was precisely right concerning the relationship between facts and economic truth. If we have a solid theory in mind, the facts on the ground provide excellent illustrative material. They inform us about the application of theory in the world in which we live. They provided excellent anecdotes and revealing stories of how economic theory is confirmed in practice. But absent that theory of economics, facts alone are nothing but facts. They do not convey any information about cause and effect, and they do not point a way forward.
Think of it this way. Let's say you have a bag of marbles that is turned upside down on the ground. Ask two people their impressions. The first one understands what numbers mean, what shapes mean, and what colors mean. This person can give a detailed account of what he sees: how many marbles, what kinds, how big they are, and this person can explain what he sees in different ways potentially for hours. But now consider the second person, who, we can suppose, has absolutely no understanding of numbers, not even that they exist as abstract ideas. This person has no comprehension of either shape or color. He sees the same scene as the other person but cannot provide anything like an explanation of any patterns. He has very little to say. All he sees is a series of random objects.
Both these people see the same facts. But they understand them in very different ways, owing to the abstract notions of meaning that they carry in their minds. This is why positivism as pure science, a method of assembling a potentially infinite series of data points, is a fruitless undertaking. Data points on their own convey no theory, suggest no conclusions, and offer no truths. To arrive at truth requires the most important step that we as human beings can ever take: thinking. Through this thinking, and with good teaching and reading, we can put together a coherent theoretical apparatus that helps us understand.
Now, we have a hard time conjuring up in our minds the likes of a man who has no comprehension of numbers, colors, or shapes. And yet I suggest to you that this is precisely what we are facing when we encounter a person who has never thought about economic theory and never studied the implications of the science at all. The facts of the world look quite random to this person. He sees two societies next to each other, one free and prosperous and the other unfree and poor. He looks at this and concludes nothing important about economic systems because he has never thought hard about the relationship between economic systems and prosperity and freedom.
He merely accepts the existence of wealth in one place and poverty in the other as a given, the same way the socialists at a lunch table assumed that the luxurious surroundings and food just happened to be there. Perhaps they will reach for an explanation of some sort, but absent economic education, it is not likely to be the correct one.
Equally as dangerous as having no theory is having a bad theory that is assembled not by means of logic but by an incorrect view of cause and effect. This is the case with notions such as the Phillips Curve, which posits a tradeoff relationship between inflation and unemployment. The idea is that you can drive unemployment down very low if you are willing to tolerate high inflation; or it can work the other way around: you can stabilize prices provided you are willing to put up with high unemployment.
Now, of course this makes no sense on the microeconomic level. When inflation is soaring, businesses don't suddenly say, hey, let's hire a bunch of new people! Nor do they say, you know, the prices we pay for inventory have not gone up or have fallen. Let's fire some workers!
This much is true about macroeconomics: It is commonly treated like a subject completely devoid of any connection to microeconomics or even human decision making. It is as if we enter into a video game featuring fearsome creatures called Aggregates that battle it out to the death. So you have one creature called Unemployment, one called Inflation, one called Capital, one called Labor, and so on until you can construct a fun game that is sheer fantasy.
Another example of this came to me just the other day. A recent study claimed that labor unions increase the productivity of firms. How did the researchers discern this? They found that unionized companies tend to be larger with more overall output than nonunionized companies. Well, let's think about this. Is it likely that if you close a labor pool to all competition, give that restrictive labor pool the right to use violence to enforce its cartel, permit that cartel to extract higher-than-market wages from the company and set its own terms concerning work rules and vacations and benefits—is it likely that this will be good for the company in the long run? You have to take leave of your senses to believe this.
In fact, what we have here is a simple mix-up of cause and effect. Bigger companies tend to be more likely to attract a kind of unpreventable unionization than smaller ones. The unions target them, with federal aid. It is no more or less complicated than that. It is for the same reason that developed economies have larger welfare states. The parasites prefer bigger hosts; that's all. We would be making a big mistake to assume that the welfare state causes the developed economy. That would be as much a fallacy as to believe that wearing $2,000 suits causes people to become rich.
I'm convinced that Mises was right: the most important step economists or economic institutions can take is in the direction of public education in economic logic.
There is another important factor here. The state thrives on an economically ignorant public. This is the only way it can get away with blaming inflation or recession on consumers, or claiming that the government's fiscal problems are due to our paying too little in taxes. It is economic ignorance that permits the regulatory agencies to claim that they are protecting us as versus denying us choice. It is only by keeping us all in the dark that it can continue to start war after war—violating rights abroad and smashing liberties at home—in the name of spreading freedom.
There is only one force that can put an end to the successes of the state, and that is an economically and morally informed public. Otherwise, the state can continue to spread its malicious and destructive policies.
Do you remember the first time that you began to grasp economic fundamentals? It is a very exciting time. It is as if people with poor eyesight have put on glasses for the first time. It can consume us for weeks, months, and years. We read a book like Economics in One Lesson and pore over the pages of Human Action, and for the first time we realize that so much of what other people take for granted is not true, and that there are exciting truths about the world that desperately need to be spread.
To consider just one example, look at the concept of inflation. For most people, it is seen the way primitive societies might see the onset of a disease. It is something that sweeps through to cause every kind of wreckage. The damage is obvious enough, but the source is not. Everyone blames everyone else, and no solution seems to work. But once you understand economics, you begin to see that the value of the money is more directly related to its quantity, and that only one institution possesses the power to create money out of thin air without limit: the government-connected central bank.
Economics causes us to broaden our minds to look at the commerce of society from many different points of view. Instead of just looking at events and phenomena from the perspective of a single consumer or producer, we begin to see the interests of all consumers and all producers. Instead of thinking only about the short-run effects of certain policies, we think about the long run, and the spin-off effects of certain government policies. This is the essence of Hazlitt's first lesson in his famed book.
By the way, let me interrupt here to make an exciting announcement. This book was written more than 60 years ago, and it remains the most powerful first book on economics anyone can read. Even if it is the last book on economics you read, it will stick with you for a lifetime.
It is a hugely important tool, and though I'm glad that it has stayed in print, I've not been happy with the edition that has long been distributed. We had long hoped for a hardback version of this amazing classic to make available at a very low price. Now we have it.
For a person who has read in economics, and absorbed its essential lessons, the world around us becomes vivid and clear, and certain moral imperatives strike us. We know now that commerce deserves defense. We see entrepreneurs as great heroes. We sympathize with the plight of producers. We see unions not as defenders of rights but as privileged cartels that exclude people who need work. We see regulations not as consumer protection but rather as cost-raising rackets lobbied for by some producers to hurt other producers. We see antitrust not as a safeguard against corporate excess but as a bludgeon used by big players against smarter competitors.
In short, economics helps us see the world as it is. And its contribution lies not in the direction of the assembly of ever more facts, but in helping those facts fit a coherent theory of the world. And here we see the essence of our job at the Mises Institute. It is to educate and instill a systematic method for understanding the world as it is. Our battleground is not the courts, nor the election polls, nor the presidency, nor the legislature, and certainly not the wicked arena of lobbying and political payoffs. Our battleground concerns a domain of existence that is more powerful in the long run. It concerns the ideas that individuals hold about how the world works.
As we get older and see ever more young generations coming up behind us, we are often struck by the great truth that knowledge in this world is not cumulative over time. What one generation has learned and absorbed is not somehow passed on to the next one through genetics or osmosis. Each generation must be taught anew. Economic theory, I'm sorry to report, is not written on our hearts. It was a long time in the process of being discovered. But now that we know, it must be passed on—and in this way, it is like the ability to read, or to understand great literature. It is the obligation of our generation to teach the next generation.
And we are not merely talking here of knowledge for knowledge's sake. What is at stake is our prosperity. It is our standard of living. It is the well-being of our children and all of society. It is freedom and the flourishing of civilization that stand in the balance. Whether we grow and thrive and create and flourish, or wither and die and lose all that we have inherited, ultimately depends on these abstract ideas we hold concerning cause and effect in society. These ideas do not usually come to us by pure observation. They must be taught and explained.
But who or what will teach and explain them? This is the crucial role of the Mises Institute. And not only to teach but to expand the base of knowledge, to make new discoveries, to broaden the reach of the literature, and to add ever more abundantly to the corpus of freedom. We need to expand its proponents in all walks of life, not only in academia but in all sectors of society. This is an ambitious agenda, one that Mises himself charged his descendants with.
You are helping us take up this task, and for this we are so grateful.
This talk was delivered at the Mises Circle in Seattle on May 17, 2008.
Journalist Jordan Schachtel joins the show to discuss Biden's escalating rhetoric against what he terms "ultra-MAGA" semi-fascists. Is America finally past any pretense of democracy?
With a declaration of a fake crisis and twisting an obscure law, President Joe Biden has invoked a massive wealth transfer that benefits the most privileged people in our society.
Original Article: "Biden's Student Loan Scheme Benefits the Ruling Class (Again)"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The introduction of commodities into the market has interesting implications concerning Carl Menger’s value imputation. The subjectiveness behind this approach illustrates that marginal utility analysis may be used in the explanation of the price phenomena of a commodity, or more specifically, the price phenomena of a new item into the market.
In the imaginary construction of Robinson Crusoe’s island, in which there is a community that does trade among a few individuals—for example, ten—there would be a primary number of commodities. For instance, products like bananas, coconuts, rocks, and river water would be among the goods these economizing agents may use. These uses, of course, would vary among the ordinal preference of each economic agent that lives on the island.
Case in point, Marina and Arthur may have different preferences on whether coconut or bananas are more critical than any other good available on the island. So, based on their subjective tastes, and in combination with the rest of the choices of the other members of such society, a price system would arise determining how to economize and use these goods in productive matters.
By economizing, we mean that these individuals would find ways to create revenue and calculate yield upon these commodities that are found in nature, whether this profit generation takes place as a specialization in the production of a specific good like growing banana trees or by giving logistical services on the distribution of said goods. These arbitrage operations would end up lowering the profit rates and stabilizing the prices of the commodities. Because profits rates would be different, market actors would adjust accordingly to the production of the highest-yielding return good.
Introduction of a New Commodity into the Market The previous simplistic Crusoean explanation addresses how the price system would coordinate agents and give birth to the social cooperation on this fictitious island. But now, the question arises: What would happen if a new commodity were introduced into this price system? In other words, what would happen if, let us say, Marina, discovered that there were strawberries on the island?
Well, the discovery, or the introduction of strawberries into the market, would have no effect if the people on the island would not value it. If the members of this imaginary society would not appreciate the strawberries, why would Marina get them?
It is precise because Marina knows how important strawberries are, so she decides to sell them. Initially, since she would be the only vendor, the return on the cultivation of strawberries would lead to a high yield upon the investment Marina is making regarding time and logistics.
So, in a sense, we may presume that the price of the first strawberries in the market would have a high price that would compensate for costs incurred.
Nonetheless, Marina’s friends start noticing something suspicious. She is making huge profits by cultivating strawberries. In this regard, the river water collector may feel that he should, too, start planting and collecting berries to sell in the market. However, not just the river water person notices such an event; everyone around Marina knows it is happening under their noses.
Implications in a Newly Discovered Monetary System This praxeological explanation of the arbitrage process allows us to clarify the implications of introducing a new monetary system. Suppose the reader assumes for granted that the regression theorem, first proposed by Ludwig von Mises is accurate. In that case the value of money can be traced to its commodity value when the adoption of such started. Then, specific tools could be available to explain money’s price volatility.
As with every other good or service in the market, money has a price. When we refer to its price, we refer to the exchange ratio by which money can be exchanged to acquire specific goods or services. Of course, this would imply that money does not have a unique price; instead, it has many prices to which the economizing agent may look and try to figure out its value.
In other words, if the economizing men from the barter economies started to see a particular interest in a commodity because of its value and then realized that it could have monetary uses, then the volatility of this commodity would have mainly decreased. As money adoption happened, we could have seen different ratios of the same product through other people. However, the arbitrage stage is not an exception to money. People, at first, would look at it as a speculation opportunity. Many others would join the market, stabilizing the rate of profit and increasing the chances of adopting the commodity as a general medium of exchange. Those agents valued this item then, not by its selling price necessarily, but by its salability faculties of being able to do transactions among people.
The volatility then of money before its adoption stage would be high relatively compared to its price as it generalizes as a medium of exchange. So, the elucidation that can be taken from a praxeological viewpoint is that if individuals suddenly start adopting something as a medium of exchange, then volatility would start to fade away. Its stabilization would depend on how universal transactions become by using this newly discovered money.
Nowadays, we are seeing agorist attempts to replace fiat money with a privately produced currency that can outcompete it. Whether that’s crypto or gold, the reality is that the lower levels of volatility would be indicative that a commodity is transitioning to the money adoption stage. Furthermore, these things to become money would have to be adopted generally to do transactions, and as a result, volatility will be disappeared.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop are joined by Brandan Buck, a historian on the anti-war right and a recent participant at the Rothbard Graduate Seminar. The conversation looks at the parallels between modern American politics and the political climate that gave rise to America's foreign policy in the second half of the 20th Century. How did the American right get dragged into the project of liberal imperialism? Is China the new Evil Empire? How important are figures like Tucker Carlson in questioning the war narrative? These questions and more are answered in this episode.
SPECIAL OFFER: Use coupon code RothPod at the Mises Store to save 20% off of Murray Rothbard's classic The Betrayal of the American Right: Mises.org/Betray.
Follow Brandan Buck on Twitter: @Brandan_Buck
Recommended Reading "No ‘Putin apologia’ and certainly not new: the Old American Right on war" by Brandan Buck: Mises.org/RR_97_A
"Bear Any Burden: Military Sacrifice and Rise of American Populism" by Brandan Buck: Mises.org/RR_97_B
"A History of Distrust: How the Right Lost Faith in Institutions" by Brandan Buck: Mises.org/RR_97_C
"Fly Over Country, the Gunbelt, and the Nationalization of America Internationalism" by Brandan Buck: Mises.org/RR_97_D
The Betrayal of the American Right by Murray N. Rothbard: Mises.org/RR_97_E
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Jedediah Purdy is a legal academic probably best known for his work in environmental law, and his just-published Two Cheers for Politics (Basic Books, 2022) shows his wide knowledge of political philosophy. But a central argument of the book is a textbook case of a fallacy to which Ludwig von Mises was keen to call our attention.
Purdy says that “rule by equals is the keystone of democracy. The core question of politics is who has the power to make a shared world. The democratic answer is that the people who live with those choices should control them and that majorities are the best stand-in for the whole people” (p. 12). The power and influence of rich people threatens democracy, and for that reason, an essential aspect of democracy is keeping this group under strict control. “Democracy’s moral authority starts from the principle that we should shape our interdependence in a way that gives equal weight to everyone who lives with the outcome and, in class societies, gives decisive weight to middling people or the poor, cutting back domination of politics by the wealthy” (p. 127).
I don’t propose to criticize this notion of democracy here—for that task readers can consult Hans Hoppe’s Democracy: The God That Failed—but rather to identify an assumption that underlies Purdy’s application of his notion of democracy to economics. This assumption is that the principles of economics leave substantial leeway for democracy to improve the lives of the poor and middle class beyond what can be achieved on the free market. If, for example, the democratic majority decides that workers should have higher than market wages, the way to secure this goal is ready at hand. Minimum wage laws and other measures will raise wages without ill-effects, except perhaps for greedy capitalists deprived of their ill-gotten gains at the workers’ expense.
Purdy makes evident his commitment to this assumption in his contrast between the free-market approach to the Great Depression and the views of Franklin Roosevelt and W.E.B. Du Bois. Roosevelt in 1937 said that the
country needed … “to find through government the instrument of our united purpose to solve for the individual the ever-rising problems of a complex civilization. Repeated efforts at their solution without the aid of government had left us baffled and bewildered … we must find practical controls over blind economic forces and blindly selfish men.” … Markets produced devastating crises. (quoted on p. 124)
Readers familiar with Austrian business cycle theory do not need me to tell them that the free market did not produce the 1929 depression. To the contrary, the expansionist policy of the Fed induced the crisis, and the interventions by Herbert Hoover and FDR prolonged and exacerbated it. (Murray Rothbard’s America’s Great Depression is the definitive work on this.) In this connection, it is significant that Purdy is quoting from Roosevelt’s second inaugural address, given in 1937, when the free market can hardly be blamed for the failure of the New Deal programs in place since 1933 to extricate America from economic disaster. Suppose, though, that contrary to fact, the free market did produce devastating crises. It would not follow that the programs favored by the “democratic majority” could do better.
Could they in fact do so? Purdy deems it unnecessary to investigate this question. He cites W.E.B. Du Bois, who thought
that the role of government was to shape an economic order for its citizens. Du Bois called his version of democratic political economy abolition-democracy. As he put it, “two theories of the future of America clashed and blended just after the Civil War” and persisted thereafter: “The one was abolition-democracy based on freedom, intelligence, and power for all men; the other was industry for private profit, directed by an autocracy determined at any price to amass wealth and power.” (p. 125)
Du Bois assumes without argument that “abolition-democracy” can do better than the free market; but surely one needs to investigate economic theory to discover this, and there is no reason to think he knew anything about it, despite his eminence in history and sociology.
Purdy’s unquestioning faith in the power of the democratic will exhibits a fallacy that Mises discusses at some length: the unsupported belief that economic laws do not impose strict limits on what policy makers can achieve. Writing in Human Action about price control, Mises says,
It is the tenets of these interventionists that we have to examine. The problem is whether it is possible for the police power to attain the ends it wants to attain by fixing prices, wage rates, and interest rates at a height different from what the unhampered market would have determined. It is beyond doubt that a strong and resolute government has the power to decree such maximum or minimum rates and to take revenge upon the disobedient. But the question is whether or not the authority can attain those ends which it wants to attain by resorting to such decrees.
Mises’s point can readily be extended to other interventionist measures of the sort Purdy favors.
Purdy’s reply to this is obvious. He would say that the views of Mises and Hayek, far from being purely scientific, are ideological rationalizations for control of society by the rich and powerful. In order to show this, though, Purdy would need to show what is wrong with the criticisms of intervention these economists make, criticisms that do not rest on “value judgments” that they hold but on value-free arguments. Purdy never undertakes an analysis of these arguments, and, if he is qualified to do this, he does not vouchsafe to readers the evidence for his competence in economics. Does he think that the validity of economic law is among the subjects that people may through democratic voting decide? He ascribes to the democratic will the words of God, according to the prophet Isaiah. “The Lord of hosts hath sworn, saying, Surely as I have thought, so shall it come to pass; and as I have purposed, so shall it stand” (Isaiah 14:24).
If you wish to get a better understanding of economics, don't follow the mainstream. Instead, read Thomas DiLorenzo's new book.
Original Article: "Review: The Politically Incorrect Guide to Economics"
This Audio Mises Wire is generously sponsored by Christopher Condon.
A decline in the yearly growth rate of the Consumer Price Index (CPI) to 8.5 percent in July from 9.1 percent in June has prompted many commentators to suggest that inflation has likely peaked. If this assessment is valid then it is held Fed policy makers are unlikely to push for an aggressive interest rate tightening in the months ahead. Before one decides to agree or disagree on the likely interest rate policy of the Fed there is the need to ascertain what do we mean by inflation.
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The Essence of Inflation The subject matter of inflation is embezzlement. Historically, inflation has originated when a country’s ruler such as the king would force his citizens to give him all of their gold coins under the pretext that a new gold coin was going to replace the old one. In the process, the king would falsify the content of the gold coins by mixing it with some other metal and return diluted gold coins to the citizens (see Murray N. Rothbard’s explanation in What Has Government Done to Our Money?).
Because of the dilution of the gold coins, the ruler could now mint a greater amount of coins and pocket for his own use the extra coins minted. What was now passing as a pure gold coin was in fact a gold alloy coin.
The increase in the number of coins brought about by the debasement of gold coins causes inflation, as debasement caused the inflation of gold coins. As a result of inflation of coins, the ruler can engage in an exchange of nothing for something (he can engage in an act of diverting resources from citizens to himself).
Under the gold standard, the technique of abusing the medium of the exchange became much more advanced through the issuance of receipts unbacked by gold. Inflation, therefore, becomes an increase in receipts that are not backed by gold.
The holder of an unbacked receipt could now engage in an exchange of nothing for something. This produced a situation where the issuers of the unbacked paper receipts could now divert goods and services to themselves without contributing to the production of those goods and services.
In the modern world, money proper is no longer gold but rather coins and notes in circulation—i.e., cash—hence, inflation is an increase in cash.
According to Ludwig von Mises:
To avoid being blamed for the nefarious consequences of inflation, the government and its henchmen resort to a semantic trick. They try to change the meaning of the terms. They call “inflation” the inevitable consequence of inflation, namely, the rise in prices. They are anxious to relegate into oblivion the fact that this rise is produced by an increase in the amount of money and money substitutes. They never mention this increase. They put the responsibility for the rising cost of living on business.
Ayn Rand writes:
“Inflation” is defined in the dictionary as “undue expansion or increase of the currency of a country, esp. by the issuing of paper money not redeemable in specie.”
Rand continues:
Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist government.
Observe that inflation is not a general increase in prices. What we are saying that inflation is increases in the money supply. Following this, we can suggest that after climbing to 79 percent by February last year the yearly growth of our monetary measure AMS fell to 10.5 percent by June this year. This means that inflation has peaked in February last year.
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When money is expanded—i.e., generated out of “thin air”—the holders of the newly generated money can divert to themselves goods without contributing to the production of goods. As a result, wealth generators who have contributed to the production of goods discover that the purchasing power of their money has fallen since there are now less goods left in the pool.
Once wealth generators have less goods at their disposal obviously this is going to hurt the formation of wealth. As a result, economic growth is going to come under pressure. General increases in prices, which follow increases in the money supply, only point to an erosion of wealth. Price increases however did not cause this erosion. Likewise, it is increases in money supply and not increases in prices that erodes the real incomes of pensioners and low-income earners. As a rule, they are the last receivers of the newly pumped money often called the “fixed-income groups.”
An Increase in Goods Supply Cannot Undo Inflation For most economists, if an increase in the money supply is matched by the increase in the production of goods, then there is no increase in general prices (as measured by price indices) and no inflation emerges. This is an error, since inflation has very much taken place—i.e., the money supply has increased—and this increase cannot be undone by a corresponding increase in the production of goods and services.
To continue the king example, once a king has created more gold alloy coins that masquerade as pure gold coins, he can exchange nothing for something irrespective of the growth rate of the production of goods. Regardless of what the production of goods is doing, the king is now engaging in an exchange of nothing for something—i.e., diverting resources to himself by paying nothing in return.
Can Inflation Emerge While Prices Stay Unchanged? If an increase in the money supply occurs for a given stock of goods, this means that more money is going to be exchanged for a given stock of goods, all other things being equal. Obviously, the purchasing power of money is going to fall, as prices of goods increase (more money per unit of a good). In this case, general increase in prices is going to be associated with inflation.
But now consider the following case: the growth rate in money is in line with the growth rate in goods supply. Consequently, the prices of goods on average do not change. Do we have inflation here or don’t we? For most commentators, if an increase in the money supply is exactly matched by the increase in the supply of goods no increase in general prices is going to take place and therefore no inflation emerges. This way of thinking is erroneous since inflation has taken place—i.e., the money supply has increased. The increase in money supply—i.e., the increase in inflation—sets in motion all the negative side effects that money printing does, including the menace of the boom-bust cycle, regardless of the increase in the supply of goods.
According to Rothbard:
The fact that general prices were more or less stable during the 1920s told most economists that there was no inflationary threat, and therefore the events of the great depression caught them completely unaware.
Conclusion Contrary to the popular definition, inflation is not about general rises in prices but about increases in the money supply. General increase in prices as a rule develops because of the increase in money supply. The harm that most people attribute to rises in prices is in fact due to increases in money supply. Hence, policies that are aimed at countering inflation without identifying what is it all about only make things much worse.
If inflation has peaked in February last year, then the Fed’s tight interest rate stance is going to exacerbate the downward pressure on the momentum of money supply. This will burst various bubble activities that emerged on the back of the expanding momentum of money supply. A tighter interest rate stance is also will inflict damage on the wealth generating process. Given that the pool of wealth is likely to be under severe pressure because of the ever-expanding government and the Fed’s tampering with markets this raises the likelihood of the economy plunging into a severe economic slump.
Last week, Jerome Powell insisted that he’s not going to change his mind on allowing interest rates to rise while allowing the assets on the Fed’s portfolio to (very slowly) roll off the balance sheet. At the Federal Reserve’s annual Jackson Hole conference, Powell’s speech lasted only ten minutes. Powell had a fairly simple message. He admitted that “high inflation has continued to spread through the economy” and also admitted that a single month of falling month-to-month Consumer Price Index (CPI) inflation is hardly enough when year-over-year CPI inflation growth continues to exceed 8 percent. He then insisted that a neutral policy stance is “not a place to pause or stop” and that the Fed would embrace “a restrictive policy stance for some time.”
The Fed’s idea of “restrictive” policy, of course, isn’t very restrictive at all, and usually just means “less expansive than usual.” Powell’s speech, far from being hawkish in any meaningful sense, nonetheless signaled enough of a departure from the usual money-pumping posture to send the Dow down more than 1,000 points the same day while investors and Wall Street hacks immediately got to work complaining that the Fed wasn’t going to “pivot” quickly enough.
The “pivot” narrative has long been the preferred narrative on Wall Street. Having become addicted to the Fed’s easy money policies, Wall Street is now mostly just about cheering on monetary stimulus at the slightest sign of trouble. When the easy money flows, asset prices surge, and the markets go up. Since 2010, this has been the primary game for big investors. Keeping an eye on market fundamentals is so pre-2009. What matters now is Fed stimulus, always and forever.
Of course, once price inflation rates started coming in at multidecade highs, even Wall Street admitted that forty-year highs in price inflation are a problem and that the Fed will have to ease off the easy money for a little while. But the same narrative also assumes that as soon as any weakness shows up in hiring or home prices, or any other economic indicator, the Fed should “pivot” to embracing easy money once again.
Many critics of the Fed’s ultraslight hawkishness, for example, expressed rage on Twitter and in financial blogs when Minneapolis Fed president Neel Kashkari said he was “happy” that markets went down in response to Powell’s speech. Kashkari is desperate to be seen as doing something about price inflation, and falling markets are perhaps a sign that Powell’s policies might be working. Meanwhile, Powell is being set up as a villain in a narrative in which the Fed’s slight tightening will be to blame for causing an unnecessary recession when unemployment starts to rise. Many continue to believe that a recession can be avoided and—if Powell really knows what he’s doing—it that it will be possible to get rid of price inflation without any serious economic troubles.
But this narrative gets things very wrong.
I’m not opposed to casting Powell as a villain. But Powell isn’t a villain for pulling his foot a little off the money-creation accelerator. True, this is likely to speed up the arrival of the bust. But that’s a sign he’s actually doing something less bad than usual. No, Powell’s villainy stems from his role in helping create the boom. The problem is the boom, not the bust.
After all, busts are primarily caused by the booms that come before them. The fact that recessions are often triggered by a slowing of money creation is only a symptom of the larger problem. Without the boom—and all the malinvestment that comes with it—investors and employers wouldn’t depend on ongoing injections of new money to stave off a depression.
In other words, it is the boom, not the bust, for which Fed technocrats ought to be pilloried. But we shouldn’t be surprised by this confusion over what is to blame for recessions and depressions that come on the heels of booms.
In Human Action, Ludwig von Mises explains that misinformed observers blame the bust rather than the boom for economic misfortune. The average person “does not blame the authorities for having fostered the boom. He reviles them for the necessary collapse. In the opinion of the public, more inflation and more credit expansion are the only remedy against the evils that inflation and credit expansion have brought about.”
This is exactly what we hear from much of Wall Street right now. Mises explains, moreover, that the bust is potentially the good part of the boom-bust cycle. It is the part of the cycle that allows the economy to return to reality, and which allows savers and investors to build the economy on a more firm foundation. The boom, contrary to its appearances, actually makes us worse off:
We must call the boom retrogression and the depression progress. The boom squanders through malinvestment scarce factors of production and reduces the stock available through overconsumption; its alleged blessings are paid for by impoverishment. The depression, on the other hand, is the way back to a state of affairs in which all factors of production are employed for the best possible satisfaction of the most urgent needs of the consumers.
The malinvestments of the boom have misplaced inconvertible factors of production in some lines at the expense of other lines in which they were more urgently needed. There is disproportion in the allocation of nonconvertible factors to the various branches of industry. This disproportion can be remedied only by the accumulation of new capital and its employment in those branches in which it is most urgently required. This is a slow process. While it is in progress, it is impossible to utilize fully the productive capacity of some plants for which the complementary production facilities are lacking.
Phrased in modern terms, the boom creates zombie companies and zombie investments. These are activities which do not create value in a real economy but depend on ever greater levels of cheap debt to keep kicking the can down the road. Easy money makes these investments look profitable, however, so savers and investors pour money into these losing bets. Worse yet, the money poured into unprofitable bubble industries was money that would have gone to more productive, profitable, and necessary industries. Thus, bubbles slowly drain economies of productivity and value. Eventually reality catches up with these nonproductive ventures. Unless new waves of easy money keep coming, the lack of real productivity will be exposed. The economy can only be fixed when the nonproductive industries are exposed and allowed to downsize, go bankrupt, or otherwise disappear. Unfortunately, this process is painful. But, as Mises notes, it is the only way to undo the damage of the boom:
Out of the collapse of the boom there is only one way back to a state of affairs in which progressive accumulation of capital safeguards a steady improvement of material well-being: new saving must accumulate the capital goods needed for a harmonious equipment of all branches of production with the capital required. One must provide the capital goods lacking in those branches that were unduly neglected in the boom. Wage rates must drop; people must restrict their consumption temporarily until the capital wasted by malinvestment is restored. Those who dislike these hardships of the readjustment period must abstain in time from credit expansion.
Rarely is this process ever allowed to actually play out. Instead, government institutions intervene with government-created money, bailouts, and other measures. This is counterproductive:
There is no use in interfering by means of a new credit expansion with the process of readjustment. This would at best only interrupt, disturb, and prolong the curative process of the depression, if not bring about a new boom with all its inevitable consequences.
However, Mises notes that the psychological effects of booms are such that people think of the booms as good fortune while the busts are where things go wrong, and whatever came immediately before the bust is assigned the blame for causing it.
We now see this at work with Jerome Powell and Fed policy makers, who—driven by political expediency to seek an end to mounting price inflation—are finally and slightly backing off the monetary policy that has sustained enormous bubbles and malinvestments in many cases since before the 2008 financial crisis. The real causes of our presently weak economy, however, date back to before the current Fed policy makers were even running the show.
It gives me no joy to write this piece.
Even a cursory review of the redacted version of the affidavit submitted in support of the government’s application for a search warrant at the home of former President Donald Trump reveals that he will soon be indicted by a federal grand jury for three crimes: Removing and concealing national defense information (NDI), giving NDI to those not legally entitled to possess it, and obstruction of justice by failing to return NDI to those who are legally entitled to retrieve it.
When he learned from a phone call that thirty FBI agents were at the front door of his Florida residence with a search warrant and he decided to reveal this publicly, Trump assumed that the agents were looking for classified top-secret materials that they’d allege he criminally possessed. His assumptions were apparently based on his gut instinct and not on a sophisticated analysis of the law. Hence, his public boast that he declassified all the formerly classified documents he took with him.
Unbeknownst to him, the feds had anticipated such a defense and are not preparing to indict him for possessing classified materials, even though he did possess hundreds of voluntarily surrendered materials marked “top secret.” It is irrelevant if the documents were declassified, as the feds will charge crimes that do not require proof of classification. They told the federal judge who signed the search warrant that Trump still had NDI in his home. It appears they were correct.
Under the law, it doesn’t matter if the documents on which NDI is contained are classified or not, as it is simply and always criminal to have NDI in a nonfederal facility, to have those without security clearances move it from one place to another, and to keep it from the feds when they are seeking it. Stated differently, the absence of classification—for whatever reason—is not a defense to the charges that are likely to be filed against Trump.
Yet, misreading and underestimating the feds, Trump actually did them a favor. One of the elements that they must prove for any of the three crimes is that Trump knew that he had the documents. The favor he did was admitting to that when he boasted that they were no longer classified. He committed a mortal sin in the criminal defense world by denying something for which he had not been accused.
The second element that the feds must prove is that the documents actually do contain national defense information. And the third element they must prove is that Trump put these documents into the hands of those not authorized to hold them and stored them in a non–federally secured place. Intelligence community experts have already examined the documents taken from Trump’s home and are prepared to tell a jury that they contain the names of foreign agents secretly working for the US. This is the crown jewel of government secrets. Moreover, Trump’s Florida home is not a secure federal facility designated for the deposit of NDI.
The newest aspect of the case against Trump that we learned from the redacted affidavit is the obstruction allegation. This is not the obstruction that Robert Mueller claimed he found Trump committed during the Russia investigation. This is a newer obstruction statute, signed by President George W. Bush in 2002, that places far fewer burdens on the feds to prove. The older statute is the one Mueller alleged. It characterizes any material interference with a judicial function as criminal. Thus, one who lies to a grand jury or prevents a witness from testifying commits this variant of obstruction.
But the Bush-era statute, the one the feds contemplate charging Trump with having violated, makes it a crime of obstruction by failing to return government property or by sending the FBI on a wild goose chase looking for something that belongs to the government and that you know that you have. This statute does not require the preexistence of a judicial proceeding. It only requires that the defendant has the government’s property, knows that he has it and baselessly resists efforts by the government to get it back.
Where does all this leave Trump? The short answer is: in hot water. The longer answer is: He is confronting yet again the federal law enforcement and intelligence communities for which he has rightly expressed such public disdain. He had valid points of expression during the Russia investigation. He has little ground upon which to stand today.
I have often argued that many of these statutes that the feds have enacted to protect themselves are morally unjust and not grounded in the Constitution. One of my intellectual heroes, the great Murray Rothbard, taught that the government protects itself far more aggressively than it protects our natural rights.
In a monumental irony, both Julian Assange, the WikiLeaks journalist who exposed American war crimes during the Afghanistan and Iraq wars, and Edward Snowden, the former National Security Agency employee who exposed criminal mass government surveillance upon the American public, stand charged with the very same crimes that are likely to be brought against Trump. On both Assange and Snowden, Trump argued that they should be executed. Fortunately for all three, these statutes do not provide for capital punishment.
Rothbard warned that the feds aggressively protect themselves. Yet, both Assange and Snowden are heroic defenders of liberty with valid moral and legal defenses. Assange is protected by the Pentagon Papers case, which insulates the media from criminal or civil liability for revealing stolen matters of interest to the public, so long as the revealer is not the thief. Snowden is protected by the Constitution, which expressly prohibits the warrantless surveillance he revealed, which was the most massive peacetime abuse of government power.
What will Trump say is his defense to taking national defense information? I cannot think of a legally viable one.
COPYRIGHT 2022 ANDREW P. NAPOLITANO
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Keynesians claim that tax cuts are good because they help increase consumer spending. But here's why this doesn't matter.
Original Article: "Do We Want Real Tax Cuts? How About Cutting Government Spending?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
History matters, especially as the New York City today faces still another subway crisis.
The New York subway system’s history illustrates the failures of state enterprise. The subways have been bad for so long that few know when the subways were “an engineering marvel.” That was when subway private management companies made money, about a century ago.
Today there’s consensus the red-ink government subways are a nightmare. The state agency operating them has wasted billions, hurting the region’s economy. Riding them is an awful, dangerous experience. But these problems have festered for generations.
“There is no question our subways are in crisis after decades of underinvestment and inaction,” wrote New York City Comptroller Scott Stinger in a 2017 report. He said riders are frustrated.
“The Metropolitan Transportation Authority (MTA),” wrote New York State Comptroller Thomas DiNapoli in a recent report, “is facing its greatest challenge in decades.” Riders, he warned “are abandoning the system for other transportation alternatives.”
DiNapoli’s “Financial Outlook for the Metropolitan Transportation Authority,” found New York’s state-run subways and railroads have “deteriorating service.”
And that was before the recent crime problems and Coronavirus woes made things worse.
The biggest subway problem is unmentioned in government or news reports: historical illiteracy. It is the ignorance of how the system went from marvel to nightmare over decades of destructive government regulation of private management companies and government operation.
Now the MTA, which over generations has been getting less money from riders who often opt for other ways of getting around New York, takes more from New York taxpayers, the most overburdened in the nation, according to the Tax Foundation. But New Yorkers repeatedly approved higher taxes and fares to pay for the mistakes of often forgotten government policies. Yet today the solution is more of the same.
The MTA recently approved the biggest capital plan in its history; some $51 billion. MTA Managing Director Ronnie Hakim, promised that “enhancements” to the system would “improve the riders daily experience.”
New tax dollars for the broken-down subway and other state-run transit systems will also come in part from still another tax, a congestion pricing scheme that will take more out of the pockets of taxpayers. The scheme, soon to take effect, assesses a new tax on motorists coming into the middle of the city during the business day. With tolls and parking costs, motorists could pay $50 a day to get to work, not including gas.
Will the promised improvements backed by more taxes make things better?
History says no.
“If anything has emerged as a timeless and universal characterization of the New York Subway,” writes Brian Cudahy, “it is the endless search for some future salvation, some not realized resolution of its difficulties and cure for its ills. Plans are made, programs developed, goals established. But they never quite live up to their initial expectations, and a new cycle must begin.”
Cudahy, a privatization opponent as are most journalists, wrote that several decades ago. Why do New Yorkers and others supporting state enterprise ignore its egregious history?
A myth is propounded by many political and media elites today in New York and around the country. Political leaders, including many Republicans, often support failed government enterprise schemes. Only the public sector can do certain things such as run trains, they say. Even some of the supposed friends of free enterprise agree.
Nicole Gelinas, of the Manhattan Institute, argues for more state funding. She explained to me, “Private subways can’t make money.” This reminds one of the famous Ludwig von Mises comment: “Even many of the opponents of socialists talk like socialists.”
Actually, there were numerous subway successes in the private management era, 1904–40. Some private management companies made money and accomplished great things.
Although the New York City subways were never privately owned, private transportation companies operated in the first thirty-six years of the subways under a city franchise contract. The best of the private transportation companies, the Interborough Rapid Transit Company (IRT), generated strong profits over the first twenty years of the system. From its beginning in 1904, on into the 1920s, the IRT made money.
In the IRT’s 1917 annual report, the transportation company reported net income of $23.2 million. That was an increase of about $1.5 million over the previous year. The IRT was also a good investment. It paid about some $7 million in dividends, according to the annual financial report dated June 30, 1917.
Even into the 1920s, when price controls and rising costs as a result of the inflation of World War I were starting to squeeze profits, when private operators unsuccessfully sued to raise fares, the subways still were in the black. But the “Good Government” goo goos, progressive leaders often hostile to private enterprise because it was often profitable, opposed it, arguing for a public system.
In the US Supreme Court decision of 1929, Gilchrist v. Interborough Rapid Transit (IRT), a decision that affirmed that the five-cent fare couldn’t be raised to seven cents, court papers documented the something the government enterprise would never do: The IRT still made money.
“For the current fiscal year ended June 30, 1928, the figures for the first six months are available, and show a net surplus amounting to $3,687,000, which exceeds the surplus for the corresponding six months of the fiscal year before by $1,609,000.”
The IRT inevitably started to lose money in the 1930s owing to the fare freeze. Service declined. Still, for years the IRT was well run. Besides pleasing stockholders, it accomplished great things in building the first lines.
They began in Lower Manhattan and were considered “an engineering marvel.” Indeed, New Yorkers had been “once enormously proud” of their subways, wrote Robert Caro in his biography of Robert Moses, “Power Broker.” The government took over from the last private management company in 1940 and started to destroy its accomplishments.
“So superbly engineered and maintained had the system previously been that it took years for the systematic neglect to take its toll,” Caro wrote.
Most New Yorkers loved the subways, Caro wrote of the glory days before the subways self-destructed under government control in the 1950s and 1960s. But before then, the system’s success not only helped develop the city’s economy; a private system helped clear slums, saving the city.
This was detailed in the book Tunneling to the Future: The Story of the Great Subway Expansion That Saved New York by Peter Derrick, who worked as an MTA consultant.
He wrote that the first subways, those run by private management companies, allowed people to move from their workplace slums in lower Manhattan to healthier neighborhoods in the Bronx or Brooklyn.
So how did it happen that the city destroyed a private sector service that helped it in many ways.
In the 1930s the big profit, or any profit, years of the subways were gone because the city’s political class—from the saintly Mayor Fiorello LaGuardia to the corrupt Mayor Jimmy Walker—agreed the nickel fare must never rise. That is until the government took control in 1940. The IRT’s owners, like property owners facing rent controls, agreed to sell. Here was a signal change in the American economy. The city, noted a libertarian journalist at the time of the IRT sale, was doing more than buying a property. It found a backdoor to socialism:
“The City of New York has set a pattern for the nationalizing of the railroads of the country,” wrote Frank Chodorov. “A regulatory body,” he continued, “with power to fix rates and compel unprofitable operation, squeezes the business into bankruptcy, so that the owners are quite willing to sell their property to the taxpayers, and bureaucracy improves its position.”
This was a brilliant, prescient analysis. It came to fruition three decades later. The massive Penn Central bankruptcy was largely caused by overregulation. The birth of the wretched Amtrak followed.
As we suffer with more and more socialist/government enterprise in the nation and in New York, we have more and more subway delays. Amtrak goes into a transportation abyss. So, it is up to us—the riders, the overtaxed citizens and those who believe in private property—to learn the lessons of government transportation companies in New York City and elsewhere.
In government “enterprise,” there are no profits. Service is a mess. The answer is clear: the government must leave the transportation business.
While the antimarket and antilibertarian forces are strong, it is easy to forget that free market advocates also have a powerful set of tools.
Original Article: "Taking Stock of the Assets We Have (and We Have a Lot of Them)"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Security state agencies must justify their existence.
There are 1,271 counterterrorist, homeland security, and intelligence organizations; 1,931 private sector analogues; 10,000 locations of these organizations; and ~854,000 people with top-secret security clearances as of 2010. To make matters worse, the line between private and public is obscure in this industry.
This massive effort requires massive tax collection. Since government endeavors do not compete and do not participate in reciprocal exchanges, then they have no profit-and-loss test to determine if their efforts are worth the money taken from citizens. Additionally, since only the free market can determine prices, government endeavors must continually disseminate propaganda to convince citizens that the endeavor is useful.
Interestingly, officials in this industry have explicitly admitted that reports from government agencies are not trusted by the public, so the tactful solution is to hire someone to produce those reports that would have otherwise been produced by the government agency itself. Since security state agencies cannot produce evidence that their services are needed, they hire private businesses and nonprofits to disseminate their propaganda for them.
Naturally, the need to justify the existence of government—propaganda—evolves into techniques to disseminate that propaganda in addition to censoring opposition to it. Therefore, a proxy government is established—a front for the actual government to do what it wants to do but otherwise cannot. This also sets the stage for information control:
How to control Information:
- Stop ideas (censorship)
- Force other ideas (redirection)
- Justify this control (propaganda)
The US government has incentivized a group of organizations to do just that. “Big tech censorship” and other control measures were not the result of free-market phenomena.
The think tanks that refer to themselves as “counter-violent extremists” (CVEs) are America’s proxy government responsible for censoring, shadow banning, ad feed tampering, search result manipulation, and “racism/extremism” deception.
Our Proxy Government The suppression of dissent is not new for American regimes, but in the modern era it is referred to as “content moderation.” The dissemination of propaganda is not new either, but modern techniques have adapted and are referred to as “redirection” or “CounterSpeech initiatives.”
Both are defended by the intelligence agency conglomerate USAID (United States Agency for International Development) and the Department of Homeland Security (DHS):
The School of Communication at American University will define and describe the growing threat of violent white supremacist extremist disinformation, evaluate attitudinal inoculation as a strategy for communication to combat the threat, and develop a suite of operational tools for use by practitioners and stakeholders. With commitment and support from Google Jigsaw, American University will develop evidence-based methods for undermining the persuasive appeal of disinformation-based messaging and facilitate on- and offline inoculation campaigns. (DHS)
American University partnered with the pioneer of modern censorship software—Google’s Jigsaw—to tamper with ad feeds so that American University content was placed in front of targeted users. The intention was for the content to appear organic (a paid advertisement or legitimate search result). The state-funded American University cites the Center for Strategic and International Studies to support its claims, despite the fact that the center has a record of making claims without datasets or transparent methodologies. The justifications for much of it, the arbitrarily defined “white supremacy” has a statistically zero threat level.
In further defense of redirection, USAID argues that “CVE programs are most effective when they are tailored and focused, often at a hyper-local level.” (Translation: propaganda works best when we can pinpoint individual users online via surveillance campaigns and CVE software.)
The DHS uses the appeal to authority fallacy when using phrases like “credible voices” instead of presenting or citing real evidence. Of course, the authoritative figures are Facebook and Twitter representatives.
Meanwhile, the Council on Foreign Affairs (CFA) states that the top terrorist threat “is domestic rather than foreign,” yet Far Right extremism in North America causes less deaths than lightning strikes. Despite the insignificance of North American Far Right extremism, the White House insists on these CVE lies:
Biden directed his national security team to lead a 100-day comprehensive review of U.S. Government efforts to address domestic terrorism, which has evolved into the most urgent terrorism threat the United States faces today … the Biden Administration is releasing the first-ever National Strategy for Countering Domestic Terrorism to address this challenge to America’s national security (White House)
Again, phrases like “expert assessment” are frequently used by the White House report rather than citations containing evidence. The White House also claims that the
two most lethal elements of today’s domestic terrorism threat are (1) racially or ethnically motivated violent extremists who advocate for the superiority of the white race and (2) anti-government or anti-authority violent extremists, such as militia violent extremists. (White House)
Jigsaw was only able to find thirty-five former white supremacists globally. Jigsaw has access to data on billions of users via Google and YouTube’s data advantages. These meager findings did not deter the administration’s appeals to emotional arguments with anecdotes of extremism. Merely four instances of domestic terrorist attacks are used across a twenty-six-year period (in a country of 340 million), and the Capitol Hill instance was one of the four.
That is four instances across twenty-six years in a country of 340 million.
The White House article argues that LGBTQI+ communities are targets of violence, yet any “crime data” I have found that supports this narrative is selective polling from left-leaning sources, like ConnectFutures, NPR, and Media Diversity Institute. Opinion polling is not crime data.
Even the “rise” in Asian hate crime was a fabricated myth by a state-funded CVE out of California and staunch advocate of Marxism.
If Government Grants You a Part of Its Tax Revenue to Perform Its Tasks, Are You a Government Official? The Department of Homeland Security granted $10 million to the private sector CVE community in 2017 in which $568,000 was granted to American University. Recall that AU content is built into Google’s search function, meaning it has become a feature of Google Search products. The intelligence and CVE communities label nonparticipating competitors (like Parlor or Brave) as extremist-infested for not having services; albeit manipulative services.
In other words, this funding resulted in a feature on Google’s platform—a feature that Google did not have to fund itself. Google’s competitors, who are not afforded this privilege from the state, are then slandered by the state for not having it. Similar situations have occurred on Facebook, Twitter, and other platforms.
As another example, the DHS granted $750,000 to the Life After Hate group who partnered with Moonshot and Facebook, to manipulate users into far leftism online. The collaboration resulted in a redirection service to Facebook’s search function and ad “service.”
The DHS granted $121,000 to Prevention Through Education, a social policy–based group with a critical theory (Marxist) foundation.
There was a total of $77 million in the overarching CVE grant program:
The Department of Homeland Security (DHS) has designated “Domestic Violent Extremism” as a National Priority Area within the Department’s Homeland Security Grant Program, which means that over $77 million will be allocated to state, local, tribal, and territorial partners to prevent, protect against, and respond to domestic violent extremism…. The Department of Defense (DOD) is incorporating training for service members separating or retiring from the military on potential targeting of those with military training by violent extremist actors. (White House)
The CVE community is the proxy government in charge of what ideas are acceptable, what ideas are not, and how to enforce those judgments with software and techniques. This community does what the security apparatus wishes to do but cannot do directly.
Much of modern history portrays the African slave trade as purely a European venture. But capturing and sending slaves abroad required both approval and aid from African elites.
Original Article: "The African Slave Trade Wouldn't Have Been Possible without African Elites"
This Audio Mises Wire is generously sponsored by Christopher Condon.
[Dr. Gilbert Berdine of the Texas Tech University Health Sciences Center and Ryan McMaken discuss the policy makers’ justifications for vaccine mandates over the past two years. Will any of these policy makers admit to any mistakes?]
Ryan McMaken: The Centers for Disease Control and Prevention (CDC) earlier this month greatly scaled back its recommendations for quarantine and social distancing. It also now makes the same recommendations “regardless of vaccination status.” In other words, the CDC now apparently does not regard vaccinated people as any less a public health risk than the unvaccinated. What does this tell us about where we are right now with the value of vaccination mandates as public policy at this point?
Dr. Gilbert Berdine: The vaccine mandates were based on assumptions. It was assumed that the vaccine prevented infection and transmission of virus. The mandates were justified as protection of vaccinated people from the unvaccinated. The new CDC policy recognizes that this assumption was incorrect. The CDC concedes that natural immunity from prior exposure to the virus is at least as effective as vaccination in preventing subsequent infection. The CDC concedes that vaccinated people are at least as likely to spread disease as unvaccinated people. The new policy also recognizes that at this point in time the vast majority of people have been exposed to viral antigen either by natural exposure or vaccination. Given our current knowledge about covid-19, the CDC can no longer justify a vaccine mandate at present based on protecting the public from unvaccinated people.
RM: Yet, the US government is still imposing vaccine mandates. The US military bureaucracy is still threatening to force out service members who refuse vaccination, and tennis player Novak Djokovik apparently can’t enter the country without proof of vaccination. What is the scientific basis for this?
GB: There is no scientific basis for a vaccine mandate. Unvaccinated people pose no risk to vaccinated people. The CDC admits this to be the case. The only possible justification for a vaccine mandate is a paternalistic argument that people need to be protected from their own decisions. Free people should not be treated as pets. This leads into the next question as to whether there is scientific evidence that the vaccine saves lives.
RM: In the past, you have noted that the public health benefit of the mandates has always been very limited, and an enormous number of vaccine doses has been necessary to prevent a small number of deaths. Is this still the case?
GB: I have previously noted that a very high number of vaccinations were required to prevent a single death when the vaccines were first made available based on the original Pfizer trials. The efficacy of the vaccine in preventing hospitalization from covid, ICU care for covid, and deaths attributed to covid has declined over time, so the number to vaccinate to prevent a death are higher than when I reported on this issue. At the time the vaccines were introduced, the risks were unknown given the small number of people in the trials. We now have data on adverse events from the vaccine. The VAERS database was created to detect adverse events from new vaccines that were missed during initial trials. Yet, the overwhelming signal coming from the VAERS database has been ignored. The life insurance industry has made public that deaths in 2021 were far above expectations from actuarial data. The CDC reports large numbers of excess deaths in 2021 that have persisted during 2022. These excess deaths cannot be explained by covid infection. Respiratory deaths have been average ever since approximately July 2020. It is cardiovascular deaths that are unexpectedly and unexplainably high. These cardiovascular deaths include strokes, heart attacks, sudden deaths attributed to arrhythmias, and congestive heart failure including unexpected cases of myocarditis. There have been numerous claims that the vaccines are responsible based on regression of mortality rates vs. vaccination rates. The CDC has the data to either confirm or reject the vaccine as a cause of the excess deaths, but the CDC refuses to release the data to the public.
RM: Now that the Pfizer and Moderna vaccines have been around for nearly two years, has the federal government shown any interest in evaluating the efficacy of these vaccines or the problem of side effects? Surely, we know much more now, but do you think the federal government give a fair hearing to negative information about the effects of the mandates?
GB: The control group in the original vaccine trials were eliminated after 90 days. Everyone in the trial received the vaccine. There is no control group to monitor for long term adverse events. The excess deaths in 2021 that have persisted into 2022 are probably the biggest medical story at the current time, yet the CDC seems uninterested in finding an explanation. The CDC has the data that would either confirm or exclude the vaccine as the cause of these excess deaths, yet the CDC refuses to release this data. In my opinion, both the CDC and the Food and Drug Administration have failed to be scientific organizations that protect the public from medical harm. Both organizations have become political in nature. This was a criticism of public funding of scientific research made by John Galt in the novel, Atlas Shrugged, and the prediction has become reality.
RM: Within the medical community, is it possible to criticize the mandates? One heard very little dissent on this in 2020. Is it possible to dissent more now?
GB: It is very risky for anyone in the medical community to criticize any aspect of covid policy. This includes mask policy, alternative therapies, vaccine mandates, or quarantines. Licensing boards, including the American Board of Internal Medicine, have threatened physicians with the loss of licensure for spreading “disinformation” about covid-19. Of course, disinformation has nothing to do with correct or incorrect information, but rather means anything that contradicts a political narrative. The practice of medicine is gradually being transformed from a scientific inquiry seeking fact into a religious cult accepting dogma under the threat of excommunication.
The Mises Institute has worked for more than four decades to advance one purpose: the cause of economic freedom in academia and public life. The two comments on our work that I hear most often are: (1) you guys are doing a great job, and (2) it is not working.
On the first point, I can only thank our generous supporters and faculty who make it all happen. They have enabled us to create an intellectual infrastructure that combines the ideals of the sanctuary and the tactics of intellectual guerilla warfare, at once reflective and separate as well as passionate and expansionist. For those who are not yet members, join us please with a $60 contribution.
On the second point, that our work has not yet yielded a free society, it is not difficult to observe that the government is growing and liberty is shrinking in many areas. But rather than fall into despair, consider that liberty is neither easy to achieve nor sustain absent a deep cultural commitment.
Mises taught that all societies in all times, and their governing structures, are the result of the ideas prevalent in the culture. He took it for granted that no government is liberal by nature. They all want maximum power and money for themselves, and can only obtain it at the expense of the people, since government itself produces nothing.
Consider the mentality of most presidents, justices, and Senators, and the incentives they face. Expanding the reach of government power is just considered integral to the job description. They may choose to expand in one area as versus another based on the quid pro quos they owe for the past election and the next one, but the idea of diminishing overall government makes no sense to them—any more than it makes sense for a cook to encourage dieting, or a housing contractor to encourage cave-dwelling. Once a politician or bureaucrat tastes power, he or she becomes a member of the governing caste, which means advancing the public sector first.
Totalitarianism, in this view, is not an aberration in history but the expected result of any state that is not restrained by the ideological convictions of the public. The state can use any ideological excuse—the need for community as in communism, the desire for national greatness as with fascism, the call for central economic planning as in the New Deal, or the urge to wage war for security—but the result is always the same.
It is the public belief in liberty—originating with the intellectual class—that ultimately restrains the state. If the population is passive and uninformed by any contrary voices, the state can succeed in its evil aims. Where cultural convictions are intense and intolerant of power, as well as embrace the inviolable right to person and property, liberty prevails. The government is either afraid to act in a way contrary to popular sentiment or it is already so powerless that it is denied any ability to act despotically even if it wanted to.
What this suggests is that the most important work to do for liberty is intellectual work. An ideological force of resistance must thrive and have a voice. Intellectuals committed to liberty need support for their work. They need the freedom to write and speak and research. There must be a means to disseminate their ideas and attract young thinkers. There must be a means in place to propagate these ideas in forms that reach the largest number of social and business leaders, as well as professionals of all sorts. These ideas must further have a component that attracts the broadest possible support from the public.
The Mises Institute has worked to put all this in place, and in this way the efforts are succeeding most remarkably. Before forty years ago, the Austrian School's prospects were sinking, libertarian theory had been marginalized in cultural affairs, there were very few consistent advocates of liberty speaking to public affairs (neither welfare nor warfare), and the number of sympathetic professors teaching were small and under fire.
Every one of these indicators has dramatically changed. This is progress. Incredible progress. No, the regime has not fallen but it has been restrained. After 9-11, when the regime saw its main chances to enact an all-powerful state that curbed liberties in every direction, the Mises Institute stood largely alone in saying no. I can tell you that we paid a high price. Those are frightening times to be a libertarian, times when the head of the world empire declares that you are either for his policies or for the terrorists. This sends chills down the spine of every dissident.
And yet we look around today and we see two main trends. First, the state is advancing far less than it might have hoped three years ago. It faces opposition at every turn, and skepticism about its every action. We owe this to a level of public resistance. Every dissident voice assists in this regard. Second, we see private enterprise on the march as never before, transforming our lives, melting borders to capital, and gaining ever more opportunities for fighting against tyranny and advancing liberty.
No, our job is far from over. Indeed, it begins anew every day. But we only need to imagine a world in which there are no advocates of liberty, no support structures for dissident intellectuals, no conferences for students to learn an alternative, and no sanctuaries that keep the flame alive in dark times. Would we be better off? Far from it. The presence of the Mises Institute and its activities work to provide a brake on power and a guide for the future.
If you ever feel pessimistic about the prospects for freedom, I invite you to visit our offices. We have the archives and papers of Ludwig von Mises and Murray Rothbard, among other great champions of freedom. At a time when major libraries are throwing out books, we are accumulating the world's greatest library on liberty. We have about 30,000 volumes now.
All summer our offices were full of some of the smartest, most dedicated, most promising students I'd ever been around. They are as hard working as they are idealistic, and they come to us to read and study the forbidden books of our time, those works by Mises, Rothbard, Hayek and others who are champions of freedom.
These students know that freedom is not popular among the intelligentsia. They experience it every day in class, where they face professors who disparage capitalism and offer a thousand plans for reconstructing the world in cockamamie ways.
The truth is that freedom hasn't been treated favorably in academia for the better part of a century. In the 1930s, for example, we were told that freedom was not an option. We could be fascists or communists or perhaps democratic socialists, but freedom was outmoded and silly and unworkable.
But great minds like Mises could not be intimidated. They continued to speak. They paid a price, but they kept the philosophical flame burning. They were told that their ideas were outmoded and ineffective but they were not deterred.
Nor must we permit ourselves to be intimidated or deterred today. By publishing books and journals and offering materials that make the case for freedom, we are fighting the battle of ideas—and ideals, Mises tells us, are more powerful than armies.
Our ideal is freedom. Now, the word freedom is bandied about a lot these days, so let me be clear that I don't mean freedom the way the proposed Iraqi Constitution means it. Here we have a document where every invocation of rights and liberties is qualified with the deadly phrase: except by law.
Now, most Americans who know about what real freedom means can only scoff at such nonsense. We know that if we put government in charge of regulating our freedoms, it is only a matter of time before we have no freedom left. Government wants us to do what it wants us to do, not what we want to do.
If there are no limits placed on government, if our freedom under law is not guaranteed as an absolute principle, the final result is that government will have all power and all property, and we will have none. That is the way the world works, from the ancient times until the end of time.
In all of human history, we can count the number of principled statesmen like Ron Paul on two hands. George Washington said that if men were angels we wouldn't need government. We might clarify that if all statesmen were like Ron Paul, we wouldn't need restraints on government. But we know that is not the case.
The definition of freedom is not complicated. Freedom means that which the government does not control. You are free when the government cannot steal your income, when it cannot tell you what to say or with whom you may or may not associate. You are free when the government cannot take your kids and send them to far-flung wars to kill and be killed. You are free when you control your life, your property, your church, your business, and your future. You are free when the government cannot inflate away your savings, tax away your profits, lay waste to your dividends by regimenting corporate life, or control how much of what you buy and sell and from where.
The Mises Institute has made a new backpack for students, and it sports the following quotation from Mises: "Government is the negation of liberty." I'm pleased to report that these are very popular on campus right now. They also explain where other students can go to find information.
The Mises Institute may not be able to persuade the faculty to read a big treatise on economics and society, or attend one of our conferences. We may never convert the literature and sociology departments in the Ivy League to the cause of the free market.
But still, it gives some satisfaction to know that we can drive them crazy by encouraging their students to declare where they stand. Until true freedom arrives—and someday it will—we must be pleased with all such seemingly small victories. Together with serious intellectual work, dedicated teaching efforts, the publishing of journals and books, and employing every effort to reach the broadest possible audience, we all do our part to prepare the way for a peaceful and prosperous world.
According to many economic commentators, an effective way to generate economic growth is through the lowering of taxes. The lowering of taxes, it is held, will place more money in consumers’ pockets, thereby setting in motion an economic growth. This way of thinking is based on the belief that a given dollar increase in consumer spending will lift the economy’s gross domestic product (GDP) by a multiple of the increase in consumer expenditure.
Assume that out of an additional dollar received individuals spend $0.9 and save $0.1. Also assume that consumers have increased their expenditure by $100 million. Because of this, retailers’ revenue rises by $100 million. Retailers in response to the increase in their income consume 90 percent of the $100 million—i.e., they raise expenditure on goods and services by $90 million. The recipients of these $90 million in turn spend 90 percent of the $90 million—i.e., $81 million. Then the recipients of the $81 million spend 90 percent of this sum, which is $72.9 million and so on. Note that the key in this way of thinking is that expenditure by one person becomes the income of another person. At each stage in the spending chain, people spend 90 percent of the additional income they receive. This process eventually ends, so it is held, with total output higher by $1 billion (10*$100 million) than it was before consumers had increased their initial expenditure by $100 million.
Observe that the more that is being spent from each dollar, the greater the multiplier is and therefore the impact of the initial spending on overall output will be larger. For instance, if people change their habits and spend 95 percent from each dollar the multiplier will become 20. Conversely, if they decide to spend only 80 percent and save 20 percent then the multiplier will be 5. All this means that the less that is being saved the larger is the impact of an increase in overall demand on overall output.
Note that on this way of thinking an increase in savings weakens the pace of economic activity. Thus, it is not surprising that most economists today believe that fiscal and monetary stimulus can prevent the economy falling into a recession. Hence, all that is required is to give every individual more money to spend, and, in turn, should set increases in consumer spending in motion, which in turn will trigger increases in the production of goods and services. Note again that within the framework of “the multiplier” savings are actually bad news—since the less people save, the greater is the multiplier.
Is the Multiplier a Real Thing? Are increases in savings bad for the economy as the multiplier model indicate? Take Bob the farmer who has produced twenty tomatoes and consumes five tomatoes. What is left at his disposal is fifteen saved tomatoes, which are his savings. With the help of the saved fifteen tomatoes, Bob can now secure various other goods. For instance, he secures one loaf of bread from John the baker by paying for the loaf of bread with five tomatoes. Bob also buys a pair of shoes from Paul the shoemaker by paying for the shoes with ten tomatoes.
Note that savings at his disposal limit the amount of consumer goods that Bob can secure for himself. Bob’s purchasing power is constrained by the amount of savings—i.e., tomatoes at his disposal, all other things being equal. Now, if John the baker produced ten loaves of bread and consumed two loaves his savings are eight loaves of bread. Equally, if out of the production of two pair of shoes Paul uses one pair for himself then his saving is one pair of shoes.
When Bob the farmer exercises his demand for one loaf of bread and one pair of shoes he is transferring five tomatoes to John the baker and ten tomatoes to Paul the shoemaker. Bob’s saved tomatoes maintain and enhance the life and well-being of the baker and the shoemaker. Likewise, the saved loaf of bread and the saved pair of shoes maintain the life and well-being of Bob the farmer. Note that it is saved final consumer goods, which sustain the baker, the farmer, and the shoemaker, that makes it possible to keep the flow of production going.
Now, the owners of final consumer goods, rather than exchanging them for other consumer goods, could decide to use them to secure better tools and machinery. With better tools and machinery, a greater output and a better quality of consumer goods can be produced some time in the future.
Note that by exchanging a portion of their saved consumer goods for tools and machinery the owners of consumer goods are in fact transferring their savings to individuals that specialize in making these tools and machinery. Savings sustain these individuals whilst they are busy making these tools and machinery.
Once these tools and machinery are built, this permits an increase in the production of consumer goods. As the flow of production expands, this allows more savings, all other things being equal, which, in turn, permits a further increase in the production of tools and machinery. This in turn makes it possible to lift further the production of consumer goods. So contrary to popular thinking, more savings expand the production flow of consumer goods.
Can an increase in the demand for consumer goods lead to an increase in the overall output by the multiple of the increase in demand? To be able to accommodate the increase in his demand for goods the baker must have the means of payment—i.e., bread—to pay for goods and services that he desires. Note again that the baker secures five tomatoes by paying for them with a loaf of bread. Likewise, the shoemaker supports his demand for ten tomatoes with a pair of shoes. The tomato farmer supports his demand for bread and shoes with his saved fifteen tomatoes. The baker’s increase in the production of bread permits him to increase demand for other goods. In this sense, the increase in the production of goods gives rise to demand for goods.
People engage in production to be able to exercise demand for goods to maintain their life and well-being. Note that what enables the expansion in the supply of final consumer goods is the increase in capital goods or tools and machinery. Savings in turn enables the increase in tools and machinery.
From this, we can also deduce that consumption does not cause production to increase by the multiple of the increase in consumption. The increase in production is in accordance with what the pool of savings permits and is not constrained by consumers’ demand. Production cannot expand without the support from the pool of savings—i.e., something cannot emerge out of nothing.
Now, what does it mean to lower taxes? It means that individuals should have a greater access to the pool of wealth. The only way this can be made possible is if the government’s access to the pool is lowered. The government’s demand for funding must be reduced. After all, in similarity to all other activities, government activities must also be funded.
When government decides to promote a particular activity, this means that the government will supply various individuals that are engaged in this activity with money. The received money in turn will permit individuals in that activity to access the pool of wealth.
Government is not a wealth generator, as it relies on its sources of funding on the private sector. If government could generate wealth, then obviously it would not need to tax the private sector.
We conclude that it is not possible to have a effective tax cuts without a cut in government outlays. A so-called tax cut while government spending continues to increase is just an illusion.
Summary and Conclusion John Maynard Keynes’s writings remain as influential today as they were eighty-seven years ago. His ideas remain the driving force of economic policy makers at the Fed and Government institutions. These ideas permeate the thinking and writings of the most influential economists on Wall Street and in academia.
Keynesian philosophy holds that demand for goods drives the economy, and that economic recessions result from insufficient demand. In the Keynesian framework, an increase in demand not only lifts overall output but that output increases by a multiple of the initial increase in demand. Within this framework, something can be created out of nothing.
When the Nixon administration ended the dollar's ties to gold, it was yet another sad chapter in the US government's abuse of its currency. And the government learned nothing.
Original Article: "Money Does Matter: The End of the Gold Standard Led to a Lower Standard of Living"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Politically Incorrect Guide to Economics
by Thomas J. DiLorenzo
Regnery Publishing, 2022; xx + 242 pp.
Like Ludwig von Mises and Murray Rothbard, Tom DiLorenzo is an economist with an extraordinary knowledge of history, and this shows to great advantage in his brilliant new book. In it, he stresses that economists who fail to grasp how the free market works often devise elaborate theories to show “market failures,” but when examined in the light of historical evidence, these theories fall to the ground.
As a prime example of this, Paul Samuelson in his Economics, for decades the most influential university textbook, indicted the market for its failure to conform to the welfare ideal of “perfect competition.” Concerning this, DiLorenzo says:
That never-to-be-realized-anywhere-on-earth state of perfect competition is one where all products in every industry are identical; they are produced by “many” business firms; everyone charges the same price; everyone has perfect information … and there is free or costless entry into every industry and every exit out of it. Several other equally unrealistic assumptions were added over the years, but these were always the main ones. This pipe dream became the new understanding of what constituted “competition,” at least among academic economists. (pp. 30–31)
Supporters of this view used the perfect competition model to demand that large firms be broken up. Couldn’t “monopolists” engage in “predatory pricing” to secure their position against competitors? DiLorenzo finds no historical evidence that such a thing has ever taken place.
In fact, to this day there is no record of any business achieving a monopoly through predatory pricing! There have nevertheless been hundreds of antitrust lawsuits based on this theory, most of them private lawsuits with one company suing a competitor for lowering its prices. Think about that: in the name of protecting the consumer, antitrust regulation allows businesses to sue to “protect” customers from their competitors’ lower prices. (p. 38)
Unfortunately, perfect competition is far from the only case of an alleged “market failure.” Critics charge that “public goods,” goods that are both nonrival and nonexcludable, cannot be adequately supplied in the free market. As an example, a guided-missile defense system protects everyone within a territory, not just customers willing to pay for it; and, given the large numbers of consumers of this good, people could in a free market “free ride,” imagining that others would bear the burden. General awareness of this phenomenon will make everyone reluctant to pay, since even those who want the good would rather not pay for it.
“Away with this flimsy theory!” says DiLorenzo: it too lacks historical support.
Another problem with the theory of the “free-rider problem” is that there are examples all around us of private individuals and groups providing myriad types of goods and services that are “nonrival” and “nonexcludable.” Americans are probably the most charitable people in the world…. The very existence of the many privately funded charities proves that the free-rider problem is not nearly as severe a problem as students of economics are led to believe…. Especially at the state and local levels of government, it is hard to think of any service provided by governments that is not also provided by private businesses (or private nonprofit organizations), usually at a fraction of the cost and with higher quality and customer service to boot. (pp. 67–69)
DiLorenzo finds a general pattern that underlies the failure of all the various attacks on the free market. In the free market, entrepreneurs have an incentive to satisfy consumers, as that is the path to profit. Government bureaucrats have no such incentive; to the contrary, they are free to seek “power and pelf,” as Murray Rothbard used to say. DiLorenzo puts this key insight in this way:
Profits and losses are the measuring rods of how good a job a business is doing with regard to serving its customers. Growing profits mean that a better and better job is being done in that regard; losses mean the opposite. No one is forced to buy anything from anyone in a free market…. In government bureaucracies, failure is success. The worse the public schools get, the more money they get in next year’s budget. The longer government fails in the War on Poverty, the more money the poverty agencies get. The longer the failed wars that are never won go on, the more enriched is the Pentagon and the military-industrial establishment. And on and on. (pp. 121–23)
If the free market is better than a centrally directed economy, we must in choosing proper policy beware that we have the genuine article, not a counterfeit. As an example, DiLorenzo first aptly brings out the fallacies of protectionism. “Chief among them is the ‘Buy American’ scam designed to make people believe that protectionism will somehow save American jobs. The truth is that protectionism may temporarily preserve some jobs in the protected industry, but always at the expense of destroying other American jobs elsewhere and plundering American consumers with higher prices” (p. 178).
But, he says, international trade agreements like the North American Free Trade Agreement (NAFTA) do not in fact promote free trade but subject it to government control.
Just because politicians call something a “free trade agreement” doesn’t make it one. They always choose wonderful-sounding names for their legislation, which in reality is usually the work of scores of greedy plunder-seeking lobbyists. This was the case with NAFTA, which was some 2,400 pages of bureaucratic regulation and central planning of the trade between the United States, Canada, and Mexico and the rest of the world. It contained nine hundred pages of tariffs, the opposite of free trade. (pp. 181–82)
As mentioned above, DiLorenzo has a wide knowledge of history, and this he puts to exemplary use in his discussion of the federal income tax, which, he aptly reminds us, the great Old Right author Frank Chodorov called “the root of all evil.” However much we hate to pay taxes, Chodorov’s phrase may seem exaggerated, but, DiLorenzo reminds us, he had a point.
Americans were literally turned into slaves of the state, said Chodorov, for what the government was now saying to its citizens was: “Your earnings are not exclusively your own. We have a claim on them, and our claim precedes yours. We will allow you to keep some of it, because we recognize your need, but not your right … The amount of your earnings that you may retain for yourself is determined by the needs of the government, and you have nothing to say about it.” In other words, the income tax was the biggest attack on the principle of private property in American history. (p. 163)
Relying on the great book of Felix Morley, Freedom and Federalism, which he calls “the best book ever written about American federalism” (p. 165), DiLorenzo says that the federal income tax bypassed the authority of the states over their citizens. Further, “it essentially turned most state governments into puppets of the ‘federal’ government once the federal government had enough funds with which to bribe or threaten the states to bend to its will by either granting or withholding ‘aid to the states’” (p. 165).
Tom DiLorenzo’s masterful book brings out in unsurpassed fashion that the free market rests on mutually beneficial exchange. He quotes Adam Smith: “Whoever offers to another a bargain of any kind proposes to do this: Give me that which I want, and you shall have that which you want, is the meaning of every such offer; and it is this manner that we obtain from one another the far greater part of those good offices which we stand in need of” (p. 5). (Smith, by the way, here alludes to the Latin do ut des, “I give that you may give,” important in the Roman religion and civil law.). The book is, as David Stockman says, a worthy successor to Henry Hazlitt’s Economics in One Lesson.
When the Soviet Union dominated Eastern Europe, people there looked to the West—and especially the USA—in hopes of freedom. Today, it is the West promoting culture wars and collectivism.
Original Article: "Trapped by Imperialist Leviathans: The Case for Freedom in Central and Eastern Europe"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Lenin's slogan, "Marxism is Almighty Because It Is True," was displayed practically everywhere in the former Soviet Union. My first encounter with Karl Marx came in the first grade of elementary school in the city of Kazan on the banks of the great Volga River. His picture was printed on the first page of the first textbook I opened. "Dedushka Marx" (Grandfather Marx), said the teacher pointing to the picture. I was thrilled, for both of my grandfathers died in Stalin's purges in the 1930s. I ran home to my grandma to tell her she was wrong. "I have a grandpa," I said, and with his huge beard and smiling eyes, "he looks like Father Frost" (the Soviet/atheist version of Santa Claus or Saint Nicholas, the patron saint of Russia).
Growing up in the Soviet Union, such early confusions are soon cleared up, for studies in Marxism were an unavoidable experience for everyone irrespective of age, class, social position, or nationality. Even the convicts in prison, including those on death row, studied the "Shining Heights" of the "great liberating teacher." The works of Marx, Engels, and Lenin were published in the USSR in 173 languages with a total output of 480 million copies. Many of them were exported. I once met an Indian translator hired by the Political Publishing House to translate 50 volumes of the Collected Works of Marx and Engels into Malayalam. He complained the project was stalled because the Soviet propaganda officers could not find another Malayalam translator to cross check his work.
In the Soviet Union, Marxism was not thought to be just an economic theory. It pretended to be the universal explanation of nature, life, and society.1 It was also a deadly weapon to be wielded against personal enemies. As in the case of Nikolai Vavilov who was starved to death for violating Marxism because he adhered to the science of genetics, "a false science invented by the Catholic monk, Mendel." In the name of Marxism, the death toll reached 100 million; the rivers of blood flowed from Russia to Kampuchea, from China to Czechoslovakia.
Hatred was the chief motivator of the socialist revolutionaries and their followers. Lenin regarded politics as a branch of pest control; the aim of his operations was the extermination of cockroaches and bloodsucking spiders, the myriad persons who stood in the way of his political ambitions. Yet Western hagiographers have glossed over this atrocious ruthlessness of Marxists, as historian Richard Pipes has documented.
One of the common denominators between Leninists and government interventionists in the West is the belief that the problems of monopoly are the problems of ownership: only private monopolies acting out of greed are harmful. These institutions are suppressing scientific and technical progress, polluting the environment, and engaging in other conspiracies against public well-being. Government monopolies, however, were believed to be ethical and upright; they substituted the "greed" of the profit motive with a "societal interest." Yet group bureaucrats who manage and operate the public sector are no less self-interested than those who manage and operate private business. One important difference exists, though: unlike private entrepreneurs, they are not financially responsible for their actions and they operate without institutional constraints of cost control that private property and competition induces. The enlightened minds of planners and technocrats cannot overcome the problem of economic calculation without market signals.
The failure of socialism in Russia, and the enormous suffering and hardship of people in all socialist countries, is a powerful warning against socialism, statism, and interventionism in the West. "We should all be thankful to the Soviets," says Paul Craig Roberts, "because they have proved conclusively that socialism doesn't work. No one can say they didn't have enough power or enough bureaucracy or enough planners or they didn't go far enough."2
In contrast to the West, where Marxist tenets were doctrines of a counterreligion, few in the Soviet Union truly believed in the official ideology: not the state managers, not the professors, not the journalists.3 It was not necessary that they do so, for Marxism was a means of political rent seeking and of coercive control, not a body of ideas held to by honest men.
The Soviet Union is now gone, as are the huge statues of Marx and Lenin that littered the East, and the good reputation of their systems of thought. This collection of articles is the Requiem for Marx and the social and economic systems created in his name. As with any funeral service, we look back on the life of Marxian ideas. But unlike the ordinary funeral, we are not looking back fondly, for Marxism is as good an example of the maxim that "ideas have consequences" as can be found. It does not speak well of the intellectual class that no body of ideas attracted a greater following in this century.4
It is beyond the capacity of economic analysis to calculate the opportunity costs of the socialist experiment in Russia. But the human death toll from Stalin's collectivization, purges, and Gulags is estimated by Russian historian Roy Medvedev at forty-one million people. A popular Russian aphorism says: "The only lesson of history is that it does not teach us anything."
"Despite the recent collapse of socialism and communism in Soviet Russia and Eastern Europe, socialism is alive and growing,"5 Gary Becker has said. It presents a mortal danger to economic freedom and the quality of life, and will for generations to come.
The scholars contributing to this volume write in the economic and historical tradition of the Austrian school, founded by Carl Menger with his book Principles of Economics (1875). The tradition emphasizes a deductive method, the role of choice and uncertainty in economic affairs, the power of market prices to coordinate economic activity, and the essentiality of private property for forming the basis of rational calculation. The Austrian school is also the historical bête noire of the Marxian school. Long before any other school came around to understanding the deep flaws in the Marxian approach, the Austrians had devoted an enormous amount of intellectual power to exposing its fallacies and dangers. Carl Menger refuted the labor theory of value, his student Eugen von Böhm-Bawerk demolished Marx's views of capital, F.A. Hayek showed the incompatibility between socialism and political freedom, and Ludwig von Mises attacked the core of socialist economic theory.6
It was Mises's criticism that has proven to be the most prescient. In his 1920 essay "Economic Calculation in the Socialist Commonwealth," he argued that the socialist economy couldn't properly be called an "economy" at all, since the system provides no means for rationally allocating resources. It abolishes private property in capital goods, thereby eliminating the markets that produce prices with which to calculate profit and loss. The absence of rational economic calculation, and the institutional structures that undergird it, prevents any realistic assessment of the proper uses and opportunity costs and resource allocation options. "As soon as one gives up the conception of a freely established monetary price for goods of a higher order," Mises wrote, "rational production becomes completely impossible." The central planners of an industrial economy will find themselves in a perpetual state of confusion and ignorance, "groping in the dark."
"One may anticipate the nature of the future socialist society," he said seventy years before the rest of the world was to become convinced. "There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use; in the majority of cases what will be manufactured will be unfinished goods and production goods… Every good will go through a whole series of stages before it is ready for use. In the ceaseless toil and moil of this process, however, the administration will be without any means of testing their bearings."
From my life and study in Moscow, I can attest to the truth of this prediction. In an economy, nearly every consumption good requires several stages of production. The more natural resources used and the more complex the technology involved, the more stages of production are required. Yet lacking an ability to see a production process through to ends that consumers desire, Soviet socialism produced only military hardware, useless goods, goods to make other goods, while consumers were deprived of bare essentials.7
In the late 1980s, when glasnost at last permitted Soviet economists to speak out, they confirmed the death sentence that Mises had pronounced. As Martin Malia put it, "through the voices of Nikolay Shmelev, Gavriil Popov, Vasiliy Selyunin, Grigory Khanin, Larisa Piyasheva, Mikhail Berger, and subsequently Grigoriy Yavlinksy and Yegor Gaidar, they offered us a portrait of the Soviet that was in full accord with the evaluations of … Ludwig von Mises, whose book contains hardly a single figure and not a word about GNP."8 This powerful confirmation, Malia points out, led to "methodological smuta" ("Time of Troubles" in Russian) in Western economics.
A common mistake Western observers made was to think the Soviet Union's fundamental problem was a lack of democracy. They completely overlooked that the institutional structure of the political system cannot overcome the problem inherent in an economic system with no means of rational calculation. The Soviet Union had a number of leaders who promised political reform, but none was able to put bread on the table. In fact, the primary problem in the Soviet Union was socialism, and it is still far from being dismantled in the nations that once made up that evil empire.
The present "capitalist revolution" in Russia was best described by Russian publicist Viktor Kopin: it is a "quasi-democratic society with a quasi-market of quasi-legality and quasi-morality. The predominant conclusion out of this is that freedom leads to the destruction of spirituality, crime, pauperization of the masses, and the emergence of a class of fat cats."
The decades-long effort to eliminate markets destroyed the work ethic, the mass misallocation of resources through centralized investment, the demolition of the base for private capital accumulation, distorted means of economic calculation, and technology so obsolete that the capital value of industrial enterprises is zero or negative. Most heavy industries were built during Stalin's Industrialization Program in the 1930s and have not been updated since. A huge part of Russian industrial stock is as productive as an industrial-history museum.
The crisis in socialist agriculture goes back to the 1920s and '30s, when millions of the most productive peasant households were branded as "kulaks," and exiled to Siberia. Most of them could not survive the hardships and purges and perished there. Agriculture still has not recovered from this collectivization and blanket nationalization of property that turned owners into prison laborers. At the beginning of the century, Russia exported wheat, rye, barley, and oats to the world market. Today Russia is the world's largest importer of grain.
Russia's consumer prices index registered the inflation rate to be 1,240 percent in 1992, instead of the promised 100 percent. Even as the chairman of the Russian central bank blamed the government for not pumping enough liquidity into the system, Russia's printing presses have not been able to keep up with demand. Credit markets remain centrally controlled, and serious monetary reform is nowhere in sight.
Larisa Piyasheva — the only visible economist close to the Austrian school in present-day Russia — believes that total privatization alone will not solve all the problems, but without it, there is no hope. She was fired by Yeltsin's government due to ''budget cuts."9
If the present looks bleak, the recent history of the Soviet Union remains widely misunderstood. No one figure represents the confusion better than Mikhail Gorbachev. In the West, he was and is considered the great reformer — witness the title of Princeton Professor Stephen Cohen's New York Times op-ed, "Gorbachev the Great." If Gorbachev was a reformer, he was hardly the first Soviet politician to use so-called reforms to maintain power. Lenin was a reformer too, and he resorted to extraordinary means to save communism. As a result of Lenin's efforts to impose real utopian socialism — not the bureaucratized model that existed until recently — the entire population was dying out. Had he continued on that course, he would not have had any subjects to rule. Then he initiated the New Economic Policy, which allowed markets and private property.10
According to historian Alec Nove, Lenin
kept stubbornly on the course of all-round nationalization, centralization, the elimination of money, and above all, the maintenance of [grain requisitioning]. There was no pressure on him from his colleagues to change this policy. Events, rather than the central committee, provided a potent means of persuasion.
Gorbachev too tried to save communism through other means. That was the original point behind glasnost and perestroika (and probably why these petty measures were so heralded in the West). Even the KGB understood the need for reform. As the chief ideologue of the KGB, Philip Bobkov, has said, "The KGB understood very well, back in 1985, that the USSR would not be able to make further progress without perestroika."
By the people in the Soviet Union Gorbachev was rightly considered to be just another Communist Party hack. His "reforms" were never fundamental, but only expedient measures to preserve the centrality of the Soviet Communist Party and to salvage what was left of the socialist system. Gorbachev was only willing to "reform" when the world was falling apart around him.
He was in a good position to know better. He was from a peasant family in South Russia, where he witnessed first hand the malnutrition, hunger, and even starvation that socialism caused. His grandfather was killed in Stalin's purges, so he knew the brutality of Communist politics. Yet he chose to make politics his life's work. For Gorbachev, the exercise of power has always been more important than good sense or morality.
It was a Western fantasy that the man named to be general secretary of the Communist Party would not be a devoted Communist. As in joining a street gang, you must demonstrate that you are absolutely loyal to the club (and all its associated crimes) and that your conscience can be overridden. During Gorbachev's long political climb, he passed more than one hundred such political and security clearances.
The main difference between Gorbachev and his predecessors was that he was smarter and smoother. He was also the first one with a university education: a masters in law and a masters in agriculture. Given Soviet education, that is probably why the first thing he did was ruin the agricultural distribution system.
While he was in agricultural school in Stavropol, Russia, he was chief of the local Communist Party. His colleagues report that he ordered his professors to come from the university to Gorbachev's office to tutor and test him.
Gorbachev became secretary of agriculture under the Yuri Andropov regime, and endeared himself to the Party Secretary by promoting a cult of Andropov. He promoted films about him and mandated that streets be named after him. Andropov returned the favor by promoting Gorbachev in the Party bureaucracy. Of course, Andropov is one of the most hardened of all Soviet leaders. As ambassador to Hungary, he ordered the invasion of that great country in 1956, and while head of the KGB in 1968, he persecuted dissidents by the tens of thousands (including Solzhenitsyn), presiding over the darkest period in KGB history.
Later, Gorbachev became secretary of ideology during the Chernenko regime, and as early as 1984, he was making overtures to Margaret Thatcher. What Thatcher did not know, or refused to believe, was that Gorbachev's goal was to save Soviet communism (meaning the power of the Party) and given the dire circumstances he faced, that meant "reform." Yet a reformist communist is only marginally better than an orthodox one. His goals and methods should have been condemned, just as one would condemn a successor to Hitler who claimed to be a "reformist Nazi."
Gorbachev never learned economics in school. In all my dealings with him, I never saw even a slight flash of economic insight, or even any desire to learn more about economics. He preferred to think like a communist: everything can be done by issuing orders, no matter how perverse, contrary to human nature, and brutal they may be.
Beginning with the day he assumed power, he positioned himself as an opponent of freedom and the market. He singlehandedly destroyed what little market activity existed in the Soviet Union, wrecked the already-miserable lives of the public, presided over appalling violence against innocent people in the Baltic states, and openly supported old-guard communists. Yet the Western media decided not to be skeptical about his aims.
Gorbachev's original theory was that the socialist system was in good working order, but the people, the cogs in the communist machine, had taken to laziness, drunkenness, and were accumulating "dishonest income" in violation of socialist ethics. His first reform was to call for "a restructuring of people's thinking."
The anti-alcohol campaign began right away. Party bosses sternly announced that they didn't want any "drunks" in their country. Their enforcers began a concerted effort to discover anyone with the smell of alcohol on their breath and haul them into the police station. When the police stations became overcrowded, it became routine practice to drive thousands of people about fifteen miles out of town and drop them in the cold and dark. Nearly every night, you could see armies of so-called drunks walking miles back to town in the middle of winter.
Over 90 percent of liquor stores were closed. The Party bosses did not anticipate what happened next: sugar, flour, aftershave, and window cleaner immediately disappeared from the shelves. Using these products, the production of moonshine increased by about 300 percent in one year.
The predictable result was a heavy loss of life. From 13,000 to 25,000 people died from drinking poisonous homemade alcohol. Many more died standing in lines for five hours to get the little bit of official liquor that was left. Meanwhile, Gorbachev and loyal Party bureaucrats — who said the dead deserved their fate — would get expensive liquor from the West delivered to their homes and offices. Many families would spend up to 75 percent of their official income on alcohol. But with Gorbachev's campaign, every other household began moonshining.
Revenues from alcohol sales (taxed up to 6,000 percent) were a major source of funding for the central government, generating enough to fund the entire medical budget. The campaign ended when the government realized it was costing too much. The government's budget began to lose 25–30 billion rubles per year. Moreover, Gorbachev learned what previous regimes had understood: it is easier to govern people who are drunk because they withstand humiliation and abuse better. When people are sober they begin to care about politics and are not nearly as passive. So Gorbachev did an about-face and ordered a massive increase in alcohol production. And he had the government make it available to be sold everywhere, even toyshops and bakeries.
The anti-alcohol campaign did irreparable damage to the economy. With state revenues having been severely curtailed, an economic chain reaction set in that hurt every sector. The central bank began to print money, leaving too much money chasing too few goods. Consumers used to get enough to survive from state stores, but new disposable income saved from not buying alcohol was spent on goods. The end result was massive shortages. And to correct for the deficit, services were drastically cut, even while Gorbachev restricted private alternatives.
Then Gorbachev began a campaign against "dishonest income." Like Stalin and Khrushchev before him, he declared all sources of income other than official salary to be an evil to be stamped out. For example, if a person rented a room out in his house, he received "dishonest income" and all parties would be severely punished. The problem was not a single person in the Soviet Union was untainted by unofficial economic activity. The official economy did not produce enough of anything desirable, so if a person was untainted, he was probably already dead.
Party bureaucrats bulldozed thousands of gardens in the backyards of peasant's homes, often filled with fresh fruits and vegetables. "Illicit" farmers' markets were closed. The bureaucrats cracked down on such activity as currency exchanges and unofficial transportation. Chaos reigned in the housing market, where the penalty for renting out an apartment for profit would be to have your whole home confiscated.
To make sure that all goods sold were licitly produced, bureaucrats enforced a system of applying certificates to all goods. To get one, a person had to prove that whatever he was selling at the market was approved ahead of time. But the system was evaded like everything else: the certificates were sold by petty bureaucrats for high bribes. Even after the Chernobyl nuclear accident, a vendor could pay a bureaucrat a fee to have food declared radiation free.
Price controls in cooperative markets were strictly enforced, so that all prices had to be the same as in state stores. For example, beef was supposed to be 4 rubles per kilo. As a working economist in Moscow, my first thought was, "all beef will disappear from the market." But when I went to the market to see what was going on, to my surprise beef was available. It turns out that farmers were shrewdly selling 4 rubles' worth of beef, but attached would be a huge dinosaur-sized bone that brought the total weight to one kilo. With a complex system of selling meat plus huge bones, supply and demand met and there were no meat shortages.
Things were different in the market for rabbit meat, which was supposed to sell for 3 rubles per kilo. It was impossible to find a bone heavy enough to add to the total weight that could also have plausibly come from a rabbit. Rabbit meat disappeared very quickly. The campaign against dishonest income made the unofficial economy even more unofficial and therefore less efficient. For customers it meant very high prices, because any operator remaining in the underground added a large risk premium to their products.
The most visible results of the campaign against dishonest income were an increase in bribes and a reshuffling of power in favor of the bureaucrat-led mafia. Soviet bureaucrats were always pleased when new laws were passed because it gave them a chance to extract even more bribes. It was especially helpful when the punishments for violating the law were severe; it provided an opportunity to scare people. People in higher positions could use information to control underlings, or even to leapfrog to higher positions. So many of Gorbachev's people used their information to extract bribes and advance their careers.
Within the first year, 150,000 people went to prison for making dishonest income, 24,000 of whom were top bureaucrats. Nobody went to jail in the name of enforcing the law or the Constitution. They were sent because they were unable to evade someone else's personal vendetta, or they were destroyed by bribes demanded by their black-market competition.
Government officials were reluctant to take cash bribes because it would mean going to prison. So they worked through intermediaries like the police. A policeman would come to visit someone in their home or office, and threaten him with severe punishment for some alleged indiscretion. The accused must come up with enough bribe money to clear his name.
I once knew a man who was head of a huge, multi-hundred-thousand-ruble furniture manufacturing enterprise. He did his best to stay away from underground activities, and on his salary he could afford to. But he had an enemy in the Party, and one day he got a visit from a policeman accusing him of dishonesty in record keeping. (Police work is a highly valued occupation because of the opportunity for receiving bribes.) Instead of paying the appropriate bribe, the man maintained his innocence. Then a team of six accountants came into his offices and combed through his records over a period of weeks. Finally, they found a 34-ruble mistake, which they said was deliberate dishonesty.
After a hearing, the state attorney threatened the man with eight years in prison. His own attorney, whom he had to bribe, told him the best solution was to pay 15,000 rubles — divided among the prosecutors, the bureaucrats, and the judge — so the affair could end. The man finally gave in and paid the bribe. Still, the judge punished him for his prior intransigence by giving him a one-year suspended sentence.
The law against dishonest income even affected academia, where many professors took bribes for good grades. After the law took effect, a tremendous reshuffling took place at universities, based on a complex matrix of exchanges of information and bribes.
It is easy to see how the campaign completely discouraged people from any kind of economic activity. Since the state sector was heavily subsidized, and price controls were enforced at cooperatives, a sizable portion of what market did exist was destroyed. And this was under Gorbachev's hand. The campaign, begun in 1986, lasted only one year.
After wreaking havoc on the economy through his first two campaigns, Gorbachev initiated a third: in favor of "labor discipline," that is, forcing people to show up on time and work harder. In this, Gorbachev was following a similar campaign by his mentor Andropov (who had people rounded up in the streets and destroyed their lives for not acting like slaves). Gorbachev initiated harsh measures against "lazy" people, making it easier to find and prosecute anybody the government did not like. If a person was absent for three hours, they would lose their job. Instead of giving two weeks' notice to change jobs, employees had to give two months'. Enterprises would hold three-hour meetings, on paid time, to denounce one person for being ten minutes late to work and blame him for all problems. People out in public in midday were questioned and harassed.
This campaign came to a quick halt because it antagonized many people and did not seem to be helping the economy. In fact, the problem was not labor discipline. The problem was Gorbachev's absurd campaigns in favor of a failed economic system.
Gorbachev's final effort, before he began speaking about "the market," was a short-lived campaign for new "quality" standards. The central plan had always emphasized the quantity of output, but never the quality. So 150,000 new bureaucrats were hired to oversee the "quality of output." Every state enterprise had a special division on quality that would police the factory, providing ever more opportunities for bribes — resulting in more bribes and more failure.
That was the last attempt to resuscitate the communist world through conventional means. Yet Gorbachev still had not gotten the message. At a closing speech to the Central Committee in June 1987, Gorbachev said that he would "rebuff anyone who offers us antisocialist alternatives."
When all else was exhausted, Gorbachev began to speak about markets — a "planned, regulated, socialist market." He had his paid academics find quotes from Marx and Lenin to support his new idea, which is easy to do since together their work makes up 105 volumes. No one takes Marx and Lenin as gospel, but the head communist always has to justify his deeds with the Holy Writ of communism.
The first effort in the creation of this new market was to enact huge "budget cuts." Even government propaganda reinforced the change. Films showed Party chiefs as beggars on the street, sitting with their derbies in hand, while rich, fat free marketeers generously flipped them kopeks. Everyone was paralyzed with fear that they would be fired, and so by the second half of 1987, most people simply stopped working.
The budget cuts appeared to be a reality when Gorbachev sacked 600,000 bureaucrats from central operations of the ministries — which amounts to 30 percent to 50 percent of each department. Alongside that, however, he also created a set of new mega-enterprises to substitute for the ministries. A study I did of these new enterprises at the time showed they hired 720,000 people, most of them just-fired bureaucrats, but with a generous 35 percent salary increase. Gorbachev's "cuts" actually represented a twenty percent increase in the managerial sector of the Soviet state, which was exactly the point of the move. The old structures of the command economy began to disintegrate with all these changes, reversals, and talk of creating a market. But since no market was actually set up, everything came to a standstill.
The Law on Cooperatives — a new regulation allowing pseudoprivate ownership — seemed to be a step in the right direction. But in fact the newly created cooperatives became an organized mafia themselves, extracting and paying out bribes at an unprecedented rate. As soon as a person started a business, the fire department would arrive to close everything down and then wait for bribes. A person could sue the fire department, but he would have to pay a bribe to the judge. In the Soviet Union, people learned that it is better to pay bribes directly. Thus Gorbachev's new "market" was not an authentic one. It piled new regulations and ministries on top of the old, and never allowed private property and real buying and selling.
A young man from a peasant family I knew had heard that market activity was legal, and decided to raise a pig to sell in the market. For six months, this hopeful entrepreneur devoted his time and money to caring for it and feeding it, hoping he would earn twice his money back by selling it. Never was a man so happy as when he took the pig to market one morning. That night I found him drunk and depressed. He was not a drinker, so I asked him what happened. When he arrived at the market, a health inspector immediately chopped off a third of the pig. The inspector said he was looking for worms. Then the police came and picked the best part of it, and left without even saying thank you. He had to pay bribes to the officials in charge of the market to get a space to sell what was left. And he had to sell the meat at state prices. By the end of the day, he earned barely enough to buy one bottle of vodka, which he had just finished drinking. This was Gorbachev's new market in a nutshell.
Long before the coup that ousted Gorbachev, thwarted by Yeltsin and leading to the end of the Soviet Union, talk of creating a market ceased, and all real reformers had resigned their positions in the government. Gorbachev used the term "markets" — a term that Western reporters liked — as an excuse for more repression. To this end, he undertook a totalitarian effort to withdraw all 50- and 100-ruble notes from circulation, giving people only three days to turn them in, give a full accounting of where they got their money, and get very little money back. This was necessary, said Gorbachev, to eliminate "speculation, corruption, smuggling, forgery, unearned income, and normalizing the monetary situation and the consumer market." All money unaccounted for was confiscated. Because there were no goods in the market to buy with rubles, people had stockpiled them. Gorbachev's measures wiped out thousands of people's life savings.
It was nothing more than an explicit attempt to wipe out the "underground economy," which in fact was the only real market in the Soviet Union and the only source of real production. The last Soviet dictators to do this were Khrushchev in 1961, and before him, Stalin in 1947–48. Both permitted a ten-for-one exchange of old notes for new, and the result was an explosion of political oppression of the government's enemies.
Gorbachev's last gasp on behalf of the "market" was a onetime price reform to bring them in line with prices in the West. But it was no more an improvement than it is when the US Post Office raises the price of stamps. It was not a step in the right direction; it only indicated a continued desire to control the economy from above.
It was the first time since 1961 that the prices of basic goods changed. Yet the prices for basic goods in the Soviet Union were already extremely high. A person had to work 12 times longer there to buy beef than here, 18 to 20 times longer for poultry, seven times longer for butter, three times longer for milk, 16 times longer for a color television, and 180 times longer for a car. With the new price hikes, the required work hours multiplied by two or three times. It is easy to understand why one fifth of the population lived at the poverty line, below which meant serious malnutrition. The government said 85 percent of the new revenues would go back into raising the wages of workers and peasants, but, in fact, most of it went into government coffers to pay the military and run failed state enterprises.
The Soviets also cut subsidies to key staple goods, and that is partly why people saw this as a promarket reform. But under state ownership, in effect, all goods produced are subsidized, that is, not tested by the competitive market. Instead of directly financing production out of the state budget, they did it by arbitrarily increasing the prices for monopoly goods.
The Gorbachev government implemented the "reform" to raise revenue to pay for its fiscal shortfall. The Soviets expected revenue of 23.4 billion rubles in the first two months of 1991, but they only received 7 billion — less than one third the expected amount. The central government did not receive any of the 48 billion rubles it expected from the republics for a fund to implement the new union treaty. And the official budget deficit showed it was already higher than the figure predicted for the entire year (31.1 billion rubles compared with 26.7 billion).
Three key advisers to Gorbachev began to fear the worst: that the Soviets would not be able to pay the army, pay the welfare payments, or run state enterprises unless something was done. Finance minister Vladimir Orlov, State Bank Chairman Victor Geraschenko, and Budget Chairman Victor Kucherenko were so alarmed that they sent a note to Gorbachev saying that "the economy is on the brink of a catastrophe" — by which they meant the solvency of the central Soviet government.
Why did Gorbachev insist on hailing his price hikes as market reform? First, he wanted to impress the Bush administration and the World Bank with his intentions, which could then be turned into hard currency. Second, he wanted to fool the Soviet people who wanted reform to a free market. Third, he was anxious to discredit the idea of markets; when this plan failed, he was preparing to allow the market to take the blame.
Henry Kissinger, the Nobel Prize Committee, and many others have given credit to Gorbachev for the events of 1989 in Eastern Europe, which brought down the communist regimes there. Gorbachev's real strategy in those countries, however, was to replace the old-guard Stalinists (with poor images) with young men like himself who drank the same brands of brandy. He hoped he could put smoother, smarter men in power in an effort to save socialism. The situation fell out of his control, largely because the KGB had misinformed him about how deep the hatred toward socialism was in those countries. The revolutions of Eastern Europe happened in spite of Gorbachev, not because of him.
What he did in the Baltic States — authorizing the Soviet military to crack the skulls of innocent people in the Baltics — qualified him to be included among history's litany of murderous rulers, but he was never included. Even while he was heralded in the West as a great reformer, he was also running labor camps, committing human-rights violations, and sending people to prison for speech crimes. As the Soviet Union came to an end, the public had been reduced to a collective of hunter-gatherers, barely existing at a subsistence level.
Before the coup that removed him from power, Gorbachev told a reporter,
I've been told more than once that it is time to stop swearing allegiance to socialism. Why should I? Socialism is my deep conviction, and I will promote it as long as I can talk and work.
Western academics and media pundits found his support for socialism charming, if a little outdated. But the people who lived under the system felt differently. They knew socialism had proven itself the most destructive ideology in human history — responsible for untold millions of deaths. For those populations onto whom socialism was imposed, it impoverished them, wiped out their cultural heritage, and in many cases, resulted in massive bloodshed.
President George Bush played no small part in keeping Gorbachev in power longer than he should have been, sticking by him, and doing everything politically possible to support him. Bush lent his support to the only major world leader without a democratic mandate, a man despised by his subjects, who imposed a system antithetical to Western values. Is it an American tradition that the US president should support the head of Soviet communism in time of need? Similarly, Herbert Hoover bailed out Lenin, Franklin Roosevelt bailed out Stalin, and George Bush rescued Gorbachev.11
For six and a half years, Gorbachev straddled the fence between reform and the status quo. As part of his effort to carve out this incoherent third way, he gathered around him a group of hard-line communists. Eventually, they became his closest advisers and the most powerful people in the country — militarily, economically, and politically. It was that same old guard that tried to slit Gorbachev's throat during the failed coup on August 19, 1991. Six of the Gang of Eight who organized the coup against him were directly appointed by him. Before he elevated them to power, they were little more than lightweight bureaucrats. Had the coup succeeded, the structure and personnel of the coup government would have been much the same as it was before. For example, Gennadi Yanayev, president for a day, was appointed by Gorbachev as secretary of trade unions and then promoted to vice president. Prime Minister Valentin Pavlov was responsible for many of the economic blunders of the previous year that inflamed the public, including the price hikes, the ruble reform, and excessive money creation. And Anatoly Lukyanov, president of the Supreme Soviet, was a close confidant of Gorbachev's.
Gorbachev appointed and protected these six as part of his compromise strategy to placate the hardliners. They were utterly lacking in charisma, so Gorbachev assumed they could not be a threat. But they tried to be. He should have expected that communists can only be trusted to behave like communists, and for this reason, he bore primary responsibility for the coup. Had he conducted himself as he ought to have during his six and a half years in power, he could have spared himself and his country this harrowing experience.
Everyone in the higher reaches of power had known for some time that a coup against Gorbachev would be a snap. One evening in Moscow, I discussed the possibility with a friend of mine, a general in the Soviet Army. He told me that an actual coup would be the easy part. "We could take power in ten minutes," he said. "But then what? We have no sausages, no bread — nothing to offer the people." The Moscow junta hoped its power grab would be bolstered by Gorbachev's low popularity. But as much as the people hated their ruler, they hated the coup leaders more. The coup government achieved only a short moment of glory. Once in power, it faced a people seething with anger at the crimes of totalitarianism and the poverty of socialism. The coup leaders also faced a hard winter, a very bad harvest, and the prospect of mass starvation. They lost their nerve, and Boris Yeltsin thwarted their efforts.
The coup attempt, ironically, illustrated that communist economic ideology had been discredited. The Stalinist leaders of the Soviet coup never spoke of Marx or Lenin, or of resuscitating the machinery of central planning and nationalization. They spoke instead of market reforms, however insincere they may have been. Any alternative rhetoric would have brought them even more unpopularity than they already had. Note that this was despite the fact that the command system had brought the people more material goods than Gorbachev's confused system of perestroika.
At his first news conference after the Soviet coup attempt, Gorbachev promised: "I will struggle until the very end for the renewal of this party. I am a true believer in socialism." He could not have delivered a greater insult to the Soviet peoples, who quickly resumed their demands that he resign. Conventional wisdom has long said the Russians are culturally inclined toward passivity, authoritarianism, and envy. Hendrick Smith has made a career out of promoting this idea. The heroic actions of the people during the coup and after told the real truth: the Russians are like people everywhere who want freedom from arbitrary rule. They have been the victims of a tragic past, but their desire to be free from chains of slavery triumphed. Once Boris Yeltsin assumed control of the government from Gorbachev, the Soviet Union fell apart completely. And at the age of 74, on December 8, 1991, the Soviet Union died.
Since that time, the Yeltsin government has proven another point: Gorbachevian socialism was not the only way to ruin an economy's wealth-creating potential. During the first wave of Yeltsin's reforms in Russia, prices soared twentyfold instead of the promised twofold. Production dropped 15 percent since last year (compared with a 13 percent drop in 1990). New foreign and domestic contracts in 1992 amount to only seven percent of the 1991 level. And 1991 was supposed to be a "bad" year, with only two percent of the new contracts in 1985. To top it off, the budget deficit exceeded 35 percent of the GDP. The outlook for the economy continued to look worse and worse. This is not because Yeltsin had not applied the advice from Western academics and World Bank bureaucrats. The problem was he took them at their word when they said flexible prices, not private property, were what the Russian economy needed.
Contrary to all the promises and beliefs of Russian Keynesians headed by the Yeltsin economic minister Yegor Gaidar, we watched a simultaneous increase in prices and a fall-off in production. Because the essence of socialism is public ownership, without dismantling this system, none of Yeltsin's "reforms" will work. Like Gorbachev before him, Yeltsin's government is directed at "restructuring the state regulatory mechanism."
"We cannot link the restructuring of the regulatory mechanism to full-scale privatization," wrote his chief economist. "If we did, we simply wouldn't live long enough to see it." Meanwhile, every new announcement of impending reform causes perverse public responses and every new law passed, ostensibly to increase freedom, only increases opportunities for fines and bribes.
Former communists urgently sought a replacement for archaic Marxism-Leninism, and they found it in "gosudarsvennichestvo," or the "cult of the state." Based on Max Weber's theorizing, it exalts bureaucratic, hierarchical, centralized management. A series of organizations were founded to support this ideology, including the Russian National Union, the Party of Regeneration, and the Civic Union.
The sad legacy of Marxism is the mindset of certain people, both in the East and West, who believe that the state can cure all economic ills and bring about social justice. Yet a return to central management under whatever label is not the solution — but neither is the status quo. What is needed in the former Soviet Union and Soviet client states is a wholesale repudiation of the legacy of Marx. In the United States, too, Marx's ideas influenced a generation of reformers during the Progressive Era (out of which came modern central banking and the progressive income tax), the New Deal, and the Great Society — and continues to infect departments of literature and sociology in major universities.
Remarkably, even after the fall of Soviet and East European social regimes, Marxism has not lost all its academic cachet.12 "I think it's an exciting time to be a Marxist," Steve Cullenberg of the University of California at Riverside told the Associated Press. He was among the 2,000 academics who attended the University of Massachusetts at Amherst conference in November 1992 entitled "Marxism in the New World Order: Crises and Possibilities." The mass media, moreover, pays tribute to Marx's honor every time it uses the terms "progressive" and "reactionary," demonstrating an unwitting acceptance of Marx's version of the historical inevitability of socialism.
In Requiem for Marx, we attempt to set the record straight on a subject clouded with economic, historical, and philosophical error. Accordingly, the essays here can be regarded as revisionist. David Gordon shows exactly how much Marx has been misunderstood in a wholesale reevaluation of Marx's philosophical basis for socialism. Hans-Hermann Hoppe recasts Marx's argument about the class struggle in line with an Austrian understanding of the state and economy, and arrives at entirely different conclusions from Marx's own. Personal history is never out of bounds at a requiem, and Gary North piles on evidence that Marx's personal habits — financial and otherwise — strayed far from the socialist ideal. David Osterfeld demonstrates that much of Marx's view of the world rests on empirical propositions that turn out to be false and definitions that turn out to be shallow and analytically useless. The doctrine of the classes, properly understood, is a useful framework, argues Ralph Raico, but it was taken from an older and sounder classical-liberal school of 18th-century France. And finally, Murray Rothbard argues that Marx's communist views of history, property, marriage, and much else, were rooted in the bloody millenarianism of the Middle Ages, thereby representing nothing uniquely evil in the history of thought.
Contra Marx, these essays offer another vision of what an economy needs: private property, defined as both autonomous ownership and control of homesteaded resources; free prices, which provide the means of calculating profits and loss, the measure of economic usefulness and waste; freedom of contract, which allows free exchange of privately owned resources; and the rule of law, which establishes institutional structures that protect the previous three conditions from third-party intervention. Until these are firmly in place, there can be no hope for getting back on the road to economic prosperity.
Taken together, the essays present Marx in an entirely different light than most any literature on the subject. In short, among scholarly works, this is probably the most anti-Marxist collection ever published. We are confident that many who have lived under systems constructed in Marx's name now share this perspective.
After the fall of communism, who can possibly defend Marxism? Plenty of people, many of them smart otherwise but uneducated in economics. This book is the antidote, covering the whole history of this nutty and dangerous system of thought.After this introduction by the editor Yuri Maltsev come sweeping essays by David Gordon and Hans-Hermann Hoppe that get into the guts of the Marxian system and show where it went wrong from both a philosophical and economic perspective. Hoppe in particular here shows how Marx took classical liberal doctrine on the state and misapplied it in ways that contradicted all logic and experience.
Gary North provides a devastating look at Marx the man, while Ralph Raico zeros in on the Marxian doctrine of class. Finally, and as a triumphant finish, Rothbard offers a wholesale revision of the basis of Marxism. It was not economics, he says. It was the longing for a universal upheaval to overthrow all things we know about the world and replace it with a crazed fantasy based secular/religious longings. Rothbard finds all this in the unknown writings of Marx and his postmillennial predecessors in the history of ideas.
[Yuri N. Maltsev, senior fellow of the Mises Institute, worked as an economist on Mikhail Gorbachev's economic reform team before emigrating to the United States in 1989. This is his 1992 introduction to Requiem for Marx.]
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- For more on the comprehensive system see Alexander Solzhenitsyn, Mikhail Agursky, et al., From Under the Rubble (Boston: Little, Brown, and Company, 1974); Erik von Kuehnelt-Leddihn, Leftism: From de Sade and Marx to Hitler and Marcuse (New Rochelle, N.Y:: Arlington House: 1974; 2nd edition, Regnery; 1990); Paul Hollander, The Many Faces of Socialism (New Brunswick, N.J.: Transaction, 1983); David Conway, A Farewell to Marx: An Outline and Appraisal of His Theories (New York: Viking Penguin, 1987).
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- Paul Craig Roberts, in the Wall Street Journal, June 28, 1989.
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- See Marlin Malia, "From Under the Rubble, What?" in Problems of Communism, January–April 1992; Peter Rutland, The Myth of the Plan (La Salle, TIL: Open Court, 1985).
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- A striking example of Western infatuation with Soviet socialism is Sidney and Beatrice Webb, Soviet Communism: A New Civilization? (New York: Charles Scribner's Sons, 1936).
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- Gary Becker, "The President's Address," The Mont Pelerin Society Newsletter, vol. 46, no. 1, February 1993.
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- Austrian contributions to this debate include: Eugen von Böhm-Bawerk, Karl Marx and the Close of His System (New York: Augustus M. Kelley, 1949; Philadelphia, Penn.: Orion Editions, 1984); Peter J. Boettke, "The Austrian Critique and the Demise of Socialism: The Soviet Case," in Richard M. Ebeling, ed. Austrian Economics: Perspectives on the Past and Prospects for the Future (Hillsdale, Mich.: Hillsdale College Press, 1991); F. A. Hayek, New Studies in Philosophy, Politics, Economics, and the History of Ideas (University of Chicago Press, 1978); Trygve J.B. Hoff, Economic Calculation in a Socialist Society (Indianapolis, Ind.: Liberty Press, 1981); Hans-Hermann Hoppe, "De-Socialization in a United Germany," Review of Austrian Economics 5, no. 2 (1991): 77–106 and A Theory of Socialism and Capitalism (Boston, Mass.: Kluwer Academic Publishers, 1989); Israel M. Kirzner, "The Economic Calculation Debate: Lessons for Austrians," Review of Austrian Economics 2 (1988): 1–18; Don Lavoie, Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered (New York: Cambridge University Press, 1985); Murray N. Rothbard, "The End of Socialism and the Calculation Debate Revisited," Review of Austrian Economics 5, no.2 (1991): 51–70, "Lange, Mises and Praxeology: The Retreat from Marxism," Toward Liberty, vol. 2 (Menlo Park, Calif.: Institute for Humane Studies, 1971), pp. 307–21, and "Ludwig von Mises and Economic Calculation Under Socialism," The Economics of Ludwig von Mises (Kansas City: Sheed and Ward, 1976), pp. 67–78; Ludwig von Mises, "Middle-of-the-Road Policy Leads to Socialism," Two Essays by Ludwig von Mises (Auburn, Ala.: The Ludwig von Mises Institute, 1991), Socialism (Indianapolis, Ind.: Liberty Press/Liberty Classics, 1981), "Economic Calculation in the Socialist Commonwealth," F. A. Hayek, ed., Collective Economic Planning (Clifton, N.J.: Kelley Publishing Company, 1975), pp. 87–130, and (Auburn, Ala.: The Ludwig von Mises Institute), and "One Hundred Years of Marxian Socialism," Money, Method, and the Market Process, Richard M. Ebeling, ed. (Boston, Mass.: Kluwer Academic Publishers, 1990), pp. 215–32.
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- On the failure of the Soviet model, see: Zbigniew Brzezinski, The Grand Failure: The Birth and Death of Communism in the Twentieth Century (New York: Macmillan, 1989); Sven Rydenfelt, A Pattern for Failure: Socialist Economies in Crisis (San Diego: Harcourt, Brace, Jonvanovich, 1984); Nick Eberstadt, The Poverty of Communism (New Brunswick, N.J.: Transaction, 1988).
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- Martin Malia, "From Under the Rubble, What?", in Problems of Communism, January–ApriI1992, p. 96.
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- Stolitsa No. 37, 1992, p. 4.
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- Peter J. Boettke, The Political Economy of Soviet Socialism: The Formative Years 1918–1928 (Boston: Kluwer, 1990).
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- One historical account of such activity is Joseph Finder, Red Carpet (New York: Holt, Rinehart, Winston, 1983).
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- For a refutation of neo-Marxist attempts to save the system from itself, see David Gordon, Resurrecting Marx: The Analytical Marxists on Freedom, Exploitation, and Justice (New Brunswick, N.J.: Transaction, 1990).
Progressive Conservatism: How Republicans Will Become America’s Natural Governing Party
by F.H. Buckley
Encounter Books, 2022; 254 pp.
Frank Buckley is always a thoughtful and provocative author, but I disagree with what he has to say in Progressive Conservatism more than with other books of his I’ve reviewed, such as his outstanding American Secession and Curiosity (see my review here).
In the present book, he defends a “national conservatism” and is critical of laissez-faire capitalism, though he does not dismiss it entirely. Whether he is correct that the program he favors is the “winning strategy” for the Republican Party I do not presume to say: he knows far more about such things than I do. Despite his rejection of the complete free market, his concrete proposals often manifest great economic insight and his criticisms of the contemporary Left are forceful and effective. I propose to begin, though, by asking why it is that Buckley differs from the Rothbardian position I deem correct.
The answer, it seems to me, is that Buckley reposes much less confidence in philosophical reasoning when applied to politics and economics than do Rothbardians, who endeavor to derive a legal code based on natural law. Buckley is unsympathetic to natural law and says of it,
There are several difficulties with natural law theories, however, beginning with the leap from what is to what ought to be the case. If we have natural preferences, that doesn’t tell us that they’re the ones we ought to have. By nature, we can be greedy and selfish, so calling something natural doesn’t tell us it’s a good instinct. And if all you meant by saying something is natural is that it’s a good thing to do, labels like “natural” and “unnatural” are wheels that turn nothing…. More recent thinkers, such as John Finnis, try to sidestep the is-ought problem by identifying natural law with rational egoism and the idea that our practical reason will direct us to choose those goods that are best for us. This has come to be called New Natural Law…. But NNL fails to explain why we should sacrifice ourselves for others when there is no personal gain from doing so. (p. 180; on p. 242n15, Buckley cites David Hume on the “is-ought” gap)
Suffice it to say that Buckley does not address the endeavor of standard natural law theorists to bridge the is-ought gap (for some, though certainly not all, judgments) by appeal to the notion of the human essence; and though he cites Philippa Foot’s Natural Goodness (p. 3), he appears unacquainted with its distinctive line of approach to the issues he discusses. Further, it is not correct that John Finnis’s NNL is a version of rational egoism; in claiming this, Buckley has not considered what Finnis has to say about “the requirements of practicable reasonableness.” (For further discussion of the traditional natural law view, see my review of Douglas B. Rasmussen and Douglas J. Den Uyl’s The Realist Turn in the Philosophical Quarterly, October 2021)
Buckley makes explicit his antitheoretical stance in this passage:
But wait, says the right-wing intellectual. You want to promote the common good. Fine, but where’s your theory? Ah, you noticed that, did you, answers the progressive conservative. You’re right. I don’t have a theory. I think they’re baloney. They offer a false security and not the nuanced and adaptable answers needed for the multitude of problems life throws at you. “It is illogical to guillotine a prince and replace him with a principle,” said Ortega. (p. 182)
I should prefer to say, with Immanuel Kant, that if your theory does not work in practice you have the wrong theory.
That said, Buckley offers insightful comments on many current problems. He wants the Republican Party to return to the tradition of Lincoln, Theodore Roosevelt, and Eisenhower, who supported nationalist policies designed to aid American workers and rejected the unhampered free market; but the polices Buckley favors at the present juncture are often quite in line with what Austrians would prescribe.
He says, for example,
While the legislator can’t enact cultural changes, there are nevertheless things he can do to help restore traditional family structures…. We could also make it easier to get married and have children through more generous tax credits for children in married households. The tax credit at present is $3,600 per child, and progressive conservatives should give some thought to increasing this. (p. 187)
Like Buckley, Rothbardians support the traditional family; and the more tax credits, the better.
On higher education, he says that the “government-backed loans increased the financial burden on students, and it also corrupted higher education. They freed universities from the discipline of private markets and led them to admit students who had no business in university. If the ill-educated students couldn’t get jobs after graduation, too bad for them” (p. 189). Well said, indeed!
Again, Buckley explains with exemplary clarity a key principle of political economy:
Mancur Olson described minoritarian misbehavior as a collective action problem in The Rise and Decline of Nations. We’d all be better off if we could band together and prevent interest groups from wastefully directing public spending their way. But when the benefits of combining together are dispersed across all American citizens, it’s easy to free ride and do nothing. The interest group doesn’t have the same problem because its numbers are far fewer. A classic example is government protection of the sugar industry, where tariff barriers raise sugar prices 64 to 92 percent above the world average. (p. 132)
I venture to suggest that this provides excellent reason not to trust the federal government to administer the welfare state measures Buckley favors to aid the poor, but rather to reduce the size and scope of the government to the greatest extent possible.
One can only applaud when Buckley calls for a radical reduction of government regulations. “Could the commission cut back regulations by 70 percent as Trump proposed? Yes, and more so, if it corrects the biases of the deep state’s rulemaking and abandons the regulator’s conceit that every little error deserves to be corrected by a rule” (p. 199).
Perhaps the best point in the book is Buckley’s mordant comment on the contemporary Left:
What especially annoyed Republicans was how Democrats tried to pass themselves off as the party of law and order. They told us there was nothing to see when cities burned and stores were looted, and when Antifa injured 140 federal officers in Portland, the blamed the cops…. For Democrats, the police were the villains and the thugs were social justice heroes, which explains the degradation and crime we’re now seeing in Democrat-run cities, the homeless encampments and the looting, dangerous driving, and carjackings. (p. 23)
The fundamental difference between Buckley’s position and that of consistent supporters of the free market emerges most clearly in this passage:
I’ll concede, the progressive conservative tells the libertarian, that you have some great thinkers on your side. However, they don’t supply me with the kind of answers I’m looking for. If I want to know what percentage of the federal budget to spend on welfare, the Robert Nozick of Anarchy, State, and Utopia will say zero. If I asked Ludwig von Mises what kind of tariffs to erect, he’d say get rid of all of them. If I asked Milton Friedman what to do about infrastructure, he’d say “privatize, privatize, privatize.” They’re wonderful savants, but I have a different set of teachers and a Republican Party of Lincoln, Teddy Roosevelt, and Eisenhower, not of philosophes. (pp. 173–74)
Though I would choose differently from Buckley, I would agree with him entirely that Eisenhower was no philosophe.
Every business should have an exit plan in mind from Day 1. Why? Because it’s impossible to control the timing of an exit or the changes in circumstances that might precipitate it. Venture capitalists know this, and build in their exit formulas at the time of their initial funding. Entrepreneurs should think the same way. And, like any business process, selling a business is a knowledge-based process that repays an investment in learning its techniques and critical success factors. Economics For Business talked to Jessica Fialkovich, a successful business builder in her own right, who founded Exit Factor, an advisory firm that helps entrepreneurs get the most from selling their businesses.
Key Takeaways and Actionable Insights Entrepreneurship provides better career control and security than corporate life. Jessica climbed the corporate ladder, investing effort and skill into being a great employee. But she was just a name on a list when the GFC came along - a list of those to be let go when Lehman Brothers (her employer’s funder) collapsed.
She realized that entrepreneurship provided her with great security. There’s uncertainty, but the entrepreneur decides what their future is, takes responsibility for those decisions, and accepts the accountability.
She built a successful business through hard work and the discovery process of identifying target customers and finding new and better ways to bring them value. Her chosen business was in wine sales to wine-loving customers, many of whom were connoisseurs. She developed many specialized services including finding rare wines for collectors, and her clientele spanned the globe. She incorporated the latest technologies and innovated in marketing techniques. She worked long hours, talking to customers across 16 time zones from Japan to California.
Then she decided to sell.
Entrepreneurs experience a lot less support when selling a business than when building it. When you’re successfully growing a business, everyone wants to help, providing you with business services and supplies, and advice and ideas. What Jessica found when she came to sell was that she was on her own. It was hard to find expert help, or the requisite resources, or pretty much any kind of support infrastructure for a transaction of the size she was planning. For big business, there’s investment banking. For the 99.9% of businesses outside the Fortune 500, there was nothing similar. There were some so-called business brokers, but they were not dedicated specialists, not professionals in the specific process of selling, unreliable and poor at client service.
As an alert entrepreneur, Jessica understood that this finding signaled a market need. The first step to design for an under-served market is to draw on relevant experience from parallel markets.
Business development always starts with first principles: is there a market to be served, in that some potential customers feel an unmet need or have a meaningful problem to be solved? Jessica had first-hand knowledge of the problem, and talking to entrepreneurs in similar situations reinforced her confidence in the market’s potential.
The comparison market Jessica chose was investment banking, which can be thought of as selling businesses of a larger scale. There’s an established investment banking process and a timeline of steps and milestones from preparing an evaluation, to developing the pitch deck, to the identification of the best buyers and the tailoring of a marketing plan for them. Jessica’s husband had some relevant investment banking experience which enhanced the knowledge transfer from one field to another, and provided a reality check for the process design.
Business-to-business services development and execution has its own set of rules; the most important one is the nurturing of relationships. A business brokerage is a high-intensity B2B service bundle requiring a lot of in-person customized relationship management. There’s pitching the potential customers in the first place, customizing the service tom their particular business and to meet their specific needs, with a big need for staff training to deliver these specialized services. B2B service providers must be both sales experts and process experts. That requires a lot of human capital.
Jessica’s answer was to design and build a system-based model that, once in place, could be repeated and reproduced via well-trained staff with the right IT support.
She has found B2B services to be even more demanding than sourcing rare wines for connoisseurs. Selling a business is somehow more personal and individual. A client’s perception of what their business is worth may be quite different than the market’s perception. It’s the nurturing of relationships that smooths out the potential jagged edges in these transactions.
Some insights for entrepreneurs selling their business. * Identify your exit options from Day 1 of your business. Since it’s impossible to control exit timing - which may be due to unforeseen changes in circumstances - it’s best to lay the runway from the start. Plan to run a salable business, as well as one that’s profitable and growing. Don’t have a fire sale or panic sale or be unprepared. * Tailoring your selling process to the size and type of your business is important. There are different influences on what moves valuations up or down depending on business size, but, in all cases, it’s a process with a beginning, a middle and an end to be planned for in advance. You’ve got to know how to find buyers, how to source offers, and how to keep your business in good shape for due diligence. * Conduct regular health checks for evaluation. Always know what your business is worth. Find out how businesses are valued in your industry or sector. Make sure your business shows well on the criteria that are applied in your field. * EBITDA multiples are the dominant valuation metric. You may read in the Wall Street Journal about businesses being acquired for brand value, or for technology integration, or for other reasons of corporate M&A strategy. For small and medium size businesses, EBITDA multiples remain the dominant metric. There’s some art regarding what the precise multiple may turn out to be, but it’d within a range and is not going to vary wildly. * There is some room for qualitative factors and subjective valuation. Jessica listed subjective factors ranging from the degree of business involvement of the owner (and the worry that their future absence might be detrimental) to the perceived quality of the brand and its imagery and reputation. * The ultimate asset is a proven and scalable business model. If you can demonstrate that your business model returns increases in revenue and profit growth for additional investments in capital or people or marketing, then you are most likely to find an eager buyer. Make sure you can model your business in this way and that the data are clean and credible.
Additional Resources Getting The Most For Selling Your Business by Jessica Fialkovich: Mises.org/E4B_185_Book
ExitFactor.com
Jessica on LinkedIn: Mises.org/E4B_185_LinkedIn
Before Steve Jobs and the iPhone, there was Malcolm McLean, inventor of the shipping container. McLean made the iPhone—and many other things—possible.
Original Article: "Malcolm McLean: The Unsung Capitalist Hero Who Changed the World One Container at a Time"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Last week, I went to a vision center to get my new eyeglass prescription filled. Because I wear progressive lenses with antireflective coating and do not have vision insurance, I anticipated that the out-of-pocket cost of the glasses would be quite high. When I entered the shop and stated my business, the manager immediately asked if I had vision insurance, and I responded that I did not. The manager consulted with a saleswoman and sent her to assist me in choosing frames to try on. I noticed that she was selecting mainly Ray-Bans and other designer frames.
When I questioned her about the price of the frames, she informed me and then hastily added that because I did not have vision insurance, I was eligible for a 20 percent discount on the total price of the eyeglasses, including lenses and coating. I ended up choosing designer frames and received a discount of $132.60 on my purchase. In other words, a different customer who had vison insurance would have paid a different price for an identical pair of glasses, $132.60 higher than the price I paid.
In mainstream economics, this practice of selling the same product to different buyers at different prices is called “price discrimination.” This failure to charge a uniform price to all customers is alleged to be due to “monopoly power.” After all, in the fictitious model of perfect competition, which mainstream economists use as a standard of efficiency and welfare to evaluate the real markets’ performance, it is supposed that every industry is composed of perfectly informed buyers confronting a multitude of tiny competitors selling an identical product. Under these conditions, no seller can charge any buyer a higher price than the uniform market price without losing customers and profits. In contrast, a seller possessing monopoly power, under certain conditions, may be able to segment the market into different groups of buyers according to whether the buyers are more or are less sensitive to a price reduction.
Buyers who would purchase little or none of the product at the so-called monopoly price but would significantly expand their purchases at a lower price are offered a discount, while those buyers whose demand is less responsive to a price reduction pay the higher price. This explains why, for example, movie theaters discount tickets for preteens, students, and seniors. A more opaque form of price discrimination occurs when colleges and universities offer scholarships based on “need.” In both cases, the two preconditions for price discrimination are present.
First, the goods once purchased cannot be resold to the “supramarginal” buyers; i.e., those that would not have received the lower price, because this would cause the monopolist to lose his high-price customers and render the discriminatory pricing scheme less profitable than a uniform monopoly price. This condition obviously holds for theater showings and college education. Second, the “marginal” buyers, whose demand is more “elastic,” or responsive, to a price reduction, are easily distinguished from the buyers relatively insensitive to price variations and whose demand is “inelastic.”
In practice, this means that low-income buyers, who are more resistant to high prices, must be readily differentiated from high-income buyers. Movie theaters may inspect picture IDs of those requesting or displaying discounted tickets, and colleges and universities regularly require income data to discern who “needs” a scholarship. In the case of prescription eyeglasses, discriminatory pricing occurs because it is difficult if not impossible to find a potential buyer for the eyeglasses with the same visual impairment as the initial purchaser and because vison insurance renders the demand of the insured less responsive to price changes than the demand of the uninsured.
Now the AMC theater chain is hardly acting altruistically when it charges lower-income groups lower prices. In fact, it increases its profits by selling almost the same quantity of the product at the monopoly (or even higher) price while selling additional units at a smaller, but positive, profit margin to buyers with a more elastic demand. The same is true of nonprofit colleges and universities, which reap a higher total revenue from charging discriminatory tuition fees.
Mainstream economists concede that price discrimination may increase “social welfare” if it results in the production and sale of a greater quantity of the good than a monopoly charging a uniform price. Nonetheless, they condemn both kinds of monopoly because neither meets the absurd standards of perfect competition, in which no seller can charge even one penny above the perfectly competitive price without losing all his customers to the multitude of competitors selling an identical product.
Let’s get back to the real world and my story to evaluate the actual effects of multiform pricing—a more precise and less value-loaded term than price discrimination—on buyers and sellers. By voluntarily paying the discounted price for my designer eyeglasses, I clearly demonstrated that I improved my well-being by giving up something I valued less in exchange for an item I valued more. The same is true of the owners of the vison center, who demonstrably valued the sum of money they voluntarily accepted from me more highly than the eyeglasses, which they happily handed over in exchange. Because both parties to the exchange enhanced their welfare without demonstrably injuring a third party, we can say that the exchange increased social welfare. But suppose another customer, who possessed vision insurance, came along a little later and purchased an identical pair of glasses from the vison center, paying $132.60 more than I paid. And suppose further that his insurance covered only half of the price difference, so that his out-of-pocket expense was $66.30 more than mine.
Since the values an individual attaches to different goods can only be subjectively ranked and never objectively measured, our analysis of the welfare effect of this hypothetical later transaction is the same: both parties valued the item they received in the exchange more highly than the item they gave away. In the second exchange, social welfare was not reduced because the same item was sold for a different price than in the first exchange.
What about the effects of price discrimination on economic forecasting, calculation, and efficiency? In fact, entrepreneurs can anticipate whether the conditions for price discrimination will exist for the good or service they are planning to produce. Furthermore, they can calculate costs and revenues, profits, and capital values just as well with multiform prices as they can with a uniform price. And profits will indicate the highest-valued use for resources in markets in which consumer demand can be segmented just as well as in markets with a uniform price. Finally, we might note that despite the existence of instances of price discrimination, there is a powerful tendency toward charging a uniform price in all markets. New and venturesome entrepreneurs will always be trying to siphon off the supramarginal buyers from the price-discriminating firm by offering lower prices, more effective advertising, more attractive brands, or a superior-quality product.
In the meantime, I’ll bask in my status as a marginal buyer in the prescription eyeglass market.
In June 2004, Professor Hoppe visited the Mises Institute in Auburn to deliver an ambitious series of lectures titled Economy, Society, and History.
This project brings together the core of Hoppe’s lifetime of theoretical work in one vital and cohesive source. Here we find provocative themes developed by Hoppe in the 1980s and 90s, particularly in his essays found in A Theory of Socialism and Capitalism and The Economics and Ethics of Private Property. We also find his devastating critique of democracy, made famous in his seminal book Democracy—The God That Failed.
This audiobook is narrated by Paul Strikwerda.
Download the complete audiobook (12 MP3 files) here. This audiobook is also available on Soundcloud and via RSS.
When I interviewed for a teaching job at private college in Alabama more than twenty years ago, the recently elected governor had won partly on a platform in which the state would install a lottery system that would give students a $3,000 grant for college. As the provost and I discussed the prospects of this new program, he smiled and said, “We hope this lottery passes. Then we can raise tuition by $3,000.”
(The Alabama legislature, despite being controlled at the time by members of the governor’s party, failed to pass and implement the lottery.)
In the aftermath of President Joe Biden’s announcement that the government will forgive up to $20,000 of student loan debt for qualifying borrowers, the responses are following the political ideology of the commentators. For example, columnist Tressie McMillan Cottom of the New York Times declared it a “win,” although she then demanded even more loan forgiveness.
Betsy DeVos, who was secretary of education under Donald Trump, took the opposite position, declaring the loan forgiveness to be “illegal.” Responses elsewhere ranged from comparing Biden’s loan forgiveness program to Jesus Christ dying for the sins of the world and the loan forgiveness during the year of jubilee outlined in the Hebrew scriptures to the entire program being little more than a wealth transfer to those fortunate to go to college from those who didn’t have that privilege.
College Loans Have Helped Drive Up Higher Education Costs While government officials are implying this is a one-time thing, we know that the political system will not put this to rest. After all, the forgiveness is being applied to student loans taken out in the past, yet college students continue to take out new loans for the coming academic year—and beyond. In fact, Biden’s loan forgiveness is going to have the same effect that my interviewer hoped would be the case if Alabama implemented a state lottery: higher prices for a college education.
That higher education costs have skyrocketed is a given. As Forbes explains:
In 1980, the price to attend a four-year college full-time was $10,231 annually—including tuition, fees, room and board, and adjusted for inflation—according to the National Center for Education Statistics. By 2019–20, the total price increased to $28,775. That’s a 180% increase.
Why tuition and fees have exploded is no mystery. On the supply side, college administrations have grown alongside federal mandates tied to identity politics. This development has had twofold effects. The first is to increase overall college costs—even though administrations have little to do with academic achievement. The second has been to increase the power and influence of the identity studies faculty, which is having a devastating impact upon higher education as a whole.
However, nonessential to a college education, administrative growth would not be possible without the government’s education loan programs, which are to increased costs what gasoline is to spreading a fire. When the Barack Obama administration in 2010 completely nationalized the student loan program, student loans outstanding stood at about $800 billion. Twelve years later, the amount has more than doubled to nearly $1.8 trillion. (One doubts that the value of a college education has more than doubled during the same time.)
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To put it another way, student borrowers have financed the slow destruction of higher education, all the while placing enormous debts upon themselves. In the meantime, college administrators and faculty have seen their financial fortunes increase. When one adds politics into the mix, things become even more interesting.
Bending the Law to Reward Democratic Voters There is no doubt that the student loan program mostly benefits people who vote Democratic. First, college administrators and faculty overwhelmingly lean Democratic, and college graduates are one of the most important Democratic Party constituencies, as well as the main beneficiaries of Biden’s executive order.
Furthermore, one doubts that this is the end of Biden’s loan forgiveness initiatives. Students that now are borrowing money to finance their college educations are tomorrow’s Democratic voters, and one doubts that their party will abandon them, especially when it can transfer their indebtedness (at least in part) to Republican taxpayers.
Perhaps one tweet says it all, this from Harvard Law School professor Laurence Tribe, who declared: “Good news for thousands of my former students. I’m grateful on their behalf, Mr. President.”
It is not an exaggeration to say that Harvard Law graduates are among the elite of the elites in what one might call our “ruling class,” and one doubts seriously that a president who already has demonstrated little restraint when it comes to fiscal matters suddenly will channel his inner Scrooge. Moreover, by employing what only can be called a twisted interpretation of an obscure law to announce loan forgiveness, Biden already has channeled another president known for his reckless policies, Franklin D. Roosevelt. David French writes:
the alleged legal basis for Biden’s $500 billion plan is found in a novel reading of the post 9/11 HEROES Act, which does grant the secretary of education broad authority to “waive or modify any statutory or regulatory provision applicable to the student financial assistance programs under title IV of the [Higher Education Act] … as the Secretary deems necessary in connection with a war or other military operation or national emergency.”
But even if one accepts the dubious proposition that this language includes the ability to waive payment entirely, the Biden administration would still have to show that the covid emergency justifies the action.
Like Roosevelt, who used the 1917 Trading with the Enemy Act to justify his gold seizure in 1933, Biden has used a little-known law to transfer wealth from those will little political influence to people who make the rules (but do not have obey them). It doesn’t matter that the language of the law has nothing to do with the president’s actions. Instead, it is the application of raw political power.
Conclusion This is only the beginning of Biden’s financial shenanigans to benefit his party’s constituencies. Economist Alex Tabarrok has laid out ways that both higher education officials and students can further game Biden’s scheme. Regarding the real wealth transfers involved, French writes:
one of the fundamental flaws of the Biden plan is that it doesn’t just help those who need help. Instead, it imposes costs on those who need help to provide a substantial benefit to thousands upon thousands of college and graduate school graduates who don’t.
Understand that Biden invoked emergency powers to deal with something that under no circumstances counts as a crisis to transfer wealth from people with little political influence to those who are in or moving into the corridors of power. As the federal government continues to expand its reach—thus, making a college degree an even more vital gateway to better-paying occupations—the politically powerful will find more ways to dump their financial burdens upon those that can least afford them.
If falling enlistments are an indication of declining faith in the military overall—and especially declining support among conservatives—that's very good news.
Original Article: "Falling Military Recruitment Is Another Sign of Waning Faith in the Regime"
This Audio Mises Wire is generously sponsored by Christopher Condon.
One of the arrogances of “Western” nations is that our way of life and our liberties are protected by periodic elections as required by constitutions, written (America) or not (Great Britain), containing bills of rights, etc. The people rule, it is claimed, and we get exactly what we want, even if those in the minority are unhappy with the result. Minorities can always become tomorrow’s majority and institute alternative policies. Therefore, Western nations really cannot get into too much trouble, since everyone wants peace, freedom, and prosperity, even if we disagree on the proper route to take to get there.
But what if I told you that there was a fatal flaw embedded in the very structure of Western nations that undermined this view? What if we common citizens can vote, change leaders, change parties, and it’s all meaningless? A good argument can be made that Ludwig von Mises believed exactly that and warned nations repeatedly in book after book to eliminate this fatal flaw or suffer complete societal collapse. Mises knew this could happen, because he had seen it happen firsthand. He pleaded with the elected leaders of Austria, his beloved homeland, to take action in order to prevent what had happened in Weimar Germany.
The Cause of Societal Collapse in Weimar Republic Germany What happened in Weimar Germany—a real republic with democratic elections, by the way—was a test case that should not be ignored. The collapse of the German Weimar Republic led directly to the rise of National Socialism. The cause was unsound money; i.e., money printed (literally at the time) in such quantities that the papiermark became worthless. Society was thrown into chaos. Germany had lost two million men in World War I out of a total population of sixty-eight million. The nation was one of widows, orphans, and the aged almost entirely dependent upon what savings they had accumulated. These savings became worthless. Widows became prostitutes, children became thieves, and aged parents committed suicide. One of the best descriptions of this disaster is Adam Fergusson’s When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. The book is not for the squeamish.
Mises wrote repeatedly that unsound money was just as important, perhaps more important, that the trappings of popular government. Perhaps his best-known quote is found on page 455 in The Theory of Money and Credit:
It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bill of rights.
Notice that Mises does not qualify the kind of governments that may succumb to the despotism of money printing. This is very important. All governments, whether democratic republics or totalitarian states, are susceptible to the despotism of money printing. Mises returns to this subject time and time again. Here is just one quote from Economic Policy, page 65.
The gold standard has one tremendous virtue: the quantity of the money supply, under the gold standard, is independent of the policies of governments and political parties. This is its main advantage. It is a form of protection against spendthrift governments.
A Budding Alternative to the Fiat Dollar Iran, of all nations, recently accepted as a member of the Shanghai Cooperation Organization, has proposed that the organization establish a new currency in order to bypass the dollar for settling trade among its members. Alasdair Macleod has studied this process and written two learned articles, here and here, which refer to their progress. The key points:
The Eurasian Economic Union (EAEU), consisting mainly of a central Asian subset of the Shanghai Cooperation Organisation (SCO) has announced plans for a trade settlement currency backed by a mixture of commodities and the currencies of member states.
… a successful EAEU trade settlement currency can be extended from EAEU nations to both those in the wider SCO and the BRICS members not in the SCO. It could also be an acceptable replacement of the petrodollar for oil export payments to the Middle East.
The SCO members are negotiating over the new currency’s structure, but the important point is that it will have a very large commodity-based component, including gold. The SCO’s understanding of money is more in line with that of Ludwig von Mises, who defined money as the following on page 425 of his magnum opus Human Action: “Under the gold standard gold is money and money is gold.”
Sound Money Prevents War Top among the most important reasons for sound money is that it militates against unnecessary wars. Wars are tremendously expensive, of course, and usually are undertaken only as a last resort or as a purely defensive action. But unsound money makes it appear, for a while anyway, as if war is cost free.
The USA is the poster child for entering wars not as a last resort but for other reasons. When Eisenhower left office in early 1961, the US dollar was, well, as sound as a dollar. Eight years later, after Lyndon Johnson’s “Guns and Butter” policy, the dollar’s value was under threat, as the US’s dwindling gold reserve amply illustrated. Two and a half years later, rather than end the Vietnam War and other Johnson-era welfare programs, Richard Nixon ended gold redemption by our trading partners. The war continued to its ignominious end. Had he done his duty the US would have remained on the gold standard and avoided other failed military adventures, a list so long that it is embarrassing to list them all.
Which Works Better—Gold or Representative Democracy? In other words, gold would have done its primary duty—i.e., make the real cost of government spending perfectly clear so that people, through their elected representatives, can decide the extent of government spending. Instead, the complete absence of any kind of objective barometer of the real cost of government merely encouraged US neoconservatives to search the world for dragons to slay and, if dragons were hard to find, to convince the people that the dragons existed in places very far away—Libya, Iraq, Syria, Somalia, Afghanistan, Ukraine … have I missed any?—and were a threat to our way of life. Few, if any, of these failed adventures would have been undertaken had the US been on an enforceable gold standard.
Representative democracy is important, yes, but it does not prevent societal collapse from fiscal and monetary irresponsibility. Whereas a gold standard dollar quickly shows the true cost of government and can prevent most follies. To put it bluntly, there are thousands of mothers who today would have their sons by their sides rather than a gold star in their windows.
But wait! There’s more! as the late-night TV salesmen of tchotchkes for the gullible used to say. Printing money out of thin air causes multiple adverse effects, but most are delayed somewhat. Higher prices. The boom/bust credit cycle. Resource misallocation. Plus, many more, and all leading to a lower standard of living. But a sound money standard reveals the sacrifices that the public must make to fund more government spending.
Taxes must be raised, borrowing increased, or other programs defunded. These adverse consequences happen almost immediately and are visible to all. If the public thinks that the war or other spending program is necessary, then the government will get its approval. But, really! how many ordinary people can even find the location on a map of our many wars of the last sixty years or understand and support boondoggle spending programs that never die and, most often, get increased funding?
The worst spending programs in the past few years were the so-called stimulus checks. Even dyed-in-the-wool big spenders would question the rationale of taxing the public to send them checks, minus the government’s bureaucratic handling fee, of course. Ladies and gentlemen, this makes no sense and under a sound money environment would never happen. Yet our federal government sent out three of them! And now our rulers are trying to convince us that increasing the money supply to fund all these fiascos had nothing to do with higher prices and shortages. Sure. But then again, those late-night TV salesmen like Ron Popeil sold lots of Vegematics!
Not long ago, Germany's politicians were proudly phasing out nuclear power. Facing a harsh winter without Russian natural gas, the atom suddenly seems like a good alternative.
Original Article: "Germany's Nuclear Choice: Russian Energy Crisis Forces a Reckoning"
This Audio Mises Wire is generously sponsored by Christopher Condon.
There is a story of war and peace in the contemporary currency markets. It has a main plot and many subplots. As yet, the story is without end. That may come sooner than many now expect.
The narrator today has a more challenging job than the teller of the story about neutral, Entente, and Central Power currencies during World War I. (See Brown, Brendan “Monetary Chaos in Europe” chapter 2 [Routledge, 2011].)
Today’s Russia war (whether the military conflict in Ukraine or the EU/US-Russia economic war) is not so all-pervasive in global economic and monetary affairs, though it is doubtless prominent. The monetary setting of the story today is much more nuanced than in World War I when the prevailing expectation was that peace would mark the start of a journey where key currencies eventually returned to their prewar gold parities.
In the 1914–18 conflict, any sudden news of a possible end to the conflict—as with the peace notes of President Woodrow Wilson in December 1916—would cause a sharp fall of the neutral currencies (Swiss franc, Dutch guilder, Spanish peseta), a big rise in the German mark and Austrian-Hungarian crown, and lesser rises in sterling and the French franc. Today, in principle, a sudden emergence of peace diplomacy would most plausibly send the euro and British pound higher on the one hand and the Canadian dollar, US dollar, and Swiss franc lower on the other hand.
Mutual exhaustion and military stalemate are a combination from which surprise diplomatic moves to end war can emerge. These circumstances apply today.
Ukraine is falling into an economic abyss—much of its infrastructure reportedly destroyed and its government is resorting to the money printing press to pay its soldiers (see Kenneth Rogoff et al., “Macroeconomic Policies for Wartime Ukraine,” Center for Economic and Policy Research, August 12, 2022). General economic aid from Western donors (as against military aid) is running far short of promises. All these pictures of Russian munitions stores on fire may or may not have excited some potential donors, but they have not heralded any breakthrough.
The human toll—both amongst military personnel and civilians—fans Moscow propaganda that the US and UK are willing to conduct their proxy war against Russia down to the life of the last Ukrainian soldier.
Meanwhile there are these presumably leaked stories in the Washington Post about how President Volodymyr Zelensky betrayed the Ukrainian people by not sharing with them in late 2021 and early 2022 the US intelligence alerts about a looming Russian invasion. According to the stories, many Ukrainians resent that they were not warned by their government and do not accept its shocking excuses (for example, to prevent a flight of capital out of the country).
Is all this preparing ground for a possible power shift in Kiev that might favor an early diplomatic solution even in time for President Joe Biden to claim credit ahead of the midterms? Western Europe will be spared some pain this winter if the initial ceasefire agreement includes a provision that Moscow desist from turning off the gas pipelines.
The purpose here is not to predict the war’s outcome but to describe a peace scenario that is within the mainstream and to map out how the rising likelihood of its realization would influence currency markets.
The main channel of influence on currencies would be the course of the EU/US-Russia economic war. A ceasefire would excite expectations of big relief to the natural gas shortage in Western Europe.
Prices there for natural gas would plunge. In turn, that would lift consumer and business spirits, now depressed by feared astronomic gas bills and even gas rationing this winter. Massive programs to relieve fuel poverty, financed by monetary inflation, would stop in their tracks. The European Central Bank (ECB) could move resolutely to tighten monetary conditions as the depression fears faded.
We could well imagine that the peace scenario would mean the European economies in 2023 would rebound from a winter downturn. That would coincide with the US economy sinking into recession as the “Powell disinflation” works its way through—including continued bubble bursting in the tech space and residential construction sector plus a possible private equity bust.
A big rise of the euro under the peace scenario, though likely, is not a slam-dunk proposition. Russia might delay turning the gas pipelines back on until there is an assurance about its central bank’s frozen deposits in Western Europe. There has been chatter from the top of the Organisation for Economic Co-operation and Development (OECD) down that a reparations commission would sequester these.
More broadly, it could be that most European households are not cutting back their spending to the extent assumed in the consensus economic forecasts. Many individuals may have never believed that the high natural gas prices would persist beyond this winter. Then they faced, in effect, a transitory rather than permanent tax rise. Economic theory suggests that such transitory taxes, paid in this case to North American natural gas producers, have much less impact than permanent ones on spending.
There are still the deep ailments of the euro. How can the ECB ever normalize monetary conditions when so much of the monetary base is backed by loans and credits to weak sovereigns and banks (see Brendan Brown, “ECB’s Long Journey into Currency Collapse Just Got a Lot Shorter,” Mises Wire, July 23, 2022)?
In principle, the US dollar, and even more so the Canadian dollar, would lose from peace as they have gained from war. Both have obtained fuel from the boom in their issuing country’s energy sector. In neither country has there been aggregate real income loss due to the economic war—in fact, there has been a gain in the case of Canada. A further positive for the US dollar has been the boom in the US armaments sector—and this should continue beyond a ceasefire.
Peace will not deflect Europe from seeking to diversify its energy supplies away from Russia and to North American gas and to renewables. But we can imagine that in the long-run, Germany could have a comparative advantage in the renewable space; and North America could lose potential sales outside Europe to Russian gas at discounted prices. Russia is widely expected to prioritize a vamped-up construction program for LNG (liquid natural gas) terminals. These will enable the export of its natural gas to world markets.
Bottom line: peace is likely to be a negative for the US dollar. But transcending this influence is the huge issue of how and when US monetary inflation regains virulence.